Market Overview

Performance Food Group Company Reports Fourth-Quarter and Full-Year Fiscal 2018 Results

Share:

Full-Year Double-Digit Earnings Growth Driven by Vistar's Strong
Results,
Increased Independent Sales and Improved Gross Margin

Strong Cash Flow Driven by Improved Operating Profit, Working Capital
Management and Lower Taxes

Fourth-Quarter Fiscal 2018 Highlights

  • Total case volume grew 3.3%
  • Net sales increased 3.7% to $4.6 billion
  • Gross profit improved 6.4% to $611.8 million
  • Net income grew 59.4% to $64.4 million
  • Adjusted EBITDA increased 3.0% to $135.4 million1
  • Diluted Earnings Per Share ("EPS") grew 56.4% to $0.61
  • Adjusted diluted EPS increased 10.4% to $0.531

Full-Year Fiscal 2018 Highlights

  • Total case volume grew 3.0%
  • Net sales increased 5.1% to $17.6 billion
  • Gross profit improved 7.9% to $2.3 billion
  • Net income grew 106.3% to $198.7 million
  • Adjusted EBITDA increased 9.2% to $426.7 million1
  • Diluted EPS grew 104.3% to $1.90
  • Adjusted diluted EPS increased 24.2% to $1.541

Performance Food Group Company ("PFG") (NYSE:PFGC) today announced its
fourth-quarter and full-year fiscal 2018 business results. "Our business
generated double-digit earnings growth and strong cash flow resulting in
full-year results in line with our expectations," said George Holm,
PFG's President and Chief Executive Officer. "Vistar had an exceptional
year as the strategic investments we made 18 months ago paid dividends
in the fourth quarter and will fuel growth in the coming years. In
Performance Foodservice, we are making strategic investments in people
and technology to support our growth objectives. Looking ahead, we
believe we are well-positioned across our businesses for another fiscal
year of double-digit adjusted earnings growth."

1

 

This earnings release includes several metrics, including EBITDA,
Adjusted EBITDA, Free Cash Flow and Adjusted Diluted Earnings per
Share 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.

 

Fourth-Quarter Fiscal 2018 Financial Summary

Total case volume increased 3.3% for the fourth quarter of fiscal 2018
compared to the prior year period, with underlying organic growth of
2.9%. Total case volume included a 5.3% increase in independent cases,
growth in Performance Brands cases and broad-based growth across
Vistar's sales channels, partially offset by declines in the casual
dining segment within PFG Customized.

Net sales for the fourth quarter of fiscal 2018 grew 3.7% to
$4.6 billion versus the comparable prior year period. The increase in
net sales was primarily attributable to growth in Vistar, most notably
in the theater and retail channels, case growth in Performance
Foodservice ("PFS"), specifically in the independent restaurant channel,
and recent acquisitions. The increase in net sales was also attributable
to an increase in selling price per case as a result of inflation and
mix. Overall food cost inflation was approximately 1.7% in the fourth
quarter.

Gross profit for the fourth quarter of fiscal 2018 grew 6.4% compared to
the prior year period, to $611.8 million. The strong gross profit
increase was led by case growth and from selling an improved mix of
customer channels and products, specifically to the independent
restaurant channel. Gross margin as a percentage of net sales was up 30
basis points over the prior year period to 13.3%.

Operating expenses rose by 5.0% to $518.0 million in the fourth quarter
of fiscal 2018 compared to the prior year period. The increase in
operating expenses was primarily due to acquired case volume and the
resulting impact on variable operational expenses, higher fuel prices,
acquisition integration costs within Vistar, as well as additional
investments in sales, warehouse and delivery personnel within PFS.

Operating profit was up 15.2% driven by a strong gross profit increase
of 6.4%. Net income for the fourth quarter of fiscal 2018 grew 59.4%
year-over-year to $64.4 million. The growth was primarily a result of an
increase in operating profit and a $12.6 million decrease in income tax
expense, partially offset by interest and other expenses. The decrease
in income tax expense was primarily a result of the impact of the Tax
Cuts and Jobs Act (the "Act"). The effective tax rate in the fourth
quarter of fiscal 2018 was 17.9% compared to 39.9% in the fourth quarter
of fiscal 2017. The decrease in the tax rate was due to a lower
statutory tax rate, the impact of the rate differential for temporary
differences, and the excess tax benefits associated with stock options
exercised in the fourth quarter of fiscal 2018.

EBITDA increased 11.6% in the fourth quarter of fiscal 2018 compared to
the prior year period, to $128.3 million. For the quarter, Adjusted
EBITDA rose 3.0% to $135.4 million compared to the prior year period.

Diluted EPS grew 56.4% to $0.61 in the fourth quarter of fiscal 2018
over the prior year period. Adjusted diluted EPS increased 10.4% to
$0.53 per share in the fourth quarter over the prior year period.

Fiscal 2018 Financial Summary

Total case volume increased 3.0%, with underlying organic growth of
1.7%. Total case volume included a 6.1% increase in independent cases,
growth in Performance Brands cases and broad-based growth in Vistar's
sales channels, partially offset by declines in the casual dining
segment within PFG Customized.

