Utz Brands' Q3 2025 Earnings Call: Conflicting Signals on EBITDA Growth, Product Launches, and Brand Performance

Guidance:

• California route acquisition is included in 2026 guidance; Utz products expected to be introduced early 2026 and the company expects to be at the higher end of 200–300 bps above category growth.
• Prior target for ~16% EBITDA in 2026 is reiterated as an objective but management says ~15% EBITDA remains attainable; some incremental CA investments may moderate near-term expansion.
• Supply-chain CapEx will step down in 2026, supporting improved free cash flow.
• Continued productivity and targeted marketing (including retail media) will be prioritized; marketing investment targeted to trend toward a ~40% year-over-year step up.

Business Commentary:

* California Expansion and Market Share Dynamics: - UTZ Brands announced the acquisition of a route network in California, aiming to expand its presence in the state. - This acquisition is expected to bring significant growth opportunities, as the company's share in California is currently only 1.9%, compared to the 10% share in the total salty snacks category in the U.S. - The strategy is to introduce UTZ products into the existing distribution network and leverage the growing consumer interest in better-for-you snacks, particularly in the natural channel.

• Pricing and Volume Dynamics:
• UTZ Brands experienced a 1% price decline in Q3, despite a strong volume growth.
• The pricing strategy is driven by the company's approach as a price follower, focusing on promotional activity in expansion markets to drive trial and market share gains.

• The company is confident in its revenue management capabilities and expects volume growth to sustain pricing stability going forward.

• EBITDA Margin Expansion and Productivity Initiatives:

• Despite the company maintaining its expectation of 16% EBITDA margins for 2026, management is preparing for potential adjustments due to incremental investments in California and other expansion efforts.
• UTZ Brands is committed to ongoing productivity initiatives, with focuses on supply chain optimization and indirect procurement, expected to support free cash flow generation.

• The company is confident in achieving top-line growth while balancing margin expansion, leveraging best-in-class productivity tools and initiatives.

• On The Border Brand Performance:

• UTZ reported softness in its On The Border brand, impacting results in the quarter.
• This is attributed to increased consumer value-seeking behavior and a short-term issue that management is actively addressing.

• Despite these challenges, the company has strong confidence in the brand's long-term potential and is taking corrective actions to stabilize performance.

• Innovation and Consumer Trends:

• The company continues to focus on innovation, particularly in better-for-you snack options like Boulder Canyon, which experienced significant distribution gains in Q3.
• Boulder Canyon is now the leading potato chip brand in the natural channel, contributing to UTZ's strong volume growth.
• UTZ is committed to addressing consumer trends such as ingredient simplification and the removal of artificial dyes, as well as exploring opportunities in subcategories like protein chips, to maintain competitive relevance.

Sentiment Analysis:

Overall Tone: Positive

• Management repeatedly expressed confidence: “we feel very good about the top line momentum,” “we have a high degree of confidence,” and “I remain very, very optimistic about the future of this category,” while noting isolated, addressable headwinds (crop quality, short-term brand issues).

Q&A:

• Question from Andrew Lazar (Barclays Bank PLC): Given your 3-year plan and maintained expectation for ~16% EBITDA in '26, could incremental investments (e.g., to support the California expansion) cause margin expansion to be less significant while preserving top-line momentum?
  Response: Management: They will invest to support California and top-line momentum but expect productivity-driven margin expansion to continue; ~15%+ EBITDA is achievable and CapEx declines should drive improving free cash flow.

• Question from Andrew Lazar (Barclays Bank PLC): How have prior route acquisitions (e.g., Florida) enabled step-change share gains in years 2–3, and what should we expect in California?
  Response: Management: Prior route M&A (Florida example) produced gradual, sustained share gains over multiple years (e.g., ~2.5% to ~4.2%), giving confidence California will similarly grow over time as the playbook is executed.

• Question from Michael Lavery (Piper Sandler & Co.): Does the acquired California network cover the whole state; what do routes currently carry; is there room on trucks for Utz SKUs; and what costs beyond the purchase price are expected (integration, assortment, etc.)?
  Response: Management: Integration is early but the network provides existing customers and infrastructure to introduce Utz SKUs (early 2026); additional integration and assortment investments and retailer/IO coordination (beyond acquisition price) are expected and were included in guidance.

