Here's Why You Should Give United Natural (UNFI) Stock a Miss
United Natural Foods, Inc. UNFI has been bearing the brunt of tough macroeconomic trends, product cost inflation, supply chain constraints and rising operating costs and expenses.
The current Zacks Rank #4 (Sell) player has a market capitalization of $1.2 billion. In the past six months, UNFI has lost 49.5% compared with the industry’s decline of 2.6%.
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Let’s discuss the factors that might continue to affect the firm’s performance in the near-term.
Soft Operational Performance: United Natural has been grappling with increased shrinkage and reduced inflationary benefits related to lower procurement gains, which has been impacting its profitability. In the third quarter of fiscal 2023, the company’s adjusted earnings declined 50.9% year-over-year to 54 cents per share. The metric also missed the Zacks Consensus Estimate of 63 cents.
On its third-quarter earnings call, the company highlighted that it expects to witness similar profitability trends throughout the fiscal year as it continues to lap periods of considerable procurement gains.
Tepid Fiscal 2023 Outlook: In regard to the tough operating landscape, the premier food wholesaler lowered its profitability view. For fiscal 2023, the company anticipates generating an adjusted EBITDA of $610-$650 million compared with $715-$785 million projected earlier. At the midpoint, the metric suggests a 24% decline on a year-over-year basis.
UNFI anticipates adjusted earnings in the range of $1.80-$2.30 per share, down from its previous guidance of $3.05-$3.90. At the midpoint, the updated view indicates a 57.6% slump from the fiscal 2022 reported figure.
Rising Costs & Expenses: The company continues to battle increased cost inflation, supply-chain bottlenecks and operational complexities. In the fiscal third quarter, its operating expenses remained high at $967 million, with an increase in occupancy-related costs. UNFI’s gross margin (excluding non-cash charges) of 13.8% contracted from 15% in the year-ago quarter.
Stiff Competition: UNFI is exposed to stiff competition and an aggressive promotional environment. Customers are also gradually inclining toward private-label products as low-cost alternatives to national brands. Such industry-wide headwinds might adversely impact its performance.
However, United Natural has been benefiting from its Fuel the Future strategy. Management remains focused on increasing market share via network optimization, solid innovation and a better customer experience.
3 Promising Staple Stocks
Here we have highlighted three top-ranked stocks, namely J&J Snack Foods Corporation JJSF, MGP Ingredients, Inc. MGPI and Celsius Holdings CELH.
J&J Snack Foods is an American manufacturer, marketer and distributor of branded niche snack foods and frozen beverages for the food service and retail supermarket industries. JJSF has a trailing four-quarter earnings surprise of 4.7%, on average. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for J&J Snack Foods’ current fiscal-year sales and earnings suggests growth of 11.1% and 62.3%, respectively, from the year-ago reported figures.
MGP Ingredients produces and markets ingredients and distillery products for the packaged goods industry. The company currently flaunts a Zacks Rank #1. MGPI has a trailing four-quarter earnings surprise of 18%, on average.
The Zacks Consensus Estimate for MGP Ingredients’ current financial-year sales and earnings suggests growth of 5.8% and 10.4%, respectively, from the year-ago reported numbers.
Celsius Holdings, which offers functional drinks and liquid supplements, currently has a Zacks Rank #2 (Buy). CELH delivered an earnings surprise of 100% in the last reported quarter.
The Zacks Consensus Estimate for Celsius Holdings’ current financial-year sales and earnings suggests growth of 87.6% and 168.8%, respectively, from the year-ago reported numbers.
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United Natural Foods, Inc. (UNFI) : Free Stock Analysis Report
J & J Snack Foods Corp. (JJSF) : Free Stock Analysis Report
MGP Ingredients, Inc. (MGPI) : Free Stock Analysis Report
Celsius Holdings Inc. (CELH) : Free Stock Analysis Report
