Utz Brands(US:UTZ)2023-05-11 16:43Financial Data and Key Metrics Changes - Organic net sales increased by 4% year-over-year, despite a 21% comparable growth in the prior year [4][7] - Adjusted gross margins expanded by 50 basis points, or 140 basis points when accounting for IO route conversion impact [7][13] - Adjusted EBITDA increased nearly 11% to $40.4 million, representing 11.5% of net sales [7][13] - Adjusted EPS remained flat year-over-year at $0.11 [7][13] Business Line Data and Key Metrics Changes - The three largest brands, Utz, On The Border, and Zapp's, which represent about 75% of retail sales, collectively grew in double digits [8] - Utz brand grew by 11%, driven by potato chip growth of 18.5% [8] - On The Border tortilla chip retail sales increased by 4%, lapping 35% growth in the prior year [8] - Zapp's brand retail sales increased nearly 60%, driven by new flavored pretzel innovation and potato chip growth of 19.5% [9] Market Data and Key Metrics Changes - Retail sales increased by 9.4% versus the salty snack category growth of 14.8% [7] - Power brand consumption increased nearly 10% on top of 20% growth last year [4] - Total retail sales increased by 30% over a two-year basis, with power brands increasing by 32% [7] Company Strategy and Development Direction - The company is focused on extending the reach of its power brands and shifting marketing spend to drive consumer pull [6] - Strategic actions include SKU rationalization to improve margin mix and unlock manufacturing capacity [5][12] - The company plans to close its manufacturing operations in Birmingham, Alabama, to optimize its network [6][16] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's long-term growth prospects and the effectiveness of their strategies [20] - The company expects to drive organic net sales growth supported by the resilient salty snack category [12] - Management anticipates continued gross margin expansion and a reduction in balance sheet leverage [19] Other Important Information - The company reaffirmed its net sales growth outlook of 3% to 5% and increased its adjusted EBITDA growth outlook [18] - Capital expenditures for the year are expected to be between $50 million to $55 million, primarily for manufacturing capacity expansion [19] Q&A Session Summary Question: Strategic outlook for the summer period - Management noted that the competitive environment remains rational, with a strong portfolio of power brands that appeal to a broad consumer base [21][22] Question: SKU rationalization impact and inflation outlook - SKU rationalization is expected to deliver about 300 basis points for the year, with high single-digit inflation still anticipated [23] Question: Growth potential for Zapp's brand - Management is optimistic about Zapp's growth, citing strong consumer desirability and expansion opportunities [25] Question: Supply chain dynamics and in-sourcing opportunities - The Kings Mountain facility is expected to support increased capacity, with a balanced approach to co-manufacturing and in-sourcing [26] Question: Elasticity and adjusted EBITDA margins - Elasticities remain below historical levels, and the majority of EBITDA margin expansion is expected from gross margin improvements [27][29] Question: Dynamics in the tortilla chips category - Management expressed confidence in On The Border's growth potential, driven by distribution and merchandising efforts [31] Question: Performance of new sauce offerings - Salsa and Queso products are appealing to a broad audience, contributing to overall brand growth [34]