RICHMOND, Va.–(BUSINESS WIRE)–Performance Food Group Company (NYSE: PFGC) today announced its third-quarter and first-nine months fiscal 2023 business results.
“PFG’s three reportable segments continued to deliver solid results in the fiscal third quarter with accelerated organic case volume and favorable cost control producing strong profit growth,” said George Holm, PFG’s Chairman & Chief Executive Officer. “Organic independent restaurant case growth in our Foodservice segment increased by 8.3% in the quarter, reflecting market share gains. Vistar experienced excellent top and bottom-line results across its channels while our Convenience segment continues to grow in the profitable food and foodservice area. Due to our organization’s solid execution, PFG produced robust cash flow, allowing for a reinvestment behind growth opportunities and leverage reduction. We believe that our unique market position is a competitive advantage producing solid top-line momentum, margin expansion, and a healthy balance sheet.”
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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. |
Third-Quarter Fiscal 2023 Financial Summary
Total organic case volume increased 3.1% for the third quarter of fiscal 2023 compared to the prior year period. Case volume was not impacted by acquisitions in the third quarter of fiscal 2023 or the prior year period. Total organic case volume benefited from an 8.3% increase in organic independent cases, growth in Performance Brands cases, and broad-based growth across Vistar’s channels, partially offset by declines in our Foodservice Chain business.
Net sales for the third quarter of fiscal 2023 grew 5.3% to $13.8 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 and growth in cases sold. The overall rate of product cost inflation continued to decline through the third quarter of fiscal 2023 and was approximately 7.2%.
Gross profit for the third quarter of fiscal 2023 grew 12.4% to $1.5 billion compared to the prior year period. The gross profit increase was primarily driven by a favorable shift in the mix of cases sold and growth in the independent channel.
Operating expenses rose 5.2% to $1.3 billion in the third quarter of fiscal 2023 compared to the prior year period. The increase in operating expenses was primarily driven by the increase in case volume and the resulting impact on variable operational expenses, personnel expenses, primarily related to salaries and wages, commissions, and benefits, and repairs and maintenance expense. Included in the third-quarter fiscal 2023 operating expenses is a $10.8 million gain on the sale of a Vistar warehouse facility.
Net income for the third quarter of fiscal 2023 increased $56.9 million year-over-year to $80.3 million. The increase was primarily a result of the $100.2 million increase in operating profit, partially offset by increases in income tax expense, interest expense, and other, net. The effective tax rate in the third quarter of fiscal 2023 was approximately 28.1% compared to 31.3% in the third quarter of fiscal 2022. The effective tax rate for the third quarter of fiscal 2023 differed from the prior year period due to a decrease in non-deductible expenses and state income tax expense as a percentage of book income, partially offset by a decrease in deductible discrete items related to stock-based compensation.
For the quarter, Adjusted EBITDA rose 32.3% to $314.7 million compared to the prior year period.
Diluted EPS increased $0.36 to $0.51 per share in the third quarter of fiscal 2023 compared to the prior year period. Adjusted Diluted EPS increased 62.7% to $0.83 per share in the third quarter of fiscal 2023 compared to the prior year period.
First-Nine Months Fiscal 2023 Financial Summary
Total case volume increased 7.3% for the first nine months of fiscal 2023 compared to the prior year period, including 7.2% independent case growth. Total organic case volume increased 1.5% for the first nine months of fiscal 2023 compared to the prior year period. Total organic case volume benefited from a 5.7% increase in organic independent cases, growth in Performance Brands cases, and broad-based growth across Vistar’s channels, partially offset by declines in our Foodservice Chain business.
Net sales for the first nine months of fiscal 2023 grew 16.8% to $42.4 billion compared to the prior year period. The increase in net sales was primarily attributable to the acquisition of Core-Mark Holding Company, Inc. (“Core-Mark”) in the first quarter of fiscal 2022 and an increase in selling price per case due to inflation and channel mix. Overall product cost inflation for the Company was approximately 10.0%.
Gross profit for the first nine months of fiscal 2023 grew 21.8% to $4.6 billion compared to the prior year period. The gross profit increase was primarily driven by the acquisition of Core-Mark, a favorable shift in the mix of cases sold, 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 13.7% to $4.1 billion in the first nine months 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 $215.1 million of operating expenses in the first nine months of fiscal 2023 compared to the seven months of operating expenses in fiscal 2022. Operating expenses also increased as a result of increases in personnel expenses, fuel expense due to higher fuel prices, and repairs and maintenance expense, partially offset by a decrease in professional fees and a $10.8 million gain on the sale of a Vistar warehouse facility. Depreciation and amortization increased $29.9 million primarily as a result of prior year acquisitions.
