Q2 2025 Utz Brands Inc Earnings Call - Pre-Recorded

This morning at 930, a M. Eastern time, we will host a live question and answer session in which you can access via webcast on our Investor Relations website.

Please note that some of our comments today will contain forward looking statements based on our current view of our business.

Actual future results may differ materially.

Please see the forward looking statement disclaimer in the earnings materials, and our recent SEC filings, which identify the principal risks and uncertainties that could affect future performance.

Today, we will discuss certain adjusted or non-GAAP financial measures, which are described in more detail in this morning's earnings materials.

Conciliation of non-GAAP financial measures and other associated disclosures are contained in our earnings materials and posted on our Investor Relations website. Finally, the company has also posted presentation slides and additional supplemental financial information on our Investor Relations website.

And now I'd like to turn the call over to Howard.

Thank you Kevin and good morning, everyone, let's begin with a few key messages we.

We delivered a strong start to the year with first quarter organic net sales growth of two 9% led by branded salty snacks growth of four 9%.

We gained dollar and volume share in the salty snacks category for the 13 week period ended March 31, 2025, as measured by <unk> and <unk> plus with convenience driven by the continued momentum of our power core brands are strong consumption results reflect significant continued growth of Boulder Canyon strong gains in our.

And geographies execution of our bonus packs on our us and on the border brands and addressing consumer value seeking behavior through targeted promotional investments.

Our productivity programs network optimization and automation investments continued to gain momentum and fueled adjusted gross margin expansion of 100 basis points, enabling reinvestment into our brands and our capabilities I am pleased with the returns on our consumer marketing activities. This year and how our innovation is resonating with consumers.

Importantly, while we continue to increase investments, we delivered stronger bottom line growth with adjusted EBITDA, increasing nearly 4% and adjusted earnings per share increasing by nearly 15% when.

When you put it all together our results reflect our ability to grow profitably despite category softness due to our unique geographic expansion and significant margin opportunity.

Finally in conjunction with our management changes that we announced on April 17, 2025, we reaffirmed our full year 2025 outlook and are doing so again today.

Our first quarter results continue to reflect strong execution against our clearly defined portfolio strategy as we direct our investment to support our power core brands to fuel our distribution gains geographic expansion and volume growth.

Organic net sales grew two 9% this quarter fueled by strong volume gains in branded salty snacks.

We continue to strategically prioritize our branded salty snacks portfolio, which has now grown to 87% of our total net sales up from 82% just two years ago.

This quarter also marks our fifth consecutive quarter of growth in branded salty snacks with four 9% year over year net sales growth on top of four 7% a year ago and as expected the mix shift towards more branded salty snacks is also positively impacting our adjusted EBITDA margins.

As we focus on our branded salty snack portfolio and our power core brands, specifically, we continue to carefully manage low margin areas of our business, such as dips and sauces and partner brands.

We are continuing to address consumer value seeking across our marketing mix as consumers continue to shop for value outside of traditional channels. Our solid momentum continued in our non measured channels to include natural hard discount and dollar.

We plan to continue to support this momentum with increased marketing investments and disciplined promotional spending adjustments too.

To that end this quarter, we tested the use of bonus packs, which launched in December 2024.

Through this program, we offer to consumers, 20% more product at the same price across fixed and on the border skus delivering strong value to our consumers.

The offer resonated strongly with shoppers helped lift our volumes and when combined with geographic expansion focused trade promotions and the strength of Boulder Canyon delivered strong organic net sales growth for the quarter.

Turning to our consumption results in the quarter, we took both dollar and volume share in measured channels as we outpaced the salty snacks category.

Consumption growth was driven by our power four brands, which increased one 7% in retail sales dollars driven by seven 5% volume gains our growth was led by Boulder Canyon, and our quarter and by both distribution gains and higher velocities in our expansion geographies.

As discussed earlier average retail price per pound declined five 4% due to channel mix bonus packs and disciplined promotional spend to maintain our price gaps.

We remain thoughtful about where and how we reinvest to drive demand with a focus on continuing to drive near term value and long term brand equity.

Now turning to our core geographies in the first quarter of 2025, we continue to gain volume share across the total company and with our power core brands reach.

Retail volume for the total company increased two 9% and our power core brands grew even stronger at four 6% outpacing the category decline of one 4%.

