Q4 2020 UTZ Brands Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the US brands, Inc. Fourth quarter 'twenty 'twenty earnings call. At this time all participant lines are on mute. Please be advised that today's conference is being recorded after the speaker's presentation. There will be a question and answer session to ask a question.
During the session you will need to press star one on your telephone.
Require any further assistance. Please press star zero I would now like to turn the call over to your speaker today, Kevin Harris Senior Vice President of Investor Relations. Please go ahead.
Good morning, and thank you for joining us today.
On the call today are delma set chief Executive Officer, and carried a bar Chief Financial Officer.
During this call management may make forward looking statements within the meaning of the federal Securities laws.
These statements are based on management's current expectations and involve risks and uncertainties that could differ materially from actual events.
As described in these forward looking statements.
We used to refer to the risk factors and Utz brand. Most recently quarterly report filed with the SEC as well as rest highlighted in the company's press release issued this morning for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward looking statements made to.
Thanks.
Please note management's remarks today, we'll highlight certain non-GAAP financial measures.
Our earnings release also presents the comparable GAAP measures to the non-GAAP numbers provided and reconciliation of the non-GAAP results to the GAAP financial measures.
During today's call management will reference IRI retail sales data and a discussion of our year over year performance.
Please note that all year over year comparisons to 2019 retail sales results assume that the company on H T Anderson and Truecar enterprises on the first day on fiscal 2019.
Finally, the company has also prepared presentation slides.
An additional supplemental financial information, which are posted on <unk> Investor Relations website.
You may want to refer to these slides during today's call.
This call is being webcast.
And an archive of it will also be available on the website.
And now I'd like to turn the call over to day one.
Okay.
Thanks, Kevin and good morning, everyone.
2020 was a transformational year for US we began a new chapter as a public company through our successful business combination with Collier Creek Holdings in August and during this transition our business didn't skip a beat.
The strength of our brands are incredible dedicated associates and our unique action oriented culture enabled us to successfully navigate a challenging environment and deliver for our loyal customers and our retail customers.
We kept our teams safe gained market share and delivered on our financial commitments that we made to our shareholders. When we went public.
Reflecting on our performance in 2020, we stay true to our commitment of executing against our long term strategies that we believe will enhance shareholder value.
These include driving productivity to enhance margins reinvesting in marketing and innovation to accelerate revenue growth and continuing to make strategic strategic acquisitions.
I am proud to say that we have made significant progress across all three.
Yeah.
In 2020, including the impact of Trucco, we grew retail sales, 15% as a combined company to over $1 3 billion outpacing salty snack category growth of 9%.
Well, it's just now the number three ranked brand platform in U S salty snacks and one of the fastest growing salty snack platforms of scale.
Our power brands sales momentum continued with retail sales growing 17% per year, and now representing close to 90% of our sales.
Our footprint continues to extend further beyond our core geographies with nearly 20% growth and the expansion and emerging regions more than double the growth rate of the salty snacks category.
And finally, we were one of the fastest growing competitiveness of scale in salty snacks e-commerce with over 120% growth in retail sales year over year.
E Commerce now represents nearly seven percentage of our sales mix on a retail basis, and we will continue to drive meaningful growth in this important and expanding channel.
Of particular importance to our long term growth potential during the year, we added over 3 million buyers almost two times the next closest competitor.
As COVID-19 changed habits and elevated at home consumption, we have executed extraordinarily well and capturing incremental demand and by your attention.
Importantly, these incremental buyers have been sticky and our repeat rate or the proportion of buyers who purchased products two or more times in the period grew to nearly 70% in 2020.
We continue to believe that the increase in at home food consumption that we have seen this past year will continue into 2021 and it will benefit <unk>.
And our dynamic brands over the long term.
To help capitalize on this retention opportunity and consistent with the strategy, we've outlined since going public in the fourth quarter, we began to accelerate our marketing investments focused primarily on digital social and e-commerce and targeted to drive growth and retention.
We are seeing strong returns on our ability to measure the effectiveness of the spend means we believe we can adjust our strategy appropriately as we move forward.
Wrapping up our 2020 highlights we delivered positive gross margin expansion and we continue to make meaningful progress on productivity initiatives heading into 2021.
Finally, we continued to execute on our strategy of making strategic acquisitions focused on U S branded snacking and delivering strong synergies and in February of this year 2021, we closed on the acquisition of <unk>, Our third acquisition since going public.
Vendors as a leading regional branded snack foods in the Chicago Metropolitan geography, and it provides us with a strong DSD presence with approximately 55 DSD routes.
<unk> delivered approximately $25 million in net sales and $3 4 million and pro forma adjusted EBITDA in 2020, and we expect it will be accretive to earnings in 2020, one and beyond.
Our acquisitions of HK Anderson on the border tortilla chips, and dips and vintners will collectively enhance our geographic footprint enable us to drive increased penetration of our power brands and enhance our strength in key product subcategories.
We remain confident in our ability to execute future strategic acquisitions in 2021 and beyond that add long term strategic value to our company and to the platform.
Next I'll shift my comments to the fourth quarter of 2020, and then I'll turn the call over to Kerry, who will discuss our financial results in more detail and our outlook for 2021.
Yeah.
Looking at the numbers in the fourth quarter, our financial results were very strong with net sales growing over 22% and nearly 7% on a pro forma basis, which excludes the 50 <unk> week in Q4 and it assumes that we owned the Conagra DSD snacks kitchen cooked HK Anderson and trucco.
