Performance Food Group Company Reports First-Quarter Fiscal 2019 Results
RICHMOND, Va.--(BUSINESS WIRE)--Nov 7, 2018--Performance Food Group Company (“PFG” or the “Company”) (NYSE: PFGC) today announced its first-quarter fiscal 2019 business results.
“Our first quarter results were in line with our expectations,” said George Holm, PFG’s President and Chief Executive Officer. “Vistar had another strong quarter growing EBITDA by over 20%, fueled by its theater, retail, office coffee service and hospitality channels. Our Foodservice segment’s strategic investments in people and technology are on track to support our growth objectives for fiscal 2019 and beyond. We remain confident in delivering our fiscal 2019 Adjusted EBITDA growth of 7% to 10%.”
First-Quarter Fiscal 2019 Financial Summary
In the first quarter of fiscal 2019, the Company changed its operating segments to reflect the manner in which the business is managed. Based on changes to the Company’s organization structure and how the Company’s management reviews operating results and makes decisions about resource allocation, the Company now has two reportable segments: Foodservice and Vistar.
Total case volume increased 3.7% for the first quarter of fiscal 2019 compared to the prior year period, with underlying organic growth of 2.0%. Total case volume included a 4.8% increase in independent cases, growth in Performance Brands cases and broad-based growth across Vistar’s sales channels, partially offset by declines in the casual dining channel.
Net sales for the first quarter of fiscal 2019 grew 4.0% to $4.5 billion compared to the prior year period. The increase in net sales was primarily attributable to growth in Vistar, most notably in the theater and retail channels and case growth in Foodservice, specifically in the independent restaurant channel. The increase in net sales was also attributable to an increase in selling price per case as a result of inflation and mix. Overall food cost inflation was approximately 0.6%.
Gross profit for the first quarter of fiscal 2019 grew 7.0% compared to the prior year period to $593.6 million. The strong gross profit increase was led by case growth and from selling an improved mix of customer channels and products, specifically in Vistar’s channels and to the independent restaurant channel. Gross margin as a percentage of net sales was up 40 basis points over the prior year period to 13.1%.
Operating expenses rose by 7.7% to $543.0 million in the first quarter of fiscal 2019 compared to the prior year period. The increase in operating expenses was primarily due to the increase in case volume and the resulting impact on variable operational expenses, higher fuel prices, as well as additional investments in sales, warehouse and delivery personnel within Foodservice.
Net income for the first quarter of fiscal 2019 grew 24.8% year-over-year to $28.2 million. The growth was primarily a result of a $6.6 million decrease in income tax expense, partially offset by interest and other expenses. The decrease in income tax expense was primarily a result of the impact of the Tax Cuts and Jobs Act (the “Act”). The effective tax rate in the first quarter of fiscal 2019 was approximately 20.0% compared to 37.5% in the first quarter of fiscal 2018. The decrease in the tax rate was due to a lower statutory tax rate and the excess tax benefits associated with exercised and vested stock awards in the first quarter of fiscal 2019.
EBITDA increased 5.0% in the first quarter of fiscal 2019 compared to the prior year period to $86.3 million. For the quarter, Adjusted EBITDA rose 5.3% to $95.5 million compared to the prior year period.
Diluted EPS grew 22.7% to $0.27 in the first quarter of fiscal 2019 over the prior year period. Adjusted diluted EPS increased 25.9% to $0.34 per share in the first quarter over the prior year period.
Cash Flow and Capital Spending
In the first quarter of fiscal 2019, PFG generated $32.3 million in cash flow from operating activities, an increase of $16.3 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 quarter of fiscal 2019, PFG invested $25.0 million in capital expenditures, an increase of $8.5 million versus the prior year period. PFG delivered free cash flow of $7.3 million 1, an increase of approximately $7.8 million versus the prior year period.
