HF Foods (HFFG) Q3 2026 earnings review
HF Foods grows sales via acquisition, but core profit falls
HF Foods, a food distributor to Asian restaurants across North America, grew sales by buying a Canadian rival while profit in its existing business shrank. Total revenue rose 4%, but by our math sales from businesses it owned a year ago grew just under 3%. Chief executive Felix Lin pointed to cost-saving programs, yet higher fuel, truck lease and legal bills pushed profit per share excluding one-offs down by half.
| Sales from businesses owned a year ago | +2.7% total revenue +4.1% to $319.6M (by our math) |
|---|---|
| Ebitda, excluding one-offs | $11.0M -6.3% from a year ago (-11.4% without Searay) |
| Profit per share, excluding one-offs | $0.04 $0.08 a year ago |
| Net debt after Searay purchase | $223.9M 5.1x trailing 12-month Ebitda by our math |
⚖️ Verdict: 🔴 Bearish
The story got worse because core operating profit dropped even after the company passed last year's tariff increases. Buying Searay Foods added high-margin seafood sales in September, but it also lifted net debt to five times yearly cash profit while underlying Ebitda excluding Searay fell 11% by our math. One positive: capital spending slowed in the third quarter, turning free cash flow positive.
The question now is whether Searay's higher margins can outweigh the extra debt interest and rising US trucking costs. Either Searay lifts total margins toward management's long-term goal, or fuel and interest bills eat up the acquired profit. The fourth quarter, Searay's first full period inside the group, will tell.
🐂 Bull Case
Searay Deal Closes and Lifts Gross Margin
HF Foods bought Searay Foods, a Canadian specialty seafood distributor, on August 31 to expand outside the United States and lift its profit margins. Chief executive Felix Lin said that "integration is progressing well" after the first month of ownership. In September alone, Searay added $4.2 million in sales and about $0.6 million in Ebitda excluding one-offs, which equals a 14.3% margin by our math.
That one month of Canadian sales helped lift total gross margin by 0.3 percentage points from a year ago to 16.7%. The distributor also benefited from "volume growth in Seafood, incremental margin gained from Searay and IEEPA tariff refunds received during the quarter", while passing the anniversary of last year's tariff increases. Without Searay, sales from businesses owned a year ago grew 2.7% by our math, matching second-quarter growth.
What to watch: fourth-quarter gross margin and Searay's first full quarter of revenue. A full three months of Searay should add over $12 million in sales and test whether gross margin can hold above 16.7% without further tariff refunds.
Lower Warehouse Spending Lifted Third-Quarter Cash Flow
Heavy spending on warehouse upgrades pushed free cash flow below zero in the first half of 2026, but the company states that "the foundation of our transformation is largely built". Cash from operations over the first nine months reached $24.1 million, up from $4.5 million a year earlier, because the distributor slowed its inventory buildup compared with last year's pre-tariff stockpiling.
By our math from the six-month and nine-month tables, HF Foods generated $10.1 million of operating cash flow in the third quarter alone. Meanwhile, capital spending on property and equipment slowed to $2.0 million in the quarter from $5.0 million in the second quarter and $15.3 million in the first. That shift left $8.1 million of positive free cash flow in the third quarter by our math.
What to watch: fourth-quarter capital spending on property and equipment. Staying near $2 million a quarter would show the warehouse buildout is truly behind the business and leave cash to pay down acquisition debt.
🐻 Bear Case
Delivery and Fuel Costs Cut Underlying Profit
Lin said that "efficiency programs built through our transformation continue to help offset higher costs" as "industry-wide fuel costs continued to weigh on operating expenses". However, distribution, selling and administrative expenses — the cost of running warehouses, trucks and office staff — rose 1.2 percentage points of revenue from a year ago to 17.3%, wiping out the 0.3-point gain in gross margin.
