Marzetti (MZTI) Q4 2026 Earnings Call Transcript

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DATE

Tuesday, Aug. 25, 2026 at 10:00 a.m. ET

CALL PARTICIPANTS

• President and CEO - David A. Ciesinski
• CFO - Thomas K. Pigott
• Vice President of Corporate Finance and Investor Relations - Dale N. Ganobsik

TAKEAWAYS

• Consolidated Net Sales -- $465.0 million, representing a 2.2% reported decline primarily due to the expiration of noncore temporary supply agreement sales.
• Adjusted Net Sales -- Growing 40 basis points in the fourth quarter when excluding $12.2 million in noncore temporary supply agreement revenue from the prior year.
• Retail Segment Sales -- $243.6 million, increasing 0.9% year over year as the addition of newly acquired Bachan's products offset declines in the club channel.
• Bachan's Sales Contribution -- $15.4 million, contributing 320 basis points to consolidated growth and 640 basis points to Retail segment growth during the first two months of ownership.
• Texas Roadhouse Product Growth -- Growing 28.1% in the fourth quarter and reaching $58 million in sales for the fiscal year, a 76% increase from the prior year.
• New York Bakery Market Share -- 45.5%, representing a market share gain of 220 basis points as sales for the brand grew 2.8%.
• Foodservice Segment Adjusted Sales -- $221.4 million, remaining nearly unchanged when excluding noncore temporary supply agreement revenue as gains from national chain restaurant accounts balanced declines elsewhere.
• Consolidated Gross Profit -- $114.0 million, reaching a fourth quarter record driven by productivity programs and cost savings across procurement and manufacturing.
• Reported Gross Margin -- 24.5%, expanding 220 basis points year over year reflecting 12 consecutive quarters of margin improvement.
• Adjusted Gross Margin -- Expanding 160 basis points in the quarter, excluding the impact of noncore supply agreement sales that did not contribute to gross profit.
• Adjusted Operating Income -- $52.2 million, increasing 17.5% year over year behind strong gross margin performance.
• Diluted Earnings Per Share -- $1.76, including a $0.66 benefit from a gain on a facility sale, compared to $1.18 in the prior-year quarter.
• Adjusted Diluted EPS -- $1.46, increasing 9.0% year over year driven by higher gross profit and disciplined cost management.
• Operating Cash Flow -- $283.8 million, reaching a record level for the full fiscal year and representing an 8.5% increase versus the prior year.
• Fiscal Year 2027 Revenue Guidance -- Mid-single-digit growth, supported by full-year contributions from Bachan's and new product introductions.
• Fiscal Year 2027 Gross Margin Guidance -- Expansion of approximately 100 basis points, with 50 basis points of the gain expected from the accretion of the Bachan's business.
• First Quarter Fiscal 2027 Operating Income Forecast -- Expected to decline approximately 15% due to the immediate volume impact of a foodborne outbreak.
• Capital Expenditures Forecast -- $90 million for fiscal year 2027, primarily focused on capacity expansion at the College Park facility in Atlanta.
• Commodity Inflation Outlook -- 5% for the upcoming fiscal year, which management plans to offset through price increases and cost savings.
• Retail Brand Trial -- 6%, representing the current household penetration for Bachan's, up from 5% at the time of the acquisition.
• Dividends -- $108.8 million in total payments for the fiscal year, following a 5% increase in the quarterly dividend that extended the company's streak of annual increases to 63 years.
• Share Buybacks -- $36.3 million completed during fiscal year 2026, an increase of $28.3 million compared to the prior fiscal year.
• Facility Sale Gain -- $18.5 million, recorded from the sale of the previously closed manufacturing facility in Milpitas, California.
• Long-Term Debt -- $189.3 million as of June 30, with an effective interest rate of 4.8% on the term loan used to finance the Bachan's acquisition.
• Fiscal Year 2027 Tax Rate -- Estimated at 23%, compared to the 14.6% reported in the fourth quarter which was influenced by one-time facility sale impacts.

