Performance Food pany(PFGC) - 2024 Q3 - Quarterly Results

Executive Summary & Key Highlights This section provides an overview of Performance Food Group Company's financial performance for the third quarter and first nine months of fiscal 2024, including key financial highlights and CEO commentary Third-Quarter Fiscal 2024 Highlights Performance Food Group Company reported mixed results for the third quarter of fiscal 2024, with slight net sales growth and improved gross profit, but a decrease in net income and diluted EPS. Adjusted EBITDA saw a modest increase, while total case volume slightly declined Third-Quarter Fiscal 2024 Key Financial Highlights | Metric | Value | Change YoY | Source | | :-------------------------------- | :---------- | :--------- | :----- | | Total case volume | -0.2% | Decrease | [5] | | Organic Independent Foodservice case volume | 4.3% | Increase | [5] | | Net sales | $13.9 billion | 0.6% Increase | [5] | | Gross profit | $1.6 billion | 3.8% Improvement | [5] | | Net income | $70.4 million | 12.3% Decrease | [5] | | Adjusted EBITDA | $320.7 million | 1.9% Increase | [5] | | Diluted EPS | $0.45 | 11.8% Decrease | [5] | | Adjusted Diluted EPS | $0.80 | 3.6% Decrease | [5] | First-Nine Months Fiscal 2024 Highlights For the first nine months of fiscal 2024, PFG demonstrated overall growth in total case volume, net sales, gross profit, net income, and Adjusted EBITDA, alongside strong cash flow generation First-Nine Months Fiscal 2024 Key Financial Highlights | Metric | Value | Change YoY | Source | | :-------------------------------- | :---------- | :--------- | :----- | | Total case volume | 1.7% | Growth | [5] | | Organic Independent Foodservice case volume | 6.9% | Increase | [5] | | Net sales | $43.1 billion | 1.7% Increase | [5] | | Gross profit | $4.8 billion | 5.3% Improvement | [5] | | Net income | $269.4 million | 9.0% Increase | [5] | | Adjusted EBITDA | $1,049.9 million | 7.3% Increase | [5] | | Diluted EPS | $1.72 | 8.9% Increase | [5] | | Adjusted Diluted EPS | $2.85 | 4.4% Increase | [5] | | Operating Cash Flow | $956.7 million | N/A | [5] | | Free cash flow | $712.3 million | N/A | [5] | CEO Commentary CEO George Holm acknowledged a challenging operating environment in Q3, particularly in January due to weather, but highlighted sequential improvement in February and March, strong independent restaurant case growth, and solid Adjusted EBITDA execution. The company is raising the lower end of its full-year 2024 Adjusted EBITDA guidance - Independent restaurant case growth recovered nicely, increasing nearly 6% in the final two months of the quarter, indicating market share gains[4] - Adjusted EBITDA reached the midpoint of guidance, and the company reported strong cash flow[4] - The bottom-end of full year 2024 Adjusted EBITDA guidance was raised to a $1.48 billion to $1.5 billion range[4] Detailed Financial Performance This section details Performance Food Group Company's financial performance for the third quarter and first nine months of fiscal 2024, along with cash flow and capital allocation activities Third-Quarter Fiscal 2024 Financial Summary The third quarter of fiscal 2024 saw a slight decrease in total case volume due to weather, but net sales and gross profit increased, driven by independent Foodservice growth and procurement efficiencies. Operating expenses rose, leading to a decrease in net income, though Adjusted EBITDA still saw a modest increase Total Company Performance Total case volume decreased slightly, impacted by adverse weather, while organic independent cases grew. Net sales increased due to independent Foodservice growth and acquisitions, despite declines in the Convenience business. Gross profit improved from a favorable sales mix and cost optimization, but rising operating expenses led to a decline in net income - Total case volume decreased 0.2% YoY, with organic case volume down 0.6%, primarily due to bad weather. Organic independent cases increased 4.3%[6] - Net sales grew 0.6% to $13.9 billion, driven by independent Foodservice case volume growth and acquisitions, partially offset by Convenience business declines. Product cost inflation was approximately 