We recently reiterated our Neutral recommendation on
Nash Finch Co.
), a wholesale food distributor in the United States.
Earnings of 47 cents a share in first quarter 2012 missed both
the Zacks Consensus Estimate as well as the year-ago quarter
results by 14.5% and 33.8%, respectively. total sales in the first
quarter 2012 were $1.06 billion, down 3.7% from $1.10 billion in
the prior-year quarter. Total comparable sales of Nash Finch shed
3.1% year over year in the reported quarter, excluding the impact
of lower sales due to closure and disposition of six retail stores
during the quarter. Adjusted Earnings Before Interest Tax
Depriciation and Amortization (EBITDA) in the first quarter of 2012
was$23.9 million, or 2.3% of sales as compared with $30.8 million,
or 2.8% of sales in the prior-year quarter.
Considering, the company is well on track to achieve its
long-term targets to achieve organic revenue growth of 2%,
consolidated EBITDA of 4% and total leverage ratio in the range of
2.5 to 3.0x. Although the company has not yet achieved its revenue
growth target, its EBITDA improved from 2.2% in 2006 to 2.9% in
2011 and debt leverage ratio improved from 3.11x to 2.14x during
the same period.
Further, Nash Finch is geared up to build long term
relationships with local players through which it can gain market
share and establish a leading position Nebraska region. In May
2012,the company entered into an agreement to supply food to more
than 80 Dollar General Stores, which will provide an important
additional channel for the products of Nash Finch to reach
consumers. The company has been strategically moving ahead to
acquire major operating units before Walmart steps in. As a part of
this strategy it acquired 'Bag n Save' supermarkets and 'No Frills'
supermarket in May 2012, which will help it to spread its business
in the Nebraska region.
Moreover, the company commands a large distribution network to
military commissaries. As many as 660 distribution contract wins
from DeCA (Defense Commissary Agency) and distribution to 179
commissaries and 300 exchange locations have catapulted the company
to a leading position in the market. The network covers a large
portion of East Coast, West Coast and Southern coastal region of
the U.S. It is also expanding further into the East Coast of the
U.S. Further, the company is strategically focusing on its military
food distribution business and has taken steps to expand it.
Although military segment is very important to the company in
terms of revenue, it faces pressure from close competitors like
), as the latter provides special services to the commissaries like
employing military business consultants to ensure efficient and
accurate delivery of products. It also has facilities like eMerch
Military, which is a web portal for manufacturers and brokers to
monitor their products to include purchase orders, inventory and
sales.These exclusive efforts of Supervalu will prove to be a
challenge to Nash Finch's military segment and may hurt future
Moreover, Nash Finch is vulnerable to a weak U.S. economy and
declining consumer spending in the U.S. markets, because the
company has no stores outside the U.S. and does not have an
international presence to serve as a shield to fluctuations in the
U.S. economy. The company's peer group like
) has strong international presence.
Currently, Nash Finch carries a Zacks #4 Rank (short term Sell
NASH FINCH CO (NAFC): Free Stock Analysis
SUPERVALU INC (SVU): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis
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