PROVIDENCE, R.I.--(BUSINESS WIRE)--United Natural Foods, Inc. (Nasdaq: UNFI) reported financial results for the third fiscal quarter ended April 30, 2016.

Third Quarter Fiscal 2016 Highlights

• Net sales increased 0.8% to $2.13billion compared to $2.11 billion for the same period last fiscal year.
• Adjusted net sales increased 6.1% compared to the same period last fiscal year, excluding the year-over-year impact of the previously disclosed termination of a customer distribution contract.
• Gross margin increased to 15.1% compared to 14.5% in the second quarter of fiscal 2016.
• Net income of $38.3 million, or $0.76 per diluted share

“We are pleased with our solid sequential quarterly improvement in net income,” said Steven Spinner, President and CEO. “Over the last several months our team has worked to significantly expand UNFI’s fresh produce, specialty products and service offerings with the acquisitions of Nor-Cal, Global Organic and Haddon House Food Products. We welcome and look forward to working with the new team members joining the UNFI family. Going forward, we believe these efforts will help support our future growth as we continue to build distribution with new customers and expand relationships with existing customers.”

Net sales for the third quarter of fiscal 2016 increased 0.8%, or $17.5 million, to $2.13 billion from $2.11 billion in the third quarter of fiscal 2015. Adjusted net sales for the quarter increased 6.1% 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 Global Organic/Specialty Source, Inc. ("Global Organic") and Nor-Cal Produce, Inc. ("Nor-Cal") was approximately $18.1 million, or 0.9% of net sales, for the third quarter of fiscal 2016.

Gross margin decreased 29 basis points to 15.1% for the third quarter of fiscal 2016 compared to 15.4% for the same period last year. The decrease in gross margin was primarily due to competitive pricing pressures, a reduction in fuel surcharges, moderated supplier promotional activity, and a shift in the mix of sales towards lower margin categories. Gross margin for the third quarter of fiscal 2016 increased approximately 59 basis points compared to 14.5% in the second quarter of fiscal 2016. This increase was primarily driven by a sequential improvement in supplier promotional activity and the favorable impact of foreign exchange for the Company’s Canadian business.

Total operating expenses were 12.0% as a percentage of net sales for the third quarter of fiscal 2016, a decrease of 12 basis points compared to the same period last fiscal year. Total operating expenses decreased $0.5 million to $256.4 million for the third quarter of fiscal 2016 compared to $256.9 million in the third quarter of fiscal 2015. Total operating expenses for the third quarter of fiscal 2016 included approximately $0.9 million of acquisition related costs and $1.2 million of startup costs related to the Company's Gilroy, California facility. Total operating expenses for the third quarter of fiscal 2015 included startup costs of approximately $0.5 million related to the Company's Hudson Valley, New York and Prescott, Wisconsin facilities offset by a $0.6 million energy grant received as a result of incorporating eligible energy saving designs into the Company's Hudson Valley, New York facility.

Operating income as a percentage of net sales was 3.1% for the third quarter of fiscal 2016, a decrease of 16 basis points compared to the same period last year and an increase of 106 basis points from 2.0% in the second quarter of fiscal 2016. Operating income decreased $3.0 million to $66.0 million for the third quarter of fiscal 2016 compared to $69.0 million for the third quarter of fiscal 2015.

Net income for the third quarter of fiscal 2016 decreased $3.5 million to $38.3 million, or $0.76 per diluted share, from $41.8 million, or $0.83 per diluted share, for the third quarter of fiscal 2015. Net income for the third quarter of fiscal 2015 included a gain of $4.2 million associated with a transfer of land at the Company's Prescott, Wisconsin facility.

Operating cash flow and capital expenditures for the third quarter of fiscal 2016 were $81.0 million and $8.6 million, respectively, resulting in free cash flow of $72.4 million.

Fiscal 2016 Year to Date Summary

Net sales for the nine months ended April 30, 2016 totaled $6.26 billion, a 2.2% increase over the comparable prior fiscal year period. Excluding the year-over-year impact of the termination of a customer distribution contract and the impact of the second quarter fiscal 2015 non-recurring reduction in net sales, adjusted net sales for the nine months ended April 30, 2016 increased 6.5% compared to the nine months ended May 2, 2015.

