Q4 2020 Performance Food Group Co Earnings Call
The school year Q4, Twentytwenty earnings Conference call. If you would like to ask a question at the conclusion of the prepared remarks. Please press the star key followed by the number one on your telephone keypad at any time.
I'd now like to turn the call over to Bill Marshall Vice President Investor Relations for P.F. Ji. Please go ahead Sir.
Thank you Laurie and good morning.
Here with Jordan I Hope you have to CEO and you know 50, CFO, we issued a press release regarding our 2020 fiscal fourth quarter and full year results. This morning. The results discussed on this call will include GAAP and non-GAAP results adjusted for certain items. The reconciliation of these non-GAAP measures to the corresponding GAAP measures can be found at the back.
The earnings release.
You can find our earnings release in the Investor Relations section of our web site at P.F. GE Si Dot com our remarks on this call and then the earnings release contains forward looking statements and projections of future results. Please review the cautionary forward looking statements section in today's earnings release, and our SEC filing for various factors that could cause our actual results to differ materially from our forward.
Looking statements and projections now I'd like to turn the call over to George.
With the close of our fiscal year, we can reflect on what has been an extraordinary 12 months for performance food group.
There is a great deal for our organization to be proud of we started the year announcing the transformative acquisition of Reinhart, while still welcoming the brown organization into the performance food group family.
To finance Brian.
Yes for equity and bond offerings in the fall plus the reinhart transaction working quickly to integrate that business.
We also welcome new members to our leadership team and board of Directors a great deal in the first eight months or our team continued to increase organic penetration and grow our independent and private brand cases ensure through February performance.
School Food group is having an outstanding shortly after that as the world began to lock down to slow the spread of Cogan.
90, and the pandemic, everyone our associates and the customers we serve kept moving forward.
PSG moved quite simply to help our customers adapt to the netted to cut costs reduced.
Lines of business and keep our associates safe and healthy.
As volume rebounded we brought back some of our furloughed workforce.
We will continue to keep a close eye on our operating expenses and our labor forces we move through.
For two also invest in our business too.
Market share.
During the fiscal fourth quarter. We also completed multiple successful capital raises to strengthen our balance sheet.
Jim will provide more detail.
The restaurant industry has always been resilient and innovate.
Has an impressive but not a surprise many restaurants, we pivoted to keep their business running takeout and delivery service.
Curbside pickup became new revenue stream for many of our customers the creativity and agility of the Restauranteur has never been more.
Our evident.
Meanwhile, PMT has been right by their side hub redesigning menus and most products they need.
Our leadership made the strategic decision to continue.
Reinforcing our efforts to help our existing customers and win new streams of business. We believe this decision has paid off.
Our total foodservice.
Well industry.
And this outperform from its was apparent across a range of customer accounts with particular strength in pizza Italian.
Existing contracts.
Our organic or declined 25.8% outpacing our total company organic taste declined 34.2%, including Reinhart, our independent case volume was almost flat down just 0.8% compared to a total company case declined 11%.
Manny.
If you have asked why our results in the independent several factors at play I will highlight a few things that we believe said organization apart.
Experienced some well trained sales force.
Yes, when they need help.
More than ever before.
We will we get rewarded with market share gains from our salespeople.
Second.
Yes.
We made the strategic decision to accept shipments from our suppliers at the we had product to sell to meet customer demand and our suppliers were able to keep their supply chain movie.
Third our mix of business and in particular strength competes in a tie in us provide.
I had a nice tailwind we believed that the mix of business for our foodservice current environment.
The results have been very encouraging in fact during the fourth quarter of fiscal 2000, a greater percentage of our independent case volume.
Accounts and legacy foodservice business than any previous quarter since our IPO in 2015, we believe that.
This reflects significant outperformance compared to the overall in the quarter. We also discussed adding over 400, new locations of chain business, which has now been fully integrated we continue to look for profitable new business both in the independent channel.
Our Vistar business has also begun to see some improvement, though the channels. They serve Walker and in many cases continued to be some of the hardest hit in particularly we expect movie theaters to begin reopening over the next few weeks and the office coffee services.
And continues to be impacted by many people working from home.
The retail value and corrections channels were relative bright spots for the business. We're hopeful that business will improve over the balance of the year, though we are prepared for an extended period of lower sales for vistar.
In late June we provided a look at our weekly sales trends today, we are providing the same data for the weeks through August eight despite the several states reinstituting restrictive conditions on the restaurant industry, our with July in early August.
Our total organic sales are running at about a negative 12.5% clips our foodservice organic sales have been in the low single digit declined despite.
Continued softness in the northeast and the West Coast. While this has been going on we have continued to successfully.
We integrate the Reinhart organization.
We're very pleased with the progress so far no tracking on or ahead of schedule and all the areas. We measure we continue to feel confident in the amount and timing of the synergy targets that we laid out at the deal announcement.
These are extraordinary till shifts are going the extra mile to care for our customers and our communities.
We have many examples of our divisions are giving back to their communities such as our Vistar mid Atlantic location donating six truckloads of products to hospitals in Philadelphia, New Jersey to support frontline healthcare workers today I'm happy to highlight the following individuals for an active heroism and acts of kindness and an amazed.
An accomplishment I.
I want to start with Nick.