First-Quarter Fiscal 2019 Segment Results
First-quarter net sales for Foodservice increased 2.2% to $3.6 billion compared to the prior year period. Net sales growth was driven by an increase in cases sold, including independent case growth of 4.8% 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 first quarter of fiscal 2019, independent sales as a percentage of total segment sales was up 60 basis points to 35.4%. [See table at the end of this earnings release for restated quarters].
First-quarter EBITDA for Foodservice decreased 5.3% to $92.0 million compared to the prior year period. Gross profit increased 4.7% in the first quarter of fiscal 2019 compared to the prior year period as a result of an increase in cases sold, as well as 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 to independent customers and increased sales of Performance Brands. The first quarter EBITDA was impacted by higher operating expenses driven largely by the strategic investments in sales, warehouse and delivery associates and higher fuel prices.
For the first quarter of fiscal 2019, net sales for Vistar increased 12.0% to $892.6 million compared to the prior year period. This increase was driven by strong case sales growth in the segment’s theater, retail, office coffee service and hospitality channels.
First-quarter EBITDA for Vistar increased 22.5%, to $31.6 million, versus the prior year period. Gross profit dollar growth of 16.9% for the first quarter of fiscal 2019 compared to the prior year period was fueled by an increase in the number of cases sold. Operating expense dollar growth of 15.1% for the first quarter of fiscal 2019 was primarily the result of higher variable operating costs associated with higher case volume.
Fiscal 2019 Outlook
For fiscal 2019, PFG reaffirms its Adjusted EBITDA growth to be in a range of 7% to 10% over its fiscal 2018 Adjusted EBITDA of $426.7 1 million. The Company expects that the 7% to 10% Adjusted EBITDA growth for fiscal 2019 will reflect first half growth in the mid single-digit range. Second half Adjusted EBITDA growth is expected to be in the high single- and low double-digit range. First half of fiscal 2019 growth is expected to reflect strategic investments in sales, warehouse and delivery associates.
PFG also reaffirms fiscal 2019 Adjusted Diluted EPS to grow in a range of 10% to 16% over its fiscal 2018 Adjusted Diluted EPS of $1.54 1.
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.
As previously announced, a conference call with the investment community and news media will be webcast on November 7, 2018 at 9:00 a.m. Eastern Time. Access to the webcast is available at www.pfgc.com.
About Performance Food Group Company
Through its family of leading foodservice distributors – Foodservice and Vistar – Performance Food Group Company markets and distributes approximately 150,000 food and food-related products from 74 distribution centers to over 150,000 customer locations across the United States. PFG’s 15,000+ associates serve a diverse mix of customers, from independent and chain restaurants to schools, business and industry locations, hospitals, vending distributors, office coffee service distributors, big box retailers, and theaters. The Company sources its products from more than 5,000 suppliers and serves as an important partner to its suppliers by providing them access to the Company’s broad customer base. For more information, visit www.pfgc.com.
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 and other non-historical statements, including the statements in the “Fiscal 2019 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 30, 2018 filed with the Securities and Exchange Commission (the “SEC”) on August 16, 2018 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 , 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 any future acquisitions; 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 future 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.
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:
Supplemental disclosures of cash flow information:
Statement Regarding Non-GAAP Financial Measures
This earnings release and the accompanying financial statement tables include several financial measures that are not calculated in accordance with GAAP, including EBITDA, Adjusted EBITDA, Free Cash Flow and Adjusted Diluted Earnings per Share. Such measures are not recognized terms under GAAP, should not be considered in isolation or as a substitute for measures prepared in accordance with GAAP, and are not indicative of net income as determined under GAAP. EBITDA, Adjusted EBITDA, Free Cash Flow, Adjusted Diluted Earnings per Share and other non-GAAP financial measures have limitations that should be considered before using these measures to evaluate the PFG’s liquidity or financial performance. EBITDA, Adjusted EBITDA, Free Cash Flow and Adjusted Diluted Earnings per Share, as presented, may not be comparable to similarly titled measures of other companies because of varying methods of calculation.
Management measures operating performance based on PFG’s EBITDA, defined as net income before interest expense, interest income, income taxes, and depreciation and amortization.
