Utz Brands, Inc. (NYSE:UTZ) is a leading U.S. manufacturer of branded salty snacks, boasting an iconic portfolio of authentic, craft, and better-for-you (BFY) brands. With over a century of heritage, the company has established a strong presence in the attractive and growing $38 billion U.S. salty snacks category.

Business Overview

Utz was founded in 1921 in Hanover, Pennsylvania and has since expanded its geographic reach and product portfolio organically and through strategic acquisitions. As of March 31, 2024, the company operates 11 manufacturing facilities across the United States, serving a broad range of customers through direct shipments, distributors, and approximately 2,300 direct-store delivery (DSD) routes.

Utz's diverse portfolio includes well-known brands such as Utz®, On The Border®, Zapp's®, Golden Flake®, Boulder Canyon®, Hawaiian® Brand, and TORTIYAHS!®, among others. These brands enjoy strong household penetration in the United States, where Utz's products can be found in approximately 49% of U.S. households as of December 31, 2023.

Financials

For the fiscal year ended December 31, 2023, Utz reported annual revenue of $1.351 billion and a net loss of $14.5 million. The company's annual operating cash flow was $76.6 million, while its annual free cash flow stood at $20.9 million.

In the first quarter of 2024, Utz's net sales were $346.5 million, a decrease of 1.4% compared to the same period in the prior year. This decline was primarily driven by the divestiture of the Good Health and R.W. Garcia brands and continued independent operator (IO) conversions, partially offset by favorable volume/mix and pricing. Gross profit for the quarter was $119.6 million, with a gross margin of 34.5%, up from 29.7% in the prior-year period.

Adjusted EBITDA for the first quarter of 2024 increased 7.4% to $43.4 million, with a margin of 12.5%, up from 11.5% in the same quarter of the prior year. The improvement in profitability was driven by productivity gains, favorable sales mix, and pricing, partially offset by cost inflation and supply chain investments.

Geographical and Segment Performance

Utz's growth was most pronounced in its expansion geographies, with an 8% increase in consumption compared to the prior-year period, easily exceeding the category growth of 1.7%. The company gained share in both its core and expansion geographies for its total portfolio, Power brands, and Power Four brands.

From a product perspective, Utz's Power Brands, which comprise 83% of net sales, grew by approximately 3.9% in the first quarter of 2024, while its Foundation Brands, which make up the remaining 17% of net sales, decreased by around 8.4%. The company's tortilla chips and cheese snacks categories were standout performers, with significant outperformance compared to the overall salty snacks category.

Outlook

For fiscal year 2024, Utz is maintaining its organic net sales growth outlook of approximately 3% or better, driven by volume growth and flat pricing. The company expects adjusted EBITDA growth of 5% to 8%, fueled by gross margin expansion from its productivity programs, partially offset by increased investments in growth initiatives, marketing, and capabilities.

Utz has also raised its adjusted earnings per share (EPS) growth outlook to 23% to 28%, driven by a more favorable effective tax rate and lower interest expense following recent debt repayments and refinancing activities.

Liquidity

As of March 31, 2024, Utz had $47 million in cash and cash equivalents, and its liquidity remained strong at nearly $200 million, providing ample financial flexibility. The company's net debt stood at $728 million, representing a leverage ratio of 3.8x trailing 12-month normalized adjusted EBITDA.

During the first quarter of 2024, Utz used the proceeds from the divestiture of the Good Health and R.W. Garcia brands and two additional manufacturing facilities to pay down $150 million of long-term debt. The company also successfully repriced its $630 million term loan, reducing the applicable interest rate by 36 basis points. These actions are expected to result in approximately $40 million in lower interest expense for fiscal year 2024.

Risks and Challenges

Utz faces several risks and challenges, including ongoing commodity cost inflation, rising transportation and labor costs, and potential shifts in consumer behavior due to macroeconomic conditions. The company's ability to effectively manage these headwinds through pricing actions, productivity initiatives, and strategic investments will be crucial to maintaining its profitability and market share.

Additionally, the company's continued success in expanding its distribution, particularly in its growth markets, and executing on its brand-building and innovation strategies will be critical to driving long-term growth.

Conclusion

Utz Brands has demonstrated its resilience in the face of inflationary pressures, leveraging its portfolio of iconic brands, operational agility, and strategic initiatives to deliver solid financial performance. The company's focus on productivity, brand investment, and geographic expansion positions it well to navigate the current environment and capitalize on the attractive long-term growth prospects in the salty snacks category. As Utz continues to execute on its strategic priorities, investors will be closely watching the company's ability to maintain its momentum and deliver sustainable value creation.