Performance Food Group Company — Form 10-Q Summary
Period: The filing covers the fiscal quarter ended March 28, 2020, and the first nine months of fiscal 2020, compared with periods ended March 30, 2019. This differs from the request metadata’s “2019 Q3.” Financial statements are unaudited; amounts below are in millions unless stated otherwise.
Business context and results
PFG distributes food and food-related products through its Foodservice and Vistar segments. Results reflect the December 30, 2019 acquisition of Reinhart and the prior acquisition of Eby-Brown, as well as the emerging effects of COVID-19 on food-away-from-home demand.
| Metric | Fiscal Q3 2020 | Fiscal Q3 2019 | First 9 months 2020 | First 9 months 2019 |
|---|---|---|---|---|
| Net sales | $7,000.7 | $4,689.0 | $19,312.3 | $13,844.4 |
| Gross profit | $807.5 | $604.7 | $2,230.1 | $1,812.9 |
| Gross margin | 11.5% | 12.9% | 11.5% | 13.1% |
| Operating income (loss) | $(17.4) | $59.2 | $126.6 | $182.8 |
| Net income (loss) | $(40.2) | $32.3 | $37.1 | $103.6 |
| Diluted EPS | $(0.35) | $0.31 | $0.34 | $0.99 |
| Adjusted EBITDA | $131.1 | $106.1 | $401.7 | $318.5 |
Financial position, cash flow and liquidity
- At March 28, 2020, cash was $372.1 and restricted cash was $11.1. Total debt was $3,186.4, up from $1,202.9 at June 29, 2019. Debt comprised $1,809.4 under the ABL Facility, $350.0 of 2024 notes and $1,060.0 of 2027 notes.
- ABL excess availability was $848.8 at quarter-end, compared with $1,182.7 at June 29, 2019. The ABL borrowing rate averaged 2.72%. The company reported compliance with debt covenants.
- For the first nine months, operating cash flow was $17.6 versus $260.5 a year earlier; investing cash outflow was $2,089.3, primarily reflecting $1,989.0 for acquisitions; financing cash inflow was $2,429.5. Management said operating cash flow would have been $231.3 excluding the impact of offsetting outstanding checks against cash.
- Capital expenditures were $101.1 for the nine-month period. Management stated that cash flows, available borrowing capacity and liquidity actions were expected to cover anticipated needs for at least 12 months.
Material changes and management commentary
- Quarterly sales rose 49.3%, largely due to acquisitions; reported case volume increased 26.4%, but declined 7.2% excluding Reinhart and Eby-Brown. Management attributed the organic quarterly decline primarily to COVID-19.
- Quarterly gross profit increased, but gross margin fell to 11.5%, reflecting Eby-Brown’s lower-margin tobacco-related sales and COVID-related inventory reserves. Quarterly net loss also reflected lower operating profit, higher interest expense and increased acquisition-related costs.
- Foodservice quarterly EBITDA was $91.7 versus $99.4; Vistar EBITDA was $40.7 versus $37.0. Corporate and All Other EBITDA deteriorated to $(58.4) from $(36.5). Consolidated quarterly EBITDA declined to $74.0 from $99.9, while Adjusted EBITDA rose to $131.1 from $106.1.
- Reinhart contributed $1,355.1 of sales and a $29.1 net loss from acquisition through quarter-end. PFG recorded $16.4 of accelerated amortization on acquired customer relationships and trade names due to lower expected future sales to Reinhart customers.
- Management said COVID-19 was already reducing restaurant, school, hotel, theater and other customer activity and expected a material adverse effect on fourth-quarter results and potentially beyond; the duration and magnitude could not be reasonably estimated. The company continued operating distribution centers and reported cost reductions, capital-spending restraint, suspension of share repurchases, workforce actions and associates loaned to grocery partners.
- After quarter-end, the company issued $275.0 of 6.875% notes due 2025, raised $337.7 net from a common-stock offering and amended the ABL Facility to add a $110.0 junior term loan. The filing also reports a separate $400.0 ABL draw as a liquidity measure.
Risks, contingencies and unusual items
- COVID-19 may further impair customer demand, collections, operations and supply chains; weaker receivables could also reduce borrowing-base availability. PFG warned that further debt or equity financing could raise interest costs, dilute shareholders or impose additional restrictions.
- Integration of Reinhart is complex and could fail to deliver expected synergies; the pandemic has affected integration. Goodwill and intangible assets increased substantially with acquisitions, making valuation and impairment assumptions important.
- The company reported an ongoing EEOC employment-discrimination lawsuit. It could not estimate potential losses; trial timing was not set. Management did not believe currently pending legal matters would have a material adverse effect, while noting outcomes are uncertain.
- Other notable items include $7.4 of quarterly losses on fuel collars and swaps, higher expected-credit-loss reserves, acquisition and integration costs, and $5.6 of nine-month gross profit associated with excise-tax rate increases. No material off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Confirm the intended reporting period: this filing is fiscal Q3 2020, not 2019 Q3.
- Track post-quarter COVID-related sales, case volumes, customer collections, credit-loss reserves and the impact on ABL borrowing capacity.
- Assess debt, interest burden, liquidity and covenants after the April 2020 financing actions; quarter-end debt and availability do not include those subsequent events.
- Evaluate Reinhart integration, realized synergies, acquired-asset amortization and any further impairment indicators.
- Review the EEOC litigation’s trial developments and any change in management’s loss assessment.