Why United Natural Foods Stock Just Dropped
Key Points
UNFI reported a 4% decline in revenue, but that was due in part to the closure of a distribution center.
The company continued to deliver solid margin expansion.
Shares of United Natural Foods (NYSE: UNFI) were getting tossed aside today after the supplier of choice for retailers like Whole Foods posted disappointing top-line results in its fiscal third-quarter earnings report.
As a result, the stock was down 12.2% as of 11:12 a.m. ET.
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What happened with United Natural Foods
Revenue for the wholesale stock fell 4.2% to $7.7 billion, though 450 basis points (4.5 percentage points) of that slide was due to optimization actions, including the closure of a distribution center in Allentown, Pa., as the company streamlines its business to focus on more profitable channels and customers.
Nonetheless, that figure was short of estimates at $7.8 billion.
On the bottom line, the company did continue to make improvements, with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rising 16.6% to $183 million. Adjusted earnings per share, meanwhile, surged from $0.44 to $0.77, matching estimates.
CEO Sandy Douglas said, "Through disciplined execution of our value creation strategy, we delivered underlying sales growth, higher profitability, and strong free cash flow."
The sell-off seems to owe to the revenue miss, but that's understandable given the business's focus on profitability.
What's next for UNFI
With one quarter left in the fiscal year, management narrowed its guidance, calling for full-year revenue of $31.1 billion-$31.3 billion, compared to a previous range of $31 billion-$31.4 billion, and adjusted earnings per share of $2.40-$2.60, versus an earlier range of $2.30-$2.70.
Douglas's strategy has paid off as UNFI has become a healthier and more profitable business under his watch, with the stock doubling in the last year. The stock may be fairly valued now at a forward P/E of around 18, but it has room to move higher if margins continue to improve.
Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool recommends United Natural Foods. The Motley Fool has a disclosure policy.