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Why Is United Natural (UNFI) Down 11.5% Since Last Earnings Report?

It has been about a month since the last earnings report for United Natural Foods (UNFI). Shares have lost about 11.5% 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 catalysts.

United Natural Foods Q3 Earnings & Sales Top Estimates

United Natural reported strong third-quarter fiscal 2022 results, wherein the top and bottom lines improved year over year and came ahead of the respective Zacks Consensus Estimate. Results reflect the company’s focus on catering to customers even amid a tough operating landscape. The company’s Fuel the Future strategy is working well.

Quarter in Detail

United Natural’s adjusted earnings of $1.10 per share increased 10% from the $1.00 delivered in the year-ago period and surpassed the Zacks Consensus Estimate of 98 cents.

Net sales advanced 9.2% to $7,242 million, beating the Zacks Consensus Estimate of $7,117 million. The upside was mainly backed by inflation and the new business from current and new customers, including gains from cross-selling. This was somewhat countered by a modest market contraction and supply chain-related headwinds.

Sales increased across all UNFI’s channels. Chains, Independent retailers, Supernatural and Retail channels witnessed sales growth of 5.2%, 14.6%, 14.1% and 2%, respectively. Other channels sales advanced 7.9%.

United Natural’s gross margin (excluding non-cash charge) of 15% improved from the 14.7% reported in the year-ago quarter. The upside was mainly backed by the enhancement in the Wholesale segment’s margin rate, reflecting the effect of inflation and the ValuePath initiative. This was partially hurt by adverse changes in the customer mix.

The operating expense rate expanded to 13.4% from the 13.1% reported in the year-ago quarter due to continued investments in servicing customers. This led to elevated transportation and distribution center labor costs and occupancy-related inflation, partly compensated by fixed-cost leverage and gains from United Natural’s ValuePath initiative.

Adjusted EBITDA came in at $196 million, up from the $185 million reported in the year-ago quarter. This was a result of the gross margin and operating expenses.

Other Updates

United Natural ended the quarter with cash and cash equivalents of $48 million, long-term debt (including operating and finance lease liabilities) of $3,488 million and total shareholders’ equity of $1,784 million. Net cash used in operating activities amounted to $31 million for the 39 weeks ended Apr 30, 2022.

The company’s net debt to adjusted EBITDA leverage ratio was 2.9 as of the end of the third quarter. Following the third quarter, UNFI entered into a new secured asset-based revolving credit facility worth $2.6 billion, which will mature in 2027. This replaced the company’s earlier credit facility of $2.1 billion, which was slated to mature in 2023.

Fiscal 2022 Guidance

United Natural updated its fiscal 2022 guidance, including the revised definitions of adjusted EPS and adjusted EBITDA, excluding the impact of the non-cash LIFO charge or benefit. The revised view also reflects higher expectations of the operating performance.

For fiscal 2022, management anticipates net sales in the band of $28.8-$29.1 billion. At the midpoint, the metric suggests a 7% rise from the fiscal 2021 reported levels.

The company expects adjusted EBITDA in the range of $810-$830 million, indicating a 6% rise at the midpoint of the guidance. The company anticipates fiscal 2022 adjusted earnings in the band of $4.65-$4.90 per share. At the midpoint, the metric indicates a 14% rise from the fiscal 2021 reported levels.

The company expects capital expenditures of $250 million for fiscal 2022.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

The consensus estimate has shifted 13.81% due to these changes.

VGM Scores

At this time, United Natural has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile 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 trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise United Natural has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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