Performance Food Group Company (“PFG” or the “Company”) (NYSE: PFGC) today announced its first-quarter fiscal 2019 business results.
“Our first quarter results were in line with our expectations,” said George Holm, PFG’s President and Chief Executive Officer. “Vistar had another strong quarter growing EBITDA by over 20%, fueled by its theater, retail, office coffee service and hospitality channels. Our Foodservice segment’s strategic investments in people and technology are on track to support our growth objectives for fiscal 2019 and beyond. We remain confident in delivering our fiscal 2019 Adjusted EBITDA growth of 7% to 10%.”
First-Quarter Fiscal 2019 Financial Summary
In the first quarter of fiscal 2019, the Company changed its operating segments to reflect the manner in which the business is managed. Based on changes to the Company’s organization structure and how the Company’s management reviews operating results and makes decisions about resource allocation, the Company now has two reportable segments: Foodservice and Vistar.
Total case volume increased 3.7% for the first quarter of fiscal 2019 compared to the prior year period, with underlying organic growth of 2.0%. Total case volume included a 4.8% increase in independent cases, growth in Performance Brands cases and broad-based growth across Vistar’s sales channels, partially offset by declines in the casual dining channel.
Net sales for the first quarter of fiscal 2019 grew 4.0% to $4.5 billion compared to the prior year period. The increase in net sales was primarily attributable to growth in Vistar, most notably in the theater and retail channels and case growth in Foodservice, specifically in the independent restaurant channel. The increase in net sales was also attributable to an increase in selling price per case as a result of inflation and mix. Overall food cost inflation was approximately 0.6%.
Gross profit for the first quarter of fiscal 2019 grew 7.0% compared to the prior year period to $593.6 million. The strong gross profit increase was led by case growth and from selling an improved mix of customer channels and products, specifically in Vistar’s channels and to the independent restaurant channel. Gross margin as a percentage of net sales was up 40 basis points over the prior year period to 13.1%.
Operating expenses rose by 7.7% to $543.0 million in the first quarter of fiscal 2019 compared to the prior year period. The increase in operating expenses was primarily due to the increase in case volume and the resulting impact on variable operational expenses, higher fuel prices, as well as additional investments in sales, warehouse and delivery personnel within Foodservice.
Net income for the first quarter of fiscal 2019 grew 24.8% year-over-year to $28.2 million. The growth was primarily a result of a $6.6 million decrease in income tax expense, partially offset by interest and other expenses. The decrease in income tax expense was primarily a result of the impact of the Tax Cuts and Jobs Act (the “Act”). The effective tax rate in the first quarter of fiscal 2019 was approximately 20.0% compared to 37.5% in the first quarter of fiscal 2018. The decrease in the tax rate was due to a lower statutory tax rate and the excess tax benefits associated with exercised and vested stock awards in the first quarter of fiscal 2019.
EBITDA increased 5.0% in the first quarter of fiscal 2019 compared to the prior year period to $86.3 million. For the quarter, Adjusted EBITDA rose 5.3% to $95.5 million compared to the prior year period.
Diluted EPS grew 22.7% to $0.27 in the first quarter of fiscal 2019 over the prior year period. Adjusted diluted EPS increased 25.9% to $0.34 per share in the first quarter over the prior year period.
Cash Flow and Capital Spending
In the first quarter of fiscal 2019, PFG generated $32.3 million in cash flow from operating activities, an increase of $16.3 million versus the prior year period. The improvement in cash flow from operating activities was largely driven by higher operating income and improvements in working capital. For the first quarter of fiscal 2019, PFG invested $25.0 million in capital expenditures, an increase of $8.5 million versus the prior year period. PFG delivered free cash flow of $7.3 million1, an increase of approximately $7.8 million versus the prior year period.
First-Quarter Fiscal 2019 Segment Results
Foodservice
First-quarter net sales for Foodservice increased 2.2% to $3.6 billion compared to the prior year period. Net sales growth was driven by an increase in cases sold, including independent case growth of 4.8% and solid independent customer demand for Performance Brands. This increase in net sales was also attributable to an increase in selling price per case as a result of inflation. For the first quarter of fiscal 2019, independent sales as a percentage of total segment sales was up 60 basis points to 35.4%. [See table at the end of this earnings release for restated quarters].
First-quarter EBITDA for Foodservice decreased 5.3% to $92.0 million compared to the prior year period. Gross profit increased 4.7% in the first quarter of fiscal 2019 compared to the prior year period as a result of an increase in cases sold, as well as an increase in gross profit per case. The increase in gross profit per case was driven by a favorable shift in the mix of cases sold to independent customers and increased sales of Performance Brands. The first quarter EBITDA was impacted by higher operating expenses driven largely by the strategic investments in sales, warehouse and delivery associates and higher fuel prices.
Vistar
For the first quarter of fiscal 2019, net sales for Vistar increased 12.0% to $892.6 million compared to the prior year period. This increase was driven by strong case sales growth in the segment’s theater, retail, office coffee service and hospitality channels.
First-quarter EBITDA for Vistar increased 22.5%, to $31.6 million, versus the prior year period. Gross profit dollar growth of 16.9% for the first quarter of fiscal 2019 compared to the prior year period was fueled by an increase in the number of cases sold. Operating expense dollar growth of 15.1% for the first quarter of fiscal 2019 was primarily the result of higher variable operating costs associated with higher case volume.
Fiscal 2019 Outlook
For fiscal 2019, PFG reaffirms its Adjusted EBITDA growth to be in a range of 7% to 10% over its fiscal 2018 Adjusted EBITDA of $426.71 million. The Company expects that the 7% to 10% Adjusted EBITDA growth for fiscal 2019 will reflect first half growth in the mid single-digit range. Second half Adjusted EBITDA growth is expected to be in the high single- and low double-digit range. First half of fiscal 2019 growth is expected to reflect strategic investments in sales, warehouse and delivery associates.
PFG also reaffirms fiscal 2019 Adjusted Diluted EPS to grow in a range of 10% to 16% over its fiscal 2018 Adjusted Diluted EPS of $1.541.
PFG’s Adjusted EBITDA and Adjusted Diluted EPS outlook exclude the impact of certain income and expense items that management believes are not part of underlying operations. These items may include, but are not limited to, loss on early extinguishment of debt, restructuring charges, certain tax items, and charges associated with non-recurring professional and legal fees associated with acquisitions. PFG’s management cannot estimate on a forward-looking basis the impact of these income and expense items on its reported Net income and its reported Diluted EPS, which could be significant, are difficult to predict and may be highly variable. As a result, PFG does not provide a reconciliation to the closest corresponding GAAP financial measure for its Adjusted EBITDA and Adjusted Diluted EPS outlook. Please see the “Forward-Looking Statements” section of this release for a discussion of certain risks to PFG’s outlook.
