01—Abstract
Summary
Summary of the 10-K filed February 27, 2018. Cited figures are marked; the original filing is the authoritative source.
US Foods Holding Corp. (Nasdaq-listed under NYSE symbol USFD) reported fiscal 2017 net sales of $24.15 billiona, up $1.23 billion, or 5.4%, from $22.92 billion in 2016.
Case volume rose 2.9%, with independent restaurant case volume up 5.2%. Acquisitions added approximately $387 millionb to net sales, and the company completed five acquisitions in 2017. Operating income rose $160 million, or 38.6%, to $574 million, and net income increased to $444 million from $210 million.
Operating income as a percentage of net sales rose to 2.4% from 1.8%, and Adjusted EBITDA increased $86 millionc, or 8.8%, to $1.058 billion, or 4.4% of net sales. Net income in 2017 was helped by a discrete $173 million tax benefit from the Tax Cuts and Jobs Act, which lowered deferred tax liabilities. Gross margin slipped to 17.5% from 17.7%, reflecting higher inbound freight costs and LIFO adjustments, partly offset by acquisition margins.
Cash flow from operations rose to $748 milliond, and free cash flow was used to fund a $280 million repurchase of 10 million shares from an underwriter during a secondary offering by the Sponsors (CD&R and KKR), which fully liquidated their stake. Total debt was $3.76 billion at year-end, with approximately 46% at variable rates.
Management expects positive industry growth in 2018, moderating inflation, and capital expenditures of $330 million to $340 million. The company notes high competitive intensity, a low-margin business model, and reliance on about 25% of net sales through GPO-negotiated terms, which are key risk factors for investors.
02—Key points
Key Highlights
- Net sales of $24.15 billion in 2017, up 5.4%, with case volume up 2.9% and independent restaurant case volume up 5.2%.
- Operating income rose 38.6% to $574 million; net income more than doubled to $444 million from $210 million, aided by a $173 million discrete tax benefit from the Tax Act.
- Adjusted EBITDA increased 8.8% to $1.058 billion, or 4.4% of net sales, versus 4.2% in 2016.
- Gross profit margin declined to 17.5% from 17.7%, as higher inbound freight costs and LIFO adjustments offset acquisition contributions.
- Operating cash flow was $748 million in 2017; free cash flow is defined by the company as operating cash flow less capital expenditures.
- Total debt of $3.76 billion at December 30, 2017, with about 46% at variable rates; a 1% change in LIBOR and ABR would change interest expense by about $17 million per year.
- Repurchased 10 million shares for $280 million in December 2017 in connection with a secondary offering by the Sponsors; the company received no offering proceeds.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, US Foods Holding kept $0.02.
- Revenue$24.15B100.0%
- Cost of revenue−$19.93B82.5%
- Gross profit$4.22B17.5%
- Operating costs−$3.63B15.0%
- Operating income$588.0M2.4%
- Interest, other & tax−$144.0M0.6%
- Net income$444.0M1.8%
Where FY2017 revenue went
$24.15B- Cost of revenue: $19.93B, 83% of revenue
- SG&A: $3.63B, 15% of revenue
- Net income: $444.0M, 1.8% of revenue
- Interest, other & tax: $144.0M, 0.6% of revenue
Kept 1.8% as net incomeNet income $444.0M · 1.8%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 27, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $24.15B$23.13B | +4.4% |
| Cost of Revenue | $19.93B$19.11B | +4.3% |
| Gross Profit | $4.22B$4.05B | +4.1% |
| SG&A Expenses | $3.63B$3.58B | +1.4% |
| Operating Expenses | $3.63B$3.63B | −0.1% |
| Operating Income | $588.00M$419.00M | +40.3% |
| Interest Expense | $170.00M$229.00M | −25.8% |
| Net Income | $444.00M$210.00M | +111.4% |
| EPS (Basic) | $2.00$1.05 | +90.5% |
| EPS (Diluted) | $1.97$1.03 | +91.3% |
| Shares Outstanding (Basic) | 223.00M200.13M | +11.4% |
| Shares Outstanding (Diluted) | 226.00M204.02M | +10.8% |
05—Questions
Frequently Asked Questions
How did US Foods perform in fiscal 2017?
Net sales rose 5.4% to $24.15 billion, operating income increased 38.6% to $574 million, and net income reached $444 million, compared with $210 million in 2016. Growth came from case volume increases, inflation in the product mix, and acquisitions that added about $387 million in sales.
What drove the increase in net income?
The filing attributes the improvement primarily to higher operating income and a $173 million discrete tax benefit recognized from the Tax Cuts and Jobs Act, which reduced deferred tax liabilities. The effective tax rate for 2017 was (10)%.
What are the main risks to margins and profitability?
The company describes a low-margin business in which profit is sensitive to product cost inflation or deflation, intense competition, and a concentration of about 25% of net sales through GPO-negotiated pricing. Fuel costs, labor relations, and union contract renewals were also flagged as risks.
What is the company's debt and interest rate exposure?
As of December 30, 2017, indebtedness was $3.757 billion net of $16 million of deferred financing costs. About 46% of the principal bears variable rates after considering $1.1 billion of interest rate swaps, and the company identifies rising interest rates as a risk to profitability.
What outlook did management provide for 2018?
Management expects positive industry growth in 2018, a moderation of year-over-year inflation, and continued competitive pressure. It also plans capital expenditures of $330 million to $340 million, including about $80 million in fleet capital leases, and expects the lower federal tax rate to reduce its effective tax rate for 2018 by an estimated 13%.
06—Continue