Food Group acquisition boosts independent restaurant results
US Foods Q3 2019 earnings were announced, showing robust top-line growth. Net sales were up 6.1 percent from last year to $6.5B. Organic sales resulted in a 4.0 percent increase to $6.4B. In Q3, the company reported gross profit of $1.2B. That’s up 4.3 percent from last year’s same quarter. Much of the story in the quarter focused on independent restaurant case growth, which surged 6.3 percent. Total case volume increased 3.0 percent. Also, organic case volume increased 0.9 percent, while independent restaurant organic case volume increased 4.2 percent.
The Food Group’s acquisition became final September 13, so these results include more than one month of The Food Group results. Year-to-date net sales come in at $19.0B, up 4.8 percent from last year. US Foods delivered Q3 gross profit of $1.2B, up 4.3 percent from last year. Adjusted EBITDA increased 8.5 percent to $307M in Q3. Net income decreased by 9.3 percent to $106M. The acquisition of The Food Group produced $5M of the $307M of Q3 adjusted EBITDA.
“We grew organic independent restaurants 4.2 percent, which is approximately twice the market rate,” said Dirk Locascio, US Foods chief financial officer. “We continue to operate in a higher-cost environment, but have been able to offset a portion of the higher distribution wages with our expense control initiatives and have continued to expand our operating leverage.”
Food Group integration underway
Executives were pleased with The Food Group acquisition and said that nearly 1,000 restaurants had been converted to US Foods distribution without much disruption. Also, the actual integration of The Food Group is now underway with 100 key employees retained and redeployed to US Foods distribution centers. US Foods is currently rebranding the fleet and distribution centers to its trademarked logos and colors.
US Foods delivered on profit per case of $0.09 during Q3. The company reported private brand sales and “strong freight performance” were big factors. Also, US Foods has prepared Scoop products that can be marketed to The Food Group customers. Additionally, the US Foods team already added the incremental SKUs from The Food Group to their inventory system.
US Foods’ three-pronged approach to independent restaurants
In an investor presentation on US Foods Q3 earnings, the distributor expanded on its three-pronged growth strategy. Pronto is a small-profile, delivery-vehicle fleet that can reach non-traditional stores, including convenience stores. These vehicles navigate dense, urban areas, and now operates in 15 markets. Direct selling brings a larger portfolio of online items to independent customers. It expands SKUs from about 10,000 in a distribution center to 25,000 online.
“Pronto allows us to reach customers in dense urban areas that are not easily serviced with larger trucks,” said Pietro Satriano, chief executive of US Foods. “Pronto uses vans and smaller straight trucks, which are able to more easily maneuver around crowded areas like Miami Beach…. is helping us attract, new independent restaurant customers, in these markets.”
In addition, there is the Chefs Store, which has seen success and continued growth in the high single digits, according to an earnings call with analysts. The cash-and-carry Chefs Store has been in place for seven years, providing continued diversity of options for customers. Moreover, US Foods plans to expand on this concept in the coming years. The cash-and-carry model has worked well in fueling the growth of other wholesalers, including Restaurant Depot. Cash-and-carry chains must also fend off warehouse-retailer penetration within the foodservice business.
US Foods gross profit has increased 4.7 percent to $3.4B year-to-date. Adjusted diluted earnings per share (EPS) in Q3 grew 12.1 percent to $0.65. Meanwhile, year-to-date adjusted diluted EPS increased 10.2 percent to $1.73. Year-to-date adjusted EBITDA comes in at $859M, up 6.6 percent.
Photo credit: US Foods (featured logo)
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