US Foods Announces Third-Quarter Fiscal Earnings | Food Newsfeed

US Foods Announces Third-Quarter Fiscal Earnings

November 08, 2017 Industry News
Industry News

US Foods Holding Corp., one of the largest foodservice distributors in the United States, announced results for the third quarter and first nine months of fiscal 2017.

Third Quarter Highlights

  • Total case volume increased 2.0%; independent restaurant case volume increased 6.0%.
  • Net sales increased 6.2% to $6.2 billion.
  • Gross profit of $1.1 billion increased 6.4%.
  • Operating income of $190 million increased $75 million.
  • Net income of $96 million decreased $37 million.
  • Adjusted EBITDA increased 9.4% to $267 million.
  • Diluted EPS of $0.42; Adjusted Diluted EPS of $0.39.

Nine-Month Highlights

  • Total case volume increased 3.3%; independent restaurant case volume increased 4.8%.
  • Net sales increased 5.3% to $18.2 billion.
  • Gross profit of $3.1 billion increased 3.9%.
  • Operating income of $392 million increased $94 million.
  • Net income of $188 million increased $55 million.
  • Adjusted EBITDA increased 8.6% to $768 million.
  • Diluted EPS of $0.83; Adjusted Diluted EPS of $0.95.

“Strong volume growth with our targeted customers and adjusted EBITDA growth of over nine percent underscored our third quarter performance,” says president and CEO Pietro Satriano. “Our Great Food. Made Easy. strategy continues to resonate with customers as demonstrated by the increased demand for our portfolio of value added services. Customer response to our most recent Scoop offering has been the strongest to date and highlights the continued momentum in our business.”

Third Quarter Results

Total case volume increased 2.0% from prior year, of which 1.0% was organic growth, and independent restaurant case volume increased 6.0%, of which 4.1% was organic growth. The increase in total case volume was driven by growth with independent restaurants, healthcare and hospitality customers, offset by the planned exit of national chain customers. Hurricanes negatively impacted independent restaurant case volume growth by an estimated 0.3% and total case volume growth by an estimated 0.1%.

Net sales of $6.2 billion represent a 6.2% increase from prior year, driven by total case volume growth, product mix changes and year-over-year inflation in center of the plate as well as produce and grocery categories. Sales from acquisitions completed in the last 12 months increased total Net sales by approximately 1.9%.

Gross profit of $1.1 billion increased $66 million, or 6.4% from prior year. The increase was driven by higher volume, margin expansion initiatives and the greater year-over-year benefit from the Last-in, first-out (LIFO) inventory reserve. Gross profit as a percentage of Net sales was 17.7%. Adjusted Gross profit was $1.1 billion, a 4.8% increase from the prior year, driven by higher volume and margin expansion initiatives. Adjusted Gross profit as a percentage of Net sales was 17.3%.

Operating expenses were $909 million, a decrease of 0.9% from prior year. Operating expenses benefitted from lower restructuring charges due to the completion of several initiatives in 2016, a decline in Depreciation and amortization due to the full amortization of an intangible asset related to the sponsor’s acquisition of the company in 2007 and ongoing efforts to reduce operating expenses. These decreases were partially offset by increased operating costs primarily driven by higher volume combined with wage inflation. Adjusted Operating expenses for the quarter were $807 million, a 3.3% increase from prior year, primarily driven by higher volume.

Operating income was $190 million, a $75 million increase from prior year, driven by the Gross profit and Operating expense factors discussed above.

Net income for the quarter was $96 million, down $37 million from $133 million in the prior year. Prior year Net income included a $78 million income tax benefit primarily from the release of a tax valuation allowance while current year Net income reflects an income tax expense of $51 million. Adjusted EBITDA of $267 million increased $23 million, or 9.4% compared to prior year, driven by volume growth and the Adjusted Gross profit and Adjusted Operating expense factors discussed above. Diluted EPS was $0.42 and Adjusted Diluted EPS was $0.39.

Nine-Month Results

Total case volume increased 3.3% from prior year, of which 2.0% was organic growth, and independent restaurant case volume increased 4.8%, of which 3.4% was organic growth. The increase in total cases reflects growth with independent restaurants, healthcare and hospitality customers, and select national chain customers.

Net sales of $18.2 billion represent a 5.3% increase from prior year, primarily driven by case volume growth and year-over-year inflation in several center of the plate and grocery categories, partially offset by beef deflation. Sales from acquisitions completed in the last 12 months increased total Net sales by approximately 1.7%.

Gross profit of $3.1 billion increased $118 million, or 3.9% from prior year. The increase was driven by higher volume and margin expansion initiatives, partially offset by the adverse year-over-year change in the LIFO inventory reserve. Gross profit as a percentage of Net sales was 17.3%. Adjusted Gross profit was $3.2 billion, a 5.3% increase from the prior year, driven by higher volume and margin expansion initiatives. Adjusted Gross profit as a percentage of Net sales was 17.4%.

Operating expenses were $2.8 billion, an increase of 0.9% from prior year, primarily as a result of higher volume combined with wage inflation. These volume related increases were partially offset by the absence of the prior year contract termination fee with our sponsors, lower restructuring charges due to the completion of several initiatives in 2016, a decline in Depreciation and amortization due to the full amortization of the intangible asset mentioned above and ongoing efforts to reduce operating expenses. Adjusted Operating expenses for the first nine months were $2.4 billion, a 4.3% increase from prior year, primarily driven by higher volume.

Operating income was $392 million, a $94 million increase from prior year, driven by the Gross profit and Operating expense factors discussed above.

Net income for the first nine months was $188 million, up $55 million from $133 million in the prior year. Prior year Net income included a $78 million income tax benefit primarily from the release of a tax valuation allowance while current year Net income reflects an income tax expense of $78 million. Adjusted EBITDA of $768 million increased $61 million, or 8.6% compared to prior year, driven by volume growth and the Adjusted Gross profit and Adjusted Operating expense factors discussed above. Diluted EPS was $0.83 and Adjusted Diluted EPS was $0.95.

Cash Flows and Capital Transactions

Net cash provided by operating activities for the first nine months of fiscal 2017 was $506 million, an increase of $66 million from prior year related to the increase in net income which was driven by improved business performance and reduced interest expense. Cash capital expenditures for the first nine months totaled $163 million, an increase of $58 million from prior year, due to the timing of payments made for assets acquired late in the fourth quarter of fiscal 2016 and increased capital spending, as planned.

Net Debt at the end of the third quarter was $3.6 billion, a decrease of $119 million versus the end of the same prior year period. The ratio of Net Debt to Adjusted EBITDA was 3.4x at the end of the quarter, down from 3.8x at the end of the same prior year period.

Outlook for Fiscal 2017

The company is updating our fiscal 2017 guidance. We now expect unit growth of 2.5-3.0%, Net sales growth of 4.5-5.0%, Adjusted EBITDA growth of 8-9%, Net income growth of 20-25%, Cash CAPEX of $220-$230 million, Interest expense of $170-$175 million, Depreciation and amortization of $375-$380 million and Adjusted Diluted EPS of $1.35-$1.40.

Please see the “Forward-Looking Statements” section in this release for a discussion of certain risks related to this outlook.

The company is not providing a reconciliation of our fiscal 2017 Adjusted EBITDA or Adjusted Diluted EPS outlook because we are not able to accurately estimate all of the adjustments on a forward-looking basis, and such items could have a significant impact on our GAAP financial results as a result of their variability.

News and information presented in this release has not been corroborated by FSR, Food News Media, or Journalistic, Inc.