PFG: announces Q4 and FY-2020 business results

Richmond / VA. (pfg) Performance Food Group Company (PFG) announced its fourth-quarter and full-year fiscal 2020 business results. Overview:

Fourth-Quarter Fiscal 2020 Highlights

• Total case volume declined 11.5 percent
• Net sales declined 2.1 percent to USD 5.8 billion
• Gross profit declined 8.7 percent to USD 639.1 million
• Net loss of USD 151.2 million
• Adjusted Ebitda declined 97.6 percent to USD 3.8 million
• Diluted loss per share of USD 1.19
• Adjusted Diluted loss per share of USD 0.86

Full-Year Fiscal 2020 Highlights

• Total case volume grew 7.6 percent
• Net sales increased 27.1 percent to USD 25.1 billion
• Gross profit improved 14.2 percent to USD 2.9 billion
• Net loss of USD 114.1 million
• Cash Flow from Operating Activities of USD 623.6 million, an increase of USD 306.2 million versus the prior year
• Adjusted Ebitda declined 14.7 percent to USD 405.5 million
• Diluted loss per share of USD 1.01
• Adjusted Diluted Earnings Per Share («EPS») declined 67.1 percent to USD 0.70

«Fiscal 2020 has been one of the most dynamic years in PFG’s history,» said George Holm, PFG’s Chairman, President + Chief Executive Officer. «We started the year by announcing the acquisition of Reinhart, which closed in late December. We are extremely pleased with this transaction and the integration of Reinhart continues to progress well.

«While our fiscal fourth quarter was challenging, I am pleased with our business recovery and momentum. Our weekly sales trends have improved significantly from the March lows and we are seeing notable market share gains in many of our key markets. Our business is in a strong financial position due to working capital management and capital market activity. By continuing to focus on our customer relationships and high levels of service while managing our cost base and cash flow, I believe we will be a stronger organization when we emerge from these difficult times.»

Fourth-Quarter Fiscal 2020 Financial Summary

Total case volume declined 11.5 percent for the fourth quarter of fiscal 2020 compared to the prior year period, with an underlying organic decline of 34.2 percent. Total case volume included a full quarter of Eby-Brown Company, LLC («Eby-Brown»), Reinhart Foodservice, LLC («Reinhart»), a 0.8 percent decrease in independent cases, and declines in Performance Brands cases. Excluding the Reinhart acquisition, independent cases declined 25.8 percent in the fourth quarter.

Net sales for the fourth quarter of fiscal 2020 decreased 2.1 percent to USD 5.8 billion compared to the prior year period. The decline in net sales was primarily attributable to the effects of the novel coronavirus («Covid-19») pandemic, partially offset by the recent acquisitions of Eby-Brown and Reinhart. The acquisition of Eby-Brown contributed an additional USD 376.8 million to net sales for the fourth quarter of fiscal 2020, including an additional USD 93.9 million related to excise taxes, as compared to the prior year period, while the acquisition of Reinhart contributed USD 1,169.9 million to net sales for the fourth quarter of fiscal 2020. Additionally, the decrease in net sales was partially offset by an increase in selling price per case as a result of inflation and mix. Overall food cost inflation was approximately 0.8 percent.

Gross profit for the fourth quarter of fiscal 2020 fell 8.7 percent to USD 639.1 million compared to the prior year period. The gross profit decline was driven by the current economic environment surrounding the outbreak of Covid-19, partially offset by recent acquisitions. In the fourth quarter of fiscal 2020, the Company recorded USD 28.8 million of inventory write-offs, which represents a USD 22.8 million increase over the prior year period. Gross margin as a percentage of net sales was 11.1 percent for the fourth quarter of fiscal 2020 compared to 11.9 percent for the prior year period. The gross margin decline reflects Eby-Brown’s lower margins.

Operating expenses rose 44.2 percent to USD 864.7 million in the fourth quarter of fiscal 2020 compared to the prior year period. The increase in operating expenses was primarily due to recent acquisitions, an increase in professional fees related to acquisitions, and an increase in contingent consideration accretion expense related to the Eby-Brown acquisition. Additionally, in the fourth quarter of fiscal 2020, the Company recorded a total of USD 48.2 million of reserves for expected credit losses for customer receivables due to the current economic environment resulting from Covid-19, which represents a USD 48.8 million increase over the prior year period. These increases were partially offset by a decrease in bonus expense.

The fourth quarter of fiscal 2020 resulted in a net loss of USD 151.2 million compared to net income of USD 63.2 million in the prior year period. The decline was primarily a result of the USD 326.1 million decrease in operating profit and a USD 20.7 million increase in interest expense, partially offset by a USD 130.9 million decrease in income tax expense. The effective tax rate for the fourth quarter of fiscal 2020 was approximately 42.3 percent compared to 23.9 percent in the fourth quarter of fiscal 2019. The effective tax rate for three months ended June 27, 2020 differed from the prior year period primarily due to the benefit from a federal net operating loss carryback at a rate higher than the current statutory tax rate, state tax credits generated, and an increase of non-deductible expenses and discrete items as a percentage of book income, which is significantly lower than the book income for the same period of fiscal 2019.

