Executive Summary / Key Takeaways

• Utz Brands is executing a multi-year strategy focused on leveraging its operational strengths and brand portfolio to drive growth primarily through geographic expansion into white space markets, aiming to hold share in its core while gaining significantly elsewhere.
• Recent Q1 2025 results demonstrate progress, with organic net sales growth driven by favorable volume/mix, particularly strong performance in Branded Salty Snacks (+4.9%) and expansion geographies.
• A key differentiator and driver of future profitability is Utz's ongoing supply chain optimization and investment in operational technology, targeting over $150 million in productivity savings by 2026 and enabling lower delivered costs and production efficiency.
• While facing a competitive and increasingly promotional market, especially in core categories like potato chips, Utz is utilizing enhanced revenue management capabilities, price pack architecture, and increased marketing to maintain price gaps and drive demand.
• The company reaffirmed its full-year 2025 outlook, projecting low-single-digit organic net sales growth and 10-15% adjusted EPS growth, underpinned by continued branded growth, productivity gains, and lower interest expenses following debt refinancing.

A Century of Snacks: Utz's Strategic Evolution

Founded in Hanover, Pennsylvania, in 1921, Utz Brands has cultivated over a century of heritage in the U.S. salty snack market. What began as a regional producer has evolved through organic growth and strategic acquisitions into a significant player, now ranking as the second-largest branded salty snack manufacturer in its core geographies. This journey has shaped a business model centered on a diverse portfolio of brands and a hybrid distribution network, primarily leveraging independent operators (IOs) through a direct-store delivery (DSD) model, a transition substantially completed by March 2025.

The U.S. salty snack category is a substantial market, valued at $42 billion within the broader $143 billion U.S. snack food landscape, according to Circana data as of March 2025. It's characterized by high competition, with major players like PepsiCo (PEP) (via Frito-Lay), Kellanova (K) (Pringles, Cheez-It), Campbell Soup Company (CPB) (Snyder's-Lance), and Mondelez International (MDLZ) competing across various sub-categories. While these larger competitors benefit from immense scale, extensive global reach, and significant R&D budgets, Utz differentiates itself through its deep regional heritage, a portfolio spanning authentic, craft, and better-for-you (BFY) segments, and the agility afforded by its DSD network in core markets.

Utz's strategic playbook, refined over its history and accelerated in recent years, is clear: hold market share in its established core while driving outsized growth in expansion geographies. This is pursued by focusing investments on its "Power Four Brands" (Utz, On The Border, Zapps, and Boulder Canyon) and other "Targeted Brands," expanding distribution into white space markets, and enhancing consumer engagement through increased marketing and innovation.

The Operational Edge: Fueling Growth Through Technology and Efficiency

Central to Utz's strategy and its ability to compete effectively against larger rivals is its focus on operational excellence and leveraging technology within its supply chain. Led by its transformation office, the company has undertaken significant initiatives aimed at expanding profitability and reducing its operating cost structure. A key aspect is the optimization of its manufacturing footprint, which has been reduced from 13 plants to eight, a process management indicates is ahead of schedule.

Investment in automation within these facilities is designed to increase capacity, improve efficiency, and lower manufacturing costs. Furthermore, the company has focused on optimizing its distribution network. The opening of the Rice distribution center, consolidating six warehouses into one, exemplifies this effort. The stated goal is to lower total delivered costs and enable the production of products closer to where they are sold, reducing transportation expenses which have been a source of rising costs alongside labor.

While specific, quantifiable metrics detailing the direct technological advantages (e.g., yield improvements from a specific piece of automation) are not explicitly provided, the nature of these investments in automation, consolidated logistics, and integrated work systems is intended to drive significant productivity gains. Management has quantified the overall productivity program, targeting over $150 million in savings over the 2024-2026 period. This operational efficiency is a critical differentiator, potentially offering a cost advantage in regional markets compared to competitors relying solely on national direct-to-warehouse models. For investors, this translates to a potential for sustained gross margin expansion, providing fuel for reinvestment in marketing, innovation, and geographic expansion, thereby strengthening Utz's competitive moat despite its smaller scale relative to giants like PepsiCo.

Performance Reflecting Strategy: Q1 2025 Insights

Utz's first quarter 2025 results, for the period ended March 30, 2025 (as reported in the 10-Q filed May 1, 2025), offer a snapshot of the strategy in action. Net sales increased by 1.6% to $352.1 million compared to $346.5 million in the prior year. More significantly, total organic net sales grew by 2.9%, driven by a favorable volume/mix increase of 6.3%, partially offset by lower net price realization (-3.4%) and the impact of the prior year's Good Health and R.W. Garcia divestiture (-1.3%).

This performance underscores the volume-led growth Utz is pursuing. Branded Salty Snacks, the strategic focus area, saw net sales increase by a robust 4.9%, comprising 87% of total net sales. This growth was partially offset by a 16.0% decrease in Non-Branded Non-Salty Snacks, though 7.2% of this decline was attributable to the aforementioned divestiture.

