The Marzetti (MZTI) Q4 2018 earnings summary

Executive summary

• FY18 net sales reached a record $1.223B, up 2%; Retail and Foodservice both grew, while pounds shipped were essentially flat.

• Operating income was $172.1M vs. $174.7M; excluding the prior-year $17.6M pension charge, FY18 operating income declined 10.5%, mainly due to commodity and freight inflation.

• Net income was $135.3M, or $4.92 diluted EPS, vs. $115.3M, or $4.20; FY18 included a one-time $9.5M deferred tax benefit.

Financial highlights

• Gross profit fell 5% to $303.5M from $318.8M as higher commodity and freight costs outweighed pricing and lean six sigma savings.

• SG&A rose 4% to $131.4M, reflecting growth investments, Angelic amortization and recurring noncash charges; lower promotional and broker costs partially offset the increase.

• Operating cash flow increased 10% to $160.7M; capital expenditures were $31.0M vs. $27.0M in FY17.

Outlook and guidance

• FY19 Retail outlook calls for volume-driven growth from new launches, continued net price realization and better-optimized trade spending.

• FY19 Foodservice outlook includes volume growth from select chain accounts and distributors, plus benefits from price increases implemented early in Q3 FY18.

• Commodity costs are expected to remain unfavorable, but less than FY18; freight headwinds are expected through H1 FY19, with pricing and supply-chain actions intended to offset them.

• FY19 effective tax rate is expected at ~24%; statutory federal rate for the FY19 tax return is 21%.

• FY19 capital spending is projected at $60M–$80M, including frozen dinner-roll capacity expansion; operating cash flow and cash on hand are expected to fund capital needs.