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United Natural (UNFI) Gains on E-Commerce Sales, Prudent Buyouts

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Strength in e-commerce has been benefiting United Natural Foods, Inc. (UNFI - Free Report) for a while now. Moreover, the company is undertaking various acquisitions over the years to expand its distribution network and customer base as well as boost long-term growth. Operational efficiencies and the ValuePath productivity initiative keep United Natural well-positioned to deliver fiscal 2021 adjusted EBITDA and adjusted earnings per share at the upper end of the earlier guidance.

Notably, the company expects fiscal 2021 adjusted EBITDA toward the upper end of the earlier guidance of $690-$730 million. Further, it envisions adjusted earnings at the higher end of its earlier guidance of $3.05-$3.55 per share. Also, management anticipates fiscal 2021 net sales at the lower end of $27-$27.8 billion.

Markedly, the company’s stock has gained 13.1% in the past three months compared with the industry’s growth of 1.8%.

Zacks Investment ResearchImage Source: Zacks Investment Research

Factors Working Favorably for United Natural

United Natural is benefiting from strength in online sales, thanks to increased e-commerce solutions offered by the company. Incidentally, a number of the company’s Independents channel and a greater proportion of Chains channel provide e-commerce solutions to their customers. Further, United Natural offers digital platforms and the support required by its customers. Management, in its last earnings call, highlighted that it is encouraged by growth of online business at Cub, with e-commerce sales increasing 27% year over year in third-quarter fiscal 2021. Recently, the company widened its digital ordering and delivery to include every Cub liquor and Wine & Spirits locations.

United Natural is keen on strengthening its e-commerce business. In April 2021, the company launched Community Marketplace — a business-to-business digital e-commerce solution. The platform is designed for emerging brands, which will help the company expand distribution with United Natural’s customers. Thanks to the platform, United Natural’s customers can access a larger assortment of different and local products. Apart from this, United Natural’s On a Screen platform is noteworthy.

Apart from this, United Natural completed the buyout of SUPERVALU in October 2018. The enhanced scale of the combined entities is driving United Natural’s performance. Moreover, the merger provided better competing grounds to the company in the grocery space by augmenting offerings. We note that management successfully completed the integration of SUPERVALU conventional business. Some other notable acquisitions of the company include Haddon House (in May 2016), Gourmet Guru (in August 2016) and Nor-Cal Produce, Inc (in 2016) among many others.

Is all Rosy for United Natural?

United Natural is encountering softness in foodservice businesses due to social distancing trends amid the pandemic. During third-quarter fiscal 2021, the company’s Other channel sales were partly hurt by weak foodservice and military sales. Notably, sales in the particular channel declined 3.2% year over year. United Natural’s fiscal third-quarter results were gloomy, with the top and the bottom line declining on a year-over-year basis. Additionally, net sales missed the Zacks Consensus Estimate. Moreover, the company’s gross margin rate came in at 14.6% as a percentage of net sales, down from 14.9% reported in the year-ago quarter. The downside was caused by reduced supplier-related income in the Wholesale segment.

That being said, we believe that the aforementioned upsides are likely to help this Zacks Rank #3 (Hold) company stay poised.

Better-Ranked Food Bets

Darling Ingredients Inc. (DAR - Free Report) , currently sporting a Zacks Rank #1 (Strong Buy), has a trailing four-quarter earnings surprise of 29.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

Medifast, Inc. (MED - Free Report) , currently sporting a Zacks Rank #1, has a trailing four-quarter earnings surprise of 12.7%, on average.

Nomad Foods Limited (NOMD - Free Report) , currently carrying a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of 10.3%, on average.

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