Q2 2024 Utz Brands Inc Earnings Call - Q&A
Hello, and welcome to the <unk> second quarter 2024 earnings call. This call is being recorded and all participants are currently in a listen only mode.
Shortly we will move into a question and answer session to ask a question. Please press star followed by the number one on your telephone keypad I'll now turn the call over to Kevin powers Senior Vice President of Investor Relations.
Okay.
Kevin Powers: Thank you Jeremy and good morning, everyone. Thank you for joining us today for a live Q&A session for our second quarter results with me today are Howard Friedman CEO, Jacob <unk>, CFO and carried a bore CFO and chief transformation Officer I.
I hope everybody had a chance to listen or read our prepared remarks that we posted this morning and also a presentation that is available on our Investor Relations website.
Kevin Powers: Before we begin today's Q&A session, just a few housekeeping items.
Please note that some of our comments today will contain forward looking statements based on our current view of our business and actual future results may differ materially. Please see our recent SEC filings, which identify the principal risks and uncertainties that could affect future performance.
On today's call, we will discuss certain adjusted or non-GAAP financial measures, which are described in more detail in this morning's earnings materials.
Reconciliation of non-GAAP financial measures and other associated disclosures are contained in our earnings materials that are posted on our website.
And with that operator, we are ready to open up the line for questions.
All right perfect and just as a reminder to ask a question. Please press star followed by the number one our first question comes from the line of Andrew Lazar from Barclays. Please go ahead.
Great. Thanks, so much good morning, everybody.
Good morning, Andrew.
Thanks again for shifting around your sort of reporting schedule, that's really helpful. On a busy morning.
Howard I guess, you know 3%.
Speaker Change: Or about call it 3% volume driven organic sales growth for the full year certainly requires as you know a healthy step up in growth in the second half all in the context of a more competitive salty category.
What drives the confidence in this outlook and I guess, how much of the step up is coming from sort of a white space distribution actions that are maybe a bit more in your control or or sort of locked in if you will versus the underlying business and what is enabling us to sort of raise the percent of sales on promo you know quite a bit less than the category average and why would that be.
Anable. Thanks, so much.
I appreciate the question.
Speaker Change: The first thing I would offer you is that our results are really predicated on us continuing to execute and execute against the strategies that we had at Investor day and as you know what are the one of the bigger ones for US is this geographic white space opportunities that we have not only in our expansion markets, but also being able to bring some of our power.
For brands into our existing core markets and I think what you saw in the quarter and what we expect going forward is largely for that to continue to be the case, we're seeing good we're seeing good distribution gains.
Already secured retailers as we go forward certainly in our unmeasured channels as we have continued to address where consumers are shifting and shopping.
We are having had better availability in those channels than we've historically had which has been sort of accommodating to our approach and then we do have a meaningful step up in ANC. Its still a modest by by almost any standard that I would I would apply but you went from 40% to 60% and our innovation is breaking.
He is starting to move into.
Speaker Change: Chat into distribution and kind of came out in the second quarter, and we would expect that momentum to build as well.
Speaker Change: Certainly understand the focus on the promotional environment and the one thing that I'm in.
And I'm, particularly proud of is our capability building over the last 12 months 15 months, our revenue growth management capabilities in our marketing capabilities really allow us to be disciplined and flexible as the environment shifts as the environment shifts we can shift with it so certainly.
Speaker Change: Certainly the environment as well.
Well continue to evolve that's just life in our industry and we intend to remain flexible and evolve with it.
Speaker Change: Thanks, so much.
Thank you.
Speaker Change: Our next question comes from the line of Peter Galbo from Bank of America. Please go ahead.
Peter Galbo: Hey, guys. Good morning, Thanks for taking the question.
Howard I, just maybe wanted to pick up on the back of Andrew's question.
Peter Galbo: Particularly around the competitive environment and I think you know your largest competitor is really called out.
Two two subcategories on flavored potato chips, and then tortilla chips kind of as the.
Areas, where we could potentially see more promotional activity.
Speaker Change: That obviously is a pretty large portion of your portfolio. So maybe you can just give us a bit more detail on how youre thinking about those kind of two large subcategories within the broader portfolio.
Yes.