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RISKS

• Ciesinski warned that a Cyclospora outbreak is estimated to result in a net sales headwind of approximately 250 basis points in the fiscal first quarter for both the retail and foodservice segments.
• Pigott stated, "We do not expect to be able to grow our margins in the first quarter," indicating that the revenue impact from the foodborne outbreak will suppress near-term profitability.
• Ciesinski stated, "External factors, including U.S. economic performance consumer behavior may impact the demand for our products in fiscal year 27," acknowledging broader macroeconomic uncertainty.

SUMMARY

Management reported that The Marzetti Company (NASDAQ:MZTI) concluded fiscal year 2026 with record net sales, gross profit, and operating income, marking several consecutive years of financial highs. The company completed a multiyear supply chain network reset, highlighted by the $20 million sale of a closed California facility and significant reinvestment in higher-efficiency plants in Georgia and Kentucky. The strategic narrative centered on the integration of the Bachan's acquisition, which is being utilized as a platform for category expansion into mayo and wing sauces. While facing immediate volume headwinds from a foodborne outbreak, the company is maintaining its long-term focus on three growth pillars: core acceleration, supply chain simplification, and disciplined M&A.

• CEO Ciesinski stated, "Mayo presents a really big category expansion opportunity... the fastest growing part of the category is in either the natural better for you Mayos, or the ethnic Mayos," regarding the $3.4 billion category potential for Bachan's innovation.
• Management is modeling the current foodborne outbreak recovery on a 2018 event, which suggests the impact has a half-life that typical results in a return to baseline trends within four months.
• The company identified a significant distribution opportunity for Texas Roadhouse rolls, noting that current household penetration is only 2.5% compared to approximately 8% to 10% for the Sister Schubert brand.
• Pricing actions are scheduled to take effect in the fiscal first quarter to protect margins against forecasted commodity inflation of 5%.
• CFO Pigott noted that the College Park facility in Atlanta is receiving the largest share of the $90 million capital expenditure budget to support growth for national restaurant accounts.

INDUSTRY GLOSSARY

• Circana: A market research firm that provides retail scanner data and consumer insights for the packaged goods industry.
• Cyclospora: A parasite that causes foodborne illness, typically associated with fresh produce and outbreaks that can depress demand for salad-related products.
• TDP (Total Distribution Points): A measure of the breadth and depth of a product's distribution in retail stores.
• TSA (Temporary Supply Agreement): A short-term contract where one company provides manufacturing or services to another, often following a divestiture or acquisition.
• Velocity: A retail metric measuring how quickly a product sells once it is on the shelf, often calculated as dollar sales per distribution point.

Full Conference Call Transcript

Operator: Good morning. My name is Kevin, 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 26 fourth quarter conference call. Conducting today's call will be David Ciesinski, 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 period. If you would like to ask a question during this time, simply press 11 on your telephone keypad. If you would like to withdraw your question, please press 11 again. Thank you.

And now to begin the conference call here is Dale Ganobsik, vice president of corporate finance and investor relations for the Mercedes company.

Dale N. Ganobsik: Good morning, everyone, and thank you for joining us today. For The Marzetti Company's Fiscal Year 26 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 2 thousand. 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, David Ciesinski, will begin with a business update and highlights for the quarter. Tom Pigott, our CFO will then provide an overview of the financial results. David 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, David Ciesinski. David?

David A. Ciesinski: Thanks, Dale, and good morning, everyone. it is a pleasure to be here with you today as we review our financial results and update 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 26 which ended June 30, with record highs in net sales, gross profit, and operating income. FY 26 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 decreased 2.2% to $465 million. Excluding noncore sales at 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 30 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 2x the category average. When combined with our sister Schubert's brand, we have a combined 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 category leading share of 28.4%. In the food service segment, excluding the noncore TSA sales, both adjusted net sales and sales volumes measured in pounds shipped 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 will now turn the call over to Tom Pigott, our CFO, for his commentary on our fourth quarter results.

Tom?

Thomas K. Pigott: Thanks, David. 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 33 basis points, excluding Bachan's, a pricing contribution of 40 basis points. The addition of 2 months of Bachon'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 22 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 thousand.

