Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Performance Food Group Co (PFGC, Financial) reported strong fiscal 2024 results with adjusted EBITDA growing 18.4% year over year.
- The company announced the acquisition of Cheney Brothers, expected to be accretive to adjusted diluted EPS by the end of the first fiscal year after closing.
- PFGC also acquired José Santiago, expanding its presence into the Caribbean market.
- The company achieved record results in the Food Away from Home channel, with top-line growth of 2.2% in the fiscal fourth quarter.
- PFGC generated significant cash flow, with operating cash flow of approximately $1.2 billion and free cash flow of over $767 million for fiscal 2024.
Negative Points
- The macroeconomic environment remains challenging, impacting consumer purchasing behavior, particularly in candy and snacks.
- Same-store sales in the convenience segment are experiencing declines, with nicotine sales being a significant drag.
- The company faces increased competition in the food service industry, particularly in acquiring new accounts.
- Inflation remains a concern, with total company cost inflation at 4.7% in the fiscal fourth quarter.
- The company's leverage is expected to move to or slightly above the top end of its 2.5x to 3.5x range following the Cheney acquisition.
Q & A Highlights
Q: The gross margin was quite strong this quarter. Can you unpack the drivers of that in more detail within each segment?
A: Patrick Hatcher, CFO & EVP: Inventory gains are normalizing significantly, and we expect this to continue in 2025. In Q4, we had some gains mainly in food service related to cheese and poultry. The drivers of gross profit were growth in independent cases, performance brands, and food service and convenience. George Holm, CEO: It's about growing better in higher-margin areas, like convenience, which is challenged but offset by better margins in food service.
Q: Can you help us understand the factors that support a higher valuation for Cheney Brothers?
A: George Holm, CEO: We paid a full price because Cheney is growing faster and is in a market that's growing faster. Their EBITDA margin is just under 5%, which is higher than our total corporation but in line with our broadline facilities. We expect margin gains from an increased brand portfolio. Historically, our acquisitions like Reinhart and Core-Mark have shown significant EBITDA growth post-acquisition.
Q: Can you talk about the growth profile and EBITDA growth history of Cheney Brothers?
A: George Holm, CEO: Cheney's distribution centers are in great locations for us, and they have a different customer base than ours. Patrick Hatcher, CFO & EVP: Cheney focuses on restaurants, independent hotels, country clubs, and export, showing nice growth rates. We will continue to operate them separately and let them keep growing.
Q: Can you give more color on the Santiago deal, including sales, EBITDA, and synergies?
A: Patrick Hatcher, CFO & EVP: We are excited about the acquisition of José Santiago, which expands our geography into the Caribbean. It is a high-growth business with excellent leadership and a strong cultural fit. We are not disclosing financial metrics but confirm that our guidance range of $1.6 billion to $1.7 billion remains the same with or without Santiago.
Q: Can you discuss the cadence of sales and case volume trends for fiscal '25?
A: George Holm, CEO: We aim for 6% to 10% case growth in the independent food service business. We need a better macro environment to achieve this. We have additional business with no sales history, which should help fill some gaps. We haven't backed off from our goal of 6% to 10% independent case growth.
Q: What is your philosophy on expanding the sales force in the current macro environment?
A: George Holm, CEO: We are continuing to follow the same playbook. We have seen a slight increase in turnover and have made another push to get our number of people up. The training is intense, and we are doing more territory splits. Experienced people are making calls on new customers, which is more effective.
Q: Can you provide more details on the competitive environment and customer acquisition in the food service business?
A: George Holm, CEO: The industry is extremely competitive, especially when growth is negative. We are seeing more competition for new accounts, but our share gains remain consistent. Patrick Hatcher, CFO & EVP: Outside of independents, we are pleased with the sales funnel in chain business, Vistar, and convenience, showing a lot of opportunities for new, higher-margin business.
Q: Can you discuss the inflation outlook for fiscal '25, particularly in food service and convenience?
A: Patrick Hatcher, CFO & EVP: We expect food service inflation to be around 2% to 3% for 2025. Vistar will be in a similar range, and convenience will be in the middle single digits, driven by tobacco price increases. Total company inflation is expected to be around 2% to 3%.
Q: How does the acquisition of Cheney Brothers impact your thinking on pursuing food service expansion in the Western US?
A: George Holm, CEO: We would be very opportunistic if we could get something going in the West. It's a desire, and we would find a way to get it done if the opportunity presented itself. Patrick Hatcher, CFO & EVP: Even after closing the Cheney deal, we will be just at the high end of our leverage range and will continue to look at opportunities.
Q: Can you discuss the impact of lower personnel expenses in the convenience business?
A: Patrick Hatcher, CFO & EVP: We have taken out all the overtime and temp labor, running very efficiently. The focus is on managing labor profiles effectively.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