I appreciate the question I think look there are a couple of things that are unique to our business and I suspect will continue to be in again, we hit some of these themes that at Investor Day, obviously, the geographic white space and the opportunity for us to continue to further penetrate those spaces with our brands.
And gives us some confidence that we are able to compete.
Across the industry and second as we are and we've talked a little bit about being a house of brands. It kind of feels sometimes like we talk a lot about geography, and we talk a little bit less about about brand building and kind of our portfolio of consumer brands and if you are a consumer who is looking for and flavored potato chip, we certainly obviously have that but.
We also have opportunities. If you are a consumer looking for positive choices in our Boulder Canyon business or flavors ins apps.
Speaker Change: Flavor business in <unk>, So we do have a fairly broad portfolio.
Speaker Change: Brands that consumers can cut can opt into up and down the price ladder as well for a more value conscious consumer who is looking for an absolute price point, we have items that work there as well.
I think overall, we feel really good about the portfolio of the consumers cannot opt into our revenue management.
Skills are getting much sharper at every quarter and we're able to now show.
We have clarity around price gaps and where we need to be.
Speaker Change: Cross the price ladder and across channels and the last thing is again I think on the availability side, probably the thing that were.
We continue to focus on is making sure that we're available across where consumers shop, whether it is in traditional grocery or <unk> or club stores or e-commerce and mass and so in all of those places right. Now we are making sure we have the right assortment and so it's not just an on flavor potato chip or tortilla chip.
Environments for us its a far broader playing field, but I think we can compete on.
Great. Thanks for that and then maybe just a very quick follow up.
A couple of questions. This morning, just on kind of the raise on EPS guidance, but not in EBITDA.
Particularly given kind of the two Q over delivery. So just curious kind of how youre thinking about leaving flex or any sort of upside to be reinvested either into price for SG&A.
In the second half and just how do you think about that setting you up for 25. Thanks very much yes, yes, I think first just a reminder, in our in our current paid a lot of the SG&A growth that you saw was really being driven by marketing investments year over year. So again I think we're executing our strategy well I think look we've been paying.
Tension to the competitive environment as well we are aware of what that environment may look like in the back half, but we want to make sure that we can remain flexible and so it is important to us that we that we have the tools, we need to work to address the competition in a targeted way as required.
We don't wind up using those resources, great, but we have plenty of places, where we can still invest as far as the EPS I'll turn it to Jay.
Jay: So the EPS guide is really days because of the.
Jay: <unk> revised assumption or an effective tax rate that you saw also a step down on core DNA, which was slightly higher than what we expect their trumps transactions.
Okay.
Okay.
Speaker Change: Our next question comes from the line of Michael Lavery from Piper Sandler. Please go ahead.
Thank you and good morning.
Hey, Mike.
Michael Lavery: Just recognized from Investor day, and how you've laid it all out how much savings opportunity. There is and we're seeing that I guess, just given that it seems to be.
Speaker Change: So tracking ahead of schedule can you also give us a sense if the savings are not only faster, but bigger than you had kind of first assessed.
Speaker Change: Yeah.
Speaker Change: I know you don't want to probably <unk>.
Speaker Change: Any targets now or you would have but.
Is there more that you have a line of sight on even just a few months ago and is that part of what's helping me to come in so much more quickly.
Speaker Change: Yes, I appreciate the question Mike There is no question that from a supply chain optimization perspective, we are coming in quicker.
Obviously, we did we were able to execute the planned dispositions and we went from.
Speaker Change: 13 plants at Investor Day, two eight at this point, while maintaining our supply base and being secure that we can continue to service our business the way retailers and obviously, our independent operators and consumers would expect.
Speaker Change: But the upside for us as it also has allowed us to really narrow our focus down into those eight plants integrated work systems and some other places so productivity is coming in ahead of where we expected we've always talked a little bit about.
Speaker Change: The opportunity for us to expand gross margins and then decide how to deploy them in marketing distribution gains as well as in capability building and.
Speaker Change: We have confidence through the year and as Jay mentioned in the prepared remarks, we would expect that sets us up nicely for 2025 as well.
Speaker Change: That's great and just a follow up on some of the top line color that you just gave you.
Speaker Change: You touched on.
Speaker Change: The differentiated brands like Boulder Canyon and zaps.
