RICHMOND, Va.--(BUSINESS WIRE)--Performance Food Group Company (“PFG” or the “Company”) (NYSE: PFGC) today announced its second-quarter and first-half fiscal 2019 business results.
“Our second quarter results were strong driven by Vistar’s robust top-line results,” said George Holm, PFG’s Chairman, President & Chief Executive Officer. “Vistar is having an outstanding year and grew its EBITDA by over 30% in the second quarter. We are also pleased to have experienced sequential improvement in our Foodservice segment as our strategic investments continue to be on track to support our long-term growth objectives. We are on track for another year of strong growth across our Company."
1 This earnings release includes several metrics, including EBITDA, Adjusted EBITDA, Adjusted Diluted Earnings per Share and Free Cash Flow 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 the 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 2019 Financial Summary
Total case volume increased 5.5% for the second quarter of fiscal 2019 compared to the prior year period, with underlying organic growth of 3.6%. Total case volume included a 4.3% increase in independent cases, growth in Performance Brands cases and broad-based growth across Vistar’s sales channels. The increase in total case volume was also partially attributable to slight same-store sales growth in the Company’s casual dining customers.
Net sales for the second quarter of fiscal 2019 grew 7.1% to $4.6 billion compared to the prior year period. The increase in net sales was primarily attributable to growth in Vistar, most notably in the theater, retail and vending channels, and case growth in Foodservice, specifically in the independent restaurant channel. The increase in net sales also reflects an increase in selling price per case as a result of inflation and mix. Overall food cost inflation was approximately 1.2%.
Gross profit for the second quarter of fiscal 2019 grew 8.3% to $614.6 million compared to the prior year period. 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 the independent restaurant channel. Gross profit margin as a percentage of net sales was up 10 basis points over the prior year period to 13.3%.
Operating expenses rose 4.5% to $541.6 million in the second 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 and selling expenses, as well as the continuing expense associated with second half of fiscal 2018 investments in sales, warehouse and delivery personnel within the Foodservice segment.
Net income for the second quarter of fiscal 2019 declined 44.7% year-over-year to $43.1 million. The decline was primarily a result of a $57.1 million increase in income tax expense, partially offset by the $23.9 million increase in operating profit. The increase in income tax expense was primarily a result of the prior year impact of the Tax Cuts and Jobs Act (the “Act”) and the prior year excess tax benefit associated with the performance vesting of certain stock-based compensation awards. The effective tax rate in the second quarter of fiscal 2019 was approximately 23.4% versus -128.3% in the second quarter of fiscal 2018.
EBITDA increased 34.2% to $109.4 million in the second quarter of fiscal 2019 compared to the prior year period. For the quarter, Adjusted EBITDA rose 11.3% to $116.9 million compared to the prior year period.
Diluted EPS declined 45.3% to $0.41 per share in the second quarter of fiscal 2019 over the prior year period due primarily to the increase in income tax expense. Adjusted diluted EPS increased 15.0% to $0.46 per share in the second quarter over the prior year period.
First-Half Fiscal 2019 Financial Summary
Total case volume increased 4.6% in the first half of fiscal 2019 compared to the prior year period, with underlying organic growth of 2.8%.
Net sales for the first half of fiscal 2019 was $9.2 billion, an increase of 5.5% versus the comparable prior year period. The increase in net sales was primarily attributable to sales growth in Vistar, particularly in the theater, retail, and vending channels, case growth in Foodservice, particularly in the independent restaurant channel, and recent acquisitions.
Gross profit for the first half of fiscal 2019 increased 7.7% to $1.2 billion compared to the prior year period. The gross profit increase was led by case growth and an improved sales mix of customer channels and products, specifically in Vistar’s channels and the independent restaurant channel. Gross profit margin as a percentage of net sales was up 30 basis points over the prior year period to 13.2%.
Operating expenses increased 6.1% to $1.1 billion in the first half of fiscal 2019 compared to the prior year period. The increase was primarily due to case volume growth and the resulting impact on variable operational and selling expenses as well as the continuing expense associated with second half of fiscal 2018 investments in sales, warehouse and delivery personnel within the Foodservice segment, and acquisition integration costs within Vistar.
Operating profit for the first half of fiscal 2019 was up 24.1% to $123.6 million driven by strong top-line and gross profit growth and mix of business, specifically within the independent restaurant channel.
Net income declined 29.1% to $71.3 million for the first half of fiscal 2019 compared to the prior year period. The significant decrease in net income was a result of the $50.5 million increase in income tax expense due primarily to the Act.
