United Natural Foods, Inc.
) is set to report fiscal second-quarter 2014 results after the
market closes on Mar 10. Last quarter, this specialty food
distributor posted a positive surprise of 3.7%. Let's see how
things are shaping up prior to the announcement.
Why a Likely Positive Surprise?
Our proven model shows that United Natural is likely to beat
earnings because it has the right combination of two key
Positive Zacks ESP:
The Expected Surprise Prediction or
, which represents the difference between the Most Accurate
estimate and the Zacks Consensus Estimate, is +3.57%. This is
meaningful and a leading indicator of a likely positive earnings
surprise for the shares.
Zacks Rank #3 (Hold):
Note that stocks with a Zacks Rank #1, #2 and #3 have a
significantly higher chance of beating earnings estimates. We
caution against stocks with Zacks Ranks #4 and #5 (Sell-rated
stocks) going into the earnings announcement, especially when the
company is seeing negative estimate revision momentum.
The combination of United Natural's Zacks Rank #3 (Hold) and a
positive ESP of +3.57% makes us confident of an earnings beat on
What is Driving the Better-than-Expected
United Natural's productivity initiatives, improved
operational efficiency, acquisitions and continuous increase in
demand for organic and natural food products have been the
strength of the company.
The company has been posting double-digit revenue growth
driven by rising demand for organic and natural foods since the
last few quarters. Also, its decision to divest the company's
non-core businesses including non-foods and general merchandise
lines has allowed it to concentrate on its core business of the
distribution of natural, organic and specialty foods. Though the
company's gross margin remains severely impacted by the continued
shift in the company's customer mix since the last many quarters,
the company's management has been constantly focusing on
increasing service level, reducing carbon footprint and other
freight costs to help boost gross margins.
Food companies like
) and United Natural have been taking the inorganic route to grow
its distribution network and customer base and boost long-term
growth. The Trudeau acquisition (acquired during the first
quarter fiscal 2014) 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 solid footprint.
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. We believe the second
quarter will also be benefited by these acquisitions.
Other Stocks to Consider
Other stocks in the consumer staples sector that have both a
positive earnings ESP and a favorable Zacks Rank are:
), with an Earnings ESP of +1.49% and a Zacks Rank #3 (Hold)
Dr Pepper Snapple Group Inc
), with an Earnings ESP of +1.70% and a Zacks Rank #2 (Buy).
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