RICHMOND, Va.--(BUSINESS WIRE)--Performance Food Group Company (“PFG”) (NYSE: PFGC) today announced its second-quarter and first-half fiscal 2017 business results.
“Our business segments performed in-line with our expectations for the second quarter,” said George Holm, PFG’s President and Chief Executive Officer. “The strategic investments we made in the first half of fiscal 2017 are beginning to pay off, and we expect them to provide us with a strong platform for growth in the second half of fiscal 2017 and beyond.”
1 This earnings release includes several metrics, including EBITDA, Adjusted EBITDA and Adjusted Diluted Earnings per Share that are not calculated in accordance with Generally Accepted Accounting Principles in the U.S. (“GAAP”). Please see Statement Regarding Non-GAAP Financial Measures at the end of this release for definitions of such non-GAAP financial measures and reconciliations of such non-GAAP financial measures to their respective most comparable financial measures calculated in accordance with GAAP.
Second-Quarter Fiscal 2017 Financial Summary
Total case volume increased 5.6% in the second quarter of fiscal 2017 compared to the prior year, with underlying organic growth of 4.3%. Total case volume was driven by an organic 6.0% increase in independent cases, strong growth in Performance Brands cases and broad-based growth in Vistar’s sales channels.
Net sales for the second quarter of fiscal 2017 were $4.1 billion, an increase of 4.1% versus the comparable prior year period. The increase in net sales was primarily attributable to case growth in Performance Foodservice, sales growth in Vistar and acquisitions completed late in the second quarter.
Gross profit increased 6.2% compared to the prior year period, to $517.2 million. The gross profit increase in the second quarter of fiscal 2017 was fueled by case growth and through an improved sales mix of customer channels and products, specifically to the independent channel. Gross margin as a percentage of net sales was up approximately 30 basis points to 12.8%.
Operating expenses increased 7.6% in the second quarter of fiscal 2017 compared to the prior year period, to $465.9 million. The increase reflected the cost to support current growth in case volume, as well as the cost of strategic investments to drive growth associated with expansion of geographies served in the dollar store channel, transition of business within Customized and the opening of an automated retail facility within Vistar.
Net income increased 30.9% to $22.9 million for the second quarter of 2017 compared to the prior year period, driven by a decrease in interest expense. For the quarter, the income tax rate decreased 60 basis points to 40.1%. 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 related to stock compensation.
Diluted EPS increased 29.4% in the second quarter of fiscal 2017 over the prior year period, to $0.22. Adjusted Diluted EPS increased 11.5% in the second quarter over the prior year period, to $0.29.
EBITDA increased 1.0% in the second quarter of fiscal 2017 compared to the prior year period to $82.2 million, driven by a strong gross profit increase of 6.2% mostly offset by strategic investments to fuel future growth. Adjusted EBITDA decreased 1.9% to $93.6 million in the second quarter of fiscal 2017 compared to the prior year period.
First-Half Fiscal 2017 Financial Summary
Total case volume increased 6.1% in the first half of fiscal 2017 compared to the prior year period, with underlying organic growth of 4.8%.
Net sales for the first half of fiscal 2017 were $8.1 billion, an increase of 3.5% versus the comparable prior year period. The increase in net sales was primarily attributable to case growth in Performance Foodservice, sales growth in Vistar and recent acquisitions. Gross profit increased 6.3% compared to the prior year period, to $1.0 billion. The gross profit increase in the first half of fiscal 2017 was led by case growth and through an improved sales mix of customer channels and products, specifically to the independent channel. Gross margin as a percentage of net sales was up 30 basis points to 12.7%.
Operating expenses increased 8.7% in the first half of fiscal 2017 compared to the prior year period, to $945.6 million. The increase was driven by the cost to support growth in case volume, as well as the cost of strategic investments for future growth. Operating expenses also increased as a result of higher professional and legal fees, including settlements of $9.8 million and insurance expense related to workers compensation of $6.2 million.
Net income was up 18.2% to $35.1 million for the first half of fiscal 2017 compared to the prior year period, due to a decrease in interest expense and other expenses offset by an increase in income tax expense. For the first half of fiscal 2017, the income tax rate decreased 180 basis points to 39.2%. 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 related to stock compensation.
