Q2 2025 Contradictions Emerge on Volume-Value Balance, Marketing ROI, and Distribution Gains

Guidance:

• EBITDA guidance for 2025: 7%–10% (midpoint ~8.5%), expecting a marked H2 margin step-up driven by seasonal gross-margin lift, accelerated CapEx productivity and a plant closure.
• EPS growth guide revised to 7%–10% (from 10%–15%); midpoint ~ $0.03 lower (≈ $0.015 interest, ≈ $0.015 higher D&A) due to faster/higher CapEx and incremental borrowing.
• CapEx: higher-end spend, ~70% of 2025 CapEx already spent through H1; 2025 expected to be peak CapEx; productivity savings target raised from $135M to $150M+.
• SG&A/marketing modestly higher in H2 to support westward expansion and peak summer marketing; expect C-store to reach flattish by year-end.
• Category assumed stable/flattish in guide; management remains confident in meeting previously stated multi-year bottom-line targets.

Business Commentary:

• Revenue and Growth Outlook:
• Utz Brands reported strong top-line results for the first half of the year 2025, with a focus on westward expansion, despite a flat EBITDA performance during the same period.

• Confidence in full-year growth driven by investments in productivity, margin expansion, and product mix benefits.

• Expense and EPS Guidance Adjustments:

• Utz Brands reduced its EPS guidance for 2025 due to higher CapEx and interest expenses, with the midpoint revision resulting in a $0.03 impact.

• The adjustment reflects increased investment in productivity programs and higher debt levels, while maintaining the forecast for EBITDA and gross margin improvements.

• Distribution Gains and Market Expansion:

• Utz Brands saw significant distribution gains, particularly in the Midwest, supported by increased retailer support and infrastructure investments.

• These gains are attributed to expanded distribution points and enhanced customer support, contributing to top-line growth.

• Productivity and Operational Efficiency:

• The company plans to close its Grand Rapids facility, aiming to optimize its manufacturing footprint and improve operational efficiency.
• This decision aligns with strategic plans to reduce plant capacity and drive productivity savings that will support margin expansion.

Sentiment Analysis:

Overall Tone: Positive

• Management repeatedly stated confidence in the guide and H2 margin recovery: “we feel pretty good about where we are on the guide” and highlighted drivers—seasonal gross-margin lift, accelerated CapEx productivity and a plant closure. They noted CapEx is peaking in 2025 and raised productivity targets (from $135M to $150M+), while reporting strong top-line momentum and distribution gains across expansion markets.

Q&A:

• Question from Andrew Lazar (Barclays): EBITDA was roughly flat in H1; you’re looking for ~8.5% growth at the midpoint for the year which implies high‑teens growth in H2—what gives you confidence in that outlook given muted H1 EBITDA?
  Response: Management: Confident H2 EBITDA acceleration driven by seasonal gross‑margin uplift in Q3, accelerated CapEx productivity, announced plant closure savings and favorable portfolio/mix alongside continued top‑line momentum and distribution gains.

• Question from Andrew Lazar (Barclays): What specifically led to stronger top‑line in H1—distribution gains, velocities, new products?
  Response: Management: Top‑line driven by expansion‑market distribution gains, volume and value share recovery in core (helped by Boulder Canyon and On The Border), improved C‑store trends and investments in westward infrastructure.

• Question from Peter Thomas Galbo (BofA): Can you clarify the EPS revision mechanics—what changed below the line (interest, accelerated depreciation)?
  Response: CFO: EPS growth guide trimmed to 7%–10% from 10%–15%; midpoint impact ≈ $0.03 (≈ half due to higher cash interest from earlier/higher borrowing for CapEx, half due to increased D&A from accelerated CapEx); EBITDA guidance unchanged.

• Question from Peter Thomas Galbo (BofA): Potato chips outpacing category while tortilla chips and pretzels lag—what needs to happen to turn those subcategories around?
  Response: Management: Potato chips and core Utz pretzels are strong; softer performance in other pretzel SKUs and tortilla chips was largely channel/merchandising timing (club promotions lapping) rather than structural issues; expect normalization.

• Question from Michael Scott Lavery (Piper Sandler): Can you unpack distribution gains in the Midwest—are they smaller retailers; how does this help selling to larger retailers and infrastructure readiness?
  Response: Management: Distribution gains are broad‑based across expansion geographies and channels (club, discount, dollar, national banners), aided by national retailers taking products west and a hybrid direct/DSD model that supports varied customer needs and incremental space wins.

