Nash Finch (NAFC) reported second-quarter 2010 earnings of 88 cents per share, easily beating the Zacks Consensus Estimate of 65 cents by 23 cents. It is also ahead of 82 cents per share reported by the company in the second quarter 2009. Net income from continuing operations of Nash Finch was $11.6 million, up from $10.9 million in the prior-year quarter.
The quarter was impacted by several one-time items. Adjusting for distribution center closing costs of $1.2 million or 9 cents per share, acquisition, integration and start-up costs of $0.3 million or 8 cents per share and income tax gain on significant net credits of $6 million or 5 cents per share, Nash Finch reported a net income of $10.7 million or 81 cents per share. Results compare favorably with a net income $9.5 million or 72 cents per share in second quarter 2009.
Prior-year quarter results of Nash Finch include retail stores opening and closing costs of $0.6 million or 5 cents per share, acquisition, integration and start-up costs of $0.8 million or 6 cents, impairment charge of $0.9 million or 7 cents per share and income tax gains on significant net credits of $0.9 million or 7 cents per share.
Total sales of Nash Finch for the second quarter 2010 were $1.2 billion, down 5.1% from $1.2 billion in the prior-year quarter. Lower sales at its segments led to the overall decrease in total revenue.
Nash Finch’s cost of sales for the quarter was $1.06 billion, down from $1.11 billion in second-quarter 2009. Selling, general and administrative expense totaled $62.8 million, down from $67.7 million in the prior-year quarter.
Earnings before interest, income tax, depreciation and amortization (EBITDA) for the second quarter of 2010 were $31.9 million, down from $33.6 million in the prior-year quarter.
Interest expense of Nash Finch for the quarter decreased to $5.4 million from $5.8 million in the second quarter of 2009.
Segment Update
Military Distribution: Sales in the quarter were $456.6 million, down 1% from $461.0 million in second-quarter 2009. Lower domestic sales, partially offset by an increase in overseas sales led to the year-over-year decline. EBITDA improved 18.9% year-over-year to $13.4 million in the quarter under review.
Food Distribution & Retail: Food Distribution sales decreased 7.4% year-over-year to $574.2 million while Retail sales declined 8.8% year-over-year to $123.8 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. Retail same store sales declined 4.3% compared to the prior-year quarter.
EBITDA at Food Distribution was $13.7 million, down 19.5% year-over-year while at Retail it declined 9.3% year-over-year to $4.9 million.
Financial Update
Cash and cash equivalents of Nash Finch were $0.76 million versus $0.83 million in the fourth quarter 2009. Long-term debt increased to $270.4 million at quarter-end from $257.6 million in the fourth quarter 2009.
Total debt of Nash Finch declined to $294.1 million at quarter-end from $338.8 million in the second quarter 2009 with debt to total capitalization decreasing to 45.5% from 47.5% in the prior-year quarter-end. Credit available under its revolving credit facility at the end of the quarter was $193.1 million.
Net cash provided by operating activities increased to $17.7 million in the quarter from $10.8 million in second quarter 2009. Capital expenditure increased substantially to $10.4 million from $5.6 million in the prior-year quarter.
Share Repurchase and Dividend
Nash Finch bought back 182.8 million shares at an average price of $35.62 totaling $6.5 million during the quarter. Since the buyback authorization in November 2009, the company bought back a total of 472.4 million shares for $16.3 million, at an average price of $34.57.
The board of directors of Nash Finch authorized the company to spend up to $25.0 million to repurchase shares. The authorization will lapse on December 31, 2010.
The board of directors also declared a dividend of 18 cents per share to shareholders of record as on August 20, 2010. The dividend will be paid on September 3, 2010.
Guidance
Management expects an organic revenue growth of 2% over the long-term. It projects a consolidated EBITDA Margin of 4%.
Trailing Four Quarter Free Cash Flow / Net Assets is estimated to be 10.0% by management and Total Leverage Ratio is expected to be 2.5-3.0x.
The Zacks Consensus Estimate for third-quarter 2010 is earnings of $1.13 per share. For full-year 2010 and 2011, the Zacks Consensus Estimates are respectively, $3.07 per share and $3.32 per share.
Nash Finch focuses on cost-reduction, which is reflected in the results of the quarter under review. Its new distribution center in Columbus , Georgia will further support cost control as the center will help transportation savings and also enable long-term strategic growth opportunities.
Also expansion of a distribution center located in Lima, Ohio doubles the current freezer capacity positioning it for additional revenue generation. Nash Finch’s strong balance sheet and credit facility position it to support growth opportunities going forward. The company remains focused on enhancing shareholder value through share buybacks and dividend payments.
However, a competitive environment, lackluster economy and weak consumer spending could weigh on the company’s results. We thus maintain our Neutral recommendation on Nash Finch with the quantitative Zacks #3 Rank (Hold) for the company, which does not indicate any clear directional pressure on the stock over the near term.
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