Q3 2021 Performance Food Group Co Earnings Call
Good day and welcome to Pfg's fiscal year Q3, 2021 earnings conference call, if you'd like to ask a question at the conclusion of their prepared remarks. Please press the star key followed by the number one and your telephone keypad at any time I would now like to turn the call over to Bill Marshall Vice.
President of Investor Relations for PFG. Please go ahead Sir.
Thank you Lori and good morning, we're here with George Holm, Pfg's, CEO and Jim Hope Pfg's CFO, we issued a press release regarding our 2021 fiscal third quarter and first nine months results. This morning, which can be found and the Investor Relations section of our web site at P. F. G C dot com during our call today, unless otherwise stated.
It we are comparing results to the same period, and our 2020 fiscal third quarter and first nine months. Additionally, occasionally during our call today as noted we are comparing results to the same period and our 2019 fiscal third quarter and first nine months.
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 of the earnings release.
Our remarks on this call and and the earnings release contain forward looking statements and projections of future results. Please review the cautionary forward looking statement section in today's earnings release, and our SEC filings 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.
Thanks, Bill good morning, everyone and thank you for joining our call today.
It is my pleasure to discuss Pmt's third quarter financial results with you. This morning. It is an exciting time for our company and industry with increasing confidence that a recovery is taking hold and we're in.
Excited to see more and more of our business grow above and beyond 2019 levels as we reflect upon what the past 12 months has brought I could not be more pleased with how far our organization has come and how well we have responded to the market challenges.
Over the past year, we have made strategic investments and our business. Despite a tough operating environment, including retaining our sales force I am pleased to say that these investments have paid off reflected and market share gains, particularly in the independent restaurant business and sales growth.
Progress, we made would not be possible without the strong partnerships with our customers and suppliers and of course, our service minded associates. Although it has been a difficult time for restaurants, and many of them and not only survived but are looking forward to a stronger business and the months and years ahead there.
And the resilience of the restaurant industry has been something to watch and we are proud of the role we play and the food supply chain.
Let's begin by discussing some of the dynamics of our third fiscal quarter. As you know we lapped the Reinhart acquisition in January and we're comparing against a very strong start to calendar 2020.
And also several of our markets, particularly in Texas and other areas of the Central U S experienced severe winter weather, which temporarily shut down and the ability to ship product and kept many individuals at home. While this created a difficult February the restaurant business picked up significantly in March to finished the quarter strong.
Also while we are beginning to see some improving trends at this store many of the channel that they serve are still under pressure, though we do expect those channels to eventually move into recovery mode.
Nonetheless, we posted a record quarter with over $7 2 billion of total net sales and in fact during the last two weeks of March our dollar sales were larger than they've ever been and that continued into April the last seven weeks or the seven highest sales weeks, we have experienced ever.
We are encouraged by the number of markets that are growing the business compared to 2019 results. Our independent restaurant business continues to be a highlight for the organization.
During the third quarter, our independent case sales were up six 3% with considerable improvement late and.
April and early May we've consistently increased share and this important channel.
And are now working hard to retain these gains as you know the mix shift of our business to independent restaurants per unchanged set a positive impact on our gross margins.
Our chain business skews towards the casual dining space, which has been slower to recover with that said we are seeing encouraging signs that many of the casual change we do business with have seen a pickup and demand.
And we're prepared for a potential strong recovery and chains, which at some point may outpace the growth of independents with that said, we're not seeing that at this point and time is a combination of our independent restaurant mix and market share gains and that channel has driven strong performance.
The recovery of this stores moving forward and a slower pace than food service as expected there are bright spots within this business, including convenience stores retail value stores and corrections. These channels have somewhat offset sizable declines and our theater and office coffee service businesses.
And we are beginning to see signs of improvement as movie theaters begin to slowly reopen we are cautiously optimistic that this business will continue to make headway.
Similarly, as some workers begin to return to offices, we expect to see some improvement and our office coffee business. However, the prospect of a continued environment of work from home could keep this business below 2019 levels for some time.
Importantly, however, we believe that this store is still has a bright future, even if theater and office coffee do not fully recover in fact, some of our businesses like micro markets and micro kitchens may benefit from different work patterns over the long run our topline recovery is exciting, but it does require investment to support the business momentum.
For example, we accelerated the pace of hiring, particularly drivers and warehouse workers and we also continue to support our sales force, which is an integral piece of our ability to gain share and grow our business and generate profit over the long term with the sales recovery. We have also accrued bonus expense during fiscal 2000.
'twenty one.
We are purposefully staffing our business to support our growth profile and prepare for success in the coming fiscal year, when we expect a more normal operating environment.
Simply put we're investing and our organization today to support the ability to generate higher sales and profit and the future.
And Jim will provide even more color on our cost items and a moment.
The strong sales recovery also puts the supplier fill rates under pressure the labor headwinds that I just mentioned for our business are being felt by companies across the supply chain for manufacturers to restaurants through this environment. Our suppliers are working diligently to fill.
Demand on each of our quarterly earnings calls you have heard us discuss the integration of Reinhart, which has met or exceeded our original expectations across the board.
We remain incredibly pleased with how the Reinhart organization has become a part of the PFG business.
Let's now move to more recent trends, including an early look at the fiscal fourth quarter and April.
As you know in late March we began lapping the shelter and place orders from 2020 as you'd expect our dollar sales growth year over year quickly moved into the triple digit percentage range. We believe it is more instructive to look at our current trends compared to 2019 to get a clear picture how the recovery is progressing and this analysis.
