The Marzetti Company Aktie

Good morning. My name is Didi, 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 2026 Third Quarter Conference Call. Conducting today's call will be Dave Ciesinski, President and CEO; and Tom Pigott, CFO. [Operator Instructions] And now to begin the conference call, here is Dale Ganobsik, 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 2026 Third 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 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 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 on our website, investors.marzetticompany.com later today.

For today's call, Dave Ciesinski, our President and CEO, will begin with an update on our Bachan's acquisition that was successfully completed on Friday, May 1, along with a business update and highlights for the quarter. Tom Pigott, 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. I'll now turn the call over to The Marzetti Company's President and CEO, Dave Ciesinski. Dave?

Thanks, Dale, and good morning, everyone. It's a pleasure to be here with you today as we review our third quarter results for fiscal year 2026. I would like to start today's call by providing you with some insights specific to our acquisition of Bachan's, the fast-growing Japanese American Barbecue Sauce brand known for its delicious, authentic clean label products.

I'm happy to share that in advance of last week's closing of the transaction, we have been collaborating closely with the Bachan's team on our future plans for the business. Everything we've learned has made us even more convinced about what a great addition this is to our family of brands.

Since our announcement, the Bachan's business has continued on a path of strong growth with Circana data for the quarter ending March 31 showing strong sales growth of over 25% and TDPs up over 50%. This growth has resulted in share gains for Bachan's in the barbecue sauce category, positioning them as the second leading retail brand.

Consumers love both the brand and the products, as evidenced by its broad usage across a wide variety of proteins, food types and meal occasions. We believe this brand has tremendous potential and is the perfect fit for our sauce portfolio.

Our thoughtful plans for the Bachan's integration are fully on track. They will remain based in California with their very strong team retained to lead the business. We are also delighted that Bachan's founder, Justin Gill has agreed to continue working with us on product development and marketing strategy.

At the same time, we are developing plans to provide this team with the opportunity to draw from Marzetti's resources, including our go-to-market capabilities, culinary expertise, procurement capabilities and supply chain expertise to support both their continued growth and cost synergies.

Over time, we anticipate additional opportunities for Bachan's to more fully leverage Marzetti's supply chain network. We believe our light touch integration approach will allow Bachan's to continue its strong growth trajectory, and we look forward to a bright future with the Bachan's team.

This acquisition strategically expands our portfolio of leading sauces, dressings and dip brands that now represent 2/3 of our consolidated net sales. It also specifically strengthens our portfolio of sauces, which alone account for nearly 40% of our consolidated net sales.

In the era of MAHA and GLP-1 we believe consumers will continue to seek flavor enhancements for their meals. We believe our deep culinary expertise and focused scale in these categories positions us well to support the continued growth of Bachan's as well as our other brands.

Moving on to The Marzetti Company's results for our fiscal third quarter, which ended March 31, consolidated net sales declined 1% to $453 million. Excluding noncore sales attributed to the temporary supply agreement, or TSA, adjusted net sales decreased 0.9% to $452 million.

Despite the lower sales, we were pleased to report record third quarter gross profit of $107.2 million, an increase of 1.2%, driven by our cost savings programs. In our Retail segment, net sales declined 3.2%, while volume measured in pounds shipped declined 5.6%.

Our category-leading frozen bread brands were a bright spot as sales of our New York Bakery frozen garlic bread products continue to grow and increase market share, while sales of our Sister Schubert's dinner rolls benefited from the pull forward of demand due to the earlier Easter holiday.

These sales gains were more than offset by the impacts of category softness and reduced sales into the club channel. We have initiatives in place with our club channel partners to pursue future growth for both our Chick-fil-A sauces and Olive Garden dressings.

Circana scanner data for the quarter ending March 31 showed sales of our core brands and licensed items up 0.2%. In the frozen garlic bread category, our category-leading New York Bakery brand grew sales 4.4%, adding 260 basis points of market share for a category leading share of 46.7%.

In the frozen dinner roll category, our own Sister Schubert's brand and our licensed Texas Roadhouse brand combined to grow 10.1% for a category-leading market share of 61%. In the shelf stable sauces and condiments category, sales of our licensed Chick-fil-A sauces grew 4.4%, resulting in a 5 basis point growth of share. In the Crouton category, our branded croutons added 40 basis points of market share for a category-leading 28.5%.

In the Foodservice segment, excluding the noncore TSA sales, adjusted net sales grew 1.8%, while volume measured in pounds shipped improved 0.8%. In addition to the benefit of inflationary pricing, the increase in Foodservice segment net sales reflects increased demand from several of our core national chain restaurant customers.

We were pleased to report record third quarter gross profit of $107 million with reported gross margin up 50 basis points. 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 Pigott, our CFO, for his commentary on our third quarter results. Tom?

Thanks, Dave. Overall, the company delivered improved gross profit performance despite a modest decline in revenue. In addition, investments were made to support future growth.

Third quarter consolidated net sales decreased by 1% to $453.4 million. The revenue performance was primarily driven by a decline in core volume and product mix of 120 basis points. This decline was partially offset by net pricing, which was accretive by approximately 30 basis points.

Despite the decline in revenue, consolidated gross profit increased by $1.3 million or 1.2% versus the prior year quarter to $107.2 million, and reported gross margin expanded by 50 basis points. The gross profit growth was driven by our productivity program, where we benefited from cost savings across a number of areas, including procurement, manufacturing, value engineering and distribution.

This quarter marks the 11th straight quarter of gross margin improvement versus the prior year. This accomplishment is a reflection of the many cost savings initiatives, network restructuring programs, revenue growth management projects and the ongoing pricing net of commodities management program that the company has successfully implemented.

Selling, general and administrative expenses grew $5.4 million or 9.5%. The increase was primarily driven by a net increase in acquisition-related costs, higher IT expenses and personnel-related costs as we invested to support continued growth. Consolidated and reported operating income decreased $3.3 million. The gross profit growth was offset by the higher investments made in SG&A.

Our tax rate for the quarter was 23.3% versus 20.7% in the prior year quarter. We estimate our tax rate for the fourth quarter of fiscal '26 to be 23%.

Third quarter diluted earnings per share decreased $0.14 or 9.4% to $1.35, driven by the reduced operating income and higher tax rate.

Turning to the balance sheet and cash flow. The company had strong cash flow generation during the quarter and year-to-date operating cash flow is up over $55 million versus the prior year. Year-to-date payments for property additions totaled $54.6 million.

For the full year of fiscal '26, we are forecasting total capital expenditures of $80 million. We will continue to invest in both cost savings projects and other manufacturing improvements as well as the Atlanta facility we acquired to support future growth.

In addition to investing in the business, we also returned funds to shareholders. Our quarterly cash dividend of $1 per share paid on March 31 represented a 5% increase from the prior year's amount. Our enduring streak of annual dividend increases stands at 63 years.

As we've completed 3 quarters of the year, we are pleased to report growth across a number of metrics in a difficult operating environment. Reported and adjusted net sales increased 2.2% and 0.9%, respectively. Reported and adjusted gross margin reflected increases of 40 and 80 basis points, respectively.

Reported operating income was flat, while adjusted operating income increased 1%. In addition, operating cash flow grew by 32%. We finished the quarter with a debt-free balance sheet and over $218 million in cash.

As was previously announced, we closed on the $400 million acquisition of Bachan's on May 1. The transaction was funded by a $200 million term loan and cash on the balance sheet. The interest rate on the debt is currently less than 5%. The company's strong cash-generating capabilities and low debt levels put us in a position to continue to invest for growth and return funds to our shareholders.

So to wrap up my commentary, our results demonstrate strong execution across a number of areas, and we continue to invest to support the future growth of our business and return funds to our shareholders.

I'll 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 3 simple pillars of our growth plan: to, one, accelerate core business growth; two, to simplify our supply chain to reduce our cost and grow our margins; and number three, to expand our core with focused M&A and strategic licensing.

As we look ahead to The Marzetti Company's fiscal fourth quarter, in addition to the incremental sales attributed to the Bachan's acquisition, we expect retail sales will benefit from new product introductions, including Marzetti Protein Ranch dressing and veggie dips, our new Olive Garden Zesty Italian dressing flavor and the addition of a larger-sized bottle for the popular Chick-fil-A Avocado Lime Ranch dressing.

In the Foodservice segment, we anticipate continued growth from select customers in our mix of national chain restaurant accounts. Specific to the contribution of the Bachan's business as part of The Marzetti Company for 2/3 of our fiscal fourth quarter, we would guide to a net sales run rate moderately above the $87 million that the business reported in calendar year 2025 with an operating margin similar to Marzetti's current level.

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 that inflation will continue to tick up during the months ahead, and we will continue to carefully monitor the macroeconomic impact of the Iran war.

We believe our commodity risk management program will serve us well in these volatile times. Specific to soybean oil prices, we believe we have sufficient coverage in place to mitigate the near-term impact of the price runup, and moreover, to implement relevant pricing.

In closing, I would like to thank the entire Marzetti Company team for all their hard work this past quarter and their ongoing commitment to grow our business. I would also like to reiterate to Justin Gill and the entire Bachan's team, how excited we are about the opportunities for future growth and shared success.

This concludes our prepared remarks for today, and we'd be happy to answer any questions you may have. Operator?

[Operator Instructions] And our first question comes from Jim Salera of Stephens.

Dave, you almost read my mind in your prepared comments there. I wanted to start on soybean oil, so it's very convenient it's the last thing that you mentioned. Can you just give us a sense for how the duration of the coverage in place right now? I know there's a lot of moving pieces, but certainly, it's an important input.

And I know we get questions from investors about as you're doing kind of demand forecasting and procurement planning for 2027, how the recent run-up impacts the mix and kind of the margin outlook? So any thoughts there would be very helpful.

Jim, I'd be happy to share that with you. So we have, I would call it, intermediate-term coverage that takes us through essentially the end of the summer on board and basis which should be more than enough time for us to be able to get into the marketplace and implement pricing, so that our retail team is in the throes of putting those plans together right now.

And in the case of private label, we've already begun to see the market start to move within the last few weeks. So we feel like we're in a much better position as it pertains to that than we were in 2022, the last time we saw a spike.

On the Foodservice business, as you recall, it's a mark-to-market process, where we have some of our customers on national accounts that have taken positions, some that were a little closer nearby. But independent, the pricing differential is passed through. So I think for you and others that track us, the watch is our coverage on retail, and we feel like we're in a strong position relative to where we were in 2022.

Great. And I was hoping you could help us size up how you're thinking about the protein launch. I know the protein craze, all these protein forward new products have been very high with consumers. If I recall correctly, I think your produce dressing business is around $150 million, inclusion of Chick-fil-A, on a retail sales basis.

