SUPERVALU Buys Unified Grocers To Boost Wholesale Business

SUPERVALU Inc. (NYSE:SVU) recently announced the completion of Unified Grocers Inc.’s acquisition, which was announced on Apr 10. The transaction’s value stands at $390 million.

As per the terms of the agreement, SUPERVALU paid $114 million in cash for 100% of Unified Grocer’s outstanding stock. Additionally, the former assumed and paid off $261 million in debt.

Unified Grocers is a wholesale grocery distributor that supplies independent retailers, mainly across western U.S. The company, along with its subsidiaries, provides necessary resources that retailers require in order to compete in the supermarket segment. SUPERVALU is one of the largest grocery wholesalers and retailers in the U.S. The merger of these two great organizations is expected to radically boost SUPERVALU’s wholesale business segment. The company derives a major portion of its revenues from the wholesale business. Therefore, it is expected from the company to look for avenues to further strengthen its wholesale division.

The acquisition is also expected to offer new growth opportunities across multiple geographies for Unified Grocers, including the expansion of its Market Centre division as well as providing specialty and ethnic products to independent customers.

Of late SUPERVALU has been witnessing difficulties in growth achievement due to sluggish sales in its retail business. The company’s sales have been lower since the past many quarters due to softer comps. Though SUPERVALU is trying to keep its costs down, its selling and administrative expenses have been rising higher than revenues.

In fact, SUPERVALU’s shares have been observed to be underperforming the Zacks categorized Food-Miscellaneous Diversified industry in the past six months. During the said time frame, shares of this company plunged 35.1% compared to the industry’s decline of 4.4%.

Nevertheless, the Zacks Rank #2 (Buy) company is focused on improving its performance. Management expects to continue to explore opportunities for growth through acquisitions. In addition to wholesale segment’s growth, management has been stringently focusing on increasing the company’s operating efficiency so as to keep its costs down. We expect that such strategies would aid improving the company’s performance and investor’s confidence in the forthcoming periods.

Other Key Picks

Investors may also consider other stocks in the consumer staples space such as MGP Ingredients, Inc. (NASDAQ:MGPI) , Aramark (NYSE:ARMK) and B&G Foods, Inc. (NYSE:BGS) . All of them carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

MGP Ingredients has an average positive earnings surprise of 27% over the trailing four quarters and a long-term earnings growth rate of 15%.

Aramark has an average positive earnings surprise of 4.5% over the trailing four quarters and a long-term earnings growth rate of 12%.

B&G Foods has an average positive earnings surprise of 2.1% over the trailing four quarters and a long-term earnings growth rate of 10%.

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