Gross margin for the first nine months of fiscal 2016 decreased 49 basis points to 14.9% compared to 15.4% for the nine months ended May 2, 2015. This decrease was primarily due to the same factors noted above for the third quarter of fiscal 2016 in addition to the unfavorable impact of foreign exchange for the Company's Canadian business, and is consistent with the first half of fiscal 2016.

At 12.3% of net sales, total operating expenses for the nine months ended April 30, 2016 were 19 basis points lower than the comparable prior fiscal year period. Total operating expenses increased $5.0 million to $772.3 million from $767.2 million for the nine months ended May 2, 2015. Operating expenses for the nine months ended April 30, 2016 included the impact of $4.8 million of severance and other transition costs related to the Company's previously announced restructuring plan, $1.8 million of bad debt expense related to outstanding receivables for a customer who declared bankruptcy in the first quarter of fiscal 2016, $1.9 million of acquisition related costs, and $2.5 million of startup costs related to the Company's Gilroy, California facility. Operating expenses for the nine months ended May 2, 2015 included startup costs of approximately $2.4 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, which was acquired in June 2010, 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, offset in part by a $0.6 million energy grant received related to the Company's Hudson Valley, New York facility.

Reflecting the factors described above, operating income for the nine months ended April 30, 2016 decreased $15.2 million to $161.6 million from $176.9 million for the nine months ended May 2, 2015. As a percentage of net sales, operating income for the first nine months of fiscal 2016 decreased 31 basis points to 2.6% compared to the same period last fiscal year.

Net income for the nine months ended April 30, 2016 decreased $11.6 million to $91.1 million, or $1.81 per diluted share, from $102.6 million, or $2.04 per diluted share, for the nine months ended May 2, 2015. Excluding $4.8 million of severance and other transition costs and approximately $1.9 million of acquisition related costs in the nine months ended April 30, 2016, adjusted net income decreased $12.2 million to $95.1 million, or $1.89 per diluted share, compared to adjusted net income of $107.3 million, or $2.14 per diluted share, in the same period in fiscal 2015, which excludes the impact of the previously disclosed non-recurring reduction in net sales. Net income for the nine months ended May 2, 2015 also included a gain of $4.2 million associated with a transfer of land at the Company's Prescott, Wisconsin facility.

Operating cash flow and capital expenditures for the nine months ended April 30, 2016 were $205.6 million and $29.1 million, respectively, resulting in free cash flow of $176.5 million, the largest nine month free cash flow in Company history.

Adjusted net sales, adjusted net income, adjusted earnings per diluted share 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.

Fiscal 2016 Guidance

Based on the Company's performance to date, recent acquisitions and the current outlook for the remainder of fiscal 2016, the Company is updating its previous guidance for fiscal 2016 provided on March 7, 2016. For fiscal 2016, ending July 30, 2016, the Company estimates net sales in the range of approximately $8.46 billion to $8.50 billion, an increase of approximately 3.4% to 3.8% over fiscal 2015. The Company expects GAAP earnings per diluted share for fiscal 2016 in the range of approximately $2.39 to $2.45 compared to fiscal 2015 GAAP earnings per diluted share of $2.76. Adjusting for severance and other transition costs related to the aforementioned restructuring plan of $4.8 million in the first nine months of fiscal 2016 related to the previously disclosed termination of a customer distribution agreement and acquisition costs of $1.9 million, adjusted earnings per diluted share for fiscal 2016 is estimated to be in the range of $2.47 to $2.53, compared to fiscal 2015 adjusted earnings per diluted share of $2.85. Adjusted fiscal 2015 earnings per diluted share included the impact of the $7.7 million second quarter fiscal 2015 impact of the previously disclosed $9.3 million non-recurring reduction in net sales the Company recognized in fiscal 2015. Capital expenditures for fiscal 2016 are expected to be approximately $40.0 million to $45.0 million, or approximately 0.5% of estimated fiscal 2016 net sales. Finally, the Company expects its fiscal 2016 tax rate to be in the range of 39.4% to 39.8%.

About United Natural Foods

United Natural Foods, Inc. carries and distributes more than 90,000 products to more than 45,000 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.