UTZ Brands Inc (UTZ) 2025 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. My name is Colby, and I'll be your conference operator today. At this time, I'd like to welcome you to the UTZ Brand Inc third quarter 2025 earnings conference call.

(Operator Instructions)

I will now turn the call over to Trevor Martin, senior President of Investor Relations.

Thank you, operator, and good morning everyone.

Thank you for joining us today for our live session in our third quarter 2025 results. With me on today's call are Howard Friedman, CEO and William Kelly, CFO. I hope everyone has had a chance to read our prepared remarks and view our presentation, all of which are available on our investor relations website.

Before we begin our Q&A session, I just have a few administrative items to review.

Please note that some of our comments today will contain forward-looking statements based on our current view of the business and an actual future results in materialism.

We see our recent SEC filings which identify the principal risks and uncertainties that 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 earning. Material reconciliations of non-GAAP financial measures and other associated disclosures are contained in our earning material and posted on our website.

Now, operator, we are ready to open the line for questions.

(Operator Instructions)

Andrew Lazar from Barclays.

Thanks so much. Good morning, Howard and Bill.

Maybe to start off, your investor day a couple of years ago, I know you laid out a 3 year financial plan and obviously the sales and consumer environment has changed dramatically since then with us though continuing to obviously outperform the category pretty meaningfully and the company's maintained its expectation for either di margins of around 16% and 26% or about 100 basis points of expansion each year.

You've delivered that right the last 2 years.

In the prepared remarks, I need to make some comments around maybe some incremental investments in 2026, particularly to support the California expansion for the acquisition announced today, which is exciting. I'm just curious if like in terms of thinking of the expectations for next year, if perhaps that EBIDTA margin expansion could be a bit less significant just in an effort to maintain the strong top-line momentum that you've been able to deliver over the last couple quarters.

Andrew I'll start and I'll hand it over to BK to continue, look, I think if you went back to the investor day there were a few things that we had laid out.

One obviously was that, we had a meaningful top-line, bottom line, and gross margin opportunity that we wanted to progressively address. And that we believe that we could drive accelerated top-line growth above the category as we were able to hold our core geographies and expand eventually getting coast to coast and funding that through a productivity program that, would deliver a meaningful gross margin expansion and obviously fall through to EBIDTA.

I think if you look at over the last couple of years, we're pretty pleased with our progress around all of those objectives and one of the things that I think we that has been important in our story. Has been the ability for us to drive expansion market top-line growth and enter into new geographies, which we have at this point a pretty solid proven playbook and if you look at something like Florida, where we had entered a couple of years ago and you were actually able to see progression where we made incremental investments to build out that business and start to accelerate our top-line, we look at that as a good example of kind of what we are looking at in California, although obviously California is a much on greater scale. So if you look at our building blocks in 2025 turning into 2026, I think we feel very good about the top-line momentum that we have and the opportunity to further accelerate it as we get into California in a more meaningful way in 2026. We've said 200 basis points to 300 basis points ahead of the category and obviously by entering into California and making some incremental investments there, we believe we should be at the higher end of that range.

I'll hand it over to BK for the rest of the question.

Yeah, thanks Andrew. Thanks, Howard. Good morning, everyone. The first thing I would say is there's nothing structural prevent us from getting to 15% EBIDTA.

I think the building blocks that Howard talks about underlying our financials, strong productivity, the ability to have good, revenue growth management tools in place, those all are really strong. In 2026, as I said in, we will have. Continue to have investment class, productivity, activity coming through, as our supply chain transformation that has been a heavy lift with the essential CapEx, it kind of steps down. So when I start talking about the cash flow, that that's intended and to be incremental and additive to our story.

We are doing the things you expect us to do at this point in time, having, come off our key taps and our key transformation cost, elements, and then so now the focus that started to, not only are we able to expand margins and our top-line, we can also drive the cash flow.

Thank you for that. And then I would like to dig in a little bit more on the California root acquisition.

Which is exciting, I guess maybe we can get into a little more detail, Howard, on how sort of previous deals like this in other regions sort of have enabled us to you know sort of step change the market penetration that we can look forward to in California or in other words, I guess I've allowed you to continue to sort of drive share in these expansion markets even after the initial launch into these markets, meaning in year 2 3, and beyond.

