Bleak Forecast Sends Aurora Stock Plunging

Shares of Aurora Foods Inc. touched a record low Tuesday after the company warned that it will earn less in the fourth quarter than forecast because it cut prices on Aunt Jemima frozen waffles and spent more to boost inventories of its Duncan Hines cake mix.

The stock closed at $9, down $2, in New York Stock Exchange trading after falling as low as $7.69, its lowest price since Aurora’s $21-per-share initial public offering in June 1998.

The company said it will earn 28 cents to 31 cents a share in its fourth quarter, less than the average forecast of 37 cents of four analysts polled by First Call Corp.

The San Francisco-based company added two waffles to each eight-count Aunt Jemima package and cut prices to remain competitive after Kellogg Co. took similar actions with its Eggo waffles. Demand for frozen waffles has declined as more convenient breakfast foods such as bagels have gained in popularity.

“There’s a problem here with management’s credibility,” said Goldman, Sachs & Co. analyst Nomi Ghez, who took Aurora off her “recommend list” and rated it “market perform.” “They’ve been very adamant up until now that they would deliver expected earnings,” even as sales are hurt at U.S. grocers, she said.

Ghez reduced her 1999 earnings estimate to 78 cents a share from 86 cents, and her 2000 forecast to 90 cents from $1.13.

The company said increased interest expense from higher-than-expected working capital caused by the roll-out of new waffle packaging and products is squeezing profit as well.

Earnings have also been hurt by a decision to carry extra inventory of Duncan Hines cake mixes as the company transferred production to its contract manufacturer from the prior owner’s facility, Aurora said.

The company, which also makes Van de Kamp’s and Mrs. Paul’s frozen seafood, Celeste frozen pizzas and Log Cabin syrup, seeks to boost per-share earnings 15% to 20% next year. A later Easter and Lent season--a peak baking-mix and seafood sales period for the company--will lead to a shift in earnings from its first quarter to its second, it said.

Aurora has been trying to beef up its stable of convenient foods that target the swelling ranks of consumers who don’t have much time to prepare meals.

The company in September bought the Lender’s Bagels business of Kellogg in an attempt to revive the struggling brand. In April it purchased Sea Coast Foods Inc., a maker of quickly prepared skillet meals such as chicken stir fry.

Aurora is finding that some of its convenient foods aren’t as convenient as consumers would like. Frozen waffles, which take less than five minutes to make, are scoring less with those who prefer to eat their breakfast on the go. In an attempt to woo more customers, Kellogg and Aurora have reduced the average price per box to 99 cents from $1.45, analysts said.

“The problem with waffles is that you need messy accessories” such as syrup and butter, said Banc of America Securities analyst David Goldman, who cut his rating to “market perform” from “buy.”

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WAFFLE TROUBLE

Aurora Foods’ stock hit a record low after warning of lower quarterly earnings. The company was forced to cut prices on frozen waffles to stay competitive. Monthly closes and latest:

Tuesday: $9, down $2 on the NYSE.

Source: Bridge News