01—Abstract
Summary
Summary of the 10-K filed February 14, 2019. Cited figures are marked; the original filing is the authoritative source.
US Foods Holding Corp. reported net sales of $24.18 billiona for fiscal 2018 (52 weeks ended December 29, 2018), essentially flat versus $24.15 billion in 2017.
Total case volume decreased 1.2%, reflecting planned national chain customer exits partially offset by independent restaurant growth (independent restaurant case volume increased 3.8%). The sales rate per case rose 1.3%, mostly from inflation. Gross profit increased $88 millionb, or 2.1%, to $4.31 billion, with gross margin of 17.8% versus 17.5% in 2017.
Operating income rose $70 millionc, or 11.9%, to $658 million, and net income was $407 million, down from $444 million in 2017. Adjusted EBITDA increased 4.3% to $1.10 billion. Cash flow from operations was $609 million, down from $749 million, which the company attributed in part to a $35 million incremental voluntary pension contribution and higher income tax payments.
Free cash flow was $374 milliond. Total debt was $3.46 billion at year-end, with approximately 41% of principal at variable rates after interest rate swaps. The company was in compliance with all debt covenants.
Management expects positive growth in the U.S. foodservice distribution industry in 2019 and a moderate amount of inflation, with capital additions of $335 million to $345 million planned for 2019. The filing also describes the pending $1.8 billion cash acquisition of the Services Group of America Food Group Companies, announced in July 2018 and subject to regulatory approvals, which is supported by a $1.5 billion senior secured term loan commitment. The company reports no pending material legal proceedings that it believes would have a material adverse effect.
02—Key points
Key Highlights
- Net sales of $24,175 million in fiscal 2018, slightly higher than $24,147 million in 2017, as a 1.3% increase in sales rate per case offset a 1.2% decline in case volume.
- Operating income rose 11.9% to $658 million, with operating margin improving to 2.7% from 2.4%.
- Net income declined to $407 million from $444 million, and diluted EPS was $1.87 versus $1.97 in 2017.
- Adjusted EBITDA increased 4.3% to $1,103 million, and free cash flow was $374 million versus $528 million in 2017.
- Pending acquisition of the SGA Food Group Companies for $1.8 billion in cash, funded in part by a $1.5 billion senior secured term loan facility commitment.
- Total indebtedness was $3,457 million at December 29, 2018, with approximately 41% of principal at variable rates; the company was in compliance with all debt covenants.
- Independent restaurant case volume grew 3.8%, while planned exits from certain national chain business weighed on total case volume.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, US Foods Holding kept $0.02.
- Revenue$24.18B100.0%
- Cost of revenue−$19.87B82.2%
- Gross profit$4.31B17.8%
- Operating costs−$3.65B15.1%
- Operating income$658.0M2.7%
- Interest, other & tax−$251.0M1.0%
- Net income$407.0M1.7%
Where FY2018 revenue went
$24.18B- Cost of revenue: $19.87B, 82% of revenue
- SG&A: $3.65B, 15% of revenue
- Net income: $407.0M, 1.7% of revenue
- Interest, other & tax: $251.0M, 1.0% of revenue
Kept 1.7% as net incomeNet income $407.0M · 1.7%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 14, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $24.18B$24.15B | +0.1% |
| Cost of Revenue | $19.87B$19.93B | −0.3% |
| Gross Profit | $4.31B$4.22B | +2.1% |
| SG&A Expenses | $3.65B$3.63B | +0.4% |
| Operating Expenses | $3.65B$3.63B | +0.5% |
| Operating Income | $658.00M$588.00M | +11.9% |
| Interest Expense | $175.00M$170.00M | +2.9% |
| Net Income | $407.00M$444.00M | −8.3% |
| EPS (Basic) | $1.88$2.00 | −6.0% |
| EPS (Diluted) | $1.87$1.97 | −5.1% |
| Shares Outstanding (Basic) | 216.00M223.00M | −3.1% |
| Shares Outstanding (Diluted) | 218.00M226.00M | −3.5% |
05—Questions
Frequently Asked Questions
Why did net income decline in 2018 even though operating income increased?
Operating income rose $70 million to $658 million, but net income fell to $407 million from $444 million. The 2017 results benefited from a $173 million tax benefit tied to the reduction in the federal corporate tax rate, and the 2018 effective tax rate was 18%. Interest expense also rose $5 million, to $175 million.
What is driving sales growth and what is the volume trend?
Net sales were essentially flat, with the overall sales rate per case up 1.3%, mostly from inflation in beef and grocery categories. Case volume fell 1.2%, reflecting planned national chain customer exits partly offset by independent restaurant growth and acquisitions completed in 2017, which added about $137 million to net sales in 2018.
What are the key risks related to the company's debt?
The company had $3,457 million of indebtedness, with about 41% at variable rates, so rising interest rates would increase servicing costs. A 1% change in the applicable rate would change annual interest expense on floating rate debt by about $14 million. The ABL and ABS facilities mature in 2020, the Term Loan Facility in 2023, and the Senior Notes in 2024.
What does the company expect for 2019?
The company expects positive growth in the U.S. foodservice distribution industry in 2019, competitive pressures to remain high, and a moderate amount of inflation. It expects capital additions of $335 million to $345 million, inclusive of about $75 million in fleet capital leases, and plans to fund them with available cash or operating cash flow.
06—Continue