United Natural’s Sales Boosted by Recent Acquisitions

Net sales grew 9.7% to $2.28 billion from $2.08 billion in the year-ago period

u1United Natural Foods Inc. (NASDAQ: UNFI) announced its Q1 FY17 financial results on December 07th, 2016.

The Company is a distributor of over 90,000 natural organic and specialty foods and non-food products to more than 45,000 customer locations in the US and Canada. It offers products in six categories: grocery, general merchandise produce, perishables and frozen foods, nutritional supplements and sports nutrition, bulk and food service products, and personal care items. United Natural operates under three divisions:

  • Wholesale division, which includes its natural organic and specialty distribution business in the US; UNFI Canada, which is its natural organic and specialty business in Canada; Albert’s Organics Inc. and Select Nutrition;
  • Retail division, consisting of EOM, which operates its 12 natural products retail stores within the US;
  • Manufacturing division, consisting of Woodstock Farms Manufacturing.

Read more about United Natural’s financial results below.

Q1 FY17 financial highlights

United Natural’s Q1 FY17 net sales grew 9.7%, or $201.7 million, to $2.28 billion from $2.08 billion in the year-ago same period. Adjusted net sales for the quarter jumped 12.9% compared to the same period last year, excluding the Y-o-Y impact of the previously disclosed termination of a customer distribution contract. United Natural terminated its contract as a distributor to Albertsons Companies Inc. on September 20th, 2015, much earlier than the original contract end date of July 31th, 2016. On the brighter side, net sales were positively impacted by the acquisitions of Haddon House Food Products Inc., Global Organic/Specialty Source Inc., Nor-Cal Produce Inc., and Gourmet Guru Inc.

u2During the reporting quarter, gross margins increased 20 basis points to 15.32% compared to 15.12% in the year-ago same period due to the favorable impact of acquisitions completed in the past 12 months. However, gross margin continued to face headwinds from moderated supplier promotional activity, competitive pricing pressures, and reduced fuel surcharges.

United Natural’s Q1 FY17 total operating expenses jumped $35.6 million to $295.7 million compared to $260.0 million in Q1 FY16. Total operating expenses were 12.98% of net sales for Q1 FY17, an increase of 46 basis points compared to the same period last year, mainly due to higher costs related to its recently acquired businesses.

As a result, operating income as a percentage of net sales slipped 26 basis points to 2.34% in the reporting quarter as compared to the same period last year. Consequently, operating income decreased $0.6 million to $53.3 million for Q1 FY17 compared to $53.9 million in the year ago comparable period. EBITDA grew 5.6% to $74.6 million from $70.6 million in Q1 FY16.

In all, United Natural’s Q1 FY17 net income declined 3%, or $0.9 million, to $29.2 million, or $0.58 per diluted share, from $30.1 million, or $0.60 per diluted share, in the year-ago same period.

Other highlights

Acquisition spree: Over the past year, United Natural has worked significantly to expand its fresh produce, specialty products, and service offerings with the acquisitions of Nor-Cal, Global Organic, and Haddon House Food Products. Back in July 2014, United Natural acquired Tony’s Fine Foods, making it a wholly-owned subsidiary of the Company. Its recent acquisition of rival grocery distributor Haddon House Food Products in early 2016 for $217.5 million is expected to expand its ethnic and gourmet product categories.

United Natural has sought to differentiate itself from other grocery and fresh food companies such as Village Super Market Inc. (NASDAQ: VLGEA) and Whole Foods Market Inc. (NASDAQ: WFM). The Company also competes with other big-box retailers such as Amazon.com Inc. (NASDAQ: AMZN), Wal-Mart Stores Inc. (NYSE: WMT), and The Kroger Co. (NYSE: KR), which offer a greater variety of fresh food products and same-day home delivery services through higher investments in technology and logistics support. However, United Natural is focused on emerging as a leading player in natural organic as well as specialty and gourmet foods through its recent acquisitions.

u3In doing so, United Natural has managed to buck the slump in trade seen with general merchandise retailers since it mainly deals with organic and gourmet products. Its slew of acquisitions has given it a leg-up with other smaller specialty and organic producers who lack distribution ties with major supermarket chains. The Company’s presence in the nutrition and wellness space also gives it an added cushion against the general sluggish trend in the retail sector.

Steven Spinner appointed Chairman of Board: On October 31st, 2016, United Natural announced that Steven Spinner, President and CEO, was appointed Chairman of the company’s Board, effective following the Annual Meeting of Stockholders in December 2016. Spinner will succeed Michael Funk, who will remain a director. Spinner has served as UNFI’s President and CEO and as a member of the Board since September 2008.

Fiscal 2017 guidance

For FY17, United Natural forecasts net sales in the range of $9.43 billion to $9.60 billion, an increase of 11.3% to 13.3% over FY16. The Company estimates GAAP EPS in the range of $2.53 to $2.63 compared to FY16 GAAP EPS of $2.50.

Stock performance

u4United Natural’s stock ended the day at $45.95, slipping 0.43%, at the close on Wednesday, December 14th, 2016, having vacillated between an intraday high of $47.31 and a low of $45.80 during the session. The stock’s trading volume was at 756,991 for the day. The Company’s market cap was at $2.32 billion as of Wednesday’s close.

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