Earnings preview: Demand to drive United Natural Foods Q2 results

Food distributor United Natural Foods (NASDAQ: UNFI) is scheduled to release its earnings for the second quarter of 2019 on Tuesday after the market closes. The top line will be benefited by the consistent strength in product demand across most of its sales channels while the bottom line would be hurt by expense related to Supervalu deal and restructuring charges.

Over the years, the company has resorted to acquisitions for increasing customer base and distribution network. The company believes the enhanced scale of the combined entities could boost efficiency in operations. This also will strengthen the company in contending against its competitors in the grocery domain.

United Natural Foods expects to expand itself by investing in strategic brands representing significant growth potential and accelerating new item introductions. Also, the company believes to leverage breadth of the portfolio into new labels, launch new brands with existing customers, and launch existing brands to new customers.

Analysts expect United Natural Foods to report earnings of $0.24 per share on revenue of $6 billion for the second quarter. In comparison, during the previous year quarter, the company posted a profit of $0.71 per share on revenue of $2.53 billion. Majority of the analysts recommended a “hold” rating while expecting the stock to reach $16.36 per share in the next 52 weeks.

The company anticipates net debt reduction of $0 to $100 million over the remainder of fiscal 2019, with neutral to modestly positive free cash flow plus proceeds from asset sales for the remainder of the year. Capital expenditures were anticipated to be 1.3% to 1.5% of net sales in 2019 as the distribution center expansions and automation elevated spend.

United Natural Foods confirmed the long-term expectations for fiscal 2020 to 2022 at the investor presentation during mid-January. Capital expenditures were predicted to average 1% of net sales and working capital to grow slower than net sales.

The company had reconfirmed its guidance for the fiscal year 2019. Sales were anticipated to be $21.5 billion to $22 billion and adjusted earnings were predicted to be in the range of $1.69 to $1.89 per share. The forecast included the contribution from Supervalu as the deal closed in the fourth quarter of 2018.

For the first quarter, the company reported disappointing earnings due to an expense relating to Supervalu deal and restructuring charges. Sales increased 17% driven by strong traction for its products and increasing customer demand. Operating expenses rose 16.3% due to rising labor costs as the company expands its supply chain to meet the surge in demand.

Shares of United Natural Foods ended Friday’s regular session up 1.20% at $15.19 on the NYSE. The stock has fallen over 64% in the past year and over 27% in the past three months.

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