We have included Reinhart and eby Brown and pro forma results in the 2019 results.
We are pleased to say that both our legacy performance foodservice and Reinhart segments pro forma dollar sales turned to positive growth versus 2019 in the third week of March and have remained positive since.
And April pro forma dollar sales for performance foodservice and reinhart accelerated to higher levels of growth compared to 2019 per.
<unk> has not seen the same level of recovery, but saw dollar sales essentially flat in April compared to 2019, including Eby Brown Keith.
Keep in mind that these results are in spite of the fact that many markets have retained restrictions or just beginning to return to a somewhat more normal operating environment.
As I mentioned earlier on the call. We are investing to support this growth and are pleased with how our organization is situated for a full recovery.
Before turning it over to Jim I want to highlight help PFG associates go above and beyond their day to day business activities to give back to the community and.
And February PFG and worked with world Central kitchen to supply food for Kids meals, Inc. A Houston based nonprofit organization, serving preschool children facing hunger due to poverty with PFG support World Central kitchen was able to provide 42000 meals following the destructive winter storms in Texas.
In addition, phe made a $50000 donation to further support the work providing nourishing meals for the communities in need.
PMT proudly continues to focus efforts beyond our core business dynamics of support ways that we can help the communities we serve with.
With the generous spirit of our associates across the country I look forward to sharing more of our companies could work and the months and years ahead.
With that I'm going to turn things over to Jim who will give you more detail on third quarter and financial position. Thank.
Thank you George and good morning, everyone.
Before I review our results for the third fiscal quarter I'd like to discuss some of the larger financial items impacting our business.
As George mentioned with our strong sales recovery. We have also seen the impact of higher labor costs as we rebuild our organization and are impacted by the effects of a tight market, particularly for drivers.
These items are certainly not unique to BFG, nor are they new to our industry drivers supply and wage inflation is impacted distribution businesses for many years. However today. There is demand for these workers from businesses around the country, who are building their workforce up to pre pandemic levels.
We also continue to support our sales force as we have throughout the pandemic and with better sales results come higher compensation expense a tradeoff, we are more than happy to make.
Last year, we also reported a bonus reversal as their organization has continued to perform well through the pandemic. We have now been accruing bonus expense since the beginning of the fiscal year, which produces a contrasting year over year operating expense comparison and the most recent quarter.
Specifically and the third quarter of 2021, we had approximately $30 million of bonus expense compared to a $32 million benefit and the year ago period.
We believe that supporting a strong workforce is an important element of our growth strategy and a necessary ingredient to retain the market share. We have picked up we will remain diligent around cost, particularly those that do not impact our customer facing activities.
Still we would expect the work force rebuilding efforts to support sales results at or above 2019 levels and the coming quarters.
We're proud of how our organization has managed the labor situation and believe it is positioned to PFG for long term success.
I'd also like to address our working capital and liquidity position, we exited the fiscal third quarter with a strong balance sheet and fact, despite paying off the 110 million 364 day term loan our total liquidity improved to $2 1 billion to end the quarter. This was the result.
And have solid operating results working capital management, and an increase and our borrowing base.
During the quarter accounts payable improved partially offset by an increase and our inventory and accounts receivable due to increased business activity and order flow from customers.
We are also seeing improvement and the aging of our accounts receivables, which we believe reflects a better financial position and outlook for many of our customers.
And total cash flow from operating activities was $173 3 million and the first nine months of fiscal 2021 and the strong.
Improvement was driven by an increase and cash flow from operating activities. This was largely due to improvements in working capital and income tax refunds of $117 8 million, partially offset by the $117 3 million.
And Tianjin consideration payment related to the acquisition of Eby Brown.
And the first nine months of the year PFG spent $118 9 million and capital expenditures, which was an increase of $17 8 million versus the prior year.
The spending was largely to support our future growth.
Particularly true, adding additional capacity to our warehouse space and.
And the first nine months of fiscal 2021, PFG delivered free cash flow of $54 2 million and increase of approximately $137 7 million versus the prior year period.
Now with that let's move to a quick overview of our results for the third quarter.
Total case volume decreased four 2% and the third quarter compared to the prior year period with volume declines in the chain business and just are partially offset by gains and independent cases.
As George mentioned independent cases were up six 3%. This is a particularly strong result, as much of the quarter was comparing to a strong January and February of 2020.
On a consolidated basis.
Net sales grew two 9% and the third quarter to $7 2 billion.
Overall cost inflation was approximately three 5% and the third quarter driven by disposables and poultry.
Please note that our inflation calculation now includes both Reinhart and eby Brown.
As we discussed last quarter, we've experienced higher rates of inflation of late particularly in the foodservice segment. This accelerated sequentially from two Q 'twenty one into <unk> 'twenty one.
And at this point and time, we are confident and our ability to pass inflation on quickly with.
Any major disruption to the business.
Gross profit for the third quarter increased three 1% compared to the prior year period to $832 7 million.
Gross profit per case was up 37, and says and the third quarter versus the prior year period.
Gross profit margin as a percentage of net sales was 11, 6% for the third quarter.
Compared to 11, 5% for the prior year period.
And the third quarter PFG had a net loss of $7 6 million adjusted EBITDA declined seven 6% compared to the prior year period to $121 million.