Given that I would imagine this would maybe pull some people that aren't historical consumers in that category into the category, can you just help us think about how we should think about that business scaling?

Yes, I'd be happy to. So this was a fast launch in the marketplace now. It's continuing to build distribution, and we attacked it in 2 different places. One was as it pertains to produce dressing. And you're right, the overall category is about $525 million, of which we have about $150 million, $140 million or so size of our business.

And we've launched a ranch protein SKU that's in the marketplace that we're watching carefully. And then we also launched it in cups, in a 75-millimeter dip cup. And we launched the product in dips as well. And what we're seeing so far is that the product actually in the portable cup seems to be performing the best. So we're excited about both of those.

And to help you size dips for you, let me look here, the size of the category is about $200 million. If you remember, we have about a 75% or stronger share there. So we have 2 different places where we see that there is an opportunity, and it really depends.

I think for this launch, we're going to be, I would say, an agile innovator, in particular, looking at making sure that we nail the right size format. Our supposition is this is something that's going to be perfect for kids and adults that are on the go so that the dip cup in particular, seems like it's particularly interesting to us.

And our next question comes from Alton Stump of Loop Capital.

Just wanted to ask, first off, obviously, you, of course, mentioned the sell-through data, which was once again very strong for both your frozen dinner rolls and for Chick-fil-A. Yet obviously, overall segment sales were down. So what do you think were sort of couple of kind of key areas of weakness that you saw when -- as you kind of look at your -- just over 5% volume decline in the quarter for the retail segment?

Yes. So really, Alton, I'd point to 3 things. One is January and February weather resulted in the Northeast being particularly hard hit. The second is category softness in both produce dressings as well as portable dressings, where the category is down about 5 points. And then the third is that we're lapping the pipeline build of both Chick-fil-A into the club channel and Texas Roadhouse rolls.

So really those 3 things combining together are what really drove that decline on the volume front. As you swing around and you say, what of this came as maybe a surprise to us or below our expectation, well, weather just necessarily can't plan for when we were talking to you in January.

I would say, as it pertains to the launch of our Roadhouse rolls, the velocities in Walmart continue to be particularly strong. It's taken us a little bit longer to build the quality of distribution that we want in retail. So as a consequence, those velocities are lagging a little bit.

But I think as you put all those together, I'd ladder back to some January, February weather, category softness in produce and in refrigerated dressings at about 5 points, which is significant, and then lapping that pipeline build. And the executional component that we're really continuing to focus on is continuing to drive improved velocities on Roadhouse, not in the aggregate, if you look at the share data that's out there, but in retail in particular.

Got it. Great. Very helpful. And then I guess just a question I wanted to ask is just with your comments, I think you used the word moderately higher as far as modeling Bachan's sales, now that, obviously, that has closed for the last 2 months of the current quarter. But then you mentioned that sell-through data was up over 25% during the first quarter.

So is this just you guys, look, we just closed and want to be a little conservative here? Or is there any reason why we should think that there should be any kind of slowdown as it pertains to the current growth profile of that brand or of that business, I should say?

Yes. So what I would point to, Alton, is let's kind of look at it strategically. First of all, an amazing product, authentic founder story, great ingredients and really connecting with consumers, has been growing in strong double digits, both the velocity as well as distribution, and we expect that to continue.

Now as we sort of work our way through the next handful of quarters, they have some new item launches that they have that are in the queue and some other activities. So I can't tell you it's necessarily going to be linear at the exact same rate, but we continue to be extremely bullish on the growth of the brand.

And as a proof point, I think what I would look to is 2 important pieces of data. In the recent Circana period, they actually became the #2 barbecue sauce right behind Ken's. So they passed -- or not Ken's, excuse me, but behind Ken's and Sweet Baby Ray's, but in front of Kraft and Kinder's in that period.

The second thing that I would point to is the velocities on those items. They continue to be extremely high, satisfying both retailers, of course, us. And then the last item that I would point to, and this is sort of a longer-term piece. When we look at something like a Net Promoter Score, the brand actually connects and scores more strongly than almost any other sauce brand that's out there.

So all of these make us confident that this is a great platform with room to continue to grow. So as you're aware, we closed on the transaction on Friday. I'm jumping on a plane tomorrow morning, first thing and flying out there along with the leader of our retail team where we're going to spend a couple of days with them celebrating the close.

We've been working with them and the leadership team to put together their AOP for our fiscal year that will be forthcoming. And I can tell you that they couldn't be more excited about the opportunity to work with our culinary and product development team.

So we're really -- we're very, very bullish about it. Great brand, and maybe later in the call, I'll talk about why I think that this transaction, in particular, marks an important evolution in our company's strategy.

Yes. I would say we're probably a little conservative in what we put out there, and we'll see as we progress deeper into it.

And our next question comes from Todd Brooks of Benchmark StoneX.

Congrats on getting the Bachan's deal across the finish line. Good to hear.

Thanks, Todd.

Two questions. Talked about some friction in the club channel. Can you walk through details behind that? And is that related to maybe the new SKU introductions on the Olive Garden side around Zesty? Can you just walk us through maybe some of that friction you saw and how you work that out and restore the momentum in the club channel?

Yes. So good eye, but that's not the cause. That new item that's coming out there is really the response. So within club, 2 different points of noise. One is we're lapping the launch of Chick-fil-A sauce last year. So we had a big pipeline build in the period. When we went out with that item, we launched it in a 2-pack, so two 20-ounce Chick-fil-A sauce.

What we found is that the sell-through was strong. However, buyers didn't come back. And when we did the math, what we realized is that we were selling consumers about what becomes a year's worth of supply of Chick-fil-A sauce. So in conversations with the buyers at Chick-fil-A, what we've elected to do is to come back with a 3-pack. So it's going to be 2 smaller originals and 1 Polynesian sauce, and that's shipping into the marketplace now.

The other thing that happened, and this isn't related, is that, as you recall, you followed us for a while, we've been in club with our Olive Garden dressing for quite a long time with the exact same variance. We had a couple of different regions on Costco, not on Sam's, that elected to move us from full-time distribution to more of a rotation sort of distribution.

And in response to that, we've gone back and retooled the offering to offer a multipack as well, where it's the original plus the Zesty that we're bringing to the marketplace there. So we are working with our club partners to work on innovating and ensuring that, that offering is relevant, but it doesn't have to do with the Zesty. The Zesty is part of the response.

Okay. Great. And then can we talk through just within the concept of frozen bread, how we should be thinking about Easter shift impacts with the 2-week earlier Easter that we had this year versus prior, just think about so that we can really fine-tune the modeling that segment of the business as we're looking at the upcoming quarter?

Sure. Well, while Tom and Dale are going to give you specific information on Sister, I think what I would point to is maybe just a quick set of words on what's going on with New York Texas Toast, which really continues to be our evergreen legacy brand growth story, where it was up several points in the period behind both the strength of our gluten-free item, which I think in sales value now is pushing $20 million and also our value size of sticks, which continues to grow in the high single-digit, if not double-digit range.

So that brand just continues to grow almost independent of the economic circumstances. That category is down about 1.5 points, but we're continuing to deliver not only just market share gains but actual sales gains through this. And increasingly, what you're seeing is the category seems to be closing in on more and more of a 2-brand set where it's our brand and private label and select retailers. So -- but that's Toast. And then Tom?

Yes. On the Retail segment, we benefited only about 30 basis points, really driven by Sisters in terms of revenue impact, maybe slightly less than what we had anticipated when we talked to you at the prior quarter.

And then on Roadhouse, just to kind of finish up the frozen side. You talked about good performance of -- really actually a very strong performance at Walmart being the retail distribution the way that you wanted to get it so you can really accelerate that roll, and I think at one point, you thought that was an extendable category as well with different flavors, many type of SKUs. Do we need to get the retail distribution in place before we start to see SKU extension? Or how do we stage those 2?

Sure. So maybe I'll give you a little bit of backdrop. So when we originally launched the item into Walmart, it was in a 10-count displayable case and the velocities were so fast, we were having a hard time keeping it on the shelf.

And at the request of our partner, we shifted it to a 20-count case. The case was not a display-ready case. So that worked fine for Walmart where they had already built the awareness in trial and repeat was strong and it continued to grow.

But as we then pivoted into driving retail distribution, having a case that wasn't display-ready resulted in, let's just say, a suboptimal merchandising on the shelf. So the team has been working for, let's say, the last 3 or 4 months on strengthening the display of that item, and we feel like we're starting to make some progress there.

So really, as we look through the remainder of this fiscal year and into next fiscal year in the Retail segment, which you can expect to see us more effort on getting display strengthened and getting it where we want it on the shelf.

As it pertains to extending the platform into new flavors, those plans are already in place, and we should have some news here shortly to share with you, but we're well down the path on that. We continue to believe that it's not only viable, but we have great confidence in it.

And our next question comes from Scott Marks of Jefferies.

First thing I wanted to ask about, I don't think we've really touched as much on the Foodservice side of things. So wondering if you can help us understand some of the puts and takes there, maybe how the businesses are doing within Chick-fil-A operator as well as some of the other bigger customers you have and help us understand how we should be thinking about that going forward.

Yes. No, I'm glad that you asked. And Foodservice actually had a pretty solid quarter when you look at it, where volume and sales were both up in the period. And let's maybe pull it apart. If you look at the whole industry, the industry is essentially where it was 3 months ago, it's flat.

Now you pull that apart and we look at national accounts, what I would point to, Scott, is it sort of bifurcates into the concepts that are emerging as the continuous winners and those that I think are struggling. Within our portfolio, we have a handful of those performers that continue to do pretty well.

One of those is Chick-fil-A. They're doing it on their base business, but they're also doing it behind several of their LTOs, which we've been fortunate enough to support. Taco Bell has also continued even in this economic environment to emerge as a winner. And we have a handful of others that I would say we're continuing to win with.

What we're seeing then on the other side of the ledger, though, is for those concepts that can't lead with price or they have a product offering that isn't necessarily connecting with consumers, they're struggling. But all in, on our national accounts component, which is 75% of our Foodservice business, we were able to grow it really led by Chick-fil-A and our winners offset partially by some of the others.

And on our branded piece of the business, that business was flattish, would have been up were it not for the fact that we exited a very low-margin breadstick business, which is pulling it back slightly. So net-net, for our Foodservice business in a competitive environment, I think we continue to do well.

Part of it is we sell sauces and it continues to be the area where our partners look to differentiate their menu. And the other part of it is because we're fortunate enough to have partners with big, strong concepts that seem to be performing best in this environment.

Appreciate the color on that. Second question for me would be, you made some comments about higher investments in personnel and IT. I know you've also been working through testing some different advertising concepts within the retail business.

So I was just wondering if you can give us an update on some of those initiatives and some of the extra costs that you've called out and how we should be thinking about where those investments are going and the kind of growth you're looking for because of that.

