Performance Food Group Company Reports Second-Quarter and First-Half Fiscal 2020 Results

Delivers Double-Digit Sales Growth and Strong Cash Flow;

Updates 2020 Full-Year Fiscal Outlook

Second-Quarter Fiscal 2020 Highlights

  • Total case volume grew 6.7%
  • Net sales increased 31.5% to $6.1 billion
  • Gross profit improved 15.7% to $711.2 million
  • Net income declined 4.4% to $41.2 million primarily due to higher interest expense
  • Adjusted EBITDA increased 22.2% to $142.9 million1
  • Diluted Earnings Per Share (“EPS”) decreased 4.9% to $0.39
  • Adjusted Diluted EPS increased 9.4% to $0.581

First-Half Fiscal 2020 Highlights

  • Total case volume grew 8.7%
  • Net sales increased 34.5% to $12.3 billion
  • Gross profit improved 17.7% to $1.4 billion
  • Net income grew 8.4% to $77.3 million
  • Adjusted EBITDA increased 27.4% to $270.6 million1
  • Diluted EPS increased 7.4% to $0.73
  • Adjusted Diluted EPS increased 21.3% to $1.141

RICHMOND, Va.–(BUSINESS WIRE)–Performance Food Group Company (“PFG” or the “Company”) (NYSE: PFGC) today announced its second-quarter and first-half fiscal 2020 business results.

After a strong start to the year, I am pleased that our business momentum continued into the second quarter. Our results were driven by solid top-line performance and strong EBITDA contribution from both the Vistar and Foodservice segments,” said George Holm, PFG’s Chairman, President & Chief Executive Officer. “We are pleased with the broad-based profit contribution across our operating segments and are excited to have closed the Reinhart acquisition as planned. The early integration of Reinhart is proceeding very well, and we remain on track for another year of strong growth across our Company.”

1

This earnings release includes several metrics, including EBITDA, Adjusted EBITDA, Adjusted Diluted Earnings per Share and Free Cash Flow that are not calculated in accordance with Generally Accepted Accounting Principles in the U.S. (“GAAP”). Please see Statement Regarding Non-GAAP Financial Measures at the end of this release for the definitions of such non-GAAP financial measures and reconciliations of such non-GAAP financial measures to their respective most comparable financial measures calculated in accordance with GAAP.

Second-Quarter Fiscal 2020 Financial Summary

Total case volume increased 6.7% for the second quarter of fiscal 2020 compared to the prior year period, with underlying organic growth of 0.7%. Total case volume included Eby-Brown Company, LLC (“Eby-Brown”), a 4.9% increase in independent cases, and growth in Performance Brands cases.

Net sales for the second quarter of fiscal 2020 grew 31.5% to $6.1 billion compared to the prior year period. The increase in net sales was primarily attributable to Eby-Brown; sales growth in Vistar, most notably in the corrections, vending, and office coffee service channels; and case growth in Foodservice, specifically in the independent restaurant channel. The acquisition of Eby-Brown contributed $1,260.8 million to net sales for the second quarter of fiscal 2020, including $267.3 million related to tobacco excise taxes. The increase in net sales also reflects an increase in selling price per case as a result of inflation and mix. Overall food cost inflation was approximately 3.0%.

Gross profit for the second quarter of fiscal 2020 grew 15.7% to $711.2 million compared to the prior year period. The strong gross profit increase was led by recent acquisitions, as well as case growth and from selling an improved mix of customer channels and products, specifically in Vistar’s channels and the independent restaurant channel. Gross margin as a percentage of net sales was 11.7% for the second quarter of fiscal 2020 compared to 13.3% for the prior year period. The gross margin decline reflects Eby-Brown’s lower margins.

Operating expenses rose 16.5% to $630.7 million in the second quarter of fiscal 2020 compared to the prior year period. The increase in operating expenses was primarily due to recent acquisitions and an increase in case volume and the resulting impact on variable operational expenses.

Operating profit for the second quarter of fiscal 2020 was up 10.3% to $80.5 million driven by strong top-line, gross profit growth and mix of business, specifically within the independent restaurant channel.

Net income for the second quarter of fiscal 2020 declined 4.4% year-over-year to $41.2 million. The decline was primarily a result of a $10.4 million increase in interest expense, partially offset by the $7.5 million increase in operating profit. The effective tax rate for the second quarter of fiscal 2020 was approximately 24.2% compared to 23.4% in the second quarter of fiscal 2019.

