Overall very positive but brings up cash flow & fact UNFI forward PE is 30 bringing up question is UNFI growth priced in stock pps. I am long (in at $25.90) & would point out organic & natural foods cater to upscale end of food business. As my brother says about Whole Foods: "It's expensive but when buying, say a nice free range non-steroid steak for dinner. Your eating a damn good piece of meat." So customers willing to pay premium. Cash has ragged on this board about UNFI's fuel sur-charge. Considering UNFI's reported earnings today. It looks like customers are willing to pay that fuel sur-charge. Another complaint on this board was UNFI's accounting cost for employee stock compensation. UNFI lowered it's previous expected cost for accounting. As Motley article points out UNFI still has areas where it can & should try to become more efficient.
United Natural Foods' Green Quarter By Alyce Lomax (TMF Lomax) February 28, 2006
Hold on to your granola. Investors liked what they saw when natural and organic products distributor United Natural Foods (Nasdaq: UNFI) showed a hint of green on Tuesday with its second-quarter earnings figures.
United Natural Foods said Q2 net income rose 15.3% to $10.6 million, or $0.25 per diluted share, including special items related to costs associated with the transition of warehouses to a larger facility. Sales increased 19% to $601.1 million, a growth rate that the company attributed to strong growth across all major sales channels in its wholesale segment.
There were some other highlights in the report, if you compare it with the previous quarter. For example, gross margin improved to 19.4% from 18.9% in the second quarter last year. And while inventories grew faster than sales last quarter, United Natural Foods seems to have alleviated that trouble spot this quarter, with inventories growing only 12%.
An additional boon to investors was that United Natural Foods upped its 2006 earnings guidance to a range of $1.05 to $1.10 per share, compared with its previous guidance of $1.03 to $1.08 per share.
One of the most interesting things about United Natural Foods is that it feeds into the popularity of organic and natural foods from behind the scenes -- it supplies well-known organic grocers such as Motley Fool Stock Advisor recommendation Whole Foods Market (Nasdaq: WFMI) and Wild Oats (Nasdaq: OATS). (In the company's conference call, management said Whole Foods represented 27.2% of United Natural Foods' sales, while Wild Oats accounted for 9.7%.)
Although those are the well-known names one associates with United Natural Foods, it says in its annual report on Form 10-K that it supplies wares to more than 20,000 customers, including conventional names as well. Among the well-known companies that stock United Natural Foods' products are Kroger (NYSE: KR), Wegman's, BJ's Wholesale Club (NYSE: BJ), and Costco (Nasdaq: COST).
My Foolish colleague, Stephen Simpson, has been covering United Natural Foods for quite some time, and his recent observation that the impressive growth at Whole Foods Market bodes well for United Natural Foods still applies now. However, as Stephen noted then, there are still some elements that investors should take into consideration when looking at United Natural Foods -- elements like its continued negative free cash flow.
Despite some very encouraging elements in the quarter, United Natural Foods still sports a forward P/E of 31 that suggests the share price may already include a lot of positive sentiment about the company's growth potential. Regardless, United Natural Foods' position as a behind-the-scenes leader in a growing industry certainly makes it a stock to keep an eye on.