Is This As Good As It Gets?

Market looks beyond today's profits
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Market reaction to retail food companies making news hardly ever fails to catch us by surprise but like a lot of things since the pandemic arrived, that phenomenon seems to have accelerated in intensity before our eyes.

One such example came with United Natural Foods, the Providence, R.I.-based distributor which reported its fourth-quarter and fiscal year results this past week. UNFI didn’t just beat Wall Street consensus on the earnings line, it destroyed it, only to see its stock take a beating almost as severe, dropping some 14%.

It’s a reminder that often, traders don’t care a whit about a strong past if the future doesn’t appear quite as bright, and that’s the message we may start to see more of as the food world approaches some sense of normalcy again and the gigantic sales and profits gains of recent months become only really big ones. Just wait till next year, when these companies encounter impossible mountains to climb again.

“The general investor viewpoint is that we are past the point of ‘as good as it gets,’” analyst Karen Short of Barclays explained in a post-earnings and post-reaction analysis of United Natural’s results sent to clients last week. Short noted for all the seemingly positive elements adding up to big earnings beat, the revenue growth—8% when adjusted for the extra week in last year’s Q4—was lighter than the cadence shared a few weeks into the term fostering a belief that sales had peaked. The financial targets for its new fiscal year, which might have been a welcome sight seven months ago, were meanwhile viewed as “not aggressive” but also “realistic.”

Finally, news that UNFI’s creative and ambitious CEO Steve Spinner announced a well-telegraphed stepping-down might have spooked some investors but to be fair, it can’t really be demonstrated that the market was ever necessarily big Spinner fans. It largely yawned and disapproved while he grew the company from a $3 billion Whole Foods-focused center-store distributor on NASDAQ to a $26.5 billion multiformat, multi-category wholesaler on the NYSE.

Of course it’s not all bad news for UNFI. Largely powered by the business gains of COVID, shares of the wholesaler and distributor were up 92.69% year-to-date, according to Sentieo data captured Oct. 5, despite a 17.56% drop in the last month. That tops the year-to-date positive changes of U.S.-traded stocks in our coverage “universe” using the same stock-price metric, indicating “as good as it gets” could be fairly common sentiment across the industry.

Industry Stock Performance

Source: Sentieo data reflecting last-traded prices shortly after markets closed Oct. 5.

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