Q4 2019 Earnings Call
Good afternoon, everyone. Thank you for joining us on unifies fourth quarter and year end fiscal 2019 earnings conference call.
I know you should have received a copy of the earnings release issued this afternoon. The press release web cast a supplemental slide deck are available under the investors section of the company's website at Www Dot you identified dot com under the events tab.
Joining me for today's call or Steve Spinner, our chairman and Chief Executive Officer, Sean Griffin, our Chief operating officer.
Chris Test stuff President of you identify and John Howard, our interim Chief Financial Officer.
Steven John will provide a business update speak about our performance in the quarter and address or fiscal 20 outlook will take your questions. After managements prepared remarks conclude.
Before we begin I'd like to remind everyone that comments made by management during today's call may contain forward looking statements.
These forward looking statements include plans expectations estimates and projections that might involve significant risks and uncertainties.
These risks are discussed in the company's earnings release and FCC filings.
Actual results may differ materially from the results discussed in these forward looking statements.
And lastly, I'd like to point out that during today's call management will refer to certain non-GAAP financial measures definitions and reconciliations to the most comparable GAAP financial measures.
Included in our press release with that I'll now turn the call over to Steve.
Thank you Steve Good evening, everyone and thanks for joining or fiscal 2019 yearend call.
Looking back this has been a very productive and transformative year for you want to fight. Despite some of the challenge is an industry headwinds that we've been working to address.
As you know you want to fly has a long history and takes great pride and having been at the very forefront of distributing better for you products for decades.
We've taken important concrete steps forward on our journey to move to the next level by creating an unrivaled food distribution company that will continue to excel as both consumer preferences and their retail environment evolves.
We have combined are natural and conventional businesses and are now operating as one company. We are now simply you identify.
The journey to fundamentally transform our business began several years ago. When we started closely assessing changes across the marketplace and asked ourselves a basic question.
What will the wholesale and retail food businesses looked like a decade out.
We saw the acceleration of consolidation changing consumer buying habits, the proliferation of better for you products.
Your store openings and retailers looking to combine their distributor relationships to improve their cost.
Rather than label these factors as trends.
We concluded that the signified dramatic shifts driving our industry to a point where scale variety and services would be the keys to future success and that led us to purchase supervalu.
Better for you products drive, who we are and where we will grow.
Now with the one year anniversary of the acquisition later this month.
I feel it's important to begin with this overview of where we've been where we are right now and how we plan to win within the industry.
Questions, we continue to receive about synergy realization.
Financial execution, and our strategy in todays changing environment are all valid ones.
While we recognize the best to answers will come through our future results, which we intend to deliver.
I want to reinforce that we're very confident in how you want to fires position today and what we are building for the future.
Today, we believe that you want to fight is the only national food distributor that has what it takes to win over the long term in the evolving macro environment.
Our business model is now providing us with truly distinct competitive advantages, which we were only beginning to realize.
When we look across the industry. We believe these advantages it cannot be easily replicated for several reasons.
The first is the broad geographic coverage of our distribution network.
With 60 distribution centers totaling close to 30 million square feet of multi temperature space and the area equivalent to more than 500 football fields.
You want to five services customers in all 50 states all Canadian provinces, the Caribbean and various other international service points, we shipped more than 3 million cases on more than 2200 trucks every delay.
Every day.
Second we're providing our customers access to more than 250000 skews the largest in the industry, which allows them to offer their shoppers the widest assortment of items that meet their specific and Larry needs.
This unmatched variety allows us to supply customers that range from the country's largest natural chain to premium in value oriented conventional stores to absolutely amazing multicultural operations.
Our product offering is further complemented by our industry, leading suite a professional services that reduces our customers cost for a wide variety of activities it needed to run their operations.
No one else in our industry has such a diverse customer base as unify because no. Other company offers such a diverse assortment.
Products and services.
We view this diversity as a sustainable tailwind that we'll continue to grow.
And lastly, our scale, which remains critical in our industry clearly sets us apart amongst other distributors scale allows us to leverage fixed costs across a broader base.
Scale allows us to be first to market with new products scale allows us to operate a private brands business with over 4000 exclusive items available only three unify.
Scale allows us to buy efficiently and scale means top suppliers want to do business with us and our coast to coast customer base.
Over time, we firmly believe these competitive advantages will increasingly set unify apart and underpin the results we intend to deliver.
Now that our national sales organization is in place we have a strong team focused on adding new customers as well as growing sales to our existing customers.
This is the very hard of our build out the store strategy, which capitalizes on todays fastest growing consumer the crossover shopper.
The data supports our view natural products to continue to grow in both natural and conventional formats.
While conventional products are contributing to growth within natural outlets.
Most importantly, our customer support this view the mustard seed market northeast Ohio's largest locally owned natural and organic market has seen there recently introduced conventional items starting to gain momentum and has told us they're excited to have more tools in the toolbox.
Similarly, the directs a family operators of 11 conventional shop in same store said with unify we're now able to access price and promote key natural brands and trending items.
Well, we're pursuing both cross selling opportunities leveraging our pioneering strength in higher margin natural and organic products into our conventional customers is our focus.
