Why Is United Natural Stock Losing Sheen In The Market?

Shares of United Natural Foods, Inc. (NASDAQ:UNFI) have underperformed the Zacks categorized Food–Miscellaneous/Diversified industry and the broader sector on a year-to-date basis. The stock declined 16.3% against the industry’s gain of 1.2%. Meanwhile, the Zacks categorized Consumer Staples sector gained 11%. Let’s delve deeper to find what’s troubling the stock.

Headwinds Affecting UNFI

We note that United Natural has been grappling with the ongoing industry challenges, including heightened competition and deflationary environment. Evidently, promotional activities and competitive pricing pressure remained the major headwinds in the first half of fiscal 2017.

Deflation was 30 basis points in the second quarter of fiscal 2017, higher than 13 bps deflation level in the preceding quarter. These factors have been weighing upon its sales that have missed the Zacks Consensus Estimate for nine straight quarters including the second quarter.

In the second quarter, the company posted earnings of 50 cents that were in line with the Zacks Consensus Estimate, after missing the same in the previous quarter. Further, management slashed its fiscal 2017 earnings and sales outlook based on the company’s second quarter’s performance and the restructuring program. United Natural now expects net sales in the range of nearly $9.38–$9.46 billion, down from the previously announced range of $9.43–$9.60 billion.

Moreover, its adjusted earnings per share for fiscal 2017 are estimated to be in the range of approximately $2.53–$2.58 compared with fiscal 2016 adjusted earnings of $2.59. In fact, the Zacks Consensus Estimate of $2.54 for fiscal 2017 is currently pegged within the guided range.

United Natural is slated to report its third-quarter fiscal 2017 results on Jun 6, after the closing bell. Our proven model show that United Natural is unlikely to beat earnings estimates this quarter as it has an Earnings ESP of 0.00% with both the Most Accurate estimate and the Zacks Consensus Estimate at 76 cents. Moreover, it carries a Zacks Rank #4 (Sell).

We are encouraged that management has announced a restructuring program mainly associated with the severance and other employee separation costs in conjunction with the opening of a shared services center, earlier announced acquisitions coupled with other workforce reduction. The acquisitions of Gourmet Guru in Aug 2016, Haddon House Food Products, Inc. (Haddon) in May 2016, Nor-Cal Produce, Inc. (Nor-Cal) in Apr 2016 and Global Organic/Specialty Source, Inc. (Global Organic) in Mar 2016 are also impacting sales favorably.

The company has also posted improved gross margin in the second quarter driven by the company’s margin improvement initiatives and the favorable impact of acquisitions. However, it should be noted that the company’s gross margins have been declining over the last few quarters due to stiff competition both in retail and wholesale, promotional activities, pricing pressure and food deflation.

We noted that estimates are largely stable ahead of its third-quarter earnings release. Let’s see whether the company is able to spark a turnaround in its performance backed by its strategic initiatives.

Here are the Key Picks for You

Better-ranked stocks in the same industry include Aramark (NYSE:ARMK) , B&G Foods, Inc. (NYSE:BGS) and Lamb Weston Holdings, Inc. (NYSE:LW) , all carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Aramark has posted an average beat of 4.5% in the past four quarters and has a long-term earnings growth rate of 12.8%.

B&G Foods has posted an average beat of 2% in the past four quarters and has a long-term earnings growth rate of 10%.

Lamb Weston, with a long-term earnings growth rate of 4.2% has increased 20.6% year to date.

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