A large-scale recall of all Annie’s frozen pizzas has raised concerns over the company’s ability to extend its brand into new categories, analysts have warned.
The company announced late yesterday (22 January) that it was initiating a recall of its frozen pizza products over concerns that flour supplied by a third party would have been contaminated with fragments of flexible metal mesh from a faulty sifter.
There have been no injuries or illnesses reported and the group has begun sourcing flour from a different supplier.
However, Janney analysts have warned the news could highlight a significant management issue.
“Brand extensions are at the core of the Annie’s story and a company in its relatively nascent stage can ill afford a misstep of this magnitude,” the analysts wrote in a note to investors.
“The most bullish forecasts presume that successful entry into new categories is a given and ignore our concerns regarding upfront expenses, pricing pressure and product rotation. And with last night’s news, we now see increased execution risk and the likelihood of downward earnings revisions for FY14 given the anticipated contribution from pizza.”
The company anticipates the financial cost of the recall will be absorbed in the third-quarter, when the group generated net sales of US$37m. However, the majority of these costs will be recouped through insurance recoveries.
Annie’s shares were down 4.47% at 2.45pm (GMT).