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Will Strong Demand Fuel United Natural's (UNFI) Q2 Earnings

Zacks Equity Research

United Natural Foods, Inc. UNFI is scheduled to release second-quarter fiscal 2019 results on Mar 5, after market close. This renowned distributor of natural, organic and specialty food and non-food products has a mixed history of earnings surprises in the trailing four quarters. Let’s see what’s in store this time.

Gains From Product Demand & Buyouts to Fuel Performance

Consistent strength in product demand is fueling United Natural’s performance across most sales channels. In fact, the company expects consistent demand growth for better-for-you products. Further, it strives to develop effective sourcing processes and supply chain networks to better align supplies with demand and meet consumers’ needs more efficiently.

Further, the company has been undertaking various acquisitions over the years to grow distribution network and customer base. Some of the notable buyouts include Haddon House and Gourmet Guru. Moreover, United Natural recently acquired SUPERVALU. During the first quarter of fiscal 2019, SUPERVALU contributed approximately $224 million to United Natural’s top line. The enhanced scale of the combined entities is expected to continue boosting efficiency in operations. Moreover, the merger is expected to provide better competing grounds to United Natural in the grocery space. Also, the company is on track with the divestiture of retail assets of SUPERVALU to focus on profitable areas. Moreover, management updated sales outlook for fiscal 2019 along with first-quarter 2018 results to project the benefits from this acquisition.

We expect such factors to continue bolstering United Natural’s performance across segments in the second quarter. Encouragingly, the Zacks Consensus Estimate for impending quarter sales is currently pegged at $5,995 million. This depicts an increase from the year-ago quarter’s reported figure of $2,528 million.

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

 

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

 

Hurdles Likely to Impact Performance

Although the aforementioned aspects are encouraging, there are certain headwinds that United Natural has been grappling with. These aspects are likely to impair the upcoming quarterly results. We note that the company is bearing the brunt of unfavorable shift in consumer mix for a while. This is stemming from lower margin customers that are growing at a higher rate than other customers. Higher inbound freight stemming from increase in fuel costs is also weighing on performance. Such downturns are denting gross margin rates.

Further, the company is exposed to supply chain hurdles, due to suppliers’ inability to meet the company’s demand completely, which is weighing on overall performance. The company has also been incurring higher labor expenses across several distribution centers, due to the higher-than-anticipated demand.

Such factors are likely to weigh on bottom-line results in the second quarter. Notably, the Zacks Consensus Estimate for earnings is currently pegged at 23 cents per share. This indicates a slump of nearly 67.6% from the prior-year quarter’s bottom-line figure of 71 cents. The estimate has been stable in the past 30 days.

What Does the Zacks Model Unveil?

Our proven model doesn’t show that United Natural is likely to beat bottom-line estimates this quarter. For this to happen, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Though United Natural Foods carries a Zacks Rank #3, its Earnings ESP of 0.0% makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks Poised to Beat Earnings Estimates

Here are some companies you may want to consider as our model shows that they have the right combination of elements to beat estimates.

Turning Point Brands, Inc TPB has Earnings ESP of +11.11% and a Zacks Rank #2.

Ollie's Bargain Outlet Holdings, Inc OLLI has an Earnings ESP of +1.43% and a Zacks Rank #2.

Nu Skin Enterprises, Inc. NUS has an Earnings ESP of +0.34% and a Zacks Rank #2.

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