10/23/2001
Third Quarter Adjusted Earnings Up 52% for Fleming
Fleming (NYSE:FLM) today reported a 52 percent increase in third
quarter 2001 net earnings to $22.8 million, or $0.47 per share,
after adjustments to exclude strategic plan charges and one-time
items, compared to $15.0 million, or $0.37 per share, in the
third quarter of 2000. Analysts consensus estimate for third
quarter 2001 earnings was $0.44 per share. Fleming also
announced that it is increasing its 2001 adjusted earnings
guidance from $1.96 to a range of $1.96 to $2.00. The companys
fourth quarter guidance ranges from $0.61 to $0.65 per share on
an adjusted basis.
With total sales just above $4 billion and net distribution
sales of $3.5 billion for the 12-week quarter, Fleming took over
the top position as the largest distributor in its industry
following the successful integration and first full quarter of
operations of the Kmart alliance. Third quarter adjusted
operating earnings of $68.1 million increased 9.5 percent from
$62.2 million in the prior year. Adjusted EBITDA increased to
$110.2 million in 2001 from $106.7 million in 2000.
The third quarter results are even more impressive considering
the following circumstances:
Continuing operations - Total company adjusted EBITDA increased
14 percent in the third quarter of 2001 when compared to 2000 on
a continuing operations basis. Divested conventional retail
stores contributed approximately $10 million more in EBITDA in
the prior years third quarter compared to the current year.
Growth of equity - The diluted share count increased to 51.0
million shares in the third quarter of 2001 from 40.4 million in
2000 (a 26.4 percent increase) as Fleming increased equity to
fund growth. The majority of the share increases resulted from
the sale of common stock to an affiliate of The Yucaipa
Companies (3.8 million shares) and the issuance of $150 million
of convertible debt securities (5.0 million shares).
Additionally, ``in the money stock options and stock related
to employee benefit programs added another 1.8 million shares.
\"Fleming emerged from the third quarter as the leading
distributor in our industry,\" said Mark S. Hansen, chairman of
the board and chief executive officer of Fleming. Total company
net sales for the 12-week third quarter were $4.02 billion,
compared to $3.19 billion in the prior year, a 26 percent
increase. Distribution accounted for 88 percent of net sales, up
from 78 percent in the prior year, while retail accounted for 12
percent of net sales. The shift in sales mix between
distribution (with its higher volumes and lower margin
percentages) and retail is a factor in the comparison of margin
percentages between the two years.
Distribution segment net sales increased 42 percent to $3.54
billion, up from $2.50 billion in the prior year. \"Our
distribution sales grew dramatically, attributable in large part
to our alliance with Kmart. However, its important to highlight
the growth of the other conventional and alternative retailers
we serve, including independent supermarket operators,
convenience stores, supercenters, self-distributing grocery
chains, and ethnic retailers,\" said Hansen. Approximately 11 of
the 42 percentage point increase was attributable to customers
other than Kmart.
Third quarter 2001 retail sales of $484.4 million declined
compared to the prior years $693.6 million. However, sales of
continuing operations jumped 21 percent in the third quarter to
$453.8 million compared to $375.9 million in 2000. Comparable
store sales were up 1.5 percent for the quarter.
Distribution segment adjusted operating earnings, which climbed
29 percent to $102.1 million (2.89 percent of sales), were
predominantly influenced by the higher sales levels.
\"Our distribution centers are running at all-time high volumes,
and we are only just beginning to leverage the scale and
efficiencies inherent in these sales levels,\" noted Hansen. \"The
volume allowed us to immediately improve selling and
administrative costs, which declined by 28 basis points.\"
Adjusted EBITDA increased 28 percent to $130.4 million from
$101.7 million in the prior year. Growth in both the Kmart and
convenience store business was instrumental in increasing EBITDA
dollars, albeit at a lower margin rate.
Retail segment adjusted operating earnings declined to $17.1
million from $19.4 million in the prior years third quarter.
Expressed as a percentage of sales, operating earnings increased
in the current years third quarter to 3.54 percent of sales
from 2.79 percent of sales the prior year. A significant
reduction in selling and administrative expense - nearly 200
basis points - contributed to the improved retail performance.
