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United Natural (UNFI) Gains on Q4 Earnings Beat, Sales Lag
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Shares of specialty foods distributor United Natural Foods, Inc. (UNFI - Free Report) increased 9.18% in after-hours trading on Sep 12, after the company posted better-than-expected earnings in the fourth quarter of fiscal 2016.
This Providence, RI-based company reported fourth quarter adjusted earnings of 70 cents per share. Earnings beat the Zacks Consensus Estimate of 62 cents by 12.9% but declined 2.8% from the prior-year quarter earnings of 72 cents due to lower operating income margins.
Adjusted net income for the fourth quarter of fiscal 2016 excludes approximately $0.8 million of restructuring and impairment costs related to the company's retail business and $0.3 million of acquisition related costs.
Net sales of $2.214 billion marginally lagged the Zacks Consensus Estimate of $2.217 billion but increased 7.4% from the prior-year quarter. Net sales in the quarter include the impact of the previously disclosed termination of a customer distribution contract. Excluding this, adjusted net sales increased 12.7% in the quarter. Acquisitions of Haddon House Food Products, Inc. (“Haddon”) in May and Nor-Cal Produce, Inc. ("Nor-Cal") in April contributed about $138.9 million to net sales. During the fourth quarter of fiscal 2016, the operations of Global Organic/Specialty Source, Inc. ("Global Organic"), acquired in March, were integrated into the company's existing Albert's business.
Gross margin expanded 25 basis points (bps) to 15.6% in the reported quarter. The increase was driven by top-line growth and current acquisitions. However, excluding the impact of acquisitions, fourth quarter gross margin continued to remain challenging due to competitive pricing pressure, moderated supplier promotional activity, and a reduction in fuel surcharges.
Adjusted operating margin decreased 34 bps to 2.82% due to higher operating expenses related to acquisitions.
Fiscal 2016 Results
In fiscal 2016, adjusted earnings were $2.59 per share, above the guided range of $2.47 to $2.53 per share. Earnings beat the Zacks Consensus Estimate of $2.50 by 3.6% but declined 9.1% from the prior-year earnings of $2.85 per share due to lower gross and operating income margin.
Net sales of $8.47 billion were in line with the Zacks Consensus Estimate, but increased 3.5% from the prior-year quarter. Sales were within management’s expectation of approximately $8.46 billion to $8.50 billion. Excluding the impact of the previously disclosed termination of a customer distribution contract, adjusted net sales increased 8% in the fiscal year. Acquisitions of Nor-Cal and Haddon contributed approximately $51.4 million and $100.4 million, respectively to fiscal 2016 sales.
Fiscal 2017 Guidance
United Natural provided its fiscal 2017 sales and earnings guidance. For fiscal 2017, the company expects net sales in the range of approximately $9.43 billion to $9.60 billion, which is approximately 11.3% to 13.3% up over fiscal 2016 net sales of $8.47 billion.
Earnings for fiscal 2017 are now estimated in the range of $2.53 to $2.63 per share, up 1.2% to 5.2% from fiscal 2016 earnings of $2.50 per share. The Zacks Consensus Estimate of $2.65 is above the new guidance range.
Our Take
The company is putting in efforts to build out the store strategy and enhance its business through acquisitions. In the past 12 months, the company has acquired four exciting and uniquely positioned companies including Haddon House specialty foods, Global Organic, Nor-Cal and Gourmet Guru. With these companies, United Natural is now positioned as a large national provider of fresh produce, proteins, bakery, deli, specialty and natural products.
Though encouraged by consumers’ increasing demand for organic products, driven by a healthy lifestyle, food safety and environmental sustainability, we cannot ignore the fact that the company has been struggling from continued weakness in gross margin over the past few quarters. This is due to a shift in customer mix to the lower-margin supermarkets channel. The company’s recent acquisitions, despite being accretive to the top line, put pressure on margins.
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United Natural (UNFI) Gains on Q4 Earnings Beat, Sales Lag
Shares of specialty foods distributor United Natural Foods, Inc. (UNFI - Free Report) increased 9.18% in after-hours trading on Sep 12, after the company posted better-than-expected earnings in the fourth quarter of fiscal 2016.
