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United Natural Q4 Earnings & Revenues In Line; Shares Up

Shares of specialty foods distributor United Natural Foods, Inc.UNFI increased about 1.26% in after-hours trading on Sep 15, after the company posted in-line fourth quarter fiscal 2015 results and announced its new chief financial officer ('CFO').

This Providence, RI-based company reported fourth quarter fiscal 2015 adjusted earnings of 72 cents per share, touching the lower end of its guided range of 72-73 cents stated in the preliminary results released on Aug 19. Earnings matched the Zacks Consensus Estimate and grew 7.5% from the prior-year quarter earnings, driven by double-digit growth in sales and higher operating income.

United Natural Foods Inc. - Earnings Surprise | FindTheBest

Revenue and Margin Details

Net sales of $2.061 billion were almost in-line with the Zacks Consensus Estimate and were within the company's expectation range of $2.060 billion to $2.065 billion stated during the preliminary results. Sales increased 16.8% year over year in the reported quarter, owing to robust acquisitions. Tony's Fine Foods (acquired during fourth quarter fiscal 2014) contributed significant net sales of approximately $221.7 million in the quarter. Sales growth of 16.8% was however weaker than 18.7% growth recorded in the preceding quarter.

Despite a year-over-year increase in revenues, gross margin declined 109 basis points (bps) to 15.3% in the reported quarter. This was due to unfavorable mix as a result of lower gross margin associated with Tony's Fine Foods. The remainder was mostly due to unfavorable customer mix, lower fuel surcharges and currency headwinds.

Operating income increased 26.9% to $65.1 million, despite a 5.2% increase in operating expenses. Operating margin increased 25 bps to 3.2%.

Fiscal 2015 Results

Adjusted for the impact of a $7.7 million reduction in net sales (related to an incorrect calculation of amounts owed to a customer recorded in the second quarter fiscal 2015), adjusted earnings per share for fiscal 2015 were $2.85, meeting the low end of the range of $2.85 to $2.86 per share stated in the preliminary results. This was 13.1% higher than fiscal 2014 earnings of $2.52. However, earnings missed the Zacks Consensus Estimate by a penny.

Net sales of $8.185 billion also increased 20.5% year over year in fiscal 2015, within the range of $8.184 billion and $8.189 billion stated in the preliminary results. The increase was mainly owing to Tony's Fine Foods acquisition, which contributed significant net sales of approximately $882.8 million in the year compared with $45.3 million in the same period last fiscal.

Fiscal 2016 Guidance

United Natural had provided its fiscal 2016 guidance during the preliminary results. United Natural expects adjusted earnings in the range of $2.86 to $2.98 per share, an increase of 0.4% to 4.6% over fiscal 2015 adjusted earnings per share of $2.85. Revenues are expected in the range of $8.51 billion to $8.67 billion, which marks an increase of approximately 4% to 6% over fiscal 2015. The Zacks Consensus Estimate for fiscal 2016 is $2.92 per share, within the company's guidance range.

CFO Named

Along with the earnings release, United Natural named Michael Zechmeister as its new CFO. Michael Zechmeister will replace Mark Shamber as chief financial officer in mid-October.

Our Take

With increasing demand for a healthy lifestyle, food safety and environmental sustainability, the demand for organic products is growing rapidly. Though the company has witnessed some contraction in overall sales growth during the latter part of fiscal 2015, it expects continued increase in product demand in fiscal 2016.

In addition, United Natural has taken the inorganic route to expand its distribution network, customer base and boost long-term growth. The company expects to see continued growth across protein, specialty and ethnic/gourmet both in terms of mergers and acquisitions as well as new customers and expansion of existing customer relationships.

However, we cannot ignore the fact that United Natural has been struggling with continued weakness in gross margins over the past few quarters due to a shift in customer mix to lower-margin supermarkets channel. Currency headwinds also remain a concern.

United Natural has a Zacks Rank #4 (Sell). Some better-ranked food companies include Cal-Maine Foods, Inc. CALM , Omega Protein Corp. OME and Flower Foods, Inc. FLO . While Cal-Maine Foods and Omega Protein sport a Zacks Rank #1 (Strong Buy), Flower Foods carries a Zacks Rank #2 (Buy).

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CAL-MAINE FOODS (CALM): Free Stock Analysis Report

FLOWERS FOODS (FLO): Free Stock Analysis Report

UTD NATURAL FDS (UNFI): Free Stock Analysis Report

OMEGA PROTEIN (OME): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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