Natural and organic food offerings have become very important since people have become health conscious. They now want a healthy lifestyle and food safety when it comes to choosing food. Thus, demand for organic products is on an uptrend. Further, the organic food retailers have gained importance.
Companies such as United Natural Foods (UNFI, Financial) are witnessing higher demand for its products and continue to register great numbers. Its first quarter results were impressive as the reported numbers were way ahead of the Street’s estimates. This helped its shares to move north.
The blockbuster quarter
Revenue for the quarter surged 24.4%, to $1.99 billion, over last year. This was higher than the estimate of $1.95 billion and was driven by higher demand for the company’s natural and organic food. Another key driver of growth was the number of acquisitions made by the company in fiscal 2014. Even if we exclude the benefits of the buyout, sales grew by 10.2% during the quarter.
The gross margin of the company declined 92 basis points to 16%. Margins were affected by a shift in customer mix, unfavorable currency fluctuations and lower margins of Tony’s Fine Foods, which was acquired last year.
Further, the bottom line was also impressive. Earnings jumped to $0.66 per share from $0.56 per share in the previous year. The analysts were expecting a bottom line of $0.63 per share. Earnings surged due to growth in revenue and the recently made acquisitions.
By the segments
Sales in the Supermarket segment rose 31% over last year and that of the Supernatural channel climbed 16.5%. These two segments together make the most of the retailer’s revenue. Therefore, growth in these segments drove the top line higher.
Revenue from the Independent channel was also up 23.8% and that of Food Service segment surged 60.4%. Although Food Service segment makes a small part of the total revenue, growth in this segment was remarkable.
The two new acquisitions
The organic food retailer made two important acquisitions in the last one year. It acquired Trudeau Foods in September last year, which added to the portfolio of products it offers. Trudeau Foods offers organic and natural food to customers and thus complements the acquirer’s line of business. Through this acquisition United Natural not only expanded its presence in the international market, but also added a new customer base.
Next acquisition was that of Tony’s Fine Foods in May this year. Tony’s is one of the leading marketers of perishable food products, and its offerings include cheese, protein, food service, deli and other bakery products. This was indeed an important buyout since it expanded the range of offerings of the company. Also, these two acquisitions helped United increase its market share and drive sales higher.
Key takeaway
Due to growing demand for the natural food retailer’s products, the company is able to register better quarters each time. Further, it has been growing its business by adding new businesses. This inorganic strategy of growth should prove to be rewarding. Also, the company gave a bright outlook for the year, which delighted investors. Moreover, United Natural reduced its debts by 31% in the last one year. Thus, all these factors make this organic food retailer a desirable pick.