Adjusted EBITDA improved 62 basis points to 6.14 percent of
sales from 5.52 percent of sales. Commenting on the retail
segment results, Hansen said, \"Our price impact formats, with
their high volumes and low operating costs, are a great fit with
our distribution strategy. This allows us to be extremely
competitive while developing a strong consumer following in this
under-served niche of the retail grocery sector.\"
The company added six new price-impact and four new limited
assortment stores during the quarter. The company also completed
the conversion of four former Sentry stores. In total, it
operated 98 price impact (which includes the 44 Rainbow stores
operated in the Minneapolis market and the six Sentry Stores in
the Milwaukee market that are in the process of being remodeled
and converted) and 16 limited assortment stores at the end of
the quarter. Fleming affirmed its stated growth plan of
operating 174 price impact stores by the end of 2003.
Selling and administrative adjusted expenses attributable to the
companys support services totaled $46.9 million in the third
quarter. Comprised primarily of salaries and expenses related to
centralized procurement and back office operations (including
centralized accounting, information technology, and human
resources functions), the company believes that the move to
centralization is substantially complete. \"Approximately 80
percent of our total procurement needs are being addressed
centrally and 20 percent locally,\" said Hansen. \"We believe this
makes our Lewisville facility the second-highest volume consumer
packaged goods procurement office in the nation and an essential
point of business for the vendor community.\"
An important upgrade in Flemings debt ratings by Standard &
Poors, along with overall lower interest rates, lowered net
interest expense by $4.7 million in the third quarter compared
to the same quarter last year. Standard & Poors upgraded
Flemings corporate credit rating to BB from BB- with a stable
outlook. Moodys confirmed Flemings Ba3 rating with an upgrade
to a positive outlook. Additionally, Fleming received an initial
debt rating from Fitch with a rating of BB+, one step below
investment grade.
Similar to the first and second quarters of 2001, strategic plan
charges were down substantially in the third quarter and totaled
$6.3 million pre-tax compared to $100.7 million pre-tax in the
prior years third quarter. The company continues to expect an
aggregate of approximately $20 million in strategic plan charges
in 2001, compared to $309 million in 2000.
Unadjusted, the company had net earnings for the 12-week third
quarter of $19.1 million, or $.40 per share on a fully diluted
basis.
quarter 2001 net earnings to $22.8 million, or $0.47 per share,
after adjustments to exclude strategic plan charges and one-time
items, compared to $15.0 million, or $0.37 per share, in the
third quarter of 2000. Analysts consensus estimate for third
quarter 2001 earnings was $0.44 per share. Fleming also
announced that it is increasing its 2001 adjusted earnings
guidance from $1.96 to a range of $1.96 to $2.00. The companys
fourth quarter guidance ranges from $0.61 to $0.65 per share on
an adjusted basis.
With total sales just above $4 billion and net distribution
sales of $3.5 billion for the 12-week quarter, Fleming took over
the top position as the largest distributor in its industry
following the successful integration and first full quarter of
operations of the Kmart alliance. Third quarter adjusted
operating earnings of $68.1 million increased 9.5 percent from
$62.2 million in the prior year. Adjusted EBITDA increased to
$110.2 million in 2001 from $106.7 million in 2000.
The third quarter results are even more impressive considering
the following circumstances:
Continuing operations - Total company adjusted EBITDA increased
14 percent in the third quarter of 2001 when compared to 2000 on
a continuing operations basis. Divested conventional retail
stores contributed approximately $10 million more in EBITDA in
the prior years third quarter compared to the current year.
Growth of equity - The diluted share count increased to 51.0
million shares in the third quarter of 2001 from 40.4 million in
2000 (a 26.4 percent increase) as Fleming increased equity to
fund growth. The majority of the share increases resulted from
the sale of common stock to an affiliate of The Yucaipa
Companies (3.8 million shares) and the issuance of $150 million
of convertible debt securities (5.0 million shares).
Additionally, ``in the money stock options and stock related
to employee benefit programs added another 1.8 million shares.
\"Fleming emerged from the third quarter as the leading
distributor in our industry,\" said Mark S. Hansen, chairman of
the board and chief executive officer of Fleming. Total company
net sales for the 12-week third quarter were $4.02 billion,
compared to $3.19 billion in the prior year, a 26 percent
increase. Distribution accounted for 88 percent of net sales, up
from 78 percent in the prior year, while retail accounted for 12
percent of net sales. The shift in sales mix between
distribution (with its higher volumes and lower margin
percentages) and retail is a factor in the comparison of margin
percentages between the two years.
