United Natural (UNFI) Q3 Earnings Beat Estimates, Sales Miss

United Natural Foods, Inc. (NYSE:UNFI) released third-quarter fiscal 2019 results, wherein earnings surpassed the Zacks Consensus Estimate while sales lagged. However, the top line improved year over year. Meanwhile, the bottom line fell year over year due to lower operating income and high interest expenses. Also, management’s dismal view for the current fiscal was a letdown.

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

Q3 Highlights

United Natural’s earnings of 61 cents per share surpassed the Zacks Consensus Estimate of 51 cents but plunged 41.3% on a year-over-year basis.

Net sales amounted to 5,962.6 million, depicting a radical increase of almost $3,313.7 million from the year-ago quarter’s tally. However, the top line missed the Zacks Consensus Estimate of $6,176 million. The Supernatural and Independents channels also continued to perform well. Apart from these, a robust performance in Supermarkets boosted the company’s sales. Further, legacy sales inched up nearly 2.8%.

Meanwhile, the company’s adjusted gross margin contracted 219 basis points (bps) to 15.4% due to the inclusion of SUPERVALU, which contributed at a reduced gross profit rate.

Further, adjusted operating income fell almost 38.2% to $50.9 million due to gross margin shrinkage and higher operating expenses. Nevertheless, adjusted EBITDA shot up almost 50.3% to $168.2 million in the said quarter.

Segment Sales

From a channel point of view, supernatural net sales rose 11.1% year over year, contributing 18.5% to total net sales in the fiscal third quarter.

Supermarket channel net sales surged more than five-folds and contributed 61.6% to net sales. Excluding SUPERVALU, the segment’s legacy sales dipped nearly 1.8%.

Sales in the independent channel rose 20.2% and contributed 13.9% to net sales. Excluding SUPERVALU’s impact, net sales in this unit were nudged up 2.5%.

In the Other channel, net sales improved 36.5% and accounted for roughly 6% to United Natural’s top line.

Other Financial Updates

This Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of $37.9 million, long-term debt of nearly $2,944 million and total shareholders’ equity of approximately $1,530.2 million.

In the reported quarter, net cash provided by operating activities was roughly $77.2 million. Capital expenditures were approximately $57 million during the third quarter.

Fiscal 2019 Guidance

Management has updated its bottom-line view for fiscal 2019 wherein it expects the metric to be at a loss of $5.65-$5.85. This outlook includes the contribution of $38.3 million related to goodwill impairment charge adjustment along with elevated restructuring, acquisition and integration costs of $10 million. Earlier, management projected adjusted earnings of $2-$2.40. Also, the company now anticipates adjusted EBITDA to be at the lower end of the earlier guided range of $580-$610 million.

Moving ahead, the company is firmly focused on its cost-reduction efforts. In this regard, it is on track to achieve cost savings of more than $36 million in fiscal 2019. Additionally, management retained its long-term target of more than $185 million in cost savings by the end of fiscal 2022.

Price Performance

In the past three months, the stock has dropped 28.2% against the industry’s growth of 6.1%.

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