Ebitda decreased 193.4 percent to negative USD 133.7 million in the fourth quarter of fiscal 2020 compared to the prior year period. For the quarter, Adjusted Ebitda declined 97.6 percent to USD 3.8 million compared to the prior year period.

Diluted loss per share was USD 1.19 in the fourth quarter of fiscal 2020 compared to diluted EPS of USD 0.60 in the prior year period. Adjusted Diluted loss per share was USD 0.86 in the fourth quarter of fiscal 2020 compared to Adjusted Diluted EPS of USD 0.77 in the prior year period.

Fiscal 2020 Financial Summary

Total case volume increased 7.6 percent in fiscal 2020, with an underlying organic decline of 10.0 percent, as compared to the prior year. During fiscal 2020, total independent case volume increased 9.9 percent. Excluding Reinhart, independent case volume declined 5.1 percent.

Net sales for fiscal 2020 was USD 25.1 billion, an increase of 27.1 percent versus the prior year. The increase in net sales was primarily attributable to Eby-Brown and Reinhart. The acquisition of Eby-Brown contributed an additional USD 4,223.7 million to net sales for fiscal 2020, including an additional USD 909.8 million related to tobacco excise taxes, as compared to the prior year, while the acquisition of Reinhart contributed USD 2,525.0 million to net sales for fiscal 2020.

Gross profit for fiscal 2020 increased 14.2 percent to USD 2.9 billion compared to the prior year. The gross profit increase was led by recent acquisitions. The acquisition of Reinhart contributed an increase of USD 316.8 million of gross profit for fiscal 2020, while the acquisition of Eby-Brown contributed an increase of USD 203.2 million of gross profit for fiscal 2020, as compared to the prior year. These increases were partially offset by the decline in organic case volume. Additionally, in fiscal 2020, the Company recorded USD 54.5 million of inventory write-offs as a result of the impact of Covid-19 on our operations, which is a USD 30.4 million increase compared to fiscal 2019. Gross margin as a percentage of net sales was 11.4 percent for fiscal 2020 compared to 12.7 percent for the prior year. The gross margin decline reflects Eby-Brown’s lower margins.

Operating expenses increased 33.1 percent to USD 3.0 billion in fiscal 2020 compared to the prior year. The increase was primarily due to recent acquisitions. The acquisition of Reinhart resulted in an increase in operating expenses excluding depreciation and amortization of USD 327.5 million for fiscal 2020, while the acquisition of Eby-Brown resulted in an increase in operating expenses excluding depreciation and amortization of USD 179.0 million for fiscal 2020, as compared to fiscal 2019. The increase in operating expenses was also driven by an increase in professional fees related to acquisitions and an increase in contingent consideration accretion expense related to the Eby-Brown acquisition, partially offset by a decrease in bonus expense. In fiscal 2020, the Company recorded USD 78.0 million of reserves for expected credit losses for customer receivables due to the current economic environment resulting from Covid-19, which results in a USD 68.3 million increase over the prior fiscal year.

The Company recorded a net loss of USD 114.1 million for fiscal 2020 compared to net income of USD 166.8 million for the prior year. The decline in net income was primarily attributable to a USD 382.3 million decrease in operating profit along with a USD 51.5 million increase in interest expense, partially offset by a USD 159.6 million decrease in income tax expense. The effective tax rate for fiscal 2020 was approximately 48.6 percent compared to 23.6 percent for fiscal 2019.

Ebitda decreased 61.0 percent to USD 171.0 million in fiscal 2020 compared to the prior year. Adjusted Ebitda decreased 14.7 percent to USD 405.5 million compared to the prior year.

Diluted loss per share was USD 1.01 in fiscal 2020 compared to diluted EPS of USD 1.59 for the prior year. Adjusted Diluted EPS decreased 67.1 percent over the prior year to USD 0.70 in fiscal 2020.

Cash Flow, Capital Spending and Liquidity

In fiscal 2020, PFG generated USD 623.6 million in cash flow from operating activities, an increase of USD 306.2 million versus the prior year. The increase in cash flow from operating activities was largely driven by our net working capital, partially offset by lower operating income and higher interest paid. For fiscal 2020, PFG invested USD 158.0 million in capital expenditures, an increase of USD 18.9 million versus the prior year period. In fiscal 2020, PFG delivered Free Cash Flow of USD 465.6 million1, an increase of approximately USD 287.3 million versus the prior year.

