Utz Brands, Inc. Price & Performance (UTZ)

Thank you, operator, and good morning, everyone. Thank you for joining us today for our live Q and A session in our fourth quarter full year twenty twenty four results. With me in today's call are Howard Freeman, CEO and Ajay Kattari, CFO UTZ.

Help everybody has had a chance to listen or read our prepared remarks and also view our presentation all of which are available on our Investor Relations Web Before we begin our Q and A session, just a few housekeeping Please note that some of our comments today will contain forward looking statements based on our current view of our business and the actual future results may differ materially. We see our recent SEC filings, which identify the principal risk and uncertainties could affect future performance. Today, we will discuss certain adjusted or non GAAP financial measures, which are described in more detail in this morning's earnings materials. Reconciliations of non GAAP financial measures and other associated disclosures are earnings materials and Now operator, we are ready to open up the line for questions.

We are now opening the floor for question and answer session. Your first question comes from Andrew Lazar from Barclays. Your line is now open.

Great. Thanks so much. Good morning, everybody. Good morning, Andrew. Good morning. Good morning. Yes. Maybe to kick it off, Howard, what is your category growth assumption for fiscal twenty twenty five? And Does that outlook embed sort of holding value share in core while also expanding value share in our expansion markets as was the plan laid out at Investor Day.

Yes.

Thank you, Drew.

Look, I think we think the next year, so call it slightly better than flattish And I think it will continue to progress through the year. To your point on our strategy, our strategy is remains intact. We intend to hold our core market relative market share actually grow and expand in markets. As our distribution gains and increased marketing support come through and take hold.

Okay. Know it's just further remarks looking for a modest headwind from price in fiscal twenty twenty five. I guess what gives you the confidence that you're building in enough flexibility UTZ in light of what you've called out and we've seen in the data as a still sluggish category and and some increased competitiveness as well. Thanks so much.

Yes. I think there are a couple of things that we look at First of all, I think we're looking to deliver value beyond price. We've We've engaged in some bonus bags. We're working on a price pack. Our sell up and down the price ladder So there are we don't believe those impacts will necessarily be significant drags to pricing think the second thing we would expect is if you think about the how price happened this year in the category, you sort of saw an a progressive march to a more promotional category as you went through really the mid part of the year to the end of the year. And eventually, we believe that will normalize as we lap that behavior. And as I think the category participants take stock on what is motivating the shopper to buy to buy and participate in the category, which has always been marketing and innovation and having the right assortment. Got it. Last quick thing, just I know you expect on the top line, [indiscernible] first half, second half in terms of growth Anything to keep in mind specifically just discrete around 1Q around the top line that we should be aware of, just given where some of the recent data has looked like beyond for the category as well as that Thank you.

Yes. I think for us, you'll recall that January of twenty twenty four was actually our strongest month of the year where we grew a little over 6%.

So we would we had anticipated a decline in January given the nature of that lap which was really promotionally driven.

We would expect to see January continue or Q1 to continue to improve as we go through and the year is largely beginning as we would have expected.

Thanks so much.

Your next question comes from Peter Doble from Bank of America. Your line is now open.

Hey guys, good morning. Thanks for taking the questions. Good morning.

Maybe just a clarifying point to start or an ask on behalf of all of us. Will there be a further breakout historically of the branded salty versus non branded non salty kind of breakout that you gave today on a quarterly cadence? I think you said that the prepared remarks that the realignment will also allow us to better kind of track it relative to the scanner data. So just if there's a longer historical period, it at least allows us to test the stats stat.

So that would be just one ask or if that's your plan. Pete, this is Kevin.

Absolutely, we're more than happy to provide those historical components of the in terms of the net sales breakdown for the for the first three quarters of last year. Yes, we will plan to do that. Okay, great. Thanks. And then on the back of that, and I promise there are actual questions in here, just Howard, when do you fully lap kind of the dips and spreads weakness that's been persisting now, it feels like for maybe longer than I don't know if there's anything discrete in there that happened this quarter that you'll lap over the next [indiscernible] [indiscernible] start to become a headwind as we had some assortment decisions last year really beginning in May. It's where early when we should see the lapping occur and then it will get progressively it will progressively improve through sort of the back half of the year. Okay. Thanks. And then there's just the second kind of follow-up there, Howard, on tortilla chips in particular, you called that out in in the slide that was one of the bigger kind of core category areas of weakness. It seems like maybe there was some channel dynamics or some shifting that you had all within your portfolio, but just given the increased level of competitiveness, certainly that seems like coming from your biggest competitor in tortilla chips, maybe you can address that more specifically?