Gross profit margin decreased by 90 basis points to 33.6% in Q1 2025, primarily influenced by promotional investments and costs associated with supporting capacity expansions and distribution growth. However, management highlighted productivity benefits partially offsetting these pressures. Selling, distribution, and administrative expenses rose by 3.5%, reflecting increased costs for people, selling, and delivery necessary to support the company's growth initiatives.

The bottom line saw a significant shift in Q1 2025 net income ($5.7 million) compared to Q1 2024 ($2.4 million), though the prior year included a substantial $44 million gain on the sale of business. Excluding this and other non-core items, Adjusted EBITDA margin expanded by 30 basis points to 12.8%, indicating underlying operational improvement despite top-line promotional investments.

Liquidity remains a focus. Cash used in operations increased in Q1 2025, largely due to working capital timing. Investing activities shifted from providing cash (due to divestiture proceeds in Q1 2024) to using cash, primarily for capital expenditures related to property and equipment as the company invests in its network. Financing activities provided cash, driven by net borrowings on the line of credit and term debt, contrasting with debt paydowns in the prior year. The company successfully refinanced its Term Loan B in January 2025, reducing the interest rate and extending maturity, which is expected to contribute to lower interest expenses going forward.

Purchase commitments for key ingredients increased, reflecting forward buying to manage commodity price volatility. Utz also continues to partially guarantee IO loans, a standard practice in its distribution model, with guarantees collateralized by the routes.

Strategic Momentum and Forward Outlook

Utz's strategic initiatives are showing tangible results. Share gains have been observed in expansion geographies for seven consecutive quarters, with retail volumes up 8.9% and retail sales up 4.9% in Q1 2025 in these markets. The portfolio strategy is gaining traction, with Boulder Canyon highlighted for its strong growth driven by distribution gains and velocity, particularly in the natural channel and with new innovations like Canyon Poppers and Tortilla Chips. On The Border also continues to expand nicely.

Product innovation is aligned with consumer trends, focusing on BFY options (Boulder Canyon), craveable flavors (new chip and pretzel varieties), and occasion-based products (variety packs). Recent limited-edition launches like Utz Lemonade Potato Chips and new Cheese Ball flavors demonstrate ongoing efforts to drive consumer interest and engagement.

Looking ahead, Utz reaffirmed its full-year 2025 outlook, projecting low-single-digit organic net sales growth. This growth is expected to be driven primarily by continued expansion of Branded Salty Snacks, particularly the Power Four brands, and a less significant decline in the Non-Branded Non-Salty category compared to the prior year. The company anticipates approximately one point of price investment going forward, reflecting the competitive environment. Adjusted EPS is projected to increase by 10-15%, supported by anticipated improvements in operating profit (driven by productivity and volume growth) and lower interest expenses following the debt refinancing. Management expects approximately 80 basis points of Adjusted EBITDA margin expansion in FY 2025.

Management expresses confidence in achieving a step-up in growth in the back half of 2025, citing secured distribution gains, a planned increase in marketing investment and innovation deployment, and easier year-over-year comparisons. The C-store channel, which has been a challenge, is expected to return to modest growth over the next year as the company addresses assortment and distribution issues.

Risks and Challenges

Despite the positive momentum, Utz faces notable risks. The salty snack industry's high level of competition and recent increase in promotional activity pose a challenge to maintaining price realization and market share. While Utz aims to compete effectively through disciplined revenue management and strategic investments, aggressive pricing actions by larger competitors could pressure margins and growth.

Inflation, particularly in labor, fuel, and freight costs, continues to impact profitability, although commodity costs have stabilized somewhat. While productivity initiatives are designed to offset these pressures, the ability to fully pass on costs through pricing may be limited by competitive dynamics.

Disruptions to the supply chain, reliance on key customers, and the performance of the IO distribution network are ongoing operational risks. The company's ability to successfully integrate new technologies and realize the full benefits of its supply chain optimization plan is also crucial. Furthermore, the company has recorded a valuation allowance against certain deferred tax assets, influenced by a cumulative loss before taxes, indicating uncertainty regarding the utilization of these assets. The expiration of transition services agreements related to the 2024 divestitures in the first half of 2025 will require seamless operational transitions.

Conclusion

Utz Brands is actively executing a strategic transformation aimed at capitalizing on its brand equity and operational capabilities to drive growth in the dynamic U.S. salty snack market. The core investment thesis rests on the company's ability to successfully penetrate new geographies and channels with its focused portfolio of Branded Salty Snacks, underpinned by significant operational efficiencies derived from its supply chain optimization and technology investments.

Recent performance, particularly the volume-led growth in Q1 2025 and the expansion in expansion markets, suggests the strategy is gaining traction. While the competitive landscape remains challenging and requires disciplined management of pricing and promotions, Utz's focus on productivity, innovation, and distribution expansion provides levers for future growth and margin improvement. The reaffirmed full-year outlook signals management's confidence in continued progress. Investors should monitor the company's execution in expansion markets, its ability to navigate promotional intensity while maintaining profitability, and the realization of targeted productivity savings as key indicators of the long-term potential of the Utz Brands story.