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US Foods reports Q3 fiscal 2016 earnings

Published 09 November 2016

US Foods, one of the largest foodservice distributors in the US, announced results for the third quarter and first nine months of fiscal year 2016.

Third Quarter Highlights

  • Total case volume growth of 4%, Independent Restaurant volume rose 5.5%
  • Net sales increased 0.8% to $5.8 billion
  • Gross profit of $1.0 billion, up 2%
  • Operating income increased $42 million to $115 million
  • Net income increased $128 million to $133 million
  • Adjusted EBITDA increased 8.4% to $244 million
  • Diluted EPS of $0.59; Adjusted Diluted EPS of $0.39

Nine Months Highlights

  • Total case volume 2.5% higher, Independent Restaurant case volume increased 6.5%
  • Net sales increased 0.3% to $17.2 billion
  • Gross profit of $3.0 billion, up 3.1%
  • Operating income increased $161 million to $298 million
  • Net income decreased $44 million to $133 million
  • Adjusted EBITDA increased 14% to $707 million
  • Diluted EPS of $0.68; Adjusted Diluted EPS of $1.02

“Our third quarter results reflected strong performance in many areas, including volume growth and improved profitability,” said President and CEO Pietro Satriano. “Top line momentum and margin expansion, despite deflationary pressures, continue to demonstrate that our Great Food. Made Easy. strategy is resonating with independent restaurants and other customers. Our M&A pipeline remains strong, with two new acquisitions closed since the beginning of the fourth quarter. With the successful rollout of our new field operating model now substantially complete, we have launched two new initiatives that will contribute to EBITDA margin expansion. As a result of our strong year-to-date performance, we have increased our outlook for full year Adjusted EBITDA growth to 9-10%.”

Third Quarter Results

Independent restaurant case volume grew 5.5% from the prior year, with acquisitions contributing 200 basis points (bps) to this growth. Total case volume increased 4% over last year’s third quarter, of which 1.7% was organic. Strong growth with independent restaurants and other broad-based customer wins, the wrap of planned national chain exits, and the onboarding of new customers positively impacted total case volume. Net sales of $5.8 billion increased 0.8% versus prior year as sales from acquisitions completed in the last 12 months boosted Net sales by 1.5%. Total Net sales growth was negatively impacted by deflation, particularly in beef and dairy, and product mix changes in the quarter.

Gross profit of $1.0 billion increased by $20 million, or 2% from the prior year, as the company benefitted from higher volumes, favorable customer mix, and positive impacts from merchandising initiatives. As a percentage of Net sales, Gross profit increased by 21 bps. Adjusted Gross profit of $1.0 billion increased by $33 million, or 3.3% from the prior year.

Operating expenses were $917 million, a decline of 2.5% from the prior year. This improvement reflects progress on initiatives to reduce distribution, selling and administrative expenses and improve the efficiency and effectiveness of the company’s operating structure. Restructuring charges taken in the third quarter include a new initiative to further centralize field procurement and replenishment activities, and completion of the field reorganization. Adjusted Operating expenses for the quarter were $781 million, 1.8% higher than the prior year. As a percentage of sales, Adjusted Operating expenses were 13.4%, up 14 bps from the prior year, as higher variable costs associated with the increased volumes were partially offset by lower fuel costs.

Operating income was $115 million, or 2.0% of Net sales, a $42 million increase from the prior year. Adjusted EBITDA of $244 million increased $19 million, or 8.4% compared to the prior year, driven by the Adjusted Gross profit and Adjusted Operating expense factors discussed above. Net income for the quarter was $133 million, up from $5 million in the prior year. Contributing to the 2016 result was the one-time tax benefit of $80 million, driven primarily by the release of the company’s tax valuation allowance. Diluted EPS was $0.59 and Adjusted Diluted EPS was $0.39 for the quarter.

Nine Month Results

For the year-to-date, independent restaurant case growth was 6.5%, including 4.5% organic growth. Total case volume increased 2.5% over the prior year, including organic case volume growth of 1.1%. Net sales of $17.2 billion were up 0.3% over the prior year, with sales from acquisitions in the last 12 months increasing Net sales by approximately 1.1%. Net sales and case volumes continue to be affected by strong independent restaurant volume growth, planned shifts away from current national chain business, and deflation in certain categories, particularly in beef.

Gross profit of $3.0 billion increased $91 million, or 3.1% from the prior year. This was driven by higher volumes, favorable customer mix, private brand growth, and positive impacts from merchandising initiatives. As a percentage of Net sales, Gross profit increased by 48 bps. The same factors affected Adjusted Gross profit of $3.0 billion, which increased $109 million from the prior year.

Operating expenses year-to-date were $2.7 billion, down 2.5% from the prior year, as favorable fuel and lower benefits and administrative costs were partially offset by the payment of a consulting and management agreement termination fee and higher depreciation and amortization. Adjusted Operating expenses for the first nine months were $2.3 billion, an increase of 1.0% from the prior year, as favorable fuel costs and lower administrative expenses did not fully offset increased distribution and selling expenses.

Operating income was $298 million, or 1.7% of Net sales, up $161 million from the prior year. Adjusted EBITDA for the first nine months of 2016 was $707 million. This represented an increase of $87 million, or 14% over the prior year, driven by the Adjusted Gross profit and Adjusted Operating expense factors previously discussed. On a year-to-date basis, Net income was $133 million, down $44 million from the prior year, which included a $288 million net acquisition termination fee. The one-time tax benefit of $80 million, driven primarily by the release of the company’s tax valuation allowance as discussed above, contributed to the 2016 result. Diluted EPS was $0.68 and Adjusted Diluted EPS was $1.02.



Source: Company Press Release