PROVIDENCE, R.I.--(BUSINESS WIRE)--United Natural Foods, Inc. reported financial results for the fourth fiscal quarter and fiscal year ended July 30, 2016.
Fourth Quarter and Full Year Fiscal 2016 Highlights
* Net sales for the fourth quarter of fiscal 2016 increased 7.4% to $2.21 billion compared to $2.06 billion for the same period last fiscal year
* Net sales for fiscal 2016 increased 3.5% to $8.47 billion compared to $8.18 billion in fiscal 2015
* Adjusted net sales for fiscal 2016 increased 8.0% compared to fiscal 2015, excluding the year-over-year impact of the previously disclosed termination of a customer distribution contract and the impact of the previously disclosed second quarter fiscal 2015 reduction in net sales
* Cash flow from operations for the fourth quarter of fiscal 2016 was $91.0 million with capital expenditures of $12.3 million, resulting in free cash flow for the period of $78.7 million
* Cash flow from operations for fiscal 2016 was $296.6 million with capital expenditures of $41.4 million, resulting in free cash flow for the Company of $255.2 million
Fourth Quarter Fiscal 2016 Summary
Net sales for the fourth quarter of fiscal 2016 increased 7.4% to $2.21 billion from $2.06 billion in the fourth quarter of fiscal 2015. Adjusted net sales for the quarter increased 12.7% compared to the same period last fiscal year, excluding the year-over-year impact of the previously disclosed termination of a customer distribution contract. The net sales contribution from the acquisitions of Nor-Cal Produce, Inc. ("Nor-Cal") and Haddon House Food Products, Inc. (“Haddon”) was approximately $138.9 million for the fourth quarter of fiscal 2016. During the fourth quarter of fiscal 2016, the operations of Global Organic/Specialty Source, Inc. ("Global Organic") were integrated into the Company's existing Albert's business and are therefore no longer separable.
Gross margin was 15.60% for the fourth quarter of fiscal 2016, an increase of 25 basis points from 15.35% for the same period last year. The increase was primarily driven by the benefit of current year acquisitions. Excluding the impact of acquisitions, fourth quarter gross margin continued to experience challenges from competitive pricing pressures, moderated supplier promotional activity, and a reduction in fuel surcharges.
Total operating expenses were 12.78% of net sales for the fourth quarter of fiscal 2016, a 59 basis point increase compared to the fourth quarter of fiscal 2015. Total operating expenses increased $31.7 million, or 12.60%, to $283.0 million in the fourth quarter of fiscal 2016 as compared to $251.3 million in the fourth quarter of fiscal 2015. This increase was primarily driven by acquisitions including $2.0 million of amortization costs from acquisitions recorded in the fourth quarter of fiscal 2016 and lower incentive compensation in the fourth quarter last year. Total operating expenses for the fourth quarter of fiscal
2016 included approximately $0.8 million of restructuring and impairment costs related to the Company's retail business and $0.3 million of acquisition costs.
Operating income as a percentage of net sales was 2.82% for the fourth quarter of fiscal 2016, a decrease of 34 basis points compared to the same period last year. Operating income decreased 4.0%, or $2.6 million, to $62.5 million for the fourth quarter of fiscal 2016 compared to $65.1 million for the fourth quarter of fiscal 2015. EBITDA for the fourth quarter of fiscal 2016 was $82.5 million, an increase of 1.0% from $81.7 million in the same period last year.
Net income for the fourth quarter of fiscal 2016 decreased 3.9%, or $1.4 million, to $34.7 million, or $0.69 per diluted share, from $36.1 million, or $0.72 per diluted share, for the fourth quarter of fiscal 2015. Excluding approximately $0.8 million of restructuring and impairment costs related to the Company's retail business and $0.3 million of acquisition related costs, adjusted net income and adjusted diluted earnings per share for the fourth quarter of fiscal 2016 were $35.3 million and $0.70, respectively.
Cash flow from operations was $91.0 million, an increase of $35.9 million over the fourth quarter of last year. Capital expenditures were $12.3 million, a decrease of $18.3 million over the fourth quarter last year. Free cash flow was $78.7 million, an increase of $54.2 million over the fourth quarter last year. The increase in free cash flow year-over-year resulted from stronger cash from operations, improved working capital performance and a reduction in capital expenditures.
Fiscal Year 2016 Summary
"We are pleased with UNFI’s accomplishments in fiscal 2016 which demonstrate our team’s focus on our strategic initiatives, particularly in light of a challenging operating environment," said Steven Spinner, President and CEO. "We believe our efforts to further enhance UNFI’s perishable perimeter product offerings, combined with the scale of our leading national distribution network, position us well for growth in sales and profitability over the next several years."
Net sales for fiscal 2016 totaled $8.47 billion, a 3.5% increase compared to fiscal 2015. Excluding the year-over-year impact of the termination of a customer distribution contract and the impact of the second quarter fiscal 2015 reduction in net sales, adjusted net sales for the fiscal year ended July 30, 2016 increased 8.0% compared to the fiscal year ended August 1, 2015. The net sales contribution for fiscal 2016 from the acquisitions of Nor-Cal and Haddon was approximately $51.4 million and $100.4 million, respectively.
Gross margin for the fiscal year decreased 30 basis points to 15.10% compared to 15.40% in fiscal 2015. This decrease was primarily due to competitive pricing pressures, moderated supplier promotional activity, a reduction in fuel surcharges and the unfavorable impact of foreign exchange for the Company's Canadian business, offset, in part, by a benefit from current year acquisitions compared to the prior year.
