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Despite stock dive, Annie's frozen pizza recall 'relatively insignificant' to business

Despite stock dive, Annie's frozen pizza recall 'relatively insignificant' to business
A frozen pizza recall caused a sharp drop in stock price for Annie's (BNNY), but the hiccup is unlikely to hurt the company's long-term prospects.

On Jan. 22, natural & organic packaged food maker Annie's, Inc. (BNNY) issued a voluntary recall of its rising crust frozen pizza, prompting a significant drop in stock price for the public company. On the day of the recall, the company's price fell nearly 13 percent in after-hours trading, toppling from its Tuesday closing price of $38.47.

Annie's instituted the recall after learning that a third-party supplier had found fragments of metal mesh in its flour and pizza dough. The recall was a voluntary precaution, since no metal had been found in any finished products.

"We are learning what we can from this situation, reviewing and improving safety measures and detection programs at co-manufacturers’ facilities, as well as working with our regulatory agencies," an Annie's spokesperson said in a statement. "We are very thankful there have been no consumer complaints, illnesses or injuries reported to date."

Despite being a relatively minor recall event, the company experienced a sharp drop in price. "The stock reacted pretty significantly relative to the magnitude of the issue," said Scott Van Winkle, analyst at Canaccord Genuity, "because, the day prior, the stock had a very strong move higher." Last week, BNNY's price hit $36, and rallied up to over $38 on Tuesday. "The magnitude of the sell-off really had to do with the rally from the days before," Van Winkle said. (For disclosure: Canaccord Genuity holds an investment banking relationship with Annie's, and was an underwriter for the company's March 2012 IPO.)

Shareholders are closely scrutinizing the performance of the Annie's frozen pizza line, which the company launched in 2012 as a central part of its long-term growth plan.

Van Winkle estimated that Annie's lost about $1 million on product destroyed for the recall, which he called a proportionately minor amount for a company with a $600-million-plus market cap. "It's relatively insignificant to the business in the long run," he said.

To wit, the stock has already rebounded to levels reached late last week, and climbed over $36 by midday Thursday.

Nutrition Business Journal has long had faith in the growth potential for Annie's, and honored the company with a Management Achievement Award in 2011. Annie's also made the list of NBJ's Deals of the Year for 2012 for its successful IPO in March.

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