Distribution segment net sales increased 42 percent to $3.54
billion, up from $2.50 billion in the prior year. \"Our
distribution sales grew dramatically, attributable in large part
to our alliance with Kmart. However, its important to highlight
the growth of the other conventional and alternative retailers
we serve, including independent supermarket operators,
convenience stores, supercenters, self-distributing grocery
chains, and ethnic retailers,\" said Hansen. Approximately 11 of
the 42 percentage point increase was attributable to customers
other than Kmart.
Third quarter 2001 retail sales of $484.4 million declined
compared to the prior years $693.6 million. However, sales of
continuing operations jumped 21 percent in the third quarter to
$453.8 million compared to $375.9 million in 2000. Comparable
store sales were up 1.5 percent for the quarter.
Distribution segment adjusted operating earnings, which climbed
29 percent to $102.1 million (2.89 percent of sales), were
predominantly influenced by the higher sales levels.
\"Our distribution centers are running at all-time high volumes,
and we are only just beginning to leverage the scale and
efficiencies inherent in these sales levels,\" noted Hansen. \"The
volume allowed us to immediately improve selling and
administrative costs, which declined by 28 basis points.\"
Adjusted EBITDA increased 28 percent to $130.4 million from
$101.7 million in the prior year. Growth in both the Kmart and
convenience store business was instrumental in increasing EBITDA
dollars, albeit at a lower margin rate.
Retail segment adjusted operating earnings declined to $17.1
million from $19.4 million in the prior years third quarter.
Expressed as a percentage of sales, operating earnings increased
in the current years third quarter to 3.54 percent of sales
from 2.79 percent of sales the prior year. A significant
reduction in selling and administrative expense - nearly 200
basis points - contributed to the improved retail performance.
Adjusted EBITDA improved 62 basis points to 6.14 percent of
sales from 5.52 percent of sales. Commenting on the retail
segment results, Hansen said, \"Our price impact formats, with
their high volumes and low operating costs, are a great fit with
our distribution strategy. This allows us to be extremely
competitive while developing a strong consumer following in this
under-served niche of the retail grocery sector.\"
The company added six new price-impact and four new limited
assortment stores during the quarter. The company also completed
the conversion of four former Sentry stores. In total, it
operated 98 price impact (which includes the 44 Rainbow stores
operated in the Minneapolis market and the six Sentry Stores in
the Milwaukee market that are in the process of being remodeled
and converted) and 16 limited assortment stores at the end of
the quarter. Fleming affirmed its stated growth plan of
operating 174 price impact stores by the end of 2003.
Selling and administrative adjusted expenses attributable to the
companys support services totaled $46.9 million in the third
quarter. Comprised primarily of salaries and expenses related to
centralized procurement and back office operations (including
centralized accounting, information technology, and human
resources functions), the company believes that the move to
centralization is substantially complete. \"Approximately 80
percent of our total procurement needs are being addressed
centrally and 20 percent locally,\" said Hansen. \"We believe this
makes our Lewisville facility the second-highest volume consumer
packaged goods procurement office in the nation and an essential
point of business for the vendor community.\"
An important upgrade in Flemings debt ratings by Standard &
Poors, along with overall lower interest rates, lowered net
interest expense by $4.7 million in the third quarter compared
to the same quarter last year. Standard & Poors upgraded
Flemings corporate credit rating to BB from BB- with a stable
outlook. Moodys confirmed Flemings Ba3 rating with an upgrade
to a positive outlook. Additionally, Fleming received an initial
debt rating from Fitch with a rating of BB+, one step below
investment grade.
Similar to the first and second quarters of 2001, strategic plan
charges were down substantially in the third quarter and totaled
$6.3 million pre-tax compared to $100.7 million pre-tax in the
prior years third quarter. The company continues to expect an
aggregate of approximately $20 million in strategic plan charges
in 2001, compared to $309 million in 2000.
Unadjusted, the company had net earnings for the 12-week third
quarter of $19.1 million, or $.40 per share on a fully diluted
basis.