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 fiscal 27 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. Turning to the balance sheet and cash flow. The company delivered record operating cash flow of $283.8 million, an increase of $22.3 million or 8.5% over the prior year. Year to date payments for property additions totaled $77.7 million. For fiscal year 27, we are forecasting total capital expenditures of $90 million We continue to invest in both cost savings projects and other manufacturing improvements as well as the Atlanta facility we acquired last year to support future growth.

Company finished the year with slightly less than $200 million of long term debt on the balance sheet resulting from the Bachan's acquisition The effective interest rate on this term loan was approximately 4.8% at June 30. The company's relatively low debt levels and strong cash flow generating capabilities allow for continued investment in the business and the return of funds to shareholders. Our quarterly cash dividend of $0.01 per share paid on June 30 represented a 5% increase from prior year's amount. Our enduring streak of annual dividend increases stands at 63 years. Our dividend payments for the year totaled $108.8 million. In addition, the company has the financial flexibility to buy back shares.

In fiscal 26, the company completed $36.3 million in buybacks a $28.3 million increase over the prior year. Looking at the full fiscal year, we are pleased to report growth across several metrics despite a difficult operating environment. Reported an adjusted net sales increased 1.1%, 0.8%, respectively. Reported and adjusted gross margins increased by 80 and 100-basis-points, respectively. Reported and adjusted operating income grew 8.3%, 4.2%, respectively. So to wrap up my commentary, our results demonstrate strong execution across several areas. We continue to invest to support the growth of our business while returning funds to shareholders. I will now turn it back over to David for his closing remarks. Thank you.

David A. Ciesinski: 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 3 simple pillars of our growth plan: 1, accelerate core business growth. 2, simplify our supply chain to reduce our cost and grow our margins. And, 3, expand our core with focused M&A and strategic licensing. As we look ahead to fiscal 27, in addition to the incremental sales attributed to Bachan's, we expect retail sales will benefit from new product introductions, including New York Bakery cheesy focaccia bread, single serve packs of popular Chick fil A avocado lime ranch dressing, and the much anticipated return of the sister Schubert sausage rolls.

Pricing is also in place to take effect during our fiscal first quarter which will help offset inflationary cost. Specific to the contribution of Bachan's, driven by our continued investments in marketing and advertising to build the brand's awareness and support trial. In addition to building brand awareness, the team is also launching 2 exciting innovations. First is Bachan's wing sauce, which will be produced at our own Horse Cave, Kentucky facility. Crafted by the Bachan's team in conjunction with our culinary team, the wing sauce features craveable, tamari, based flavors, that deliver rich, savory depth. The second is Bachan's Japanese mayo that offers a smooth silky umami flavor.

We expect the addition of the Bachan's business to our portfolio to be a key growth driver for Marzetti in fiscal 27. And we are also pleased to share that the integration of this business remains on track. In the foodservice segment, we anticipate continued growth from select customers in our mix of national chain restaurant accounts. Contractual inflationary pricing will also support the segment sales in the year ahead. External factors, including U. S. Economic performance consumer behavior may impact the demand for our products in fiscal year 27.

Furthermore, we continue to monitor the impact of the Cyclospora outbreak on our business At this point, we estimate that the outbreak will result in a net sales headwind of approximately 250 basis points in our fiscal first quarter. With the impact similar for both our retail and our foodservice segments. With respect to input cost in the aggregate, we see a moderate level of inflation in fiscal year 27. That we plan to offset through pricing, and our cost savings program as we remain focused on continued margin improvement. In closing, I would like to thank the entire Marzetti company for all of their hard work this past year and their ongoing commitment to grow our business.

Furthermore, specific to Bachan's as the new addition to our team, I look forward to working with all of you in the coming year. And I share your excitement for the next phase of growth and our continued success of Bachan's This concludes our prepared remarks for today, and we would be happy to answer any questions you may have. Operator?

Operator: Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press 11 on your telephone. If your question has been answered, you wish to remove yourself from the queue, Our first question comes from Jim Salera with Stephens.