All this said we recognize the contrarian view is that unify serves a retail customer base that is challenged and will shrink over time, we understand concerns exist over how the evolving dynamics of E. Commerce are impacting retail cost structures the knee.
I need to be price competitive and the need to invest capital back into the business, it's likely that some of today's brick and mortar stores will close in some customers may not be operating in the same form five years from now but would certain industry watchers may not fully appreciate is the demonstrated ability or.
Creativity in ingenuity of our largest customers to adapt and even grow in this evolving landscape.
Lonestar top 25 customers the fourth quarter wholesale sales on a comparable 13 week basis were up 5.4%.
Excluding our largest customer wholesale sales at the remaining 24 customers were up 3.2%.
These customers are acutely aware of what their shoppers want.
Cater to their needs in ways, most national chains simply cannot and collectively have a desire to grow our job is helping all our customers succeed by doing what we do best freemen, the lowest possible cost of goods on the widest variety of items and I want to underscore that.
We're laser focused on continuing to do just that on a bigger and broader scale into the future. We also know the wholesale distribution business is seemingly more competitive than ever and that margins are pressured.
Offset this pressure we believe we have multiple opportunities within our PML for cost savings, including synergies stemming from last year's acquisition, which will drive EBITDA growth.
We're committed to e-commerce and have a separate team dedicated to building and growing our business in this channel.
We expect part of this growth to come through our B to B you want to fight easy options Dot Com platform, which is an extension of unify focused on serving small to medium sized businesses and we continue to work on growing volumes with more traditional ecommerce players. Additionally, we're prefer.
Riding turnkey solutions to our brick and mortar customers, who want to add features such as click and collect or ship to home to their business.
As we work to create a truly unique food distribution company I want to remind everyone of unifies continued commitment to sustainability and philanthropy.
We're focused on reducing our admissions diverting waste materials from landfills supporting organic agriculture operating environmentally sustainable lead buildings and using energy efficient technologies, such as solar and hydrogen refrigeration.
Giving back is important to us last year, our fiber one C. Unify foundation donated more than $1 million to 69 non profits because we believe everyone deserves to have healthier food options, our commitment to our foundation and better for you education.
We'll continue to grow let's now move on to the highlights of the quarter and fiscal year, both of which included one additional week.
Sales for the 14 week fourth quarter totaled $6.41 billion, which included $451 million from the additional 14th week of sales.
On a comparable 13 week basis, and excluding the attitude conventional business unifies net sales increased 2.8% the same increase as last quarter.
Adjusted EBITDA was $166 million, bringing the full year total to $562 million.
This was below the outlook, we previously provided due to a number of factors.
First sales came in below the bottom end of our sales guidance, primarily due to center store softness in our supermarket and natural independent customer base.
Second gross margins were slightly lower than we had forecast as we've seen a more competitive marketplace, which we believed to be cyclical as you want to fight continues its business transformation as well as a higher than anticipated 15 million dollar LIFO charge.
And third we experienced approximately $6 million, an unanticipated workers comp charges in Q4, partly the result of harmonizing our two different programs.
Another opportunity goes hand in hand, with our focus on safety, which is a core value within our mission and business objectives.
Looking out for one another and keeping each other safe is a focus of our cultural evolution.
Driving this culture, we'll keep our associates contractors and visitors safe and has secondary benefits of increased engagement and productivity.
For the full year, we over performed relative to our synergy target and realized an estimated $70 million in cost savings.
I will talk more about the integration in a moment, but we're pleased that were ahead of our synergy goals, which as a result, partially offsets the margin pressure, we've experienced and which we believe we will continue in fiscal 2020.
Synergies and cost savings are important in the near term as we remaking physician unify to be the industry leader, but we expect their benefit to be replaced over the long term with revenue growth and additional efficiencies.
Although adjusted EBITDA was below our expectations, we had a strong fourth quarter from a cash generation perspective, and pay down $166 million of outstanding debt, bringing yearend net debt to under $3 billion, which is more than 350 million dollar.
Lower than at the end of Q1, we're making good on our debt reduction commitment and we'll continue to make it a priority.
Fourth quarter adjusted earnings per share was 44 cents, which brought full year adjusted earnings per share $2, an eight cents within our guidance range.
Now I'd like to welcome John Howard, our interim Chief Financial Officer.
As you know we have a search going on for our next Chief Financial Officer and expect to have this process completed within the next three months and now let me turn the call over to John .
Thank you Stephen Good evening, everyone as Steve said, it I will cover our fourth quarter financial performance, our yearend balance sheet and capital structure, our fiscal 2020 outlook as well as provide some brief comments on our updated long term financial outlook.
Let's start with our fourth quarter results, which included net sales of $6.41 billion, including $451 million from the additional week that was part of Q4.
Excluding the extra week fourth quarter sales increased $3.36 billion over last year with net sales from supervalu contributing $3.29 billion towards this amount.
On a comparable 13 week basis legacy unify fourth quarter net sales increased 2.8% over last year.
