Foods (USFD 35.31, -5.29, -13.04%) trades lower this morning after
reporting disappointing earnings and announcing the acquisition of Services
Group of America's Food Group of Companies.
The food service distributor reported below-consensus second quarter earnings of $0.57 per share on revenue of $6.16 bln, which was unchanged year/year, missing expectations.
The company lowered its revenue outlook for the fiscal year, priming the market for sales between $24.40 bln and $24.63 bln, down from previous guidance for sales of $24.87 bln. The company expects earnings between $2.00 per share and $2.10 per share, which encompasses current market estimates.
In addition to reporting earnings, U.S. Foods announced an agreement to acquire the Food Group of Companies of Services Group of America. SGA's Food Group of Companies, which operates through five different entities, generated net sales of $3.20 bln in 2017. The Food Group of Companies is based in Scottsdale, Arizona with an employee count of approximately 3,400.
U.S. Foods expects that annual run-rate cost synergies will total approximately $55 mln by the end of fiscal 2022. The company expects that synergies will be achieved by savings in distribution, procurement, and administrative expenses. U.S. Foods expects the transaction to become accretive to adjusted earnings in the second full year after closing.
Returning to second quarter results, total case volume was down 0.9% year/year while organic case volume declined 1.5%. The decline was driven by previously-announced exits of select chain customers. Independent restaurant case volume grew 3.8% with 2.7 percentage points due to organic growth.
The company saw no year/year change in revenue as inflation in grocery and dairy categories was offset by deflation in pork and poultry and lower case volume.
Margin expansion initiatives helped the company improve its gross margin to 18.1% from last year's 17.1%.
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