Marzetti Fiscal Q1 Earnings: Cyclospora and Higher Costs Cut EPS

The Marzetti Company (Nasdaq: MZTI) reported fiscal first-quarter net sales of $481.5 million for the three months ended September 30, 2026, down 2.4% from $493.5 million, while diluted EPS fell to $1.07 from $1.71. Bachan’s contributed $17.8 million of incremental sales, but a cyclospora outbreak, lower production volumes, higher transportation costs, and acquisition-related expenses weighed on profitability.

Core Earnings Results

The reported sales decline partly reflected the end of a temporary supply agreement, or TSA, that generated $10.7 million of non-core Foodservice sales in the prior-year quarter. Excluding those sales, adjusted consolidated net sales declined 0.3% rather than the reported 2.4%.

Profit fell considerably faster than revenue. Gross margin contracted as reduced production volumes affected plant efficiency, while diesel, freight, and Atlanta facility commissioning costs increased. SG&A also rose because of Bachan’s operating expenses and intangible-asset amortization.

Adjusted net sales exclude the prior-year TSA contribution. Adjusted operating income and EPS exclude $2.4 million of current-quarter Bachan’s intangible-asset amortization and the prior-year costs associated with closing the Milpitas facility.

Business and Segment Performance

Retail net sales increased 2.0% to $252.7 million, with shipment volume up 0.4%. Bachan’s supplied 720 basis points of Retail sales growth and 750 basis points of volume growth, meaning the acquisition more than accounted for the segment’s reported increase. The cyclospora outbreak reduced Retail sales by an estimated 4%, primarily through weaker demand for dressings, dips, and croutons.

Circana scanner data showed Bachan’s retail sales increasing 10.7% during the quarter ended September, while Texas Roadhouse dinner-roll sales rose 21.3%. Despite those product-level gains, Retail operating income fell to $37.2 million from $50.6 million.

Foodservice net sales declined 6.9% to $228.8 million, and shipment volume fell 7.6%. After excluding the prior-year TSA sales, Foodservice revenue declined 2.6% and core volume decreased 4.1%. Management estimated that the outbreak reduced segment sales by approximately 2%. Foodservice operating income declined to $30.4 million from $34.8 million.

Profitability and Balance Sheet

Gross profit decreased by $8.0 million, reflecting lower sales, reduced plant utilization, higher freight expenses, and costs to commission additional sauce and dressing capacity in Atlanta. Reported gross margin fell to 23.0%; compared with the prior-year TSA-adjusted margin of 24.6%, the comparable gap was 160 basis points.

SG&A increased by $10.9 million to $69.3 million. The increase included Bachan’s core operating expenses and $2.4 million of noncash amortization tied to acquired intangible assets. Interest expense was another new pressure, totaling $2.8 million after the company used a $200 million term loan to finance part of the Bachan’s acquisition.

At quarter-end, cash and equivalents were $17.5 million, down $7.6 million from June 30, 2026. Inventory increased by $10.7 million to $215.8 million. Current and long-term debt totaled approximately $196.8 million, compared with $199.3 million at the end of June.

Bachan’s Growth Could Not Offset Outbreak and Cost Pressure

Bachan’s added $17.8 million, or approximately 360 basis points, to consolidated sales growth. On a simple basis, subtracting that contribution from current-quarter revenue produces approximately $463.7 million, about 4% below the prior-year TSA-adjusted sales base of $482.8 million.

The acquisition also added core SG&A costs, $2.4 million of amortization, and interest expense associated with its financing. At the same time, outbreak-related demand weakness reduced production volumes and plant efficiency. This combination explains why adjusted sales declined only 0.3% while adjusted operating income fell 27.4%.

Management’s View

Management said the effect of the cyclospora outbreak had moderated in recent weeks. For the fiscal second quarter and the remainder of the year, it expects Retail sales to receive additional support from Bachan’s and recently launched or planned products, while selected quick-service restaurant customers should support Foodservice demand.

The company continues to anticipate moderate commodity inflation and significantly higher diesel and freight costs. Management expects inflationary pricing and cost-saving programs to mitigate most or all of those pressures as it focuses on rebuilding margins.

Recent Insider Transactions

Recent six-month disclosures showed 7,253 shares purchased across five transactions and 2,218 shares sold across two transactions, resulting in net purchases of 5,035 shares. Among the latest ten records, the disclosed purchase and sale transactions were as follows; the other records included five stock awards and two stock gifts with a disclosed value of $0.

These disclosures describe the transactions but do not, by themselves, establish insiders’ views about Marzetti’s future performance.

Risks Investors Need to Watch

• Lingering outbreak effects: The cyclospora outbreak reduced estimated Retail and Foodservice sales by approximately 4% and 2%, respectively. Although management said the impact had moderated, the pace of demand normalization remains important for volume and plant utilization.
• Margin recovery: Higher diesel and freight costs, lower production volumes, and Atlanta commissioning expenses reduced gross margin. The effectiveness and timing of pricing and cost-saving measures will influence the recovery.
• Bachan’s integration and financing costs: Bachan’s contributed meaningful sales but also increased SG&A, amortization, and interest expense. Investors should monitor whether its growth translates into stronger consolidated operating profit.
• Foodservice volume weakness: Core Foodservice volume declined 4.1% after excluding the TSA. Continued support from selected quick-service restaurant customers will need to offset weakness elsewhere in the segment.

Summary

Marzetti’s fiscal first quarter showed a relatively small comparable sales decline but a much steeper reduction in earnings. Bachan’s supported Retail revenue, yet the cyclospora outbreak, weaker production volumes, transportation costs, Atlanta commissioning expenses, and acquisition-related costs compressed margins. The next indicators to monitor are the pace of demand recovery, core Foodservice volume, and whether pricing and cost savings can restore profitability.