For the entirety of Q4 of 2020, and the full year 'twenty of 2019 and 2020.
Adjusted gross profit margins increased approximately 155 basis points to $36 seven for the quarter, leading to year over year growth in adjusted gross profit of 27.5%.
In addition, adjusted EBITDA margins increased year over year.
213, eight percentage of sales.
From a retail sales perspective, our strong momentum continued in the fourth quarter our.
Our retail sales increased nine 3% for the 13 weeks ending December 27th vs category growth of seven 1%.
We outperformed the category by approximately 220 basis points overall, resulting in our fourth consecutive quarter of share gains.
For the year, we grew 15, 1% materially outpacing category growth of $9 one per cent.
Turning to the growth drivers in the quarter. We grew sales in five of our six key sub salt These subcategories, including tortilla chips led by the on the border brands, where sales grew over 22% more than tripling the subcategory growth of 7%.
From a share perspective, we gained share across potato chips tortilla chips and pork runs in the quarter, which are more than 65% of our retail sales.
And potato chips, we drove double digit growth, which was nearly double the category as we continue to increase distribution of our flagship <unk> brand outside of our core regions and zaps remained on its double digit growth trajectory.
In general to the Salt is subcategories. We also grew our salsa in case of subcategories by 52% and 38% respectively. In Q4 2020, and we expect strong continued growth from these subcategories going forward.
Moving to our brand portfolio groupings retail sales for our power brands grew over 11% for the quarter significantly outpacing the category at seven 1% for the fiscal year, we grew power brands by 17% almost twice the category growth rate in our foundation brands grew.
Three 2%.
Foundation brands slightly declined in the quarter as this is consistent with our strategy to continue to emphasize our power brands.
To that end in 2020, we eliminated approximately 85 foundation skus totaling nearly $10 million on run rate sales.
Looking ahead to 2021 and beyond focusing on marketing and innovation efforts around our power brands remains a critical focus for our company.
And the developing better for you segment of salty snacks are better for you power brands of Boulder Canyon and good health grew retail sales in the natural channel over 16% in the quarter and 21% for the year significantly outpacing natural channel category growth of 9% and 11% respectively.
In the natural channel, our top selling brands Boulder Canyon, which delivered a phenomenal year growing over 40% in 2020, delivering the number one selling potato chip SKU in the natural channel, which is the Boulder Canyon avocado oil sea salt.
We are leveraging Boulder strawn better for you credentials and the early launches in place for innovation to include protein puffs amongst others.
We expect momentum to continue in 2020 one as these brands continue to grain gained traction and we are planning to introduce more innovation to continue to grow the base business.
2020 was a transformative year for us in many respects, but in particular, introducing our brand portfolio to new buyers and.
In 2020, we saw a significant growth in households, buying our product with higher dollars per buyer being spent and increasing rates of repurchase.
We grew buyers by more than 3 million for the 52 weeks ending December 27th 2020 versus the prior year, which is nearly two times more than on the other salty snack competitor during this period.
Moreover, our rates of repurchase increased year over year to 70%, suggesting stickiness from this increase in the number of households.
We've seen the total number of buyers growing throughout 2020, and coupled with increasing repeat rates, we continue to gain confidence about what this means for the company's long term growth prospects.
Importantly, this growth in buyers was diversified across age and income demographics as well as geographies.
From a channel perspective grocery mass and club continued to drive our retail sales growth.
In addition, <unk>.
With our strategy of expanding and Underpenetrated channels, we gained share in convenience, where we're currently underweight notwithstanding overall COVID-19 related softness in this channel as well as on our largest channel grocery which showed strong growth throughout COVID-19.
We grew retail sales in the grocery channel by 14% in the quarter and a growth in mass and club was strong at approximately 8% and 12% respectively.
During this quarter. We also successfully continued our strategy of geographic expansion as we experienced strong growth in our expansion in emerging regions. While also performing well in our core geographies, where our retail sales grew nearly 6%.
Expansion grew about 14% in the quarter versus category growth of eight and emerging grew over 14% compared to category growth of approximately seven per cent.
For the year, we grew core expansion and emerging 12%, 20% and 19% respectively.
We are number two in our core but we are only number four and number five and expansion in emerging markets signaling continued opportunity to grow our sales.
This significant growth and expansion in emerging is particularly exciting given day now only comprise 50% of our total retail sales and that includes the impact of the on the border acquisition.
We continue to benefit from the geographic expansion efforts that have been underway.
For decades.
Our acquisitions have helped fuel this expansion and our ability to leverage the footprint gained by our acquisitions to create incremental growth for our power brands has proven to be a very effective strategy.
Importantly, while we have been successful in driving above category growth in both both emerging and expansion regions our sales within each represent less than five per cent of the overall category sales.
And this is less of them day, 9% and our core market.
This reinforces our belief in the distribution runway, we have for the future.
Turning to E. Commerce. This channel continued to be an area of hyper growth for our company.
We finished the year is one of the fastest growing salty snack companies of scale in e-commerce with sales growing over 120 per cent.
And nearly doubling to nearly 7% of our total retail sales.
We continue to expand our Assortments and we are growing across pure play e-commerce platforms clicking.
Click and collect and traditional grocery e-commerce.