Diluted loss per share was <unk> <unk> and while adjusted diluted EPS was 19 sets and the third quarter.
As you may have noticed and our earnings release. This morning, we reestablished guidance for the final quarter of fiscal 2021 weeks.
We currently expect fiscal fourth quarter net sales to be at least $8 2 billion.
With adjusted EBITDA of at least $185 million.
Note that these numbers include a 50 <unk> week, which occurs in the fiscal fourth quarter.
In summary, we're very pleased with the recovery of our business is experiencing and our recent sales trends have exceeded our high expectations. We will continue to appropriately invest and our business, particularly at our workforce to put our company and are positioned to continue our sales momentum throughout the recovery period.
The labor market remains tight and companies across the supply chain and are looking to add and retain high caliber associates. This will likely continue to keep our personnel related operating expense slightly elevated.
Our independent restaurant business once again outpaced the overall market and turn to growth by the end of the quarter, even more impressively our top Raul and results are beginning to exceed 2019 levels. Despite continued market place restrictions as.
And as George mentioned, we are very pleased with April results, which increases our confidence that a strong recovery will likely continue.
This start seeing signs of improvement and their channels, even with the harder hit areas of theater and office coffee, we still expect a slower recovery and vis star, but continue to expect growth as the post pandemic environment develops.
All of these areas are supported by our strong liquidity and working capital position and we are committed to running our business for long term success and feel that we have the people and the financial flexibility to do so.
We're very proud of how our organization and our associates have performed and it is their hard work that we believe has gotten us off on the right foot and calendar 2021, setting us up for a very solid fiscal 2022.
We appreciate your interest and 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'd like to ask a question. Please press Star then the number one on your telephone keypad and your question has been answered and you wish to remove yourself from the queue press. The pound key our first question comes from the line of John <unk> of Guggenheim.
Hey, George let me start with can you touch a little bit on the growth on the independent side.
Growth in new accounts and growth from existing accounts and.
And then the existing accounts.
Is that is that more lines per stop because that begun to recover or its volume per line.
Yeah, well, if you look at our independent growth first of all.
If you look at April and you look at a two year stack, we're actually growing.
Much over our normal levels.
And I think a lot of that was that we were in good shape going into the pandemic and I think we did a good job of picking up accounts.
During the pandemic, particularly for some reason and early in the pandemic.
Our growth if you had to kind of look at where it is.
It's been coming from.
Certainly the greatest strength is is in existing accounts with both growth and number of lines and growth and number of cases and ironically.
Growth and number of cases per line item.
And that May have something to do with heavy takeout and reduction and menus, it's kind of hard to tell.
We're doing well with net new accounts.
I think that that is very much a market by market.
Development.
We feel that there's been significantly more accounts close and the northeast and the rest of the country and then parts of the West we see.
More closures as well, particularly in California.
So it really varies by market, but.
We're just real pleased with how we're doing at the account level debt that is what's really driving our growth.
And I know with COVID-19 one of the things you learn right is that your salespeople have more capacity, but if you think about the recovery progressing faster than you thought how comfortable are you with the capacity they have and day.
And you feel a need here.
Here in the near term to step up sales force hiring.
And we've already stepped up the sales force hiring we stepped it up a good bit and.
February and in March.
We are at all time highs and sales per.
Sales person.
Like that because they make a better income and it makes for more loyal and salespeople and it's just good all the way around but we do recognize to <unk>.
We have an opportunity to grow faster than we have and the past and move on and make sure we have the people.
To support that growth.
And then just lastly rights normally I think you'd grow your sales force right.
3% to 4%.
Back to that level.
Are you going beyond that.
It's back to that level.
Thank you.
Thanks, John.
Our next question comes from the line of Alex Slagle of Jefferies.
Hey, Thanks, and good morning, I wanted to follow up on the independent.
Business and you can kind of talk to.
How do you think you're gaining wallet share with existing customers and perhaps really thoughts on their propensity to either tremor expand the number of distributors and they buy a bond that is supply chain challenges.
And I guess shortages could lead to some some other smaller distributors and suppliers might be coming up short on inventory and ability to deliver as we look forward.
As we saw this developing last year and where we were.
Our sales people were doing a good job of getting new accounts.
And.
Getting up.
A bigger piece of the accounts we had a.
I will tell you I did worry a good bit.
This is a temporary phenomenon and certainly we wanted to shelter and place to be as short as possible and here, we sit where it's still somewhat and effect.
I think when something's happened for for 13 and 14 months.
And I worried that customers, who kind of go back to their old ways or old habits.
And that is their habit now it's been a long time.
And.
And I'm confident that we'll do a good job of holding our position and these accounts.
Certainly there is the possibility of.
You know people introducing more.
I guess I would call it competitors into the accounts.
We haven't seen that so far and.
And.
Yeah.
I just don't see a reason for there to be any drastic change to the marketplace.
Okay.
On this stars and wondering if you could comment a little bit more on some of the underlying dynamics, there and two things specifically and just curious how the supply chain and machines.
Ladies and package or until rates there and then any comments on how youre investing ahead.
And maybe some unexpected acceleration and demand and the back half.
Okay.
Yeah, well, obviously, it's been much much heavier impacted.
It's also been heavier impacted from inbound supply chain.
And.
Our service levels, which were typically mid.
Mid to high Ninety's inbound from from our suppliers is actually and the <unk>, it's incredible the difference.
You think about that.
