Something intriguing is happening in the world of salty snacks. While industry titans like PepsiCo and Mondelez battle for dominance, a regional player, Utz Brands, Inc., is quietly making waves, carving out a significant chunk of the market share and showing impressive growth. Their latest earnings call revealed a strategy so compelling and results so promising that it seems to have slipped under the radar of most analysts: Utz is poised to conquer America, one salty snack at a time.

This isn't just empty bravado. Utz's first quarter 2024 earnings call, held on May 2nd, was a masterclass in strategic execution and a testament to their disciplined approach. They've implemented a meticulous four-pronged strategy, focusing on specific geographical expansion, streamlining their supply chain, developing best-in-class capabilities, and maintaining a flexible balance sheet for opportunistic acquisitions.

While their overall organic net sales growth for the quarter was a modest 1.5%, don't let that fool you. This figure masks the powerhouse performance of their "Power Four" brands: Utz, On The Border, Zapp's, and Boulder Canyon. These brands, the spearhead of their expansion strategy, saw a collective 6% growth, dwarfing the overall category growth rate of 1.4%.

The most interesting aspect of this growth, however, lies in the geography. Utz is meticulously targeting expansion geographies, particularly in the Midwest, where their presence was previously limited. Their strategy is laser-focused on gaining distribution in mass retailers, national grocery chains, and the club channel. This targeted approach is bearing fruit, as evidenced by the 8% growth seen in their expansion geographies compared to a much slower 1.7% category growth in those regions.

"Geographical Performance"

What makes Utz's approach truly remarkable is their unwavering commitment to "making money before spending money." They've spent the past year building a robust foundation for future growth by focusing on supply chain optimization and cost savings. This is reflected in their impressive adjusted gross margin expansion of nearly 300 basis points in the first quarter, a result of continuous productivity programs and the strategic disposition of five manufacturing plants.

Now, with this solid foundation in place, Utz is ready to unleash their secret weapon: marketing. They're planning to significantly increase investment behind their brands this year, exceeding the initially planned 40% increase. This shift underscores their confidence in the strength of their brands and their ability to capture even larger market share.

Brand Power

Utz's "Power Four" brands are driving growth:

- Utz

- On The Border (15% consumption growth in Q1 2024)

- Zapp's

- Boulder Canyon (31 consecutive periods of double-digit growth in the natural channel)

But there's more to Utz than just numbers. Did you know that Utz was founded in 1921 by William and Salie Utz in a small town in Pennsylvania? They started with just a single kettle and a commitment to quality ingredients. Today, over a century later, Utz is still family-owned, a testament to their enduring legacy and commitment to producing snacks that people love.

A Strategic Divestment

Here's a hypothesis that seems to have gone unnoticed: Utz's strategic divestment of the Good Health and RW Garcia brands, while seemingly a minor move, could be a brilliant stroke of genius. By shedding these non-core brands and their associated manufacturing facilities, Utz is not only accelerating their deleveraging timeline but also focusing their resources on their high-growth Power Four brands. This strategic divestment allows them to streamline their operations, reduce complexity, and allocate more resources to the brands that will truly drive their national expansion.

The numbers tell a compelling story. This divestment led to approximately $150 million in after-tax proceeds, which were immediately used to pay down long-term debt, resulting in a lower interest expense of approximately $40 million for 2024. This move, coupled with the repricing of their term loan, is projected to contribute to a 23% to 28% growth in adjusted earnings per share for the year.

Financial Highlights

Utz's strategic focus, disciplined execution, and impressive results point to a company that is far from content with simply being a regional player. They're building a national powerhouse, fueled by iconic brands, a commitment to quality, and a deep understanding of the evolving consumer landscape. While the financial markets may not have fully grasped the magnitude of their potential, Utz Brands is quietly building a snacking empire, one delicious bite at a time.

"Fun Facts"

- Utz was founded over 100 years ago in a small town in Pennsylvania.

- The company is still family-owned.

- Utz's iconic cheese balls saw strong growth in the mass and club channels in Q1 2024.