On August 25, The Marzetti Company (NASDAQ:MZTI) closed out a fiscal year of records, even as reported quarterly sales slipped 2.2% to $465.0 million. The drop traces to the planned expiration of a temporary supply agreement rather than any softness in the core business, and once that noise is stripped out, adjusted sales actually grew. Behind the headline number sits a company generating more cash and profit than it ever has, just as a fresh food safety scare threatens to interrupt the streak.
Twelve Straight Quarters Of Margin Gains
Fiscal 2026 marked the fourth straight year of record net sales and gross profit and the third straight year of record operating income, with fourth-quarter gross profit alone reaching $114.0 million. Gross margin expanded 220 basis points to 24.5%, the twelfth consecutive quarter of improvement, as procurement, manufacturing and network changes kept squeezing out costs. Adjusted operating income rose 17.5% to $52.2 million. Growth is increasingly coming from newer names. Bachan’s, the barbecue sauce brand acquired mid-year, added $15.4 million in sales in its first two months and contributed 320 basis points to consolidated growth. Scanner data showed Bachan’s sales up 8.7% for the quarter with distribution points up 16.6%, and household penetration climbing from 5% to 6% since the deal closed.
Management is now extending the brand into mayo, a category it pegs at $3.4 billion in potential, and into a wing sauce made at its own Kentucky plant. Texas Roadhouse dinner rolls kept up an even faster pace, up 28.1% in the quarter and 76% for the year to $58 million, selling nearly twice as fast per distribution point as the category average. New York Bakery grew 2.8% and took 220 basis points of share to a leading 45.5%, while branded croutons picked up another 100 basis points. Record operating cash flow of $283.8 million helped fund $36.3 million in buybacks and a 63rd straight annual dividend increase.
A Bug Bites Into The Numbers
That momentum is about to run into a real headwind. A Cyclospora outbreak is expected to cut fiscal first-quarter net sales by roughly 250 basis points in both the retail and foodservice segments, and management is modeling the recovery on a similar 2018 episode that took about four months to fade. CFO Tom Pigott was blunt about the near-term cost, saying the company does “not expect to be able to grow our margins” in the first quarter, and Marzetti is guiding to a roughly 15% decline in first-quarter operating income.
The Bachan’s deal brought its own baggage. Fourth-quarter selling, general and administrative expenses rose $12.3 million, largely on investment banking fees, integration costs and intangible amortization tied to the acquisition, and the company now carries $189.3 million in long-term debt at a 4.8% effective rate to help pay for it. A one-time gain on the sale of a shuttered California facility pushed the quarterly tax rate down to 14.6%, but management expects that rate to jump back to 23% in fiscal 2027, a headwind record profits can mask only so long. Add in 5% commodity inflation the company is still pricing to offset, a softer club channel, and CEO David Ciesinski’s own acknowledgment that broader economic conditions and consumer behavior could sway demand next year, and the risks look less about the current numbers than about what could interrupt the streak ahead.
Wall Street’s Mixed Read
Hedge fund interest in Marzetti cooled heading into this report, with the number of funds holding the stock falling from 31 to 25, a sign of trimming rather than accumulating conviction. Short interest sits at 27.07% of the float, a level associated with heavy organized skepticism. That combination is unusual: funds are stepping back even as the company posts record profits, while short sellers are betting the outbreak and cost pressures will bite harder than the headline numbers suggest.
What Happens Next
Marzetti heads into fiscal 2027 with real momentum behind it: record cash flow, a fast-growing Bachan’s platform, and twelve straight quarters of margin gains. Against that sits an outbreak already baked into first-quarter guidance, added debt from the acquisition, and a tax rate set to jump back to 23%. For the growth story to keep compounding, Bachan’s and Texas Roadhouse rolls need to keep outrunning softness elsewhere in the portfolio.
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