Consider this: In the most recent quarter, United Natural actually outperformed its own expectations. Not only did revenue jump almost 14% year-over-year to $1.6 billion, but United Natural posted a 22% surge in earnings, driven by effective cost-control measures and gross-margin improvement.
Investors have to like that 13% of 14% overall revenue growth was "organic," which I thought was very fitting. This shows that management has a strong pulse on this business. And the strategies they've implemented to not only grow market share, but improve operational efficiency, are working.
Truth be told, given the company's 20-basis-point improvement in gross margin, United Natural's performance was more impressive relative to that of Sysco. That said, it certainly didn't escape me that United Natural ventured outside of the organic/fresh market to find growth. Management is looking to branch out beyond the organic territory.
That could be a smart move this quarter, but I question the long-term effectiveness of that strategy. What of the impact it will likely have on the company's margins? Without a crystal ball, I can't guarantee what direction management will take next or what the outcome might be.
What I do know, though, is that the Street has placed some huge bets on United Natural. That the stock was down after United Natural's exceptional quarter demonstrates how finicky investors can get when great results "only" meet expectations, many of which (as I see it) remain too high. And it certainly seems as if the Street was broadly unimpressed by management's guidance. Until, of course, Sysco opened its checkbook for US Foods.Although United Natural Foods seem fresh, the term "watch what you eat" still applies. Indigestion from the stock just might be around the corner. At the time of publication, the author held no position in any of the stocks mentioned. Follow @saintssense This article was written by an independent contributor, separate from TheStreet's regular news coverage.
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