Performance Food Group Company — FY2020 Form 10-K
Reporting period: Fiscal year ended June 27, 2020 (52 weeks), compared with the fiscal year ended June 29, 2019. Although the request metadata says “2019 Q4,” this filing reports FY2020; the fourth quarter below is the company’s fiscal Q4, not calendar Q4.
Business context
PFG distributes food and related products through its Foodservice and Vistar segments, serving more than 200,000 customer locations from 109 distribution centers. On December 30, 2019, it acquired Reinhart for a transaction value of $2.0 billion (approximately $1.7 billion net of an estimated tax benefit). Eby-Brown, acquired in fiscal 2019, also contributed substantially to the year’s reported growth.
Financial results and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $25.086 billion | $19.744 billion |
| Gross profit | $2.869 billion | $2.513 billion |
| Gross margin | 11.4% | 12.7% |
| Operating income (loss) | $(99.0) million | $283.3 million |
| Net income (loss) | $(114.1) million | $166.8 million |
| Diluted EPS | $(1.01) | $1.59 |
| EBITDA | $171.0 million | $438.7 million |
| Adjusted EBITDA | $405.5 million | $475.5 million |
| Cash provided by operating activities | $623.6 million | $317.4 million |
Sales grew 27.1%, primarily from acquisitions. Excluding Reinhart and Eby-Brown, case volume fell 10.0%, largely due to COVID-19. Adjusted EBITDA is a non-GAAP measure; the company’s reconciliation adds back, among other items, $182.8 million of acquisition, integration and reorganization costs.
Cash and restricted cash totaled $431.8 million at year-end, including $420.7 million of unrestricted cash. Net cash used in investing activities was $2.146 billion, including $1.989 billion for acquisitions and $158.0 million of capital expenditures. Financing activities provided $1.929 billion, including proceeds from debt and equity offerings. Debt including finance lease obligations was $2.573 billion, versus $1.350 billion a year earlier. The company reported $1.712 billion of ABL availability after letters of credit and lender reserves; it was in compliance with debt covenants at year-end. Current assets were $3.454 billion and current liabilities $2.619 billion.
Fiscal Q4 net sales were $5.774 billion versus $5.899 billion in the prior-year quarter; the company reported a $151.2 million net loss versus $63.2 million net income.
Material changes, outlook and risks
- COVID-19 restrictions sharply affected restaurants and other food-away-from-home channels. PFG reported significant late-year sales declines and expects a material adverse effect on future results, but said the duration and financial impact could not be reasonably estimated.
- Fiscal 2020 included $54.5 million of COVID-related inventory write-offs and an $80.0 million provision for doubtful accounts, compared with $11.5 million in the prior year. The company also recorded $108.6 million of contingent-consideration accretion expense related to Eby-Brown.
- Management sought to preserve liquidity by cutting or deferring costs and non-essential capital expenditures, suspending share repurchases, furloughing or eliminating positions, and raising capital. It drew $400 million on the revolving credit line, added a $110 million junior term loan, issued $275 million of 6.875% notes due 2025, and raised $337.5 million net from an April 2020 stock offering. Management believed available cash, operating cash flows and borrowing capacity would cover anticipated requirements for at least 12 months, while noting uncertainty remained.
- Reinhart contributed $2.525 billion of fiscal 2020 sales and a $55.0 million net loss from acquisition through year-end. Integration, synergy realization and COVID-related customer weakness remain risks. Reinhart’s internal controls were excluded from management’s and the auditor’s year-end control assessment; Reinhart represented 31% of assets, 10% of sales and 48% of net loss.
- Other key risks include thin industry margins, intense competition, customer and supplier concentration, food and tobacco regulation, labor and fuel costs, receivable collectability, variable-rate debt and refinancing needs. Speedway accounted for 10.2% of FY2020 sales. PFG has no current plan to pay dividends.
- The filing discusses an EEOC employment lawsuit and JUUL-related litigation involving Eby-Brown. The company could not estimate potential losses for these matters. It reported an immaterial EEOC settlement accrual; JUUL had agreed to defend and indemnify Eby-Brown under their distribution agreement.
Important facts for investors to verify
- How sales, case volumes and customer demand trend as COVID-19 restrictions and reopening conditions change, especially in restaurants, theaters and hospitality.
- Whether reported growth and margins are sustainable after separating acquisition contributions, tobacco excise taxes and the effects of lower-margin Eby-Brown sales.
- Progress on Reinhart integration, expected synergies, customer retention and any further impairment or accelerated amortization indicators.
- Debt service, refinancing and covenant headroom, including the $110 million junior loan maturity and interest-rate exposure; confirm liquidity against ongoing operating needs.
- Changes in customer credit losses, inventory reserves, contingent consideration and outcomes or accruals for the disclosed legal proceedings.
Deloitte issued unqualified opinions on the consolidated financial statements and, excluding Reinhart, internal control over financial reporting.