Net sales for fiscal 2018 increased 5.1% to $17.6 billion. The increase
in net sales was primarily attributable to sales growth in Vistar,
particularly in the theater and retail channels, case growth in PFS,
specifically in the independent channel, and recent acquisitions.

Gross profit for fiscal 2018 increased 7.9% compared to the prior year,
to $2.3 billion. The increase in gross profit for fiscal 2018 was the
result of case growth and an improved sales mix of customer channels and
products, specifically to the independent restaurant channel. Gross
margin as a percentage of net sales was up 30 basis points over the
prior year period to 13.0%.

Operating expenses increased 6.6% for fiscal 2018 compared to the prior
year, to $2.0 billion. The increase was primarily due to case volume
growth and the resulting impact on variable operational expenses,
one-time costs primarily related to the exit of PFG's private-equity
shareholders, higher fuel prices, and acquisition integration costs
within Vistar, partially offset by decreases in advisory fees and
professional, legal, and consulting expenses.

Operating profit was up 20.1% to $253.5 million driven by strong
top-line and gross profit growth specifically within the independent
restaurant channel. Net income increased 106.3% to $198.7 million for
fiscal 2018 compared to the prior year period. The significant increase
in net income was a result of strong operating profit performance
combined with the $66.5 million decrease in income tax expense. The
decrease in income tax expense was primarily driven by non-cash gains
and other cash benefits as a result of the Act and the excess tax
benefit of $15.4 million associated with the performance vesting of
certain stock-based compensation awards. The effective tax rate in
fiscal 2018 was -2.6% compared to 39.0% in fiscal 2017.

For fiscal 2018, EBITDA increased 13.4% compared to the prior year, to
$384.1 million. Adjusted EBITDA was $426.7 million, or a 9.2% increase
for fiscal 2018 compared to the prior year.

Diluted EPS grew 104.3% for fiscal 2018 over the prior year, to $1.90.
Adjusted diluted EPS increased 24.2% for fiscal 2018 over the prior
year, to $1.54.

Cash Flow and Capital Spending

For fiscal 2018, PFG generated $367.0 million in cash flow from
operating activities, an increase of $165.3 million versus the prior
year period. The improvement in cash flow from operating activities was
largely driven by higher operating income, lower taxes paid and
improvements in working capital. For fiscal 2018, PFG invested $140.1
million in capital expenditures, in line with capital spending versus
prior year. PFG delivered free cash flow of $226.91 million,
an increase of approximately $165.4 million.

Fourth-Quarter and Fiscal 2018 Segment Results

Performance Foodservice

Fourth-quarter net sales for PFS increased 4.8% to $2.7 billion and for
fiscal 2018 increased 6.2% to $10.4 billion compared to the prior year
periods. Net sales growth was driven by an increase in cases sold,
including independent case growth and solid independent customer demand
for Performance Brands. For fiscal 2018, independent sales as a
percentage of total segment sales was up 100 basis points to 45.2%.

Fourth-quarter EBITDA for PFS decreased 5.8% to $99.1 million compared
to the prior year period and grew 3.3% to $330.6 million for fiscal
2018. Gross profit increased 4.0% in the fourth quarter and 6.0% in
fiscal 2018, compared to the prior year periods, as a result of an
increase in cases sold, as well as an increase in the gross profit per
case. The increase in gross profit per case was driven by a favorable
shift in the mix of cases sold to independent customers and increased
sales of Performance Brands. The fourth quarter EBITDA was impacted by
higher operating expenses driven largely by the strategic investments in
sales, warehouse and delivery personnel.

Vistar

For the fourth quarter of fiscal 2018, net sales for Vistar increased
14.4% to $885.1 million and for fiscal 2018 net sales grew 11.2% to $3.3
billion compared to the prior year periods. This increase was driven by
strong case sales growth in the segment's theater, vending and retail
channels, and as a result of recent acquisitions.

Fourth quarter EBITDA for Vistar increased 18.6%, to $40.8 million,
versus the prior year period, and 13.1% to $133.1 million in fiscal 2018
versus the prior year. Gross profit dollar growth of 18.4% for fiscal
2018 compared to the prior year period, was fueled by an increase in the
number of cases sold and by acquisitions. Operating expense dollar
growth of 20.1% for fiscal 2018 was primarily the result of higher
variable operating costs associated with higher case volume and
integration costs related to recent acquisitions.

PFG Customized

Net sales for PFG Customized decreased 7.1% in the fourth quarter of
fiscal 2018 to $913.9 million and decreased 4.2% to $3.7 billion for
fiscal 2018 compared to the prior year periods. These decreases were
primarily a result of the closing of a facility in Georgia in the fourth
quarter of fiscal 2017.

PFG Customized EBITDA increased 86.4% to $8.2 million in the fourth
quarter of fiscal 2018 and increased 16.6% to $29.5 million for fiscal
2018. These increases are a result of strong operating expense control
and the favorable impact of closing the Georgia facility.

