Growth stocks are always a hot favorite among investors, and United Natural Foods Inc. (UNFI, Financial) is one of them.
This food industry stock has provided mixed quarterly results, including a 0.95% increase in net sales. United Natural Foods has raised its fiscal 2016 guidance based on its recent performance and acquisitions.
United Natural Foods is the largest distributor of natural, organic and specialty products in the U.S. and Canada. The company serves a wide variety of retail formats including conventional supermarket chains, natural product superstores, independent retail operators and the food service channel. With 33 distribution centers and more than 8,800 associates, the company serves more than 40,000 customer locations with over 80,000 different products.
Mixed third-quarter results
On June 6, this Providence, Rhode Island-based company reported its financial results for the third quarter ended April 30. The company’s net sales increased 0.95% to $2.13 billion, compared to $2.11 billion for the comparable prior-year period. Acquisitions of Global Organic/Specialty Source Inc. and Nor-Cal Produce Inc. contributed approximately $18.1 million, or 0.9%, of net sales for the reported quarter. Further, adjusted net sales for the quarter increased 6.1% compared to the same period last fiscal year.
United Natural Foods’ gross margin increased to 15.1% compared to 14.5% in the second quarter of fiscal 2016. A sequential improvement in supplier promotional activity and the favorable impact of foreign exchange for the company’s Canadian business are the main reasons behind this increase. The company’s total operating expenses decreased 0.20% to $256.42 million, compared to $256.94 million for the comparable prior-year period. Further, as a percentage of net sales, total operating expenses were12%.
Operating income and net income for the reported quarter decreased 4.28% to $66.02 million and 8.33% to $38.27 million compared to $38.97 million and $41.75 million for the year ago quarter. United Natural Foods’ diluted EPS was 76 cents, a decrease of 7 cents compared to the same period last year. The company’s capital expenditure for the reported quarter was $8.6 million.
United Natural Foods ended the quarter with cash and cash equivalents of $478.58 million, and long-term debt of $166.28 million (a decrease of 4.86%, compared to $174.78 million for the comparable prior-year period).
The following chart provides United Natural Foods' different metrics.
| Metrics | Nine months ended April 30 | Nine months ended May 2, 2015 | % change |
| Net sales | $6.26 billion | $6.12 billion | 2.29% |
| Adjusted net sales | $6.2 billion | $5.82 billion | 6.53% |
| Total operating expenses | $772.26 million | $767.24 million | 0.65% |
| Operating income | $161.62 million | $176.87 million | (8.62)% |
| Net income | $91.08 million | $102.64 million | (11.26)% |
| Diluted EPS | $1.81 | $2.04 | (11.27)% |
| Operating cash flow | $205.62 billion | ---- | ---- |
| Capital expenditure | $29.07 million | ---- | ---- |
Projections
For fiscal 2016, ending July 30, United Natural Foods expects its net sales in the range of approximately $8.46 billion to $8.50 billion. Diluted earnings per share (on a GAAP basis) are expected in the range of approximately $2.39 to $2.45, compared to $2.76 for fiscal 2015. Further, the company expects adjusted earnings per diluted share for fiscal 2016 in the range of $2.47 to $2.53, compared to $2.85 for fiscal 2015. Gross capital expenditures are expected to be in the range of $49 million to $59 million.
Growth
People have now become more and more health conscious, and they are shifting their preferences toward a healthy lifestyle and food. Specialty foods represent 10.6% of total U.S. food sales and demand for natural, organic and specialty products are also growing rapidly. This has paved the way for United Natural Foods to grow further.
Acquisitions
To strengthen its position, United Natural Foods has made several acquisitions to date. On March 7, the company acquired certain assets of Global Organic/Specialty Source Inc. (a premiere distributor of organic fruits, vegetables, juices, milk, eggs, nuts and coffee in the Southeast with primary operations located within the same facility as United Natural Foods in Sarasota, Florida).
On March 31, United Natural Foods acquired all the outstanding stock of Nor-Cal Produce Inc. (a family owned and operated distributor of conventional and organic produce and other fresh products in Northern California, with primary operations located in West Sacramento, California) for a cash transaction for approximately $68.6 million. This acquisition will help United Natural Foods’ growth into fresh produce.
Recently, United Natural Foods has acquired all of the outstanding equity interests of Haddon House Food Products Inc. (finest distributors, importers and exporters of specialty, natural, organic, ethnic and kosher foods) for a cash transaction for approximately $217.5 million.
The following chart provides United Natural Foods' acquisitions.
| Company | Acquired in the year |
| Whole Foods Markets’ remaining two nonperishable distribution centers. | September/October 2010 |
| B.K. Sethi Distribution Ltd. | November 2011 |
| Disley Food Services Inc. and Purity Organic Holdings Inc. | August 2012 |
| Honest Green | September 2012 |
| Trudeau Foods LLC | September 2013 |
| Tony’s Fine Foods | July 2014 |
(Source: company website)
On a concluding note
Overall, United Natural Foods is a rock-solid company with attractive market fundamentals, high efficient supply chain and logistics, long-standing customer and supplier relationships, introduction of 12,000-plus new products per year and strong revenue growth.
From 2009 to 2014, United Natural Foods’ sales and operating income grew at a CAGR of 14.5% and 13.9%. Further, the company’s sales and earnings doubled since 2009. United Natural Foods was ranked by Forbes Magazine in 2014 as one of “America's Best Managed Companies,” ranked by Fortune in 2012 as one of its “Most Admired American Companies” and chosen by Food Logistics Magazine as one of its 2013 Top 20 Green Providers.
Finally, with the recent quarterly release, the company is aiming for a better future and is all set to deliver a healthy menu to its investors. It is expected to create greater shareholder returns.
Disclosure: I do not hold any position in the company.
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