The Marzetti (NASDAQ:MZTI) reported third-quarter financial results on Monday. The transcript from the company’s third-quarter earnings call has been provided below.
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Access the full call at https://edge.media-server.com/mmc/p/h7f8qyxz/
Summary
The Marzetti successfully completed the acquisition of Bachan’s, a growing Japanese American barbecue sauce brand, enhancing their portfolio and growth potential.
Consolidated net sales declined 1% to $453 million, while adjusted net sales decreased 0.91%. However, the company achieved a record third-quarter gross profit of $107.2 million.
The Foodservice segment saw a 1.8% growth in adjusted net sales, driven by strong demand from national chain restaurant customers.
The company anticipates future growth from new product introductions and continued expansion in both retail and foodservice segments.
Management remains optimistic about the integration of Bachan’s and the potential for further acquisitions in the authentic flavors space.
Full Transcript
Dede (Conference Call Facilitator)
Good morning. My name is Dede and I will be your conference call facilitator today. At this time I would like to welcome everyone to the Marzetti company’s fiscal year 2026 third quarter conference call. Conducting today’s call will be Dave Szeczynski, President and CEO, and Tom Pigott, CFO. All lines have been placed on mute to prevent any background noise. After the speakers have completed their prepared remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press Star 11 on your telephone keypad. If you would like to withdraw your question, please press Star 1 again. Thank you. And now to begin the conference call, here is Dale Ganobc, Vice President of Corporate Finance and Investor Relations for the Marzetti Company.
Dale Ganobc (Vice President of Corporate Finance and Investor Relations)
Good morning everyone and thank you for joining us today for the Marzetti Company’s fiscal year 2026 third 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 from 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 on our website investors.marzetti company.com later today for today’s call, Dave Szeczynski, our President and CEO, will begin with an update on our Bachanz acquisition that was successfully completed on Friday, May 1, along 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’ll be happy to respond to any of your questions. Once again, we appreciate your participation this morning. I’ll now turn the call over to the Marzetti Company’s President and CEO, Dave Szeczynski.
Dave Szeczynski (President and CEO)
Dave thanks Dale and good morning everyone. It’s a pleasure to be here with you today as we review our third quarter results for fiscal year 2026. I would like to start today’s call by providing you with some insights specific to our acquisition of Bachan’s, the fast growing Japanese American barbecue sauce brand known for its delicious authenticity clean label products. I’m happy to share that in advance of last week’s closing of the transaction, we have been collaborating closely with the Bachan’s team on our future plans for the business. Everything we’ve learned has made us even more convinced about what a great addition this is to our family of brands. Since our announcement, the Bachan’s business has continued on a path of strong growth, with Circana’s data for the quarter ending March 31st showing strong sales growth of over 25% and TDPs up over 50%. This growth has resulted in share gains for Bachan’s in the barbecue sauce category, positioning them as the second leading retail brand. Consumers love both the brand and the products, as evidenced by its broad usage across a wide variety of proteins, food types and meal occasions. We believe this brand has tremendous potential and is the perfect fit for our S.O.S. portfolio. Our thoughtful plans for the Bachon’s integration are fully on track. They will remain based in California with their very strong team retained to lead the business. We are also delighted that Bachan’s founder Justin Gill has agreed to continue working with us on product development and marketing strategy. At the same time, we are developing plans to provide this team with the opportunity to draw from Marzetti’s resources, including our go to market capabilities, culinary expertise, procurement capabilities and supply chain expertise to support both their continued growth and cost synergies. Over time, we anticipate additional opportunities for Bachan’s to more fully leverage Marzetti’s supply chain network. We believe our light touch integration approach will allow Bachan’s to continue its strong growth trajectory and we look forward to a bright future with the Bachan’s team. This acquisition strategically expands our portfolio of leading sauces, dressings and DIP brands that now represent two thirds of our consolidated net sales. It also specifically strengthens our portfolio of sauces which alone account for nearly 40% of our consolidated net sales. In the era of M&A and GLP-1s, we believe consumers will continue to seek flavor enhancements for their meals. We believe our deep culinary expertise and focused scale in these categories positions us well to support the continued growth of Bachan’s as well as our other brands. Moving on to the Marzetti Company’s results for our fiscal third quarter which ended March 31, consolidated net sales declined 1% to $453 million, excluding non core sales attributed to the temporary supply agreement or TSA. Adjusted net sales decreased 0.91% to 452 million. Despite the lower sales, we were pleased to report record third quarter gross profit of 107.2 million, an increase of 1.2% driven by our cost savings programs in Our retail segment net sales declined 3.2% while volume measured in pounds shipped declined 5.6%. Our category leading frozen bread brands were a bright spot as sales of our New York Bakery frozen garlic bread products continued to grow and increased market share. While sales of our sister Schubert dinner