8-K: Utz Brands Reports Strong Q1 2024 Results, Raises EPS Outlook

Utz Brands reported a solid first quarter in 2024 with increased organic net sales, expanded gross profit margins, and raised its adjusted earnings per share outlook for the year.

Summary

• Utz Brands announced its financial results for the first quarter of 2024, ending March 31, 2024.
• Net sales were $346.5 million, a slight decrease of 1.4% compared to the same period last year, but organic net sales increased by 1.5%.
• The decrease in net sales was primarily due to the divestiture of the R.W. Garcia and Good Health brands, which impacted net sales growth by 2.5%, and a shift to independent operators, which impacted net sales by an estimated 0.4%.
• Organic net sales growth was driven by a 1.1% increase in volume/mix and a 0.4% increase in net price realization.
• Gross profit margin expanded significantly by 480 basis points to 34.5%, while adjusted gross profit margin expanded by 280 basis points to 37.2%.
• Net income was $2.4 million, a significant improvement from a net loss of $14.5 million in the prior year period.
• Adjusted EBITDA increased by 7.4% to $43.4 million, with an adjusted EBITDA margin of 12.5%.
• Adjusted earnings per share increased by 27.3% to $0.14.
• The company reaffirmed its outlook for organic net sales growth of approximately 3% or better and adjusted EBITDA growth of 5% to 8% for fiscal year 2024.
• Utz raised its adjusted earnings per share growth outlook for 2024 to 23% to 28%, up from the previous 16% to 21%.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to strong financial results, margin expansion, and an improved outlook. The company's strategic initiatives and market share gains also contribute to the positive tone.

Positives

• The company achieved a 1.5% increase in organic net sales, indicating growth in core business operations.
• Significant expansion in gross profit margin by 480 basis points and adjusted gross profit margin by 280 basis points demonstrates improved profitability.
• The company moved from a net loss of $14.5 million to a net income of $2.4 million, showing a strong turnaround.
• Adjusted EBITDA increased by 7.4%, reflecting improved operational efficiency.
• Adjusted earnings per share grew by 27.3%, indicating enhanced profitability for shareholders.
• The repricing of the term loan and the disposition of manufacturing facilities are expected to reduce debt and interest expenses.
• The company is reaffirming its outlook for organic net sales and adjusted EBITDA growth for 2024.
• The company is raising its adjusted earnings per share outlook for 2024.
• Utz gained market share in the salty snacks category.
• Retail sales increased by 4.1% and Power Brands retail sales increased by 4.9%.

Negatives

• Net sales decreased by 1.4% compared to the prior year period, primarily due to divestitures and a shift to independent operators.
• Cash flow used in operations was $(9.1) million, reflecting seasonal use of working capital.
• Adjusted SD&A expenses increased by 6.0% due to increased marketing spend and higher distribution costs.

Risks

• 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 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 in manufacturing processes and logistics operations is important for cost management.
• Fluctuations in results of operations from quarter to quarter due to changes in promotional activities are possible.
• The company may be affected by economic, business, or competitive factors.
• The company may not recognize the anticipated benefits of recent business combinations or dispositions.
• Changes in applicable laws or regulations could impact the company.
• 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.

Future Outlook

The company is reaffirming its outlook for organic net sales growth of approximately 3% or better and adjusted EBITDA growth of 5% to 8% for fiscal year 2024, and raising its adjusted earnings per share growth outlook for 2024 to 23% to 28%.

Management Comments

• Howard Friedman, Chief Executive Officer of Utz, stated that he is pleased with the strong start to the year, as the company gained dollar, pound, and unit share in the Salty Snacks category in the first quarter.
• Howard Friedman also mentioned that the company delivered its fifth consecutive quarter of year-over-year Adjusted EBITDA Margin expansion and drove 27% Adjusted Earnings per Share growth.
• He noted that the recent plant dispositions will allow the company to focus on the next phase of its optimization efforts as they invest in their remaining facilities.
• Management is confident in delivering the 2026 targets that were introduced at the Investor Day in December.

Industry Context

The company's performance is being measured against the broader salty snacks industry, with a focus on market share gains and retail sales growth. The company is also focusing on the natural channel, where it is seeing significant growth.

Comparison to Industry Standards

• Utz's retail sales growth of 4.1% in the first quarter of 2024 outperformed the total salty category growth of 1.4%, as measured by Circana MULO-C.
• The company's Power Brands retail sales increased by 4.9%, and the Power Four Brands increased by 6.0%, indicating strong performance in key product lines.
• Utz is gaining market share in both core and expansion geographies, with expansion geographies showing a higher growth rate of 8.2% compared to core geographies at 1.2%.
• In the natural channel, Utz's retail sales growth is significantly higher than the total salty category, with a 21.9% growth compared to 3.9% for the total category over the last 12 weeks, and 21.1% compared to 5.9% over the last 52 weeks, as measured by SPINS.
• The company's focus on productivity programs and cost savings is in line with industry trends to improve profitability.
• The company's strategic moves to optimize its supply chain and reduce debt are also common practices in the industry to enhance financial stability and growth.

Stakeholder Impact

• Shareholders will benefit from the increased profitability and improved earnings per share.
• Employees may experience changes due to the supply chain transformation and plant dispositions.
• Customers will benefit from the company's focus on product innovation and quality.
• Suppliers may be impacted by the company's supply chain optimization efforts.
• Creditors will benefit from the company's debt reduction initiatives.

Next Steps

• The company will continue to execute its supply chain transformation strategy.
• Utz will focus on optimizing its remaining manufacturing facilities.
• The company will continue to invest in its Power Brands.
• Utz will continue to evaluate opportunistic M&A.
• The company will continue to implement its Integrated Business Planning and build out its analytics platform.

Key Dates

Keywords

salty snacks, net sales, organic growth, gross profit margin, adjusted EBITDA, earnings per share, supply chain, manufacturing, debt reduction, term loan, divestiture, retail sales, power brands