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On The Border chips and queso helping Utz 'turn the corner' - Food Business News

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HANOVER, PA. — In the two years since Utz Brands, Inc. was introduced as a publicly traded company, the salty snack manufacturer has been on a trajectory marked by rapid expansion in its scale, geographic reach and portfolio of products. As the company released its financial results for the third quarter, it also faced the impending departure of its chief executive officer, Dylan Lissette, who has led the company for the last decade.

On Dec. 15, Howard Friedman will replace Mr. Lissette as the new CEO of Utz Brands. Mr. Lissette will become executive chairman of the board.

Reflecting on the company’s growth since going public, in a Nov. 10 earnings call with analysts, Mr. Lissette said he believes Utz Brands has “turned the corner” through improved visibility as well as sales and EBITDA growth.

“Over two years ago, we entered the public markets so that we could create an even stronger national platform of snacking brands that would be able to delight customers across the United States,” Mr. Lissette said. “I believe we’ve been executing very well across these strategies since going public, with strong progress across several areas.”

Commenting on financial performance in the third quarter ended Oct. 2, Mr. Lissette said, “Important to note, in tortillas, our On The Border brand delivered over 50% growth in the last quarter in the grocery channel. This is a channel that the OTB brand has historically been underweight in, and we are excited to see the strong results in this important channel as the brand benefits from our route-to-market into this channel prove out.

“Salsa and queso, a subcategory for us that is currently approaching a $100 million in annualized retail sales, also continued to significantly outperform, once again, with growth of 22% and 65%, respectively. Our overall sales were impacted by the lapping of very strong promotional features in the mass channel in the prior year. This is most pronounced in our tortilla chips and cheese subcategories, whose sales are more heavily weighted toward the mass channel.”

Adjusted net income of Utz Brands in the third quarter totaled $22.5 million, equal to 16¢ per share on the common stock, down 14.6% from $26.1 million, or 18¢ per share, in the same period a year ago. Adjusted EBIDTA totaled $47.7 million, up 6.5% from $44.8 million a year ago.

Net sales were $362.8 million, up 16% from $312.7 million. Volume was slightly down in the quarter.

“The main driver of negative 2% volume in the quarter was 300 to 400 basis points pull down because of our own SKU rationalization activities,” Ajay Kataria, chief financial officer, said during the conference call. “So really, the underlying business is pretty strong.”

The company delivered double-digit growth in retail sales across its three major subcategories of potato chips, tortilla chips and pretzels, which represent about 75% of retail sales. Share gains in the largest subcategory, potato chips, grew nearly 30%, led by strength in the grocery, mass and convenience store channels.

Mr. Lissette said he was impressed with sales in the quarter even as the company works to simplify its portfolio.

“Total net sales grew approximately 16%, which reflects our strong organic growth of 12.6% as well as the contribution benefit from our acquisitions of 4.7%,” he said. “Even as we lapped very strong growth in the prior year, our power brands continued the strong momentum in the quarter with growth of 17.4%. Six of our nine power brands delivered double-digit growth. And to just highlight a few, our flagship, Utz Brands, which is about 52% of sales, grew more than 22%, Zapp’s grew 29%, and On The Border grew about 12%.”

Mr. Kataria expressed confidence in the company’s actions to simplify product mix while also expanding distribution.

“We are proactively optimizing our revenue mix and rationalizing less productive and lower-margin SKUs and we have eliminated more than 350 SKUs, with a primary focus on private label and certain partner brands,” Mr. Kataria said. “These actions free up capacity in our plants and distribution network, which will help us to service higher-margin power brand business over time.”

Mr. Lisette said the company is thinking long term regarding SKU rationalization. He provided an example to illustrate the strategy.    

“We took a partner brand that was running around $5 million in 2021,” he said. “At the end of 2021, we terminated that partner brand relationship. We replaced that space with Utz Brands.

“The conversion process creates a couple of months of sort of murkiness right, where one does not necessarily equal one. One may equal 0.6. But then two months later, it equals 0.8. Three months later, it equals one. Eight months later, it equals 1.2, 1.3.”

The company raised adjusted EBITDA growth outlook to a range of $166 million to $170 million. This raised outlook translates to a year-over-year growth of approximately 6% to 9%.

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