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Analysts: Odwalla Should Weather Juice Recall, But Questions Remain

November 1, 1996

SAN JOSE, Calif. (AP) _ Helped by its good name, Odwalla Inc., the nation’s leading seller of juice, should be able to weather a voluntary recall after an outbreak of bacterial poisoning, analysts say.

But the analysts, while praising Odwalla’s swift action, say it’s too soon to tell how badly or how long the problem will affect the company’s bottom line and reputation.

``I think there are still a lot of unknowns,″ said Jean-Michel Vallette, an analyst at Hambrecht & Quist in San Francisco. ``A lot has to do with how consumers perceive the company and how it reacts.″

Odwalla’s stock lost more than a third of its value Thursday as the company pulled its wares off grocery shelves in seven Western states and Canada.

The company, based in Half Moon Bay, Calif., issued a nationwide recall on Wednesday of 13 products containing apple juice as officials confirmed more than a dozen cases of E. coli infection. The bacteria, which can cause serious illness and even death, was traced to a batch of Odwalla unpasteurized apple juice, which the company uses in mixed-fruit drinks.

Odwalla’s stock dropped 34 percent Thursday, closing down $6.25 to $12.12 1/2 a share on the Nasdaq Stock Market.

In the short term, the company’s revenues and profits also are likely to suffer as a result of the bacterial outbreak and recall.

At a news conference Thursday, Odwalla founder and chairman Greg A. Steltenpohl said the company had not tallied its losses because it was busy with the recall and helping investigators find the source of contamination.

Vallette, however, estimated Odwalla would lose at least $1 million just in recalled juice. That doesn’t include lost sales or how much the company will have to spend to resolve the problem, he said.

The company’s reserves of $13 million to $14 million should soften the blow, as will its reputation for high quality among consumers.

But Odwalla must continue to tell the public about its actions and cooperate with health authorities, analysts said. Patricia Negron of Adams, Harkness & Hill in Boston was confident the company would.

``In the short term, we’d certainly expect people to avoid these types of products until they have more information,″ she said. ``But we’d expect the company to commit to whatever actions it must take so consumers feel safe going back.″

Odwalla sells its products in Washington, California, Oregon, Colorado, New Mexico, Nevada, Texas and British Columbia. It uses unpasteurized apple juice in 13 of its 25 products. Most of the recalled products _ Mango Tango, for example _ do not have the word ``apple″ in their names.

Washington state health officials said of 15 confirmed cases of E. coli, at least 10 involved Odwalla juice and that they were investigating at least eight other possible cases.

Most of the cases involved children, who are more vulnerable to the bacteria. One boy was hospitalized, but others were not seriously ill.

Analysts were not aware of E. coli outbreaks linked to other juice retailers. In 1993, an outbreak of E. coli was traced to contaminated and undercooked hamburgers served at Jack-in-the-Box restaurants.

That outbreak sickened hundreds of people in the Pacific Northwest and resulted in the deaths of four children.

The fast-food chain’s parent company, Foodmaker Inc., was hard hit by the outbreak, settling more than 90 lawsuits. But industry observers credit the company’s quick acceptance of responsibility for its recovery.

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