US Foods, one of the largest foodservice distributors in the United States, announced results for the fourth quarter and full fiscal year 2019. Organic financial results exclude contributions during the respective period from the Food Group of Companies (the "Food Group"), which was acquired on September 13, 2019.
Fourth Quarter Fiscal 2019 Highlights
Total case volume increased 12.3%; independent restaurant case volume increased 11.9%
Total organic case volume increased 0.4%; independent restaurant organic case volume increased 2.9%
Net sales increased 14.8% to $6.9 billion; organic Net sales increased 3.0% to $6.2 billion
Gross profit increased 13.3% to $1.2 billion
Income from continuing operations before income taxes decreased $10 million to $122 million
Net income decreased $8 million to $92 million
Adjusted EBITDA increased 12.8% to $335 million; organic Adjusted EBITDA increased 6.7% to $317 million
Diluted EPS of $0.42; Adjusted Diluted EPS increased 10.0% to $0.66
Fiscal Year 2019 Highlights
Total case volume increased 4.6%; independent restaurant case volume increased 7.1%
Total organic case volume increased 1.1%; independent restaurant organic case volume increased 4.4%
Net sales increased 7.3% to $25.9 billion; organic Net sales increased 3.8% to $25.1 billion
Gross profit increased 6.5% to $4.6 billion
Income from continuing operations before income taxes increased $15 million to $511 million
Net income decreased $22 million to $385 million
Adjusted EBITDA increased 8.3% to $1,194 million; organic Adjusted EBITDA increased 6.2% to $1,171 million
Diluted EPS of $1.75; Adjusted Diluted EPS increased 9.7% to $2.38
CEO Perspective
“In fiscal 2019 we continued to profitably grow our business while expanding our operating leverage for the fourth consecutive year. Full year organic Adjusted EBITDA growth of 6.2% was in line with our guidance for the year and we grew Adjusted Diluted EPS by almost 10%,” said Chairman and CEO Pietro Satriano. “Our Great Food. Made Easy. strategy continues to resonate with customers, with 56 new Scoop products launched during the year and continued enhancements to our value-added services platform. The integration of the Food Group is progressing as planned with a new leadership organization in place and the successful launch of our best-selling Scoop products in our Northwest markets now complete. We are confident in the future growth prospects for our business and our ability to achieve the 2020 guidance targets we have set for the year."
Fourth Quarter Fiscal 2019 Results
Total case volume increased 12.3% from the prior year, of which 0.4% was organic growth. Independent restaurant case volume increased 11.9% from the prior year, of which 2.9% was organic growth. Net sales of $6.9 billion for the quarter increased 14.8% from the prior year, primarily due to the addition of the Food Group and year-over-year inflation in multiple product categories, including cheese, poultry and beef. The Food Group contributed $711 million to Net sales in the fourth quarter.
Gross profit of $1.2 billion increased $145 million, or 13.3%, from the prior year, primarily driven by the addition of the Food Group, margin expansion initiatives and an increase in organic case volume, which were partially offset by an unfavorable year-over-year change in the last-in, first-out (LIFO) reserve. Gross profit as a percentage of Net sales was 17.8%. Adjusted Gross profit was $1.2 billion, a 14.0% increase from the prior year, driven by the addition of Food Group, margin expansion initiatives and an increase in organic case volume. Adjusted Gross profit as a percentage of Net sales was 18.0%.
Operating expenses were $1.1 billion, an increase of 14.0% from the prior year. The increase was primarily driven by the addition of Food Group, higher distribution costs and wages and higher acquisition-related costs, which were partially offset by the positive impact of expense control initiatives. Adjusted Operating expenses for the quarter were $913 million, a 14.1% increase from the prior year, primarily driven by the addition of the Food Group and higher distribution costs and wages.
Income from continuing operations before income taxes was $122 million, a $10 million decrease from the prior year.
Net income was $92 million, a decrease of $8 million from the prior year, primarily driven by higher Operating expenses and interest costs, which were partially offset by an increase in Gross profit, as discussed above. Adjusted EBITDA was $335 million, an increase of $38 million, or 12.8%, compared to the prior year. Organic Adjusted EBITDA was $317 million, an increase of $20 million, or 6.7%, compared to the prior year. Diluted EPS decreased 8.7% to $0.42 and Adjusted Diluted EPS increased 10.0% to $0.66.
