Tastykake's Navy Yard plant could open early: report

Tastykake took over its new Navy Yard bakery yesterday. It's not scheduled to fully replace the old Hunting Park works until next June, but the lunchbox pie and packaging line is ready now, and the six other lines are nearly done, so the pie line, at least, "could be fully operational by December 1," which is "meaningfully ahead of schedule," writes analyst Mitchell Pinheiro of Janney Capital Markets in a report to clients today.

Pinheiro expects Tasty will be selling Navy Yard pies by Thanksgiving. NEW: Other products "will be commissioned on a line-by-line basis," on up until June, he told me..

Some Hunting Park workers will lose their jobs as Tasty moves to the modern Navy Yard plant, according to the report. Tastykake will eventually save "between $13 million and $15 million" a year, mostly from its payroll.

Chief executive Charles Pizzi built the $75 million plant with financing from Citizens Bank and several other banks, plus a $600,000 Pennsylvania Opportunity Grant, $10 million in Philadelphia Industrial Development Corp. low-interest loans, a $12 million PIDC secured-credit agreement, and $10 million in Pennsylvania state loans. It also enjoys state and local income tax abatements from a Keystone Opportunity Investment Zone.

That makes it sound like the state has been subsidizing job cuts. But Pizzi has argued that Tasty needs the modern plant to compete in a tough market. Sales have been flat at around $170-180 million/year since 2004, and the company's likely to lose money for a second straight year when the 2009 books are in, according to Pinheiro. That's due partly to the cost of writing off equipment in the Hunting Park plant, Pinheiro told me. Accounting aside, on an operating basis, "Tasty should be modestly profitable."

Sugar prices are rising, threatening Tasty's future costs. But wheat, oil and other food costs are down, operating expenses will go down as the plant gets going, and  Pinheiro's betting "a more aggressive promotional strategy" plus "new geographic growth" will boost future sales and profits. Janney is bullishly projecting the "fair value" of the company at $14 a share by this time next year - more than double today's stock market value - and $20 "within two years."