Strong Pillars of Growth and Online Sales from United Natural (UNFI) – May 23, 2022
Focus on the pillars of growth and increasing favor of e-commerce businesses United Natural Foods, Inc. (UNFI – free report). North America’s leading food wholesaler has undertaken various acquisitions over the years to expand its business.
The company’s business gains with existing and new customers, including cross-selling benefits, are key growth drivers. United Natural expects door-to-door food sales to remain strong as people continue to work from home and manage household budgets in an inflationary environment. Management expects net sales for fiscal year 2022 of $28.2 billion to $28.7 billion. At the midpoint, the metric suggests a 6% increase from reported levels for fiscal 2021. The company expects adjusted earnings of $3.90 to $4.20 per share for the year. At the midpoint, the metric suggests a 4% increase from reported levels for fiscal year 2021.
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Factors favoring United Natural
The company is on track to undertake growth initiatives under its future pillar, which includes brands, professional services and fresh produce. As part of growing its branded business, management is making progress on the three-pronged strategy based on deepening its penetration with existing customers, introducing own brands to new customers and channels, and achieving user-friendly innovations. United Natural is on track to expand its professional services by bringing new ideas to its customers. Finally, the company has invested in its people, infrastructure and technology as part of its new growth pillar.
United Natural’s sales are benefiting from the strength of e-commerce, thanks to the increase in e-commerce solutions offered by the company. A number of Independent Channels and one Company Channels channel offer e-commerce solutions to their customers. United Natural offers digital platforms and support to its customers. During its fiscal 2022 second-quarter earnings call, management stressed that its Cub’s e-commerce platform is performing well. Management is on track to deploy additional marketing and analytics capabilities to enhance customers’ brand experience.
UNFI has undertaken various acquisitions over the years to expand its distribution network and customer base as well as to drive its long-term growth. In this regard, United Natural completed the acquisition of SUPERVALU in October 2018. The increased size of the combined entities boosted United Natural’s performance. The merger provided the company with more competitive ground in the grocery business by increasing offerings.
Is everything rosy for United Natural?
United Natural is witnessing ongoing supply chain challenges, affecting the company and its customers in the short and long term. The company is battling declining fill rates resulting from upstream supply chain challenges. Deteriorating fill rates due to high demand, the negative impact of omicron, and continued shortages of raw materials and packaging, among other reasons. Escalating inflation, negative unit elasticity, reduced inbound load factors and rising fuel costs are of concern. The company is struggling with labor shortages, higher wages, and increased use of third-party labor.
Nonetheless, we believe the aforementioned benefits are likely to keep United Natural afloat amid such obstacles. Shares of Zacks Rank No. 3 (Hold) have gained 4.2% over the past year against an 11.7% industry decline.
3 stocks of solid food
Some higher ranked stocks are Pilgrim’s Pride (CPC – free report), Sysco Company (SYY – free report) and Medifast (WAY – free report).
Pilgrim’s Pride, which produces, processes, markets and distributes fresh, frozen and value-added chicken and pork products, boasts a Zacks #1 (Strong Buy) rating. PPC has an earnings surprise for the last four quarters of 31.4% on average. You can see the full list of today’s Zacks #1 Rank stocks here.
The Zacks consensus estimate for current year EPS from Pilgrim’s Pride suggests growth of nearly 43% from the number reported a year ago.
Sysco, which is engaged in the marketing and distribution of various food and related products, carries a Zacks rank of No. 2 (purchase). SYY has a last four quarter earnings surprise of 9.1% on average.
Zacks’ consensus estimate for Sysco’s current-year sales and EPS suggests growth of 32.6% and 124.3%, respectively, from the number reported a year ago.
Medifast, which manufactures and distributes weight loss, weight management, healthy living products, and other consumable health and nutritional products, currently carries a Zacks Rank #2. MED has a surprise on the profits of the last four quarters by 12.9% on average.
Zacks’ consensus estimate for Medifast’s current-year sales and EPS suggests growth of nearly 19% and 11.5%, respectively, from the figure reported a year ago.