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United Natural (UNFI) Tops Q4 Earnings, Issues 2018 Guidance


United Natural Foods, Inc. UNFI posted fourth-quarter fiscal 2017 results, wherein earnings surpasses the Zacks Consensus Estimate, while revenues lagged the same.

We note that the shares of this Zacks Rank #4 (Sell) company have declined 6.4% in the past three months, almost in line with the industry’s fall of 7.8%.

Fourth-Quarter Earnings

This distributor of food and non-food products reported fourth-quarter adjusted earnings of 72 cents that came ahead of the Zacks Consensus Estimate by 3 cents and also depicted an increase of 2.9% from earnings of 70 cents in the prior-year quarter. Earnings were positively impacted by the gains arising from the sale of the company’s stake holdings in Kicking Horse coffee. Moreover, increased adjusted operating income and EBITDA complimented the higher earnings recorded during the period.

Q4 Revenue and Margin Details

Net sales of $2.34 billion lagged the Zacks Consensus Estimate of $2.37 billion. We note that sales have been lagging the Zacks Consensus Estimate for 11 straight quarters, including the current one. However, net sales for the fourth quarter depicted a 5.7% growth from the year-ago period, owing to acquisition-integrated benefits from Gourmet Guru, Inc. and Haddon House Food Products.

Also, during the fourth quarter, the company experienced inflation of 13 basis points (bps), thereby breaking the chain of deflation experienced over the past few quarters.

Gross margin during the period expanded 15 bps to 15.8%. Fuel surcharges and margin enhancement initiatives aided gross margin expansion, which was slightly offset by competitive pricing.

Further, adjusted operating income increased 1.3% to reach $64.4 million. Adjusted EBITDA also went up 3.5% from the prior-year period to $86.5 million.

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

Synopsis of Segment Sales

From a channel point of view, supernatural net sales increased 6.8% than the prior-year quarter. The channel accounted for 32.9% of total net sales in the quarter that depicted an improvement of 30 bps from the previous year.

Supermarket channel net sales increased 8.3% during the quarter. It represented 29.9% of total net sales.

Sales of the independent channel went up 4.5% in the fourth quarter and represented 26.3% of the company’s net sales.

Net sales of food services went up by 0.6%, gaining from e-commerce growth of 22.4%. The channel sales, however, slowed down owing to rationalizing efforts incurred for the less profitable businesses.

Full-Year Fiscal 2017 Results

Adjusted earnings for the fiscal year 2017 amounted $2.57 per share that declined 0.8% from the prior year. However earnings surpassed the Zacks Consensus Estimate of $2.54 per share.

Net sales for the fiscal year of $9.3 billion depicted a rise of 9.5% from last year, mainly due to gains from the acquisitions of Nor-Cal Produce, Inc., Global Organic/Specialty Source, Inc., Haddon House Food Products, Inc. and Gourmet Guru, Inc. Sales, however, lagged the Zacks Consensus Estimate of $9.30 billion.

Other Financial Update

During the fourth quater of fiscal 2017, the company gained approximately $6.1 million from the divestiture of its stake in Kicking Horse Coffee. Though the transaction was carried out in the third quarter, benefits pertaining to it were received in the fourth quarter.

United Natural ended fiscal 2017 with cash and cash equivalents of 15.4 million. Long-term debt for the year amounted to 28.3 million.

Capital expenditures were approximately $56.1 million during the year, resulting in free cash flow of $224.7 million.

Fiscal 2018 Guidance

United Natural expects net sales for fiscal 2018 to be in the range of $9.6 billion to $9.8 billion. This depicts a rise of 3.8% to 5.8% over the net sales of fiscal 2017. The Zacks Consensus Estimate for net sales during fiscal 2018 is currently pegged at $9.7 billion, which falls within management’s guidance.

Further, the company expects earnings for fiscal 2018 to be in the range of $2.67 to $2.77 per share. The current Zacks Consensus Estimate of $2.64 is below this guided range. The company also expects a negative impact of 3 cents upon the projected earnings, due to the adoption of ASU (Accounting Standard Update) 2016-09, which would lead to raising the tax rate.

Our Take

While United Natural has been gaining from its strategic acquisitions, competitive pricing has been hindering its performance.

Moreover, although United Natural’s sales have finally begun benefiting from inflation, its growth rate has been meager in the fourth quarter.

Looking for Consumer Staples Stocks? Check These

Investors may also consider other stocks from the Consumer Staples sector such as Nu Skin Enterprises, Inc. NUS, Estee Lauder Companies, Inc. EL and Constellation Brands, Inc. STZ, all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

Nu Skin delivered an average positive earnings surprise of 10.8% in the trailing four quarters. It has a long-term earnings growth rate of 8.7%.

Estee Lauder delivered an average positive earnings surprise of 13.7% in the trailing four quarters. It has a long-term earnings growth rate of 12.2%.

Constellation Brands delivered an average positive earnings surprise of 11.7% in the trailing four quarters. It has a long-term earnings growth rate of 18.2%.

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