US Foods Holding Corp

Previous wording

The following discussion and analysis should be read together with the accompanying unaudited consolidated financial statements and the notes thereto included in this Quarterly Report and the audited consolidated financial statements and the notes thereto in the 2023 Annual Report. The following discussion and analysis contain certain financial measures that are not required by or presented in accordance with GAAP. We believe these non-GAAP measures provide meaningful supplemental information about our operating performance and liquidity. Information regarding reconciliations of and the rationale for these measures is discussed under “Non-GAAP Reconciliations” below. Results of operations for the 13 weeks ended March 30, 2024 are compared to the 13 weeks ended April 1, 2023, unless specifically noted otherwise.

Current wording

The following discussion and analysis should be read together with the accompanying unaudited consolidated financial statements and the notes thereto included in this Quarterly Report and the audited consolidated financial statements and the notes thereto in the 2023 Annual Report. The following discussion and analysis contain certain financial measures that are not required by or presented in accordance with GAAP. We believe these non-GAAP measures provide meaningful supplemental information about our operating performance and liquidity. Information regarding reconciliations of and the rationale for these measures is discussed under “Non-GAAP Reconciliations” below. Results of operations for the 13 weeks and 26 weeks ended June 29, 2024 are compared to the 13 weeks and 26 weeks ended July 1, 2023, unless specifically noted otherwise.

Previous wording

At US Foods, we strive to inspire and empower chefs and foodservice operators to bring great food experiences to consumers. This mission is supported by our strategy of GREAT FOOD. MADE EASY.™, which is centered on providing customers with the innovative products, business support and technology solutions they need to operate their businesses profitably. We operate as one business with standardized business processes, shared systems infrastructure, and an organizational model that optimizes national scale with local execution, allowing us to manage our business as a single operating segment. We have centralized activities where scale matters and our local field structure focuses on customer-facing activities.

Current wording

At US Foods, we strive to inspire and empower chefs and foodservice operators to bring great food experiences to consumers. This mission is supported by our brand promise of WE HELP YOU MAKE IT.™, which is centered on bringing four key elements to the forefront for our customers; more quality products, including our large portfolio of exclusive brands, more tools, centering on our MOXē business platform, more support from our sellers and our team of experts and lastly, more deliveries, enabled by our traditional broadline services and Pronto™ program. We operate as one business with standardized business processes, shared systems infrastructure, and an organizational model that optimizes national scale with local execution, allowing us to manage our business as a single operating segment. We have centralized activities where scale matters and our local field structure focuses on customer-facing activities.

Previous wording

For the 13 weeks ended March 30, 2024, compared to the same period a year ago, total case volume increased 4.2% and independent restaurant case volume increased 4.6%. For the 13 weeks ended March 30, 2024, compared to the same period a year ago, total organic case volume increased 1.4%, organic independent restaurant case growth was 2.9%. Net sales increased $407 million, or 4.8%, for the 13 weeks ended March 30, 2024, driven primarily by case volume growth andfood cost inflation of 1.5%.

Current wording

For the 13 weeks and 26 weeks ended June 29, 2024, compared to the same period a year ago, total case volume increased 5.2% and 4.7%, respectively, and independent restaurant case volume increased 5.7% and 5.2%, respectively. For the 13 weeks and 26 weeks ended June 29, 2024, compared to the same period a year ago, total organic case volume increased 1.9% and 1.6%, respectively, and organic independent restaurant case volume increased 3.2% and 3.1%, respectively. Net sales increased $696 million, or 7.7%, and $1,103 million, or 6.3% for the 13 weeks and 26 weeks ended June 29, 2024, respectively, driven primarily by organic case volume growth, the impact of acquisitions andfood cost inflation of 2.9% and 2.2% for the 13 weeks and 26 weeks ended June 29, 2024, respectively.

