What Hf Foods Group (HFFG) Said on Its Q3 Earnings Call

Key Points

• Revenue increased 4.1% to $319.6 million, marking HF Foods’ seventh consecutive quarter of year-over-year growth, but profitability weakened: adjusted EBITDA fell to $11 million and the net loss widened to $4.2 million.
• Higher fuel costs and transaction-related expenses pressured results. Management estimated fuel costs added $1.4 million in expense during the quarter and introduced customer fuel surcharges to recoup part of the increase.
• The Searay Foods acquisition contributed $4.2 million in revenue and $0.6 million in adjusted EBITDA in its first month, with a mid-teens adjusted EBITDA margin. Management sees potential to support its margin target and future growth, while prioritizing integration before pursuing further acquisitions.

Hf Foods Group NASDAQ: HFFG reported its seventh consecutive quarter of year-over-year revenue growth in the third quarter of 2026, but higher fuel costs and transaction-related expenses weighed on profitability.

Revenue rose 4.1% to $319.6 million from $307 million a year earlier, driven primarily by seafood volume growth and higher produce and commodity pricing. Gross margin expanded to 16.7% from 16.4%, while adjusted EBITDA fell to $11 million from $11.7 million.

The food distributor’s net loss attributable to the company widened to $4.2 million, or $0.08 per share, from $1.1 million, or $0.02 per share, a year earlier. Adjusted net income fell to $2.1 million, or $0.04 per share, from $4.3 million, or $0.08 per share.

Fuel Costs and Transaction Expenses Pressure Results

Chief Financial Officer Paul McGarry said profitability fell short of management’s expectations, citing fuel costs and nonrecurring expenses associated with the company’s credit facility refinancing and acquisition of Searay Foods.

Distribution, selling and administrative expenses rose 11.9% to $55.2 million, or 17.3% of revenue, from 16.1% a year earlier. McGarry said more than half of the $5.9 million increase came from professional fees related to the credit facility amendment, property portfolio refinancing, the acquisition and other legal matters. Those costs were excluded from adjusted EBITDA, and the transaction-related portion is largely behind the company, he said.

Much of the remaining expense increase reflected higher auto and truck costs, including fuel and truck leases, partly offset by lower repair and maintenance costs. Management estimated the fuel headwind at approximately $1.4 million for the quarter and $3.2 million for the first nine months of 2026.

HF Foods has introduced customer fuel surcharges intended to recover part of the increase. McGarry said the company would adjust the program as diesel prices change while seeking to keep pricing competitive.

Gross profit rose 5.9% to $53.4 million. McGarry attributed the margin improvement to seafood volume growth, Searay’s higher-margin contribution and tariff refunds received during the quarter. Revenue growth was partly offset by price declines in meat and poultry, particularly chicken.

Searay Adds Higher-Margin Business

HF Foods closed its acquisition of Searay Foods on Aug. 31, marking its first purchase outside the United States. The Richmond, British Columbia-based importer and distributor of ethnic and specialty frozen seafood contributed $4.2 million in revenue and $0.6 million in adjusted EBITDA during its first month under HF Foods’ ownership.

McGarry said Searay’s first-month adjusted EBITDA margin was in the mid-teens, compared with HF Foods’ consolidated margin of 3.4% for the quarter. He said the company acquired Searay at approximately five times its 2025 adjusted EBITDA and described the business as supporting HF Foods’ consolidated adjusted EBITDA margin target of 4.5% to 5% or more.

Asked whether the first month was a reasonable run rate, McGarry said it was probably useful for that purpose, while noting that it was early. The fourth quarter will be the first full quarter to include Searay.

Chief Executive Officer Felix Lin said Searay’s management team, led by Derick Ngan, continues to run the business day to day. Lin said the integration had gone smoothly and that customers and suppliers had stayed with the business. The immediate priority over the next few months is integrating systems and data before fully exploring cross-selling and other synergies, he said.

Lin also said HF Foods believes its distribution network, sourcing scale and West Coast infrastructure could accelerate Searay’s recently established U.S. operations, including a planned direct import operation in Los Angeles.

Cash Flow Improves as Company Plans for 2027

Cash provided by operating activities increased to $23.6 million for the first nine months of 2026 from $4.5 million a year earlier. McGarry attributed the improvement mainly to a smaller inventory build and the timing of working capital. In the prior year, the company had purchased inventory ahead of tariff increases.

At Sept. 30, HF Foods had $16.4 million in cash and access to approximately $49.1 million in additional funds under its $140 million credit line, subject to a borrowing-base calculation. Capital expenditures for the first nine months totaled approximately $22.3 million, including the purchase of a previously leased Chicago distribution center.

Lin said cross-selling remains in its early stages, though he expects it to play a potentially larger role in the 2027 growth strategy. He described the broader opportunity as several hundred million dollars in potential organic growth over three to five years, dependent on the capacity and capital committed to it.

Management did not provide explicit 2027 guidance. Lin said diesel prices over the next three to six months could materially influence next year’s results, while integrating and growing Searay will also be a focus. He said HF Foods expects to remain active in evaluating acquisitions, but its immediate priority is integrating Searay and pursuing additional deals only when the price, fit and capacity are right.

About Hf Foods Group (NASDAQ:HFFG)

HF Foods Group Inc is a foodservice distributor that supplies restaurants and other foodservice businesses in the United States. The company primarily serves Asian restaurants, with a focus on Chinese restaurants, and provides products and distribution services designed to meet the specialized needs of these operators.

Its product portfolio generally includes fresh produce, meats, seafood, frozen and dry goods, beverages, condiments, paper products, and other restaurant supplies. HF Foods Group also provides logistics, warehousing, delivery, sourcing, and related supply-chain services, helping customers obtain a broad range of ingredients and operational supplies from a single distributor.

Founded in 1997 and headquartered in Raleigh, North Carolina, HF Foods Group has expanded through a network of distribution facilities serving restaurant customers across multiple regions of the United States.

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