The Marzetti Company (MZTI) Q1 2026 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call presented strong financial performance with record high gross profit and operating income, along with market share gains in key categories. Despite increased SG&A expenses, the company's strategic initiatives in product distribution and partnerships, particularly in the Foodservice segment, have shown positive results. The Q&A section further highlighted strong growth drivers and an improved outlook for the year. Although there were restructuring costs, the overall sentiment and guidance are optimistic, indicating a likely positive stock price movement.

Key Financial Performance

Consolidated Net Sales Increased 5.8% year-over-year to $493 million. Excluding noncore sales attributed to a temporary supply agreement, adjusted net sales increased 3.5% to $483 million. The increase was driven by higher core volume, product mix, and net pricing.

Gross Profit Increased 7.2% year-over-year to $119 million, a first-quarter record. This growth was driven by cost savings programs and volume growth. Adjusted gross margin expanded by 80 basis points when excluding noncore sales.

Operating Income Increased to $59 million, a first-quarter record. Adjusted operating income grew by 8.1% year-over-year, driven by strong gross profit performance, partially offset by higher SG&A expenses and restructuring costs.

Retail Segment Net Sales Increased 3.5% year-over-year, led by New York Bakery frozen garlic bread products and volume gains from licensing programs such as Chick-fil-A sauces, Buffalo Wild Wings sauces, and Olive Garden dressings.

Foodservice Segment Adjusted Net Sales Grew 3.5% year-over-year, with volume measured in pound shifts increasing 0.5%. The growth reflects inflationary pricing and increased demand from core national account customers.

Frozen Dinner Roll Category Market Share Sister Schubert's and Texas Roadhouse brands combined grew 27.4%, increasing market share by 650 basis points to 66.5%.

Frozen Garlic Bread Category Market Share New York Bakery brand grew sales 8.6%, increasing market share by 350 basis points to 44.1%.

Produce Dips Category Market Share Marzetti brand sales increased 4.1%, adding 220 basis points of market share to reach 82.1%.

Shelf Stable Sauces & Condiments Category Market Share Chick-fil-A sauces grew 9.6%, resulting in 17 basis points of share growth. Growth was driven by expanded distribution into the club channel and increased sales with traditional retailers.

Selling, General and Administrative (SG&A) Expenses Increased $3.5 million or 6.3% year-over-year, reflecting higher marketing spend, brokerage expenses, and increased compensation and benefits.

Restructuring and Impairment Charges Recorded $1.1 million in charges due to the planned closure of the Milpitas, California sauce and dressing facility, as part of a manufacturing network optimization initiative.

Diluted Earnings Per Share (EPS) Increased $0.09 or 5.6% year-over-year to $1.71. Restructuring and impairment charges reduced EPS by $0.03.

Operating Cash Flow Increased $49.6 million year-over-year to $69.5 million, driven by strong financial performance.

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Operating Highlights

New York Bakery frozen garlic bread products: Net sales increased 3.5%, driven by the gluten-free Texas Toast launched last fall.

Licensed sauces and dressings: Volume gains from Chick-fil-A sauces, Buffalo Wild Wings sauces, and Olive Garden dressings contributed to Retail segment sales growth.

Frozen Dinner Roll category: Sister Schubert's and Texas Roadhouse brands grew 27.4%, increasing market share by 650 basis points to 66.5%.

Frozen Garlic Bread category: New York Bakery brand sales grew 8.6%, adding 350 basis points of market share to reach 44.1%.

Produce dips category: Marzetti brand sales increased 4.1%, adding 220 basis points of market share to reach 82.1%.

Shelf Stable Sauces & Condiments category: Chick-fil-A sauces sales grew 9.6%, expanding market share by 17 basis points, supported by expanded distribution into the club channel.

Gross profit: Increased 7.2% to $119 million, driven by supply chain productivity, value engineering, and revenue management.

Restructuring and impairment charges: $1.1 million recorded for the planned closure of the Milpitas, California sauce and dressing facility, part of a manufacturing network optimization initiative.

Growth strategy: Focused on accelerating core business growth, simplifying the supply chain to reduce costs and grow margins, and expanding the core through M&A and strategic licensing.

Capital expenditures: Forecasted at $75-$85 million for fiscal 2026, aimed at cost savings projects, manufacturing improvements, and the newly acquired Atlanta facility.

