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Press release from Business Wire

Nash Finch Reports First Quarter 2013 Results

<p class='bwalignc'> <b>Total Company Sales Increased 2.3%</b> </p> <p class='bwalignc'> <b>Adjusted EPS</b><sup><b>1</b></sup><b> of $0.20</b> </p>

Thursday, April 25, 2013

Nash Finch Reports First Quarter 2013 Results

03:00 EDT Thursday, April 25, 2013

MINNEAPOLIS (Business Wire) -- Nash Finch Company (NASDAQ: NAFC), one of the leading food distribution companies in the United States, today announced financial results for the twelve weeks (first quarter) ended March 23, 2013.

Financial Results

Total Company sales for the first quarter 2013 were $1.09 billion compared to $1.07 billion in the prior-year quarter, an increase of 2.3%. The acquisition of eighteen No Frills® stores during the third quarter of 2012 and twelve Bag ‘N Save® stores during the second quarter of 2012 contributed to a net increase in total Company sales of $35.0 million.

Adjusted Consolidated EBITDA2 was $18.6 million, or 1.7% of sales in the first quarter of 2013 as compared to $23.9 million, or 2.2% of sales in the first quarter of 2012. Consolidated EBITDA3 was adjusted to exclude the impact of significant items totaling $0.9 million and $1.1 million in the first quarter 2013 and 2012, respectively. Including the impact of significant items, Consolidated EBITDA for the first quarter 2013 was $17.7 million, or 1.6% of sales, as compared to $22.8 million, or 2.1% of sales, in the prior year quarter.

“We are pleased with the increase in total company sales over last year, which was driven by sales increases in our combined food distribution and retail segments” said Alec Covington, President and CEO of Nash Finch. “Adjusted EBITDA came in slightly better than we expected for the quarter. We are continuing to see pressure on gross margins in the military segment from lower contractual margin rates and lower food price inflation than the first quarter last year.”

Adjusted Net Earnings4 were $2.7 million or $0.20 per diluted share in the first quarter of 2013 compared to $6.2 million or $0.47 per diluted share in the first quarter of 2012. Net earnings were adjusted to exclude the impact of significant items totaling $0.6 million or $0.04 per diluted share in 2013 and $0.7 million or $0.05 per diluted share in the 2012 quarter. Including the impact of significant items, our reported net earnings for the first quarter of 2013 were $2.1 million or $0.16 per diluted share, as compared to net earnings of $5.5 million or $0.42 per diluted share in the prior year quarter.

The following table identifies the significant items affecting our Consolidated EBITDA, net earnings and diluted earnings per share for the first quarter 2013 and prior year results:

   
(dollars in millions except per share amounts) 1st Quarter
2013     2012
Significant items    
Transaction costs related to business acquisition $ -

0.3

 

Restructuring costs

0.9

 

-
Military distribution center conversion and transition costs   -      

0.8

 

Significant charges impacting Consolidated EBITDA $

0.9

 

1.1

 

 
Restructuring costs

0.1

 

-
Military distribution center non-cash pre-opening expense   -      

0.1

 

Total significant charges impacting earnings before tax $

1.0

 

1.2

 

Income tax on significant net charges  

(0.4

)

   

(0.5

)

Total significant charges impacting net earnings $

0.6

 

   

0.7

 

Diluted earnings per share impact from significant items

0.04

 

0.05

 

Diluted earnings per share, as reported   0.16       0.42  
Diluted earnings per share, as adjusted $ 0.20       0.47  
 
Consolidated EBITDA, as reported 17.7 22.8
Consolidated EBITDA impact from significant items  

0.9

 

   

1.1

 

Consolidated EBITDA, as adjusted $ 18.6       23.9  
 
     

Military Distribution Results

 
(dollars in millions) 1st Quarter
2013       2012
Net Sales $ 532.0       534.3
Segment EBITDA1 7.9 13.4
Percentage of Sales 1.5% 2.5%
 

The military segment net sales were $532.0 million, a decrease of 0.4% in the first quarter 2013 compared to first quarter 2012. However, a larger portion of Military sales during the current year have been on a consignment basis, which are excluded in our reported sales on a net basis. Including the impact of consignment sales, comparable Military sales decreased 0.2% in the first quarter.

