8-K: Utz Brands Reports Solid Q3 2024 Results, Reaffirms Full-Year Outlook

Utz Brands reported a 1.9% increase in organic net sales and a 23.5% increase in adjusted earnings per share for the third quarter of 2024, while reaffirming its full-year financial targets.

Summary

• Utz Brands announced its financial results for the third quarter of 2024, which ended on September 29, 2024.
• Net sales were $365.5 million, compared to $371.9 million in the prior year period, with a 3.6% negative impact from the divestiture of the R.W. Garcia and Good Health brands.
• Organic net sales increased by 1.9%, driven by a 2.4% favorable volume/mix, partially offset by a 0.5% decrease in net price realization.
• Gross profit margin expanded by 370 basis points to 35.8%, while adjusted gross profit margin expanded by 270 basis points to 39.0%.
• Net income was $0.8 million, compared to $16.2 million in the prior year period, primarily due to a $22.4 million increase in the loss on the remeasurement of the warrant liability.
• Adjusted EBITDA increased by 3.6% to $54.0 million, representing 14.8% of net sales.
• Adjusted earnings per share increased by 23.5% to $0.21.
• The company reaffirmed its full-year outlook for organic net sales growth of 2%-2.5%, adjusted EBITDA growth of 5%-8%, and adjusted earnings per share growth of 28%-32%.

Sentiment

Score: 7

Explanation: The sentiment is positive due to the strong growth in adjusted EPS and EBITDA, margin expansion, and reaffirmed full-year outlook. However, the decrease in net sales and net income, along with competitive pressures, temper the overall sentiment.

Positives

• The company experienced solid organic net sales growth, driven by volume increases.
• Utz achieved significant margin expansion through productivity programs and favorable sales mix.
• Adjusted earnings per share saw substantial growth, indicating improved profitability.
• The company is on track to meet its full-year financial targets.
• Utz is gaining market share in both core and expansion geographies.
• The company is seeing strong performance in non-measured channels.
• Boulder Canyon brand is showing significant growth and is on track to reach $100 million in annual retail sales.
• The company is increasing marketing investments to support brand growth.

Negatives

• Net sales decreased by 1.7% compared to the prior year period, primarily due to divestitures.
• Net income decreased significantly due to an increase in the loss on the remeasurement of the warrant liability.
• Retail sales decreased by 1.3% versus the prior-year period.
• The company experienced a more competitive promotional environment in potato chips and softness in the convenience store channel.
• Foundation Brands volume continues to be impacted by dips and salsa declines and purposeful de-emphasis of co-manufacturing.

Risks

• The company faces a more competitive promotional environment, which could impact pricing and margins.
• Changes in consumer preferences and tastes could affect demand for the company's products.
• The company's performance could be impacted by fluctuations in raw material prices and supply chain disruptions.
• The company's expansion efforts could be hindered by competitive actions and the inability to differentiate its products.
• The company's financial results could be affected by economic, business, or competitive factors.
• The company's ability to achieve cost savings and efficiencies could be impacted by various factors.
• The company's ability to maintain effective internal controls is a risk factor.

Future Outlook

The company reaffirmed its full-year outlook for organic net sales growth of 2%-2.5%, adjusted EBITDA growth of 5%-8%, and adjusted earnings per share growth of 28%-32%. The company expects growth to be driven by volume increases, marketing investments, product innovation, and distribution gains.

Management Comments

• Howard Friedman, Chief Executive Officer of Utz, stated that the company's momentum continued with solid organic net sales growth and adjusted earnings per share growth.
• He also mentioned that the company is executing well on distribution growth opportunities and believes that accelerated productivity cost savings will provide flexibility to expand margins and increase brand investments.
• Management expects a more competitive promotional environment but will make appropriate adjustments to meet consumer expectations.

Industry Context

The results reflect the competitive landscape of the salty snack industry, where companies are focusing on volume growth, margin expansion, and brand building. Utz's performance is being impacted by promotional activities and consumer preferences, which are common trends in the industry. The company's focus on expansion geographies and non-measured channels aligns with industry trends of seeking growth in new markets and channels.

Comparison to Industry Standards

• Utz's organic net sales growth of 1.9% is a positive sign in a competitive market, but it is important to compare this to peers such as Frito-Lay (PepsiCo) and other major snack manufacturers.
• The 270 basis point expansion in adjusted gross profit margin is a strong result, indicating effective cost management and pricing strategies, which is a key focus for companies like Mondelez and Kellogg in the packaged food sector.
• The 23.5% growth in adjusted EPS is significant and suggests that Utz is improving its profitability, which is a critical metric for investors when compared to companies like Hershey and General Mills.
• Utz's focus on productivity programs and cost savings is similar to initiatives undertaken by other food manufacturers to improve margins and profitability.
• The company's expansion into new geographies and channels is a common strategy among snack food companies looking to increase market share, similar to the expansion strategies of companies like Campbell Soup and Conagra Brands.

Stakeholder Impact

• Shareholders will likely react positively to the strong adjusted EPS growth and reaffirmed outlook.
• Employees may benefit from the company's growth and expansion efforts.
• Customers may see new product offerings and increased availability of Utz products.
• Suppliers may experience increased demand for raw materials.
• Creditors may view the company's improved financial performance favorably.

Next Steps

• The company will continue to focus on driving sales growth in the fourth quarter of 2024.
• Utz will activate distribution gains in both core and expansion geographies.
• The company will increase marketing spend on its Power Four Brands.
• Utz will continue to focus on innovation investments and prepare for the holiday season.

Key Dates

Keywords

Utz Brands, salty snacks, organic net sales, adjusted EBITDA, adjusted EPS, gross profit margin, retail sales, market share, productivity, brand growth, financial results, consumer trends