The Marzetti (MZTI) Q4 2020 earnings summary

Executive summary

• FY20 net sales rose 2% to a record $1.334B, while net income fell 9% to $137.0M and diluted EPS declined 9% to $4.97.

• Retail growth from elevated at-home demand offset Foodservice declines as COVID-19 shifted consumer demand away from restaurants.

• Gross profit increased 10% to $358.0M on higher Retail volume, cost savings, favorable pricing and lower commodities; higher COVID-related costs and ERP spending weighed on operating income.

Financial highlights

• Net sales were $1.334B vs. $1.308B; gross profit was $358.0M vs. $326.2M; operating income was $175.9M vs. $190.9M.

• Net income was $137.0M vs. $150.5M; diluted EPS was $4.97 vs. $5.46. FY19 included a $17.1M pre-tax favorable Angelic contingent-consideration revaluation.

• SG&A rose 21% to $180.9M, including $18.0M of Project Ascent costs vs. $1.8M in FY19; FY20 Project Ascent costs reduced diluted EPS by $0.50.

• FY20 COVID-related costs, including frontline pay, the canceled dressing-plant project write-off and Foodservice inventory reserve changes, reduced diluted EPS by $0.28; restructuring costs reduced it by $0.02.

• Cash from operations was $170.8M vs. $197.6M; capital expenditures were $82.6M vs. $70.9M.

Outlook and guidance

• FY21 Retail and Foodservice sales remain subject to unpredictable pandemic-driven shifts in demand; Retail growth is expected from licensed dressings and sauces, including Chick-fil-A, Buffalo Wild Wings and Olive Garden products.

• Commodity costs are expected to rise in FY21 after favorable FY20 costs; savings programs and pricing initiatives are expected to offset some inflation.

• FY21 capital expenditures are projected at $65M–$85M; further investments in dressing and sauce capacity, including plant expansion or new construction, remain under evaluation.

• Project Ascent testing was expected to finish near FY21 year-end, followed by deployment; FY21 SG&A will continue to include project expenses.