Story Stocks^®

There was plenty on Performance Food Group's (PFGC +7%) plate today. The food distributor, providing a range of products, from snacks and beverages to vending machines and retailers to dining menu items to over 175,000 foodservice locations, reported Q4 (Jun) results today, outlined its initial FY25 outlook, and announced a couple of acquisitions.

• Starting with earnings, PFGC exceeded bottom-line estimates in Q4, registering adjusted EPS of $1.45, a 27% jump yr/yr. The bottom-line boost stemmed from better-than-expected margins, supported by PFGC's ongoing profitability initiatives and healthy case volume growth of 1.1%, most of which was led by the company's chain business within its Foodservice segment. This volume bump contributed to PFGC's 2.3% yr/yr improvement in total revenue to $15.2 bln, consistent with analyst forecasts.
• During the quarter, elevated prices continued to negatively impact consumer purchasing behavior, especially across candy and snacks. However, PFGC noted that the ongoing pace of disinflation, which it anticipates will persist throughout FY25, should lead to an incremental lift in its top and bottom-line numbers going forward.
• Also boosting PFGC's future quarterly performances are its newly announced acquisitions. PFGC agreed to acquire Cheney in an all-cash transaction worth $2.1 bln. Cheney is a prominent foodservice distributor in the U.S., focusing on independent restaurants, resorts, and country clubs, mostly in the Florida market. Cheney generates over $3.0 bln in annual net revs, making the purchase price attractive. PFGC expects the acquisition to be accretive to its adjusted EPS by the end of the first fiscal year following closing, which is expected sometime in 2025.
• PFGC also announced it closed on its purchase of José Santiago, another foodservice distributor operating in the Caribbean market, last month. This purchase further fortifies PFGC's presence in the Southeast region of the U.S. Similar to Cheney, PFGC believes José Santiago will be immediately accretive to earnings, cash flow, and margins.
• PFGC is relatively upbeat about the year ahead, projecting FY25 revenue of $60.0-61.0 bln, translating to a decent 3.8% increase yr/yr at the midpoint. Management noted that its Cheney acquisition was not included in its FY25 guidance and will update its outlook upon closing. PFGC also has over $200 mln remaining, or just under 2% of its market cap, for share repurchases, which it anticipates will finish within FY25.

PFGC's string of announcements today, including its Q2 earnings report, have been well received by investors. We like the two additions to its portfolio, Cheney and José Santiago, as they fit nicely into PFGC's overall business model. Meanwhile, PFGC delivered steady quarterly numbers despite sticky inflationary pressures, reminiscent of its broader peer group, including Sysco (SYY) and US Foods (USFD). While the economic environment may remain challenging over the near term, especially among more discretionary items, PFGC's consistent strength in Foodservice continues to make up for the shortfall, which is an encouraging trend going forward.