Fiscal 2019 Outlook

For fiscal 2019, PFG expects Adjusted EBITDA growth to be in a range of
7% to 10% over its fiscal 2018 Adjusted EBITDA of $426.7 million. The
company expects that the 7% to 10% Adjusted EBITDA growth for fiscal
2019 will reflect first half growth in the low-to-mid single-digit
range. Second half Adjusted EBITDA growth is expected to be in the high
single- and low double-digit range. Fiscal 2019 first-half growth is
expected to reflect strategic investments in sales, warehouse and
delivery associates.

PFG expects fiscal 2019 Adjusted Diluted EPS to grow in a range of 10%
to 16% to $1.72 to $1.82 over its fiscal 2018 Adjusted Diluted EPS of
$1.54.

This outlook is based on the following annual assumptions:

  • Organic case growth in a range of 3% to 5%;
  • Interest expense in the range of approximately $60 million to
    $70 million;
  • An effective tax rate on operations of approximately 27%; and
  • Capital expenditures between $170 million and $190 million, with
    depreciation and amortization between $145 million to $155 million.
    The fiscal 2019 capital expenditures estimate is higher than fiscal
    2018 because of our ongoing investment to drive growth and the timing
    of certain projects.

PFG's Adjusted EBITDA and Adjusted Diluted EPS outlook and full-year
forecast for its effective tax rate on operations 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, its reported Diluted EPS, and
its reported effective tax rate because these items, 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 or its effective tax rate on operations
forecast. 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 August 15, 2018 at 9:00 a.m. Eastern
Daylight Time. Access to the webcast is available at www.pfgc.com.

About Performance Food Group Company

Through its family of leading foodservice distributors – Performance
Foodservice, Vistar, and PFG Customized – Performance Food Group Company
(PFG) markets and distributes approximately 150,000 food and
food-related products from 73 distribution centers to over 150,000
customer locations across the United States. PFG's 15,000+ associates
serve a diverse mix of customers, from independent and chain restaurants
to schools, business and industry locations, hospitals, vending
distributors, office coffee service distributors, big box retailers, and
theaters. The company sources its products from more than 5,000
suppliers and serves as an important partner to its suppliers by
providing them access to the company's broad customer base. For more
information, visit www.pfgc.com.

Forward-Looking Statements

This press release contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended and
Section 21E of the Securities Exchange Act of 1934. These statements
include, but are not limited to, statements related to our expectations
regarding the performance of our business, our financial results, our
liquidity and capital resources and other non-historical statements,
including the statements in the "Fiscal 2019 Outlook" section of this
press release. You can identify these forward-looking statements by the
use of words such as "outlook," "believes," "expects," "potential,"
"continues," "may," "will," "should," "could," "seeks," "projects,"
"predicts," "intends," "plans," "estimates," "anticipates" or the
negative version of these words or other comparable words.

Such forward-looking statements are subject to various risks and
uncertainties.
The following factors, in addition to those
discussed under the section entitled Item 1A Risk Factors in the PFG's
Annual Report on Form 10-K for the fiscal year ended July 1, 2017 filed
with the Securities and Exchange Commission (the "SEC") on August 25,
2017 and Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 2017 filed with the SEC on November 8, 2017, as such
factors may be updated from time to time in our periodic filings with
the SEC, which are accessible on the SEC's website at
www.sec.gov,
could cause actual future results to differ materially from those
expressed in any forward-looking statements:

  • competition in our industry is intense, and we may not be able to
    compete successfully;
  • we operate in a low margin industry, which could increase the
    volatility of our results of operations;
  • we may not realize anticipated benefits from our operating cost
    reduction and productivity improvement efforts;
  • our profitability is directly affected by cost inflation or
    deflation and other factors;
  • we do not have long-term contracts with certain of our customers;
  • group purchasing organizations may become more active in our
    industry and increase their efforts to add our customers as members of
    these organizations;
  • changes in eating habits of consumers;
  • extreme weather conditions;
  • our reliance on third-party suppliers;
  • labor relations and costs risks and availability of qualified labor;
  • volatility of fuel and other transportation costs;
  • inability to adjust cost structure where one or more of our
    competitors successfully implement lower costs;
  • we may be unable to increase our sales in the highest margin
    portions of our business;
  • changes in pricing practices of our suppliers;
  • our growth strategy may not achieve the anticipated results;
  • risks relating to any future acquisitions;
  • environmental, health, and safety costs;
  • the risk that we fail to comply with requirements imposed by
    applicable law or government regulations;
  • our reliance on technology and risks associated with disruption or
    delay in implementation of new technology;
  • costs and risks associated with a potential cybersecurity incident
    or other technology disruption;
  • product liability claims relating to the products we distribute and
    other litigation;
  • adverse judgments or settlements;
  • negative media exposure and other events that damage our reputation;
  • anticipated multiemployer pension related liabilities and
    contributions to our multiemployer pension plan;
  • decrease in earnings from amortization charges associated with
    future acquisitions;
  • impact of uncollectibility of accounts receivable;
  • difficult economic conditions affecting consumer confidence;
  • departure of key members of senior management
  • risks relating to federal, state, and local tax rules, including
    the impact of the Tax Cuts and Jobs Act and related interpretations
    and determinations by tax authorities;
  • the cost and adequacy of insurance coverage;
  • risks relating to our outstanding indebtedness; and
  • our ability to maintain an effective system of disclosure controls
    and internal control over financial reporting.

