8-K: Utz Brands Reports Mixed Q4 Results but Projects Strong 2024 Growth After Strategic Dispositions

• Utz Brands' net sales decreased by 0.7% in the fourth quarter of 2023 to $352.1 million, while full-year net sales increased by 2.1% to $1,438.2 million.
• Organic net sales decreased by 0.3% in Q4 but increased by 2.8% for the full year.
• The company experienced a net loss of $33.2 million in Q4 compared to a net income of $13.8 million in the same period last year, and a full-year net loss of $40.0 million compared to a net loss of $14.0 million in the prior year.
• Adjusted EBITDA increased by 12.0% in Q4 to $49.4 million and by 9.8% for the full year to $187.2 million.
• The company completed the disposition of the Good Health and RW Garcia brands and related assets on February 5, 2024, receiving approximately $150 million in after-tax net proceeds, which were used to pay down debt.
• For 2024, Utz expects organic net sales growth of approximately 3% or better, with total net sales impacted by about $45 million due to the recent dispositions.
• Adjusted EBITDA is projected to grow by 5% to 8%, and adjusted EPS is expected to increase by 16% to 21% in 2024.
• The company anticipates a net leverage ratio of approximately 3.6x by the end of fiscal year 2024.

Score: 6

Explanation: The sentiment is moderately positive due to the company's strategic actions, debt reduction, and positive outlook for 2024, but tempered by the net losses and slight sales decline in Q4 2023.

• Adjusted EBITDA saw double-digit growth in Q4 and for the full year, indicating improved profitability.
• The company's strategic dispositions generated significant cash, which was used to reduce debt and improve the balance sheet.
• Utz is projecting strong growth in organic net sales, adjusted EBITDA, and adjusted EPS for 2024.
• The company's retail sales showed positive growth in Q4, with a 4.1% increase.
• The company is focused on its 'Power Brands' which saw a 5.3% increase in retail sales.
• The company is accelerating its deleveraging timeline, aiming for a ~3.0x net leverage ratio by year-end 2025.

• Net sales decreased slightly in Q4 2023, indicating some challenges in the short term.
• The company reported a net loss for both Q4 and the full year, a significant downturn compared to the previous year.
• Organic net sales decreased by 0.3% in Q4, suggesting some weakness in core sales performance.
• The shift to independent operators (IOs) negatively impacted net sales growth by 0.4% and adjusted gross profit margin by approximately 40 basis points.
• The company's SKU rationalization program negatively impacted volumes in Q4 by approximately 2.5%.

• The company's gross profit margins may be adversely impacted by variations in raw materials pricing, retail customer requirements, and promotional support.
• Changes in consumer loyalty to the company's brands could affect sales.
• The company's ability to innovate and market its products effectively, particularly in expansion geographies, is crucial for growth.
• Consolidation of key suppliers could pose a risk.
• The company's ability to adopt efficiencies into its manufacturing processes and logistics operations is important for cost savings.
• Fluctuations in results of operations from quarter to quarter due to changes in promotional activities are possible.
• The company may not recognize the anticipated benefits of recently completed business combinations or dispositions.
• The company's ability to maintain the listing of its Class A Common Stock on the New York Stock Exchange is important.
• The company's ability to develop and maintain effective internal controls is crucial.

Utz anticipates organic net sales growth of approximately 3% or better in 2024, with total net sales impacted by ~$45 million due to recent dispositions. Adjusted EBITDA is expected to grow by 5% to 8%, and adjusted EPS is projected to increase by 16% to 21%. The company also expects a net leverage ratio of ~3.6x by the end of fiscal year 2024.

• Howard Friedman, Chief Executive Officer, stated that the company has made continued progress on building Utz into a pure-play U.S. snacking company.
• Friedman also mentioned that the recent brand and manufacturing plant dispositions fast-track the company's deleveraging timeline and accelerate its supply chain transformation.
• Management believes they have compelling long-term growth opportunities and that the 2024 outlook begins their runway to deliver the 2026 targets discussed at their Investor Day in December.

The report indicates that Utz is aiming to become a pure-play U.S. snacking company, which aligns with the trend of companies focusing on core businesses. The company's performance in the salty snacks category is being compared to competitors, with Utz gaining market share in Q4. The focus on 'Power Brands' and expansion geographies reflects a common strategy in the consumer packaged goods industry to drive growth.

• Utz's retail sales growth of 4.1% in Q4, as measured by Circana MULO-C, indicates a positive performance compared to the overall salty snack category growth of 2.8%.
• The company's 'Power Brands' saw a 5.3% increase in retail sales, outperforming the overall category and suggesting a strong brand portfolio.
• The company's focus on cost savings and productivity improvements is a common strategy in the industry to enhance profitability.
• The strategic dispositions and debt reduction efforts are similar to actions taken by other companies to improve financial health and focus on core operations.
• Utz's target of a ~3.0x net leverage ratio by year-end 2025 is a common goal for companies looking to strengthen their balance sheets.

• Shareholders may be concerned about the net losses but encouraged by the positive outlook and debt reduction.
• Employees may be affected by the ongoing supply chain transformation and productivity initiatives.
• Customers may benefit from the company's focus on 'Power Brands' and new product innovation.
• Suppliers may be impacted by the company's efforts to optimize its supply chain.
• Creditors may view the debt reduction positively.

• The company will continue to focus on its 'Power Brands' and expansion geographies.
• Utz will accelerate capital investments in existing manufacturing plants.
• The company will fully implement Integrated Business Planning.
• Utz will continue to evaluate opportunistic M&A.
• The company will focus on cash management improvement opportunities.

• December 31, 2023: End of the fiscal year and the fourth quarter for which financial results are reported.
• February 5, 2024: Date of completion of the dispositions of the Good Health and RW Garcia brands and related assets.
• February 29, 2024: Date of the earnings announcement and conference call.
• March 7, 2024: End date for the telephonic replay of the earnings conference call.