Marzetti Q1 Profit Falls as Cyclospora Outbreak Pressures Margins

The Marzetti Company’s fiscal first-quarter profit fell sharply as a cyclospora outbreak disrupted sales across dressing, dip and crouton products, while elevated diesel and freight expenses and costs tied to new production capacity further pressured margins.

For the three months ended September 30, 2026, consolidated net sales declined 2.4% year over year to $481.5 million. Adjusted consolidated net sales, which exclude $10.7 million of prior-year sales from a temporary supply agreement that has since ended, decreased 0.3%.

Gross profit fell by $8.0 million to $110.8 million, and reported gross margin narrowed 110 basis points to 23.0%. Adjusted gross margin declined 160 basis points. The company said incremental gross profit from Bachan’s and productivity gains were outweighed by the outbreak’s effect on sales and production volumes, record-high diesel costs, increased freight expenses and commissioning costs for additional capacity at its Atlanta sauce and dressing facility.

Operating income decreased by $17.8 million to $41.4 million, including a $16.5 million decline attributed to core business performance. Higher selling, general and administrative expenses related to Bachan’s also weighed on results. Diluted earnings per share fell 37.4% to $1.07, while adjusted diluted EPS declined 34.5% to $1.14.

Retail Growth Offsets Part of the Disruption

Retail segment sales increased 2.0% to $252.7 million, with shipment volume up 0.4%. Bachan’s contributed $17.8 million of incremental quarterly revenue, representing 720 basis points of retail sales growth and 750 basis points of retail volume growth. Strong demand for Texas Roadhouse dinner rolls also supported the segment. The company estimated that the cyclospora outbreak reduced retail sales by approximately 4%.

Circana data for the quarter showed Bachan’s sales rising 10.7%, with total distribution points up 7.0% and dollar sales velocity increasing 13.0%. Marzetti said the brand’s acquisition expands its position in sauces and could create further opportunities through its retail and foodservice distribution, supply chain capabilities and culinary expertise. Planned fiscal 2027 launches include Japanese mayonnaise and wing sauce.

Frozen bread products also performed strongly. New York Bakery sales increased 5.1% even as its category declined 0.6%, lifting the brand’s market share by 250 basis points to 46.6%. Texas Roadhouse sales grew 21.3%, taking its share of the frozen dinner rolls category to 22.3%.

By contrast, produce dressing category sales fell 13.4%, primarily reflecting the outbreak’s impact. Marzetti core Classics dressing sales declined 11.3%, while Chick-fil-A dressing fell 14.1%. The croutons category contracted 17.0%, though Marzetti’s brands declined by a smaller 12.3% in aggregate and gained 160 basis points of share.

Foodservice Sales Decline

Foodservice segment net sales decreased 6.9% to $228.8 million. Excluding prior-year temporary supply agreement revenue, adjusted foodservice net sales fell 2.6%, while shipment volume declined 4.1%.

Strength among select national chain accounts and modest inflationary pricing was insufficient to offset the cyclospora disruption, which the company estimated reduced foodservice sales by approximately 2%. Marzetti said the outbreak had moderated in recent weeks.

Cash Flow and Fiscal 2027 Priorities

Net cash provided by operating activities totaled $51.0 million, down from $69.5 million a year earlier, primarily because of lower net income. Property additions totaled $17.8 million, while interest expense was $2.8 million compared with none in the prior-year quarter. The company also repurchased $5.8 million of common stock and paid a $1.00-per-share cash dividend on September 30.

For fiscal 2027, management plans to focus on accelerating core growth, simplifying the supply chain to reduce costs and expand margins, and pursuing focused acquisitions and strategic licensing. Capital expenditures are expected to total approximately $90 million.

Retail sales are expected to continue benefiting from Bachan’s, including growth in existing products and the planned mayonnaise launch, as well as newer New York Bakery, Texas Roadhouse and sauce-platform products. In foodservice, the company expects support from select quick-service restaurant customers. Marzetti also said it will produce and supply a new spicy Chick-fil-A sauce scheduled to launch nationwide in the restaurant chain on November 16.

Management continues to anticipate moderate commodity cost inflation, compounded by significantly elevated diesel and freight costs. The company expects to mitigate most or all of those pressures through inflationary pricing and cost-saving programs. It is also monitoring U.S. economic conditions and consumer behavior that could affect product demand, while noting that material and freight cost volatility remains a source of uncertainty.