Performance Food Group Company (NYSE: PFGC) — Form 10-K Summary
Period clarification: The filing covers fiscal 2023, the 52 weeks ended July 1, 2023, compared with the 52 weeks ended July 2, 2022. It is not a filing for 2022 Q4.
Business context
PFG distributes food and related products through Foodservice, Vistar and Convenience segments. At year-end it served more than 300,000 customer locations through 142 distribution centers. The Convenience segment includes the Core-Mark business, acquired in September 2021.
Financial performance
| Metric | Fiscal 2023 | Fiscal 2022 |
|---|---|---|
| Net sales | $57.25 billion | $50.89 billion |
| Gross profit / margin | $6.25 billion / 10.9% | $5.26 billion / 10.3% |
| Operating profit / margin | $765.8 million / 1.3% | $327.4 million / 0.6% |
| Net income | $397.2 million | $112.5 million |
| Diluted EPS | $2.54 | $0.74 |
| Adjusted EBITDA | $1.36 billion | $1.02 billion |
| Operating cash flow | $832.1 million | $276.5 million |
| Capital expenditures | $269.7 million | $215.5 million |
Net sales rose 12.5%; total case volume increased 5.8%, including organic case growth of 1.6%. Management reported fiscal-year product cost inflation of approximately 8.6%. Gross profit grew 19.0%, while operating expenses rose 11.4%. Operating cash flow less capital expenditures was approximately $562 million, versus $61 million in fiscal 2022.
Segment net sales and Adjusted EBITDA were: Foodservice, $28.49 billion and $943.6 million; Vistar, $4.55 billion and $325.3 million; Convenience, $24.12 billion and $328.8 million. Adjusted EBITDA is a non-GAAP measure defined by the company; it should not be treated as a substitute for GAAP earnings or cash flow.
Balance sheet and liquidity
At July 1, 2023, cash was $12.7 million, or $20.0 million including restricted cash; current assets were $6.07 billion and current liabilities $3.55 billion. Long-term debt was $3.46 billion on the balance sheet. Total indebtedness including finance lease obligations was approximately $4.01 billion. The $4.0 billion asset-based revolving facility had $1.15 billion drawn and $2.67 billion of excess availability, net of specified reserves. PFG reported compliance with its debt covenants.
Average ABL interest rate, excluding swaps, was 6.35%, versus 2.89% in the prior year. The company had $450 million of interest-rate swaps outstanding and estimated that a 100-basis-point increase in SOFR on variable-rate debt would increase annual interest expense by approximately $8 million. No current plan to pay common-stock dividends was disclosed.
Changes, outlook and risks
- Net income and Adjusted EBITDA increased substantially, reflecting higher gross profit, operating leverage, and the full-year contribution from Core-Mark. Fiscal 2022 included substantial acquisition-related cash outflows; fiscal 2023 net cash used in investing activities fell to $294.6 million from $1.86 billion.
- Foodservice sales grew 7.2%; organic independent case volume grew 6.2%. Vistar sales rose 23.6%, supported by volume growth and mix. Convenience sales rose 17.1%, with acquisition contribution, product growth and inflation. Cigarettes represented 26.0% of consolidated sales; reported sales include excise taxes.
- Management said operating cash flow and available borrowing capacity should meet anticipated cash needs, capital expenditures and normal operating requirements. The filing provides no specific numerical earnings or sales guidance.
- Key exposures include low industry margins, inflation or deflation, fuel and labor costs, supplier and supply-chain disruption, competition, customer retention, interest rates and substantial leverage. Cigarette consumption is generally declining, and tobacco regulation or taxes could pressure Convenience sales. PFG noted fiscal 2023 fuel expense increased $30.8 million year over year.
- Legal proceedings include JUUL-related litigation involving subsidiaries. The Oklahoma case was dismissed following settlement; the broader MDL settlement’s release for the subsidiaries depended on settlement payment and court approval. A separate Illinois case remained in discovery, with trial tentatively scheduled for early 2024; the company could not estimate potential loss for matters outside the MDL settlement. Management stated current legal provisions or insurance were adequate and did not expect pending matters to materially affect financial position.
- After year-end, PFG paid $224.4 million for an acquisition; purchase-price allocation was still being determined. The filing also reported an immaterial fiscal 2023 goodwill impairment in Corporate & All Other.
Investor facts to verify
- How much of sales and earnings growth reflects underlying volume and mix versus inflation, acquisition effects and supplier procurement gains?
- Whether stronger working-capital cash flow is sustainable, and how planned capital projects and the post-year-end acquisition affect liquidity.
- Debt maturities, floating-rate exposure, swap coverage, and continued covenant compliance as borrowing costs change.
- The contribution and risk profile of cigarette and tobacco sales, including excise taxes and supplier concentration.
- The status and financial exposure of JUUL-related and other litigation, including whether applicable indemnities and settlements provide coverage.
Audit note: Deloitte & Touche issued unqualified opinions on the consolidated financial statements and internal control over financial reporting.