HANOVER, PA. —Executives from Utz Brands, Inc. were optimistic about the company’s earnings during an Aug. 10 conference call with analysts, specifically citing their Power Brands category and growing better-for-you portfolio. Howard Friedman, chief executive officer, also noted the success of the recently launched Utz Mike’s Hot Honey chips and, as the company looks ahead, the importance of continued marketing investment and flavor innovation.
For the second quarter of fiscal 2023 ended July 2, Utz Brands sustained a loss of $8.6 million, which compared with net income of $2.5 million in the same period a year ago. Adjusted net income in the 13-weeks ended July 2 totaled $18.8 million, equal to 13¢ per share on the common stock, virtually unchanged from the same period a year ago.
The company raised its adjusted EBITDA outlook for fiscal 2023 to growth of 8% to 11% (formerly 7% to 10% growth), predicting that lower delivery costs and company strategy will offset cost inflation, and reaffirmed its net sales growth of 3% to 5%.
“As we move throughout the second half of the year, through a combination of distribution gains, new product innovation, increased marketing spending and lapping prior-year SKU rationalization, we expect our total sales volume momentum to build each quarter,” Mr. Friedman said. “From a consumption perspective, in the quarter, our Power Brand momentum continued and increased 10% on top of 18% growth last year, which was our seventh consecutive quarter of double-digit growth, leading to share gains for Boulder Canyon, Zapp’s and On The Border.”
Utz Brands’ overall net sales in the second quarter ended July 2 were $362.9 million, a 3.8% increase from the same period a year ago. Organic net sales increased 4.3% year-over-year while adjusted EBITDA rose 7% to $45.2 million from $42.2 million a year ago.
“I'm especially pleased with the introduction of Utz Mike’s Hot Honey chips,” Mr. Friedman said. “Hot and spicy is now the No. 1 flavor in salty snacks and is growing nearly twice the rate of the category, and our Utz Mike’s Hot Honey chips sales are already four times higher than our previously best Utz limited time offer.”
Mr. Friedman said retail sales increased 9% versus the salty snack category growing 12% year-over-year. On The Border tortilla chips saw growth of over 40% in the retail grocery channel and kettle chip brand Zapp’s increased 35%, both in the second quarter.
“Shifting to our better-for-you segment of salty snacks, our consumption and natural channel increased by nearly 20% in the second quarter, significantly outpacing category growth of 10%,” Mr. Friedman said. “Our primary better-for-you Brand in the natural channel is Boulder Canyon, and we maintain the No. 3 ranking in the salty snack category as measured by Spins (a wellness-focused data technology company), growing 28% in the quarter, which was triple the category growth rate.”
Ajay Kataria, executive vice president and chief financial officer, addressed the company’s losses during the quarter, which he attributed to low potato crop yields from last year and larger-than-expected transitory volume deleverage associated with the company’s recent closing of a plant.
“What we are expecting is headwinds (from the) second quarter, which were temporary in nature, are behind us,” Mr. Kataria said. “And the tailwinds we experienced in the second quarter will get stronger.
“(From) a tailwind standpoint, our volumes are trending up, and we show those trends, and you can see that in the retail data. And our margin mix is improving as we work through SKU rationalization program. That’s been coming through, it’s going to continue into the second half. And our productivity program has really ramped up. We are close to 4% of COGS. That’s our new baseline. And our actions around network optimization, in-sourcing of production from co-manufacturers where we have capacity, all of those things are driving cost out in our plants and our logistics network.”
Reflecting on his first nine months as CEO, Mr. Friedman shared his outlook for Utz Brands under his leadership, which includes building out the company’s long-established brand.
“I think there are a couple of areas that I continue to look at and observe and believe that we can accelerate on the foundation that was established in the previous — basically century of growth,” he said. “The first is increasing our marketing spending thoughtfully. And that is largely from where I sit, building brands, both in where consumers want to shop, whether it be retail media or where they want to receive the message, which is primarily more in digital and performance-based.“The core is the place where our marketing and innovation should be the most impactful because we’re not introducing the brand and we’re not trying to build brand awareness. We’re trying to drive ultimately interest in consumption. So, as we continue to invest in the brands, we would expect that our core would — our Power Brands would naturally lift even more than they even would in our expansion geographies.”