Yes. Great question. So on the IT side, after we put in SAP, there are a number of legacy systems that, quite frankly, needed to be replaced, and were not being supported by vendors anymore. And then there was opportunity to put in systems that would give us more sophistication.

So a couple of examples would be on the Foodservice side, the trade system we put in really helps us on the branded business to improve the trade optimization, and that's been a key contributor to the improved PNOC performance we've seen in Retail on a year-to-date basis. So that's been very positive.

And then there's some other legacy systems that we've had to replace that are not as value-added, but necessarily to kind of sustain the business and the growth. What I can tell you is that from an IT standpoint, a lot of that spending is now behind us. And as we plan the future years, we're not putting as much emphasis on that aspect of it.

So going forward, I think you'll see -- and in Q4, you'll see, even with Bachan's, just a modest increase in SG&A in line with inflation. So as we plan for the next fiscal year, I think we're in the same mode in terms of SG&A spend. Now as we see good marketing spends to support growth in Bachan's and other brands, we will continue to invest, but that's kind of our overall profile going forward.

Appreciate the color there. And then just one quick just technical question. I think you called out earlier, the Bachan's op margin is the same as The Marzetti Company. Is that referring specifically to the retail segment? Or is that total Marzetti?

That's total operating margin. Now again, I think we're being a little conservative at the onset and as we get into it, certainly, what we know to be true is that they're an investment -- invest-to-grow brand. And so there's a higher level of marketing spend there as they expand into markets and build awareness, as Dave shared.

It's a fantastic brand. It's #2 in barbecue sauce, but the awareness is relatively low. So their margins are slightly below -- their operating margins are slightly below our existing retail, and part of that is the amount of investment going into the brand to sustain its growth and to build it out.

At the gross margin level with Bachan's, it's nicely margin accretive to the business. And as we get into next quarter's call, we'll have completed the planning process with the team, and we'll have certainly more to share. But as Dave shared, everything we can see in terms of their performance give us comfort in terms of our business model for what we can achieve with that acquisition.

[Operator Instructions] And if there are no further questions, we will now turn the call back to Mr. Ciesinski for his closing comments.

Thank you, operator. And before we end the call, I just wanted to make a couple of short comments about strategically, the disposition of the company and where we're heading. And I believe that the acquisition of Bachan's is an opportune time to kind of take a step back and take an inventory of where we've been and where we are and where we look to go.

And really, over the last 10 years, if you've looked at the evolution of our company, we started as a company really focused on driving our legacy brands, and really, we focused in that mode, and then we started to add to that with our restaurant brand licenses.

And I would argue that over the course of the last 7 years, we've built out our retail business essentially by leaning into the growth of those licensed restaurant brands. As we sit today, it's about $550 million or so of Circana sales. It's about $350 million more than that of net sales, and it's been really an important driver of our growth story.

At the same time, we've leveraged our strong balance sheet as a means by which to go back and make key investments in our infrastructure, both our plant infrastructure by retiring old lines and putting in place high speed, more efficient lines and then putting in place scalable IT infrastructure.

What Bachan's really marks for us is not only just the acquisition of a phenomenal brand and the opportunity to work with tremendously talented people, but the first of what we believe will be more acquisitions in an area that we're calling authentic flavors. So if 10 years ago, the growth of our company, Marzetti or in Lancaster Colony was driven by legacy brands, Marzetti, Sister Schubert's and New York, the more recent period has been driven by that plus restaurant brands.

As we look to go forward, what we're excited about is the opportunity to add a whole new growth leg to our overall story, which is authentic flavors. So if you look at what our aspirations are going forward, it's to continue to innovate and market and grow against our legacy brands and our restaurant licensed brands, but also to use our end-to-end focused scale from culinary to product development through the supply chain to help highly relevant brands like Bachan's achieve their full potential in the marketplace.

And what we would love to be able to do as we learn more about Bachan's and we get the integration successfully underway is to start to think about where are those opportunities to continue to leverage our balance sheet and find other authentic flavors where those brands and those teams can come and take their business to the next level.

So as we look at the next 10 years going forward, it really gives us a platform for a much more balanced pathway to grow in Retail and in Foodservice. And before we wind down the call, I just wanted to share that with those of you that are listening.

But with that, operator, and everybody else, thank you for your time today. We look forward to being with you in August. Have a great rest of the day.

Thank you. This concludes today's conference call. Thank you for participating, and you may now disconnect.

Good morning. My name is Siobhan and I will be your conference call facilitator today. At this time, I would like to welcome you to the Marzetti Company's Fiscal Year 2026 Second Quarter Conference Call. Conducting today's call will be Dave Ciesinski, President and CEO; and Tom Pigott, CFO. [Operator Instructions] And now to begin the conference call, here is Dale Ganobsik, 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 2026 Second 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 1995. These statements are subject to a number of risks and uncertainties and 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 on our website, investors.merzeticompany.com later today. For today's call, Dave Ciesinski, our President and CEO will begin with the business update and highlights for the quarter. Tom Pigott, 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. I'll now turn the call over to Marzetti Company's President and CEO, Dave Ciesinski. Dave? .

Thanks, Dale, and good morning, everyone. It's a big day here for the Marzetti Company because in addition to reporting our Q2 results for fiscal year 2026, we are thrilled to announce that the Marzetti Company has entered into a definitive agreement to acquire Bachan, the authentic great tasting and rapidly growing Japanese American barbecue sauce brand. I will have more details to share on the acquisition later in the call following the review of our second quarter results. .

In our fiscal second quarter, which ended December 31, consolidated net sales increased 1.7% to $518 million. Excluding noncore sales attributed to a temporary supply agreement, or TSA, adjusted sales increased 1/10th of 1% to $510 million. Gross profit grew 3.4% to a second quarter record $137 million. In our retail segment, the 1.1% decline in net sales compares to a strong prior year quarter of 6.3% and reflects softer demand during the time frame of the U.S. government shutdown.

Retail segment sales highlights include continued growth from our category-leading our Bakery frozen garlic bread products and expanding distribution for our Texas Roadhouse dinner roles. Sirona scanner data for the quarter ending December 31st showed solid performance for several of our core brands and licensed items with overall scan sales up 2.3% for the 13-week period. In the frozen garlic bread category, our New York Bakery brand grew sales 8.4%, adding 300 basis points of market share for a category-leading 44.6%.

In the frozen general category, our Sister Schubert's brand and our licensed Texas Roadhouse brand combined to grow 7.1%, resulting in a market share increase of 40 basis points to a category-leading 60.8%. In the shelf stable sauces and condiments category, sales of our licensed Chickplaysauce grew 6.7% and resulting in 13 basis points of share growth. Chick-fil-A sauce has benefited from expanded distribution into the club channel that began during our fiscal fourth quarter, which ended June 30th.

In the produce dips category, sales of our Marzetti brand increased 0.3%, adding 130 basis points of market share for a category-leading 75.5%. In the Foodservice segment, excluding the noncore TSA sales, adjusted net sales grew 1.6%, while volume measured in pound ship declined 4/10th of 1%. In addition to the benefits of inflationary pricing, the increase in Foodservice segment sales reflects increased demand for several of our core national account customers and higher sales for branded foodservice products.

During the period, we are pleased to report a 3.4% increase in gross profit to a second quarter record of $137 million, with reported gross margin up 40 basis points. 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 Pigott, our CFO, for his commentary on our second quarter results. Tom?

Thanks, Dave. Overall, the company delivered improved performance against a strong comparative period. In addition, investments were made to support future growth. Second quarter consolidated net sales increased by 1.7% to $518 million. Breaking down the revenue performance, net pricing was accretive by approximately 140 basis points. Core volume and product mix drove a 130 basis point decline. In addition, the company reported $8.2 million in sales or 160 basis points of growth that resulted from a temporary supply agreement with Windlin Foods, the seller of the Atlanta-based manufacturing facility that we acquired last year. .

We entered into this agreement to facilitate the closing of the transaction. It's important to note that these temporary and noncore sales are expected to conclude during the quarter ended March 31, 2026. Consolidated gross profit increased by $4.5 million or 3.4% versus the prior year quarter to $137.3 million, and reported gross margin expanded by 40 basis points. The gross profit growth was driven by our productivity program, where we benefited from cost savings across a number of areas, including procurement, manufacturing, value engineering and distribution.

In addition, our pricing actions offset the higher commodity costs we experienced during the quarter. Note that excluding the $8.2 million in sales from the temporary supply agreement, which did not contribute meaningfully to gross profit, adjusted gross margin expanded by 80 basis points. Sales and general and administrative expenses grew by $3.3 million or 5.8%. The increase was primarily driven by a higher marketing even as we invested to support the continued growth of our retail brands and the expanded launch of Texas Roadhouse rolls.

Note that last year, SG&A expenses included acquisition-related costs of $1.6 million. During the quarter, the company recorded $1.7 million in restructuring and impairment charges. The charges are attributed to a noncash impairment charge. On manufacturing equipment in our Foodservice segment as well as the planned closure of our sauce and dressing facility in Milpitas, California that we previously announced. Consolidated reported operating income decreased by $500,000. The gross profit growth was offset by the higher investments we made in SG&A and the restructuring impairment costs.

Excluding the restructuring and impairment charges, and the acquisition-related costs recorded in the prior year, adjusted operating income declined by $400,000. Our tax rate for the quarter was 22.6% versus 22.5% in the prior year quarter. We estimate our tax rate for the remainder of the fiscal year '26 to be 23%. The Second quarter diluted earnings per share increased $0.37 or 20.8% to $2.15. Note that in the prior year, we took a pension settlement charge of $0.39 and in addition to the acquisition-related costs, which totaled $0.05. In the current year quarter, the restructuring impairment charges totaled $0.05 per share.

With regard to capital expenditures, our payments for property additions totaled $17.7 million for the quarter. For fiscal 2016, we are forecasting total capital expenditures between $75 million and $85 million. We will continue to invest in both cost savings projects and other manufacturing improvements as well as the Atlanta facility we acquired last year. In addition to investing in our business, we also returned funds to shareholders. Our quarterly cash dividend of $1 per share paid on December 31 represented a 5% increase from the prior year's amount. It marked 63 consecutive years of regular cash dividend increases. In addition to the $27.6 million paid in dividends, the company repurchased in common stock in the second quarter.

Our financial position remains strong with a debt-free balance sheet in over $201 million in cash. And as Dave will discuss, we plan to take advantage of that strong position to invest for further growth with the acquisition of Bachan's. We will continue to have a strong balance sheet following the acquisition. As we complete the first half of the year, we're pleased to report growth in net sales of 3.6% and adjusted net sales of 1.7%. Reported and adjusted gross margin reflected increases of 30 and 80 basis points, respectively. Reported operating income was up 2.2%, while adjusted operating income increased 3.1%. In addition, operating cash flow grew by $30.6 million or 24%.