Perkovic one of our area managers for performance Foodservice, Chicago, Nick demonstrated true heroism jumping into action when he spotted a local building on fire the called 911 and alerted to building occupants before using fire extinguishers to fight the blaze until the fire departments.
In NYSE lean hide a 24 year old veteran driver with our performance food group customize division in Florida. After a long ships delivering more than 1000 cases 10 locations Wayne exemplified our value of putting people first see stepped in to help the driver stranded with a flat tire and earned the gratitude.
Of the drivers family for Executive times.
I want to highlight the did dedication of our essential responders, who are working on site everyday to ensure our customers receives a service they need.
And have come to expect from us I want to call out Rob sand class from Reinhart Marshall for recently, achieving an amazing milestone of picking 400000 cases.
Without an air.
And thanks for all PSG associates, who are working so hard to keep the food supply chain strong for our customers and our communities as I said in our last earnings webcast I continue to believe that we will emerge from this period as a stronger company in many ways. Our salesforce is engaged in season.
The market share opportunities every day.
We are steadfast in our commitment to reduce our cost base to protect our long term profit growth. Meanwhile, we're in a very strong capital position to both whether the current situation thrive as the market recovers.
The industry, we serve is vital to this country's food supply chain.
And is working diligently to adapt new realities. We are proud of the role we play in this endeavor I would like to thank all of our associated with the drivers of warehouse workers, who are on the front lines to our Salesforce, we're working hard to healthy.
Existing customers and build new lines of business and gain market share to the individuals who manager inventory finances, and so much more.
Never felt better about engagement of our cell ships and the strength of our partnerships up and down the supply chain.
With that Im going to turn things over to Jim who will give you more detail on our fourth quarter and financial position.
Thank you George and good morning, everyone I'd like to start with our liquidity position in cash flow profile for the full year and fourth quarter. Many of you've asked about our ability to generate cash with significant volume declines.
We're very pleased with our organizations ability to manage working capital and generates strong cash flow and liquidity.
Despite our lower operating results in the fourth quarter during the full fiscal year, we generated about $644 million of operating cash flow the nearly $466 million of free cash.
The represents a $306 million increase in operating cash flow to 287 million increase in free cash flow compared to fiscal 2019.
This was the result of significant working capital improvements in the most recent order as we work down inventory and manage payables, while continuing to focus on collecting receivables.
I'd like to thank all of the associates, who worked tirelessly to manage our financial position as we've described in the past our business typically generates cash when volume is declining as volume begins to rebuild and we rebuild our inventory levels. We typically experience a cash outflow as a result for us.
For us continue to reopen we would anticipate higher levels of inventory and receivables, which will be a use of cash in the coming months.
Of course, we look forward to the situation is that means our business trends continue to move into right direction.
We ended the quarter was a very strong total liquidity position of approximately $2.1 billion, an increase of nearly 912 million since the end of our fiscal third quarter.
Liquidity at the end of the fiscal fourth quarter consisted of about $441 million of cash plus 1.7 billion of availability on our Aviall facility.
The liquidity improvement was the result of positive cash flow generated from working capital as well as the financing activities in April.
As a reminder, we've raised capital during the fiscal fourth quarter through a mix of equity and fixed income offerings to strengthen our balance sheet and liquidity position.
During the quarter, we issued over 15.5 million new shares for net proceeds of 337.5 million.
We also issued $275 million of new debt and raised an additional 110 million through 364 to a term loan with several lending institutions.
We believe that our decisive action in the capital markets has positioned us to take advantage of long term business opportunities.
As well as protect us from a prolonged economic downturn.
In the near term, we will continue to look for organic market share opportunities that will use our liquidity to service our customers.
However, the strength of our balance sheet is also positioned PSG to take advantage of M&A opportunities that may arise over the intermediate term.
As always we will be disciplined with our capital allocation and believe that targeted transactions can enhance shareholder value.
I'd also like to briefly touch upon two other important items during the quarter, our bad debt and inventory reserves. As you know we have monitor both of these items closely that I'm pleased with our team's efforts in both areas. Despite a challenging backdrop.
We estimate that the impact of coded 19 resulted in a $48.8 million increase in our bad debt expense in the fiscal fourth quarter and 68.3 million dollar increase for the full year.
A bit of color on this line item, we use the same methodology to calculate bad debt in the fourth quarter as we did last quarter specifically.
We looked at both the aging schedule of our accounts receivable as well as other accounts that had not yet age significantly, but where we believe there may be credit risk or we're aware of specific customer credit issues.
Despite the stars business challenges due to the segments channel mix many of their customers are large and continue to pay on schedule.
Still given the current external environment, we have fully reserved for the theater jail.
In total Vistars, a our reserves at the end of our fiscal year were 15.2 million.
In foodservice restaurant Reopenings have led to good collections of aging balances in June however, given the segments exposure to smaller customers. We have reserved a total of 59.7 billion for the segment at the end of fiscal 2020.
We will continue to follow this closely but are encouraged by the recent pace of collections. We also booked at $22.8 million increase in our inventory write offs and the fiscal fourth quarter compared to the prior year period.
In this case vistar experienced a larger relative impact as a percent of gross inventory compared to our foodservice segment.
Due to channel exposure.
