Fleming says it will sell retail division
Lewisville firm has cut staff and will lower earnings expectations
09/25/2002
By MARIA HALKIAS / The Dallas Morning News
Fleming Cos. confirmed Tuesday that it is selling its struggling retail division in an attempt to strengthen its performance and focus solely on its wholesale business.
The distributor also said that since July, it has slashed administrative staff at its Lewisville headquarters and Oklahoma City office by 8 percent, or several hundred people. The company said it will lower its earnings expectations for the third and fourth quarters and estimated severance-related expenses of about 10 cents a share.
Fleming said it expects to net about $450 million after taxes from the sale of its 110 grocery stores, which operate under the Food4Less and Rainbow Foods names primarily in seven states including Texas, Minnesota and California.
Chairman and chief executive Mark Hansen said that multiple buyers have expressed interest in the stores, which he expects will be sold in several transactions by the end of the first quarter. All the proceeds will go to reduce debt, which stands at $2.2 billion, he said.
Fleming has also said it will pay down $100 million in debt by the end of this year. Tuesday, Mr. Hansen said that a similar payment from cash flow would likely occur at the end of 2003. "We'll have a substantial, $650 million reduction in debt by the end of next year."
"Maybe we've entered into an environment where it isn't wise to be doing a lot of different things. Retail isn't doing well as an industry right now," Mr. Hansen said. "In July and August, consumer sentiment fell off the cliff, and all this war talk isn't helping anyone."
Fleming's retail business represents about 10 percent of revenue. Its Rainbow Foods chain in Minneapolis-St. Paul is one of two dominant stores there, ranking second to competitor SuperValu's Cub Foods chain.
Among the major supermarket chains, Idaho-based Albertsons Inc. is most often listed as the likely buyer of the Rainbow stores in Minnesota. A spokesman for the chain said Albertsons doesn't confirm or deny rumors.
Mr. Hansen and his management team have been losing credibility with investors and analysts, who say the company's focus hasn't always been clear and surprise decisions have resulted in recurring special charges against earnings.
Stock gets boost
Months of stock price declines reversed in a big way Tuesday as the stock price gained 86 cents, or 20 percent, to close at $5.18 a share.
The rise was attributed to the company's debt being upgraded by an investment bank. A Deutsche Bank Securities Inc. corporate debt analyst said the company's bonds were oversold and the recommendation was raised to a buy from a hold, citing no liquidity or cash flow issues. The company has no material long-term debt maturing before 2007.
The competitive grocery environment and the slowdown in consumer spending lowered sales in the third quarter, which ends Oct. 5. That's why Fleming cut expenses and laid off employees, Mr. Hansen said. Expenses were lowered by $40 million on an annual basis.
Fleming estimates its third-quarter earnings per share will be flat to a loss of 5 cents a share. Fourth-quarter earnings were reduced to between 35 cents and 45 cents a share. In late July, Fleming said weaker retail sales would cause the company to miss its expected earnings of between 65 cents and 70 cents a share in the third quarter and 80 cents to 85 cents a share in the fourth quarter.
At the same time, Fleming said it was reviewing alternatives for its retail division after it posted a 4.7 percent decline in the second quarter.
Conscious decision
"We've consciously diversified away from the supermarket base, and rather than being a grocery wholesaler, we want to be relevant to any store that needs consumer products," Mr. Hansen said.
Since he joined Fleming in 1998, the former Wal-Mart and PetsMart executive has been trying to broaden the reach of the wholesale business by making acquisitions of companies that distribute to convenience stores and going after discount chains' supercenter business.
Fleming became a supplier for some of SuperTarget's consumable product needs and became Kmart's biggest supplier in a 10-year deal struck in February 2001, about a year before the discount chain filed for Chapter 11 bankruptcy reorganization.
Consolidations have been difficult for Fleming to absorb, and the Kmart business has shrunk. The chain closed 283 stores last year and has said it could close more after Christmas.
E-mail mhalkias@dallasnews.com |
