Core Viewpoint - United Natural Foods, Inc. (UNFI) held its Third Quarter Fiscal 2025 Earnings Conference Call on June 10, 2025, to discuss financial results and business updates [1][2][3]. Group 1: Company Overview - The conference call was led by Steven J. Bloomquist, Vice President of Investor Relations, who welcomed participants and introduced the management team [2][3]. - Key executives present included Sandy Douglas, Chief Executive Officer, and Matteo Tarditi, President and Chief Financial Officer, who will provide insights into the company's performance [3]. Group 2: Financial Information - A copy of the earnings release was made available prior to the call, along with a supplemental disclosure containing key financial information in Microsoft Excel format [3].

Group 1 - United Natural Foods (UNFI) reported quarterly earnings of $0.44 per share, exceeding the Zacks Consensus Estimate of $0.24 per share, and showing a significant increase from $0.10 per share a year ago, representing an earnings surprise of 83.33% [1] - The company achieved revenues of $8.06 billion for the quarter ended April 2025, surpassing the Zacks Consensus Estimate by 2.71% and increasing from $7.5 billion year-over-year [2] - United Natural has consistently surpassed consensus EPS estimates over the last four quarters, indicating strong performance [2] Group 2 - The stock has underperformed the market, losing about 5% since the beginning of the year, while the S&P 500 has gained 2.1% [3] - The company's earnings outlook is mixed, with current consensus EPS estimates at $0.19 for the coming quarter and $0.82 for the current fiscal year, with revenues expected to be $7.7 billion and $31.58 billion respectively [7] - The Zacks Industry Rank for Food - Miscellaneous is currently in the bottom 33% of over 250 Zacks industries, which may impact the stock's performance [8]

Financial Data and Key Metrics Changes - The company achieved a sales growth of 7.5%, amounting to approximately $8.1 billion, with adjusted EBITDA growth of 21% to $157 million, marking the highest adjusted EBITDA margin rate in two years [19][25][10] - Free cash flow for the quarter was $190 million, significantly higher than the previous year's $70 million, contributing to a year-to-date free cash flow of approximately $150 million [25][10][26] - Net leverage decreased to 3.3 turns, down 1.3 turns from the previous year, with expectations to reach 2.5 turns by the end of fiscal 2026 [25][26][10] Business Line Data and Key Metrics Changes - Sales in the wholesale natural products business increased by 12%, while the wholesale conventional products business grew by nearly 3% [19][20] - Unit volumes across the wholesale business rose by about 4%, indicating a sequential acceleration in performance [19][20] - Retail business sales showed slight growth, with same-store sales up 1.5% [20] Market Data and Key Metrics Changes - Inflation remained stable at approximately 1.5%, contributing to the sales increase alongside a favorable product mix [20][19] - The natural products segment outperformed conventional products, growing at 12% compared to 3% for conventional [80][19] Company Strategy and Development Direction - The company is focused on optimizing its network and reducing capital spending while enhancing operational efficiency [12][13] - A strategic decision was made to exit the unprofitable relationship with Key Food, allowing for better service to remaining customers and optimizing the Northeast distribution network [12][38] - The company aims to continue driving consistent annual margin expansion and free cash flow generation, with a focus on building win-win relationships with suppliers and customers [10][11] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges posed by a dynamic macroeconomic environment but expressed confidence in the company's ability to support customers and suppliers [11][10] - The company is committed to transparency and customer service during the ongoing IT systems security incident, which has impacted operations [7][8] - Future financial objectives will be updated after the fiscal 2026 budgeting process, with a focus on long-term sustainable value creation [16][17] Other Important Information - The company reported an incident of unauthorized activity on its IT systems, prompting a response plan and operational adjustments to maintain customer service [7][8] - The company is actively working to restore its systems while managing customer needs through alternative means [41][42] Q&A Session Summary Question: Clarification on guidance for non-GAAP elements - Management reiterated that guidance remains unchanged due to the ongoing IT incident, despite strong year-to-date performance [31][35] Question: Insights on the Key Foods relationship - Management explained the decision to exit the Key Foods agreement was based on operational challenges and profitability assessments [36][38] Question: Current shipping capabilities post-incident - Management confirmed limited shipping is occurring, with ongoing efforts to restore full capabilities [41][42] Question: Impact of the cyber incident on customer contracts - Management emphasized a focus on meeting customer needs rather than contractual obligations during the crisis [46][47] Question: Long-term implications of Lean Six Sigma initiatives - Management expressed confidence in sustaining productivity gains despite temporary disruptions from the cyber incident [62][66] Question: Customer response to the cyber incident - Management reported constructive and collaborative conversations with customers, focusing on meeting their needs during the crisis [57][58] Question: Future CapEx and technology spending post-incident - Management indicated that while cybersecurity investments will be prioritized, overall capital spending strategies remain unchanged [85][86]

