RICHMOND, Va.--(BUSINESS WIRE)--Performance Food Group Company today announced its second-quarter and first-half fiscal 2016 business results.
“Our results for the second quarter were strong and exceeded our expectations. This performance was driven by independent restaurant case volume growth in our 6% to 10% target range, broad-based growth in our Vistar segment, and effective cost management. We grew gross profit dollars by 6.5% and Adjusted EBITDA by 10.2%,” said George Holm, PFG’s President and Chief Executive Officer. “All three of our operating segments grew their EBITDA. Overall we continued shifting our channel mix toward higher gross margin customers, shifting our product mix toward sales of our Performance Brands, and delivering on our productivity initiatives.” Holm added, “Based on our first-half results for fiscal 2016, we reaffirm our full-year fiscal 2016 Adjusted EBITDA growth outlook in our previously announced range of 9% to 12% and update it toward the top end of that range.”
Second-Quarter and First-Half Fiscal 2016 Financial Summary
Total case sales growth in the second quarter of fiscal 2016 was 4.2% compared to the prior year period and was driven by 3.9% organic growth. Case growth reflects new and expanding business with Street customers in the Performance Foodservice segment and broad-based growth in Vistar’s sales channels. For the first half of 2016, case volume grew 4.7% compared to the prior year period, of which 4.4% was organic. Case growth for the first half reflects increases in Performance Foodservice, particularly in the Street channel, and sales growth across all channels that Vistar serves.
Net sales for the second quarter of fiscal 2016 were $3.9 billion, an increase of 2.7% versus the comparable prior year period. The net sales growth was primarily driven by an increase in cases sold. The estimated annual deflation rate in the second quarter was 1.3% compared to an annual inflation rate of 3.9% during the prior year period. Net sales for the first half were $7.8 billion, an increase of 4.4% versus the comparable prior year period.
Gross profit dollars increased 6.5% in the second quarter compared to the prior year period, to $486.8 million. The increase in gross profit was the result of growth in cases sold and a higher gross profit per case, which in turn was driven by selling an improved mix of channels and products. For the first half of 2016, gross profit dollars increased 6.7% compared to the prior year period, to $967.9 million.
Operating expenses increased 5.6% in the second quarter compared to the prior year period, to $433.0 million. The increase was primarily because of the 4.2% increase in case volume, a one-time, non-cash stock compensation expense, an increased investment in our sales force, an increase in bonus expense, and higher insurance expenses. These increases were partially offset by leverage of our fixed costs, improved productivity in our warehouse and transportation operations, and decreases in fuel expense and amortization. For the first half of 2016, operating expenses increased 5.2% to $870.1 million compared to the prior year period.
In the second quarter, operating profit increased 14.2% compared to the prior year period, to $53.8 million. The increase was primarily driven by the growth in cases sold, improved gross margin, and strong control of operating expenses. For the first half of 2016, operating profit increased 22.6% over the prior year period, to $97.8 million.
Net income increased 36.7% to $17.5 million for the second quarter of 2016 compared to net income of $12.8 million in the prior year period. The increase was attributable to a $6.7 million increase in operating profit and a $0.2 million decrease in other expense, partially offset by a $2.2 million increase in income tax expense. Diluted earnings per share grew 13.3% in the second quarter over the prior year period, to $0.17. Adjusted Net Income advanced 33.3% in the second quarter over the prior year period, to $25.6 million, and Adjusted Diluted Earnings per Share of $0.26 in the second quarter grew 18.2%, compared to $0.22 in the prior year period.
For the first half of 2016, net income increased 53.1% to $29.7 million compared to net income of $19.4 million for the first half of 2015. The increase in net income was attributable to an $18.0 million increase in operating profit, partially offset by a $1.6 million increase in other expense and a $6.1 million increase in income tax expense. For the quarter, the income tax rate decreased 270 basis points to 40.7%. Year-to-date, the income tax rate decreased 170 basis points to 41.0%. Diluted earnings per share grew 45.5% in the first half of 2016 compared to the prior year period, to $0.32. Adjusted Net Income advanced approximately 45.0% in the first half of 2016 compared to the prior year period, to $43.8 million, and Adjusted Diluted Earnings per Share of $0.47 grew 38.2% compared to Adjusted Diluted Earnings per Share of $0.34 in the prior year period.