The same year over year increase we reported in Q3 with modest by channel changes full year net sales totaled $21.39 billion, which was just shy of our guidance range fourth quarter gross margin was down 167 basis points compared to the same period last year.
As was the case for the past two quarters, and which will continue until we cycled the acquisition of Supervalu. Following the upcoming first quarter the largest driver over a year over year rate decline was the mix impact of adding supervalus business and its lower gross margin rate.
Excluding supervalu gross margin was up about 10 basis points, driven by improved vendor programs and lower inbound freight expense.
Inflation in the fourth quarter was 1.6%.
Fourth quarter operating expense as a percent of net sales improved eight basis points from last year's fourth quarter.
The increase in depreciation and amortization expense driven by the acquisition was more than offset by the benefit of acquisition related cost synergies.
The mix impact of adding Supervalu, which operates at a lower expense rate and strong ongoing cost inefficiency drivers.
Fourth quarter, adjusted EBITDA was $166 million up from last year's $85 million.
This includes about $36 million of adjusted EBITDA reported in discontinued operations as well as approximately $11 million attributed to the additional weak in the quarter.
Net interest expense in Q4 was $58.8 million, including slightly more than $4 million attributable to the additional week.
Our average borrowing rate for the quarter was approximately 6.8% Q4, GAAP EPS was 36 cents per share. This includes the restructuring acquisition and integration related expenses.
Store closure charges included in discontinued operations and favorable adjustments to our goodwill and asset impairment estimates as well as income from a settlement that occurred in the quarter.
Including the tax treatment on these items these amount to eight cents per share in net charges, which when added back brings our adjusted EPS for the fourth quarter 244 cents full year, adjusted EBITDA totaled $562 million, which was below our revised annual guidance target of $580 million.
This variance was driven by the impact of the shortfall in sales and lower than forecast gross margin rate driven by several factors, including the competitive environment, Steve discussed earlier and a higher LIFO charge.
As a reminder, we moved the natural business to LIFO from FIFO and the second quarter of 2019.
Operating expenses were inline with expectations as both logistics and all other costs, excluding depreciation and amortization were lower than last year as a percent of sales full year GAAP EPS was a loss of $5.56 per share while adjusted EPS was $2.
Sense with the largest adjustments being to goodwill impairment and deal related expenses similar to last quarter. We continue to do update the preliminary fair value estimates of the acquired Supervalu net assets.
It's affected the initial goodwill attributable to the acquisition.
The primary adjustment this quarter was a net increase to tax assets, which led to an updated year to date impairment charge of $293 million.
We took a 40 million dollar favorable adjustment through our PML to bring the yearend balance to this amount.
As a reminder, we have one more quarter to complete the purchase accounting work for the acquired Supervalu net assets capital expenditures for the quarter were $70 million or 1.1% of net sales, which brings our full year cash spending totaled $208 million or close to 1% of net sales total outstanding back.
And she debt and capital lease obligations at the end of Q4 net of cash and cash equivalents are slightly less than $3 billion, a reduction of $166 million since the end of Q3 and more than $350 million. Since the end of Q1. This compares favorably to the anticipated net debt reduction of.
Zero to $100 million in Q2 through Q4. They we provided in January this incremental reduction in net debt was generated by higher than planned asset sale proceeds stronger free cash flow, including favorable changes to working capital and the second quarter reclassification of $31 million of capital leases.
Two other long term liabilities in summary, as it relates to our capital structure, Let me call out several key points.
First we have very strong liquidity, finishing the year at approximately $964 million composed of 919 million available to us under our asset based lending credit facility.
And $45 million a balance sheet cash this represented a new record high for available liquidity at a quarters and second we have only a small amount of debt coming due in fiscal 20.
Later this month, the remaining balance of $74 million on our 364 day term loan facility matures. Following that the next material obligation doesn't mature until fiscal 2024, when our secured ABL facility comes up for renewal third our debt is all prepayable without penalty.
Okay and contains no ongoing financial maintenance covenants, which maximizes our flexibility and lastly, we views interest rate swaps to effectively fixed the rate on about 75% of debt, including capital lease obligations, which reduces our potential exposure to fluctuations in interest rates overall, we're comfortable with ours.
Acquity levels capital structure and debt maturity schedule and remain firmly committed to strategically paying down debt with free cash flows and the proceeds from asset sales now, let's turn to our outlook for the new year Unifies 52 week fiscal 2020, starting with net sales.
We expect total net sales to be in the range of $23.5 billion to $24.3 billion.
At the midpoint of this range year over year topline growth would be 1% when both removing the benefit of the 50 Threerd week in fiscal 2019, as well as adding in an estimated 12 additional weeks for Supervalu, where as a reminder, the acquisition closed at the end of Q1 fiscal 2009.
Team as for our retail banners, we're including Cub as part of our full year outlook for fiscal 2020 adjusted EBITDA.
Yes, and adjusted EPS.
Although we do expect to sell Cub. This fiscal year, we are not including shoppers and our outlook and believe its contribution prior to its assume sale to be relatively small.
