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Bear of the Day: United Natural Foods (UNFI)

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United Natural Foods, Inc. (UNFI - Free Report) is a wholesale distributor to the natural, organic, and specialty industries in the United States and Canada. United Natural Foods serves a wide variety of sales channels including conventional supermarket chains, natural product superstores, independent retailers, eCommerce and food service.

Shares of United Natural Foods have slumped over 70% in the past six months, and mixed results in its first-quarter earnings report left investors disappointed.

The company posted revenues of $2.87 billion, which did beat our consensus estimate, but earnings of 59 cents per share came in well below the Zacks Consensus Estimate of 74 cents per share.

Additionally, margins declined yet again. Gross margin of net saleswas 14.44% of net sales compared to 14.94% last year. This decline was due to a change in the way the company estimates liabilities associated with inventory purchases, but it was also driven by a shift in customer mix.

Operating income of $51 million fell from the year-ago period and was affected by lower gross margins and higher labor costs.

The company recently closed on the previously announced acquisition of SUPERVALU, and in a press release, chairman and CEO Steve Spinner said that "The integration of the two companies is well under way and we continue to be excited about the long-term creation of value for our shareholders we expect to deliver with this combination."

Estimates are Falling

It didn’t take long for analysts to lower their estimates for fiscal 2019, and seven have slashed their earnings outlook in the last 60 days; our consensus has been slashed by more than half from $3.32 to $1.76 per share, and earnings are expected to decline 43.4% for the year.

The consensus estimate has fallen for next fiscal year, too, down well over one dollar from $3.61 to $2.33 per share. Seven analysts have also cut their estimates for this time period as well.

UNFI is a Zacks Rank #5 (Strong Sell).

Over the past year, United Natural Foods has struggled to improve margins as well as profitability, two factors that have really dampened shares. Unless the company can improve its bottom line, more quarters like Q1 may lie ahead.

If you’re an investor looking for a broad food stock pick to add to your portfolio, you may want to consider Darling Ingredients Inc. (DAR - Free Report) . This cooking oil and bakery waste recycling solutions company is a #2 (Buy) on the Zacks Rank, and currently expects about 270% earnings growth for the year.

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