Japanese officials order Snow Brand to close another milk plant

TOKYO (Reuters) -- Scandal-tainted Snow Brand Milk was dealt a fresh blow on Wednesday, when local authorities ordered it to close a plant in northern Japan after finding bacteria that may be linked to a mass food-poisoning outbreak.

The widening scandal looks set to erode the firm's already weakened brand image and earnings, although analysts say Snow Brand's bottom-line strength of low debt and a solid capital base should cushion some of the pain in the long run.

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Health authorities in northern Hokkaido prefecture said they had detected toxin produced by a bacteria in preserved samples of powdered skimmed milk produced at Snow Brand's Taiki plant on April 1.

A Snow Brand spokesman said the bacteria may have entered the milk as a result of a three-hour power failure on March 31, which left raw milk standing in high temperatures.

Part of the powdered skimmed milk produced on April 1 was recycled into another type of powdered milk which was shipped to its plant in Osaka, western Japan, on June 20, the company said.

That was shortly before Japan's worst-ever food-poisoning outbreak there that left more than 14,000 people ill after drinking Snow Brand milk products.

The latest health scare at Japan's biggest dairy producer brought further misery to the company's share price, knocking it down 3.18 percent to 426 yen by the close. In July, its shares hit a low of 382 yen in the wake of the scandal, 38 percent down from a year high of 619 yen on June 21.

The order to indefinitely close the Taiki plant, whose operations had been halted by the company since August 19, suggests the company's battered brand image could suffer further.

"Snow Brand will have to endure a further fall in its branding power," said Akito Koizumi, a Tsubasa Research Institute analyst, adding the company would suffer poor earnings this year and possibly the following year.

"Our sales condition is severe and we are seeing no signs of recovery," said the company spokesman, adding current sales of its milk products remained only 20 percent of peak levels.

Last Wednesday, Snow Brand said it posted a parent net loss of 11.2 billion yen ($104 million) for the April-July period due to the scandal, which forced it to close its 21 milk-producing plants for hygiene inspection by third-party organizations from July 12.

In July alone, sales were down 76.7 percent from a year ago as a number of retailers pulled its products off their shelves.

Earlier this month, it resumed output at 20 plants after Health Ministry inspections found them to be safe. The exception was its Osaka plant, which has remained closed.

Still, Koizumi said he did not expect Snow Brand to go under due to the scandal, which has led to the resignation of its president and seven other executives.

"The financial strength of the Snow Brand group remains solid and I don't really think Snow Brand's shares will be priced under its rival Morinaga Milk Industry," he said.

The nation's third biggest milk product maker Morinaga ended the Wednesday session down one yen at 290 yen, while second-biggest producer Meiji Milk Products Co was down 3.2 percent at 484.

Neither firm has gained much from Snow Brand's woes. Morinaga shares have edged down 1.7 percent and Meiji's have dropped 16 percent since the scandal erupted at the end of June on worries over a fall in overall milk consumption.

Snow Brand's debt-to-equity ratio stands at a relatively healthy 2.48, against Morinaga's 3.03 and Meiji's 3.45, according to Reuters Securities 3000.

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