To wrap up my commentary, our results demonstrate strong execution across a number of areas that drove solid top and bottom line performance in a difficult operating environment. In addition, we returned funds to shareholders through our increased dividend and share repurchase and also continued to make investments to support further growth and cost savings. I'll now turn it back over to Dave for his closing remarks. Thank you.

Thanks, Tom. As we look ahead, 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, to: one, accelerate core business growth; two, to simplify our supply chain to reduce our cost and grow our merchants; and three, to expand our core with focused M&A and strategic licensing. .

As an example of how we're executing against that third pillar, this morning, we announced that the Marzetti Company had entered into a definitive agreement to acquire Bachan's, the authentic, great-tasting and rapidly growing Japanese American barbecues brand. Bachan's has been built around a multigenerational family recipe passed down to its founder, Justin Hill, who has done an amazing job of developing the products and building this brand. We are extremely excited to add Bachan’'s on to our portfolio. In the months ahead, we look forward to sharing with you our plans to leverage our industry-leading culinary and product development capabilities and working shoulder to shoulder with the Bachan’'s team to deliver long-term growth while maintaining the authenticity and quality that makes Bachan’'s brand so special.

This transaction reinforces Marzete's position as a leader in sauces by adding a premium brand that is exceptionally well aligned with evolving consumer preferences for authentic global flavors and better-for-you products. From 2022 to 2025, Bachan’'s on delivered net revenue compound annual growth of approximately 48%, driven by strong consumer demand and expanded distribution. We see meaningful opportunities to accelerate Bachan’'s next chapter of growth by leveraging Marzeti's culinary capability, retail relationships and food service partnerships.

Over time, we intend to broaden distribution, support continued product innovation and thoughtfully extend the brand into new channels and adjacent categories. We also expect to capture substantial synergies as we carefully integrate Bachan’'s into our supply chain by leveraging our scale and expertise in making many of the world's most iconic and great tasting sauces. The total consideration for the acquisition was approximately $400 million in cash. Overall, we expect this acquisition to be accretive to both top line growth and gross margins beginning in year 1.

Looking ahead to the back half of our fiscal year, excluding any impact from the planned acquisition, we project retail sales will continue to benefit from our expanding licensing program led by Texas Roadhouse dinner rules. In addition to investments in innovation and growth for our own brands. Note, with this year's earlier Easter holiday, we anticipate some retail segment sales will be pulled forward into our fiscal third quarter. In the Foodservice segment, we expect continued growth from select customers in our mix of national accounts.

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 our input costs, in the aggregate, we anticipate a modest level of cost inflation that we plan to offset through contractual 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 their hard work this past quarter and their ongoing commitment to grow our business. I would also like to convey to Justin Gill and the entire Bachan's team how excited we are about the opportunities to grow that lie ahead. This concludes our prepared remarks for today, and we'd be happy to answer any questions you may have. Operator?

[Operator Instructions] And your first question comes from the line of Scott Marks from Jefferies.

I just wanted to ask a little bit about top line performance in the quarter. I think you called out on retail, obviously lapping a very strong quarter last year as well as some of the government shutdown impacts. As we think about maybe the go forward, should we expect that the impacts from those government shutdowns are fully behind us? Should we be thinking about any type of inventory rebuild coming into the pipeline in addition to some of those Easter ships or any other dynamics that we should be thinking about with regard to the retail segment.

Yes. It's a great question, 1 that we've obviously watched carefully and maybe I'll try to frame it in little context for you. First, as you pointed out on the retail side of the business, we were going up against a strong comp last year, where our volume was actually up 7.4%. Then you sort of walked down from that, as you highlighted, we saw a bit of a category slowdown between the 13-week period and the 5-week period across all MULO and in our categories in particular. And importantly, Scott, as you pointed out, by the time we got back into December, we started to see those rates recover as we move along. As we then lift our focus to the go-forward period, we continue to believe that we're set up to deliver low single-digit volume growth against this business here. .

Got it. I appreciate the answer there. And then maybe just shifting over to the food service side. I think after last quarter, the commentary was pretty positive just around some of the initiatives within food service and being able to continue with some of the volume momentum. Obviously, volumes came in a little bit softer than folks were expecting. So just wondering if you can share with us maybe what happened in the quarter? What was the reason for the organic volume declines? And then how are you thinking of that rest of the year for that foodservice segment?

Yes. Let's do the same thing. Let's kind of ladder up and settle little context for the industry and then we'll bring it down specifically to our business. So at an overall industry level, I think the best way to categorize things that essentially, they're flat. We also saw a bit of a pullback in Foodservice during the period of the government shutdown. But there, again, we saw an element of normalization. If you look at most of our large national accounts were continuing to win with those Chile, Domino's, Taco Bell, et cetera. I would say in those particular cases, we were very satisfied with their performance and our performance.

If you go back and you look at the script for probably the last couple of periods, we talked about the fact that we were going to be lapping a couple of limited time offerings during this period that we thought were going to create a whole I think the setup that we used as we expected volume to be down a couple of points and for us to be able to get a little bit of pricing to get us closer to flat in the business. So I guess I think the way we were thinking about it then it came in I would say, at or maybe even slightly better than we were expecting.

Now let's come in maybe even a click deeper on what actually happened in the period. First, I think it's -- we've continued to work and benefit from our partners that are doing well on a relative basis and particularly, we had a number of specialty sauce promotions that were going on in the period, either new items that were limited time offerings or in some cases, just core menu sauces that we've used that select food service partners have decided to promote in the period. So on this piece of the business, as you continue to shift your focus forward, I would argue that we're feeling a little bit more optimistic than we might have the last couple of quarters.

All eyes are on the consumer to see what happens. But it's really hard to envision as we move now into calendar year '26, short Blackline, something changing materially on the downside. I think there are a couple of things that are working in our favor for everybody that services food service first, gas prices are down year against year, which we know gives consumers discretionary spending that oftentimes comes back and away from home dining.

The other thing that we're seeing here is like you, I think we're expecting income tax returns to be a little bit stronger this year than they were last year because of some of these changes. And those ordinarily hit around the time of President's weekend or so. So you put the fact that inflation remains relatively in check. Gas prices seem to be moderating some. There's a case for a slightly stronger income tax returns. I think the setup there for all the food service is at least for a flat scenario, if not for a modest improvement.

And it passed as prolog, what we see is that the winners continue to win in this environment. And I think this is where we'll continue to perform relatively well. So that would be kind of the view.

Our next question comes from the line of Todd Brooks with Benchmark at StoneX.

Congratulations on the Bachan's acquisition. I was wondering -- I know there'll be a plan for the synergies and everything that you look to be harvesting. But -- if you look at that business in '25, I think it was like an $87 million business. But wondering what kind of the exit rate was? It looks like maybe there was some SKU expansion, there was probably door expansion. As we think about maybe an exit quarterly run rate for Bachan's in Q4 25. Is there anything you can share there?

Yes. So why don't I maybe step back and frame it if you'll allow me a little more broadly. But first of all, this is a business that we had been tracking in the industry for the better part of 4 years. It's a really an amazing product and amazing brand. It's an authentic founder story. It's great tasting, clean label and what we love about this product. Todd, is that when you look at it, it's significantly over-indexes with millennials and Gen Z. So it does well with all of the various cohorts. But if you look at sort of the future of food consumption, and these are people that love their sauces. It does particularly well with those cohorts. .

And that, in conjunction with the fact that the brand has very broad shoulders, it plays in sauces, place in marinades, place in glazes, even in plays in dips. We tested all of these items. It gave us reason to believe that this could be a very meaningful brand platform for us. And as we talk to Justin Gill, the founder of the business and his team really what we focused on was the fact that we believe we have best in industry culinary and product development capabilities. We can't develop everything. But when it comes to sauces and dips and flavor systems, we believe that we really have top of the peer group capabilities. And I think that became part of a selling point for our partnership together.

Now as you pointed out, the business did $87 million in sales strong growth rate. If you look at the history of the business, it grew principally through Costco and then began to diversify into mass, into -- with Walmart and into retail. So the mix of the business was growing a little bit faster this most recent year in mass and in retail. The price point is premium, which gives us the ability to make it margin accretive. And as you might imagine, there is a synergy case here, given that this is in sauces and it's really our wheelhouse to be able to support this business.

So overall, you bring it all together, authentic founder story, great tasting product aligned with where consumers are going, GLP friendly, it really just made a lot of sense for us. So a very, very exciting item here. So -- and I'm going to give you a little inside baseball for those listening. We literally signed this last night. We had been following this business for 4 years. We have participated in the process. We've been diligencing it 4 months. But literally, we signed last night. So it's relatively fresh news.

And we'd like to come back to you with a more complete story for how we intend to grow the business and outline for you the synergy case and everything else. But suffice it to say, if you look at us, our history really started in dressing, and our most recent chapter of boat and sauces is come way of brands that we've licensed, and we love those brands. That being said, we've always wanted brand platforms that we could own that we could also grow. So we could have multiple pathways to grow. Our legacy brands, Marzetti, Sister Schubert and New York these amazing, highly relevant restaurant brands, but then over time, in the right circumstances to add additional brands that we think are consumer relevant for the future that we can own and help grow. So for us, it really checks all of those boxes.

That's amazing. And one nonrelated follow-up and I'll jump back in queue. Dave, if we think about the Texas Roadhouse inner roles, I think scanner data north of $20 million in the quarter, when you originally talked about the launch of the product, you thought this was the next $100 million offering within the licensed branded portfolio. As we look towards the back half, how do you think about exit run rates for this business given that distribution continues to grow. And you've also talked about possible extensions with additional flavorings and things like that. Can you address that as well? And I'll jump back in queue.

Yes, I'd be happy to. And thank you for asking. The business continues to maintain that same growth rate. If you look at it, you pointed out, the most recent period, we exited about a 20% -- $20 million run rate. Actually, the 5-week was better than the 13-week. And I think there's still room for us to continue to dial in the merchandising on the shelf and a range of other things. Parathetically, yesterday, I was on the phone with the team at Texas Roadhouse, and we were talking about partnership and how mutually excited we are about the whole thing. And we are also talking about other items that are in the pipeline. .

So you get to the end of our fiscal year. I think there's most certainly a case that this thing could be working towards a retail $100 million run rate. And this is an amazing brand. It's really one of those away-from-home brands that really connects with consumers in a good economy and in a tough economy. And we feel like we're uniquely suited to work with them in their iconic role platform to grow the business.

Your next question comes from the line of Alton Stump from Loop Capital.