Looking ahead, we have recently revamped our website and App launched our D to C platform that is intended to create a more user friendly experience and has better optimized for mobile all enhancing our path to purchase.
Supporting these efforts will be our marketing agency of record with Sasha Group, who has significant experience in e-commerce and in digital and social platforms.
Before I turn the call over to Kerry I just wanted to thank our entire team for their commitment during a challenging environment and a transformational year for us.
This is a testament to the passion and the tenacity of Eog's culture and on behalf of our management team.
And our board of directors I'd like to thank you again for your incredible efforts.
Kerry.
Yes.
Thank you Dylan and good morning, everyone.
Dylan mentioned earlier in the quarter, we delivered strong topline and bottom line growth that was in line with our expectations.
Net sales increased 22, 1% to $246 3 million.
Gross profit increased 27, 4% to $90 5 million.
And adjusted EBITDA more than doubled to $34 million.
As you know calendar 2020 was a 53 week year and adjusting for the impact of the extra week and the impact of acquisitions pro forma net sales on a comparable 13 week basis increased six 8% in the quarter for the full year pro forma net sales increased 11, 9%.
On an adjusted EBITDA grew 54, 8% with margins expanding over 260 basis points to 13, 9% of sales.
These results are a reflection of the team's consistency of execution as we delivered category, leading sales growth and margin expansion amidst the challenges of COVID-19, going public and three strategic acquisitions.
This speaks to the relentless spirit and culture of the organization.
We bring focus on delivering for our customers and our shareholders.
Moving to the details our net sales growth in the quarter was driven by volume of four 1% price mix of 1% the extra week of seven 9% and acquisitions of 10, 6%, partially offset by the impact of higher discounts to independent operators, which reduced the net.
Net sales growth rate by one five per cent.
As a reminder, we are in the process of converting company owned DSD routes to independent operator routes and as we make these conversions, we no longer incur certain selling costs, such as Royal Commission compensation benefits and transportation cost, but instead, we pay a sales discount to independent operators. This has.
The effect of decreasing net sales and gross profit, but we believe that results in higher EBITDA margins over the long term.
Moving down the P&L, we had a very strong margin performance in the quarter our growth in adjusted gross profit margin of approximately 155 basis points led to an increase in our adjusted EBITDA margin of approximately 555 basis points to 13, 8% as a reminder.
Prior year margins were impacted by the timing of certain selling expenses that we don't expect to recur and drove a portion of the expansion year over year.
Dissecting the increase in adjusted EBITDA margin for the quarter a bit.
Volume contributed approximately 130 basis points of margin growth as we leveraged higher volumes in our manufacturing facilities.
Price mix contributed approximately 80 basis points of margin growth.
Acquisitions contributed approximately 140 basis points of margin growth.
Cost of goods sold contributed approximately 80 basis points of growth as we experienced lower commodity costs due to strong proactive supply chain execution, which locked in favorable contracts that benefited our 2020 results.
The 50, <unk> week drove approximately 100 basis points in margin expansion.
And finally, selling and admin expense was relatively margin neutral in the quarter as we had higher incentive compensation due to strong performance and higher marketing and e-commerce spend both offset by lower selling expenses and synergy realization.
For the year, selling and admin expense was higher due to the full year impact of higher incentive compensation and marketing and e-commerce spend.
Moving to our balance sheet and other key points.
As of fiscal yearend, our liquidity remains strong and we had a cash balance of $46 million and availability on our ABL credit facility of approximately $106 million.
After year end and as we previously announced on January 20th we completed a term loan refinancing in place the new $720 million term loan b.
This new term loans, coupled with exercising the public warrants, which brought in approximately $180 million in cash.
Tabled us to repay in full the $490 million bridge credit facility used to fund the acquisition of Trucco enterprises and the on the border brand and refinance the preexisting $410 million term loan B due 2024.
Importantly, this refinancing lowered our expected cash interest cost by over $3 million annually lengthen our maturity profile by over three years to 2028 and provides our business with additional financial flexibility to support our continued long term growth.
Pro forma for this financing and the <unk> acquisition, our net debt at fiscal year end 2020 was approximately 692 million or three seven times normalized further adjusted EBITDA of $186 million, which assumes trucco on H Kayne Anderson, where on the entire year as well as including.
$5 million and run rate cost synergies related to Truecar.
Before I discuss our outlook for 2021 I'd like to provide an update on two strategic projects that will improve our infrastructure and help enable our platform to continue scaling.
First as our ERP implementation, we have completed the phase deployment across our network and our final modules where stood up in February of 2021.
This has been a two year process for the business and we are excited to begin taking advantage on the incremental analytics and efficiency that a single integrated current state ERP system can deliver.
We will also benefit from key employees across functional areas of the business returning from focus on the ERP to helping drive day to day execution.
Second after a brief pause last year to accommodate the COVID-19 impact and the ERP implementation.
We resumed our conversion from company owned routes to independent operators and we expect to finish the conversion in the first half of 2022.
As we've spoken to you before we believe the IL conversion strategy is incremental to long term organic growth is accretive to EBITDA margins and cash flow and helps derisk our business overall.
We look forward to completing this initiative, which has been ongoing for several years now and will also continue to look for opportunities to increase our Io route count by adding new organic routes overtime.
Turning to guidance, we are looking forward to another strong year for us with our momentum continuing into 2021.
