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Quaker Pledges To Rehabilitate Ailing Snapple

November 9, 1995

The spotlight was on Snapple at the annual shareholders’ meeting of Quaker Oats Co. Wednesday. And if the glare was often withering, the company sees better days ahead.

Analysts estimate that the Snapple Beverage line of iced teas and fruit drinks, which Quaker acquired for $1.7 billion last November, will finish the calendar year with a loss of between $35 million and $40 million _ a source of anger for shareholders. ``This has cost all of us a lot of money,″ one said. ``We are not happy with results so far,″ he added, drawing applause.

But Quaker Chairman William D. Smithburg promised to lead Snapple into the black next year. ``We believe we now have the lead times, the strategies and the effective communication with distributors,″ he said. ``Wait and watch for ’96 and see what we can do.″ He predicted double-digit sales growth for the brand.

Mr. Smithburg dismissed a suggestion that Quaker spin off either its packaged foods or beverage businesses to shareholders. He also indicated that the current $1.14 annual dividend on common shares wouldn’t increase anytime soon.

The meeting took place in a packed hotel ballroom adjacent to Quaker’s Chicago headquarters. Mr. Smithburg, who alternately sipped from bottles of Snapple and Quaker’s sports drink Gatorade during the two-hour session, said new advertising is in the works for Snapple, as well as plastic bottles and multipacks of the beverage’s glass bottles.

While he wasn’t specific about forthcoming commercials, Mr. Smithburg said spokeswoman Wendy Kaufman wouldn’t be in them, although she remains on Quaker’s payroll for promotional work. He also indicated that the company was making headway in smoothing relations with Snapple’s independent-minded distributor network, which will be vital to the brand’s market penetration and expansion.

After several shareholders expressed their disappointment with Snapple’s performance, Mr. Smithburg commiserated by noting that much of his net worth was in Quaker stock, which has languished in the mid-30s most of the past year. Quaker shares now trade at around $34 on the New York Stock Exchange.

Overall, Mr. Smithburg forecast double-digit earnings gains for Quaker and record profit margins from its U.S. grocery business in 1996. But ``our top business priority is to deliver an excellent beverage-season performance for Snapple and Gatorade,″ he said. ``I am committed to delivering shareholder value from Snapple.″

Asked afterward when Quaker could tell if its strategy for reviving Snapple was working, Mr. Smithburg said the company probably wouldn’t know that until next summer. He said the company expects Gatorade, its largest and most profitable product line, will exceed $1 billion in domestic sales for the first time this year.

A proposal from gadfly Evelyn Y. Davis to have Quaker identify all executives on contract who are paid more than $100,000 annually won a surprisingly strong 12 percent approval in proxy voting _ perhaps an indication of shareholder unhappiness with top management.

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