rolls benefited from the pull forward of demand due to the earlier Easter holiday, these sales gains were more than offset by the impacts of category softness and reduced sales into the Club Channel. We have initiatives in place with our Club Channel partners to pursue future growth for both our Chick-fil-A sauces and Olive Garden dressings. Circana’s scanner data for the quarter ending March 31 showed sales of our core brands and licensed items up 2/10 of 1%. In the frozen garlic bread category, our category leading New York bakery brand grew sales 4.4% adding 260 basis points of market share for a category leading share of 46.7%. In the frozen dinner roll category, our own sister Schubert’s brand and our licensed Texas Roadhouse brand combined to grow 10.1% for a category leading market share of 61%. In the shelf Stable Sauces and condiments category, sales of our licensed Chick Fil a sauces grew 4.4% resulting in a 5 basis points growth of share. In the crouton category, our branded croutons added 40 basis points of market share for a category leading 28.5%. In the Foodservice segment. Excluding the non core TSA sales, adjusted net sales grew 1.8% while volume measured in pound shipped improved 0.81%. In addition to the benefit of inflationary pricing, the increase in foodservice segment net sales reflects increased demand from several of our core national chain restaurant customers. We were pleased to report record third quarter gross profit of $107 million with reported gross margin of 50 basis points. Our focus on supply chain productivity, value engineering and revenue management all remain core elements to further improve our margins and financial performance. I’ll now turn the call over to Tom Pigott, our CFO for his commentary
Tom Pigott (Chief Financial Officer)
on our third quarter results. Tom? Thanks Dave. Overall, the company delivered improved gross profit performance despite a modest decline in revenue. In addition, investments were made to Support future growth. Third quarter consolidated net sales decreased by 1% to $453.4 million. The revenue performance was primarily driven by a decline in core volume and product mix of 120 basis points. This decline was partially offset by net pricing which was accretive by by approximately 30 basis points. Despite the decline in revenue, consolidated gross profit increased by $1.3 million or 1.2% versus the prior year quarter to $107.2 million and reported gross margin expanded by 50 basis points. The gross profit growth was driven by our productivity program where we benefited from cost savings across a number of areas including procurement, manufacturing, value engineering and distribution. This quarter marked the 11th straight quarter of gross margin improvement versus the prior year. This accomplishment is a reflection of the many cost savings initiatives, network restructuring programs, revenue growth management projects and the ongoing pricing net of commodities management program that the company has successfully implemented. Selling general and administrative expenses grew $5.4 million or 9.5%. The increase was primarily driven by a net increase in acquisition related costs, higher IT expenses and personnel related costs. As we invested to support continued growth, consolidated reported operating income decreased $3.3 million. The gross profit growth was offset by the higher investments made in SG&A. Our tax rate for the quarter was 23.3% versus 20.7% in the prior year quarter. We estimate our tax rate for the fourth quarter fiscal 26 to be 23%. Third quarter diluted earnings per share decreased $0.14 or 9.4% to $1.35 driven by the reduced operating income and higher tax rate. Turning to the balance sheet and cash flow, the company had strong cash flow generation during the quarter and year to date. Operating cash flow is up over $55 million versus the prior year. Year to date payments for Property additions totaled $54.6 million. For the full year fiscal 26. We are forecasting total capital expenditures of $80 million. We will continue to invest in both cost savings projects and other manufacturing improvements as well as the Atlanta facility we acquired to support future growth. In addition to investing in the business, we also return funds to shareholders. Our quarterly cash dividend of $1 per share paid on March 31 represented a 5% increase from the prior year’s amount. Our enduring streak of annual dividend increases stands at 63 years as we’ve completed 3/4 of the year. We are pleased to report growth across a number of metrics in a difficult operating environment. Reported and adjusted net sales increased 2.2% and 0.9% respectively. Reported and adjusted gross margin reflected increases of 40 and 80 basis points, respectively. Reported operating income was flat while adjusted operating income increased 1%. In addition, operating cash flow grew by 32%. We finished the quarter with a debt-free balance sheet and over $218 million in cash. As was previously announced, we closed on the $400 million acquisition of Bachan’s on May 1. The transaction was funded by a $200 million term loan and cash on the balance sheet. The interest rate on the debt is currently less than 5%. The company’s strong cash generating capabilities and low debt levels put us in a position to continue to invest further growth and return funds to our shareholders. So to wrap up my commentary, our results demonstrate strong execution across a number of areas and we continue to invest to support the future growth of our business and return funds to our shareholders. I’ll now turn it back over to Dave for his closing remarks. Thank you.
Dave Szeczynski (President and CEO)
Thanks Tom. Going forward, the Marzetti Company will continue to leverage the combined strength of our team, our operating strategy and our balance sheet in support of the three simple pillars for our growth plan to 1 accelerate core business growth 2 to simplify our supply chain to reduce our cost and grow …
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