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Category: Stock Market and US Foods
Date: 11 November 2019 Stock Price: $38.62 We take a look at the 3rd quarter earnings report of their 2019 fiscal year of US Foods, a foodservice distributor partnering with around 300 000 restaurants and foodservice operators
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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 employees 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
Overview of US Foods' 3rd quarter 2019 earnings report
- Net sales: $6.531 billion (up from $6.153 billion for the same quarter of the previous year
- Net sales increased by 6.1% over the last 12 months
- Cost of goods sold: $5.375 billion (up from $5.045 billion for the same quarter of the previous year)
- Cost of goods sold increased by 6.5% over the last 12 months
- Net income: $106 million (down from $114 million for the same quarter of the previous year)
- Diluted earnings per share: $0.48 (down from $0.52 for the same quarter of the previous year)
- Diluted weighted-average shares outstanding: 219.757 million (down from 218.107 million for the same quarter of the previous year)
- Cash and cash equivalents: $90 million
- Cash and cash equivalents per share: $0.41
- Cash and cash equivalents makes up 1% of US Foods' market capital
- Cash and cash equivalents makes up 0.78% of US Foods' total assets
- Accounts receivable: $1.548 billion
- Accounts receivable makes up 13.4% of US Foods' total assets
- Accounts receivable makes up 13.4% of US Foods' total assets
- Inventories: $1.468 billion
- Inventories makes up 12.7% of US Foods' total assets
- Inventories makes up 12.7% of US Foods' total assets
- Stockholders equity of US Foods: $3.775 billion
- Stockholders equity per share: $17.17
- US Foods is trading at 2.24 times its stockholders equity which is within the expected range of between 2 and 4 times that most firms tend to trade at
- Cash generated from operations (for 9 months): $559 million
- Cash generated from operations per share (for 9 months): $2.54
- Goodwill of US Foods: $4.728 billion
- Goodwill per share:$21.51
- Goodwill makes up 41% of US Foods' total assets. We always get worried when ta fair chunk of a firm's total assets is made up by Goodwill. It is prone to revaluations and easy to inflate to boost a company's value of total assets
US Foods' management commentary on their 3rd quarter earnings results and guidance
ROSEMONT, Ill.--(BUSINESS WIRE)-- US Foods Holding Corp. (NYSE: USFD),one of the leading foodservice distributors in the United States, today announced results for the third quarter of fiscal 2019. In this press release we refer to certain organic financial results. 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.
“Our focus on profitable growth enabled us to deliver strong organic Adjusted EBITDA growth of 6.7% for the quarter,” said Chairman and CEO Pietro Satriano. “We also delivered organic independent restaurant case growth of 4.2% as we continue to gain share with this target customer group. The integration of the Food Group is off to a good start and we are excited to welcome our colleagues from the Food Group into US Foods. As a result of our year to date business performance, we are raising our fiscal 2019 organic Adjusted EBITDA growth guidance to 6.0%.”
“Our focus on profitable growth enabled us to deliver strong organic Adjusted EBITDA growth of 6.7% for the quarter,” said Chairman and CEO Pietro Satriano. “We also delivered organic independent restaurant case growth of 4.2% as we continue to gain share with this target customer group. The integration of the Food Group is off to a good start and we are excited to welcome our colleagues from the Food Group into US Foods. As a result of our year to date business performance, we are raising our fiscal 2019 organic Adjusted EBITDA growth guidance to 6.0%.”
Cash Flow and Capital Transactions
Net cash provided by operating activities for the first nine months of fiscal 2019 was $559 million, an increase of $115 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, along with improved business performance. Cash capital expenditures for the first nine months of fiscal 2019 totaled $157 million, compared to $168 million for the same period prior year.
Net Debt at the end of the third quarter of fiscal 2019 was $4.8 billion, an increase of $1.5 billion versus the end of fiscal 2018. The increase in Net Debt is a result of borrowing to finance the Food Group acquisition. The ratio of Net Debt to Adjusted EBITDA was 4.2x at the end of the third quarter of fiscal 2019, compared to 3.0x at the end of fiscal 2018.