We havent had anywhere near that kind of effect and our foodservice business, but.
And our Vista business as a branded business and they are mostly big CPG companies and they've been very very busy with retail it's also impacted.
To some degree.
Our third quarter.
Earnings that's typically a good quarter for <unk>, but we also have a lot of promotional activity that happens at the end of December.
From our suppliers, we recognize and recognize that income and January early February as we're selling the product, but those companies. We're not looking for additional volume as they got close to the end of the calendar year, they could barely keep up with what they were producing and.
And.
As far as investing I feel real good about this are extremely good and it's been our flagship company for a long time and I still consider it to be.
And those channels will come back.
Think that Theres, a chance that office coffee won't come back the size it was before.
If theres more work from home and.
And I think we need to see with theater, although theres, so much product or movies that havent been released and they keep getting delayed that we're going to get hit with blockbuster after blockbuster and I think when people are comfortable to go back to theaters I think the theater area is going to do real well.
The other channels that we have are all doing fine.
Where I see great potential is that we've picked up a good bit of new value.
Store business that actually started this week and.
It comes on a bit by bit I guess, but every week for about I think it's a five or six week period of time it will be fully in place that's going to be a big help for this star.
We did have some suppliers that albeit.
Small that didn't make it through this.
So that'll be helpful for us.
And.
I, just see nothing but opportunity.
Great channel.
That's great. Thank you.
Your next question comes from the line of Edward Kelly of Wells Fargo.
Hi, guys good morning.
I wanted to just <unk>.
Follow up on guidance, and particularly sort of as it relates to current trends.
And just kind of understand what's baked in and so if I look at your third quarter sales.
And I'm trying to back into this but I think maybe third quarter sales were about 3% or sell below pro forma 2019 sales.
Sounds like April is up.
But then as we think about Q4 backing out the extra week.
I'm not so sure that I get up so I'm, just I'm, having a hard time with that so.
And your guidance, excluding the extra week, what does that imply for Q4.
Versus pro forma 2019.
Yeah, It implies and improved Q4 like we saw a really strong April and where we.
And we wouldn't have commented on and if we hadn't and.
That momentum and April gave us the confidence to put in a.
At least guidance number at a time, where I think there's a whole lot of uncertainty and an entire marketplace. We have the confidence to put up.
And with a floor and I will say that we'll watch.
Watch each week develop and as the quarter progresses, we may and will.
We will continue to take a look at how the business is performing.
And I'm going to comment a little bit more of it but I wanted to take a little caution with this as you can imagine we spent a lot of time talk and are willing to give some form of guidance or not give guidance.
But really you're.
You are five five weeks into it by the time, we have this call.
And.
Our April was extremely strong.
And you have to look at that and a lot of different ways and.
And <unk>.
People were getting were getting their vaccines.
They were anxious to get out for the first time.
And the restaurants and a lot of markets are full.
And we're full to the capacity that they can be and.
And in my discussion with customers. They are not seeing there take out business slow down.
We're not seeing our sales of disposables.
For for use and takeout slowdown so I think that we needed to be cautious that this could be a little bit of a positive bubble now that may sound strange to say when there are still markets that have restrictions.
But if you think about a restaurant being at 75%.
I mean, how how many hours a week.
As a restaurant and above 75% right.
And I think customers today are more willing to take and earlier reservation or a later reservation and normal the expectation levels a little bit different.
And we are we were cautious around what we're looking at four for top line.
That's helpful.
And then the other thing I wanted to ask about topline is there potential for some negative mix component and so because I think about your case growth relative to your sales growth your sales growth has been outperforming.
Does any of that reverse or does that sustain itself and just curious as to how we think about modeling sales on that.
Yeah well.
And our company is sales not a sales there are also different right I mean, the case cost differences. There are huge and then we have this component where we have to sell cigarettes to be and the convenience business and that's a whole different story, where.
It's a profitable business, but it's extremely low return on sales. So what I can tell you is that across our entire business. Our gross profit per cases at all time highs, we are doing extremely well and our gross profit per case now.
We're also for whatever reason, we're also doing very well on high case cost items.
One being that unfortunately.
People are smoking more and I think its just theres more opportunity to theyre not in the workplace, where it's restricted.
Our key sales are exceptional our center of the plate sales.
<unk> been a higher percentage of our sales and the normal so.
We always as a company for a long time and we look at gross profit. We look at gross profit per case, and then we make sure. We look at margin before we have this call.
I don't really want to comment on where our margins headed but we feel very good about our gross profit per case.
Alright, and then just the last one for you was on the cost side, you did mention cost on the driver side and warehouse worker side and.
And I know you don't want to sort of say, where you think EBIT margins can go over time.
It does seem like they can go higher though relative to your pro forma and 19 number just given everything that's happened is there anything youre seeing and the and the inflationary side on the cost.
That.
You think would prevent that.
Well no there is nothing I see that prevent the EBITDA margins to improve but I got to make this comment is.
As we move forward as a company and what our goals are and the things that we want to get accomplished are more around increasing profitability, increasing our return on capital and <unk>.
EBITDA margin is not.
A big focus for us because it shouldnt be its not the right way to run the business debt that we put together.
So if there are significant changes and product mix that could affect our EBITDA margin, but I think that all things being equal I believe it will continue to go up and if you really look at.
And our third quarter.
Even though if you're looking at EBITDA margins and it wasn't stellar compared to the past, but our EBITDA margins have gotten significantly better and foodservice.