Please note that we did not exclude bad debt expense or inventory write offs from our calculation of adjusted EBITDA.
With that I'll turn to our results for the fourth quarter and the full year.
Significant volume declines in the first few weeks of our fiscal fourth quarter were somewhat offset by the ebay Brown it right art acquisitions.
Total case volume decreased 11.5% for the fourth quarter compared to the prior year period, while our full year cases grew 7.6%.
Underlying organic case volume declined 34.2% in the fourth quarter and declined 10% over the full fiscal year.
Net sales declined 2.1 for set in the fourth quarter fiscal 2020 to 5.8 billion, but were up 27.1% over the full year to $25.1 billion.
The decline in fourth quarter 2020, net sales were primarily attributable to the impact from cobot 19, partially offset by the acquisition of ebay Brown and ride art.
The acquisition of ebay Brown contributed an additional $377 million to net sales for the quarter.
Including about 94 million related to tobacco excise taxes.
Right Art contributed approximately 1.2 billion to net sales in the quarter.
The decrease in net sales was partially offset by an increase in selling price per case as a result of inflation in mix and overall food cost inflation was approximately 0.8% in the fourth quarter driven by inflation in meets in particular beef and do a lesser extent eggs and this was off.
Set by deflation in dairy products in poultry.
Gross profit for the fourth quarter fiscal 2020 decreased 8.7% compared to the prior year period to 639.1 million due to the current environment related to covert 19, and partially offset by recent acquisitions.
Gross profit for case was up.
One five in the fourth quarter versus the prior year period, and gross profit margin as a percentage of net sales was 11.1% for the fourth quarter compared to 11.9 for the prior year period.
Gross margin decline was driven by TV brands lower margins due to tobacco sales.
Operating expenses rose by 44.2% to 864.7 million in the fourth quarter compared to the prior year period. The increase in operating expenses was primarily due to acquisitions an increase in professional fees related to acquisitions, an increase in contingent consideration.
An expense related to the ECB Brown acquisition.
And an increase in personnel expenses, partially offset by decrease in bonus expense.
The increase in operating expense in the fourth quarter was also driven by the increase in bad debt expense discussed earlier in the call.
We continue to focus on managing our operating expenses to match demand shelter in place orders that are quick and dramatic impact on sales in late March in early April.
While we moved quickly to reduce our cost base. This lag to the face of sales declines.
As we have remained diligent around costs and our sales of slowly recover we seem consistent improvement that our monthly adjusted operating expense as a percent of net sales.
As a result April was the only month.
We experienced negative adjusted EBITDA.
As a fourth quarter adjusted EBITDA declined 97.6% to 3.8 million compared to the prior year period.
Our effective tax rate was 42.3% for the fourth quarter and 48.6% for the year.
Excluding the impact of onetime items, the effective tax rate from operations would have been comparable to the prior year.
The diluted loss per share was a $1.19 in the fourth quarter compared to diluted EPS of 60 sets in the prior year period.
Adjusted diluted loss per share was 86 cents compared to adjusted EPS of 77 cents in the prior year period.
Let's turn to our fourth quarter results for our two segments, our foodservice segments fiscal fourth quarter sales grew 8.8% to 4 billion driven by the acquisition of radar.
Foodservice EBITDA decreased 79.6 in the fourth quarter to 27 million.
Net sales for Vistar decreased 8.1% in the fourth quarter compared to the prior year period to $1.8 billion. This decrease was driven by the impact of cobot dissecting, partially offset by the acquisition of VB Grail.
Fourth quarter EBITDA for Vistar was negative 110.3 million for the full year fiscal 2020, PSG invested 158 million in capital expenditures, an increase of 18.9 million versus the prior year period.
As you know we withdrew our fiscal 2020 guidance in late March as the covert 19 pandemic added uncertainty not only to our business at our customers, but business around the world.
We continue to be encouraged by the recent sequential stabilization in our weekly sales trends.
However, we know there's still a good deal of uncertainty for the next several months.
In summary.
We feel good about liquidity and working capital management, and we believe it positions us well for the long term.
We appreciate the resilience and the agility of the restaurant industry and how hard our associates of works to keep our country's food supply chain moving.
The strong recovery and weekly sales has been encouraging and we believe our investment in the Salesforce has already produced meaningful market share gains.
Our salesforce is an important asset we bet on them our customers counted on them.
And has rewarded PSG with market share.
We appreciate your interest in performance food group and with that we'd be happy to take your questions.
Thank you at this time I would like to remind everyone. If you would like to ask your question. Please press Star then the number one on your telephone keypad.
Your question has been answered and you wish to remove yourself from Nick you press the pound key.
Your first question comes from the line of Edward Kelly of Wells Fargo.
Hi, guys good morning.
So maybe just first on on on case growth trends. So you saw it looks like a little bit of improvement and the August eight week from.
In the prior trends is there anything developing there or is it too early to tell and then I'm just kind of curious how your independent.
Business performed.
After that mid June period, when cases started spiking in some of these states.
Yes, we.
Well have to look at that may be at as legacy performance foodservice and legacy Reinhard.
We've continued to get slightly better.
Although the markets that were kind of leading the way for us.
In may and most of June.
Actually softened as the restrictions.
Greater and as.
