Performance Food Group (PFG) Investor Presentation – January 2023

Jan 12, 2023 | Bubble Monitor, No Bull Economics

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For some time, the market has been held captive to the Fed’s interest rate hikes and prospects about future actions to fight runaway inflation. Further, the Fed has been telling us that labor costs represent the main inflation culprit. However, comments from a recent PFG investor presentation reveal that the real cause of labor inflation is not something that interest rate hikes can solve.

Key Points

  • In a very insightful presentation, PFG (which delivers 300,000+ food & related products to food service players, c-stores & vending machines) discussed how labor is driving food inflation at a time when labor wage rates are actually beginning to decline.
  • Notably, PFG’s real problem lies with labor productivity (as opposed to wage rates). While the company had very strict pre-covid policies about absenteeism and late starts, management currently considers employees who are late half the time and absent 1 day per week as relatively strong performers. A further productivity problem is represented by the challenges with scheduling around uneven weekly y/y sales changes given the past variability of demand driven by covid fears. It’s very difficult to schedule labor with +4% growth during week 1, +18% during week 2, then +5%, and then +10%.
  • Management noted that labor is an even larger problem for its restaurant customers who talk incessantly about staffing problems. Many of their customers have cut back on their operating hours & management noted that this is probably a good idea.
  • As a result of its labor cost pressure, PFG renegotiated pricing with almost every food service & national account. If PFG was unable to renegotiate more favorable terms, they exited the business. Of course, this represents a major source of food cost inflation being pushed downstream.
  • In any case, PFG’s margin & gross profit per case growth was driven by a change in business mix, with national down, independent up & its proprietary brands up significantly.
  • As existing accounts are buying fewer products, less frequently, PFG’s focus is to develop new business (some of which is represented by new replacement restaurants that are stepping into vacated locations).
  • Finally, PFG reports that its own food cost inflation is dropping at a quick pace on a sequential basis.
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