SuperValu 2022 Bonds Offer 7.6% Yield To Maturity

SuperValu (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... Read more

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