3.6%[7] - Gross profit increased 3.8% to $1.6 billion, attributed to a favorable mix shift towards independent and Performance Brands cases, and procurement efficiencies[8] - Operating expenses rose 5.3% to $1.4 billion, mainly due to increases in personnel, insurance, and repairs and maintenance expenses[9] - Net income decreased 12.3% to $70.4 million, primarily due to a $13.9 million decrease in operating profit, partially offset by lower income tax expense (effective tax rate 27.3% vs 28.1% prior year)[10] - Adjusted EBITDA increased 1.9% to $320.7 million. Diluted EPS decreased 11.8% to $0.45, and Adjusted Diluted EPS decreased 3.6% to $0.80[11] Segment Results In Q3, Foodservice net sales increased due to independent business growth, but Adjusted EBITDA slightly decreased due to higher operating expenses. Vistar saw net sales growth from an acquisition, but Adjusted EBITDA also slightly declined due to increased operating expenses. Convenience experienced declines in both net sales and Adjusted EBITDA, primarily from reduced cigarette carton sales and expected decreases in inventory holding gains Foodservice Segment Foodservice net sales increased 1.0% to $7.0 billion, driven by independent business case volume growth (4.3% organic independent case growth). However, Adjusted EBITDA decreased 0.3% to $219.3 million due to a 4.0% increase in operating expenses, partially offset by a 3.0% increase in gross profit from a favorable mix shift to independent customers and Performance Brands Foodservice Segment Q3 FY2024 Performance | Metric | Value | Change YoY | Source | | :-------------------- | :---------- | :--------- | :----- | | Net Sales | $7.0 billion | 1.0% Increase | [20] | | Organic Independent Case Growth | 4.3% | Increase | [20] | | Independent Sales % of Total Segment Sales | 38.8% | N/A | [20] | | Adjusted EBITDA | $219.3 million | 0.3% Decrease | [21] | | Gross Profit Contribution to Adj. EBITDA | 3.0% | Increase | [21] | | Operating Expenses Impacting Adj. EBITDA | 4.0% | Increase | [21] | Vistar Segment Vistar's net sales increased 1.7% to $1.1 billion, primarily due to a recent acquisition. Adjusted EBITDA decreased 0.3% to $72.9 million, as an 8.5% increase in operating expenses (driven by acquisition and building rent) largely offset a 5.4% increase in gross profit (from acquisition and procurement efficiencies) Vistar Segment Q3 FY2024 Performance | Metric | Value | Change YoY | Source | | :-------------------- | :---------- | :--------- | :----- | | Net Sales | $1.1 billion | 1.7% Increase | [22] | | Adjusted EBITDA | $72.9 million | 0.3% Decrease | [23] | | Gross Profit Contribution to Adj. EBITDA | 5.4% | Increase | [23] | | Operating Expenses Impacting Adj. EBITDA | 8.5% | Increase | [23] | Convenience Segment Convenience net sales decreased 0.7% to $5.6 billion, mainly due to declines in cigarette carton sales and food/foodservice related cases, partially offset by price increases. Adjusted EBITDA decreased 3.1% to $70.9 million, driven by a 2.1% decrease in gross profit (due to expected decreases in inventory holding gains), despite a $7.6 million decrease in operating expenses Convenience Segment Q3 FY2024 Performance | Metric | Value | Change YoY | Source | | :-------------------- | :---------- | :--------- | :----- | | Net Sales | $5.6 billion | 0.7% Decrease | [24] | | Adjusted EBITDA | $70.9 million | 3.1% Decrease | [25] | | Gross Profit Contribution to Adj. EBITDA | 2.1% | Decrease | [25] | | Operating Expenses Impacting Adj. EBITDA | $7.6 million | Decrease | [25] | First-Nine Months Fiscal 2024 Financial Summary For the first nine months of fiscal 2024, PFG achieved growth across key financial metrics, including total case volume, net sales, gross profit, net income, and Adjusted EBITDA, driven by increased cases sold, procurement efficiencies, and operating profit improvements Total Company Performance Total case volume and organic case volume increased, with strong growth in organic independent cases. Net sales and gross profit rose, benefiting from increased cases sold and procurement efficiencies. Operating expenses also increased, but a significant rise in operating profit led