As always, I guess, first 1 is for Tom. I want to ask with the $21 million in share buybacks, obviously, it's not a big number with where your balance sheet is at. But believe is the biggest number even on a full year basis that you bought back in over a decade. So I guess anything to read from that as far as your appetite for buyback forward obviously, you just completed a sizable deal. So that probably hasn't met that. But just kind of what your thoughts are when it comes to buybacks going forward

Yes. So great question. So obviously, with the stock trading off and with the rest of the sector, we felt opportunistically there was an opportunity to buy back. So we executed a limited number of buybacks during the quarter. Now as you've mentioned, we're levering that balance sheet against the acquisition of Bachan's which, as Dave articulated, will be tremendously positive for our financials over time. So I think at this time, it's safe to stay, we'll kind of go back to our attritional approach on buybacks. That said, on the dividend policy, we continue to expect to grow it, consistent with our history. Even with this acquisition, given the very strong cash position the company has developed over time. .

Understood. Makes sense. And Dave, than for the color that you just signed this deal last night. So I'm sure there's going to be some more information on the opportunities as you kind of work through things. But I think you mentioned that it grew 48% annually during '20 to 2025. So clearly, and we're just established in 2019, like I said in the release. So it's obviously a brand new brand. I would think that there's a ton of distribution opportunities. Like you mentioned that they've obviously had a lot of the growth in Costco and Walmart maybe just high-level color on kind of what the distribution upside potential could look like?

Yes. Well, our early thinking on things as we get to know the business is maybe, first of all, this is a very, very capable team, a very cohesive team, and our intention is to keep the team together and really augment them with our resources to help them grow rather than to to do anything other than that, really continue that momentum. As we think about how we intend to grow that, it's likely to come in 3 stages where the first phase is going to be focused on really refining the distribution that they have in place. The second phase would come by driving new items that were in their pipeline and in our pipeline and really helping them execute those. And then the third phase would be extending them even more into broader adjacencies with new items.

So this is a brand that plays most certainly well in the United States, we've seen it, and it's also a brand that we believe could play in a very meaningful way in Canada, if not other countries beyond. The last thing that I'll point to is if we look at this, one of the things that the business that really impressed us is when you look at the velocities of these items, the velocities are really remarkable. And the other thing that we saw that we really liked about it is the Net Promoter Score which is that ratio of positive feedback to negative feedback. And the Net Promoter Score on this brand was higher than virtually any other brand that we tested out there, including many of the the most popular items that the industry has talked about most recently, whether in sauces or even in other categories. So the setup here is very, very positive.

Your next question comes from the line of Brian Holland from D.A. Davidson. .

Maybe just sticking along with the Bachan's acquisition. So when you make an acquisition like this, there's two factors to consider. The availability of a desirous asset. You're talking about this from a timing perspective. So the availability of the desires asset and the preparedness of the acquirer to complete the acquisition. I think, Dave, as you and I have talked about, obviously, the market generally has some skepticism, spotty M&A track record. Historically, I think it's fairly straightforward here, looking backwards, some of those acquisitions were taking big swings that were focused on addressable market expansion, et cetera, big swings at least from a new category standpoint, not necessarily size.

This is really in your wheelhouse. So can you just kind of talk about why this -- less about the asset. We know about that and we can dig into it in just a second here. But why now is the right time for Marzetti to be able to execute and integrate this asset in a way that it may not have been able to do 5 years ago?

No, it's -- Brian, I'm really glad you asked that question, and you followed us long enough and closely enough, so I think really appreciate the journey that we've been on. And I think I would maybe talk to several things. Over the course of the last handful of years, we've really begun to narrow our focus into building end-to-end capabilities in sauces, dressings and dips. Even when we think about our do items, we think about the ability to stick flavor on top of those often tux, but focusing narrowly on sauces and dressings and dips, which is our core.

This whole transformation has taken place in several steps. One has been going back and looking at our asset base to modernize those to make sure that we can move from slower, less efficient filling lines, a highly efficient, scalable manufacturing and filling lines. And that was played out with Forest cave. It was played out with some of the other smaller expansions, and it was also played out with the most recent acquisition that we did at college car. As we worked our way through that, as you're aware, we looked at assets to buy, but the prices didn't make sense or the asset didn't make sense for what we were trying to achieve, and instead, we leaned into another organic growth pathway, which for us has been licensing.

And we've added, as you know, over that period of time, I'm guessing $400 million plus or so of profitable revenue by way of that licensing arm. You continue to move forward with that. We had an antiquated IT infrastructure system. We had a cobalt-based system installed in 1994 that we tore out and replaced during COVID, and we went to really end-to-end SAP S/4 HANA, all based in the cloud all with our data in one data lake. So another element of modernization. So as we've worked to grow by way of organic activity and inorganic activity, with licensing, we've also worked in earnest to strengthen our capabilities. So we could get to a point where we feel like we have industry-leading culinary and product development capabilities, industry-leading manufacturing capabilities and then industry-leading marketing and selling capabilities.

So we're at a moment in time now where most of the infrastructure, let's call it, remediation and rebuilding is behind us. whether it's in the IT space or whether it's in the physical space. And it was a logical time with this experienced team to think about an acquisition, and this acquisition, like you said, was just really right down the wheelhouse. It has a combination on the asset now of a great founder story, clean label, great tasting products I could go on and on. And the partner, Justin Gill and the team that he has built is really top like.

So you bring all that together, it really made us feel like this was the time for us to think really hard about this. If we get it at the right price to move forward, and we felt like this was the right price for us.

Appreciate it. It's always a thoughtful answer. And then forgive me, if you've referenced this earlier in your remarks, and I just missed it. But just curious on the integration, the cost seg side and supply chain, et cetera. Are you -- what can you offer immediately? Do these -- are they self manufactured? Is this something you get to bring in house, obviously, the excitement, enthusiasm around growth will maybe need more capacity at some point? Is that something that you can offer immediately? Or will that require some capital investment in a meaningful way to allow for that future growth runway?

Sure. So as it stands today, the business is co-packed 100%. And obviously, that provides us with a pathway to integrate some of the manufacturing into our network, but this is one of those scenarios where we most certainly want to go slow to go fast. We want to make sure we understand the business. We want to make sure we understand how to manufacture the business. They have a good copac partner that's out there right now. And the last thing we want to do is a bugger this thing up. So -- but as you think about over the longer arc of time, there is a strong case for synergies here throughout the supply chain. And then we talked about the synergy case as well.

And our last question comes from the line of Jim Salera of Stephens.

I wanted to dig in a little bit, if I could, on Basham's potential on the margin side. as we think about pension, it's 100% co-man. I assume that you have the capabilities in place to make this in one of your existing facilities. Is there -- any way you can frame up the opportunity for where the margins might come in, whether it's relative to kind of your existing margins? Or if you have a specific number in mind?

Yes. So this is a very high-margin business. The product sells at a premium price point, justifiably and the existing margins are accretive to our existing retail segment at gross margin. So we're starting off with a premium product and as we look at it, we have opportunities not only in terms of utilizing our capabilities in manufacturing, procurement, distribution is another drill site for us. So this is going to be immediately margin accretive to us at the gross margin level with potential to add to that going forward.

And then I wonder if you have any detail on, do they have any sales in foodservice right now? Because I know we've seen other brands do kind of collaborations with food service partners if they have a particularly weak or kind of prominent thoughts? Is that or that's a possibility? .

No, it's a great question, and it's a great opportunity for us. Right now, they do a very limited amount with foodservice customers. And as we work with them over the course of several meetings, we both felt like this is a really exciting opportunity where we obviously have great capabilities to help them work with national accounts. Ideally, if you can imagine a Bachan's barbecue sauce, a wing sauce of some sort of feels like a home run. So there's a range of opportunities there potentially with national accounts that we would like to investigate. And also just opportunities up and down the street. This is a tabletop item that people also use to drizzle, particularly on volts. So they're in a real food service opportunity here, and one of the things that I think that the team at Bachan's was liked about us was our food service reach.

Perfect. And then if I could just sneak in 1 quick near-term question. Just with all the moving pieces for 3Q with estating pull forward and then 3Q is also going up against a negative comp in the year ago. I think sales were down like 3% in 3Q '25, would it be reasonable to expect 3Q to be up kind of if we're thinking kind of 2% for the year, that 3Q would be like 3% to 4% and then 4Q would be the balance of that to average to for the year. I just want to make sure we're kind of getting the cadence right as we think about modeling overall the calendar changes and then the year-over-year could lap.

Yes. We have -- for retail, we have low single-digit revenue growth for the second half. It actually is fairly even by quarter as forecasted today. And certainly, we do have -- while we have the Easter tailwind, we have some difficult new item launch comps in Q3 and in the club sector. So I would model it fairly even by quarter.

If there are no further questions, we will now turn the call back to Mr. Sisenski for his concluding comments. .

Well, thank you, operator, and thank you, everyone, for participating this morning. We look forward to sharing with you our third quarter results in May and giving you more exciting information about the acquisition of Bachan's. Have a great rest of the day. .

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Good morning. My name is Kathy, 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 2026 First Quarter Conference Call. Conducting today's call will be Dave Ciesinski, President and CEO; and Tom Pigott, CFO. [Operator Instructions] Thank you.

And now to begin the conference call, here is Dale Ganobsik, Vice President of Corporate Finance and Investor Relations for The Marzetti Company. Please go ahead.

Good morning, everyone, and thank you for joining us today for The Marzetti Company's Fiscal Year 2026 First 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 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 discussion of these risks and uncertainties is contained in the company's filings with the SEC.

Also note that an audio replay of this call will be available on our website investors.marzetticompany.com later today. For today's call, Dave Ciesinski, our President and CEO, will begin with the business update and highlights for the quarter. Tom Pigott, 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 answer any of your questions. Once again, we appreciate your participation this morning.

I'll now turn the call over to Marzetti Company's President and CEO, Dave Ciesinski. Dave?

Thanks, Dale, and good morning, everyone. It's a pleasure to be here with you today as we review our first quarter results for fiscal year 2026.

In our fiscal first quarter, which ended September 30, consolidated net sales increased 5.8% to a record $493 million. Excluding noncore sales attributed to a temporary supply agreement, or TSA, adjusted net sales increased 3.5% to $483 million. I am also happy to report that we achieved first quarter records for gross profit, which reached $119 million and operating income, which grew to $59 million.

In our Retail segment, net sales increased 3.5%. This was led by our category-leading New York Bakery frozen garlic bread products, including notable contributions from the delicious gluten-free Texas Toast that we launched last fall. Volume gains for our successful licensing program also contributed to the increase in Retail segment sales, driven by Chick-fil-A sauces, Buffalo Wild Wings sauces and Olive Garden dressings.

Circana scanner data for the quarter ending September 30 showed strong performance for several of our core brands and licensed items. In the Frozen Dinner Roll category, our own Sister Schubert's brand in our licensed Texas Roadhouse brand combined to grow 27.4%, resulting in a market share increase of 650 basis points to a category-leading 66.5%.

