Performance Food Group Company reports third-quarter and first-nine months fiscal 2023 results

Performance Food Group Company (PFG) announced its third-quarter and first nine months fiscal 2023 business results.

Third-quarter fiscal 2023 highlights

• Total case volume grew 3%
• Net sales increased 5% to $13.8 billion
• Gross profit improved 12% to $1.5 billion
• Net income increased to $80.3 million
• Adjusted EBITDA increased 32% to $314.7 million
• Diluted Earnings Per Share (EPS) increased to $0.51
• Adjusted Diluted EPS increased 63% to $0.83

First-nine months fiscal 2023 highlights

• Total case volume grew 7%
• Net sales increased 17% to $42.4 billion
• Gross profit improved 22% to $4.6 billion
• Net income increased to $247.1 million
• Adjusted EBITDA increased 48% to $978.2 million
• Diluted EPS increased to $1.58
• Adjusted Diluted EPS increased 80% to $2.73

“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,” George Holm, PFG’s chairman and chief executive officer, said in the announcement. “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.”

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 its 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 its 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. 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.

Third-quarter fiscal 2023 segment results

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 and 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.