Tasty Baking net falls 17% in quarter

by Eric Schroeder
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PHILADELPHIA — Net income at Tasty Baking Co. in the second quarter ended June 30 was $944,000, equal to 12c per share on the common stock, down 17% from $1,135,000, or 14c per share, in the same period a year ago. Tasty said its most recent quarter was adversely affected by $500,000 in after-tax incremental depreciation due to a change in useful lives of assets at the Philadelphia bakery related to the company’s plan to move from its present facility.

Sales totaled $43,805,000, up 3% from last year’s $42,561,000. The gain reflected a 3.2% increase in unit volume. Route net sales increased 4%, driven by family pack sales, while non-route sales in the second quarter remained on par with the same period a year ago.

"During the second quarter, we were pleased to deliver volume and net sales growth," said Charles P. Pizzi, president and chief executive officer. "These results were achieved through focused execution of our core strategies — building the brand; delivering product innovation; growing routes and new markets; and driving operational excellence."

In addition, Mr. Pizzi said Tasty was pleased with the progress it is making on its initiative to move to new facilities.

"As an organization, we are focused on balancing our everyday business needs with the requirements of a project of this scope and magnitude," he said. "While we look forward to the opportunities a new manufacturing facility will present, we recognize the importance of, and remain committed to, delivering solid results throughout the process."

The company said cost of sales increased 6% in the quarter. Variable manufacturing expense, meanwhile, rose 14% behind industry-wide cost increases for certain key ingredients, including dairy, eggs, oils and packaging. The increase was partially offset by a 10% reduction in fixed manufacturing expense in the quarter due to lower employee-related costs.

For the first six months ended June 30, net income was $1,820,000, or 23c per share, down 13% from $2,089,000, or 26c per share, in the first six months of fiscal 2006. Net sales totaled $140,363,000, up 2% from $137,241,000 in the same period a year ago.

Looking ahead to the full year, Tasty said net sales are expected to increase 3% to 5% versus fiscal 2006. The company also updated its guidance for gross profit improvement to reflect the $3.3 million expense associated with the move to a new bakery.

"The company now expects the gross profit improvement generated from higher net sales to be more than offset by the incremental depreciation, which is expected to drive a decline in gross profit versus 2006," the company said. "There is increased downside risk to gross profit should the commodity markets worsen beyond current levels. Selling, general and administrative expenses are also expected to increase compared to 2006, but at a lower rate than the net sales growth."

Tasty said it expects capital expenditures to total approximately $22 million for the full year, $16 million of which would be associated with new facilities.

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