Utz Brands Inc., a leading U.S. manufacturer of branded salty snacks, including Utz, On the Border Chips & Dips, Golden Flake, Zapp’s, Good Health, Boulder Canyon, Hawaiian Brand, and Tortiyahs, reported financial results for the company’s fiscal second quarter ending July 3, 2022.
Q2 2022 highlights
- Net sales increased 17.5% year-over-year to $350.1 million.
- Organic net sales increased 13.6% year-over-year.
- GAAP net income of $2.5 million vs. $16.2 million in the year-ago period.
- Adjusted EBITDA increased 18.2% year-over-year to $42.2 million.
- The company is raising its full-year fiscal 2022 net sales and adjusted EBITDA outlook.
“We are pleased with our second quarter results as we continued our sales momentum, drove market share gains, and delivered double digit Adjusted EBITDA growth,” Dylan Lissette, chief executive officer of Utz, said in the announcement. “While the operating environment continues to be challenging, our team is executing well against our multi-faceted growth strategies, and we are raising our full-year sales outlook. In addition, we continue to expect that our pricing actions and productivity programs will offset cost inflation in the second half of the year. Importantly, visibility into our cost structure is improving, and based on these factors, we are also raising our Adjusted EBITDA outlook for fiscal 2022.”
Second-quarter growth highlights
For the 13-week period ending July 3, 2022, the company’s retail sales as measured by IRI MULO-C increased 16.0% versus the prior-year period, as compared to salty snack category growth of 14.8%. The company’s power brands’ retail sales increased 17.3% versus the prior-year period. Power brands’ sales growth versus the prior-year period was led by Utz, On the Border, Zapp’s, Tortiyahs, Hawaiian, TGI Fridays, and Boulder Canyon. The company’s foundation brands increased 7.7%. Retail sales increased double digits across all three geographies: core, emerging and expansion.
Second-quarter 2022 financial results
Net sales in the quarter increased 17.5% to $350.1 million compared to $297.9 million in the second quarter of 2021. The increase in net sales was driven by organic net sales growth of 13.6% and acquisitions of 5.1%, partially offset by the company’s continued shift to independent operators (IO) and the resulting increase in sales discounts that impacted net sales growth by (1.2%). Organic net sales growth was driven by favorable price/mix of 13.0% and volume gains of 0.6%. The organic volume growth in the quarter was consistent with the company’s expectations, as price elasticity was negligible, and growth was primarily impacted by SKU rationalization focused on strategic reductions in private label and certain partner brands.
Gross profit increased 16.7% to $111.5 million, or 31.9% as a percentage of net sales, compared to Gross Profit of $95.6 million, or 32.1% as a percentage of net sales, in the prior year period. Adjusted gross profit increased 19.6% to $126.0 million, or 36.0% as a percentage of net sales, compared to adjusted gross profit of $105.4 million, or 35.4% as a percentage of net sales, in the prior year period. The increase in adjusted gross profit as a percentage of net sales was primarily driven by higher net price realization, improved mix, and ongoing benefits from the company’s productivity programs. These benefits were partially offset by higher commodity, transportation, and labor inflation, which are collectively the result of industry-wide supply chain challenges. Additionally, the company estimates that the continued shift to independent operators impacted adjusted gross margins by approximately 120 basis points, but with offsetting benefits in selling, distribution, and administrative (SD&A) expense.
The company reported net income of $2.5 million compared to $16.2 million in the prior year period. Adjusted net income in the second quarter of 2022 decreased (3.3)% to $18.4 million compared to adjusted net income of $19.0 million in the prior year period. The decline in adjusted net income was primarily due to an increase in net interest expense and core depreciation and amortization expense.
Adjusted EBITDA increased 18.2% to $42.2 million, or 12.1% as a percentage of net sales, compared to adjusted EBITDA of $35.7 million, or 12.0% as a percentage of net sales, in the prior year period. The modest increase in adjusted EBITDA margin was driven by higher adjusted gross profit, partially offset by higher adjusted SD&A expenses, both versus the prior-year period.
Fiscal year 2022 outlook
For fiscal 2022, the company is raising its total net sales growth outlook from 10-13% to 13-15%, and its organic net sales growth outlook from 8-10% to 10-12%. This improved outlook for net sales growth reflects the company’s year-to-date performance and continued strong consumer demand.
The company continues to expect gross input cost inflation in the mid-to-high-teens and the company has been taking inflation-justified pricing actions this year to help offset these cost increases. As the benefits of the company’s pricing actions and productivity programs continue to build, the company expects to offset higher inflation in fiscal 2022. As a result of these actions, combined with its improved outlook for sales, the company is increasing its fiscal 2022 adjusted EBITDA outlook from modest growth to 2-5% growth.