Overview of the Company’s Financial Performance

Utz Brands, Inc. is a leading manufacturer and distributor of salty snack products in the United States. The company reported net sales of $1,409.3 million for the fiscal year ended December 29, 2024, a decrease of 2.0% from the prior year. This decline was primarily due to the divestiture of the Good Health and R.W. Garcia brands, which contributed 3.3% to the year-over-year decrease. Excluding the impact of this divestiture, net sales increased by 1.3%, driven by favorable volume/mix of 1.5%, partially offset by lower net price realization of 0.2% and a 0.1% decrease related to independent operator (IO) conversions.

Gross profit for fiscal year 2024 was $494.8 million, up from $456.5 million in the prior year. The company’s gross profit margin improved to 35.1% from 31.7% in the prior year, primarily due to increased productivity, favorable sales volume/mix, and ingredient cost deflation, which more than offset supply chain cost inflation and investments to support productivity initiatives.

Selling, distribution and administrative expenses increased slightly to $435.8 million in fiscal 2024 from $433.1 million in the prior year. This was mainly attributable to higher marketing spend, increased delivery costs, and investments in selling capabilities, partially offset by lower expenses related to asset impairments and contract terminations.

The company reported net income of $30.7 million in fiscal 2024, compared to a net loss of $40.0 million in the prior year. This improvement was driven by the $44.0 million gain on the sale of the Good Health and R.W. Garcia business, lower interest expense, and a decrease in the loss on the remeasurement of warrant liabilities, partially offset by higher income tax expense.

Revenue and Profit Trends

Utz’s net sales performance was mixed in fiscal 2024, with a 2.0% year-over-year decline primarily due to the divestiture of the Good Health and R.W. Garcia brands. Excluding this impact, the company saw a 1.3% increase in net sales, driven by favorable volume/mix, partially offset by lower net price realization and the impact of IO conversions.

Within the company’s product portfolio, Branded Salty Snacks accounted for 87% of net sales in fiscal 2024, excluding the divested brands and IO conversions, and grew by 3.7%. Non-Branded & Non-Salty Snacks, which made up the remaining 13% of net sales, declined by 12.3%. This highlights the continued strength of Utz’s core branded salty snack business.

The improvement in gross profit and gross margin was a key positive for the company in fiscal 2024. Increased productivity, favorable sales mix, and ingredient cost deflation more than offset supply chain inflation and investments in productivity initiatives. This demonstrates Utz’s ability to manage its cost structure and maintain profitability despite a challenging operating environment.

While selling, distribution and administrative expenses increased slightly, the company was able to leverage its cost structure, resulting in a significant improvement in net income. The $44.0 million gain on the sale of the Good Health and R.W. Garcia business, lower interest expense, and a decrease in the loss on warrant liability remeasurement were the primary drivers of the turnaround in profitability.

Strengths and Weaknesses

Strengths:

• Strong brand portfolio and market position in the salty snack category, with Branded Salty Snacks accounting for 87% of net sales
• Ability to manage costs and maintain profitability, as evidenced by the improvement in gross margin
• Successful divestiture of non-core assets, such as the Good Health and R.W. Garcia brands, to focus on the company’s core business
• Reduction in interest expense through debt refinancing and repayment

Weaknesses:

• Decline in net sales, albeit excluding the impact of the divestiture, indicating potential challenges in the company’s core business
• Continued competitive pressures, as evidenced by the softness in the Utz, Zapp’s, and Golden Flake brands
• Rising costs related to fuel, freight, and labor, which have negatively impacted profitability

Outlook and Future Prospects

Utz Brands faces a mixed outlook, with both opportunities and challenges on the horizon.

On the positive side, the company’s core Branded Salty Snacks business remains strong, with the Boulder Canyon brand in particular showing impressive growth of 32.7% in the natural channel. The company’s focus on product innovation, including expanding its “better-for-you” offerings and addressing consumer demand for flavor exploration, positions it well to capitalize on evolving consumer preferences.

Additionally, the divestiture of the Good Health and R.W. Garcia brands and the associated manufacturing facilities allows Utz to streamline its operations and focus on its most profitable and strategic assets. The $167.5 million in proceeds from this sale, along with the $18.5 million from the sale of the Berlin, PA and Fitchburg, MA manufacturing facilities, have enabled the company to reduce its debt burden and improve its financial flexibility.

However, the company continues to face headwinds from a competitive and inflationary environment. Promotional activity in the industry has increased, putting pressure on Utz’s sales and margins. Rising costs for commodities, fuel, freight, and labor have also weighed on profitability, and it remains to be seen whether the company can fully offset these increases through pricing actions and productivity initiatives.

Furthermore, the transition to the independent operator (IO) distribution model, while expected to provide long-term benefits, has had a near-term impact on net sales and gross profit, as the company incurs higher discounts paid to IOs.

Overall, Utz Brands appears to be navigating a challenging operating environment, but its strong brand portfolio, focus on innovation, and efforts to streamline its operations provide a solid foundation for future growth, provided the company can effectively manage the ongoing cost pressures and competitive dynamics in the salty snack industry.