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SUPERVALU Inc. Message Board

  • getmoney517365 getmoney517365 Jun 3, 2013 11:04 PM Flag

    truth shall set you free

    I believe that some of the weakness in the prior quarter can be attributed to the previous management teams focus on exploring strategic initiatives and - most likely - not on enhancing quarterly statistics.

    Let's see whether the current management team, hired following the Cerberus transaction that acquired five retail banners, can effectively execute a turnaround before we pass judgement.

    But let's examine some positive aspects from the Cerberus transaction that had warranted the investor interest that we've seen in SVU shares:

    1) According to Citigroup, the sale of the 5 banners to Cerberus allowed SVU to "get rid of some of its weakest chains, such as Albertson's, Shaw's and Star Market."

    So of the 5 chains sold, 3 were the worst of the lot. The other two, Jewel and Acme, are also traditional grocers facing stiff competition from non-traditional players such as Wal-Mart and Whole Foods.

    2) The transaction with Cerberus removed $3.2B in debt and capital leases and $1.2B in pension obligations and other LT liabilities from SVU's balance sheet.

    Old SVU liabilities = $8.2B

    New SVU liabilities = $3.8B

    Reduction in liabilities = $4.4B

    3) Most importantly - with respect to valuation - SVU has diversified its revenue stream AWAY from the traditional grocer store business which is most susceptible to competition.

    The old SVU:

    Traditional grocers = 63% of revenues
    Save-A-Lot = 12% of revenues
    Food distribution = 25% of revenues

    New SVU:

    Traditional grocers = 28% of revenues
    Save-A-Lot = 25% of revenues
    Food distribution = 47% of revenues

    Having the bulk of your revenues from food distribution and discount grocery (that can compete more effectively in this low-cost operating environment) is the greatest benefit of this transaction that will warrant an expansion to the their cash flow multiple.

    And for the record, the "negative earnings growth" expectation is a function of selling a significant portion of their business to Cerberus. If you look at forward consensus estimates (post sale) on Yahoo Finance, you get:

    FY2014 = $0.32
    FY2015 = $0.38

    That's a growth rate of +18%.

    And that's why I own the stock.

4.50+0.04(+0.90%)Oct 21 4:02 PMEDT