PFG believes that the presentation of EBITDA enhances an investor’s understanding of PFG’s performance. PFG believes this measure is a useful metric to assess PFG’s operating performance from period to period by excluding certain items that PFG believes are not representative of PFG’s core business. PFG also uses this measure to evaluate the performance of its segments and for business planning purposes.
In addition, management uses Adjusted EBITDA, defined as net income before interest expense, interest income, income and franchise taxes, and depreciation and amortization, further adjusted to exclude certain items we do not consider part of our core operating results. Such adjustments include certain unusual, non-cash, non-recurring, cost reduction and other adjustment items permitted in calculating covenant compliance under the PFG’s credit agreement and indenture (other than certain pro forma adjustments permitted under our credit agreement and indenture relating to the Adjusted EBITDA contribution of acquired entities or businesses prior to the acquisition date). Under PFG’s credit agreement and indenture, PFG’s ability to engage in certain activities such as incurring certain additional indebtedness, making certain investments and making restricted payments is tied to ratios based on Adjusted EBITDA (as defined in the credit agreement and indenture).
Management also uses Free Cash Flow, which is defined as net cash provided by operating activities less capital expenditures (purchases of property, plant and equipment). PFG also believes that the presentation of Free Cash Flow enhances an investor’s understanding of PFG’s ability to make strategic investments and manage debt levels.
Management also uses Adjusted Diluted Earnings per Share, which is calculated by adjusting the most directly comparable GAAP financial measure by excluding the same items excluded in PFG’s calculation of Adjusted EBITDA, as well as certain one-time income tax items, to the extent that each such item was included in the applicable GAAP financial measure.
PFG believes that the presentation of Adjusted EBITDA, Free Cash Flow and Adjusted Diluted Earnings per Share is useful to investors because these metrics provide insight into underlying business trends and year-over-year results and are frequently used by securities analysts, investors and other interested parties in their evaluation of the operating performance of companies in PFG’s industry.
The following tables include a reconciliation of non-GAAP financial measures to the applicable most comparable U.S. GAAP financial measures.
In the first quarter of fiscal 2019, the Company changed its operating segments to reflect the manner in which the business is managed. Based on changes to the Company’s organization structure and how the Company’s management reviews operating results and makes decisions about resource allocation, the Company now has two reportable segments: Foodservice and Vistar. Additionally, consistent with how management assesses performance of the segments, certain administrative costs and corporate allocations, previously reported at the segment level, are now included within Corporate & All Other, as opposed to the Foodservice segment. Management evaluates the performance of these segments based on their respective sales growth and EBITDA.
Corporate & All Other is comprised of corporate overhead and certain operations that are not considered separate reportable segments based on their size. This includes the operations of our internal logistics unit responsible for managing and allocating inbound logistics revenue and expense.
The presentation and amounts for the three months ended September 30, 2017 have been adjusted to reflect the segment changes described above. The following tables set forth net sales and EBITDA by segment for the periods indicated (dollars in millions):
The presentation and amounts for each quarterly period of fiscal year ended June 30, 2018 have been adjusted to reflect the segment changes described above. The following tables set forth net sales and EBITDA by segment for the periods indicated (dollars in millions):
The following table sets forth independent sales as a percentage of total Foodservice segment sales:
View source version on businesswire.com:https://www.businesswire.com/news/home/20181107005168/en/
CONTACT: Performance Food Group Company
Michael D. Neese
VP, Investor Relations
Communications & Engagement Manager
KEYWORD: UNITED STATES NORTH AMERICA VIRGINIA
INDUSTRY KEYWORD: SUPPLY CHAIN MANAGEMENT TRANSPORT TRUCKING RESTAURANT/BAR LOGISTICS/SUPPLY CHAIN MANAGEMENT RETAIL FOOD/BEVERAGE
SOURCE: Performance Food Group Company
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PUB: 11/07/2018 07:00 AM/DISC: 11/07/2018 07:01 AM