Menu Foods post smaller loss, but sales fall

TORONTO, May 15 (Reuters) - Menu Foods Income Fund (MEW_u.TO: Quote, Profile, Research), the pet food maker that saw its fortunes crumble amid a massive recall of its products, reported a smaller first-quarter loss on Thursday, even as its sales declined.

Menu said it lost C$2.2 million, or 10.8 Canadian cents per unit, for the three months ended March 31. That was better than the net loss of C$17.5 million, or 91.8 Canadian cents per unit, in the same period a year earlier.

Sales fell to C$55.6 million from C$64.5 million a year earlier.

Still, it said there are indications its situation is improving, as volume for its continuing business rose by 5.3 percent compared with the first quarter of 2007.

"This occurred despite the fact that Menu's second and third largest U.S. private-label customers, during 2006, did not resume the shipment of cuts and gravy products until part way through the first quarter," it said.

Menu, which makes pet food under labels such as Iams, Eukanuba and President's Choice, said its estimate for costs related to the recall remained unchanged at C$55 million.

The company halted shipments and recalled at least 60 million packages of pet food in 2007, saying they contained contaminated wheat gluten imported from China. The recall, first announced in March 2007, was expanded several times.

Menu became the target of lawsuits in the United States and Canada, a U.S. Food and Drug Administration investigation and a criminal probe by the U.S. Attorney for the Western District of Missouri.

Units of the fund were up 18 Canadian cents at C$1.46 on the Toronto Stock Exchange. About a year ago, they were at C$4.34.

($1=$1.00 Canadian) (Reporting by Wojtek Dabrowski; editing by Scott Anderson)