Catherine Delahaye/DigitalVision via Getty Images When it comes to investment opportunities, the food distribution market is not, admittedly, one of the most exciting spaces to consider buying into. Having said that, this can be a good thing because it means that value might often be overlooked. This is especially true when you consider companies in this space that perform exceptionally well and that achieve consistent growth and profitability. One such firm is United Natural Foods (NYSE: UNFI ). Recent performance by the company has been encouraging, building off of prior years worth of strong growth. On top of this, shares of the business are attractively priced, leading me to believe that it represents a strong opportunity for value-oriented investors. An undervalued food distributor
The last time I wrote about United Natural Foods was in an article published in May of 2021. At that time, I mentioned the company’s good growth over an extended period of time, including performance generated through the first half of its 2021 fiscal year. I mentioned that shares were cheap and that leverage was continuing to improve. All the stars seemed to align nicely, leading me to rate the company a ‘strong buy’, indicating that attractive upside could be on the table for long-term investors. Since the publication of that article, management has done well to continue growth and that has reflected in the company’s share price. Although the company is not crushing the broader market, it is outperforming it slightly, with a return since my last article’s publication of 12.9%. That compares to the 5.8% achieved by the S&P 500 over the same window of time.
A lot of activity takes place between the time food is initially created and the time somebody consumes it. One vital part of the supply chain is the actual distribution of food and related products. United Natural Foods excels in the space. To see how this is the case, we need only look at recent performance achieved by the business. As I mentioned already, when I last wrote about the firm, fundamental data only covered the first half of the company’s 2021 fiscal year. Today, we have data covering the rest of that year as well as the first half of the 2022 fiscal year . Author – SEC EDGAR Data For 2021 as a whole , the company generated revenue of $26.95 billion. That represents a modest increase of 1.6% compared to the $26.51 billion generated in 2020. The great thing for investors is that growth has continued into the present day. In the first half of the company’s 2022 fiscal year, for instance, sales of $14.41 billion implied a 6.1% increase over the $13.58 billion generated the same time one year earlier. Management expects this growth to continue for the foreseeable future. For instance, for the 2022 year as a whole, the company should generate sales of between $28.2 billion and $28.7 billion. At the midpoint, this would imply sales of $28.45 billion, implying a year-over-year increase of 5.6%. So although this means that growth in the second half of the current fiscal year will come in weaker than in the first half, that growth is still robust nonetheless. Author – SEC EDGAR Data Revenue has not been the only thing that has performed well. For 2021 as a whole, the company generated profits of $149 million. That compares to the $254 million loss generated in 2020. Of course, there are other profitability metrics to consider. Operating cash flow in 2021 came in at $614 million. That is 35.7% higher than the $452.37 million achieved a year earlier. Of course, not every profitability metric improved during 2021. If we adjust for changes in working capital, for instance, operating cash flow would have declined modestly, falling by 9.4% from $508.74 million to $461 million. Even so, EBITDA for the business did expand, climbing by 10.3% from $672.92 million to $742 million.
Strong profitability performance has continued also into the current fiscal year. With the increase in revenue, management has seen net profits in the first half of 2022 come in at $142 million. That’s nearly triple the $58 million generated one year earlier. Operating cash flow did decline, falling from $207 million to $43 million. But if we adjust for the changes in working capital like before, then it actually would have risen from $241 million to $334 million. Meanwhile, EBITDA for the business expanded from $365 million to $390 million. Management has provided some guidance for the 2022 […]
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