Total company retail sales declined three 7% with power for brands down two 4% compared to the total salty snacks decline of one 9%.

In our core consistent with our strategy, we invested to increase distribution of our power core brands, while maintaining our price gaps versus our competition, primarily in potato chips, while we address the consumer value seeking behavior.

In addition, it is important to note that we are lapping significant merchandising activity in the mass channel for the prior year, which created a difficult comparison in the quarter.

In our expansion geographies, we drove both value and volume share for the seventh consecutive quarter for the total company and our power for brands.

Our four 9% retail sales growth easily outpaced the salty snack category decline of one 6%.

By continued distribution gains and higher same store velocities across our portfolio.

We saw strong dollar growth in key parts of our portfolio, including us and zaps Pretzels Boulder Canyon potato chips and Golden Flake pork rinds to support this momentum we increase our investments across several demand, creating activities, including brand marketing enhancements to our direct store delivery infrastructure and point of sale marketing to drive in.

Store visibility.

Our expansion geographies have grown to represent 44% of our total company retail sales up from 41% just two years ago.

As we enter new geographies, we are executing a proven playbook, that's driving long term sustainable results across our business.

We offer customers a choice through our hybrid distribution model to be serviced either via our direct to warehouse or direct store delivery routes to market, which allows us to deliver the right products at the right place at the right time.

Once we enter these markets, we increased shopper and consumer marketing investments to drive engagement and loyalty.

We're then able to use our strong retailer relationships and prior success in other markets to accelerate performance and expand our reach.

We remain grateful to our retail partners for the trust in our brands.

In the quarter, we are showing that we can deliver growth year over year as we accelerate our momentum.

Florida remains a great example of both our results and the opportunity.

Since 2021, our market share has expanded from two 6% to 4% today, almost doubling our retail sales over that period.

While we're pleased with the growth it is still well below our average core market share of six 5%, indicating there is still significant share opportunity in the state as we continue to invest in that region.

There is still substantial white space ahead, as we continue expanding westward as we have an average market share of 3% and our expansion geographies versus six 5% and our core we are growing both retail sales dollars and share in over 95% of our attract expansion geographies highlighting the go forward opportunity.

We wanted to take the opportunity today to highlight the business case for why retailers in our expansion geographies at our products to their salty snacks shelf set.

Our brands are on the shelf, it's a win win our customers see accelerated growth in their salty snack category, allowing them to gain share versus the rest of market and consumers have more great options to choose from from a subcategory perspective, our measured channel share gains for the total company were led by potato chips cheese snacks and pork.

In potato chips, our retail sales grew two 7% versus a subcategory decline of two 5%.

Our performance is driven by strong Boulder Canyon growth in the club food and natural channels and by bonus packs, which drove strong pound and perimeter activity.

In tortilla chips are retail sales declined two 8% versus a subcategory decline of one 8%.

Our sales performance came in lower than the sub category, primarily due to a difficult lap in the club channel in the first quarter.

And pretzels are retail sales grew two 2% effectively in line with the market with growth driven primarily by food and mass channels.

And cheese snacks, our retail sales declined 3% versus an overall sub category decline of four 6%.

Our results were primarily impacted by timing and we expect better performance later in the year.

And pork rinds are retail sales were up 8% versus a flat sub category driven by increased velocities of our Golden flake pork brand across all channels.

Our Boulder Canyon brand continues to outperform and gain share both in the natural and traditional channels with growth of 42% and 158% respectively.

Consumers are connecting with the brand and are appreciating it's better for you attributes and bold flavor profiles to share a few stats with you Boulder Canyon has the number one selling salty snack SKU in the natural channel over the latest 13 and 52 weeks. It is also the number one potato chip brands in total U S natural channel year to date.

We're continuing to grow beyond the natural channel driven by both extended distribution innovation and increased velocities.

Turning to innovation, we're excited about our pipeline and are actively investing in new product development across our branded salty snacks platform.

Today, we'd like to highlight three key innovations that reflect that momentum.

In March we launched Boulder Canyon, tortilla chips, which builds on our recent success and Leverages our expertise in tortilla chips and consumer desire for better for you snacks.

This new offering is the same credentials as Boulder Canyon potato chips, including non GMO made with avocado oil and gluten free.

