Net profit for Beef Products Inc. plunged $70 million in the aftermath of a widespread controversy over its lean beef trimmings, court documents show.
The staggering losses are detailed in the defamation lawsuit the Dakota Dunes-based firm filed Thursday against ABC News, its parent company and six individuals involved with a series of reports by the network between March 7 and April 3.
BPI alleges the network made 200 "false, misleading and defamatory" statements about the company and its product during that 28-day period, causing the public to mistakenly believe the meat was unhealthy and unfit for human consumption. ABC's action, BPI contends, ignited a consumer backlash that led to the company losing nearly 80 percent of its sales.
The 257-page lawsuit, filed in Union County Circuit Court, offers a rare glimpse into the finances of the closely held, family-run business, which has declined to provide such data in the past.
In each of the past three years, BPI's gross revenue exceeded $330 million, while its net profit totaled more than $115 million, according to the lawsuit.
"Prior to defendants' disinformation campaign, BPI was poised to have another successful calendar year," the suit says.
Before the ABC broadcasts in question began, BPI said its gross revenue averaged $8.6 million per week, resulting in operating profits averaging $2.3 million per week.
Sales quickly dried up, however, after the ABC reports, which BPI claims pressured many of its largest customers to stop selling its lean finely textured beef. For the week of March 25, after several large beef processors, supermarket chains and restaurants dropped the product, BPI's revenue tumbled 66 percent, to $5.9 million, and its bottom line went into the red, with an operating loss of $368,000, according to the lawsuit.
In the 26 weeks after the ABC reports in question started, BPI said total revenue dropped by $140 million and profits fell by $70 million. The company is losing an average of $563,000 per week, according to the lawsuit.
In the suit, BPI places its lost profits due to ABC's actions at $400 million over a five-year period. The time frame is standard for cases in which lost profits are alleged, according to the company.
Craig Letch, BPI director of food safety and quality assurance, said the $400 million estimate is "based on assumptions regarding how BPI would have performed if the defendants had not engaged in the alleged misconduct and how BPI is likely going to perform as a result of the defendants’ m isconduct. Both scenarios require a series of assumptions regarding pounds sold, revenue, costs, etc."
Filing its defamation case in South Dakota, one of just 13 states with food disparagement laws, allows BPI to ask for up to three times its actual damages, or $1.2 billion. The company also is seeking unspecified punitive damages, lawyer fees and court costs.
LFTB is made from the fatty trimmings left over from roasts, steaks and other cuts of beef. BPI collects the trimmings from large beef processors such as Tyson Foods. ABC's actions, BPI alleges, have cost the company more than $180 million in lost value from the now-idled high-tech equipment and machinery used to collect the trimmings and separate the bits of lean beef from the fat.
After demand for LFTB fell off the cliff, BPI was forced to shut down its plants in Waterloo, Iowa, Garden City, Kan., and Amarillo, Texas, and cut more than 650 jobs. The only plant still open, in South Sioux City, is operating at reduced hours and production levels.
About 86 BPI employees in South Sioux and Dakota Dunes were laid off in May. Letch said Friday the company does not envision any further job cuts.
Despite the heavy financial losses sustained in recent months, BPI also is not contemplating filing for Chapter 11 bankruptcy protection...
Source: Argentine Beef Packers S.A.
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