March 19 (Bloomberg) -- Menu Foods Income Fund dropped 25 percent after it recalled dog and cat food sold under various brand names following 10 animal deaths in the U.S.

The recall of wet-style food sold under national brands such as Iams and Eukanuba among others and retailers' own names will cost C$30 million ($25.5 million) to C$40 million, the Streetsville, Ontario-based company said last week. Nine cats and one dog died in connection with products made at Menu Foods's Emporia, Kansas, plant, the U.S. Food and Drug Administration reported March 17.

Menu Foods said complaints surrounding the kidney failure in pets eating the food coincided with the use a new ingredient, which has been discontinued. The recall amounts to about 1 percent of the pet food sold in the U.S., said Stephen Sundlof, director of the FDA's Center for Veterinary Medicine.

It's likely more pet deaths will be attributed to the products as information emerges from the probe, Sundlof said in a telephone conference call today. ``We anticipate those numbers will increase as the investigation continues.''

Menu Foods said it failed to identify anything wrong with the items. One customer, accounting for 11 percent of the company's annual revenue, put orders for cuts-and-gravy pet foods on hold, it said.

Sales Decline

``We are concerned about the magnitude of the sales decline that could materialize if the source of the problem is not identified and resolved in a timely manner,'' Carolyn Dennis, a Toronto-based analyst with National Bank Financial, said in a note to clients today.

Units of Menu Foods slipped C$1.35, or 25 percent, to C$4.15 at 4:10 p.m. in trading on the Toronto Stock Exchange. Earlier, they fell as low as C$3.02, the lowest value since Nov. 22, 2005, and a record percentage decline.

On March 16, the shares dropped C$1.90, or 26 percent, after the company disclosed the recall. Menu Foods, an income trust first listed on the exchange in May 2002, lost C$63.3 million in market value as of the close of trading today since trading was halted three days earlier.

``We have yet to identify what the problem is,'' Menu Foods spokeswoman Sarah Tuite said in a telephone interview today. ``We've tested the ingredient extensively.''

Tuite declined to identify the suspect ingredient and wouldn't name suppliers or customers.

The affected pet food consists of cans and pouches of cuts- and-gravy style food made at the Kansas plant between Dec. 3 and March 6. Retailers including Ahold USA Inc., Kroger Co., Safeway Inc., Wal-Mart Stores Inc., PetSmart Inc., and Pet Value Inc. sell the products, the FDA said.

Menu Foods recalled 46 retailer-brand dog foods and 37 cat brands over the suspected ingredient, which was identified as wheat gluten, Dennis said. She reduced her rating on the units to ``underperform'' from ``sector perform.''

FDA Investigation

The FDA's probe is focusing on wheat gluten, although other ingredients such as vitamins and minerals could be the cause, Sundlof said. Ingredients may have been exposed to contaminants such as mold, lead, arsenic and other chemicals, he said.

``It's likely a contaminant that somehow got introduced into the process by mistake,'' Sundlof said.

Iams, Eukanuba, Pet Pride, Paws, Total Pet and Nutro are among some of the brands affected by the recall of certain pet- food items, the company said on its Web site.

Nestle SA said it recalled its 5.3-ounce Purina Mighty Dog pouches of dog food in the U.S. None of its Canadian Purina-brand pet foods are affected by the recall, the company said in a CCNMatthews release.

Menu Foods Income Fund went public by selling units at C$10 each to buy 51 percent of the assets of Menu Foods Ltd. Income trusts avoid paying most taxes because they pay out most of their cash flow to unit holders.

The trust suspended payouts in December 2005 to conserve cash after a rise the Canadian dollar reduced the value of U.S. sales and a large customer reduced orders.

Further information on the brands affected can be found at http://www.menufoods.com/recall or by calling 1-866-895-2708.

To contact the reporter on this story: Kevin Bell in Toronto at kbell2@bloomberg.net

Last Updated: March 19, 2007 17:21 EDT