US Foods Holding Corp. — Q1 2021 Form 10-Q
Reporting period: 13 weeks ended April 3, 2021; comparisons are with the 13 weeks ended March 28, 2020. US Foods distributes food and related products to foodservice customers across the U.S. Results are unaudited.
Financial performance and liquidity
| Metric | Q1 2021 | Prior-year period |
|---|---|---|
| Net sales | $6.295 billion | $6.339 billion |
| Gross profit / margin | $1.003 billion / 15.9% | $1.066 billion / 16.8% |
| Operating income (loss) | $28 million / 0.4% of sales | $(126) million / (2.0)% |
| Net loss | $(24) million | $(132) million |
| Net loss available to common shareholders / diluted EPS | $(39) million / $(0.18) | $(132) million / $(0.60) |
| Adjusted EBITDA, non-GAAP / margin | $172 million / 2.7% | $177 million / 2.8% |
| Operating cash flow / capital expenditures | $176 million / $46 million | $(62) million / $79 million |
| Free cash flow, non-GAAP | $130 million | $(141) million |
At April 3, cash and cash equivalents were $912 million, total debt was $5.738 billion, and current liabilities were $2.571 billion. Management reported approximately $2.6 billion of cash and available liquidity, including $1.711 billion of availability under the $1.990 billion asset-based revolving facility; there were no borrowings under that facility and $279 million of letters of credit outstanding. About 52% of total debt bore floating interest rates after hedging. A hypothetical 1% rate change was estimated to affect annual interest expense by approximately $30 million.
Material changes versus the prior-year period
- Net sales declined $44 million, or 0.7%; total case volume fell 0.9%. Organic case volume declined 6.4%, while independent restaurant case volume increased 8.1%, primarily reflecting Smart Foodservice contributions.
- Gross profit decreased $63 million, or 5.9%, and gross margin contracted 0.9 percentage points. Management cited pandemic-related volume and customer mix, higher logistics costs, and a $21 million LIFO expense versus a $13 million LIFO benefit in the prior-year period.
- Operating expenses fell $217 million, or 18.2%, including a $185 million lower doubtful-account provision, cost actions and lower case volume. The prior-year period included a significant COVID-related bad-debt provision; the current period included $43 million of Smart Foodservice operating expenses.
- Operating results improved substantially and net loss narrowed, but Adjusted EBITDA fell $5 million, or 2.8%. Q1 2021 also included a $23 million loss on extinguishment of debt and $15 million of preferred-stock dividends, paid in kind.
- Operating cash flow improved by $238 million year over year. Working-capital movements included a $555 million increase in accounts payable and cash overdraft liabilities, alongside increases in receivables and inventories.
Outlook, management commentary and risks
- Management said demand improved from Q4 2020 as indoor-dining restrictions loosened, but remained below pre-pandemic levels. It did not provide a clear timetable for recovery and said pre-COVID operating levels depended on restrictions lifting and consumers returning to away-from-home dining, travel and events.
- Fiscal 2021 cash capital expenditures were expected to be $290 million to $305 million, excluding approximately $35 million to $45 million of fleet-financed capital expenditures. Management believed available cash, operating cash flow and borrowing capacity would cover obligations, working capital and capital spending through fiscal 2022.
- On February 4, 2021, US Foods issued $900 million of 4.75% unsecured notes due 2029, using proceeds and cash on hand to redeem its 2024 unsecured notes and repay the 2020 incremental term loan. The refinancing generated the $23 million extinguishment loss.
- Key stated risks include the duration and effects of COVID-19, customer demand and mix, product supply and commodity volatility, inflation and logistics costs, labor availability and costs, fuel prices, competition, leverage and covenant restrictions, interest rates and LIBOR transition, and legal or regulatory matters.
- Purchase orders and purchase-contract commitments were $1.523 billion for the remainder of fiscal 2021; additional commitments included $67 million for information technology through August 2025. The company said pending legal proceedings could result in expenditures above recorded provisions, but did not expect their ultimate outcome to materially adversely affect consolidated results.
- No material changes to the principal risk factors were reported. Disclosure controls were concluded to be effective as of April 3, 2021.
Important facts for investors to verify
- Whether foodservice demand, organic case volumes and hospitality and education customer activity continue to recover after the quarter.
- Whether gross margin stabilizes given customer mix, logistics costs, product inflation and LIFO adjustments.
- How much of the operating-expense improvement reflects sustainable cost actions versus the prior-year bad-debt reserve and pandemic-related volume changes.
- Debt service and refinancing needs, floating-rate exposure, covenant capacity and the assumptions behind management’s liquidity outlook.
- Progress against the fiscal 2021 capital-expenditure range and the effect of working-capital changes on operating cash flow.
- The non-GAAP reconciliations and definitions for Adjusted EBITDA and free cash flow when comparing results with other companies.