10-Q: Utz Brands Reports Mixed Q2 2025 Results Amid Rising Costs and Increased Promotional Activity

Utz Brands, Inc. reported a 2.9% increase in net sales for the second quarter of 2025, reaching $366.7 million, but saw a significant decline in operating income and net income due to higher selling, distribution, and administrative expenses and gross margin compression.

Summary

• Net sales for the thirteen weeks ended June 29, 2025, increased by 2.9% to $366.7 million, up from $356.2 million in the comparable prior year period.
• The increase in net sales was primarily driven by a 3.9% benefit from favorable volume/mix, partially offset by a 1.0% reduction from lower net price realization.
• Branded Salty Snacks net sales increased by 5.4%, led by strong performance from Boulder Canyon, while Non-Branded & Non-Salty Snacks net sales decreased by 11.8%.
• Gross profit for the thirteen weeks ended June 29, 2025, was $126.8 million, up from $124.7 million, but gross profit margin slightly decreased to 34.6% from 35.0% due to increased investments for capacity expansion and growth.
• Selling, distribution, and administrative expenses rose by 14.2% to $119.5 million, primarily due to higher people, selling, and delivery costs to support growth.
• Income from operations for the thirteen weeks ended June 29, 2025, significantly decreased to $6.4 million from $22.5 million in the prior year period.
• Net income for the thirteen weeks ended June 29, 2025, was $10.1 million, a decrease from $25.4 million in the comparable prior year period.
• Diluted earnings per share (EPS) for the thirteen weeks ended June 29, 2025, decreased to $0.12 from $0.23 in the comparable prior year period.
• For the twenty-six weeks ended June 29, 2025, net sales increased by 2.3% to $718.8 million, and net income attributable to controlling interest increased to $18.0 million from $15.8 million.
• The company refinanced its Term Loan B on January 29, 2025, reducing the interest rate from SOFR + 2.75% to SOFR + 2.50% and extending the maturity date to January 29, 2032.
• Cash and cash equivalents decreased slightly to $54.6 million as of June 29, 2025, from $56.1 million as of December 29, 2024.
• Net cash used in operating activities for the twenty-six weeks ended June 29, 2025, was $3.9 million, compared to $0.2 million used in the prior year period, driven by increases in accounts receivable and inventories.
• Net cash used in investing activities was $71.3 million, primarily due to purchases of property and equipment, contrasting with $141.0 million provided in the prior year period which included proceeds from divestitures.

Sentiment

Score: 4

Explanation: While sales growth and market share gains in expansion geographies are positive, the significant decline in operating income and net income for the quarter, coupled with gross margin compression and rising selling, distribution, and administrative expenses, indicates profitability challenges. The debt refinancing is a positive, but overall, the financial performance for the quarter is concerning.

Positives

• Net sales increased by 2.9% for the thirteen weeks and 2.3% for the twenty-six weeks ended June 29, 2025, demonstrating continued top-line growth.
• Volume/mix contributed positively with a 3.9% benefit for the thirteen weeks and 5.1% for the twenty-six weeks, indicating strong product demand.
• Branded Salty Snacks net sales increased by 5.4% for the thirteen weeks and 5.2% for the twenty-six weeks, with Boulder Canyon showing exceptional growth of 195.8% for the twenty-six weeks.
• The company successfully refinanced its Term Loan B, reducing the interest rate from SOFR + 2.75% to SOFR + 2.50% and extending the maturity to January 29, 2032, which is expected to lower future interest expenses.
• Weighted average interest rate for the twenty-six weeks ended June 29, 2025, decreased to 4.8% from 5.8% in the comparable prior year period.
• Net income attributable to controlling interest for the twenty-six weeks ended June 29, 2025, increased to $18.0 million from $15.8 million.
• Basic and Diluted EPS for the twenty-six weeks ended June 29, 2025, increased to $0.21 from $0.19.
• The company continues to gain share in Expansion Geographies, with retail volumes up 9.0% and retail sales up 10.1% for the thirteen weeks ended June 29, 2025.
• Utz's retail sales increased 3.3% for the thirteen weeks ended June 29, 2025, while the overall U.S. salty snack category decreased by 1.5%, indicating market share gains.

Negatives

• Gross profit margin decreased to 34.6% for the thirteen weeks ended June 29, 2025, from 35.0% in the prior year, indicating pressure on profitability despite productivity savings.
• Selling, distribution, and administrative expenses increased significantly by 14.2% ($14.9 million) for the thirteen weeks ended June 29, 2025, outpacing net sales growth.
• Income from operations sharply declined to $6.4 million for the thirteen weeks ended June 29, 2025, from $22.5 million in the comparable prior year period.
• Net income decreased to $10.1 million for the thirteen weeks ended June 29, 2025, from $25.4 million in the comparable prior year period.
• Diluted EPS decreased to $0.12 for the thirteen weeks ended June 29, 2025, from $0.23 in the comparable prior year period.
• Net cash used in operating activities increased to $3.9 million for the twenty-six weeks ended June 29, 2025, from $0.2 million in the prior year, primarily due to increases in accounts receivable and inventories.
• Net cash used in investing activities was $71.3 million for the twenty-six weeks ended June 29, 2025, a significant shift from $141.0 million provided in the prior year, which benefited from large divestiture proceeds.
• The company continues to experience rising costs related to fuel, freight rates, and labor, which have negatively impacted profitability.
• Increased promotional activities across the industry, including by competitors, have impacted sales and required Utz to increase its own promotions, potentially pressuring margins.

