01—Abstract
Summary
Summary of the 10-K filed February 13, 2020. Cited figures are marked; the original filing is the authoritative source.
US Foods Holding Corp. reported fiscal year 2019 net sales of $25.94 billiona, up from $24.18 billion in fiscal 2018, driven by an increase in total case volume of 4.6% and a net sales rate per case increase of 2.7%.
Gross profit rose to $4.59 billionb (17.7% of net sales, versus 17.8% in 2018), and operating income increased to $699 million from $658 million. Net income declined to $385 million from $407 million, while Adjusted EBITDA rose 8.3% to $1.19 billion. Management attributes the sales growth to organic case volume and inflation in grocery, poultry, beef and produce, and notes that operating expenses rose 6.6% largely due to higher distribution-related wage costs and the Food Group acquisition.
The central event of the year was the $1.8 billionc all-cash acquisition of five foodservice companies (the Food Group) from Services Group of America, completed September 13, 2019, which expands the company's network in the West and Northwest. The Food Group contributed $843 million of net sales and a net loss of $21 million in fiscal 2019. The acquisition was financed with a $1.5 billion incremental term loan and revolver borrowings, pushing total debt to $4.74 billion at year-end from $3.46 billion a year earlier.
Management says it prioritizes deleveraging following the acquisition, and approximately 65% of debt bears floating rates. Cash flow from operations improved to $760 milliond from $609 million, and free cash flow (operating cash flow less capital expenditures) reached $502 million versus $374 million.
The company paid no dividends and has no plans to do so in the foreseeable future. Management expects moderate positive growth in the U.S. foodservice distribution industry in fiscal 2020 and notes that fiscal 2020 will be a 53-week year, with capital additions expected between $325 million and $335 million.
02—Key points
Key Highlights
- Net sales rose to $25.94 billion in fiscal 2019 from $24.18 billion, with total case volume up 4.6% and independent restaurant case volume up 7.1%.
- Net income declined to $385 million from $407 million, while operating income increased 6.2% to $699 million.
- Adjusted EBITDA increased 8.3% to $1.19 billion, with Adjusted EBITDA margin unchanged at 4.6% of net sales.
- The $1.8 billion acquisition of the Food Group (completed September 13, 2019) contributed $843 million of net sales and a $21 million net loss in fiscal 2019.
- Total debt increased to $4.74 billion from $3.46 billion, and approximately 65% of debt was at floating rates as of December 28, 2019.
- Operating cash flow rose to $760 million and free cash flow to $502 million, compared with $609 million and $374 million in fiscal 2018.
- The company has not paid dividends since its NYSE listing in May 2016 and has no plans to pay dividends in the foreseeable future.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, US Foods Holding kept $0.01.
- Revenue$25.94B100.0%
- Cost of revenue−$21.35B82.3%
- Gross profit$4.59B17.7%
- Operating costs−$3.89B15.0%
- Operating income$699.0M2.7%
- Interest, other & tax−$314.0M1.2%
- Net income$385.0M1.5%
Where FY2019 revenue went
$25.94B- Cost of revenue: $21.35B, 82% of revenue
- SG&A: $3.89B, 15% of revenue
- Net income: $385.0M, 1.5% of revenue
- Interest, other & tax: $314.0M, 1.2% of revenue
Kept 1.5% as net incomeNet income $385.0M · 1.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 13, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $25.94B$24.18B | +7.3% |
| Cost of Revenue | $21.35B$19.87B | +7.5% |
| Gross Profit | $4.59B$4.31B | +6.5% |
| SG&A Expenses | $3.89B$3.65B | +6.6% |
| Operating Expenses | $3.89B$3.65B | +6.6% |
| Operating Income | $699.00M$658.00M | +6.2% |
| Interest Expense | $184.00M$175.00M | +5.1% |
| Net Income | $385.00M$407.00M | −5.4% |
| EPS (Basic) | $1.77$1.88 | −5.9% |
| EPS (Diluted) | $1.75$1.87 | −6.4% |
| Shares Outstanding (Basic) | 218.00M216.00M | +0.9% |
| Shares Outstanding (Diluted) | 220.00M218.00M | +0.9% |
05—Questions
Frequently Asked Questions
What drove the growth in net sales in fiscal 2019?
Net sales increased $1,764 million, or 7.3%, to $25,939 million. The company attributed $1,107 million of the increase to a 4.6% rise in case volume and $657 million to a 2.7% increase in the net sales rate per case, which primarily reflected year-over-year inflation in grocery, poultry, beef and produce. The Food Group contributed $843 million of net sales.
How did the Food Group acquisition affect the company's finances?
USF completed the $1.8 billion all-cash acquisition of the Food Group on September 13, 2019, financed with a $1.5 billion incremental term loan and revolver borrowings. Interest expense—net rose $9 million, primarily due to borrowings to finance the acquisition. The Food Group's results were a net loss of $21 million for the period included, and acquisition-related costs were $52 million in fiscal 2019.
Why did net income decline even though operating income increased?
Operating income rose $41 million to $699 million, but net income fell to $385 million from $407 million. The filing points to higher interest expense, which rose to $184 million from $175 million, and an income tax provision of $126 million compared with $89 million in fiscal 2018. The effective tax rate was 25% in fiscal 2019 versus 18% in fiscal 2018, which included a $21 million tax benefit in the prior year.
What is the company's debt position and liquidity outlook?
Total debt was $4,736 million as of December 28, 2019, compared with $3,457 million a year earlier. The ABL Facility had no outstanding borrowings and $1,227 million of available capacity, and the ABS Facility had $552 million of available capacity. Management believes cash from operations and available borrowings will be adequate to meet obligations for the next 12 months and says it prioritizes deleveraging following the Food Group acquisition.
What does the outlook for fiscal 2020 look like?
Management expects moderate positive growth in the U.S. foodservice distribution industry in fiscal 2020, expects competitive pressures to remain high, and anticipates a moderate amount of inflation. It expects sales to independent restaurants, which generally have higher margins, to be an increasing share of the sales mix. Fiscal 2020 will be a 53-week year, and capital additions are expected to be between $325 million and $335 million, including approximately $80 million in fleet financing leases.
06—Continue