IPO Report: Performance Food Group (PFGC)

Francis Gaskins |

Performance Food Group (PFGC) is the third largest player by revenue in the growing $240 billion U.S. foodservice distribution industry, which supplies the diverse $640 billion U.S. “food-away-from-home” industry. The company is based in Richmond, VA.

Five other companies are scheduled for the week of Sept. 28. The full IPO calendar is available at IPO Premium.

SEC Documents

Manager, Joint-managers: Credit Suisse, Barclays, Wells Fargo Securities, Morgan Stanley
Co-managers: Blackstone Capital Markets, BB&T Capital Markets, Guggenheim Securities, Macquarie Capital

End of lockup (180 days): Tuesday, March 29, 2016
End of 10-day quiet period: Sunday, October 11, 2015

PFGC scheduled a $341 million IPO with a market capitalization of $2.35 billion at a price range midpoint of $23.50 for Thursday, Oct. 1, 2015 on NYSE.  Priced at $19

PFGC IPO Summary

PFGC is the third largest player by revenue in the growing $240 billion U.S. foodservice distribution industry, which supplies the diverse $640 billion U.S. “food-away-from-home” industry.

PFGC markets and distribute approximately 150,000 food and food-related products from 68 distribution centers to over 150,000 customer locations across the United States.

PFGC IPO Valuation

Glossary
Pre-IPO grade-score summary
http://gaskinsco.com/scr-rate.htm
Many IPOs in today’s environment are graded C+ and scored 7.
If the pre-IPO grade is below C+ or the score is below 7,
then our analysts may have some concerns about the company’s
outlook and/or its market segment.
If the pre-ipo grade is above C+ or the score is above 7,
then our analysts believe the company’s overall business outlook is very favorable.
C = unprofitable, C+ = profitable

Accumulated deficit (mm)

.

.

-$98

     

Per share dilution

.

.

-$24.32

     
             

Valuation Ratios

Mrkt Cap (mm)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

Performance Food Group (PFGC)

$2,350

0.2

41.6

3.1

-28.7

15%

Adj for IPO proceeds

 

33.6

     
             

COMPARE

         

Sysco (SYY)

$23,750

0.5

34.6

4.5

7.5

1%

             

Note:  PFGC is a Blackstone (BX, private equity) deal

PFGC IPO Conclusion

Neutral plus, C+, 7

12% top line rev growth rate, SYCO's is 5.6 %

12% gross profit, SYCO's is 18%

.2 price to sales, Sysco's is .5

33.6 P/E adj for IPO proceeds applied to debt
Sysco 's P/E is 34.6

Highly leveraged, -29% price to tangible book value

Blackstone (BX) private equity deal

Per share dilution is -$24.32, IPO mid-range is $23.50

Analyst report estimate:  neutral plus

PFGC Business

PFGC is the third largest player by revenue in the growing $240 billion U.S. foodservice distribution industry, which supplies the diverse $640 billion U.S. “food-away-from-home” industry.

PFGC markets and distribute approximately 150,000 food and food-related products from 68 distribution centers to over 150,000 customer locations across the United States.

PFGC serves a diverse mix of customers, from independent and chain restaurants to schools, business and industry locations, hospitals, vending distributors, office coffee service distributors, big box retailers, and theaters.

PFGC sources its products from over 5,000 suppliers and serves as an important partner to its suppliers by providing them access to its broad customer base.

In addition to the products PFGC offers to its customers, PFGC provides value-added services by allowing its customers to benefit from its industry knowledge, scale, and expertise in the areas of product selection and procurement, menu development, and operational strategy.

PFGC’s more than 12,000 employees work across three segments: Performance Foodservice, PFG Customized, and Vistar.

PFGC plans to continue executing the strategies that have successfully delivered net sales, industry share, and profit growth. In the fiscal year ended June 27, 2015, PFGC generated $15.3 billion in net sales and $328.6 million in Adjusted EBITDA, representing compound annual growth rates of 9% and 11%, respectively, since fiscal 2010.

In the fiscal year ended June 27, 2015, PFGC generated $56.5 million in net income.

Sales growth 3 times industry aveage
In calendar year 2014 PFGC had an estimated industry share of 6.0% and its sales growth rate since calendar year 2010 is approximately three times the growth rate of the foodservice distribution industry in that same time frame.

PFGC believes that its current industry share, the large size of the U.S. foodservice distribution industry, and its track record of growing industry share provide PFGC a significant opportunity for continued sales growth.

PFGC attributes its sales growth primarily to its customer-centric business model.

For PFGC , that means understanding its customers’ business operations and economics so that PFGC can help them be successful; placing its decision-making on how best to serve customers at the local level; and partnering with its suppliers to develop its high quality proprietary brands, which are a key driver for PFGC in winning, retaining, and developing customers.

PFGC believes that its customer-centric business model differentiates it from its competitors who make customer-facing decisions outside of the local market and also from competitors who often do not have the scale to develop proprietary brands, provide value-added services, and distribute as effectively as PFGC does.

Profit growth
Since fiscal 2010, PFGC’s profit growth has outpaced its sales growth as a result of shifting towards a more profitable mix of products and customers, capturing operating efficiencies from its sales growth, and delivering productivity initiatives.

PFGC’s mix shift is primarily attributable to increased sales of its proprietary brands and sales to independent restaurants, which represent its highest margin products and customers, respectively.

In addition, PFGC has established a set of productivity initiatives in the areas of procurement and operations called Winning Together, which, together with increased net sales, has driven meaningful profit growth through fiscal 2015, and PFGC continues to benefit from this program.

Intellectual property

Its prospectus contains some of PFGC’s trademarks, trade names, and service marks, including the following: Performance Foodservice, PFG Customized, Vistar, West Creek, Silver Source, Braveheart 100% Black Angus, Empire’s Treasure, Brilliance, Heritage Ovens, Village Garden, Guest House, Piancone, Luigi’s, Ultimo, Corazo, and Assoluti. Each one of these trademarks, trade names, or service marks is either (i) PFGC’s registered trademark, (ii) a trademark for which PFGC has a pending application, (iii) a trade name or service mark for which PFGC claims common law rights, or (iv) a registered trademark or application for registration which PFGC has been licensed by a third party to use.

PFGC's Competition

Certain of PFGC’s competitors have greater financial and other resources than PFGC does.

Furthermore, there are two larger broadline distributors with national footprints.

On December 8, 2013, these competitors entered into an agreement and plan of merger, which was later terminated.

In addition, there are numerous smaller regional, local, and specialty distributors.

hese smaller distributors often align themselves with other smaller distributors through purchasing cooperatives and marketing groups to enhance their geographic reach, private label offerings, overall purchasing power, cost efficiencies, and ability to try to meet customer requirements for national or multi-regional distribution.

PFGC often does not have exclusive service agreements with its customers and its customers may switch to other distributors if those distributors can offer lower prices, differentiated products, or customer service that is perceived to be superior.

PFGC believes that most purchasing decisions in the foodservice business are based on the quality and price of the product and a distributor’s ability to completely and accurately fill orders and provide timely deliveries.

5% shareholders pre-IPO

Blackstone        71.8%    

Wellspring         19.2%              

Dividends

No dividends are planned.

Use of proceeds

PFGC expects to receive $277 million from its IPO and use it for the following:

to repay $276 million principal amount under its term loan facility.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
PFGC Performance Food Group Company 21.38 0.58 2.76 279,082

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