United Natural (UNFI) Stock Down More Than 45% YTD: Here's Why
United Natural Foods, Inc. UNFI has been bearing the brunt of rising inflationary pressure for a while now. North America's premier food wholesaler is also battling supply chain constraints. These downsides have been hurting the company’s profits, as seen in the third quarter of fiscal 2023.
Shares of the Zacks Rank #5 (Strong Sell) company have declined 49.1% year to date compared with the industry’s decline of 1.2%. The company’s stock has lagged the Zacks Consumer Staples’s drop of 1.9% during this time.
Let’s discuss this in details.
Weak Performance & View
United Natural’s third-quarter fiscal 2023 performance were hurt by a decline in the gross margin, stemming from the increased shrinkage and reduced inflationary benefits due to a tough operating landscape. Its quarterly adjusted earnings came in at 54 cents per share, down 50.9% from the year-ago quarter’s figure.
For fiscal 2023, UNFI expects adjusted fiscal 2023 EBITDA in the range of $610-$650 million, indicating a 24% decline at the midpoint of the guidance. The company expects fiscal 2023 adjusted earnings in the range of $1.80-$2.30 per share. At the midpoint, the view indicates a 57.6% slump from the fiscal 2022 reported level.
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Cost Woes
United Natural has been witnessing a challenging industry backdrop since the past few quarters. The company continued to battle increased cost inflation, supply-chain bottlenecks and operational complexities. During third-quarter fiscal 2023, UNFI’s gross margin (excluding non-cash 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.
Although operating expenses were relatively stable year over year at $967 million in the fiscal third quarter, elevated occupancy-related costs remained a downside. On its third-quarter earnings call, management stated that it expects to witness similar profitability trends throughout the year as it continues to lap periods of considerable procurement gains.
Wrapping Up
United Natural is benefiting from its Fuel the Future strategy. Management is on track to increase market share via network optimization, solid innovation and a better customer experience. The company’s solid e-commerce business and prudent acquisitions are driving growth.
That being said, let’s see if these upsides can help the company counter the hurdles mentioned above.
Solid Staple Bets
Here we have highlighted three better-ranked stocks, namely TreeHouse Foods, Inc. THS, Lamb Weston Holdings LW and Celsius Holdings CELH.
TreeHouse Foods, a manufacturer of packaged foods and beverages, currently sports a Zacks Rank #1 (Strong Buy). THS has a trailing four-quarter earnings surprise of 49.3%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for TreeHouse Foods’ current financial-year’s sales suggests a decline of 12.4% from the year-ago reported numbers.
Lamb Weston, a leading supplier of frozen potato, sweet potato, appetizer and vegetable products to restaurants and retailers worldwide, flaunts a Zacks Rank #2 (Buy). LW has a trailing four-quarter earnings surprise of 47.6%, on average.
The Zacks Consensus Estimate for Lamb Weston’s current financial-year’s sales and earnings indicates growth of 29.6% and 117.3%, respectively, from the year-ago reported figures. The expected EPS growth rate for three to five years is 42.7%.
Celsius Holdings, which offers functional drinks and liquid supplements, carries a Zacks Rank #2 at present. CELH delivered an earnings surprise of 81.8% in the last reported quarter.
The Zacks Consensus Estimate for Celsius Holdings’ current fiscal-year’s sales and earnings implies surges of 69.6% and 154.4%, respectively, from the prior-year numbers.
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United Natural Foods, Inc. (UNFI) : Free Stock Analysis Report
TreeHouse Foods, Inc. (THS) : Free Stock Analysis Report
Lamb Weston (LW) : Free Stock Analysis Report
Celsius Holdings Inc. (CELH) : Free Stock Analysis Report
