RICHMOND, Va.--(BUSINESS WIRE)--Performance Food Group Company announced its first-quarter fiscal 2017 business results. “Our underlying business performed well in the quarter,” said George Holm, PFG’s President and Chief Executive Officer. “Our Performance Foodservice segment reported strong independent case growth of 8%. However, we experienced an increase in new business transition costs and corporate expenses during the quarter, leading to Adjusted EBITDA coming in below our expectations.”
Holm continued, “Our planned strategic growth investments in PFG Customized and Vistar will continue through the second quarter as we enhance our diverse business model to further provide us with significant growth opportunities in fiscal 2017 and over the next several years.”
First-Quarter Fiscal 2017 Financial Summary
Total case volume increased 6.5% in the first quarter of fiscal 2017 compared to the prior year, with underlying organic growth of 5.3%. Total case volume was driven by an 8.0% increase in independent cases, double-digit growth in Performance Brands cases and broad-based growth in Vistar’s sales channels.
Net sales for the first quarter of fiscal 2017 were $4.0 billion, an increase of 3.0% versus the comparable prior year period. Gross profit for the first quarter of fiscal 2017 increased 6.3% compared to the prior year period, to $511.3 million. The gross profit increase in the first quarter of fiscal 2017 was fueled by case growth and through selling an improved mix of customer channels and products, specifically to the independent channel. Gross margin as a percentage of net sales was up 40 basis points to 12.6%
Operating expenses increased 9.7% in the first quarter of fiscal 2017 compared to the prior year period, to $479.7 million. The increase was primarily due to growth in case volume and the resulting impact on variable operational and selling expenses, as well as investments associated with expansion of geographies served in the dollar store channel, transition of business within Customized and the opening of a new automated retail facility within the Vistar segment. Additionally, operating expenses were higher during the quarter as a result of increases in employee medical claims, legal expenses and settlements of $4.0 million, insurance expense related primarily to workers compensation of $3.6 million and stock-based compensation expense of $3.1 million.
Net income was unchanged at $12.2 million for the first quarter of 2017 compared to the prior year period, a result of a decrease in operating profit that was fully offset by decreases in interest, income tax and other expenses. For the quarter, the income tax rate decreased 390 basis points to 37.4%. The decrease in the tax rate was primarily a result of an increase in permanent deductions related to the adoption of a new accounting standard.
Diluted EPS decreased 14.3% in the first quarter of fiscal 2017 over the prior year period, to $0.12 per share. Adjusted diluted EPS decreased 4.8% in the first quarter over the prior year period, to $0.20 per share.
EBITDA decreased 11.6% in the first quarter of fiscal 2017 compared to the prior year period, to $61.9 million. For the quarter, Adjusted EBITDA decreased 5.1% to $76.0 million compared to the prior year.
Performance Foodservice (PFS)
Net sales for the first quarter of fiscal 2017 increased 2.9% to $2.4 billion compared to the prior year period. Net sales growth was driven by an increase in cases sold, including 8.0% independent case growth and strong double-digit independent customer demand for our Performance Brands. For the quarter, independent sales as a percentage of total segment sales was up approximately 130 basis points to 45.2%.
EBITDA for PFS increased 4.7% to $73.8 million compared to the prior year period. EBITDA growth was driven by a 6.6% increase in gross profit, partially offset by an increase in operating expenses. The increase in gross profit per case resulted from a favorable shift in the mix of cases sold toward Street customers and Performance Brands, as well as by improvements from procurement gains.
PFG Customized
Net sales for PFG Customized decreased 6.5% in the first quarter of fiscal 2017 to $867.3 million compared to the prior year period. The decrease in net sales was due to the planned exits of some customers to free up capacity for the addition of new business with Red Lobster in fiscal 2017, as well as lower case sales to some customers in the casual dining channel.
Segment EBITDA for PFG Customized decreased 46.6% to $3.9 million. The decrease in segment EBITDA for the first quarter of fiscal 2017 was due to a decline in gross profit of 7.0%, as a result of lower case volume for planned customer exits, as well as increases in personnel expenses, costs associated with upgrading a portion of the segment’s fleet and insurance expense.
Vistar
In the first quarter of fiscal 2017, net sales for Vistar increased 17.3% to $741.5 million compared to the prior year period. This increase was driven by strong case sales growth in the segment’s retail, theater, vending, and hospitality channels and by recent acquisitions.
First-quarter EBITDA for Vistar increased 0.9% versus the prior year to $22.6 million. Gross profit dollar growth of 14.4% for the first quarter was fueled by an increase in the number of cases sold. Operating expense dollar growth of 19.5% resulted from investments associated with expansion of geographies served in the dollar store channel, additional expenses related to recent acquisitions and investments associated with the opening of a new automated retail facility. Full report.