You will recall sales from our retail banners are not included in reported net sales for year. Adjusted EBITDA is expected to be in the range of 562 $600 million with the midpoint, representing an approximate 5.3% increase over fiscal 2019 52 week adjusted EBITDA of 551.
Million dollars, let me bridge fiscal year 19 to the midpoint of this range burst unify will be adopting the new lease accounting standard referred to as a as see 842.
We've assessed our lease population against the standard and expect occur an additional $15 million in rent expense as a result.
Our full PML, we'll see reductions in both amortization as well as interest expense, but adjusted EBITDA will be adversely impacted by this adoption due to the additional rent expense.
Beginning with Q1.
I see a 42 also brings approximately $1.1 billion of operating lease right to use assets onto the balance sheet with offsets on the liability in equity side.
Second we're removing the contribution from shoppers for the full fiscal year, which equates to about $32 million of EBITDA third we're planning for a lower level of service agreement in gum from the Albertson arrangement in place with Supervalu at the time of the acquisition, which has wound down. According to the terms of these contracts. This is worth about $10 million.
Finally, our fiscal 2019 results did not meet all of our incentive compensation targets, meaning our plan to levels of incentive compensation in fiscal 2020 is higher than our actual fiscal 2019 expense by approximately $27 million offsetting these unfavorable items.
Will be the estimated additional 12 week contribution from Supervalu, which we expect to add $57 million of EBITDA.
The benefit of sales growth predominantly on the natural side, which we expect will add approximately $12 million.
And finally, the benefit of incremental synergies net of operating in commercial investments.
These investments are directed at several network optimization projects as well as gross margin, which we believe we'll continue to be pressured in today's competitive environment synergies net of operating in commercial investments are expected to add $44 million to fiscal year 2020, we're projecting an adjusted tax rate of approximately 20.
9%, which starting in fiscal year 2020, and reflected in our fiscal year 2020 outlook for adjusted EPS excludes changes to certain ansps uncertain tax positions. Among other tax items that fluctuate in are not representative of our expected tax from ongoing operations are gabby.
Yes is expected to be within the range of 35 cents to 89 cents per share.
Which includes an estimated 87 cents per share and restructuring costs net of tax.
No. This does not include anticipated expenses related to retail divestitures, given any potential transactions have yet to be finalized.
Excluding these restructuring costs adjusted EPS is expected to be in the range of $1.22 to $1.76 per diluted share, we recognize the need to pay down debt and reduce interest costs as we transition to our new operating model.
This is a priority for unify and we believe we can reduce net outstanding debt by $200 million to $300 million in fiscal 2020 with a combination of cash generated from operations and asset sales.
We expect to sell our retail banners in fiscal 2020, as well as real estate, including the Tacoma distribution Center, where we are they signed agreement as well as other surplus property is similar to fiscal year 2019, we expect our capital spending in fiscal 2020 will be approximately 1% of net sales finally, let me provide.
Some high level comments on our outlook beyond fiscal 2020.
We won't be updating the specific dollar ranges provided in fiscal 2019, but we do believe it's important to give you a sense for what has changed.
Fiscal 2019, which serves as the base for the subsequent years was well below the expectations. We said earlier. So we don't believe we have a path to achieve the net sales for adjusted EBITDA dollars ranges for fiscal 2022 provided in January at our analyst day as for sales given recent competitive.
Rins and an updated review of our plans. We now believe sales will grow at a compound annual growth rate in the low single digits. After fiscal 2020 as I stated earlier fiscal 2020 sales growth will be more tempered as we work to execute our build out the store strategy in a more robust manner, while aggressively building cross.
Selling initiatives.
Consolidated adjusted EBITDA, all else being equal will decline after we fully divest our retail banners as expected.
Once these divestitures occur and we cycled the full year impact of the lost adjusted EBITDA. We believe we can then grow adjusted EBITDA in the mid single digit ranged from this revised lower base without retail.
Again net proceeds from retail banner sales will be used to reduce outstanding debt as we look to grow adjusted EBITDA from the lower base.
Our capital spend the outlook remains in line with prior comments in that we plan to spend approximately 1% of net sales on average overtime with that let me turn the call back to Steve. Thanks, John .
I want to reiterate what I said at the top of the call. This was an exciting and productive here for unify despite some headwinds.
Even though we face operational challenges that took longer to address than we originally anticipated we have the right strategy in place for unified to capitalize on the shifts in our industry over the near term and the long term.
Our business model performs well when the economy does well and its history has shown when the economy softens. During this past year. We clearly saw some of the seeds of success first our integration work has gone well and we're firmly on track with our longer term synergy estimates the team.
Team has done a great job managing multiple workstreams across the company, while not losing sight of the need to manage the business day to day.
In fiscal 2019, the realize synergies came largely from eliminating duplicative costs across both organizations as well as leveraging our scale to negotiate lower costs in areas such as insurance as we consolidate such programs.
The next two phases of synergy realization are more dependent on simplifying the business through continuing our move to common systems as well as optimizing our DC network.
The lottery includes integrating natural and conventional inventory across distribution centers, which will begin later this year as well as distribution center consolidation planning, which is underway.
