RICHMOND, Va.–(BUSINESS WIRE)–Performance Food Group Company (NYSE: PFGC) today announced its second quarter and first half fiscal 2023 business results.
“Our momentum continued into the fiscal second quarter, with another period of strong sales and profit results for our company,” said George Holm, PFG’s Chairman & Chief Executive Officer. “Our Foodservice segment produced organic independent restaurant case growth, leading to another quarter of market share gains. Our execution across all business segments, along with positive mix shift, led to margin expansion and strong cash flow generation. We are increasing the bottom end of our full year Adjusted EBITDA target as we look to complete the year with encouraging profit results. I am proud of how our organization has risen to the challenges in the external operating environment and believe we are well positioned to see continued success in the years ahead.”
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This earnings release includes several metrics, including 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 2023 Financial Summary
Total case volume increased 3.0% for the second quarter of fiscal 2023 compared to the prior year period, including 6.6% independent case growth. Total organic case volume was flat in the second quarter of fiscal 2023 compared to the prior year period. Total organic case volume benefited from a 4.3% increase in organic independent cases, growth in Performance Brands cases, and broad-based growth across Vistar’s channels, offset by declines in our Foodservice Chain business.
Net sales for the second quarter of fiscal 2023 grew 8.3% to $13.9 billion compared to the prior year period. The increase in net sales was primarily attributable to an increase in selling price per case as a result of inflation and channel mix. Overall product cost inflation continued to decline through the second quarter of fiscal 2023 and was approximately 10.3%.
Gross profit for the second quarter of fiscal 2023 grew 17.3% to $1.5 billion compared to the prior year period. The gross profit increase was primarily attributable to an increase in gross profit per case driven by a favorable shift in the mix of cases sold and growth in the independent channel.
Operating expenses rose 11.0% to $1.4 billion in the second quarter of fiscal 2023 compared to the prior year period. The increase in operating expenses were primarily due to increases in personnel expenses, primarily related to salaries and wages, commissions, annual bonus, and benefits, and fuel expense due to higher fuel prices.
Net income for the second quarter of fiscal 2023 increased $62.7 million year-over-year to $71.1 million. The increase was primarily a result of the $86.2 million increase in operating profit, partially offset by a $22.1 million increase in income tax expense. The effective tax rate in the second quarter of fiscal 2023 was approximately 26.1% compared to 26.5% in the second quarter of fiscal 2022. The effective tax rate for the second quarter of fiscal 2023 differed from the prior year period due to the relative size of stock-based compensation and other discrete permanent items as a percentage of book income.
For the quarter, Adjusted EBITDA rose 28.1% to $308.8 million compared to the prior year period.
Diluted EPS increased $0.41 to $0.46 per share in the second quarter of fiscal 2023 compared to the prior year period. Adjusted Diluted EPS increased 45.6% to $0.83 per share in the second quarter of fiscal 2023 compared to the prior year period.
First-Half Fiscal 2023 Financial Summary
Total case volume increased 9.4% for the first half of fiscal 2023 compared to the prior year period, including 6.7% independent case growth. Total organic case volume was flat in the first half of fiscal 2023 compared to the prior year period. Total organic case volume benefited from a 4.4% increase in organic independent cases, growth in Performance Brands cases, and broad-based growth across Vistar’s channels, offset by declines in our Foodservice Chain business.
Net sales for the first half of fiscal 2023 grew 23.2% to $28.6 billion compared to the prior year period. The increase in net sales was primarily attributable to the acquisition of Core-Mark in the first quarter of fiscal 2022 and an increase in selling price per case as a result of inflation. Overall product cost inflation for the Company was approximately 11.3%.
Gross profit for the first half of fiscal 2023 grew 27.0% to $3.1 billion compared to the prior year period. The gross profit increase was primarily attributable to an increase in gross profit per case driven by the acquisition of Core-Mark, procurement related gains, and growth in the independent channel, partially offset by an increase in the last-in-first-out (“LIFO”) reserve.
Operating expenses rose 18.3% to $2.7 billion in the first half of fiscal 2023 compared to the prior year period. The increase in operating expenses was primarily due to the acquisition of Core-Mark, which contributed an incremental $192.8 million of operating expenses in the first six months of fiscal 2023 compared to the four months of operating expenses in fiscal 2022. Operating expenses also increased as a result of increases in personnel expenses and fuel expense due to higher fuel prices, partially offset by a decrease in professional fees. Depreciation and amortization increased $29.2 million primarily as a result of prior year acquisitions.
Net income for the first half of fiscal 2023 increased $153.7 million year-over-year to $166.8 million. The increase was primarily a result of the $229.2 million increase in operating profit, partially offset by a $55.5 million increase in income tax expense and a $16.9 million increase in interest expense. The effective tax rate in the first half of fiscal 2023 was approximately 26.2% compared to 22.6% in the first half of fiscal 2022. The effective tax rate for the first half of fiscal 2023 differed from the prior year period due to the relative size of stock-based compensation and other discrete permanent items as a percentage of book income.
For the first half of fiscal 2023, Adjusted EBITDA rose 56.2% to $663.5 million compared to the prior year period.
Diluted EPS increased $0.98 to $1.07 per share in the first half of fiscal 2023 compared to the prior year period. Adjusted Diluted EPS increased 89.1% to $1.91 per share in the first half of fiscal 2023 compared to the prior year period.
Cash Flow and Capital Spending
In the first six months of 2023, PFG provided $424.5 million in cash flow from operating activities compared to $153.8 million of cash flow provided by operating activities in the prior year period. The increase in cash flow provided by operating activities in the first six months of fiscal 2023 was largely driven by higher operating income and improvements in working capital compared to the prior year period.