Accordingly, there are or will be important factors that could cause
actual outcomes or results to differ materially from those indicated in
these statements. These factors should not be construed as exhaustive
and should be read in conjunction with the other cautionary statements
that are included in this release and in our filings with the SEC. Any
forward-looking statement, including any contained herein, speaks only
as of the time of this release and we do not undertake to update or
revise them as more information becomes available or to disclose any
facts, events, or circumstances after the date of this release that may
affect the accuracy of any forward-looking statement, except as required
by law.

PERFORMANCE FOOD GROUP COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

 
 

Three months

 

Three months

 

Fiscal year

 

Fiscal year

ended June 30,

ended July 1,

ended June 30,

ended July 1,

(In millions, except per share data)

2018

2017

2018

2017

Net sales $ 4,594.7 $ 4,428.9 $ 17,619.9 $ 16,761.8
Cost of goods sold   3,982.9   3,854.0   15,327.1   14,637.0
Gross profit 611.8 574.9 2,292.8 2,124.8
Operating expenses   518.0   493.5   2,039.3   1,913.8
Operating profit   93.8   81.4   253.5   211.0
Other expense, net:
Interest expense, net 15.5 14.4 60.4 54.9
Other, net   (0.2 )   (0.1 )   (0.5 )   (1.6 )
Other expense, net   15.3   14.3   59.9   53.3
Income before taxes 78.5 67.1 193.6 157.7
Income tax expense (benefit)   14.1   26.7   (5.1 )   61.4
Net income $ 64.4 $ 40.4 $ 198.7 $ 96.3
Weighted-average common shares outstanding:
Basic 103.1 100.6 102.0 100.2
Diluted 104.9 103.7 104.6 103.0
Earnings per common share:
Basic $ 0.62 $ 0.40 $ 1.95 $ 0.96
Diluted $ 0.61 $ 0.39 $ 1.90 $ 0.93
 

PERFORMANCE FOOD GROUP COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

 
 

As of

   

As of

($ in millions)

June 30, 2018

July 1, 2017

ASSETS    
Current assets:
Cash $ 7.5 $ 8.1
Accounts receivable 1,065.6 1,028.5
Inventories, net 1,051.9 1,013.3
Prepaid expenses and other current assets     78.5     35.0
Total current assets 2,203.5 2,084.9
Goodwill 740.5 718.6
Other intangible assets, net 193.8 201.1
Property, plant and equipment, net 795.5 740.7
Restricted cash and other assets     67.6     58.8
Total assets $   4,000.9 $   3,804.1
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable and outstanding checks in excess of deposits $ 1,233.8 $ 1,125.3
Accrued expenses and other current liabilities 227.8 246.3
Long-term debt-current installments - 5.8
Capital lease obligations-current installments     8.4     5.9
Total current liabilities 1,470.0 1,383.3
Long-term debt 1,123.0 1,241.9
Deferred income tax liability, net 106.3 103.0
Capital lease obligations, excluding current installments 52.8 44.0
Other long-term liabilities     113.5     106.4
Total liabilities     2,865.6     2,878.6
Total shareholders' equity     1,135.3     925.5
Total liabilities and shareholders' equity $   4,000.9 $   3,804.1
 

PERFORMANCE FOOD GROUP COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 
 

Fiscal year

 

Fiscal year

ended

ended

($ in millions)

June 30, 2018

July 1, 2017 (1)

Cash flows from operating activities:
Net income $ 198.7 $ 96.3
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and intangible asset amortization 130.1 126.1
Non-cash activities 48.0 31.3
Changes in operating assets and liabilities, net:
Accounts receivable (33.9 ) (35.7 )
Inventories (21.8 ) (63.8 )
Prepaid expenses and other assets (44.3 ) 10.3
Trade accounts payable and outstanding checks in excess of deposits 99.7 34.6
Accrued expenses and other liabilities   (9.5 )   2.6
Net cash provided by operating activities   367.0   201.7
Cash flows from investing activities:
Purchases of property, plant and equipment (140.1 ) (140.2 )
Net cash paid for acquisition (71.1 ) (192.9 )
Other   1.8   1.1
Net cash used in investing activities   (209.4 )   (332.0 )
Cash flows from financing activities:
Net (payments) borrowings under ABL Facility (119.8 ) 134.9
Payment of Promissory Note (6.0 )
Cash paid for shares withheld to cover taxes (28.2 ) (3.5 )
Proceeds from exercise of stock options 12.3 4.0
Cash paid for acquisitions (9.0 ) (1.3 )
Other   (10.1 )   (6.6 )
Net cash (used in) provided by financing activities   (160.8 )   127.5
Net decrease in cash and restricted cash (3.2 ) (2.8 )
Cash and restricted cash, beginning of period   21.0   23.8
Cash and restricted cash, end of period $ 17.8 $ 21.0

(1)

 

The consolidated statement of cash flows for fiscal year ended
July 1, 2017 has been adjusted to reflect the adoption of ASU
2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The
consolidated statements of cash flows explain the change during
the periods in the total of cash and restricted cash. Therefore,
restricted cash activity is included with cash when reconciling
the beginning-of-period and end-of-period total amounts shown on
the statement of cash flows.

