United Natural Foods, Inc. · NYSE:UNFI
United Natural Foods — Investor Day (January 2019)
85 slides from United Natural Foods's investor day presentation, Jan 16, 2019
Slide 1: Investor Day: Evolution of Food Distribution
Investor Day Evolution of Food Distribution January 16, 2019
Slide 2: Disclaimers
Disclaimers These materials and the remarks made in connection with their presentation contain forward looking statements. These forward looking statements involve risks and uncertainties and are based on current expectations and management estimates; actual results may differ materially. The risks
Slide 3: 2019 Investor Day: Steve Spinner
UNFI 2019 Investor Day Steve Spinner CEO & Chairman, UNFI 3 Better Food. Better Future.
Slide 4: Today's Speakers
Today’s Speakers Steve Spinner Sean Griffin Chris Testa Chief Executive Chief Executive President Officer & Chairman Officer UNFI UNFI SUPERVALU Mike Mario Adamy Anne Dament Zechmeister National Vice Executive Vice Chief Financial President, President Retail, Officer Warehouse Marketing & UNFI Autom
Slide 5: Agenda
Agenda General Session • Steve Spinner - CEO & Chairman • Mike Zechmeister - CFO • Sean Griffin - CEO, SUPERVALU • Chris Testa - President, UNFI Breakout Sessions • Anne Dament - EVP, Retail, Marketing & Exclusive Brands • Mario Adamy - National VP, Warehouse Automation Resume General Session • Stev
Slide 6: Opening remarks
Opening remarks 6 Better Food. Better Future.
Slide 7: Video
***Video*** 7 Better Food. Better Future.
Slide 8: Better Food. Better Future.
8 Better Food. Better Future.
Slide 9: Who We Are
Who We Are We exist to transform the world of food distribution For our associates, our customers, our suppliers, and the families we serve every day. 9 Better Food. Better Future.
Slide 10: Our Business Position
Our Business Position North America’s Premier Food Wholesaler Delivering: • A deeper ‘full store’ selection with compelling brands for every aisle • An unmatched heritage of great food and fresh thinking • Smarter food solutions, from fulfillment to insights • Guidance for entrepreneurs and major br
Slide 11: Our Values
Our Values Ingrained in our DNA as health food pioneers Feed the planet. Better food comes from a healthy planet, and we do our part. Find the sweet spot. Be flexible and make change work. Do the right thing. Put safety and integrity at the forefront of everything we do. Deliver together. Empower ea
Slide 12: Rationale For Acquiring SUPERVALU
Rationale For Acquiring SUPERVALU Create compelling value for customers and shareholders Delivers Significant Synergies Enables Cross Selling Opportunities Expands Market Reach and Scale Enhances Technology, Capacity and Systems Diversifies Customer Base ….. scale will drive winners in food distribu
Slide 13: Positioned for Success
Positioned for Success Unmatched offerings 13 Better Food. Better Future.
Slide 14: 3-Year Strategy / Focus
3-Year Strategy / Focus Successful integration Realize cost synergies Optimize DC network Drive cross selling Generate cash to pay down debt 14 Better Food. Better Future.
Slide 15: Delivering More
Delivering More Options, expertise and value for our customers DELIVERING MORE OPTIONS, MORE VALUE Grocery Fresh Wellness eCommerce Services Complete Shopping From perimeter Health & wellness Solutions for Store-level Experience to produce products the virtual store expertise Unmatched offerings 15
Slide 16: Retail Update
Retail Update Four of Six SUPERVALU Retail Banners Have Been Sold or Closed Sold / closed over past 12 months Continue to operate / market 16 Better Food. Better Future.
Slide 17: Financial Outlook
Financial Outlook Mike Zechmeister CFO 17 Better Food. Better Future.
Slide 18: Expect to generate meaningful shareholder value
Given our scale, unmatched assortment of products & services and significant synergies, we expect to generate meaningful shareholder value 18 Better Food. Better Future.
