Why Is United Natural (UNFI) Up 30.7% Since Last Earnings Report?

A month has gone by since the last earnings report for United Natural Foods (UNFI). Shares have added about 30.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is United Natural due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

United Natural’s Q1 Earnings Miss, Sales up Y/Y

United Natural Foods, Inc. reported first-quarter fiscal 2020 results, with the top line beating the Zacks Consensus Estimate and rising year over year. However, earnings lagged the consensus mark and fell year over year.

Q1 Highlights

United Natural’s adjusted earnings of 12 cents per share fell way short of the Zacks Consensus Estimate of 23 cents and tumbled 22.7% year over year. The decline can be attributable to increased interest expenses along with lower adjusted operating income partially offset by net income from discontinued operations.

Net sales amounted to 6,019.6 million, depicting a considerable increase from $3,151.4 million reported in the year-ago quarter. Excluding contributions from SUPERVALU, the segment’s legacy net sales climbed 2.8% mainly on the back of continued strength in the Supernatural and supermarkets channel. Moreover, the top line beat the Zacks Consensus Estimate of $5817 million.

Meanwhile, the company’s gross margin contracted 157 basis points (bps) to 12.81% due to the inclusion of SUPERVALU, which contributed at a reduced gross profit rate.

Further, the adjusted operating margin was flat year-over-year 1.78%. Nevertheless, adjusted EBITDA shot up significantly to $121.7 million owing to SUPERVALU’s inclusion.

Segment Sales

From a channel point of view, Supernatural net sales rose 8.2% year over year, contributing 18.5% to total sales in the fiscal first quarter. Excluding SUPERVALU, the segment’s legacy sales improved 8.2%.

Supermarkets channel net sales surged massively and contributed roughly 63% to total sales. Excluding SUPERVALU, the segment’s legacy sales grew 3.6%.

Sales in the Independents channel rose 13.6% and contributed nearly 13% to net sales. Excluding SUPERVALU’s impact, legacy sales in this unit dropped up 2.3%.

In the Other channel, net sales surged 56.1% and accounted for 6.3% to United Natural’s top line. Excluding SUPERVALU’s impact, legacy sales in this unit fell 9%.

Other Financial Updates

The company ended the quarter with cash and cash equivalents of $39.8 million, long-term debt of nearly $3,051.2 million and total shareholders’ equity of approximately $1,123.2 million.

In fiscal 2019, net cash used by operating activities was $134.9 million. Capital expenditures were $41 million during the fiscal.

Fiscal 2020 Guidance

For fiscal 2020, management expects net sales of $23.5-$24.3 billion. Adjusted EBITDA is anticipated between $560 million and $600 million. Further, the company envisions adjusted earnings per share of $1.22-$1.76, which reflects a decline from $2.08 reported in fiscal 2019.

The company is firmly focused on its cost-reduction efforts and achieved cost savings of about $70 million in fiscal 2019. Earlier, management stated that it aims to achieve its long-term target of over $185 million in cost savings by the end of fiscal 2022.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -19.36% due to these changes.

VGM Scores

At this time, United Natural has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. 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 this revision indicates a downward shift. Notably, United Natural has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.