EBITDA increased 8.2% in the second quarter of 2016 compared to the prior year period, to $81.4 million. Adjusted EBITDA increased 10.2% to $95.4 million, compared to $86.6 million in the same period of fiscal 2015. Adjusted EBITDA as a percentage of gross profit increased 70 basis points to 19.6% versus the prior year period, which reflects selling to a more profitable mix of customers and increasing the share of our sales mix in proprietary Performance Brands. For the first half of 2016, EBITDA increased 9.8% compared to the prior year period, to $151.4 million. Adjusted EBITDA was $175.5 million, or an 11.9% increase for the first half of 2016 compared to the prior year period.
Performance Foodservice
In the second quarter of fiscal 2016, net sales for Performance Foodservice increased 3.0% to $2.3 billion, compared to the prior year period, and increased 4.1% to $4.7 billion for the first half of 2016 compared to the prior year period. Strong case growth drove the increase, partially offset by deflation in net pricing. Case growth was driven by securing new Street and Chain customers and further penetrating existing customers. Independent case growth was within our 6% to 10% growth goal range and accelerated modestly between the first and second quarters. Case sales of our proprietary Performance Brands to Street customers, which we target to grow 100-400 basis points faster than total Street case sales, grew in the expected range.
In the second quarter, segment EBITDA for Performance Foodservice increased 14.2%, compared to the prior year period, and increased 20.1% for the first half of 2016. The increases were the result of an increase in gross profit, partially offset by an increase in operating expenses excluding depreciation and amortization. Gross profit increased by 7.2% in the second quarter and 8.5% in the first half of 2016, 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 Street customers and strong Performance Brands growth, as well as improved procurement efficiencies from our Winning Together program. Operating expense control was strong, driven by leverage of our fixed costs, productivity from Winning Together, and lower fuel expense, all of which were partially offset by an increased investment in our sales force.
PFG Customized
Net sales for PFG Customized decreased 1.2% in the second quarter of fiscal 2016 compared to the prior year period, to $915.1 million, and increased 2.6% for the first half of 2016 compared to the prior year period, to $1.8 billion. The decrease in net sales in the second quarter was primarily a result of a decrease in case volume, which reflected trends among some customers in the casual dining channel. The increase in net sales over the six month period was the result of an amendment to an agreement with an existing customer and was partially offset by a decrease in case volume. The amendment to the agreement in the first quarter of fiscal 2015 was the result of changing a portion of PFG Customized’s business for a specific customer from a distribution fee per case to buying product from a supplier and charging the customer both the cost of goods sold and the distribution fee.
Segment EBITDA for PFG Customized increased 9.5% in the second quarter of fiscal 2016 compared to the prior year period, to $9.2 million, and increased 3.1% for the first half of 2016 compared to the prior year period, to $16.5 million. The increase in the second quarter and first half of 2016 was primarily attributable to a decrease in operating expenses excluding depreciation and amortization, partially offset by a decrease in gross profit and an increase in transportation wages. Gross profit for PFG Customized decreased in the second quarter and first half of 2016 primarily as a result of a decrease in case volume.
Vistar
In the second quarter of 2016, net sales for Vistar increased 7.5% to $661.2 million and for the first half increased 8.6% to $1.3 billion compared to the respective prior year periods. The increase in sales was primarily driven by broad-based case sales growth across the channels Vistar serves.
Second quarter of 2016 segment EBITDA for Vistar increased 16.5% to $34.6 million and for the first half increased 6.1% to $57.0 million compared to the respective prior year periods. This increase in EBITDA was the result of gross profits increasing faster than operating expenses excluding depreciation and amortization. Gross profit growth of $8.2 million for the second quarter and $10.7 million for the first half of 2016 over the prior year periods was driven primarily by an increase in the number of cases sold, a favorable shift in channel mix, and the benefits of our operational improvements, partially offset by a shift toward higher cost to serve customers and by inflation-based inventory gains in the prior year period. Full report.