In the Frozen Garlic Bread category, our New York Bakery brand grew sales 8.6%, adding 350 basis points of market share for a category-leading share of 44.1%.

In the Produce dips category, sales of Marzetti brand increased 4.1%, adding 220 basis points of market share for a category-leading 82.1%.

In the Shelf Stable Sauces & Condiments category, sales of Chick-fil-A sauces grew 9.6%, well ahead of the category, 0.2% growth rate, resulting in 17 basis points of share growth. Chick-fil-A sales benefited from both expanded distribution into the club channel that began during our fiscal fourth quarter and increased sales of the iconic sauces with traditional retailers.

In the Foodservice segment, excluding the noncore TSA sales, adjusted net sales grew 3.5%, while volume measured in pound shifts increased 0.5%. In addition to the benefit of inflationary pricing, the increase in Foodservice segment sales reflects increased demand from several of our core national account customers. During the period, we are pleased to report a 7.2% increase in gross profit to a first quarter record of $119 million. 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 Pigott, our CFO, for his commentary on our first quarter results. Tom?

Thank you, Dave. Overall, the company delivered against this growth algorithm. Both the top line and gross margin performance improved and investments were made to continue to drive growth. First quarter consolidated net sales increased by 5.8% to $493.5 million. Breaking down the revenue performance, higher core volume and product mix drove a 210 basis point increase. Net pricing was accretive by 140 basis points.

In addition, the company reported $10.7 million or 230 basis points of growth that resulted from a temporary supply agreement with Winland 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 noncore sales are expected to conclude during the quarter ended March 31, 2026.

Consolidated gross profit increased by $8 million or 7.2% versus the prior year quarter to $118.8 million and reported gross margin expanded by 30 basis points. The gross profit growth was driven by our ongoing cost savings programs and volume growth. Note that excluding the $10.7 million in sales from the temporary supply agreement, which did not contribute meaningfully to gross profit, adjusted gross margin expanded by 80 basis points.

Selling, general and administrative expenses grew $3.5 million or 6.3%. The increase reflects a higher marketing spend as we invested to support the continued growth of our Retail brands, higher brokerage expenses as well as increased compensation and benefits.

During the quarter, the company recorded $1.1 million in restructuring and impairment charges. The charges are attributed to the planned closure of our sauce and dressing facility in Milpitas, California that we previously announced. This closure was part of our ongoing initiative to optimize our manufacturing network. Production at that facility has concluded and the property is currently being marketed for sale.

Consolidated reported operating income increased $3.4 million, driven by the strong gross profit performance, partially offset by the higher SG&A expenses and the restructuring and impairment costs. Excluding the restructuring and impairment charges, adjusted operating income grew by 8.1%.

Our tax rate for the quarter was 22.4% versus 22.8% in the prior year quarter. We estimate our tax rate for fiscal '26 to be 23%. First quarter diluted earnings per share increased $0.09 or 5.6% to $1.71. The restructuring impairment charges I mentioned reduced diluted earnings per share by $0.03 in the current year quarter.

With regard to capital expenditures, our payments for property additions totaled $15.6 million for the quarter. For fiscal '26, we are forecasting total capital expenditures of between $75 million 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 returned funds to shareholders. Our quarterly cash dividend of $0.95 per share paid on September 30 represented 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 over $182 million in cash. During the quarter, the company generated $69.5 million in operating cash flow, an increase of $49.6 million versus the prior year quarter.

To wrap up my commentary, our first quarter results demonstrate strong execution across a number of areas that drove top line and bottom line growth in a difficult operating environment. In addition, we continued 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. Suffice it to say, it's a dynamic and some might add challenging time in the food industry, tariffs, stubborn inflation, GLPs, MAHA and consumers under financial pressure often make it difficult to generate organic growth. Against this backdrop, I couldn't be more proud of our team at Marzetti, which continues to leverage our portfolio of trusted brands and our industry-leading innovation capabilities to make great-tasting, consumer-relevant products and deliver sustainable growth for our shareholders.

As we look ahead, 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, to: one, accelerate core business growth; two, to simplify our supply chain to reduce our cost and grow our margins; and three, to expand our core with focused M&A and strategic licensing.

Looking ahead to our fiscal second quarter and the remainder of our fiscal year, we anticipate Retail segment sales will continue to benefit from growth from our licensing program, including expanding distribution for the popular Texas Roadhouse Dinner Rolls and contributions from our own brands.

In the Foodservice segment, we expect to benefit from sales to select quick service restaurant customers in our mix of large national accounts. 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 the quarters ahead that we plan to offset through contractual pricing and our cost savings programs as we remain focused on continued margin improvement.

In closing, I would like to thank the entire Marzetti Company team for all their hard work this past quarter and their ongoing commitment to grow our business. This concludes our prepared remarks for today, and we'd be happy to answer any questions that you may have. Operator?

[Operator Instructions] Your first question comes from the line of Alton Stump from Loop Capital.

Great. Congrats on the quarter. Obviously, it was great to see volume growth exceed expectations in both of your segments during the quarter. I guess I want to ask you about the inflationary front on your Foodservice business specifically. Could you remind us sort of how the pass-through mechanism works in a segment. It's obviously different versus Retail operations. Just how much of a lag there is, if anything, when you're passing through what appears to be an inflating environment on the Foodservice side?

Yes, Alton, I'd be happy to answer the question. So as you recall, 75% of our business or so is tied to large national accounts. And every one of those customers have an agreement whereby on a quarterly basis, we sit down and we mark-to-market on their key ingredients. So usually, what we'll see happen is if, let's say, in said quarter, we start to see one of our commodities inflate, we'll sit down with them and we'll document that. And that's passed along right into the price of the product.

And it's true as we inflate and it's also true as we deflate. In the current environment, what we're seeing, Alton, is that we're seeing things like soybean oil back off a little bit. We're seeing eggs back off a little bit. Shelled eggs are moving up, but the eggs that we buy, which are yolks and whole eggs are backing off of some of their historical highs. So what we continue to see in this environment is modest inflation that we feel more than comfortable that we can cover by way of pricing and then value engineering work that we have.

That's great, Dave. And then I guess just one follow-up and I'll hop back in the queue. But just on a quick reference to Chick-fil-A sell-through data, being up almost 10%, I mean, obviously, this has been a huge home run for you guys when it first came out some years ago, but that I think is one of the bigger growth numbers that we've seen from Chick-fil-A over the last 2 quarters, as you obviously are up against, of course, tougher and tougher comparisons each year. And of course, you referenced the increased club channel distribution. Was that really the key driver of that? Or was there any sort of core underlying strength that you saw to drive that almost 10% sell-through number?

Yes. Great question. A lot of that was expanded distribution into club. And we did see some growth also in our core Retail business as well. And I think it's worth stepping back, it was in April of 2019 that we flew to Chick-fil-A and we met with that great partner. We talked about the idea of taking the product into Retail, and they very excitingly got behind it. And we did all the work necessary to bring in into the market. So here we are 5 years on.

And if you combine the Retail sales of both the sauce and the dressings, we're talking a $200 million, $220 million in Retail sales business. So with a lot more that we both believe, we being The Marzetti team and Chick-fil-A that we can do with this great brand platform. So we're very excited.

I think the other notable thing with club is that it's allowing us to further improve our household penetration and reach more customers. So we believe that channel is going to be an important long-term way for us to reach consumers in addition to mass and retail.

Your next question comes from the line of Jim Salera with Stephens.

I wanted to drill down a little bit more on Foodservice. Given the strong results there, even when we strip out the TSA, particularly given what a lot of restaurant companies are reporting right now. Can you just walk us through where the outperformance there came from, again, as kind of restaurant commentary across the industry is pretty downbeat. Is it the type of products that you're supplying to your restaurant partners are kind of more in demand? Is it the brands that you're servicing? Just any color you can provide there would be helpful.

No, I'd be happy to. So I think you understand as well as anybody else that the core of our Foodservice business, our large national accounts. If you look at the most recent period, 5 of our 7 largest national accounts were actually growing sales and traffic in the period, led -- in that group led by Chick-fil-A, which is doing an amazing job with pretzel club sandwich that they launched that LTO, which we were more than happy to provide the sauce for. Domino's is another very important strategic customer for us, and they've been growing in this period. Taco Bell grew in the period and then others did as well.

So I think part of what's happening here, Jim, if you kind of ladder back and you look at the challenging backdrop, I would point to 2 things. One is we are blessed enough to be able to win with the winners. The people that have a value proposition in this environment that consumers continue to find relevant and they're willing to spend their hard-earned money against. The second is we're playing in categories that are relevant for these customers. They're all looking for ways to differentiate themselves and cut through this noisy backdrop and screen flavor. And that really is our wheelhouse. So that's how we feel like we've been able to do it in the quarter. It helped us offset a bit of a gap that we had that we've been talking to you guys about with some discontinued items.

And it sets up, I think, for us to continue to be able to grow and it highlights part of the durability of our overall business strategy, which is flavor, flavor, flavor on consumer-relevant forms that our customers in Foodservice continue to see as important and their consumers, the end-using consumers ultimately enjoy eating.

Great. And Dave, if I remember correctly, when you talked in fourth quarter, the expectations for Foodservice for full year '26 were kind of flattish. Any update to that outlook given the outperformance in 1Q and then some of the dynamics you just referred to?

Yes. If you remember, we were a bit cautious about the volume outlook because we had a couple of big customers that discontinued items. And we thought we were going to get flattish on sales by way of a little soft volume and a little bit of inflationary pricing that got us there. And I think if anything, what we're seeing in this environment is that the Foodservice outlook has improved modestly based on what we're seeing.

Your next question comes from the line of Scott Marks with Jefferies.

I wanted to ask on the profitability side. You made some comments in the prepared remarks about some increased marketing spend. Just trying to gauge how much that impacted the Retail segment. I think profit for that segment came in a little light of what folks were looking for. And I know you've been playing a little bit with some of the marketing, some of the promotional spend. So just wondering if you can share an update on that and how we should be thinking about that.

Sure. So overall, when you look at Retail profitability, it was down in the quarter as you highlighted. Three main drivers to that. First, as eggs prices have gone up considerably, we price for that. But we've priced for the longer-term outlook. So right now, in this particular quarter, PNOC was negative for Retail and that impacted the margin profile this quarter.

The second thing on the margin aspect of Retail is we've done a lot of efforts on the network to close the Milpitas facility to activate the College Park. A lot of those savings are flowing more to the Foodservice P&L. So over time, we'll begin to get more productivity savings on Retail. But right now, as you look at the Foodservice profitability, it's getting the main benefit.

