Shares of specialty foods distributor United Natural Foods, Inc. UNFI have declined more than 21% on Feb 29 after the company provided preliminary results for the second quarter of fiscal 2016. The final results are scheduled to be announced on Mar 7. Furthermore, the company lowered its guidance for fiscal 2016.
For the second quarter of fiscal 2016, adjusted earnings are expected in the range of 47 cents to 49 cents per share. This is way below the Zacks Consensus Estimate of 62 cents.
The company anticipates net sales in the range of $2.046 billion to $2.048 billion, an increase of approximately 1.5% from the prior-year quarter. It expects adjusted net sales to increase 6.4% to 6.5% for the second quarter of fiscal 2016, excluding the impact of a previously disclosed termination of a customer distribution contract this fiscal and non-recurring reduction in net sales in fiscal 2015.
Based on the current outlook, the company has revised its fiscal 2016 guidance. For fiscal 2016, the company expects net sales in the range of approximately $8.31 billion to $8.43 billion, an increase of approximately 1.5% to 3% over fiscal 2015. The guidance is lower than the previously disclosed guidance of $8.43 billion to $8.59 billion, announced on the first quarter conference call.
Adjusted earnings for fiscal 2016 are estimated in the range of $2.34 to $2.44, compared with fiscal 2015 adjusted earnings per diluted share of $2.85. The new guidance is lower than the previously guided range of $2.79 to $2.89 per share and much lower than the Zacks Consensus Estimate of $2.82. In fact, this is the second downward revision in its fiscal 2016 guidance this year.
Though encouraged by consumers’ increasing demand for organic products, driven by a healthy lifestyle, food safety and environmental sustainability, we cannot ignore the fact that the company has been struggling from continued weakness in gross margins over the past few quarters. This is due to a shift in customer mix to the lower-margin supermarkets channel. The company’s recent acquisitions, though adding to top-line growth, are also putting pressure on margins. Unfavorable currency is an added woe.
United Natural has a Zacks Rank #3 (Hold). Some better-ranked food companies include ConAgra Foods, Inc. CAG, Pinnacle Foods, Inc. PF and Sysco Corp. SYY. All three stocks carry a Zacks Rank #2 (Buy).
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