Yeah, I appreciate it. Obviously, probably the most, the easiest example for us to give you is something like Florida, where, it is a geography where we actually entered and then we have bought routes over time. Obviously we bought a route system last year back in that with our national acquisition, but if you were to go all the way back to say like 2020 in Florida. We were about a 2.5 market share, and you know the first couple of years was really about getting into the market in a more focused way and sort of starting to mature it.

And then really in 2022 was when we actually saw a meaningful, first meaningful step change which is about a 70 basis point improvement relative to that 2020 range and we've been able to add market share growth from there. So call it from a 2.5% to a 3.2% and latest 52 weeks in Florida, we're at about 4.2%. Then I think it's important to realize that this actually does to your point, grow gradually over time as we get into the market and get our execution up and running and actually make sure that our playbook is working the way we'd expect it to. But where we go, we say, and we have a high degree of confidence that this is the next step in continuing our accelerated top-line growth.

Michael Lavery from Piper Sandler.

Thank you. Good morning.

I wanted to unpack California maybe a little bit more. Can you give us a sense of does the acquired network cover the entire state?

What are those roots carrying now? Is there, how easily do you have room on the trucks for your products? What is there a swap out and, maybe a little sense of you mentioned it's included in guidance. I assume that means costs. What are, some of the costs that are associated with it other than the acquisition price.

Yeah, so let me start. Obviously it's early days on the integration work that we have to do, I think what the route network allows us to do is to actually look at the portfolio of products with an existing network and infrastructure and customer relationships and begin to introduce our products onto those routes called in the early 2026. So you know there is going to be some work there to make sure that we have the right assortment and that we're working with our IO partners and the retailers to make sure that we're getting the distribution that we're expecting. So a little early on the books and takes of what will be there, but yes, we're confident that we can bring our products into those systems and start to drive the growth. That we expect that we can get, I mean, for context, remember we're only about a 1.9 share of market in California and it's about 10% of the salty category in the total US.

So here's a big opportunity in terms of the size of the market. Obviously this is this is an entry and so they're about the same size as the national route system was. There's some routes in the upper Midwest that we also got as part of this transaction where we already carry some of our products, but we'll be making some, we'll make continued investments to fully mature that market with our hybrid distribution model over time.

Okay, thanks. And just on the volume price mix split, a very strong volume gains, obviously you have very slightly negative price. It would seem like that's probably helped or driven at least a bit by expansion markets where I think you tend to promote a bit more to drive trial. Can you unpack a little bit maybe just how to think about the runway there is priced at the right level? Is it mostly trial related? Obviously you've got the the strong volume momentum. Would would you expect price to be positive going forward, or it's sort of similar to the splits in this quarter here?

On the pricing piece, what you saw in the quarter was about a 1% drag, 1% drag is what we talked about and it played out how we anticipate it, to your point, we are price followers, but we also have very good revenue management and our ability to compete in the best interests of both the consumers and the category. So there are many variety of ways for the price we think we will always choose the one that makes. And our surgical approach to, but we also manage it through through trade, through promotion and to your pointing managing fashion markets, and our goal is to be more effective more quickly, at those markets in line.

And I'll just add my, what we said in Q3 or in Q2 was that we expected a 1 point drag in Q3 and Q4 and so the year is largely quite the way we would have expected to, and I think as you go into next year, we'll kind of see where we are, but to be case point, so very good about what we're doing on the repman side of things, and I think the quarter, generally came in the way we had we would have envisioned when we started this.

Okay great thanks so much.

Peter Galbo with Bank of America.

Howard, I just wanted to ask maybe a few, I don't know, more technical questions about the California expansion.

It's been 2.5 years I guess since you last kind of acquired and that was Kings Mountain, so we've been going further back on routes, but I mean, should we expect that this like are these independent operators, are they company owned? Are we going to have to go through an IO conversion cycle again?

Should we be looking at things like pruning of that portfolio the way you would have on an RW Garcia? Like I just want to understand some of the more technical components of what kind of will be factored in.

Now that the deal is kind of consummated.

Yeah, fair question. So a couple of things, first of all, I would offer you we bought a similar size business or similar size route network in Nashville last year in Florida, and I'd say that generally the IO conversion discussion that we've had has not been driven by routes that we acquire because you think about it as we were already paying a commission.

