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SUPERVALU (SVU) Up on Takeover Bid Despite Q1 Earnings Miss
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SUPERVALU INC.’s shares registered a whopping rise of 65.4% yesterday, despite reporting a loss in first-quarter fiscal 2019. The stellar run can be attributed to the news of the planned takeover by United Natural Foods, Inc (UNFI - Free Report) — a renowned specialty and natural foods provider.
Well, the merger is expected to bolster SUPERVALU’s struggling retail business. Incidentally the retail segment continued to perform dismally in the quarter under review. The deal is expected to strengthen the company by enabling access to more market regions and resources. No wonder, the news has been heightening enthusiasm among SUPERVALU’s investors.
In fact, yesterday’s surge helped SUPERVALU’s shares to rally 83.7% in the past three months, compared with the industry’s rise of 6.2%. That said, let’s get back to the company’s quarterly outcome, wherein sales improved year on year, supported by the solid wholesale business.
Q1 in Detail
The company reported adjusted loss from continuing operations of 17 cents per share, comparing unfavorably with the Zacks Consensus Estimate of earnings of 35 cents. The bottom line also plunged from adjusted earnings of 51 cents reported in the prior-year quarter.
Nonetheless, SUPERVALU’s net sales of $4,755 beat the consensus mark of $4,659 million and improved almost 35% year over year. The top line gained approximately $1.34 billion from the acquisitions of Unified Grocers and AG Florida, which were completed in 2017. While contributions from these acquired businesses drove results in the wholesale unit, the company’s retail and corporate segments continued to struggle.
Gross profit in the quarter under review amounted to $428 million, down 0.7% from the prior-year quarter’s figure. However, gross margin contracted 320 basis points (bps) to 9%, thanks to unfavorable business mix as Wholesale accounted for a bigger portion of total sales and gross profit. Prior to this, the company witnessed gross margin declines of 350, 310, 280 and 80 bps in the fourth, third, second and first quarters of fiscal 2018, respectively.
During the quarter, SUPERVALU reported break-even operating earnings from continuing operations, as SG&A expenses accounted for the whole of gross profit. Further, adjusted EBITDA from continuing operations amounted to $98 million.
Segment Details
Wholesale: Net sales in the Wholesale business surged 49% year over year to $3,814 million, mainly driven by the sales contributions from Unified Grocers and AG Florida, sales to new customers as well as greater sales to new stores run by existing customers. These were partially offset by lower military sales as well as sales to existing customer stores and stores that no longer receive supplies from SUPERVALU.
The segment’s adjusted operating income totaled $42 million, down 37% from the year-ago quarter’s tally. However, adjusted operating margin contracted 150 bps to 1.1% due to lower margins from Unified Grocers, increased corporate overhead costs and costs related to a closed distribution center’s transition.
Retail: Net sales in this unit dropped 0.6% to $901 million. Identical store sales inched up 0.4%, which was more than offset by lost sales from closed stores.
Further, the segment reported adjusted operating loss of $6 million against break-even adjusted operating earnings in the year-ago quarter.
Corporate: During the quarter, fees earned under services agreements were down 27.3% to $40 million. Further, the segment reported adjusted operating loss of $13 million compared with operating loss of $10 million in the prior-year quarter.
Financial Update
SUPERVALU exited the quarter with cash and cash equivalents of $37 million, long-term debt of $1,432 million and total stockholders’ equity of $488 million as of Jun 16, 2018.
During the quarter, the company’s net cash flows used in operating activities amounted to $64 million compared with cash generated from operating activities of $30 million in the prior-year quarter.
Other Developments
SUPERVALU successfully closed the sale and leaseback of seven distribution centers, as announced previously. The company received proceeds close to $382 million in aggregate. These were mainly used to reduce debt burden. Also, management plans to conclude the sale of its eighth distribution center by the end of October 2018.
Further, the company completed the sale of its Farm Fresh banner. In this regard, SUPERVALU sold 21 stores to Harris Teeter, Kroger (KR - Free Report) and Food Lion, while five stores were sold to independent retailers.
