Earnings Analysis Of United Natural Foods Inc.

| About: United Natural (UNFI)

United Natural Foods Inc. (NASDAQ:UNFI) reports preliminary financial results for the year ended 2012-07-31.

United Natural Foods Inc. recently reported its preliminary financial results, based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company's performance over the last twelve months (unless stated otherwise).

CapitalCube's analysis of United Natural Foods Inc. versus peers uses the following peer set: Sysco Corp. (NYSE:SYY), Kroger Co. (NYSE:KR), Metcash Ltd. ADS (OTCPK:MHTLY), Core-Mark Holding Co. Inc. (NASDAQ:CORE), SUPERVALU Inc. (NYSE:SVU), Spartan Stores Inc. (NASDAQ:SPTN), Nash Finch Co. (NASDAQ:NAFC) and G. Willi-Food International Ltd.(NASDAQ:WILC). The table below shows the preliminary results along with the recent trend for revenues, net income, and returns.

Annual (USD million) 2012-07-31 2011-07-31 2010-07-31 2009-07-31 2008-07-31
Revenues 5,236.0 4,530.0 3,757.1 3,454.9 3,365.9
Revenue Growth % 15.6 20.6 8.7 2.6 22.2
Net Income 91.3 76.7 68.3 59.2 48.5
Net Income Growth % 19.1 12.2 15.4 22.1 (3.3)
Net Margin % 1.7 1.7 1.8 1.7 1.4
ROE % 9.9 10.2 11.6 11.6 10.7
ROA % 6.3 5.8 5.8 5.4 5.1

Valuation Drivers

United Natural Foods Inc.'s current Price/Book of 2.8 is about median in its peer group. The market expects more growth from UNFI than the median of its chosen peers (PE of 29.9 compared to peer median of 19.1) and to improve its current ROE of 9.9%, which is around peer median.

The company attempts to achieve high profit margins (currently 1.7% vs. peer median of 1.0%) through differentiated products. It currently operates with peer median asset turns of 3.6x. UNFI's net margin is similar to its five-year average net margin of 1.7%.

Economic Moat

The company enjoys both better than peer median annual revenue growth of 15.6% and better than peer median earnings growth performance of 19.1%. UNFI currently converts every 1% of change in annual revenue into 1.2% of change in annual reported earnings. We view this company as a leader among its peers.

UNFI's return on assets is above its peer median both in the current period (6.3% vs. peer median 2.9%) and also over the past five years (5.7% vs. peer median 4.6%). This performance suggests that the company's relatively high operating returns are sustainable.

The company's gross margin of 18.2% is around peer median suggesting that UNFI's operations do not benefit from any differentiating pricing advantage. However, UNFI's pre-tax margin is more than the peer median (2.9% compared to 1.6%) suggesting relatively tight control on operating costs.

Growth and Investment Strategy

UNFI has grown its revenues faster than its peers (14.9% vs. 4.8% respectively for the past three years). The market also sees relatively higher long-term growth prospects for the company, giving it a better than peer median PE ratio of 29.9. Overall, we classify the company's growth prospects as superior relative to its peers.

UNFI's annualized rate of change in capital of 10.9% over the past three years is around its peer median of 9.1%. This median investment has likewise generated a peer median return on capital of 8.1% averaged over the same three years. This median return on investment implies that the company is investing appropriately.

Earnings Quality

UNFI has reported relatively strong net income margin for the last twelve months (1.7% vs. peer median of 1.0%). This margin performance combined with relatively low accruals (-0.5% vs. peer median of 1.4%) suggests possible aggressive accounting and an overstatement of its reported net income.

UNFI's accruals over the last twelve months are around zero. However, this modestly negative level is also less than the peer median which suggests some amount of draining of reserves.

Trend Charts

Company Profile

United Natural Foods, Inc. distributes natural foods and related products. It is a national distributor of natural, organic, and specialty foods and non-food products in the United States and Canada. The company operates through three operating divisions: Wholesale, Retail, and Manufacturing. The Wholesale division includes company's broad line natural and organic distribution business. The Retail division consists of the Natural Retail Group, which operates retail stores within the United States. The Manufacturing division consists of Woodstock Farms Manufacturing, which specializes in the importation, roasting, packaging and distribution of nuts, dried fruit, seeds, trail mixes, granola, natural and organic snack items and confections and Blue Marble Brands product lines. Its distribution operations are divided into six principal units: UNFI, Eastern Region; UNFI, Western Region; UNFI Canada; Albert's Organics; Select Nutrition; and UNFI Specialty Distribution Services. It markets its products to conventional supermarkets, independently owned natural products retailers and other foodservice and international markets. United Natural Foods was founded in 1996 and is headquartered in Providence, RI.


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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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