FLEMING SALES DOWN, EARNINGS UP

ELLIOT ZWIEBACH

OKLAHOMA CITY -- Fleming Cos. here said last week asset rationalizations and distribution consolidations resulted in lower sales and higher adjusted earnings for the year ended Dec. 25.

Sales for the year fell 2.8% to $14.6 billion. However, sales during the 12-week fourth quarter rose 0.9% to $3.6 billion, marking the first quarterly sales gain in more than four years. Fleming said the growth came in the company's distribution segment, primarily as a result of sales to nontraditional customers like Kmart.

Mark Hansen, chairman and chief executive officer, said Fleming is "a repositioned business in the midst of an exciting turnaround.

"Our focus in 1999 was to turn this company into an aggressively cost-conscious and market-driven operation with the strategic vision and plans to improve earnings and position Fleming for significant future sales growth. The progress [we] made clearly demonstrates that the winning attitude has taken root and our growth strategies are working."

In other news last week, Fleming said it had reached a final decision to close its distribution facility in Oaks, Pa., and consolidate that business into its newly expanded grocery facility in North East, Md. The company said the consolidation of Oaks' volume will improve the company's total efficiency and enable Fleming to be more effective helping customers increase their market share.

Fleming said it expects the transition of Oaks into the Northeast facility to be completed during the second quarter.

For the year Fleming said it had a net loss of $44.7 million; however, after adjustments for charges related to the wholesaler's strategic plan and several one-time items, the company said adjusted earnings were up 34% to $43.4 million, representing the fifth consecutive quarter of improved adjusted earnings.

Fleming said it attributed the improvement in adjusted earnings to the benefits of asset rationalization and cost reduction in its distribution segment; the absence of litigation charges that affected prior-year results, and lower income tax expense.

Operating cash flow for the year, adjusted to exclude strategic plan charges and one-time items, fell 4.6% to $411 million, or 2.8% of sales, compared with $431 million, or 2.9% of sales, a year ago.

Distribution sales for the year fell 4.8% to $10.9 billion -- due to the planned closing and consolidation of eight distribution centers, the company noted -- while operating earnings for the year rose 11% to $302 million as a result of the distribution center consolidation and cost reductions, Fleming said.

Sales for the year in Fleming's retail segment rose 3.6% to $3.7 million -- which the company said was due to the addition of 26 stores, which offset the closing and divestiture of 75 stores -- while same-store sales fell 1.9%. Operating income for the retail segment fell 32.3% to $42 million for the year, due to the impact of new store startup expenses and expenses related to the store-divestiture program, the company pointed out.

For the fourth quarter sales were up 0.9% to $3.6 billion, which the company said was due to new distribution customers, which more than offset the loss of sales related to consolidation of distribution centers and retail store closings. The company said it had a net loss for the quarter of $3.8 million, while adjusted earnings rose 574% to $15.5 million.

Fleming said the improvement in fourth-quarter adjusted earnings as well as the sales growth was the result of asset rationalization and aggressive cost reduction in the distribution segment.

Operating cash flow for the quarter, after adding back applicable adjustments, rose 7.5% to $101 million, or 2.8% of sales, compared with $94 million, or 2.6%, a year ago.

Sales in the distribution segment rose 1.6% to $2.7 billion during the quarter, while operating income rose 18% to $78 million.

Retail segment sales fell 1.3% to $871 million during the quarter as a result of a decline of 1.4% in same-store sales and the planned closing of underperforming and nonstrategic stores, the company said; operating income for the segment was unchanged.

During the year Fleming said it developed and began implementing its Low Cost Pursuit program, which is designed to eliminate more than $100 million of procurement, operating and administrative costs by the end of 2000. At the end of 1999 Fleming said it had initiated about $50 million in cost reduction opportunities.

Fleming said it boosted average sales volume per distribution center for the year by 23.9% to $482 million, compared with $389 million a year ago, with a goal of increasing sales per facility this year by 22.2% to $589 million.