Utz Brands(US:UTZ)2022-05-12 16:55Financial Data and Key Metrics Changes - The company reported record first quarter net sales of nearly $341 million, representing a 26.6% increase year-over-year, with organic net sales growth of 20.7% [9][48] - Adjusted gross profit grew 11%, while adjusted EBITDA declined 4% due to supply chain cost increases [25][50] - Adjusted EBITDA margins contracted to 10.7% of sales, impacted by higher input costs and a 130 basis point effect from route conversions [50][61] Business Line Data and Key Metrics Changes - Power brand sales increased 20.1%, outperforming the salty snacks category growth of 13.4% [30] - The two largest brands, Utz and ON THE BORDER, grew 22% and 35% respectively, with ON THE BORDER showing strong growth driven by distribution and pricing strategies [30][106] - Potato chip growth was nearly double the category growth, while tortilla chip growth was led by ON THE BORDER, growing nearly three times the category growth [32] Market Data and Key Metrics Changes - The company gained market share in the salty snacks category, with retail sales over the last 52 weeks reaching $1.45 billion [14][11] - The private label threat in the salty snacks category has declined, with private label dollar share decreasing for the last 16 12-week periods [12][116] - The company is under-distributed compared to larger peers, indicating significant growth opportunities across the U.S. [13][14] Company Strategy and Development Direction - The company is focused on enhancing margins through pricing actions and productivity initiatives, with expectations of mid-to-high teens percentage gross input cost inflation for fiscal 2022 [15][24] - Strategic investments in infrastructure and technology are aimed at supporting profitable growth and improving operational flexibility [21][20] - The company plans to continue expanding distribution in underpenetrated markets and optimizing its product mix to enhance margins over time [29][39] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the resilience of the salty snacks category, noting strong consumer demand and better-than-expected price elasticity [10][9] - The company raised its net sales outlook for the year, expecting total net sales to increase by 10% to 13% and organic net sales to grow by 8% to 10% [23][71] - Management acknowledged the challenges posed by inflation and supply chain issues but remains optimistic about long-term growth prospects [63][70] Other Important Information - The company has made significant acquisitions to strengthen its brand portfolio and support demand, with a focus on integrating these acquisitions effectively [54][56] - Cash flow used in operations was impacted by working capital and acquisition-related expenses, with liquidity at approximately $96 million [53][52] - The company is committed to reducing leverage and improving free cash flow conversion, targeting a net leverage ratio closer to its long-term goal by the end of fiscal 2023 [55][56] Q&A Session Summary Question: Guidance on organic revenue growth and pricing - Management raised organic revenue growth guidance from 4%-6% to 8%-10%, anticipating lower volumes in the second half due to SKU rationalization and market dynamics [88][92] Question: Performance of ON THE BORDER brand - ON THE BORDER brand experienced 35% growth, driven by distribution velocity and pricing, with expectations for continued strong double-digit growth [103][106] Question: Impact of private label competition - Private label share in the salty snacks category is low at 4.6% and has been declining, with management confident in maintaining pricing power against private label products [116][118] Question: Free cash flow outlook - The company expects to generate $30 million to $40 million in free cash flow for the year, excluding acquisition-related expenses [122][124] Question: Input cost inflation details - Significant inflation is observed in cooking oils, wheat flour, and packaging, with the company about 80% covered for the remainder of 2022 [128][130]