Previous wording

Gross profit increased $70 million, or 4.9%, to $1,495 million for the 13 weeks ended March 30, 2024. The increase was primarily as a result of 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. Gross profit was negatively impacted by a LIFO expense of $45 million for the 13 weeks ended March 30, 2024 and $20 million for the 13 weeks ended April 1, 2023, respectively. As a percentage of net sales, gross profit was 16.7% for both the 13 weeks ended March 30, 2024 and the 13 weeks ended April 1, 2023.

Current wording

Gross profit increased $115 million, or 7.2%, to $1,706 million for the 13 weeks ended June 29, 2024 and increased $185 million, or 6.1%, to $3,201 million for the 26 weeks ended June 29, 2024. The increase was primarily as a result of 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. Gross profit was not impacted by LIFO benefit or expense for the 13 weeks ended June 29, 2024. Gross profit was negatively impacted by a LIFO expense of $45 million for the 26 weeks ended June 29, 2024. Gross profit was positively impacted by a LIFO benefit of $15 million for the 13 weeks ended July 1, 2023, while gross profit was negatively impacted by a LIFO expense of $5 million for the 26 weeks ended July 1, 2023. As a percentage of net sales, gross profit was 17.6% for the 13 weeks ended June 29, 2024, compared to 17.7% for the prior year period and was 17.2% for the 26 weeks ended July 1, 2023, compared to 17.2% for the prior year period.

Previous wording

Total operating expenses increased $92 million, or 7.4%, to $1,330 million for the 13 weeks ended March 30, 2024. Operating expenses increased primarily as a result of an increase in organic case volume, higher distribution costs, reflecting increased labor costs, the impact of acquisitions and incremental costs to serve our customers during January labor disruptions, partially offset by continued productivity improvement. As a percentage of net sales, operating expenses were 14.9% for the 13 weeks ended March 30, 2024, compared to 14.5% for the prior year period.

Current wording

Total operating expenses increased $84 million, or 6.6%, to $1,353 million for the 13 weeks ended June 29, 2024 and increased $176 million, or 7.0%, to $2,683 million for the 26 weeks ended June 29, 2024. Operating expenses increased primarily as a result of an increase in organic case volume and higher distribution costs, reflecting increased labor costs and incremental costs to serve our customers during January labor disruptions, and the impact of acquisitions, partially offset by continued distribution productivity improvement driven by routing efficiency gains, turnover reduction and process standardization as well as actions to streamline administrative processes and costs. As a percentage of net sales, operating expenses were 13.9% for the 13 weeks ended June 29, 2024, compared to 14.1% for the prior year period and were 14.4% for the 26 weeks ended June 29, 2024, compared to 14.3% for the prior year period.

Previous wording

(1) EBITDA is defined as net income, plus interest expense—net, income tax provision, and depreciation and amortization. Adjusted EBITDA is defined as EBITDA adjusted for: (1) restructuring costs and asset impairment charges; (2) share-based compensation expense; (3) the impact of LIFO reserve adjustments; (4) loss on extinguishment of debt; (5) business transformation costs; and (6) other gains, losses, or costs as specified in the agreements governing our indebtedness. Adjusted EBITDA Margin is Adjusted EBITDA divided by total net sales. Adjusted Net Income is defined as net income excluding the items used to calculate Adjusted EBITDA listed above and further adjusted for the tax effect of the exclusions and discrete tax items. EBITDA, Adjusted EBITDA, and Adjusted Net Income as presented are supplemental measures of our performance that are not required by, or presented in accordance with, GAAP. They are not measurements of our performance under GAAP and should not be considered as alternatives to net income or any other performance measures derived in accordance with GAAP. For additional information, see the discussion under the caption “Non-GAAP Reconciliations” below.

