10-Q: Utz Brands Reports Q3 Loss Amid Rising Costs, Strategic Investments

Utz Brands, Inc. reported a net loss for the third quarter and year-to-date periods, driven by increased operating costs and strategic investments, despite achieving net sales growth and market share gains.

Summary

• Net sales for the thirteen weeks ended September 28, 2025, increased by 3.4% to $377.8 million, primarily due to a 4.5% benefit from favorable volume/mix, partially offset by a 1.1% reduction from lower net price realization.
• Gross profit decreased to $126.9 million (33.6% margin) for the thirteen weeks ended September 28, 2025, from $131.0 million (35.8% margin) in the prior year, attributed to increased investments for capacity expansion and growth.
• Selling, distribution, and administrative expenses rose by 11.9% to $123.1 million for the thirteen weeks ended September 28, 2025, due to higher people, selling, and delivery costs supporting growth and geographic expansion.
• The company reported a net loss of $20.2 million for the thirteen weeks ended September 28, 2025, compared to a net income of $0.8 million in the prior year period.
• For the thirty-nine weeks ended September 28, 2025, net sales increased by 2.7% to $1,096.6 million, while the company recorded a net loss of $4.4 million, a significant decline from a net income of $28.6 million in the comparable prior year period.
• Income tax expense for the thirteen weeks ended September 28, 2025, was $13.4 million, primarily driven by an increased valuation allowance against certain deferred tax assets.
• The company refinanced its Term Loan B on January 29, 2025, reducing the interest rate and extending the maturity date to January 29, 2032, and entered into a new interest rate swap agreement with a notional amount of $500.0 million.
• In October 2025, the company acquired Insignia International's DSD distribution assets across California and the Midwest, accelerating its expansion in California.
• The company announced the strategic closure of its Grand Rapids, Michigan manufacturing facility by early 2026 as part of its supply chain transformation, and plans to sell two buildings in Hanover, PA, and land in Goodyear, AZ.

Sentiment

Score: 4

Explanation: The company's financial performance for the quarter and year-to-date is concerning, marked by significant net losses, declining gross profit margins, and reduced operating income. While there are positives in net sales growth, market share gains, and strategic initiatives like debt refinancing and DSD acquisitions, these have not yet translated into improved profitability. The increased tax expense due to a valuation allowance on deferred tax assets further highlights financial challenges. The overall sentiment is cautious due to the current financial underperformance, despite strategic efforts for long-term growth.

Positives

• Net sales increased by 3.4% for the thirteen weeks and 2.7% for the thirty-nine weeks ended September 28, 2025, demonstrating continued top-line growth.
• Utz's retail sales increased by 4.8% for the thirteen weeks ended September 28, 2025, outperforming the overall U.S. salty snack category which decreased by 0.2%.
• Expansion Geographies showed strong performance with retail volumes up 3.0% and retail sales up 4.8% for the thirteen weeks ended September 28, 2025.
• The Boulder Canyon brand experienced significant growth, with retail sales up 199.0% for the thirty-nine weeks ended September 28, 2025, and 34.6% in the natural channel for the thirteen weeks ended September 7, 2025.
• Successful refinancing of Term Loan B reduced the interest rate from SOFR + 2.75% to SOFR + 2.50% and extended maturity to January 29, 2032, leading to a decrease in interest expense.
• The company entered into a new interest rate swap agreement for $500.0 million at a fixed rate of 3.23%, limiting exposure to variable interest rates.
• Strategic acquisition of Insignia International's DSD distribution assets in California and the Midwest is expected to accelerate expansion in a key growth market.
• Ongoing supply chain transformation, including the closure of the Grand Rapids facility, is expected to generate cost savings and optimize the manufacturing footprint.

Negatives

• The company reported a net loss of $20.2 million for the thirteen weeks and $4.4 million for the thirty-nine weeks ended September 28, 2025, a significant deterioration from prior year periods.
• Gross profit margin decreased to 33.6% for the thirteen weeks and 33.9% for the thirty-nine weeks ended September 28, 2025, from 35.8% and 35.1% respectively in the prior year, due to increased investments and promotional activities.
• Income from operations declined significantly to $3.3 million for the thirteen weeks and $15.4 million for the thirty-nine weeks ended September 28, 2025, from $19.5 million and $51.7 million respectively in the prior year.
• Selling, distribution, and administrative expenses increased by 11.9% for the thirteen weeks and 9.8% for the thirty-nine weeks ended September 28, 2025, impacting profitability.
• Income tax expense for the thirteen weeks ended September 28, 2025, was $13.4 million, primarily due to an increased valuation allowance against deferred tax assets, indicating uncertainty about future tax benefit realization.
• The company continues to experience rising costs related to fuel, freight rates, and labor, which have negatively impacted profitability.
• Increased promotional activities by competitors have led to a more promotional environment, impacting sales and requiring the company to increase its own promotional efforts, potentially affecting net price realization.

Risks

• Operating in an industry with high levels of competition and consolidation.
• Reliance on key customers and ability to obtain favorable contractual terms and protections.
• Changes in demand for products driven by shifts in consumer preferences and tastes or the ability to innovate or market products effectively.
• Changes in consumers' loyalty to brands due to factors beyond 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 of food products 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.
• Effects of inflation, including rising labor costs, and 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.
• 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.
• 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.
• Adverse impacts from disruptions in 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.
• 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 tax benefits or be accelerated.
• Provisions of Delaware law and governing documents that could limit stockholder actions or delay/discourage takeover attempts.
• Exclusive forum provisions in governing documents.
• Influence of certain significant stockholders and members of Utz Brands Holdings, LLC, whose interests may differ from other stockholders.

