Performance Food Group Company — Form 10-Q Summary
Reporting period: First quarter of fiscal 2022, three months ended October 2, 2021; comparatives are the three months ended September 26, 2020. The filing was signed November 10, 2021. PFG distributes food and related products through its Foodservice and Vistar segments.
Financial performance and liquidity
- Net sales: $10.386 billion, up 47.4% year over year. Growth reflected the Core-Mark acquisition, higher case volumes as COVID-19 impacts eased, and inflation. Core-Mark contributed $1.572 billion of sales after its September 1 acquisition date. Overall food-cost inflation was approximately 11.1%; total case volume rose approximately 27%, or 17.8% excluding Core-Mark.
- Profitability: Gross profit was $1.142 billion, up 40.1%; gross margin was approximately 11.0%, versus 11.6% a year earlier. Operating profit was $48.2 million, up 34.6%, with an operating margin of approximately 0.5%. Net income was $4.7 million, or $0.03 per diluted share, versus a $0.7 million net loss, or $0.01 loss per share. Net margin was approximately 0.05%.
- EBITDA measures: EBITDA was $148.2 million, up 24.6%; Adjusted EBITDA was $183.7 million, up 35.9%. Adjusted EBITDA is a non-GAAP measure and included $32.8 million of acquisition, integration and reorganization adjustments.
- Segments: Foodservice sales increased 26.3% to $6.362 billion, while EBITDA rose 2.4% to $159.9 million. Vistar sales doubled to $4.022 billion and EBITDA increased to $68.4 million from $11.7 million, reflecting Core-Mark, recovery in affected channels and channel-mix effects. Corporate & All Other EBITDA loss widened to $80.1 million from $49.0 million.
- Cash flow: Operations provided $31.8 million, compared with $132.0 million used in the prior-year quarter. Investing used $1.407 billion, primarily for the $1.383 billion cash portion of the Core-Mark acquisition. Financing provided $1.395 billion. Cash and restricted cash totaled $42.2 million at quarter-end.
- Debt and liquidity: Long-term debt was $3.670 billion, up from $2.241 billion at July 3, 2021; debt carrying value excludes current installments, which were reported as zero. The $4.0 billion ABL facility had $1.373 billion drawn and $2.426 billion of excess availability, net of reserves. Total lease liabilities were $1.093 billion. The company reported compliance with debt covenants and said operating cash flow and available borrowing capacity should cover anticipated needs for at least 12 months.
Material changes versus the prior-year quarter
- Core-Mark was acquired for a total purchase price of approximately $2.391 billion, funded with cash, PFG shares and assumed debt. The deal materially expanded Vistar’s convenience-store business and added Canadian operations. Purchase accounting remained preliminary.
- Sales growth substantially exceeded profit growth: cost of goods sold rose 48.3% and operating expenses rose 40.3%. Management cited labor availability and higher costs, including a $52.3 million increase in temporary contract labor costs and $15.2 million more in fuel expense.
- Interest expense rose 13.4% to $44.0 million, mainly because of higher average borrowings associated with Core-Mark. The quarter included a $3.2 million loss on extinguishment of debt related to redeeming the 5.500% notes due 2024.
- Financing was reshaped: PFG issued $1.0 billion of 4.250% notes due 2029, redeemed the $350 million 2024 notes, and amended its ABL facility, increasing its capacity from $3.0 billion to $4.0 billion and extending maturity to September 2026.
Outlook, risks and contingencies
- No specific numerical earnings or sales guidance is provided. Management said conditions improved significantly in the quarter as consumers returned to food-away-from-home activities, but the recovery remained exposed to product-supply constraints, higher product and logistics costs, and labor availability.
- Key stated risks include ongoing COVID-19 effects, intense competition in a low-margin industry, inflation and fuel volatility, dependence on suppliers and qualified labor, customer retention, and risks associated with debt and acquisitions—including Core-Mark integration, expected synergies and retention of key personnel.
- The company cannot estimate a potential loss or range of loss in JUUL-related distributor litigation. JUUL has agreed to defend and indemnify Eby-Brown and Core-Mark under specified agreements. Management did not expect the resolution of pending legal matters, based on current estimates, to materially adversely affect consolidated results or financial position; outcomes remain uncertain.
- Outstanding purchase obligations were $121.1 million, including capital projects and services; separate capital-project commitments were $83.1 million. Potential lease residual-value guarantee payments were approximately $18.7 million, subject to the value of leased assets at expiration.
- Disclosure controls were concluded effective at a reasonable assurance level; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- How much of reported sales and Vistar’s sharp improvement reflects Core-Mark versus organic volume, pricing and recovery; the acquisition was included for only about one month.
- Whether labor, fuel and other cost inflation can be offset without further pressure on already-low operating margins.
- Cash conversion and working-capital needs, especially receivables and inventory, alongside acquisition-related debt and lease obligations.
- Core-Mark integration progress, realized synergies, and final purchase-price allocation and tax treatment of goodwill.
- Developments in JUUL-related litigation, supply and labor constraints, and compliance with ABL availability and covenant requirements.