Vital Farms, Inc. (VITL) Earnings

Management highlights

Russell mentioned that first quarter and scanner data in the second quarter fell short of expectations due to price gaps. They are adapting by reducing price gaps, addressing cost structure, and managing cash. The underlying opportunities remain. Tilo walked through first quarter financial performance and updated full-year guidance. They are seeing strong distribution momentum, adapting cost structure by right-sizing supply, reducing COGS, managing SG&A, controlling CapEx, and exiting butter business.

Guidance

Net sales guidance reduced to 775 to $800 million for 2026 and adjusted EBITDA to $0 to $10 million. EBITDA guidance includes $32 million of supply management costs. CapEx guidance lowered to $70 to $75 million. Anticipate gross margin to return to 30% by late Q4 and adjusted EBITDA margin to get back to double digits in 2027.

Segment performance

Net revenue for the first quarter of 2026 was $187.2 million, an increase of 15.4% compared to the prior year period. Revenue growth was driven by volume related increases of $34.7 million and partially offset by price mix decline of $9.7 million. Gross profit was $53 million, or 28.3% of net revenue, compared to $62.5 million, or 38.5% of net revenue last year. SG&A increased to $44.2 million, or 23.6% of net revenue, compared with $31.9 million, or 19.7% of net revenue last year. Net loss for the first quarter of 2026 was $1.5 million, compared to net income of $16.9 million in the prior year period. Adjusted EBITDA for the first quarter of 2026 was $5 million, with 2.7% of net revenue, compared to $27.5 million with 16.9% of net revenue for the first quarter of 2025.

Risks & headwinds

Risks include actual results differing from forward-looking statements, competitive dynamics affecting price gaps, supply demand mismatches leading to costs, and potential impact of social media on brand perception.

Analyst Q&A

• Q: Russell, you called this reset, a reset of the year, not the ambition. The industry is recovering from a multi-year impact of avian influenza. And as you look at the competitive dynamic today, is this the new normal? And if that's so, is the long-term margin target Is that still relevant or vital today? You talked about exiting this year at near 35% gross margin and double-digit EBITDA, but there's still some action in the background that could be a longer-term drag on the margin structure from pausing farmer contracts and incurring higher costs down the road. I guess, what's the confidence in getting back to that double-digit EBITDA margin, even if today's environment becomes the new normal?

  A: As we said in the prepared remarks, we're not assuming or waiting for a pricing recovery in the broader market to support our recovery in gross and EBITDA margins as we head into 2027. We're focused on making sure that we deliver the right economics even at these distressed prices in the market, although historically they have not been enduring.

• Q: Tilo, as a follow-up on the oversupply of eggs, you called out a $32 million cost associated with excess breaker market sales. Can you talk about the scope of the oversupply initiatives? When you think about the difference between the anticipated supply this year versus your current outlook, how much of the difference there is weighted between what you're sending to the excess breaker value market versus working with farmers to pause production? Just trying to understand the scope of those two initiatives in relation to the supply dynamic.

  A: Yeah, great question, Matt. So the excess breaker market, and to clarify, when we talk about the excess breaker market, we really talk about multiple outlets that are low or no revenue, right? That can be the breaker market, that can be wholesale. We might do donations from time to time. So that market, sending eggs to a market that doesn't really pay us a whole lot for the eggs, that is the fastest, most straightforward way to deal with an oversupply in the moment. Getting farmers to not produce for us is a much more enduring way to manage an oversupply, but it takes a bit of time to get that going. It's individual contract amendments that we sign with each farmer who we're asking not to produce for us. So the immediate action, the immediate outlet is this excess breaker market. You saw the impact that we had in Q1. That was $4.9 million. We talked about $32 million for the full year. The vast majority of that will hit us in Q2 as we are sending more eggs to the breaker market while we're getting the contract amendments lined up. Once we get through the first half of the year and we have managed this oversupply that we have in the moment, we can address it much more thoughtfully with contract amendments for the farmers. the running cost will go down quite a bit from what you will see in the first half. But because of the accounting rules, those are costs that will follow us for several years. But on a, you know, you asked the question about long-term margins before, on a total margin impact for the year perspective, as we get back to volume growth and the scale that comes with that, the impact on margins in the longer term will be very limited.

