Sector financial performance:

This company, a distributor of specialty food to food service industry primarily including independent restaurants and fine dining establishment, has been grouped into food service distributor - specialty sector.

It seems the demand from independent restaurant for specialty food in US market has been strong and growing in the past several years as indicated by our data of case volumes (increased at annual rate 5-10%) and it seems the increase has been driven mainly by the recent recovery of independent local restaurants sector and its increased merger& acquisition activities. Data indicate that demand from chain restaurants presents downward trend in the past three years and plays less important roles in generating profits for companies since they provide usually smaller gross margins compared with serving for local independent restaurants.

A typical gross margin for companies in this sector is around 25% with around 22% SG&A spending as percentage of sales. The operating margin usually is around 3-4%.

According our analysis, the typical companies’ enterprise price/adjusted EBI is 46 with interest/EBITDA ratio of 37%. 

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Company performance:

It seems the demand, from US food service industry, for specialty food, has increased in the past three years as indicated in company’s case volume data.

For the first nine months of fiscal 2018 compared with same period of 2017(ended 20180928)

Organic sales (excluding impacts of acquisition and extra weeks) increased about 4.5% attributable mainly to increase of 6% in case volume (counts) and increase of 2.6% in pricing (inflation).

For fiscal 2017 compared with 2016

Organic sales (excluding impacts of acquisition and extra weeks) increased about 7.3% attributable mainly to increase in case volume and pricing.

Organic sales (excluding impacts of acquisition) increased about 8% in the first half of fiscal 2017 compared with that of 2016, attributable mainly to increase in case volume.

Organic sales (excluding impacts of acquisition) increased about 4% in fiscal 2016 compared with 2015 with an internal deflation of 1.2%.

Organic sales to food service (including US and international market) increased about 5.7% in fiscal 2015 compared with 2014 with an internal inflation of 3%.

This company’ gross margins as percentage of sales got improved from 24.6% of 2014 to 25.3% of 2018, principally due to improvement in its core specialty product sales. Its spending on SG&A as percentage of sales in the past three years changes around 21% +/-1% and its operating margin changes between 3-4% (3.3% in 2018). Its organic operating income increased in 2015 and 2016 but slightly down due to increasing SG&A spending in fiscal 2017 and then rebounded back in 2018. Due to continuing increase in sales volume, its operating cash flow has been increasing as margin did.

Stock price

This stock currently has an enterprise price/EBI ratio of 46 , which we think, is relatively overvalued considering that its high debt/asset ratio.


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