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US Foods (USFD) Follow Up After Earnings Straight From The CFO's Conference Call Comments


CFO Dirk Locascio warned about first quarter softness, CEO Confirmed.

Flat sales last 3 years, $23 Billion in sales 2014-2015-2016, no sales growth despite acquisitions.

Enterprise Valuation is over 12 times EBITDA.

Restaurant chains have been reporting flat to negative comparable sales.

Recent comments from US Foods(NYSE:USFD) CFO from the 4th quarter conference call are predicting a slowdown in the Restaurant industry:


Your next question comes from the line of Edward Kelly with Credit Suisse. Your line is now open.

Edward Kelly

Hi guys, good morning. Just a quick follow-up to start on the first quarter comparison, when you say sales and volume a little softer, do you mean that sales and volume might be below the full year forecast or at the lower end of the full year forecast, how should we think about that? Locascio

Good morning, Ed. This is Dirk. So I think what -- we wanted to callout the first quarter because just anytime we see sort of a quarter that's going to be outside of our full year guidance to really try to be transparent about what we're expecting. We will see some softness, I think in across and they would be make it at the lower end of the range, but it's really that mix of the weather along with the way the New Year's holiday fell this year compared to a year ago and then just some other practice including timing of some of one of our initiative benefits that combined for that 200 basis points, but overall we feel good about our volume trajectory and our volume performance with our right customer type this year.

Looks like a warning to me of softer sales and volume for the full year.

A recent article from Business Insider:

"Restaurants are suffering as Americans cut down on eating out"

is forecasting a new reality in eat away from home establishments.

The above comments and article show that the Food Distribution industry is not growing and could possibly headed for a recession in which sales and profits would shrink. Already US Foods is showing no sales growth the last 3 years with flat sales of around $23 Billion each of the last year. Earnings for the last 3 years have also been weak and not indicative of continuing operations.

2014 Company reported $(73) Million of net income

2015 Company reported $168 Million of net income of which $288 million was a failed Sysco(NYSE:SYY) takeover termination Fee. So if you take that away there would have been a loss of over $120 Million. This was disclosed but not highlighted.

2016 Company reported $210 Million of net income which included a non recurring tax benefit of $79 Million with out which the company would have reported net income of $131 Million or around $.59/share.

Taking the $.59/share in net income, US foods is selling at 46 times current earnings.

Valuating US Foods based on reported EBITDA (non adjusted) of $782 Million, it is trading at 12.6 times. This is an unsustainable valuation for a non growing company which could be headed for a recession.

Food industry valuations are varied but for a non dividend, non growing company a fair valuation of EV/EBITDA of 6-8 would be generous.

This would bring valuations in to per share range of $4 to $11 per share or down 60%-85%.

Investors are only banking on positive company comments about how great the company is and predicting growth that the company has not shown for the past 3 years.

Look for US Foods valuation to come in as the take away food industry slows in 2017.

Disclosure: I am/we are short USFD.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.