Slide 19: Net Sales
Net Sales Scale, assortment and services drive growth CAGR ~ 3.6% (1) $27.0B - $27.5B $21.5B - $22.0B $8.5B (2) 1 When adjusting for the additional 11 weeks of SUPERVALU sales, prior to the acquisition, not included in FY19. Retail sales from Cub and Shoppers are not included in net sales; net sales
Slide 20: Adjusted EBITDA
Adjusted EBITDA (1) Synergies drive growth CAGR ~ 7.0% (3) $875M - $925M (4) Value Creation $657.5M (2) Retail $318.2M (4) 1 Adjusted EBITDA is an important measure of business performance and is not intended to be a substitute for or be superior to any financial information presented in accordance
Slide 21: Cost Synergies
Cost Synergies Affirming cost synergies of more than $185M in year 4 Timeline to Achieve Foundational Support Distribution Network >$185 >$175 Infrastructure cost savings Optimized cost to serve >$118 > $185M in >$36 Year 4 (1) Optimize trade terms/programs Best product/service offering One-Time Cos
Slide 22: Free Cash Flow & Other Key Metrics
Free Cash Flow & Other Key Metrics Expecting debt reduction over the remainder of FY19 Fiscal 2019 Anticipate net debt reduction of $0 to $100M for Q2 to Q4 of FY19 o Neutral to modestly positive free cash flow(1) plus proceeds from asset sales (2) for the remainder of fiscal year Capital expenditur
Slide 23: De-Leveraging
De-Leveraging Leverage expected to decline by 2 turns by end of FY22 Net Leverage (1) Target leverage is 2.0 to 2.5x (excluding operating leases) (2) Near term plans: o No dividends o No stock repurchases o No additional long-term sale leasebacks o No capital raised via equity (3) issuance Pot
Slide 24: Asset Monetization Opportunities: Beyond Retail
Asset Monetization Opportunities: Beyond Retail Additional future asset sales expected to further reduce leverage DC Surplus Other Asset Rationalization Property Sales Estimated proceeds from asset sales beyond retail: $100M to $150M (1) 1 These proceeds are in addition to the “Proceeds from Asset S
Slide 25: Debt Structure & Covenants
Debt Structure & Covenants Ample liquidity and no ongoing financial maintenance covenants Several years until refinancing required o $2.1B ABL matures in 2023 o $1.8B Term Loan matures in 2025 Ample liquidity o $735M at end of Q1 FY19 o Expecting $700M to $750M at fiscal year end Term Loans and ABL
Slide 26: Fiscal 2019 Guidance – 53 weeks
Fiscal 2019 Guidance – 53 weeks GAAP EPS guidance now includes expected one-time retail store closure & divestiture costs Net Sales $21.5 to $22.0 billion $(0.70) to $(0.50) compared to prior GAAP EPS guidance of $(0.19) to $0.01 per share. Revised GAAP range now includes $35M to $40M of expected ex
Slide 27: Takeaways
Takeaways Synergies enable strong Adjusted EBITDA growth Meaningful opportunities to monetize assets o Debt reduction imperative Ample liquidity, no near term debt maturities, and no financial maintenance covenants 27 Better Food. Better Future.
Slide 28: We Believe In The Combination With SUPERVALU
We Believe In The Combination With SUPERVALU Sean Griffin CEO, SUPERVALU 28 Better Food. Better Future.
Slide 29: Acquisition of SUPERVALU
Acquisition of SUPERVALU Managing the business for long-term value creation The long-term strategic rationale remains unchanged 29 Better Food. Better Future.
Slide 30: Integration Vision
Integration Vision Path to the new UNFI Current State Disparate Systems Inefficient & Processes Creating Additional work Resulting In Operating Model One Company Efficient Standard Platform Enabling Common Processes Resulting In Operating Model 30 Better Food. Better Future.