Additionally, SUPERVALU is on track with its plans to sell Shop ‘n Save as well as Shop ‘n Save East. These stores are part of the company’s retail operations. We note that the Zacks Rank #5 (Strong Sell) company’s retail operations have been grappling with price competition, competitive store openings and intense promotions. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Will the Takeover Bid Prove Lucrative?
United Natural is all set to acquire SUPERVALU for approximately $2.9 billion, after taking into consideration outstanding liabilities and debt. Although the transaction has been approved by board members of the companies, it is subject to certain customary closing conditions, SUPERVALU’s shareholder consent as well as antitrust approval. The deal is expected to close at the end of the fourth quarter of this calendar year.
Well, this takeover comes in at a time when SUPERVALU has been struggling with dismal retail operations and has been trying to remain stable through store closures and streamlining operations. By merging with United Natural, SUPERVALU is expected to gain the necessary support to stay afloat. The enhanced scale of the combined entities is expected to radically boost efficiency in operations. Apart from forming a strong comprehensive portfolio, the merger is expected to provide wider geographic reach to both companies.
Undoubtedly, the merger is expected to provide better competing grounds to United Natural in the grocery space. Notably, United Natural’s deal with Whole Foods, which was scooped up by Amazon (AMZN - Free Report) , is set to expire in 2025. In fact, this deal radically reduces United Natural’s reliance on Whole Foods that currently accounts for almost a third of its business.
Additionally, through this deal United Natural will be able to add categories like meat to its portfolio of organic offerings. Further, the company expects to realize cost synergies worth $175 million in the coming three years. Also, after thoughtful planning, United Natural plans to divest the retail assets of SUPERVALU.
Although SUPERVALU’s shares are riding high post the news, United Natural’s investors seem quite apprehensive. Evidently, shares of United Natural tanked almost 16% during yesterday’s trading session. That said, lets wait and see how this merger impacts the businesses of these two predominant players of the consumer staples space.
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SUPERVALU (SVU) Up on Takeover Bid Despite Q1 Earnings Miss
SUPERVALU INC.’s shares registered a whopping rise of 65.4% yesterday, despite reporting a loss in first-quarter fiscal 2019. The stellar run can be attributed to the news of the planned takeover by United Natural Foods, Inc (UNFI - Free Report) — a renowned specialty and natural foods provider.
Well, the merger is expected to bolster SUPERVALU’s struggling retail business. Incidentally the retail segment continued to perform dismally in the quarter under review. The deal is expected to strengthen the company by enabling access to more market regions and resources. No wonder, the news has been heightening enthusiasm among SUPERVALU’s investors.
In fact, yesterday’s surge helped SUPERVALU’s shares to rally 83.7% in the past three months, compared with the industry’s rise of 6.2%. That said, let’s get back to the company’s quarterly outcome, wherein sales improved year on year, supported by the solid wholesale business.
Q1 in Detail
The company reported adjusted loss from continuing operations of 17 cents per share, comparing unfavorably with the Zacks Consensus Estimate of earnings of 35 cents. The bottom line also plunged from adjusted earnings of 51 cents reported in the prior-year quarter.
SUPERVALU INC. Price, Consensus and EPS Surprise
SUPERVALU INC. Price, Consensus and EPS Surprise | SUPERVALU INC. Quote
Nonetheless, SUPERVALU’s net sales of $4,755 beat the consensus mark of $4,659 million and improved almost 35% year over year. The top line gained approximately $1.34 billion from the acquisitions of Unified Grocers and AG Florida, which were completed in 2017. While contributions from these acquired businesses drove results in the wholesale unit, the company’s retail and corporate segments continued to struggle.
Gross profit in the quarter under review amounted to $428 million, down 0.7% from the prior-year quarter’s figure. However, gross margin contracted 320 basis points (bps) to 9%, thanks to unfavorable business mix as Wholesale accounted for a bigger portion of total sales and gross profit. Prior to this, the company witnessed gross margin declines of 350, 310, 280 and 80 bps in the fourth, third, second and first quarters of fiscal 2018, respectively.
During the quarter, SUPERVALU reported break-even operating earnings from continuing operations, as SG&A expenses accounted for the whole of gross profit. Further, adjusted EBITDA from continuing operations amounted to $98 million.