Particularly and broad line Reinhart is performing extremely well.
Getting close to actually the growth rates of performance foodservice.
And this star legacy Vista was always our highest EBITDA margins and needless to say that's been heavily impacted and as far as expenses going forward.
I don't I don't expect to have problems I don't think we have comp issues whenever because we address those we've learned we address and as soon as we think it's a problem.
And we keep very close track of where we're at vs. The marketplace from a competitive standpoint, when it comes to comp.
Dollars, an hour would have really virtually no effect on us.
But I also believe that right now today.
We can't have too much inventory, we can't have too many drivers and we can't have too many warehouse people.
And that for us to continue to.
To build.
The sales that we want to get him and the profitability that we want to get we've got to have the people today.
And I do believe debt as we get to fall, it's going to be easier to get people.
And.
There's a lot of contributing factors right now.
But we.
We feel we feel like.
And we're in a position to attract good people, we just have to find them.
Makes sense. Thank you.
Thanks.
Your next question comes from the line of John Glass of Morgan Stanley.
Thanks, and good morning.
And my first question needs are both expense questions. My first question and Jim was just on the Opex line.
Have you been accruing bonuses at this level all year and we're just hearing about it or is this just a catch up to some degree and what I'm really trying to understand is if you. If you exclude that bonus payment and the reversal if you will.
How much of it is underlying opex growing and are you seeing some pressure transient pressure from that hiring and maybe just talk about what the underlying expense trends are excluding those levels.
Yes. The first part of your question is we have been accruing at this rate all year. The differences we ran up against excuse me, we ran up against the adjustment of the reversal.
Last year and March or Q3, so that's the reason it triggers a comment there.
And I hadn't happened until until March last year. So that takes share that that question. When you think about opex.
Look the main driver of our increase in Opex and the quarter was an increase and labor, particularly drivers.
And as we'd anticipated as volume began to recover we needed to re staff the areas of our workforce.
We had pulled back on.
So if you look at personnel expense sequentially from <unk> 21, we were up and driver cost warehouse cost sales call up and bonus expense.
No one item was particularly large quarter to quarter, but they added up to the increase you saw and <unk> 21 was the bonus.
So keep in mind on that look we're building a cost base ahead of the sales recovery on purpose. So we can take care of our customers.
And if you add and Reinhart and Navy <unk> Opex was below <unk> 19 Opex.
And if you look at our.
Expectations for Q4.
And definitely aspire to be above 2019 sales levels fairly soon as we'd mentioned and we need the workforce and the infrastructure to support that.
Thank you for that and could you just maybe a word on the role of inflation and the gross profit.
You start to see inflation come up and most of your contracts sort of penny profit driven such that inflation might actually drive down gross profit, even because growth gross profit dollars and sales and how should we think about gross margin and this is more inflationary environment for you.
Yes, and a good piece of our chain business.
And such that will.
We will see a little bit of margin rate erosion, but we will sustain our margin dollars on our independent or are our independent business will will do well and we'll be able to pass it through fully.
Either way from a margin dollar standpoint at the inflation rate, we are seeing right now.
It's not.
Unusual and it's not really a challenge for us at all and no.
And we'll manage through it like we always have.
And it gives us just one following momentum.
Vendors, having challenges with their labor.
What's the risk you actually can't get available inventory is there a risk there's actually like your full rates become lower because of this or do you experienced Saturday that just something youre flagging as potential.
For the next couple of quarters, well, our fill rates are below normal rates now and.
It Hasnt been a big issue, where it's the biggest issue is customers actually that our chains and we have 100% of the business and we have for a long time and.
It will pick up the phone call and say, what's going on and what's happened to you.
And then you get out and the independent world, they're experiencing other people as well and.
And.
They know the issues that exist and the supply chain.
But what I see other than if you get placed shutdown because of the.
COVID-19 issue.
It's getting better and it will continue to get better.
One thing we learned from this is that.
Our industry was was finely tuned and you've got a lot of perishable product and.
We would turn the inventory extremely quick and our suppliers, who are quite reliable and we we're threading the needle kind of all the time.
And.
And real mature.
Supply chain like that doesn't come back overnight.
And.
I see our suppliers getting better and better.
We are running higher inventory levels and before because we understand the issues that they're experiencing.
And they're having the same problem and getting people, which like I said I'm just a believer that that's going to alleviate as we get into the fall.
And I don't see it as a long term problem, it's just something that as an industry. We just have to.
Fight, our way through and get back to some sense of normalcy.
Thank you.
Your next question comes from the line and Lauren Silberman of Credit Suisse.
Thanks for the question just to follow up on the independent case growth are you willing to share what percentage of independent customers. You are serving today relative to pre COVID-19 and then if you're starting to see the appetite for new unit growth and states, increasing and as it relates to wallet share how does your wallet share penetration among existing independent accounts compared to new accounts that you brought on.
Well, our wallet share and existing accounts has done nothing but increase.
It's probably our brightest spot.
Net increase and new accounts and independent.
We're doing well we're probably.
Just a little better than mid single digit, which we think is a real good number.
It's serving us well with the kind of growth that we're getting right now.
And I think I missed one one part of your question if you could remind me.
Looking at the wallet share and the penetration existing accounts how that comparison.
There are new independent accounts, you brought on and then Walter penetration and flatware, and what Youre seeing with your existing customers.
Our average sales per customer is the best it's been.
