Specialty foods distributor, United Natural Foods, Inc. (UNFI) delivered second quarter fiscal 2014 earnings of 56 cents per share, in-line with the Zacks Consensus Estimate. Earnings surged 21.7% from the prior year adjusted earnings of 46 cents, driven by top-line growth, cost control initiatives and improved operating margin, which offset higher outstanding share count.
Revenue and Margin Details
Net sales for the quarter were almost in line with the Zacks Consensus Estimate but increased 13.9% year over year to $1.646 billion. The results were driven by continuous increase in demand for the company’s organic and natural food products and robust acquisitions.
The company continued to focus on its core strategies to further increase market share while improving the operational efficiency of the businesses. Excluding the sales impact of the acquisition of Trudeau’s distribution business (closed in the first quarter), net sales increased 12.6%.
Supermarket sales increased 15.3% in the second quarter, with supermarkets representing 26% of sales. Supernatural channel sales increased 12.7% and it represented 37% of sales in the second quarter of fiscal 2014. Sales growth in the Independent channel was 11.5% and represented approximately 32% of sales. Food service comprised approximately 3% of total sales and increased 26.9% in the second quarter.
Gross margin was 16.3%, declining 40 basis points from 16.7% in the year-ago period and 60 basis points from 16.9% in the prior quarter, primarily due to poor weather, foreign currency headwinds and the unfavorable shift in customer mix.
The company’s productivity initiatives helped reduce operating expense ratio by 70 basis points in the second quarter to 13.3%, which boosted operating income margin. Operating income margin increased 27 basis points to 3.0% in the reported quarter.
Fiscal 2014 Guidance Raised
United Natural has raised its earnings and sales guidance for fiscal 2014, based on the second quarter results. The company has raised its net sales guidance to a range of $6.70-$6.78 per share from the prior-expectation of approximately $6.65 to $6.78 billion. This marks an increase of approximately 10.5% to 11.8% over fiscal 2013 (including the additional week in fiscal 2013).
The company also raised its reported earnings guidance for fiscal 2014 to a range of approximately $2.45 to $2.51 per share from the prior expectation of $2.40 - $2.50 per share. This marks an increase of approximately 12.4% to 15.1% over fiscal 2013 reported earnings of $2.18 per share.
With the increasing demand for a healthy lifestyle, food safety and environmental sustainability, the demand for organic products is growing rapidly. Moreover, it is believed that the growth rate of the natural products industry has outpaced the growth of the overall food-at-home industry.
United Natural currently holds a Zacks Rank #3 (Hold). Other better-ranked food companies include Diamond Foods, Inc. (DMND), The Hain Celestial Group, Inc. (HAIN) and Post Holdings Inc. (POST), all of them holding a Zacks Rank #2 (Buy).