Utz Brands Reports Second Quarter 2023 Results and Raises 2023 Profit Outlook

HANOVER, Pa.–(BUSINESS WIRE)–Utz Brands, Inc. (NYSE: UTZ), a leading U.S. manufacturer of branded salty snacks, today reported financial results for the Company’s second fiscal quarter ended July 2, 2023. 

2Q’23 Summary:

• Net sales increased 3.6% year-over-year to $362.9 million
• Organic Net Sales increased 4.3% year-over-year
• Net loss of $(8.6) million vs. net income of $2.5 million in the year-ago period
• Adjusted EBITDA increased 7.1% year-over-year to $45.2 million
• Raising fiscal 2023 Adjusted EBITDA outlook

^{See the description of the Non-GAAP financial measures mentioned in this press release and reconciliations of the Non-GAAP adjusted measures to the most comparable GAAP measures in the tables that accompany this press release.}

“Our second quarter results were consistent with our expectations as our momentum continued led by sustained strong demand across our advantaged portfolio of Power Brands,” said Howard Friedman, Chief Executive Officer of Utz. “Looking ahead to the remainder of the year, we are raising our full-year Adjusted EBITDA outlook as we execute against our key growth and operational strategies”.

Second Quarter 2023 Financial Highlights

Second Quarter 2023 Results

Net sales in the quarter increased 3.6% to $362.9 million compared to $350.1 million in the second quarter of 2022. The increase in net sales was driven by Organic Net Sales growth of 4.3%, partially offset by the Company’s continued shift to independent operators (“IOs”) and the resulting increase in sales discounts that impacted net sales growth by (0.7%).

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 account for a 6.0% increase in net sales, partially offset by volume/mix declines of (1.7%). The volume decline was primarily due to the Company’s ongoing SKU rationalization program focused on reducing lower margin private label and certain partner brands. The Company estimates this program impacted volumes in the second quarter of 2023 by approximately (3.5%). Excluding the impact from SKU rationalization, the Company estimates that volume/mix would have increased 1.8% in the second quarter of 2023 versus the prior year period.

For the 13-week period ended July 2, 2023, the Company’s retail sales, as measured by Circana (formerly IRI) MULO-C, increased 8.8% versus the prior-year period and the Company’s Power Brands’ retail sales increased 9.9% 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®, Hawaiian®, and Boulder Canyon®. The Company’s Foundation Brands’ retail sales increased 1.5%⁽²⁾ versus the prior year period.

Gross profit margin was 32.4% compared to 31.9% in the prior year period. Adjusted Gross Margin was 35.0% compared to 36.0% in the prior year period. The benefits from net price realization, productivity, and favorable sales mix more than offset cost inflation. However, Adjusted Gross Margin was impacted by transitory higher inbound freight costs and volume deleverage resulting from our network optimization program, both of which are expected to abate in the second half of 2023. Additionally, the Company estimates that the continued shift to IOs negatively impacted Adjusted Gross Margins by approximately 70 basis points, but with offsetting benefits in Selling, Distribution, and Administrative (“SD&A”) expense.

SD&A expenses increased 6.4% compared to the prior-year period. Adjusted SD&A Expense decreased (2.6)% compared to the prior year period from lower outbound freight costs resulting primarily from the Company’s productivity initiatives, but also due in part to improved freight industry conditions. 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 a net loss of $(8.6) million compared to income of $2.5 million in the prior-year period. The decrease in net income was primarily attributable to an asset impairment charge of $7.6 million and severance expenses of $1.3 million related to the previously announced closure of the Company’s manufacturing operation at its Birmingham facility, and recording a liability of $4.7 million for the termination of a supply contract with a co-manufacturer. In addition, interest expense increased $4.3 million versus the prior year period.

Adjusted Net Income in the quarter increased 2.2% to $18.8 million compared to $18.4 million in the second quarter of 2022 and Adjusted Earnings per Share of $0.13 was consistent with the prior year period. Adjusted EBITDA increased 7.1% to $45.2 million, or 12.5% as a percentage of net sales, compared to Adjusted EBITDA of $42.2 million, or 12.1% as a percentage of net sales, in the prior year period.

Balance Sheet and Cash Flow Highlights

• As of July 2, 2023
  • Total liquidity of approximately $170 million, consisting of cash on hand of $73.7 million and $96.6 million available under the Company’s revolving credit facility.
  • Net debt of $913.3 million resulting in a Net Leverage Ratio of 5.1x based on trailing twelve months Normalized Adjusted EBITDA of $177.4 million.
• For the 26-weeks ended July 2, 2023
  • Cash flow used in operations was $4.3 million, which reflects the seasonal use of working capital.
  • Capital expenditures were $30.2 million, and dividend and distributions paid were $16.0 million.

Fiscal Year 2023 Outlook

The Company is reaffirming its Net Sales outlook and raising its Adjusted EBITDA outlook for fiscal 2023:

• Total net sales growth of 3% to 5% and Organic Net Sales growth of 4% to 6%, with the Company’s continued shift to IOs impacting total net sales growth by approximately (1.0%). 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 expects volume / mix consistent with fiscal 2022.
• Adjusted EBITDA growth of 8% to 11% (previously 7% to 10% growth) as gross margin expansion and lower delivery costs are expected to more than offset cost inflation, and continued investments in brand marketing, people, capabilities, and selling infrastructure.

The Company continues to expect:

• An effective tax rate (normalized GAAP basis tax expense, which excludes one-time items) in the range of 20% to 22%;
• Interest expense of approximately $55 million;
• Capital expenditures in the range of $50 to $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. We expect the variability of these items to have a potentially unpredictable, and potentially significant, impact on our future financial results.

About Utz Brands, Inc.

Utz Brands, Inc. (NYSE: UTZ) manufactures a diverse portfolio of savory snacks through popular brands including Utz®, On The Border® Chips & Dips, Golden Flake®, Zapp’s®, Good Health®, Boulder Canyon®, Hawaiian Brand®, and TORTIYAHS!®, among others.

After a century with strong family heritage, Utz continues to have a passion for exciting and delighting consumers with delicious snack foods made from top-quality ingredients. Utz’s products are distributed nationally through grocery, mass merchandisers, club, convenience, drug, and other channels. Based in Hanover, Pennsylvania, Utz has multiple manufacturing facilities located across the U.S. to serve our growing customer base. For more information, please visit www.utzsnacks.com