We expect full year 2021, net sales to be consistent with 2020 pro forma net sales of 1.1 dollars 6 billion for.
For clarity our 2020 pro forma net sales is on a 52 week comparison basis.
Assumes we owned each key Anderson and trucco on the first day on fiscal 2020.
And assumes $20 million of net sales for <unk> to align with expectations for fiscal 2021.
Which will have 11 months of results and be impacted by SKU rationalization activity.
Importantly, we expect modest organic sales growth year over year, even as we lap fiscal 'twenty organic growth of over 8%.
As expected due to the COVID-19 impact on at home consumption in 2020.
Our 2021 pro forma net sales guidance is below our long term growth algorithm.
But importantly on a two year stack basis. This results in pro forma sales growth of about 6% well above our long term algorithm of 3% to 4% which remains firmly intact.
We began the year with good momentum with strong retail sales growth through February and we expect full year 2021 organic growth led by incremental distribution innovation and price mix, partially offset by the COVID-19 related lap and our continued DSD route conversion.
Two independent operators.
Moving to adjusted EBITDA, we expect a range of $180 million to $190 million versus 2020 further adjusted EBITDA of $181 million delivering a margin of approximately 16%.
Included in our 2021 assumptions is the contribution of $48 million to $52 million from our acquisitions of HK Anderson Trucco and vendors.
Excluded from these numbers on a run rate cost synergies from acquisitions of at least $5 million.
We expect to accomplish the actions to pull through most of these cost synergies by the end of the second quarter of 2022, which is within the range of 12 to 18 months, we typically have experienced over our acquisition history.
Included in our EBITDA assumption as commodity inflation of about 4%.
We are focused on pricing to offset this cost pressure.
Additionally, we expect to increase productivity from 1% to 2% of cost of goods sold which helps to offset inflation and fund incremental marketing spend.
Finally, and as I mentioned earlier, we are in the process of converting routes from company owned to independent operator, and this conversion increases the rate of growth for sales discounts, which negatively impacts net sales and gross profit.
For adjusted EPS, We expect a range of 70 to 75.
Which assumes fully diluted shares on an as converted basis on 142 million and excludes step up depreciation and amortization and stock compensation expense.
Lastly, a few additional assumptions for consideration.
First we funded the $25 million of fitness acquisition in February 2021 with balance sheet cash.
We are expecting 200 to 250 independent operator route conversions in 2021.
We expect core DNA up 25% to $27 million and step up DNA, a 57% to $59 million, which are both comprised of approximately two thirds cost of goods sold and one third selling and administrative expense.
We expect capital expenditures of $30 million to $40 million as we look to invest behind our productivity program and lean into 2022 targets.
We expect cash interest expense of approximately $30 million.
We expect an effective cash tax rate of 23% to 25%, which is the percentage of pre tax book income, we expect to manifest into cash tax payments.
And we expect to end the year with a net leverage ratio of approximately three five times that.
That includes unrealized cost synergies of approximately $5 million from acquisitions.
Diving into our productivity assumptions included in our outlook for 2021 incremental productivity efforts are cornerstone of driving higher margins.
And we expect meaningful progress towards our 2023 goal of 3% to 4% productivity of cost of goods sold.
This year, we expect to double our productivity from 1% to 2%.
Taking down the savings, we expect 40% to come from manufacturing.
30% from product design 'twenty.
20% from network optimization and 10% from sourcing.
A dedicated team to drive this incremental productivity has been up and running for some time.
We know the projects that will drive our 2021 productivity ramp up.
And we are planning for an additional ramp up in 2022.
Also included in our 2021 outlook is an assumption for increased investments in marketing and innovation and.
In 2021, we expect a significantly higher mix of digital and e-commerce spending and a lower mix of sponsorship spending and we expect to increase our working digital and E Commerce media spend by approximately 60% relative to 2020 levels and over 275%.
Relative to 2019 levels.
We will continue to allocate most working media to digital and E. Commerce as these strategies allow us to remain nimble measure the return on spending and have proven to drive buyer growth and retention.
From an innovation perspective, we have an exciting slate of new products in fiscal 'twenty, one across brands and sub categories.
To touch on a few first we're introducing twisters flavored pretzels.
This is a subcategory of U S. Salty snacks that grew approximately 30% in 2020 and represents around 35% of the total sub category. According to IRI, but is only 10% of us as pretzel mix on.
On a rich history in the parental subcategories.
<unk> us well to make this a new permanent part of our product portfolio that should drive meaningful growth.
We are also introducing on the go products like our cheese portables as you know cheese balls are strong product for us, but today are almost entirely sold on large barrels mostly in mass and club.
Portables as a product that is more on the go and appropriate for C store and impulse in grocery and other channels.
And lastly, we have launched peanut butter filled pretzels under the UGG brand.
This is an extension of the capabilities, we acquired with HK Anderson.
And we have high expectations for growth and innovation across both the HK Anderson and nuts brands early results are strong and we will continue to innovate around the field pretzel platform.
In addition, we have a wide range of other innovations like protein snacks, new flavors and textures and our 100 year anniversary special products.
In summary, this year, we will continue to build on our strong foundation and execute against our strategic priorities that we believe will enhance shareholder value.
As we move throughout 2021, we will balance actions that strengthen our fundamentals and create stronger margins long term, while driving strategies that advance our multifaceted growth opportunities now.
