We conducted a brief analysis of the disappointing UNFI earnings call through the lens of the Amenity Viewer. Additionally, we invite you to our weekly Webex on September 25, 11:00 ET (link), for both new and experienced Viewer users.

Freight Costs claim another victim

United Natural Foods posted a disappointing quarter, primarily pointing to higher freight costs.   If that sounds familiar, see the below comments from its competitor Sysco last month that we had highlighted ahead of the WMT quarter.

United Natural Foods, September 20

• "We were just slow or slower than we thought we would be in passing through, number one, the fairly significant increases in the inbound cost.  And two, I think we underestimated the rate of increased freight cost that we incurred in the quarter and as a result didn’t pass it through."
• “Because of the shift in customer mix, specifically faster growth of lower-margin customers and higher inbound freight costs, gross margin was 14.5% in the quarter, down 125 bps from fourth quarter 2017 and below what we expected.”

Sysco, August 13

• ‍“Positiveresults were partially offset by continued challenges from inbound freight costs,driven by overall industry factors such as driver shortages and adjusting to electronic regulation of hours driven."
• “rising fuel cost and increased supply chain cost in both the warehouse and transportation.  These costs were largely due to a combination of a tight labor market,weather impacts throughout the year, and ramp-up cost for new business”
• “the business continues to struggle with operating expenses related to increased transportation costs and a reduction in back haul revenue due to driver availability.”
• “We probably have more headwinds than we’ve had in a few years, mostly driven by the tight labor market and some of the recent fuel increases.”

What was positive in the Guidance category?

Guidance may be a surprising positive indicator among the Key Drivers.  Using the Viewer to dig into the document, the main theme was anticipated synergies from the pending SUPERVALU acquisition, which appear to be longer-term when compared to the near-term headwinds from freight costs.

• “While we’re not depending on growth synergies to be a large driver of value in this deal, we continue to believe that there are significant opportunities”
• “We expect that executing on these efficiencies will deliver synergies, and improve the profitability and efficiency of our company over the long-term.”
• “We now believe that we can achieve cost synergies of $175 million in year three and $185 million in year four”

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This communication does not represent investment advice. Transcript text provided by S&P Global Market Intelligence.

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