Jim Salera: Good morning, guys. Thanks for taking our question. I know you are probably sick of me asking about soybean oil, but you keep delivering gross margin outperformance. And that is against the backdrop of soybean oil up nearly 40% year to date. I am obviously a testament to the skill of your procurement team, but could you give us some color on the moving pieces in gross margin as we think about 2027 given the commodity inflation, obviously, incremental benefit from the Bachan's integration, some of the pricing you mentioned, Can you just kind of walk us through the gross margin build and how we are thinking about that Well, Jim, I never grow tired of talking about soybean oil.

David A. Ciesinski: I mean, it is 1 of those elements of our business that we watch closely. Well, a couple of points. I appreciate the shout out for our procurement team. They do a fantastic job And we were able to protect ourselves in the most recent period with hedges we put in place a while ago. And then as was outlined in the script, we also were able to get through pricing which should protect us as soybean oil starts to elevate. So net, we feel like we were able to buy when it was advantageous and able to protect ourself by way of most recent pricing.

But as pertains to the buildup of our margin story, what I will do is I will turn it over to Tom and let him walk you through that.

Thomas K. Pigott: Sure. So as we look at fiscal 27, we are estimating about a 100-basis-points of margin growth on the consolidated results. About half of that driven by the accretion we get from Bachan's. Adding to the portfolio. A nice high margin business. And then the other half, is our continued commodity-risk-management program and our cost savings initiatives combined. As it relates to pricing, we have you know, we have rolled out our pricing. We feel confident we will get it through. But it is, you know, essentially helping you know, it is an impact on our margins and that the commodity inflation is forecasted to be around 5%.

And when you consider the higher revenue, and the commodity inflation, you do get a dilutive impact of about 50 basis points on the consolidated results. However, that as I mentioned before, our commodity our cost savings program is helping offset that. And so overall, our forecast is to grow gross margins by about a 100-basis-points in fiscal 27.

Jim Salera: Okay. Great. that is very helpful. And then turning to Bachan's, if I do my napkin math correct here, if I kind of take the 8% growth rate and just roll that forward, I come up with something in the ballpark of a $100 million for the full year 2027. Is that the right way to be thinking about that from a sales contribution standpoint?

David A. Ciesinski: I would expect it to be stronger than that. On Bachan's. There are 3 elements of the growth. The first is the growth of the core. that is gonna come by way of expanding awareness trial and household penetration. The second is the launch of their Mayo which is already in the process of being sold in, and they are getting good acceptance. 3 different SKUs and a great tasting product, and it is a category that is about $3.4 billion. Barbecue sauce category is just for a frame of reference, is a little bit bigger than $1 billion.

So Mayo presents a really big category expansion opportunity They have 3 great items, and the fastest growing part of the category is in either the natural better for you Mayos, or the ethnic Mayos. So I think they are well positioned to capitalize on that trend. The third piece, also in the space of innovation, is to launch a wing sauce And we are pleased to share that the integration and collaboration with them is gone exceedingly well. They reached out and said, hey. We would like to use the Marzetti culinary team product development team to get into wing sauces, And so we treated them, believe it or not, like a food service operator.

James up with a variety of formulas just to build up. The founder, and others tasted them. We iterated on them, and we are in the process of selling them in right now as well. So the reason why I share that is as was mentioned in some of the comments in the script, we expect the sales actually to build as we go deeper into the fiscal year predicated on not just the advertising on the core, but on some of these new items.

Jim Salera: Great. Appreciate the color, guys. I will pass it on.

Operator: 1 moment for our next question. Our next question comes from Todd Brooks with Benchmark Stonix. Your line is open.

Todd Brooks: Hey, thank you, and good morning to you all. Good morning, Todd. Good morning, Todd. Morning, guys. [Inaudible] add on. You just gave us some good color on Bachan's for 27, David. But if we are thinking about the licensed branded product portfolio growth, Obviously, onetime lapse here that made for a bit of a choppy quarter. And you talked in prior quarters about this not being necessarily the same type of growth engine. But still a growth engine for Marzetti going forward, just at a lower level.