In some cases, we didn't have a relationship and it was a new business, and so generally when we buy when we bought back our distribution is actually a benefit of less commission to a master distributor and they can put a commission to an independent operator where the IO conversion a couple of years ago was different as we were actually transitioning from we own the entire relationship on the revenue line to suddenly we had this commission that we were paying, so we don't anticipate mechanically. That being a topic of conversation next year, I do feel like you're getting the greatest hits of my first year when we talked about private labels rationalization. We're also not anticipating that to be a significant part of the story. If you think about where we've been on partner brands over time, all of these, all of the things that are on this route we would fall into the partner brand line within the P&L and we would expect that that will continue to decline modestly or you know continue to improve the decline will get lessened, but it will still continue over some period of time as we actually continue to expand our business. So I'm not sure I don't think you should expect a whole lot of historical mechanics to actually have to come back into this story.

Okay, cool, helpful, and then I don't know, a free served either Howard or Bill on this one, but I think part of the stock reaction today is in response to maybe the commentary around the 2026 margin and you know it seems like maybe there is a bit of backing off on that 16, but also in the quarter itself, I think that the EBITDA margins were okay, but the gross margins were a bit light. There was some discussion around a worse potato crop, I think that may be influenced and, I know you buy from the East Coast, but, there was like a record potato crop through most of the US this year, so just trying to understand like what happened and how quickly can you pivot and there should be a lot of cheap potatoes floating around. So just how quickly can you kind of recover that gross margin. Thanks very much.

Yeah, I'll start on potatoes and then Howard can can expand on it just to give a few facts, about a quarter of our raw materials basket is potatoes, and we source what we call chipping potatoes that that are mostly from the Midwest and East Coast. This is very different than the crop that is used by folks that manufacture, make and sell and deliver French fries as an example, but the areas that we source from are very close to our primary facilities. What we saw in the quarter was some weather related crop issues. Obviously we had a very cold, wettring in the east and then followed by a very dry summer. So what happens is that resulted in potatoes not meeting the quality specs, and it required more potatoes for the same throughput. So that was very different than a year ago. I think the good news is that that was that ended in the quarter. That's not something that is progressing. We've seen that the crowd come back and the tables are in good shape so we don't think we have a systemic issue here at all.

We think it happened in the quarter. It did add pressure to gross profit, but it is essentially behind us and isolated.

Yeah, and the only thing I'll add is, obviously if you think about the overall gross margin, while the some of the input costs were obviously a little bit higher, you also saw us address that with productivity and the distribution lines you saw distribution costs go down year over year which doesn't show up in gross margin for us.

So, I think if you look at the total cost basket and kind of how we work as operators to make sure that we're keeping those things in balance. I think that the journey through the P&L was a little bit different, but I think we address cost with cost.

Scott Marks with Jeffries.

Hey, good morning. Thanks so much for taking the questions.

The first thing I wanted to ask about is you called out in the prepared remarks some some softness on the border and talked about how you've you've kind of isolated the issues and are actively addressing them. Just wondering if you can share some incremental color on what you're seeing with that brand and and how you're thinking about those steps to correct the brand.

Yeah, I think so. The first thing I would say, and I appreciate the question, the first thing I would say is, look, we don't believe that we have any sort of a structural issue on the border. I think it's a great brand for us. It's a business that we've been growing over time and we have a great deal of confidence

that the issues that we're having are relatively short-term in nature. And it's a couple of things.

One is obviously regionally we're seeing some greater consumer value seeking behavior both up and down the price ladder, and so we have some regional brands that have showed up that we are addressing that we're addressing in the near term. And then we had a we had a short-term issue that I don't really want to go too far into that we were able to identify early in Q3 that we had to that we had that we needed to address and we are actively addressing an isolated issue and you should see correction beginning in Q4 and into next year but I think overall we feel very good about the tortilla chip business just some short-term noise.

Understood, thanks for that. And next question for me would be just on Boulder Canyon.

It sounds like it was another strong quarter, and I think he noted some shelf space being awarded for 2026. Wondering if you can kind of help us understand, is that kind of in expansion geographies, is that in core geographies with incremental products or categories, just trying to get a better sense of how those winds are coming about.

