Tasty Baking Company Reports Q3 Income Loss

Philadelphia, Nov. 2 - Tasty Baking Company today reported net sales of $43.6 million for its third quarter ended September 26, 2009, a 1.8% increase from the $42.8 million reported for the third quarter last year. This increase in net sales was driven by higher volumes combined with the net benefits of higher product selling prices.

For the third quarter of 2009, the company reported a net loss of $0.5 million compared to a net loss of $1.4 million in the third quarter of 2008. Net loss for both the third quarter of 2009 and 2008 included after tax accelerated depreciation of $0.8 million. The results for the third quarter of 2009 also included a $0.4 million reduction in accrued postemployment costs, after tax, associated with the planned 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, said, “During the third quarter of 2009 we continued to grow sales volumes, expanded our market share in our Route market, and improved gross margin compared to the prior year period. We were also pleased to see further improvement in key ingredients and packaging costs in the third quarter of 2009 versus the third quarter of last year.”

Mr. Pizzi concluded, “With regards to the new bakery project, we have taken occupancy of the building that houses our new production lines and distribution center. During October we began the phased, line-by-line transition into the new facility and, at this point, we are producing pies at the new facility. We anticipate that this transition will be completed during the second quarter of 2010.”

RESULTS OF OPERATIONS

Net sales in the third quarter of 2009 increased 1.8% versus the comparable period in 2008 driven by a 3.1% increase in Route net sales while Non-Route net sales declined 2.2% compared to the same period a year ago. Route net sales benefited from increased sales volumes, particularly for the company’s Family Pack products, and the net benefits of higher selling prices. These increases, however, were negatively impacted by increased product return costs as compared to the prior year. The decline in Non-Route net sales during the third quarter of 2009 resulted primarily from lower sales within the vending channel.

Total cost of sales, excluding depreciation, for the third quarter of 2009 increased 1.1% or $0.3 million versus the third quarter of 2008 on a unit volume increase of 2.3%. The increase in cost of sales was driven by the impact of higher sales volume, combined with a $0.5 million increase in fixed manufacturing expenses, primarily resulting from higher employee related costs, including pension and accrued incentive compensation expense. These increases were partially offset by a $0.7 million decline in costs for key ingredients and packaging as compared to the third quarter of 2008.

Gross profit increased $0.5 million or 4.3% in the third quarter of 2009 as compared to the third quarter of 2008. This improvement was driven by the reduction in key ingredient and packaging costs as well as by the benefit of higher sales volumes, which were partially offset by the increase in fixed manufacturing expenses as compared to the third quarter of the prior year.

Selling, general and administrative expense in the third quarter of 2009 increased $1.3 million versus the comparable period in 2008. This increase was attributable to $0.9 million in higher employee related costs, $0.3 million in non-cash rental expense associated with the new corporate office space at the Philadelphia Navy Yard, and an increase in marketing costs compared to the third quarter of 2008. The increase in employee related costs primarily resulted from increases in accrued incentive compensation, equity based compensation and pension related expenses. Partially offsetting these increases were reduced transportation costs driven by favorable shipping rate changes.

Paul D. Ridder, senior vice president and chief financial officer, said, “We were pleased with the sales and volume growth that we achieved this quarter, as well as our ability to expand both gross margin and gross profit as compared to the same period last year. As we did during the third quarter of 2009, we continue to identify opportunities for profitable growth in all components of our business while at the same time seeking to manage risk and contain costs.”

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