I guess, can we talk through thoughts on what license branded products should grow And then a follow on to that you kind of teased some new product launches, not just on the branded products like Bachan's, but within the license portfolio as well. Can you give us an idea of maybe some thoughts there and maybe a contribution or magnitude of revenue growth that those can support in your mind? Thanks.

David A. Ciesinski: Yeah. So you sort of step back Now I would say we have several things going on in licensed sauces. The first of which is we have another quarter of the noise associated with the pipeline build that we have been referring to. Notwithstanding that, here's how I would think about it. We are exceedingly happy with the performance of our Texas Roadhouse item. In the course of the last year, it grew to almost 60 million in retail sales which up 70%. Velocities are 2x the category average or thereabouts. We are launching a second item into Walmart. And, honestly, there is more room just through better distribution on the core items for it to grow.

So go back a year and a half ago when we began to talk about that item, I estimated that you know, it could be a $100 million in retail sales item, and I still believe that it most certainly has the potential to do that. Then you swing through licensed sauces. We continue to be bullish about Buffalo Wild Wings and Chick fil A. Sauces. The area that we are watching a little bit more closely is the salad dressing category overall has been a bit of a drag for the last few quarters. So we have a whole range of activity that is in flight on our own Olive Garden.

But that is 1 of the washouts that we have. As it pertains to where we go from licensing from here, we have a couple of different initiatives that are in flight. Unfortunately, we are not far enough along on those to talk to you about them. But some of those actually include us expanding beyond restaurants. So we have restaurant activity that is in flight with some of the banners that you are familiar with. But also some nonrestaurant activity that is in flight. We are just not ready to share with you yet.

Todd Brooks: Okay. Fair enough. that is great. And then talked about Texas Roadhouse. And I think when you initially talked about the potential for that category, and you just confirmed it kind of the I think it was the fourth product line that would approach or cross over $100 million. Yep. In kind of sales at retail. Does the second SKU launch get you there? Like, how big does the platform have to be to support that type of success? And I will jump back in queue.

David A. Ciesinski: No. it is it is a great question. So here's an interesting thing. that is a $60 million retail sales business. Our household penetration right now is 2.5%. That is a really, really small household penetration. So I think with good execution and good trial, that core has the potential to get there. You add that new item I think it should give us even more confidence that we ought to be able to get there. But what as I look at the at this product, first of all, it is great tasting. And I think there are 2 different themes that our consumers are looking for in this environment.

And we live in this world of an incredible amount of noise. Inflation, debt, the War In Iran, gas prices, etcetera, etcetera. But it distilled it down to houses around the country People are looking for a couple of different things. What are affordable solutions to extend their meal dollars? And within that space, you think you see things like our own New York, Texas post playing really, really strong. The second category I would characterize as affordable moments of joy. Just simple things that mom can bring to the house or dad can bring to the house that people can eat bring a little bit of affordable pleasure to the household.

And I think Roadhouse, in this moment in time, fits there. The restaurants fit there. If you wanna go and you wanna go visit a restaurant, And I think the product in the home delivers on that as well. I think that same thing is true, by the way, with Buffalo Wild Wings. And with Chick fil A. So I think as we think about where we go with back to your original question with Roadhouse, I think if we can just continue to drive awareness trial and household penetration on that item from 2.5% to closer to 5% that math gets you there. Parenthetically, our own sister, Schubert, has household penetration right now.

I think about 8% or maybe closer to 10%. So I think that gives you an idea that there is room to run on that.

Todd Brooks: So if you roll that up, David, how would you frame it up for us? Licensed branded product growth in 2027 for the portfolio as a whole? How should we be thinking about that?

David A. Ciesinski: I would say if we pull out the noise associated with the Chick fil A pipeline bill, our licensed sauces, I would expect, to be closer to flat with room to grow in our licensed dough items.

Todd Brooks: Perfect. Thanks.

Operator: Our next question comes from Alton Stump with Loop Capital. Your line is open.