The cases for for coated increased and I think people were less comfortable going out to eat but during that period of time. The northeast has gotten slightly better. Although still are most challenged area and the west coast has gotten a little bit better but also still challenged.
And then within Reinhart.
It's kind of in North South thing they they've done better in the south than they have in the north and as the south kind of.
Got a little bit tougher is when the north starting to show some signs of life. So.
That's just kind of made us flat throughout that period of time with.
With organic growth.
In the negative mid to high single digits.
Do you think would the most recent week George if there's anything developing there from the trend perspective, where it's just too early to tell.
It really is too too early to tell.
We started this week out very strong.
We don't have the consistency that we typically have had for years.
It really depends on what's happening with this virus.
Okay, and then I wanted to ask you about EBITDA and really sort of EBITDA performance by month.
And can you provide maybe a little bit more color on how things progressed during the quarter I'm, particularly interested in June and how June look because you know I guess it took you sometime to get your arms around cost, but then cases where improving.
It's impossible to look at June sort of like year over year EBITDA on a pro forma basis, how much would that be down.
Or could you talk about from a margin perspective, and just kind of curious as any help you can give us around June that would help sort of frame, how we should be thinking about fiscal Q1.
Yes may was significantly better than April and June was significantly better than may, particularly if you kind of set aside these different accruals that we've done particularly in foodservice.
This star is much more difficult that they have done.
An amazing job from an expense standpoint.
He brown has done quite well and then as we got into July which is historically a huge earnings month for us. So I got up by going to preface it with that but as we got into July we had.
Actual EBITDA growth from the previous year in performance Foodservice ended reinhart.
And of course in the two combined we had nice growth. We also in our customized business have been able to get that.
Two of profitability even.
Even though sales are consistently weak with that being dependent on casual dining.
That's helpful. On the last thing I wanted to ask you about Georges.
How are you thinking about profitability in the business. Once this pandemic is over.
You've clearly gaining share through this process.
How do you think about margins and things normalize is there any permanent impairment on the gross margin can you be as profitable from an EBITDA standpoint on a margin perspective, maybe even better.
I just kind of curious as to just.
Perspective is on all that is right now.
Yeah, well you know if I look at July I would say that foodservice.
Im confident that is things normalize will be more profitable than we have ever Ben.
Our gross margins have been up in that business.
Particularly per case.
Obviously, we've had some inventory initiatives, but do you just look at the week to week margins that were running we're running the best margin growth that we've ever had.
I'm just real confident in that business, we've had a nice increase in productivity.
Across all our businesses, but I think a lot of that is because when we did the furloughs.
We did that basically bison, yardi and warehouse and delivery.
And we have not had a great turnover problems as a company, but we certainly had a churn problem.
And when you take people that have been with us for the most current less than 90 days no longer here was amazing the increase in productivity when you're relying on just experienced people.
To get that job done so I think that as we bring people back.
And as we ramp up training I think we should be able to continue not at the level that we have been from appointed Tivity standpoint, both I think we can do well and then.
In our sales area.
Same thing I mean, the people that we did for lower very few and they were people was less than 90 days and today, our average sales since more business and they did pre cold.
And we have.
Pretty much in the teens every week of Opcos that actually are running above the previous year and independent sales now part of that is.
Driven by.
Pizza.
But it's not the kind of numbers for the dominoes putting out.
Were they just tests such a great platform part for delivery in some of our pizzerias our armed.
Somewhere between what a pizza would run and.
Pizzeria would run that delivers and casual dining still better but but.
Not the impact that you would think but from what we see we feel like we've picked up share and every type of independent restaurant.
So I think I think thats, a long answer, but I think it when we get through this will be in better shape.
I'd now vistar, it's going to its going to be a while in vistar that has an extraordinarily well run company, but.
Their channels that they are in for the most part our depending on.
Large groups and people moving around and people are moving around and people are getting in large groups. So it's going to be while.
Thank you.
Thanks.
Your next question comes from the line of John Heinbockel Guggenheim.
Hey, George let me start when you look what's going on with your competition and the recover you've seen what does your appetite.
Besting incrementally in sales right at BSG and that Reinhart.
Is there is other good candidates out there would you like to ramp that a little bit.
Now that will work well beyond the past the worst of this yet.
When you think you want to still be cautious.
Well you know our our initial.
Stance was to protect our existing salespeople.
Takes a long time to build the Salesforce, we've really been at this.
2005, and Weve arm.
Rome and had the least us fairly significant amount of.
Salespeople and does it's a hard job it's for all practical purposes, a seven day week job.
And you.
You don't want to take steps backwards, there, but we really werent in a hiring and invest mode. We were more in keeping our people and and making sure that they were there for the customer because we saw a lot of changes within our customer interactions during that period of time now of late.
We had been hiring salespeople again.
It's an investment, but I strongly feel it's a good investment we give our people a great deal of autonomy.
Around how the handle that in the field and they obviously see.
The the opportunity that we have and they're the ones that really have been starting to expand the sales force again so.
Short term cautious some money but.
It is there a great asset.
And then secondly, if you think about.
Yes, Brian Harvey.
I know that was an area you want to go invest in particularly get their top line moving.
Is that getting more attention.
Within the organization.
Yes, I mean.
The numbers that that we get at Weve.