At 12.46% of net sales, total operating expenses for fiscal 2016 were 2 basis points higher than in fiscal 2015. Total operating expenses increased $36.7 million to $1.06 billion from $1.02 billion for fiscal 2015. Operating expenses for fiscal 2016 included the impact of $4.8 million of severance and other transition costs related to the Company's previously announced restructuring plan, $0.8 million of restructuring and impairment costs related to the Company's retail business recorded in the fourth quarter of fiscal
2016, $1.8 million of bad debt expense related to a customer's outstanding receivables in the first quarter of fiscal 2016, $2.2 million of acquisition costs, $2.4 million of amortization of intangibles from acquisitions, and $2.5 million of startup costs related to the Company's Gilroy, California facility. Total operating expenses for fiscal 2015 included start-up costs of approximately $3.0 million related to the Company's Hudson Valley, New York, Auburn, California and Prescott, Wisconsin facilities, $0.6 million associated with the write-off of an intangible asset related to the Company's Canadian division, a $0.2 million restructuring charge related to the closure of the Company's Aux Mille facility located in Quebec, Canada, and approximately $0.3 million in costs related to the Company's acquisition of Tony's Fine Foods, offset in part by a $0.8 million energy grant received related to the Company's Hudson Valley, New York facility.
Reflecting the factors described above, operating income for fiscal 2016 decreased $17.8 million to $224.1 million from $242.0 million in fiscal 2015. As a percentage of net sales, operating income for fiscal 2016 decreased 31 basis points to 2.65% compared to fiscal 2015. EBITDA for fiscal 2016 was $295.1 million, a decrease of 3.5% from $305.8 million in fiscal 2015.
Net income for fiscal 2016 decreased $13.0 million to $125.8 million, or $2.50 per diluted share, from $138.7 million, or $2.76 per diluted share, for fiscal 2015. Excluding $5.6 million of restructuring and impairment costs and approximately $2.2 million of acquisition related costs in fiscal 2016, adjusted net income decreased $13.0 million to $130.4 million, or $2.59 per diluted share, compared to adjusted net income of $143.4 million, or $2.85 per diluted share, in fiscal 2015, which excludes the $7.7 million impact of the previously disclosed non-recurring reduction in net sales. Net income for fiscal 2015 includes a gain of $4.2 million associated with a transfer of land at the Company's Prescott, Wisconsin facility.
Cash flow from operations and capital expenditures for the fiscal year ended July 30, 2016 were $296.6 million and $41.4 million, respectively, resulting in free cash flow of $255.2 million, the largest fiscal year free cash flow in Company history. Capital expenditures as a percentage of net sales were 0.49%, the lowest in at least five years. For fiscal 2015, cash flow from operations and capital expenditures were $48.9 million and $129.1 million, respectively.
Adjusted net sales, adjusted net income, adjusted diluted EPS, EBITDA, and free cash flow are non-GAAP financial measures. Please refer to the tables in this press release for a reconciliation of all non-GAAP financial measures with the most directly comparable financial measures calculated in accordance with GAAP.
"Our recent acquisitions further strengthened our service offering and we believe UNFI is uniquely positioned to service customers across every channel of food retail in the U.S. and Canada. As we enter fiscal 2017, we remain committed to our strategy of building out the store and are optimistic about new customer growth in both our fresh and core distribution programs," concluded Mr. Spinner.
Fiscal 2017 Guidance
UNFI is providing its financial outlook for fiscal 2017, ending July 29, 2017. The Company expects net sales in the range of approximately $9.43 billion to $9.60 billion, an increase of 11.3% to 13.3% over fiscal 2016 net sales. The Company estimates GAAP earnings per diluted share for fiscal 2017 in the range of approximately $2.53 to $2.63 per share, an increase of approximately 1.2% to 5.2% over fiscal
2016 GAAP earnings per diluted share of $2.50. Capital expenditures for fiscal 2017 are expected to be $55.0 million to $80.0 million, or approximately 0.6% to 0.8% of estimated fiscal 2017 net sales. The Company expects its fiscal 2017 effective tax rate to be in the range of 39.7% to 40.1%. The Company's guidance is based on current plans and expectations and is subject to a number of known and unknown uncertainties and risks, including those set forth under the Company's safe harbor statement of the Private Securities Litigation Reform Act of 1995 below.
Conference Call & Webcast
The Company's fourth quarter and full year fiscal 2016 conference call and audio webcast will be held today, Monday, September 12, 2016 at 5:00 p.m. EDT. The audio webcast of the conference call will be available to the public, on a listen-only basis, via the Internet at the Investors section of the Company's website at www.unfi.com. The online archive of the webcast will be available on the Company's website for 30 days.
About United Natural Foods United Natural Foods, Inc. (http://www.unfi.com) carries and distributes more than 100,000 products to more than 43,000 customer locations throughout the United States and Canada. The Company serves a wide variety of retail formats including conventional supermarket chains, natural product superstores, independent retail operators and the food service channel. United Natural Foods, Inc. was ranked by Forbes Magazine in 2014 as one of “America's Best Managed Companies,” ranked by Fortune in 2012 as one of its “Most Admired American Companies,” and chosen by Food Logistics Magazine as one of its 2013 Top 20 Green Providers. For more information on United Natural Foods, Inc., visit the Company's website at www.unfi.com