Both will help from an operating efficiency perspective, but should also generate cash via either improvements to working capital or creating surplus property that can be sold.
As you're aware, we began optimizing our Pacific northwest distribution network as part of that our new Centralia, Washington distribution Center is now operational and will be completely transitioned out of Tacoma, Washington by the end of this month, we've completed the transition from all burn.
To Ridgefield, Washington in September , which leaves us only the move from Portland into Centralia, which should be complete in our second quarter.
Separately, just this past weekend, we transitioned to our wellness business from our own all burn, California facility into our Gilroy, California DC.
Lastly, in southern California, we're expanding capacity by 1.2 million square feet of multi temp space inclusive of automation.
As a result of this work Tacoma is expected to be sold later this month for approximately $43 million and we'll plan to sell Auburn, California as well.
Second we've solidified the organizational structure faster than we had originally anticipated and our operating as a single company with one management team.
Our new regional structure aligns the total sales for all products under our four region presidents, who are responsible for developing strategies and tactics for growing their respective businesses and allowing unified to react quickly took a specific needs of local customers in the regions.
Third strong corporate governance remains a high priority and that includes continue aboard refreshment.
Especially in light of last Fall's acquisition.
I'm extremely pleased that we've recently added two highly skilled and experienced executives to our board.
Jim Muehlbauer, and Jack stall bring backgrounds in perspective that will serve us well in the months to calm as we continue to execute on our strategic imperatives.
Sure.
I am, especially encouraged by the net new business, we're winning.
The environment remains competitive, but we're capturing more new business, then we're losing including additional categories from one existing chain customer as well as the addition of another new chain customer.
Our new business pipeline is strong and we have the potential to add more meaningful volume later this fiscal year. In addition to adding business. We've also secured over $1 billion in existing sales, which will continue in the future under new supply agreements with current customers two of which.
Our supplied by our Harrisburg DC finally, one of the bigger happening during the quarter was this past summer unify exclusive Expo, which was the first real opportunity for the unify management team to get in front of 6000 customers and suppliers.
They heard first hand, our strategy values and mission for the future and we believe those retailers who came into the event with any sense of skepticism clearly left as advocates of what we're working to create and the benefits that only you want to Fi can deliver it really was a great event for everyone who participated.
And for those listening who attended let me say thank you.
We're working diligently to divest both shoppers and cob and advisers fully engaged to push this forward.
At shoppers were working on several deals each of which involves multiple stores, which increases the level of complexity.
The tentative timeline, which experienced suggest is subject to change has us completing these shopper sales early in calendar 2020.
At Cub, we are also in a process and expect to have something to announce early in calendar year 2020 as well.
In the interim we're pleased with Cubs results and the work being led by a new leadership team within that organization. We're excited about building on fiscal 2000 Nineteens accomplishments.
And delivering better stronger results across the business in fiscal 2020.
Our strategic pillars ground us on what's important to the organization.
Our culture and people are dedicated transforming the world to food distribution safely and with integrity.
We are aggressively pursuing cross selling consistent with our build out the store strategy.
Thrive to our integration work streams will lead to better experiences for our associates, our customers and our suppliers.
We are committed to delivering improved financial performance and as I just touched upon we will thoughtfully divest retail.
We look forward to updating you on our progress and we'll now take your questions. Thank you.
As a reminder, if you'd like to ask a question at this time. Please press star one on your telephone.
A question.
First question comes of Rupesh occur.
Your line is open.
Yes.
Can you.
Sure Steve I'll start I'm sure the team will weigh in.
You know I don't think that there's anything material that's changed in this particular quarter just the retail environment is still tough retailers generally are fighting to keep the consumers in the store. It's a much more competitive shopping environment theres. Many more options for the consumer we like to say that it's a great time to be.
Zimmer.
Retail goods, because there's so many ways to get it from so many different places.
And.
Again, it's from our perspective, it's another great reason why we did this acquisition and that has to make sure that we had all the tools that retailers would need to bring down their cost because that's ultimately what retailers need to do they need to be competitive at the shelf they need to have different.
Station in the store they need to have services to help them.
And there is nobody.
In the marketplace that can do what you want to fight does and that is.
Use the scale travel less miles sell more products bring down the cost pay more differentiated which ultimately will help the retailer succeed the second part of the answer is that.
No.
As the economy ships.
So in other words as people feel less confident about going out to eat.
Is obviously, the restaurants and foodservice generally is doing quite well.
And that will push more people back into the stores and adds that happen.
You know it just becomes a natural tailwind for us.
Yes.
No.
Okay.
Yes, I mean, we're not going to get into providing any quarterly guidance. I mean, if you wanted to take a look back over the last couple of years, you could look at the seasonal trends related to unify and Supervalus historical.
EBITDA performance, but other than that I don't think we could give anymore clarity.
Okay.
Your next question comes from Andrew Wolf.
<unk> markets. Your line is open.
Hi, good afternoon.
What was the life of expectation for the fourth quarter.
Yes.
Well said it was.
Yes. So we took we had about a 15 million dollar additional LIFO charge.
In the fourth quarter.
And.
