United Natural Solidifies Footing With Extended NCG Deal

Zacks Equity Research

United Natural Foods, Inc. UNFI plays an important role in North America’s food supply chain, catering to a number of retail food customers. Incidentally, the company announced a long-term supply deal extension with National Co+op Grocers (“NCG”), with which it has been working since 1999. Shares of the company gained 3.8% yesterday.

Per the latest agreement extension, United Natural will continue serving as the main grocery wholesaler and national distributor for affiliated retail food co-ops of NCG. Further, the companies will concentrate on several business development efforts, as NCG’s 147 member co-ops will gain access to United Natural’s more than 250,000 SKUs of natural, conventional, organic and wellness products.

Well, United Natural has been the primary supplier of NCG member co-ops for quite some time now. The company has a solid footing in the natural food channel and will help NCG position its store better with enhanced offerings and support. In fact, United Natural’s solid position also helped it cater well to the rising demand amid the coronavirus-led stockpiling. Apart from United Natural, many food companies like TreeHouse Foods THS, B&G Foods BGS and Campbell Soup CPB gained from pantry-loading trends amid the pandemic.

Notably, demand for United Natural’s products shot up in mid-March and remained high, thereby boosting its sales and earnings in the third quarter of fiscal 2020. During the quarter earnings gained on higher sales and fixed cost leverage, while sales were backed by robust coronavirus-led demand, including gains from cross-selling and solid performance of private brands.

These trends continued in the fourth quarter, with wholesale net sales for the first four weeks of the quarter up approximately 11%. Notably, the company is on track to generate cross-selling revenues of more than $175 million this year. United Natural’s ability to cater to the rising demand amid the pandemic reflects its robust market position and the important role it plays in North America’s food supply chain. The company expects demand for its natural, fresh and conventional products to remain high. This along with integration synergies related to Supervalu is expected to help United Natural end fiscal 2020 on a strong note.

In its third-quarter conference call, United Natural provided an updated view that reflects the impact of including Retail in continuing operations. For fiscal 2020, management now anticipates net sales of $26.4-$26.6 billion compared with $23.5-$24.3 billion projected during the second-quarter earnings call. Adjusted EBITDA is now anticipated in a band of $655-$670 million, up from the previous view of $520-$560 million. The company now envisions adjusted earnings per share in the range of $2.30-$2.50, significantly higher than the old guidance of 85 cents to $1.45.

Courtesy of such upsides, this Zacks Rank #1 (Strong Buy) stock has more than doubled in the past three months compared with the industry’s growth of 10.1%. Certainly, United Natural is likely to keep its impressive show on, thanks to its concerted growth efforts, including the abovementioned supply-deal extension with NCG. You can see the complete list of today’s Zacks #1 Rank stocks here.

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