Net income for the first nine months of fiscal 2023 increased $210.6 million year-over-year to $247.1 million. The increase was primarily a result of the $329.4 million increase in operating profit, partially offset by a $76.4 million increase in income tax expense and a $26.9 million increase in interest expense. The effective tax rate in the first nine months of fiscal 2023 was approximately 26.9% compared to 28.4% in the first nine months of fiscal 2022. The effective tax rate for the first nine months of fiscal 2023 differed from the prior year period primarily due to a decrease in non-deductible expenses and state income tax expense as a percentage of book income, partially offset by a decrease in deductible discrete items related to stock-based compensation.
For the first nine months of fiscal 2023, Adjusted EBITDA rose 47.6% to $978.2 million compared to the prior year period.
Diluted EPS increased $1.34 to $1.58 per share in the first nine months of fiscal 2023 compared to the prior year period. Adjusted Diluted EPS increased 79.6% to $2.73 per share in the first nine months of fiscal 2023 compared to the prior year period.
Cash Flow and Capital Spending
In the first nine months of 2023, PFG provided $657.2 million in cash flow from operating activities compared to $390.6 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 nine 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 nine months of fiscal 2023, PFG invested $177.2 million in capital expenditures, an increase of $36.4 million versus the prior year period. In the first nine months of fiscal 2023, PFG delivered free cash flow of $480.0 million compared to free cash flow of $249.8 million in the prior year.1
Third-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
Third-quarter fiscal 2023 net sales for Foodservice increased 5.2% 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 favorable shift in mix. Overall product cost inflation for Foodservice was approximately 3.5% for the third quarter of fiscal 2023. Securing new and expanding business with independent customers resulted in independent case growth of approximately 8.3% for the third quarter of fiscal 2023 compared to the prior year period. For the third quarter of fiscal 2023, independent sales as a percentage of total segment sales were 38.3%.
Third-quarter fiscal 2023 Adjusted EBITDA for Foodservice increased 22.2% to $220.0 million compared to the prior year period. Gross profit contributing to Adjusted EBITDA increased 9.3% in the third 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 5.9% for the third quarter of fiscal 2023 compared to the prior year period as a result of an increase in personnel expenses and as a result of increased case volume and the resulting impact on variable operational expenses.
Vistar
For the third quarter of fiscal 2023, net sales for Vistar increased 24.9% 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.
Third-quarter fiscal 2023 Adjusted EBITDA for Vistar increased 52.3% to $73.1 million versus the prior year period. The increase was the result of a 22.6% increase in gross profit for the third quarter of fiscal 2023 compared to the prior year period, partially offset by an 9.4% increase in operating expenses. The increase in gross profit was driven by a favorable shift in the mix of cases sold and growth in cases sold. Operating expenses impacting Vistar’s Adjusted EBITDA increased primarily as a result of the increased case volume and the resulting impact on variable operational and selling expenses. Operating expenses also increased as a result of an increase in personnel expenses.
Convenience
Third-quarter fiscal 2023 net sales for Convenience increased 1.9% to $5.7 billion compared to the prior year period. Net sales related to cigarettes for the third quarter of fiscal 2023 was $3.3 billion, including $894.8 million related to excise taxes, compared to net sales of cigarettes of $3.5 billion, including $981.6 million 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.
Third-quarter fiscal 2023 Adjusted EBITDA for Convenience increased 18.3% to $73.2 million compared to the prior year period. Gross profit contributing to Convenience’s Adjusted EBITDA increased 9.8% in the third quarter of fiscal 2023 compared to the prior year period driven by a favorable shift in mix of products sold. Operating expenses impacting Convenience’s Adjusted EBITDA increased 8.6% in the third quarter of fiscal 2023 compared to the prior year, primarily as a result of an increase in personnel expenses.
Fiscal 2023 & Long-Term Outlook
For the full fiscal year 2023, PFG now expects net sales to be in a range of $57 billion to $57.5 billion compared to the prior expectation of $57 billion to $59 billion. For the full fiscal year 2023, PFG now expects Adjusted EBITDA to be in a range of $1.34 billion to $1.36 billion compared to the prior expectation of $1.27 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.
