A month has gone by since the last earnings report for United Natural Foods (UNFI). Shares have lost about 2.8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is United Natural due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
United Natural's Q4 Earnings Beat Estimates, Sales up
United Natural reported fourth-quarter fiscal 2020 results, with the top and the bottom line surpassing the Zacks Consensus Estimate. Moreover, earnings and sales increased on a year-over-year basis.
Q4 in Detail
United Natural’s adjusted earnings of $1.06 per share comfortably surpassed the Zacks Consensus Estimate of 71 cents. Further, the bottom line rose significantly from 35 cents in the year-ago quarter. The year-over-year surge can be attributed to greater net sales as well as improved gross margin.
Net sales from continuing operations came in at $6,754.6 million, outpacing the Zacks Consensus Estimate of $6,604.6 million. Sales inched up 0.4% year over year. On a comparable 13-week basis, sales advanced 8% year over year. Sales growth was backed by robust consumer demand and gains from cross selling.
Meanwhile, the company’s gross margin expanded 41 basis points to 14.81%. The upside was driven by greater contribution from robust retail business coupled with reduced promotional activities.
Adjusted operating income came in at $116 million in the quarter, up from $74.7 million reported in the year-ago quarter. Adjusted operating margin increased from 1.11% to 1.72% of net sales, courtesy of higher net sales, increased gross margin as well as fixed operating and administrative expense leverage over higher sales. Also, benefits of synergy and integration efforts were a reason. This was partly affected by COVID-19-related costs. Incidentally, COVID-19-related incremental costs amounted to $30.7 million in the quarter.
Adjusted EBITDA jumped 19.3% to $197.9 million, thanks to improved sales, cost leverage and synergy gains. Results were partly affected by COVID-19-related costs.
From a channel point of view, Supernatural net sales declined 3.9% year over year (up 3.6% on a comparable 13-week basis) to $1,119 million. Chains channel net sales of $2,713 million fell 0.6% (up 6.9% on a comparable 13-week basis). Sales in the Independent Retailers channel came in at $1,776 million, improving 3.6% year-over-year (up 11.4% on a comparable 13-week basis). In the Retail channel, net sales increased 12.9% (up 21.4% on a comparable 13-week basis) to $640 million. Other sales came in at $507 million, down 9% (down 2.1% on a comparable 13-week basis).
The company ended the quarter with cash and cash equivalents of $47 million, long-term debt of $2,427 million and total shareholders’ equity of $1,142.3 million.
In a separate press release, United Natural informed investors that its Chief Executive - Steven L. Spinner will retire after Jul 31, 2021 when his employment contract expires, or earlier if his successor is appointed.
Fiscal 2021 Guidance
United Natural is impressed with its solid performance in fiscal 2020 and expects the momentum to continue in fiscal 2021. The company expects food-at-home consumption demand to remain elevated outpacing the demand for away from home services for fiscal 2021.
Management forecasts fiscal 2021 net sales in the range of $27-$27.8 billion. This suggests 3.3% growth over fiscal 2020 at midpoint. Further, United Natural projects adjusted EBITDA in a band of $690-$730 million indicating a 5.5% improvement over fiscal 2020 at midpoint. Also, it envisions adjusted earnings per share of $3.05-$3.55 in 2020, which indicates an increase of 21.3% from fiscal 2020 levels at midpoint.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 361.54% due to these changes.
At this time, United Natural has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise United Natural has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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