A Tour of United Natural Foods

United Natural Foods (UNFI - Analyst Report) hosted its 2009 Financial Analyst Day in York, Pennsylvania. Steven Spinner, President and CEO, explained the company's strategy for growth, while Mark Shamber, CFO, reiterated sales and earnings guidance for fiscal 2009. Afterwards, analysts were invited to tour the company's newest and largest distribution center.

United Natural Foods is the largest wholesale distributor to the natural and organic industry in the United States. Despite the current economic weakness having negatively impacted sales, the company has continued to grow the top line in the last two quarters, albeit at a low single-digit rate.

The outlook for the natural products sector is positive, driven by increasing consumer awareness towards health and wellness. In fact, the natural products sector (which includes organic foods, nutritional and herbal supplements, cosmetics and medicines, among other categories) generated sales of over $68 billion in 2008.

Over the last five years, the natural products industry has grown 8% versus 2% for the overall grocery industry. In 2008, the natural products industry grew 7.4% versus a 2% decline for the grocery industry.

For the first time, the company announced three-year financial goals. Management expects to grow annual sales in the 7% to 12% range over the next three-year period. The operating margin is targeted to improve 10 to 15 basis points annually, and EBIT is expected to grow 10% to 17% annually.

Sales and earnings guidance for fiscal 2009 was reiterated. Revenues should improve 4.5% to 6% over fiscal 2008 to a range of $3.45 billion to $3.50 billion. Diluted earnings are expected to be in the range of $1.34 to $1.38, including the negative impact of $0.06 from the dilution related to the acquisition of Millbrook Distribution Services.

With the benefits of remarkable industrial engineering efficiencies, the new distribution center was impressive. The 675,000 square foot facility includes a 38,000 square foot cooler kept between 35 and 38 degrees, along with a 53,000 square-foot freezer area kept at -12 degrees. Orders are efficiently filled for distribution during one shift, while the picking shelves are replenished from the reserves and newly arrived shipments during another.

We maintain our Buy on United Natural Foods due to broad-based revenue growth, the benefits from the positive trends in the natural products industry and the company's improved distribution capacity.