Slide 31: Integration Approach
Integration Approach Unlocking and delivering synergies Synergy Type Comments Duplication / Elimination • Used to achieve initial FY19 synergies and some FY20 synergies “Just do it” • Maximize opportunities quickly Process Enabled • Drives moderate synergy achievement each year “Integrate” • Operati
Slide 32: Synergies create value
Synergies create value We’re on track for delivering more than $185M in cost synergies in year 4 Foundational Support Distribution Network Infrastructure cost savings Optimized cost to serve More than $185M in Year 4 (1) Optimize trade terms/programs Best product/service offering Supplier Base Custo
Slide 33: Timing of synergies
Timing of synergies Committed to more than $185M but going after more > $185 > $175 > $118 SG&A Operations > $36 FY19 FY20 FY21 FY22 ($’s in Millions) 33 Better Food. Better Future.
Slide 34: Fiscal Year 2019 Synergies
Fiscal Year 2019 Synergies Mix of SG&A, operational and commercial savings $36 $11 $25 $7 ($’s in Millions) $18 SG&A Labor SG&A Non-Labor Total SG&A Ops/Commercial Total FY19 Expectation 34 Better Food. Better Future.
Slide 35: Integration Process
Integration Process Moving quickly and pragmatically to capture synergies and manage risk • Prioritize efforts and investment based on risk adjusted expected returns Focus efforts • Organize teams around achieving synergy targets • Keep it simple Take a • Get momentum with customers, suppliers, and
Slide 36: Technology Levers
Technology Levers Strategic, deliberate approach to deliver business value 1 2 3 Set Foundation Optimize Capabilities Deliver Business Outcomes Integrated & standardized solutions Enhanced customer experience Enhance business Rationalized & optimized capabilities and Cross-sell, up-sell entire assor
Slide 37: What We've Learned…What We're Doing
What We’ve Learned…What We’re Doing Strengths Opportunities Solid Talent and Complexity infrastructure Customers and Lack of consistent suppliers excited metrics / KPI’s about the deal We’ll build from our strengths and use opportunities to deliver improved performance 37 Better Food. Better Future.
Slide 38: SUPERVALU performance
SUPERVALU performance Network Sales Optimization Softness in center store Pacific Northwest Losses due to network Harrisburg/Lancaster alignment Florida Impact on gross margin 38 Better Food. Better Future.
Slide 39: Network optimization/realignment specifics
Network optimization/realignment specifics Pacific Northwest Consolidation Move from Lancaster to Harrisburg (PA) PA WA NJ MD DE OR • Optimization: • Realignment: o SVU operating synergies modeled o Albertsons exercised option to force from 3 DCs to 1 relocation from Lancaster to Harrisburg o Model
Slide 40: Takeaways
Takeaways Long-term rationale for the deal remains unchanged On track to deliver > $185M in cost synergies by year 4 Challenges with SUPERVALU business are fixable Path forward on systems and technology integration Balancing speed and managing risk Revenue synergies and reduction in inve
Slide 41: Unlocking The Opportunity for UNFI & Today's Retailer
Unlocking The Opportunity for UNFI & Today’s Retailer Chris Testa President, UNFI 41 Better Food. Better Future.
Slide 42: Today- Our Diverse Customer Base
Today- Our Diverse Customer Base No one is better positioned to serve this range of customers than UNFI Natural Conventional Premium Ethnic Value eCom Alternative 42 Better Food. Better Future.
Slide 43: What Retailers Need Today
What Retailers Need Today Adapting to a competitive environment Complete store offerings o Top sellers and new products Consolidated supplier to reduce labor and COGs Insights, expertise and Food Solutions beyond product and price 1 Based on FY2018 Annual Report 43 Better Food. Better Future.
Slide 44: More Choices Delivered Faster & Better
Scale Matters More Choices Delivered Faster & Better 44 Better Food. Better Future.
