Specialty foods distributor, United Natural Foods, Inc. (UNFI) delivered upbeat fourth quarter and fiscal 2014 results.
Fourth quarter fiscal 2014 earnings of 67 cents per share beat the Zacks Consensus Estimate and the prior year adjusted earnings of 65 cents by 3.1%. Earnings were driven by top-line growth, robust acquisitions and cost control initiatives.
Revenue and Margin Details
Net sales for the quarter increased 7.4% year over year to $1.76 billion and exceeded the Zacks Consensus Estimate of $1.74 billion by 1.4%.
Excluding sales in the 53rd week of fiscal 2013, net sales increased 15.8% year over year. The results were driven by continuous increase in demand for the company’s organic and natural food products and robust acquisitions. Trudeau Foods (acquired in the first quarter of fiscal 2014) and Tony’s Fine Foods (acquired during fourth quarter fiscal 2014) contributed net sales of approximately $64 million.
Gross margin declined 88 basis points to 16.4% in the reported quarter. Approximately half of the decline was due to the impact of lower gross margin associated with Tony’s Fine Foods. The remainder was mostly due to unfavorable customer mix and currency headwinds. Sequentially too, gross margin declined 29 basis points.
The company’s operating expenses increased 4.6% in the fourth quarter to $238.9 million, which led to a 51 basis points decline in operating income margin to 2.9%. Operating expenses increased due to new building opening expenses.
Fiscal 2014 Results
In fiscal 2014, United Natural posted earnings of $2.52 per share, which beat the Zacks Consensus Estimate of $2.50 by a slight margin. Earnings also exceeded the company’s guided range of $2.47 – $2.50 per share. Earnings also increased 15.6% from the prior year adjusted earnings of $2.18 per share on the back of revenue growth and operating income growth.
Net sales for the fiscal year increased 12% year over year to $6.79 billion and exceeded the Zacks Consensus Estimate of $6.764 billion by 0.4%. Sales also exceeded management’s guidance range of $6.73 billion to $6.77 billion. Excluding net sales in the 53rd week of fiscal 2013, net sales increased 14.3% over fiscal 2013, exceeding the company’s guided growth range of approximately 13.2% to 13.8%. Acquisitions contributed approximately $111 million to fiscal 2014 sales.
Tony’s Fine Foods Acquisition Update
In July, United Natural completed the acquisition of all of the stock of Tony’s Fine Foods, a specialty distributor of perishable food products, for $195.3 million. Tony’s Fine Foods is now a wholly-owned subsidiary of United Natural and continues to operate as Tony’s Fine Foods.
The deal, announced in May, is a strategic fit for United Natural, which is looking to enhance its position and increase its market share in the specialty products industry. United Natural can now expand its products in the markets of Western United States, as well as Alaska and Hawaii, where Tony’s Fine Foods has a presence. It will also boost its cheese and deli meat offerings. The transaction is expected to be accretive to earnings in fiscal year 2015. (Read: United Natural Closes Tony's Fine Foods Acquisition).
Fiscal 2015 Guidance
United Natural also provided its guidance for fiscal 2015. It now expects sales to be in the range of $8.13 billion to $8.38 billion. This marks an increase of 19.7% to 23.7% over fiscal 2014 sales of $6.79 billion. The company expects Tony's Fine Foods acquisition to be the prime driver of revenues in 2015, fueled by high demand for perishable specialty products.
The company estimates earnings for fiscal 2015 in the range of approximately $2.88 – $3.01 per share. This marks an increase of approximately 14.3% to 19.4% over fiscal 2014 earnings of $2.52 per share.
Our Take
With increasing demand for a healthy lifestyle, food safety and environmental sustainability, the demand for organic products is growing rapidly. Moreover, it is believed that the growth rate of the natural products industry has outpaced the growth of the overall food-at-home industry.
United Natural carries a Zacks Rank #3 (Hold). Some better-ranked food companies include Aramark (ARMK), Boulder Brands, Inc. (BDBD) and The Hain Celestial Group, Inc. (HAIN). While Aramark sports a Zacks Rank #1 (Strong Buy), Boulder Brands and Hain Celestial hold a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment