Plant consolidation & Q4 update (UTZ)
Utz Brands announced the disposition of three manufacturing facilities and the Good Health and R.W. Garcia Brands to Our Home for 182.5M. Our Home is an operator of better-for-you brands, including Popchips. Utz Brands will utilize the ~150M in after-tax proceeds to pay down debt. The interest expense savings will be 12M, most likely above the operating profit contribution of the businesses. The savings from consolidating manufacturing and removing three plants were part of the company’s previously announced 45M network optimization plan savings. The businesses had revenue of approximately 65M in 2023. The transaction is expected to further Utz’s deleveraging target of 3x by a full year to F2025 and to optimize it for better growth.
The company updated its guidance. In Q4, Utz Brands’ sales, measured by Circana, grew by 4.1%, and Power Brands grew by 5.3%, above the 2.8% growth of the Salty Snack category. Utz volumes grew by 4.3%, while the overall category saw volumes decrease by 1.9%. Management now expects Q4 sales to decrease by 0.2% to -1.3% or 350-354M compared to consensus expectations of 360M or growth of 1.4%. Adjusted EBITDA is now expected to grow between 9.5% to 10%, narrowed from 8-11% previously. Utz Brands is on our Long Bias list.
Shrinking craft (BUD, TLRY)
Anheuser-Busch InBev continues to reorganize its craft beer segment. AB InBev is closing the taproom of Wynwood Brewing, a craft brewer it owns. AB InBev is also closing Golden Road’s brewpub in Sacramento. Wynwood Brewing’s production is shifting to a nearby craft brewer it owns. Last year, Wynwood’s off-premise sales decreased by 22%, and volumes decreased by 28%. Golden Road’s sales decreased 11% last year while volumes fell 21%. Last year, AB InBev sold several of its craft beer brands to Tilray and closed others. Craft beer brands tracked by NIQ saw sales fall by 4.6% in 2023. The Brewers Association reports a 2% decline for the industry, which includes self-reported on-premise sales. The only other year to see craft beer production decline was 2020.
Truck tailwind ending (KR)
Truck contract rates were 13% lower YOY in January. Spot rates were 10% lower YOY in January but ticked up 1% from December. Truckload capacity continues to shrink as large carriers respond to the lower freight rates. Capacity is roughly the same level now as at the end of the second quarter of 2020, during the initial pandemic outbreak. The tailwind from lower trucking freight costs will likely end in Q1. We have not seen any impact on truck rates from the higher container shipping rates. A rebound in demand would likely cause a significant rate increase, but that is not expected in the near term, with spot market load post volumes in mid-January 46% lower than last year.
