No-Moat Performance Food Group Closes Its Book With Solid Results, but Shares Unpalatable

We don’t plan a material change to our $39 fair value estimate for no-moat Performance Food Group, or PFG, after digesting fourth-quarter results in line with our expectations. In the quarter, organic sales shot up 14.5% (excluding the extra week), primarily aided by food inflation (13.6%) and flat organic case volume growth. While PFG has yet to show noticeable signs of softening demand, we plan to lower our U.S. food-service industry case volume forecast to flat (from 2%) for PFG’s fiscal 2023, as consumers are more likely to eat at home to help curb inflation. Still, we are encouraged by the PFG’s share gains in all its 15 independent categories (roughly 19% of 2022 sales), despite looming threat from narrow-moat Sysco’s push into the Italian eateries. In addition, healthy growth (8.4%) in PFG’s private-label brands strikes us as positive, as we believe these products provide $0.35 per pound of incremental profit relative to the national brands, offering potential margin upside.