Increasing costs have hit Canada Bread's first-quarter profits, leading the company to warn that further price increases are in the pipeline.

The company, in which Maple Leaf Foods holds an 88% stake, said margins had fallen due to rising wheat prices.

"The continued rise in wheat prices together with increase in prices of other commodities, such as fuel and general inflation, has had a significant short-term impact on our margins and financial results," said Richard Lan, president and CEO.

"We expect to recover these costs and restore margins through ongoing pricing and cost reduction initiatives, although there will be a lag effect as we work with our customers to manage the flow-through of these price increases," Lan concluded.

Earnings from operations before restructuring and other related costs slumped 35% to C$19.5m (US$19.2m).

The group's fresh bakery unit posted an operating earnings drop of 42% while the frozen unit's operating earnings fell 14%.

Sales for the quarter increased by 7% to $382.9m, as price increases offset a volume decline.