Tasty Baking Company Reports Net Sales and Volume Growth in the First Quarter 2009

Philadelphia, May 4 - Tasty Baking Company today reported net sales of $46.2 million for its first quarter ended March 28, 2009, a 7.8% increase from the $42.8 million reported for the first quarter last year.

The increase in net sales compared to the prior year was driven by balanced growth in both the Route and Non-Route components of the business in addition to the impact of the timing of the Easter holiday. For the first quarter of 2009, the company reported a net loss of $0.1 million compared to a net loss of $1.0 million in the first quarter of 2008. Net loss for both the first quarter of 2009 and 2008 included after tax accelerated depreciation of $0.8 million. Adjusted EBITDA for the first quarter 2009 increased 70.9% to $3.6 million from $2.1 million in the first quarter 2008.

Charles P. Pizzi, president and chief executive officer of Tasty Baking Company, said, “In the first quarter of 2009, we generated strong top-line growth in both the Route and Non-Route portions of our business, and continued to expand market share in our core markets. In addition, we benefited from our risk management and cost containment programs, which helped to offset the year-over-year impact of increased packaging and ingredient costs.”

Mr. Pizzi concluded, “With regards to the new bakery project, it remains on-time and within budget. We are pleased with our progress and continue to expect that we will begin our methodical line-by-line production transition at the end of 2009. In addition, we moved into our new corporate headquarters and administrative offices at the Navy Yard in mid-April and expect to reap the benefits associated with a more efficient and open office space that is just a mile from the site of our new bakery.”

RESULTS OF OPERATIONS

Net sales in the first quarter of 2009 increased 7.8% versus the comparable period in 2008 driven by a 3.6% increase in Non-Route net sales and a 9.1% increase in Route net sales. Route net sales benefitted from higher volumes and selling prices, as well as balanced performance across all major product categories. In addition, a shift in the timing of the Easter holiday to the second quarter of 2009 from its occurrence in the first quarter in the prior year had a favorable impact on Route sales. Non-route net sales increased due to higher sales volumes with third-party distributors as well as from the impact of higher selling prices in the first quarter of 2009 as compared to the prior year.

Total cost of sales, excluding depreciation, rose 3.9%, or $1.1 million, on a unit volume increase of 2.4% in the first quarter of 2009 as compared to the same period a year ago. This rise was driven by the increase in costs associated with higher sales volumes during the first quarter of 2009 as well as a $0.6 million increase in variable manufacturing expenses, including higher packaging and ingredient costs.

As compared to the first quarter of 2008, gross margin in the first quarter of 2009 increased 2.5 percentage points to 28.2% of net sales. The increase in gross margin was attributable to the net benefit of higher selling prices, which drove approximately 4.3 percentage points of improvement compared to the prior year period. This benefit from higher selling prices was partially offset by higher variable manufacturing expenses, including packaging and ingredient costs, and increased depreciation expense resulting from investments associated with the transition to the new manufacturing and distribution facility.

Selling, general and administrative expense in the first quarter of 2009 increased 5.7% or $0.7 million versus the comparable period in 2008. This increase was primarily due to higher incentive compensation costs, including equity based compensation, as compared to the same period in the prior year. When measured as a percentage of net sales, selling, general and administrative expenses declined to 27.5% in the first quarter of 2009 compared to 28.1% in the same quarter of 2008.

Paul D. Ridder, senior vice president and chief financial officer, said, “We are pleased with our top-line performance this quarter and the positive impact from higher selling prices and changes in our promotional strategy, which not only helped fuel our sales growth, but also translated into a significant improvement in gross profit. While we saw declines in selected commodity prices during the first quarter of 2009, when taken as a whole, we experienced a moderate increase in packaging and ingredient costs, which offset some of the benefit associated with higher selling prices.”

Mr. Ridder concluded, “We will continue to evaluate the proper pricing and promotional strategy as we focus on sustainable top-line growth and as we work to increase long-term shareholder value.”

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