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Investing.com -- S&P Global Ratings has upgraded the issuer credit rating of foodservice distributor US Foods Inc. to ’BB+’ from ’BB’, citing the company’s consistent increase in market share and expanding profitability. The ratings agency also affirmed its ’BBB-’ issue-level rating on the company’s senior secured debt, while raising the issue-level rating on the senior unsecured debt to ’BB+’ from ’BB’. The recovery ratings for both debts remain unchanged.
US Foods has shown solid execution, leading to consistent case volume growth and EBITDA expansion. The company’s revenue grew 6.4% in 2024, driven by a 4.2% increase in case volume as the company expanded its market share through organic growth and acquisitions. In particular, the independent restaurant segment, which contributes about one third of its overall revenue and is its most profitable customer base, has outpaced the industry.
The company’s S&P Global Ratings-adjusted EBITDA grew 9% in 2024 to $1.67 billion, resulting in an EBITDA margin expansion of approximately 10 basis points to 4.4%. The ratings agency expects ongoing improvement over the next two years.
Despite anticipating softer volume growth in 2025 due to weaker consumer spending, S&P Global believes US Foods will continue to expand its market share. The base case projects annual revenue growth of 5%-6% over the next two years, supported by higher case volumes, modest inflation, and contributions from tuck-in acquisitions.
US Foods’ scale and customer diversification positions it well to manage macroeconomic disruptions. The company’s scale provides it with bargaining power, and its ability to assist its customers in menu optimization and streamlining purchases with its e-commerce platform has enabled continued market share gains. The company serves various segments, including health care, hospitality, education, and others, offering some customer diversification.
US Foods plans to deploy its cash flow toward tuck-in acquisitions and share buybacks. As part of its three-year plan, it aims to generate $4 billion in operating cash flow from 2025-2027, with 50% of that cash flow allocated to shareholder returns, 20% to pursue accretive tuck-in mergers and acquisitions, and 30% for capital expenditure. The company’s reported net leverage was 2.8x as of Dec. 28, 2024, unchanged from the prior year, and within the company’s target range of 2x-3x.
The stable outlook reflects S&P Global’s expectation that the company will continue to grow its revenue and EBITDA base and maintain S&P Global Ratings-adjusted leverage below 3.5x. The ratings could be lowered if US Foods’ operating performance weakens or if it pursues a more aggressive financial policy. Conversely, the ratings could be raised if the company demonstrates sustained operating performance gains, expands its operating scale, and expands its EBITDA margin to above 5% while maintaining a consistent financial policy.
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