EBITDA increased 13.8% to $124.5 million in the second quarter of fiscal 2020 compared to the prior year period. For the quarter, Adjusted EBITDA rose 22.2% to $142.9 million compared to the prior year period.

Diluted EPS declined 4.9% to $0.39 per share in the second quarter of fiscal 2020 over the prior year period. Adjusted Diluted EPS increased 9.4% to $0.58 per share in the second quarter of fiscal 2020 over the prior year period.

First-Half Fiscal 2020 Financial Summary

Total case volume increased 8.7% in the first half of fiscal 2020 compared to the prior year period, with underlying organic growth of 1.9%.

Net sales for the first half of fiscal 2020 was $12.3 billion, an increase of 34.5% versus the comparable prior year period. The increase in net sales was primarily attributable to Eby-Brown; sales growth in Vistar, particularly in the corrections, vending, and office coffee service channels; and case growth in Foodservice, particularly in the independent restaurant channel. The acquisition of Eby-Brown contributed $2,634.8 million to net sales for the first half of fiscal 2020, including $559.0 million related to tobacco excise taxes.

Gross profit for the first half of fiscal 2020 increased 17.7% to $1.4 billion compared to the prior year period. The gross profit increase was led by recent acquisitions, as well as case growth and an improved sales mix of customer channels and products, specifically in Vistar’s channels and the independent restaurant channel. Gross margin as a percentage of net sales was 11.6% for the first half of fiscal 2020 compared to 13.2% for the prior year period. The gross margin decline reflects Eby-Brown’s lower margins.

Operating expenses increased 17.9% to $1.3 billion in the first half of fiscal 2020 compared to the prior year period. The increase was primarily due to recent acquisitions, as well as case volume growth and the resulting impact on variable operational expenses.

Operating profit for the first half of fiscal 2020 was up 16.5% to $144.0 million driven by strong top-line, gross profit growth and mix of business, specifically within the independent restaurant channel.

Net income increased 8.4% to $77.3 million for the first half of fiscal 2020 compared to the prior year period. The increase in net income was a result of strong operating profit growth, partially offset by a $12.1 million increase in interest expense and a $3.0 million increase in income tax expense. The effective tax rate for the first half of fiscal 2020 was approximately 23.1% compared to 22.1% for the first half of fiscal 2019.

EBITDA increased 17.9% to $230.7 million in the first half of fiscal 2020 compared to the prior year period. For the first half of fiscal 2020 Adjusted EBITDA increased 27.4% to $270.6 million compared to the prior year period.

Diluted EPS increased 7.4% to $0.73 per share in the first half of fiscal 2020 compared to the prior year period due primarily to the increase in net income. Adjusted Diluted EPS increased 21.3% to $1.14 per share in the first half of fiscal 2020 over the prior year period.

Cash Flow and Capital Spending

In the first six months of fiscal 2020, PFG generated $157.8 million in cash flow from operating activities, an increase of $87.8 million versus the prior year period. The improvement in cash flow from operating activities was largely driven by higher operating income and improvements in working capital. For the first six months of fiscal 2020, PFG invested $49.0 million in capital expenditures, a decrease of $11.1 million versus the prior year period. In the first six months of fiscal 2020, PFG delivered free cash flow of $108.8 million1, an increase of approximately $98.9 million versus the prior year period.

Second-Quarter Fiscal 2020 Segment Results

Foodservice

Second-quarter net sales for Foodservice increased 4.8% to $3.8 billion compared to the prior year period. Net sales growth was driven by an increase in cases sold, including independent case growth of 4.9% and solid independent customer demand for Performance Brands. This increase in net sales was also attributable to an increase in selling price per case as a result of inflation. For the second quarter of fiscal 2020, independent sales as a percentage of total segment sales was 33.7%.

Second-quarter EBITDA for Foodservice increased 8.9% to $113.6 million compared to the prior year period. Gross profit increased 5.6% in the second quarter of fiscal 2020 compared to the prior year period as a result of an increase in cases sold and an increase in gross profit per case. The increase in gross profit per case was driven by a favorable shift in the mix of cases sold, including more Performance Brands products sold to independent customers.

Vistar

For the second quarter of fiscal 2020, net sales for Vistar increased 135.6% to $2.2 billion compared to the prior year period. This increase was driven by the acquisition of Eby-Brown and strong sales growth in the segment’s corrections, vending, and office coffee service channels. The acquisition of Eby-Brown contributed $1,260.8 million to net sales for the second quarter of fiscal 2020, including $267.3 million related to tobacco excise taxes.