Financial Data and Key Metrics Changes - The company achieved a sales growth of 7.5%, amounting to approximately $8.1 billion, with adjusted EBITDA growth of 21% to $157 million, marking the highest adjusted EBITDA margin rate in two years [19][24][8] - Free cash flow for the quarter was $190 million, significantly higher than the previous year's $70 million, contributing to a year-to-date free cash flow of approximately $150 million [24][26] - Net leverage was reduced to 3.3 turns, down 1.3 turns from the previous year, with expectations to reach 2.5 turns by the end of fiscal 2026, a year earlier than previously planned [25][24] Business Line Data and Key Metrics Changes - Wholesale natural products sales increased by 12%, while wholesale conventional products grew by nearly 3%, with unit volumes up about 4% [19][20] - Retail business sales were slightly up, with same-store sales increasing by 1.5% [20] Market Data and Key Metrics Changes - Inflation remained stable at approximately 1.5%, contributing to the sales increase alongside a favorable product mix that added 200 basis points to growth [20][24] - The company noted strong performance in the natural organic and specialty segments, with natural products growing at 12% compared to 3% for conventional products [81][82] Company Strategy and Development Direction - The company is focused on optimizing its network and reducing annual capital spending while enhancing operational efficiency through lean management practices [12][13] - A strategic decision was made to exit the unprofitable relationship with Key Food, allowing for better optimization of the Northeast distribution network [12][38] - The company aims to create win-win relationships with suppliers and customers, driving profitable growth while managing a dynamic macroeconomic environment [11][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving long-term sustainable value for stakeholders despite current operational disruptions due to a cyber incident [16][27] - The company is committed to transparency and customer service during the ongoing recovery from the IT systems security incident [6][32] - Future financial objectives will be updated after the fiscal 2026 budgeting process, with a focus on maintaining operational efficiency and customer value creation [15][16] Other Important Information - The company is implementing workarounds to continue servicing customers during the IT incident, with a focus on restoring systems safely and efficiently [6][32] - The company has made a voluntary $100 million prepayment on its term loan, saving approximately $1 million in quarterly interest expenses [26] Q&A Session Summary Question: Clarification on guidance for non-GAAP elements - Management reiterated that guidance remains unchanged due to the focus on restoring systems and customer service [31][35] Question: Insights on the Key Foods relationship - Management explained the decision to exit the Key Foods agreement was based on operational challenges and mutual agreement to optimize results for both parties [36][38] Question: Current shipping capabilities post-cyber incident - Management confirmed limited shipping is occurring, with ongoing efforts to restore full capabilities [42][44] Question: Customer response to the cyber incident - Management noted constructive and collaborative conversations with customers, focusing on meeting their needs during the crisis [57][58] Question: Impact of the cyber incident on Lean Six Sigma rollout - Management indicated that while there may be temporary disruptions, the underlying momentum for Lean initiatives remains strong [65][66] Question: Long-term outlook for the conventional segment - Management emphasized a disciplined approach to contract analysis and the importance of driving throughput for profitable growth [72][75] Question: Consumer behavior and shopping trends - Management observed strong performance in natural and organic categories, with ongoing support for retailers navigating macroeconomic challenges [78][81]