Really.
To make it comparable right because we supervalu was always on LIFO.
Natural was not so the natural portion of the life FFO in the fourth quarter was.
Which was that for.
4 million so.
Yes, it's about four to 5 million that we didn't expect to have that we had in the fourth correct.
Okay.
And then if I understood that.
There is a lot of moving parts and the guidance.
You are not you take you took other shoppers EBITDA for 2020, but.
You left in comp, but it sounds like you expected.
You are pretty far along in a process to sell both of those.
We are Andy but it's just it's really hard to.
No exactly when I mean, you could presume by the timing, which one's going to happen first.
And so that's why we crafted the script the way we did.
And so.
Again, we had to draw a line the sand in the sand the line that we drew was.
One stays in one comes out and once we have color around when there's there are sold will update you.
Yes, okay.
I guess, given the numbers you've given us we can back into.
That covers it pretty profitable business I think people.
Notably knew that.
I have a sense of the numbers so.
It's reasonable to expect evaluation differential.
Cup seems like property.
Fairly between business you're talking about between.
Operator is and Cub.
Yes.
Obviously, not the number they're going to get like the multiple.
Yes, it's considerably different.
Okay.
And.
In the guidance.
I heard 12 million.
EBIT.
This year or 2020.
From natural is that mainly the whole legacy.
That's the contribution or is that part of it I didnt quite understand what what was meant by that.
Sure any of the 12 million is the anticipated EBITDA from the natural growth that we're expecting fly 20.
I mean like organic growth or internal sales growth I'm, just trying to understand combination.
The combination of both.
Okay.
Saying this is what core UNFI is using natural like natural business.
Just trying to understand what.
Well that suit.
The nomenclature now which is natural and conventional.
Yes, so it isn't yet.
That's correct.
Okay, and I guess ill again I didn't do all the puts and takes but it looks like.
I would take the fourth quarter take out the extra week.
Annualize that simply very simply.
Sure.
And then try to take your 2020 guidance.
Thanks.
Like you're looking for.
From the middle of the range.
Low single digit to 5% growth.
Exactly yes, that's pretty close appeared you're doing that well Andy.
Okay and what are the universe is is it sounds like you feel better about the out years, what what is.
What would be lowering.
EBITDA growth this year is at some of those investments.
Distribution centers.
Sounds like you're as worried about losing customers on that basis, you just give us a sensor that.
Look we won't get into quarters or years, what I can tell you is.
Oh, absolutely will persist through 2019, as you might imagine it was ungodly complicated and difficult and hard to opine on wind in tough on the on the company generally, but we're pretty much through it and so now what we look forward to is the migration to singular system.
Yes.
Just incredible new customer experiences.
Through being able to sell multiple products and deliver it on a singular truck optimizing networks across the country, but you know we're still pretty early in the process were coming upon the one year anniversary. We still think it's just incredibly strategic on our part, but there's still a lot of work to be done there's still some unknown.
That we're trying to figure our way through but like I said earlier.
We feel so fortunate to have been in a position to be able to do this because the market for sure is demanding.
Yes.
Up anyway.
Hi, I'm all set thank you.
Okay. Thanks.
Your next question comes from Karen short with Barclays. Your line is open.
Yes.
Okay.
Okay.
Yes, so carried eight feet.
So we didn't break down.
Synergy by year.
What we did as we said hey, we achieved over 70 million in 19, which was way beyond what we had.
Communicate.
Well. We also did is we confirmed.
At the remaining hundred in.
What is it 120 525.
Would be achieved by 2022.
Okay. So we didn't break down when.
The balance of the synergy would take place.
But we've got a pretty good true proven track record of being able to take synergies out sooner rather than later.
Okay.
Yes.
And so what we're trying to capture there is the incremental synergies that we're expecting in.
Fytwenty above and beyond what we already recognized an f. why 19 net of some commercial investments and some of that margin pressure that Steve and I, both talked about an art and our opening comments and that's that's price concessions its new business its investments that we're making.
And then.
Can you.
Okay.
Yes, I mean.
It's I would say that it's more of an issue on the shopper side that isn't the cup side. The Cubs side is really small well well funded so it really is not an issue at all the Cubs side. That's what's made the shoppers sale more complicated and has taken more time.
So I mean, that's how I would answer the question not an issue for Cabot all more complicated issue for shoppers, but we'll work our way through it it's taking more time.
And then.
Yes, I mean, obviously.
We can't make any comment on on any particular customer whole foods, Amazon or anyone else.
I think we've said in the commentary the top top customers are actually continuing to grow.
We haven't had a lot we haven't had nearly as many new store openings.
In the last year as we had in the prior years and that obviously is somewhat of a headwind.
But.
We'll have to see what happens.
I would just comment that we will be well positioned.
Not just in the event that something weren't will occur in the instances you described Karen but in any.
The opportunities that.
Our available.
With retailers going into dark real estate across the us our position in the market and proximity to two this real estate opportunity is second to none.
Yes, you might expect was 60 distribution centers were closest to every consumer every major market.
And we have all the skews.
Yes.
So.
Yes.
