Odwalla Subject of Federal Grand Jury Probe
Odwalla Inc. disclosed Thursday that it is the subject of a federal grand jury investigation into an outbreak of E. coli illness last year that was traced to the company’s unpasteurized apple juice.
Chris Gallagher, a spokesman for the Half Moon Bay, Calif., company, said Odwalla has responded to a subpoena from a grand jury in Fresno and is cooperating with federal investigators. Although the subpoena was issued in January, the company is just now revealing the investigation because the matter began to require more management time and higher legal fees than had been expected, he said.
Gallagher declined to offer further details about the investigation, which the company said focuses on the “events of 1996 and before.”
Word of the probe was contained in Odwalla’s earnings report for its third quarter ended May 31, which showed continuing fallout from consumer skittishness about the company’s products and lingering costs associated with its voluntary $3.8-million recall of many company products.
The company reported an operating loss of $2.1 million, compared with an operating profit of $784,000 for the same period last year. Sales were $13.7 million, 17% below those in the same quarter a year ago.
For the nine-month period, Odwalla had an operating loss of $11.4 million, compared with operating income of $236,000 for the same period in 1996. This year’s sales total $39 million so far, 8% less than in last year’s comparable period.
Last summer, Odwalla was riding a boom in demand for fresh juices, capitalizing on its hip image as a socially responsible company. But in October that growth lost its fizz, when the company’s unpasteurized apple juice was linked to an outbreak of illness caused by a virulent bacterial strain known as E. coli O157:H7.
The tainted juice was blamed for the death of a Colorado toddler and the intestinal illnesses of more than 60 other individuals, mostly children, in California, Washington and elsewhere.
Nine lawsuits were filed in connection with the outbreak; Odwalla said five have been settled. Gallagher said that, to date, all settled suits and other individual claims for medical costs have used 10% of the company’s $27-million insurance pool.
In their statement, Odwalla executives sought to emphasize some positives: Demand for Odwalla products grew 22% in the third quarter, the same growth rate as a year ago. Also, the company recently had its most successful product launch, with the introduction of Future Shake. In the fourth quarter, the company added Summertime Lime to a seasonal line of drinks.
Before news of the investigation was released, Odwalla shares closed unchanged at $11.25 on Nasdaq, down from $19.50 a year ago.