• Question from Michael Scott Lavery (Piper Sandler): Packaging/innovation—any changes to brand architecture implied by the new packaging?
  Response: Management: Packaging refreshes (e.g., cheeseball barrel, front‑of‑pack tweaks) are iterative to keep brands fresh; no major architecture change—ongoing minor tweaks to modernize presentation.

• Question from Robert Bain Moskow (TD Cowen): Will SG&A investment continue in H2 to support expansion and DSD, and is Boulder Canyon higher margin to aid margin expansion?
  Response: Management: SG&A will be modestly higher in H2 to fund sales infrastructure and summer marketing; Boulder Canyon is a premium brand expected to carry a margin benefit and support mix‑driven EBITDA expansion over time.

• Question from Brian Patrick Holland (D.A. Davidson): What category assumptions are in the outlook given promotional intensity last year and views into back‑to‑school; and what about foodservice mix and pipeline beyond Potbelly?
  Response: Management: Guide assumes category remains fairly stable/flattish (any Q3 category improvement is from lapping last year); foodservice is currently a small but growing channel—Potbelly is a notable launch—with further opportunities but still early innings.

• Question from Brian Patrick Holland (D.A. Davidson): Are you still on pace to exceed your 2026 financial goals given the EPS adjustments?
  Response: Management: Yes—building blocks (top‑line expansion, productivity now targeted at $150M+) and prior execution (120 bps EBITDA expansion last year) leave them confident in meeting the multi‑year bottom‑line targets.

• Question from John Joseph Baumgartner (Mizuho): Can you elaborate on DSD investments and the C‑store improvement—are gains from packaging/flavors or route/selling changes?
  Response: Management: Two DSD efforts—building route infrastructure in expansion markets and optimizing/buying back/reselling routes in core to support IOs; C‑store recovery reflects improved distribution in large banners, better assortment/packaging and incremental route execution—expect flattish C‑store by year‑end.

• Question from James Ronald Salera (Stephens): Boulder Canyon’s strong growth—is it across core and expansion, what’s runway and ACV?
  Response: Management: Boulder Canyon growth is broad across core, expansion, club and natural channels; ACV ~49% (room to grow); brand surpassed $100M last year and management sees meaningful upside, possibly scaling much larger over time.

• Question from Scott Michael Marks (Jefferies): Status of supply chain optimization and future efficiency opportunities given plant closures and automation?
  Response: Management: Nearing completion of major manufacturing optimization with automation now online (pretzel line Q1, chip lines Q2), achieved ~6% productivity levels; this is peak CapEx investment and supports future margin profile improvements.

• Question from Scott Michael Marks (Jefferies): Marketing strategy—how are you allocating spend across core vs expansion and channels?
  Response: Management: Increased A&C spend (Q2 +44% YoY); mix of retail media for expansion, social/digital and targeted consumer campaigns, plus brand media for Zapp’s and upcoming Boulder Canyon activity—spend targeted to drive trial/penetration across channels.

• Question from Rupesh Dhinoj Parikh (Oppenheimer): What’s driving quarter‑to‑date momentum—compares, less promo backdrop, or something else?
  Response: Management: Momentum from expanded distribution, stronger in‑store/point‑of‑sale support, marketing and IO execution; promotional backdrop more normalized versus last year which helps, but the primary drivers are distribution + consumer demand + retail execution.

• Question from Rupesh Dhinoj Parikh (Oppenheimer): Where are you on value proposition after bonus packs wound down?
  Response: Management: Bonus packs ended in April with no net sales impact; company competes across the price ladder with appropriate pack/pricing assortment by channel—value proposition remains intact and operative.

• Question from Peter K. Grom (UBS): Longer‑term view on category growth beyond 2025—can it return to historical levels and timeline?
  Response: Management: Bullish long‑term on the category—household penetration is growing and repeat rates are strong; believes growth can resume with renewed brand building, innovation and marketing support, with innovation being key to the recovery.

• Question from Peter K. Grom (UBS): Thoughts on protein chips and how that subsegment may evolve?
  Response: Management: Protein is an area of consumer interest and under consideration; must balance perceived benefits without taste compromise—company evaluating opportunities and will pursue where taste and consumer demand align.

Contradiction Point 1

Volume and Value Relationship in Core Markets

It involves the balance between volume and value share in core markets, which is crucial for understanding the company's pricing strategy and market positioning.

Are you revising your outlook on the back-to-school competitive landscape? - Brian Patrick Holland (D.A. Davidson & Co.)

