United Natural Foods, Inc.UNFI posted second-quarter fiscal 2018 results, wherein both the top and bottom line improved year over year and surpassed estimates. This marked the fourth consecutive quarter of earnings beat for the company.
This distributor of food and non-food products reported second-quarter adjusted earnings of 71 cents per share, which beat the Zacks Consensus Estimate of 53 cents and improved 42% year over year.
Quarter in Detail
Net sales came in at $2,528 million, up 10.6% year over year and cruising ahead of the Zacks Consensus Estimate of $2,445 million. The broad-based improvements across all core channels in the beginning of the fiscal year continued in the second quarter as well. In addition to the growth observed in several product categories, the company's e-commerce sales also continued to be strong.
United Natural Foods, Inc. Price, Consensus and EPS Surprise
The company's gross profit rose 7.7% to $371.5 million. Gross margin contracted 39 basis points (bps) to 14.7% on account of an unfavorable shift in consumer mix. Notably, sales from lower margin customers grew at a higher rate than other customers. Higher inbound freight costs also weighed on gross margin during the quarter.
Adjusted operating income grew 11.2% to $51.4 million. Further, the company's adjusted EBITDA improved 8.5% to $73.3 million, whereas the EBITDA margin contracted 5 bps to 2.9%.
From a channel point of view, supernatural net sales increased 19.2% year over year. The channel accounted for 36.8% of total net sales in the quarter, marking an improvement of 260 bps from the year-ago quarter.
Supermarket channel net sales increased 6.4% during the quarter. It represented 28.8% of total net sales.
Sales of the independent channel rose 5.6% in the second quarter and represented 24.5% of the company's net sales.
Net sales of food services climbed 6%, gaining from e-commerce growth of 28.9%.
Other Financial Updates
In October 2016 management announced a share buyback plan of up to $200 million. To this end, the company repurchased 403,000 shares for approximately $15.8 million during the second quarter. From a year-to-date point of view, the company has repurchased 565,000 shares for approximately $22.2 million.
United Natural ended the quarter with cash and cash equivalents of $25.4 million, long-term debt (excluding current portion) of nearly $143.8 million and total shareholders' equity of $1,754.7 million.
Cash flow from operating activities totaled $36.9 million, while capital expenditures were approximately $10.3 million during the second quarter. Thus, United Natural generated free cash flow of $26.6 million.
Fiscal 2018 Guidance
Management is impressed with the business performance during the second quarter, with consistent broad-based improvement across all important sales networks. With sophisticated distribution networks and fulfillment centers, United Natural's growth in the omnichannel arena is quite remarkable. Further, it believes that the company is well placed for growth, considering consumers' solid demand for United Natural's better-for-you food products and services. It also expects that effective sourcing strategies and acquisitions will aid the company meet long-term strategic objectives.
Notably, United Natural Foods' impressive earnings history and focus on strategic endeavors have helped this Zacks Rank #1 (Strong Buy) stock rally 21.4% in the past six months against the industry 's decline of 2.9%.
However, inbound fill rates related to the higher than expected demand is a hurdle. Nonetheless, United Nations is focused on enhancing supply chain networks to better align supplies with demand. The company has been incurring higher labor expenses across several distribution centers, thanks to capacity constrain. Encouragingly, capacity expansion efforts undertaken by the management is expected to resolve labor cost related issues in the forthcoming periods.
All said, management raised its previously issued sales and earnings view for fiscal 2018. United Natural projects net sales in the range of $10.01-$10.16 billion, compared with the previous band of $9.84-$10.0 billion. The updated outlook depicts growth of 8-9.5% from fiscal 2017 sales figure. .
Management envisions earnings for fiscal 2018 in the range of $3.06-$3.14 per share, depicting an increase of 19.5-22.7% from the prior-year quarter's figure. On a GAAP basis, earnings are estimated in the range of $3.27-$3.35 per share, compared with the previous range of $2.72-$2.80. This depicts a rise of 27.7-30.9% from fiscal 2017 figure. The current Zacks Consensus Estimate is pegged at $2.79, which could witness upward revision in the coming days.
Notably, management's earnings view for fiscal 2018 (both GAAP and non-GAAP) takes into consideration the benefits arising from the tax reforms. Also, management foresees tax rate for fiscal 2018 in the range of 33-33.3%, compared with 40-40.3% expected earlier.
Greedy for Consumer Staples Stocks? Check These
Investors interested in the same sector may also consider the likes of The J. M. Smucker, Company SJM , Estee Lauder Companies EL and Sysco SYY , all carrying a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .
J. M. Smucker, Company came up with an average positive earnings surprise of 5.1% in the trailing four quarters. It has a long-term earnings growth rate of 7.9%.
Estee Lauder pulled off an average positive earnings surprise of 18.1% in the trailing four quarters. It has a long-term earnings growth rate of 13%.
Sysco delivered an average positive earnings surprise of 1.1% in the trailing four quarters. It has a long-term earnings growth rate of 10.1%.
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