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Analysts Praise Odwalla’s Quick Recall; Cautious About Long-Term Effect

November 1, 1996

SAN JOSE, Calif. (AP) _ Odwalla Inc., the nation’s leading seller of fresh juice, got high marks from analysts Thursday for quickly recalling more than half its product line after an outbreak of bacterial poisoning.

But its stock lost more than a third of its value, and industry observers said it was too soon to tell whether the E. coli outbreak in Washington state linked to Odwalla will have a lasting effect on the company, which has enjoyed a healthy image and reputation for quality.

``I believe the company, from what I can tell so far, is doing a great job with regard to handling the situation,″ said Robert Kruger, an analyst at Van Kasper & Co. in San Francisco.

``But whether this is an isolated incident or has something to do with their processing, which may have longer-term ramifications, we don’t know yet,″ he said.

The company, based in Half Moon Bay, Calif., on Wednesday issued a nationwide recall 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. Jean-Michel Vallette, an analyst at Hambrecht & Quist in San Francisco, estimated that Odwalla would lose at least $1 million just in recalled juice.

That doesn’t include how much Odwalla might have to spend to track down and solve the problem or lost sales, not just of the recalled types of juice but others that don’t contain any apple.

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

``The attitudes have been very positive toward the product, the brand, and what the company stands for,″ Vallette said. ``That will help, but that’s not enough.″

Odwalla, analysts said, must keep being open about the outbreak and cooperative with health authorities. Patricia Negron, an analyst at Adams, Harkness & Hill in Boston, was confident they would be.

``(In) a food company, these types of issues do arise, and given their product is unpasteurized, they are at higher risk for something like this to occur,″ she said. ``But we certainly expect management to take whatever steps necessary to make sure it won’t happen again.″

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. The best example in recent years of a similar problem came in 1993 when an outbreak of E. coli was traced to contaminated and undercooked hamburgers served at Jack-in-the-Box restaurants.

That outbreak, however, 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 Foodmaker’s eventual recovery.

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