US Foods: Reports Third Quarter Fiscal 2020 Earnings

Rosemont / IL. (usf) US Foods Holding Corporation, one of the largest foodservice distributors in the United States, announced results for the third quarter of fiscal 2020. In this press release we refer to certain organic financial results. Organic financial results exclude contributions during the respective period from Smart Stores Holding Corp. («Smart Foodservice»), which was acquired on April 24, 2020. For the Food Group of Companies (the «Food Group»), which was acquired on Sept. 13, 2019, organic financial results include contributions for the Sept. 14, 2020, through Sept. 26, 2020, time period only.

Third Quarter Fiscal 2020 Highlights

  • Total case volume decreased 8.9 percent; total organic case volume decreased 22.2 percent
  • Net sales decreased 10.5 percent to USD 5.8 billion
  • Gross profit decreased 15.7 percent to USD 974 million
  • Net loss available to common shareholders was USD 2 million
  • Adjusted Ebitda decreased 31.9 percent to USD 209 million
  • Diluted EPS loss was USD 0.01; Adjusted Diluted EPS was USD 0.15

Nine Month Fiscal 2020 Highlights

  • Total case volume decreased 11.4 percent; total organic case volume decreased 23.5 percent
  • Net sales decreased 11.9 percent to USD 16.7 billion
  • Gross profit decreased 19.1 percent to USD 2.7 billion
  • Net loss available to common shareholders was USD 231 million
  • Adjusted Ebitda decreased 44.8 percent to USD 474 million
  • Diluted EPS loss was USD 1.05; Adjusted Diluted EPS was USD 0.05

CEO Perspective

«In the third quarter, we demonstrated the resiliency of our business model by continuing to gain market share in an industry significantly impacted by Covid-19,» said Chairman and CEO Pietro Satriano. «Our case volumes continue to recover and Adjusted Gross Profit Margin improved by 70 basis points over the prior quarter. This profitable growth, along with our prudent approach to cost management, enabled us to deliver Adjusted Ebitda of USD 209 million for the quarter, more than double what we delivered in the second quarter. I’m proud of the hard work of all our associates, who remain focused on helping our customers Make It during this challenging time.»

Third Quarter Fiscal 2020 Results

Total case volume decreased 8.9 percent from the prior year, while total organic case volume decreased 22.2 percent. Independent restaurant case volume decreased 6.8 percent, while organic independent restaurant case volume decreased 20.0 percent. Net sales of USD 5.8 billion decreased 10.5 percent from the prior year. Both case volume and Net sales improved throughout the quarter as many of our customers adjusted to social distancing measures and capacity restrictions put in place on non-essential businesses as a result of Covid-19. The Food Group and Smart Foodservice acquisitions contributed Net sales of USD 876 million, or 15.0 percent, for the quarter.

Gross profit of USD 974 million decreased USD 182 million, or 15.7 percent, from the prior year, primarily as a result of the negative impact of Covid-19 on case volume, changes to our customer mix and lower logistics income. These were partially offset by contributions from the Food Group and Smart Foodservice acquisitions. Gross profit as a percentage of Net sales was 16.7 percent. Adjusted Gross profit was USD 977 million, a decrease of USD 180 million or 15.6 percent from the prior year, driven by the negative impact of Covid-19 on case volume, changes to our customer mix and lower logistics income. These were partially offset by contributions from the Food Group and Smart Foodservice acquisitions. Adjusted Gross profit as a percentage of Net sales was 16.7 percent, an improvement of 70 basis points from the prior quarter.

Operating expenses were USD 896 million, a decrease of USD 72 million or 7.4 percent from the prior year. The decrease was primarily due to actions put in place to reduce operating costs as a result of lower case volume, a USD 30 million reduction in the reserve for uncollectible accounts and a USD 17 million gain on the sale of excess property in Southern California, which were partially offset by operating expenses for the Food Group and Smart Foodservice acquisitions. Operating expenses as a percent of Net sales were 15.3 percent. Adjusted Operating expenses were USD 774 million, a decrease of USD 75 million or 8.8 percent from the prior year, primarily due to actions put in place to reduce operating costs as a result of lower case volume and a USD 17 million gain on the sale of excess property in Southern California, which were partially offset by operating expenses for the Food Group and Smart Foodservice acquisitions. Adjusted Operating expenses as a percent of Net sales were 13.2 percent, an improvement of 100 basis points from the prior quarter.

