Why United Natural Foods Shares Jumped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of United Natural Foods (NASDAQ: UNFI  ) were looking fresher today, gaining as much as 16% after a better-than-expected Q4 earnings report.

So what: The natural-and-organic-food distributor saw earnings per share improve from $0.51 a year ago, to $0.65, topping expectations of $0.60. Sales increased 22.2%, to $1.64 billion, edging out estimates of $1.63 billion. Without an extra week in the calendar, however, sales would have only grown 13.4%, to $1.52 billion. Management cited improvements in logistics and more efficient purchasing for the strong quarter as operating profit grew by 30%. For the current fiscal year, UNFI sees revenue of $6.65 to $6.78 billion, about an 11% increase, or 13% when adjusted for the 53rd week, and EPS of $2.40-$2.50, up from $2.16 this year. Analysts were expecting revenue of $6.61 billion and per-share earnings of $2.49.

Now what: This quarter offers a difficult comparison due to the extra week in the calendar, but UNFI looks poised to continue its steady growth. It's a bit odd to see 2014 guidance ahead of analysts on the top line, but below on the bottom, but I'd interpret that as management being conservative on earnings. Gross margin fell during the year, but operating margin actually improved nine basis points; hopefully, management can keep that trend. With a P/E over 30, UNFI's valuation looks frothy, but natural and organic foods has macroeconomic trends behind it, which I expect to continue for the next 10 or 20 years. As an industry leader in distribution, UNFI has an advantage here. I'd expect it to grow into those expectations.

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