United Natural Foods
Fiscal first-quarter earnings were impressive, growing 62% to $12.4 million, or $0.29 per share. Sales increased 12.3% to $646.4 million. For the most part, margins improved, although gross margin dipped a bit. If you check our Fool by Numbers for United Natural's first quarter, you'll see that not all was rosy. For example, take its balance sheet: Cash dropped 15%, and cash used in operations more than tripled on a year-over-year basis.
If you've been following United Natural Foods, you know that its Alberts Organics produce business in its Indiana facility has been a sticking point (last year's fourth-quarter Fool on Call touched upon the issues there), and in the first quarter, it still underperformed. United Natural announced its decision to shut down that portion of its Indiana facility and transfer those sales to its Minneapolis facility. The Indiana Alberts Organics issues are cited in the company's gross margin decrease for the quarter.
United Natural spoke optimistically about plenty of other factors in its conference call, including its opportunities with a major customer, Whole Foods Market
While another major customer, Wild Oats
Meanwhile, United Natural's food-service segment struck me as an interesting channel with plenty of room for growth. Although providing wares to food-service establishments only represents 2.2% of its total business, food-service revenues were up 60% on a year-over-year basis. The company said that schools and universities have been the main drivers for this segment, with other schools as prospective customers. Other segments reported healthy gains, too, with sales to independents up 12%, supermarkets up 24%, and natural-foods supermarkets up 9.5%.
Clearly, United Natural will face some short-term challenges to cash flow and margins as the company builds for the long term. It's planning to build facilities in Portland, Ore., Florida, and Texas. These should save the company money over the long haul, cutting the fuel costs involved in transporting its foods, while expanding its sales opportunities. Nonetheless, the capital expenditures involved are expected to total $40 million to $45 million in the coming year, roughly double last year's amount.
United Natural Foods seems like a strong company in many regards. It's definitely benefiting from the growing popularity of natural and organic food offerings -- and relying heavily on continued consumer interest in that type of diet. The company's also known for its rather high multiples. While its short-term outlook may be a little bit rocky, especially as it doles out cash to build more facilities, it seems there's a lot of potential for the long haul, and good reason for potential investors to keep an eye on this company.
For related Foolishness, see the following articles:
- Here's our Fool by Numbers for United Natural's first quarter.
- Check out last quarter's take on the company's conference call.
- United Natural and Whole Foods inked a new and improved seven-year deal.
Whole Foods Market is a Motley Fool Stock Advisor recommendation. To find out what other companies David and Tom Gardner have recommended to subscribers, try Stock Advisor free for 30 days.
Alyce Lomax does not own shares of any of the companies mentioned.
