FLEMING SEES YEAR FAILING EXPECTATIONS

ELLIOT ZWIEBACH

OKLAHOMA CITY -- Fleming Cos. here said third-quarter and year-end results will be "well below expectations."

Robert E. Stauth, chairman, president and chief executive officer, expressed disappointment and said third-quarter earnings would be adversely affected by a number of factors. These include greater-than-expected losses from certain company-owned stores, a higher tax rate and lower wholesale sales in certain divisions.

He also said earnings will be affected by a larger last-in, first-out inventory charge, larger losses from equity investments and increased credit loss expense.

Fleming did not say precisely what earnings would be, however, noting that the final numbers would likely depend on results of the last four weeks of the quarter ended Oct. 1,, which were not clear at the time of the company's comments nine days earlier.

The company told SN final results for the quarter will be published Oct. 18 or 19.

"We are disappointed that a number of adverse factors have combined to cause a dramatic reduction in expected results for the quarter," Stauth said. "Any earnings to be realized will substantially depend on the results of the final four-week period of the quarter.

"Because some of the identified factors may continue for the balance of the year, we are presently unable to predict results for the quarter or the full year [which ends Dec. 31].

"But I am optimistic about the future of the new Fleming. We are moving quickly to assimilate Scrivner, consolidate operations and implement re-engineering. We are, however, in a transition period during which we are incurring duplicate expenses for these activities."

Marty McDevitt, a securities analyst with Cleary Gull Reiland & McDevitt, Milwaukee, told SN Fleming is at a breakeven point for the first eight weeks of the quarter, "and depending on results during the month of September, the company could make some money or report a loss.

"But if it shows any earnings at all, they will be minimal," McDevitt pointed out.

Gary Vineberg, an analyst with Merrill Lynch, New York, said he expects Fleming's third-quarter earnings will be about 20 cents per share, including a onetime charge of 10 cents resulting from the

Megafoods writeoff, compared with 55 cents per share a year ago.

Prior to Fleming's announcement on the third-quarter earnings outlook, Vineberg said he had been looking for per-share earnings of 50 cents, including the 10-cent charge from Megafoods.

However, Wall Street may not react negatively to Fleming's anticipated earnings drop, Vineberg pointed out, "because, with so many onetime items included, it's possible Wall Street may prefer to look mainly at Fleming's core numbers and decide they are not so bad."

McDevitt said the downturn at Fleming and similar problems experienced by rival distributor Supervalu, Minneapolis, are forcing investors to take a different view of the wholesale food industry.

"We're seeing people zeroing in on more fundamental changes in the way they value wholesale securities and the ability of food wholesalers to make money and grow their businesses," McDevitt explained.

"A year or two ago wholesalers could still make money from forward buying and manufacturer allowances, but today they must look at Efficient Consumer Response and various re-engineering efforts to become more efficient to meet the mandates of the marketplace."

Gary Giblen, an analyst with PaineWebber, New York, expressed similar sentiments. "People who were getting very excited about Fleming's acquisition of Scrivner are realizing now the wholesaler can't get away from other factors in the business that affect profitability -- including fewer manufacturer deals -- that could jeopardize many of the pieces that went into wholesaler profitability in the past.

"However, the impact of those factors may not be answered for several quarters. Clearly, this situation makes one realize there will be a more protracted, uncertain timeframe to determine the earnings gains Fleming will get from re-engineering and the Scrivner acquisition."

Stauth said the factors contributing to the anticipated downturn in results include the following:

· The acquisition of locally based Scrivner in July, which the company had previously indicated was not expected to contribute to earnings for the first year due to duplicate expenses that must be eliminated, interest expense on the acquisition debt and amortization of related goodwill.

· The adverse impact of increased expenses at Hyde Park Markets, Fort Lauderdale, Fla., and Consumers Markets, Springfield, Mo.