UPDATE 4-Supervalu suspends dividend, sale weighed

Wed Jul 11, 2012 9:35pm EDT

* Plans to slash capital spending

* Accelerating efforts to lower "everyday" prices

* CEO says bankruptcy not on cards

* Replaces senior debt with asset-backed loans

* Shares tumble 27 percent in extended trade

By Lisa Baertlein

LOS ANGELES, July 11 (Reuters) - Supervalu Inc, the third-largest U.S. supermarket chain, has suspended its dividend to fund aggressive price cuts aimed at winning back shoppers, and is looking at options for overhauling the firm including a sale, though bankruptcy is not being considered.

Supervalu, which in recent years has lost customers to lower grocery prices at Wal-Mart Stores Inc and Kroger Co , also said on Wednesday that profit fell a bigger-than-expected 45 percent in the fiscal first quarter ended June 16.

Craig Herkert, a former Wal-Mart executive hired as chief executive in 2009 to fix the grocery store operator, said bankruptcy is not among the options being weighed at the company, which has been hampered by debt from its $12.4 billion acquisition of more than 1,100 Albertsons stores in 2006.

Shares in the Minneapolis-based owner of grocery chains that also include Jewel-Osco and Save-A-Lot closed at $5.29 on the New York Stock Exchange. They tumbled almost 27 percent to $3.88 in extended trading on Wednesday afternoon.

While its discount chain Save-A-Lot has been its best-performing business, Albertsons has been Supervalu's Achilles' heel.

Stores in key markets such as Southern California and the Northeast United States have struggled to compete, with some shops already turning in weak numbers at the time of the acquisition. The large size of the deal forced Supervalu to devote a significant portion of its cash to servicing debt rather than investing in its stores to keep pace with competitors.

Supervalu on Wednesday said it would redouble efforts to get its everyday pricing as low as rivals that also include Safeway Inc - a move that could dent profitability and potentially make it more difficult to fund loan payments.

"They've clearly acknowledged that they have to lower prices a whole lot more to be competitive and their flexibility is going to be even more limited now," said Walter Stackow, an analyst at Manning & Napier, which sold its Supervalu shares in May.

Investment banks Goldman Sachs and Greenhill & Co will start a review of options available to Supervalu which will include the possibility of a sale, though some questioned whether there would be a buyer for the company or its parts.

"Nobody views it as a viable buyout candidate any more," said Susquehanna Financial Group grocery analyst Bob Summers, echoing the sentiment relayed to Reuters by investment bankers.

"Why pay for them when you're going to get the market share for free?"

SPENDING CHOP

Supervalu plans to step up its debt reduction, saying it will replace its senior credit facility with loans backed by the company's real estate. It said that this would give it more financial flexibility by removing requirements to meet certain benchmarks.

Creditors seeking more security for their loans sometimes force borrowers to make such a switch, but the company said that was not the case in this instance.

The moves announced on Wednesday came after Supervalu's profit in the latest quarter plummeted to half analysts' expectations.

It earned $41 million, or 19 cents a share, down from $74 million, or 35 cents a year earlier. Analysts on average forecast 38 cents a share, according to Thomson Reuters I/B/E/S.

Sales for the quarter fell 4.7 percent to $10.59 million, while identical sales, an important performance measure that shows results from supermarkets operating for four quarters, dropped 3.7 percent. Analysts on average forecast sales of $10.81 billion.

Aside from cutting the dividend, Supervalu plans to chop capital spending in the current fiscal year to a range of $450 million to $500 million from its previous plan of $675 million.

Supervalu, which also withdrew its forecasts for the year, has current assets of $3.256 billion and current liabilities of $3.372 billion.

Long-term debt and capital leases are $6.03 billion, pension liability is $1.05 billion and other long-term liabilities are $1.417 billion.