Cost Savings Helping US Foods to Manage Inflation, but Economic Weakness Should Pressure Industry

We think US Foods, the second-largest U.S. food-service distributor after narrow-moat Sysco, has emerged from the pandemic in a stronger position than it was prior to the crisis, given the $1 billion in new business secured as operators migrated to larger, more stable distributors, and the permanent elimination of $100 million in net operating expenses in 2020. US Foods' organic sales returned to prepandemic levels during the second quarter of 2021, and long-term opportunities remain intact. But as US Foods has not demonstrated a cost advantage, organic market share gains (outside of the local restaurant segment), consistent economic returns, or superior profits, we believe the firm does not possess a moat.