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Bulls Position for Earnings in Niche Snacks Player with Strong Regional Footprint

by | Aug 10, 2021

Utz (UTZ) reporting earnings on 8-12 with the Street looking for $0.15 on $290.29M in sales. Next quarter is guided to $0.21/$310.06M while the FY is $0.69 and $1.16B, a 20.5% Y/Y growth rate. UTZ has traded lower in two of the last three reports with an average move of 4% and a max move of 8.18%. The current implied move of 5.25%. The $1.93B company trades 27.5X earnings, 1.57X sales, and 480X cash with a small 0.93% yield. UTZ is a 100-year-old family-run company of branded snacks in the US like their ubiquitous potato chips, tortilla chips, pretzels, and popcorn. They have a strong brand portfolio and market position as the #2 salty snack company in their core geographies behind Pepsi, who recently posted a strong quarter with snacks an especially resilient part of their product mix which could bode well for consumption trends overall in the space. For UTZ, their biggest channel is grocery with 52% of 2020 sales followed by mass, c-store, and club. Ecommerce jumped 125% in 2020. They got hit hard in March after results as comps started to lag and they face cost inflation on multiple fronts, something they noted in June will be a challenge all year but they are doing more to combat it in the 2H:

“We are seeing tightness across the supply chain. I think from a commodity inflation, we’re seeing 4%. That is what we called it at the beginning of the year. We will use pricing to combat that. And the pricing actions that we started in the first quarter will continue throughout the year; different pricing actions in different channels with different retailers as we proceed quarter by quarter. And those will pick up steam as we proceed throughout the year, more back half-weighted than front half-weighted, probably more 60% back half, 40% in the front half. Then we’re seeing delivery costs. They are running higher than we expected them to run. It definitely impacted us in the first quarter, and I think will impact us to a greater degree in the second quarter. That’s not something you can naturally hedge. It’s something that you have to try to get creative to combat. And we certainly are looking at different cost buckets to try to fight that. Productivity will be a little bit of a help. We are going from 1% to 2% this year. Again, that is back half-weighted as well. That’s probably 80% second half, 20% first half, but we feel very good about it.”

Short interest is 6.6%. Analysts have an average target for shares of $25.75 and a Street High $29. Truist with a $25 PT and Hold rating. They started coverage in March cautious on performance versus COVID comps but noting they should continue to benefit from the long-term snacking trend in the US with its portfolio of well-known brands, while its acquisition of Truco brings multiple opportunities for top and bottom line outperformance over the next few years.

UTZ has seen bullish flow over the last week including buyers of more than 1,900 January $20 calls including 900 on 8/10. UTZ also saw buyers of 5,000 August $22.50 calls on $0.45 with the $20 puts sold for $0.10. UTZ has 2,700 December $30 calls in OI and 650 December $12.50 calls as well from last Fall. On the chart, UTZ traded well after its debut in September up from $17 to a peak in 2021 around $30. It has pulled back to the 61.8% retracement of the range at $21.37. A move back above $23 key to reclaiming the bull trend higher.

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