Food Distributor Valuations – June 2022

Other than in 2020, the values of publicly-traded food distributors increased over the last five fiscal years and through June 2022. The industry was adversely impacted in 2020 by reduced consumer demand in the food-service, hospitality, and travel sectors. Much of the growth in 2021 and the first six months of 2022 coincided with lighter pandemic-related restrictions and strong consumer spending. This article will examine some of the factors that appeared to have impacted the valuations of publicly-traded food distributors.

This article updates our December 31, 2021 analysis.

Important notes: This article examines potential driving factors for publicly-traded food distributor valuations from a financial statement perspective. An actual business valuation requires an in-depth analysis of the business operations and associated risk factors that are not always evident from the data on financial statements. Also, to keep the length manageable, this article will focus on what are typically perceived as primary value drivers. It will not touch on every observation in the data. Check out What is Value? and Risk and Return in the Market Approach for a quick read on the basics of risk and return and how they apply to this article.

The industry constituents for this analysis are listed below. The effective date of this analysis is June 30, 2022.

Figure 1 summarizes three items for the food distributors:

• Market value of invested capital (“MVIC”) calculated as the sum of market capitalization and interest-bearing debt;
• Median revenues; and
• Median earnings before interest, taxes, depreciation, and amortization (“EBITDA”).

The latest fiscal year is notated “LFY” (2021), while the latest 12 months is labeled “LTM” (latest available information as of June 30, 2022).

Valuations generally increased over the last five fiscal years, outpacing improvements in financial performance overall. Valuations continued to grow in the LTM period, despite the broad deterioration in economic outlook and market conditions.

As was noted earlier, much of the improvement in 2021 occurred as COVID restrictions lifted and consumer spending continued to rise. However, as demand continues to increase, competitive challenges remain. Cost control measures are necessary to maintain profitability amid rising delivery and labor costs. Executives in the foodservice-focused industry subsegment identify investments in automation (among other factors) as one way to maintain a competitive position in the industry. Significant future capital expenditures tend to impact valuations when such expenditures become known to the investor community.

Valuation Multiples

Figures 2 and 3 provide a view into the historical trend in valuation multiples (revenue and EBITDA).