Aug

Today, I made a ham sandwich for lunch. As I took a bite, I flipped on the TV and heard the announcer say: “Folks, you may want to put down that sandwich you’re eating for lunch – some more deli meats have been recalled in the tainted meat scandal.”

He named a brand sold at Costco and it was the same as the one in my sandwich. “Oh migawd,” I thought, “I’m going to be sick. How silly of me for relying on the list of recalled products published the day before.”

But upon further investigation of the packaging in the refrigerator, it turned out the product I had was a similar, but different line under the same brand name. So it looks like I’m off the hook (I hope), although you never know if in the days ahead they’ll be adding some new meat products to the list that friends, relatives and myself may have already consumed (symptoms can take over a month to appear).

Media coverage of the tainted meat scandal seems a little soft on Maple Leaf, doesn’t it? Most of the reports I’ve seen focus on how well the company is handling the crisis, with senior executives not hiding from the media and offering apologies. What!!??

What about this monumental tragedy of lives lost and hundreds of others who became seriously ill? What about some investigation into how it happened? Why did the food inspection system breakdown?

Anyway, Maple Leaf’s stock is down about 25% over the past five days or so. Some brokerage analysts are recommending buying on the dip. In a year or so, they say, this calamity will be largely forgotten and Maple Leafs’ stock will come back – as usually happens in these cases.

Besides, the company’s chief financial officer has said they have food liability insurance – so presumably they are shielded to a certain extent from the costs of the recall and law suits. Indeed, as the CFO says, it still has not yet been conclusively established that Maple Leaf was the source of the contamination: “there’s no evidence of Listeria contamination in our products beyond the production lines originally under investigation,” he said.

The lengthy list of products under recall highlights Maple Leaf’s market dominance (augmented in 2003 by the acquisition of rival Schneider Foods). One news report said industry experts estimate the company produces 80% per cent of the country’s deli meat. And the company is more in the nature of a diversified food conglomerate with many different products inside and outside the meat-products market.

Still, the shares have meandered between $5 and $20 over the past ten years and the dividend currently is meager, less than 2%. Lastly, the stock has been in a downtrend during the past year as the company wrestles with rising input costs. Year over year, the decline in stock price is 50%.

Larry MacDonald