$75.45
$174.86
bear $75.45
base $133.63
bull $174.86
margin of safety $85.00
market price* $104.47
The Marzetti Company (formerly Lancaster Colony, renamed in 2025) makes dressings, dips, sauces and frozen and shelf-stable breads. Its Retail segment sells Marzetti dressings and dips, New York Bakery garlic bread and Texas Toast, Sister Schubert's rolls, Flatout flatbreads and, since May 2026, Bachan's Japanese barbecue sauce, along with restaurant brands sold in grocery stores under license (Chick-fil-A sauces and dressings, Olive Garden dressings, Buffalo Wild Wings sauces, Texas Roadhouse rolls and others). Its Foodservice segment makes sauces, dressings and breads for national restaurant chains. Sales in fiscal 2026 (year ended June 30, 2026) were a record $1.93 billion, up 1.1%: pricing added about 0.9 points, Bachan's 0.8 points and a temporary supply agreement that has now ended 0.3 points, while lower core volume and mix took away 0.9 points. Retail volumes excluding Bachan's fell 3.2%. How we measure earnings: we start from operating cash flow and remove working-capital swings, stock-based pay (a real cost to owners) and the capital spending needed to keep the business running; only the share of capital spending matched to revenue growth is treated as growth investment. On that basis earnings per share were $4.20 in 2017 and $4.56 in 2018, sat at $3.81 to $4.12 in 2019-2021 and 2023 (and $1.58 in 2022) while the company spent heavily on a new dressing and sauce plant in Horse Cave, Kentucky and a company-wide systems overhaul, then rose to $5.71 in 2024, $7.02 in 2025 and $7.29 in 2026 as capital spending fell back to $58-78 million a year, close to depreciation. Because we count that heavy build-out spending as a cost, the middle years understate the business. We value the company on $7.02 per share, the median of fiscal 2024-2026, the years that describe the business as it now operates. Fiscal 2026 was lifted by about $22 million of taxes deferred under the 2025 federal tax law (a timing benefit that later reverses) and lowered by $14.5 million of one-time costs for the Bachan's deal, so we do not use it as the level. Gross margin of 24.7% in 2026 is below the roughly 25-27% of 2017-2021, so the level is not inflated by unusually cheap ingredients. Interest was negligible because the company had no debt until 2026, so the cash the business produces before paying lenders is the same $7.02. Growth: earnings per share grew 3.8% in fiscal 2026, and the base case assumes 2% in the first year and each year after. That growth rests only on the company's long record of passing ingredient inflation through in price and restoring its margins, which it did again after the 2022-2023 cost squeeze. We give no credit for volume growth, new licensed brands or Bachan's rapid growth: Retail volumes are falling and future licenses are not signed. Bachan's brought in $15.4 million of sales in its first two months (about $92 million a year), but its profit is not disclosed and its own selling costs ran $4.8 million in those two months, so the base case credits it at an 8% cash margin (about $7 million a year) with no growth, below the roughly 10% of sales that Marzetti's own business converts to owner cash. Its $127 million of acquired customer relationships, recipes and trade name are amortized over 12 to 17 years; that non-cash charge is added back to earnings, which is why we give the brand no growth rather than treat a wasting asset as an expanding one. Base case: core cash flow grows 2% a year for ten years with Bachan's flat, then holds steady, supported by long-established brands and decades-long national-chain relationships. The business is worth about $3.87 billion ($141 per share).
Bear case: an ingredient-cost squeeze half as severe as 2022-2023 cuts cash flow to about $5.67 per share for two years; Chick-fil-A, which accounts for 30% of sales through Foodservice and the exclusive retail license and has no long-term purchase commitment, moves about a third of that business elsewhere from year four; continued Retail volume losses then shrink cash flow 1.5% a year; and Bachan's earns nothing. The business is worth about $2.28 billion ($83 per share).
Bull case: pricing and continued success of the licensing program lift core cash flow 4% a year for ten years, below the roughly 6% a year earnings per share compounded from 2018 to 2025; Bachan's earns a 10% margin; growth slows to 2% for the next decade and then holds flat. The business is worth about $5.00 billion ($183 per share). Debt: to pay $399 million for Bachan's, the company used most of its cash and took out a $200 million term loan, its first meaningful borrowing. We subtract the loan ($199 million as carried) and $10 million of finance leases, about $210 million or $7.65 per share, from every case; the remaining $25 million of cash is treated as needed to run the business. The loan floats with SOFR, so no rate adjustment is made. It matures in April 2031 but becomes due in March 2029 unless the revolving credit facility is extended by December 2028. With yearly cash flow near $190 million and covenants met by substantial margins, every case carries this debt comfortably. After debt, the shares are worth about $75.45 in the bear case (business $2.28 billion less $0.21 billion of debt, about $2.07 billion), $133.63 in the base case (about $3.66 billion) and $174.86 in the bull case (about $4.79 billion). Change since our previous estimate: in August 2026 we put the shares at $55 bear, $113 base and $167 bull. We now discount every business at the same fixed 6% rate rather than a higher rate scaled to perceived risk, which raises all three values. Pulling the other way, the new debt and the cash spent on Bachan's now come off the value, and the base case assumes 2% growth rather than 3%. The bear case is now built from specific named risks rather than a general slowdown. What would make this wrong: losing a large part of the Chick-fil-A business (30% of sales) or Walmart (18%); Retail volumes falling faster than pricing can offset; another prolonged spike in soybean oil, egg, flour or dairy costs; or Bachan's disappointing badly enough to force write-downs of the $278 million of goodwill recorded for it. The margin-of-safety price is $85, about 36% below the base value and modestly above the bear value, reflecting a steady business with heavy customer concentration that has now taken on acquisition debt.