United Natural Foods likely to serve bitter earnings for Q4

United Natural Foods (NYSE: UNFI) is set to release its fourth-quarter earnings results on Tuesday, October 1, after the market closes. The food distributor’s top line will be benefited by the contribution from Supervalu purchase while the bottom line will hurt by higher costs and expenses.

The results will be benefited by strong brands and increasing consumer demand. The company is likely to gain from its focus on improving customer base, augmenting the broad-line distribution channel, and boosting profitability. However, the bottom line is likely to be hurt by expenses related to the store closures and slower growth rate at new stores.

It is expected to include integration and optimization expenses related to the purchase of Supervalu. Also, United Natural Foods have been struggling to re-accelerate its sales growth in the midst of its goal to integrate the two businesses together. The market analysts believe that the company could take more time than expected to overcome the challenges that hinder its growth.

Few distribution networks are expected to face challenges that could increase the transportation, labor and shrink costs for the company. The gross margin is projected to be negatively impacted by the shift in the consumer mix. The sales from low-margin customers have been rising at a faster pace than other customers that keep the metric under pressure.

Analysts expect the company’s earnings to dip by 31.60% to $0.52 per share while revenue will soar by 147.70% to $6.42 billion for the fourth quarter. The company has surprised investors by beating analysts’ expectations twice in the past four quarters. Majority of the analysts recommended a “hold” rating with an average price target of $9.68 per share.

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For the third quarter, United Natural Foods reported a 10% increase in earnings helped by the benefit from the goodwill impairment charge adjustment and the contribution from Supervalu. Net sales soared by 125% year-over-year. By customer channel-wise, net sales from Supernatural increased by 11.1% and that from Independents grew by 20.2%. Supermarkets sales soared by 420.6% and other sales rose by 36.5%.

Looking ahead into fiscal 2019, the company expects a net loss in the range of $5.85 to $5.65 per share. This reflected the benefit from the goodwill impairment charge adjustment and from expected higher restructuring, acquisition, and integration-related expenses. Adjusted EBITDA is predicted to be closer to the low end of the $580 million to $610 million range.

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