Narrower Tasty Baking loss in '09
March 9, 2010
by Josh Sosland
PHILADELPHIA — Tasty Baking Co., in the year ended Dec. 26, 2009, sustained a net loss of $3.4 million, half the $6.8 million loss sustained in 2008. The company’s 2009 EBITDA was $15.4 million, down 16% from $18.4 million in 2008.
Results in early 2010 have been adversely affected by some extraordinary events, including a fire at the company’s Hunting Park baking plant and the extraordinary weather that has buffeted the East.
Net income in 2009 was depressed in both years by accelerated depreciation related to the move from Tasty’s Hunting Park baking plant in Philadelphia, aggregating $8.4 million in 2009 (of total depreciation of $16.6 million) and $5.2 million in 2008 (of $12.9 million). The company has moved its headquarters to the Philadelphia Navy Yard and is well along in transferring production to new facilities in the same complex (see related story, beginning on Page 1).
Net sales at Tasty were $180.6 million in 2009, up 3.8% from 2008.
“During the fourth quarter of 2009, we continued to outpace the category in both sales dollars and units for our route territories as compared to the fourth quarter of the prior year,” said Charles P. Pizzi, Tasty’s president and chief executive officer. “Continuing to grow the top line in a profitable manner is a priority for us as we begin to leverage our new manufacturing facility, invest in the business, and develop new products to help keep the brand relevant and top-of-mind with consumers.
“With regards to the new bakery project, we continue to be on budget and ahead of our original schedule. We currently have four of seven production lines up and running at the new bakery and we have re-located our distribution center to the Philadelphia Navy Yard facility. We still anticipate completing the transition of production in the spring of 2010.”
In the fourth quarter ended Dec. 26, Tasty sustained a net loss of $5.1 million, versus a loss of $4.6 million in the fourth quarter last year. Net sales were $43.9 million, up 0.3% from $43.7 million.
EBITDA in the fourth quarter was $1.5 million, down 84% from $9.4 million in the fourth quarter last year.
A number of factors affected comparability of the fourth quarter results in the two years.
Results for the fourth quarter of 2009 included, on a pre-tax basis, $4.5 million in accelerated depreciation, $1.8 million in rental expense related to both the company’s new manufacturing facility and corporate headquarters at the Philadelphia Navy Yard, and $1.4 million in non-cash costs related to spare parts not expected to be used at the new manufacturing facility. The total netted to a negative $7.7 million.
Results for the fourth quarter 2008 included $7.8 million in income related to changes in the company’s postretirement medical benefit plan, as well as $1.3 million in accelerated depreciation, and $12.6 million in pension expense. The total netted to a negative $6.1 million.
“We remain focused on managing costs and risks, including those associated with the transition to the new manufacturing and distribution facility as well as continuing to identify opportunities to generate further profitable growth across all components of our business,” said Paul D. Ridder, senior vice-president and chief financial officer.
During a March 9 conference call, Mr. Pizzi offered an update on developments subsequent to the end of fiscal 2009, beginning with an early February fire that “critically damaged one of our cupcake lines.”
The fire has left the line completely unusable and temporarily caused a complete shutdown of the plant.
“In terms of the impact from the fire, our production teams were able to expedite the transition of the cupcake processing equipment to our new plant as well as to retrofit other cupcake lines at the Hunting Park facility to get back into limited cupcake production,” Mr. Pizzi said. “Due to the plant outage, the company has had lower order fulfillment rates in the first quarter of 2010. However, these issues were somewhat mitigated in the weeks following the fire. Once the new cupcake lines are in full production at the new plant the company should be back to full capacity.”
While no specific date was given for when cupcake production would fully recover, the company has targeted June as the completion date for its new plant. From an overall business perspective, Mr. Pizzi said the fire was particularly ill-timed.
“Historically, we have been able to manage through incidents like this at our outdated Hunting Park facility with relatively little top-line impact,” he said. “However, with the combined effect of the fire on the production capabilities, the transition of the production to the new plant, the relocation of our distribution center, the severe weather in January and February, there was a significant impact on our ability to fully service the market during this period.
“While weather is not typically a factor we discuss, the record-breaking amounts of snow in the first quarter of 2010 and the travel restrictions imposed by local authorities during these severe storms created many logistical challenges for a D.S.D. (direct-store-delivery) company dependent on having fresh cake delivered to about 16,000 stops weekly.”
Still another setback in the first quarter cited by Mr. Pizzi was reduced donut production as this product is transitioned entirely to the company’s Oxford, Pa., plant. As a result, only a limited selection of donut varieties have been available, a situation the company said would be remedied by the end of the first quarter.
“Despite these temporary challenges, we remain focused on and excited about successfully completing the transition to our new manufacturing facility, which remains on budget and ahead of our original schedule,” Mr. Pizzi said. “We continue to expect pre-tax cash savings of approximately $13 million to $15 million annually, net of lease expense, but before debt service. Once we are fully up and running, and have optimized our production lines during the second half of 2010, we are eager to begin generating these savings and leveraging the new facility to help build the brand and drive top line.”