to a 9.0% increase in net income and a 7.3% increase in Adjusted EBITDA - Total case volume increased 1.7% and organic case volume increased 1.4%, with organic independent cases up 6.9%[12] - Net sales grew 1.7% to $43.1 billion, primarily due to an increase in cases sold[13] - Gross profit increased 5.3% to $4.8 billion, driven by cost of goods sold optimization through procurement efficiencies and growth in cases sold[14] - Operating expenses rose 5.0% to $4.3 billion, mainly due to increases in personnel, insurance, and repairs and maintenance expenses, plus a $42.7 million increase in depreciation and amortization from acquisitions[15] - Net income increased 9.0% to $269.4 million, resulting from a $41.0 million increase in operating profit, partially offset by higher interest and income tax expenses[16] - Adjusted EBITDA rose 7.3% to $1,049.9 million. Diluted EPS increased 8.9% to $1.72, and Adjusted Diluted EPS increased 4.4% to $2.85[17] Segment Results For the first nine months, Foodservice net sales increased 0.9% to $21.4 billion, with Adjusted EBITDA up 2.8% to $689.4 million. Vistar showed strong growth, with net sales up 7.9% to $3.6 billion and Adjusted EBITDA up 6.4% to $255.1 million. Convenience net sales increased 0.5% to $17.9 billion, and Adjusted EBITDA saw a modest 0.4% increase to $249.1 million Segment Net Sales (Nine Months Ended March 30, 2024) | Segment | Net Sales ($M) | Change YoY (%) | Source | | :------------------ | :------------- | :------------- | :----- | | Foodservice | 21,371.8 | 0.9 | [52] | | Vistar | 3,586.1 | 7.9 | [52] | | Convenience | 17,918.5 | 0.5 | [52] | | Corporate & All Other | 699.7 | 42.7 | [52] | | Intersegment Eliminations | (484.1) | (12.6) | [52] | | Total Net Sales | 43,092.0 | 1.7 | [52] | Segment Adjusted EBITDA (Nine Months Ended March 30, 2024) | Segment | Adjusted EBITDA ($M) | Change YoY (%) | Source | | :------------------ | :------------------- | :------------- | :----- | | Foodservice | 689.4 | 2.8 | [53] | | Vistar | 255.1 | 6.4 | [53] | | Convenience | 249.1 | 0.4 | [53] | | Corporate & All Other | (143.7) | 20.1 | [53] | | Total Adjusted EBITDA | 1,049.9 | 7.3 | [53] | Cash Flow and Capital Allocation PFG generated significantly higher cash flow from operating activities and free cash flow in the first nine months of fiscal 2024, driven by working capital improvements and increased operating income. The company also continued its share repurchase program, repurchasing 1.3 million shares Cash Flow from Operations and Investing Cash flow from operating activities increased substantially to $956.7 million, up from $657.2 million in the prior year, primarily due to improvements in working capital and higher operating income. Capital expenditures increased to $244.4 million, resulting in free cash flow of $712.3 million, a significant increase from $480.0 million Cash Flow Highlights (First Nine Months FY2024) | Metric | FY2024 ($M) | FY2023 ($M) | Change ($M) | Source | | :-------------------------------- | :---------- | :---------- | :---------- | :----- | | Cash flow from operating activities | 956.7 | 657.2 | 299.5 | [18] | | Capital expenditures | 244.4 | 177.2 | 67.2 | [19] | | Free cash flow | 712.3 | 480.0 | 232.3 | [19] | Share Repurchase Program During the first nine months of fiscal 2024, PFG repurchased and retired 1.3 million shares of common stock for $78.1 million, at an average cost of $58.83 per share. As of March 30, 2024, approximately $210.6 million remained available for additional repurchases - Repurchased 1.3 million shares of common stock for $78.1 million during the nine months ended March 30, 2024, at an average cost of $58.83 per share[19] - Approximately $210.6 million remained available for additional share repurchases as of March 30, 2024[19] Outlook and Company Information This section presents Performance Food Group Company's fiscal 2024 and long-term outlook, company overview, and a discussion of forward-looking statements and associated risk factors Fiscal 2024 & Long-Term Outlook PFG provided updated guidance for fiscal year 2024, narrowing its net sales expectation and raising the lower end of its Adjusted EBITDA range. The