- Operating loss: $1.8 million, down from $1.1 million of operating profit a year ago
- Ebitda excluding one-offs: $11.0 million, down 6.3% from $11.7 million a year ago
- Ebitda excluding one-offs and Searay: $10.4 million, down 11.4% from a year ago by our math
- Profit per share excluding one-offs: $0.04, cut in half from $0.08 a year ago
The company blamed the cost increase on $3.7 million of legal and consulting fees for its debt refinancing and the Searay purchase, alongside higher truck Expenses "reflecting elevated fuel costs and truck lease expense". Even after stripping out every one-off fee in the reconciliation table, operating expenses still rose by 0.7 percentage points of sales by our math, pushing the underlying Ebitda margin down to 3.3%.
What to watch: distribution, selling and administrative expenses as a share of revenue next quarter. A reading above 16.5% after acquisition legal fees drop out would show that fuel and truck leases are permanently eating into margins.
Searay Purchase Pushes Debt to Five Times Cash Profit
HF Foods expanded its credit line and refinanced its property loans this quarter to fund the $41.8 million net cash purchase of Searay. While the Canadian distributor brings higher margins, buying it required heavy borrowing on an already leveraged balance sheet. By our math, total debt including credit lines and finance leases climbed by $32.4 million during the quarter to $240.4 million.
After subtracting $16.4 million of cash, net debt stands at $223.9 million, which is 5.1 times the $44.3 million of Ebitda excluding one-offs earned over the past four quarters by our math. Interest expense rose 16.6% from a year ago to $3.4 million, and the deal also added $13.2 million of goodwill to a balance sheet that wrote off all its previous goodwill last year.
What to watch: quarterly interest expense and line-of-credit borrowings in the fourth quarter. With a full quarter of acquisition debt on the books, higher interest bills will test how much of Searay's operating profit reaches the bottom line.
Risks this quarter didn't answer
Several standing operational and governance concerns received no new data in the earnings release and await the full quarterly filing.
- Warehouse delays: Lin noted a focus on "cross-selling across the Southeast and Midwest", but the release gave no opening dates for the delayed Charlotte warehouse or the Atlanta freezer expansion.
- Category sales breakdown: the release gave no revenue numbers by food category, leaving the quarterly filing to show whether the seafood cross-selling push is working.
- Restaurant foot traffic: management did not comment on whether dine-in and buffet customer traffic at independent Asian restaurants has stabilized.
- Tariff refund size: the company cited tariff refunds as a gross-margin driver again this quarter, but did not state the dollar amount in the release.
💲 Other KPIs
Money owed by restaurant customers rose 26.6% from $54.1 million a year ago, growing much faster than the 4.1% rise in third-quarter revenue. Receivables also climbed from $65.0 million in the second quarter, reflecting the addition of Searay's customer accounts at the end of August.
Food and supply inventories rose 26.5% from $106.6 million at the end of 2025, partly from adding Searay's stock, but stood 0.5% below the $135.5 million held a year ago. Slower inventory growth compared with last year's pre-tariff buying added $20.8 million to nine-month operating cash flow.
The diluted share count used to calculate profit per share excluding one-offs rose 2.0% from 53.4 million a year ago and 1.0% from 53.9 million in the second quarter. The increase reflects one month of weight from the shares issued to help pay for Searay Foods on August 31.
❓ Key Questions
How much did tariff refunds add to third-quarter gross profit?
HF Foods listed tariff refunds as a primary driver of its $3.0 million gross profit increase, just as a $1.1 million refund helped the second quarter. Without the exact dollar figure, investors cannot tell if underlying product margins improved.
Are the Charlotte warehouse and Atlanta freezer open yet?
The Charlotte facility was originally due in mid-2025 and was still awaiting inspection last quarter, while the Atlanta freezer was pushed toward 2027. Both facilities are required to support the promised seafood cross-selling across the Southeast.
Why didtruck lease and fuel costs outpace fleet savings?
The distributor has spent heavily upgrading its trucks to cut repair bills, yet truck lease and fuel expenses still drove operating costs up 1.2 percentage points of sales. Management needs to quantify the net cost increase on its fleet.
What is the full-quarter share count and interest bill after Searay?
Because Searay closed on August 31, the third quarter included only one month of its new shares and debt interest. Investors need the fourth-quarter run rate for both items to see if the acquisition adds to profit per share.