US Foods Holding Corp. — FY2021 Form 10-K
Reporting period: Fiscal year ended January 1, 2022, a 52-week year. The comparator, ended January 2, 2021, was a 53-week year. This is an annual filing; the supplied text does not provide clear Q4-only results.
Business context
US Foods is a U.S. broadline foodservice distributor operating as one segment. It serves about 250,000 customer locations through 69 distribution facilities, 80 cash-and-carry locations and a fleet of about 6,500 trucks. Fiscal 2021 recovery in restaurant and hospitality demand followed substantial pandemic disruption. The 2020 Smart Foodservice acquisition expanded its cash-and-carry business; that acquisition contributed $1.183 billion of FY2021 sales.
Key financial metrics
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $29.487 billion | $22.885 billion |
| Gross profit / margin | $4.655 billion / 15.8% | $3.719 billion / 16.3% |
| Operating income (loss) / margin | $424 million / 1.4% | ($77 million) / (0.3%) |
| Net income (loss) | $164 million | ($226 million) |
| Net income available to common shareholders | $121 million | ($254 million) |
| Diluted EPS | $0.54 | ($1.15) |
| Adjusted EBITDA (non-GAAP) / margin | $1.057 billion / 3.6% | $648 million / 2.8% |
| Cash from operating activities | $419 million | $413 million |
| Capital expenditures / free cash flow (non-GAAP) | $274 million / $145 million | $189 million / $224 million |
| Cash and cash equivalents at year-end | $148 million | $828 million |
| Debt carrying value | $5.011 billion | $5.748 billion |
At January 1, 2022, the company reported approximately $1.9 billion of cash and available liquidity, including $1.722 billion of remaining ABL capacity; it had no ABL borrowings and $268 million of letters of credit outstanding. About 47% of debt principal carried floating rates. A 1 percentage-point rate change would alter annual interest expense by approximately $24 million, based on the filing’s estimate.
Material changes versus prior year
- Net sales rose 28.8%; total case volume increased 16.9% (18.8% excluding the prior year’s extra week), and independent-restaurant case volume increased 28.0% (30.2% excluding the extra week). Sales growth reflected recovering volumes, acquisition contribution, and an 8.9% average year-over-year inflation increase across several product categories.
- Gross profit increased 25.2%, but gross margin fell 0.5 percentage points to 15.8%, primarily because LIFO expense rose to $165 million from $25 million.
- Operating expenses increased 11.5% to $4.231 billion, including higher supply-chain labor and distribution costs; as a share of sales, they declined to 14.3% from 16.6%. Lower doubtful-account provisions and $29 million of favorable legal settlement recoveries partly offset cost increases.
- Operating results returned to profit. Net income was also affected by $23 million of debt-extinguishment loss, including a $9 million early redemption premium and write-offs of prior financing costs.
- Operating cash flow was broadly stable, but free cash flow declined to $145 million as capital spending increased and working capital expanded with the sales recovery.
- The company refinanced debt during 2021, issuing $900 million of 4.75% notes due 2029 and $500 million of 4.625% notes due 2030, plus a $900 million term loan due 2028. Proceeds and cash were used to repay earlier-maturing debt.
Outlook, risks and unusual items
- Management expressed optimism about the company’s long-term prospects but said the timing and extent of recovery remained uncertain. Pandemic-related risks included new variants, supply constraints, inflation, higher logistics costs, labor shortages and changing customer purchasing patterns. No specific sales or earnings guidance was provided.
- Management expects FY2022 cash capital expenditures of $280–$300 million, excluding approximately $110 million of fleet-lease capital expenditures. It expects operating cash flow, ABL availability and capital-market access to cover anticipated needs for at least 12 months, while noting this is not assured.
- Other principal risks include the industry’s low margins and intense competition; commodity, fuel and labor cost volatility; customer and supplier concentration or disruption; food safety and regulatory exposure; cybersecurity and technology disruptions; debt service, refinancing and covenant constraints; and potential pension withdrawal liabilities. Estimated multiemployer pension withdrawal liability was approximately $160 million.
- Fiscal 2021 included a $7 million intangible-asset impairment related to rebranding, $4 million of net restructuring costs, $165 million of LIFO expense, and $29 million of favorable legal settlement recoveries. Goodwill impairment testing found no goodwill impairment; management recorded no other impairment in its annual assessment.
- KKR’s Series A preferred stock carries a 7% cumulative dividend, seniority to common stock and conversion rights; FY2021 preferred dividends were $43 million. The filing also disclosed that Sachem Head announced, on February 15, 2022, an intent to nominate seven directors for the 2022 annual meeting.
- The auditor gave unqualified opinions on the financial statements and internal control over financial reporting. The auditor identified vendor consideration and receivables as a critical audit matter; vendor receivables were $145 million at year-end.
Important facts for investors to verify
- Whether volume recovery and independent-restaurant growth persisted, and whether sales growth translated into sustainable margins amid inflation and LIFO effects.
- Cash conversion and working-capital needs, given the increase in receivables and inventory and the decline in year-end cash.
- Debt maturity, interest-rate and refinancing exposure, including the floating-rate share, covenant capacity and ABL borrowing-base availability.
- The economics and potential dilution or future cash obligations associated with the Series A preferred stock, including its cumulative dividends and conversion terms.
- Execution of planned capital spending and acquisition integration, alongside labor, supply-chain, food-safety, cybersecurity and pension risks.
- Developments in the activist director nomination and any resulting costs, governance changes or strategic effects.