Executive Summary / Key Takeaways

• Utz Brands, Inc. is executing a multi-faceted transformation strategy focused on geographic expansion, supply chain optimization, and portfolio premiumization, particularly with its Boulder Canyon brand, to drive sustained market outperformance.
• The company's operational excellence, underpinned by significant investments in automation and data leverage, is a critical differentiator, enabling robust productivity gains and targeted EBITDA margin expansion to 16% by 2026.
• Recent strategic moves, including the California route acquisition and ongoing manufacturing footprint consolidation, underscore a proven playbook for entering and growing share in new, high-potential markets.
• Despite a generally flat salty snack category and some short-term brand-specific pressures, Utz continues to demonstrate strong top-line momentum, driven by volume/mix gains and expanding household penetration.
• Investors should monitor the successful integration of new distribution assets, the realization of productivity targets, and the continued outperformance in expansion geographies as key indicators of the company's long-term value creation.

The Century-Old Foundation: A Snack Powerhouse's Strategic Evolution

Utz Brands, Inc., founded in Hanover, Pennsylvania, in 1921, boasts over a century of heritage in the U.S. salty snack industry. From its origins, the company has strategically built a diverse portfolio of iconic brands, including its flagship Utz, Zapp's, On The Border, Boulder Canyon, Golden Flake, Hawaiian Brand, and TORTIYAHS. This blend of organic growth and strategic acquisitions has cemented its presence in approximately 50% of U.S. households as of September 28, 2025, marking an all-time high in household penetration.

The salty snack market, a robust $41 billion segment within the broader $147 billion U.S. snack foods category, presents a dynamic landscape. While the overall category has experienced recent softness due to industry-wide pricing impacts, it continues to benefit from stable snacking occasions and low private label penetration, with leaders primarily competing on marketing and innovation. Utz operates as the second-largest producer of branded salty snacks in its "Core Geographies," which span numerous Eastern and Southern states. However, its strategic focus extends beyond these traditional strongholds.

The company's competitive positioning is defined by its regional market strength, authentic brand heritage, and a unique direct-store delivery (DSD) distribution model. Compared to global giants like PepsiCo (PEP) (Frito-Lay), Kellanova (K), Campbell Soup Company (CPB) (Snyder's of Hanover), and Mondelez International (MDLZ), Utz leverages its localized execution and DSD network for superior operational efficiency in fragmented markets. This allows for faster responses to local demands and fosters stronger customer loyalty in specific regions, differentiating it from competitors who often rely on more standardized, high-volume approaches. While larger rivals benefit from immense scale and diversified global portfolios, Utz's operational agility and deep regional ties provide a distinct competitive advantage.

Operational Excellence: The Technological Moat

Utz's strategic transformation is deeply rooted in operational excellence, driven by significant investments in what the company refers to as its "second wave of value capture" through automation and data leverage. While not a proprietary ingredient technology, this operational prowess forms a critical competitive moat. The company's capital investments are directly fueling automation and expanding capacity across its manufacturing facilities, allowing for greater fixed cost leverage. For instance, new potato chip lines commenced operations in the second quarter of 2025, and a pretzel line in the first quarter of 2025, alongside expanded kettle capacity and investments in its Kings Mountain facility.

These technological advancements offer tangible benefits. They contribute to lower total delivered costs, more efficient production, and reduced waste across the network. The consolidation of six warehouses into a single Rice distribution center, which opened in December 2024, exemplifies this drive for efficiency, improving throughput and revenue recognition. Furthermore, Utz is leveraging data analytics, including Robotic Process Automation (RPAs), advanced demand thinking tools, self-serve analytics, and digital twin modeling, to optimize its DSD network, procurement, and logistics.

For investors, the "so what" of this operational technology is clear: it is foundational to achieving Utz's ambitious financial targets. This focus on efficiency is expected to deliver robust productivity gains, with $60 million achieved in 2024 and a target of over $150 million from 2024 to 2026. These savings are crucial for funding geographic expansion, supporting brand growth, and ultimately driving the company's projected EBITDA margin expansion to 16% by 2026. This operational moat allows Utz to compete effectively against larger, more scaled rivals by mitigating some of their inherent cost advantages.

Financial Performance and Strategic Momentum

Utz's recent financial performance reflects the ongoing execution of its strategic initiatives, even amidst a dynamic market. For the thirteen weeks ended September 28, 2025, net sales increased by 3.4% to $377.80 million, primarily driven by a 4.5% benefit from favorable volume/mix, partially offset by a 1.1% reduction from lower net price realization. This outperformance is notable given the broader U.S. salty snack retail sales decreased by 0.2% during the same period. Year-to-date, for the thirty-nine weeks ended September 28, 2025, net sales grew 2.7% to $1096.60 million, with a 4.8% volume/mix benefit.

