UNFI Q3 FY25 presentation: Natural segment drives 7.5% revenue growth, EBITDA up 20.8%

United Natural Foods Inc (NYSE:UNFI) reported strong third-quarter fiscal 2025 results on June 10, with significant growth across key financial metrics, particularly in its natural products segment. The company’s shares rose 4.97% in premarket trading, reflecting positive investor sentiment toward the results.

Quarterly Performance Highlights

UNFI delivered net sales of $8.059 billion for Q3 FY25, representing a 7.5% increase compared to the same period last year. This growth was primarily driven by the natural products segment, which surged 12.0% ($447 million) year-over-year. Conventional products and retail segments also contributed positively, growing by 2.7% ($94 million) and 0.4% ($2 million), respectively.

The company reported substantial improvements in profitability metrics, with Adjusted EBITDA reaching $157 million, a 20.8% increase from Q3 FY24. Adjusted earnings per share quadrupled to $0.44, up from $0.10 in the same quarter last year, demonstrating significant bottom-line improvement.

Free cash flow generation was another bright spot, with Q3 FY25 free cash flow of $119 million representing a $70 million increase year-over-year. This improvement was attributed to better working capital management, particularly in accounts receivable and inventory.

Detailed Financial Analysis

The natural products segment continues to be the primary growth driver for UNFI, outpacing conventional products by a significant margin. This trend aligns with broader market shifts toward healthier and organic food options.

The wholesale segment was the largest contributor to Adjusted EBITDA growth, generating $158 million in Q3 FY25. According to the reconciliation data, wholesale gross profit increased by $50 million, partially offset by higher operating expenses of $17 million.

UNFI has made substantial progress in strengthening its balance sheet. Net debt to trailing twelve-month Adjusted EBITDA decreased to 3.3x, improving both sequentially and year-over-year. The company now expects to reach a net leverage ratio of approximately 2.5x by the end of fiscal 2026, about a year earlier than previously anticipated.

Strategic Initiatives

CEO Sandy Douglas emphasized the company’s focus on operational discipline and value creation for customers and suppliers. This strategy appears to be yielding results, as evidenced by the improved financial performance across multiple metrics.

The company’s previous realignment of its wholesale business into two divisions, mentioned in its Q2 earnings call, seems to be contributing positively to performance. This reorganization was designed to provide better focus on the distinct needs of the natural and conventional product segments.

Forward-Looking Statements

UNFI maintained its fiscal 2025 outlook, projecting net sales between $31.3 billion and $31.7 billion, representing a 3.6% increase compared to fiscal 2024 on a 52-week basis. Adjusted EBITDA is expected to range from $550 million to $580 million, an 11.2% increase from the previous year.

The company also anticipates Adjusted EPS of $0.70 to $0.90, approximately five times higher than fiscal 2024 levels. Capital expenditures are projected to decrease by approximately $70 million to around $300 million, while free cash flow is expected to exceed $150 million, representing a $250 million improvement year-over-year.

It’s worth noting that the presentation mentioned unauthorized activity on certain company information technology systems, though no further details were provided regarding potential impacts on operations or financial results.

Market Context

The strong Q3 results follow a solid Q2 performance, where UNFI exceeded analyst expectations with adjusted EPS of $0.22 on revenue of $8.16 billion. The sequential improvement in adjusted EPS from $0.22 in Q2 to $0.44 in Q3 demonstrates accelerating momentum in the company’s financial performance.

UNFI shares have shown significant volatility over the past year, with a 52-week range of $11.88 to $34.76. The positive premarket reaction to the Q3 results suggests investors are encouraged by the company’s continued progress in improving profitability and cash flow generation while reducing leverage.

Full presentation:

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