TORONTO - Menu Foods Income Fund is cutting its workforce by 10 to 15 per cent and raising the estimated costs of its tainted pet-food recall by $10 million as it attempts to turn the corner after a scandal that led to the deaths of numerous of pets.
The pet-food income trust said Wednesday it will book restructuring charges of just over $25 million, of which $6.2 million entails cash outlays. At the end of 2006, Menu Foods had 924 employees.
The upward adjustment in recall expenses to $55 million "arises principally because the volume of customer returns and associated costs are now estimated to be greater than originally anticipated,'' Menu Foods said.
It added that its CEO has reduced his compensation by 22 per cent, "with the objective of `sharing the pain.''' Paul Henderson was paid a base salary of $460,000 last year, along with a $380,000 bonus, $23,600 in long-term incentives, $10,300 in miscellaneous compensation and 134,500 trust units.
Other senior executives and board members will take pay cuts of 17 to 20 per cent.
Menu Foods also said it has completed the sale of its plant in North Sioux City, S.D., which provided 16 per cent of last year's production. The proceeds of the sale to Mars Inc. will be used to repay secured lenders.
In addition to the job cuts in the remaining workforce, the restructuring charges involve writeoffs of inventory, a customer relationship, receivables and idle assets.
"The sale of the North Sioux City facility, the previously announced settlement of certain contractual obligations and the sale of certain other assets, which together generated US$26.3 million, are the initial steps in `right-sizing' the fund's business,'' Menu Foods said Wednesday.
Menu Foods, the largest maker of wet cat and dog food in North America, has been working to repair its image and assess its operations since mid-March, when it fell victim to a massive recall after a number of pets fell ill and some died of kidney failure after eating its products.
The problem was traced to wheat gluten contaminated with melamine from a Chinese supplier.
Since then, Menu Foods has suffered an exodus of customers for its name-brand and private-label products, notably Procter & Gamble, which was said to account for more than one-fifth of its sales. In total, the trust says it has lost customers representing 37 per cent of last year's volume.
The company also faces dozens of lawsuits and analysts have said sales at Menu Foods are unlikely to normalize until mid-2008.
Still, they said Wednesday's update is an attempt by Menu Foods to keep the public informed of its progress as it works with its bankers and lenders to adapt to its new circumstances.
They also said it's too early to speculate about what the future will hold for the company, since this is just one of many steps it will likely have to take.
Menu Foods units, trading at over $7 just before the March recall, were down 2.6 per cent or six cents to $2.26 on the TSX Wednesday, with 8,900 changing hands.