On the border launched two new flavor dipping cafe chips marketing and exciting step forward for the brand.

Flavor tortilla chips continue to gain momentum across the broader market. We're excited to expand on the border beyond its traditional on flavored offerings and into this growing space.

Finally, our limited time offering of us eliminate potato chips. This innovation blends are familiar sweet and tart lemonade flavor with a signature salty crunch delivering a differentiated snacking experience importantly for every bag sold a contribution is made to Alex's Lemonade stand foundation to support children Battle.

<unk> cancer.

Now moving to marketing our spend is up over 30% year over year, reflecting our commitment to building strong connections with our consumers as we build our businesses overnight and our brands over time.

Our collective efforts are leading to improvements in critical consumer panel metrics that reflect the power of our consumer loan portfolio.

For the 52 week period ended March 23, 2025 versus the comparable prior year period. Our household penetration has increased 120 basis points to an all time high of 49, 1%.

Buyers have increased by $1 9 million to $63 9 million and total buyer repeat rates remained steady at 69, 4%, which we are particularly proud of given the number of new consumers that have purchased our brands.

Category panel trends continue to be healthy with continued household penetration growth. Despite near term headwinds looking ahead, we remain confident that the salty snacks category will continue to be among the best categories in food supported by steady consumer investments and a rational competitive environment.

With that I'll turn it over to Jay who will walk you through our financial results in more detail a J. Thank.

Thank you Howard and good morning, everyone.

I would like to begin with a thank you to all ex associates for delivering a strong start to the year.

The team's efforts are evident in our financial results.

In the first quarter, our organic net sales increased two 9% adjusted EBITDA increased three 9% and adjusted earnings per share increased 14, 3% as our productivity programs and actions to optimize our network and portfolio delivered stronger profitability.

Importantly, these actions resulted in our ninth consecutive quarter of adjusted EBITDA margin expansion as we delivered 12, 8% adjusted EBITDA margin in the quarter.

During the quarter, our organic net sales performance was led by volume growth of six 3%, partially offset by lower pricing of three 4% to eight percentage points of which was due to investments in bonus back.

As Howard mentioned earlier, we were very pleased to deliver branded salty snacks organic net sales growth of four 9% led by volume mix growth of eight 3%.

Our non branded and non salty snacks organic net sales declined eight 8% due to softer partner brand and dips and SASSA trends.

As we continue to carefully manage these low margin components of our business.

Finally, our total net sales performance was impacted as expected by the divestiture of arguably the Sia and good health brands, which impacted net sales growth by one 3%.

Moving down the P&L adjusted gross margin expanded 100 basis points in the first quarter.

Our first quarter margin expansion reflects continued strength in our productivity programs. This year as our manufacturing and procurement projects delivered strong results, which more than offset investments in our supply chain.

Adjusted SG&A expense as a percentage of net sales increased 80 basis points, primarily due to increased investments in marketing selling and distribution to support our growth, particularly in our expansion geographies.

Bringing it together adjusted EBITDA increased by three 9% to $45 1 million.

And adjusted EBITDA margin expanded by 30 basis points to 12, 8% of net sales.

The margin expansion was driven by 370 basis points of productivity, partially offset by 290 basis points of price 40 basis points of higher supply chain costs.

To include investments.

30 basis points of higher marketing spend and 20 basis points of selling and administrative expenses.

In addition, adjusted net income increased seven 2% and adjusted EPS increased by 14, 3% to <unk> 16 per share stronger operating earnings were aided by lower interest expense due to meaningful deleveraging in 2024.

Our supply chain initiatives remain on track to support our growth and deliver on our productivity commitments in.

In the first quarter, our new Rice distribution center is now fully operational.

<unk> inventory from six separate buildings into a single state of the art 650000 square feet facility in Hanover, Pennsylvania.

We have expanded our manufacturing network by investing in a new credit line and <unk> line, adding much needed capacity to support our expansion and delivered excellent quality.

The result of these efforts is the delivery of strong productivity savings across the business that we can reinvest in growth of our people and capabilities.

And expanding distribution, while also expanding margin.

This builds on our momentum since we've gone public as we have consistently accelerated productivity savings from 1% of Cogs in 2022, 6% of Cogs in 2024, and we are on track to deliver approximately 6% productivity savings in 2025.