The military segment EBITDA was $7.9 million, or 1.5% of sales, in the first quarter 2013 as compared to $13.4 million, or 2.5% of sales, in the first quarter 2012. The decrease in military EBITDA was primarily due to declines in gross margin related to reduced contractual margin rates and lower inflation as well as higher transportation costs compared to the prior year quarter.

“We were pleased to see a rebound in military sales during the first quarter as compared to the sluggish sales we experienced in the fourth quarter,” said Covington. “The worldwide military network we have created continues to garner new accounts, and we anticipate earning additional new business once the freezer and chill capacity is added to our new Landover, MD facility later this year.”

 

Food Distribution & Retail Results

 
    (dollars in millions)     1st Quarter
2013       2012
Sales      
Food Distribution $ 385.3 432.7
Retail   176.9       102.8
Total $ 562.2       535.5
Segment EBITDA1
Food Distribution $ 3.2 6.5
Retail   6.6       2.9
Total $ 9.8       9.4
 
Percentage of Sales
Food Distribution 0.8% 1.5%
Retail   3.7%       2.8%
Total   1.7%       1.8%
 

Sales for the combined food distribution and retail segment were $562.2 million, an increase of 5.0% in the first quarter 2013 as compared to the prior year quarter. The increase in Retail sales was primarily attributable to the Bag ‘N Save® and No Frills® supermarkets acquisitions, which were responsible for a $77.3 million increase in sales as compared to the prior year quarter. Because these were acquisitions of Food Distribution customers, these transactions were also responsible for a $42.3 million decrease in Food Distribution segment sales as compared to the prior year quarter. Retail same store sales declined 0.5% as compared to the prior year quarter.

The food distribution and retail segment EBITDA was $9.8 million or 1.7% of sales, in the first quarter 2013 as compared to $9.4 million, or 1.8% of sales, in the first quarter 2012.

“Sales were strong in the combined Food Distribution and Retail segments, driven primarily by the Omaha store acquisitions last year which continued to meet our expectations,” said Covington. “In addition, our efforts to grow our traditional food distribution business through our unwavering commitment to the success of the independent grocer are gaining traction.”

Full Redemption of Convertible Notes

As previously announced, the Company completed the redemption of our Senior Subordinated Convertible Notes due 2035 on March 15, 2013. The Convertible Notes were redeemed at a price equal to $466.11 per $1,000 in principal amount at maturity which represented a total payment of $150.1 million.

Liquidity

Total debt at the end of the first quarter 2013 was $397.5 million as compared to $373.3 million at the end of the fourth quarter 2012, primarily due to an increase in working capital to support new business. The Company is in compliance with all of its debt covenants. The debt leverage ratio5 as of the end of the first quarter 2013 was 3.74x. Availability on the Company's revolving credit facility at the end of the quarter was $212.9 million.

1 Adjusted EPS is defined as earnings per share adjusted for any significant items.

2 Adjusted Consolidated EBITDA is defined as EBITDA adjusted for any significant items.

3 References to EBITDA, Consolidated EBITDA, and segment EBITDA are calculated as earnings (loss) before interest, income tax, depreciation and amortization, adjusted to exclude extraordinary gains or losses, gains or losses from sales of assets other than inventory in the ordinary course of business, and non-cash charges (such as LIFO, asset impairments, closed store lease costs and share-based compensation), less cash payments made during the current period on non-cash charges recorded in prior periods. Consolidated EBITDA should not be considered an alternative measure of our net income (loss), operating performance, cash flows or liquidity. Consolidated EBITDA is provided as additional information as a key metric used to determine payout pursuant to our Short-Term and Long-Term Incentive Plans. The Company also believes investors find the information useful because it reflects the resources available for strategic investments including, for example, capital needs of the business, strategic acquisitions and debt service.

