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SuperValu 2022 Bonds Offer 7.6% Yield To Maturity

May 01, 2018 6:32 PM ETSUPERVALU Inc. (SVU)7 Comments
Jeremy LaKosh profile picture
Jeremy LaKosh


  • SuperValu just completed a transitory year moving away from retail towards wholesale.
  • SuperValu does not have significant debt maturities until 2022.
  • Company guidance combined with future earnings outlook can help bond investors determine the company's ability to service its debt.

SuperValu (NYSE:SVU) complete a transitory fiscal 2018 with its fourth quarter earnings report last week. The company missed earnings expectations and came in with lighter than expected revenue. Despite these signs of weakness, SuperValu’s 2022 maturing bonds are priced near par and offer a 7.6% yield to maturity thanks to the 7.7% coupon rate.

Source: FINRA

SuperValu saw a notable increase in revenue during fiscal year 2018. This was due to the company’s acquisition of Unified Grocers. The telling statistics in SuperValu’s earnings performance are its gross profit and operating profit. Gross profits were slightly higher, however, due to the higher revenue, the company’s gross profit barely made 10%. After SG&A expenses, operating profit was nearly identical to 2017. This meant that with the higher revenues came even greater cost pressures that hurt profits.

Source: 10-K

With the acquisition of Unified Grocers in June and Associated Grocers of Florida in December, SuperValu saw an increase in assets during 2018, despite a large drop in cash. The company also increased its long-term debt by nearly $450 million during the year. Despite margin pressure and higher debt, the company managed to grow book value during the year.

Source: 10-K

SuperValu’s cash flow statement likely shows the greatest degree of weakness compared to the other two balance sheets. On the year, SuperValu generated only $135 million in operating cash flow compared to $364 and $426 million in the prior two years, respectively. Combined with the $276 million in capital expenditures, SuperValu had negative free cash flow in 2018. To cover its free cash flow deficit and $240 million in acquisitions, the company had to borrow nearly $100 million and burn through over $280 million in cash on hand.

Source: 10-K

SuperValu is fortunate to have a low debt maturity balance over the next

This article was written by

Jeremy LaKosh profile picture
About My Writing: I am currently focused on income investing through either common shares, preferred shares, or bonds.  I will occasionally break away and write about the economy at large or a special situation involving a company I've been researching in. I target two articles per week for publication on Monday and Tuesday.About My Background: Bachelors in history/political science, Masters in Business Administration with a specialization in Finance and Economics. I enjoy numbers. I have been investing since 2000. Professionally, I am the CEO of an independent living retirement community in Illinois.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I am long SVU 2022 maturing bonds.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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