Juice Left in Odwalla : Company Posts Loss, but Sales and Cash Up Despite Recall

By MARTHA GROVES

Jan. 8, 1997 12 AM PT

TIMES STAFF WRITER

Demonstrating that reports of its impending demise were exaggerated, juice maker Odwalla Inc. on Tuesday reported a $4.8-million loss for its first fiscal quarter but also revealed a surprisingly strong balance sheet.

The Half Moon Bay, Calif., company said sales rose 14% in the quarter ended Nov. 30 to $14.1 million. In the first fiscal quarter of 1996, the company reported a loss of $120,000 on sales of $12.4 million. Odwalla also noted that it had about $9 million in cash at the end of this year’s first quarter.

Most of Odwalla’s loss was attributed to $3.8 million of costs associated with a voluntary recall of most of the company’s products beginning last Oct. 30. That was after federal and state authorities linked several intestinal illnesses in Colorado, Washington, California and elsewhere to the company’s unpasteurized apple juice. The death of a Colorado toddler was attributed to the outbreak, caused by a virulent bacterial strain known as E. coli O157:H7.

Since then, the company has reformulated its products and, in the case of apple juice, begun using a process called “flash pasteurization” to ensure safety. Chief Executive Stephen Williamson said Tuesday in an interview that the company is making progress toward restoring the confidence of retail outlets and customers.

“We have strong consumer acceptance, sales continue to grow, and our legal situation each week seems better,” Williamson said. The company, he noted, is working toward settlement of half a dozen personal injury or class-action claims and a lawsuit alleging fraudulent business practices.

In trading on Nasdaq, Odwalla shares eased 12.5 cents to $12.75. The quarterly loss was reported after the market’s close.

Robert Kruger, an investment analyst with Van Kasper & Co., a San Francisco brokerage firm that has helped underwrite Odwalla stock offerings, described the company’s loss as “significant but tolerable” and said the company “appears to be back on track.

“Many people thought this crisis would destroy the company,” he said. “It hasn’t done that. They’ve weathered the immediate crisis.” The next step, he said, will be to get costs under control and recapture sales momentum “so that the company cannot only survive but prosper.” Kruger said he expects the company to report losses for possibly several more quarters.

Hank Wilson, with Hambrecht & Quist, another Odwalla underwriting firm in San Francisco, said “you’re not going to see this company retrench. It will continue to expand into new markets. Awareness of its brands has increased, if not for the best reasons.”

Despite the optimistic outlooks, it seems inevitable that life at Odwalla will henceforth be divided into two distinct segments: before the recall and after the recall.

Before the recall, the company was developing a devoted following of customers drawn to its fresh juices and breezy image as a socially responsible company touting “juice for humans” and “drink it and thrive.” The company’s “vision” statement, developed by employees, is a poem:

Odwalla

a breath of fresh

intoxicating rhythm

living flavor

soil to soul

people to planet

nourishing the body whole

Odwalla was founded in 1980 by Greg Steltenpohl, a musician and Stanford University environmental science graduate, and a couple of friends, who began squeezing fresh orange juice in a backyard shed to generate some income.

They named the company, pronounced OH-dwalla, after a Chicago ensemble’s musical piece about a mythical leader; products were delivered in old Volkswagen vans. Originally based in Davenport, a funky coastal town north of Santa Cruz, Odwalla’s production moved in 1993 to a state-of-the-art plant in Dinuba, 30 miles southeast of Fresno. The headquarters office is in Half Moon Bay.

Soon after the recall, Odwalla established a panel of nutritional and epidemiological experts in an effort to improve the safety of its products. The company raised the ire of rival fresh juice makers when it stated that E. coli was not just an Odwalla problem but a problem shared by the entire industry. Other manufacturers said that unfairly tainted the group of mostly small family-run companies that still make unpasteurized, fresh juices.

Federal officials in November mounted an investigation of Odwalla’s plant and practices but have yet to pinpoint a cause of the E. coli outbreak. The harmful O157:H7 strain is found in the intestinal tracts of cattle and deer and can be transmitted through fecal matter. Epidemiologists in the past have expressed concern that apples picked off the ground could be culprits in the handful of recent E. coli outbreaks associated with fresh juices or ciders.

In early December, Odwalla announced that it would begin using a process called “flash pasteurization” for its apple juice and would return the product to store shelves. Odwalla continues to sell unpasteurized citrus-based juices.

Several days later, the U.S. Food and Drug Administration held hearings in Washington about juice safety and concluded that requiring pasteurization of apple juices would be too strong a measure.

Rather, it decided that “good hazard control” at plants and in orchards would be the best course, said Arthur Whitmore, a spokesman for the agency in Washington. But if other companies experience the same problem as Odwalla, Whitmore added, “we can never say [forced pasteurization] is completely off the boards.”

Most of Odwalla’s big accounts--notably Safeway grocery stores, Price/Costco, Wild Oats and Whole Foods--continue to sell Odwalla products and report little negative feedback from shoppers.

“Their sales seem to be recovering,” said Genevieve Kerr, a spokeswoman for Whole Foods’ nine Los Angeles-area stores.

After the outbreak, Whole Foods began requiring pasteurization of all apple juices on its shelves. “We have not had any significant feedback from the move to require pasteurization,” she said.

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Recall Losses

Odwalla Inc. reported a hefty first-quarter loss related to an outbreak of E. coli illness, but analysts said the company has put most of the bad news behind it and is poised to grow. Quarterly earnings, in millions of dollars:

1995

First: .126

Second: .135

Third: .424

Fourth: .311

1996

First: --.120

Second: --.070

Third: .522

Fourth: .301

1997

First*: -$4.84 million