Tasty Baking: Reports 3rd Quarter 2010 Financial Results

Philadelphia / PA. (tb) Tasty Baking Company reported net sales of 40,4 million USD for its third quarter ended September 25, 2010; a 7,4 percent decrease from the 43,6 million USD reported for the third quarter last year. For the third quarter of 2010, the company reported a net loss of 4,9 million USD compared to a net loss of 0,5 million USD in the third quarter of 2009. On a pre-tax basis, the third quarter of 2010 included 4,4 million USD of additional expenses related to the transition to and optimization of the new manufacturing and distribution facility at the Navy Yard, as well as 0,7 million USD in post-employment costs associated with the restructuring of the company´s Philadelphia operations and realignment of its corporate workforce. On a pre-tax basis, results for the third quarter of 2009 included accelerated depreciation of 1,3 million USD and a 0,7 million USD reduction in post-employment costs associated with the transition to the company´s new manufacturing facility at the Philadelphia Navy Yard.

Charles P. Pizzi, president and chief executive officer of Tasty Baking Company: «The third quarter of 2010 proved to be challenging for us in terms of optimizing the new facility and those challenges limited our ability to drive top line growth during the first half of the quarter. During the third quarter, the production limitations negatively impacted gross sales by approximately 4,0 million USD. By the end of the third quarter of 2010, virtually all of these production limitations had been resolved and as of today they are having no material impact on the business. While we have removed those barriers to growing the top line, we continue to focus on completing the optimization of the Navy Yard facility during the fourth quarter of 2010».

Results of Operations

Gross sales in the third quarter of 2010 decreased 5,8 million USD or 7,9 percent versus the comparable period in 2009. The reduction in gross sales was driven by a 7,4 percent decline in total volumes, primarily driven by lower sales to direct customers, third-party distributors, and moderately lower sales in the Company´s Route territories, caused in large part by production limitations at the Philadelphia Navy Yard facility, which negatively impacted gross sales by 4,0 million USD. Total net sales declined 7,4 percent in the third quarter of 2010 compared to the prior year period driven by the decline in volume and production limitations, partially offset by higher net sales realization resulting from lower promotional costs.

Total cost of sales, excluding depreciation, rose 4,2 percent or 1,2 million USD despite a unit volume decline of 7,4 percent in the third quarter of 2010 as compared to the same period a year ago. The increase in cost of sales was driven by the impact of the 4,4 million USD in transition related costs; 3,5 million USD of which were classified as a component of cost of sales. Also driving the increase was a 1,8 million USD increase in the cost of key ingredients and packaging, as well as 1,5 million USD in rental expense associated with the Philadelphia Navy Yard facilities, 1,4 million USD of which was non-cash. Partially offsetting these increases was a 2,2 million USD decline in other fixed manufacturing costs as compared to the same period a year ago resulting from lower utility and employee costs, combined with the impact of lower sales volumes and beneficial sales mix.

Gross profit declined 3,6 million USD in the third quarter of 2010 as compared to the third quarter of 2009. This decline was driven by the increase in cost of sales and the impact of lower sales volumes, partially offset by a 0,8 million USD decrease in depreciation.

Selling, general and administrative expense increased 0,7 million USD in the third quarter of 2010 versus the comparable period in 2009. This increase was primarily due to the expenses incurred in connection with the transition to and optimization of the production facility at the Philadelphia Navy Yard.

Paul D. Ridder, senior vice president and chief financial officer: «While the recent volatility in the commodities market has presented challenges, we remain committed to the strategy of managing the business to minimize risk. Additionally, we continue to evaluate the proper level of pricing and promotion as we attempt to recover profits absorbed by higher ingredient and packaging costs. Despite these challenges, we believe that Tastykake is well positioned with its high quality products and superior service to take advantage of opportunities presented both by the new facility and the current competitive environment».