TORONTO, May 30 (Reuters) - A huge recall of contaminated pet food is likely to cost Canada’s Menu Foods Income Fund MEW_u.TO at least C$45 million ($42 million), even without taking a slump in sales into account, the company said on Wednesday.
Reporting its first-quarter results, Menu Foods described the recall as “one of the largest in North American history.”
“Menu, along with several other pet food manufacturers in the United States, were the victims of a terrible fraud, and the Fund’s results for this quarter reflect the costs,” it said.
“Management estimates that the direct costs of the recall will approximate $45 million, excluding the impact of reduced sales or the costs of any claims or litigation that may exceed the Fund’s insurance coverage.”
Menu Foods recalled a large number of pet foods in March and April after a number of pets died or fell ill. It said the foods contained contaminated wheat gluten imported from China.
Menu Foods reported a net loss of C$17.51 million, or 91.8 Canadian cents a unit, in the quarter to March 31, compared with a profit of C$1.3 million, or 73 Canadian cents a unit, in the corresponding quarter of 2006.
Sales slumped to C$64.5 million, from C$93.9 million in the first quarter of 2006.
Menu Foods said second-quarter sales and results would also be affected by the recall. Its largest customer, a customer that accounted for 11 percent of 2006 sales, has already put future orders on hold, and other orders were also in doubt.
“Management cannot predict the extent to which sales to other customers will return to pre-recall levels, or the timeframe over which this will happen,” it said.
The company declined to estimate other likely costs, including legal costs, but warned of a number of risks, including a heavy dependence on key customers and the lack of long-term sales contracts.