United Natural Beats; Ups 2012 View

United Natural Foods, Inc. (UNFI - Analyst Report) delivered better-than-expected third quarter 2012 earnings of 59 cents per share, exceeding the Zacks Consensus Estimate by 3 cents, driven by better-than-expected top line growth. The earnings also surpassed the prior-year earnings by 22.9% at 48 cents per share.

Net sales for the quarter increased 15.3% year over year to $1.39 billion, exceeding the Zacks Consensus Estimate of $1.35 billion. The results were driven by continuous demand for United Natural’s food.

Gross margin plummeted 53 basis points to 17.6% from the year-ago period, which was primarily the result of continued shift in customer mix to the supermarket channel.

However, operating margin climbed 27 basis points to 3.5% in the reported quarter, on the back of productivity initiatives taken up by the company and reduced operating costs as a percentage of sales.

Guidance

Based on the strong third quarter results and the current environment, United Natural expects an increase of about 14.3% to 15.3% in the total sales for fiscal 2012 to reach in the range of $5.18 billion to $5.22 billion. The sales guidance increased from the previous target of $5.11 billion to $5.17 billion.

In addition, the company expects its fiscal 2012 reported earnings guidance to increase to a range of $1.84 - $1.88, compared with the guidance range of $1.79 - $1.86 per share provided previously. The increase in guidance was driven by robust top-line growth and increase in operating performance. The raised guidance includes approximately $6.8 - $7.0 million operating expenses for fiscal 2012 related to the previously announced divestiture of conventional non-foods and general merchandise lines of business and the start-up expenses associated with the new national customer.

Excluding these expenses, United Natural expects its fiscal 2012 operating earnings to come in the range of around $1.92 - $1.96 per share, reflecting an increase of approximately 14.3% to 16.7% over fiscal 2011 operating earnings of $1.68 per share.

However, the company has lowered its guidance for capital expenditure for fiscal 2012. United Natural now expects capital expenditure in the range of $35.0 - $40.0 million, compared with the previous guidance of $47.0 - $52.0 million.

United Natural carries and distributes more than 60,000 products to more than 23,000 customer locations throughout U.S. and Canada. The company also serves a wide variety of retail formats including conventional supermarket chains, natural product superstores, independent retail operators and the food service channel.

The company, which competes with Nash Finch Co. (NAFC - Analyst Report), currently holds a Zacks #3 Rank (short term ‘Hold’ rating). On a long-term basis, we provide a Neutral recommendation on the stock.