US food company Monterey Pasta has said it expects to report a second-quarter loss of between 2 cents and 4 cents per share.

The company said earnings were affected by increased costs of raw materials, higher workers' compensation costs, increased freight rates due to higher fuel prices, legal fees, and lower utilisation of plant and equipment associated with the company's base pasta and sauce business.

"While the second quarter results fell short of what we hoped for, we are pleased with the steady progress we are making on our key strategic initiatives. Additionally, we have been successful in reducing operating costs and have seen significant savings in several areas compared with our first quarter costs," said Jim Williams, president and CEO of Monterey Pasta.

Second-quarter sales are expected to increase 1% to 2% compared to the same quarter in 2003.

"Considering the current market conditions, we are encouraged that sales for the quarter increased slightly compared to the same quarter one year ago. Our efforts to expand our product line beyond traditional pastas and pasta sauces are progressing well," Williams said.

"Product lines that were not being sold one year ago represent over $5m in sales, which helped offset the loss of a large private label customer and lost items at our largest club customer. These new product lines include CIBO Naturals products, our CarbSmart brand of low-carbohydrate pastas and sauces, low-carbohydrate Grilled Wrap Sandwiches, and 'quick prep' entrees. These new items are revitalising our relationships with existing key customers and allowing us to expand through new customer distribution," he added.