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What's in Store for United Natural (UNFI) in Q4 Earnings?

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United Natural Foods, Inc. (UNFI - Free Report) is slated to release fourth quarter and fiscal 2017 results on Sep 13, after the market closes. This distributor of natural, organic and specialty food and non-food products has delivered positive earnings surprise in two out of the trailing four quarters, with an average beat of 1.9%.

Considering the above, let’s look into some factors that are likely to impact fiscal fourth-quarter results.

What Does the Zacks Model Unveil?

Our proven model does not show that United Natural is likely to beat estimates this quarter. This is because a stock needs to have a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP for this to happen. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

United Natural has an Earnings ESP of +0.90% as the Most Accurate estimate of 70 cents is pegged higher than the Zacks Consensus Estimate of 69 cents. However, the company carries a Zacks Rank #4 (Sell). We caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions. You can see the complete list of today’s Zacks #1 Rank stocks here.

United Natural Foods, Inc. Price, Consensus and EPS Surprise

 

Estimate Revisions

A look into estimate revisions give us an idea of what analysts are thinking about the company right before earnings release. Estimates for both fourth quarter and for the fiscal year have remained stable over the past 30 days at 69 cents and $2.54, respectively. Estimated earnings for the fourth quarter depict a decline of 0.9% from the prior-year period. The same for the fiscal year shows a decline of 1.8%.  Moreover, estimated earnings for the fiscal year is at the top end of management’s guidance of $2.49 to $2.54.

Further, analysts polled by Zacks expect revenues of $2.4 billion for the fourth quarter, up approximately 6.9% from prior-year quarter.  Further, revenues for fiscal 2017 are expected to be $9.3 billion, a rise of 9.8% from the previous year.

Factors at Play                                                              

We note that United Natural’s sales have lagged the estimate for the last 10 quarters. It seems that United Natural has been struggling against tough grocery industry environment, laden with stiff competition, tight margins and aggressive promotions. Traditional grocery companies are facing competition from rival companies, which are strengthening their franchises and are offering alternative outlets for food and other staples. Such industry-wide headwinds are expected to dent the company’s top line and margin, going ahead.

In addition to such challenges, United Natural’s excessive reliance on its sole customer, Whole Foods Market, also poses as a formidable threat. The company has a partnership agreement with Whole Foods till 2025. Moreover, Whole Foods has recently been acquired by Amazon.com (AMZN - Free Report) , and it’s not yet apparent how this deal might impact the business of United Natural in the forthcoming period. In fact, Amazon’s growing strength and expansion strategies in the grocery industry have also affected other companies such as ConAgra Foods Inc. (CAG - Free Report) and Kellogg Company (K - Free Report) .

The impact of such ongoing headwinds and the lack of investor’s confidence on the company are clearly visible in its share performance. Shares of United Natural have declined 19.2% in the past six months compared with the Consumer Staples sector’s increase of 4.1%.

Although United Natural has been benefitting from acquisitions and restructuring initiatives, the same have not been able to completely offset the disadvantages arising out of the difficult grocery environment.

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