EBITDA increased 19.5% to $195.7 million in the first half of fiscal 2019 compared to the prior year period. For the first half of fiscal 2019 Adjusted EBITDA increased 8.5% to $212.4 million compared to the prior year period.
Diluted EPS decreased 29.2% to $0.68 per share in the first half of fiscal 2019 compared to the prior year period due primarily to the increase in income tax expense. Adjusted diluted EPS increased 19.4% to $0.80 per share in the first half of fiscal 2019 over the prior year period.
Cash Flow and Capital Spending
In the first six months of fiscal 2019, PFG generated $70.0 million in cash flow from operating activities, an increase of $37.4 million versus the prior year period. The improvement in cash flow from operating activities was largely driven by lower income taxes paid and improvements in working capital. For the first six months of fiscal 2019, PFG invested $60.1 million in capital expenditures, an increase of $21.6 million versus the prior year period. In the first six months of fiscal 2019, PFG delivered free cash flow of $9.9 million1, an increase of approximately $15.8 million versus the prior year period.
Share Repurchase
On November 13, 2018, the Board of Directors of the Company authorized a share repurchase program for up to $250 million of the Company’s outstanding common stock. During the three months ended December 29, 2018, the Company repurchased 157,900 shares of common stock for a total of $5.2 million or average cost of $32.76 per share. As of December 29, 2018, approximately $244.8 million remained available for additional share repurchases.
Board of Directors Chairman Appointment
On February 1, 2019, the Company's Board of Directors announced that its President & Chief Executive Officer, George L. Holm, was appointed Chairman of PFG’s Board of Directors. Mr. Holm will succeed Douglas M. Steenland, who resigned from his position as Chairman of the Board and as a member of the Board on January 30, 2019. Mr. Steenland had been Chairman of the Board since 2010.
In connection with Mr. Steenland’s resignation, the Board also appointed current director Manuel A. Fernandez to serve as Lead Independent Director of the Board.
“George has shown great leadership over the last decade guiding PFG from a privately-held company to a public company and has grown the Company significantly,” said Mr. Fernandez. “On behalf of the Board of Directors, we are pleased to appoint George as Chairman of PFG. We have strong confidence in George’s ability to lead the Company’s strategic vision. I would also like to thank Doug for his leadership of our Board.”
Second-Quarter Fiscal 2019 Segment Results
Foodservice
Second-quarter net sales for Foodservice increased 5.8% to $3.7 billion compared to the prior year period. Net sales growth was driven by an increase in cases sold, including independent case growth of 4.3% 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 second quarter of fiscal 2019, independent sales as a percentage of total segment sales was 32.5%.
Second-quarter EBITDA for Foodservice increased 2.2% to $104.3 million compared to the prior year period. Gross profit increased 5.3% in the second 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, including more Performance Brands products sold to independent customers. The second quarter EBITDA was impacted by higher operating expenses driven largely by the prior year strategic investments in sales, warehouse and delivery associates and higher fuel prices.
Vistar
For the second quarter of fiscal 2019, net sales for Vistar increased 12.3% to $941.9 million compared to the prior year period. This increase was driven by strong case sales growth in the segment’s theater, retail, and vending channels.
Second-quarter EBITDA for Vistar increased 33.5% to $45.4 million versus the prior year period. Gross profit dollar growth of 19.4% for the second 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 13.8% for the second 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 continues to expect that the 7% to 10% Adjusted EBITDA growth for fiscal 2019 will reflect second half Adjusted EBITDA growth to be in the high single- to low double-digit range.
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.
Conference Call
As previously announced, a conference call with the investment community and news media will be webcast on February 6, 2019 at 9:00 a.m. Eastern Time. Access to the webcast is available at www.pfgc.com.
About Performance Food Group Company
Built on the many proud histories of our family of companies, Performance Food Group is a customer-centric foodservice distribution leader headquartered in Richmond, Virginia. Grounded by roots that date back to a grocery peddler in 1885, PFG today has a nationwide network of approximately 75 distribution centers, 15,000-plus talented associates and more than 5,000 valued suppliers across the country. With the goal of helping our customers thrive, we market and deliver quality food and related products to over 150,000 locations including independent and chain restaurants, schools, business and industry locations, healthcare facilities, vending distributors, office coffee service distributors, big box retailers and theaters. Building strong relationships is core to PFG’s success – from connecting associates with great career opportunities to connecting valued suppliers and quality products with PFG’s broad and diverse customer base. To learn more about PFG and our divisions, Performance Foodservice, PFG Customized and Vistar, visit pfgc.com.
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