Fiscal Year 2019 Results
Total case volume increased 4.6% from the prior year, of which 1.1% was organic growth. Independent restaurant case volume increased 7.1%, of which 4.4% was organic growth. Net sales of $25.9 billion increased 7.3% from the prior year, primarily due to the addition of the Food Group, an increase in organic case volume and year-over-year inflation in multiple product categories, including grocery, poultry, beef and produce. The Food Group contributed $843 million to Net sales in fiscal 2019.
Gross profit of $4.6 billion increased $281 million, or 6.5%, from the prior year, primarily driven by margin expansion initiatives, the addition of the Food Group and an increase in organic case volume, which were partially offset by an unfavorable year-over-year change in the LIFO reserve. Gross profit as a percentage of Net sales was 17.7%. Adjusted Gross profit was $4.6 billion, a 7.0% increase from the prior year, primarily driven by margin expansion initiatives, the addition of the Food Group and an increase in organic case volume. Adjusted Gross profit as a percentage of Net sales was 17.8%.
Operating expenses were $3.9 billion, an increase of 6.6% from the prior year. The increase was primarily driven by the addition of the Food Group, higher distribution costs and wages and higher acquisition-related costs, which were partially offset by the positive impact of expense control initiatives. Adjusted Operating expenses were $3.4 billion, a 6.4% increase from the prior year, primarily driven by the addition of the Food Group and higher distribution costs and wages.
Income from continuing operations before income taxes was $511 million, a $15 million increase from the prior year.
Net income for fiscal year 2019 was $385 million, a decrease of $22 million from the prior year primarily driven by higher Operating expense, income taxes and interest which were partially offset by an increase in Gross profit. Adjusted EBITDA was $1,194 million, an increase of $91 million, or 8.3% compared to the prior year. Organic Adjusted EBITDA was $1,171 million, an increase of $68 million, or 6.2% compared to the prior year. Diluted EPS was $1.75 and Adjusted Diluted EPS was $2.38.
Cash Flow and Capital Transactions
Net cash provided by operating activities for fiscal 2019 was $760 million, an increase of $151 million from the prior year primarily driven by $70 million of prior year defined benefit pension plan contributions which did not reoccur in the current year, earnings growth and improved working capital performance. Cash capital expenditures for fiscal 2019 totaled $258 million, compared to $235 million in the prior year.
Net Debt at the end of fiscal 2019 was $4.6 billion, an increase of $1.3 billion versus the end of fiscal 2018. The ratio of Net Debt to Adjusted EBITDA was 3.9x at the end of fiscal 2019, down from 4.2x at the end of the third quarter 2019 and up from 3.0x at the end of fiscal 2018 as a result of borrowing to finance the Food Group acquisition.
Outlook for Fiscal Year 2020
For fiscal year 2020, the company expects total case volume growth of 9-11%, Adjusted EBITDA growth of 12-15% and Adjusted Diluted EPS of $2.70-$2.80. The company expects cash capital expenditures of $325-$335 million, while fleet capital leases are expected to be approximately $80 million. Interest expense is expected to be $210-$220 million, Depreciation expense is expected to be $330-$340 million and our adjusted effective income tax rate is expected to be 25-26%.
The company also expects total organic case volume growth of 2-3% and organic Adjusted EBITDA growth of 6-8%.
The guidance provided above includes the expected impact of a 53rd week in fiscal year 2020 which is expected to add approximately 1% to case volume growth and Adjusted EBITDA growth.
About US Foods
US Foods is one of America’s great food companies and a leading foodservice distributor, partnering with approximately 300,000 restaurants and foodservice operators to help their businesses succeed. With 28,000 associates and more than 70 locations, US Foods provides its customers with a broad and innovative food offering and a comprehensive suite of e-commerce, technology and business solutions. US Foods is headquartered in Rosemont, Ill., and generates more than $28 billion in annual revenue.