Slide 45: The Most DCs = Closer to the Customer
The Most DCs = Closer to the Customer UNFI Distribution Center UNFI Customer SVU Distribution Center SVU Customer 45 Better Food. Better Future.
Slide 46: Unparalleled Product Offering
Unparalleled Product Offering Over 300,000 SKUs covering the whole store Top suppliers want to work with us Conventional (Access to the broadest customer base) N/O Center Store Meat First to market with new products Produce (Over 1,000 new items per month) Ethnic HABA Tremendous exclusive bran
Slide 47: Scaling the Opportunity
Scaling the Opportunity In food distribution scale wins UNFI RETAILER Larger drop = higher margin Fewer drops = lower labor costs Widest selection = competitive moat Consolidate purchases = lower price Supplier leverage = lower acquisition cost Closer to DC = shorter lead times Distrib
Slide 48: The Cross Selling Opportunity
Leveraging the Center Store Portfolio The Cross Selling Opportunity 48 Better Food. Better Future.
Slide 49: Natural & Organic Fuels Growth in Conventional
Natural & Organic Fuels Growth in Conventional Natural products $ growth by department vs year ago 6.5% 17.1% 8.7% Meat Deli Bakery Seafood Alcoholic Beverages 7.1% Non-food Frozen 2.4% HBC Produce Grocery Growth of natural and organic products in General Floral Rx Dairy Merch conventional stores 7.
Slide 50: Cross Trend With Natural & Conventional
Cross Trend With Natural & Conventional 3 Year trend validates an opportunity for cross selling Cross Selling generates incremental margin from existing accounts. SPINS Data – 52 weeks ending 11/4/18 50 Better Food. Better Future.
Slide 51: Vendors Confirming Cross-Selling Opportunity
Vendors Confirming Cross-Selling Opportunity UNFI historically sold 10x the SVU revenue with Amy’s® 2018 Revenue +10% ≈$120M +7% ≈$9M Amy’s® Calendar Year Shipments 51 Better Food. Better Future.
Slide 52: Keeping it Fresh
Building Out The Store Keeping it Fresh 52 Better Food. Better Future.
Slide 53: Retailers are Focused on the Perimeter
Retailers are Focused on the Perimeter UNFI has the solutions for perimeter sales which are growing twice as fast as center store +3.4% +1.6% Source: Nielsen Retail Measurement Services for 52 weeks ended September 29, 2018 53 Better Food. Better Future.
Slide 54: Produce Sourcing Creates Opportunities
Produce Sourcing Creates Opportunities $1.5 billion coast-to-coast produce wholesaler with access to worldwide supply chain Over 3,000 Produce customers currently serviced CUSTOMERS Mostly Organic. Looking for conventional. 200 suppliers from 100 countries CUSTOMERS Mostly Conventional. Looking for
Slide 55: Power of Protein
Power of Protein Opportunity to offer full protein assortment Frozen Premium/Imported Commodity Organic & “free from” Upscale & Specialty Conventional Wall Deli Bulk. Fresh Incremental sales opportunity (1) 1 Across UNFI and SUPERVALU customer bases. 55 Better Food. Better Future.
Slide 56: Additional Opportunities for Growth
Growth Beyond Traditional Grocery Additional Opportunities for Growth 56 Better Food. Better Future.
