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The Nash Finch Company reported third-quarter 2012 earnings (excluding one-time items) of $1.38 per share, surpassing the Zacks Consensus Estimate of 71 cents.

Reported earnings were up 10.4% year over year from $1.25 per share on the back of top-line growth.

Quarterly Details

Nash Finch’s total sales in third quarter 2012 were $1.50 billion, up 1.7% from the prior-year quarter level. The takeover of 12 Bag ‘N Save stores in May 2012 and the acquisition of 18 No Frills stores during the quarter boosted total company sales by $47.2 million. Sales were above the Zacks Consensus Estimate of $1.49 billion.

Nash Finch’s total comparable sales dipped 1.4% year over year in the reported quarter on account of lower sales due to regular sale/closing of retail stores.  

Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in the third quarter of 2012 declined 4.6% to $43.8 million. Selling, general and administrative expenses amounted to $84.7 million up 6.9% from the prior-year quarter.

Segment Update

Military Distribution: Sales declined marginally by 0.2% to $708.1 million in the third quarter of 2012 from the prior-year quarter.  

The segment’s EBITDA decreased 35.7% from the prior-year quarter to $13.7 million in the third quarter of 2012, owing to low inflation rate and increased establishment and transaction cost of distribution centers. EBITDA margin was 1.9% in the reported quarter, down 110 basis points from the previous-year quarter.

Food Distribution: Food Distribution sales declined 12% to $546.1 million in the quarter. The decrease was primarily due to the impact of the acquisition of Bag ‘N’ Save and No Frills supermarkets, which, however, benefited the Retail segment.

Segment EBITDA decreased 7% to $14.8 million in the quarter. EBITDA margin contracted 10 basis points year over year to 2.7% in the reported quarter due to inflation.

Retail: Retail sales increased 71.2% year over year to $242.2 million, driven by the benefits of the acquisition of Bag ‘N’ Save and No Frills supermarkets.

Segment EBITDA more than doubled to $11.3 million in the quarter. EBITDA margin grew 90 basis points year over year to 4.7% in the reported quarter.

While the acquisition of Bag ‘N Save added to retail sales, as it was a Food Distribution customer, it was also responsible for the year-over-year decrease in Food Distribution segment sales.

Total Food Distribution and Retail EBITDA increased to $26.1 million, up 22.5% from the prior-year quarter. EBITDA margin also expanded 50 basis points to 3.3% in the quarter. Overall increase in total EBITDA can be attributed to a strong impetus from the retail acquisitions and a decline in incentives.  

Financial Update

Cash and cash equivalents for Nash Finch were $1.2 million as of October 6, 2012, compared with $857,000 as of June 16, 2012. Long-term debt went up to $371.1 million in the quarter from $337.4 million in the prior-year quarter.

Store Updates

The company intends to integrate 30 newly acquired stores in the corporate store base, which is expected to be complete by first quarter 2013. On the other hand, the company intends to shut down the Cedar Rapids, Iowa distribution centre in order to optimize resources.  

We are positive about the company’s top- and bottom-line growth and continuous acquisitions and have faith in the company’s long-term prospects. We believe that the company’s initiative to increase distribution of its private label products and price them more competitively will boost sales in the future. Moreover, its strategic growth plan, Operation Fresh Start is helping the company to achieve its long-term targets. However, a low inflation rate continues to hurt the company.

A peer of Supervalu Inc. (SVU - Analyst Report), Nash Finch Company currently has a Zacks #3 Rank (short-term Hold rating). For the long term, we have a Neutral recommendation on the stock.

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