Second-quarter EBITDA for Vistar increased 24.7% to $56.6 million versus the prior year period. Gross profit dollar growth of 49.0% for the second quarter of fiscal 2020 compared to the prior year period was fueled by the acquisition of Eby-Brown. Operating expense dollar growth of 60.2% for the second quarter of fiscal 2020 was primarily the result of recent acquisitions.

M&A Transaction

On December 30, 2019, PFG announced the completion of the acquisition of Reinhart Foodservice, L.L.C. (“Reinhart”), positioning PFG as one of the largest distributors in the U.S with approximately $30 billion in annual net sales. The addition of Reinhart expands PFG’s geographic reach and scale, enhancing the company’s existing distribution platform and market density. Reinhart brings a diverse customer base, including independent restaurants, and broadens PFG’s offering of proprietary brands.

Fiscal 2020 Outlook

For fiscal 2020, PFG raises its Adjusted EBITDA growth outlook, which includes expected contributions from Eby-Brown and Reinhart, to be in a range of 27% to 33% over its fiscal 2019 Adjusted EBITDA of $475.5 million1. Adjusted EBITDA excluding the contribution from Reinhart, but including Eby-Brown, is expected to grow in a range of 13% to 16% versus the previously announced range of 10% to 14%.

PFG is adjusting its fiscal 2020 Adjusted Diluted EPS guidance. Adjusted Diluted EPS is now expected to be in a range of $2.17 to $2.28 representing a growth rate of 2% to 7% over its fiscal 2019 Adjusted Diluted EPS of $2.131. Adjusted Diluted EPS figures now exclude the impact of intangible amortization expense in past and future periods.

This outlook is now based on the following assumptions for fiscal 2020:

  • Organic case growth in a range of 3% to 5%, which excludes contributions from Eby-Brown & Reinhart;
  • Interest expense in a range of approximately $115 million to $120 million;
  • An effective tax rate on operations of approximately 26%;
  • Capital expenditures between $180 million and $200 million, with depreciation in a range of $175 million to $185 million and amortization in a range of $65 million and $75 million.

PFG’s Adjusted EBITDA and Adjusted Diluted EPS outlook exclude the impact of certain income and expense items that management believes are not part of underlying operations. These items may include, but are not limited to, loss on early extinguishment of debt, restructuring charges, certain tax items, and charges associated with non-recurring professional and legal fees associated with acquisitions. PFG’s management cannot estimate on a forward-looking basis the impact of these income and expense items on its reported Net income and its reported Diluted EPS, which could be significant, are difficult to predict and may be highly variable. As a result, PFG does not provide a reconciliation to the closest corresponding GAAP financial measure for its Adjusted EBITDA and Adjusted Diluted EPS outlook. Please see the “Forward-Looking Statements” section of this release for a discussion of certain risks to PFG’s outlook.

Conference Call

As previously announced, a conference call with the investment community and news media will be webcast today, February 5, 2020, at 9:00 a.m. Eastern Time. Access to the webcast is available at www.pfgc.com.

About Performance Food Group Company

Built on the many proud histories of our family of companies, Performance Food Group is a customer-centric foodservice distribution leader headquartered in Richmond, Virginia. Grounded by roots that date back to a grocery peddler in 1885, PFG today has a nationwide network of over 100 distribution centers, nearly 25,000 talented associates and thousands of valued suppliers across the country. With the goal of helping our customers thrive, we market and deliver quality food and related products to over 200,000 locations including independent and chain restaurants, schools, business and industry locations, healthcare facilities, vending distributors, office coffee service distributors, big box retailers, theaters and convenience stores. Building strong relationships is core to PFG’s success – from connecting associates with great career opportunities to connecting valued suppliers and quality products with PFG’s broad and diverse customer base. To learn more about PFG, visit pfgc.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include, but are not limited to, statements related to our expectations regarding the performance of our business, our financial results, our liquidity and capital resources, completion and integration of our acquisition of Reinhart and other non-historical statements, including the statements in the “Fiscal 2020 Outlook” section of this press release. You can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “projects,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words.

