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United Natural (UNFI) Down 44.7% 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 44.7% 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 its most recent earnings report in order to get a better handle on the important catalysts.

United Natural Q1 Earnings Miss, Sales Beat Estimates

United Natural reported mixed first-quarter fiscal 2019 results, wherein earnings missed the Zacks Consensus Estimate but net sales surpassed the same. Notably, the bottom line fell short of the consensus mark for the second straight quarter.

Q1 Highlights

United Natural’s earnings of 59 cents per share, decreased 1.7% on a year-over-year basis. Excluding certain items, adjusted earnings came in at 55 cents, missing the Zacks Consensus Estimate of 74 cents. The bottom line in the quarter was impacted by rise in interest expenses.

Interest expenses of this distributor of food and non-food products (excluding expenses of $0.7 million owing to interest on the SUPERVALU senior notes) totaled $7.0 million compared with $3.7 million in the prior-year quarter.

Net sales increased 16.7% year over year to $2,868.2 million and exceeded the Zacks Consensus Estimate of $2,686 million. The uptick was driven by consistent strength in product demand. In fact, the metric grew across Supernatural, Independents and Independents channels as well.

Meanwhile, the company’s adjusted gross margin contracted 50 basis points (bps) to 14.4% on account of an unfavorable shift in consumer mix. Higher inbound freight costs also weighed on gross margin during the reported quarter.

Adjusted operating income declined 7.4% to $51 million due to gross margin contraction and increase in labor costs. However, the adjusted EBITDA were up 1.7% to $86.2 million.

Segment Sales

From a channel point of view, supernatural net sales surged 20.4% year over year, accounting for 35.8% of total net sales in the first quarter.

Conventional supermarket channel net sales rose 0.6%, representing 24.7% of total net sales.

Sales at the independently owned natural retailers jumped 4.4% and represented 23.3% of the company’s net sales.

At the other channel, net sales dipped 7.3% and constituted 8.5% of United Natural’s top line.

Other Financial Updates

United Natural ended the quarter with cash and cash equivalents of $53.9 million, long-term debt (excluding current portion) of nearly $1,924.2 million and total shareholders’ equity of approximately $1,830.3 million.

In the reported quarter, net cash used in operating activities was $107 million compared with $40.2 million in the prior-year quarter. Capital expenditures were approximately $16.4 million during the first quarter.

Fiscal 2019 Guidance

Following the acquisition of SUPERVALU, the company has updated its fiscal 2019 guidance.  For fiscal 2019, management projects net sales to be $21.5-$22 billion. Adjusted earnings in the fiscal year are anticipated to be $1.69-$1.89 per share.

On a GAAP basis, the bottom line is envisioned to be in the range of loss of 19 cents to earnings of 1 cent per share.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -50.93% due to these changes.

VGM Scores

Currently, United Natural has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. 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. It's no surprise United Natural has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.




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