• Q: Eric, we can't hear you. Sorry about that. Can you guys hear me now?

  A: Yes, we can. Thanks. So just wondering if you could touch on your source of cash outlook here. So you have $50 million in cash on the balance sheet or so, and then plan to spend another $50, $55 in capex this year. Looks like you likely need to draw down on the debt facility. Could you just remind us what sort of covenants to be aware of here and how discussions with the lenders are going? A: Yeah, I think your math is right there, Eric. We will start using the revolver. The two financial covenants that we are watching is a net leverage ratio, which sits at 3. and a fixed charge coverage ratio, which sits at 1.35. We have been talking to JP Morgan for several weeks now. The process is ongoing. And once we have an update there, we'll provide that.

• Q: hey good morning guys and thanks for taking the questions um my first question has to do with uh the vital crossroads plan and just thinking about you know when the industry might be able to adjust production and how long you're going to be able to low roll the construction of this plant um while still making you know the the uh the return economics makes sense So if you could just reconcile kind of how you're thinking about that, that'd be great.

  A: Sure. Thanks, Ben. So our focus now is returning Vital Farms to volume-led growth. And we see a clear path to doing that with the pricing actions we're taking. The approach with Vital Crossroads is to... is to pause construction at the point at which we can turn it back on and complete it in less than a year. And that means that we have a relatively short lead time to add that capacity when we have clear visibility to needing that capacity. So we don't see the pause as impacting our medium or long-term construction. growth plans or potential. At the same time, it gives us the ability to pause the investment until we're clear we'll need that capacity. Remember that Excentral Station has capacity for roughly a billion dollars in net revenue, even at these new prices that we're investing in this year.

• Q: hey, guys. This is Glenn West on for John Anderson this morning. Russell, you kind of noted some category metrics just on the outdoor access category. It's grown to, you know, 15% of volume share, I think you said, and up 32% year over year. I guess I just... Maybe you could help lay out the category. Is it like private label that's driving a lot of those share gains, more competition from new insurgents, smaller players, or how is Vital sitting there in terms of share as well?

  A: Yeah, thanks for the question. I'd start by saying that we have seen for more than a decade that countries like the UK that are much further ahead in general awareness of food choices and food production systems. are well above a majority of eggs being produced from outdoor access flocks. I believe the UK is well over 75%, in fact. And so one of the questions we've gotten over the years is, well, how high is up for the US? And I think part of what underlies that question is, what's the willingness of consumers broadly across the economy to pay up for a better egg in their estimations? And we're seeing growth both in branded and private label, but most importantly, I think, against an increasingly challenged macro backdrop, we're actually seeing an acceleration of adoption of outdoor access eggs on a volume share basis. And that shows up in the accompanying exhibits. And so from that perspective, I think the thesis that there's a real opportunity, an enduring opportunity, in premium outdoor access eggs is as strong as it ever was. And we're seeing room for brands and for private label and for us in that group.

• Q: Alright, thanks for taking my question. Only one for me, and that's on this excess egg supplies dynamic. I know historically you guys have been kind of resistant to the liquid and hard boiled market just because of the margin structure relative to shell eggs, but I'm wondering in this environment today that agree to which you view that outlet as more favorable. And if that's something that you're considering, I'm wondering how quickly the supply chain could respond to that pivot and then how quickly the retail network could take additional volume from either of those two products.

  A: Yeah, appreciate that, Ben. So we currently do have both hard-boiled and liquid products at retail and in food service. So that is not a new business for us. I think it's important to balance bringing the right products to market as we build our brand and build the right solutions for both retail and food service customers versus the short-term actions we might take to address a supply overhang. Again, we want to make sure that businesses we're in have have the right economics and take advantage of our competitive advantages over the long haul. And so there is a distinction, I think, between the short term actions we'll take to to right size supply and make it fit with short term demand and and the things we would do long term to to. for example, expand our product portfolio, which I think is a much more kind of intentional path for us because of the brand we've built and the role we play in the market.

• Q: Hey, good morning, all. Thanks for taking our questions. Wanted to touch a bit on some of the retailer negotiations, some of the distribution wins that you've been speaking to. Wondering if you can just help us understand, what is the state of negotiations currently? How are retailers thinking about the market? And how are you pushing your product at a time when all of these dynamics are hitting the industry?