Alton Stump: Great. Thanks for taking my questions this morning. I appreciate it. I just want to touch on and I thought was very helpful, you know, with the comments David talking about the expected impact from recent Cyclospora outbreak. Obviously, a lot of your retail products, but also food service do indirectly participate in salad categories. Yeah, you know, it is awfully early on. But, you know, if you had to speculate, you know, for how lasting the impact will be, you know, is it possible that it could it could bleed past the current first quarter? Just kind of what your thoughts are you know, with that recent outbreak in particular.

David A. Ciesinski: Alton, first of all, it is nice to speak with you, and I am really glad you asked this question because this is an important 1 for our business. Right? Food in general. Maybe I will start with a couple of factoids. If you go back to when the outbreak started in the first couple of weeks, the last couple of weeks of July. What we found is that the host foods, steak, lettuce, and greens, and veggies, all demonstrated a dip. For that matter, even fruit led by berries demonstrated a dip.

In the case of lettuce, the low watermark in those last couple of weeks of July would have been down 30% Veggies during that same period would have been down 16%. Fruit would have been down 13%. You swing around then and you look at what our dressings or, you know, basically, the food that we offer to complement those items they were down correspondingly, not to the same amount, Olive Garden in that period would have been down 11%. Our Marsetti classics would have been down because it is produce right next to the lettuce a little bit closer to 15. Even Chick fil A was down.

Having said that, now we roll forward to the most recent period, which is the week of the August 21, what we have seen in the case of produce so lettuce, veggies, and fruit, is all of those categories have begun to improve somewhere in the 5 to 10% range. Off of that low watermark. As we look at our own items, what we are seeing is they too are improving. Olive Garden's low watermark might have been 11%. Now it is off more like 6%. Our classics were up 16. Now they are up more like 8 So the whole thing seemed to hit the low watermark in those last couple of weeks of July.

It seems to be coming back. Now how do we think about this going forward? What we have done is we went back and we looked at more outbreaks. We looked at the outbreaks in 2022. Which will remain. But we actually chose to go back and look at the outbreak in 2018. And in that moment in time, there were actually 2 E. Coli outbreaks and there was 1 cyclospora outbreak. And we think that 1 may be the more instructive of the 2.

And what we have modeled into our volume assumptions is that it follows the path of that 2018 outbreak not because of the volume of the cyclospora, but just because of the aggregate media that it received in that moment in time. So if you follow that through, this thing kind of has a half-life. The first month, improves, let's say, by 10%, by and then it improves by half of that, and it improves by half of that. So by the time you get more like 4 months past the event, it is trending back to where things were before. So we looked at 2022.

It was somewhat similar, but the magnitude of the outbreaks were not as big in terms of media coverage as this 1. So our best estimate is that it is gonna follow that 2018 path.

Alton Stump: Yes. Sure. And that is some great color. Thank you so much for that, David. And you know, I have 1 more, and then I will, you know, hop back in the queue. You know, I just wanna talk about the margin outlook. Quite impressive. I think you said, Tom, we expect a 100-basis-points of, you know, margin, you know, even with all the you know, kind of noise going on. You know, how much of that is sort of internal cost saving driven versus is there any cost synergies baked in with the Bachan's field?

Just kind of if you could sort, in general, maybe give us a bit more color on sort of how you are confident that you can get to that type of margin expansion this year?

David A. Ciesinski: You know, why do not I begin by topside, and then I will turn it over to Tom again. But maybe start with a couple of points. You know, the first thing that I would point to Alton, you have followed us well enough to know over the last handful of years, we have invested in a network reset.

The perk the investment at Horse Cave, the purchase of the facility in Georgia, the closing down and the sale of the facility in California, all of those various network moves have facilitated this multi period sequential improvement that we have seen in our gross margin, and we expect it to continue to be a source of that benefit as we go forward. But having said that, for more detail, I will let you. Yeah. Tom will cover it for you.

Thomas K. Pigott: Yeah. You know, when you break it down, and you look at it ex-Bachan's, we are about 50 basis points About half that 100-basis-points I mentioned is on the base And, you know, we have been delivering at that level pretty consistently. We feel confident that with the items David had in place, we will continue to deliver on it. And then the other half, represents the accretion from Bashan's, including the synergies that are baked in. And I would say immediately, we are we are realizing some productivity savings on Bachan's synergy savings in the procurement area. And we have plans to do more elsewhere. But overall, that integration's on track.