Speaker Change: Boulder Canyon of course is on fire right now, but that had been certainly has slowed.
Speaker Change: Can you just give a sense of what's ahead there how much of it is just comp driven.
Speaker Change:
Speaker Change: What should we expect for how that brand plays out going forward.
Speaker Change: Yes.
Speaker Change: I definitely agree that those two businesses are a little bit of a tale of two cities Boulder Canyon is is growing quite nicely. It's got a great position in the marketplace and at high perceived value.
Speaker Change: For both the consumer as well as for retailers really driven by avocado, while in the <unk>.
Speaker Change: In the non seed oil folks. We also have Boulder Canyon poppers that is launching now which is kind of if you think about our company overall the cheese ball as a.
Speaker Change: It's something we know a lot about and we're very proud of and being able to bring that into another subcategory under that brand just kind of shows the elasticity of that brand and what we can do it as we go forward. So there's a lot about distribution gains and a lot about high velocity. So we're getting in and consumers are buying more of it so a great story there.
Speaker Change: I think on <unk>, we talked about this last quarter of the opportunities we have in our price pack architecture and down the street and C store.
Speaker Change: And making sure that.
Speaker Change: We addressed those.
Speaker Change: Both areas as we move forward and is that just coming in a little bit slower than we would've expected potato chips specifically.
Speaker Change: Is a is an area of continued emphasis for us and then the pretzel lap of the new item from a year ago, which we now have our two new items out at this point our case spicy Cajun at our Brown sugar, which are now in market and picking up so we would expect that trend to normalized.
Speaker Change: Potato chips is the area, we need to continue to work.
Speaker Change: Okay. Thanks, so much thank you.
Speaker Change: Our next question comes from the line of Rob Dickerson from Jefferies. Please go ahead.
Rob Dickerson: Great. Thanks, so much.
Rob Dickerson: Maybe just on.
Speaker Change: On the heels of that last question.
Speaker Change: I'm just curious.
Speaker Change: As you have started to expand a bit in your.
Speaker Change: Experiencing.
Speaker Change: Geographies are there any.
Speaker Change: Have there been any incremental learnings with respect to kind of.
Speaker Change: Which products, which brands are maybe traveling a bit better and I just kind of ask because.
Speaker Change: No.
Speaker Change: I think previously the idea was well definitely can pushing that definitely can pushing canyon, but also seems like <unk> is doing very well as you kind of move west. So that's just the first question.
Speaker Change: Yes.
Speaker Change: I think overall, we feel really good about all four of our powerful brands Alright, I think they all travel they all travel reasonably well.
Speaker Change: At this point I think the two things we have learned.
Speaker Change: As we go as how how repeatable are model seems to be right. So we had a we had a theory of the case, we had great success expanding into Florida, and we continue to make great strides are continuing to grow our business there, but I think we have a formula down of what the right number of items are across which sub categories and the brands as well as the support model.
Speaker Change: That I think we're showing is significantly incremental to the retailer and our brand and there is a great deal of interest from consumers to opt into our products as well. So again I think that the power of the portfolio the catering to different consumers and making sure that our assortment reflects that and that investing some of our advertising and consumer to drive.
Speaker Change: Tumor poll.
Speaker Change: As our sales organization and retailers are giving us. The space is is working for US is working for the category and we're being rewarded with incremental support as we go.
Speaker Change: Alright, Super and then I guess just secondly.
Speaker Change: What's what's your updated thoughts on potential category growth for the year, one and then two.
Speaker Change: Clearly, there's acceleration baked into the guide that you expect in the back half.
Speaker Change: It seemed like it seems like you have fairly high conviction on that acceleration, so I'm kind of assuming that's all for distribution gains.
Speaker Change: Maybe just kind of comment on why their convictions there too. Thanks.
Speaker Change: Yes, yes.
Speaker Change: <unk>.
Speaker Change: We have high conviction in the wild cards, I think are well known to everybody but.
Speaker Change: But we feel pretty good that we're executing the way we need to right now.
Speaker Change: Alright Super Thank you.
Speaker Change: You.
Speaker Change: Our next question comes from the line of Robert Moskow from TD Cowen. Please go ahead.
Robert Moskow: Alright. Thanks.
