Specialty foods distributor,
United Natural Foods, Inc.
) delivered first quarter fiscal 2014 earnings of 56 cents per
share, which beat the Zacks Consensus Estimate of 54 cents by
3.7%. Earnings surged 21.7% year on year from prior year adjusted
earnings of 46 cents, driven by top-line growth, cost control
initiatives and improved gross margin.
Revenue and Margin Details
Net sales for the quarter were almost in line with the Zacks
Consensus Estimate but increased 13.6% year over year to $1.6
billion. The results were driven by continuous increase in demand
for the company's organic and natural food products and robust
acquisitions. The company continued to focus on its core
strategies to further increase market share while improving the
operational efficiency of the businesses.
Sales to the supernatural channel increased 12.6% while
independent sales increased 8.9% year-over-year. The supermarket
channel witnessed growth of 19% over the prior year in the first
quarter of fiscal 2014 and foodservice sales grew 26.2% over the
During the quarter, United Natural acquired Trudeau Foods, a
Minneapolis based distributor of natural, organic and specialty
food products. The company's acquisitions made in the past one
year (including Trudeau Foods) contributed $10.7 million to the
company's sales in the first quarter.
Gross margin improved 20 basis points to 16.9% from the
year-ago period, primarily due to improvements in logistics
efficiencies. The company's management has been constantly
focusing on increasing service level, reducing carbon footprint
and other freight costs, which helped boost gross margins.
However, gross margin declined 40 basis points sequentially
primarily due to the unfavorable shift in customer mix to
lower-margin conventional supermarket and supernatural
The company's productivity initiatives helped reduce operating
expense ratio in the first quarter. This along with gross margin
growth boosted operating income margin. Operating income margin
increased 29 basis points to 3.0% in the reported quarter.
Fiscal 2014 Guidance Reiterated
United Natural reiterated its earnings and sales guidance for
fiscal 2014. The company expects net sales in the range of
approximately $6.65 to $6.78 billion, an increase of
approximately 11.8% to 14.0% over fiscal 2013 (excluding the
additional week in fiscal 2013). The company also expects
reported earnings for fiscal 2014 to range between approximately
$2.40 to $2.50 per share. This marks an increase of approximately
10.1% to 14.7% over fiscal 2013 reported earnings of $2.18 per
We believe that United Natural has taken the inorganic route
to grow its distribution network and customer base and boost
long-term growth. The Trudeau acquisition is a strategic fit for
United Natural which is looking to enhance its position and
increase its market share in the specialty products industry. The
acquisition will also help United Natural to expand its products
in the markets of Minnesota, North Dakota, Wisconsin and
Michigan's Upper Peninsula, where Trudeau Foods has a
Earlier in Jun 2010, the acquisition of certain Canadian food
distribution assets of SunOpta Inc. made the company the largest
distributor of natural, organic and specialty foods, including
kosher foods, in Canada.
With the increasing demand for a healthy lifestyle, food
safety and environmental sustainability, the demand for organic
products is growing rapidly. Moreover, it is believed that the
growth rate of the natural products industry has outpaced the
growth of the overall food-at-home industry.
United Natural currently holds a Zacks Rank #3 (Hold). Some
better-ranked stocks in the food industry worth considering are
Omega Protein Corp
ConAgra Foods Inc.
Pinnacle Foods Inc
). While Omega Protein holds a Zacks Rank #1 (Strong Buy),
ConAgra and Pinnacle Foods hold a Zacks Rank #2 (Buy).
CONAGRA FOODS (CAG): Free Stock Analysis
OMEGA PROTEIN (OME): Free Stock Analysis
PINNACLE FOODS (PF): Free Stock Analysis
UTD NATURAL FDS (UNFI): Free Stock Analysis
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