Now getting to your -- the core of your question, the investments in marketing, we see an opportunity to continue to elevate our marketing in Retail. We're below a lot of the peers in what we've spent. And we're getting great response in terms of the programs we're putting in place with the marketing team. So we're going to continue to invest in that space.

When you look at the SG&A in Retail, the majority of that increase was that marketing spend. We also had slightly higher brokerage costs relative to the higher volume performance for the segment. So overall, we feel good about the investments we're making into the Retail segment and the overall profitability outlook.

Appreciate the color there. A follow-up question would be, there's been a lot of commentary from some of your peers recently around a softer U.S. consumer. Obviously, your business seems to be bucking the trend a little bit, have some benefits from some of the distribution initiatives. But just wondering if you can kind of help us understand how you're seeing the consumer today? And how are you feeling about kind of the core underlying business relative to some of those distribution wins that you noted?

Yes. No, Scott, we're seeing the same thing that everybody else is. We're looking at a consumer that's under pressure. All that being said, the consumers are still eating and flavor still matters. And I think what we're choosing to do is really leverage our innovation capabilities and bring to the market products that they're finding relevant. Maybe I could kick off a couple.

I would, on the Retail side, point to New York Bakery, which is in a bit of a sleepy category, right, garlic toast. If you look at it sequentially, we've been growing that business quarter after quarter, at least to 44.1% share in the most recent period. That's behind our own toast. It's behind the new gluten-free item which has increased in velocity and a value pack of bread sticks that we have. So great item even in this economy that consumers are finding relevant -- as it pertains to our roll business here, again, I think we were up about 650 basis points, if I recall, or thereabouts in overall market share.

We're growing our share. We're also growing the category considerably. Our own Sister Schubert's brand was roughly flat, and the real growth there is coming from the Texas Roadhouse roll, which is terrific. We love to repeat on that item, great tasting roll, affordable price point, where consumers can treat themselves.

If you move around and you look at our Marzetti brand, we've had a great season so far in our dips and caramel dip. And I think all of these are just affordable luxuries that even against a challenging backdrop, consumers can afford. So is it challenging? Yes. Do we see pathways to leverage innovation and good execution to continue to grow? Yes. Would we like the growth to be even faster? Absolutely. But -- and we're going to continue to press for it. But we continue to see against all of our different owned brands and licensed brands, the ability to, even against this backdrop, grow because flavor matters and we believe that our innovation capabilities around flavor is among, if not the best in the industry.

If there are no further questions, we'll now turn the call back to Mr. Ciesinski for his concluding comments.

Well, thanks, everybody. It's been a short call, but a good call. We enjoyed sharing our results with you. We look forward to seeing all of you guys on the road during the course of the next quarter and look forward to getting together when we announce our next earnings in February. Have a great rest of the day.

Thank you, and thank you for your participation. This does conclude the program. You may now disconnect.

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 Ciesinski, President and CEO; and Tom Pigott, CFO. [Operator Instructions] Thank you.

And now to begin the conference call, here is Dale Ganobsik, 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 as The Marzetti Company effective June 27. 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 Colony 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.

Please note that 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 1995. These statements are subject to a number of risks and uncertainties and 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 Ciesinski, our President and CEO, will begin with the business update and highlights for the quarter. Tom Pigott, 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. I'll now turn the call over to the Marzetti Company's President and CEO, Dave Ciesinski. 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 30, 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 30, we are pleased to report that consolidated net sales grew 5% to a fourth quarter record of $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 brands. During the quarter, we increased our marketing investments with proven strategy 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 intervals and new club channel sales for Chiclayo. Our flow Wild Wing sauces also added to the growth of our licensed items.

Our category-leading New York Bakery frozen garlic bread remained a key contributor to the growth of our retail segment, driven by contributions from our recently introduced gluten-free Texas Toast. Our Sister Huber's brand, frozen dinner rules 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 perimeter of the store bakery items that we exited in fiscal year 2024, the retail segment's fourth quarter net sales increased 3.6% and retail sales volumes measured in pounds shipped increased 2.9%.

Circana scanner data for the quarter ending June 30 showed strong results with both sales dollars and volume for our branded products up 5.5%. In the frozen dinner roll 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 of Chick-fil-A sauce 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 Foodservice segment, excluding noncore 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, Foodservice 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 Foodservice 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 Pigott, 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 continue to invest to drive growth. Fourth quarter consolidated net sales increased by 5% to $475.4 million. Breaking down the revenue performance, higher core volume and product mix drove a 190 basis point increase. Net pricing was accretive 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 Winland 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 noncore sales are expected to end by March '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 the prior year quarter to $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 Milpitas, California, that we announced last quarter. This closure is part of our ongoing initiatives to optimize our manufacturing network. Production at that facility is expected to conclude during the quarter ended September 30. 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 decreased $2.8 million due to higher SG&A 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%. The fourth quarter diluted earnings per share decreased to $0.08 or 6.3% to $1.18. The restructuring impairment charges I mentioned reduced EPS by $0.15 in the current year quarter and $0.08 for 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 $0.01 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 2016, we are forecasting total capital expenditures of between $75 million 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 returned funds to shareholders. Our quarterly cash dividend of $0.95 per share paid on June 30, represents a 6% increase from the prior year's amount. Are during streak of annual dividend increases stands at 62 years. Our financial position remains strong with a debt-free balance sheet and $161.5 million of 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%. We adjust operating income for restructuring impairment costs recorded in both years, the current year's acquisition costs as well as last year's inventory write-down for the 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 3 simple pillars of our growth plan: One, accelerate core business growth; two, to simplify our supply chain to reduce our cost 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 Schubert's 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 we'll launch in the year ahead.

In the Foodservice segment, we expect sales to be supported by growth from select QSR customers and our mix of national chain restaurant accounts as our culinary team continues to provide our foodservice partners with a wide range of innovation initiatives and favorable 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.

[Operator Instructions] Your first question comes from Jim Salera with Stephens.

With some thoughts around Foodservice because there's a lot of noise right now around the consumer. It seems like there's certain QSR platforms that are really focusing on value, but other ones that continue to do well kind of despite the backdrop. And a lot of the menu innovation seems to be more focused around chicken, which I would anticipate benefits your business. So -- can you maybe just walk us through as we think about FY '26. What are your expectations around QSR industry traffic as a whole? And then innovation for the accounts that you service and maybe how we put that all together to come up with expectations for the Foodservice business in '26?

Yes. Well, great question, Jim. And maybe I'll start by framing it as follows. If you go back, let's say, 18 months or 1 year ago, the industry was still wrestling with inflation and passing through pricing, and I think that pricing that went through created value issues for a range of consumers, particularly consumers in the middle and the lower incomes that started to manifest itself in trade down. I think as we've rolled forward now, most of the operators have cycled past that pricing. And as we look at our core operators, we can see that they're not passed into pricing like they've had.

And I would tell you, as a whole, it looks like commercial foodservice has modestly -- is either flat or very modestly improving within, let's say, the last couple of months. But when I say modestly, I mean about one point, approaching closer to flat. Now within there, it becomes somewhat divergent and a little bit different than we've seen in prior periods. We're seeing segments with higher price points like casual dining that are struggling a little bit more. And you've read about that. I know you follow the space. You're seeing the casual dining guys, the legs of Chili's and even Apple Be starting to perform a little bit better as they've really focused on simplifying their menus, their back of house operations and striving to give consumers value.

In the QSR space, I think we've seen them over the last, let's say, three quarters struggle with getting on the better side of pricing. And now we're starting to see their traffic get closer to flat overall. And that's, in fact, true with a lot of our customers. It's still below what we would have seen historically, but I would tell you, it's modestly improving. As we go forward, what we would expect is neither a catalyst for a significant downturn nor a significant improvement. I think we're just going to continue to operate in the sort of broader macro environment.

Now bring it closer to us, where is it that we're going to find pockets of growth. I think there are several themes that remain true. One is you're going to see these operators continue to look for ways to present value. In the casual dining space, the Chili's and guys like that, I think you're going to see them continue to hover around meals for the $15 mark to attract guests and then look to plus that up with incremental items. In QSR, I wouldn't be surprised if we see things like what McDonald's has done around snacking and with chicken. And then I think the trend that really is going to continue to benefit us is going to play probably a couple of ways, and it's in chicken. The chicken operators continue to do better than most of the others, let's say, hamburger, et cetera. So I think that's going to present an opportunity for continued growth and an opportunity for us to continue to innovate with those operators that are out there.

I also think I didn't talk about Pizza QSR. I think Pizza QSR will continue to be relevant, particularly as they focus on absolute price points. At the end of the day, consumers, I think, are trying to balance their sources and uses of cash. And they're still looking for affordable ways to feed their family and find sources of happiness. And I think Foodservice will continue to factor into that the onus is on us to figure out ways to help these operators present that and grow.

That's great. And then, Tom, if I could ask one of you on the commodity side. It sounds like you guys have a pretty robust productivity program coming continuing into FY '26. We've heard some commentary around soybean oil specifically and potential supply crunch there with some of the domestic going towards biofuels. And I'm no commodity expert, but I know if I just look at the spot price for soybean oil, it's up pretty significantly year-to-date, and it kind of took a leg up more recently when the EPA announced some news around the biofuel. So can you just give us any thoughts around your visibility in the soybean oil pricing if you're able to tell us how much of the commodity basket that is for you guys if you're -- just kind of any thoughts around that? And potential variability as we go into the new year and have kind of this biofuel demand that could potentially pull?

So Jim, it's a great question. It's an important part of our commodity basket. Maybe I'll lead off and then let Tom get into some of the specifics as well. As you noted, over the last probably or 8 years, we've started to see soybean oil play a more prominent role in renewable diesel. As we got to the end of the administration, there was somewhat -- some uncertainty regarding how much volume would be renewed in RVOs or the amount of gallons that are going to go towards renewable diesel. Earlier this summer, the EPA came out with guidelines that elevated the soybean oil being diverted into renewable diesel. And to your point, it resulted in a spike up until that point on the Board, it was probably trading, I would say, in the mid-40s or thereabout. And then it jumped into the mid-50s. It got up to as high as $0.55. And now it's stop I looked at it this morning, actually on the Board and it was about $0.51. There are still a couple of areas that have yet to be resolved in this space that I think could ultimately dictate where the price nets out. Ordinarily what they do is they allow an exception for small refiners. And if they continue to grant that exception, what you might see as those commodity costs for soybean oil continue to fall back a little bit more. So it remains within our expectations. So we don't see it as a near-term headwind for our business. We do take hedging positions with our suppliers on this. And maybe with that, I'll turn it over to Tom and he can provide you with a little bit more.