Financial Performance - Q3 FY25 - Net sales increased by 7.5% to $8,059 million compared to $7,498 million in Q3 FY24[13] - Adjusted EBITDA increased by 20.8% to $157 million compared to $130 million in Q3 FY24[13] - Adjusted EPS increased by $0.34 to $0.44 compared to $0.10 in Q3 FY24[13] - Free cash flow increased by $70 million to $119 million compared to $49 million in Q3 FY24[13] Financial Performance - YTD Q3 FY25 - Net sales increased by 5.5% to $24,088 million compared to $22,825 million in YTD Q3 FY24[13] - Adjusted EBITDA increased by 16.3% to $436 million compared to $375 million in YTD Q3 FY24[13] - Adjusted EPS increased by $0.69 to $0.82 compared to $0.13 in YTD Q3 FY24[13] - Free cash flow increased by $316 million to $153 million compared to $(163) million in YTD Q3 FY24[13] Fiscal 2025 Outlook (Reiterated) - Net Sales: $31.3 - $31.7 billion[34] - Adjusted EBITDA: $550 - $580 million (Increase of 3.6% compared to Fiscal 2024 on 52-week basis)[34] - Adjusted EPS: $0.70 - $0.90 (Increase of ~ 5-times compared to Fiscal 2024)[34] - Free Cash Flow: > $150 million (Increase of ~ $250 million compared to Fiscal 2024)[34] - Capital and Cloud Implementation Expenditures: ~$300 million (Decrease of ~$70 million compared to Fiscal 2024)[34]

Financial Performance - Net sales increased by 7.5% to $8.1 billion compared to the same period last year, driven by a 4% increase in wholesale unit volumes [5]. - Adjusted EBITDA rose by 20.8% to $157 million, reflecting a steady margin improvement and increased free cash flow [8]. - Free cash flow improved significantly to $119 million, up 142.9% from $49 million in the prior year quarter [16]. - The net loss for the quarter was $(7) million, a significant improvement from a net loss of $(21) million in the same quarter last year [14]. - Adjusted earnings per diluted share (Adjusted EPS) increased to $0.44, compared to $0.10 in the prior year quarter, marking a 340% increase [8]. - Gross profit for the quarter was $1.1 billion, an increase of $62 million or 6.1% compared to the same quarter last year [10]. - The net loss attributable to United Natural Foods, Inc. for the 39-week period ended May 3, 2025, was $31 million, compared to a net loss of $75 million for the same period in 2024 [28]. - Adjusted EBITDA for the 39-week period ended May 3, 2025, increased to $436 million, up from $375 million in the prior year, reflecting a growth of 16.3% [33]. - Adjusted net income for the 39-week period ended May 3, 2025, was $50 million, compared to $8 million in the same period of 2024, representing a substantial increase [38]. Cash Flow and Liquidity - Free cash flow for the 39-week period ended May 3, 2025, was $310 million, significantly higher than $54 million for the same period in 2024 [31]. - The company maintained total liquidity of approximately $1.49 billion, consisting of $52 million in cash and $1.44 billion in unused capacity under its asset-based lending facility [16]. - Free cash flow for the 13-week period ended May 3, 2025, was $119 million, significantly higher than $49 million for the same period in 2024 [42]. Debt and Capital Structure - The net debt to Adjusted EBITDA ratio declined to 3.3x, the lowest in the past two fiscal years [8]. - The company reported a net carrying value of debt and finance lease liabilities of $1,928 million, with an adjusted EBITDA leverage ratio of 3.3x [40]. - The net debt to Adjusted EBITDA leverage ratio will be calculated based on the trailing four quarters Adjusted EBITDA, providing insights into the company's capital structure [26]. Expenses and Capital Expenditures - Operating expenses decreased as a percentage of net sales to 12.7%, down from 13.2% in the prior year quarter, due to higher sales and cost-saving initiatives [11]. - Capital expenditures for the 39-week period ended May 3, 2025, were $157 million, a decrease from $217 million in the same period last year [31]. - Payments for capital expenditures for the 39-week period ended May 3, 2025, totaled $157 million, down from $217 million in the prior year [43]. - The company incurred $54 million in restructuring, acquisition, and integration-related expenses over the trailing four quarters [41]. Tax and Impairment - The U.S. GAAP effective tax rate for fiscal 2025 is estimated at 32%, while the adjusted effective tax rate is projected to be 20% [44]. - The company recognized a $24 million non-cash asset impairment charge related to a distribution center in fiscal 2025 [35]. Outlook - The full-year outlook for net sales remains unchanged at $31.3 - $31.7 billion, while the net loss and EPS outlook has been updated to reflect costs associated with exiting a customer contract [17].

