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United Natural Up as Preliminary Results Reflect High Demand

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Increased social distancing and stay-at-home trends led by the novel coronavirus has spiked up demand for several staple products, including those of United Natural Foods, Inc. (UNFI - Free Report) . The company released solid preliminary results for third-quarter fiscal 2020 and highlighted that customer demand for its convenient as well as natural products soared in third-quarter beginning and remained high.

Following the announcement, shares of this Zacks Rank #1 (Strong Buy) company rallied 7.7% in the after-market trading session on May 12. In fact, United Natural’s shares have more than doubled in the past three months against the industry’s decline of 10.7%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Preliminary Q3 Results

We note that the company has been focused on meeting the surging demand amid the crisis, thanks to its front-line distribution center, transportation and retail workers. The rising demand along with the company’s integration and synergy efforts led to robust preliminary results for the third quarter. The solid year-to-date performance also caused management to withdraw its guidance for fiscal 2020.

Based on the current trends and the burgeoning demand, United Natural provided preliminary numbers for the third quarter. Net sales advanced 12% to $6,668 million. Adjusted EBITDA jumped 32% to $222 million and adjusted earnings per share more than doubled to $1.40 per share. The Zacks Consensus Estimate for third-quarter earnings is currently pegged at 46 cents.

Results were backed by robust coronavirus-led demand, which helped the company leverage fixed costs and capitalize on synergy and integration initiatives associated with the buyout of Supervalu. Further, results were bolstered by gains from the Cub and Shoppers retail banners. However, results also reflect incremental costs associated with the pandemic, like costs to ensure safety measures at distribution centers and retail outlets along with temporary COVID-19-related incentives.

Meanwhile, United Natural lowered its net debt by roughly $290 million during the quarter under review, which includes a $10-million benefit from asset sales. The company had outstanding net debt worth around $2.68 billion and total liquidity of nearly $1.2 billion as of May 2, 2020.

Wrapping Up

Apart from United Natural, many other food companies like Kraft Heinz (KHC - Free Report) , TreeHouse Foods (THS - Free Report) and General Mills (GIS - Free Report) are benefiting from the increased demand induced by the coronavirus-led stockpiling. United Natural is focused on keeping the shelves of North America filled all the time. To this end, it is also undertaking measures like additional hiring, paying temporary bonuses to certain workers and taking initiatives to ensure safety of its employees.

The rising demand and the commitment to ensuring supply-chain continuity are likely to work well for United Natural.

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