November 20, 2007 / 3:45 PM / 11 years ago

UPDATE 2-United Natural Q1 profit rises, ups FY08 sales view

(Recasts, adds analyst’s comments, conf call comments, background, updates share movement)

By Dhanya Skariachan

BANGALORE, Nov 20 (Reuters) - United Natural Foods Inc (UNFI.O) beat Wall Street’s view with a 9 percent jump in quarterly profit as higher sales and a lower tax rate offset rising fuel prices and start-up costs related to distribution facilities.

The organic- and natural-foods distributor also raised its fiscal-2008 sales outlook to reflect the impact of its recent acquisition of Millbrook, which distributes specialty food items, health and beauty care products, and non-food items.

Shares of the company rose as much as 11 percent, before falling back to close up $1.74 at $28.00 Tuesday on the Nasdaq.

Since touching a year-high in November last year, the stock had plunged 36 percent to a year-low of $24.10 on Sept. 12 as quarterly results were dragged by higher costs that ate into margins and United Natural’s two biggest customers decided to merge.

On Tuesday, the Dayville, Connecticut-based company posted first-quarter earnings of $13.6 million, or 32 cents a share, compared with $12.4 million, or 29 cents a share, a year ago. Analysts on average expected earnings of 31 cents a share, before items.

Net sales rose 13.9 percent to $736.4 million, helped by a comparable growth rate of 22 percent at the supernatural channel of its wholesale segment, where core grocery customers include Whole Foods Markets Inc WFMI.O and Wild Oats. Analysts expected revenue of $732.1 million, according to Reuters Estimates.

“Despite slow economic conditions, demand for our products remained very consistent,” United Natural Chief Executive Michael Funk said in conference call with analysts.

Gross margin of 18.4 percent and operating margin of 3.3 percent were down slightly from 19.1 percent and 3.6 percent in the same period a year ago, despite $2.3 million of costs related to setting up new distribution facilities in Florida and Oregon.

Tax rates fell to 36.7 percent from 39 percent in 2006.


RBC Capital Markets analyst Edward Aaron said he is optimistic about United Natural’s expansion through Millbrook into the specialty distribution business, which includes ethnic, kosher, gourmet, organic and natural foods. Aaron has an “outperform” rating on the stock.

United Natural, which lost a key customer in its supermarket channel recently, said it hopes the addition of Millbrook’s product selection and category management expertise will help it become a one-stop shop for supermarket chains and specialty-food retailers.

Although United Natural expects the deal to hurt earnings by about 4 cents a share in the second quarter, it said the acquisition may be neutral to slightly accretive for the rest of fiscal 2008.

However, it backed its earnings view for the fiscal year. Sales in the period are expected to range from about $3.27 billion to $3.35 billion, compared with its prior outlook of about $3.05 billion to $3.13 billion.

Analysts were expecting revenue of $3.13 billion. (Editing by Pratish Narayanan)

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