The Marzetti Company

Good morning. My name is Liz, 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 2025 fourth quarter conference call. Conducting today's call will be Dave Suszynski, President and CEO, and Tom Piggott, 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'd like to ask a question during this time, simply press star 1-1 on your telephone keypad. If you'd like to withdraw your question, please press star 11 again. Thank you. And now, to begin the conference call, here is Dale Konopczyk, Vice President of Corporate Finance and Investor Relations for the Marzetti Company.

Good morning, everyone, and thank you for joining us today for the Marzetti Company's fiscal year 2025 fourth quarter conference call. Formerly known as Lancaster Colony Corporation, our business rebranded at the Marzetti Company effective June 27th. This rebranding honors the 130-year history of our flagship Marzetti brand and signals our future as a food company with an ongoing commitment to delivering high-quality, flavorful products that make every meal better. While Lancaster County will always be an important part of our heritage, we believe the Marzetti name is critical to positioning our business in today's food industry and communicating the value we deliver to all of our stakeholders. We felt that our discussion this morning may include forward-looking statements which are subject to the State 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 review 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.marzetticompany.com, later today. For today's call, Dave Kaczynski, our president and CEO, will begin with a business update and highlights for the quarter. Tom Tiggott, 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, and I'll turn the call over to Marzetti Company's president and CEO, Dave Kaczynski. Dave? Thanks, Dale, and good morning, everyone. It's a pleasure to be here with you today as we review our financial results and provide you with an update on our business. Before I provide comments on our fiscal fourth quarter results, I am pleased to share that we completed fiscal year 2025, which ended June 30th, with record high net sales, gross profit, and operating income. I want to extend a sincere thank you to all of our teammates throughout our business for their countless contributions to this achievement, as well as their continued commitment to our ongoing success. Moving on to our results for our fiscal fourth quarter, which ended June 30th, we are pleased to report that consolidated net sales grew 5% to a fourth quarter record $475.4 million. and gross profit advanced 8.7% to a fourth quarter record $106.1 million. In our retail segment, net sales increased 3.1% to $241.6 million, driven by growth from both our licensing program and our own brand. During the quarter, we increased our marketing investments with proven strategies, and noted improved household penetration trends for our brands in several key categories. In licensing, sales growth was led by expanding distribution for our popular Texas Roadhouse dinner rolls and new club channel sales for Chick-fil-A sauce. Buffalo Wild Wing sauce is also added to the growth of our licensed items. Our category-leading New York Bakery frozen garlic bread remains a key contributor to the growth of our retail segment. driven by contributions from our recently introduced gluten-free Texas toast. Our Sister Schubert's brand frozen dinner rolls also performed well, including the benefit of the later Easter holiday that shifted some sales into the fiscal fourth quarter. Excluding all sales attributed to the Prevent or Restore bakery items that we have exited in fiscal year 2024, The retail segment's fourth quarter net sales increased 3.6%, and retail sales volumes measured in pound-shifts increased 2.9%. Circona scanner data for the quarter ending June 30th showed strong results with both sales dollars and volume for our branded products up 5.5%. In the frozen general category, our own Sister Schubert's brand and our licensed Texas Roadhouse brand combined to grow 52.4%, resulting in a market share increase of 690 basis points to a category-leading market share of 63.8%. In the frozen garlic bread category, our New York Bakery brand continues to perform very well as sales grew 10% versus a 3.5% increase for the category, driving New York Bakery's market share up 260 basis points to a category-leading 43.3%. In the shelf-stable sauces and condiments category, sales at Chick-fil-A saw grew 17.2%. with market share up 30 basis points as we introduced the popular sauce into the club channel during the quarter. In the produce dressing category, sales of Chick-fil-A dressings grew 2.6%. When combined with our Marzetti brand dressings, our market share totaled a category-leading 27.6%. In the food service segment, excluding non-core sales attributed to a temporary supply agreement, sales improved 1.4%, while sales volume declined 1.7%. In addition to the benefit of inflationary pricing, food service segment net sales reflect increased demand from some of our national chain restaurant account customers, as well as sales gains for our own Marzetti-branded food service products. 