 

The following table provides a reconciliation of cash and restricted
cash reported within the condensed consolidated balance sheets that sum
to the total of the same such amounts shown in the condensed
consolidated statements of cash flows:

 

Fiscal year

   

Fiscal year

ended

ended

(In millions)

June 30, 2018

July 1, 2017

Cash $ 7.5 $ 8.1
Restricted cash(2)   10.3   12.9
Total cash and restricted cash $ 17.8 $ 21.0
(2)   Restricted cash is included in Restricted cash and other assets on
the Condensed Consolidated Balance Sheets herein and represents the
amounts required by insurers to collateralize a part of the
deductibles for the PFG's workers' compensation and liability claims.
 

Supplemental disclosures of cash flow information:

 

Fiscal year

   

Fiscal year

ended

ended

($ in millions)

June 30, 2018

July 1, 2017

Cash paid during the year for:
Interest $ 57.5 $ 51.1
Income taxes, net of refunds 33.3 45.7
 

Statement Regarding Non-GAAP Financial Measures

This earnings release and the accompanying financial statement tables
include several financial measures that are not calculated in accordance
with GAAP, including EBITDA, Adjusted EBITDA, Free Cash Flow and
Adjusted Diluted Earnings per Share. Such measures are not recognized
terms under GAAP, should not be considered in isolation or as a
substitute for measures prepared in accordance with GAAP, and are not
indicative of net income as determined under GAAP. EBITDA, Adjusted
EBITDA, Free Cash Flow, Adjusted Diluted Earnings per Share, and other
non-GAAP financial measures have limitations that should be considered
before using these measures to evaluate the PFG's liquidity or financial
performance. EBITDA, Adjusted EBITDA, Free Cash Flow and Adjusted
Diluted Earnings per Share, as presented, may not be comparable to
similarly titled measures of other companies because of varying methods
of calculation.

Management measures operating performance based on PFG's EBITDA, defined
as net income before interest expense, interest income, income taxes,
and depreciation and amortization.

PFG believes that the presentation of EBITDA enhances an investor's
understanding of PFG's performance. PFG believes this measure is a
useful metric to assess PFG's operating performance from period to
period by excluding certain items that PFG believes are not
representative of PFG's core business. PFG also uses this measure to
evaluate the performance of its segments and for business planning
purposes.

In addition, management uses Adjusted EBITDA, defined as net income
before interest expense, interest income, income and franchise taxes,
and depreciation and amortization, further adjusted to exclude certain
items we do not consider part of our core operating results. Such
adjustments include certain unusual, non-cash, non-recurring, cost
reduction, and other adjustment items permitted in calculating covenant
compliance under the PFG's credit agreement and indenture (other than
certain pro forma adjustments permitted under our credit agreement and
indenture relating to the Adjusted EBITDA contribution of acquired
entities or businesses prior to the acquisition date). Under PFG's
credit agreement and indenture, the PFG's ability to engage in certain
activities such as incurring certain additional indebtedness, making
certain investments, and making restricted payments is tied to ratios
based on Adjusted EBITDA (as defined in the credit agreement and
indenture).

Management also uses Free Cash Flow, which is defined as net cash
provided by operating activities less capital expenditures (purchases of
property, plant and equipment). PFG also believes that the presentation
of Free Cash Flow enhances an investor's understanding of PFG's ability
to make strategic investments and manage debt levels.

Management also uses Adjusted Diluted Earnings per Share, which is
calculated by adjusting the most directly comparable GAAP financial
measure by excluding the same items excluded in PFG's calculation of
Adjusted EBITDA, as well as certain one-time income tax items, to the
extent that each such item was included in the applicable GAAP financial
measure.

PFG believes that the presentation of Adjusted EBITDA, Free Cash Flow
and Adjusted Diluted Earnings per Share is useful to investors because
these metrics provide insight into underlying business trends and
year-over-year results and are frequently used by securities analysts,
investors, and other interested parties in their evaluation of the
operating performance of companies in PFG's industry.

The following tables include a reconciliation of non-GAAP financial
measures to the applicable most comparable U.S. GAAP financial measures.

