Utz Brands, Inc. (UTZ) offers a diversified array of savory snacks under popular brands such as Utz, ON THE BORDER Chips & Dips, Golden Flake, Zapp's, Good Health, Boulder Canyon, Hawaiian Brand, and TORTIYAHS!.
The company’s shares have declined 36.9% over the past year and 12% year-to-date to close yesterday’s trading session at $14.03. While the company reported positive revenue growth in its last earnings release, there is no way around the inflationary pressures. Its gross margin fell to 33.9% from 38.8%. EBITDA margins were also impacted, falling to 10.7% from 14.1% in the prior-year period.
In addition, in April, Credit Suisse downgraded UTZ from outperform to neutral, citing concerns about the company's pricing power. The revised rating takes inflation into account.
Here's what could shape UTZ's performance in the near term:
Inadequate Financials
UTZ's revenue increased 26.6% year-over-year to $340.77 million for the first quarter ended April 03, 2022. However, its loss from operations came in at $22.49 million, compared to income from operations of $9.29 million in the prior-year quarter. The company reported a net loss of $17.57 million, while its loss per share amounted to $0.22. In addition, its cash and cash equivalents came in at $14.89, representing a year-over-year decline of 64.4%.
Negative Profit Margins
UTZ's trailing-12-month gross profit margin of 31.3% is 6.1% lower than the industry average of 33.4%. Also, its trailing-12-month ROA, ROE, and net income margin are 80.2%, 69.6%, and 59.1% lower than their respective industry averages. Moreover, its trailing-12-month asset turnover ratio of 0.47% is 41.9% lower compared to its industry average of 0.82%.
Premium Valuation
In terms of forward non-GAAP P/E, the stock is currently trading at 27.90x, 54.7% higher than the industry average of 18.04x. Also, its forward EV/Sales of 2.11x is 12.1% higher than the industry average of 1.88x. Moreover, UTZ's forward Price/Cash Flow of 25.36x is 95.9% higher than the industry average of 12.94x.
POWR Ratings Reflect Bleak Outlook
UTZ has an overall D rating, which equates to a Sell in our proprietary POWR Ratings system. The POWR ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. UTZ has a D for Growth and Quality. The company’s poor profitability and lackluster financials are consistent with the Growth and Quality grade.
Of the 88 stocks in the B-rated Food Makers industry, UTZ is ranked #80.
Beyond what I've stated above, you can view UTZ ratings for Value, Stability, Momentum, and Sentiment here.
Bottom Line
Despite witnessing stable revenue growth in the last reported quarter, UTZ’s operating loss and lack of profitability are concerning. In addition, the company does not expect to generate much growth in earnings due to the persistent inflationary environment in 2022. Analysts expect its EPS to decline 7.4% in the current year and 11.1% next quarter. So, given its stretched valuation, we think the stock is best avoided now.
How Does Utz Brands Inc. (UTZ) Stack Up Against its Peers?
While UTZ has an overall D rating, one might want to consider its industry peers, Industrias Bachoco S.A.B de C.V. (IBA), Grupo Bimbo S.A.B de C.V. (GRBMF), and JBS S.A. (JBSAY), which have an overall A (Strong Buy).
UTZ shares were trading at $13.85 per share on Tuesday afternoon, down $0.18 (-1.28%). Year-to-date, UTZ has declined -12.47%, versus a -18.47% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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