And the synergies are pretty much in line with our expectations.

Alton Stump: Great. Thank you so much. I appreciate it, Tom and David.

David A. Ciesinski: Our pleasure.

Operator: Our next question comes from Scott Marks with Jefferies. Your line is open.

Scott Marks: Hey. Good morning, David, Tom. Thanks very much for taking the questions of course. I wanted to first ask, I kind of have a 2-parter just on the retail business. The core retail business. You know, if we strip out Bachan's, it looks like organic volumes were down about 7% driven by some of the lapping dynamics that you called out. Wondering if you can first of all, help us understand how each of those components contributed to that decline.

And then secondly, as it relates to chick fil A business within the club channel, you help us understand the latest there in terms of just distribution and overall business you know, since you have launched the 3 bottle pack in place of the 2 in some regions and anything specific you would call out around that? Thanks.

David A. Ciesinski: Yeah. No. Our pleasure. So maybe I will start Scott, if you allow me, by sort of laddering back up. We look at the 3 different pieces of our business Foodservice, which really has not been covered so far, continues to meet and exceed our expectations in an environment where we are continuing to win with winners. Chick fil A winning with other consumers, Domino's winning in pizza QSR. And Taco Bell. Even in spite of the more recent news with Cyclospora where they are continuing to win, and we are continuing to win with them. Our supply chain, which we have talked about, where we feel like we are executing quite well, brings us around to retail.

Moving Bachan's to the side a second where we are pleased with the integration and focusing on the core. I think there is several things that are going on as you float apart. We continue to be pleased with our progress in specialty bakery. As a group overall. We talked about the growth of New York Texas toast in the script. Which just continues to motor along. We talked about Texas Roadhouse and the continued promise there. As we swing around, I think the soft spot that we are focused on in particular you know, notwithstanding that cycling of the pipeline build, is dressings and licensing as an area where we continue to need to focus.

And I think what we look forward to talking about in the quarters ahead is we have a range of different activities in flight around marketing and innovation. That we believe will restore those segments to growth. So laddering back up, how would I encourage you to think about it? I would expect continued sequential growth in the dough space, of our core business, to include the piece that we licensed from Texas Roadhouse. As we think about sauces, notwithstanding the noise from the pipeline build at Chick fil A. We continue to believe overall those brands are healthy as well. The area where we are really focused exacerbated by cyclospora, is the dressing space. Okay.

Scott Marks: Appreciate the color there. Thanks for that. And then maybe if we just turn to the margins for a sec across the different segments, just as we look at maybe current quarter, and what happened there. It looks like food service benefited quite a bit more than retail from some of your cost savings initiatives. So just, you know, wondering if you can help us break that down a bit. What was the driver of that as we look ahead to 2027, how should we be thinking about the split between segment profit performance? Thank you.

Thomas K. Pigott: So the what you are seeing is the benefit of the network moves that are impacting the food service segment. So exiting the Milpitas plant moving production to Horse Cave where it is we are more efficient. And beginning to ramp up College Park. Is kind of what you are seeing in the current quarter. As you get into next year, retail will benefit from the accretion from Bachan's being added. And both segments will continue to benefit from our productivity program. So we have positive outlooks on both segments as you get into fiscal. 2027.

Scott Marks: Appreciate it. I will pass it on. Thanks, Scott.

Operator: Our next question comes from Matthew Curtis with D.A. Davidson. Your line is open.

Matt Curtis: Hi. Good morning. Thanks for taking the question. Just to hit maybe a follow-up on gross margin expansion in fiscal 27. I mean, in terms of the timing of the expansion, I mean, do you think the gross margin improvement is likely to be balanced or would it maybe be weighted more towards the second half? As Bachan's strengthens or maybe price becomes more fully realized?

Thomas K. Pigott: Well, a great question. I think the first thing we need to zoom in and on is Q1 and what our expectations are there. Given the Cyclospora impact, we do expect you know, the impact on revenue on the base business that David highlighted Which gets us into kind of flattish net sales in Q1. We do not expect to be able to grow our margins in the first quarter. So you put that together from an from an operating income standpoint, we are looking at a 15% decline roughly In operating income in Q1.

