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United Natural (UNFI) Downgraded to Sell on Dismal Trends
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On Mar 29, Zacks Investment Research downgraded United Natural Foods Inc. (UNFI - Free Report) to a Zacks Rank #4 (Sell) as the company has been grappling with the ongoing industry challenges, including heightened competition and marginal improvement in inflation. Moreover, this Providence, RI-based company posted mixed second-quarter fiscal 2017 results on Mar 7 and slashed its fiscal 2017 view. Going by the Zacks model, companies sporting a Zacks Rank #4 generally underperform the broader market in the near term.
Share Price Movement
If we look into the stock’s performance over the past three months, we note that the stock has declined 9.6%, wider than the Zacks categorized Food-Miscellaneous/Diversified industry’s fall of 0.8%.
In fact, estimates have been on a downhill ride since the company reported dismal second quarter results. The Zacks Consensus Estimate for fiscal 2017 and fiscal 2018 has dipped 0.4% and 1.5%, respectively, over the past 30 days.
Factors Impacting the Company
On Mar 7, this specialty foods distributor reported mixed second-quarter fiscal 2017 results, wherein the earnings were in line with the Zacks Consensus Estimate. The revenues however, lagged the same. Further, the company has reduced its sales and earnings view for fiscal 2017.
Though both earnings and revenues increased year over year, driven by acquisitions and improved margins, the company has been facing ongoing industry headwinds related to high competition and deflationary environment.
Top-line growth and favorable impact of acquisitions led to gross margin improvement in the quarter. The growth was also driven by margin improvement initiatives, which was 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. Operating income increased marginally in the second quarter to $46.3 million.
Deflation was 30 basis points in the quarter, higher than the 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.
United Natural Foods, Inc. Price, Consensus and EPS Surprise
We note that the company is making efforts to build its store strategy and enhance the business through acquisitions. In the past 12 months, United Natural has acquired four uniquely positioned companies – Gourmet Guru in Aug 2016, Haddon House Food Products, Inc. in May 2016, and Nor-Cal Produce, Inc. in Apr 2016 and Global Organic/Specialty Source, Inc. in Mar 2016. With these acquisitions in its kitty, 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 deflationary pressures are affecting the produce and protein categories.
Though the company has the potential to survive the ongoing challenges and rebound in the long run, at present the company does not look attractive due to these dampeners.
ConAgra Foods has an expected earnings growth rate of 8.0%. Further, it has delivered positive earnings surprises in all of the trailing four quarters, resulting in an average earnings surprise of 10.7%. Meanwhile, Lancaster Colony and Pinnacle have an expected earnings growth rate of 3.0% and 8.33%, respectively.
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United Natural (UNFI) Downgraded to Sell on Dismal Trends
On Mar 29, Zacks Investment Research downgraded United Natural Foods Inc. (UNFI - Free Report) to a Zacks Rank #4 (Sell) as the company has been grappling with the ongoing industry challenges, including heightened competition and marginal improvement in inflation. Moreover, this Providence, RI-based company posted mixed second-quarter fiscal 2017 results on Mar 7 and slashed its fiscal 2017 view. Going by the Zacks model, companies sporting a Zacks Rank #4 generally underperform the broader market in the near term.
Share Price Movement
If we look into the stock’s performance over the past three months, we note that the stock has declined 9.6%, wider than the Zacks categorized Food-Miscellaneous/Diversified industry’s fall of 0.8%.
In fact, estimates have been on a downhill ride since the company reported dismal second quarter results. The Zacks Consensus Estimate for fiscal 2017 and fiscal 2018 has dipped 0.4% and 1.5%, respectively, over the past 30 days.
Factors Impacting the Company
On Mar 7, this specialty foods distributor reported mixed second-quarter fiscal 2017 results, wherein the earnings were in line with the Zacks Consensus Estimate. The revenues however, lagged the same. Further, the company has reduced its sales and earnings view for fiscal 2017.
Though both earnings and revenues increased year over year, driven by acquisitions and improved margins, the company has been facing ongoing industry headwinds related to high competition and deflationary environment.
Top-line growth and favorable impact of acquisitions led to gross margin improvement in the quarter. The growth was also driven by margin improvement initiatives, which was 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. Operating income increased marginally in the second quarter to $46.3 million.
Deflation was 30 basis points in the quarter, higher than the 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.
United Natural Foods, Inc. Price, Consensus and EPS Surprise
United Natural Foods, Inc. Price, Consensus and EPS Surprise | United Natural Foods, Inc. Quote
We note that the company is making efforts to build its store strategy and enhance the business through acquisitions. In the past 12 months, United Natural has acquired four uniquely positioned companies – Gourmet Guru in Aug 2016, Haddon House Food Products, Inc. in May 2016, and Nor-Cal Produce, Inc. in Apr 2016 and Global Organic/Specialty Source, Inc. in Mar 2016. With these acquisitions in its kitty, 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 deflationary pressures are affecting the produce and protein categories.
Though the company has the potential to survive the ongoing challenges and rebound in the long run, at present the company does not look attractive due to these dampeners.
Stocks to Consider
Some better-ranked stocks in the broader consumer staples sector include ConAgra Foods, Inc. (CAG - Free Report) , Pinnacle Foods, Inc. and Lancaster Colony Corp. (LANC - Free Report) . All of them carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
ConAgra Foods has an expected earnings growth rate of 8.0%. Further, it has delivered positive earnings surprises in all of the trailing four quarters, resulting in an average earnings surprise of 10.7%. Meanwhile, Lancaster Colony and Pinnacle have an expected earnings growth rate of 3.0% and 8.33%, respectively.
More Stock News: 8 Companies Verge on Apple-Like Run
Did you miss Apple's 9X stock explosion after they launched their iPhone in 2007? Now 2017 looks to be a pivotal year to get in on another emerging technology expected to rock the market. Demand could soar from almost nothing to $42 billion by 2025. Reports suggest it could save 10 million lives per decade which could in turn save $200 billion in U.S. healthcare costs.
A bonus Zacks Special Report names this breakthrough and the 8 best stocks to exploit it. Like Apple in 2007, these companies are already strong and coiling for potential mega-gains. Click to see them right now >>