Advertisement
U.S. markets open in 1 hour 39 minutes
  • S&P Futures

    5,190.25
    -24.50 (-0.47%)
     
  • Dow Futures

    39,131.00
    -92.00 (-0.23%)
     
  • Nasdaq Futures

    18,108.50
    -123.00 (-0.67%)
     
  • Russell 2000 Futures

    2,039.90
    -9.90 (-0.48%)
     
  • Crude Oil

    82.72
    0.00 (0.00%)
     
  • Gold

    2,158.20
    -6.10 (-0.28%)
     
  • Silver

    25.15
    -0.11 (-0.46%)
     
  • EUR/USD

    1.0854
    -0.0022 (-0.21%)
     
  • 10-Yr Bond

    4.3400
    0.0000 (0.00%)
     
  • Vix

    14.84
    +0.51 (+3.56%)
     
  • GBP/USD

    1.2693
    -0.0036 (-0.28%)
     
  • USD/JPY

    150.4240
    +1.3260 (+0.89%)
     
  • Bitcoin USD

    63,100.79
    -5,129.61 (-7.52%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • FTSE 100

    7,700.91
    -21.64 (-0.28%)
     
  • Nikkei 225

    40,003.60
    +263.20 (+0.66%)
     

United Natural Continues with Cost Containment Efforts

On Jun 26, 2014, we issued an updated research report on United Natural Foods, Inc. (UNFI). This specialty foods distributor reported third-quarter fiscal 2014 results on Jun 10.

United Natural’s earnings of 73 cents per share lagged the Zacks Consensus Estimate, but it surged 14.1% from the prior year, as cost control initiatives and improved operating margin more than offset the sluggish macro-economic scenario and weather related headwinds.

Net sales were almost in-line with the Zacks Consensus Estimate and increased 13.8% year over year to $1.782 billion. The results were driven by continuous increase in demand for the company’s organic and natural food products and robust acquisitions. Trudeau Foods, acquired in the first quarter of fiscal 2014, contributed net sales of approximately $18.0 million.

Most recently, the company has agreed to acquire all the stock of Tony’s Fine Foods, a specialty distributor of perishable food products. The transaction is expected to close late in the fourth quarter of fiscal 2014 and is expected to be accretive to earnings in fiscal 2015. Post-acquisition, Tony’s Fine Foods will become a wholly-owned subsidiary of United Natural.

Acquisitions like these are expected to enhance the company’s position in the natural and organic industry in the U.S. and Canada and increase its market share in the specialty products industry.

However, the shift in customer mix to lower-margin conventional supermarkets has been negatively impacting the company’s gross margins over the past several quarters. In the third quarter, gross margin also declined due to foreign currency headwinds and poor weather, which obstructed inbound transportations. However, the decline in gross margin was offset by improved productivity initiatives which helped reduce operating expense ratio by 13 basis points in the third quarter to 13.2%, which in turn boosted operating income margin.

Overall, we remain impressed with the company’s decision to divest the company's non-foods and general merchandise lines that has allowed it to concentrate on its core business of the distribution of natural, organic, and specialty foods. However, the company continues to expect most of the net sales growth to occur in the lower gross margin supernatural and conventional supermarket channels in fiscal 2014.

United Natural now carries a Zacks Rank #3 (Hold).

Key Picks from the Sector

Some better-ranked companies in the food industry include BRF S.A. (BRFS), TreeHouse Foods Inc. (THS) and The Hain Celestial Group, Inc. (HAIN). While BRF S.A. carries a Zacks Rank #1 (Strong Buy), Hain Celestial and Treehouse hold a Zacks Rank #2 (Buy).

Read the Full Research Report on UNFI
Read the Full Research Report on HAIN
Read the Full Research Report on BRFS
Read the Full Research Report on THS


Zacks Investment Research

Advertisement