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 modest and manageable 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 is uncertain if historic customer sales levels will be maintained at higher prices. The closure of the Grand Rapids, Michigan facility by early 2026 is expected to generate cost savings and support ongoing geographic expansion. The company is committed to removing Food, Drug & Cosmetic colors from its product portfolio before the end of 2027.

Management Comments

• Our management team monitors a number of developments and trends that could impact our revenue and profitability objectives.
• 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 modest and manageable impact on our business in 2025.
• Although we have experienced some ingredient cost deflation since 2022, we continue to experience rising costs related to fuel and freight rates as well as rising labor costs both of which have negatively impacted profitability.
• 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.
• This decision [Grand Rapids closure] is a key component of the Company's long-term strategic roadmap, is expected to generate cost savings and should enable the Company to allocate more volume to its larger, more efficient facilities, while driving fixed cost leverage and enhanced automation capabilities across its remaining network.
• In addition to the expected cost savings, the Company expects the optimized footprint to support its ongoing geographic expansion.

Industry Context

The U.S. salty snack category is a $41 billion market within the broader $147 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. salty snack retail sales decreased by 0.2% for the thirteen weeks ended September 28, 2025, Utz Brands achieved a 4.8% increase, indicating market share gains. The industry is highly competitive, with pricing and promotional activities intensifying, impacting sales and requiring increased promotional efforts from companies like Utz. The company sources nearly all inputs domestically, potentially reducing impact from international pricing volatility and tariffs.

Comparison to Industry Standards

• Utz Brands' retail sales increased by 4.8% for the thirteen weeks ended September 28, 2025, significantly outperforming the overall U.S. salty snack category, which saw a 0.2% decrease based on Circana data.
• The company is the second-largest producer of branded salty snacks in its core geographies (Alabama, Connecticut, Delaware, Louisiana, Maine, Maryland, Massachusetts, Mississippi, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Virginia, Vermont, West Virginia, and Washington), based on 2024 retail sales.
• Boulder Canyon, a better-for-you brand within Utz's portfolio, demonstrated exceptional growth of 199.0% for the thirty-nine weeks ended September 28, 2025, according to Circana, and 34.6% in the natural channel for the thirteen weeks ended September 7, 2025, per Spins, indicating strong performance in a key consumer trend segment.
• The salty snack category generally benefits from low private label penetration, allowing category leaders like Utz to compete primarily on marketing and innovation, a strategy Utz is actively pursuing with its Power Four Brands and targeted brands.

Legal Proceedings

• The company is involved in litigation and other matters incidental to its business, but management believes the results are not likely to be material to the company's financial condition, results of operations, or cash flows.

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. As of September 28, 2025, the liability related to projected obligations under the TRA was $23.5 million.

Stakeholder Impact

• Shareholders: Potential negative impact on share price due to net losses, declining profitability, and increased debt. Volatility in Class A Common Stock is a noted risk.
• Employees: The closure of the Grand Rapids, Michigan manufacturing facility will impact employees at that location. The company also faces risks related to attracting and retaining highly skilled personnel.
• Customers: Increased promotional activities and potential price increases may affect customer purchasing behavior and loyalty.
• Suppliers: The company has outstanding purchase commitments for key ingredients, and commodity cost fluctuations, fuel, and freight rates impact supplier relationships and costs.
• Creditors: Increased debt levels and exposure to interest rate changes, although partially hedged, could impact the company's ability to service debt. Compliance with debt covenants is ongoing.

Next Steps

• Complete the closure of the Grand Rapids, Michigan manufacturing facility by early 2026 as part of supply chain transformation.
• Continue the multi-phase project to upgrade facilities across the Hanover, PA campus, including the headquarters.
• Proceed with the planned sale of two buildings in Hanover, PA, and a tract of land in Goodyear, AZ.
• Integrate the recently acquired Insignia International's DSD distribution assets to accelerate expansion in California and the Midwest.
• Continue to implement marketing and innovation investments to drive top-line growth and achieve share gains in the salty snack category.
• Work towards the commitment to remove Food, Drug & Cosmetic colors from the product portfolio before the end of 2027.
• Evaluate the impact of recently issued accounting standards (ASU 2025-06, ASU 2025-05, ASU 2024-03, ASU 2023-09) on financial statements and disclosures.

Key Dates

Recommendation

While Utz Brands demonstrated top-line growth and strategic progress in market share expansion, brand innovation (e.g., Boulder Canyon), and supply chain optimization, the significant net losses, declining gross profit margins, and reduced operating income for both the quarter and year-to-date periods are concerning. The increased income tax expense due to a valuation allowance on deferred tax assets further highlights underlying financial pressures. The company is actively managing its debt and pursuing cost-saving initiatives, but these have not yet translated into improved profitability. A 'Hold' recommendation is appropriate for investors who believe in the long-term strategic vision and the potential for these initiatives to eventually improve financial performance, but acknowledge the current operational headwinds and profitability challenges. A more aggressive stance would require clearer signs of a return to sustained profitability.

Keywords

Salty snacks, Utz Brands, Q3 earnings, 10-Q, Consumer packaged goods, Food industry, Supply chain transformation, Direct-store delivery, Boulder Canyon, Financial results, Debt refinancing, Manufacturing consolidation, Market share, Inflation, Interest rates