• Question from Michael Lavery (Piper Sandler & Co.): Q3 showed strong volume but slight negative price (~1% drag)—is that driven by expansion-market promotion and will pricing normalize (turn positive) going forward?
  Response: Management: The ~1% price drag was expected and tied to expansion-market promotion; they are revenue-management driven and expect pricing to normalize as expansion markets mature.

• Question from Peter Galbo (BofA Securities): Are the acquired California routes independent operators or company-owned, will there be an IO conversion cycle, and should we expect pruning/partner-SKU rationalization similar to past deals?
  Response: Management: Routes are similar to prior acquisitions; IO conversion is not anticipated to be a major issue, and partner-brand SKUs will modestly decline over time without significant pruning.

• Question from Peter Galbo (BofA Securities): Q3 gross margins were light—was this driven by potato crop issues and how quickly can gross margin recover given ample U.S. potato supply?
  Response: Management: Gross-margin pressure was due to a temporary, weather-related potato-quality issue that increased input usage in the quarter; that issue is behind them and distribution productivity gains helped offset costs.

• Question from Scott Marks (Jefferies LLC): You noted short-term softness with On The Border—what specifically is happening and what steps will correct the brand?
  Response: Management: On The Border has no structural problem—regional value-seeking shifts and a short-term execution issue were identified and are being corrected, with improvement expected beginning in Q4 into next year.

• Question from Scott Marks (Jefferies LLC): Boulder Canyon showed strength and shelf wins for 2026—are these wins in expansion geographies or core, and what is driving them?
  Response: Management: Boulder Canyon wins are broad across channels and geographies, driven by velocity and distribution gains (natural and conventional), and will continue via assortment optimization and innovation.

• Question from Robert Moskow (TD Cowen): Competitors are launching new sub-brands and innovations—will this impact the category and Utz's ability to win shelf space?
  Response: Management: Competitor innovation tends to be net positive for the category by driving shopper interest; Utz's incremental portfolio and hybrid DSD/DTW distribution, plus retailer partnerships, should preserve its distribution gains.

• Question from Robert Moskow (TD Cowen): Has Utz's view on the protein-chip subcategory evolved and will you address it?
  Response: Management: Protein chips are on their radar; forthcoming February innovation plans will address protein, non-seed oil, portion-control and related trends.

• Question from John Baumgartner (Mizuho Securities USA LLC): As productivity savings normalize, how should we think about ROI from new productivity initiatives and implications for the top line?
  Response: Management: The next wave (procurement, OEE, predictive maintenance, logistics, analytics, automation) will both reduce costs and enable top-line growth via better execution and assortment; they expect continued high returns.

• Question from James Salera (Stephens Inc.): You're taking share in core markets—what's driving the incremental pickup in core (brands, SKUs, channels)?
  Response: Management: Core share gains are driven by portfolio breadth—Boulder Canyon, Utz pretzels and cheese—plus improving convenience-channel performance and focused assortment/innovation.

• Question from James Salera (Stephens Inc.): For expansion markets like Florida, Illinois, Colorado and Missouri (above 4%), are there idiosyncratic consumer patterns driving outperformance?
  Response: Management: Outperformance reflects strong retailer and IO relationships and execution rather than unique consumer behaviors.

• Question from Rupesh Parikh (Oppenheimer & Co.): Any green shoots in the salty-snack category that give you optimism for the coming quarters?
  Response: Management: Yes—household penetration is rising, the category has improved sequentially through the year, and innovation/communication and rational pricing give reason for optimism.

• Question from Rupesh Parikh (Oppenheimer & Co.): You're increasing investments in retail media—what are you seeing on effectiveness and ROI?
  Response: Management: Retail media was prioritized this quarter to drive in-store activation; they view it as effective and intend to push marketing toward a ~40% YoY investment step-up into 2026.

• Question from Peter Grom (UBS Investment Bank): Can innovation (clean labels, removing artificial dyes, protein) move the needle to improve category growth in 2026 and what's your preliminary view on the industry next year?
  Response: Management: Yes—innovation can stimulate consumer engagement and help category growth; combined with strong core assortment and distribution, they expect category improvement into 2026 though results remain uncertain.

