United Natural Foods, Inc. (UNFI - Free Report) is slated to release third-quarter fiscal 2018 results on Jun 6, after the market closes. While many grocery firms reel under consumer’s shifting preferences and stiff competition from industry biggies, others like United Natural have been thriving well, buoyed by yielding strategies to match the changing industry scenario. Well, United Natural has been setting quite a treat with its strong footing in organic foods space and a rapidly growing presence in the e-commerce arena.
Notably, the company’s bottom-line results have surpassed the Zacks Consensus Estimate in the trailing four quarters, the average beat being 10.7%. Let’s delve into how things are shaping up for the upcoming quarterly release and see if this renowned distributor of natural, organic and specialty food and non-food products can maintain its positive earnings surprise streak.
Surging Demand & Effective Growth Plans
United Natural has been gaining from increasing demand for better-for-you products. Amid rising health consciousness among consumers, the company’s wide offerings in the organic segment provides it with adequate opportunities. Apart from this, the company is committed toward achieving core strategic targets for 2018. These include plans to enhance customer base, expand broadline distribution channel and improve gross margin.
Further, the company strives to develop effective sourcing processes and supply chain networks to better align supplies with demand and meet consumers’ needs more efficiently. Notably, such well-chalked strategies along with rising demand aided broad-based improvement across all important sales networks during the second quarter.
Among other strategic endeavors, United Natural’s progress in the omnichannel platform are noteworthy. With sophisticated distribution networks and fulfillment centers, the company’s growth in this space is quite remarkable, which had aided top-line growth in the second quarter. Going ahead, management projects robust opportunities in the omnichannel space and expects it to be a key catalyst to drive performance in the food services segment.
Additionally, United Natural engages in business acquisitions frequently to augment distribution network, customer base and boost long-term growth. Notable buyouts of the company include The Gourmet Guru, Haddon House and Nor-Cal Produce amongst others. Apart from United Natural, other food companies such as TreeHouse Foods (THS - Free Report) , The J.M. Smucker Company (SJM - Free Report) and Pinnacle Foods have been consistently expanding their business and competitive power through strategic acquisitions.
United Natural Foods, Inc. Price, Consensus and EPS Surprise
Strained Gross Margin a Worry
United Natural’s sales from lower margin customers has been growing at a higher rate than other customers which has been denting gross margin rates, as witnessed during the first and second quarters of fiscal 2018. Higher inbound freight costs also weighed on gross margin during the second quarter. In fact, management continues to expect higher freight rates throughout the balance of fiscal 2018, thereby raising concerns for the upcoming quarterly results.
Estimates Instill Optimism
United Natural’s effective strategies to boost sales keep us encouraged that the company will easily tide over the aforementioned hurdles and deliver a solid performance in the third quarter. Well, the Zacks Consensus Estimate for earnings for the impending quarter is currently pegged at 93 cents, depicting a surge of almost 20.8% from the prior-year quarter’s figure. Further, analysts polled by Zacks expect net sales of $2,579 million for the quarter to be reported, reflecting an improvement of approximately 8.9% from the year-ago quarter’s tally.
A Look at the Zacks Model
To top it, our proven model shows that United Natural is likely to beat earnings estimates this quarter. A stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) 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’s Earnings ESP of +1.73% combined with the company’s Zacks Rank #3 make us reasonably confident of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.
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