PERFORMANCE FOOD GROUP COMPANY

Non-GAAP Reconciliation (Unaudited)

 
  Three months ended

($ in millions, except share and per
share data)

June 30, 2018   July 1, 2017   Change   %
Net income (GAAP) $ 64.4 $ 40.4 $     24.0       59.4
Interest expense, net 15.5 14.4 1.1 7.6
Income tax expense 14.1 26.7 (12.6 ) (47.2 )
Depreciation 26.6 24.9 1.7 6.8
Amortization of intangible assets   7.7   8.6       (0.9 )       (10.5 )
EBITDA 128.3 115.0 13.3 11.6
Impact of non-cash items (A) 5.0 6.2 (1.2 ) (19.4 )
Impact of acquisition, integration & reorganization charges (B) 0.3 7.8 (7.5 ) (96.2 )
Impact of productivity initiatives (C) 0.3 1.6 (1.3 ) (81.3 )
Impact of other adjustment items (D)   1.5   0.9       0.6       66.7
Adjusted EBITDA (Non-GAAP) $ 135.4 $ 131.5 $     3.9       3.0
 
Diluted earnings per share (GAAP) $ 0.61 $ 0.39 $ 0.22 56.4
Impact of non-cash items 0.05 0.06 (0.01 ) (16.7 )
Impact of acquisition, integration & reorganization charges 0.08 (0.08 ) (100.0 )
Impact of productivity initiatives 0.01 (0.01 ) (100.0 )
Impact of other adjustment items 0.02 0.01 0.01 100.0
Tax impact of above adjustments (0.04 ) (0.07 ) 0.03 (42.9 )
Tax impact of other tax law change items (E)   (0.11 )         (0.11 ) NM
Adjusted Diluted Earnings per Share (Non-GAAP) $ 0.53 $ 0.48 $     0.05       10.4
   

A.

 

Includes adjustments for non-cash charges arising from stock-based
compensation, interest rate swap hedge ineffectiveness, and
gain/loss on disposal of assets. Stock-based compensation cost was
$3.6 million and $5.2 million for the fourth quarter of fiscal
2018 and fiscal 2017, respectively. In addition, this includes an
increase in the LIFO reserve of $0.7 million and $1.1 million for
the fourth quarter of fiscal 2018 and fiscal 2017, respectively.

B.

Includes professional fees and other costs related to completed
and abandoned acquisitions, costs of integrating certain of our
facilities, facility closing costs, certain equity transactions,
and advisory fees.

C.

Consists primarily of professional fees and related expenses
associated with productivity initiatives.

D.

Consists primarily of amounts related to fuel collar derivatives,
certain financing transactions, lease amendments, and franchise
tax expense and other adjustments permitted under our credit
agreement.

E.

Represents the per share impact of the $11.9 million net benefit
to income tax expense as a result of the blended statutory rate
for fiscal 2018 and the resulting rate differential related to
temporary differences.

 

PERFORMANCE FOOD GROUP COMPANY

Non-GAAP Reconciliation (Unaudited)

 
  Fiscal year ended

($ in millions, except share and per
share data)

June 30, 2018   July 1, 2017   Change   %
Net income (GAAP) $ 198.7 $ 96.3 $     102.4       106.3
Interest expense, net 60.4 54.9 5.5 10.0
Income tax (benefit) expense (5.1 ) 61.4 (66.5 ) (108.3 )
Depreciation 100.3 91.5 8.8 9.6
Amortization of intangible assets   29.8   34.6       (4.8 )       (13.9 )
EBITDA 384.1 338.7 45.4 13.4
Impact of non-cash items (A) 23.2 18.8 4.4 23.4
Impact of acquisition, integration & reorganization charges (B) 5.0 17.3 (12.3 ) (71.1 )
Impact of productivity initiatives (C) 10.6 10.6 -
Impact of other adjustment items (D)   3.8   5.3       (1.5 )       (28.3 )
Adjusted EBITDA (Non-GAAP) $ 426.7 $ 390.7 $     36.0       9.2
 
Diluted earnings per share (GAAP) $ 1.90 $ 0.93 $ 0.97 104.3
Impact of non-cash items 0.22 0.18 0.04 22.2
Impact of acquisition, integration & reorganization charges 0.04 0.17 (0.13 ) (76.5 )
Impact of productivity initiatives 0.10 0.10 -
Impact of other adjustment items 0.04 0.06 (0.02 ) (33.3 )
Tax impact of above adjustments (0.14 ) (0.20 ) 0.06 (30.0 )
Tax impact of revaluation of net deferred tax liability (E) (0.37 ) (0.37 ) NM
Tax impact of other tax law change items (F) (0.11 ) (0.11 ) NM
Tax impact of stock-based compensation - performance vesting (G)   (0.14 )         (0.14 ) NM
Adjusted Diluted Earnings per Share (Non-GAAP) $ 1.54 $ 1.24 $     0.30       24.2
   

A.

 

Includes adjustments for non-cash charges arising from stock-based
compensation, interest rate swap hedge ineffectiveness, and
gain/loss on disposal of assets. Stock-based compensation cost was
$21.6 million and $17.3 million for fiscal 2018 and fiscal 2017,
respectively. In addition, this includes an increase in the LIFO
reserve of $0.3 million and $2.6 million for fiscal 2018 and
fiscal 2017, respectively.

B.

Includes professional fees and other costs related to completed
and abandoned acquisitions, costs of integrating certain of our
facilities, facility closing costs, certain equity transactions,
and advisory fees.

C.

Consists primarily of professional fees and related expenses
associated with productivity initiatives.

D.

