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Why Is United Natural (UNFI) Down 1.5% Since Last Earnings Report?

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A month has gone by since the last earnings report for United Natural Foods (UNFI - Free Report) . Shares have lost about 1.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is United Natural due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

United Natural's Q1 Earnings Miss Estimates, Sales Up

United Natural Foods reported first-quarter fiscal 2021 results, with the top and the bottom lines missing the Zacks Consensus Estimate. Nevertheless, both the metrics increased on a year-over-year basis.

Q1 in Detail

United Natural’s adjusted earnings of 51 cents per share lagged the Zacks Consensus Estimate of 73 cents. Nevertheless, the bottom line rose from 4 cents reported in the year-ago quarter. The year-over-year surge can be attributed to greater net sales as well as improved gross margin.

Net sales from continuing operations came in at $6,673 million, which lagged the Zacks Consensus Estimate of $6,808.6 million. Nonetheless, net sales improved 6% year over year. Sales growth was backed by robust customer demand from existing as well as new retailers including continued gains of cross selling. Notably, increase in retail sales reflected significant benefit from higher e-commerce sales at Cub Foods.

Meanwhile, the company’s gross margin came in at 14.5% higher than 14.4% reported in the year-ago quarter. The upside was driven by contribution of nearly 17 basis points from retail business stemming from reduced promotional activities. Also, retail unit reflected a higher percentage of total net sales that contributed to growth. However, these were somewhat offset by lower levels of supplier-related income in the Wholesale and the remaining business.

Adjusted operating income came in at $65.8 million in the quarter, up from $41.6 million reported in the year-ago quarter. Adjusted operating margin increased from 0.7% to 1% of net sales, courtesy of higher net sales, increased gross margin and reduced administrative costs. Also, leverage of fixed operating costs over increased net sales was a reason. This was partly affected by increase in operating costs attributed to starting of three distribution centers. Moreover, adjusted EBITDA jumped 30.6% to $159 million.

Segment Sales

From a channel point of view, Supernatural net sales increased 9.3% year over year to $1,214 million. Chains channel net sales of $3,020 million increased 5%. Sales in the Independent Retailers channel came in at $1,672 million, up 7.4% year over year. In the Retail channel, net sales increased 15.5% to $595 million. Other sales came in at $581 million, down 1.5%.

Other Updates

The company ended the quarter with cash and cash equivalents of $49 million, long-term debt of $2,620.6 million and total shareholders’ equity of $1,147.9 million.

Fiscal 2021 Guidance

The company expects food-at-home consumption demand to stay high outpacing the demand for away from home services for remaining part of fiscal 2021. Management reiterated its fiscal 2021 outlook for net sales, adjusted earnings per share and adjusted EBITDA.

Management continues to anticipate fiscal 2021 net sales in the range of $27-$27.8 billion. This suggests 3.3% growth over fiscal 2020 at midpoint. Further, United Natural reaffirmed adjusted EBITDA projection of $690-$730 million that indicates 5.5% rise over fiscal 2020 at midpoint. Also, it maintained adjusted earnings guidance of $3.05-$3.55 per share, which indicates an increase of 21.3% from fiscal 2020 levels at midpoint. The company updated its fiscal 2021 capital expenditure guidance to $250-$300 million from $200-$250 million envisioned earlier. This reflects a strategic investment in a new distribution center.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 22.33% due to these changes.

VGM Scores

At this time, United Natural has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, United Natural has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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