Yes, so first of all the contract.
We whatever happens with the contract will no way way in advance of the exploration or the time that it balloon would be do so I mean, because those things as you said always get negotiated for five year typically five years short, yes, I would just.
I would suggest that it's not necessarily a modifier.
Historical cadence would suggest that some time in advance of the expiration of the contracted has typically been five years.
We would engage in discussion.
But of course, our contract goes until 2025.
And the reason why we do that Karen is because obviously when you when you deal with an amendment in any customer or contracted any customer a lot of things change over five years.
The supplier network changes.
Programs change the macro environment changes and so thats generally why we would we would both choose to say is the is the agreement any agreement.
Reflect what's currently happening in the marketplace.
Thank you.
Your next question comes from Kelly Bania with BMO capital Your line is open.
Hi, good evening.
Taking my questions here.
So if you could just.
Discontinued.
I think.
32 million from the shoppers divestiture.
Number.
Can you just explain exactly.
Expecting from.
Contribution to discontinued.
Sure. So the the 32 million does represent.
The EBITDA that we had an f. why 19, and what we're where we pulled out for fytwenty guidance purposes.
As for Cub.
I think as Steve has already mentioned.
We've covered as much as we can on that at this point.
Yes, Kelly as soon as we get more color around valuation timing will give you an update.
I wasn't trying to get expected proceeds.
Kind of just doing the math it looks like it's a 100.
So.
Yeah.
No.
There are some other smaller things in discontinued operations, so that you can't necessarily triangulated that way.
Okay. So.
Because I think you made the comment.
EBITDA.
Act.
Ken.
I was just curious if you could kind of help understanding.
Once you, let us think about that a little bit and we'll come back on that question.
Okay.
And I.
I guess in terms of the two to 300 million.
Good.
Can you help us understand how much from cash from operations.
Going towards.
Sure we're thinking.
Roughly in the.
40 to 70 million range from free cash flows roughly 20.
Okay.
Maybe just an update just after almost almost a year here just.
Update.
What you're hearing.
With your customers in terms of service levels.
They're feeling about.
The combination.
Service.
Just wanted to get an update on that.
Hey, Kelly this is Chris.
So actually.
Past quarters, we've talked about vendors, having a hard time, keeping up with supply we actually saw nice uptick in Q4.
On that so.
Our service levels of actually improved in the last quarter as this.
Now these things tend to work in cycles, as we said before and we had a nice uptick to about 177 that improve in and out of stocks.
From the year prior so that was good so service levels.
The way, we're servicing to cover the customers they service levels that were achieving.
Our very strong and just to your second question, how our customers feeling about this combination to Steve's earlier point, we got in front of 6000 customers conventional customers at the end of July .
And the rezoning feedback was.
They see the opportunity they are looking for solutions and they see the opportunity for you in five to provide.
Yes, Kelly I would also add that we did have some stumbles last year on the outbound service side that is the delivery of product from our Dcs into.
The retailers and those were almost exclusively associated with the companies that Supervalu had acquired prior to the time that you want to buy acquired Supervalu.
And they required a great deal you want to five.
Involvement and we talked about Harrisburg, we talked a little bit about Florida, we talked somewhat about the Pacific northwest and the standardization.
And we are well well on track.
Towards pretty drastic improvement and stabilization in the vast majority of those markets.
We still have some work to do but we feel good about where we've been at where we are.
Yes, I would say that Theres always work to do.
We always have work to do at Steve actually in his comments mentioned Harrisburg, specifically and we did.
Re sign supply agreements with two of our largest customers out of Harrisburg, and we've talked a lot about harrisburg in previous quarters. So.
Not really talking about Harrisburg as relates to service, we're talking about Harrisburg as it relates to growth.
Which we feel really good.
Thank you.
Your next question comes of Chris Frankel with Goldman Sachs. Your line is open.
Good evening guys. Thanks for taking my questions.
I just wanted to go to the EBITDA walk from 19 to 20, specifically the 57 million of incremental contribution from the 12 week Supervalu Wasnt in the results from last year I think that's about 27% below the number that you provided at the Investor day of 78 million is that the right way the.
Think about the trajectory of that core Supervalu business.
Can you can you say that again I don't think we follow that.
Yes, so the $57 million.
From the 12 weeks that Supervalu wasn't in there last year that will be in there this year.
You know by the 78 million dollar number at the Investor day, So the 27% Delta between those two numbers.
Is that the right way to think about the trajectory of the EBITDA first course supervalu business.
So this is John I can't comment on the 78, and what was provide I don't remember seeing that number from the Investor day.
Even though the 57 is the amount that we believe we've estimated to be the supervalu.
Piece in flight 20.
That is not reflected in RF why 19 numbers.
Got it maybe I'll follow up offline I.
I guess as a follow up.
When you said you expect mid single digit EBITDA growth and 21 and 22 on low single digits sales growth.
How should I think about bridging that margin delta as it really just for the remaining synergies.
What are the assumptions for the core business.
Yes, I think it think it is going to be largely the remaining synergies offset by some of that margin pressure.