In the first six months of fiscal 2023, PFG invested $98.1 million in capital expenditures, an increase of $29.6 million versus the prior year period. In the first six months of fiscal 2023, PFG delivered free cash flow of $326.4 million compared to free cash flow of $85.3 million in the prior year.1
Second-Quarter Fiscal 2023 Segment Results
In the first quarter of fiscal 2023, the Company changed its measure of segment profit to Adjusted EBITDA as this is the metric reported to the Company’s management for purposes of reviewing operating results and making decisions about allocating resources. Adjusted EBITDA is defined as net income before interest expense, interest income, income taxes, and depreciation and amortization, and excludes certain items that the Company does not consider part of its segments’ core operating results, including stock-based compensation expense, changes in the LIFO reserve, acquisition, integration and reorganization expenses, and gains and losses related to fuel derivatives.
Foodservice
Second-quarter fiscal 2023 net sales for Foodservice increased 11.0% to $6.9 billion compared to the prior year period. This increase in net sales was driven by an increase in selling price per case as a result of inflation and a prior year acquisition. Overall product cost inflation for Foodservice was approximately 9.6% for the second quarter of fiscal 2023. Securing new and expanding business with independent customers resulted in organic independent case growth of approximately 4.3% for the second quarter of fiscal 2023 compared to the prior year period. For the second quarter of fiscal 2023, independent sales as a percentage of total segment sales were 38.3%.
Second-quarter fiscal 2023 Adjusted EBITDA for Foodservice increased 27.9% to $214.2 million compared to the prior year period. Gross profit contributing to Adjusted EBITDA increased 15.5% in the second quarter of fiscal 2023 compared to the prior year period driven by a favorable shift in the mix of cases sold to independent customers, including more Performance Brands products sold to our independent customers. The increase in gross profit was partially offset by expected decreases in procurement gains as the rate of inflation declines. Operating expenses impacting Foodservice’s Adjusted EBITDA increased 12.2% for the second quarter of fiscal 2023 compared to the prior year period as a result of a prior year acquisition, as well as an increase in personnel expenses and fuel expense as compared to the prior year period.
Vistar
For the second quarter of fiscal 2023, net sales for Vistar increased 23.3% to $1.1 billion compared to the prior year period. This increase was driven primarily by an increase in selling price per case as a result of inflation and channel mix, as well as case volume growth.
Second-quarter fiscal 2023 Adjusted EBITDA for Vistar increased 85.5% to $92.2 million versus the prior year period. The increase was the result of a 34.8% increase in gross profit for the second quarter of fiscal 2023 compared to the prior year period, partially offset by an 10.5% increase in operating expenses. The increase in gross profit was driven by a favorable shift in the mix of cases sold, procurement related gains, and growth in cases sold. Operating expenses impacting Vistar’s Adjusted EBITDA increased primarily as a result of the increased case volume described above, and the resulting impact on variable operational and selling expenses. Operating expenses also increased as a result of increases in personnel expenses and fuel expense.
Convenience
Second-quarter fiscal 2023 net sales for Convenience increased 2.7% to $5.9 billion compared to the prior year period. Net sales related to cigarettes for the second quarter of fiscal 2023 was $3.6 billion, including $1.0 billion related to excise taxes, compared to net sales of cigarettes of $3.8 billion, including $1.1 billion of excise taxes, for the prior year period. The increase in net sales was primarily attributable to case growth in food and foodservice related products and an increase in selling price per case as a result of inflation.
Second-quarter fiscal 2023 Adjusted EBITDA for Convenience decreased 9.4% to $69.3 million compared to the prior year period. Gross profit contributing to Convenience’s Adjusted EBITDA increased 5.5% in the second quarter of fiscal 2023 compared to the prior year period driven by a favorable shift in mix of products sold, partially offset by a decrease in procurement gains as a result of the timing of price increases and a decline in the rate of inflation. Operating expenses impacting Convenience’s Adjusted EBITDA increased $27.3 million in the second quarter of fiscal 2023 compared to the prior year, primarily as a result of increased personnel expenses primarily related to related to salaries and commissions, and fuel expense.
Fiscal 2023 & Long-Term Outlook
For the third quarter of fiscal 2023, PFG expects net sales to be in a range of $13.7 billion to $14.0 billion. For the third quarter of fiscal 2023, PFG expects Adjusted EBITDA to be in a range of $270 million to $290 million.
For the full fiscal year 2023, PFG continues to expect net sales to be in a range of $57 billion to $59 billion. For the full fiscal year of 2023, PFG now expects Adjusted EBITDA to be in a range of $1.27 billion to $1.35 billion compared to the prior expectation of $1.25 billion to $1.35 billion.
PFG reiterates its previously announced 3-year net sales and Adjusted EBITDA targets. The Company continues to expect to achieve annual net sales of $62 to $64 billion and Adjusted EBITDA between $1.5 and $1.7 billion in fiscal 2025.
PFG’s Adjusted EBITDA outlook excludes 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, 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 outlook. Please see the “Forward-Looking Statements” section of this release for a discussion of certain risks to PFG’s outlook.
About Performance Food Group Company
Performance Food Group is an industry leader and one of the largest food and foodservice distribution companies in North America with more than 150 locations. Founded and headquartered in Richmond, Virginia, PFG and our family of companies market and deliver quality food and related products to over 300,000 locations including independent and chain restaurants; businesses, schools and healthcare facilities; vending and office coffee service distributors; and big box retailers, theaters and convenience stores. PFG’s success as a Fortune 200 company is achieved through our more than 35,000 dedicated associates committed to building strong relationships with the valued customers, suppliers and communities we serve. To learn more about PFG, visit pfgc.com.
