Utz Brands Inc., a leading U.S. manufacturer of branded salty snacks, reported financial results for the company’s fiscal third quarter ending October 2, 2022.
Third-quarter 2022 highlights
- Net sales increased 16.0% year-over-year to $362.8 million.
- Organic net sales increased 12.6% year-over-year.
- GAAP net income of $1.5 million vs. $31.4 million in the year-ago period.
- Adjusted EBITDA increased 6.5% year-over-year to $47.7 million.
- The company is again raising its full-year fiscal 2022 net sales and adjusted EBITDA outlook.
Dylan Lissette, chief executive officer of Utz, said in the announcement: “I am very pleased with our team’s execution which drove third quarter results better than our expectations. We are successfully managing the impact of higher inflation while increasing our investments to support our growth strategies. As a result, we are again raising our net sales and adjusted EBITDA outlook for fiscal 2022.
“We have been on an impressive growth journey marked by rapid expansion in our scale, geographic reach, and portfolio of brands and products. Looking ahead, I am excited to transition to Executive Chairman of the Board of Directors and remain actively engaged with the Company, while I pass the baton to Howard Friedman as our next Chief Executive Officer in mid-December. Having led some of America’s most iconic brands and established a track record of profitable growth, I believe Howard is the ideal leader to leverage our momentum and take Utz to the next level.”
Third-quarter growth highlights
For the 13-week period ending October 2, 2022, the company’s retail sales as measured by IRI MULO-C increased 17.2% versus the prior-year period and the company’s Power Brands’ retail sales increased 17.4% 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, Boulder Canyon, and TGI Fridays. The company’s foundation brands increased 16.3%. Retail sales increased double digits across all three geographies: core, emerging, and expansion. The company’s retail sales growth was slightly below the category, particularly in expansion geographies, primarily driven by lapping strong promotional features in the Mass channel in the prior year.
Fiscal year 2022 outlook
For fiscal 2022, the company is raising its total net sales growth outlook from 13-15% to 17-19%, and its organic net sales growth outlook from 10-12% to 13-15%. This improved outlook for net sales growth reflects the company’s year-to-date performance and continued business momentum.
The company continues to expect gross input cost inflation in the mid-to-high-teens for fiscal 2022 and the company has been taking inflation-justified pricing actions during the 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 high inflation for the full year of fiscal 2022. As a result of these actions and its improved outlook for sales, the company is increasing its fiscal 2022 adjusted EBITDA outlook from 2-5% growth to an updated range of $166 million to $170 million, or 6-9% versus the prior year.
Third-quarter 2022 financial results
Net sales in the quarter increased 16.0% to $362.8 million compared to $312.7 million in the third quarter of 2021. The increase in net sales was driven by organic net sales growth of 12.6% and acquisitions of 4.7%, 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 (1.3%).
Organic net sales growth was driven by favorable price/mix of 14.7%, partially offset by volume declines of (2.1%). Price elasticity was negligible, and volume growth was primarily impacted by SKU rationalization focused on reductions in private label and certain partner brands, and lapping strong promotional features in the Mass channel in the prior year.
Gross profit increased 15.3% to $118.3 million, or 32.6% as a percentage of net sales, compared to gross profit of $102.6 million, or 32.8% as a percentage of net sales, in the prior year period. Adjusted gross profit increased 18.6% to $132.6 million, or 36.5% as a percentage of net sales, compared to adjusted gross profit of $111.8 million, or 35.8% 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.
The company reported net income of $1.5 million compared to $31.4 million in the prior year period. The decline in year over year net income was primarily the result of a loss on the remeasurement of warrant liability of ($3.7) million in the third quarter of 2022 compared to a gain of $36.3 million in the prior year period. Adjusted net income in the quarter of $22.5 million compared to adjusted net income of $26.1 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 expense.
Adjusted EBITDA increased 6.5% to $47.7 million, or 13.1% as a percentage of net sales, compared to adjusted EBITDA of $44.8 million, or 14.3% as a percentage of net sales, in the prior year period. The decline in adjusted EBITDA margin was driven by higher adjusted gross profit, offset by higher adjusted SD&A expense, both versus the prior-year period. Consistent with the company’s expectations, SD&A expense increased in the quarter primarily driven by higher accruals for incentive compensation resulting from better fiscal 2022 performance versus the company’s expectations as compared to performance below expectations in fiscal 2021, and increased investments in our people, brands, selling infrastructure, and planning capabilities to support growth.
