United Natural Q4 Earnings Up Y/Y, Stock Declines

United Natural Foods, Inc. (UNFI - Free Report) posted fourth-quarter fiscal 2018 results, wherein both the top and the bottom lines improved year over year. However, shares of the company lost 10.1% during yesterday’s after-market trading session as earnings and sales missed the Zacks Consensus Estimate after delivering five and three consecutive quarters of positive surprises, respectively.

While results gained from strength across most customer channels owing to solid demand, greater-than-expected freight expenses and unfavorable mix shift continued to pose hurdles for the bottom line. Like many other food companies, United Natural has been battling freight cost headwinds for a while now. Incidentally, the company’s shares have tumbled 19.3% in the past three months against the industry’s growth of 1.9%.

Q4 Highlights

This distributor of food and non-food products reported adjusted earnings of 76 cents per share, which improved 5.6% year over year but came below the Zacks Consensus Estimate of 85 cents. The bottom-line growth was backed by benefits from tax reforms, partly negated by unfavorable customer mix shift and increased inbound freight expenses.

United Natural Foods, Inc. Price, Consensus and EPS Surprise


United Natural Foods, Inc. Price, Consensus and EPS Surprise | United Natural Foods, Inc. Quote

Net sales increased 10.7% year over year to $2,592.2 million, driven by consistent strength in product demand. In fact, sales grew across all key channels. However, United Natural’s sales fell short of the Zacks Consensus Estimate of $2,601 million.

The company’s gross margin contracted 125 basis points (bps) to 14.5% on account of an unfavorable shift in consumer mix. Notably, sales from lower-margin customers grew at a higher rate than other customers. Higher inbound freight costs also weighed on gross margin during the quarter.

Adjusted operating income declined 7.8% to $59.3 million, owing to factors hurting the gross margin, which was somewhat made up by lower fixed costs. Consequently, the adjusted EBITDA fell 6.4% to $81 million. We note that the company continued to witness modest inflation of roughly 27 bps in the fourth quarter, which marked United Natural’s ninth straight period of either near-zero inflation or modest deflation. Clearly, absence of historic inflationary levels is a hurdle for United Naturals’ EBITDA growth.

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