Utz Brands (UTZ 0.05%) reported strong fiscal fourth-quarter and full-year 2020 results before the market open on Thursday.
Shares closed down 4% on Thursday, despite the maker of salty snack foods crushing Wall Street's fourth-quarter earnings consensus estimate. We can probably attribute the market's reaction to a few factors, including that full-year 2021 revenue guidance came in a little lighter than analysts had been expecting. The fact that the overall market declined on Thursday also likely exerted downward pressure on the stock.
Nonetheless, Utz stock remains a notable outperformer. In 2021, it's returned 14.4% through March 18 -- about three times the S&P 500's 4.6% return. And it's returned about 38% since going public in late August, compared with the broader market's 13% return. (The company went public via a reverse merger with a special-purpose acquisition company (SPAC), a route that's faster and less expensive than a traditional initial public offering.)
Image source: Getty Images.
Utz Brands' key quarterly numbers
| Metric | Fiscal Q4 2020 | Fiscal Q4 2019 |
Change |
|---|---|---|---|
| Revenue | $246.3 million | $201.8 million | 22% |
| GAAP operating income | $221,000 | ($13.8 million) | Result flipped to positive from negative |
| GAAP net income | ($13.6 million) | ($24.0 million) | Loss narrowed 43% |
| Adjusted net income | $20.4 million | $0.5 million | 3,980% |
| GAAP earnings per share (EPS) | ($0.22) | N/A* | N/A |
| Adjusted EPS | $0.33 | N/A* | N/A |
Data source: Utz Brands. Fiscal Q4 2020 ended on Jan. 3, 2021. *Not a public company during this period. GAAP = generally accepted accounting principles.
The Q4 revenue increase of 22% year over year overstates the company's true performance. That's because Q4 2020 includes an extra week relative to Q4 2019. Excluding the approximately $16 million contribution from this additional week, revenue growth was about 14% year over year -- still robust growth, but significantly less so than 22%.
In Q4, pro forma net sales increased 6.8% year over year. This metric is the best gauge of the company's true underlying performance. It's an apples-to-apples metric: It strips out the effects of acquisitions and divestitures over the last year, along with the length differences in quarters.
The Q4 net loss was primarily driven by the company's December acquisition of Truco Enterprises, a leading seller of tortilla chips, salsa, and queso under the On the Border brand. The adjusted figures exclude the expenses related to this acquisition, among other things.
For Q4, Wall Street was looking for adjusted EPS of $0.09 on revenue of $243 million. So Utz Brands crushed the profit expectation and slightly beat the top-line estimate.
Management believes the tailwind from the pandemic will have a lasting effect
Here's part of what CFO Cary Devore said in the earnings release:
We are encouraged with our start to 2021 with solid year-to-date retail sales growth through the end of February. While we will begin to lap strong results from the impact of COVID-19 in the prior year, our brands are well-positioned for long-term growth. Based on the significant increase in new buyers and higher repeat rates of purchase over the past twelve months, we believe that the COVID-19 impact on at-home eating occasions will have a lasting, beneficial impact to long-term demand trends.
Our projected pro forma two-year CAGR [compound annual growth rate] for fiscal 2020 and 2021 of approximately 6% is well above our stated long-term organic growth outlook of 3% to 4%, and we will continue to invest incremental marketing dollars to build our brands and accelerate revenue growth.
2021 guidance
For fiscal year 2021, management guided for "net sales consistent with 2020 pro forma net sales of $1.16 billion with modest organic sales growth year over year." It also expects adjusted earnings per share of $0.70 to $0.75.
Going into the earnings release, Wall Street had been modeling for 2021 adjusted EPS of $0.60 on revenue of $1.15 billion. So, the company's earnings outlook was notably better than expected, but its top-line guidance fell a bit short of expectations.
A stock worth watching
Utz turned in a good quarter. The stock price has had a strong run since the company went public, so it's natural that some investors will take some profits off the table.
With Utz's robust sales growth, tasty profit margins (adjusted profit margin was 8.3% in Q4), considerable insider ownership, and long-established nature (it's been in business for nearly a century), its stock is worth putting on your watch list.
That said, investors need to keep an eye on cash flows and balance sheet data, specifically cash on hand and debt. For the approximate four-month period in fiscal 2020 that Utz was a public company, it used $932,000 running its operations. The company is quite leveraged, though is aiming to bring down its relative debt load.
For those not familiar with the Pennsylvania-based company: Along with its namesake brand, some of its other brands are Bachman, Zapp's, Golden Flake, Good Health, and Tortiyahs!.