Very much. Yes. I think the issue we saw with discrete choices that we've made on assortment. There's not really not been anything more significant than that, Pete. I think it's tortilla chips and on the border specifically, continues to enjoy strong consumer reception is at the I think we believe it's at a sharp price point. We obviously have some activity that we're now doing with with bonus packs on that business as well.

But it's really more about that lap that we talked about in the last question really with December, January, February is really where prior year improvement. So as we lap that, we would expect it to continue to be strong.

Your next question comes from Robert Moscow? From TD Cohen. Your line is now open.

Hi, thanks. A couple of quick questions. First is, what are the big building blocks this year for expanding EBITDA margin Given that the sales what gives you comfort that even though sales decelerate a bit, Is it that margins are still on track to expand and you said even exceed in 2026. So how do we disassociate these two things from each other? And then I just had a follow-up. [indiscernible] see in 2025 very similar to 2024, Our productivity program remains pretty strong. We delivered about $60,000,000 of productivity in 2024.

And we have line of sight to $150,000,000 now or more the three year period of 24% to twenty six percent twenty five UTZ going to be similar to what we called out at Investor Day. The algorithm is going to be productivity sort of generates gross margin, We make investments in our supply chain and our capabilities. And then net out about 100 basis points of EBITDA margin expansion.

Okay.

But Ajay, maybe is there anything specific that you can call out as to What's giving you such strong productivity? Is it like capital investments at the plants? Is it the new distribution center? Is there any Like one or two things that really stand out Yes. So I'll start and Howard should layer in. All of the above, We are making capital investments in our network. You've seen that seen us do that in 2024. We'll continue at that pace. In 2025. The capital investments is driving automation, it's driving more capacity in the plants, and sort of leveraging our fixed costs or spreading our fixed costs out further. So that's one piece of it. And then we have done a lot of work after around logistics We just opened our RDC, enterprise solution center, in December. So that's consolidating multiple buildings and inventory in there. So a lot of work that's going into supply chain, lot of heavy lift that was done in 'twenty four and that that process should continue in 2025. Yes. Look, Rob, I'll just add on two things. I think we feel great about the project progress we've made in our supply chain optimization and network optimization efforts.

And really as you will recall, it was predicated on a couple of things. One was getting our footprint in order which we are ahead of schedule on Two was to start to make investments in automation and that actually making sure that our distribution network was efficient as possible get the total delivered costs lower across the network. If you look at things like the RDC or you look at a lot of the automation that we've done look at sort of the capacity expansion that we've been doing, it actually allows us to be able to produce products closer to where they're sold as well. So we're taking product off the road. We're actually doing it in a far more efficient and effective way. And a lot of that has really been coming online over the last, call it, back half of this past year and will continue into the first half of next year. And I think the last thing I would say is, we are getting better at understanding our business and understanding demand. And as we do that, there's some waste that comes out of the system that are benefits that just make us more efficient overall.

I think we're ahead of schedule on supply chain. I think we've done a lot of good work and frankly we still have probably another year to year and a half of consistent effort that we have to apply to make that accelerate before we get to a a much younger, more modernized more efficient network overall.

Makes sense. Thanks.

My follow-up maybe you put it in the prepared remarks, but is there an outlook for the the non branded side of the business, it was down think, 18% in the fourth quarter. I think that includes the dips also. So should we expect another double digit decline in UTZ impacting your sales? The short answer is no, you should not. If they [indiscernible] that we saw on our dips and salsa business, which we control part of it has been on the non branded side of our business as well, which we've been carefully managing as we go.

But I feel like we're in a in a pretty good place that those businesses will continue to be important for us in our consumer and our IOs, but you should not see that type of decline moving forward. Okay.

Thank you.

Your next question comes from Michael Lavery from Piper Sandler. Your line is now open.