As of June 27, 2020, PFG had approximately USD 2.1 billion of total liquidity, comprised of USD 420.7 million of cash and USD 1,712.2 million of excess availability on its Asset-Based Lending Facility («ABL Facility»).

Capital Markets Activity

On April 16, 2020, the Company entered into an underwriting agreement related to the issuance and sale of 15,525,000 shares of its common stock for a cash offering price of USD 22.50 per share (USD 21.77 per share net of underwriting discounts and commissions), including the exercise in full by the underwriters of their option to purchase additional shares on April 20, 2020. The aggregate offering price of the issued common stock was USD 349.3 million. In connection with the offering, the Company paid the underwriters a discount of USD 0.73 per share, for total underwriting discounts and commissions of USD 11.3 million. In addition, the Company incurred direct offering expenses of USD 0.5 million. The Company used the USD 337.5 million of net proceeds from the offering for working capital and other general corporate purposes.

On April 24, 2020, Performance Food Group Inc., a subsidiary of the Company, issued and sold USD 275.0 million aggregate principal amount of its 6.875 percent Senior Notes due 2025 (the «Notes due 2025»), pursuant to an indenture dated as of April 24, 2020. The Notes due 2025 were issued at 100.0 percent of their par value. The Notes due 2025 mature on May 1, 2025 and bear interest at a rate of 6.875 percent per year, payable semi-annually in arrears. The proceeds from the Notes due 2025 were used for working capital and general corporate purposes and to pay the fees, expenses, and other transaction costs incurred in connection with the Notes due 2025.

On April 29, 2020, the Company entered into the First Amendment to the ABL Facility, which increased the aggregate principal amount of credit to USD 3.11 billion. Included in this aggregate principal is a USD 110.0 million 364-day maturity loan that is junior to the other obligations owed under the ABL Facility («Additional Junior Term Loan»). Borrowings under the Additional Junior Term Loan bear interest at LIBOR plus 5.0 percent per annum with respect to any loan which is a LIBOR loan and Prime plus 4.0 percent per annum with respect to any loan which is a base rate loan.

Fourth-Quarter Fiscal 2020 Segment Results

Foodservice: Fourth-quarter net sales for Foodservice increased 0.8 percent to USD 4.0 billion compared to the prior year period. Net sales growth was driven by the acquisition of Reinhart, which also drove an increase in cases sold. The acquisition of Reinhart contributed USD 1,169.9 million to net sales for the fourth quarter of fiscal 2020. For the fourth quarter of fiscal 2020, independent sales as a percentage of total segment sales was 34.4 percent.

Fourth-quarter Ebitda for Foodservice decreased 79.6 percent to USD 27.0 million compared to the prior year period. Gross profit increased 0.7 percent in the fourth quarter of fiscal 2020 compared to the prior year period as a result of the Reinhart acquisition. In the fourth quarter of fiscal 2020, Foodservice recorded a total of USD 17.7 million of inventory write-offs due to the impact of Covid-19 on its operations, which is an increase of USD 12.4 million compared to the fourth quarter of fiscal 2019. Operating expenses excluding depreciation and amortization increased 28.7 percent compared to the prior year period as a result of the acquisition of Reinhart and an increase in reserves for expected credit losses for customer receivables due to Covid-19. Foodservice recorded a total of USD 41.1 million of bad debt expense in the fourth quarter of fiscal 2020, resulting in a USD 41.0 million increase compared to the prior year period.

Vistar: For the fourth quarter of fiscal 2020, net sales for Vistar decreased 8.1 percent to USD 1.8 billion compared to the prior year period. This decrease was driven by the current economic environment due to Covid-19, partially offset by the acquisition of Eby-Brown. The acquisition of Eby-Brown contributed an additional USD 376.8 million to net sales for the fourth quarter of fiscal 2020, including an additional USD 93.9 million related to excise taxes, as compared to the prior year period.

Fourth-quarter Ebitda for Vistar decreased 313.8 percent to negative USD 110.3 million versus the prior year period. Gross profit decline of 35.2 percent for the fourth quarter of fiscal 2020 compared to the prior year period was fueled by the current economic environment due to Covid-19. In the fourth quarter of fiscal 2020, Vistar recorded a total of USD 11.1 million of inventory write-offs due to the impact of Covid-19 on its operations, which is an increase of USD 10.4 million over the prior year period. Operating expense excluding depreciation and amortization growth of 75.4 percent for the fourth quarter of fiscal 2020 was primarily the result of recent acquisitions and an increase in reserves for expected credit losses for customer receivables due to Covid-19. Vistar recorded a total of USD 6.9 million of bad debt expense in the fourth quarter of fiscal 2020, resulting in a USD 7.7 million increase compared to the prior year period.

Fiscal 2021 Outlook

Due to the continued macroeconomic environment uncertainty relating to the Covid-19 pandemic, PFG will not be providing fiscal 2021 financial guidance at this time.