We saw them in May and June actually gain sharing independent something they have not done in a long time now, albeit it was small share gains are not like we experienced in performance foodservice, but.
It's heading the right direction.
We are in the process of getting.
Our compensation into each one of their opcos.
We're not halfway there yet, but we're close to half way and we will be done before the end of the calendar year.
And also we've made some significant changes to their to their pricing system.
Which is.
Is moving at the same pace that we are with the compensation changes.
Yes, we just got no surprises with Reinhart really I mean, we we felt like it was a very well run company that just struggled to grow and and that's exactly what we have found out is it is just that and it's a culture change did they have to go through but theres no lack a willingness and.
[music].
We don't have.
Companies running increases over the previous year like we're experiencing performance foodservice, but we're seeing progress.
Alright, and then lastly, just on drop size, obviously, thats got to be trending better sequentially.
Maybe talk a little bit about.
Where that is relative to history.
And.
On the new accounts when you bring on those accounts.
Drop size versus existing obviously, it's going to be smaller but is it significantly smaller kind of as people try louder.
Decide to use you, it's pretty small drop sizable beginning.
Yeah, well up.
Speak to the route size first we are actually right now our average sales persons writing more business than we've ever had only slightly more but more than we've ever had theres. Good there's bad with that.
No part of it is that we weren't adding people there for a while and we did.
For low some of the people that.
Kind of hadn't been around long enough to be train to be effective in this type of environment.
Hum.
But.
That's correct and we're proud of that as far as new accounts.
Really the way we picked up the new accounts.
Was.
Old fashioned telemarketing, I mean, just calling and calling and carlin.
Safe book, which.
I don't have great understanding for but our people use that heavily.
Sound that.
It's a business that first of all sticky customers.
Don't leave that easily.
And it's hard to get that decision maker, particularly if its the owner to get amount of significant amount of time with them.
But.
When you've got.
The phone and you've got zoom in and just so many different ways to get them and they got time on their hands, we were able to get a good deal accomplished it is hard to to do a great amount of penetrating during that period of time.
But we did and we worked hard at it and you have a lot of things that changed.
No we helped customers.
To curb side, we help customers would take output for the most part that's better is that the we are that's not really where they want it.
The attention they wanted to make sure they had to product that they need it when they needed it and I think thats, one or salespeople people really work effective.
And.
We also saw a drop in the amount of orders that were coming in from the customer like remote.
Order entry and I think there were several reasons for that one is.
They were cutting their menus that a lot of questions.
Around product and in many instances the person that placed the orders at the restaurant was for low so they didn't even know how to get their orders and.
And I think that helped with the connection between our salespeople and our customers.
But but that's net and you know what when when things get.
When that day comes where things are back to somewhat normal.
I think we'll have great penetration opportunities by continuing to hold on to this increase in number of accounts we've had.
Thank you.
Okay.
Your next question comes from the line of Kelly Bania of BMO capital.
Hi, good morning, Thanks for taking my question.
Just curious if we can talk a little bit more about expenses.
It looks like they declined by about $40 million, if you take out the lumpiness.
Bad debt on a sequential basis.
So curious if you could just talk a little bit more about the drivers there quantify the bonus expense that you called out.
Just really trying to think about where.
EBITDA margins could get back to what is it.
Correct.
Trend and the cost cuts.
Yes, I'll have Jim comment on some of that too.
We worked very hard at making sure that we were responsible going through this and and that we.
Did as good a job as we could possibly do with our expenses, but setting aside that.
[music].
No one knew and this would turn the other way we wanted to make sure that we had the inventory when it did we wanted to make sure that we had the people to handle the business.
I mentioned, how difficult it is to develop good salespeople and the China. It's just as tough with drivers. So we probably I don't think I could characterize us as being real aggressive around expenses, but what we did learn gone through this is.
We feel that we can run our company.
With less people or at least people per revenue.
Then we did in the past and we've always felt it had the most companies do we felt that we were extremely lean, but I think we've learned from this and I think that we're going to come out the other end as a leaner business than we were going in and Jim you might have some comments there too yeah. Kelly. Thanks to the question you know history.
Currently our Opex was around 70% personnel, mostly from truck drivers warehouse workers in the Salesforce.
As we've talked we adjusted the workforce.
With furloughs, but also we lend a whole lot of employees to the grocery channel and both of those had a big impact on the variable expenses. So that's reduced opex that reduced personnel and also has reduced the amount of variable expenses that we have to work with it.
But we took a lot other steps we approach to I think at a very disciplined and structured fashion, we built a detailed action plan.
With four phases that we would work through from a.
Hey, resetting of our Opex basin think of it this way or the first phase is included eliminating travel and not essential expenditures hiring freeze we put in mid February we eliminated new hires and we look to contractors in overtime and all those things we've talked about that we would do.
We did those.
At the same time, we also paid close attention in the made sure that we had our kober benefits right and we.
Reduced hours for benefits eligibility and we want to protect favor for certain associates in the short term, we really took a closer look at critical health and wellness activities.
It was really important for us to loan and ways to other channels.
To make sure they had work to do if we could that was one of our first priority. So.
I'd ask you to to visualize us taking a very detailed structured approach to managing opex.