Thank you. Good morning. You touched on price pack architecture adjustments. Can you maybe just unpack that a little bit? And maybe touch on some of the timing and how that may look for the consumer and also maybe what if any margin impact that some of those incremental SKUs might have? [indiscernible] I appreciate the question. Look, I did hear a couple of things in terms of it's really a price back architecture and it's also a class of trade. [indiscernible] Right? And so I think on price back architecture, what you're seeing us do what you see right now in the marketplace we have bonus bags out on potato chips and tortilla chips to be able to add value to the business. It's basically 20% more in the business. We're also continuing to expand the distribution. We've been fortunate UTZ have a lot of the right pack sizes making sure that we are putting appropriate emphasis on sort of lower price point in class of the trade to make sure that we're hitting critical price thresholds and steps on the ladder. So those things I think are we're really just pushing more of The other thing I would say is you're going to see us actually at the high end of the price ladder as well when you think about club which is kind of MULO C plus with convenience actually will help us be able to read a little bit better So you'll see step up in selling there as well.

So you'll see it, I think, across the entire ladder. In terms of the margin, I mean, I'll let Jay answer, but I think our view is that our guidance largely contemplates the impact of the margins.

Yes, it does. We have carefully understood the mix impact and put that in our models.

Okay, great. And just a follow-up on distribution expansion. Can you maybe touch on what expectations might be baked into guidance, especially for maybe geographical expansion and what sort of investments might be needed to move, say, further west, for example?

Yes. So one of the things I think you saw through the rest of last year is we can interest and enthusiasm in our portfolio as we continue to work with not only Mass and Club, but obviously larger national grocers regionally. And so I think what you saw toward the back half of last year really September through the end of the year as we started to gain this really kind of building through the end of the year. So you'll see more out west going to be a continuation of the same geographies that we've talked historically about We've invested in Texas. We've invested in Michigan.

We've invested in Colorado as well.

And so you'll see more of that coming this year. And I think what you saw in the last quarter was you haven't seen our Power four brands in our expansion geographies growing quite nicely.

So we would expect to see more of that in the year to come. In terms of what kind of spending you need to do remember, it's not as much a promotional price point because we're relatively new to the market. It's a lot more about consumer awareness. Percent in the fiscal year last year and our initial guide As we gain distribution, we have we will then add incremental advertising to those markets to make sure that consumers can find our brands.

Okay, great. Thanks so much.

Thank you. Your next question comes from Rob Dickerson from Jefferies. Your line is now open.

Great. Thanks so much. Good morning.

Guess, Howard, just quickly, I just wanted to kind of get your perspective on any channel dynamics taking place right now, just kind of how do you view C Story channel Do you think there could be some improvement hopefully as we get through kind of more of There's no the summer, do you think consumers maybe are buying maybe a little bit more of the bonus bag relative to the smaller pack sizes? Trying to understand the channel and the general consumer behavior on purchase rates. Yes.

I appreciate the question. Look, a couple of things. I think first of all, I'm going to kind of kick through a couple of channels. A couple of things. I think we feel really good about what's been going on in traditional grocery. We continue to outperformed there and continues to be one of our biggest one of our biggest growth opportunities as we go forward. We understand Well, we perform well in the category and our brands work extremely well. I think similarly you're going to see continued expansion and movement in club. We are working very hard with our club partners to try and make sure that we have the right assortment items and make sure that when consumers want to pay for the inventory, that they can get our products where they're selling.

Through the course of the year for decisions that we made in the past. And we are not near we have not moved as quickly to get those things that will be reflected in the data. That as we would like. We would expect that to improve as we go through the year and we would expect that challenge return to modest growth. When we have this call a year from now.

In terms of the consumer behavior, think you continue to see value seeking You continue to see promotional activity and promotion shopping. And you continue to see them shopping up and down the ladder. If you are looking for an absolute price point at a low relative cost, you can find that if you're looking for a lower per ounce cost when you can afford the cost of the inventory, you can see that as well.

The one thing I would certainly say is the promotional mix in the category has been interesting as well as you see household penetration really in the category being up for the year it's really been biryate as consumers are for a holiday, they're doing multi buy purchases and taking the inventory and consuming it and in other cases maybe buying it and actually then being out of the market for a minute, which is causing promotional lifts to be a little bit more lumpy. That I think will kind of sort itself out as we go through the year.

