MARZETTI CO Q1 FY2025 earnings call

• Consolidated net sales increased 1.1% to a first-quarter record $467 million, and gross profit increased 1.9% to a record $111 million.
• Retail segment had licensing as a growth source, with new launches like Texas Roadhouse Dinner Rolls. Brands performed well in various categories as per Circana scanner data.
• Foodservice segment saw growth from national chain accounts and branded foodservice products despite industry traffic slowdowns.
• Record first-quarter gross profit of $111 million with sequential improvement in gross margin and 20 basis-point increase from last year's first-quarter due to higher volume and cost-savings initiatives. Focus on supply-chain productivity, value engineering, and revenue management remains core.

In the Retail segment, net sales declined 1.1%. Excluding the exited bakery lines, segment net sales increased 1.4% with volume in pound shipped up 1.9%. Licensing was a growth driver, e.g., Subway sauces and Texas Roadhouse Dinner Rolls. Marzetti brand grew in produce dressing and dips categories. Sister Schubert's Frozen Dinner Rolls advanced 5.3%, Olive Garden dressings up 3.3%, Chick-fil-A sauces up 3.4%, and Buffalo Wild Wing sauces up 5%. The Foodservice segment had net sales growth of 3.5% on increased demand from national chains and branded foodservice products, with volume in pound shipped up 3.1% despite industry traffic trends.

• Anticipate retail segment sales to continue benefiting from growing licensing program and new product introductions like Subway sauces, Texas Roadhouse Dinner Rolls, and New York Bakery brand gluten-free garlic bread.
• Foodservice segment expects continued volume gains from select national chain accounts.
• Input costs expected to be neutral for the remainder of the year.
• Forecasted total capital expenditures for fiscal 2025 between $70 million and $80 million.
• Quarterly cash dividend increased 6% to $0.90 per share, with a 61-year streak of annual dividend increases.

• Risks and uncertainties associated with forward-looking statements, including actual results differing from expectations due to factors like US economic performance, consumer behavior, input costs, and industry traffic trends.
• External factors such as moderate foodservice industry demand overall due to economic and consumer behavior.

Q: Jim Salera asked about foodservice outperformance relative to expectations and what's driving it.

A: David Ciesinski responded that outperformance is due to mix of national chain customers, heavy play in chicken and sauces, and performance of the Branded foodservice business, with expectation of low single-digit growth volume metric growth despite consumer headwinds.

Q: Andrew Wolf inquired about profitability divergence between foodservice and retail, and foodservice profitability prospects.

A: Thomas Pigott said foodservice operating income declined slightly due to higher labor, benefits, supply-chain investments, and incremental outsourcing, but expects improved efficiencies going-forward with outsourcing reduced and network optimization in place.

Q: Brian Holland asked about retail operating margin inflection and licensing pipeline impact.

A: David Ciesinski and Thomas Pigott responded that retail margin improvement is due to cost-savings initiatives, portfolio choices, and licensing items being at or better than line average; licensing pipeline is active with exciting new products and existing brands like Olive Garden continuing to grow.

Q: Alton Stump asked about licensing and Olive Garden's growth impact on potential partners.

A: David Ciesinski said Olive Garden's continued growth is a case study that makes potential partners see mutual growth opportunity, with ongoing collaboration on new items.

Q: Todd Brooks asked about foodservice LTOs and retail margin drivers.

A: Thomas Pigott said no immediate need to revise low single-digit growth view; David Ciesinski said retail margin improvement is from portfolio choices, supply-chain efforts, and pricing catch-up; licensing items being at or better than line average helps.

Q: Robert Dickerson asked about foodservice volume performance and new items driving it.

A: David Ciesinski responded that foodservice volume outperformance is from custom culinary work on heroing sauces with restaurant concepts, and expectation of low single-digit growth from book of business and LTO pipeline