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Grubhub Is Voluntarily Reducing Q2 Profits to Help Its Restaurant Partners

By Rhian Hunt – Apr 13, 2020 at 11:05AM

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The delivery company has plenty of cash reserves to support its plans.

Food delivery service company Grubhub (GRUB) issued a press release this morning saying it's taking measures and creating promotions that will reduce its second quarter 2020 earnings by a planned amount in an effort to support its restaurant partners. The company explains that it has plenty of cash available, enabling it to be flexible in unusual circumstances and thus help its entire ecosystem. 

In mid-March, when the coronavirus outbreak was just gathering steam in the United States, Grubhub said it would suspend $100 million in commissions for independent restaurants. The postponement was aimed at helping smaller eateries survive business disruptions caused by the temporary end of dine-in service, as state governments began shelter-in-place and quarantine initiatives to combat the spread of the coronavirus.

A customer ordering food delivery while lying on their sofa at home.

Image source: Getty Images.

Relying on $600 million in liquidity, which includes $175 million freshly drawn down from its revolving credit, Grubhub plans a managed reduction of Q2 EBITDA (earnings before interest, taxes, depreciation, and amortization) to $5 million. The deliberate earnings decrease will result from cuts to driver delivery fees, which in some cases will be reduced to zero, and "numerous Grubhub-funded diner promotions," along with safety measures to help ensure the wellbeing of customers, delivery drivers, and restaurant personnel.

According to the statement by Grubhub CEO Matt Maloney and CFO Adam DeWitt, the company was on track to generate $100 million in earnings for the whole of 2020 before this latest round of initiatives. The press release didn't indicate how much the voluntary earnings reduction during the second quarter would impact this figure. Maloney and DeWitt added, "When business and social conditions normalize, we expect to return Grubhub to the growth and profit trajectory we were on before COVID-19."

Rhian Hunt has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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