Segment Details
Wholesale: Net sales in the Wholesale business surged 49% year over year to $3,814 million, mainly driven by the sales contributions from Unified Grocers and AG Florida, sales to new customers as well as greater sales to new stores run by existing customers. These were partially offset by lower military sales as well as sales to existing customer stores and stores that no longer receive supplies from SUPERVALU.
The segment’s adjusted operating income totaled $42 million, down 37% from the year-ago quarter’s tally. However, adjusted operating margin contracted 150 bps to 1.1% due to lower margins from Unified Grocers, increased corporate overhead costs and costs related to a closed distribution center’s transition.
Retail: Net sales in this unit dropped 0.6% to $901 million. Identical store sales inched up 0.4%, which was more than offset by lost sales from closed stores.
Further, the segment reported adjusted operating loss of $6 million against break-even adjusted operating earnings in the year-ago quarter.
Corporate: During the quarter, fees earned under services agreements were down 27.3% to $40 million. Further, the segment reported adjusted operating loss of $13 million compared with operating loss of $10 million in the prior-year quarter.
Financial Update
SUPERVALU exited the quarter with cash and cash equivalents of $37 million, long-term debt of $1,432 million and total stockholders’ equity of $488 million as of Jun 16, 2018.
During the quarter, the company’s net cash flows used in operating activities amounted to $64 million compared with cash generated from operating activities of $30 million in the prior-year quarter.
Other Developments
SUPERVALU successfully closed the sale and leaseback of seven distribution centers, as announced previously. The company received proceeds close to $382 million in aggregate. These were mainly used to reduce debt burden. Also, management plans to conclude the sale of its eighth distribution center by the end of October 2018.
Further, the company completed the sale of its Farm Fresh banner. In this regard, SUPERVALU sold 21 stores to Harris Teeter, Kroger (KR - Free Report) and Food Lion, while five stores were sold to independent retailers.
Additionally, SUPERVALU is on track with its plans to sell Shop ‘n Save as well as Shop ‘n Save East. These stores are part of the company’s retail operations. We note that the Zacks Rank #5 (Strong Sell) company’s retail operations have been grappling with price competition, competitive store openings and intense promotions. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Will the Takeover Bid Prove Lucrative?
United Natural is all set to acquire SUPERVALU for approximately $2.9 billion, after taking into consideration outstanding liabilities and debt. Although the transaction has been approved by board members of the companies, it is subject to certain customary closing conditions, SUPERVALU’s shareholder consent as well as antitrust approval. The deal is expected to close at the end of the fourth quarter of this calendar year.
Well, this takeover comes in at a time when SUPERVALU has been struggling with dismal retail operations and has been trying to remain stable through store closures and streamlining operations. By merging with United Natural, SUPERVALU is expected to gain the necessary support to stay afloat. The enhanced scale of the combined entities is expected to radically boost efficiency in operations. Apart from forming a strong comprehensive portfolio, the merger is expected to provide wider geographic reach to both companies.
Undoubtedly, the merger is expected to provide better competing grounds to United Natural in the grocery space. Notably, United Natural’s deal with Whole Foods, which was scooped up by Amazon (AMZN - Free Report) , is set to expire in 2025. In fact, this deal radically reduces United Natural’s reliance on Whole Foods that currently accounts for almost a third of its business.
Additionally, through this deal United Natural will be able to add categories like meat to its portfolio of organic offerings. Further, the company expects to realize cost synergies worth $175 million in the coming three years. Also, after thoughtful planning, United Natural plans to divest the retail assets of SUPERVALU.
Although SUPERVALU’s shares are riding high post the news, United Natural’s investors seem quite apprehensive. Evidently, shares of United Natural tanked almost 16% during yesterday’s trading session. That said, lets wait and see how this merger impacts the businesses of these two predominant players of the consumer staples space.
5 Medical Stocks to Buy Now
Zacks names 5 companies poised to ride a medical breakthrough that is targeting cures for leukemia, AIDS, muscular dystrophy, hemophilia, and other conditions.
New products in this field are already generating substantial revenue and even more wondrous treatments are in the pipeline. Early investors could realize exceptional profits.
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