Performance Food Group Has Ample Scale, But Margins Need To Get Better

Distribution is a tough business, but one that rewards scale and particularly scale combined with efficiency. This is something that giant food distributor Sysco (SYY) understands well, but that other rivals like Performance Food Group (NYSE:PFGC) and US Foods (USFD) have struggled to match. While there are still opportunities to benefit from share gain and share-of-wallet gain across the large food service and convenience store markets, I need to see more evidence from Performance that it can really drive attractive leverage from the business.

Performance Food has been doing well with respect to reported versus expected earnings, with a multi-quarter run of better-than-expected EBITDA results, including a sizable beat-and-raise in the fiscal first quarter (the calendar third quarter). Still, this looks like a situation where meaningful long-term margin improvement is already in the stock and management will have to continue beat-and-raise performances to drive further outperformance.

 

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Performance Food Group Has Ample Scale, But Margins Need To Get Better