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United Natural (UNFI) Posts In-Line Q2 Earnings; Cuts View
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Specialty foods distributor United Natural Foods, Inc. (UNFI - Free Report) posted mixed second-quarter fiscal 2017 results. While earnings were in line with the Zacks Consensus Estimate, revenues lagged the same. Further, the company has slashed its fiscal 2017 view.
This Providence, RI-based company reported second quarter adjusted earnings of 50 cents per share. Earnings were in line with the Zacks Consensus Estimate and increased 11.5% from the prior-year quarter earnings of 45 cents due to higher sales and improved margins.
Revenue and Margin Details
Net sales of $2.29 billion lagged the Zacks Consensus Estimate of $2.34 billion by 2.1% but increased 11.6% from the prior-year quarter despite of the ongoing industry headwinds related to high competition and deflationary environment. Acquisitions of Gourmet Guru in Aug 2016, Haddon House Food Products, Inc. (Haddon) in May 2016, and Nor-Cal Produce, Inc. (Nor-Cal) in Apr 2016 and Global Organic/Specialty Source, Inc. (Global Organic) in Mar 2016 has impacted sales favorably in the quarter.
United Natural has exhibited a bullish run on the index over the past one year. We note that in the said period the stock surged 14.8% and outperformed the Zacks categorized Food-Miscellaneous/Diversifiedindustry, which recorded growth of 4.6%.
Gross margin expanded 56 basis points (bps) to 15.1% in the reported quarter. The increase was driven by top-line growth and favorable impact of acquisitions, which are likely to generate higher gross margins by providing more value added services. Further, margin improvement initiatives also boosted the growth, partially offset by competitive pricing pressure. Despite the growth recorded in gross margins, we note that in the first half of fiscal 2017 promotional activities and competitive pricing pressure remained the major headwinds.
Deflation was 30 basis points in the quarter, higher than 13 basis points deflation level in the preceding quarter. It was also comparable to inflation of 2.15% in the prior-year quarter. In fact, this was the second consecutive quarter of deflation for United Natural in the last seven years.
Operating income increased marginally in the second quarter to $46.3 million. EBITDA was $67.5 million, an increase of 16.7% from the prior-year period. EBITDA margin was 2.95% of net sales, up 13 basis points from last year.
United Natural Foods, Inc. Price, Consensus and EPS Surprise
From a channel perspective, supernatural's net sales increased 3.5% than the prior-year quarter and represented 34.2% of total net sales in the quarter. Supermarket channel net sales increased 26.2% in the quarter and represented 29.1% of total net sales. The independent channel grew 9.6% in the second quarter and represented 26.4% of the company’s net sales.
Full-service net sales were up 5.1% over second quarter last year and e-commerce increased approximately 15.4% versus last year. Neither food service nor e-commerce was significantly impacted by recent acquisitions.
Other Financial Update
Cash and cash equivalents were $30.7 million at the end of Jan 28, while long-term debt was $155.8 million.
Capital expenditures were approximately $13.5 million in the quarter, resulting in free cash flow of $90.7 million.
As part of achieving greater efficiency in the highly promotional environment, the company has announced a restructuring program. The move is primarily related to severance and other employee separation costs in conjunction with the opening of a shared services center, previously announced acquisitions, as well as other workforce reduction.
The company expects to eliminate approximately 265 positions by the third quarter of fiscal 2017, with some of the transitions extending into the second quarter of fiscal 2018. These actions are expected to reduce expenses and will thus allow the company to operate more efficiently and effectively.
Fiscal 2017 Guidance Reiterated
United Natural has revised its fiscal 2017 sales and earnings guidance, in view of the second quarter’s performance and the restructuring program. For fiscal 2017, the company now expects net sales in the range of approximately $9.38 billion to $9.46 billion, down from the previously announced range of $9.43 billion to $9.60 billion. The new sales guidance is up approximately 10.7% to 11.7% over fiscal 2016 net sales of $8.47 billion.
Reported earnings for fiscal 2017 are now estimated in the range of $2.49 to $2.54, down from the previously announced guidance of $2.53 to $2.63 per share. Adjusting for costs related to the aforementioned restructuring plan of approximately $3.5 million to $4.0 million, before taxes, adjusted earnings per diluted share for fiscal 2017 is estimated to be in the range of approximately $2.53 to $2.58, compared to fiscal 2016 adjusted earnings per diluted share of $2.59. The Zacks Consensus Estimate of $2.55 is within the guidance range.
Our Take
The company is putting in efforts to build out its 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 grappling with ongoing industry challenges, including heightened competition and little to no meaningful improvement in inflation. The deflationary pressures are affecting the produce and protein categories.
Zacks Rank and Stocks to Consider
United Natural holds a Zacks Rank #2 (Buy).
Some better-ranked food stocks in the industry include Lamb Weston Holdings Inc. (LW - Free Report) , ConAgra Foods, Inc. (CAG - Free Report) and Ingredion, Inc. (INGR - Free Report) .
ConAgra Foods and Ingredion, both carrying a Zacks Rank #2 (Buy), have growth rates of 8.00% and 11.00%, respectively.
