3 good reasons why this food service company is in your portfolio
Working behind the scenes to provide food and related products to customers across the country, Performance Food Group (NYSE: PFGC) isn’t exactly a household name, but it is quite popular.
The company has just announced a significant acquisition, giving it a new angle of revenue generation while setting up tasty profits in its existing sectors as well. Here are three reasons you might consider buying the stock this fall.
1. Its results live up to its name – mostly
Describing itself as the second largest American food distributor, Performance Food has actually outperformed lately. It released its fiscal fourth quarter and fiscal 2021 results on August 19, beating analysts’ expectations for revenue and adjusted earnings per share (EPS). Quarterly revenue of $ 9.3 billion climbed 61.1% year on year, while adjusted EPS of $ 0.56 marked a major reversal from the $ 0.86 loss of the period of the previous year. Annual revenue jumped 21.2%, while net income and EPS also turned positive after a difficult 2020 fiscal year.
While promising, the strong gains are largely due to Performance Foods’ acquisition of Reinhart Foodservice in late 2019 (more on that later). About $ 6 billion of Performance Food’s revenue for fiscal 2021 came from Reinhart. Without this contribution, the company’s turnover decreased slightly for the year.
With the agreement with Reinhart in mind, comparing the latest results with the pre-pandemic reports for fiscal 2019 gives an overview of the company’s strong position going forward. Revenue for fiscal year 2021 is up 54.0% over two years. At Ultimately, the impact of the pandemic on spending is still apparent, as this past year’s net profit is down 75.6% from 2019. But Performance Food’s business is quickly picking up momentum. while the last quarter saw record sales, a 55% increase in volume case and a similar jump in adjusted EBITDA.
2. Its acquisition opens up new horizons
Another important part of Performance Foods’ strategy is expansion to improve its growth. The company has just completed its takeover of Core-Mark Holding Company, a food distributor serving convenience stores. With its expansion into this market, management expects the transaction to be accretive to EPS in the first full year with $ 40 million in cost synergies realized in the third full year after closing. the transaction.
On the latest earnings conference call, CEO George Holm said convenience store sales represent a $ 110 billion addressable market, about half of which is in the food service industry, the company’s specialty area. Holm described how convenience stores “continue to move away from low-margin tobacco products to more foodservice, increasing both sales and long-term profit growth.”
The ability of Performance Foods to make successful acquisitions is also evidenced by its purchase of Reinhart Foodservice. According to the latest earnings report, Reinhart generated $ 2.5 billion in revenue in fiscal 2020 and $ 6.0 billion in fiscal 2021, which is a significant portion of the overall earnings. of the company. Holm noted on the call, “[I]Reinhart’s integration continues to progress at or above expectations, and we expect that momentum will continue into fiscal 2022. âCore-Mark looks like another smart addition in the same vein.
3. Catering continues to rebound
A very optimistic factor in interpreting Performance Foods results is that, as the foodservice industry recovers, the company is generating solid gains long before the foodservice rebound is over. In the second quarter of 2021, restaurant spending jumped 32% year-over-year, according to a study by The NPD Group. However, there is still a considerable avenue of recovery. NPD analyst David Portalatin told the Dairy Processing industry website: “[T]The restaurant recovery in the United States is underway, but it will take time for it to fully return to pre-pandemic levels. “
Market research firm Datassential also expects continued sales growth. His calculation of the numbers led to a forecast of $ 701 billion in restaurant sales in 2021, up 15.4% from 2020. However, restaurant service sales are expected to continue growing, increasing by 9. 5% to $ 771 billion in 2022 and 6.0% in 2023. This means Performance Foods is expected to continue to benefit from at least two years of growing foodservice demand.
Its convenience store expansion through Core-Mark also looks timely based on recent traffic data. The National Highway Administration reported a 14.5% year-over-year increase in kilometers driven in June, and that metric rose 13% for the first half of 2021. Drivers are returning to US roads provides indirect support for the company’s orientations concerning its new subsidiary.
Overall, the company is exactly where it needs to be to stand out as a winner among food stocks for at least several years, making it a solid choice for long-term investors.
This article represents the opinion of the author, who may disagree with the âofficialâ recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.