EX-99.1 2 pfgc-ex991_6.htm EX-99.1 pfgc-ex991_6.htm

Exhibit 99.1

 

 

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

First-Half Fiscal 2020 Highlights

 

RICHMOND, Va. – 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.”

 

 

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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.

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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:

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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.

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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:

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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.

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PERFORMANCE FOOD GROUP COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

 

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PERFORMANCE FOOD GROUP COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

 

 

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PERFORMANCE FOOD GROUP COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

 

 

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:

 

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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, Adjusted Diluted EPS and Free Cash Flow.  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, Adjusted Diluted EPS, Free Cash Flow and other non-GAAP financial measures have limitations that should be considered before using these measures to evaluate the PFG’s financial performance or liquidity. EBITDA, Adjusted EBITDA, Adjusted Diluted EPS and Free Cash Flow, 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 indentures (other than certain pro forma adjustments permitted under our credit agreement and indentures relating to the Adjusted EBITDA contribution of acquired entities or businesses prior to the acquisition date). Under PFG’s credit agreement and indentures, 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 indentures).

 

Management also uses Adjusted Diluted EPS, 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 amortization of intangible assets, to the extent that each such item was included in the applicable GAAP financial measure. In the second quarter of fiscal 2020, and in anticipation of the Reinhart acquisition, we revised our definition of Adjusted Diluted EPS to exclude the effect of intangible asset amortization expense.  For business combinations, the Company generally allocates a portion of the purchase price to intangible assets and such intangible assets contribute to revenue generation. The amount of the allocation is based on estimates and assumptions made by management and is subject to amortization over the useful lives of the intangible assets. The amount of the purchase price from an acquisition allocated to intangible assets and the term of its related amortization can vary significantly and are unique to each acquisition, and thus the Company does not believe it is reflective of ongoing operations.  Intangible asset amortization excluded from Adjusted Diluted EPS represents the entire amount recorded within the Company’s GAAP financial statements and the revenue generated by the associated intangible assets has not been excluded from Adjusted Diluted EPS. Intangible asset amortization is excluded from Adjusted Diluted EPS because the amortization, unlike the related revenue, is not affected by operations of any particular period unless an intangible asset becomes impaired or the estimated useful life of an intangible asset is revised.

 

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.  

 

PFG believes that the presentation of Adjusted EBITDA, Adjusted Diluted EPS and Free Cash Flow 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 GAAP financial measures.

 

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PERFORMANCE FOOD GROUP COMPANY

Non-GAAP Reconciliation (Unaudited)

 

 

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PERFORMANCE FOOD GROUP COMPANY

Non-GAAP Reconciliation (Unaudited)

 

 

 

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Segment Results

The Company has two reportable segments:  Foodservice and Vistar.  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 following tables set forth net sales and EBITDA by segment for the periods indicated (dollars in millions):

Net Sales

 

 

 

EBITDA

 

 

 

 

 

 

 

 

 

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