Performance Food Group Company — Form 10-Q
Reporting period: Quarter ended March 27, 2021 (fiscal third quarter 2021), with nine-month results compared with the periods ended March 28, 2020. The request metadata says “2020 Q3,” but the filing itself covers fiscal Q3 2021. PFG distributes food and food-related products through its Foodservice and Vistar segments. Fiscal 2021 is a 53-week year.
Financial performance
| Metric | Fiscal Q3 2021 | Fiscal Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $7,202.5 million | $7,000.7 million | $21,094.5 million | $19,312.3 million |
| Gross profit | $832.7 million | $807.5 million | $2,459.3 million | $2,230.1 million |
| Operating profit (loss) | $23.4 million | $(17.4) million | $120.1 million | $126.6 million |
| Net income (loss) | $(7.6) million | $(40.2) million | $9.3 million | $37.1 million |
| Diluted EPS | $(0.06) | $(0.35) | $0.07 | $0.34 |
| Adjusted EBITDA | $121.2 million | $131.1 million | $414.4 million | $401.7 million |
Q3 gross margin was 11.6%, versus 11.5% a year earlier; nine-month gross margin was 11.7%, versus 11.5%. Q3 operating margin was approximately 0.3%, compared with approximately negative 0.2% in the prior-year quarter. Interest expense was $37.1 million in Q3 and $114.0 million year to date, up from $35.2 million and $78.9 million, respectively.
Cash flow and liquidity: Operating activities provided $173.1 million in the first nine months, versus $17.6 million a year earlier. Investing activities used $130.4 million; financing activities used $361.9 million. Capital expenditures were $118.9 million. Cash and restricted cash totaled $112.6 million at March 27, 2021, including $11.1 million restricted cash. The company reported $2,149.1 million of long-term debt, excluding current installments, and $2,003.1 million of excess ABL availability. Management said operating cash flow and available borrowing capacity should cover anticipated needs for at least the next 12 months.
Material changes and segment results
- Q3 sales increased 2.9%, while nine-month sales rose 9.2%. Q3 sales growth reflected inflation and mix; case volume fell 4.2%. Nine-month growth was significantly affected by the Reinhart acquisition. Excluding Reinhart, nine-month case volume declined 13.4%, primarily due to COVID-19.
- Foodservice Q3 sales rose 4.8% and EBITDA increased to $138.3 million from $91.7 million. Independent case growth was approximately 6.3% in the quarter; the independent channel generally yields higher gross profit per case.
- Vistar Q3 sales declined 1.8% and EBITDA fell to $16.8 million from $40.7 million. Theater, vending, office coffee, hospitality and travel channels remained affected by the pandemic. Vistar’s Q3 gross margin fell to 7.8% from 9.0%, partly reflecting mix shift toward lower-margin convenience stores.
- Nine-month net income declined 74.9%, despite higher sales, reflecting pandemic-related operating impacts, higher expenses and increased interest expense. Nine-month Adjusted EBITDA increased 3.2%; Q3 Adjusted EBITDA declined 7.6%.
- Cash declined by $319.2 million from June 27, 2020. The company repaid its $110 million Additional Junior Term Loan in February 2021 and made net payments under the ABL Facility. Total debt decreased from $2,356.9 million at June 27, 2020 to $2,149.1 million.
Outlook, risks and unusual items
The filing provides no numerical earnings or sales guidance. Management described COVID-19’s effect on demand, customer operations and consumer behavior as uncertain, while noting that some states were easing restrictions and some affected Vistar channels were expected to improve as locations resumed operations. The company continued operating its distribution centers as part of the food supply chain.
Key risks include pandemic-driven demand weakness, competition and low industry margins, inflation and fuel costs, labor availability, supplier dependence, customer credit and collection risk, indebtedness, and successful integration and realization of Reinhart acquisition benefits. The company also cited inventory exposure related to major theater customers, although contracts provide for customer reimbursement of inventory losses. The JUUL-related litigation names subsidiary Eby-Brown in certain claims; JUUL has agreed to defend and indemnify it. The company could not estimate a potential loss or range of loss. Management did not believe pending proceedings would materially adversely affect financial position or results, while acknowledging outcomes remain uncertain.
Unusual period items included $185.6 million paid for the first Eby-Brown earnout payment, of which $117.3 million was classified as operating cash flow and $68.3 million as financing cash flow; $67.3 million paid for Reinhart final net working capital; and $117.8 million of net income-tax refunds. The company reported compliance with debt covenants and no material changes to its principal risk factors.
Investor verification priorities
- Confirm the filing period: it is fiscal Q3 2021, ended March 27, 2021, not 2020 Q3.
- Assess underlying volume and recovery: Q3 case volume fell 4.2%; nine-month volume excluding Reinhart fell 13.4%.
- Track Vistar’s channel recovery, EBITDA and margin, and the remaining theater-related inventory exposure.
- Review cash conversion and liquidity, including the effect of tax refunds, earnout payments, working capital and capital spending.
- Monitor debt, interest expense, ABL availability and covenant headroom; reported debt excludes lease obligations.
- Follow COVID-19 effects, Reinhart integration and the outcome of JUUL-related claims, for which PFG could not estimate potential loss.