Yes. I think Dave said on the broader market indicators and -- and what I would share with you is that we do utilize a consultant to help us analyze this market because it's very complex. And we have a team that goes out and takes positions when we think that are advantageous to us. So as we look at the total cost as a percent of our COGS, soybean oil is about 10%, depending on the market at that point. And in terms of our outlook for next year, from our internal cost projections based on the current markets and our hedging positions, it's neither a big headwind or tailwind for us.

Yes. We've been layering in on this for a while, Jim, anticipating this. So these changes aren't anything new. Just to give you an idea, if we went back 7 years ago, took a bean and you crushed it. The meal went to be essentially chickens and cattle and hogs and everything else and the oil then would be diverted into the food supply. Now virtually half of that oil is being directed into renewable diesel. So this is sort of a phenomenon that we've been watching here very carefully. And not only do we buy for ourselves, but we sit down on a regular basis with all of our big customers and QSR space, and we advise them and work with them to take positions as well so we can create an element of predictability with this important commodity.

Your next question comes from Todd Brooks from The Benchmark Company.

Two questions for me as well. First, if we look at the G&A spend, I know we talked about some incremental marketing investment behind the retail operation. I think you called out about $500,000 of onetime costs related to the new facility. I'm just wondering, I'm seeing a kind of a 140 basis point uptick year-over-year -- how much of that was the marketing spend? And were there some other onetime items around the corporate name change or anything that didn't get called out in the release? And how should we think about maybe a normalized type of percent of sales spending for G&A as we think about fiscal '26?

Great question, Todd. So -- the spend was up for 3 factors. One was the marketing, which was almost half of the increase, and I'll let Dave talk to that. Other two drivers were as you mentioned, the Atlanta integration and the legal costs, we don't -- those are more transient items. We don't expect them to continue. And then the third driver is that some timing of costs from Q3 that flowed into Q4. So broadly, we don't expect to grow that line more than inflation, and we're very happy with the reinvestment we made into the marketing spend. I'll let Dave talk a little bit about that.

Yes. So as Tom pointed out, half of it was directed into marketing and essentially what we're doing, Todd, is we have a new leader in the marketing organization that's doing a great job digging into the data that we have and looking at the digital tools at our disposal, and we invested in some very specific programs that helped us drive household penetration. If you look across our shares, we were up share-wise in 5 of our 7 categories. And I'll give you sort of anecdotally why we feel good about it. You look at our own Texas Toast brand. Right now, we have -- we ended the quarter with about a 43% share. With that product, our household penetration was up 8 points in the quarter. And our repeat rate on that item is almost 60%. And our belief continues to be if we can make smart marketing investments at reasonable prices, and we can drive household penetration, the performance of that product keeps those consumers in the hole and allows that business to continue to grow period-on-period. And we took that same sort of formula, and we use it across a range of different products in a very point-specific basis. And we think it's along with innovation going to be an important part of our overall algorithm that allows us to deliver profitable volumetric growth.

That's great. And then just a follow-up on that, Tom, before I get to the other question. When we talk about kind of growth in line with inflation for '26, what's the normalized base that we should be thinking about growing that off of?

I would take the reported number, pull out the Atlanta integration costs, and that would be your base.

Okay. Perfect. And then my second question, and you talked about this as one of your offsets for the moderate inflation that you're expecting in fiscal '26. Can we you talk to -- and this is something you've long been expert at, the cost savings that the team was able to realize in '25? And then the outlook for '26 on cost savings, just thinking that we've got some probably chunkier opportunities around the Milpitas exit and ramping that volume to the right spots and the rest of the sauce and dressing production system?

Yes. So when you look at '25, team did an outstanding job against a number of pillars, procurement savings, negotiating more favorable contracts for us. Value engineering, which is optimizing our products to make them more efficient and less costly to produce labor management. We also benefited from the SAP implementation as we got better information on our costs. So a number of things contributed to the performance that the team was able to achieve in '25. As we look at -- as we look forward into '26, what I would add to that list is the network reset that we're doing. So essentially, between closing the Milpitas facility and ramping up College Park, that gives us another pillar to drive cost savings into '26. And I think as we look at it, right now, we're in the midst of that transition. So we're decommissioning lines in California, commissioning lines in Atlanta and moving volume into Horsecave as well. There's a lot of change going in going on right now in our networks, and we're executing well against those. As we get into the back half of fiscal '26, I think we'll begin to see more of those benefits flow through to our margin as the year progresses.

Your next question comes from Alton Stump from Loop Capital.

Just to clarify, from a male perspective, of course, you mentioned, Tom, that the agreement will go through March, obviously, the first 3 fiscal quarters. Should we kind of think about the revenue contribution from that similar to what it was in most recent 4Q?

And you're referring to the temporary supply agreement that we have in the sales on that?

Yes, consistent throughout the first 3 quarters. Yes.

So our preference would be that you exclude that revenue from your model just because it's temporary noncore and project off of a more organic number, which would exclude that revenue.

Got it. Okay. Okay. on the modeling front. And then I guess just fundamentally, there's obviously a lot of mixed signals as far as the consumer. You guys, of course, have a good fewer things because, of course, your Foodservice business kinds of benefit when consumers eat more home and where is obviously retail -- I'm sorry, vice versa that food supers benefits and people are eating out more, where is your retail benefits when they're staying at home being more. So I guess, as you kind of look at overall dynamic, how do you think the consumer environment will impact each of your businesses separately?

Well, maybe I'll take a shot at that, Tom can add. As we kind of roll our way through the end of this calendar year and we go into the next. As long as we don't see things like inflation spike, I think there are two things that could be potential catalysts for tailwinds. One is the fact that we see interest rates start to recede, I think that could be a net benefit. I think the other is we're watching crude oil prices and gas prices, which remained flat to down. And if they continue to pull back, I think -- we've seen in the past that gives consumers discretionary spending to be able to use on eating out or spending more to eat at home. The other is, we've read a fair amount about the fact that with the OB3 the 1 big beautiful build. The sense is when we get into the calendar year, there's going to be potentially tax benefits to consumers that could give them an incremental discretionary spending to use. So I think as we look into the future, we're cautiously optimistic that the consumer might start to see some modest tailwinds as long as we can keep inflation in check. You come around then and you say, what does that mean to our business overall. I would expect to see the foodservice situation continued to sequentially improve for all of our customers, really. And I think as long as we remain in this sort of value environment, there are going to be winners and losers. And I think that we tend to line up more with the winners.

I think on the retail business, sort of independent of the macro environment. We're excited about the pipeline of new items that we're bringing to the marketplace. We're just now starting to roll out Texas Roadhouse roles to all of retail. We think that's going to be a source of continued growth for our business. We have a range of other new items for Texas Toast and Sister Schubert that we're excited about. We have a new item of Olive Garden Italian, which allows us to attack a part of that category that we don't play in today, which we think is just growth waiting for us. So we have kind of a continuation of different pockets that we're working on that allow us to look at the environment as it stands today without a material change and see line of sight to low single digit volume-led growth.

If the environment gets better, particularly in Foodservice, well, we'd be happy to go back and revisit those numbers. But that's kind of our view right now. And I would say it's the consumer has proven to be resilient so far. And I think adaptable organization, CPG organizations are in tune with that, and they're figuring out how to meet those consumers' needs. And the good ones will figure out how to grow.

Yes. I'll just add overall, I think we expect 26 just to be a continuation of our growth algorithm where we see revenue growing in the low single digit, really driven by volume in retail, and some pricing for the ag commodity Foodservice, I think we're looking at more of a flattish profile in 2016. And then on the gross profit, we expect to continue to grow our margins probably in the -- around the 50 basis point range and SG&A, as I mentioned, growth inflation. So that's kind of the broader outlook to how we're forecast in '26.

Which gets us overall to low single digit on the top line, mid-single digit on the bottom line, sort of a continuation of our outlook for this year.

Your next question comes from Scott Marks from Jefferies.

Wanted to ask just one technical question. As it relates to the $5 million restructuring charges. Were those associated with the retail segment? Or are they kind of unallocated?

Those were unallocated, yes. And that was disclosure because it includes both segments in that facility.

Okay. Understood. And I guess that leads me into my next question on the retail segment, which is obviously put up a pretty good top line number. But I think profitability came in a little bit below what some folks were looking for. And it sounds like there was some incremental marketing expense that was kind of the reason for that. So how do you think about -- or how should we be thinking about the marketing investments that you spoke to? I know you spoke about change in leadership on that part of the business, some incremental investments upfront. Should we anticipate maybe some higher spend upfront with the expectation that growth will come down the line? Just trying to gauge the right level of profitability for the segment that we should be kind of thinking about going forward?

Yes. So it's an excellent question. And you're right, we did choose to take advantage of some good potential programs to invest in, in the quarter, and it did impact retail's profitability. There are a couple of other things I'll mention, and then I'll let Dave talk a little bit about the marketing spend. The other thing on retail is we had a very difficult comp this particular quarter. The prior year quarter was a record Q4 on operating income for the Retail segment. And then the other thing that impacted the profitability was this particular quarter, PNOC was a little bit negative due to the ag inflation in time, we expect that PNOC to balance out. So that's kind of some additional color on the retail operating income line. I'll let Dave talk a little bit about the marketing spending and how we're thinking about it.

Yes. So Scott, bringing around to, we don't expect a reset on marketing for the retail segment. We saw an opportunity in this period to raise it. And I think as we continue to generate cost savings in other areas of the P&L, I think we're going to look for opportunities to plow some back into the business longer term. And I think to Tom's point on this business, I would expect our operating margins to remain in line here. So if you're looking at both gross margins and operating margins over the foreseeable future, we expect those to be flat or grow in line with our productivity programs.

Understood. And then maybe one on the Foodservice side. I know last quarter you called out the impact from some larger customers of yours who kind of pulled back on some LTOs as we think about this quarter's performance, down 1.7% on the volume side, excluding those TSA sales. Does that mean that those kind of like one-off headwinds are still in there, but you saw growth elsewhere in the portfolio? Just trying to gauge how we should be thinking about the volume trajectory on a go-forward basis as it relates to impact from those LTO reductions versus other potential wins and business opportunities?

You're precisely right. That's exactly what that is. So we did see favorability with some of our other customers that was able to offset some of that. So as we sort of work our way through this, you can expect to see us begin to lap those headwinds as we get to the back part of the year. If you look at it, we saw growth from a handful of our QSR customers, and we continue to see growth with the branded part of our portfolio, which is our own Marzetti branded items that we sell through distributors. So -- and if you look at the pipeline that we have of new items and the traffic performance of our existing customers, we would expect to see those trends continue.

If there are no further questions, we will now turn the call back to Mr. Ciesinski for his closing comments.

Well, thank you, everybody, for joining us today. We look forward to being back together with you in November as we share with you our results for the first quarter of this fiscal year. We look forward to seeing you guys on the road. Take care.

This concludes today's conference call. Thank you for participating. You may now disconnect.