Turning to cash flow and the balance sheet cash used in operations in the first quarter was $20 2 million, reflecting the use of working capital consistent with typical seasonality as well as quarterly pacing of certain uses of cash.

Capital expenditures were $38 8 million and reflect spending primarily related to the aforementioned investments in our manufacturing plants to support our productivity and network optimization initiatives.

Our capex spend this quarter was higher than our normal pacing as we concluded several investments.

Finishing up cash flow, we paid $8 9 million in dividends and distributions to shareholders.

Turning to the balance sheet cash on hand was $62 7 million.

And our liquidity remains strong at nearly $172 million.

Giving us ample financial flexibility.

Net debt at quarter end was $800 9 million and our net leverage ratio was four times trailing 12 months normalized adjusted EBITDA of $201 9 million.

In addition, during the quarter, we repriced, our $630 million term loan b to lower the spread from sulfur plus 275 basis points to sulfa, plus 250 basis points or 25 basis points reduction that we expect will reduce annual interest by approximately $1 6 million.

Now turning to our full year outlook for fiscal 2025, which remains unchanged since our announcement on April 17 2025.

We continue to expect organic net sales growth of low single digits supported by volume growth and led by our branded salty snacks as we accelerated our investments to drive faster growth in our expansion geographies.

Year over year growth is expected to be balanced between the first and second half of the year and we expect pricing to be a modest headwind to growth as we maintain a disciplined pricing strategy moves.

Moving to adjusted EBITDA, we continue to expect growth of 6% to 10% fueled by gross margin expansion from our productivity programs, partially offset by investments to drive growth our strong productivity delivery in 2024, and the first quarter of 2025 gives us confidence in our ability to continue to deliver.

On our cost savings commitments and significantly expanded adjusted gross margin compared to the prior year.

Our 2025, adjusted EBITDA outlook maintains our balance between productivity savings investments in growth and flexibility as conditions Merit.

Finally, we continue to expect adjusted earnings per share growth of 10% to 15%.

Our key assumptions include increased operating earnings and effective normalized tax rate of between 17% and 19%.

And interest expense of approximately $43 million.

Capital expenditures are expected to be between 90 and $100 million.

With the majority focused on building increase manufacturing network capacity and delivering accelerated productivity savings.

Finally, we continue to expect our net leverage ratio to approach two times at fiscal year end 2025.

Before we wrap up I want to take a moment to share that this will be my final earnings call as CFO.

Being an incredible eight years and I am deeply grateful to the entire team at odds to our employees, whose dedication drives our success and to our investors and partners for their continued trust and support.

It's been a true privilege to be part of this journey.

Thank you Jay on behalf of everyone here at Us I want to thank Jay for his contributions over the past eight years, we wish him all the best in his next chapter as previously announced Bill Kelly officially steps into the CFO role starting later today.

We're confident that his leadership and experience will be a great asset as we continue to execute on our strategy.

I also want to take a moment to thank Mark Shriver for his dedicated service and leadership during his time with us as Chief commercial officer.

Mark has been a true champion of the <unk> brand and a driving force behind our commercial success.

We're grateful for Mark support in helping pave the way for a smooth transition as he retires and Jeremy Stuart's steps into his new role Jeremy.

Jeremy joined the company in 2023 and brings a deep understanding of the customer landscape and an operational focus that makes him the ideal leader to build on Mark's legacy.

We're confident that Jeremy's leadership will further strengthen our position in the market.

Wrapping up in today's challenging environment. We believe we are executing well against our December 2023, Investor day commitments.

We are gaining volume share in our core and expansion markets by growing our power core brands distribution and velocities.

We are expanding both adjusted gross and EBITDA margins, thanks to strong productivity programs and a growing branded portfolio.

We are still in the early innings of our productivity program and we are tracking to exceed our original goal of $135 million in savings across our supply chain and we are now on track to deliver more than $150 million.

These gains enable increased investments in our capabilities supply chain and brand support setting us up well for the future.

We have delivered double digit adjusted EPS growth for five consecutive quarters.

And finally, we are making meaningful progress on deleveraging our balance sheet and expect to approach three times by year end one full year ahead of the commitment we made at Investor day.

On behalf of our entire <unk> team. We thank you for your support as we continue to deliver flavorful quality snacks to consumers across the country.