So we're seeing really good growth and existing customers I really couldnt tell you how that compares to the size of our new accounts, but in in.
Totality.
Our bright spot is that we're selling more to existing customers.
Great and then just another one and fleece and can you share what you're seeing on inflation and the fourth quarter and then what level of inflation do you feel you're comfortable to pass onto customers as you think about the potential for accelerating inflation.
Yes no.
No real change and the early phases of Q4 from what we've talked about we see the continued momentum that we had in Q3 and inflation.
I'm not sure I want to get into hypothetical scenario of talking about how much inflation, we can pass all but I can tell you. This.
At a three 5%.
Level of inflation that is not a challenge to pass all of it all are our salespeople.
People are doing an amazing job working with customers, helping them understand what's going on and they can certainly do something somewhat north of that.
And those decisions.
And those decisions are made by our salespeople so.
We don't have.
Kind of a.
Ah.
Big answer for that it's really a whole bunch of little answers that they're out there.
Getting every day.
Great appreciate it.
Your next question comes from the line of Kelly Bania of BMO capital.
Hi, good morning, Thanks for taking our questions.
Just wanted to clarify and another.
Their point on the guidance for.
The fourth quarter.
$8 2 billion, I guess, which sounds like maybe a floor.
And just curious is that.
And kind of the April run rate that you've seen if that kind of continues or if you're assuming continued acceleration there because I guess you also had a lot of stimulus dollars and in the past couple of months being pumped into the economy. So just kind of.
Wondering if you can help us out there with all the moving pieces.
Kelly, Thanks, as Jim and I think the best way to understand that the guidance in general is it's a floor.
And at least number and it's a floor at a time, where there is as you know a good deal of uncertainty. There's a lot of things that will develop some could be positive some could be not positive.
I'm actually very encouraged and optimistic about the future.
But we did provide a floor number of $8 2 billion and top line and I think thank you know us well from the standpoint that that we put down markers that we're very confident that we can meet or exceed and that's why it's a floor.
Great that's helpful.
And then just another question as you think about.
Your customers, obviously, you've talked over the past several quarters, just about some of your customer types and <unk>.
And maybe even geographic locations.
That has just performed better in this environment, whether that be in the south or pizza or barbecue and just curious.
And update on how those customers are maybe.
Cycling and are holding up against maybe some tougher comparisons and I guess.
A little bit about casual dining maybe coming back a little bit, but also that the take outs and paper products business holding up. So just curious if you could help us kind of think about.
Those dynamics, maybe format and geography, a little bit more in depth.
Yes, if you look at it geographically and.
Look at the country and just.
Say five different regions.
The southwest is performing the best for us.
And as for the industry, but it is for us.
Followed very closely by the southeast.
The west where we're not that large and were basically pizza and Italian is performing well I don't know that it is.
<unk> is an area, but it is because of the of the pizza business.
Followed by the Midwest and the northeast by a long way.
Is the is the.
The lower performer.
And then as far as customer types.
We're real proud that when we look at what information, we do get around share, we're picking up share and every type of customer type.
But we definitely have a.
Our mix debt debt is probably better than most.
For this type of situation that we've been and for the last year whats and.
Encouraging for US is when we look at our pizza business, where.
Actually continuing on a monthly basis to gain more share and then we had before.
And we're not seeing.
And the reduction in.
And growth compared to 2019, as we've gotten deeper into this and people have more.
And our perceived.
We proceed people have more options with with more seating opened.
And then when you get to the casual dining chain business.
That was the last to kind of come around but their growth. When it came was absolutely explosive shock this huge growth.
And we don't know.
Thats sustainable or not sustainable we have no way of knowing but the casual dining business is doing real well and that's why in our prepared remarks.
And we made the statement that it could end up at the chain business grows faster than the independent.
It is they have really really stepped it up.
That's that's helpful can I squeeze one more just on inflation.
Just thinking about the three and a half.
And that you called out and I was just curious if there's much difference between the foodservice business, where there's maybe some more fresh and protein categories versus this star.
And where maybe some of the price and commodity costs haven't haven't kind of flow through from some of the manufacturers. Yet just curious if you can talk about the differences there.
When it comes to the bottom line with it there's not that much difference the foodservice is definitely more volatile and being more commodity driven.
Coffee is up significantly.
Beans are up significantly and price, but of course, our office coffee service business is down significantly so when that business comes back that could have some impact.
<unk>.
And supplies are tight and a lot of areas and that that causes inflation. So I don't think we can comment for the future and inflation I think that's very very difficult to do right now.
Thank you.
Thanks.
Your next question comes from the line of Jeffrey Bernstein of Barclays.
Yeah.
Great. Thank you very much two questions first George you mentioned.
Especially and foodservice distribution, you can't have too many workers and you can't have too much inventory.
But I get the sense that many of your peers don't have the capabilities and the balance sheet to invest ahead of the curve.
And for example, labor and inventory like you've seem to have so I'm. Just wondering what have you seen in terms of closures of challenges for both competitive distributors, presumably smaller and.
<unk>, even restaurants and I'm just wondering what you think in terms of further consolidation of market share opportunity for yourselves is that sounds like a challenging environment for somebody who doesn't necessarily have the balance sheet that you might have and then I had one follow up.
Yeah, it's hard for me to comment on competitors.
I think most of them are doing fine.
We have not seen many closures.
We are certainly.
Phone calls from people that.