Yeah, so I appreciate the question.

Well, we feel very good about the momentum on Boulder Canyon, and obviously it will, it continues to drive a lot of growth for us and it's really driven by, obviously consumers looking for better for you credentials and a great tasting products and in the near over the last year-to-date we are, it is the number one potato chip brand in the national channel and we actually have the number one skew in the channel over all time periods for 13, 26, and 52 weeks. So that that business is growing really nicely primarily and I&I expected to continue.

If you look at the corner, it is being driven by both velocity and distribution gains. Velocity in the national channel up about 35% in the conventional channel up almost 200%. And you can, but you can also see the ACD where we are today is really only around 50, 52% versus say some a brand like us at a little over 80%. So as you look in the next year, we expect to continue to enjoy broader based distribution gains across channels and geography, we have a great deal of confidence and visibility into those into those opportunities.

It will be predominantly getting our actual assortment correct broadly and actually driving potato chips. Into those markets and then innovation which we'll share a little bit more with you in February will also follow because I think one of the things we're we're most pleased with is our partners in both natural and conventional are supporting this brand and we're able to continue to sustain the momentum in both sides which is obviously a little bit unusual but an area that we take very seriously and making sure we're investing in growth.

Appreciate it. We'll pass it on.

Thank you.

Robert Moskow from TD Cowen.

Hi, thanks for the question. I wanted to ask Howard about how you viewed your biggest competitors line up of new products for next year.

They're adding a new subbrand that's natural colors. They're adding a protein chip line and a package redesign.

Do you see this having an impact on the category next year? Is it a positive?

And do you think, in the fight for our shelf space does it does it influence what you're able to get in any way?

Yeah, so look, a couple of things. I think that broadly speaking, anytime the category leader is active in trying to grow the category, it's a net positive for all of us. I just, I think that, what you look at this brand at this category over time and has been innovation and communication that is really kind of driven consumer interest and appeal. So I think that regardless of who the competitor is, if they are able to bring more shoppers down the aisle, that is a net positive for us and and for the category.

I think if you look at what does that mean for us, I think there are a few things that retailers like about our business.

One is that we can that we are generally incremental.

Two is that we actually bring investment and support through a hybrid model that can get it through DSC or DTW.

And third is that you know we all can see the same data sets now of what our products are doing in their stores. And so I'm not concerned that we can't get the distribution gains that we have certainly have not heard. For many retailers that that has been an issue because I think that they are that our core offering in our partnership.

Continues to grow and mature and I think that will that should continue to yield the types of gains that we have been expecting to allow us to grow 200basis points to 300 basis points faster than the category. So I think overall I would view it as a net positive thing. Obviously communication and innovation are always uncertain, and we'll see how the consumer responds to all of the offerings across all the category participants next year.

Okay, and I know you got asked this last quarter, but protein chips, there's clearly a significant pocket of demand for that type of product, and I want to know if you're thinking on that subcategory has evolved in any way and just to discuss that.

Yeah, I mean, look, I think that if you were to look at sort of the consumer trends right now that are out there protein, non-seed oil, portion control, substantial snacking are all areas that we, continue to understand the consumer is looking for and are seeking to try to address, I think when we get to February we can show you how we think about addressing all of those subcategories as we talk about our innovation line up. But certainly, as a consumer marketing guy, I want to sell the products to consumers that they're most interested in and be able to sort of drive the trend, which is kind of what you're seeing right now in Boulder, so more to come on innovation, but it is certainly an area that we are paying attention to.

John Bob Gartner from Mizuho.

I'd like to ask about next generation productivity. I guess as savings migrate down to more normalized levels as a percent of COGS, maybe the dollar amount of savings moderates, but how should we think about the ROI from new productivity initiatives elsewhere, whether it's on sales growth, volume, in store execution. I mean, I'm guessing there's benefits outside of pure dollar savings from new technology. So I'm curious, your thoughts, your view and implications for the top-line.

Yeah, so I mean I can start and offer to be look, I think a lot of what we've done on the productivity line to your point has been really around getting the supply chain consolidation and modernization investments done, I think we still continue to have opportunities in our ways of working and and equipping our independent operator partners with better information on how to execute sales and make our assortment and our display activity further impactful.

