When frozen-food maker Overhill Farms Inc. in August began considering strategic alternatives, including the sale of the company, its stock jumped 16 percent in one week.

But after months of waiting for a deal, some investors now say the company is skating on thin ice.

The market for frozen foods has turned frigid and high shipping costs from its line of Boston Market products have squeezed profits for the Vernon manufacturer.

Fort Lauderdale, Fla., investment firm Cordoba Asset LLC last week sent an open letter to Overhill’s board calling on it to scrap all options except a sale, blaming management for its poor earnings and low share price.

The letter, signed by Cordoba Managing Director Vito Garfi, said the company has not been making nearly as much food as it could, is not attracting enough new business and hasn’t improved profitability quickly enough.

“We have grown confident that value can be maximized for the benefit of all shareholders only through the sale of the company as a whole,” the letter said.

Cordoba owns 250,000 shares of Overhill’s stock, or about 1.5 percent of shares outstanding.

The letter said the investment firm had discussed its analysis with other shareholders and that its sentiments are “widely shared.”

Overhill spokesman and board member Alexander Auerbach said no one from Cordoba had ever contacted the company before sending the letter. And he disputed the statement that Overhill has failed to attract new business, pointing out the company recently won Ralphs parent Kroger Co. in Cincinnati as a customer for its Boston Market products.

“This gentleman has never had previous contact with the company at all,” Auerbach said. “We knew nothing about him. His letter indicates he doesn’t have a full understanding of the business strategy.”

The letter, which was published in a press release March 18 had little effect on the company’s shares, which trade on the New York Stock Exchange at about $4.

Shipping costs

Overhill makes frozen fare for grocery stores and fast-food restaurants, and specialty lines.

This is a tough time to be in that business. Chicago research firm Mintel projects the frozen-food market will post annual declines through 2016 as consumers seek culinary options they perceive as healthier and less expensive.

Last year, the company enlisted Minneapolis investment bank Piper Jaffray & Co. to explore options, including the sale of the company. While Overhill has received multiple inquiries, no deals have been announced.

In response to the Cordoba letter, Overhill Chief Executive James Rudis released a statement saying he sees no reason to focus only on a sale.

Rudis said he first heard about the letter during a meeting in New York with Piper Jaffray and a participant in a potential transaction. Executives would not say what kind of deal they were discussing. The release disrupted the meeting and had a negative effect on the discussions.

“All of this could have been avoided if Cordoba Asset had simply contacted us to discuss its perceptions,” he said.

The Business Journal left a voicemail for Garfi requesting comment. A business partner of Garfi said that Garfi would not comment.

Cordoba’s letter followed a weak earnings report from Overhill in February. The company reported first quarter net income of $330,726, or 2 cents a share, a 70 percent decrease from the same period the previous year. Revenue was $49.9 million, up 5 percent from the previous year.

Gross margins, a measure of profitability from the company’s products, fell from 9.9 percent of sales to 7.1 percent. The company said some of that drop was because Overhill’s customers are not willing to pay enough for its products. Executives also blamed increased commodity prices and extra spending to ship the Boston Market line, much of which has to be transported from Vernon to the East Coast.

Auerbach said the company is trying to bring those costs down, possibly by adding a production plant on the East Coast or by using a subcontractor. It currently has two factories in Vernon a couple of blocks apart that employ 700 people. About 100 additional employees work in its front offices.

Steve Horowitz, president of food industry consulting firm Stephen Horowitz & Associates in Beverly Hills, said Overhill still has the potential to increase shareholder value on its own by boosting sales and profitability without being sold. That would depend on improving its marketing.

“There’s the ability to sell a lot more than they’re selling,” he said. “Marketing has never been their strength.”

Horowitz said the company could be an attractive acquisition target because of the high-profile Boston Market line, especially for a large competitor such as ConAgra Foods Inc. in Omaha, Neb.

Shareholder Lenny Dunn, a senior vice president at Freedom Investors Corp. in Brookfield, Wis., dismisses some of Cordoba’s complaints.

He said Cordoba’s letter unfairly compared gains from relatively small Overhill to gains from frozen-food giants such as ConAgra. He also said Garfi would not return his phone calls.

However, Dunn, whose firm owns 500,000 shares, or 3 percent, of Overhill, is also frustrated with the company’s performance, saying it has been particularly slow to act on the freight cost issue.

“They’ve been aware of it for some time,” he said. “You have to do some planning.”

Dunn said he would not be opposed to the sale of the company and added that whatever type of transaction the company is considering, it needs to make a decision soon.

“Whatever deal they’re doing is taking interminably long,” he said.

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