United Natural (UNFI) Down 9.8% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for United Natural Foods (UNFI). Shares have lost about 9.8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is United Natural due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
United Natural Cuts Profit View on Q3 Earnings Miss
United Natural Foods posted soft third-quarter fiscal 2023 results, wherein the top and bottom lines missed the Zacks Consensus Estimate and the bottom line tumbled year over year. Profitability was largely hurt by a decline in the gross margin stemming from increased shrinkage and reduced inflationary benefits due to a tough operating landscape.
Consequently, management sharply reduced its adjusted EBITDA and adjusted earnings per share (EPS) guidance for fiscal 2023 while retaining the net sales view.
Quarter in Detail
United Natural’s adjusted earnings came in at 54 cents per share, down 50.9% from the year-ago quarter’s figure. The metric missed the Zacks Consensus Estimate of 63 cents.
Net sales rose 3.7% to $7,507 million, though it missed the Zacks Consensus Estimate of $7,524 million. The year-over-year upside was mainly backed by inflation and new businesses. Gains from new businesses resulted from selling expanded or new categories to existing and new customers. These factors were somewhat offset by a decline in units sold.
Sales increased across most of UNFI’s channels, other than Retail. Chains, Independent retailers and Supernatural channels witnessed sales growth of 0.6%, 2.3% and 12.2%, respectively. Other channel sales advanced 2.4%. Meanwhile, Retail channel sales dipped 0.7%.
United Natural’s gross profit fell 1.2% to $1,000 million. Excluding non-cash LIFO charges, the gross profit declined 4.7%. Gross margin (excluding non-cash LIFO charges) of 13.8% contracted from 15% in the year-ago quarter. The downside can be attributed to reduced procurement gains and decreased inflationary benefits stemming from a volatile macroeconomic landscape. Apart from this, increased shrinkage levels and costs associated with operational improvements affected the gross profit.
Operating expenses were $967 million compared with $969 million reported in the year-ago quarter. However, elevated occupancy-related costs remained a downside.
Adjusted EBITDA came in at $159 million, down from $196 million reported in the year-ago quarter.
Other Updates
The company ended the quarter with total liquidity of nearly $1.62 billion, including cash of nearly $38 million and a borrowing capacity of about $1.58 billion under the company’s asset-backed lending facility. Total outstanding debt (net of cash) was $2.02 billion.
Free cash flow during the third quarter was $65 million. During the quarter, United Natural bought back nearly 368,000 shares for nearly $12 million.
The company expects capital expenditures of nearly $350 million for fiscal 2023.
Fiscal 2023 Guidance
For fiscal 2023, the company still anticipates net sales in the range of $30.1-$30.5 billion.
The company now expects adjusted EBITDA in the range of $610-$650 million. Earlier, management had anticipated adjusted EBITDA in the range of $715-$785 million.
Net income is envisioned to be $11-$41 million compared with the prior projection of $90-$142 million.
The company now anticipates fiscal 2023 adjusted earnings in the range of $1.80-$2.30 per share, down from the previous guidance range of $3.05-$3.90 per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -161.72% due to these changes.
VGM Scores
At this time, United Natural has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise United Natural has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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United Natural Foods, Inc. (UNFI) : Free Stock Analysis Report