Core Insights - United Natural Foods, Inc. (UNFI) is expected to show growth in both revenue and earnings for the third quarter of fiscal 2025, with earnings report scheduled for June 10 [1] Revenue and Earnings Estimates - The Zacks Consensus Estimate for UNFI's revenues is $7.85 billion, reflecting a 4.6% increase compared to the same quarter last year [2] - The consensus estimate for earnings per share (EPS) has risen to 24 cents, a significant increase from 10 cents reported in the previous year [2] - UNFI has achieved an average earnings surprise of 408.7% over the trailing four quarters [2] Growth Drivers - UNFI's growth is supported by strong demand in its wholesale segment and a rising consumer preference for natural and organic products [3] - The company is implementing strategic initiatives such as customer base expansion, distribution network optimization, and increased investment in automation to enhance efficiency and market reach [3] - Lean management practices have improved operational effectiveness by aligning supply with customer needs and generating cost savings [4] Operational Efficiency - Disciplined management of selling, general and administrative (SG&A) expenses, along with ongoing supply chain optimization and productivity improvements, are contributing positively to UNFI's performance [5] - The natural products category is identified as a key growth driver, a trend expected to continue in upcoming quarters [4][9]

Group 1 - United Natural Foods (NYSE: UNFI) recently exceeded earnings estimates and raised its guidance, although this was reported back in March [1] - The impact of tariffs on the company's performance has not yet been fully accounted for, and the stock price remains above pre-tariff levels [1] Group 2 - The analyst has over 10 years of experience researching various companies across multiple sectors, including commodities and technology [1] - The focus of the analyst's research includes metals and mining stocks, as well as consumer discretionary/staples, REITs, and utilities [1]

Group 1: Company Performance - United Natural Foods (UNFI) shares increased by 7.6% to close at $30.57, with notable trading volume compared to typical sessions, and a total gain of 17.3% over the past four weeks [1][2] - The stock's rise is driven by optimism regarding its wholesale segment, new business from existing and newly acquired customers, and the impact of inflation, alongside a focus on lean management and operational efficiency [2] - The company is expected to report quarterly earnings of $0.23 per share, reflecting a year-over-year increase of 130%, with revenues projected at $7.82 billion, up 4.2% from the previous year [3] Group 2: Earnings Estimates and Market Position - The consensus EPS estimate for UNFI has remained unchanged over the last 30 days, indicating that stock price movements may not sustain without trends in earnings estimate revisions [4] - UNFI currently holds a Zacks Rank of 3 (Hold), while another company in the same industry, Campbell's (CPB), has a Zacks Rank of 4 (Sell) and reported a 1.9% increase in its last trading session [4][5] - Campbell's EPS estimate for the upcoming report is $0.65, which is a decrease of 13.3% from the previous year [5]

Core Viewpoint - United Natural Foods, Inc. (UNFI) has experienced an 18.2% increase in stock price over the past month, outperforming the industry and the S&P 500 index, leading investors to consider whether to hold or take profits [1]. Stock Performance - UNFI closed at $28.41, trading above its 50-day and 200-day simple moving averages of $26.26 and $23.40, indicating strong momentum and positive investor sentiment [2][3]. Growth and Efficiency - The natural and organic segment of UNFI is showing impressive growth due to increased consumer demand for healthier products, aligning with broader trends favoring "better-for-you" options [4]. - UNFI is optimizing its distribution network to enhance efficiency, including consolidating its distribution center in Fort Wayne, IN, which is expected to improve operational efficiency and financial flexibility [7]. - Lean management practices have led to a reduction in operating expenses to 12.6% of net sales from 13% year-over-year, reflecting disciplined execution [8]. Financial Performance - In the fiscal second quarter, adjusted EBITDA increased by approximately 13.3% year-over-year to around $145 million, while adjusted earnings per share surged 214.3% to 22 cents from 7 cents in the prior-year quarter [9]. - However, UNFI's gross margin narrowed to 13.1% from 13.3% year-over-year, primarily due to a weaker wholesale margin rate [11]. Challenges - UNFI's retail segment faced a 3.3% decline in total retail sales year-over-year, attributed to the closure of five stores, with same-store sales falling by approximately 40 basis points [10]. - Ongoing margin pressures and rising operational costs may limit the company's ability to invest in growth initiatives [12]. Valuation - UNFI is trading at a forward 12-month price-to-earnings multiple of 22.31X, which is above the industry average of 15.75X, suggesting potential overvaluation [13]. Investment Considerations - The recent stock rally reflects investor confidence due to operational execution and efficiency gains, but challenges in retail and high valuation indicate that current investors may benefit from holding, while new investors might wait for stabilization [15].