Now I'd like to turn the call back over to Dylan for some closing remarks.
Thanks, Gary looking ahead to 2021, we are focused on actively deploying our long term value creation strategies of generating productivity gains and reducing cost to enhance margins reinvesting these gains to accelerate our revenue growth in <unk>.
<unk> to make strategic acquisitions.
Our goal remains to be the fastest growing pure play branded snack platform of scale in the U S and we believe that our long term sales and earnings growth outlook remains firmly intact.
As Gary mentioned earlier, our longer term annual growth outlook is for 3% to 4% organic growth we.
We delivered growth significantly above this in 2020, as COVID-19 changed habits and elevated at home consumption.
The combination of the strength of our brands are dedicated associate base and our world class distribution system, we capitalize on this opportunity and delivered for our customers.
In 2021, we will look to maintain this momentum as we remain extremely well positioned for long term growth and I'll touch briefly on just a few of the key factors that support this.
First we gained a significant amount of new buyers in the salty snack category and our repeat rates are increasing this.
This year, we are focused on retaining and recruiting these new buyers and we will elevate our digital and social oriented marketing spend to continue to raise customer awareness of our power brands to leverage these new customer relationships.
Note on the border was the number one tortilla chip brand in terms of buyer retention in 2020, and we expect these buyers to remain loyal customers in 2021 and beyond second we have significant opportunity in terms of geographic white space and Underpenetrated channels as I noted earlier our share.
And emerging and expansion geographies is below 5%, which is significantly below our share on core geographies of nearly 9%.
We have a tried and true strategy of building strong relations and relationships with national retailers that have both regional influence and relevance and we will leverage these relationships with our higher brand marketing support Matt.
Mass and C store channels remain large opportunities for us and the acquisition of the on the border brands. For example will help further growth in these key channels.
Third our productivity efforts via our virtuous cycle of value creation will help to fuel incremental marketing and innovation to accelerate revenue growth, we plan to invest more on our brands in a more targeted way and these higher marketing dollars will support geographic expansion and brand building tactics.
Fourth our infrastructure improvements will enable the <unk> platform to continue to scale to greater heights.
As Cary mentioned earlier, we are implementing a new ERP system, and we continue to convert to our DSD routes to independent operators and Additionally, our new low cost debt structure will provide increased financial flexibility.
Lastly, we will continue to make strategic acquisitions that deliver strong synergies and that enhance our competitive positioning our strategy remains consistent as we are focused on branded snacking in the U S at attractive valuations that are accretive.
On that note our pipeline remains very active.
And important to note. We are very excited to recognize the fact that <unk> is officially 100 years old as a company. This fall.
Almost a century ago in November of $19 21 billion failure, it started making and selling potato chips and Hanover, Pennsylvania, I'm extremely proud of the generations of families and let's associates, who have put decades of effort into making a successful thriving company with a strong roadmap.
For future growth.
I see no limit to our future success.
I, thank our associates.
Our customers and our consumers for your continued support of Hudson, our entire brand portfolio.
Again, thank you very much for joining us today.
We are excited about everyone, who has become a shareholder of <unk> and we look forward to continuing to create value for all of our stakeholders.
I would now like to ask the operator to open the call for questions.
Thank you at this time, we will be conducting a question and answer session to allow for as many questions as possible. So please limit your questions to one question with one related follow up. Your first question comes from the line of Andrew Lazar with Barclays. Andrew Your line is open.
Hi, good morning, everybody.
Good morning.
Sure.
Until on you talked about how in core markets.
Any gain share for the full year.
Looked like in <unk>, specifically, though in those core markets.
Sure It took a bit of a.
It looks like you lost a little bit of share in <unk>, So a little bit of an inflection I'm trying to get a sense of what drove that shift and maybe more importantly, how you see core market market share sort of moving forward.
Yeah, Hey, Andrew Thanks, very much and you're right.
On a full year basis, the core did extremely well right.
Let's brand platform did about 12% against a market of approximately 9%.
As to your point for sure in Q4, we had a little bit of a slowdown there relative to the market. We came in about five 7%.
Compared to six 7% so.
Our core markets. If you look at the Powerpoint presentation, we have online sort of jumps around from the Pac northwest to New Orleans to the mid Atlantic to the England.
So it's a very geography, and you can really dial into specific geographies and see where on a year over year basis.
We have opportunity for improvement, it's a big part of.
Our focus we're laser focused on it we know that the core is as important as any of the growth that we have an emerging and expansion markets. There's a little bit of noise in the Q4, just from some holiday overlaps some channel exposure heavier exposure to C store.
On your penetration in mass and some of those core markets.
So it's a hodgepodge of different reasons, but it still grew almost 6% so.
We're excited about 2020, one I think as we look forward into the future.
'twenty one is just an area for us to get laser focused on.
What markets.
What accounts within those markets what channels what is the what accounts within those channels that we need to focus on and so we're putting a laser focus on that in just a.
Very importantly, our overarching objectives, our debt we want to gain share on our core so if.
If share is going to go up 2% or 3% of our sales are going to go two or three we need to beat that in our core so that's what where we're laser focus going into 2021, okay.
Alright, Thank you for that and then.
I guess lastly, I know the company has previously spoken of a mid teen EBITDA margin target for I think it was discussed as sort of a medium term and within now looking like.