Current wording

(1) EBITDA is defined as net income, plus interest expense—net, income tax provision, and depreciation and amortization. Adjusted EBITDA is defined as EBITDA adjusted for: (1) restructuring activity and asset impairment charges; (2) share-based compensation expense; (3) the impact of LIFO reserve adjustments; (4) loss on extinguishment of debt; (5) business transformation costs; and (6) other gains, losses, or costs as specified in the agreements governing our indebtedness. Adjusted EBITDA Margin is Adjusted EBITDA divided by total net sales. Adjusted Net Income is defined as net income excluding the items used to calculate Adjusted EBITDA listed above and further adjusted for the tax effect of the exclusions and discrete tax items. EBITDA, Adjusted EBITDA, and Adjusted Net Income as presented are supplemental measures of our performance that are not required by, or presented in accordance with, GAAP. They are not measurements of our performance under GAAP and should not be considered as alternatives to net income or any other performance measures derived in accordance with GAAP. For additional information, see the discussion under the caption “Non-GAAP Reconciliations” below.

Previous wording

(4) Transformational costs represent non-recurring expenses prior to formal launch of strategic projects with anticipated long-term benefits to the Company. These costs generally relate to third party consulting and non-capitalizable technology. For the 13 weeks ended March 30, 2024, business transformation costs related to projects associated with information technology and workforce efficiencies. For the 13 weeks ended April 1, 2023, business transformation costs related to projects associated with several supply chain strategy initiatives.

Current wording

(4) Transformational costs represent non-recurring expenses prior to formal launch of strategic projects with anticipated long-term benefits to the Company. These costs generally relate to third party consulting and non-capitalizable technology. For the 13 weeks and 26 weeks ended June 29, 2024, business transformation costs related to projects associated with information technology infrastructure initiatives and workforce efficiencies. For the 13 weeks and 26 weeks ended July 1, 2023, business transformation costs related to projects associated with information technology infrastructure initiatives.

Previous wording

(5) Includes: (i) aggregate acquisition and integration related costs of $3 million and $4 million for the 13 weeks ended March 30, 2024 and April 1, 2023, respectively; (ii) CEO sign on bonus of $3 million for the 13 weeks ended April 1, 2023 and (iii) other gains, losses or costs that we are permitted to addback for purposes of calculating Adjusted EBITDA under certain agreements governing our indebtedness.

Current wording

(5) Includes: (i) aggregate acquisition related costs of $8 million and $11 million for the 13 weeks ended June 29, 2024 and July 1, 2023, respectively, and $10 million and $21 million for the 26 weeks ended June 29, 2024 and July 1, 2023, respectively; (ii) CEO sign on bonus of $3 million for the 26 weeks ended July 1, 2023 and (iii) other gains, losses or costs that we are permitted to addback for purposes of calculating Adjusted EBITDA under certain agreements governing our indebtedness.

Previous wording

•Adjusted EBITDA increased $19 million, or 5.6%, to $356 million in 2024. As a percentage of net sales, Adjusted EBITDA was 4.0% in 2024, compared to 3.9% in 2023.

Current wording

•Adjusted EBITDA increased $57 million, or 13.2%, to $489 million in 2024. As a percentage of net sales, Adjusted EBITDA was 5.0% in 2024, compared to 4.8% in 2023.

Previous wording

Our operating income was $165 million in 2024, compared to operating income of $187 million in 2023. The decrease in operating income was due to the factors discussed in the relevant sections above.

Current wording

Our operating income was $353 million in 2024, compared to operating income of $322 million in 2023. The increase in operating income was due to the factors discussed in the relevant sections above.

Previous wording

Other income—net includes components of net periodic pension benefit credits, exclusive of the service cost component associated with our defined benefit and other postretirement plans. We recognized other income—net of $1 million in both 2024 and 2023.

Current wording

Other expense (income)—net includes components of net periodic pension benefit credits, exclusive of the service cost component associated with our defined benefit and other postretirement plans. We recognized other expense—net of $3 million in 2024 and other income—net of $2 million in 2023. The decrease in other income-net is due to an increase in the pension benefit interest cost and a decrease in the expected return on pension assets compared to 2023.

