US Foods reports record second-quarter fiscal year 2023 earnings

US Foods Holding Corp., one of the largest foodservice distributors in the United States, announced results for the second-quarter fiscal year 2023.

Second-quarter fiscal 2023 highlights

Net income available to common shareholders improved to $182 million
Adjusted EBITDA increased 17.4% to $432 million
Diluted EPS was $0.73; Adjusted diluted EPS was $0.79
Net sales increased 2.1% to $9.0 billion
Total case volume increased 2.7%; independent restaurant case volume increased 4.8%

Six-month fiscal 2023 highlights

Net income available to common shareholders was $257 million
Adjusted EBITDA increased 26.3% to $769 million
Diluted EPS was $1.05; Adjusted diluted EPS was $1.29
Net sales increased 5.6% to $17.6 billion
Total case volume increased 4.0%; independent restaurant case volume increased 6.2%

Dave Flitman, CEO, stated in the announcement: “I am proud that our team continued to build on our momentum by delivering another very strong quarter. The resiliency of our business model and laser focus on execution is driving sustained improvement and creating shareholder value. We continue to drive healthy case volume growth overall and especially in our target customer types, with broadline independent restaurant customer case volume increasing 5.5%. This represents the ninth consecutive quarter we have taken share with independents. We also grew case volume 7% in both healthcare and hospitality. Adjusted EBITDA increased 17% versus prior year to $432 million, a record quarterly Adjusted EBITDA for US Foods. I am very pleased with our progress to date, and I am even more excited about the significant opportunity ahead as we continue to execute our strategy.”

Dirk Locascio, CFO, added in the announcement: “Our financial performance for the second quarter builds on our momentum. We drove meaningful improvement in operating leverage again this quarter, resulting in 60 basis points of Adjusted EBITDA margin expansion. Additionally, we remain steadfast with our stated priorities for capital. We deployed our strong free cash flow through a balanced approach of reinvesting in the business, executing $166 million of opportunistic share repurchases, prepaying $60 million of debt and acquiring Renzi Foodservice, which closed in the third quarter. Due to our strong financial results and continued effective execution of our strategy, we are raising our Adjusted EBITDA guidance for fiscal 2023 to a range of $1.51 billion to $1.54 billion.”

Second-quarter fiscal 2023 results

Net income available to common shareholders was $182 million, an improvement of $121 million compared to the prior year. Adjusted EBITDA was $432 million, an increase of $64 million or 17.4%, compared to the prior year. Adjusted EBITDA margin was 4.8%, an increase of 60 basis points compared to the prior year. Diluted EPS was $0.73; adjusted diluted EPS was $0.79.

Net sales were $9.0 billion for the quarter, an increase of 2.1% from the prior year, driven by case volume growth partially offset by food cost deflation of 0.3%. Total case volume increased 2.7% from the prior year driven by a 4.8% increase in independent restaurant case volume, a 6.9% increase in hospitality volume and a 6.6% increase in healthcare volume, offset by a 4.5% decrease in chain volume. Independent restaurant case growth was negatively impacted by approximately 0.7% from slower growth in CHEF’STORE primarily due to system conversion challenges, which are largely resolved. Broadline independent restaurant customer case growth was 5.5%.

Gross profit was $1.6 billion, an increase of 15.0% from the prior year, primarily as a result of an increase in total case volume, cost of goods sold optimization, increased freight income from improved inbound logistics, optimized pricing and a favorable year-over-year LIFO adjustment. The Company’s LIFO method of inventory costing resulted in a benefit of $15 million in 2023, compared to expense of $65 million in 2022, related to a reduction in inventory values in multiple product categories. Gross profit as a percentage of net sales was 17.7%. Adjusted gross profit was $1.6 billion, an 8.8% increase from the prior year. Adjusted gross profit as a percentage of net sales was 17.5% and adjusted gross profit per case continued at strong levels due to the aforementioned factors.

Operating expenses of $1.3 billion increased by $36 million, or 2.9% from the prior year. Operating expenses increased primarily due to increased total case volume, higher seller compensation costs and higher incentive compensation costs, partially offset by lower distribution cost per case from lower fuel costs and cost savings initiatives including routing improvements and focused efforts positively impacting labor turnover and productivity. Operating expenses as a percentage of Net sales were 14.1%. Adjusted operating expenses for the quarter were $1.1 billion, an increase of $61 million or 5.6% from the prior year due to the aforementioned factors. Adjusted operating expenses as a percent of net sales were 12.7%.

Six-month fiscal 2023 results

Net income available to common shareholders was $257 million, an improvement of $212 million compared to the prior year. Adjusted EBITDA was $769 million, an increase of $160 million or 26.3%, compared to the prior year. Adjusted EBITDA margin was 4.4%, an increase of 70 basis points compared to the prior year. Diluted EPS was $1.05; Adjusted diluted EPS was $1.29.

Net sales were $17.6 billion for the first six months of 2023, an increase of 5.6% from the prior year, driven by case volume growth and food cost inflation of 1.6%. Total case volume increased 4.0% from the prior year driven by a 6.2% increase in independent restaurant volume, a 12.1% increase in hospitality volume and a 6.3% increase in healthcare volume, partially offset by a 2.9% decrease in chain volume. Independent restaurant case growth was negatively impacted by approximately 0.9% from slower growth in CHEF’STORE primarily due to system conversion challenges, which are largely resolved. Broadline independent restaurant customer case growth was 7.1%.

Gross profit was $3.0 billion, an increase of 17.0% from the prior year primarily as a result of an increase in total case volume, cost of goods sold optimization, increased freight income from improved inbound logistics, optimized pricing and a favorable year-over-year LIFO adjustment. The Company’s LIFO method of inventory costing resulted in an expense of $5 million in 2023, compared to expense of $137 million in 2022, related to a reduction in inventory values in multiple product categories. Gross profit as a percentage of net sales was 17.2%. Adjusted gross profit was $3.0 billion, an 11.3% increase from the prior year. Adjusted gross profit as a percentage of net sales was 17.2%.

Operating expenses of $2.5 billion increased $113 million, or 4.7% from the prior year. Operating expenses increased primarily due to increased total case volume, higher seller compensation costs and higher incentive compensation costs, partially offset by lower fuel costs and cost savings initiatives including routing improvements and focused efforts positively impacting labor turnover and productivity. Operating expenses as a percentage of net sales were 14.3%. Adjusted operating expenses for the first six months of 2023 were $2.3 billion, an increase of $138 million or 6.5% from the prior year due to the aforementioned factors. Adjusted operating expenses as a percent of net sales were 12.8%.

Outlook for fiscal year 2023

The company is updating its previously announced fiscal year 2023 guidance to:

Adjusted EBITDA of $1.51-$1.54 billion, compared to previous guidance of $1.45-$1.51 billion.
Adjusted diluted EPS of $2.55-$2.65, compared to previous guidance of $2.45-$2.65.
Interest expense of $320-$325 million, compared to previous guidance of $310-$325 million.
Total capital expenditures of $410-$430 million, consisting of $290-$310 million of cash capital expenditures and ~$120 million of fleet capital leases.
Net debt to adjusted EBITDA leverage below 3.0x by end of fiscal year 2023.