US Foods Holding Corp. annual report, FY2023

Business context and reporting period

US Foods Holding Corp. is a U.S. broadline foodservice distributor serving approximately 250,000 customer locations through one reported operating segment. This Form 10-K covers the 52-week fiscal year ended December 30, 2023; the comparable 2022 fiscal year also comprised 52 weeks.

Financial and operating performance

MetricFY2023FY2022
Net sales$35.597 billion$34.057 billion
Gross profit / margin$6.148 billion / 17.3%$5.492 billion / 16.1%
Operating income / margin$1.017 billion / 2.9%$594 million / 1.7%
Net income$506 million$265 million
Net income available to common shareholders$499 million$228 million
Diluted EPS$2.02$1.01
Adjusted EBITDA / margin$1.559 billion / 4.4%$1.310 billion / 3.8%
Operating cash flow$1.140 billion$765 million
Capital expenditures$309 million$265 million
Free cash flow (non-GAAP)$831 million$500 million
  • Net sales grew 4.5%; total case volume rose 4.4% and organic case volume increased 3.9%. Independent restaurant volume grew 6.9%, healthcare 7.2%, and hospitality 8.9%; chain volume declined 2.1%.
  • Operating expenses increased 4.8% to $5.131 billion, while remaining 14.4% of sales. Management cited higher volume and seller compensation, partly offset by lower distribution cost per case and fuel costs.
  • Cash and cash equivalents were $269 million at year-end. The company reported approximately $2.0 billion of cash and available liquidity, including $1.733 billion of remaining ABL capacity; ABL borrowings were zero, with $567 million of letters of credit outstanding.
  • Debt carrying value was $4.674 billion, down from $4.854 billion. Approximately 30% of principal was floating-rate after interest-rate caps. Current debt principal payments were $106 million in 2024; $1.176 billion is scheduled for 2026.

Changes versus the prior year

  • Gross profit increased 11.9%, and operating income rose from $594 million to $1.017 billion. The gross margin improvement reflected volume growth, cost-of-goods-sold optimization, improved inbound freight income and pricing, as well as a substantial LIFO comparison effect: a $1 million gain in 2023 versus a $147 million expense in 2022.
  • Interest expense increased $69 million, primarily due to higher interest rates, partly offset by lower debt. FY2023 also included a $21 million loss on extinguishment of debt.
  • Operating cash flow increased by $375 million, reflecting higher net income and changes in operating assets and liabilities. Investing outflows included $196 million for acquisitions net of cash received and $309 million of capital expenditures.
  • US Foods acquired Renzi Foodservice for a net $140 million and Saladino’s for $56 million. It also issued $1 billion of unsecured notes due 2028 and 2032, using proceeds and cash on hand to redeem $1 billion of secured notes due 2025.
  • Series A preferred stock was fully converted to common stock during 2023. The company repurchased 7.4 million common shares for approximately $294 million; $192 million remained authorized at year-end. No common-stock dividends have been paid, and none are planned in the foreseeable future.

Outlook, risks and unusual items

  • Management expects FY2024 cash capital expenditures of $325 million to $375 million, funded by available cash, operating cash flow and fleet financing. It stated that liquidity sources should cover operating, investment and debt-service needs for at least the next 12 months and beyond; no specific earnings or sales guidance is provided in the filing.
  • Key risks include the low-margin nature of distribution; inflation, commodity and fuel volatility; competitive pricing; labor availability, wage costs and union negotiations; supply disruptions; customer and GPO pricing pressure or loss; and sensitivity to restaurant demand and economic conditions.
  • Fuel costs for outbound deliveries were approximately $191 million in FY2023. Fuel surcharges typically offset about 40% of fuel-cost increases; a hypothetical 10% adverse diesel-price move on uncommitted volumes was estimated to add approximately $14 million through December 2024.
  • Approximately $1.110 billion of purchase orders and purchase-contract commitments and $101 million of IT commitments were disclosed off balance sheet. Minimum-volume purchase commitments totaled approximately $2.75 billion, primarily scheduled through 2026.
  • Most of the company-sponsored defined benefit plan is being terminated, with benefits expected to be settled in 2024. The ultimate settlement cost was not determinable. Estimated multiemployer pension withdrawal liability was approximately $130 million; actual exposure could differ.
  • Management said pending legal proceedings were not expected to have a material adverse effect, while noting outcomes and potential expenditures cannot be predicted. The annual goodwill and indefinite-lived intangible impairment assessment identified no impairment. The auditor issued unqualified opinions on the financial statements and internal control; vendor consideration was identified as a critical audit matter.

Important facts for investors to verify

  1. How much of the year-over-year margin and profit improvement is sustainable after accounting for the favorable LIFO comparison and other adjustments included in non-GAAP measures?
  2. Whether case-volume growth, particularly in independent restaurants, healthcare and hospitality, continues and offsets declining chain volume and any customer or GPO pricing pressure.
  3. The impact of interest rates and refinancing needs, including the 2026 term-loan maturity, variable-rate exposure and the availability of ABL capacity.
  4. The cash cost and timing of the defined benefit plan termination, and potential exposure from underfunded multiemployer pension plans.
  5. Progress integrating Renzi and Saladino’s, planned capital spending, and the balance between share repurchases, acquisitions and debt reduction.