This target in 'twenty, one is due partly to the acquisition of the higher margin Trucco business I guess does the company have an updated view on its medium term margin potential. Thank you.
Hey, Andrew that's a great question we're.
We're not updating the target per se I mean, I think it's safe to say that 16% each.
EBITDA margin is the new baseline from.
From which to grow from I think with our price pack initiatives with our productivity.
With our I O conversions coming to a completion here on the next 18 months plus.
With long term profitable branded volume growth all of that is margin accretive and then you layer in synergies we pull through on acquisitions.
That debt is a lot of ammunition to kind of March forward from a baseline of 16.
Got it thank you.
Thank you.
Your next question comes from the line of test per week with Oppenheimer. Your line is open.
Good morning, Thanks for taking my question.
So until on I wanted to go to your slides as shown on the sub categories sales growth rate and the tortilla chip category you guys significantly outgrew the category on those.
Curious in terms of what the drivers there were in terms of the outperformance and then do you expect this outperformance to continue into 2021.
Yes, Thanks, Jay Thanks for the question.
That's the slide on the presentation six yeah tortilla chips did fantastic.
As you can tell most of that refresh is driven by the on the border brands, but also.
Importantly, as our tortilla yards brands, which is a legacy brand debt is up well over 100% as well so.
Trucco on the border, which we acquired back in December of 2020.
Phenomenal growth in 2020, it's continued its growth trends in 'twenty one.
It's coming off a phenomenal year tortilla yards continues to grow and continues to gain expansion. So I think when I look at that subcategory of tortillas going into the future into 2021, I think it's going to be where it used to be a big weakness. If you remember back in June of 2020, we talked about how we were under <unk>.
On a traded in the tortilla subcategory now I think that's our future and continued strength of votes is because we've really grown to like the third largest position and tortillas.
The subcategories.
Okay, Great and then maybe just one follow up quick question for Carrie So in regards to your adjusted EBITDA margin guidance is there any granularity you can give us in terms of both gross margins and know how to think about it year over year.
Yes, I think.
<unk> gross margins I think will be consistent with kind of the pro forma gross margin from from 2020, So call it 38% area and that applies.
Kind of an adjusted SG&A margin of about 22.
Okay, great. Thank you I'll pass it along.
Your next question comes from the line of Brian Holland with D. A Davidson Brian Your line is open.
Yes. Thanks, good morning, So I wanted to just.
Maybe piggybacking on Andrews question about the core market.
Performance.
Have we seen any change in promotional cadence or intensity in the competitive landscape and just curious whether that had any impact on what youre seeing.
I think we've seen a little bit of that Brian.
Obviously, we did really well throughout 2020 as our brands. It doesn't matter. If you are looking at it.
Any particular geography between core.
Emerging or expansion, we did really well, we did really well in almost all of the channels that we operated in 2020 and I think from a competitive standpoint. Obviously, we also went public and we also got on a larger scale and perhaps.
<unk> picked up some more notice from competition I think in general terms.
I've been at this for 25 years, and I wouldn't say that there's any major shift in promotional strategies.
Across the salty snack category.
I think people are looking where they stand in the stack of.
Their share in particular subcategories, if theyre under weighted.
A certain subcategories are underweight in a certain share is looking at ways to perhaps drive share gains, but I haven't seen any dramatic shifts in pricing relative to that and as we look forward into 2021 I think.
There is.
Opportunity for everyone in the industry to continue to look at price pack architecture.
And ways to.
Promote and sell on it all comes down to a depth and frequency in a multitude of.
Our ways to to affect ultimate price points.
I appreciate the color Don.
And then just moving this forward to 2021.
The revenue guide are fairly.
Precise number.
And what's going to be a very volatile year. One would think just compares et cetera, and then you obviously have a lot of internal initiatives.
So maybe a little more color on how we arrived where we did and so maybe just to help guide that question along can trucco for instance are on the border specifically grow in 2021 and are.
Are we thinking about those core markets, just being pressured by the Covid comp and Thats, just fully offset by expansion in emerging market share because it seems like there's a lot of white space that youll be attacking over the next 12 months.
Great Great Great question, Brian This is Carey.
I would say just a little more color on on the.
The revenue guidance I think we expect modest organic growth of that effectively means us.
We expect distribution gains, which were which are meaningful as we've been building over time and going to your point about emerging and expansion that will continue to grow and outpace the category.
And we expect the core to do well as well.
But I think distribution, Brian large will drive.
Modest organic growth for us in Trucco has a great.
Playbook going forward, they've got a lot of new distribution in the food and grocery channel.
There's a lot of runway there, but they have a more meaningful COVID-19 lapse in the notch does in terms of percentage of total total business. So.
The expectation is to grow modestly and we're seeing consistent growth for the year trucco might be flat to down a little bit, but that's still very acceptable.
It's a great business. There is a lot of long term growth ahead of it.
Bought it for a really good price so.
We're very happy with it.
Got it thanks, congrats on the great year gentlemen.
Thank you.
Your next question comes from the line of Michael Lavery with Piper Sandler Michael Your line is open.
Good morning, Thank you.
You mentioned the favorable contracts you had in 2020 that were a benefit and now of course.
Are part of your comp.
Guiding to 4% inflation that obviously I am assuming would capture all of that but can you just give a sense of where you sit now in terms of how much is hedged or locked in or kind of what sort of volatility there could be potentially to that 4%, yes, great question Michael.
