Hold on to your granola. Investors liked what they saw when natural and organic products distributor United Natural Foods
United Natural Foods said Q2 net income rose 15.3% to $10.6 million, or $0.25 per diluted share, including special items related to costs associated with the transition of warehouses to a larger facility. Sales increased 19% to $601.1 million, a growth rate that the company attributed to strong growth across all major sales channels in its wholesale segment.
There were some other highlights in the report, if you compare it with the previous quarter. For example, gross margin improved to 19.4% from 18.9% in the second quarter last year. And while inventories grew faster than sales last quarter, United Natural Foods seems to have alleviated that trouble spot this quarter, with inventories growing only 12%.
An additional boon to investors was that United Natural Foods upped its 2006 earnings guidance to a range of $1.05 to $1.10 per share, compared with its previous guidance of $1.03 to $1.08 per share.
One of the most interesting things about United Natural Foods is that it feeds into the popularity of organic and natural foods from behind the scenes -- it supplies well-known organic grocers such as Motley Fool Stock Advisor recommendation Whole Foods Market
Although those are the well-known names one associates with United Natural Foods, it says in its annual report on Form 10-K that it supplies wares to more than 20,000 customers, including conventional names as well. Among the well-known companies that stock United Natural Foods' products are Kroger
My Foolish colleague, Stephen Simpson, has been covering United Natural Foods for quite some time, and his recent observation that the impressive growth at Whole Foods Market bodes well for United Natural Foods still applies now. However, as Stephen noted then, there are still some elements that investors should take into consideration when looking at United Natural Foods -- elements like its continued negative free cash flow.
Despite some very encouraging elements in the quarter, United Natural Foods still sports a forward P/E of 31 that suggests the share price may already include a lot of positive sentiment about the company's growth potential. Regardless, United Natural Foods' position as a behind-the-scenes leader in a growing industry certainly makes it a stock to keep an eye on.
For more on the industry, please see the following Foolish articles:
Whole Foods Market and Costco are Motley Fool Stock Advisor selections. To find out what other companies David and Tom Gardner have recommended to subscribers, check Stock Advisor out with a 30-day free trial.
Alyce Lomax does not own shares of any of the companies mentioned.