Robert Moskow: Just wanted to ask in the context of your longer term outlook for sales growth is three to four.
Speaker Change: You know clearly this is a volume driven year.
But you could see a scenario where pricing is kind of flattish for the next couple of years three years, given all of the backdrops. So there's just a long term algo still hold up in a in a zero pricing environment is there enough distribution gains out there in 'twenty five and 26.
Speaker Change: To keep that three to four going thanks.
Yeah.
Speaker Change: Yeah, I think the short answer is yes, we have a significant amount of geographic white space to go over the next couple of years remember, we're still we still have about 60% of the total U S salt where salty is.
A key part of your long term plan is to sustain market share in your core markets, you've been pretty consistently gaining share in his expansion markets, but maybe not so consistent in our core are there any issues or changes you need to make in the core markets or are you pretty happy with the market performance and how it's playing out in core versus expansion.
Okay.
Speaker Change: Well I think I think that was a generous statement about our core I think look if you look across where we've been and we're very happy with our expansion markets and a part of our core.
Speaker Change: Market strategy is to do some similar things specifically around Boulder Canyon as asset on the border I think we're getting we are having good results in doing those things, but we are more.
Speaker Change: It is clearly in a geography, where sort of normal more normal category dynamics tend to.
Speaker Change: To impact some of our business specifically around our foundation brands sort of the areas as we're evolving our portfolio. We have a we have a long tail. We have a tail of brands that we have been.
Speaker Change: That we have been shifting away from the core disproportionately.
Speaker Change: More than we planned we will be flexible.
Speaker Change: Great and then maybe just one follow up question just on the cost side. What are you guys seeing in the cost backdrop and on the inflation front at this point.
Yes, so we are still expecting the inflation overall inflation bucket that we track to be flat commodities.
Commodities are slightly.
Deflationary, but we have transportation.
Speaker Change: Labor inflation.
Speaker Change: Baked into that bucket.
Great. Thank you.
Pat: Thanks, Pat Thank you.
Our next question comes from the line of Mitchell Pinheiro from Sturtevant <unk>. Please go ahead.
Mitchell Pinheiro: Yeah, Hey, good morning.
I am curious about your foundation brands.
And how important.
Sort of holding them.
Speaker Change: Steady as to.
Sort of achieving your gross margin expansion is that or is that a risk at all if you continue to see above average leakage in the foundation brands.
We're having very positive effects to our business and so we feel really good that the entire marketing mix is working the way we would expect it to and there will always be some tradeoffs, which we'll be flexible about.
Alright. Thank you very helpful. That's all for me.
Thanks Mitch.
Alright, and just as a reminder to ask a question. Please press star one on your telephone keypad. Our next question comes from the line of Jim Solera from Stephens. Please go ahead.
Hi, guys. Good morning, Thanks for taking our questions.
Howard I wanted to drill down if you look at the household penetration the buyers and the repeat trends, obviously, all going in the right direction I would imagine driven in the expansion territories can you just talk through maybe whats, bringing the incremental households to the ups brand and then it seems like.
Youre retaining them with the repeat rate what does it take to retain them. If there may be nudism brand moving forward such that we can have a more stable and ideally higher repeat rate from these new customers.
Speaker Change: Nothing stopping us from continuing to drive to drive the availability where retailers and consumers want it we have the.
Speaker Change: We have the firepower and manufacturing capabilities to continue to build that business.
Speaker Change: And you're right. We're well ahead of what we thought at the time was a pretty.
Bold statement of $100 million within three years.
Speaker Change: And we will be well ahead of that probably.
By 2026, we'll be certainly be exceeding that expectation that we set out. So we'll continue to drive availability, we will innovate you've seen book Canyon poppers, showing up and we think there's a lot left to do with that brand.
Okay, Great maybe just one last question as a title of that train of thought do you have any capacity constraints for Boulder.
Speaker Change: If you get big orders from retailers are you able to beat that right away or is there like a ramp up period.
Speaker Change: Okay.
No.
We are we feel really good about our capacity right now obviously, given all the supply chain optimization work that we're doing and the capital that we are investing.
As well as the increase in our capabilities around integrated business planning, we have much better visibility.
For both the demand and supply of that item and so we are we feel good about where we are and we feel really good about the ability to support that.
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