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 Piggott, our CFO, for his commentary on our fourth quarter results. Tom? Thanks, Dave. Overall, this quarter, the company delivered improved top line and gross margin performance and continues to invest to drive growth. Fourth quarter consulted at sales increased by 5% to $475.4 million. Breaking down the revenue performance, higher core volume in product mix drove 190 basis point increase. Net pricing was accreted by approximately 60 basis points. In addition, the company reported $12.2 million in sales or 270 basis points of growth that resulted from a temporary supply agreement with Wendland Foods, the seller of the Atlanta-based manufacturing facility that we acquired in mid-February. We entered into this agreement to facilitate the closing of the transaction. It's important to note that these temporary and non-course sales are expected to end by March of 26. And finally, last year's exit of the perimeter of the store bakery product lines accounted for a 20 basis point decline. Consolidated gross profit increased by $8.5 million or 8.7% versus a prior year quarter $106.1 million, and gross margin expanded by 70 basis points. The gross profit growth was driven by higher volume and mix in our retail segment and our ongoing cost savings programs. Note that excluding the $12.2 million in sales from the temporary supply agreement, which did not contribute to gross profit, gross margin expanded by 130 basis points. selling general and administrative expenses grew $8.9 million or 16.7%. This increase reflects a higher marketing spend in our retail segment to drive growth, higher personnel costs, increased legal spend, and costs related to the integration of the Atlanta facility. During the quarter, the company reported $5.1 million of restructuring and impairment charges, $4.5 million of the charges are attributed to the planned closure of our sauce and dressing facility in Lapidus, California that we announced last quarter. This closure is part of our ongoing initiative to optimize our manufacturing network. Production at that facility is expected to conclude during the quarter end of September 30th. In our prior year quarter, restructuring impairment charges of $2.7 million were attributed to our decision to exit our perimeter of the store bakery product lines. Consolidated operating income increased $2.8 million due to higher SCNA expenses and increased restructuring impairment costs, partially offset by the improved gross profit performance. Our tax rate for the quarter was 19.7% versus 20.5% in the prior year quarter. We estimate our tax rate for fiscal 26 to be 23%. fourth quarter diluted earnings per share decreased to 8 cents or 6.3% to $1.18. The restructuring impairment charges I mentioned reduced UPS by 15 cents in the current year quarter and 8 cents in the prior year quarter. In the current year quarter, we also incurred the last of our Atlanta facility integration costs in the SG&A line, which accounted for 1 cent per share. With regard to capital expenditures, our payment for property additions totaled $58 million for the full year. In addition, we invested $78.8 million to acquire the Atlanta-based dressing and sauce facility. For fiscal 26, we are forecasting total capital expenditures of between $75 and $85 million. We will continue to invest in both cost savings projects and other manufacturing improvements, as well as the newly acquired Atlanta facility. In addition to investing in our business, we also return funds to shareholders. Our quarterly cash dividend of 95 cents per share paid on June 30th represents a 6% increase from the prior year's amount. Our enduring streak of annual dividend increases stands at 62 years. Our financial position remains strong with a debt-free balance sheet and $161.5 million in cash. In regard to the full-year results, overall, the company delivered against its growth algorithm. Net sales grew 2%, primarily driven by volume. Gross margins expanded by 80 basis points due to cost savings initiatives and some modest cost deflation. Reported operating income grew 10.5%. When you adjust operating income for structuring impairment costs recorded in both years, the current year's acquisition costs as well as last year's inventory write-down for business exit, operating income was up 5.7%. This growth was driven by higher volumes and the gross margin expansion. To wrap up my commentary, our fourth quarter and full-year results demonstrate strong execution across a number of areas in a more difficult operating environment. In addition, we continue to make investments to support further growth and cost savings. I will now turn it back over to Dave for his closing remarks. Thank you. 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 of our growth plan. One, accelerate core business growth. Two, to simplify our supply chain to reduce our costs and grow our margins. And three, to expand our core with focused M&A and strategic licensing. Looking ahead to fiscal year 2026, we anticipate retail segment sales will continue to benefit from volume growth, with contributions from both our licensing program and our core Marzetti, New York Bakery, and Sister Schuber brands. The popular Texas Roadhouse Dinner Rules will begin shipping nationally to all major retailers this fall, and we also have some new items planned for our core brands that will launch in the year ahead. In the food service segment, we expect sales to be supported by growth from select QSR customers in our mix of national chain restaurant accounts as our culinary team continues to provide our food service partners with a wide range of innovation initiatives and craveable flavors to help them drive menu excitement and ultimately traffic growth. Like many of you, we continue to monitor external factors including U.S. economic performance and consumer behavior that may impact the demand for our products. With respect to input costs, in the aggregate, we anticipate a modest level of cost inflation in 2026 that we plan to offset through contractual pricing and our cost savings programs as we remain focused on continued margin improvement in the year ahead. We also look forward to incorporating our newly acquired Atlanta-based sauce and dressing plant into our manufacturing network When combined with the closure of our sauce and dressing facility in Milpitas, California that we announced last quarter, we believe our supply chain is well positioned to cost-effectively support the growth of our key customers in fiscal year 2026 and beyond. This concludes our prepared remarks for today, and we'd be happy to answer any questions that you might have.

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