Tasty Baking: Reports Q1/2010 Financial Results

Philadelphia / PA. (tb) Tasty Baking Company reported net sales of 43,1 million USD for its first quarter ended March 27, 2010, a 6,6 percent decrease from the 46,2 million USD reported for the first quarter last year. Sales performance in the first quarter of 2010 was affected by the company´s ability to fulfil orders due to an oven fire at the aging Hunting Park manufacturing facility in February, severe winter weather, and transition related production and distribution issues at the new facility in the Philadelphia Navy Yard. For the first quarter of 2010, the company reported a net loss of 3,9 million USD compared to a net loss of 0,1 million USD in the first quarter of 2009. On a pre-tax basis, results for the first quarter of 2010 and 2009 included accelerated depreciation of 2,7 million USD and 1,3 million USD, respectively. In addition, the first quarter of 2010 contained 2,9 million USD, pre-tax, of additional expenses related to the need to maintain two production facilities simultaneously in Philadelphia as well as the costs related to the transition of production and distribution to the new facility at the Navy Yard. Also, the company recorded 0,5 million USD in severance expense in the first quarter of 2010 primarily related to a reorganization of the Sales department.

Charles P. Pizzi, president and chief executive officer of Tasty Baking Company: «The first quarter of 2010 was a challenging period for us. We had a confluence of events that severely limited our ability to fulfil existing orders and meet demand in the market, including an oven fire at our Hunting Park facility, extreme winter weather, and production line issues tied to the transition to the new bakery at the Philadelphia Navy Yard. In addition to the impact of unfulfilled demand, during the quarter we also incurred approximately 2,9 million USD in transition related expenses. While category sales in our core markets were down in the first quarter of 2010 as compared to the prior year, we were once again able to marginally outpace the category.

Currently, we have five of seven production lines transitioned to the new facility. We remain focused on completing the transition of the remaining lines so that we can complete the sale of our Hunting Park facility and turn our full attention to the optimization of our operations at the Navy Yard. We are confident in our ability to navigate through the many challenges currently facing us and ultimately emerge as a more efficient and a more profitable company».

Results of Operations

Gross sales in the first quarter of 2010 decreased 4,6 million USD or 6,0 percent, versus the comparable period in 2009. The reduction in gross sales was driven by a 5,5 percent decline in total volumes, due almost entirely to production and distribution limitations stemming from an oven fire at the Hunting Park facility, severe winter weather, and production and distribution transition issues at the Navy Yard facility. The company estimates that unfulfilled demand from these issues accounted for 4,6 million USD of lost gross sales, which includes approximately 2,7 million USD related to production issues resulting from the transition to the new manufacturing and distribution facility at the Philadelphia Navy Yard. Total net sales declined 6,6 percent in the first quarter of 2010 compared to the prior year period driven by the volume declines for the reasons mentioned above as well as lower net sales realization from higher promotional costs and a shift in sales mix.

Total cost of sales, excluding depreciation, rose 0,5 percent or 0,1 million USD, on a unit volume decrease of 5,5 percent in the first quarter of 2010 as compared to the same period a year ago. The increase in costs of sales was driven by the impact of the transition related costs, 2,4 million USD of which were classified as a component of costs of sales with the remainder classified as a component of selling, general and administrative costs. Also driving the increase was 1,5 million USD in rental expense associated with the new manufacturing and distribution facility, 1,4 million USD of which was non-cash. Partially offsetting these increases was the impact on cost of sales from lower sales volumes along with changes in product mix and moderately lower costs for key ingredients and packaging. Additionally, the company achieved various operating efficiency improvements at its Oxford manufacturing facility, which helped to lower the cost of sales as compared to the first quarter of 2009.

Gross profit declined 4,6 million USD or 35,6 percent, in the first quarter of 2010 as compared to the first quarter of 2009. This decline was driven by 1,5 million USD in higher depreciation expense compared to the same period last year as well the various changes in cost of sales, as mentioned above. In addition, the profit impact from lower sales volumes resulting from transition related production and distribution issues as well as extreme weather conditions negatively affected gross profit in the first quarter of 2010. With regards to the effect of the unfulfilled demand stemming from transition related production and distribution issues, the company estimates the gross profit impact in the first quarter of 2010 at approximately 1,1 million USD. Finally, the loss of sales resulting from the fire at the Hunting Park manufacturing facility did not significantly impact gross profit during the first quarter of 2010 as the estimated insurance proceeds almost fully offset the gross profit impact of the fire.

Selling, general and administrative expense in the first quarter of 2010 increased 1,7 percent or 0,2 million USD, versus the comparable period in 2009. This increase was primarily attributed to 0,3 million USD in building rentals related to the company´s corporate offices combined with approximately 0,5 million USD in costs related to the transition of production and the move of the company´s distribution center to the new facility at the Philadelphia Navy Yard in February 2010. Partially offsetting these increases were declines in bad debt expense and other employee related costs, including incentive compensation and pension expenses. Paul D. Ridder, senior vice president and chief financial officer: «While we are focused on completing the successful transition of production to the new facility, we are also focused on managing the day to day needs of the business, while minimizing risks and containing costs».

Info: Details see «Tasty Baking Company Reports First quarter 2010 Financial Results – Company reports five of seven production lines operating at new facility» on the company´s web server (PDF, 47 KB).