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United Natural (UNFI) Looks Solid on Higher Demand & Buyout

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United Natural Foods, Inc. UNFI looks well paced, courtesy of rising demand due to coronavirus-induced higher at-home consumption. Moreover, the company’s focus on key strategies and lucrative acquisitions are noteworthy. Let’s take a closer look.

Burgeoning Demand & Impressive Outlook

United Natural is gaining from burgeoning demand amid coronavirus-induced elevated at-home consumption. This was seen in the first quarter of fiscal 2021, with the top and the bottom lines increasing year over year. Net sales from continuing operations increased 6% backed by robust customer demand from existing and new retailers along with continued gains of cross selling. Notably, increase in retail sales reflected significant benefit from higher e-commerce sales at Cub Foods.

Further, United Natural expects food-at-home consumption demand to remain elevated outpacing the demand for away from home services for the rest of fiscal 2021. During fiscal first-quarter results, management reiterated its fiscal 2021 outlook for net sales, adjusted earnings per share and adjusted EBITDA. Management continues to anticipate fiscal 2021 net sales in the range of $27-$27.8 billion. This suggests 3.3% growth over fiscal 2020 at midpoint. Further, United Natural reaffirmed adjusted EBITDA projection of $690-$730 million that indicates 5.5% rise over fiscal 2020 at midpoint. Also, it maintained adjusted earnings guidance of $3.05-$3.55 per share, which indicates an increase of 21.3% from fiscal 2020 levels at midpoint.

 

Other Growth Efforts

United Natural is committed toward certain strategic targets that include plans such as building and optimizing its distribution channel network, expanding brand portfolio and augmenting e-commerce business among others. In this regard, the company is on track with consolidating its distribution centers and making investment toward automation to enhance operational savings. Also, United Natural is focused on growing higher margin private brands, e-commerce and Retail Solutions businesses. In October 2020, the company partnered with Key Food to supply branded and private label conventional as well as natural products in the latter’s stores.

Additionally, the company is on track with improving margins, cash flow and revenue streams. Further, it strives to develop effective sourcing processes so as to better align supplies with demand and thereby meet consumers’ needs more efficiently.

Apart from these, United Natural is keen on undertaking acquisitions to expand its distribution network and customer base as well as boost long-term growth. In this regard, United Natural completed the buyout of SUPERVALU in October 2018. The enhanced scale of the combined entities has been driving United Natural’s performance. Moreover, the merger has provided better competing grounds to the company in the grocery space by augmenting offerings.

Wrapping Up

In first-quarter fiscal 2021, United Natural incurred higher operating cost to the tune of around $20 million. This was caused by coronavirus-induced hurdles as well as expenses related to new distribution channel productivity growth. Persistence of such headwinds is a threat to the company’s performance.

That being said, the aforementioned upsides are likely to help United Natural counter such hurdles and maintain its growth trajectory. Shares of this Zacks Rank #3 (Hold) company have surged 80.9% year to date compared with the industry’s growth of 1.2%.

Better-Ranked Food Stocks

The Hain Celestial HAIN, with a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of 24.6%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

B&G Foods, Inc. BGS, with a Zacks Rank #2, has a trailing four-quarter earnings surprise of 9.3%, on average.

Sysco Corporation SYY, with a Zacks Rank #2, has a long-term earnings growth rate of 11%.

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