unfi final presentation

Recommendation: BuyShare Price: $36.90

UNITED NATURAL FOODS, INC.

(UNFI)

Rustam TuranovKenneth Kohut

Joshua Rimatzki

MSU Student Investment Association

Executive Summary • United Natural Foods, Inc. carries and distributes more than

85,000 products to more than 40,000 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.


CLIENTS• UNFI is the largest supplier to Whole Foods Grocery stores

nationwide.– Recently renewed agreement with Whole Foods through 2025.

UNFI is Whole Foods largest supplier.• UNFI carries and distributes more than 85,000 products to over

40,000 retail locations.– Adds more than 6,000 new products to catalog every year.

• 31 distribution centers across the country leads to quick deliveries to customers


THESISUnited Natural Foods is an excellent buy because of its leadership in the natural and organic food distribution industry, a 9 year contract with one of the largest natural/organic food retailers in the United States, a constant search for effective mergers/acquisitions, expansion of distribution centers across the nation, and an average of over 24 years of industry experience per executive officer. With the US organic food market expecting to grow significantly due to increasing demand for organic/natural foods, United Natural Foods has the potential to gain even more market share in the future.


MANAGEMENT TEAM • 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.

• CEO Steven Spinner has over 30 years experience in the food distribution industry and began his tenure at UNFI in 2008 successfully leading the company through the economic downturn.


Revenue Drivers ● Organic Growth

○ US organic food market expected to grow 14% from 2013-2018 ● Distribution scale compared to competitors

○ Gross margin● Changing food values

○ Millennials heading towards more natural and organic food ● Increasing market share of existing customers ● M&A growth● E-Commerce - iUNFI


ORGANIC FOOD SALES GROWTH• Expected CAGR of 16% from 2015-2020

– Led by health concerns and awareness of health benefits of organic foods

– Other factors include increasing income levels, standard of living, and government initiatives


DISTRIBUTION SCALE• Heavily invested in expanding distribution scale• Closer to customers → faster delivery times + lower fuel costs• Volume purchasing opportunities • Roll-out of new technology: national warehouse management

and procurement system and transportation management system upgrade.

• promote operational efficiencies and further reduce our operating expenses.


WHOLE FOODS CONTRACT• Primary distributor to whole foods for 17 years• Currently extended until Sept 25, 2025.• Makes up 33% of their overall revenue.• We believe we won't lose this contract in the next 10 years.• Whole foods is very large and needs a large scale distributor


E-COMMERCE• Groceries are the biggest untapped opportunity in E-Commerce

(1% of +600b)• 2013-2018 Expected CAGR of 21.1% • Millennials 2x more likely to pay for home delivery than Gen X

and 3x more likely than Boomers• iUNFI - Free to customers

– Provides promotion, catalog, and delivery information to customer

– Customer can order goods very quickly


ACQUISITIONS• With no long term debt on the balance sheet and cash set aside,

future deals can be expected.

• Acquisition of Tony’s Fine Foods (2015) expanded distribution of meats and cheeses in Western U.S.

• Acquisition of Nor-Cal Produce (2016) establishes UNFI as a

“national presence” in produce.• Acquisition of Haddon House (2016). Haddon House is the largest

privately-owned distributor of specialty, natural, organic, ethnic and

kosher food. This acquisition also broadens lines of gourmet and

ethnic foods.


INCREASED OFFERINGS• Acquisitions have allowed for immediate presence in specialty

foods market• Kosher, ethnic and gourmet foods - high growing industry• Offering these products in supermarkets and independent

retailers• Independant retailers better margins for us• Expansion has lead to new supermarket customers • Helps with cross-selling products to these new customers


Risks•Growth of UNFI relies upon growth of its principal customers, therefore if the customers, like Whole Foods, cannot grow then UNFI will have a hard time succeeding.•Unforeseen crop failures could boost costs and decrease profit margins over the course of a year(s) exemplified by events like the California drought.

• Acquisition strategy may fail in the future due to increasing coordination difficulty on the administrative level.


Stock Performance


STOCK DECLINE• Albertsons lost contract• Margins decrease• Annual sales forecast

15

WE ARE NOT WHOLE FOODS


Comparable Company Analysis

UNFI CHEF SPTN PFGC Average

Mkt. Cap 1.79B 495.59M 1.03B 2.52B -

P/E 13.67 30.4 16.36 37.75 24.55

EV/Ebitda 7.47 13.68 11.24 13.02 11.35

Profit Margin 1.64% 1.53% 0.82% 0.43% 1.11%

Beta 0.82 1.35 1.67 - -

ROA 5.10% 3.05% 3.26% 1.96% 3.34%


D/E 36.69% 147.46% 68.43% 185.69% -

ROE 9.30% 9.30% 8.00% 11.42% 9.51%

Summary• Leadership within industry as #1 merchandiser of Natural and

Organic in North America at $8 Billion USD.• Long standing customer supplier relationships.• Opportunity for growth in both natural and specialty food markets.• Increased revenue from:

– Emerging markets– Acquisitions

• Sufficient cash flow to continue acquisition strategy.


DCF Valuation


unfi final presentation

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