Stocks of food-distribution companies have fallen out of favor with Wall Street, but there may be some reason for hope that equity values for the group will start to go back up before too long.
The front-page news feature in this week's SN provides an analysis of the performance of food-retailing, wholesaling and e-retailing stocks during the first calendar half of this year. The report was prepared by SN's Elliot Zwiebach.
The bottom line is that SN's composite of the 40 companies reported on weekly on Page 8 of SN dropped 11.1% during the first half, far more than the 1% decline registered by the S&P 500. The SN composite includes e-retailing stocks, which tugged the average down by about 1 percentage point more than it would have fallen absent that channel of trade. Here's the further breakdown of equity performance for the first half: Retail stocks, as a group, fell 10.3%, wholesale stocks rose 2% and e-retailing stocks dropped 33%.
Many securities analysts are of the opinion that retailing and wholesaling stocks will began a gradual upward climb as the year proceeds. One reason for that is simply that e-commerce stocks have fallen out of fashion with investors, as the average shows. Cash flowing into that once-favored sector had drained investment capital from what the market perceived as stodgy retailing and wholesaling companies. The other reason is that post-merger integration issues surrounding major players such as Safeway, Kroger and Albertson's are beginning to be ameliorated as all three -- especially Safeway and Kroger -- are now demonstrating integration success and cost savings. Many companies in the entire retail and wholesaling sector are posting improved financial results too.
During the first half, Safeway was rewarded with a 25.9% increase in its equity value, and Kroger with a 16.9% increase. Albertson's registered a much smaller 3.1% increase. Albertson's and Kroger remain well off their 52-week highs.
The stocks of several retailers were off sharply during the period, as the averages imply: A&P's equity value dropped 40.4%, largely because of depressed earnings associated with reorganization costs. Winn-Dixie Stores dropped a nearly identical 40.2% owing to a drop in earnings and perhaps because of investor fear that the chain's traditionally high dividend payment is in jeopardy. Delhaize America is off 12.9%, because of investor jitters about the upcoming merger with Hannaford Bros.
As for wholesalers, two showed good increases for the first half in their equity values. Nash Finch was up 29.4% and Fleming 27.4%. The increases were registered after new management teams were installed at the two companies and problems were addressed. In a sense, both companies had reached the point where there was nowhere to go but up. And both companies still have a considerable distance to travel to achieve their 52-week highs, never mind their historical trading range. Ironically, Supervalu -- of the nation's big-three wholesalers the one entitled to equity strength -- dropped 4.7% during the period. Apparently, Wall Street misapprehends the Supervalu story.