4 Adjusted Net Earnings is defined as net earnings adjusted for any significant items.

5 Total Leverage Ratio is defined as total debt (current portion of long-term debt and capital leases, long-term debt and capitalized lease obligations) divided by the trailing four quarters Consolidated EBITDA.

A conference call to review the first quarter 2013 results is scheduled at 9 a.m. CT (10 a.m. ET) on April 25, 2013. Interested participants can listen to the conference call over the Internet by logging onto the “Investor Relations” portion of Nash Finch's website at http://www.nashfinch.com. A replay of the webcast will be available and the transcript of the call will be archived on the “Investor Relations” portion of Nash Finch's website under the heading “Audio Archives.” A copy of this press release and the other financial and statistical information about the periods to be discussed in the conference call will be available at the time of the call on the “Investor Relations” portion of the Nash Finch website under the caption “Press Releases.”

Nash-Finch is a Fortune 500 company and the largest food distributor serving military commissaries and exchanges in the United States. Nash-Finch's core businesses include distributing food to military commissaries and independent grocery retailers located in 37 states, the District of Columbia, Europe, Cuba, Puerto Rico, the Azores, Bahrain and Egypt. The Company also owns and operates a base of retail stores, primarily supermarkets under the Family Fresh Market®, Econofoods®, Family Thrift Center®, No Frills®, Bag 'n Save®, AVANZA®, and Sun Mart® trade names. Further information is available on the Company's website, www.nashfinch.com.

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements relate to trends and events that may affect our future financial position and operating results. Any statement contained in this release that is not statements of historical fact may be deemed forward-looking statements. For example, words such as “may,” “will,” “should,” “likely,” “expect,” “anticipate,” “estimate,” “believe,” “intend, ” “potential” or “plan,” or comparable terminology, are intended to identify forward-looking statements. Such statements are based upon current expectations, estimates and assumptions, and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. Important factors known to us that could cause or contribute to material differences include, but are not limited to, the following:

  • the effect of traditional and alternative competition on our food distribution, military and retail businesses;
  • general sensitivity to economic conditions, including the uncertainty related to the current state of the economy in the U.S. and worldwide economic slowdown; disruptions to the credit and financial markets in the U.S. and worldwide; changes in market interest rates; continued volatility in energy prices and food commodities;
  • macroeconomic and geopolitical events affecting commerce generally;
  • changes in consumer buying and spending patterns including a shift to non-traditional retail channels;
  • our ability to identify and execute plans to expand our food distribution, military and retail operations;
  • possible changes in the military commissary system, including those stemming from the redeployment of forces, congressional action, changes in funding levels or the effect of mandated reductions or sequestration of government expenditures;
  • our ability to identify and execute plans to improve the competitive position of our retail operations;
  • the success or failure of strategic plans, new business ventures or initiatives;
  • our ability to successfully integrate and manage current or future businesses we acquire, including the ability to manage credit risks and retain the customers of those operations;
  • changes in credit risk from financial accommodations extended to new or existing customers;
  • significant changes in the nature of vendor promotional programs and the allocation of funds among the programs;
  • limitations on financial and operating flexibility due to debt levels and debt instrument covenants and ability to access capital to support capital spending and growth opportunities;
  • legal, governmental, legislative or administrative proceedings, disputes, or actions that result in adverse outcomes;
  • our ability to identify and remediate any material weakness in our internal controls that could affect our ability to detect and prevent fraud, expose us to litigation, or prepare financial statements and reports in a timely manner;
  • changes in accounting standards;
  • technology failures that may have a material adverse effect on our business;
  • severe weather and natural disasters that may impact our supply chain;
  • unionization of a significant portion of our workforce;
  • costs related to a multi-employer pension plan which has liabilities in excess of plan assets;
  • changes in health care, pension and wage costs and labor relations issues;
  • product liability claims, including claims concerning food and prepared food products;
  • threats or potential threats to security;
  • unanticipated problems with product procurement; and
  • maintaining our reputation and corporate image.

