US Foods Holding Corp. — Q3 2022 Form 10-Q
Reporting period: Fiscal third quarter ended October 1, 2022 (13 weeks); year-to-date period covers 39 weeks. Comparisons are with the periods ended October 2, 2021. US Foods distributes food and related products to U.S. foodservice customers through one reportable segment.
Financial performance
| Metric | Q3 2022 | Q3 2021 | 39 weeks 2022 | 39 weeks 2021 |
|---|---|---|---|---|
| Net sales | $8,917 million | $7,890 million | $25,542 million | $21,848 million |
| Gross profit / margin | $1,460 million / 16.4% | $1,241 million / 15.7% | $4,038 million / 15.8% | $3,413 million / 15.6% |
| Operating income / margin | $214 million / 2.4% | $135 million / 1.7% | $398 million / 1.6% | $287 million / 1.3% |
| Net income | $109 million | $64 million | $172 million | $95 million |
| Net income available to common shareholders | $100 million | $55 million | $145 million | $62 million |
| Diluted EPS | $0.43 | $0.24 | $0.64 | $0.28 |
| Adjusted EBITDA (non-GAAP) | $351 million | $291 million | $960 million | $795 million |
| Operating cash flow | $354 million | $270 million | $613 million | $520 million |
| Free cash flow (non-GAAP) | $296 million | $204 million | $412 million | $347 million |
Material changes and management commentary
- Q3 sales rose 13.0%; nine-month sales rose 16.9%. Management attributed most of the increase to food-cost inflation—approximately 12.0% in Q3 and 14.6% year to date—rather than volume. Total case volume grew 0.7% in Q3 and 1.3% year to date; independent restaurant case volume grew 2.9% and 3.8%, respectively.
- Gross profit increased 17.6% in Q3 and 18.3% year to date. Management cited inflation across product categories, optimized pricing, improved inbound freight income, cost-of-goods-sold optimization, and a favorable year-over-year LIFO comparison. LIFO expense was $6 million in Q3 and $143 million year to date, versus $32 million and $150 million, respectively, a year earlier.
- Operating expenses increased 12.7% in Q3 and 16.4% year to date, mainly from higher distribution and labor costs, including turnover and wage inflation. Savings from routing, warehouse technology, and process improvements partly offset the increases. Q3 operating expenses were 14.0% of sales; year-to-date expenses were 14.3%, unchanged from the prior-year rate.
- Interest expense rose to $65 million in Q3 and $180 million year to date, primarily reflecting higher interest rates, partly offset by lower debt. The 39-week comparison also includes a $23 million prior-year loss on extinguishment of debt.
- Management reported year-to-date costs that included $21 million of contested proxy and related legal and consulting costs and $5 million of CEO severance, within the non-GAAP reconciliation’s business acquisition, integration, and other adjustments. Adjusted EBITDA and adjusted net income are non-GAAP measures and should be considered alongside GAAP results.
Cash, debt, and liquidity
- At October 1, 2022, cash was $366 million and total debt, net of deferred financing costs, was $4.937 billion; approximately 45% of debt bore floating rates. Cash and reported available liquidity were approximately $2.1 billion.
- The $1.990 billion ABL facility had no borrowings, $247 million of letters of credit, and $1.743 billion of available capacity. The company reported that it expected cash from operations and borrowing capacity to meet obligations and operating needs for the next 12 months.
- Year-to-date capital expenditures were $201 million. Fiscal 2022 cash capital expenditures were expected to be $270–$280 million, excluding approximately $125 million of fleet lease capital expenditures.
- US Foods voluntarily prepaid $100 million of its 2021 term loan during the period and, on October 31, 2022, prepaid a further $100 million of its 2019 term loan. The latter was a subsequent event.
- On November 2, 2022, the board authorized repurchases of up to $500 million of common stock. The authorization has no expiration date and does not require the company to repurchase shares.
Outlook, risks, and contingencies
- The filing gives a capital-expenditure estimate but does not provide a specific sales, earnings, or full-year Adjusted EBITDA forecast.
- Management cited persistent inflation, supply-chain disruption, labor shortages, and COVID-19 effects as ongoing uncertainties. Risks also include weaker away-from-home food demand, commodity and fuel-price volatility, competition, supplier disruption, and the ability to maintain higher-margin business and realize cost savings.
- A hypothetical 1% change in applicable rates was estimated to change annual interest expense on floating-rate debt by approximately $22 million. The company also identified LIBOR replacement as an uncertainty.
- Fuel forward commitments totaled $43 million through December 2023, covering approximately 19% of projected diesel needs. A hypothetical 10% unfavorable diesel-price change on uncommitted volumes was estimated to add approximately $23 million of fuel cost through December 2023.
- Purchase orders and purchase-contract commitments totaled $1.147 billion for the remainder of fiscal 2022; additional disclosed commitments included $85 million for information technology, $43 million for diesel, and $10 million for electricity. These amounts are not recorded as liabilities on the balance sheet where specified by the filing.
- The company is involved in ordinary-course legal proceedings. It stated that current proceedings were not expected to have a material adverse effect, while noting that some outcomes or expenditures beyond established provisions cannot be reasonably estimated.
Important facts for investors to verify
- How much of sales and gross-profit growth reflects sustained volume and pricing performance versus food-cost inflation and LIFO effects.
- Whether labor, distribution, and other operating-cost pressures continue to be offset by the disclosed efficiency initiatives.
- Debt maturities, floating-rate exposure, covenant restrictions, and the effect of interest-rate changes on interest expense and liquidity.
- Actual fiscal 2022 capital spending and any subsequent updates to operating or financial expectations; the filing provides no specific earnings guidance.
- Whether the $500 million repurchase authorization is used, and how repurchases affect leverage, liquidity, and per-share results.
- Developments in legal proceedings, purchase commitments, fuel costs, and other risks that could affect cash flow or reported results.