Performance Food Group Company — Form 10-Q Summary
Period clarification: The filing covers the quarter ended April 1, 2023, which the company identifies as fiscal third quarter 2023; it does not cover 2022 Q3. Comparisons are with the quarter ended April 2, 2022. Financial amounts are in millions unless stated otherwise.
Business context and reporting period
Performance Food Group distributes food and related products across North America through Foodservice, Vistar, and Convenience segments. Its customer base includes restaurants, institutions, vending and retail channels, and convenience stores. The company completed its Core-Mark acquisition in September 2021, which affects year-over-year comparability, particularly for the nine-month period.
Financial performance
| Metric | Quarter ended Apr. 1, 2023 | Quarter ended Apr. 2, 2022 | Nine months ended Apr. 1, 2023 | Nine months ended Apr. 2, 2022 |
|---|---|---|---|---|
| Net sales | $13,771.3 | $13,079.0 | $42,389.5 | $36,304.1 |
| Gross profit | $1,511.9 | $1,345.6 | $4,586.6 | $3,766.7 |
| Operating profit | $168.8 | $68.6 | $504.0 | $174.6 |
| Net income | $80.3 | $23.4 | $247.1 | $36.5 |
| Diluted EPS | $0.51 | $0.15 | $1.58 | $0.24 |
| Adjusted EBITDA | $314.7 | $237.9 | $978.2 | $662.7 |
- Quarterly sales rose 5.3%, gross profit 12.4%, operating profit 146.1%, net income 243.2%, and Adjusted EBITDA 32.3%. Nine-month sales rose 16.8%, gross profit 21.8%, operating profit 188.7%, net income 577.0%, and Adjusted EBITDA 47.6%.
- Approximate gross margin was 11.0% for the quarter versus 10.3% a year earlier; operating margin was 1.2% versus 0.5%, and net margin was 0.6% versus 0.2%.
- Quarterly segment Adjusted EBITDA: Foodservice $220.0 million, Vistar $73.1 million, Convenience $73.2 million, and Corporate & All Other negative $51.6 million. All three reportable segments improved year over year.
- Nine-month operating cash flow was $657.2 million, compared with $390.6 million. Capital expenditures were $177.2 million, versus $140.8 million; acquisitions used $63.9 million, versus $1,651.1 million. Cash and restricted cash ended the period at $15.4 million, including $7.2 million restricted.
- Long-term debt was $3,532.4 million, down from $3,908.8 million at July 2, 2022. ABL borrowings were $1,227.8 million, with $2,595.4 million of excess availability. The ABL average interest rate, excluding swaps, was 6.27%, up from 2.89%. Current assets were $5,833.0 million and current liabilities $3,456.9 million.
- Lease liabilities totaled $1,177.4 million. The company also reported $490.4 million of future minimum payments for leases not yet commenced.
Material changes versus comparable periods
- Quarterly sales growth reflected higher selling prices from inflation and channel mix, as well as case growth. Total case volume increased 3.1%; independent case growth was 8.3%. Product cost inflation was approximately 7.2% for the quarter, down from the nine-month rate of 10.0%.
- Gross profit benefited from favorable case mix and independent-channel growth. Higher personnel, variable operating, repairs and maintenance costs, and interest expense partly offset improvements.
- Nine-month growth includes a full nine months of Core-Mark in fiscal 2023 compared with only seven months in the prior-year period. The company attributed much of Convenience’s nine-month sales and earnings growth to the acquisition.
- Interest expense increased to $55.9 million for the quarter from $45.9 million; nine-month interest expense increased to $162.0 million from $135.1 million. The company cited higher average interest rates.
- Operating cash flow increased with higher operating income and improved working capital. Inventory reductions provided cash, while changes in payables and accrued liabilities used cash.
Outlook, commentary, risks, and unusual items
- No specific earnings or revenue guidance is provided. Management says operating cash flows and available borrowing capacity should cover anticipated cash requirements for at least the next 12 months, normal operations, and capital expenditures.
- Management identifies inflation, fuel and transportation costs, interest rates, labor availability and costs, supply-chain disruptions, and lower consumer disposable income as uncertainties. The company also highlights competition, low industry margins, supplier reliance, customer retention, and substantial indebtedness.
- The ABL credit agreement was amended on April 17, 2023, after the balance-sheet date, transitioning its benchmark from LIBOR to SOFR. The company estimated that a 100-basis-point increase in SOFR on variable-rate debt would increase annual interest expense by approximately $8.8 million.
- A $10.8 million gain on sale of a Vistar warehouse benefited quarterly and nine-month results. Adjusted EBITDA excludes specified items and is a non-GAAP measure; the company cautions it should not be considered a substitute for GAAP results or cash-flow analysis.
- JUUL-related claims include the MDL settlement, whose release for the company’s subsidiaries was not yet effective pending settlement payment after court approval. A separate Illinois case remained in discovery, with trial tentatively scheduled for first-quarter 2024; JUUL indemnification applies, but inclusion in the MDL settlement was uncertain. Management could not estimate potential losses for matters outside that settlement.
- The company reported compliance with debt covenants and effective disclosure controls. It reported no material changes to previously disclosed risk factors or internal control over financial reporting.
Important facts for investors to verify
- Confirm the period: this filing is for fiscal Q3 2023, ended April 1, 2023, despite the request metadata referring to 2022 Q3.
- Assess how much sales and earnings growth reflects volume, pricing and mix versus Core-Mark acquisition comparability, and whether volume and margins remain resilient as inflation moderates.
- Track variable-rate exposure, borrowing costs, swap coverage, and ABL availability after the LIBOR-to-SOFR transition.
- Review cash conversion, capital spending and working-capital movements alongside debt and lease obligations; cash on hand was low relative to current liabilities, while substantial ABL availability supported liquidity.
- Monitor JUUL settlement effectiveness and the separate Illinois litigation, as well as other legal and tax contingencies.