Risks

• Operating in a highly competitive and consolidating industry.
• Reliance on key customers and the ability to obtain favorable contractual terms.
• Changes in demand for products driven by shifts in consumer preferences, tastes, or the company's ability to innovate or market effectively.
• Changes in consumers' loyalty to brands due to factors beyond the company's control.
• Impacts on reputation caused by concerns relating to the quality and safety of products, ingredients, packaging, or processing techniques.
• Potential for product recalls if products become adulterated or are mislabeled.
• Loss of retail shelf space and disruption to sales due to changes in retail distribution arrangements.
• Reliance on third parties to effectively operate both direct-to-warehouse delivery and direct-store-delivery network systems.
• The evolution of e-commerce retailers and sales channels.
• Disruption to manufacturing operations, supply chain, or distribution channels.
• The effects of inflation, including rising labor costs.
• Shortages of raw materials, energy, water, and other supplies.
• Changes in the legal and regulatory environments, including with respect to tax legislation such as the One Big Beautiful Bill Act.
• Potential liabilities and costs from litigation, claims, legal or regulatory proceedings, inquiries, or investigations into the business.
• Potential adverse effects or unintended consequences related to the implementation of the growth strategy.
• Ability to successfully identify and execute acquisitions or dispositions and to manage integration or carve-out issues following such transactions.
• The geographic concentration of markets.
• Ability to attract and retain highly skilled personnel, including risks associated with executive leadership transition.
• Impairment in the carrying value of goodwill or other intangible assets.
• Ability to protect intellectual property rights.
• Disruptions, failures, or security breaches of information technology infrastructure.
• Climate change or legal, regulatory, or market measures to address climate change.
• Exposure to liabilities, claims, or new laws or regulations with respect to environmental matters.
• The increasing focus and opposing views, legislation, and expectations with respect to ESG initiatives.
• Restrictions on operations imposed by covenants in debt instruments.
• Exposure to changes in interest rates, particularly on unhedged variable rate indebtedness.
• Adverse impacts from disruptions in the worldwide financial markets, including on the ability to obtain new credit.
• Exposure to any new or increased income or product taxes.
• Pandemics, epidemics, or other disease outbreaks.
• Exposure to changes to trade policies and tariff and import/export regulations by the United States and other jurisdictions.
• Potential volatility in Class A Common Stock caused by resales.
• Dependence on distributions made by subsidiaries.
• Payment obligations pursuant to a tax receivable agreement, which in certain cases may exceed the tax benefits realized or be accelerated.
• Provisions of Delaware law and governing documents and other agreements that could limit the ability of stockholders to take certain actions or delay or discourage takeover attempts.
• Exclusive forum provisions in governing documents.
• The influence of certain significant stockholders and members of Utz Brands Holdings, LLC, whose interests may differ from those of other stockholders.
• The effects of private placement warrants on the market price of Class A Common Stock and net income.

Future Outlook

The company expects pricing and promotional activity dynamics in the salty snack industry to continue in the near-term. It anticipates that recent tariff volatility will have a minor impact on its business in 2025. The company aims to offset rising costs through increasing manufacturing and distribution efficiencies and price increases to customers, though it acknowledges uncertainty regarding the maintenance of historic customer sales levels at higher prices. The company is currently evaluating the potential effects of the recently passed One Big Beautiful Bill Act (OBBBA) on its consolidated financial statements, which includes federal tax provisions related to R&D capitalization, interest expense limitations, and accelerated fixed asset depreciation.

Management Comments

• Our portfolio strategy is focused on accelerating investments in marketing and innovation to drive top-line growth and achieve share gains in the attractive salty snack category.
• We plan to further penetrate the Expansion Geographies and untapped channels and customers by further expanding our Branded Salty Snacks... as well as maintaining our share in our Core Geographies.
• We believe the salty snacks category will continue to benefit from favorable dynamics including low private label penetration as well as category leaders competing primarily in marketing and innovation.
• We expect these pricing and promotional activity dynamics to continue in the near-term.
• We continue to expect that recent tariff volatility will have a minor impact on our business in 2025.
• The Company looks to offset rising costs through increasing manufacturing and distribution efficiencies as well as through price increases to our customers, although it is unclear whether historic customer sales levels will be maintained at these higher prices.

Industry Context

The U.S. salty snack category is a $41 billion market within the broader $146 billion U.S. snack foods market. Snacking occasions remain stable, with 48.8% of consumers snacking three or more times a day, up 2.7 points from 2024. The category benefits from low private label penetration and competition focused on marketing and innovation. While the overall U.S. retail sales for salty snacks decreased by 1.5% for the thirteen weeks ended June 29, 2025, Utz Brands managed to increase its retail sales by 3.3%, indicating market share gains against a challenging industry backdrop. The industry is highly competitive, with recent discrete pricing actions by competitors leading to a more promotional environment, which Utz has responded to by increasing its own promotional activities. The company's domestic sourcing of inputs may provide some insulation from international pricing volatility and tariffs.