company is also reviewing and updating its fiscal 2025 net sales and Adjusted EBITDA targets, expecting to be comfortably within its long-term Adjusted EBITDA range Fiscal 2024 Outlook | Metric | Q4 FY2024 Expectation | Full Year FY2024 Expectation (New) | Full Year FY2024 Expectation (Prior) | Source | | :---------------- | :-------------------- | :--------------------------------- | :--------------------------------- | :----- | | Net Sales | $15 billion to $15.4 billion | $58.1 billion to $58.5 billion | $59 billion to $60 billion | [26, 27] | | Adjusted EBITDA | $430 million to $450 million | $1.48 billion to $1.5 billion | $1.45 billion to $1.5 billion | [26, 27] | - PFG is reviewing and updating its 3-year, fiscal 2025 net sales and Adjusted EBITDA targets, with additional details expected in August[28] - Given the updated 2024 Adjusted EBITDA range, the Company is on pace to be comfortably within the $1.5 billion to $1.7 billion range for fiscal 2025[28] About Performance Food Group Company Performance Food Group is a Fortune 100 industry leader in food and foodservice distribution across North America, serving over 300,000 locations with a network of more than 150 facilities and over 35,000 associates - PFG is one of the largest food and foodservice distribution companies in North America, operating over 150 locations[31] - The company serves over 300,000 locations, including independent and chain restaurants, businesses, schools, healthcare facilities, vending distributors, and big box retailers[31] - PFG is a Fortune 100 company with more than 35,000 dedicated associates[31] Forward-Looking Statements & Risk Factors This section outlines various forward-looking statements and potential risks that could cause actual results to differ materially from expectations. Key risks include economic factors (inflation, downturns), reliance on third-party suppliers, labor costs, cybersecurity incidents, intense industry competition, low industry margins, and risks related to acquisitions and regulatory compliance - Forward-looking statements are subject to various risks and uncertainties, including economic factors like inflation or downturns affecting consumer spending[33] - Key operational risks include reliance on third-party suppliers, labor relations and costs, cybersecurity incidents, and intense competition in a low-margin industry[33] - Strategic risks involve the inability to realize benefits from cost reduction efforts or acquisitions, and challenges in increasing sales in high-margin segments[33] - Regulatory and environmental risks include compliance with laws, changes in eating habits, and the impact of declining cigarette and tobacco product sales[33] - Financial risks include the impact of amortization charges from acquisitions, uncollectibility of accounts receivable, increased excise taxes, and risks related to substantial outstanding indebtedness and interest rate increases[35] Consolidated Financial Statements This section provides Performance Food Group Company's consolidated statements of operations, balance sheets, and cash flows for the reported periods Consolidated Statements of Operations The Consolidated Statements of Operations provide a detailed breakdown of PFG's revenues, costs, and profits for the three and nine months ended March 30, 2024, compared to the prior year periods, showing changes in net sales, gross profit, operating profit, and net income Consolidated Statements of Operations (Unaudited) | (In millions, except per share data) | Three Months Ended March 30, 2024 ($M) | Three Months Ended April 1, 2023 ($M) | Nine Months Ended March 30, 2024 ($M) | Nine Months Ended April 1, 2023 ($M) | | :----------------------------------- | :------------------------------------- | :------------------------------------ | :------------------------------------ | :----------------------------------- | | Net sales | $13,857.7 | $13,771.3 | $43,092.0 | $42,389.5 | | Cost of goods sold | 12,288.8 | 12,259.4 | 38,262.1 | 37,802.9 | | Gross profit | 1,568.9 | 1,511.9 | 4,829.9 | 4,586.6 | | Operating expenses | 1,414.0 | 1,343.1 | 4,284.9 | 4,082.6 | | Operating profit | 154.9 | 168.8 | 545.0 | 504.0 | | Interest expense, net | 57.1 | 55.9 | 174.6 | 162.0 | | Income before taxes | 96.8 | 111.8 | 371.8 | 337.9 | | Income tax expense | 26.4 | 31.5 | 102.4 | 90.8 | | Net income | $70.4 | $80.3 | $269.4 | $247.1 | | Diluted EPS | $0.45 | $0.51 | $1.72 | $1.58 | Condensed Consolidated Balance Sheets The Condensed Consolidated Balance Sheets present PFG's financial position as of March 30, 2024, compared to July 1, 2023, detailing assets, liabilities, and shareholders' equity. Total assets increased to $12.87 billion, driven by increases in property, plant and equipment, and operating lease right-of-use assets Condensed Consolidated Balance Sheets (Unaudited) | ($ in millions) | As of March 30, 2024 ($M) | As of July 1, 2023 ($M) | | :------------------------------------------------ | :------------------------ | :---------------------- | | ASSETS | | | | Total current assets | $5,822.8 | $6,071.5 | | Goodwill | 2,418.7 | 2,301.0 | | Other intangible assets, net | 1,022.7 | 1,028.4 | | Property, plant and equipment, net | 2,571.4 | 2,264.0 | | Operating lease right-of-use assets | 861.0 | 703.6 | | Total assets | $12,873.9 | $12,499.0 | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | Total current liabilities | $3,540.5 | $3,553.1 | | Long-term debt | 3,215.4 | 3,460.1 | | Total liabilities | 8,920.5 | 8,753.5 | | Total shareholders' equity | 3,953.4 | 3,745.5 | | Total liabilities and shareholders' equity | $12,873.9 | $12,499.0 | Condensed Consolidated Statements of Cash Flows The Condensed Consolidated Statements of Cash Flows highlight a significant increase in net cash provided by operating activities for the nine months ended March 30, 2024, driven by higher net income and favorable changes in working capital. Net cash used in investing activities increased due to higher capital expenditures and acquisitions, while net cash used in financing activities decreased Condensed Consolidated Statements of Cash Flows (Unaudited) | ($ in millions) | Nine Months Ended March 30, 2024 ($M) | Nine Months Ended April 1, 2023 ($M) | | :------------------------------------------ | :------------------------------------ | :----------------------------------- | | Net cash provided by operating activities | $956.7 | $657.2 | | Net cash used in investing activities | (533.0) | (219.5) | | Net cash used in financing activities | (419.6) | (441.0) | | Net increase (decrease) in cash and restricted cash | 4.1 | (3.3) | | Cash and restricted cash, end of period | $24.1 | $15.4 | - Net cash provided by operating activities increased by $299.5 million, largely driven by improvements in working capital and higher operating income[18][38] - Purchases of property, plant and equipment increased to $244.4 million from $177.2 million in the prior year[38] - Net cash paid for acquisitions significantly increased to $307.9 million from $63.9 million in the prior year[38] Non-GAAP Financial Measures This section defines Performance Food Group Company's non-GAAP financial measures and provides detailed reconciliations to their most comparable GAAP measures Statement Regarding Non-GAAP Financial Measures This section defines and explains the rationale behind PFG's use of non-GAAP financial measures, including Adjusted EBITDA, Adjusted Diluted EPS, and Free Cash Flow. These measures are used by management to evaluate business performance, for planning, and for incentive compensation, as they provide insight into core operations by excluding certain non-recurring or non-cash items - Adjusted EBITDA is defined as net income before interest, taxes, depreciation, and amortization, further adjusted for items not considered part of core operating results (e.g., LIFO reserve changes, acquisition expenses)[42] - Adjusted Diluted EPS excludes the same items as Adjusted EBITDA, plus amortization of intangible assets, which management believes is not reflective of ongoing operations[43] - Free Cash Flow is defined as net cash provided by operating activities less capital expenditures, used to assess the company's ability to make strategic investments and manage debt[44] - These non-GAAP measures are used by management for performance evaluation, business planning, and