Okay, great. And then maybe just a follow-up. The last point, we did hear from earlier this week and kind of even spoke to quite frankly a number of seed companies kind of spoke to some of that lumpiness. Right, in the [indiscernible] And then I hear you also speak to price pack architecture kind of introducing these few smaller pack sizes So is that also how you're viewing it kind of collectively from that every we kind of talk about like what's the net pricing effect UTZ also sounds like maybe [indiscernible] UTZ just more efficient to not be promoting as much given the lumpiness and maybe be driving real demand through other product offerings. I don't know if that's [indiscernible] [indiscernible] Look, I think that as you think about price back, if you're a shopper who's going with a fixed amount of money in your wallet, you want to make sure that you're hitting an absolute price point because that the fixed amount of money that's in your wallet needs to cover all of your demands, which is why making sure that we are [indiscernible] an absolute price point basis is important for us as we move. I think when you you some of that lumpiness, I think that we're seeing is when you look at multi buys, you have to make sure that it's at a price point and there's enough assortment, which we are fortunate to have that a consumer can buy a range of products UTZ that in that multipurchase occasion.

So I think that's kind of what the lumpiness is. I'm not sure we've always been a little bit of a relatively speaking lower promoted category because brand building and innovation has always been so important for the shopper in these in this set, which I still think will remain the same. So I think promotional intensity will normalize as we go through the year. And I think there's no reason to believe, at least in my opinion, this category is going to be fundamentally different moving forward. I think innovation communication and promotional pricing will always remain important along with, obviously, quality and availability UTZ. [indiscernible] Thank you.

Question comes from John from Mizuho, your line is now open.

Good morning. Thanks for the question. Hey, John. Howard, I wanted to touch on promotions for 2025 and in particular the planned investments in display and non price promo. The category level, are you expecting or seeing, I guess, any notable changes relative to history in terms of the allocations provided to salty snacks from retailers given the softness we've seen, either in terms of quantity or format? And then secondly, as you ramp innovation and diversify the pack sizes and expand in seasonals, are there any notable changes that we should expect from your [indiscernible] a larger concentration for certain events? Any insights there?

Yes. So a couple of things, John. We are I have not experienced any change sort of in the customer allocation for display activity. And if anything, I think one thing that I hope you're seeing because we are setting them is you're seeing a lot more display activity and end cap activity from us both our core and expansion markets. It's important for us, especially as we start to compete not only on price, but also obviously on availability UTZ in the expansion UTZ, it's a great way for us to enter start to gain the consumer traction that we need. So we have not seen any change in display activity both in terms of like around the perimeter as well as end caps And I think part of what is what continues to be a positive for this category is again household penetration for this category is up which I think is I think something that we all should be mindful and proud of as we go. It continues to prove that consumers want the product in their pantries. Terms of kind of how do we think about the year coming, I think what you'll continue to see is we will continue to compete up around our core four Obviously, Boulder Canyon continues to be a brand that is gaining [indiscernible] non seed oils we continue to see that business is growing and obviously past $100,000,000 past year I think you'll see more activity there and more classes of trade as we go forward.

And I think you'll also see from us some innovation that we're proud of and that we expect will continue to allow us to drive consumer interest Probably on the other brand, it's salty business, we also are, I think, in a really good place and allow value seekers to be able to participate that we sell and other brands, should they choose to do that, which we continue to believe that they will.

Okay. And then in terms of the broader portfolio, [indiscernible] I am curious, your last couple of deals focused on capacity and route to market. As you look at the broader category at this point and some of the changes, do you think the portfolio might need to take another stab or a larger stab in the future at brands that are perceived as better for you? Or do you feel as though with the scalability of Boulder, that's sufficient to go organically in that space?