We're about 80% covered for 2021.
If you asked me before the Texas freeze.
What inflation would be for the year, we would have probably said less than 4%, but that definitely had an impact on the markets in resin prices and thats kind of flow through to packaging.
And so I think we.
They've got a really good supply chain team on purchasing they bought oils really well.
And we're still seeing the benefit of that in 2021. So as you think about inflation. This year, it's primarily in packaging.
Say about half of Thats in packaging about 40% in the cooking oil area because spot prices of cooking oil have gone up but we are largely covered for the year and then 10% on other categories.
Okay, Great. That's really helpful. And then just a quick follow up on productivity, you've you've talked about the momentum there and how that should progress.
Can you just give a little more sense of how much might be reinvested or versus dropping to the bottom line and how you think about.
Taking those benefits.
So you know a meaningful increase this year, we're effectively doubling.
The percentage of Cogs from one to two and that's on the yacht space by the way.
And will be run rating higher than 2% as we exit the year, but we're going to take some of that savings and certainly reinvest in marketing we're going to spend more this year, we're leaning into digital and social and.
The digital and E com piece of marketing.
Should grow close to 60%. This year. So we will take some of that and reinvest in marketing like we said, we would but some of it is also going to help offset some of the inflationary pressures we're seeing this year.
Okay, great. Thanks, so much.
Your next question comes from the line of Tim Paris with Stephens, Inc. Your line is open.
Thanks for the question guys. So I just wanted to start with a bigger picture question I think the key opportunity for us longer term as growing your number four and five share positions and the expansion in emerging categories. You think you have the brands in place today to do that and as the answer really just adding distribution ask.
That's in those regions or can you just walk me through how youre thinking about growing your business outside of your core market.
Yes sure.
Great question, So I mean.
Think about it we've been growing.
Continuously and contiguously across the United States for 100 years.
More so in the last 10 years, where we have been utilizing the M&A strategy too.
Grow geographically in many cases right Golden Flake in 2016.
Tim's Cascade assets that we acquired in late 2019 in the Pac Northwest. Great example, with kitchen cooked in Illinois, and Vintners in Illinois and as we.
Take over and acquire these companies and expand our geographic base, we have the opportunity to really push our branding into our power brands, which is really where we want to focus right. We know that we're going to have some.
Negative drag from foundation brands, because it is not where we're putting our focus right in the last year or so we've eliminated two or three of those foundation brands and they become a negative drag on your retail sales in some cases, but youre converting that space into your power brands. So that when we focus our marketing behind those power brands.
We get the benefit from that so as we expand into the southeast as we expand into Florida as we expand into Texas as we're currently expanding into Arizona as we're increasing our sales on our share in the Pac northwest.
As we're going into the Midwest. The Midwest is a huge opportunity for us and showing great results, especially with the just consummated acquisition of <unk> debt.
Debt, we close on February eight 2021, we are already putting what's branded products onto that network and pushing those into the Chicago markets. So it's really a combination of just using sort of organic sort of.
ZIP code by ZIP code contiguous continuous growth across the U S. But also some of that leapfrogging that we're able to do when we do some of our acquisition strategies to deliver an opportunity and again I think to Andrew's first question without ignoring the fact that we want our core two also gained share.
Over time, not just rely of course on emerging or expansion markets.
Got it. Thanks, that's helpful and I just wanted to pivot over to marketing. So you started your relationship with the software group in October how is that relationship progressing and what are your early learnings been from your recent marketing investments spend yes.
Yes, I mean, it's it's.
Very well.
A great dynamic group and if you if you remember back to past calls in past conversations what we're really trying to do is a spend more money on marketing right.
Then we had historically spent on what I say spend more money on marketing spend more on traditional digital social type of marketing pulling away from what we had been spending some money on the past, which is sponsorships and putting more spend into traditional social digital type of media.
<unk>, which is a vein or X company.
<unk> group is just fantastic at debt and so we have a our team that does digital social is fantastic and I think it sort of shows in some of the e-commerce stuff that we put into our presentation, where we've really grown our e-commerce business, which is comprised of sort of this is IRI retail.
E Commerce as it's defined by IRI, which.
Which include some of this click and collect on some of the other methods of getting product to people through E. Commerce has really grown over 100, and 120 plus percent and we expect to continue into 2021 and beyond so we're really focusing to make sure that we're dynamic spending more money significantly more money.
On social on digital on our brands focusing it on power brands.
Making that 360 loop into e-commerce, and really driving awareness and I think through on our new households that we picked up in our repeat rates and the things that we.
We've detailed in that presentation as well I think you could say that we're happy so far.
Always say never happy, but pleased but not satisfied we're very pleased but we always think that we can improve and so will spend 2021 trying to improve that even more which is the beauty of the marketing that we're doing is we can literally change.
Day to day on a dime, if we have to spend that money effectively.
Thanks, guys I'll pass it along.
Your next question comes from the line of Robert Moskow with Credit Suisse. Robert Your line is open.
Hi, Thanks, a couple of follow ups I.
Could you give us.
A couple more specifics on how youre going to implement pricing. This year, you mentioned price pack architecture.
And also depth and frequency of promo.
What extent, we'll list prices list price increases also be in that formula.
And secondly, I wanted a little more depth on our on the border and it seems like there is significant revenue synergy opportunities with your <unk>.