incentive compensation, and are believed to be useful to investors for understanding underlying business trends[41][45] Non-GAAP Reconciliations This section provides detailed reconciliations of non-GAAP financial measures (Adjusted EBITDA, Adjusted Diluted EPS, and Free Cash Flow) to their most comparable GAAP financial measures for both the third quarter and the first nine months of fiscal 2024 Third-Quarter Non-GAAP Reconciliation The reconciliation for the third quarter shows the adjustments made to GAAP net income and diluted EPS to arrive at Adjusted EBITDA and Adjusted Diluted EPS, including add-backs for interest, taxes, depreciation, amortization, LIFO reserve changes, stock-based compensation, and acquisition-related expenses Third-Quarter Non-GAAP Reconciliation (Unaudited) | ($ in millions, except share and per share data) | March 30, 2024 ($) | April 1, 2023 ($) | Change ($) | Change (%) | | :----------------------------------------------- | :----------------- | :---------------- | :--------- | :--------- | | Net income (GAAP) | $70.4 | $80.3 | $(9.9) | (12.3) | | Interest expense, net | 57.1 | 55.9 | 1.2 | 2.1 | | Income tax expense | 26.4 | 31.5 | (5.1) | (16.2) | | Depreciation | 90.7 | 78.7 | 12.0 | 15.2 | | Amortization of intangible assets | 48.6 | 46.1 | 2.5 | 5.4 | | Change in LIFO reserve | 9.5 | 16.5 | (7.0) | (42.4) | | Stock-based compensation expense | 10.0 | 10.2 | (0.2) | (2.0) | | Acquisition, integration & reorganization expenses | 5.4 | 1.4 | 4.0 | 285.7 | | Other adjustments | 3.2 | (8.6) | 11.8 | 137.2 | | Adjusted EBITDA (Non-GAAP) | $320.7 | $314.7 | $6.0 | 1.9 | | Diluted earnings per share (GAAP) | $0.45 | $0.51 | $(0.06) | (11.8) | | Impact of amortization of intangible assets | 0.31 | 0.29 | 0.02 | 6.9 | | Impact of change in LIFO reserve | 0.06 | 0.11 | (0.05) | (45.5) | | Impact of acquisition, integration & reorganization charges | 0.04 | 0.01 | 0.03 | 300.0 | | Tax impact of above adjustments | (0.14) | (0.12) | (0.02) | (16.7) | | Adjusted Diluted Earnings per Share (Non-GAAP) | $0.80 | $0.83 | $(0.03) | (3.6) | Nine-Months Non-GAAP Reconciliation The reconciliation for the first nine months details the adjustments from GAAP net income and diluted EPS to Adjusted EBITDA and Adjusted Diluted EPS, showing the impact of various non-operating items. Additionally, the Free Cash Flow reconciliation highlights the conversion of operating cash flow into free cash flow Nine-Months Non-GAAP Reconciliation (Unaudited) | ($ in millions, except share and per share data) | March 30, 2024 ($) | April 1, 2023 ($) | Change ($) | Change (%) | | :----------------------------------------------- | :----------------- | :---------------- | :--------- | :--------- | | Net income (GAAP) | $269.4 | $247.1 | $22.3 | 9.0 | | Interest expense, net | 174.6 | 162.0 | 12.6 | 7.8 | | Income tax expense | 102.4 | 90.8 | 11.6 | 12.8 | | Depreciation | 260.8 | 232.2 | 28.6 | 12.3 | | Amortization of intangible assets | 151.1 | 137.0 | 14.1 | 10.3 | | Change in LIFO reserve | 50.5 | 68.3 | (17.8) | (26.1) | | Stock-based compensation expense | 31.7 | 33.1 | (1.4) | (4.2) | | Acquisition, integration & reorganization expenses | 19.1 | 7.2 | 11.9 | 165.3 | | Other adjustments | (7.4) | (4.7) | (2.7) | (57.4) | | Adjusted EBITDA (Non-GAAP) | $1,049.9 | $978.2 | $71.7 | 7.3 | | Diluted earnings per share (GAAP) | $1.72 | $1.58 | $0.14 | 8.9 | | Impact of amortization of intangible assets | 0.97 | 0.88 | 0.09 | 10.2 | | Impact of change in LIFO reserve | 0.32 | 0.44 | (0.12) | (27.3) | | Impact of acquisition, integration & reorganization charges | 0.12 | 0.05 | 0.07 | 140.0 | | Tax impact of above adjustments | (0.42) | (0.43) | 0.01 | 2.3 | | Adjusted Diluted Earnings per Share (Non-GAAP) | $2.85 | $2.73 | $0.12 | 4.4 | Free Cash Flow Reconciliation (Nine Months Ended March 30, 2024) | (In millions) | March 30, 2024 ($M) | April 1, 2023 ($M) | | :------------------------------------------ | :------------------ | :----------------- | | Net cash provided by operating activities (GAAP) | $956.7 | $657.2 | | Purchases of property, plant and equipment | (244.4) | (177.2) | | Free cash flow (Non-GAAP) | $712.3 | $480.0 |