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US Foods Holding Corp. (NYSE:USFD): Navigating Headwinds with Resilience and Operational Excellence
Published on September 24, 2024 | Ticker: USFD

US Foods Holding Corp. (NYSE:USFD) is a leading foodservice distribution company in the United States, serving a diverse customer base that includes independent restaurants, healthcare facilities, hospitality establishments, and more. Despite facing some macroeconomic headwinds in the first quarter of fiscal year 2024, the company demonstrated its ability to navigate challenges and continue delivering strong operational performance.

Financials

In the first quarter of fiscal year 2024, US Foods reported net sales of $8,949 million, a 4.8% increase compared to the same period in the prior year. This growth was driven by a 4.2% increase in total case volume, including a 4.6% increase in independent restaurant case volume and a 6.4% increase in healthcare volume. The company's organic case volume also grew 1.4% during the quarter.

The company's adjusted EBITDA for the first quarter of fiscal year 2024 was $356 million, representing a 5.6% increase year-over-year. This performance was achieved despite the impact of approximately $20 million in incremental costs to serve customers during a labor disruption and weather-related challenges in January. Excluding these one-time factors, the company's underlying adjusted EBITDA growth would have been approximately 12%.

Gross profit for the first quarter of fiscal year 2024 increased by 4.9% to $1,495 million, with gross profit margin remaining flat at 16.7% compared to the same period in the prior year. This was driven by an increase in organic case volume, improved cost of goods sold, the impact of acquisitions, and pricing optimization, partially offset by an unfavorable year-over-year LIFO adjustment.

Operating expenses, which include distribution, selling, and administrative costs, increased by 7.4% to $1,330 million in the first quarter of fiscal year 2024. This increase was primarily due to the rise in organic case volume, higher distribution costs reflecting increased labor costs, the impact of acquisitions, and incremental costs to serve customers during the January labor disruption, partially offset by continued productivity improvements.

Net income for the first quarter of fiscal year 2024 remained flat at $82 million compared to the same period in the prior year. The company's effective income tax rate for the quarter was 6%, which differed from the 21% federal corporate income tax rate primarily due to state income taxes and the recognition of various discrete tax items.

Liquidity

US Foods' balance sheet remained strong, with net leverage of 2.8x as of the end of the first quarter of fiscal year 2024, a 0.4x reduction compared to the same period in the prior year. The company's liquidity position was also robust, with approximately $2.0 billion in cash and available liquidity as of the end of the first quarter.

Outlook

Looking ahead, the company reaffirmed its fiscal year 2024 guidance, expecting adjusted EBITDA to be in the range of $1.69 billion to $1.74 billion and adjusted diluted EPS between $3 and $3.20. The company continued to expect full-year case volume growth to be within its guidance range of 4% to 6%.

Business Overview

US Foods' strategic focus on culture, service, growth, and profit has been instrumental in its ability to navigate the current operating environment. The company's investments in technology, such as its MOXe digital solutions platform and Descartes routing technology, have driven improvements in customer service and operational efficiency. Additionally, the company's initiatives to optimize cost of goods sold, improve supply chain productivity, and streamline administrative processes have contributed to its strong financial performance.

The company's diverse customer base, with a focus on independent restaurants, healthcare, and hospitality, has also been a key factor in its resilience. While the broader foodservice industry has faced some macroeconomic headwinds, US Foods has been able to outpace the market and continue gaining share, particularly in its target customer segments.

Conclusion

Looking ahead, US Foods remained well-positioned to capitalize on the opportunities in the foodservice distribution market. The company's strong pipeline of new business, continued focus on operational excellence, and disciplined capital allocation strategy position it for long-term success. Investors should closely monitor the company's progress in executing its strategic initiatives and its ability to navigate any ongoing macroeconomic challenges.

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