We've kind of had enough with being in this industry, it's very very tough industry. So that would tell me that theres some struggles there.
And.
But.
It's just a difficult time to.
B and business that doesn't mean that we're going to have significantly less competitors.
There is.
And Theres a lot of competition for labor right now and there.
And there might be more competition for labor and customers.
And that probably is more difficult. If you don't have the right comp and you don't have the right benefits for people.
Got it and then from a customer standpoint.
And you're seeing the free.
Restaurants that have made it this far like you said theres been more explicit.
So.
What is the estimated number of account closures or customer closures that you've seen year to date relative to me, yes. The industry is talking about.
We don't have.
Great systems to determine that.
We did a real deep dive and the Metro New York area and 35% of the people we sold.
Pre.
COVID-19 or no longer and business.
I think it's.
Maybe 10 nationally and I think thats one of the reasons at.
At the unit level I think people are doing quite well because there are less of them out there I will also tell you that the real good operators and every market has got some really good operators.
They're getting the phone call from landlords and debt have.
And <unk> restaurants that are empty and they are willing to give them really good deals for people.
They know and good operators and we're going to see.
We're going to see a lot of new openings coming up and I think that for the most part those new openings are going to be some really good people.
And we're seeing some areas that are really and a boom right now.
Florida, and Texas, particularly I mean, they are just booming.
And.
They are attracting new restaurant tours.
And there are people that debt they've got to open its time to open a restaurant back up and instead of opening the restaurant up where they are at they are actually relocating to open their restaurant.
And we're seeing that as well, it's an interesting time, just a fascinating time and I think it's going to be a very exciting time for the industry.
And I think that on average the restaurant operator is going to be a better operator than pre COVID-19.
That's very encouraging.
One last question just on the workforce I've never seen that topic gets so much attention on all conference calls ramps up so quickly.
Obviously, you are ramping up your <unk>.
And I'm, just wondering what youre doing.
And to fill those roles.
And whether you are inclined to.
Short term bonuses or do more over time I'm just wondering how long maybe this lasts or whether you think you've done most of your heavy lifting from a hiring standpoint, and the third quarter and we shouldn't be hearing about this and the fiscal fourth theyre going into fiscal 'twenty. Two I'm. Just wondering how you guys are approaching it to succeed with them from a hiring standpoint.
That's a complicated question and I think we're doing.
And at least I would like to think that we're doing everything we can to get the right people in but you can't it's expensive because you can't cut short on the training. If you think about it if you get a driver out there.
Two quick and they haven't been trained one accident can can cost you a whole lot more than training costs and the same thing and the warehouse with mistakes, particularly and workers comp.
And you really got to spend the time with the people and.
And then we've had people coming back and.
And people that were.
Longtime good warehouse.
Police force and they come back and they do the work for three or four days and just I can't do this work anymore.
But if you think about it they've been sitting home per year, and there are probably 30 40 pounds heavier and it's a different.
It's a different deal Lee.
We've got to work with those people, we've got a show and level of patience and.
And we just have to keep keep.
Keep hiring.
I really don't believe it's a long term issue. It is certainly an issue, but I don't think it's a long term issue.
People need to work most people want to work.
And.
They'll come in and it's not it's just not about the comp.
Part of it is.
They don't really have to work right now that's part of it.
And the very encouraging to hear that.
It kind of scared to hear that it's harder to to higher than to get new accounts.
But.
That's all from me. Thank you very much thanks.
Your next question comes from the line of Nicole Miller of Piper Sandler.
Thank you good morning, I wanted to go back to an earlier comment on fill rates.
And I was curious if you could walk through what the average is where before it stands today and I'm thinking and how other than 80% to 90% you know you could send to the restaurant.
And wanted when they needed it and.
And can you talk about the spectrum like on the low and how low does that go.
And if it's not exactly what theyre looking for in terms of full rate what are the items, maybe what other geographies or what you know what places are more challenged and others. Thank you.
Yes, let me be clear.
We're making sure we do a very good job of fill rates with our customers.
We're taking care of their needs to the best we possibly can and I hope.
Our customers would feel like that they're being taken care of and that's that's not a real issue. We are certainly doing better I would think and the industry standard and then on top of that or other things. We've done and we don't talk a lot about our systems. Because those are those are kept for us, but we've done some really nice work and the supply chain systems that we use.
And our accuracy levels.
And have improved.
Across the board and foodservice, they've really done some nice things over there and improve accuracy levels, which.
And the and net net the customer sees is the service level, whether we had the inventory and not it's helpful for them to to make sure we pick the product correctly.
So we're doing well and the outbound and on the inbound.
Side of the business.
Supplier fill rates have been tough there dealing with the same zone as everybody else SaaS.
It's absolutely manageable, we do a really good job with our inbound logistics approach strategy and team as we always have so.
I feel confident we will continue to work through that.
Thank you helpful to understand the inbound versus outbound nature and second and last question I believe you have a material share of independent.
And the form other pizza and Italian segment are those sales keeping pace with the general April conditions of the quarter recovery.
Yes, they are.
We're running the same kind of increases over fiscal 19, and we've been running pretty much throughout the pandemic.
Thanks for taking my questions I appreciate it.
And Ben.
Our next question comes from the line of Jenna Giannelli of Goldman Sachs.
Hi, good morning, and.
