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SpartanNash cuts guidance in preliminary Q1 report

Distributor cites Caito recall and supply chain, retail challenges

SpartanNash Co. has released preliminary results for its fiscal 2019 first quarter and trimmed its earnings guidance, citing supply chain and retail issues and a pending investigation of a recall of pre-cut melons at its Caito Foods subsidiary.

Sales for the 16-week first quarter ended April 20 are expected to total $2.54 billion, up 6.3% from $2.39 billion a year earlier, the Grand Rapids, Mich.-based grocery distributor and retailer said late Thursday.

Adjusted earnings per share (diluted) from continuing operations for the quarter are now projected at 23 cents to 24 cents, down from previous guidance of 33 cents to 37 cents. Reported EPS from continuing operations is pegged at 20 cents to 21 cents and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) at $54 million to $55 million. For the 2018 first quarter, the company posted adjusted EPS from continuing operations of 55 cents.

fresh_cut_melon_products.pngThe FDA and CDC say their investigation of Caito Foods' fresh-cut melon recall is continuing.

SpartanNash is scheduled to report full first-quarter results on May 20. Analysts, on average, forecast adjusted EPS at 36 cents, with estimates ranging from 34 cents to 39 cents, according to Refinitiv/Thomson Reuters.

For the 2019 fiscal year, SpartanNash lowered its adjusted EPS (diluted) to between $1.20 and $1.50 from its prior estimate of between $1.70 and $1.80. Reported EPS is now forecast at 70 cents to $1.04, down from earlier guidance of $1.27 to $1.44. The company also reduced its adjusted EBITDA projection for the year to between $190 million and $205 million from its previous estimate of between $210 million and $220 million.

Wall Street’s consensus fiscal 2019 estimate is for adjusted EPS of $1.75, with projections running from a low of $1.68 to a high of $1.84, according to Refinitiv/Thomson Reuters.

“While we made significant progress against our strategic objectives, challenges in the supply chain, fresh kitchen and retail operations did not allow us to convert our top-line success to the bottom line,” President and CEO David Staples said in a statement. “This, along with the ongoing voluntary recall at our fresh-cut fruit operations, caused us to fall short of our original financial expectations in the first quarter and will impact our fiscal year 2019 outlook.”

At its fresh kitchen operations, SpartanNash is sharpening its focus on ways to generate profitability amid higher transportation costs and tight labor markets, despite being able to grow sales and lure new business, according to Staples.

“Finally, in our retail operations, we continue to navigate a tough environment, which was compounded in the last period of the quarter by the significant shifts in the timing of government SNAP benefit payments and the Easter holiday,” he added. Currently, SpartanNash operates 161 supermarkets under such retail banners as Family Fare Supermarkets, Martin’s Super Markets, D&W Fresh Market, VG’s Grocery, Dan’s Supermarket and Family Fresh Market.

In April, SpartanNash’s Caito Foods unit initiated a voluntary recall of fresh-cut watermelon, honeydew melon, cantaloupe and mixed fruit produced at its Indianapolis facility because of possible Salmonella Carrau contamination. The items were distributed in 16 states by Caito, Gordon Food Service and SpartanNash and sold under various labels at Kroger, Target, Trader Joe’s, Walmart and Amazon/Whole Foods Market.

The Food and Drug Administration and the Centers for Disease Control and Prevention (CDC), working with state and local partners, say their investigation of the recall is continuing. According to the CDC, there have been 117 reported cases of Salmonella Carrau infection in 10 states, including 32 hospitalizations but no deaths.

“We suspended production of all fresh-cut fruit items for approximately two weeks,” Staples explained in an update on the recall. “We have resumed production of non-melon products and hope to begin watermelon processing in the next week, with cantaloupe and honeydew to follow, returning us to full production. Food safety is of paramount concern to us, and we will always strive to do what is best for our customers.

“While we suspended production, our team and other outside parties conducted extensive testing — not a single test result was positive for contamination in our products or at our facility,” he noted.

SpartanNash continues to expect mid-single-digit net sales growth for fiscal 2019. Staples reported that the company also is making strides with Project One, a initiative begun in December to spur growth, boost efficiency and reduce costs.

“Project One Team has exceeded our initial expectations, and we now estimate the initiative will result in more than $20 million in annual run-rate efficiencies and cost reductions when fully implemented over the next 24 months,” he stated.

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