What Happened?
Shares of snack food company Utz Brands (NYSE: UTZ) fell 13.8% in the morning session after its third-quarter earnings report revealed a steep drop in profitability that overshadowed a modest sales beat. The company posted revenue of $377.8 million, up 3.4% year-over-year and slightly ahead of Wall Street's expectations, while its adjusted earnings per share of $0.23 met analyst forecasts. However, investors focused on the significant pressure on the company's margins. Utz's operating margin plummeted to just 0.9% from 5.3% in the same period last year, indicating that rising costs were eroding profits. Gross margin also declined by 2.3 percentage points year-over-year. The results suggested that while Utz was selling more snacks, it struggled to pass on higher expenses to its customers, raising concerns about its future earnings power.
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What Is The Market Telling Us
Utz’s shares are not very volatile and have only had 8 moves greater than 5% over the last year. Moves this big are rare for Utz and indicate this news significantly impacted the market’s perception of the business.
The biggest move we wrote about over the last year was 3 months ago when the stock dropped 6.6% on the news that markets pulled back amid hotter-than-expected inflation data. The main concern for investors was the July Producer Price Index (PPI), a measure of wholesale inflation. The higher-than-expected reading suggests that companies could face squeezed profit margins due to rising costs. This also reduces the likelihood of the Federal Reserve cutting interest rates, which could further dampen economic activity. Compounding these inflation fears are multiple reports signaling a weakening consumer.
Utz is down 28.3% since the beginning of the year, and at $10.87 per share, it is trading 39.7% below its 52-week high of $18.02 from November 2024. Investors who bought $1,000 worth of Utz’s shares 5 years ago would now be looking at an investment worth $640.63.
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