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United Natural (UNFI) Down 17.9% Since Last Earnings Report: Can It Rebound?

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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 17.9% 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 Q4 Earnings Top Estimates, Sales Down

United Natural’s fourth-quarter fiscal 2021 earnings advanced year over year and crushed the Zacks Consensus Estimate. While sales were soft, it was mainly due to the tough comparisons with the year-ago period’s major demand spike. Sales, in fact, grew on a sequential basis. Management’s top- and bottom-line guidance for fiscal 2022 indicates growth from fiscal 2021.

Quarter in Detail

United Natural’s adjusted earnings of $1.18 per share came in much ahead of the Zacks Consensus Estimate of 81 cents. The bottom line jumped 11.3% year over year, which can be attributed to the higher adjusted EBITDA as well as lower interest expense.

Net sales from continuing operations came in at $6,735 million, which lagged the Zacks Consensus Estimate of $6,874 million and dipped 0.5% year over year. Results were affected by tough comparisons with the year-ago period’s initial pandemic-induced demand surge. Expected declines in the retail, chain and independent channels were somewhat made up by growth in the Supernatural channel. On a sequential basis, quarterly sales rose nearly 1.6%. This was backed by gains from the accelerating inflation, which rose to roughly 2.4% in the fourth quarter. Apart from this, underlying strength in the company’s customers’ retail businesses, gains from new customers and benefits from cross-selling drove the sequential upside.

The company’s gross margin rate came in at 14.91%, up from 14.84% reported in the year-ago quarter. This upside was mainly backed by enhancement in the Wholesale segment, whereas the retail gross margin rate remained nearly flat year over year.

The adjusted operating income came in at $116 million in the quarter compared with $117 million reported in the year-ago quarter. The adjusted operating income, as a percentage of net sales, came in at 1.72% during the quarter under review, almost in line with the year-ago period’s 1.73%. The adjusted EBITDA inched up 1.5% year over year to $201 million.

The operating expense rate flared up slightly from the year-ago period due to the elevated employee-related costs and increased start-up costs, partly offset by the reduced COVID-19 costs and incentive compensation expense.

Channel Sales

Net sales in Supernatural advanced 11.8% year over year to $1,251 million. Net sales in the Chains channel fell 2.2% to $3,014 million. Net Sales in the Independent retailers channel came in at $1,666 million, down 6.2% year over year.

In the Retail channel, net sales declined 6% to $613 million, which largely resulted from the tough comparisons with the year-ago period’s major demand surge. Management is focused on making investments in the retail business to enrich consumers’ shopping experience. To this end, the company is making endeavors to improve its e-commerce platform, strengthen delivery offerings as well as enhance data analytics and merchandising ideas.

Other Updates

The company ended the fiscal fourth quarter with cash and cash equivalents of $41 million, long-term debt of $2,175 million and total shareholders’ equity of $1,514 million. Net cash from operating activities amounted to $614 million for fiscal 2021.

Fiscal 2022 Guidance

Management believes the company is well placed on the back of its robust brand portfolio of specialty items. Like most food companies, United Natural is also encountering supply-chain hiccups due to the labor and supply shortages as well as the pandemic-led hurdles. That said, management is focused on undertaking innovative and important steps to counter these challenges. It expects fiscal 2022 to benefit from the elevated sales and gains from the company’s Value Path initiative.

Management anticipates fiscal 2022 net sales in the range of $27.8-$28.3 billion, adjusted EBITDA of $760-$790 million and adjusted earnings in the band of $3.9-$4.20 per share. At the mid-point, all these metrics suggest a 4% rise each, from the fiscal 2021 levels. The company expects fiscal 2022 capital expenditure in the range of $300 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -11.75% due to these changes.

VGM Scores

Currently, United Natural has an average Growth Score of C, a grade with the same score on the momentum front. 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 broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, United Natural has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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