Not So Nuts: K Supports New Bill

General Mills (GIS - Analyst Report), Kraft Foods (KFT - Analyst Report) and the Kellogg Company (K - Analyst Report) are supporting legislation aimed at preventing tainted foods from entering the food supply. The 3 companies are supporting a bill introduced by Dick Durbin (IL-Democrat) and Judd Gregg (NH-Republican) into the Senate.

The bill (known as Food Safety Modernization Act) would give the FDA additional authority to mandate food recalls and food safety plans for manufacturers. This is a departure from the industry's prior stance of self-regulation and FDA inspections rather than the proposed mandated preventive measures.

The recent outbreak of salmonella from peanut paste supplier Peanut Corporation of America has negatively impacted the earnings of several food companies. The salmonella contamination sickened over 600 people and is linked to 9 deaths. Investigations revealed that the Peanut Corporation of America shipped salmonella-tainted peanuts at least a dozen times in the last two years.

For example, the Kellogg Company recalled certain Austin and Keebler branded peanut butter sandwich crackers and certain Famous Amos and Keebler branded peanut butter cookies. The recall was expanded in late January and February 2009 to include Bear Naked, Kashi, and Special K products, which were impacted by that same supplier's ingredients.

The recall costs negatively impacted Kellogg's earnings by $0.12, of which $0.06 was incurred in the 4th quarter of 2008 and the other $0.06 is expected to impact the 1st quarter of 2009. In addition, Kellogg has been named in at least 6 lawsuits.

On the other hand, Hershey (HSY - Analyst Report) was not affected by the outbreak, since the company does not purchase any peanut butter, peanuts, or peanut products from the Peanut Corporation of America. Peanut butter for Reese's Peanut Butter Cups is made in Hershey's own facilities under the company's own oversight.