United Natural Foods Inc. (UNFI, Financial), a wholesale distributor of various food and nonfood goods, said fiscal second-quarter revenues increased 10.6% from the prior-year quarter.
The Providence, Rhode Island-based company reported a record $2.53 billion in revenue for the three months ending Jan. 27. Earnings of 99 cents per share outperformed analyst expectations for the quarter.
Company increases earnings guidance even though margins slightly decline
Although the company reported strong revenue growth, United Natural Foods also said gross margins contracted 0.39% from the prior-year quarter primarily due to a “shift in customer mix” where lower-margin customer sales growth outpaced that of higher-margin customers. GuruFocus tagged United Natural Foods with three red flags, including declining profit margins and higher asset growth compared to revenue growth.
CEO Steven Spinner said that despite changes in the retail landscape, United Natural Foods still has a “winning” business model driven by strong consumer interest. The company is “an important connector” between food and beverage manufacturers like The Kraft Heinz Co. (KHC, Financial) and Coca-Cola Co. (KO, Financial), two of Warren Buffett (Trades, Portfolio)’s top holdings, and brick-and-mortar retailers like Costco Corp. (COST, Financial) and The Kroger Co. (KR, Financial).
Spinner raised the company’s revenue and earnings guidance based on the strong results from the quarter. United Natural Foods expects net sales for the 12 months ending July 28 to increase between 8% and 9.5% from the prior year. The company also expects earnings per share growth between 27.7% and 30.9% year over year.
Company offers good growth potential
GuruFocus ranked United Natural Foods’ business predictability five stars as the company has had consistent revenue and earnings growth over the past 10 years. United Natural Foods’ profitability ranks 7 out of 10 primarily due to the five-star predictability rank and a three-year compound annual growth rate of sales that outperforms 75% of global competitors.
The company’s stock price rose approximately 8% in after-hours trading as the company provided strong earnings guidance for the rest of the current fiscal year.
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Disclosure: No positions.