Such forward-looking statements are subject to various risks and uncertainties. The following factors, in addition to those discussed under the section entitled Item 1A Risk Factors in the PFG’s Annual Report on Form 10-K for the fiscal year ended June 29, 2019 filed with the Securities and Exchange Commission (the “SEC”) on August 16, 2019 as such factors may be updated from time to time in our periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov, could cause actual future results to differ materially from those expressed in any forward-looking statements:

  • competition in our industry is intense, and we may not be able to compete successfully;
  • we operate in a low margin industry, which could increase the volatility of our results of operations;
  • we may not realize anticipated benefits from our operating cost reduction and productivity improvement efforts;
  • our profitability is directly affected by cost inflation or deflation and other factors;
  • we do not have long-term contracts with certain of our customers;
  • group purchasing organizations may become more active in our industry and increase their efforts to add our customers as members of these organizations;
  • changes in eating habits of consumers;
  • extreme weather conditions;
  • our reliance on third-party suppliers;
  • labor relations and costs risks and availability of qualified labor;
  • volatility of fuel and other transportation costs;
  • inability to adjust cost structure where one or more of our competitors successfully implement lower costs;
  • we may be unable to increase our sales in the highest margin portions of our business;
  • changes in pricing practices of our suppliers;
  • our growth strategy may not achieve the anticipated results;
  • risks relating to acquisitions, including the risks that we are not able to realize benefits of acquisitions or successfully integrate the businesses we acquire;
  • environmental, health, and safety costs;
  • the risk that we fail to comply with requirements imposed by applicable law or government regulations;
  • our reliance on technology and risks associated with disruption or delay in implementation of new technology;
  • costs and risks associated with a potential cybersecurity incident or other technology disruption;
  • product liability claims relating to the products we distribute and other litigation;
  • adverse judgments or settlements;
  • negative media exposure and other events that damage our reputation;
  • anticipated multiemployer pension related liabilities and contributions to our multiemployer pension plan;
  • decrease in earnings from amortization charges associated with acquisitions;
  • impact of uncollectibility of accounts receivable;
  • difficult economic conditions affecting consumer confidence;
  • departure of key members of senior management;
  • risks relating to federal, state, and local tax rules;
  • the cost and adequacy of insurance coverage;
  • risks relating to our outstanding indebtedness; and
  • our ability to maintain an effective system of disclosure controls and internal control over financial reporting.

Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this release and in our filings with the SEC. Any forward-looking statement, including any contained herein, speaks only as of the time of this release and we do not undertake to update or revise them as more information becomes available or to disclose any facts, events, or circumstances after the date of this release that may affect the accuracy of any forward-looking statement, except as required by law.

PERFORMANCE FOOD GROUP COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

 

(In millions, except per share data)

 

Three Months

Ended December

28, 2019

 

 

Three Months

Ended December

29, 2018

 

 

Six Months

Ended December

28, 2019

 

 

Six Months

Ended December

29, 2018

 

Net sales

 

$

6,068.6

 

 

$

4,615.7

 

 

$

12,311.6

 

 

$

9,155.4

 

Cost of goods sold

 

 

5,357.4

 

 

 

4,001.1

 

 

 

10,889.0

 

 

 

7,947.2

 

Gross profit

 

 

711.2

 

 

 

614.6

 

 

 

1,422.6

 

 

 

1,208.2

 

Operating expenses

 

 

630.7

 

 

 

541.6

 

 

 

1,278.6

 

 

 

1,084.6

 

Operating profit

 

 

80.5

 

 

 

73.0

 

 

 

144.0

 

 

 

123.6

 

Other expense, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

26.4

 

 

 

16.0

 

 

 

43.7

 

 

 

31.6

 

Other, net

 

 

(0.2

)

 

 

0.7

 

 

 

(0.2

)

 

 

0.5

 

Other expense, net

 

 

26.2

 

 

 

16.7

 

 

 

43.5

 

 

 

32.1

 

Income before taxes

 

 

54.3

 

 

 

56.3

 

 

 

100.5

 

 

 

91.5

 

Income tax expense

 

 

13.1

 

 

 

13.2

 

 

 

23.2

 

 

 

20.2

 

Net income

 

$

41.2

 

 

$

43.1

 

 

$

77.3

 

 

$

71.3

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

104.3

 

 

 

103.9

 

 

 

104.2

 

 

 

103.7

 

Diluted

 

 

106.4

 

 

 

104.9

 

 

 

106.2

 

 

 

105.0

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.39

 

 

$

0.41

 

 

$

0.74

 

 

$

0.69

 

Diluted

 

$

0.39

 

 

$

0.41

 

 

$

0.73

 

 

$

0.68

 

PERFORMANCE FOOD GROUP COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

 

($ in millions)

 

As of

December 28, 2019

 

 

As of

June 29, 2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

12.7

 

 

$

14.7

 

Accounts receivable

 

 

1,230.1

 

 

 

1,227.3

 

Inventories, net

 

 

1,349.4

 

 

 

1,356.9

 

Restricted cash

 

 

1,078.2

 

