Utz Brands Reports Third Quarter 2023 Results

Utz Brands to Add Manufacturing Facility in Kings Mountain.

Utz Brands Snacks

Noviembre 17, 2023

Recently, Utz Brands, Inc. (NYSE: UTZ) ("Utz" or the "Company"), a leading U.S. manufacturer of branded salty snacks, reported financial results for the Company’s third fiscal quarter ended October 1, 2023.

3Q’23 Summary:

  • Net sales increased 2.5% year-over-year to USD 371.9 million
  • Organic Net Sales increased 3.1% year-over-year
  • Net income of USD 16.2 million vs. net income of USD 1.5 million in the year-ago period
  • Adjusted EBITDA increased 9.2% year-over-year to USD 52.1 million

Howard Friedman, Chief Executive Officer of Utz:

"We delivered solid results on both the top and bottom line in the third quarter, with strong growth of our Power Brands, particularly in our Expansion geographies."

"While Salty Snack category growth continues to normalize after several years of pricing actions, we also have seen some channel shifting due to a more value-conscious consumer. We will remain agile in this dynamic environment."

"During the quarter we took aggressive actions to optimize our supply chain and portfolio for the future. These actions negatively impacted our second half volume greater than we anticipated, and coupled with the external environment, resulted in a near-term impact to our full-year net sales guidance."

"However, this stepped-up pace of supply chain and portfolio optimization has already delivered increased productivity and other costs savings, which has enabled us to maintain our full-year Adjusted EBITDA guidance."

"I believe we have now laid a strong foundation that well positions the Company for fiscal 2024 and beyond. We look forward to sharing more details on our accelerated value creation plans at our Investor Day in December."

Third Quarter 2023 Financial Highlights

Third Quarter 2023 Financial Highlights

Third Quarter 2023 Financial Highlights

Third Quarter 2023 Results

Net sales in the quarter increased 2.5% to USD 371.9 million compared to USD 362.8 million in the third quarter of 2022. The increase in net sales was driven by Organic Net Sales growth of 3.1%, and this was partially offset by the Company’s continued shift to independent operators ("IOs") and the resulting increase in sales discounts which the Company estimates impacted net sales growth by (0.6%).

Organic Net Sales growth was driven by the flow-through of pricing actions that were taken in fiscal 2022 in response to inflationary pressures, which accounted for a 3.7% increase in net sales, partially offset by volume/mix declines of (0.6%).

The volume performance in the quarter was driven by strong growth of the Company’s Power Brands while also benefiting from earlier-than-planned holiday shipments. In addition, volume performance was adversely impacted by supply chain transitions related to the Company’s network optimization initiatives, and its ongoing SKU rationalization program focused on reductions in private label and partner brands.

The Company estimates this SKU rationalization program impacted volumes in the third quarter of 2023 by approximately (3.3%). Excluding the impact from SKU rationalization, the Company estimates that volume/mix would have increased 2.7% in the third quarter of 2023 versus the prior year period.

For the 13-week period ended October 1, 2023, the Company’s retail sales, as measured by Circana (formerly IRI) MULO-C, increased 3.2% versus the prior-year period and the Company’s Power Brands’ retail sales increased 5.1% versus the prior-year period(1).

Power Brands’ retail sales growth versus the prior-year period was led by Utz®, On The Border®, Zapp’s®, and Boulder Canyon®. The Company’s Foundation Brands’ retail sales decreased (9.1%)(2) versus the prior year period.

(1)Circana (formerly IRI) Total US MULO-C, custom Utz Brands hierarchy, on a pro forma basis. (2)Circana does not include certain Partner Brands and Private Label sales that are not assigned to Utz Brands.

Gross profit margin was 32.1% compared to 32.6% in the prior year period. Adjusted Gross Margin was 36.3% compared to 36.5% in the prior year period. The benefits from net price realization, productivity, and favorable sales mix more than offset cost inflation and supply chain investments, however the continued shift to IOs impacted Adjusted Gross Margins as expected by approximately 60 basis points, but with offsetting benefits in Selling, Distribution, and Administrative (“SD&A”) expense.

SD&A expenses increased 3.0% compared to the prior-year period. Adjusted SD&A Expense decreased (1.8)% compared to the prior year period primarily due to a reduction in selling costs from the shift to IO’s, lower administrative expenses, and productivity benefits. These factors were partially offset by continued investments in brand marketing, selling infrastructure and people, systems, and supply chain capabilities to support growth.

The Company reported net income of USD 16.2 million compared to net income of USD 1.5 million in the prior-year period. The increase in net income compared to the prior year was primarily due to a USD 16.0 million gain from the remeasurement of private placement warrant liability in the third quarter of 2023 versus a loss of USD 3.7 million in the prior year period.

Partially offsetting this improvement was interest expense of USD 15.5 million in the current period compared to USD 11.6 million in the prior year period. The increase in interest expense is primarily attributable to higher interest rates, which impacted the portion of the Company’s floating rate debt, and the Company’s Real Estate Term Loan issued in October 2022.

Adjusted Net Income in the quarter increased 9.5% to USD 24.6 million compared to USD 22.5 million in the third quarter of 2022. Adjusted Earnings per Share increased 9.2% to USD 0.17 compared to USD 0.16 in the prior year period. Adjusted EBITDA increased 9.2% to USD 52.1 million, or 14.0% as a percentage of net sales, compared to Adjusted EBITDA of USD 47.7 million, or 13.1% as a percentage of net sales, in the prior year period.

Balance Sheet and Cash Flow Highlights

  • As of October 1, 2023
    • Total liquidity of approximately USD 209.4 million, consisting of cash on hand of USD 60.1 million and USD 149.3 million available under the Company’s revolving credit facility.
    • Net debt of USD 875.9 million resulting in a Net Leverage Ratio of 4.8x based on trailing twelve months Normalized Adjusted EBITDA of USD 181.8 million.

For the 39-weeks ended October 1, 2023

Fiscal Year 2023 Outlook

The Company is today updating its previously-issued full-year fiscal 2023 financial outlook.

  • The Company now expects total net sales growth of 2% to 3% (previously 3% to 5%) and Organic Net Sales growth of 3% to 4% (previously 4% to 6%), with the Company’s continued shift to IOs expected to impact total net sales growth by approximately (-1.0%). The revised range reflects the impact of their aggressive supply chain optimization actions and normalizing Salty Snack category growth with some channel shifting by consumers.

    Net sales growth is expected to be driven by net price realization, increased marketing and innovation, and continued distribution gains of the Company’s Power Brands, partially offset by the estimated impact of approximately (-3%) from the Company’s SKU rationalization program. Based on these assumptions, the Company now expects volume / mix to be modestly lower than fiscal 2022.
  • The Company continues to expect Adjusted EBITDA growth of 8% to 11% driven by stronger operating performance led by the Company’s productivity programs, with continued investments in brand marketing, people, capabilities, and selling infrastructure.

The Company also expects:

  • An effective tax rate (normalized GAAP basis tax expense, which excludes one-time items) in the range of 17% to 18% (previously 20% to 22%);
  • Interest expense of approximately USD 55 million;
  • Capital expenditures in the range of USD 50 to USD 55 million; and
  • Net Leverage Ratio below 4.5x at year-end fiscal 2023.

With respect to projected fiscal 2023 Adjusted EBITDA, a quantitative reconciliation is not available without unreasonable efforts due to the high variability, complexity, and low visibility with respect to certain items which are excluded from Adjusted EBITDA. Utz expects the variability of these items to have a potentially unpredictable, and potentially significant, impact on their future financial results.

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