And now your question on the you know, once we get past Q1, I think I think we feel good that, you know, we are gonna give steady pretty consistent gross margin accretion throughout the year.

Matt Curtis: Okay. Thanks for the clarification. And then I guess on Bachan's growth that I think you said you expect to strengthen in the second half of the year. If you can help us understand, is this mostly related to the timing of things like new product launches, or do other, drivers like, maybe marketing have also play a role in that outlook?

David A. Ciesinski: it is it is an important question. it is actually both. So the new item launches are being sold in now. There will be a couple of customers, and they will take them early, more like, let's call it the holiday time frame. But most of those customers will take those items for their string reset. So they will most certainly be a contributor As you think about the core business, what we have done over the last 4 months is we have worked with the team to help refine their marketing.

And in particular, a couple of different components 1, what is-- who are their cohorts that they want to reach out to where the message resonates the most strongly. And the second component of that is what does that message need to say That work is being done now. In short order, they will be reworking their creative we expect to turn that on here within the next couple of months. As that comes on, we expect to see more lift in that space. It may be worth even know, recalibrating for the group. As of today, the trial on the item remains only 5% or 6%.

It was 5% when we bought the business. it is moved to 6% and that continues to be the single biggest opportunity The other thing that I would share with you on Bachan's that we have learned is it is a Japanese barbecue sauce, but it is actually an incredibly versatile product. And actually grilling is not 1 of the top occasions that it is used on. it is actually used in a whole range of everyday occasions. Which gives us more confidence that we can grow the business not just in grilling season, but throughout the entire year.

Matt Curtis: Okay. Yeah. Interesting. Got it. And then maybe just the last 1 from me on your fiscal 27 CapEx guidance. I think you said $90 million Could you just briefly just walk us through what the major buckets of that spend were for this year?

Thomas K. Pigott: Yeah. The biggest piece is really investing in the College Park facility in Atlanta and scaling that. Primarily to support the growth in Chick fil A. We are adding quite a bit of manufacturing capacity to that facility, and that is the largest piece of it. there is also some additional cost savings initiatives contribute to that margin growth. And then some ongoing infrastructure investments we are making. But the biggest piece being the College Park.

Matt Curtis: Okay. Sounds good. Thanks for the time. Thank you, Matthew.

Operator: I am not showing any further questions this time. I would like to turn the call back over to David for any further remarks.

Thomas K. Pigott: Yeah. I want to share a little bit more about our expectations for next year in terms of the top line. With the benefit of Bachan's, we are expecting mid single digit revenue growth Retail is expected to grow revenue in the mid single digits driven really by Bachan's and a modest decline on the base for the factors that David highlighted, including Cyclospora impact. And the food service business is expected to also grow in the low to mid single digits. From a gross profit outlook, we have we have covered that. SG and A is expected to grow in the 10 to 15% range really driven by the addition of Bachan's SG&A.

The base SG and A is expected to grow with inflation. So overall, we feel good about our outlook for fiscal 27. Really benefiting from Bachan's the food service business, and some work on retail.

David A. Ciesinski: So maybe bringing it all back together. If you bring the quarter together, we were pleased to see progress in some areas, not satisfied with our progress in others. Foodservice continues to, we believe, outperform the peers in the space. Our supply chain executed well. In retail, it was a bit mixed. Super pleased with our progress on the integration of Bachan's. We are pleased with the growth of what we have going on in specialty bakery. But there is areas within the dressing space where we really have a lot of activity going on to restore those important businesses to growth.

You swing forward even in this environment of uncertainty, we see line of sight to mid-single-digit top line growth mid single digit bottom line growth when you bring in the benefit of Bachan's. So a lot going on here. We are excited about our progress. Look forward to having more to share with you guys when we are together. Here in November. Have a great rest of the day.

Operator: Thank you, ladies and gentlemen. That concludes today's presentation. We thank you for your participation. You may now disconnect and have a wonderful day.

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