Comparison to Industry Standards

• Utz's retail sales growth of 3.3% for the thirteen weeks ended June 29, 2025, significantly outperformed the overall U.S. salty snack category, which saw a 1.5% decrease in retail sales based on Circana data. This indicates strong market share gains for Utz.
• Boulder Canyon, a key brand in Utz's portfolio, demonstrated exceptional growth of 195.8% for the twenty-six weeks ended June 29, 2025, per Circana, and 47.8% in the natural channel for the thirteen weeks ended June 15, 2025, per Spins. This performance suggests strong consumer adoption and competitive advantage in the better-for-you snack segment, potentially outpacing similar brands from competitors like Frito-Lay (PepsiCo) or Snyder's-Lance (Campbell Soup Company) in their respective BFY offerings.
• The company's strategy of expanding into 'Expansion Geographies' has yielded positive results, with retail volumes up 9.0% and retail sales up 10.1% for the thirteen weeks ended June 29, 2025. This geographic expansion and market penetration strategy appears to be more effective than some competitors who may be more concentrated in mature markets.
• The decline in gross profit margin (34.6% from 35.0%) and significant increase in selling, distribution, and administrative expenses (14.2% increase) for the thirteen-week period suggest that Utz is facing cost pressures and increased investment needs, which could be a common challenge across the CPG industry due to inflation and supply chain issues, but the magnitude of the SG&A increase is notable compared to sales growth.

Management Changes

Legal Proceedings

• The company is involved in litigation and other matters incidental to the conduct of its business, but management does not believe the results are likely to be material to the company's financial condition, results of operations, or cash flows.
• The company is not currently party to any pending material legal proceedings, other than ordinary routine litigation, or any such proceedings known to be contemplated by governmental authorities.

Related Party Transactions

• The company has a Tax Receivable Agreement (TRA) with Noncontrolling Interest Holders, which provides for payments of 85% of certain tax benefits realized by the company.
• The company partially guarantees loans made to Independent Operators (IOs) by Bank of America and two other banks for the purchase of routes.
• The company sold certain notes receivable from IOs to Bank of America, which it partially guarantees, and these transactions did not qualify for sale accounting treatment, so the corresponding notes payable and notes receivable remain on the company's balance sheet.

Stakeholder Impact

• Shareholders: Experienced a significant decrease in net income and diluted EPS for the thirteen-week period, but an increase in net income attributable to controlling interest and diluted EPS for the twenty-six-week period. Subject to potential stock price volatility from Class A Common Stock resales and obligations under the Tax Receivable Agreement.
• Employees: Affected by rising labor costs and potential severance costs associated with the elimination of Route Sales Professional (RSP) positions as part of the IO conversion strategy. Benefit from share-based compensation programs.
• Customers: Subject to price increases implemented by the company to offset rising costs, which may impact sales levels. Benefit from increased promotional activities in a competitive market.
• Independent Operators (IOs): Benefit from loans for route purchases, partially guaranteed by the company. Their operations are integral to the company's DSD network.
• Creditors: Impacted by the company's debt structure, including variable rate indebtedness and interest rate swaps. The recent Term Loan B refinancing extended maturity and reduced interest rates, potentially improving credit risk profile.

Next Steps

• The company will continue to evaluate the potential effects of the One Big Beautiful Bill Act (OBBBA) on its consolidated financial statements.
• The company plans to further penetrate Expansion Geographies and untapped channels/customers by expanding its Branded Salty Snacks portfolio.
• The company will continue efforts to offset rising costs through increasing manufacturing and distribution efficiencies and price increases to customers.
• The company will continue to monitor and manage operating costs through annual cost saving and productivity initiatives, sourcing and hedging programs, pricing actions, refinancing, and tax optimization.
• The company will continue to operate under reciprocal co-manufacturing agreements with Our Home and a distribution agreement for certain Good Health products on its DSD network.

Key Dates

Recommendation

While Utz Brands demonstrated strong sales growth and market share gains in its expansion geographies, particularly with brands like Boulder Canyon, the significant decline in operating income and net income for the recent quarter is a notable concern. Gross profit margins compressed, and selling, distribution, and administrative expenses rose substantially, indicating challenges in cost management and profitability. The debt refinancing is a positive step for capital structure, but the overall financial performance for the quarter suggests that the company is facing headwinds from rising costs and an intensely promotional competitive environment. A 'hold' recommendation is appropriate as the company's long-term growth strategy and market share gains offer potential, but current profitability pressures warrant caution and close monitoring of future performance.

Keywords

Salty Snacks, Snack Food, Consumer Packaged Goods, CPG, Utz, Boulder Canyon, On The Border, Zapp's, Direct-Store Delivery, DSD, Financial Results, Quarterly Report, SEC Filing, Earnings, Profitability, Debt Refinancing, Supply Chain, Inflation, Promotional Activity, Market Share, Acquisitions, Divestitures