A more detailed discussion of many of these factors, as well as other factors that could affect the Company's results, is contained in the Company's periodic reports filed with the SEC. You should carefully consider each of these factors and all of the other information in this release. We believe that all forward-looking statements are based upon reasonable assumptions when made. However, we caution that it is impossible to predict actual results or outcomes and that accordingly you should not place undue reliance on these statements. Forward-looking statements speak only as of the date when made and we undertake no obligation to revise or update these statements in light of subsequent events or developments. Actual results and outcomes may differ materially from anticipated results or outcomes discussed in forward-looking statements. You are advised, however, to consult any future disclosures we make on related subjects in future reports to the Securities and Exchange Commission (SEC).

 
 
NASH FINCH COMPANY AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands, except per share amounts)
       
12 Weeks Ended
March 23, March 24,
2013 2012
 
Sales $ 1,094,241 1,069,845
Cost of sales 1,001,358 989,122
Gross profit 92,883 80,723
Gross profit margin 8.5% 7.5%
 
Other costs and expenses:
Selling, general and administrative 75,108 58,312
Depreciation and amortization 8,800 8,204
Interest expense 6,009 5,138
Total other costs and expenses 89,917 71,654
   
Earnings before income taxes 2,966 9,069
 
Income tax expense 906 3,615
Net earnings $ 2,060 5,454
 
Net earnings per share:
Basic $ 0.16 0.42
Diluted $ 0.16 0.42
 
Declared dividends per common share $ 0.18 0.18
 
Weighted average number of common shares
outstanding and common equivalent shares outstanding:
Basic 12,998 12,951
Diluted 13,050 13,135
 
 
NASH FINCH COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except per share amounts)
       

Assets

March 23, 2013 December 29, 2012
Current assets:

Cash

$ 1,196 1,291
Accounts and notes receivable, net 265,452 239,925
Inventories 360,883 362,526
Prepaid expenses and other 14,548 18,569
Deferred tax assets 3,739   3,724  
Total current assets 645,818 626,035
 
Notes receivable, net 23,556 21,360
 
Property, plant and equipment: 736,680 738,857
Less accumulated depreciation and amortization (439,781 ) (436,572 )
Net property, plant and equipment 296,899 302,285
 
Goodwill 22,877 22,877
Customer contracts and relationships, net 6,413 6,649
Investment in direct financing leases 1,887 1,923
Deferred tax asset, net 29,548 2,780
Other assets 19,566   19,708  
Total assets $ 1,046,564   1,003,617  
 

Liabilities and Stockholders' Equity

Current liabilities:
Current maturities of long-term debt and capital lease obligations $ 1,722 2,265
Accounts payable 242,257 247,392
Accrued expenses 55,511 52,326
Income taxes payable 20,004   429  
Total current liabilities 319,494 302,412
 
Long-term debt 381,400 356,251
Capital lease obligations 14,379 14,807
Other liabilities 34,562 33,758
Commitments and contingencies - -
Stockholders' equity:
Preferred stock - no par value.
Authorized 500 shares; none issued - -
Common stock of $1.66 2/3 par value
Authorized 50,000 shares; 13,799 and 13,799 shares issued, respectively 22,998 22,998
Additional paid-in capital 114,231 113,641
Common stock held in trust (1,295 ) (1,295 )
Deferred compensation obligations 1,295 1,295
Accumulated other comprehensive loss (15,705 ) (15,705 )
Retained earnings 226,878 227,161
Treasury stock at cost; 1,524 and 1,525 shares, respectively (51,673 ) (51,706 )
Total stockholders' equity 296,729   296,389  
Total liabilities and stockholders' equity $ 1,046,564   1,003,617  
 