Branded Salty Snacks, the company's core, demonstrated strong growth, with net sales increasing by 5.8% in the third quarter and 5.4% year-to-date, largely led by the exceptional performance of Boulder Canyon. Boulder Canyon, a premium brand, has become the #1 potato chip brand in the natural channel year-to-date and boasts the #1 SKU across multiple time periods. Its growth is fueled by both velocity (up 35% in natural, nearly 200% in conventional) and distribution gains, with its All-Commodity Volume (ACV) still around 50-52%, indicating substantial runway for further expansion. This brand's success, driven by consumer demand for better-for-you and non-seed oil options, is also contributing to market share gains in Utz's core geographies.

Profitability metrics show the impact of strategic investments. Gross profit margin decreased to 33.6% in Q3 2025 from 35.8% in the prior year, primarily due to increased investments in capacity expansion and growth, as well as weather-related potato crop issues that pressured gross profit in the quarter. However, management views these potato crop issues as isolated and temporary. Selling, distribution, and administrative expenses rose 11.9% in Q3 2025, reflecting higher people, selling, and delivery costs to support growth and geographic expansion. Despite these investments, the company's Adjusted EBITDA margin for Q3 2025 was 16%. For the thirty-nine weeks ended September 28, 2025, Adjusted EBITDA reached $154.10 million, with a margin of 14.1%.

Liquidity remains sound. As of September 28, 2025, cash and cash equivalents stood at $57.70 million. The company's financing strategy is prudent, with a weighted average interest rate of 4.90% for the thirty-nine weeks ended September 28, 2025, down from 5.70% in the prior year. Utz refinanced its Term Loan B in January 2025, extending maturity to 2032 and reducing interest rates, and actively uses interest rate swaps to manage exposure to rate changes. The company was in compliance with its debt covenants as of September 28, 2025.

Strategic Expansion and Future Outlook

Utz's growth narrative is deeply tied to its "proven playbook" for geographic expansion. The company has consistently achieved share gains in its "Expansion Geographies" for nine consecutive quarters, with retail volumes and sales up 3% and 4.8% respectively in Q3 2025. Florida serves as a prime example, where market share grew from approximately 2.5% in 2020 to 4.2% in the latest 52 weeks.

A significant recent development is the October 2025 acquisition of Insignia International's DSD distribution assets, including routes across California and the Midwest. This move accelerates Utz's presence in California, the largest U.S. salty snack market at $4.10 billion in retail sales, where Utz currently holds only about a 1.9% market share. This acquisition is expected to enable Utz to introduce its products onto an existing network in early 2026, leveraging established infrastructure and customer relationships. Management anticipates this will help drive top-line growth at the higher end of its target range of 200 to 300 basis points ahead of the category.

Looking ahead, Utz projects the salty snack category to grow between 0% and 1% in 2025, with gradual improvement throughout the year. The company expects to continue its market outperformance, driven by sustained distribution gains, increased marketing support, and innovation. Marketing investments, which saw a 44% increase in Q2 2025, are planned to continue at a 40% year-over-year rate into 2026, supporting both geographic expansion and brand awareness.

Operationally, 2025 is expected to be the peak of capital expenditure spending, as the supply chain transformation, including the consolidation of manufacturing facilities (e.g., Grand Rapids closure by early 2026), progresses. This will lead to continued "best-in-class productivity activity" in 2026, with productivity stepping down to 3-4% of COGS, supporting EBITDA margin expansion. While the Dips & Salsa business is expected to face near-term pressure, it is projected to stabilize by the end of Q2 2025. The convenience store channel, a historical challenge, is also showing improving trends and is expected to reach modest growth by early 2026.

Risks and Challenges

Despite a compelling growth story, Utz faces several risks. The salty snack industry is highly competitive, with larger players possessing greater scale and marketing budgets. While Utz's DSD model offers advantages, its smaller scale compared to rivals like PepsiCo could lead to higher costs and reduced profitability. Supply chain disruptions, inflation, and rising labor, fuel, and freight costs remain persistent challenges that could negatively impact net income. The company's ability to successfully integrate new acquisitions, like the California routes, and realize anticipated synergies is crucial. Furthermore, changes in consumer preferences, such as the increasing focus on "better-for-you" options, require continuous innovation and adaptation, as evidenced by the commitment to remove FD&C colors by 2027. Unsuccessful execution of this initiative could adversely affect sales and market share. The impact of new tax legislation, such as the One Big Beautiful Bill Act (OBBBA), also introduces financial complexities related to deferred taxes and valuation allowances.

Conclusion

Utz Brands is strategically positioned for continued growth within the dynamic salty snack market. Its century-long heritage, coupled with a disciplined approach to geographic expansion and a robust operational excellence program, forms the bedrock of its investment thesis. The company's "proven playbook" for market entry, exemplified by its success in Florida and now being applied to the significant California market, demonstrates a clear path to sustained top-line outperformance.

The ongoing investments in automation and data-driven efficiency are not merely incremental improvements; they represent a fundamental technological moat that enables Utz to achieve ambitious productivity targets and drive EBITDA margin expansion. As the company moves past its peak CapEx year in 2025, the focus on free cash flow generation is expected to intensify, further enhancing shareholder value.

While competitive pressures and operational risks persist, Utz's strategic clarity, strong brand portfolio, and commitment to operational and market expansion position it as a compelling opportunity for discerning investors seeking growth in the consumer defensive sector.