I think that we're obviously planning to get our heads around more cross selling wins.
More new customers coming onboard and being laser focused on having profitable business first.
As opposed to any business at all costs and that statement is certainly embedded in our overall revenue growth.
That we certainly believe than we have a pretty good process that says.
We only have we only have one method of service and that is a high level of service and so.
Where we have programs that are not delivering the returns that we need and we're going to need to take action.
Now.
We have been doing that but we will continue to do that.
Throughout the next couple of years and I just wanted to make another comment back tier.
Question about Investor day, because I think you bring up pretty good point and that is there is generally a pretty big difference between the outer year numbers from the January Investor Day, and where we where we are.
And so I think for us as a management team 2019 was a humbling here I mean, it was a really hard here and we learned a lot.
But at the end of the day, we believe that we had the ability to look around the corner to see what was coming and take action to ensure that the company had a long term play.
And the ability to be the number one player in the marketplace as the entire.
Environment evolved so what happened well I think the industry headwinds turned against us So just bad timing.
I think that we underestimated the complexity of the integration associated with the companies that Supervalu had previously purchased.
And we had a couple of you know kind of accounting related one one offs like LIFO, which makes complete sense from a tax perspective, some sale leasebacks workers' comp that all contributed to kind of this lower number but look.
We're excited about where we are we'd like underperforming in a year, but we feel good about where we are we think that the net result of 2000.
19, especially in the fourth quarter got it's pretty close to where we thought we were going to be.
And it gives us the opportunity to set off into 2020 money with one company trading as you want to buy one sales team for regions and off we go.
Great. Thanks, so much that was really helpful. If I could sneak one last one and I know or overtime, but the stranded costs that are sort of stuck within the consolidated are continuing ops TNL as you sell those retail assets, what's embedded in the guide for those stranded cost for fiscal 2000.
I don't have the answer to you.
We have to split them up I think for shoppers there'll be a small amount embedded in there but for cub. Since we've included the entire full year EBITDA in our numbers, we have the entire full year of some of those stranded cost as well.
And what is that full year number.
I don't know, yes, we'd have to go through and calculate.
The entirety of that number.
Are you talking about the the map or are you talking about something different when it when it really relates to stranded costs, what do you specifically address.
I think so at the Investor Day, I think you said in fiscal 19, there was about $80 million a stranded costs sort of above the line. If you will that were related to disc ops.
Not sure if that if you have to annualize that number to get to a 2020 number at Theres some lease expense in there as well some other items.
Yeah.
This is rent expense you're right. There is some admin cost, but majority of his rent expense that will go in those banners go.
Yes, what led to look at that one more specifics around that we're prepared to answer that today.
Because it's certainly not a pension issue certainly not at Cup as I said earlier.
We'll take a lot at one.
Thanks, so much.
I wanted to go back to the question about hub and EBITDA related to cut one of the reasons why we're so hesitant to do that right now is because we are in a process.
We do have a.
Memorandum memorandum, that's been distributed to a wide range of parties, who have signed in India, and I think would be unfair to.
Publicly talk about Cubs EBITDA at this particular point in time.
I think we have one more question Jeff.
Yes. Your last question comes from Eric Larson with Buckingham Research. Your line is open.
Okay, Hey, guys I know, we're running over time.
What I look at your full year, one of the things that I've been.
Pushing hard on the on your free cash flow number is.
Working capital.
Your full year numbers, you did a really good job with receivables and inventories.
Some slippage you gave a bunch of that away in your current liabilities.
Yes.
Is that well that reverse over time or how should we look at.
The efficiency of your working capital over the next year or two it seems like theres good opportunity there, but it didnt show up I don't think that much in the current year.
When you think current year, you mean, you're talking about 19.
Yes, I'm, sorry, yet, but I came correct.
Yes, so the way I would think about that.
Is we did make progress as you said on the receivables inventory that helped drive some of that excess cash we used to pay down debt in Q4.
Agree there's an opportunity in payables and there's an opportunity throughout all the working capital due to drive some improvements and we are continuing to do that with our operation leaders et cetera to to get those improvements.
A lot of the improvements in the receivable and inventory that we saw at the end of Q4.
We'll be we're trying to sustain that going into F. why 20 make sure. We don't go backwards and we're going to continue to look for the opportunities on the payable side and continue to.
Where we can improve the receivable and inventory.
One just another quick follow up adoption of 338.
Your.
Fective tax rate is I think you're looking at at the Sheraton 29%.
Well the tax benefits that show up almost all exclusively as cash taxes or would you also get a benefit of a little bit lower effective tax rate.
So with the adoption of 338.
Good question with Threethirty that will be largely cash there will not be a.
Great benefit in that.
Okay. Thank you.
I'm going to concluding comments.
Sure Yes, no. Thank you everybody for joining us today really appreciate the time.
As I said earlier, we got are pretty tough year in 2019, I'm incredibly proud of this management team and their ability to just grind it out and get it done and we've got a great team in place to drive success throughout 2021 and 22, Thanks again and.
We'll talk to you soon.
This concludes today's conference call. Thank you very much for joining US you may now disconnect.