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Rising Demand to Drive United Natural's (UNFI) Q1 Earnings

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United Natural Foods, Inc. (UNFI - Free Report) is scheduled to release first-quarter fiscal 2019 results on Dec 5, after market close. Earnings of this renowned food company surpassed the Zacks Consensus Estimate in three out of the trailing four quarters, by an average of 9.6%. Let’s see what’s in store this time.

Rising Demand & Effective Strategies

The company expects to continue benefiting from surging demand across most segments. Accordingly, the company is working closely with suppliers to meet consumers’ demand efficiently. Also, management expects to continue gaining from robust customer services and rising demand for better-for-you products. It is also committed toward enhancing customer base and expanding broadline distribution channels.

We expect such factors to continue bolstering United Natural’s business categories. Encouragingly, the Zacks Consensus Estimate for sales for the impending quarter in the supernatural, supermarket and independently-owned natural retailer channels are currently pegged at $993 million, $731 million and $676 million, respectively. This depicts a corresponding rise of 16.4%, 3.8% and 5.8% from the year-ago quarter’s reported figures.

Further, the company has been undertaking various acquisitions over the years to grow distribution network and customer base. Some of the notable buyouts include Haddon House and Gourmet Guru. Moreover, United Natural recently acquired SUPERVALU. The enhanced scale of the combined entities is expected to radically boost efficiency in operations. Moreover, the merger is expected to provide better competing grounds to United Natural in the grocery space by augmenting offerings.

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

 

 

Hurdles in the Path

United Natural’s gross margin is bearing the brunt of unfavorable shift in consumer mix for a while. This is stemming from lower margin customers that are growing at a higher rate than other customers, Also, higher inbound freight costs have been denting United Natural’s gross margin for some time. Rising fuel costs are a major reason for increase in fright expenses. In fact, several other food companies like McCormick & Company (MKC - Free Report) , TreeHouse Foods (THS - Free Report) and Tyson Foods (TSN - Free Report) are also grappling with higher freight and transportation costs.

Coming back to United Natural, higher demand is putting pressure on the company’s supply chain. This has led to higher labor expenses across several distribution centers. In fact, due to the high demand, the company’s fill-rates are degrading. These hurdles pose threats to the company’s upcoming performance.

Nevertheless, the company is focused on enhancing supply-chain networks to align supplies with demand. Further, the companies’ well-chalked efforts to augment distribution network and customer base are expected to cushion the aforementioned hurdles

Estimates Indicate Growth

Markedly, the Zacks Consensus Estimate for sales for the first quarter is pegged at $2,686 million, reflecting a rise of more than 9.3% from the year-ago quarter’s figure. Further, the consensus mark for earnings has been stable in the past 30 days at 74 cents, which indicates a 19.4% jump from 62 cents in the year-ago quarter.

What Does the Zacks Model Unveil?

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

Though United Natural Foods carries a Zacks Rank #2, its Earnings ESP of 0.0% makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here.

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