HANOVER, PA. – Faced with higher-than-expected supply chain costs during fiscal 2021, the management team at Utz Brands, Inc. was forced to decide between meeting growing demand or focusing on profitability. They chose demand with an eye toward bolstering the bottom line in the years ahead.
“Our expectation for total input cost inflation for the second half of the year was low double-digit percentages versus comparable costs in the prior year,” said Ajay Kataria, chief financial officer, during a March 3 conference call to discuss fiscal 2021 results. “As our fourth quarter progressed, we made decisions to ensure strong levels of service to our customers to meet the robust demand from our consumers while absorbing higher-than-expected costs to manufacture, distribute and sell our products.
“This resulted in gross input cost inflation in the second half of the year in the range of mid-teen percentages. These decisions impacted our short-term profits, but we believe these were the right decisions for the long-term health of our growing company.”
The result was fourth quarter sales rose 22% to $301 million.
For the fiscal year ended Jan. 2, Utz Brands earned $21 million, equal to 27¢ per share on the common stock. Utz Brands became a publicly traded company in August 2020 after combining with Collier Creek Holdings.
Fiscal 2021 sales rose to $1.2 billion, up over fiscal 2020 pro forma sales of $964 million.
To lessen the impact of rising costs in fiscal 2021, Utz Brands raised prices throughout the year. The company raised prices again in the first quarter of fiscal 2022 and has two more rounds planned for the second and third quarters.
“If costs continue to rise beyond what we are seeing in the market today, we will continue to take pricing actions accordingly,” Mr. Kataria said.
Further supporting the bottom line in fiscal 2022 will be a sales mix shift to what the company calls its “power brands,” which include Utz, On The Border, Good Health, Boulder Canyon, Zapp’s, Hawaiian, TGIF and others.
“Power brands improved to 87% of our retail sales this quarter, up approximately 200 basis points from this time two years ago,” said Dylan B. Lissette, chief executive officer. “As for our plans, this will continue to build to an even higher percentage of sales as we go forward, and we continue to rationalize, both our SKUs and our brands to focus on our larger power brands that we know are able to travel and will be successful anywhere in the United States.”
One brand showing particular strength was On the Border tortilla chips, salsa and queso.
“Retail sales for On The Border tortilla chips are up on a two-year CAGR (compound annual growth rate) basis, 17% for the last 52 weeks, totaling $256 million, and retail sales for the On The Border salsa and On The Border Queso are up 16.5% and 42.3%, respectively, on a two-year CAGR basis, now totaling $66 million in that same time frame,” Mr. Lissette said. “Together, this brand is delivering almost $325 million in annual retail sales and continues to grow dramatically.”
During the first eight weeks of fiscal 2022, On The Border sales have grown 33% year-over-year, according to IRI sales data provided by Utz Brands.
In November, Utz Brands agreed to acquire some assets of RW Garcia from RW Garcia Holdings, LLC, including two manufacturing plants in Nevada and North Carolina. Mr. Lissette said the acquired manufacturing plants will be used to support growth of the On The Border brand.
In fiscal 2022, Utz Brands is guiding organic sales growth of 4% to 6%, and adjusted EBITDA to grow modestly over fiscal 2021 adjusted EBITDA of $156 million.“While our adjusted EBITDA growth guidance is below our long-term growth outlook of 6% to 8%, given the way fiscal 2021 unfolded and as inflation and the cost to serve our customers continues to move higher, we felt it was important to take a prudent approach to our earnings outlook,” Mr. Kataria said.