US Foods to buy SGA’s Food Group of Companies

on May25
by | Comments Off on US Foods to buy SGA’s Food Group of Companies |

2018-07-30 05:52:38

US Foods today announced plans to buy a group of companies for $1.8 billion in cash.

But the acquisition—which will increase US Foods’ presence in the Northwest U.S. and create an estimated $55 million in annual cost-savings by the end of fiscal 2022—wasn’t enough to cancel out the food service giant’s lackluster second-quarter earnings.

The company’s stock nosedived 16 percent in mid-day trading, on track for its largest single-day decline since it went public in 2016.

“We had a solid quarter but one that was below expectation,” CEO Pietro Satriano acknowledged on an earnings call. The disappointing results were due to higher freight costs and a decline in case volume, he said. Big customers placed fewer orders, due in part to poor weather and to US Foods’ decision not to repeat an unprofitable promotion in the same quarter last year.

The acquisition announced today “isn’t exciting enough to look through today’s negative earnings announcement,” William Kirk, an analyst in New York with RBC, wrote in a note.

US Foods reported revenue of $6.16 billion—flat from the year-ago period and below analysts’ average estimate of $6.46 billion. Net income rose to $126 million, or 58 cents a share, from $65 million, or 29 cents a share, in the second quarter last year thanks to improved expense management. Excluding non-recurring items, though, adjusted EPS came in at 57 cents, one cent short of analyst estimates.

The five acquired companies, called SGA’s Food Group of Companies, are based in Scottsdale, Ariz., and had a combined $3.2 billion in net sales last year, according to a statement. By comparison, Rosemont-based US Foods has about $24 billion in annual revenue.

“This acquisition will significantly increase US Foods’ reach across key markets in the attractive and growing Northwest region of the U.S. and adds one of the most well-regarded regional distributors to our company,” Satriano said in a statement.

Of the five companies in the group being acquired, 75 percent of revenue comes from Food Services of America, a distribution company that serves 16 West and Midwest states from nine distribution centers, the statement said.

In addition to Food Services of America, the deal includes Systems Services of America, Amerifresh, Ameristar Meats and GAMPAC Express.

In 2015, Sysco scrapped a planned acquisition of US Foods after a judge granted the Federal Trade Commission’s request for a preliminary injunction to block the deal. The deal had been announced in late 2013.

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