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Introduction & Market Context
Utz Brands, Inc. (NYSE:UTZ) presented its second quarter 2024 earnings results on August 1, 2024, highlighting modest sales growth but significant profitability improvements. The snack food manufacturer continued to gain market share in the competitive salty snacks category, outperforming the broader market in volume growth despite challenging industry conditions.
The company’s stock currently trades around $12.19, significantly below its 52-week high of $18.29, suggesting investors may still be evaluating the company’s long-term growth prospects despite the improved profitability metrics.
Quarterly Performance Highlights
Utz reported organic net sales growth of 1.6% for Q2 2024, reaching $356.7 million, driven by volume/mix growth of 2.3% partially offset by a pricing decrease of 0.7%. More impressively, the company achieved its sixth consecutive quarter of adjusted EBITDA margin expansion, with adjusted EBITDA increasing 10.0% to $49.7 million.
As shown in the following financial results summary, adjusted earnings per share surged 46.2% to $0.19, reflecting the company’s success in improving operational efficiency and reducing costs:
The company’s volume growth was primarily driven by its Power Brands, which represent 77% of total volume and grew 4% year-over-year. In contrast, Foundation Brands, accounting for 23% of volume, declined 10% as the company strategically de-emphasized certain lower-margin products.
Utz continued to gain market share in the salty snacks category, with retail volume growing 3.2% compared to the category’s 0.8% decline. This performance was particularly strong in expansion geographies, where retail sales grew 5.2% and volume increased 5.1%.
The following chart illustrates the company’s outperformance across key brand categories:
Strategic Initiatives
Utz’s presentation highlighted four fundamental strategies driving its performance: portfolio focus, supply chain transformation, capability development, and balance sheet improvement. The company reported strong progress across all four areas:
A key element of Utz’s strategy is its geographic expansion. The company divides its market presence into Core geographies, primarily in the eastern U.S., and Expansion geographies across the rest of the country. Volume share gains were achieved in both areas, with particularly strong performance in Expansion regions.
The company has significantly increased its marketing investment, with marketing expense up 60% from 2023 to 2024. This includes new brand campaigns for Utz and Zapp’s brands launched in recent months. These investments appear to be paying off, as household penetration increased from 46.8% to 48.2%, representing an additional 2.2 million buyers.
Utz is also focusing on product innovation across three strategic areas: delivering "craveable" flavor, capturing occasions, and expanding positive choices. New products include Mike’s Hot Honey Potato Chips, Utz Mixed Minis, and Boulder Canyon Avocado Oil varieties.
Detailed Financial Analysis
The improvement in Utz’s adjusted EBITDA margin from 12.5% in Q2 2023 to 14.0% in Q2 2024 was primarily driven by productivity savings, which contributed 4.3 percentage points of improvement. This was partially offset by higher supply chain costs, increased marketing expense, and pricing decreases.
The following bridge illustrates the components of the margin improvement:
Utz has also made significant progress in improving its balance sheet flexibility. The net leverage ratio decreased from 5.1x in Q2 2023 to 3.8x in Q2 2024, with further improvement expected to approximately 3.6x by fiscal year-end 2024 and 3.0x by fiscal year-end 2025.
In April 2024, the company completed a repricing of its $630 million term loan and disposed of two manufacturing facilities, continuing its network optimization efforts. Approximately 80% of the company’s debt is now at fixed rates, reducing exposure to interest rate fluctuations.
Cash flow remains an area for improvement, with net cash used in operations at $0.2 million for the first half of 2024. Capital expenditures totaled $37.8 million during this period, and the company paid $18.9 million in dividends and distributions.
Forward-Looking Statements
Utz updated its fiscal 2024 outlook, maintaining its adjusted EBITDA growth projection of 5% to 8% but raising its adjusted EPS growth forecast from 23-28% to 28-32%. The organic net sales growth target was refined to approximately 3%, driven by volume growth.
The updated guidance is summarized in the following table:
The company expects accelerated sales growth in the second half of 2024, driven by several factors including:
- Activating distribution gains
- Continued growth of the Boulder Canyon brand
- Increased marketing spend
- Momentum from innovation investments
- Easier year-over-year comparisons
Management highlighted that household penetration, number of buyers, and buyer repeat rates are all showing positive trends, providing confidence in the company’s growth trajectory. The Boulder Canyon brand was specifically noted as a growth driver, with strong performance in both natural and traditional retail channels.
While Utz faces challenges including intense competition in the salty snacks category and ongoing cost pressures, its focus on productivity initiatives and strategic brand investments positions it to continue improving profitability while gradually accelerating top-line growth.
Full presentation:
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