Utz Brands, Inc. (NYSE: UTZ) is a leading U.S. manufacturer of branded salty snacks, boasting a diverse portfolio of iconic, craft, and better-for-you brands that have strong household penetration across the country. With a rich history dating back to 1921, Utz has established itself as a household name, known for its authentic and high-quality products that cater to evolving consumer preferences.

Business Overview and History

Utz was founded in 1921 in Hanover, Pennsylvania, and has since grown to become one of the largest salty snack manufacturers in the United States. The company's portfolio includes well-recognized brands such as Utz, On The Border, Zapps, Golden Flake, Boulder Canyon, Hawaiian Brand, and TORTIYAHS, among others. These brands enjoy strong household penetration, with Utz products found in approximately 49% of U.S. households as of December 31, 2023.

Over its century-long history, Utz has significantly expanded its geographic reach and product offerings through both organic growth and strategic acquisitions. Key milestones in the company's expansion include the acquisition of regional snack brands like Zapp's, Golden Flake, and Boulder Canyon, which have contributed to Utz's diverse portfolio of authentic, craft, and better-for-you snack brands.

In 2020, Utz completed a business combination with Utz Brands Holdings, LLC, providing additional resources and capabilities to strengthen its operations and brand portfolio. Today, Utz operates eight primary manufacturing facilities across the United States and distributes its products nationally through a hybrid distribution model of direct-store-delivery and direct-to-warehouse shipments. As of September 29, 2024, the company's distribution network included approximately 2,450 direct-store delivery routes.

Throughout its history, Utz has faced various challenges, including navigating competitive pressures and commodity cost fluctuations in the highly competitive salty snack industry. In 2021, the company dealt with the impacts of the COVID-19 pandemic, including supply chain disruptions and changing consumer shopping habits. To address these challenges, Utz has implemented cost-saving initiatives, hedging programs, and strategic pricing actions.

Financials and Performance

For the fiscal year ended December 31, 2023, Utz reported total revenue of $1.44 billion, a 2.1% increase from the previous year's $1.41 billion. However, the company's net income for the year ended December 31, 2023, was a loss of $24.9 million, compared to a loss of $0.4 million in the prior year. This decline was primarily driven by higher operating expenses, including increased selling, distribution, and administrative costs, as well as higher interest expenses.

Despite the net income loss, Utz's operational performance has shown signs of improvement. The company's gross profit margin increased to 31.6% in 2023, up from 31.9% in the previous year, indicating better cost management and efficiency in its manufacturing operations. Additionally, Utz's operating cash flow for the year ended December 31, 2023, was $76.6 million, providing the company with the financial flexibility to invest in growth initiatives and manage its debt obligations.

For the most recent quarter ended September 29, 2024, Utz reported revenue of $365.52 million, representing a 1.7% decrease year-over-year. This decline was largely attributed to the divestiture of the Good Health and R.W. Garcia brands. Net income for the quarter was a loss of $2.20 million, while operating cash flow was $61.02 million. Free cash flow decreased to $13.78 million due to higher capital expenditures.

Utz's product portfolio is divided into two main segments: Power Brands and Foundation Brands. The Power Brands segment, which includes popular brands such as Utz, On The Border, Zapps, Boulder Canyon, and Golden Flake Pork, represented 79% of the company's volume for the 13 weeks ended September 29, 2024. The Foundation Brands segment, which includes Golden Flake (excluding Pork), Snyder of Berlin, Bachman, and other smaller brands, accounted for the remaining 21% of volume.

For the 39 weeks ended September 29, 2024, Utz reported net sales of $1.07 billion, a 1.6% decrease compared to the prior year period. Gross profit for this period was $375.4 million, with a gross profit margin of 35.1%. The company has experienced volume growth in its Power Brands, which has helped offset some declines in the Foundation Brands segment.