Curious on the acquisition front and the Reinhart now behind you and successfully integrate and leverage coming down how are you thinking about and the potential timing or areas of interest with respect to future M&A or is there just kind of too much going on on your plate right. Now can you address that right now.
So there's not too much going on on our plate to address that so tackle that one first reinhart as well integrated and the Foodservice Division has done a really fabulous job, bringing on AR and outstanding acquisition that has achieved every one of our expectations.
On the <unk> side Eby Brown has done the same with the Vista team. So we look at M&A with.
Two approaches to bandwidth foodservice and the <unk> business being separate so both of those have.
Bandwidth for sure as you know from a liquidity perspective, we talked about $2 $1 billion and liquidity.
We are an acquisitive company our approach to M&A is unchanged, we're always looking for a good strategic fit for our business.
And we will continue to take a prudent approach to M&A and evaluate potential transactions as they arise.
Okay, that's super helpful and and on that point, and just eat me ample and healthy and liquidity I guess, how are you thinking about some of your upcoming callable debt does it does it makes sense and potentially use an iPhone.
And that excess liquidity and debt repay it.
Or are you comfortable with kind of where the leverage is now and perhaps for you just.
And back end market.
Well as you can see we've.
And had a strong free cash flow cash flow quarter.
Feel very encouraged and optimistic by that about the next quarter and those beyond.
We have a very healthy capital structure and.
Clearly worked through the COVID-19 liquidity concerns that anybody may have had so.
And our Treasury team does a fabulous job of that with the rest of the organization and I think we'll continue to manage that well.
Excellent. Thank you very much.
Once again, if you'd like to ask a question. Please press star one on your next question comes from the line of Carla Casella of Jpmorgan.
Hi, Thanks for taking the question.
You mentioned, just now and your working capital is strong and the last quarter and <unk>.
I'm just wondering how we should look at it for that.
And fourth quarter, given that last year, you had a big source of cash and was unusually strong at $485 million.
And should we see it normalize more this year or.
Any outlook for working capital that you could help us with.
And I think normalized slight improvements the way I would describe it and the reason I would add on the last part is through COVID-19 and the entire organization has taken a very disciplined and I think smart approach to managing working capital and that's based on years of business experience and relationships.
And with customers and suppliers, we have our own unique strategies and how we relate to suppliers that's been helpful.
And important for us.
As you can see even though sales volume built substantially throughout <unk> and and even more so in April we were able to manage inventory really really well and very pleased with receivables and cash.
I feel like.
Our customers our sales team and the entire organization and partnered together to make sure that everyone kept their commitments. So I'm pleased with how well receivables had been managed and I wouldn't expect that to change going forward.
Okay, Great and you can check the payables to stay at day cycle, the higher days, where its been since about mid last year or will that revert back once you you know.
And once you are fully Allen's COVID-19.
Yes, I believe what were seeing and <unk> will probably be the normal going forward, how we're our relating to suppliers right now.
As our approach that we're going to take unless we have a reason to change.
Okay, great. Thanks for the help.
Sure.
Our next question comes from the line of Peter Saleh of BPI.
Great. Thanks, I wanted to come back to the conversation around.
Labor.
Given the current volume that you guys are seeing past seven weeks I think you said kind of all time highs are you.
Comfortable with the level of staffing the drivers and warehouse employees or do you feel like Youre understaffed to service those levels and then.
And secondly.
Do you anticipate any.
Are you seeing any evidence of slack and the labor market at all.
Anticipation of the unemployment benefits expiring and the fall or do you think this is something that's going to carry through the end of the year. Thanks.
Yes, it started out with staffing net where certain.
Not happy with our level of staffing we could use more drivers we could use more warehouse people and we're continuing to hire and continuing to train.
And.
We thought we were ahead of it and.
The rebound and sales was greater than what we expected. So we have some catching up to do.
I think that theres going to be.
Enough people.
And I do believe that.
For several reasons that the current unemployment and stimulus activity has had an impact because people will literally tell us that.
They want to come to work, but.
They'll do it after the.
The enhanced unemployment and.
Unfortunate situation, but.
Deal with reality.
So I do think that the employment situation will get better we're a great industry to work in.
I'm not sure that we make sure enough people understand that but we are a great industry to work in and the compensation is high.
Particularly for a driver.
And we will find people that appreciate that.
Alright, Thank you very much.
Your next question comes from the line of Fred Wightman of Wolfe Research.
Hey, guys. Good morning, I was just wondering if you could just comment I'll make sales GAAP between reinhart and the legacy PFG business and sort of what Youre seeing at this point and the recovery I think last quarter, you had mentioned that reinhardt with sort of and the middle with the market and sort of the legacy business wondering if that GAAP has continued to shrink as we've seen the accelerating trends in March and April.
And any other color that you could comment on would be helpful.
Yes, well, we don't we haven't seen any numbers for the rest of the industry for April.
But what we have seen is that Reinhardt has performed better and better and.
And closer to performance food services.
As we've gone through the year and.
And they are running.
Significant increases over 2019 net now thats the last four weeks.
<unk>.
And it was the end of March before they started to run over it so.
And there has been <unk>.
And consistent moves up and then a ramp up.
Perfect. Thank you.
Thank you and that was our final question for today I will now return the call to Bill Marshall for closing comments.
Thank you for joining our call today do you have any follow up questions. Please contact us at Investor Relations.
Thank you for participating and Pfg's fiscal year Q3, 2021 earnings Conference call. You May now disconnect your lines and have a wonderful day.
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