Slide 57: Professional Services
Professional Services Connecting with customers beyond the shelf Existing services provided by SuperValu today Faster 875,000 payroll checks issued Better 2,300 financial statements generated Cheaper 750 income tax returns prepared Value Edit Master text styles Edit Master text styles Added 21,000,0
Slide 58: Services = 100% Upside for Legacy UNFI
Services = 100% Upside for Legacy UNFI Providing more than just a product and price to increase customer loyalty UNFI CUSTOMER Incremental margin Reduces operating costs Leverages existing infrastructure Turnkey incremental revenue Increases customer loyalty Solutions to drive sales Offe
Slide 59: Over $2B/Year in Complimentary Channels
Over $2B/Year in Complimentary Channels UNFI’s offerings appeal to customers beyond brick and mortar Customer Needs UNFI Capability Food Service • Innovative front of house SKUs • Back of house ingredients Wideset variety of top sellers and • Sales expertise new innovative SKUs Military • Best Price
Slide 60: UNFI Enables Customers for eCom
UNFI Enables Customers for eCom Uniquely positioned to provide total eCom package Back-of House Expertise Driving Sales Growth Logistical Direct Sales Product Content Driving online Foundations to eTailers sales and retailer value via: Drop Ship Endless Aisle API for • Email Capability Capabilities
Slide 61: Sales Structure
Customer Execution Sales Structure 61 Better Food. Better Future.
Slide 62: Regional Expertise and Accountability
Regional Expertise and Accountability President – entire region Focused on National VP – area sales Cross-Selling Sales opportunities Director – sub-area sales Chain International Sales Manager – territory sales eCom Focused on Account Manager – customer relationships Channel Specific Military SVU =
Slide 63: Takeaways
Takeaways Food dynamics are changing and UNFI has what today’s retailer needs o Broad product selection, delivered better and faster o Key perimeter categories o Unmatched services and solutions beyond food Significant cross-selling opportunity for natural & organic into conventional and vice-ve
Slide 64: Differentiated Exclusive Brands Expected To Drive Growth
Differentiated Exclusive Brands Expected To Drive Growth Anne Dament EVP, Retail, Marketing & Exclusive Brands 64 Better Food. Better Future.
Slide 65: Exclusive Brands Vision
Exclusive Brands Vision To provide an expansive portfolio of profitable exclusive brands satisfying all types of customers with a value proposition 65 Better Food. Better Future.
Slide 66: Industry-Leading Brand Portfolio
Industry-Leading Brand Portfolio Building trust with retailers to grow a more loyal customer base SPECIALTY NATURAL CONVENTIONAL $9.8B channel sales $9.0B channel sales $323 channel sales Entry Level Mid Level Premium Level $1.5B in Exclusive Brand Sales = Top 20 U.S. CPG Company Total U.S. Retail D
Slide 67: How We Will Grow
How We Will Grow • Invest in strategic brands representing significant growth potential • Accelerate new item introductions • Leverage breadth of portfolio into new labels • Launch new brands with existing customers • Launch existing brands to new customers 67 Better Food. Better Future.
Slide 68: Our Core Strategic Pillars
Our Core Strategic Pillars Optimize our Grow fresh Leverage Invest in portfolio category customer base innovation 68 Better Food. Better Future.
Slide 69: Customer Benefits
Customer Benefits • Top customers have 15% exclusive brands penetration • Retailers affiliated with our exclusive brands are more profitable customers, with stronger category margin Essential Everyday 20.5oz Nutty Nuggets National Brand Equivalent • Average retail $2.14 • Average retail = $3.33 • Av
Slide 70: Takeaways
Takeaways Customer drives our decisions Strong cross-selling opportunities to combined customer base Exclusive brands drive benefits for both UNFI and our customers 70 Better Food. Better Future.
Slide 71: Transaction Drives Operating Benefits
Transaction Drives Operating Benefits Mario Adamy National VP, Warehouse & Automation 71 Better Food. Better Future.
