Performance Food Group Co (PFGC)·Q2 2021 Earnings Summary

Executive Summary

• PFGC delivered resilient Q2 FY2021 results: net sales rose 12.8% to $6.85B, gross profit rose 14.0% to $811.1M, and adjusted EBITDA increased 10.6% to $158.0M; GAAP diluted EPS fell to $0.13 and adjusted diluted EPS to $0.35 as higher interest and lower operating profit weighed on earnings .
• Foodservice segment outperformed on Reinhart integration and independent mix: net sales +27.0% to $4.89B and EBITDA +36.7% to $155.3M; Vistar remained pressured with net sales −11.9% to $2.00B and EBITDA −31.6% to $38.7M .
• Independent channel remains the bright spot: total cases +8.4% and independent cases +26.5% (ex-Reinhart: total −16.9%, independent −5%), aided by favorable mix and higher gross profit per case (+$0.26) .
• Management is preparing for recovery by ramping inventory and leveraging strong liquidity (~$1.9B total, $417M cash, $1.5B ABL availability), with disciplined M&A posture and synergies on track ($15M annualized in year three post-Reinhart) .

What Went Well and What Went Wrong

• What Went Well

  • Independent mix and margin: gross margin expanded to 11.8% (vs. 11.7% prior year) on positive mix shift, with gross profit per case up $0.26; independent case volume rose 26.5% including Reinhart .
  • Foodservice strength: Foodservice net sales +27.0% to $4.9B and EBITDA +36.7% to $155.3M, reflecting solid integration of Reinhart and better center-of-plate momentum .
  • Liquidity and preparedness: ~$1.9B total liquidity and plans to ramp inventory to meet demand recovery; confidence in ability to pass through inflation efficiently .
  • Quote: “We are prepared for this acceleration with appropriate levels of inventory. We feel very good about our capabilities to execute this plan and are equipped with ample liquidity.” — George Holm .

• What Went Wrong

  • GAAP earnings pressure: net income fell 57.3% to $17.6M, diluted EPS to $0.13; operating profit declined and interest expense increased .
  • Vistar channel headwinds: net sales −11.9% to $2.0B and EBITDA −31.6% to $38.7M due to theaters, office coffee, travel and large-crowd venues; inbound fill rates in Vistar remained historically poor .
  • December slowdown and ongoing volatility: foodservice trends moderated in December amid restrictions and seasonality; January improved but remained volatile .
  • Analyst concerns: potential labor tightness and ramp mismatches as volumes recover; management expects puts and takes but aims to avoid capacity constraints .

Financial Results

Segment breakdown (Net Sales and EBITDA):

KPIs and operating metrics:

Non-GAAP adjustment detail (per share, Q2 2021 vs. Q2 2020):

Cash flow and liquidity highlights (first half FY2021, cumulative):

• Cash from operations: −$24.4M; capex: $83.0M; free cash flow: −$107.4M .
• Liquidity: ~$1.9B total; cash ~$417M; ABL availability nearly ~$1.5B .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• Prepared remarks emphasized resilience, independent strength, and readiness to ramp inventories: “We are prepared for this acceleration with appropriate levels of inventory…equipped with ample liquidity.” — George Holm .
• CFO on mix and margins: “Gross profit margin…was 11.8%…increase due to positive mix shift…better performance in our independent restaurant channel and the addition of Reinhart.” — Jim Hope .
• Liquidity stance: “We ended the quarter with…approximately $417 million of cash, plus nearly $1.5 billion of availability on our ABL Facility.” — Jim Hope .
• Reinhart synergies reaffirmed: “We…believe that we will achieve the roughly $15 million of annualized cost synergies in the third full fiscal year following the closing.” — George Holm .

Q&A Highlights

• Recovery investments and capacity: Management aims to avoid capacity constraints, keeping Reinhart and Performance Foodservice distributions unconsolidated to preserve capacity; furloughed associates with benefits facilitate rapid return .
• Mix effects and margins: Convenience/tobacco mix may dampen gross margins as two new DCs ship; still expect steady margins overall .
• Labor/inventory challenges: Potential labor tightness as volumes return; heavier inventories planned to capture stimulus-driven demand .
• Vistar profitability trajectory: Gradual sales improvement with convenience (Eby-Brown) as bright spot; theaters and office coffee to take longer .

Estimates Context

• S&P Global Wall Street consensus estimates were unavailable to us for this period; as a result, we cannot provide a quantitative beat/miss comparison against consensus for Q2 FY2021. Values retrieved from S&P Global were unavailable due to data access limits.
• Given actuals: revenue $6.85B and adjusted diluted EPS $0.35, analysts may adjust models for rising inflation pass-through, stronger Foodservice mix, and slower Vistar recovery, along with higher amortization and interest expense impacts .

Key Takeaways for Investors

• Independent-led mix and Foodservice strength underpin margin resilience; expect continued outperformance as restrictions ease and stimulus/vaccine tailwinds materialize .
• Earnings pressure reflects higher amortization and interest costs and lower operating profit; adjusted metrics show solid underlying performance; focus on non-GAAP drivers and mix .
• Vistar recovery is multi-quarter; convenience is a bright spot, but theaters/office coffee remain headwinds; monitor inbound fill rates normalization and mix effects (tobacco) .
• Liquidity provides flexibility to ramp inventory and pursue disciplined M&A; synergy realization (~$15M) and leverage target (2.5–3.5x) are maintained .
• Near-term trading implications: positive catalysts from easing restrictions/stimulus could drive Foodservice volume acceleration; watch inflation pass-through and labor availability into spring .
• Medium-term thesis: independent share gains, Reinhart integration, and normalized Vistar channels support margin and EBITDA recovery; digital standardization may enhance productivity and customer retention .