Distribution platform.
Are your <unk>.
Sales people marketing that brands to their customers currently and has that yielded more distribution or is whereas on the borders standalone debt is it still kind of operating stand alone.
Its own distribution plan, yes.
Hey, Robert I'm going on I'm going to tackle both of those this is Dylan I can probably give you 30 minutes on on either one of those topics, but I'll try to do it on a succinct way.
In terms of pricing in the snacking industry.
It's a little bit different it's not just on your sort of typical list pricing initiatives. However, we have a very.
Robust price pack architecture team that constantly analyzes the opportunities like I mentioned earlier about frequency about depth. We did just do some pricing on March eight which kicked in of course, it takes a little while for some of that to flow through the system with.
Contracts and all the specifics of.
Thousands of accounts that we basically deal with on a daily basis. So we do have some list and then we also have some.
On weighed out opportunities that we're enacting and some different things around that to really try to tackle offsetting some of the inflation concerns. So on that we have a lot of different levers, we're pulling all the levers and we're going to continue to lean into those levers on pricing.
Flipping to <unk>.
Your commentary about on the border and the integration of sales on how that works.
As we said at the very beginning.
No we did not look at.
On the border as a cost synergy play.
M&A perspective, we looked at that as a revenue synergy play from an M&A perspective, so that team continues to sell day in a day out to their major customers on a day tw direct to warehouse basis, that's intact, that's going very well they have great leadership. They have a great team do you think about it we're months into.
But right now we're coalescing very well on all fronts, our sales folks it's a.
A little bit you have to unwind in some cases.
Existing distribution and there's some complications there that you just have to sort of unwind.
With any integration of M&A, but for example in Chicago like within weeks of.
The acquisition being consummated we were taking it through our route system through our third party distributor route system in Chicago into Joule for example in Central Pennsylvania, We've already turned over OTB distribution to the DSD sales system and Connecticut, we've already turned it over to the <unk>.
Day sales system and so as we look forward those opportunities are going to I think be very positive and very accretive to us because the brand sales and it's doing really well in the places that we've been able to convert it and when it is distributed what it is sold if you think about the sales team at OTB.
I would garner to say Theres roughly eight people in sales when you think about the sales team at <unk> I would guard to say if you disregard the DSD sales force, we still have over 200 plus people that sell so all of them are looking at OTB and it's not just tortillas at sources. Its dips. It's queso is it's all of the product.
Lineup that they have that we can integrate into our almost 700 DSD routes overtime right and I always think of things in a very long term perspective.
But over time, we're going to get those wins and it's a great brands is selling well.
Great. Thanks.
Your final question comes from the line of Jason English with Goldman Sachs. Jason Your line is open.
Hey, good morning folks.
Let's see a couple a couple of quick housekeeping questions first you mentioned contracts.
Up to 4% inflation.
Our free deflationary.
Is that going to be a gradual easing sort of giving you time to adjust to get the productivity ramping or are we a rollover cliff would have a little bit of friction on margins as we enter the year.
I think it'll be it'll be more.
Second half weighted but I think we will see some pressure on the first half of the year.
But we have the pricing starting to take effect on productivity will layer in as.
As well to help offset that and that'll be more back half weighted as well.
That's helpful. Thank you and coming back to the marketing question.
Gil in your prepared remarks, my interpretation of what you were saying was you have a pretty big heavy up of retail media on E. Comm platforms coming next year question.
Question, one is that right.
Second assuming that's the case, which I think it is.
How much of that if any can be funded from trade budgets, whereas all of that investment could be incremental.
Yes, so so in the digital and social area, we are spending approximately 60% more in 2021 than 2020.
Part of that is incremental dollars for sure part of that is also pulling out of sponsorship and moving the mix into more digital and social so it's a significant increase that we are going to layer into that digital social in pure dollars.
I'm really just trying to isolate for the retail media component.
Not the social component is there any color you can give like it seems like your investments against round Dell or Walmart can act or Amazon media services, which to my ear. It sounds like that's where a lot of this is going to support E com.
Yes, well I mean it.
Yes, or no. It is digital social I will honestly say, Jason that I think all debt is interconnected.
E Commerce is not just Amazon E Commerce is the click and collect at Walmart it's the.
Pulling up to a kroger and ordering online and how do you make your products appear by the time you take the words P. R E looking for a pretzel how do you make your products appear on the top of that shoppers list and create that stickiness.
It is all interconnected I think it's a.
It's a great question and it's something we could probably.
Follow up on more definitively, but the way, though I look at it is its not traditional.
We're not talking about television advertising and we're not talking about a lot of radio advertising, we're talking about a lot of digital and social oriented advertising and spending and marketing to promote the brands.
No I hear you, obviously pay placement paid search those are quite different and social so I just want to try to wrap my head around it.
It sounds like it sounds like a good opportunity to follow up offline.
Sure sure of course.
This concludes our question and answer session I will now turn the call back over to John Lewis for closing remarks.
Alright, Thank you very much all for joining us today on on this year and in Q4 2020 call.
We are very excited about the future. We're very excited about everyone who has become a shareholder of boats, we look forward to continuing to create.
Tremendous value for all of our stakeholders, we're very excited about our 100 year anniversary and all of the things that we'll have going on around that it's a testament to the company and into our folks into our people our customers and our consumers and thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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