Diluted EPS increased 6.3% in the first half of fiscal 2017 over the prior year period, to $0.34. Adjusted Diluted EPS increased 4.3% in the first half over the prior year period, to $0.49.
EBITDA decreased 4.8% in the first half of fiscal 2017 compared to the prior year period to $144.1 million. For the first half of fiscal 2017, Adjusted EBITDA decreased 3.4% to $169.6 million compared to the prior year period.
Cash Flow and Capital Spending
During the first half of fiscal 2017, PFG’s operating activities used $25.5 million of cash flow compared to generating $10.7 million of cash flow during the same period a year ago. The prior year period included a positive impact of the $25 million break-up fee payment received related to the terminated agreement to acquire 11 U.S. Foods facilities from Sysco and US Foods. The remaining increase in working capital was due to the Company’s continued sales growth and investments related to the roll out of new business in the Customized and Vistar segments. Cash used in investing activities totaled $161.8 million for the first six months of fiscal 2017. These investments consisted of business acquisitions totaling $82.1 million and capital expenditures of $79.9 million.
Second-Quarter Fiscal 2017 Segment Results
Performance Foodservice
Net sales for the second quarter of fiscal 2017 increased 1.8% to $2.4 billion compared to the prior year period. Net sales growth was driven by new customers, an increase in cases sold, including 6.0% independent case growth, and strong case growth for our Performance Brands. For the quarter, independent sales as a percentage of total segment sales was up approximately 120 basis points to 43.6%.
EBITDA for Performance Foodservice increased 4.8% to $76.9 million in the second quarter of fiscal 2017 compared to the prior year period. EBITDA growth was driven by a 5.9% increase in gross profit, offset slightly 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 independent customers and Performance Brands, as well as by improvements from procurement gains.
PFG Customized
Net sales for PFG Customized increased 2.0% in the second quarter of fiscal 2017 to $933.5 million compared to the prior year period due to improved sales mix and higher revenue per case. In the first quarter of fiscal 2017, the company began providing distribution solutions to a portion of Red Lobster’s restaurants and completed the transition a little over midway through the second quarter.
Primarily as a result of the Red Lobster transition, segment EBITDA fell $2.5 million to $6.7 million, in the second quarter of fiscal 2017. PFG Customized also incurred quarter over quarter increases in costs associated with upgrading a portion of the segment’s fleet and an increase in insurance expense.
Vistar
Vistar’s second quarter of fiscal 2017 net sales increased 11.6% to $737.9 million compared to the prior year period. This increase was driven by case sales growth in the segment’s retail, theater, vending, and hospitality channels and by recent acquisitions.
Second-quarter EBITDA for Vistar decreased 2.6% to $33.7 million in the second quarter of fiscal 2017 versus the prior year. Gross profits grew $8.9 million, or 9.7% for the second quarter fueled by an increase in the number of cases sold. Operating expense dollar growth of 16.1% 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 an automated retail facility.
Fiscal 2017 Outlook
PFG confirms its fiscal 2017 full-year Adjusted EBITDA growth outlook to be in the 7% to 9% range on a 52 week to 52 week basis. On a 52 week to 53 week basis, the company confirms its Adjusted EBITDA growth to be in the 5% to 7% range.
PFG also confirms its second-half fiscal 2017 Adjusted EBITDA growth outlook to be in the mid-to-high teens range versus the second half of fiscal 2016, excluding the extra week. PFG expects that adjusted EBITDA growth will build sequentially from the third to fourth quarter of fiscal 2017.
PFG confirms its fiscal 2017 Adjusted Diluted EPS growth outlook to be in a range of 27% to 31% to $1.23 to $1.27 on a 52 week to 52 week basis versus a comparable Fiscal 2016 Adjusted Diluted EPS of $0.97.
PFG also confirms fiscal 2017 Adjusted Diluted EPS growth outlook to be in a range of 24% to 28% to $1.24 to $1.28 on a 52 week to 53 week basis versus a comparable 53 week fiscal 2016 Adjusted Diluted EPS of $1.00.
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 because these items, 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.