Net loss available to common shareholders was USD 2 million, a decrease of USD 108 million compared to the prior year. Adjusted Ebitda was USD 209 million, a decrease of USD 98 million or 31.9 percent, compared to the prior year. Diluted EPS loss was USD 0.01; Adjusted Diluted EPS was USD 0.15.

Nine Month Fiscal 2020 Results

Total case volume decreased 11.4 percent from the prior year, while total organic case volume decreased 23.5 percent. Independent restaurant case volume decreased 13.7 percent, while organic independent restaurant case volume decreased 24.0 percent. Net sales of USD 16.7 billion decreased 11.9 percent from the prior year. Since early April, both case volume and Net sales have improved as many of our customers have adjusted to social distancing measures and capacity restrictions put in place on non-essential businesses as a result of Covid-19. The Food Group and Smart Foodservice acquisitions contributed Net sales of USD 2.3 billion, or 13.5 percent, for the first nine months of fiscal 2020.

Gross profit of USD 2.7 billion decreased USD 639 million, or 19.1 percent, from the prior year, primarily as a result of the negative impact of Covid-19 on case volume, changes to our customer mix, lower logistics income and higher inventory write-offs and product donations. These were partially offset by contributions from the Food Group and Smart Foodservice acquisitions. Gross profit as a percentage of Net sales was 16.2 percent. Adjusted Gross profit was USD 2.8 billion, a decrease of USD 603 million or 17.9 percent from the prior year, driven by the negative impact of Covid-19 on case volume, changes to our customer mix and lower logistics income. These were partially offset by contributions from the Food Group and Smart Foodservice acquisitions. Adjusted Gross profit as a percentage of Net sales was 16.5 percent.

Operating expenses were USD 2.8 billion, a decrease of USD 19 million or 0.7 percent from the prior year. The decrease was primarily due to actions put in place to reduce operating costs as a result of lower case volume, which were partially offset by a USD 65 million net increase in the reserve for uncollectible accounts and operating expenses for the Food Group and Smart Foodservice acquisitions. Operating expenses as percent of Net sales were 16.8 percent. Adjusted Operating expenses were USD 2.3 billion, a decrease of USD 205 million or 8.2 percent from the prior year, primarily due to actions put in place to reduce operating costs as a result of lower case volume, which were partially offset by operating expenses for the Food Group and Smart Foodservice acquisitions. Adjusted Operating expenses as a percent of Net sales were 13.7 percent.

Net loss available to common shareholders was USD 231 million, a decrease of USD 524 million compared to prior year. Adjusted Ebitda was USD 474 million, a decrease of USD 385 million or 44.8 percent, compared to the prior year. Diluted EPS loss was USD 1.05; Adjusted Diluted EPS was USD 0.05.

Cash Flow and Capital Transactions

Net cash provided by operating activities in the first nine months of fiscal 2020 was USD 533 million, a decrease of USD 26 million from the same prior year period. Cash capital expenditures for the first nine months of fiscal 2020 totaled USD 154 million, compared to USD 157 million for the same prior year period.

At the end of the third quarter of fiscal 2020, the company had USD 1.0 billion in cash on hand and approximately USD 1.7 billion in borrowing capacity available under the company’s asset-based lending facility for total liquidity of approximately USD 2.7 billion.

Net Debt at the end of the third quarter of fiscal 2020 was USD 4.8 billion, an increase of USD 130 million versus the end of fiscal 2019. The ratio of Net Debt to Adjusted Ebitda was 5.9x at the end of the third quarter of fiscal 2020, compared to 3.9x at the end of fiscal 2019.

Outlook for Fiscal Year 2020

Due to the continued uncertainty associated with Covid-19, the company withdrew its fiscal 2020 financial guidance on March 23, 2020, and is not providing financial guidance at this time.