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United Natural Up 8% Since Q4: Will the Rally Continue?


United Natural Foods, Inc’s UNFI shares have returned 8.8% since the company reported upbeat fourth-quarter fiscal 2017 results on Sep 13. United Natural has been benefiting from increased consumer preference for natural and organic brands, despite industry concerns such as stiff competition, aggressive promotional spending and tight margins that are bothering most of the grocery firms. The company’s top line has also been gaining from strategic acquisitions.

Altogether, such factors have also been aiding the company’s price performance over the past three months. United Natural’s shares have surged 14.1% in the said time frame, compared with the industry’s decline of 1.9%.

Let’s now delve into some of the factors that have been impacting United Natural’s performance of late.

Acquisitions – A Major Growth Driver

Acquisitions have been one of the primary growth drivers for United Natural over the past few years. The acquisition of Haddon House (May 2016) and Gourmet Guru (August 2016) have helped the company boost sales by 5.7% during the fourth quarter of 2017. Such acquisitions have aided United Natural to expand distribution network, customer base, launch new brands as well as expand its footprint in key markets.

Few other major acquisitions of the company in the past include Nor-Cal Produce, Inc, Tony’s Fine Foods (in July 2014), Trudeau Foods (in September 2013) and SunOpta Inc (in June 2010).

Consumer Shift Toward Organic & Natural Food

The growth rate of the natural products industry has outpaced the same for the overall food-at-home industry in recent times, as a result of increasing demand for healthy lifestyle, food safety and environmental sustainability. The company’s e-commerce channel is also witnessing growth in natural and organic food products. This rapid adoption rate of organic products has led to new opportunities for United Natural and has resulted in increased shelf space across a growing number of retailers.

Efficiency Enhancing Efforts

The company has also been on track with reducing its operating expenses and enhancing operating efficiency including initiatives to exit from less-profitable businesses. During the third quarter of fiscal 2017, United Natural sold off its stake in Kicking Horse Coffee business. The sale generated profits of $6.1 million in the fourth quarter of fiscal 2017, and contributed toward improving the company’s bottom line.

Bottom Line

Notably, the food industry is undergoing dramatic changes after the acquisition of Whole Foods Market by online biggie Amazon.com, Inc. AMZN. It has also resulted in uncertainty over United Natural’s partnership agreement with Whole Foods for the distribution of the latter’s products.

Nevertheless, we expect that United Natural’s consistent efforts to drive its organic and natural food products sales through acquisitions and restructuring will aid the company toward overcoming such challenges and thereby sustain growth momentum.

Considering the pros and cons, United Natural currently carries a Zacks Rank #3 (Hold).

Looking for More Consumer Staples Stocks? Check These

Investors may also consider stocks such as Estée Lauder Companies Inc EL flaunting a Zacks Rank #1 (Strong Buy) and Constellation Brands, Inc STZ carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1stocks here.

Estée 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%.

Constellation Brands pulled off 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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