Previous wording

For the 13 weeks ended March 30, 2024, the Company’s effective income tax rate of 6% differed from the 21% federal corporate income tax rate primarily as a result of state income taxes and the recognition of various discrete tax items. These discrete tax items included a tax benefit of $15 million related to a decrease in an unrecognized tax benefit as a result of the expiration of the statute of limitations in several jurisdictions, a tax benefit of $6 million, primarily related to excess tax benefits associated with share-based compensation and a tax expense of $3 million, primarily related to adjustments to prior year provision estimates. For the 13 weeks ended April 1, 2023, our effective income tax rate of 23% differed from the 21% federal corporate income tax rate primarily as a result of state income taxes and the recognition of various discrete tax items. These discrete tax items included a tax benefit of $4 million primarily related to excess tax benefits associated with share-based compensation.

Current wording

For the 13 weeks ended June 29, 2024, the Company’s effective income tax rate of 26% differed from the 21% federal corporate income tax rate primarily as a result of state income taxes and the recognition of various discrete tax items. These discrete tax items included a tax benefit of $1 million related to a decrease in an unrecognized tax benefit as a result of the expiration of the statute of limitations in several jurisdictions and a tax benefit of $1 million, primarily related to excess tax benefits associated with share-based compensation. For the 13 weeks ended July 1, 2023, the Company’s effective income tax rate of 25% differed from the 21% federal corporate income tax rate primarily as a result of state income taxes and the recognition of various discrete tax items. These discrete tax items included a tax benefit of $2 million primarily related to excess tax benefits associated with share-based compensation and a tax benefit of $3 million, primarily related to adjustments to prior year tax provision estimates.

Previous wording

Gross profit increased $70 million, or 4.9%, to $1,495 million in 2024 primarily as a result of 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. Our LIFO method of inventory costing resulted in an expense of $45 million in 2024 compared to expense of $20 million in 2023, driven by inflation in multiple product categories including beef and poultry. Gross profit as a percentage of net sales was 16.7% in both 2024 and 2023. Gross profit as a percentage of net sales in 2024 is due to the aforementioned factors.

Current wording

Gross profit increased $185 million, or 6.1%, to $3,201 million in 2024 primarily as a result of 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. Our LIFO method of inventory costing resulted in an expense of $45 million in 2024, compared to expense of $5 million in 2023. LIFO expense in both periods is driven by a reduction in inventory values in multiple categories. Gross profit as a percentage of net sales was 17.2% in 2024 due to the aforementioned factors. Gross profit as a percentage of net sales was also 17.2% in 2023.

Previous wording

Operating expenses, comprised of distribution, selling and administrative costs, increased $92 million, or 7.4%, to $1,330 million in 2024. Operating expenses as a percentage of net sales were 14.9% in 2024, compared to 14.5% in 2023. Operating expenses increased primarily as a result of an increase in organic case volume, higher distribution costs, reflecting increased labor costs, the impact of acquisitions and incremental costs to serve our customers during January labor disruptions, partially offset by continued productivity improvement.

Current wording

Operating expenses, comprised of distribution, selling and administrative costs, increased $176 million, or 7.0%, to $2,683 million in 2024. Operating expenses increased primarily due to an increase in organic case volume, higher distribution costs, reflecting increased labor costs, the impact of acquisitions and incremental costs to serve our customers during January labor disruptions, partially offset by continued productivity improvement. Operating expenses as a percentage of net sales were 14.4% in 2024, compared to 14.3% in 2023.

Previous wording

Our ongoing operations and strategic objectives require working capital and continuing capital investment. Our primary sources of liquidity include cash provided by operations, as well as access to capital from bank borrowings and other types of debt and financing arrangements. As of March 30, 2024, the Company had approximately $2.0 billion in cash and available liquidity.

Current wording

Our ongoing operations and strategic objectives require working capital and continuing capital investment. Our primary sources of liquidity include cash provided by operations, as well as access to capital from bank borrowings and other types of debt and financing arrangements. As of June 29, 2024, the Company had approximately $2.1 billion in cash and available liquidity.

Previous wording

The aggregate outstanding balance of our indebtedness was $4,701 million, net of $32 million of unamortized deferred financing costs, as of March 30, 2024.