This Providence, RI-based company reported fourth quarter adjusted earnings of 70 cents per share. Earnings beat the Zacks Consensus Estimate of 62 cents by 12.9% but declined 2.8% from the prior-year quarter earnings of 72 cents due to lower operating income margins.
Adjusted net income for the fourth quarter of fiscal 2016 excludes approximately $0.8 million of restructuring and impairment costs related to the company's retail business and $0.3 million of acquisition related costs.
UTD NATURAL FDS Price, Consensus and EPS Surprise
UTD NATURAL FDS Price, Consensus and EPS Surprise | UTD NATURAL FDS Quote
Revenue and Margin Details
Net sales of $2.214 billion marginally lagged the Zacks Consensus Estimate of $2.217 billion but increased 7.4% from the prior-year quarter. Net sales in the quarter include the impact of the previously disclosed termination of a customer distribution contract. Excluding this, adjusted net sales increased 12.7% in the quarter. Acquisitions of Haddon House Food Products, Inc. (“Haddon”) in May and Nor-Cal Produce, Inc. ("Nor-Cal") in April contributed about $138.9 million to net sales. During the fourth quarter of fiscal 2016, the operations of Global Organic/Specialty Source, Inc. ("Global Organic"), acquired in March, were integrated into the company's existing Albert's business.
Gross margin expanded 25 basis points (bps) to 15.6% in the reported quarter. The increase was driven by top-line growth and current acquisitions. However, excluding the impact of acquisitions, fourth quarter gross margin continued to remain challenging due to competitive pricing pressure, moderated supplier promotional activity, and a reduction in fuel surcharges.
Adjusted operating margin decreased 34 bps to 2.82% due to higher operating expenses related to acquisitions.
Fiscal 2016 Results
In fiscal 2016, adjusted earnings were $2.59 per share, above the guided range of $2.47 to $2.53 per share. Earnings beat the Zacks Consensus Estimate of $2.50 by 3.6% but declined 9.1% from the prior-year earnings of $2.85 per share due to lower gross and operating income margin.
Net sales of $8.47 billion were in line with the Zacks Consensus Estimate, but increased 3.5% from the prior-year quarter. Sales were within management’s expectation of approximately $8.46 billion to $8.50 billion. Excluding the impact of the previously disclosed termination of a customer distribution contract, adjusted net sales increased 8% in the fiscal year. Acquisitions of Nor-Cal and Haddon contributed approximately $51.4 million and $100.4 million, respectively to fiscal 2016 sales.
Fiscal 2017 Guidance
United Natural provided its fiscal 2017 sales and earnings guidance. For fiscal 2017, the company expects net sales in the range of approximately $9.43 billion to $9.60 billion, which is approximately 11.3% to 13.3% up over fiscal 2016 net sales of $8.47 billion.
Earnings for fiscal 2017 are now estimated in the range of $2.53 to $2.63 per share, up 1.2% to 5.2% from fiscal 2016 earnings of $2.50 per share. The Zacks Consensus Estimate of $2.65 is above the new guidance range.
Our Take
The company is putting in efforts to build out the store strategy and enhance its business through acquisitions. In the past 12 months, the company has acquired four exciting and uniquely positioned companies including Haddon House specialty foods, Global Organic, Nor-Cal and Gourmet Guru. With these companies, United Natural is now positioned as a large national provider of fresh produce, proteins, bakery, deli, specialty and natural products.
Though encouraged by consumers’ increasing demand for organic products, driven by a healthy lifestyle, food safety and environmental sustainability, we cannot ignore the fact that the company has been struggling from continued weakness in gross margin over the past few quarters. This is due to a shift in customer mix to the lower-margin supermarkets channel. The company’s recent acquisitions, despite being accretive to the top line, put pressure on margins.
United Natural has a Zacks Rank #3 (Hold). Some better-ranked food companies include Omega Protein Corp. , Ingredion, Inc. (INGR - Free Report) and US Foods Holding Corp. (USFD - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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