Consists primarily of amounts related to fuel collar derivatives,
certain financing transactions, lease amendments, and franchise
tax expense and other adjustments permitted under our credit
agreement.

E.

Represents the per share impact of the $38.5 million net benefit
to deferred income tax expense as a result of the Act and the
revaluation of the Company's net deferred tax liability.

F.

Represents the per share impact of the $11.9 million net benefit
to income tax expense as a result of the blended statutory rate
for fiscal 2018 and the resulting rate differential related to
temporary differences.

G.

Represents the per share impact of the $15.4 million excess tax
benefit recognized as a result of the performance metrics being
met for certain stock-based compensation awards upon the exit of
the Company's private-equity shareholders.

 
 

Fiscal year

 

Fiscal year

ended

ended

(In millions)

June 30, 2018

July 1, 2017

Net cash provided by operating activities (GAAP) $ 367.0 $ 201.7
Purchases of property, plant and equipment   (140.1 )   (140.2 )
Free cash flow (Non-GAAP) $ 226.9 $ 61.5
 

PERFORMANCE FOOD GROUP COMPANY

Non-GAAP Reconciliation (Unaudited)

 
 

Fiscal year ended

June 30, 2018

($ in millions)

Q1   Q2   Q3   Q4
Net income (GAAP) $     22.6 $     78.0 $     33.7 $     64.4
Interest expense, net 14.6 15.1 15.2 15.5
Income tax expense (benefit) 13.6 (43.9 ) 11.1 14.1
Depreciation 24.8 24.3 24.6 26.6
Amortization of intangible assets       6.6       8.0       7.5       7.7
EBITDA 82.2 81.5 92.1 128.3
Impact of non-cash items (A) 4.3 11.8 2.1 5.0
Impact of acquisition, integration & reorganization charges (B) 2.4 1.7 0.6 0.3
Impact of productivity initiatives (C) 1.3 8.5 0.5 0.3
Impact of other adjustment items (D)       0.5       1.5       0.3       1.5
Adjusted EBITDA (Non-GAAP) $     90.7 $     105.0 $     95.6 $     135.4
 
Diluted earnings per share (GAAP) $ 0.22 $ 0.75 $ 0.32 $ 0.61
Impact of non-cash items 0.04 0.11 0.02 0.05
Impact of acquisition, integration & reorganization charges 0.02 0.02 0.01
Impact of productivity initiatives 0.01 0.08
Impact of other adjustment items 0.01 0.01 0.02
Tax impact of above adjustments (0.03 ) (0.07 ) (0.04 )
Tax impact of revaluation of net deferred tax liability (E) (0.36 ) (0.01 )
Tax impact of other tax law change items (F) (0.11 )
Tax impact of stock-based compensation - performance vesting (G)               (0.14 )                
Adjusted Diluted Earnings per Share (Non-GAAP) $     0.27 $     0.40 $     0.34 $     0.53
   

A.

 

Includes adjustments for non-cash charges arising from stock-based
compensation, interest rate swap hedge ineffectiveness, and
gain/loss on disposal of assets. Stock-based compensation cost was
$3.4 million, $11.1 million, $3.5 million, and $3.6 million for
Q1, Q2, Q3, and Q4, respectively. In addition, this includes an
increase (decrease) in the LIFO reserve of $0.8 million, $0.4
million, $(1.6) million, and $0.7 million for Q1, Q2, Q3, and Q4,
respectively.

B.

Includes professional fees and other costs related to completed
and abandoned acquisitions, costs of integrating certain of our
facilities, facility closing costs, certain equity transactions,
and advisory fees.

C.

Consists primarily of professional fees and related expenses
associated with productivity initiatives.

D.

Consists primarily of amounts related to fuel collar derivatives,
certain financing transactions, lease amendments, and franchise
tax expense and other adjustments permitted under our credit
agreement.

E.

Represents the per share impact of the $37.4 million and $1.1
million net benefit to deferred income tax expense for Q2 and Q3,
respectively, as a result of the Act and the revaluation of the
PFG's net deferred tax liability.

F.

Represents the per share impact of the $11.9 million net benefit
to income tax expense for Q4 as a result of the blended statutory
rate for fiscal 2018 and the resulting rate differential related
to temporary differences.

G.

Represents the per share impact of the $15.4 million excess tax
benefit recognized in Q2 as a result of the performance metrics
being met for certain stock-based compensation awards upon the
exit of the PFG's private-equity shareholders.