I think it winds up it should be a top-line enabler over time and I would anticipate that's going to be part of the way that you'll see us continue to outperform the market as we as we continue and get audit that, a couple 100 basis points better than the category, I think in the in the near term. What I would offer you is that we have, a lot, we have a lot of work that we are completing and you'll start to see that productivity set down to, world, at or above world class levels still at that 3% to 4% and the rest will kind of communicate as we understand it.

Yeah, thanks for the question. Thanks, Howard. You know that's a great point for us, and I'll just build on Howard's points, it's what we try to call our second wave of value capture. If you think about kind of within the supply chain and outside the rest of the company, there are still areas that we continue to grow, on the supply chain side, obviously we have opportunities in the indirect procurement that we've done in the direct procurement. We have opportunities to work in capital inventory management.

If you think about the DSD network that we have and continue to optimize our transportation logistics, that's helpful to us. And then within the four walls of manufacturing plan, I think the team will take the next step on OEE improvement, predictive maintenance, etc. and then as you kind of expand outside the supply chain, parts of the business that other others of us drive, you can think about automation and data leverage, whether it's RPAs and analytics and bots, the advanced demand tools that are out there, self-serve analytics, digital twin modeling, I can go on and on, but there is a club of opportunities for us to continue to drive creativity at very high levels.

Jim Salera from Stevens.

I want to dig in a little bit on some of the market share dynamics because I, I've been impressed by the continued gain obviously and expansion but maybe even more so in core where you guys have a lot more visibility and awareness. You just kind of walk through where you're seeing that incremental market share pick up in the core market and is there maybe an opportunity as we think about, retailers really fine tuning what they have on shelf to make sure they're capitalizing on any pockets of growth, is there maybe opportunity to continue to see sustained share gains in the core market?

Yeah, I mean, so a couple of things I think.

I think as our strategy had been to hold the core and then grow it grow through expansion markets and obviously to your point, we are pleased with that that we're actually taking share in our core markets as well.

Not surprisingly, as when you look at our original strategy, we had said that really our core market is most significantly in us market. And that the opportunity was to continue to expand our assortment of our power for brands into the core geography as you look at kind of this year, obviously Boulder Canyon is a significant contributor to the core along with, pretzels and cheese. I think also continue to be areas where, we're seeing some better performance.

So I think what you're seeing is the our portfolio shifting in the core a little bit and that the benefit of the breadth of our portfolio is actually coming through in that in that market share performance. I think the other thing that is helping us is that the convenience store channel continues to improve or by no means where we need to be yet, but as that becomes less negative, it actually also continues to help us as we look at overall market share. I think longer-term. It is the one geography where we are most linked to the category. It's kind of really the only one. And so I think what you'll expect to see us do is we'll drive our shares innovation, communication and assortment to drive it further. But I think we like the notion of over the long-term if we can hold if we can hold there and get our expansion markets growing faster, that you'll continue to see the performance that we're getting.

Right, and then maybe as a follow-up you guys called out Florida, Illinois, I think Colorado and Missouri as expansion markets that are above 4. I talked a little bit about Florida already, but maybe if you can just highlight, are there any kind of, idiosyncratic, whether it's brands or, consumer kind of consumption patterns in those states that drive that share, 100 basis points ahead of kind of the average expansion, market share.

I actually, not really. I mean, generally speaking, they tend to those four markets obviously are some of our fastest growing. They're averaging, about 6%, 6.4% growth across them and what we wanted to highlight is that we're getting that after we get distribution gains in some of our older vintage expansion markets that we are continuing to show and sustain growth.

I do think in those markets what is true is we do have very strong relationships with the national retailers and our IOs in those markets and so we continue to see very good execution there and I think that the nature of our relationship with those retailers is actually what you continue to see. They continue to reward us with space and we continue to invest and make sure that we're participating in their category growth and it's kind of working for everyone.

Great, I appreciate that. I'll back in queue.

Rupesh Parikh from Oppenheimer.

So I guess just going back to the salty snacks category. I know it's, obviously there's still a challenge out there, but if you guys look forward, are there any green shoots or anything that gives you optimism as you look out in the coming quarters?

Yeah, look, I think I continue to believe and have been a salty bowl. I think that it's a great category and I think it's probably the best in in food. And I continue to look at household penetration as the first place that I would look at is our consumers coming and participating in this category more this year than they did the year before and the year before that. And I think the answer to that continues to be yes.