Current wording

The aggregate outstanding balance of our indebtedness was $4,707 million, net of $29 million of unamortized deferred financing costs, as of June 29, 2024.

Previous wording

We had no outstanding borrowings and had issued letters of credit totaling $542 million under the ABL Facility as of March 30, 2024. There was remaining capacity of $1,758 million under the ABL Facility as of March 30, 2024.

Current wording

We had no outstanding borrowings and had issued letters of credit totaling $562 million under the ABL Facility as of June 29, 2024. There was remaining capacity of $1,738 million under the ABL Facility as of June 29, 2024.

Previous wording

The 2019 Incremental Term Loan Facility had an outstanding balance of $1,102 million, net of $10 million of unamortized deferred financing costs, as of March 30, 2024.

Current wording

The 2019 Incremental Term Loan Facility had an outstanding balance of $1,100 million, net of $9 million of unamortized deferred financing costs, as of June 29, 2024.

Previous wording

The 2021 Incremental Term Loan Facility had an outstanding balance of $719 million, net of $3 million of unamortized deferred financing costs, as of March 30, 2024.

Current wording

The 2021 Incremental Term Loan Facility had an outstanding balance of $718 million, net of $3 million of unamortized deferred financing costs, as of June 29, 2024.

Previous wording

We also had $491 million of obligations under financing leases for transportation equipment and building leases as of March 30, 2024.

Current wording

We also had $498 million of obligations under financing leases for transportation equipment and building leases as of June 29, 2024.

Previous wording

The agreements governing our indebtedness contain customary covenants. These include, among other things, covenants that restrict our ability to incur certain additional indebtedness, create or permit liens on our assets, pay dividends, or engage in mergers or consolidations. The Company had approximately $2.0 billion of restricted payment capacity under these covenants and approximately $2.8 billion of its net assets were restricted after taking into consideration the net deferred tax assets and intercompany balances that eliminate in consolidation as of March 30, 2024.

Current wording

The agreements governing our indebtedness contain customary covenants. These include, among other things, covenants that restrict our ability to incur certain additional indebtedness, create or permit liens on our assets, pay dividends, or engage in mergers or consolidations. The Company had approximately $2.2 billion of restricted payment capacity under these covenants and approximately $2.8 billion of its net assets were restricted after taking into consideration the net deferred tax assets and intercompany balances that eliminate in consolidation as of June 29, 2024.

Previous wording

Cash flows provided by operating activities was $139 million for the 13 weeks ended March 30, 2024, representing a decrease of $140 million as compared to cash flows provided by operating activities of $279 million for the 13 weeks ended April 1, 2023, due to less working capital benefit for the 13 weeks ended March 30, 2024 compared to the 13 weeks ended April 1, 2023.

Current wording

Cash flows provided by operating activities was $621 million for the 26 weeks ended June 29, 2024, representing a decrease of $32 million as compared to cash flows provided by operating activities of $653 million for the 26 weeks ended July 1, 2023, due to less working capital benefit for the 26 weeks ended June 29, 2024 compared to the 26 weeks ended July 1, 2023.

Previous wording

Cash flows used in investing activities in the 13 weeks ended March 30, 2024 and April 1, 2023 included cash expenditures of $87 million and $61 million, respectively, on investments in information technology, property and equipment for fleet replacement and maintenance of distribution facilities.

Current wording

During the 26 weeks ended June 29, 2024, the Company completed the asset acquisition of IWC Food Service. Total consideration consisted of cash of approximately $220 million (less the amount of cash received, which was $6 million) for a net purchase price of $214 million. In addition, cash flows used in investing activities in the 26 weeks ended June 29, 2024 and July 1, 2023 included cash expenditures of $156 million and $108 million, respectively, on investments in information technology, property and equipment for fleet replacement, and maintenance of distribution facilities.

