Despite a steady increase of 4.3% in net sales to US$42.9m for the first quarter, David Marberger, senior vice president and chief financial officer of the Tasty Baking Company remained cautious in his outlook for the remainder of the year.

Sales increases in the quarter, the company said, were driven by price increases initiated in January of this year. Route net sales increased 4.6% in the first quarter and non-route net sales improved 3.1% from Q1 2005. Price increases caused the growth in route net sales, while non-route net sales growth was driven by sales from new markets as well as the price increase.

Gross margin in the first quarter 2006 was 33.9%, up 1.5% compared to the same quarter of last year. Margin improvements in the quarter were driven by enhanced price realisation and a $0.3m decline in depreciation expense during the quarter.

"Net sales growth exceeded our expectations during the quarter and helped drive gross margin expansion," said Charles Pizzi, president and chief executive officer. "We believe the net sales improvement demonstrates the strength of the Tastykake brand and our ability to leverage the brand to deliver sustainable sales and earnings growth."

However, the cost of sales, excluding depreciation, increased by 2.3% due to an increased marketing spend and higher freight and transportation costs. 

This prompted the company's CFO Marberger, to issue a warning that difficult market circumstances are anticipated throughout the rest of 2006. "While we are pleased with these first quarter results, we are cautious about the remaining quarters of 2006," he said. "We anticipate a more difficult operating environment ahead as increasing utility costs will continue to negatively impact our financial results. We will continue to look for cost-savings opportunities throughout the business to help offset these economic pressures."  

Net income grew to $1m and earnings per share increased to $0.12, up from $0.5m and $0.06, respectively, in the first quarter last year.