Contradiction Point 1

Earnings Guidance and EBITDA Growth

It involves changes in financial forecasts, specifically regarding EBITDA guidance, which are critical indicators for investors.

Given the changed sales and consumer environment, will the 16% EBITDA margin target for 2026 be maintained? - Andrew Lazar (Barclays Bank PLC, Research Division)

2025Q3: Howard Friedman outlined the company's strategy to drive accelerated top-line growth by entering new geographies, particularly California, which will help achieve the higher end of the 200 to 300 basis points ahead of category growth. The company is confident in maintaining this growth momentum, but there may be less significant EBITDA margin expansion in 2026 to focus on strong top-line performance. - Howard Friedman(CEO)

What is the reason for the EPS guidance revision, and how does it affect EBITDA? - Peter Thomas Galbo (Bank of America)

2025Q2: EBITDA remains the primary health indicator of the business. The EPS revision is due to higher interest costs from increased CapEx and accelerated depreciation. Interest impacts by about $0.015, and amortization by approximately $0.005, totaling $0.02. 2025 is seen as the peak year for CapEx, with manageable impacts on EPS. - Howard Friedman(CEO) and William J. Kelley(CFO)

Contradiction Point 2

Product Launch and Innovation Strategy

It involves differing descriptions of the timing for new product production or market release, which are crucial for understanding the company's competitive positioning and revenue growth.

Were the expected volume gains and value share contraction in core markets related to bonus pack initiatives? How do you balance volume growth with the return on these programs? - Andrew Lazar (Barclays Bank PLC, Research Division)

2025Q3: Volume to value will normalize as bonus packs wind down. - Howard Friedman(CEO)

Bonus packs impacted price by approximately 300 basis points. How much did they contribute to volume/mix? - Peter Galbo (BofA Securities, Research Division)

2025Q1: Bonus packs accounted for most of the price impact, with 300 basis points related to bonus packs and 60 basis points from true price cap investments. - Ajay Kataria(CFO)

Contradiction Point 3

Category Growth and Market Share Strategy

It involves differing perspectives on category growth expectations and market share strategies, which are critical for understanding the company's performance and future outlook.

Given the changed sales and consumer environment, will the 16% EBITDA margin target for 2026 be maintained? - Andrew Lazar (Barclays Bank PLC, Research Division)

2025Q3: We expect the salty snack category to grow at 1% to 3% in fiscal '26, ahead of the category growth by 200 to 300 basis points. - Howard Friedman(CEO)

What is your category growth assumption for fiscal 2025? Is it aligned with maintaining market share in core markets and expanding market share in expansion markets as outlined at Investor Day? - Andrew Lazar (Barclays)

2024Q4: We expect the category to grow at 0% to 1% in fiscal '25, slightly above flat growth. - Howard Friedman(CEO)

Contradiction Point 4

Pricing Strategy and Consumer Value

It involves differing views on pricing strategies and consumer value, which are crucial for understanding the company's competitive positioning and revenue growth.

Can you break down the volume-price mix and discuss pricing strategy runway? - Michael Lavery (Piper Sandler & Co., Research Division)

2025Q3: We are a price follower, but we use revenue management tools effectively. We're not anticipating a significant change in pricing strategy. - William Kelley(CFO)

What gives you confidence in building flexibility amid a sluggish category and increased competition? - Andrew Lazar (Barclays)

2024Q4: We are looking to deliver value beyond price, with bonus bags and price pack architecture to sell up and down the price ladder. - Howard Friedman(CEO)

Contradiction Point 5

On The Border Brand Performance

It involves differing assessments of the On The Border brand's performance, which could impact revenue and market share projections.

Can you explain the On The Border brand's softness and how you're addressing it? - Scott Marks (Jefferies LLC, Research Division)

2025Q3: The issues with On The Border are short-term, unrelated to structural problems, and include regional consumer value-seeking behavior and an isolated issue that is being addressed. - Howard Friedman(CEO)

When will you fully lap dips and weak spreads? - Robert Moskow (TD Cowen, Research Division)

2024Q4: On The Border experienced a bit of a miss relative to our expectations for the quarter. As a reminder, the brand was affected by lapping weakness related to the tortilla products and continued to face some regional assortment challenges. - Howard Friedman(CEO)