Financial Pros Concur: UNFI Isn't a Bargain - InvestingChannel

Financial Pros Concur: UNFI Isn’t a Bargain

Proprietary Data Insights

Financial Pros’ Top Food Distribution Stock Searches in the Last Month

#1‘United Natural Foods Inc11
#2‘Sysco Corp9
#3‘Andersons Inc9
#4‘The Chefs Warehouse3
#5‘Spartannash Company2
#ad It’s time you learn about Alternative Investments!

Financial Pros Agree UNFI isn’t Cheap Enough

You might assume a stock trading at 1.1x operating cash flow is a bargain.

You’d be mistaken. 

Financial experts have been scrutinizing United Natural Foods (UNFI), especially since its recent earnings report. 

Our Trackstar Data suggests a lack of enthusiasm for what they’re finding. 

Despite UNFI’s low valuation and quick price drop, the post-earnings surge in searches continues to wane, indicating experts are hesitant to invest. 

This reluctance may be indicative of broader industry concerns.

United Natural Foods’ Business

Food distribution is straightforward. 

Buy products at a certain price, distribute them to various customers, and charge a markup—a model known as ‘Cost +’ pricing.

UNFI caters to the natural and organic food market in both the U.S. and Canada.

Apart from basic distribution, it offers value-added services like retail support, eCommerce, and sustainability initiatives. 

UNFI’s business is divided into:

  • Wholesale (96.5% of total revenues) – The heart and soul of UNFI, this segment supplies a wide array of natural, organic, and specialty foods to many clients.
  • Retail (3.5% of total revenues) – Serves up a collection of grocery stores, encompassing home essentials and even pharmacy services.

In 2018, UNFI’s $2.9 billion acquisition of grocery retailer Supervalu aimed to merge UNFI’s natural and organic expertise with Supervalu’s conventional offerings. 

Unfortunately, the merger led to surging debt and forced UNFI to shed some retail stores. 

This was reflected in the company’s recent quarterly results, which revealed a net loss of $68 million, despite a 2% increase in net sales and nearly $100 million in cost-saving measures.


Source: UNFI Investor Relations

Quite simply, they struggled to overcome inflationary pressures, supply chain bottlenecks, and other inefficiencies.



Source: Stock Analysis

Though UNFI has experienced sales growth, its profit margins are shrinking. 

Gross margins have dipped to 13.0%, and profit margins turned negative this past quarter.

 Management’s forecast of a net loss between $36 million to $110 million for FY ’24 didn’t win them any allies. 

This is concerning, given UNFI’s cash reserves of $37 million against a long-term debt of $2 billion. 

Though the company generally maintains a positive operational cash flow of around $600 million, half is allocated to capital expenditures, leaving no funds for share buybacks or dividends.



Source: Seeking Alpha

Presently, UNFI trades at 1.1x cash flow. 

However, when compared to Andersons (ANDE) at 1.4x cash and Spartannash Company (SPTN) at 5.5x cash, it reflects industry-wide challenges like inflation and margin pressures.



Source: Seeking Alpha

Rising prices have failed to offset lower sales volumes and increased costs. 

Though year-over-year revenue growth appears robust across the board, almost all companies except for Sysco (SYY) project minimal non-revenue growth for the upcoming year.



Source: Seeking Alpha

Current profit margins for UNFI are at historical lows, and it’s a trend echoed by its competitors. 

Only Sysco managed a net income margin above 1%, and even that is not expected to sustain

Our Opinion 2/10

The food distribution industry faces a multi-year challenge. 

Cost and labor pressures show no signs of abating. 

Should a recession occur, smaller players might not survive. 

Don’t be swayed by the surface-level ‘bargain’—UNFI is not a stock to invest in, now or in the foreseeable future.

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