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United Natural (UNFI) Posts In-Line Q2 Earnings; Cuts View
Specialty foods distributor United Natural Foods, Inc. (UNFI - Free Report) posted mixed second-quarter fiscal 2017 results. While earnings were in line with the Zacks Consensus Estimate, revenues lagged the same. Further, the company has slashed its fiscal 2017 view.
This Providence, RI-based company reported second quarter adjusted earnings of 50 cents per share. Earnings were in line with the Zacks Consensus Estimate and increased 11.5% from the prior-year quarter earnings of 45 cents due to higher sales and improved margins.
Revenue and Margin Details
Net sales of $2.29 billion lagged the Zacks Consensus Estimate of $2.34 billion by 2.1% but increased 11.6% from the prior-year quarter despite of the ongoing industry headwinds related to high competition and deflationary environment. Acquisitions of Gourmet Guru in Aug 2016, Haddon House Food Products, Inc. (Haddon) in May 2016, and Nor-Cal Produce, Inc. (Nor-Cal) in Apr 2016 and Global Organic/Specialty Source, Inc. (Global Organic) in Mar 2016 has impacted sales favorably in the quarter.
United Natural has exhibited a bullish run on the index over the past one year. We note that in the said period the stock surged 14.8% and outperformed the Zacks categorized Food-Miscellaneous/Diversified industry, which recorded growth of 4.6%.
Gross margin expanded 56 basis points (bps) to 15.1% in the reported quarter. The increase was driven by top-line growth and favorable impact of acquisitions, which are likely to generate higher gross margins by providing more value added services. Further, margin improvement initiatives also boosted the growth, partially offset by competitive pricing pressure. Despite the growth recorded in gross margins, we note that in the first half of fiscal 2017 promotional activities and competitive pricing pressure remained the major headwinds.
Deflation was 30 basis points in the quarter, higher than 13 basis points deflation level in the preceding quarter. It was also comparable to inflation of 2.15% in the prior-year quarter. In fact, this was the second consecutive quarter of deflation for United Natural in the last seven years.
Operating income increased marginally in the second quarter to $46.3 million. EBITDA was $67.5 million, an increase of 16.7% from the prior-year period. EBITDA margin was 2.95% of net sales, up 13 basis points from last year.
United Natural Foods, Inc. Price, Consensus and EPS Surprise
United Natural Foods, Inc. Price, Consensus and EPS Surprise | United Natural Foods, Inc. Quote
Segment Details
From a channel perspective, supernatural's net sales increased 3.5% than the prior-year quarter and represented 34.2% of total net sales in the quarter. Supermarket channel net sales increased 26.2% in the quarter and represented 29.1% of total net sales. The independent channel grew 9.6% in the second quarter and represented 26.4% of the company’s net sales.
Full-service net sales were up 5.1% over second quarter last year and e-commerce increased approximately 15.4% versus last year. Neither food service nor e-commerce was significantly impacted by recent acquisitions.
Other Financial Update
Cash and cash equivalents were $30.7 million at the end of Jan 28, while long-term debt was $155.8 million.
Capital expenditures were approximately $13.5 million in the quarter, resulting in free cash flow of $90.7 million.
As part of achieving greater efficiency in the highly promotional environment, the company has announced a restructuring program. The move is primarily related to severance and other employee separation costs in conjunction with the opening of a shared services center, previously announced acquisitions, as well as other workforce reduction.
The company expects to eliminate approximately 265 positions by the third quarter of fiscal 2017, with some of the transitions extending into the second quarter of fiscal 2018. These actions are expected to reduce expenses and will thus allow the company to operate more efficiently and effectively.
Fiscal 2017 Guidance Reiterated
United Natural has revised its fiscal 2017 sales and earnings guidance, in view of the second quarter’s performance and the restructuring program. For fiscal 2017, the company now expects net sales in the range of approximately $9.38 billion to $9.46 billion, down from the previously announced range of $9.43 billion to $9.60 billion. The new sales guidance is up approximately 10.7% to 11.7% over fiscal 2016 net sales of $8.47 billion.
Reported earnings for fiscal 2017 are now estimated in the range of $2.49 to $2.54, down from the previously announced guidance of $2.53 to $2.63 per share. Adjusting for costs related to the aforementioned restructuring plan of approximately $3.5 million to $4.0 million, before taxes, adjusted earnings per diluted share for fiscal 2017 is estimated to be in the range of approximately $2.53 to $2.58, compared to fiscal 2016 adjusted earnings per diluted share of $2.59. The Zacks Consensus Estimate of $2.55 is within the guidance range.
Our Take
The company is putting in efforts to build out its 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 grappling with ongoing industry challenges, including heightened competition and little to no meaningful improvement in inflation. The deflationary pressures are affecting the produce and protein categories.
Zacks Rank and Stocks to Consider
United Natural holds a Zacks Rank #2 (Buy).
Some better-ranked food stocks in the industry include Lamb Weston Holdings Inc. (LW - Free Report) , ConAgra Foods, Inc. (CAG - Free Report) and Ingredion, Inc. (INGR - Free Report) .
Lamb Weston has long-term earnings growth rate of 3.24% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
ConAgra Foods and Ingredion, both carrying a Zacks Rank #2 (Buy), have growth rates of 8.00% and 11.00%, respectively.
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