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United Natural Foods Inc.
260 Lake Rd., Dayville 06241 860-779-2800
Chairman and CEO: Norman Cloutier
Revenues (FYE July 31, 1998):
$728.9 million
Earnings (FYE July 31, 1998):
$13.1 million
Employees: 2,600
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Business New Haven
3/22/1999
By: BNH
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Although foods for the health-conscious have become more popular in recent years, United Natural Foods Inc. has been in the industry for two decades. Founded in 1978, the company is a distributor of natural foods delivering more than 26,000 products to over 6,500 retailers in 46 states.
It services the country through its three distribution regions with Stow Mills Inc. and Cornucopia Natural Foods Inc., (in Dayville) serving the eastern region; Rainbow Natural Foods Inc. (Denver) serving the central region; and Mountain People's Warehouse Inc. (Auburn, Calif.) serving the western region. The company also sells in its own 16 retail stores in the eastern part of the U.S. through its subsidiary, Natural Retail Group (NRG).
United has experienced substantial growth since 1994 with 1998 net sales twice that of the 1994 level. The company's growth strategy includes the acquisition of other natural food distributors, related businesses and natural-products retailers as well as expansion/opening of distribution centers. New acquisition efforts are targeted toward health and natural-foods distributors, specialty distributors that serve supermarkets, suppliers that can enhance vertical integration and also selected retail stores.
During 1998 this strategy resulted in the acquisition of the assets of Hershey Import Company Inc. ($20.8 million sales in fiscal 1997) for $10.5 million. United officials believe that this acquisition enables it to better access overseas suppliers and to take advantage of the in-house roasting and packaging capabilities that Hershey offers.
United also acquired the outstanding stock of wholesale distributor Albert's Organics. Inc. ($47.8 million sales in fiscal 1997) for $11 million. The acquisition activity also extended to its Natural Retail Group, with the company acquiring a six-store chain in northern Florida called Mother Earth. The previous year saw the company's merger with Stow Mills Inc. of Chesterfield, N.H. in an equity deal valued at about $107.5 million (based on United's October 31, 1997 closing share price of $21.50). Beyond Stow Mills United has further expansion plans into the upper Midwest including Minnesota, Michigan and Wisconsin as well as efforts to move into northern Texas.
But growth also often means growing pains. United has expanded space in its facilities in Auburn, Calif. and Atlanta, as well as relocating its distribution center in Denver. Expansion efforts are also underway at the company's Oxford, Pa. facility to accommodate the recently announced plan to close the Stow Mills' 110,00-square-foot facility in Chesterfield, N.H. The company will consolidate sales into the Oxford location along with its Dayville facility. The decision followed a study projecting that savings in excess of $3.4 million could be achieved by reducing Northeast distribution centers from three to two.
Performance in 1998 was enhanced by the company's recent acquisitions. Net sales for the 1998 fiscal year ended last July 31 were $728.9 million, compared to $634.8 million for the 1997 year - a 14.8-percent increase.
Operating income rose 30 percent to $29.0 million from $22.3 million for the previous year. Net income rose to $13.1 million (74 cents per diluted share) compared to $9.5 million (57 cents per share) for fiscal 1997. As an aside to its performance, United is experiencing its first IRS audit which also includes an audit of the pre-acquisition performance of its acquired businesses.
For the six months ended January 31, net sales rose 18 percent to $415.6 million, compared to $351.4 million for the same period a year ago. Operating income for the half-year rose 86 percent to $19.3 million compared to $10.4 million for the comparable 1998 period.
Net income for the period rose to $9.7 million (52 cents per diluted share) compared to $3.6 million (20 cents per share) for the comparable 1998 period. Note the 1998 net income figure includes more than $4 million in merger and restructuring expenses. Private for years, United became a public company on November 1, 1996. Although the company has experienced phenomenal growth, its stock price has not responded in kind. With a 52-week high of $33.375, United stock closed on March 5 at 18 5/16, down 1 3/16.
However, the current price does represent a 36-percent increase over the IPO price of $13.50. As of last September 30, 59 percent of the company's stock was controlled by directors, officers and affiliates along with the employee stock plan.
United does not experience seasonal variations in sales, but the company is operating in a very competitive high volume/low profit margin industry. Operating results may fluctuate due to such factors as changes in expenses, supply and demand, the company's acquisition strategy as well as management changes and current economic conditions.
In addition, United relies heavily on sales to two of its largest customers, one of which accounts for 16 percent of sales. Since the company's growth has been dependent on acquisition activity, this in itself may strain its resources due to the efforts necessary to integrate new acquisitions into current operations.
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