Outlook for Full Year Fiscal 2019
The company is updating its full year fiscal 2019 guidance. Total case volume growth is expected to be 4%-5%, with organic case volume growth expected to be 1%-1.5%. Adjusted EBITDA growth is expected to be 8.5% and the company is raising its expected organic Adjusted EBITDA growth to 6%. The company is also raising its expected Adjusted Diluted EPS to $2.35-$2.40. The company's adjusted effective income tax rate is expected to be 25%-26%, Depreciation and amortization is expected to be $350 million, interest expense is expected to be $185 million and cash capital expenditures are expected to be $275 million.
Net cash provided by operating activities for the first nine months of fiscal 2019 was $559 million, an increase of $115 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, along with improved business performance. Cash capital expenditures for the first nine months of fiscal 2019 totaled $157 million, compared to $168 million for the same period prior year.
Net Debt at the end of the third quarter of fiscal 2019 was $4.8 billion, an increase of $1.5 billion versus the end of fiscal 2018. The increase in Net Debt is a result of borrowing to finance the Food Group acquisition. The ratio of Net Debt to Adjusted EBITDA was 4.2x at the end of the third quarter of fiscal 2019, compared to 3.0x at the end of fiscal 2018.
Outlook for Full Year Fiscal 2019
The company is updating its full year fiscal 2019 guidance. Total case volume growth is expected to be 4%-5%, with organic case volume growth expected to be 1%-1.5%. Adjusted EBITDA growth is expected to be 8.5% and the company is raising its expected organic Adjusted EBITDA growth to 6%. The company is also raising its expected Adjusted Diluted EPS to $2.35-$2.40. The company's adjusted effective income tax rate is expected to be 25%-26%, Depreciation and amortization is expected to be $350 million, interest expense is expected to be $185 million and cash capital expenditures are expected to be $275 million.
US Foods (NYSE: USFD) stock price history
The image below shows the stock price history of US Foods (NYSE:USFD) since their listing almost 4 years ago. And it's not been a very good time for US Foods stockholders. Around 4 years ago the stock was trading at around $25. and it is currently trading at $38.62 a stock. So over an almost 4 year period the stock of US Foods increased by 54.5% . The stock of US Foods is trading at a lot closer to its 52 week high of $43.10 than it is to its 52 low of $29.55 which to us is a clear indication that the short term sentiment and momentum of US Foods' stock is positive.
Recent coverage of US Foods
The extract below covers the latest on US Foods as obtained from TheStreet,com
US Foods Holding Corp. (NYSE: USFD) announced today that Executive Vice President and Chief Supply Chain Officer Tim Connolly has resigned, effective immediately. The company will be conducting a search for Mr. Connolly's successor. "Tim's commitment to supply chain excellence and passion for his work have left a positive mark on our organization," commented Chairman and CEO Pietro Satriano. "His leadership will be missed. I am grateful for his service and we wish him the very best."
US Foods Holding Corp. (NYSE: USFD) announced today that Executive Vice President and Chief Supply Chain Officer Tim Connolly has resigned, effective immediately. The company will be conducting a search for Mr. Connolly's successor. "Tim's commitment to supply chain excellence and passion for his work have left a positive mark on our organization," commented Chairman and CEO Pietro Satriano. "His leadership will be missed. I am grateful for his service and we wish him the very best."
US Foods (NYSE: USFD) latest stock valuation
So what is US Foods (NYSE: USFD) stock worth based on the release of their latest earnings report and their outlook provided? Based on their earnings report and the fiscal guidance provided our valuation models provide a target (full value) price for US Foods at $36.90 a stock
We therefore believe that the stock of US Foods is close to being fully valued as the stock is trading at close to our target (full value) price.
We usually suggest long term investors look to enter a stock at least 10% below our target (full value) price which in this case is $36.90. A good entry point into US Foods stock would be at $33.20 or below. We expect the stock of US Food to trade in a narrow range around our target (full value) price in coming weeks and months until there is a new catalyst to provide direction for the company's stock price
We therefore believe that the stock of US Foods is close to being fully valued as the stock is trading at close to our target (full value) price.
We usually suggest long term investors look to enter a stock at least 10% below our target (full value) price which in this case is $36.90. A good entry point into US Foods stock would be at $33.20 or below. We expect the stock of US Food to trade in a narrow range around our target (full value) price in coming weeks and months until there is a new catalyst to provide direction for the company's stock price
Next earnings release for US Foods
It is expected that US Foods' 4th quarter and full fiscal 2019 earnings will be released towards the middle of February 2020