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May 9, 2022

US Foods (USFD) Stock: What to Expect from Earnings?

By:Ryan Sullivan

What is US Foods?

US Foods Holding Corp. (USFD) is a foodservice distributor that services independent and chain restaurants, hospitals, hospitality entities, government institutions, and educational institutions. Their services include point of sale services, ordering, menu profitability, web design, management and staffing, farming reports, and expert consulting.

US Foods (USFD) Q1 2022 earnings forecast

US Foods reports earnings on May 12th, 2022, before the open, and the current consensus is about $0.31. The current quarter's earnings estimate is up more than 158% from the earnings report one year ago, which was $0.12. Three of the last four quarters of earnings reports have been beats, with USFD reporting higher earnings than what was originally estimated.

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Fig. 1: 4-month price percent change for SPY and USFD.

How has US Foods been performing?

Technically speaking, US Foods is currently trading at $36.82, 14.71% off its all-time high price of $43.10, which was posted on September 12th, 2019. Since late April of 2021, USFD has been trading in a range between about $30 and $40. USFD has not posted a new low since December of 2021 and has not posted a new high since February of 2022.

The last five years of sales for USFD have remained relatively consistent, remaining between $20 billion and $30 billion, with sales jumping from $22 billion to $29 billion in 2020 and 2021, respectively. Financial reporting shows that USFD sales were not immune to the Covid-19 pandemic but fared better than other industries. We can understand their consistency because even through a pandemic, people must eat.

US Foods does not produce a large amount of net income from their sales. Last year USFD reported about $29.4 billion in sales with a net income of about $164 million. We can make sense of this sales to net income ratio by understanding that most of the operating activities that USFD participates in consist of buying goods that have a lot of intrinsic value (food goods) and then distributing them with a narrow profit margin to remain competitive. On top of that, they must employ and manage many employees to facilitate and oversee the transportation of food goods to their customers.

Key Takeaways:

  • US Foods sales have remained consistent over the last five-year period, including the Covid-19 pandemic.
  • US Foods operates with a tight profit margin due to the nature of the goods they distribute and the services they provide.

US Foods Upcoming Earnings Thoughts

The last three months of price action, within the trading range of about $30 to $40, has been choppy. US Foods is susceptible to influence from the global commodities market. If there are issues with producing the goods that USFD purchases and then distributes, it is going to be felt throughout USFD operations. If the costs of food production rise, those costs will be passed through to the customers that purchase their goods, likely resulting in decreased purchasing from USFD customers. End consumer food cost has been rising in 2022 throughout the United States.

The near-term outlook of the global commodities market remains uncertain. That information is priced into the estimates that analysts are giving for next week’s USFD earnings. Estimates for next week's earnings reports are conservative. If we see an earnings report that roughly equals the estimates, price will likely remain in its range. If we see an earnings beat, it is possible that we see price action test all-time highs or conversely test recent lows to confirm price range.

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