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Risk or Challenges

Tariffs and Inflation: The company faces challenges from tariffs and stubborn inflation, which create a difficult operating environment and may impact profitability and cost management.

Consumer Financial Pressure: Consumers under financial pressure may reduce demand for the company's products, impacting sales and revenue growth.

Restructuring and Facility Closure: The planned closure of the sauce and dressing facility in Milpitas, California, as part of a manufacturing network optimization initiative, involves restructuring and impairment charges, which could disrupt operations and incur additional costs.

Input Cost Inflation: The company anticipates modest cost inflation in the quarters ahead, which could pressure margins if not effectively offset by pricing strategies and cost-saving programs.

Dependence on Licensing Programs: The company's reliance on licensing programs for growth, such as Chick-fil-A sauces and Texas Roadhouse Dinner Rolls, may pose risks if these partnerships face challenges or fail to perform as expected.

Economic Uncertainty: External factors, including U.S. economic performance and consumer behavior, are being monitored as they may impact product demand and overall business performance.

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Guidance & Outlook

Retail segment sales: Anticipated to benefit from growth in the licensing program, including expanding distribution for Texas Roadhouse Dinner Rolls and contributions from own brands.

Foodservice segment sales: Expected to benefit from sales to select quick service restaurant customers and large national accounts.

Input costs: A modest level of cost inflation is anticipated in the upcoming quarters, which the company plans to offset through contractual pricing and cost savings programs.

Capital expenditures: Forecasted to be between $75 million and $85 million for fiscal 2026, focusing on cost savings projects, manufacturing improvements, and the newly acquired Atlanta facility.

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Shareholder Return Plan

Quarterly Cash Dividend: $0.95 per share paid on September 30, representing a 6% increase from the prior year's amount.

Annual Dividend Increase Streak: 62 years of consecutive annual dividend increases.

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Key Q&A

Q:Could you remind us how the pass-through mechanism works in your Foodservice segment, especially in an inflating environment?

A:75% of the Foodservice business is tied to large national accounts with agreements to mark-to-market key ingredients quarterly. Price adjustments are made based on inflation or deflation of commodities. Currently, modest inflation is observed, with some commodities like soybean oil and eggs backing off from historical highs.

Q:What drove the almost 10% sell-through growth for Chick-fil-A products?

A:The growth was primarily driven by expanded distribution into club channels and some growth in the core Retail business. Combined Retail sales of Chick-fil-A sauce and dressings now represent a $200-$220 million business, with further growth potential through increased household penetration and club channel distribution.

Q:What contributed to the strong Foodservice results despite a downbeat restaurant industry?

A:The outperformance was due to growth in sales and traffic among 5 of the 7 largest national accounts, including Chick-fil-A, Domino's, and Taco Bell. The company benefits from partnering with winners in the industry and focusing on flavor differentiation, which is relevant to customers and end consumers.

Q:Has the Foodservice outlook for full year '26 changed given the strong Q1 performance?

A:The outlook has improved modestly. Initially, the company expected flattish sales due to discontinued items, but the current environment suggests a better-than-expected performance.

Q:How did increased marketing spend impact the Retail segment's profitability?

A:Retail profitability was down due to three factors: negative PNOC from egg price increases, productivity savings benefiting Foodservice more than Retail, and increased marketing spend. The company is investing in marketing to elevate its Retail segment, which is below peers in spending but showing positive responses.

Q:How is the company viewing the U.S. consumer and the core business amidst a softer consumer environment?

A:The company acknowledges consumer pressure but sees opportunities through innovation and relevant products. Examples include growth in New York Bakery garlic toast, Texas Roadhouse rolls, and Marzetti dips. These affordable luxuries resonate with consumers even in a challenging economy.

Q:Review of Unclear Management Responses

A:No questions were avoided or lacked clarity in the responses provided by management.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

MZTI Transcript

The Marzetti Company (MZTI) Q1 2026 Earnings Call Transcript

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The earnings call presents mixed signals: positive gross profit growth, retail sales increase, and a dividend hike are offset by decreased operating income and EPS due to rising SG&A expenses. The Q&A section reveals stable but uninspiring market expectations and unclear responses on key issues like the temporary supply agreement and soybean oil pricing. While the market strategy and shareholder return plan are positive, the financial health and guidance are weak, suggesting a neutral stock price movement.

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