Slide 72: Supply Chain
Supply Chain Our distribution network is primed to deliver a differentiated customer experience driving shareholder value TACTICAL EXECUTION STRATEGIC OBJECTIVES Cost of Goods Improvement Network Optimization Transportation Efficiency • Customer Offering Inventory Optimization • Omni-Channel
Slide 73: Supply Chain
Supply Chain Combined network expected to lower COGs and transportation costs …. Cost of Goods Better pricing Service levels Inbound freight Investment buys & forward warehouse Transportation Single deliveries Fewer stops / miles • 60 Distribution Centers Increased fleet utilization •
Slide 74: Supply Chain
Supply Chain … while improving working capital and lowering operating costs Inventory Eliminate redundant inventory Lower overall safety stock Reduce shrink Improved shelf life Operating costs Increased labor productivity Eliminate redundant fixed costs • 60 Distribution Centers Reduce
Slide 75: Distribution Consolidation
Distribution Consolidation Distribution Center Consolidation – Pacific Northwest Example BEFORE AFTER WA OR o Inbound to 5 Distribution Centers o Inbound to 2 Distribution Centers • 3PL support • Eliminated duplicity of operations • Outside storage o Outbound from 2 Distribution Centers • Cross-dock
Slide 76: Network Optimization
Network Optimization Regional Distribution Strategy - Midwest Example BEFORE AFTER UNFI Joliet becomes low velocity item DC SUPERVALU (hub for Mid-West region) Slow-moving item Suppliers Bringing Distribution Optimization To Life 76 Better Food. Better Future.
Slide 77: Supply Chain
Supply Chain Executing our strategy will deliver shareholder value Operating Synergy Automation Strategy FY19 Synergy Inbound Management DC Operating Efficiency Long-term Strategy Transportation Efficiency Indirect Spend Management Strategic Benefits FY2019 Execution Labor efficiencies S
Slide 78: Takeaways
Takeaways Supply chain is a large beneficiary of this transaction: o Improved cost of goods o Lower transportation and operating costs o Improved working capital Optimizing our combined scale will drive expected synergies Capitalizing on network and consolidation opportunities o Creates effici
Slide 79: Maintain Focus On Our Core Values - Together
Maintain Focus On Our Core Values - Together Giving back Hunger relief Fleet efficiency Climate impact Waste diversion Over $1.3 million More than 16.9 Named to Food 6,356 MWh in 78% of waste donated and million pounds of Logistics’ Top solar energy diverted from 7,100 hours food donated – Green Pro
Slide 80: Closing Remarks
Closing Remarks Steve Spinner 80 Better Food. Better Future.
Slide 81: Questions and Answers
Questions and Answers UNFI Management Team 81 Better Food. Better Future.
Slide 82: Reconciliation of Adjusted EBITDA – Fiscal 2016
Appendix Reconciliation of Adjusted EBITDA – Fiscal 2016 Reconciliation of 2016 Net Income to Adjusted EBITDA (unaudited) Year Ended (in thousands) July 30, 2016 Net Income attributable to United Natural Foods, Inc. $ 125,766 Provision for income tax 82,456 Total other expense, net 15,887 Depreciati
Slide 83: Reconciliation of Adjusted EBITDA – Fiscal 2019 Guidance
Appendix Reconciliation of Adjusted EBITDA – Fiscal 2019 Guidance Reconciliation of 2019 Guidance for Net (Loss) Income to Adjusted EBITDA Fiscal Year Ending August 3, 2019 (in thousands) Low Range Estimate High Range Net Income attributable to United Natural Foods, Inc. $ (38,000) $ (30,000) (Benef
Slide 84: Reconciliation of FY19 Guidance for Adjusted EPS
Appendix Reconciliation of FY19 Guidance for Adjusted EPS Reconciliation of 2019 Guidance for Estimated Net (Loss) Income per Common Share to Estimated Non-GAAP Adjusted Diluted Income per Common Share (unaudited) Fiscal Year Ending August 3, 2019 Low Range Estimate High Range Net (loss) income per
Slide 85: Reconciliation of Adjusted EBITDA – Fiscal 2022
Appendix Reconciliation of Adjusted EBITDA – Fiscal 2022 Reconciliation of 2022 Net Income to Adjusted EBITDA Fiscal Year Ending August 3, 2022 (in thousands) Low Range Estimate High Range Net Income attributable to United Natural Foods, Inc. $ 139,000 $ 175,000 (Benefit) provision for income tax 53