Previous wording

Cash flows used by financing activities in the 13 weeks ended March 30, 2024 included $31 million of scheduled payments under our Term Loan Facilities and financing leases, $14 million for repricing of the 2021 Term Loan Facility, $1 million of financing fees related to the 2021 Term Loan Facility repricing and no net payments under the ABL Facility. Financing activities in the 13 weeks ended March 30, 2024 also included $13 million common stock repurchased under the Share Repurchase Program, $5 million of proceeds received from stock purchases under our employee stock purchase plan, $5 million of proceeds from the exercise of employee stock options and $20 million of employee tax withholdings paid in connection with the vesting of stock awards.

Current wording

Cash flows used by financing activities in the 26 weeks ended June 29, 2024 included $65 million of scheduled payments under our Term Loan Facilities and financing leases, $14 million for repricing of the 2021 Term Loan Facility, $1 million of financing fees related to the 2021 Term Loan Facility repricing and no net payments under the ABL Facility. Financing activities in the 26 weeks ended June 29, 2024 also included $54 million common stock repurchased under the Share Repurchase Program, inclusive of $1 million of excise taxes, fees and commissions, $14 million of proceeds received from stock purchases under our employee stock purchase plan, $9 million of proceeds from the exercise of employee stock options and $20 million of employee tax withholdings paid in connection with the vesting of stock awards.

Previous wording

Cash flows used by financing activities in the 13 weeks ended April 1, 2023 included $33 million of scheduled payments under our Term Loan Facilities and financing leases, $65 million of voluntary prepayments of our 2021 Incremental Term Loan Facility, $7 million of dividends on our Series A Preferred Stock and no net payments under the ABL Facility. Financing activities in the 13 weeks ended April 1, 2023 also included $34 million common stock repurchased under the Share Repurchase Program, $5 million of proceeds received from stock purchases under our employee stock purchase plan and $7 million of proceeds from the exercise of employee stock options, which were offset by $11 million of employee tax withholdings paid in connection with the vesting of stock awards.

Current wording

Cash flows used by financing activities in the 26 weeks ended July 1, 2023 included $66 million of scheduled payments under our Term Loan Facilities and financing leases, $65 million of voluntary prepayments of our 2021 Incremental Term Loan Facility, $60 million of voluntary prepayments of our 2019 Incremental Term Loan Facility, $3 million associated with interest rate cap purchases, $7 million of dividends on our Series A Preferred Stock and no net payments under the ABL Facility. Financing activities in the 26 weeks ended July 1, 2023 also included $200 million common stock repurchased under the Share Repurchase Program, $2 million of excise tax associated with common stock repurchases, $13 million of proceeds received from stock purchases under our employee stock purchase plan and $22 million of proceeds from the exercise of employee stock options, which were offset by $11 million of employee tax withholdings paid in connection with the vesting of stock awards.

Previous wording

We had $542 million of letters of credit outstanding primarily securing the Company’s obligations with respect to its insurance program and certain real estate leases, under the ABL Facility as of March 30, 2024.

Current wording

We had $562 million of letters of credit outstanding primarily securing the Company’s obligations with respect to its insurance program and certain real estate leases, under the ABL Facility as of June 29, 2024.

Previous wording

We have prepared the financial information in this Quarterly Report in accordance with GAAP. Preparing the Company’s consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during these reporting periods. We base our estimates and judgments on historical experience and other factors we believe are reasonable under the circumstances. These assumptions form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Part II, Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the 2023 Annual Report includes a summary of the critical accounting policies we believe are the most important to aid in understanding our financial results. There have been no changes to those critical accounting policies that have had a material impact on our reported amounts of assets, liabilities, revenue, or expenses during the 13 weeks ended March 30, 2024.

Current wording

We have prepared the financial information in this Quarterly Report in accordance with GAAP. Preparing the Company’s consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during these reporting periods. We base our estimates and judgments on historical experience and other factors we believe are reasonable under the circumstances. These assumptions form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Part II, Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the 2023 Annual Report includes a summary of the critical accounting policies we believe are the most important to aid in understanding our financial results. There have been no changes to those critical accounting policies that have had a material impact on our reported amounts of assets, liabilities, revenue, or expenses during the 26 weeks ended June 29, 2024.