United Natural Foods, Inc. (UNFI - Free Report) is slated to release fourth-quarter fiscal 2019 results on Oct 1. This provider of natural, organic and specialty food and non-food products has delivered back-to-back positive earnings surprises in the trailing two quarters.
Let’s see what’s in store for the company this time around.
What to Expect?
The Zacks Consensus Estimate for earnings in the fourth quarter has been stable over the past 30 days at 69 cents, which however suggests a decline of 9.2% from the year-ago period’s reported figure. The consensus mark for revenues is $6,435 million, indicating a considerable increase from $2,592 million reported in the year-ago quarter.
Factors to Aid Results
United Natural is expected to gain from growth across channels, which in turn have been benefiting from strong brands and rising consumer demand. Additionally, contributions from SUPERVALU (acquired in October 2018) are likely to drive United Natural’s top line in the to-be-reported quarter. This was also witnessed in the last reported quarter, wherein supermarket channel net sales surged at a significant rate primarily backed by gains from the SUPERVALU buyout.
United Natural’s other buyouts are also expected to keep benefiting results. Buyouts have been driving growth for many other food companies like Hershey (HSY - Free Report) , Conagra Brands (CAG - Free Report) and Smucker (SJM - Free Report) , among others. Coming back to United Natural, we expect it to continue gaining from its focus on enhancing customer base, expanding the broad-line distribution channel and improving profitability. Additionally, management is on track with improving margins, cash flow and revenue streams. Apart from these, the company is witnessing consistent demand growth for its better-for-you products.
The company has been experiencing challenges at several distribution centers, driven by headwinds such as store closures and a slower rate of growth at new stores. These are largely due to the slowing rate of growth for some of the top customers of the company. Though United Naturals is focused on enhancing efficiency in its distribution and supply-chain networks, we are yet to see the outcome of these efforts.
Moreover, the challenges being witnessed across some of the distribution networks have led to increased transportation, labor and shrink costs. This is a threat to margins and the bottom line. Talking of margins, the company’s gross margin contracted in the third quarter, due to the inclusion of SUPERVALU, which contributed to the reduced gross profit rate. The metric was negatively impacted by shift in consumer mix. Further, sales from low-margin customers have been growing at a higher rate than other customers, which keeps the gross margin under pressure.
What the Zacks Model Unveils
Our proven model doesn’t show a beat for United Natural this earnings season. For this to happen, a stock needs to have both 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 has a Zacks Rank #3, its Earnings ESP of 0.00% makes surprise prediction difficult.
You can see the complete list of today’s Zacks #1 Rank stocks here.
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