The Marzetti (MZTI) Q4 2017 earnings summary

Executive summary

• FY17 net sales reached a record $1.202B, up 1% YoY; reported operating income fell to $174.7M, while adjusted operating income excluding the $17.6M pension charge rose 4.2% to a record $192.3M.

• Retail growth, improved gross margin and lower input costs were offset by foodservice declines, deflationary pricing and higher SG&A.

Financial highlights

• Net sales were $1,201.8M vs. $1,191.1M in FY16; gross profit increased 6% to $318.8M from $299.6M.

• Net income was $115.3M, down from $121.8M; diluted EPS was $4.20 vs. $4.44, including an after-tax pension settlement charge of $11.5M, or $0.42 per diluted share.

• SG&A rose 10% to $126.4M, or 10.5% of net sales vs. 9.7%, reflecting leadership and strategic investments, plus Angelic acquisition-related costs.

• Cash provided by operating activities was $144.4M, up 1% YoY; cash and equivalents ended FY17 at $143.1M.

Outlook and guidance

• FY18 retail growth is expected to be volume-driven, supported by new products and a full year of Angelic sales; foodservice sales growth is anticipated from existing customers and potential new relationships, with modest pricing impact.

• FY18 capital expenditures could total ~$30M, with planned Angelic processing and warehouse capacity expansion; operating cash is expected to fund capital needs.

• Current conditions point to modestly unfavorable material-cost comparisons, especially in H1 FY18, mainly from higher soybean oil, garlic and dairy costs; modest pricing impact is expected.

• Growth and margin improvement depend on innovation, Angelic sales, lean six sigma efficiency gains, supply-chain savings and acquisition opportunities.