Utz chows down on some big deals

Brian Sozzi, Myles Udland, and Julie Hyman speak with the CEO of Utz Dylan Lissette about the company’s Q1 earnings, snack expansion, and outlook amid robust demand.

Video transcript

BRIAN SOZZI: Shares of snackmaker Utz are under some pressure this morning as the company slightly missed Wall Street's first-quarter sales and profit forecast. But the company said it's still seeing solid demand for its snacks and offered up full-year earnings guidance that was ahead of Street forecasts. Utz CEO Dylan Lissette is here with us now. Dylan, always good to see with you here. Let's just start with the stock price to clear anything up that people who are trading Utz shares right now. Are you still-- are you still growing at the same pace you were compared to late last year?

DYLAN LISSETTE: Yeah, I mean, honestly, at the end of the day, we had what we believe to be a great print for quarter one sales. Our top line was plus 18%. Our bottom line was plus 30%. We reaffirmed our year-end guidance.

There's a little bit of just timing. We're lapping, as you all know, a massive quarter from last year due to COVID-19. And that'll sort of abate itself over the year as Q2 and Q3 and Q4 come along. But yeah, no, we're very bullish on-- and reaffirmed our year-end forecast. And people are still buying our snacks, and our sales are still great, and our brands are doing really well.

BRIAN SOZZI: What are you seeing in the markets with the fastest vaccine rates?

DYLAN LISSETTE: Say that again?

BRIAN SOZZI: What are you seeing in the markets just in terms of demand as those specific parts-- or specific states or cities, they reopen, as the COVID vaccine pick back up. Are you still seeing the same rate of demand?

DYLAN LISSETTE: Yeah, well, what we're seeing is a little bit of a shift. You get a little bit of that non-measured channel. Think about the airports. Think about in the middle of New York City last year at this time in August of 2020, we went up there for the IPO. The city was relatively dead. If you think about today being May going into the summer, New York City as an example will be alive with a lot of people around. That non-measured channel will start to really pick up from food service, convenience, areas like that that are going to be explosive growth relative to last year. And you'll see a little bit of abatement, I assume, in grocery and mass as it kind of offsets. But overall, demand continues to be robust. People are still buying a lot of snacks, and our brands are doing really well.

JULIE HYMAN: Dylan, I feel like a broken record, because we keep asking all of the food CEOs who come on about this. But we have to ask about pricing pressures, right? Both your input costs, as well as your pricing power-- whether you guys have raised prices, whether you are going to continue to do so. And you know, when you talk input costs, I guess we have to talk labor as well and whether you're having a harder time finding workers.

DYLAN LISSETTE: Yeah, I mean, all of that-- if you went back to March when we put out our quarterly earnings for the fourth quarter of 2020, we really actually came out and thought that inflation would be about 4% in 2021. So we were a little bit on the front end of realizing that we were going to have some pretty strong inflation pressures.

So we started real early just looking at all of the different things that we have in our bailiwick to put forth. We have pricing. We have price pack architecture, weight outs, different varieties of promotional cadence, depth frequency. And we really started working on that back in February and March, seeing that there was going to be inflation.

Julie, you're right. Labor is an ongoing issue. We're starting to see a little bit of that loosen up more recently, where more and more people are returning to the workforce. Maybe that's vaccine-driven or, you know, as summer approaches and things change from child care, et cetera. But those are all pressures.

We have a lot of tools in our chest to put forth to combat that-- from productivity, from pricing, from promotion-- that we feel really good about our ability to sort of take care of that inflation through those different means.

MYLES UDLAND: And you know, Dylan, maybe this is more of like a CFO type question. But related to what Julie was asking, I just wanted to ask about operating leverage within the company. I mean, we're looking at-- I looked at the presentation.

EBITDA and profit are growing faster in the top line. And we've seen a lot of strategists say that this is something that they see across corporate America broadly as a driver for earnings going forward. Is that how you guys think about it? Or you know, some of those dynamics that you were just touching on in terms of the ability to raise prices into this environment, is that-- you know, is that kind of how you're seeing things today?

DYLAN LISSETTE: Yeah, I mean, I'd step back for a second. I look at Utz as a transformative company. We've done a lot of acquisitions. And when we do these acquisitions, when we grow, we always want to grow with really profitable strong power brand growth, right?

So in a way, in many cases we let go of sales that are nonprofitable. We let go of deals or promotions that are not profitable. We really invest in trying to make sure that what we are building on, the foundation that we're building on is a profitable foundation.

So our power brands-- the ones that we innovate behind, the ones that we focus behind-- On the Border, Utz brands, Boulder Canyon. You know, there's a slew of them-- Zapps, which is incredible. I saw that picture on the screen before we got in. We're investing behind those to make those a larger and larger percentage of our overall business. 87% of our sales today are our power brands. So we want to focus behind those.

So we're somewhat less worried about what happens to, you know, some of the foundation and some of the non-important sales that aren't really driven by profits. And so when we look forward, we really understand that as we are building our business, as we're growing those geographies into those new channels, into the subcategories, we want to do it where we drive that bottom line and have the top line growing as well. But it's a focus too, you know, three, four, five years from now. That 87% should be 90%, 91%, 92%. So every dollar we put behind innovation or marketing goes into power brands, which have a higher margin and have a higher return for our investment.

BRIAN SOZZI: Dylan, since we last spoke, the Planter's asset went from Kraft Heinz to Hormel. I believe was $1 billion. Pretty big asset. Were you involved-- do you have any interest in that brand? And if so, or if not, what category would you like to get in that you aren't in today?

DYLAN LISSETTE: Yeah, no, we didn't have anything to do with that. We have a nice relationship with the folks from Hormel, because we have a little bit of a licensing agreement on one of their brands that they have. So we know those folks well. Congratulations to them. I'm sure they'll do wonderful with that brand.

You know, I think we're really trying to stay within salty right now, not branching out into peanuts or nuts or protein. We're really staying within salty. There tends to be a lot from a geographic expansion opportunity that's really in our wheelhouse from an M&A perspective.

The deal that we just recently announced with Festida, where we bought the largest co-manufacturer of the On the Border brand tortilla-- we're going to vertically integrate that, create productivity, create a lot of EBITDA growth. That's going to really allow us to expand the On the Border brand. So we have a lot of opportunities with our existing power brands to expand those, so we don't really want to get off focus with our pure play salty snack initiatives from an M&A perspective.

BRIAN SOZZI: Dylan, those are a lot of cheese balls behind you. That's not your lunch, right?

DYLAN LISSETTE: It could be.

[LAUGHTER]

BRIAN SOZZI: Fair enough, fair enough. Good luck in the coming quarter, and I'm sure we'll be speaking to you very soon. Utz CEO Dylan Lissette, good to see you.