 

 

 

Prepaid expenses and other current assets

 

 

62.2

 

 

 

71.7

 

Total current assets

 

 

3,732.6

 

 

 

2,670.6

 

Goodwill

 

 

765.8

 

 

 

765.8

 

Other intangible assets, net

 

 

170.3

 

 

 

194.3

 

Property, plant and equipment, net

 

 

983.5

 

 

 

950.5

 

Operating lease right-of-use assets

 

 

391.3

 

 

 

 

Restricted cash and other assets

 

 

67.6

 

 

 

72.3

 

Total assets

 

$

6,111.1

 

 

$

4,653.5

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Trade accounts payable and outstanding checks in excess of deposits

 

$

1,306.7

 

 

$

1,337.7

 

Accrued expenses and other current liabilities

 

 

413.4

 

 

 

343.3

 

Finance lease obligations-current installments

 

 

24.6

 

 

 

18.3

 

Operating lease obligations-current installments

 

 

78.4

 

 

 

 

Total current liabilities

 

 

1,823.1

 

 

 

1,699.3

 

Long-term debt

 

 

2,188.4

 

 

 

1,202.9

 

Deferred income tax liability, net

 

 

102.0

 

 

 

108.0

 

Finance lease obligations, excluding current installments

 

 

164.5

 

 

 

128.9

 

Operating lease obligations, excluding current installments

 

 

314.6

 

 

 

 

Other long-term liabilities

 

 

140.0

 

 

 

216.2

 

Total liabilities

 

 

4,732.6

 

 

 

3,355.3

 

Total shareholders’ equity

 

 

1,378.5

 

 

 

1,298.2

 

Total liabilities and shareholders’ equity

 

$

6,111.1

 

 

$

4,653.5

 

PERFORMANCE FOOD GROUP COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

($ in millions)

 

Six Months Ended

December 28, 2019

 

 

Six Months Ended

December 29, 2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

77.3

 

 

$

71.3

 

Adjustments to reconcile net income to net cash provided by operating activities

 

 

 

 

 

 

 

 

Depreciation and intangible asset amortization

 

 

86.5

 

 

 

72.6

 

Non-cash activities

 

 

23.0

 

 

 

13.9

 

Changes in operating assets and liabilities, net:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(11.7

)

 

 

(24.3

)

Inventories

 

 

7.5

 

 

 

(73.8

)

Prepaid expenses and other assets

 

 

9.6

 

 

 

32.2

 

Trade accounts payable and outstanding checks in excess of deposits

 

 

(30.9

)

 

 

(16.7

)

Accrued expenses and other liabilities

 

 

(3.5

)

 

 

(5.2

)

Net cash provided by operating activities

 

 

157.8

 

 

 

70.0

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(49.0

)

 

 

(60.1

)

Net cash paid for acquisition

 

 

 

 

 

(57.0

)

Other

 

 

0.5

 

 

 

0.7

 

Net cash used in investing activities

 

 

(48.5

)

 

 

(116.4

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Borrowings on Notes due 2027

 

 

1,060.0

 

 

 

 

Net (payments) borrowings under ABL Facility

 

 

(72.6

)

 

 

65.4

 

Payments under capital lease obligations

 

 

(10.6

)

 

 

(5.6

)

Cash paid for shares withheld to cover taxes

 

 

(7.6

)

 

 

(6.1

)

Cash paid for acquisitions

 

 

(1.0

)

 

 

(3.1

)

Repurchase of common stock

 

 

 

 

 

(4.6

)

Other

 

 

(1.0

)

 

 

0.7

 

Net cash provided by financing activities

 

 

967.2

 

 

 

46.7

 

Net increase in cash and restricted cash

 

 

1,076.5

 

 

 

0.3

 

Cash and restricted cash, beginning of period

 

 

25.4

 

 

 

17.8

 

Cash and restricted cash, end of period

 

$

1,101.9

 

 

$

18.1

 

The following table provides a reconciliation of cash and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows:

(In millions)

 

As of

December 28, 2019

 

 

As of

June 29, 2019

 

Cash

 

$

12.7

 

 

$

14.7

 

Restricted cash(1)

 

 

1,089.2

 

 

 

10.7

 

Total cash and restricted cash

 

$

1,101.9

 

 

$

25.4

 

Contacts

Investors:
William S. Marshall
VP, Investor Relations
(804) 287-8108

Bill.Marshall@pfgc.com

Media:
Trisha Meade
Director, Communications & Engagement
(804) 285-5390

mediarelations@pfgc.com

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