US Foods (USF) reported its second quarter earnings yesterday. The food distribution giant has had to deal with the same inflation and supply chain issues as everyone else of late, but still found a way to turn lemons into lemonade.
“Our results this quarter demonstrate significant progress on the execution of our long-range plan,” said Interim CEO Andrew Iacobucci. “Our strategic initiatives are driving results as we grew market share with gains in key customer types, implemented key supply chain initiatives to improve service levels, and expanded our omnichannel strategy with continued CHEF’STORE growth. We remain well-positioned to deliver profitable growth and value for our shareholders in a challenging macro environment and I am confident in our ability to achieve our 2022 outlook and long-range plan.”
USF suffered from shortages in drivers and warehouse workers for the majority of the last two years, but has seemed to recover within the last few months, with orders arriving in a more timely, more accurate manner. The attrition rate in the warehouses is still high, not to mention contentious in some centers, where strikes were threatened over union contract negotiations, However, a restructuring of delivery routes has improved delivery times and efficiency, while better training and some reassignments of warehouse workers has led to greater order accuracy.
Customers have certainly been able to see the improvements, and so numbers pointing in a positive direction should come as no surprise to them.
Net sales increased by 15.2%, which means that the company brought in $8.8 billion. That’s just under the GDP of Rwanda, for some perspective. BUT, the increase is largely explained by the 15% rise in prices over the same quarter last year. And so maybe a better way of determining success is to look at total case volume. Higher volumes mean that more customers are operating at greater capacity, and that USF is moving greater quantities of goods. Well, in this case (no pun intended), the numbers look good.
Total case volume for hospitality increased by an astounding 35% YoY, while healthcare increased a paltry 2.4% over Q2 2021. Volumes within independent restaurants were flat YoY. Unfortunately, there was an 8.7% decrease in restaurant chain volume, which served to offset some of the gains.
Still, maybe the best number we can use to judge quarterly success for USF is gross profit. There we see a number to be proud of, at 18.3% YoY, bringing the total to $1.4 billion, considerably less than Rwanda’s GDP, in case you were keeping track.
These numbers were brought up by optimized pricing and increased freight income from improved inbound logistics, the former of which simply means price increases that make the most profit while pissing off the fewest customers.
Of course, the sun can’t always shine. A company so big has equally big operating costs. USF had to pay $1.2 billion to play this past quarter, a painful 18% increase YoY. Staffing issues such as high turnover and increased wages were mainly responsible for these numbers, along with some help from increased distribution costs.
Looking ahead, the company sees help in the form of improved product selection technology in its warehouses, something that has already helped alleviate operating costs this past quarter. This new initiative is scheduled to be complete by Q3.
Also helping to cut costs are the new routing improvements that have increased efficiency, recently upgraded from pilot program to enterprise-wide protocol.
And so, with everyone and their mother working to stem inflation, it will be interesting to see if something happens to positively affect USF’s third quarter numbers. A drop in prices would certainly make customers happy. But maybe the most notable thing happening is the work being done to operate warehouses in a manner more hospitable to workers. In an earnings call yesterday, interim CEO Andrew Iacobucci made it very clear that addressing turnover rates is a top priority, and one way the company intends to fix it is by implementing the aforementioned product selection technology. However, other avenues are being explored, such as more comprehensive training for middle managers and warehouse supervisors. It was noted during the call that at least half of the pickers have less than a year on the job.