 
NASH FINCH COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
    12 Weeks Ended
March 23,     March 24,
2013 2012
Operating activities:
Net earnings $ 2,060 5,454

Adjustments to reconcile net earnings to net cash used in operating activities:

Depreciation and amortization 8,800 8,204
Amortization of deferred financing costs 313 290
Non-cash convertible debt interest 1,363 1,390
Rebateable loans 1,034 1,155
Provision for (recovery of) bad debts 18 (279 )
Deferred income tax expense (benefit) (26,783 ) 277
Loss (gain) on sale of property, plant and equipment 80 (476 )
LIFO charge (credit) (187 ) 182
Asset impairments - 62
Share-based compensation expense 499 1,094
Deferred compensation 331 353
Other (45 ) (45 )
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts and notes receivable (19,336 ) (2,556 )
Inventories 1,831 (13,946 )
Prepaid expenses (3,893 ) (1,721 )
Accounts payable (9,953 ) (9,768 )
Accrued expenses 3,689 (11,167 )
Income taxes payable 27,488 2,699
Other assets and liabilities 285   (169 )
Net cash used in operating activities (12,406 ) (18,967 )
Investing activities:
Proceeds from sale of assets 313 635
Additions to property, plant and equipment (2,779 ) (4,063 )
Loans to customers (10,608 ) (1,560 )
Payments from customers on loans 1,205 251
Corporate-owned life insurance, net (391 ) (178 )
Other -   (151 )
Net cash used in investing activities (12,260 ) (5,066 )
Financing activities:
Proceeds from revolving debt 173,873 18,600
Dividends paid (2,209 ) (2,198 )
Payments of long-term debt (150,567 ) (765 )
Payments of capitalized lease obligations (490 ) (571 )
Increase in outstanding checks 3,981 9,396
Payments of deferred financing costs (6 ) (41 )
Tax benefit from share-based compensation - 66
Other (11 ) (527 )
Net cash provided by financing activities 24,571   23,960  
Net decrease in cash (95 ) (73 )
Cash at beginning of period 1,291   773  
Cash at end of period $ 1,196   700  
 
 
NASH FINCH COMPANY AND SUBSIDIARIES
Supplemental Data (Unaudited)
       
March 23, March 24,

Other Data (In thousands)

2013 2012
 
Total debt $ 397,501 316,037
Stockholders' equity $ 296,729 407,726
Capitalization $ 694,230 723,763
Debt to total capitalization 57.3% 43.7%
 
Non-GAAP Data
Consolidated EBITDA (a) $ 106,187 132,246
Leverage ratio - trailing 4 qtrs. (debt to consolidated EBITDA) (b) 3.74x 2.39x
 
Comparable GAAP Data
Debt to earnings before income taxes (b) (3.11) 5.73
 
(a)  

Consolidated EBITDA, as defined in our credit agreement, is earnings before interest, income tax, depreciation and amortization, adjusted to exclude extraordinary gains or losses, gains or losses from sales of assets other than inventory in the ordinary course of business, and non-cash charges (such as LIFO, asset impairments, closed store lease costs and share-based compensation), less cash payments made during the current period on non-cash charges recorded in prior periods. Consolidated EBITDA should not be considered an alternative measure of our net income, operating performance, cash flows or liquidity. The amount of Consolidated EBITDA is provided as a metric used to determine payout of performance units pursuant to our Long-Term Incentive Plan.

 
(b)

Leverage ratio is defined as the Company's total debt at March 23, 2013 and March 24, 2012, divided by Consolidated EBITDA for the respective four trailing quarters. The most comparable GAAP ratio is debt at the same date divided by earnings from continuing operations before income taxes for the respective four trailing quarters.

