Maker Of Recalled Pet Food Cuts Jobs

Toronto-based Menu Foods Income Fund cuts 10-15 percent of its workforce and pares senior management salaries as it tries to rebuild operations following massive recall.

TORONTO â€” The Toronto company at the centre of a massive pet food recall sparked by the deaths of several animals earlier this year is cutting jobs and paring salaries of its senior management as it tries to rebuild operations following the high-profile scandal.
Menu Foods Income Fund, the largest maker of wet cat and dog food in North America, said Wednesday it will cut 10 to 15 percent of its 900-plus workforce, or 90 to 140 employees â€” victims of its business disruption since the massive mid-March recall.
Meanwhile, the fund's CEO, who at the time apologized to people who lost their pets but declined to name the supplier behind the tainted pet food, took a pay cut, along with other senior executives.
The recall of up to 60 million tins and packages of pet food was the biggest in the industry's history and was provoked by reports of pets falling ill and some dying of kidney failure after eating its products.
Menu Foods has plants in Emporia, Kan., Pennsauken, N.J. and Streetsville, Ont., just west of Toronto.
In cutting his own compensation by 22 per cent, CEO Paul Henderson said the move was made ''with the objective of 'sharing the pain.' ''
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.
''What happened to Menu Foods and the pet food industry six months ago is unprecedented, and today's announcements about right-sizing and restructuring our business are part of the impact from the largest pet food recall the industry has seen,'' the company said in a statement.
''We were saddened to have to announce the steps taken today to reduce our workforce among other changes. However, these changes were a necessary step to help us continue to rebuild the business.''
The problem at Menu Foods was eventually traced to wheat gluten contaminated with melamine — a coal derivative used in making plastics â€” from a Chinese supplier.
The number of animals affected is unclear, but the trust has said it faces more than 100 class-action lawsuits.
Henderson said at the time of the recall that Menu Foods had stopped using the wheat gluten supplier in question, but refused to name the company, saying U.S. authorities were still investigating and that the contamination could become the subject of legal action.
Menu Foods also 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 about 37 per cent of last year's business by volume.
Guy Beaudin, managing director for management psychologists RHR International, said the management pay cuts are a smart move by a company that ''understands they need to be seen to be much more alligned with what they're asking in terms of sacrifice from other people in the organization if they want to have a chance to have this restructuring succeed.''
CEO pay cuts, he said, are still a relatively rare occurrence, but they are becoming more frequent.
''In general, CEOs are becoming very aware of the negative perceptions that have been created by some of the recent, very public events where CEOs are seen to be taking advantage, if you will, of their organization or their position,'' he said.
''Getting people's commitment is much easier if they feel that the example is being set from the top.''
In another development, the income trust said it will book restructuring charges of just over $25 million, of which $6.2 million entails cash outlays.
The upward adjustment in recall expenses is an extra $10 million, bringing the cost to $55 million ''principally because the volume of customer returns and associated costs are now estimated to be greater than originally anticipated,'' the company said.
Menu Foods has also completed the previously announced sale of its plant in North Sioux City, S.D., which employs about 130 people and 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 stated.
Analysts have said sales are unlikely to normalize before mid-2008. Those following the company said d Wednesday's update was simply that â€” an update meant to keep the public and unitholders informed as Menu Foods works with its bankers to adapt to its new circumstances.
The trust's thinly traded units, valued at over $7 just before the March recall, closed down six cents or 2.6 per cent to $2.26 on the Toronto Stock Exchange on Wednesday.
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