(Reuters) – US Foods Holding Corp is seeking to hire a chief operating officer and replace its chief financial officer as it faces pressure from an activist investment firm to improve its operations, according to people familiar with the matter.
US Foods, the largest U.S. food distributor after Sysco Corp, has been grappling with labor shortages and supply chain issues since the onset of the COVID-19 pandemic.
While demand has picked up in the last few months with customers returning to restaurants it supplies, US Foods’ profitability has yet to return to pre-pandemic levels because it is forced to pay more to retain workers.
Sachem Head Capital Management LP, a New York-based firm run by hedge fund veteran Scott Ferguson, said in a regulatory filing last month that it owned 5.1% of US Foods’ common stock and that it may seek to speak with the company’s management and organize with other shareholders.
It also said it was being advised by Avis Budget Group Inc Executive Chairman Bernardo Hees, who as a partner at private equity firm 3G Capital developed a reputation for implementing draconian cost cuts. He practiced such austerity as chief executive officer of fast-food restaurant chain Burger King Worldwide Holdings Inc and then as CEO of food giant Kraft Heinz Co.
The management shake-up under way at US Foods offers the clearest indication yet that the Rosemont, Illinois-based company is pursuing changes as it prepares to defend itself against a possible board challenge from Sachem Head.
The company has not had a chief operating officer since 2015, when Stuart Schuette announced he would leave and then became chief executive of American Tire Distributors. It is now looking for a chief operating officer, the sources said, speaking on condition of anonymity.
Dirk Locascio has been US Foods’ CFO since 2017. The company has been searching for his replacement, the sources said.
Pietro Satriano became US Foods’ CEO in 2015 after a federal judge blocked the company’s sale to Sysco. It is not clear how long he will remain with the company, which does not have employment agreements with any of its executives, according to a regulatory filing. One of the sources said US Foods’ board of directors has in recent months deliberated about Satriano’s succession.
“The company does not comment on rumors,” a company spokesperson said.
US Foods was previously owned by buyout firms Clayton, Dubilier & Rice LLC and KKR & Co Inc, which took it public in 2016. It now has a market value of $8.2 billion.
US Foods has been trying to address soaring price inflation and labor shortages that have led to inventory write-offs and higher distribution costs.
It has sought to improve working conditions by capping the number of hours a new employee works and offering more bonuses, according to BTIG analysts.
Still, its profitability stood at 15.3% in the three months to July 3, compared with 17.7% in the corresponding period two years ago, before the pandemic hit. The company will report quarterly earnings on Monday.
(Reporting by Jessica DiNapoli in New York and Svea Herbst-Bayliss in Boston; editing by Jonathan Oatis)