We got Opex down to the level that we thought was appropriate and yet didnt damaged the business. So that we would be in good shape. The run the company for the mid to long term and now that's where we are.
And I feel very good about our reset cost base.
Thank you that's that's helpful. Just.
One other one for us.
You know PFS, clearly performing stronger than the peers and you mentioned a little bit of.
Next there with Italian index, Ken, but I guess Reinhart also.
Stronger so.
Can you help us think about just sales.
Just in customers versus new customers, I mean, you're clearly gaining market share, but it really just mix.
How much do you really think.
Comes from maybe a different approach to the way you're supporting the Salesforce through this period I'm just any thoughts you have there would be helpful.
Yes, Kelly like most companies, we have some pretty good systems around tracking sales and where those sales are coming from.
And.
Little bit.
Quite a bit skewed in March but after March.
Totally different than what we're used to look and looking at so we look at how much new business. We have that we didn't have the previous year and that number as we got deeper into April and into May and June and even more so in July that number continued to go up.
And then we look at the lost business and it wasn't as we got into June it wasn't all that different.
Variances in the past as people did start to open up now the northeast less so west coast less so.
But.
If you get outside of those two areas, we get orders today from over 90% of the accounts that we used to get orders from pre kogan.
So it's the penetration number and that's the accounts that we sold both years, which has been the most interesting because.
That started out as as a.
As a huge negative.
Ironically it started out.
As quite a large negative and then it got worse as more people got into takeout.
Yes.
They open back up with a lot less business than before and that was kind of may and then it has built.
It's gotten better and better since then but we're still running from a penetration standpoint, the worst numbers we've got.
Right.
And it's just because people aren't doing the business that they used to do in these markets that that were later to have.
The bigger covert issues that opened up in Canada kind of got close back down a little bit you could see those penetration numbers just.
Go back up and then go back down. So this is really all about.
How the market response to this virus.
Thank you.
Your next question comes from the line of Jeffrey Bernstein of Barclays.
Great. Thank you very much.
Couple of maybe broader industry questions.
Does seem like you solar.
Pretty incredible resilience where stability through July.
Just as we noted I guess seems to have improved modestly the past week or two I'm. Just wondering how you guys at least think about the recovery from here.
Whether the internal assumption would be for continued modest improvement for yourselves and all the broader industry or do you think you know there's going to be ongoing challenges and sales are going to remain negative without a vaccine just trying to get a sense for how you think about the recovery from here.
You know we.
We're pleased with where we're at now obviously like anybody we want to improve.
And I think we will continue to improve but.
With the caveat that.
The virus kind of puts a lid on it so.
We went into this from an independent standpoint, running a little bit over 7% case, both which is the best that we have done for for a couple of years.
And we don't know.
What equate to today with with the share that we feel we picked up.
But I think for us today, if if we continue.
Particularly in performance foodservice because this ours is truly different situation. If we continue to run.
Kind of high single digit.
Case declines and it doesn't get better we probably gonna have to adjust some expense, but today, we feel like.
If if there is a vaccine that would be tremendous but I think didn't without that I think it's kind of it could continue to get better. So we want to be in a position to take advantage that are what what.
Kind of it's been our overall fee.
I wanted to.
The wind is business down so that we could wind up quickly not pull the plug.
And we.
We.
Not.
To the extent that industry red.
Theres anybody has a crystal ball as to what things are going to look like.
As we get into the fall.
Andy if the industry comes back we will have the people available we'll have the inventory available.
Got it now I know, it's a tough forecasting question.
And then just on the independence I mean.
You talked about your resilience and I think it's roughly a 30 or.
Service distribution sales, but just wondering what you've seen whether it be accounts you work with directly in terms of closures or maybe broader industry commentary around closures.
I know your largest peer.
Noted that estimates on independent restaurant closures, you know just seems highly exaggerated I'm just wondering your perspective, whether through your own internal channels with your independence or whether broader industry commentary you've bought into.
Highly exaggerated would be right.
Now that doesn't mean that the longer this goes on that there could be.
You know some continued closures were always concerned about that.
Most of of restaurants are pretty much single purpose buildings I mean, they can be changed into something else, but at a pretty big expense.
Particularly when you got coolers and freezers and you've got a lot of cost into those building. So we do feel that those that get closed that.
And the laser, but eventually they're going to become restaurants.
As a company we stated for.
How at least a couple of years, maybe three years it.
I really feel that the in Disti inventory of restaurants is too too much.
There's there's just too many too many seats.
So I think that.
You hate to see anybody go out of business, but I think that the industry could come back stronger.
As far as same store sales, which is would really be healthy for the industry, but inevitably most of these restaurants that are shutdown will turn into a restaurant at some point.
Understood TPP money the TPP money has has really been effective.
I noticed in problems with the program and it hasn't been the easiest thing to manage but our customers have really taken advantage of it and.
If there is more money to come I think that will hold off.
On some of these closures. So that's also very important.
That's very helpful. I appreciate the color. Thank you.
Your next question comes from the line of William Reuter of Bank of America.
Hi, My first question you talked about some food service margin growth sounded like this was on an organic basis. So I guess, what's the.
Amount of organic food service merchant growth you are seeing and I guess what are the big drivers of this.
Yeah, I don't want to get into the amount, but I I can certainly go through what what the drivers of that are.