It's not immune to the dynamics of the market and the consumer environment, but on average, when consumers are choosing how to invest their money into an affordable indulgence, they continue to choose salty more than they did the year before. So I think in that regard I remain very optimistic about where the category is. I think second is if you look at the category progressing, we did say that we thought that the category would get better, would progress through the course of the year and become less negative, obviously we thought we'd be more flattish in the year, so we're a little off of that. But you do see that the category has been improving through the course of the year, which I also think. Isn't that positive and then the last thing I'll say is that if you look at category participants, it is, we have always been an innovation and communication brand brand led category and that continues to be the case. The pricing environment remains rational. You're not seeing things that they don't make sense, and I think you're seeing some of the some of the drivers that have always driven this category coming back more to the front.

So overall I feel pretty good about where the category is going, obviously it's been an uneven category for the last couple of years, but I continue to be very much, very optimistic about the future of this portfolio, about the category and this portfolio.

Great. And then maybe just one follow-up question. You guys also, talked about some of your marketing efforts and also noted that I think you plan to increase your investments in retail media. So just curious what you're seeing there in terms of effectiveness and returns on your efforts with retail media.

Yeah, I, so a couple of things, obviously we committed investor day to 40% marketing investment year over year over year. Last year we delivered 68% this year, year-to-date we're right around 30% and that that is really being driven by the consumer pressure, our strategy has always been that we'll build the business overnight and our brands over time. And that will be flexible about where we make those investments in any given quarter. And so as we look at this quarter and we look at some of the distribution gains we had and some of the opportunities that we had to invest in retail, media, they were the place that we prioritize. We by no means have a lack of investment op high ROI investment opportunities that we can make, but we will we will always be choiceful in what we're doing first and this quarter. It made more, it made a lot of sense for us to invest in the retail pressure, that we could get as consumers or in store and making choices. So, you'll continue to see us making investments in consumer media, and you'll continue to see that 40% kind of progressing into 2026.

Peter Grom with UBS.

Great, thank you. Good morning, everyone. I wanted to ask maybe two related questions on the category, one more from an innovation perspective and maybe more just how you're seeing it going forward. So more just kind of a follow-up to Rob's question, which I thought was a good one.

You talked about this a little bit in your prepared remarks around, highlighting your ingredients, removing artificial dyes and kind of the protein, dynamic that you alluded to earlier. I guess my question is. 00, do you think this innovation, can actually move the needle and drive an improvement in category growth as we look at, out of 26, and then, just related, you touched on kind of the sequential improvement, albeit maybe at a slower pace than you anticipated. Do you have any preliminary views on the category or industry as we look at the 2026?

So look, I think I'll start with the innovation question first. The short answer is yes, I do actually think that innovation can help move the category. I mean, it's, I think that what you really when you look at innovation, what you're really trying to do is to drive consumer engagement in the category and so a consumer may buy a product and then pick up a normal bag of whatever their typical repertoire is and if they haven't been down the aisle in a little while. I think that that always helps with consumer interest and keeping the assortment fresh and keeping news coming through. So I do think that it can help drive the category. Obviously, the category is large and it has a lot of, traditional portfolio of offerings and those offerings also need to be healthy and growing and part of that is I think what you're talking about in terms of Ingredient simplification, artificial dot flavors and colors, those are frankly the need not only addressing, what consumer interests are in, but also making sure that the that this category overall and obviously our products remain on trend and allow consumers engagement in potentially a modestly different way. I mean, a reminder 80% of our portfolio already exists as, no artificial flavors or colors. And and so we'll continue to highlight those credentials as we go forward across our range.

I think if you look at our future innovation path, there are opportunities to, get new consumers into the portfolio who potentially weren't there before as we're entering into new geographies, I think innovation is a piece of the story, but our core assortment and it's trial and repeat rates are very strong and so getting those products in front of the consumer also will be critically important to our topline group. So yes, I think it can help. I think the whole portfolio story has to continue in order for the category to grow significantly over time and I feel pretty good that that's where we all are taking steps to do.

(Operator Instructions)

And with no further questions and queue.

This is going to conclude our conference call. You may now disconnect.