Shares of Monterey Pasta (NASDAQ:PSTA) extended their more than six-month swoon today on news that first-quarter sales will be flat with last year's levels if a recent acquisition is excluded from results. The company also now expects a small per-share loss from the quarter, disappointing investors who anticipated earnings per share (EPS) of between $0.03 and $0.05. (Quarterly results are scheduled for a May 3 release.)

Monterey blamed its earnings trouble on legal fees and increases in freight, utility, and raw materials costs. But sales weakness has hurt, too. (We've discussed Monterey's efforts to recapture revenue lost to carb counters by introducing new products.) One of the company's main customers, Costco (NASDAQ:COST), cut back sales significantly. Sales and profits both fell in 2003, though, the company stayed in the black.

Wal-Mart's (NYSE:WMT) Sam's Club and key supermarket accounts such as Kroger (NYSE:KR) and Albertson's (NYSE:ABS), however, have helped fill some of Costco's void. Monterey management, meanwhile, believes it's done a good job of repositioning its business by developing and getting good retail distribution for its new products. The late January acquisition of 80% of sauce-and-spread company CIBO Naturals has paid immediate financial benefits, and it complements Monterey's product line well.

Monterey is not a tiny company -- it managed some $60 million in sales last year. Still, with a market cap hovering around $50 million, it's hardly huge. Given that, management perhaps deserves credit for showing impressive flexibility while adapting well to changing business conditions in a short time. That hasn't been reflected in the company's share price, but if Monterey can restart growth in 2004, it may yet be.

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Fool contributor Dave Marino-Nachison dreamed about pasta last night, but he doesn't own any of the companies in this story.