Columbia food firm meets forecasts

U.S. Foodservice posts earnings gain of 29% in 2nd quarter

Earnings

February 01, 2000|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Per-share earnings for U.S. Foodservice rose 29 percent in the second quarter, meeting analysts' estimates, the Columbia-based distributor said yesterday.

U.S. Foodservice, the second-largest national food-service distributor, reported net income of $27.3 million, or 27 cents per diluted share, in the three months that ended Jan. 1. Analysts expected earnings of 27 cents a share, according to a Nelson Information survey.

Net income in the fiscal second quarter rose 53 percent to $27.3 million, including an extraordinary charge. Excluding the charge, related to retiring debt assumed with the purchase in December 1997 of food service distributor Rykoff-Sexton, income rose 32 percent.

Sales in the quarter rose to $1.675 billion, up 9.3 percent, from the second quarter of 1999.

The acquisitions of Joseph Webb Foods Inc. in November 1998 and Sofco Inc. and Superior Products last year contributed about 5 percent to net sales growth in the quarter, the company said.

U.S. Foodservice has been on an acquisition binge for the past few years, bringing sales up from $1 billion in 1994 to $6.2 billion in fiscal 1999, which ended July 3.

But in the last quarter, the company generated most of its sales growth internally, by aggressively pursuing and landing accounts with restaurants or other food service institutions that are not part of major chains, said Bonna Walker, a company spokeswoman.

Such accounts generate higher gross margins than chain accounts, she said.

The company lost some revenue because it pulled back from less profitable accounts in California, Jim Miller, chairman and chief executive officer, said in a statement.

"In order to reduce costs and focus on profitable business, we took deliberate steps that resulted in a revenue reduction, relative to plans for the quarter, of approximately $26 million," he said.

But because street accounts made up a higher percentage of overall sales, helping to improve gross margins, the company was able to meet earnings estimates, said Kurt Funderburg, an equity analyst with Ferris Baker Watts.

"From that standpoint, it was a good quarter, right on target," he said. "They are growing the business as they have at a very healthy rate, well above the industry" rate.

They have been able to do that, in part, because of their size, he said. In December, the company completed a deal to buy Parkway Food Service Co. in Greensburg, Pa., for an undisclosed amount. Parkway is a privately held food distributor with 182 employees and annual sales of $115 million.

In November, the company acquired Superior Products Mfg. Co. of St. Paul, Minn.

"They've become such a major national player," Funderburg said. "It has allowed them to bid on nationwide chain business, where before they could bid on one or two regional accounts."

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