2025Q2: The category is stable, and the guide is based on it not improving significantly. Lapping prior year events should normalize the category. The company expects to continue its growth trajectory despite the competitive environment. - Howard A. Friedman(CEO)

Are the recent volume share gains and value share contraction in core markets due to bonus pack efforts? How do you balance volume growth with program returns to ensure sustainability? - Andrew Lazar (Barclays)

2025Q1: Bonus packs have driven a positive response from consumers, contributing to volume gains. Additionally, incremental distribution in Boulder Canyon and On The Border has helped. The company aims to normalize volume and value relationships as bonus packs are wound down. - Howard Friedman(CEO)

Contradiction Point 2

Impact of Marketing Investments on Sales Growth

It pertains to how marketing investments are expected to influence sales growth, which is vital for understanding the company's growth strategy and financial outlook.

What are your marketing strategies for core and expansion geographies? - Scott Michael Marks (Jefferies LLC)

2025Q2: Marketing is up 44% year-over-year, with 40% expected for three years. Investments support geographic expansion with retail and social media. There's a focus on digital media and leverage of brand names. Investment will continue to support growth. - Howard A. Friedman(CEO)

How should we evaluate price mix versus volume for the remainder of the year? Should we expect continued negative price mix? Will your sales forecast account for both price mix and volume? - Robert Moskow (TD Cowen)

2025Q1: Moving forward, we expect about a point of price investment, returning to a normalized price-mix relationship. - Ajay Kataria(CFO)

Contradiction Point 3

Category Growth and Strategic Expansion

It highlights a change in the company's outlook regarding category growth and its strategic expansion plans, which are crucial for investor expectations and market positioning.

What is your view on long-term category growth? - Peter K. Grom(UBS Investment Bank)

2025Q2: I remain bullish on the category long-term with good household penetration and strong repeat rates. Innovation and consumer interest will drive growth. The category can and will grow as it returns to brand building and normal pricing levels. - Howard A. Friedman(CEO)

What is your category growth assumption for fiscal '25, and does it include maintaining value share in core markets while expanding it in expansion markets as previously outlined? - Andrew Lazar(Barclays)

2024Q4: I think we think the category is going to be somewhere around 0% to 1% next year, so call it, slightly better than flattish. And I think it will continue to progress through the year. To your point on our strategy, our strategy remains intact. We intend to hold our core relative market share and actually grow in expansion markets as our distribution gains and increased marketing support come through and take hold. - Howard Friedman(CEO)

Contradiction Point 4

Productivity and Cost Management

It involves changes in financial forecasts regarding productivity and cost management, which are critical indicators for investors.

What's driving Boulder Canyon's growth in conventional channels? - James Ronald Salera(Stephens Inc.)

2025Q2: Significant progress has been made in optimizing manufacturing. CapEx investments are peaking with active automation and capacity expansion. The current focus is on shaping the plant footprint to support margin profile. - Howard A. Friedman(CEO), William J. Kelley(CFO)

What specific factors are driving the strong productivity, such as capital investments or the new distribution center, and are there 1 or 2 key factors that stand out? - Robert Moskow(TD Cowen)

2024Q4: What you're going to see in 2025, very similar to '24. Our productivity program remains pretty strong. We delivered about $60 million of productivity in '24, and we have line of sight to $150 million now or more over the 3-year period of '24 through '26. '25 is going to be similar to what we called out at Investor Day. The algorithm is going to be productivity sort of generates gross margin. We make investments in our supply chain and our capabilities and then net out about 80-ish basis points of EBITDA margin expansion. - Ajay Kataria(CFO)

Contradiction Point 5

Distribution Gains and Market Expansion

It indicates differing perspectives on the success and impact of distribution strategy and market expansion, which are crucial for growth and market share.

Can you explain distribution gains in the Midwest? - Michael Scott Lavery (Piper Sandler & Co., Research Division)

2025Q2: Distribution gains are broad-based in core and expansion markets. Strong retailer support and good progress in channels. The hybrid model allows service to various preferences, leading to incremental space and strength across markets. - Howard A. Friedman(CEO)

What is driving your distribution gains in the Midwest: C-stores, core grocery, or both? - Nik Modi (RBC Capital Markets)

2024Q3: We have incrementally added more distribution, particularly in the C-store channel again in Q3. And our expansion market distribution gains were up in the mid-30% range in Q3, which we think is a pretty good number. - Howard Friedman(CEO)