This summary is based on the third quarter fiscal 2008 earnings call conducted by United Natural Foods Inc. (UNFI) on May 20, 2008.
Management:
President and CEO: Michael Funk
CFO: Mark Shamber
Financial Relations Board: Scott Eckstein
Key Investor Issues:
- Quarterly EPS were 30 cents versus 32 cents in the year ago quarter.
- Q3 net sales increased 2.1% from $732.5 million to $887 million.
- Projected full year 2008 net sales in the range of $3.3 billion to $3.35 billion.
Fiscal Year to Date Financial Highlights
- Net sales were $2.5 billion compared with $2 billion for the same period last year.
- Gross profit rose from $377.6 million in the first three quarters in 2007 to $456 million for the first three quarters in 2008.
- The operating expenses were $387.4 million versus $307.9 million for the same period last year.
- The operating income for the nine months ended April 28, 2008 was $68.6 million in comparison with $69.7 million for the nine months ended April 28, 2007.
- Net income for the period was $35.7 million, a decrease from $37 million in the same period in 2007.
- EPS were 83 cents for the first nine months of the year, down from 87 cents recorded in the first nine months last year.
Third-Quarter Financial Highlights
During the quarter, independent customers generated comparable sales growth of about 11%.
- This is a reflection of continued strength of the industry.
- The company sales to conventional supermarkets rose by approximately 78%, driven by sales in the Millbrook specialty division.
- The management continues to see opportunities to capitalize on profitable sales growth helped by enhanced relationships with natural product retailers, wider specialty foods operations and gaining of new customers in all channels.
The gross profit was $165.8 million versus $129.9 million in the same period last year.
- The income before income taxes for the quarter was $20.7 million versus $22.5 million for the third quarter in 2007.
- The provision for income taxes decreased from $8.8 million in the year ago quarter to $7.7 million for the current year third quarter.
The company reported net income of $13 million or 30 cents per share during the quarter.
- The management reported that Millbrook negatively impacted net income by $2.4 million or 6 cents per share during the quarter.
- The company previously announced that the Millbrook acquisition was expected to be dilutive to earnings by about 10 cents to 12 cents in the second half of 2008.
- Excluding the effect of Millbrook, net income for the quarter would have been $15.4 million or 36 cents compared with $13.7 million or 32 cents for the last year quarter.
The quarterly operating expenses were $141 million or 15.9% of net sales.
- This is in comparison with $104.8 million or 14.3% of net sales for the third quarter of 2007.
- The company continues to experience start-up inefficiencies at its Sarasota, Florida and Portland, Oregon area distribution facilities. This negatively impacted operating margins in the quarter. These facilities opened in September 2007 and December 2007 respectively.
- According to management, the company typically achieves optimum efficiencies from new facilities within six to nine months after their opening.
- The company recorded share-based compensation expense of $1.1 million in Q3 of 2008 compared with $1 million in Q3 of 2007.
- The interest expense for the quarter was $4.2 million compared with $3 million in the previous year third quarter.
Fiscal 2008 Outlook
- The company is narrowing its projected net sales guidance for the fiscal year 2008 to $3.3 billion to $3.35 billion. This represents a 19% to 20% increase in net sales versus fiscal 2007. Previously the company had projected net sales for fiscal 2008 to be in the range of $3.27 billion to $3.35 billion.
- The management re-affirmed its EPS guidance for fiscal year 2008 with a range of $1.12 to $1.14. This reflects the expectation that Millbrook will be dilutive to earnings by 18 cents to 19 cents in fiscal 2008.
- The company is re-affirming its anticipated Q4 fiscal 2008 CapEx guidance of approximately $50 million to $55 million.
- The company expects that its CapEx in Q4 will be associated with its previously announced plans to open distribution facilities in Moreno Valley, California and York, Pennsylvania, which are forecast to begin operations in 2009.
Key questions and answers from the third quarter fiscal 2008 earnings call conducted by United Natural Foods Inc. on May 20, 2008.
