Company’s 2022 Targets Would Still Trail its Closest Peer and US Foods’ New Long-Term Guidance Does Not Reflect its Full Potential
Disappointed By Company’s Misleading Personal Attacks and Does Not Believe Stockholders Will Be Distracted from the Real Issue of How to Remedy Underperformance
NEW YORK–(BUSINESS WIRE)– Sachem Head Capital Management LP (“Sachem Head”), a beneficial owner of approximately 8.7% of the outstanding common stock of US Foods Holding Corp. (NYSE:USFD) (“US Foods” or the “Company”), today issued the following statement commenting on the Company’s recent earnings announcement and communications with stockholders:
- US Foods’ new 2022 guidance would still be a disappointing result relative to the Company’s closest peer. The midpoint of the Company’s 2022 adjusted EBITDA guidance is $1.25 billion, which implies a decrease of approximately 14% relative to the Company’s pro forma adjusted EBITDA of $1.45 billion for 2019. Consensus estimates1 expect Sysco Corporation (NYSE:SYY) to grow adjusted EBITDA in calendar year 2022 versus calendar year 2019, suggesting that the Company will underperform its closest peer on a relative basis in 2022.
- Long-term guidance still falls significantly short of the Company’s full potential. The Company’s adjusted EBITDA forecast for 2024 of $1.7 billion implies a compound annual growth rate of approximately 3% versus its pro forma 2019 results, with a normalized historical growth rate of approximately 6-7% thereafter. We believe the Company’s plan does not reflect US Foods’ full potential and certainly does not reflect the significant change that we believe is necessary for the Company to achieve that potential.
- The margin gap vs. Sysco remains relevant and within the Company’s control. The first question asked in the Company’s Q&A session is the first question on our minds as well: how is the Company going to address its margin gap with Sysco? In the past, management has been relatively open about the approximately 200 basis point margin gap to Sysco’s domestic business2 and has suggested that approximately 75% of that gap is addressable (in other words, is not the result of structural differences). On the recent earnings call, however, management departed from its previous frankness and indicated that it would not speculate on things “that are outside of [the Company’s] control.” We disagree strongly with this suggestion that Sysco’s performance is not an excellent way to assess the Company’s performance, particularly when the businesses are as similar as US Foods and Sysco’s domestic business.
The Company’s refusal to respond to this question suggests that the current management team has given up on ever closing the margin gap to Sysco’s domestic business and would prefer it if the topic simply went away. We believe that with the proper oversight from a Board of Directors with the right expertise, the Company can succeed in closing a significant portion of the addressable margin gap, leading to a clear path to achieving $4.00 in earnings per share in the coming years.
- We believe stockholders will see through attempts to distract them with misleading personal attacks. The circumstances underlying the Company’s personal attacks on Bernardo Hees were already in the public record and were known to Sachem Head prior to our nomination. We have done extensive due diligence on Bernardo regarding his background and accomplishments, as we have done for all seven of our nominees. We have found him to be an individual of the utmost integrity who has won the respect of his colleagues throughout his career, both as a highly accomplished public company executive and as a current director for multiple US-listed public companies, including Avis Budget Group, Inc. (NASDAQ:CAR) and Bunge Limited (NYSE:BG). We welcome the opportunity to discuss Bernardo’s track record with our fellow stockholders, and we are happy to provide additional information regarding the Company’s misleading personal attacks in the appropriate forum.
We are disappointed that the Board of Directors has been advised to resort to these personal attacks and other distractions in an attempt to limit the debate on the issue that really matters to stockholders: the Company’s operational performance. As a matter of principle, and as we previously mentioned to the Company, we do not intend to publicly impugn the personal integrity of the current Board of Directors or management team during this campaign, and we would encourage the Board and its advisors to do likewise.
We appreciate the engagement with our fellow stockholders and look forward to constructive debate on these important matters, with the goal of driving the best long-term outcome for all of the Company’s stakeholders. We plan to share more details on our goals for the Company in the near future.
