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United Natural (UNFI) Poised on Online Sales & Growth Pillars

United Natural Foods, Inc. UNFI looks well positioned, courtesy of strength in its e-commerce operations. North America's premier food wholesaler is undertaking prudent acquisitions to drive growth. The company’s Fuel the Future strategy and growth pillars are noteworthy.

Let’s discuss the factors driving United Natural’s growth.


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E-commerce Strength

United Natural’s sales are benefiting from e-commerce strength, thanks to increased e-commerce solutions offered by the company. Several of the company’s Independents channel and a Chains channel provide e-commerce solutions to their customers. United Natural offers digital platforms and the support needed by its customers. Management is on track to roll out additional marketing and analytics capabilities to improve customers’ brand experience. United Natural is keen on strengthening its e-commerce business. To this end, the company launched Community Marketplace — a business-to-business digital e-commerce solution. The platform is designed for emerging brands, which will help the company expand distribution with United Natural’s customers.

Acquisitions Driving Growth

The Zacks Rank #1 (Strong Buy) company is undertaking various acquisitions over the years to expand its distribution network and customer base and boost long-term growth. In this regard, United Natural completed the buyout of SUPERVALU in October 2018. The enhanced scale of the combined entities is aiding UNFI’s performance. The merger has provided better-competing grounds to the company in the grocery space by augmenting offerings.

Several other companies in the food space are benefiting from acquisitions like McCormick & Company MKC, Hormel Foods Corporation HRL and The Hershey Company HSY. McCormick increased its presence through acquisitions to enhance its portfolio. MKC bought a 100% stake in FONA International, LLC and some of its affiliates. FONA’s diverse portfolio helps McCormick bolster its value-add offerings and expand the flavor solutions segment into attractive categories. In November 2020, McCormick completed the acquisition of the parent company of Cholula Hot Sauce — a premium Mexico-based hot sauce brand.

Hormel Foods is strengthening its business on the back of strategic acquisitions. In June 2021, the company acquired the Planters snacking portfolio. Before this, HRL acquired Texas-based pit-smoked meats company Sadler's Smokehouse in March 2020. The buyout is in sync with Hormel Foods’ initiatives to strengthen its position in the foodservice space.

Hershey is undertaking buyouts to augment portfolio strength and boost revenues. In December 2021, Hershey acquired Dot’s Pretzels LLC — the owner of Dot’s Homestyle Pretzels — a leading brand in the pretzel category. The addition of Dot’s Pretzels is a perfect match for HSY’s growing salty snacking portfolio. The company also acquired Pretzels Inc. from an affiliate of Peak Rock Capital. The acquisition expands Hershey’s snacking and production capabilities.

Other Growth Initiatives on Track

United Natural has been benefiting from its Fuel the Future strategy, unveiled in June 2021. Management is on track to increase market share through network optimization, solid innovation and a better customer experience. In its last earnings call, the company highlighted that it focuses on four areas to execute the Fuel the Future strategy and achieve its fiscal 2024 financial targets. The four priorities include a focus on delivering major value to its customers, improving the way of partnering with suppliers, providing associates with unmatched career opportunities and supporting communities and the planet. The company is inclined to enhance every aspect of its sales and supply chain execution to deliver products and services to its customers. In this regard, the company’s one-UNFI initiative has been gaining traction. We note that management expects to achieve average annual growth rates for net sales of 3-5%, adjusted EBITDA of 6-10% and adjusted earnings of 12-18% in fiscal 2024.

United Natural is on track to undertake growth initiatives under its future pillar that includes brands, professional services and fresh. As part of growing its brand’s business, management is making progress with the three-pronged strategy based on deepening its penetration with existing customers, introducing owned brands to new customers and channels and undertaking customer-friendly innovations. The company is on track to expand its professional services by bringing new ideas to its customers. The company is on track to invest in its people, infrastructure and technology as part of its new growth pillar.

We believe that such well-chalked growth endeavors and the aforementioned upsides will likely help the company stay in investors’ good books. UNFI’s stock has gained 12.6% in the past year against the industry’s 5.8% decline.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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