The Marzetti Company Common Stock 2026 Q4 Earnings Call

Good morning, everyone, and thank you for joining us today for The Marzetti Company's fiscal year 2026 fourth quarter conference call. Our discussion this morning may include forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, and the company undertakes no obligation to update these statements based upon subsequent events. A detailed discussion of these risks and uncertainties is contained in the company's filings with the SEC. Also note that the audio replay of this call will be archived and available at our website, investors.marzetticompany.com, later today. For today's call, Dave Ciesinski, our President and CEO, will begin with a business update and highlights for the quarter. Tom Pigott, our CFO, will then provide an overview of the financial results.

Dave will then share some comments regarding our current strategy and outlook. At the conclusion of our prepared remarks, we will be happy to respond to any of your questions. Once again, we appreciate your participation this morning. I will now turn the call over to The Marzetti Company's President and CEO, Dave Ciesinski.

Dave? Thanks, Dale, and good morning, everyone.

It is a pleasure to be here with you today as we review our financial results and update you on the latest developments across our business. Before I provide my comments on our fiscal fourth quarter, I am pleased to share that we completed fiscal year 2026, which ended June 30, with record highs in net sales, gross profit and operating income. FY 2026 marks the fourth consecutive year of record highs for net sales and gross profit and the third consecutive year of record operating income. I would like to extend my sincere thanks to all of our teammates throughout our business for their countless contributions to this achievement. Moving on to our results for our fiscal fourth quarter, we were very pleased to deliver record fourth quarter gross profit and operating income.

On the sales front, reported consolidated net sales declined 2.2% to $465 million. Excluding non-core sales attributed to the temporary supply agreement, or TSA, adjusted net sales improved 40 basis points. In our retail segment, net sales increased 0.9%, including $15.4 million in incremental sales from Bachan's, our newly acquired Japanese barbecue sauce brand known for its delicious, authentic, and clean label products. Retail sales were unfavorably impacted by reduced sales into the club channel and the comparison to last year's pipeline build of Texas Roadhouse Dinner Rolls into the traditional grocery channel. Circana scanner data for the quarter ending June 30th showed continued strong performance of the Bachan's brand with sales up 8.7% and total distribution points increasing 16.6% as the brand continues to grow share in the barbecue sauce category. Texas Roadhouse rolls also continued to grow at a torrid pace.

During the quarter, sales were up 28.1%. For the 52-week period, the product delivered $58 million in sales, up 76% versus the prior year. Importantly, even with expanded distribution, sales velocity measured in dollar sales per TDP were nearly two times the category average. When combined with our Sister Schubert's brand, Dinner Rolls, we finished the quarter with a category leading market share of 61.7%. Our category leading New York Bakery brand also continued to perform well with sales up 2.8%, resulting in a market share gain of 220 basis points for a category leading share of 45.5%. In the crouton category, our branded croutons added 100 basis points of market share, resulting in a category leading share of 28.4%.

In the food service segment, excluding the non-core TSA sales, both adjusted net sales and sales volumes measured in pound ship were nearly unchanged as gains for our leading national chain restaurant accounts were offset by reduced sales to other chains and lower sales of our branded food service products. I'll now turn the call over to Tom Pigott, our CFO, for his commentary on our fourth quarter results.

Tom? Thanks, Dave. Overall, the fourth quarter results demonstrated strong execution.

Gross margin expanded for the 12th consecutive quarter. Reported and adjusted operating income grew by 48.2% and 17.5%, respectively. In addition, record full year operating cash flow has strengthened our capacity to both invest and return capital.

Fourth quarter reported net sales decreased by 2.2%. The key drivers were a decline in core volume and product mix of 330 basis points, excluding Bachan's. A pricing contribution of 40 basis points. The addition of two months of Bachan's sales, which added 320 basis points of growth. These items were offset by the discontinuation of the temporary supply agreement sales we have previously discussed. This discontinuation unfavorably impacted revenue by 260 basis points. Excluding the temporary supply agreement sales that occurred in the prior year, adjusted net sales grew by 40 basis points. Consolidated gross profit increased by $7.9 million, or 7.4% versus the prior year quarter to $114 million. Reported and adjusted gross margins expanded by 220 basis points and 160 basis points respectively.

The strong gross profit growth was driven by our productivity program, where we benefited from cost savings across several areas, including network changes, procurement, manufacturing, value engineering, and distribution. We also benefited from the addition of Bachan's net sales, which were accretive to our gross margins. As I mentioned at the top, this quarter marked the 12th straight quarter of gross margin improvement versus the prior year. This accomplishment reflects the many cost savings initiatives, network restructuring programs, revenue growth management projects, and ongoing pricing net of commodity management efforts that the company has successfully implemented. Selling, general, and administrative expenses increased by $12.3 million. This increase was primarily driven by acquisition related costs. These included investment banking fees, integration costs, amortization of intangible assets, and other transaction related expenses.

When you exclude the acquisition related costs from both the current year and prior year periods, adjusted SG&A expenses were up by just $100,000. This increase reflects the addition of Bachan's core SG&A expenses, partially offset by reductions elsewhere. During the quarter, the company completed the sale of the previously closed manufacturing facility in Milpitas, California for more than $20 million. As a result, the company recorded an $18.5 million gain on the sale that was recorded within restructuring, impairment, and other. Overall, restructuring, impairment, and other was favorable by $23.1 million versus the prior year, primarily due to the gain on sale and lower year-over-year restructuring costs. Consolidated reported operating income increased by $18.8 million or 48.2%. Excluding the acquisition related costs and restructuring impairment and other from both periods, adjusted operating income increased by $7.8 million or 17.5%.

This growth was driven by the strong gross margin performance I mentioned. Our tax rate for the quarter was 14.6% compared to 17.9% in the prior year quarter. The lower tax rate was driven by a favorable tax impact from the Milpitas facility sale. We estimate our tax rate for FY 2027 to be 23%. Fourth quarter reported diluted earnings per share increased $0.58 or 49.2% to $1.76. The growth was driven by the favorable restructuring impairment and other impacts I mentioned, as well as the core business performance. These favorable drivers were partially offset by acquisition related costs recorded in SG&A. Excluding all restructuring impairment and other items and the acquisition related costs, adjusted diluted earnings per share increased $0.12 to $1.46.