Performance Food Group Could Soon See Sharp Declines

Performance Food Group (NYSE: PFGC) - Sell or Short Recommendation - $21.70 Target

March 29, 2016 concludes the 180-day lockup period on Performance Food Group Inc. .

We previewed the event on our IPO Insights platform last week.

When the lockup period ends for PFGC, its pre-IPO shareholders, directors and executives will have the chance to sell their sell their ~85 million pre-IPO shares (85.8% of shares outstanding).

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The potential for a sudden increase in stock available in the open market may cause a significant decrease in the price of Performance Food Group shares and open a short opportunity for aggressive investors.

Business Summary: Distributor of Food and Food-related Products in the United States

Performance Food Group is the third largest company by revenue in the United States food service distribution industry. The company has over 12,000 employees, 68 distributions centers across 41 countries worldwide, and its clients include Outback Steakhouse, Cracker Barrel, Ruby Tuesday, and T.G.I. Fridays.

PFGC is the parent company over three divisions that distribute products across the United States: PFG Customized Distribution, Vistar, and Performance Foodservice. Together these three divisions support over 150,000 clients in the United States. Its revenue tops $240 billion annually, and they carry over 150,000 national and branded products.

Performance Food Group has a vast portfolio of food products for its clients to choose from, including Braveheart Black Angus Beef and Roma Italian products.

The PFG Foodservice division offers a wide range of consumables including seafood, vegetables, pasta, desserts, bread, eggs, cheese and dairy products, beverages, appetizers and soups.

The PFG Customized division offers meats, produce, seafood, dairy and smallwares.

The Vistar division supplies frozen foods, snacks, gum, mints, candies, disposables and cleaners.

The company's products are distributed to national and independent chain restaurants, pizzerias, quick-service restaurants, hotels, schools, theaters, healthcare institutions and other facilities.

Financial Highlights: Strong Overall Performance

In the fiscal year ended June 27, 2015, the company generated $15.3 billion in sales and $328.6 in adjusted EBITDA, which represents a compound annual growth rate of 9 percent and 11 percent respectively from fiscal 2010.

In February, PFGC reaffirmed its outlook for fiscal 2016, stating that it expected results to be towards the high end of Adjusted EBITDA growth range of 9% to 12%, or 7% to 10% on a rolling 52 week basis.

Additional second-quarter FY 2016 highlights include:

• Net sales rose 2.7% to $3.9 billion
• Gross profit increased 6.5% to $486.8 million
• Operating profit rose 14.2% to $53.8 million
• Net income increased 36.7% to $17.5 million

Management Facing Competition From U.S. Foodservice, Sysco, Food Services of America

Currently, Sysco (NYSE:SYY) and U.S. Foodservice are the two largest foodservice distribution companies in the United States. Other top competitors to Performance Food Group are Gordon Food Service, Marine Paper and Food Service, Shamrock Foods, Reinhart Food Services, and Ben E. Keith Foods.

A strong management team faces the field.

CEO, President and Director George Holm has been in his position since 2002. He has over 30 years of experience in the foodservice distribution industry at companies including U.S. Foodservice, Alliant Food Service and Sysco Corporation. In 2002, he founded Vistar Corporation.

CFO and SVP Bob Evans has been with Performance Food Group since May 2009. He has held executive positions at PepsiCo's Frito-lay, Kellogg's North America, and Giant Foods. Mr. Evans serves as a consultant in Booz-Allen & Hamilton's corporate strategy practice. He holds Masters degrees from the University of Texas at Austin and Princeton University.

Solid Start To Trading

PFGC's IPO priced at $19 per share, lower than its expected price range of $22 to $25. The stock opened on the first day of trading at $19 and closed at $19.20, essentially unchanged. Since then the stock has held remained fluctuated while climbing to reach a high on December 17, 2015 of $25.09 then dropping to $20.29 on January 12, 2016. Currently, the stock trades around $22.91 (3.15.2015).

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Conclusion: Sell Prior to March 29th

We suggest selling ahead of March 29th to take full advantage of impending declines. Our research shows abnormal negative returns of 4.2% in the two weeks surrounding many lockup expirations, particularly those, like PFGC, which has performed well post-IPO, and who boast an array of major pre-IPO shareholders (see below).

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Six firms and sixteen individuals hold 85% of the shares outstanding, currently restricted from sale. Given PFGC's early success, they could be ready to take initial profits.