NEW YORK – Utz Brands, Inc., Hanover, Pa., has been on a bit of a buying spree the past 24 months. The strategy behind the acquisitions has been to put infrastructure in place to penetrate and grow in new markets throughout the country.
“We've done a lot of work over the last 12 to 24 months to kind of build the infrastructure to really be more national,” said Dylan B. Lissette, chief executive officer, May 17 during a presentation at the Goldman Sachs Global Consumer Conference. “And what I mean by that is we can expand all the way through the Southeast, the Mid-South, Texas, the Midwest, which is really where the population is.”
Examples of such acquisitions include the May 2022 purchase of a snack food manufacturing plant in Kings Mountain, NC, from Evans Food Group Ltd. In January, the company acquired Clem Snacks, Inc. and J&D Snacks, Inc., two direct-store delivery distributors of Utz’s products in the New York City region.
Other acquisitions include manufacturing facilities in Nevada and North Carolina from RW Garcia Holdings, LLC, Great Lakes Festida Holdings, Inc., and the Vitner’s snack brand from Snak-King Corp. The Vitner’s acquisition included direct-store delivery distribution assets related to Vitner’s.
Mr. Lissette added that he feels comfortable with the current infrastructure but might one day need to acquire assets in or around California.
“If we look at the sort of near term over the next 12, 24, 36 months, we've got a lot of runway with our current capabilities today — our capacity, our production, our route system — will afford us the ability to expand sales, not needing to acquire something,” he said.
Mr. Lissette noted many of the recent acquisitions were not headline grabbing, but part of a broader strategy.
“When we went to Vitner's in February of 2021, we bought this brand that had 55 DSD routes in Chicago,” he said. “I'm sure there (are) a fair amount of investors that sort of looked at it and said, ‘what the heck are they doing?’”
Fast-forward to May 2022, and Utz Brands’ share of the category in and around Chicago is growing at 3x the category because of the infrastructure, said Mr. Lissette.
“We have close to 100 routes now operating in Chicago, supporting primarily our power brands, which are Utz, Zapp's, OTB (On The Border) and Vitner's as well,” he said. “(It’s) the same here in New York City. When we acquired the distribution rights back from a third-party distributor in New York City, we now control those 125 routes.”
With the infrastructure in place, management’s focus is shifting to competing with category leaders. Ajay Kataria, chief financial officer, said one benefit of being in snacks is it’s a “rational” category.
“The market leader takes price, and the market leader typically likes to cover the cost increases, the inflation that they have in price,” he said. “So, we have an opportunity to fast-follow them, and we are getting good at it.
“We are squeezing down the timeline. So that’s an opportunity, price against inflation.”
Utz Brands raised prices in February and took another round in May, which will be effective in June and July, said Mr. Kataria.
“But the other opportunity that we have talked about is the fact that we have had a healthy gap in terms of where the subcategory leader is, whichever the subcategory you talk about,” he said. “(In) pretzels, it would be Campbell (Soup Co.) and us.
“That gap of 10 to 15 points that we have had, we have historically been behind the subcategory leader. We are now able to squeeze that gap because we are finding strength in our brands. We are finding national distribution, (and) we are finding household penetration close to the subcategory leader.”
For the first quarter of fiscal 2022 ended April 2, Utz Brands sustained a loss of $31.9 million, which compared with a loss of $23.3 million in the same period a year ago. The most recent quarter included a $23 million buyout of multiple third-party direct-store delivery rights in the quarter. Adjusted net income, meanwhile, totaled $15.4 million, equal to 11c per share on the common stock, down 19% from $19 million, or 13c per share, in the same period a year ago. Adjusted EBITDA totaled $36.5 million in the quarter, down 3.7% from $37.9 million a year ago.
Net sales increased 27% to $340.8 million from $269.2 million.As a result of its strong top-line trends, Utz raised its net sales growth expectations for the full year to 10% to 13%, up from 7% to 10%. Organic net sales growth is now forecast at 8% to 10%, up from 4% to 6%.