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United Natural Foods, Inc. (UNFI - Analyst Report) is set to report fiscal third-quarter 2014 results after the market closes on Jun 10. Last quarter, this specialty food distributor posted break-even results. Let’s see how things are shaping up prior to the announcement.

Why a Likely Positive Surprise?

Our proven model shows that United Natural is likely to beat earnings because it has the right combination of two key ingredients.

Positive Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +2.70%. This is meaningful and a leading indicator of a likely positive earnings surprise for the shares.

Zacks Rank #3 (Hold): Note that stocks with a Zacks Rank #1, #2 and #3 have a significantly higher chance of beating earnings estimates. We caution against stocks with Zacks Ranks #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revision momentum.

The combination of United Natural’s Zacks Rank #3 (Hold) and a positive ESP of +2.70% makes us confident of an earnings beat on Jun 10.

What is Driving the Better-than-Expected Earnings?

United Natural’s productivity initiatives, improved operational efficiency, acquisitions and continuous increase in demand for organic and natural food products have been the strength of the company.

The company has been posting double-digit revenue growth driven by rising demand for organic and natural foods since the last few quarters. Also, its decision to divest the company's non-core businesses including non-foods and general merchandise lines has allowed it to concentrate on its core business of the distribution of natural, organic and specialty foods.

Though the company’s gross margin remains severely impacted by the continued shift in the company's customer mix since the last many quarters, the company’s management has been constantly focusing on increasing service level, reducing carbon footprint and other freight costs to help boost gross margins.

Food companies like Sysco Inc. (SYY - Analyst Report) and United Natural have been taking the inorganic route to grow its distribution network and customer base and boost long-term growth. The Trudeau acquisition (acquired during the first quarter fiscal 2014) is a strategic fit for United Natural, which has helped the company to expand its products in the markets of Minnesota, North Dakota, Wisconsin and Michigan’s Upper Peninsula, where Trudeau Foods has a solid footprint.

We believe that the acquisitions will continue in the third quarter too as on May 23, United Natural agreed to acquire all the shares of Tony’s Fine Foods, a specialty distributor of perishable food products. The deal will enhance its position and increase its market share in the specialty products industry.

Other Stocks to Consider

Other stocks in the consumer staples sector that have both a positive earnings ESP and a favorable Zacks Rank are:

The Hain Celestial Group Inc. (HAIN - Analyst Report), with an Earnings ESP of +1.12% and a Zacks Rank #2 (Buy).

The J. M. Smucker Company (SJM - Analyst Report), with an Earnings ESP of +0.74% and a Zacks Rank #3.

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