Is Utz Brands, Inc. Worth a Closer Look Amid Stagnant Fundamentals?

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Written By Jackson Hartwell

Utz Brands, Inc., a company with over a century of history, has recently become a public entity with the aim of expanding nationally.

Utz is a snack food company headquartered in Hanover, Pennsylvania, in the United States. It manufactures a range of snack products including potato chips, pretzels, and other snack items, primarily marketed under its suite of brand names.

Additionally, Utz serves as a supplier of snacks to warehouse clubs and retail merchandisers.

Despite an initial growth surge post-IPO, the company’s financial performance has shown signs of stagnation, prompting a re-evaluation of its investment potential.

Financial Performance and Growth Concerns

Initially, Utz experienced a Compound Annual Growth Rate (CAGR) of 10.5% in revenue after going public. However, this growth was largely influenced by inflation rather than operational or market expansion.

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Recent data indicates a significant slowdown, with the last fiscal year showing only a 2% increase in net sales, and a slight decline in the final quarter of the year compared to the same period the previous year.

Quarterly and Annual Financial Results

The latest quarterly results further underline the challenges Utz faces, with only marginal growth in volume/mix and negative impacts from SKU rationalization.

The company’s financial outlook for the upcoming year does not suggest substantial improvements, projecting about 3% organic net sales growth.

Profitability and Cash Flow Issues

Utz has struggled with profitability, as evident from its decreasing gross margin and the reliance on adjusted financial metrics like EBITDA and EPS, which can often present an overly optimistic view of financial health.

The reported net loss of $40 million in the latest quarter, compounded by high interest expenses, underscores the financial strain on the company.

Balance Sheet Vulnerabilities

Utz’s balance sheet reveals significant vulnerabilities, with a high leverage ratio that only slightly improved after the application of net proceeds towards debt reduction.

The company’s current financial structure and cash flow issues raise concerns about its ability to sustain debt repayments without affecting its operational capabilities.

Dividend Sustainability

As a dividend growth investor, the sustainability of Utz’s dividend is also a critical factor.

The recent modest increase in dividends does not align with the company’s free cash flow, which remains lower than the total dividend payout, suggesting potential future challenges in maintaining or increasing dividends.

Valuation and Market Pricing

Despite these challenges, Utz’s market valuation remains high. A discounted cash flow analysis, even with conservative growth assumptions, suggests that the stock is significantly overvalued at its current price.

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This discrepancy between market valuation and fundamental value supports the sell recommendation.

Cautious Approach Encouraged

While the company may improve its operational efficiencies and cash flow in the future, the current financial and market conditions do not justify the high share price.

Investors might consider reevaluating Utz’s position in their portfolios, especially in light of better investment opportunities elsewhere in the market.

This cautious approach will allow investors to either witness a realignment of fundamentals with market valuation or capitalize on lower prices in the future.


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