Performance Food Group Company — Form 10-Q Summary
Reporting period: Fiscal first quarter ended September 26, 2020; comparable quarter ended September 28, 2019. The company distributes food and related products through its Foodservice and Vistar segments. Results reflect the Reinhart acquisition, completed in fiscal 2020.
Financial results
| Metric | Q1 FY2021 | Q1 FY2020 |
|---|---|---|
| Net sales | $7,046.8 million | $6,243.0 million |
| Gross profit / gross margin | $815.5 million / 11.6% | $711.4 million / 11.4% |
| Operating profit / operating margin | $35.8 million / 0.5% | $63.5 million / 1.0% |
| Net income (loss) | ($0.7) million | $36.1 million |
| Diluted earnings (loss) per share | ($0.01) | $0.34 |
| EBITDA / Adjusted EBITDA | $118.9 million / $135.2 million | $106.2 million / $127.7 million |
| Cash from operating activities | ($132.0) million | $84.2 million |
Sales rose 12.9%, primarily because Reinhart contributed $1,457.5 million. Consolidated case volume increased 8.9%, but fell 17.5% excluding Reinhart. Gross margin edged up, while operating profit and net income declined. Higher operating expenses, depreciation and amortization, and interest expense contributed to the weaker bottom line. Interest expense was $38.8 million versus $17.3 million.
Operating cash outflow reflected working-capital investment and $117.3 million of operating cash paid for the Eby-Brown earnout. Capital expenditures were $40.8 million, compared with $22.8 million a year earlier.
Segments and material changes
- Foodservice: Sales increased 28.1% to $5,036.4 million, largely due to Reinhart. Excluding the acquisition, independent case volume declined 6.3%. EBITDA increased 50.2% to $156.2 million.
- Vistar: Sales declined 13.2% to $2,006.3 million and EBITDA declined 77.3% to $11.7 million. The pandemic sharply reduced theater, office coffee, hospitality and travel demand; gross margin fell from 9.0% to 7.3%.
- Adjusted EBITDA: Increased 5.9% to $135.2 million. This non-GAAP measure excludes specified items and should not be viewed as a substitute for GAAP results or cash flow.
Liquidity, debt and commitments
- Cash was $417.2 million; restricted cash was $11.1 million. The company reported $428.3 million of cash and restricted cash combined.
- Debt carrying value was $2,659.7 million, up from $2,356.9 million at June 27, 2020. ABL borrowings increased to $1,011.0 million from $710.0 million; reported excess ABL availability was $1,536.6 million.
- Management said operating cash flows and available borrowing capacity should cover anticipated cash needs for at least the next 12 months. The company was in compliance with debt covenants at quarter-end.
- Capital project and service purchase commitments totaled $50.4 million, including $35.4 million for warehouse projects and equipment. Operating and finance lease liabilities had present values of $453.3 million and $236.9 million, respectively.
Outlook, risks and unusual items
- Management said COVID-19 continued to materially harm food-away-from-home demand and could further adversely affect results, liquidity, customers, suppliers, labor and the supply chain. The duration and financial impact remained uncertain; the filing provides no specific earnings or sales guidance.
- Reinhart drove reported sales growth, masking significant weakness in underlying volume. Vistar remained exposed to prolonged closures and reduced activity in several customer channels.
- The company paid $185.6 million for the first Eby-Brown earnout payment; $6.1 million remained accrued at quarter-end. It also paid $67.3 million related to Reinhart final net working capital. A $12.2 million acquisition payment occurred after quarter-end.
- Contingencies include an EEOC employment discrimination lawsuit and JUUL-related product litigation involving subsidiary Eby-Brown. The company could not estimate potential losses for these matters; JUUL has agreed to defend and indemnify Eby-Brown under their agreement.
- Other cited risks include low industry margins, competition, supplier and labor costs, fuel-price volatility, customer credit losses, indebtedness, and realizing expected Reinhart synergies.
Important facts for investors to verify
- Whether Foodservice volume and Vistar demand recover as pandemic-related restrictions change, and how much reported growth depends on acquisitions.
- Whether operating cash flow improves after the earnout and working-capital outflows, and whether ABL availability remains adequate.
- Debt balances, interest expense and covenant headroom, particularly as borrowings and financing costs increased.
- Potential effects of the EEOC and JUUL litigation, and the remaining Eby-Brown earnout and acquisition-related payments.
- Whether Adjusted EBITDA trends translate into sustainable GAAP earnings and cash generation.