 

 
 

Derivation of Consolidated EBITDA; Segment Consolidated EBITDA and Segment Profit (in thousands)

                   
FY 2013
2012 2012 2012 2013 Rolling
Qtr 2 Qtr 3 Qtr 4 Qtr 1 4 Qtrs
 
Earnings before income taxes $ (113,300 ) 22,955 (40,418 ) 2,966 (127,797 )
Add/(deduct)
LIFO charge 420 1,438 1,285 (187 ) 2,956
Depreciation and amortization 8,382 11,924 9,324 8,800 38,430
Interest expense 5,460 8,074 6,272 6,009 25,815
Closed store lease costs (33 ) - 193 - 160
Asset impairment - - 13,066 - 13,066
Net loss (gain) on sale of real estate and other assets 89 (1,119 ) (16 ) 80 (966 )
Stock compensation 546 (2,935 ) (1,151 ) 499 (3,041 )
Subsequent cash payments on non-cash charges (729 ) (616 ) (610 ) (472 ) (2,427 )
Total Consolidated EBITDA $ 26,187   39,721   22,584   17,695   106,187  
 
 
2012 2012 2012 2013 Rolling
Segment Consolidated EBITDA Qtr 2 Qtr 3 Qtr 4 Qtr 1 4 Qtrs
Military $ 11,797 13,661 8,783 7,909 42,150
Food Distribution 9,419 14,764 6,159 3,216 33,558
Retail 4,971   11,296   7,642   6,570   30,479  
$ 26,187   39,721   22,584   17,695   106,187  
 
 
2012 2012 2012 2013 Rolling
Segment profit Qtr 2 Qtr 3 Qtr 4 Qtr 1 4 Qtrs
Military $ 8,570 10,322 3,953 4,717 27,562
Food Distribution 5,517 11,191 (8,691 ) 147 8,164
Retail 2,390 7,725 3,834 2,784 16,733
Unallocated:
Interest (4,425 ) (6,283 ) (4,875 ) (4,682 ) (20,265 )
Gain on acquisition of business 6,639 - - - 6,639
Goodwill Impairment (131,991 ) -   (34,639 ) -   (166,630 )
$ (113,300 ) 22,955   (40,418 ) 2,966   (127,797 )
 
 
FY 2012
2011 2011 2011 2012 Rolling
Qtr 2 Qtr 3 Qtr 4 Qtr 1 4 Qtrs
Earnings before income taxes $ 16,614 16,737 12,707 9,069 55,127
Add/(deduct)
LIFO charge 2,131 7,085 4,503 181 13,900
Depreciation and amortization 8,367 10,738 8,016 8,204 35,325
Interest expense 5,355 7,014 7,066 5,138 24,573
Closed store lease costs 159 24 124 - 307
Asset impairment 349 13 191 62 615
Net loss (gain) on sale of real estate and other assets (391 ) (106 ) 41 (476 ) (932 )
Stock compensation 1,372 1,761 1,137 1,094 5,364
Subsequent cash payments on non-cash charges (572 ) (650 ) (369 ) (442 ) (2,033 )
Total Consolidated EBITDA $ 33,384   42,616   33,416   22,830   132,246  
 
2011 2011 2011 2012 Rolling
Segment Consolidated EBITDA Qtr 2 Qtr 3 Qtr 4 Qtr 1 4 Qtrs
Military $ 14,835 21,348 17,061 13,400 66,644
Food Distribution 13,791 15,907 10,747 6,539 46,984
Retail 4,758   5,361   5,608   2,891   18,618  
$ 33,384   42,616   33,416   22,830   132,246  
 
2011 2011 2011 2012 Rolling
Segment profit Qtr 2 Qtr 3 Qtr 4 Qtr 1 4 Qtrs
Military $ 11,285 14,666 12,314 10,474 48,739
Food Distribution 7,709 6,177 4,014 2,338 20,238
Retail 2,128 1,790 2,668 661 7,247
Unallocated:
Interest (4,508 ) (5,896 ) (6,289 ) (4,404 ) (21,097 )
$ 16,614   16,737   12,707   9,069   55,127  
 

Nash Finch Company
Bob Dimond, 952-844-1060
Executive VP & CFO

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