Okay.
You know I feel the mix has just been better.
A lot of our growth has been in our wheel house as far as type of customer and where we do run higher margins.
I also feel that a lot of accounts that.
He had three or four suppliers. The four went to one or two suppliers.
So you know that that put us in a little different position as far as.
As the margin.
We were able to get because a lot of time, they were slower Hoover's, where you where you make a little bit.
More margin, but I think the biggest overriding reason our margins have been better is mix of business.
Okay. That's helpful. And then just as a follow up you've mentioned that you've been winning some new business, particularly in independence. I guess is there any way to put into context about the size of of these gains in terms of a percentage of your existing independent business and then I guess, what the level of competition is.
Yes at this point given that there's certainly some uncertainty about their ability to continue to pay on time et cetera.
Well I I think that the industrys very rational I mean it.
I think that most people in our industry are focused.
Focused on safety focused on.
There are people their customers.
Not it's just there's just nothing irrational about it so I think thats always a good thing.
Okay.
Yes, probably do matter, if you have anything to add there, but no although that's right.
Alright, thanks for taking the questions.
Morning.
Your next question comes from the line of Bryan Hunt with Wells Fargo Securities.
Oh. Thank you for your time, most my questions have been asked by up to two final.
One as you all talked a lot about youre, maintaining your sales force and improving productivity.
Your salesforce the that have stayed on.
Can you talk about you know maybe numerically what percentage of your sales force.
Is employed today versus furloughed going back to the beginning.
I've covered.
Where's your peaked in where youre today.
Yes, the vast majority of our Salesforce is.
Back in the game.
We of course.
When we're going through furloughs, we furloughed folks that were new that hadn't been trade in those those folks aren't back on board.
Okay, and ours or maybe to put a different different contracts or ask ask it differently can you talk about maybe how many employees you have today overall versus you know again at the peak.
And now we will will have information in the in the K I really don't want to get into the details about the former employees.
And we're out but I can tell you from Salesforce perspective.
We think of that Salesforce is being extremely important as you heard from George there producers. The ROI is high and no we love their spirit and Theyre getting it done.
That's one of their back on board.
It definitely shows on numbers and then Jim. My next question is when I look at working capital on a cash while you're all generated in fourth quarter, where it was very impressive but.
When I look at inventories down call it $50 million around sectors.
Our down 50.
That makes sense, if that's come down because of what's happening with sales, but it looks like your ATP as extended.
Significantly can you talk about what happened Onyx on accounts payable are you getting better terms from suppliers and do you expect that to reverse and normalize in the upcoming periods.
Yes. So so in many cases, we are getting better terms from our suppliers look at our flow rate inventory closely is it's certainly not unreasonable and.
I think the terms are really hopeful we pay close attention to that yes. Some of it will reverse but I don't expect.
You know a material amount to.
I think we in our liquidity effort, we paid attention to receivables and really pleased with our customers worked with us.
We counted on them and they count on us and they pay their bills for the most part we managed inventory very closely and as you know we have for the most part a decentralized approach to managing inventory. It's done this at the local level and I can tell you that paid off for PMFG in a big way as the folks on the ground knew what inventory they needed to.
I have in the warehouse.
So all those things came together for us.
So so net net you think you can run the business going forward well with a better working capital.
That's fair.
You know look one of the things we mentioned as we begin to grow well start burning cash as we invest back into working capital did we get more surgical and sharper in our ability to see understand and manage working capital absolutely and we will apply all of those lessons learned going forward and if you look at our payable.
As to inventory ratio.
Not much different than it's been in the past its just that.
End up with more inventory.
That you've paid for and you haven't moved because of business declining and because certain customers, where you have proprietary inventory and they're not back anywhere near full speed you are still trying to buy in the brackets that you were buying before so I don't I don't look at it as that unusual situation.
Think were about 110% something like that payables to inventory and that kind of fits in the way our industry works you remember we had with two major acquisitions that go into this year's numbers at work there last year and then the other thing to think about.
We didnt Miss an opportunity to learn.
And we have a finance team at a business team that really understands the key levers in working capital.
We will take those learnings forward.
Very good at best of luck to your own stay healthy.
Thanks.
Once again, if you like to ask a question. Please press Star then the number one on your telephone keypad. Your next question comes from the line of credit Martinson Jeffrey.
Good morning.
Salesforce back in the game and the seasoned veterans.
On staff I mean, when you look out at the universe is this really about kind of seizing that market share by placing more folks on the ground or do you feel that there are opportunities to do some M&A like Ryan hardware folks have struggled and perhaps to grow and now is an opportunity to take that market share.
But we're certainly going to continue to grow our salesforce.
Yeah.
Like I said that that it's difficult it's difficult getting people that have the kind of commitment that you need in this business that we we managed to find them or maybe even some businesses, we get them from a competition.
As far as M&A, it's just such a difficult period of time, it's like.
If you attempt to make an acquisition use pre coated.
Numbers to do that I mean, that's highly risky I think.
And if you use post call that number's nobody is going to sell their business off of that type of number.
And I guess I mean, we want to be acquisitive. So I would say if if there is somebody that we can sit down with and.
You know both sides be very logical around what that number.
Is.
Steady state and you can agree on that then yeah I think we would be we would be very open.