Yes. So look, first of all, I'll say, I feel great about our portfolio. I mean, broadly speaking, I think we have assembled and obviously over the last fifteen years, we've assembled a portfolio of brands that we feel great about. And consumers love them. And they have a lot of elasticity UTZ that we can go do in terms of like what the consumer would be interested in buying from those brands. Boulder obviously is one of them and is certainly a place where we believe that it continues to have flexibility to enter into different subcategories and into different classes of trade and we'll continue to do that I feel the same way frankly about Hudson on the border and some of our other brands where they do have permission to travel and they have permission for consumers to be able to both respond to a marketing message as well as incremental innovation which you'll see.

Terms specifically of do we need to go should we go and acquire a brand look, we will always pay attention to what's going on out in the marketplace. And if there's something out there that's interesting, the first thing we ask ourselves is would we be good owners of it? And if the answer is is yes to that, then we'll do some work.

I don't feel like there is a brand out there at the moment that we have that we would would look at and say, boy, we don't think we can do that within our existing portfolio, whether it's better for you value, I think our portfolio is pretty solid. And I'm pretty excited about it. [indiscernible] Thank you.

Your next question comes from Jim Solera from Stephens Inc. Your line is now open.

Hey guys, good morning. Thanks for taking our question.

Hey, Jeff. I wanted to maybe circle back to the beginning of the conversation just with the outlook for '25 and the category kind of flattish to up modestly, If we think about what you guys did in 2024 with both household penetration and the repeat rate increasing Obviously, How should we think about that in 2025? Because I would think that as you add new households that might have a negative impact on the repeat rate, but obviously we didn't [indiscernible] in 2024. And so just you'd maybe give us some detail around the composition there. What's driving those both up at the same time? And is that in the core market expansion market, just any color around that would be helpful.

Yes. So I agree with you that the marketing math would always say that as household penetration rises and we're super pleased that our household penetration has achieved an all time high for us.

Every time I say things like that, it makes me nervous. I'm not going to lie. But our household penetration is very strong.

We would expect for naturally that consumers, some of consumers will try it and they will no longer be interested and that's not what we're experiencing. We're actually seeing [indiscernible] metrics moving together higher. And I think that speaks to the quality of our products and diversity of our portfolio. So consumers can come in and try a potato chip and then we can offer them a whole range Obviously, part of that is also driven by our expansion geographies and what we've been able to do on end caps. Being able to present to our entire portfolio. So I think it goes to the quality of the product and the strategy of how we're entering markets of why those two things are traveling together.

I would also say that we feel very good about our plans for expansion markets going forward into '25. Obviously, we've done some work in the 4Q, quarter four of this past year, and we would expect a lot of that momentum to continue into the year We feel pretty good about the distribution opportunities that we have in our core markets As we've always talked about, our core markets UTZ us have always been more expansion markets for the other three power brands.

UTZ what we're gaining is distribution in those and we're shifting the assortment a little bit on those brands and bringing them into the So those two things together will continue to be centerpieces to our expansion strategy. I think we feel we feel like next year should be another strong year of household penetration gains and households overall.

Okay, great. And then maybe if I could shift gears a little bit, but still tie back to that first question.

In the the data in the slide deck that you provided on Boulder, obviously 4Q in the MULO plus data was over over 100% over the full year trend. Can you just talk to what's driving that outside of the natural channels? Is it just better shelf placement and it's just appearing on shelf and consumers are are becoming aware of it? Or do you see higher repeat rates there? And to tie that back, Can you if you have the data available, offer up which brands you see the highest repeat rates on in that Power Brands portfolio?

Yes. In terms of the repeat rates, I probably need to get back to you with an answer on But I think that what you're seeing on Boulder, there's two things happening. One is we are gaining distribution as consumer interest in the product continues to grow We're obviously having great success in expanding our distribution of that item.

But probably more exciting is the fact that it's a velocity led growth story. So yes, we're gaining distribution, but it is actually accelerating. And certainly, we are proud of the avocado oil chip and get a little bit of in the last four weeks it's January, so I always want to be a little bit careful, but it was a number one chip in the national channel we see the consumers loving the item the losses are very strong. And I think what we're now seeing is as more retailers are interested in looking at that piece of the portfolio better for you and avocado oil and non seed oils. Boulders obviously square dead center in that trend with a great product. Actually delivers on taste and affordability.

I'll pass it on. For the call.

Thank you. We don't have any questions as of the moment. We are now closing the floor for questions. You may now disconnect. Have a wonderful day.