  A: Thanks, Ben. So as we mentioned in the prepared remarks, it was always the plan this year to work with our retail partners to expand distribution, benefiting from the work we did over the last couple of years to expand supply and to be in a position to build confidence that we could keep them in good in-stock conditions as we did so. We continue to enjoy category-leading velocities on shelf. the economics of carrying our products and our brands are still critical, we believe, to overall category performance for our customers. We bring a higher price point. We bring gross margin dollars in a category that, as we've all seen, is broadly seeing major price declines across the board. So the appeal of working with Vital Farms, the brand we've built, our connection with consumers, the loyalty we've built there, continues unabated. And so those conversations have been really fruitful. Our current slowdown in velocity because of these widened price gaps hasn't done anything to diminish that. So we're really excited about the impact that those additional points of distribution will bring to us as we come out of the second quarter and as we compound that with what we believe will be growing velocities in the coming months.

• Q: John, we can't hear you. Analyst, your line is now open. Hi, can you hear me?

  A: Yes. Perfect. Great. Thanks for the question. Russell, I wanted to follow up. You spoke to your price gaps relative to other premium eggs, but I'm wondering if you cut the drivers differently in terms of the balance of pressure here, to what extent are you seeing pressure on Vital's buy rate where you need these price adjustments to get folks back into your brand relative to responding to maybe a sharper decline in new households coming into the pasture-raised market to begin with? I guess, what's the balance of pressure there right now? A: Yeah, so our analysis shows that we're not seeing pressure on our existing consumer base anymore. frankly, at all. We're actually seeing buy rate from existing households slightly increase in Q1. So the real focus here is on bridging that gap to help encourage more households to try us for the first time and to join that brand against a backdrop of heated up promotions and lower priced alternatives on the shelf.

• Q: Hi, good morning. Thanks so much for squeezing me in. I wanted to ask about price gaps again. And on slide eight in your presentation, you know, I think it's really helpful for kind of framing the opportunity as you think about closing the price gaps. I guess even in the tightest gap quartile on the left side, volumes are only growing 7%, and presumably you've got distribution within there, so the velocity is probably more modest. So as you think about kind of this path to volume growth inflecting in the third quarter and more so in the fourth quarter, how much of it is the pricing reset restoring velocity versus just the new TDPs you've secured driving the incremental growth? And how do you think about how long it might take for velocities to fully normalize once you've narrowed those gaps?

  A: Yeah, I appreciate that. So first of all, not the impact, the early impact of additional distribution across all the markets on that page. I would start there. And again, we've got some preview of where we believe TDPs will get by the end of the year. That part is, I think, quite strong and the part that needs to be activated by the increased velocities. So, you know, a lot of that distribution starts showing up as we continue through the back half of the year. And I think that's where我们'll see the combined impact of both velocities and additional distribution.

• Q: Yeah, thanks for the follow-up. I know in recent months, There's been some noise on social media sort of hitting at the brand promise for Vital Farms. Obviously, myriad moving parts here, which you've gone through in exhaustive detail this morning.我'm just curious if and to what extent you believe that has had any impact. Obviously, you talked about the difficulties in – drawing in new households relative to recent periods. So I'm curious if you are able at all to isolate the impact of that on the business, and then also kind of what are you doing, what can you do to refute that social media campaign, for lack of a better term?

  A: Sure. Thanks, Brian. Yeah, that was frustrating for us to see happen in January. But our survey work and the fact that our existing households continue to buy us and are even increasing their buy rate without any material attrition suggests that the impact has been quite limited. On the margin, it may be a reason for a new household to look elsewhere, but we're seeing a very limited impact from that. Our work actually doesn't change a whole lot. Our approach to the way我们operate and the way我们talk about our brand has always been rooted in transparency and trust building. We are what we say. We do what we say. We say what we do. And the social media controversy actually didn't demonstrate any deviation from that. There were simply some players who pointed out things that we do, choices that we've made and talked about very openly. So what we're doing from here is just continuing to do that. It's the reason to choose us because we are transparent. We do tell you exactly what we're doing and why we're doing it. So from that perspective, luckily, I think thankfully, The work is pretty straightforward. It doesn't require any new behaviors from us, but simply continuing to behave the way we have historically.