United Natural Foods fell the most in more than seven years after announcing the early termination of a contract with supermarket company Albertsons.
The Providence, Rhode Island-based company will stop acting as a distributor to Albertsons in September, 10 months ahead of schedule, according to a statement on Monday. Under the deal, United Natural Foods supplied products to the Albertsons, Safeway and Eastern Supermarket grocery chains.
Analysts at Bank of America and Oppenheimer & Co. downgraded the company’s shares after the announcement. The distributor is also contending with a broader slowdown in the industry, hampering results.
“The upcoming fiscal year will represent a transition period as the company contends with likely sluggish organic sales growth following this contract loss and ongoing top-line challenges,” Rupesh Parikh, an analyst at Oppenheimer, said in a note Tuesday.
United Natural Foods plunged 17 per cent to $52.05 in New York on Tuesday, marking the biggest decline since February 2008. Even before the tumble, the stock was down 19 per cent this year.
The company expects to get about $410 million in revenue from the Albertsons deal this fiscal year, which ends on 1 August. That would be about five percent of United Natural Foods’ total revenue this year, based on analysts’ estimates.
“We are disappointed to end our existing relationship with Albertsons,” chief executive officer Steve Spinner said in the statement. “We plan to utilize the capital freed up from the termination of our Albertsons relationship to further pursue our strategic objectives, and we believe this will provide greater value for our shareholders long-term.”
Bloomberg News, edited by ESM