It's just I think it's just very hard to do right now so we're trying to make sure that we stay extraordinarily focused on just what we do and not worry too much about M&A or worry too much about what somebody else is doing in the marketplace.
Understood and then when you look at the Vistar.
It's definitely a moving target and it's going to take awhile, but what are your customers, saying about the return to the two to the office.
When it comes to coffee in other parts of the business.
Yes, it's kind of a moving target.
First of all the theater, it's been delayed a couple of times, but the major change we all have orders from them right now and those orders are being shipped.
Really in the next couple of weeks to all of them. So everybody is at this point planning to open up as to what happens when they do we know we really don't know.
I mean people are star for entertainment and it's it's a it's a reasonably priced entertainment.
We do need good product and im not close enough to know.
No.
How much product is going to come our way other than.
The two movies that we feel are going to do really well had been delayed a couple of times that looked like they are going to start.
Office coffee I guess.
Almost daily you know I hear of somebody that has.
What's coming back in September, but now it's going to be December or whatever so we do feel that that's going to be slow to calm.
Travel same thing I mean travel is a big part of our business between.
Airports and.
And.
The pantries in and kind of Midscale hotels.
The retail business, which obviously has been very slow has actually come back and is doing real well for us its impulse buy product and I think that they theres been a willingness to put more product out there where are they got less traffic and want to get as many.
Sales is they cannot that existing traffic.
We've got an E commerce business that.
It's still not significant enough to talk about numbers with but at a great growth rate we had.
Our second and third.
Automated.
Kind of pick and pack centers opening one and I think it's in Lebanon, Pennsylvania and the other one in Reno, Nevada. So we're excited about that human are going to go to see the one in Lebanon and just a couple of weeks.
So we feel good with with Vistar.
I would still say, it's our flagship company their extraordinarily well run.
They've had to dig deeper from an expense standpoint, as far as rightsizing their business, but once again, if we didn't pull the plug on it its dialed down and it's ready to go.
Great management.
Great customer base and our customers at this point are very confident that things.
That things will come back and will normalize I'm not so sure that office coffee, we'll get back to where it was at the four because I'm not so sure that.
Companies are going to get everybody back to work I think there will be more of.
Remote workers, but it's not a significant part of our not part of our business I guess that that's going to have a huge honest and I also think that vending, where we're there where the player in that industry.
I think you're going to see more manufacturing come back here to to the U.S., it's not going to be overnight and I think that vending has a great future.
As do micro kitchens and micro markets. So.
We're not short term confident by any means we are long term confident in that business.
Thank you very much guys appreciate it.
Our final question will come down the line of Chris Mandeville of Jefferies.
Hey, good morning, everyone.
George That's just a quick follow up on my colleague there with respect to Vistar.
Maybe just put a finer point on matters being that there are going to become a near term challenges is there any reason to believe that we could get yourself back the profitability in the first half of fiscal 21 or or might it take a more prolonged period to get there regardless of.
Any type of.
Improvement in sales trends.
Yeah, Vistar, thus far has reached profitability.
Albeit not what we're used to seeing so yes.
It's not a business that we're going to lose money at we certainly did early in coated.
It's a resilient business and I feel.
I feel good with particularly with theater, even though it's not significant to performance food group. It is significant to vistar that that's going to be coming back.
The value store part of our businesses has done well through this so it was corrections.
Yeah, I don't see a profitability issue I see an issue the type of profitability that we had before until we.
We see these channels.
So this started are really good job being disciplined and thoughtful and rightsizing their overhead to their demand.
They've they've been diligence paid close attention to where they need to invest money and where they should not and I don't pay off for them in the mid to long term as well. Thanks. That's a good question thanks for that.
Okay, and then I apologize if this was answered earlier, Jim but my phone spend a little wacky this morning.
On the gross margin performance in the quarter is there a way of maybe parsing out.
Now looking for April versus May June and how we should be thinking about matters going into the first half of the year in light of the fact that you'll now lapping on EDI Brown.
Yeah, our in general and margins.
Improve those saw at all.
And I'll take it reverses margins going backward.
Okay. Thanks, guys.
Thank you that was our final question I'll now turn the call to Bill Marshall for any closing comments.
Yeah, Hi, this is George I, just want to make a few comments and then we'll close out.
We feel like we've had a nice steady recovery and that's been good to see.
We feel like Weve plateaued, a little bit right now, but I think that's just due to the recent cases, and we'll continue to improve but but somewhat out of plateau I think our investment in our Salesforce has really paid off for us. So we're going to continue to do that.
It was nice to see actual EBITDA growth in our foodservice business in the month of July like I said, that's a that's never of one of our better profitability months, but it was still great to see.
The continued improvement in Reinhart is very rewarding and we think that that's going to be a big contributor for us in 2021 in a in a normalized environment.
80, Brown did a great job this year very significant increase.
In their earnings.
And I think that once we can get kind of a better growth culture in that business thats going to be a great business for us.
And.
We like what we see so far in July and look forward to having this call come November and thanks. Thanks for all your interest in your time, yeah. Thank you for joining our call today. If you have any follow up questions. Please contact us at investor relation.
Thank you for participating in the P.G. fiscal year Q4, 2020 earnings Conference call you may now disconnect.
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