UNFI projects 12% sales jump for next quarter

United Natural Foods Inc. (UNFI) estimates a 12% net sales gain and a more than 50% surge in net income for its fiscal 2020 third quarter, driven by increased business amid the coronavirus pandemic.

In preliminary results released late yesterday, UNFI forecasts sales of $6.67 billion for the 13-week quarter ended May 2, up 12% from $5.96 billion a year earlier.

Net income is projected to come in at $88 million, a gain of 54% from $57 million a year ago. GAAP net earnings per share (diluted) are pegged at $1.60, compared with $1.12 in the 2019 quarter. Adjusted EPS (diluted) is estimated at $1.40, up from 61 cents in the prior-year period. Similarly, adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) is expected to climb 32% to $222 million from $168 million.

Analysts, on average, had projected third-quarter adjusted EPS at 58 cents, with estimates ranging from 31 cents to $1.13, according to Refinitiv/Thomson Reuters.

For the fiscal 2020 second quarter, UNFI reported flat net sales and a GAAP net loss of $31 million, or 57 cents per diluted share. Adjusted EPS was 32 cents.

UNFI said preliminary third-quarter results reflect strong customer demand driven by the response to COVID-19, which has allowed the Providence, R.I.-based grocery distributor to leverage fixed costs and capitalize on its synergy and integration efforts from the Supervalu acquisition. Also contributing to the higher performance were the Cub Foods and Shoppers supermarket banners, the company said, adding that results also include “substantial incremental costs,” such as for temporary pandemic-related worker incentives and extra safety measures at distribution centers and retail stores.

Related:UNFI offers advice to food suppliers during COVID-19 pandemic

“Customer demand for both our natural and conventional products surged early in our fiscal third quarter and remains elevated, illustrating the value inherent in our strategy to build a distribution network capable of servicing natural, conventional and fresh perimeter products at scale,” Chairman and CEO Steven Spinner (left) said in a statement. “That demand, along with our ongoing synergy and integration initiatives, contributed to our strong preliminary third-quarter results. We remain fully committed to keeping supermarket shelves across North America stocked and serving our customers and communities when they need us most, while prioritizing the safety of our teams who are working with exceptional dedication.”

In mid-March, UNFI instituted a $2-per-hour temporary “state of emergency” bonus for labor associates and drivers on top of their regular wages and overtime hours. The company said it hired more than 2,000 new associates in March and April and continues to recruit more associates to meet the escalating demand. In addition, the distributor has provided attendance flexibility, enabling employees to stay home when ill or take care of household family members impacted by the virus.

Related:Q&A: UNFI President Chris Testa wants to help grocers find ‘the sweet spot’

“I am incredibly proud of the entire UNFI team, especially our frontline distribution center, transportation and retail associates, who have been working diligently to fulfill UNFI’s role as a critical link in the North American food supply chain during this unprecedented time,” Spinner said. “The safety of our team has always been and will continue to be at the forefront of everything we do.”

UNFI said it’s withdrawing its previously issued fiscal 2020 guidance based on the strength of its year-to-date financial performance. The company plans to release an updated outlook when it reports final third quarter results in early June.

In a research note Tuesday evening, Jefferies analyst Christopher Mandeville wrote, “After market close, UNFI pre-announced its third-quarter 2020 results, offering adjusted EBITDA/EPS of $222 million/$1.40 versus $168 million/$0.65 consensus. The wide beat comes as a byproduct of COVID-19 forcing a material shift in consumption spend to the food-at-home (from food-away-from-home) channel, leading to 12% sales growth versus 0% to 2% previous trends.”

He added, “Incremental costs were incurred during the quarter to boost pay and ensure employee safety. However, the notable sales lift, a $58 million EBITDA contribution (up $24 million year over year), continued integration efforts with Supervalu and ongoing synergies realization (contribution not disclosed) more than offset the added expenses.”

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