Liquidity

Utz's liquidity position remains stable, with the company maintaining sufficient cash and cash equivalents to support its operations and strategic initiatives. As of September 29, 2024, Utz had $64.89 million in cash on hand and $158.80 million available under its ABL facility, with $22.74 million outstanding. The company's debt-to-equity ratio stood at 1.17, while its current ratio was 1.21 and quick ratio was 0.85.

The strong operating cash flow of $76.6 million for the year ended December 31, 2023, demonstrates the company's ability to generate cash from its core business activities. This liquidity provides Utz with the flexibility to invest in growth opportunities, manage its debt obligations, and navigate potential market uncertainties.

Expansion and Growth Strategies

Utz's growth strategy is centered around expanding its geographic reach, particularly in the Midwest and Western regions of the United States, where the company has identified significant untapped potential. The company has been actively investing in distribution and marketing efforts to increase its presence in these markets, leveraging its strong brand portfolio and product innovation capabilities.

Furthermore, Utz has been focused on enhancing its product mix by introducing new and innovative offerings that cater to evolving consumer preferences, such as better-for-you and premium snack options. The company's Boulder Canyon brand, for example, has been a standout performer, growing at a much faster pace than the overall salty snack category and contributing to the company's overall growth.

Utz has reaffirmed its full-year 2024 organic growth outlook of 2% to 2.5%, implying a significant sequential acceleration in Q4 2024 to at least 3.5% growth, up from the 1.9% growth reported in Q3 2024. The company has cited increased marketing, new product innovation, seasonal execution, and distribution gains as key factors driving this anticipated acceleration.

While Utz has not provided formal guidance for 2025, the company has noted that it has been largely meeting the volume share expectations outlined in its 2023 Investor Day for both core and expansion markets. However, the translation from volume to value remains a near-term challenge due to the competitive pricing environment. Utz expects its non-measured channels to continue growing and provide momentum, while its productivity programs, automation, and capacity investments, such as the new Kings Mountain facility for kettle chips, are anticipated to support ongoing performance.

Challenges and Risks

Like any consumer staples company, Utz faces a range of challenges and risks that could impact its future performance. These include:

1. Competitive Landscape: The salty snack industry is highly competitive, with Utz competing with a diverse array of participants, including large national brands, regional players, and private-label offerings. Maintaining market share and pricing power in this environment can be a significant challenge. The industry has seen modest growth, with a compound annual growth rate (CAGR) of around 2-3% in recent years.

2. Commodity Price Volatility: Utz's profitability is susceptible to fluctuations in the prices of its key raw materials, such as potatoes, cooking oils, and packaging materials. The company's ability to effectively manage these cost pressures through hedging, pricing actions, and operational efficiencies will be crucial.

3. Supply Chain Disruptions: The COVID-19 pandemic has highlighted the importance of supply chain resilience, and Utz, like many other consumer brands, has had to navigate various logistical challenges, including labor shortages and transportation bottlenecks.

4. Shifting Consumer Preferences: Evolving consumer preferences, particularly around health and wellness, can present both opportunities and risks for Utz. The company's ability to anticipate and respond to these changes through product innovation and marketing will be essential for maintaining its competitive edge.

Outlook and Conclusion

Despite the challenges, Utz remains well-positioned to capitalize on the attractive and growing $39 billion U.S. salty snack category. The company's iconic brands, focus on product innovation, and strategic expansion efforts position it for continued growth. Utz's management team has demonstrated its ability to navigate the industry's complexities, and the company's strong financial flexibility, with a healthy balance sheet and cash flow, provides the resources necessary to invest in its future.

As Utz Brands continues to build on its legacy and adapt to the changing consumer landscape, investors will be closely watching the company's ability to drive sustainable growth, enhance its profitability, and solidify its position as a leading player in the dynamic salty snack market. The company's focus on productivity initiatives, cost management, and strategic investments in manufacturing capabilities, such as the new Kings Mountain facility, are expected to support long-term growth and profitability across its snack food business.