 

PERFORMANCE FOOD GROUP COMPANY

Non-GAAP Reconciliation (Unaudited)

 
 

Fiscal year ended

July 1, 2017

($ in millions)

Q1   Q2   Q3   Q4
Net income (GAAP) $     12.2 $     22.9 $     20.8 $     40.4
Interest expense, net 12.9 13.6 14.0 14.4
Income tax expense 7.3 15.3 12.1 26.7
Depreciation 20.8 22.5 23.3 24.9
Amortization of intangible assets       8.7       7.9       9.4       8.6
EBITDA 61.9 82.2 79.6 115.0
Impact of non-cash items (A) 4.7 3.8 4.1 6.2
Impact of acquisition, integration & reorganization charges (B) 2.4 3.8 3.3 7.8
Impact of productivity initiatives (C) 4.1 2.7 2.2 1.6
Impact of other adjustment items (D)       2.9       1.1       0.4       0.9
Adjusted EBITDA (Non-GAAP) $     76.0 $     93.6 $     89.6 $     131.5
 
Diluted earnings per share (GAAP) $ 0.12 $ 0.22 $ 0.20 $ 0.39
Impact of non-cash items 0.04 0.04 0.04 0.06
Impact of acquisition, integration & reorganization charges 0.02 0.04 0.03 0.08
Impact of productivity initiatives 0.04 0.03 0.02 0.01
Impact of other adjustment items 0.03 0.01 0.01 0.01
Tax impact of adjustments       (0.05 )       (0.05 )       (0.03 )       (0.07 )
Adjusted Diluted Earnings per Share (Non-GAAP) $     0.20 $     0.29 $     0.27 $     0.48
   

A.

 

Includes adjustments for non-cash charges arising from stock-based
compensation, interest rate swap hedge ineffectiveness, and
gain/loss on disposal of assets. Stock-based compensation cost was
$4.2 million, $3.9 million, $4.0 million, and $5.2 million for Q1,
Q2, Q3, and Q4, respectively. In addition, this includes increases
in the LIFO reserve of $0.6 million, $0.6 million, $0.3 million,
and $1.1 million for Q1, Q2, Q3, and Q4, respectively.

B.

Includes professional fees and other costs related to completed
and abandoned acquisitions, costs of integrating certain of our
facilities, facility closing costs, certain equity transactions,
and advisory fees.

C.

Consists primarily of professional fees and related expenses
associated with productivity initiatives.

D.

Consists primarily of amounts related to fuel collar derivatives,
certain financing transactions, lease amendments, and franchise
tax expense and other adjustments permitted under our credit
agreement.

 

Segment Results

We have three reportable segments as described above—Performance
Foodservice, PFG Customized, and Vistar. Management evaluates the
performance of these segments based on their respective sales growth and
EBITDA. For PFG Customized, EBITDA includes certain allocated corporate
expenses that are included in operating expenses. The allocated
corporate expenses are determined based on a percentage of total sales.
This percentage is reviewed on a periodic basis to ensure that the
allocation reflects a reasonable rate of corporate expenses based on
their use of corporate services.

Corporate & All Other is comprised of corporate overhead and certain
operations that are not considered separate reportable segments based on
their size. This includes the operations of our internal logistics unit
responsible for managing and allocating inbound logistics revenue and
expense, as well as the operations of certain recent acquisitions.

In the first quarter of fiscal 2018, PFG reorganized its information
technology department, and expenses associated with business application
teams are now included in the segment results. The EBITDA for
Performance Foodservice, Vistar and Corporate & All Other for the three
months and fiscal year ended July 1, 2017 has been adjusted to reflect
this change.

The following tables set forth net sales and EBITDA by segment for the
periods indicated (dollars in millions):

Net Sales

 
Three Months Ended
June 30, 2018   July 1, 2017   Change   %
Performance Foodservice $ 2,746.6 $ 2,619.6 $     127.0       4.8
PFG Customized 913.9 983.7 (69.8 ) (7.1 )
Vistar 885.1 773.7 111.4 14.4
Corporate & All Other 118.7 111.6 7.1 6.4
Intersegment Eliminations   (69.6 )   (59.7 )       (9.9 )       (16.6 )
Total net sales $ 4,594.7 $ 4,428.9 $     165.8       3.7
 
 

EBITDA

Three Months Ended
June 30, 2018 July 1, 2017 Change %
Performance Foodservice $ 99.1 $ 105.2 $ (6.1 ) (5.8 )
PFG Customized 8.2 4.4 3.8 86.4
Vistar 40.8 34.4 6.4 18.6
Corporate & All Other   (19.8 )   (29.0 )       9.2       31.7
Total EBITDA $ 128.3 $ 115.0 $     13.3       11.6
 
 

Net Sales

Fiscal Year Ended
June 30, 2018 July 1, 2017 Change %
Performance Foodservice $ 10,431.2 $ 9,822.4 $ 608.8 6.2
PFG Customized 3,658.5 3,820.8 (162.3 ) (4.2 )
Vistar 3,341.0 3,003.6 337.4 11.2
Corporate & All Other 449.4 347.8 101.6 29.2
Intersegment Eliminations   (260.2 )   (232.8 )       (27.4 )       (11.8 )
Total net sales $ 17,619.9 $ 16,761.8 $     858.1       5.1
 
 

EBITDA

Fiscal Year Ended
June 30, 2018 July 1, 2017 Change %
Performance Foodservice $ 330.6 $ 320.0 $ 10.6 3.3
PFG Customized 29.5 25.3 4.2 16.6
Vistar 133.1 117.7 15.4 13.1
Corporate & All Other   (109.1 )   (124.3 )       15.2       12.2
Total EBITDA $ 384.1 $ 338.7 $     45.4       13.4

View Comments and Join the Discussion!