US Foods Holding Corp. — 2022 Form 10-K
Business context and reporting period
US Foods distributes food and related products to foodservice customers nationwide, operating as one business segment. Its customers include independent and chain restaurants, healthcare, hospitality, education and government entities. Fiscal 2022 ended December 31, 2022, and comprised 52 weeks; fiscal 2021 also comprised 52 weeks. The filing is an annual report, not a stand-alone fourth-quarter report, and does not provide clear Q4-only financial results in the supplied text.
Financial performance and liquidity
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Net sales | $34.057 billion | $29.487 billion |
| Gross profit / margin | $5.492 billion / 16.1% | $4.655 billion / 15.8% |
| Operating income / margin | $594 million / 1.7% | $424 million / 1.4% |
| Net income | $265 million | $164 million |
| Net income available to common shareholders | $228 million | $121 million |
| Diluted EPS | $1.01 | $0.54 |
| Adjusted EBITDA (non-GAAP) / margin | $1.310 billion / 3.8% | $1.057 billion / 3.6% |
| Operating cash flow | $765 million | $419 million |
| Capital expenditures | $265 million | $274 million |
| Free cash flow (non-GAAP) | $500 million | $145 million |
Net sales increased 15.5%; total case volume rose 1.7%, including 4.3% growth in independent restaurant cases. The overall sales rate per case increased 13.8%, reflecting average product-cost inflation of 13.0% and favorable mix. Gross profit rose 18.0%. Year-end cash and cash equivalents were $211 million; management reported approximately $2.0 billion of cash and available liquidity. Debt had a carrying value of $4.854 billion, including $446 million of financing lease obligations. The company had no ABL borrowings and $1.838 billion of ABL capacity available, after $462 million of letters of credit.
Material changes versus the prior year
- Operating income increased by $170 million and net income by $101 million. Adjusted EBITDA increased 23.9%.
- Gross margin improved 0.3 percentage points, while operating expenses as a share of sales edged up from 14.3% to 14.4%.
- Distribution expenses rose, primarily due to wage inflation and employee turnover; savings from routing, warehouse technology and process improvements partly offset the increase.
- Interest expense increased $42 million, primarily because of higher interest rates, partly offset by lower debt balances. The company made $300 million of voluntary term-loan prepayments.
- Operating cash flow improved by $346 million, reflecting higher earnings and changes in operating assets and liabilities. Cash used in financing activities was $447 million, including scheduled debt and lease payments, voluntary debt prepayments, $37 million of preferred dividends and $14 million of common-stock repurchases.
Outlook, risks and unusual items
- Management expects fiscal 2023 cash capital expenditures of $290–$310 million, excluding approximately $120 million of fleet capital expenditures financed through leases. It expects operations cash flow, ABL availability and access to capital markets to support obligations and investment needs. No specific earnings or sales guidance is provided in the supplied filing text.
- Management said inflation, supply-chain disruption and labor shortages remained relevant, though these factors improved significantly from 2021; elevated inflation could continue in 2023. The company cautioned that the effects are uncertain.
- Key exposures include food and fuel cost volatility, the ability to pass cost increases on to customers, low industry margins, competition and customer retention, labor availability and union negotiations, food safety and recalls, cybersecurity, climate-related costs, and weather or other supply disruptions.
- Debt and interest-rate exposure are material: about 42% of principal debt bore floating rates at year-end; a hypothetical 1% rate change would alter annual interest expense by approximately $20 million. A $1.097 billion principal amount of debt was scheduled for 2025, including the $1 billion secured notes due that year.
- The company reported a $147 million LIFO expense in 2022, versus $165 million in 2021. Adjusted EBITDA includes specified adjustments; 2022 adjustments included $147 million for LIFO, $66 million for acquisition/integration and other items, and $52 million for business transformation costs. These non-GAAP measures are not substitutes for GAAP results.
- The board authorized a $500 million common-stock repurchase program in November 2022; $14 million was repurchased in 2022, leaving approximately $486 million authorized at year-end. Common dividends have not been paid, and management said none are planned in the foreseeable future.
- Leadership and governance changed: David Flitman became CEO in January 2023 after Andrew Iacobucci served as interim CEO. The company also disclosed 2022 engagement and a cooperation agreement with activist investor Sachem Head.
- Auditors issued unqualified opinions on the financial statements and internal controls. Vendor consideration and receivables were identified as a critical audit matter; vendor receivables were $143 million at year-end. Management reported no goodwill or indefinite-lived intangible impairment in its 2022 annual assessment.
Important facts for investors to verify
- How much of reported sales and profit growth reflects inflation and pricing versus underlying case-volume growth, mix and customer retention.
- Whether labor, freight, fuel and other distribution costs can be controlled while maintaining service and margins.
- Debt maturities, refinancing plans, floating-rate exposure and the company’s ability to sustain debt reduction while funding capital expenditures and repurchases.
- The composition and consistency of Adjusted EBITDA and free cash flow, including LIFO, business-transformation and acquisition-related adjustments.
- Vendor-rebate estimation and collection, food-safety exposure, and the risks associated with union contracts and multiemployer pension plans; the filing estimates multiemployer-plan withdrawal liability of approximately $119 million.