Nash Finch Company (NAFC) reported second-quarter 2011 earnings (excluding one-time items) of $1.08 per share, easily beating the Zacks Consensus Estimate of 83 cents and the prior-year earnings of 84 cents per share. Net income from continuing operations climbed to $12.2 million from $11.4 million in the prior-year quarter.
The adjusted earnings in the second quarter of 2011 and 2010 were negatively affected by significant items of LIFO charges or credits, retail impairments, lease reserve reversal net of termination costs, and loss on write-down of long-lived assets, totaling $2.1 million and $0.7 million, or 15 cents and 5 cents per share, respectively.
Including the after-tax impact of these one-time items, net earnings in the reported quarter were $10.1 million or 77 cents a share, as opposed to net earnings of $10.7 million, or 81 cents in the prior year quarter.
Quarterly Details
Total sales of Nash Finch in the second quarter 2011 were $1.10 billion, down 4.8% from $1.15 billion in the prior-year quarter. Total comparable sales of Nash Finch plunged 2.5% y/y in the second quarter of 2011, excluding the impact of the sales decrease of $18.1 million attributable to the previously announced transition of a portion of a food distribution buying group to another supplier during 2010 and the effect of selling or closing eight retail stores.
Nash Finch’s cost of sales for the quarter was $1.01 billion, down from $1.06 billion in second-quarter 2010. Selling, general and administrative expense totaled $60.2 million, down from $62.8 million in the prior-year quarter.
Earnings before interest, income tax, depreciation and amortization (EBITDA) in the second quarter of 2011 were $33.4 million, up 4.5% y/y from $31.9 million in the prior-year quarter.
Interest expense of Nash Finch for the quarter decreased marginally to $5.36 million from $5.37 million in the second quarter of 2010.
Segment Update
Military Distribution: Sales in the quarter increased 2.6% to reach $529.1 million in the second quarter of 2011 from $515.8 million in the prior-year quarter. However, a portion of military sales was not included in the reported net sales during the current year of 2011 as they were on consignment basis.
The segment’s EBITDA also increased by 2.0% y/y to $14.8 million in the second quarter of 2011, with an EBITDA margin of 2.8% in the quarter under review, flat from the prior-year quarter.
Food Distribution & Retail: The combined Food Distribution and Retail sales decreased 10.7% year-over-year to $570.5 million. The decrease was primarily attributable to the previously announced transition of a portion of a customer buying group to another supplier during the second quarter 2010. Excluding this sales impact of $18.1 million and the sale of four and closure of four retail stores, sales for the segment declined 6.9% y/y in the second quarter of 2011.
Retail same store sales declined 3.7% in the quarter under review as compared to the prior year quarter. Total segment’s EBITDA increased 6.6% y/y to $18.6 million from $17.4 million in the prior-year quarter. EBITDA margin also increased from 2.7% to 3.3% in the second quarter of 2011.
Financial Update
Cash and cash equivalents of Nash Finch were $659 million as on June 18, 2011 versus $830 million as on January 1, 2011. Long-term debt increased to $299.3 million at quarter-end from $292.3 million as on January 1, 2011.
Total debt at the end of the second quarter of 2011 decreased by $18.2 million to $319.4 million since the end of the first quarter 2011. Nash Finch continues to focus on effectively managing its balance sheet and is currently in compliance with all of its debt covenants. The debt leverage ratio as of the end of the second quarter 2011 was 2.28x. Availability on the company’s revolving credit facility at the end of the quarter was $169.4 million.
Consolidated EBITDA margin improved from 2.2% to 2.9% of sales and the debt leverage ratio has improved from 3.11x to 2.28x from fiscal year 2006 to the second quarter 2011. The ratio of free cash flow to net assets excluding the impact of strategic projects has increased from 8.7% in fiscal 2006 to 10.9% in the second quarter 2011.
Share Repurchase and Dividend
Nash Finch didn’t repurchase any shares in the second quarter of 2011, but the board of directors of Nash Finch declared a regular quarterly cash dividend of 18 cents per share of common stock on July 18.
The dividend will be paid on September 2, 2011 to shareholders of record at the close of business on August 19, 2011.
Based in Minneapolis, Minnesota, Nash Finch Company operates as a wholesale food distributor in the United States. Its competitor SUPERVALU Inc. (SVU) will report its earnings on July 26, 2011. Nash Finch currently has a Zacks #2 Rank which implies a short term ‘Buy’ rating on the stock. However, on a long- term basis we remain ‘Neutral’ on the stock.
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