Q4 2021 Performance Food Group Co Earnings Call
Pfg's fiscal year Q4, 2021 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 would now like to turn the call over to Bill Marshall Vice President Investor Relations for PFG.
Please go ahead Sir.
Thank you Brittany and good morning, everyone. We're here this morning, with George Holm, Pfg's, CEO and Jim Hope Pfg's CFO, we issued a press release regarding our 2021 fiscal fourth quarter and full year results. This morning, which can be found in the Investor Relations section of our website at <unk> Dot com.
During our call today, unless otherwise stated we're comparing results to the same period in 2020 fiscal fourth quarter and full year. Additionally, occasionally during our call today as noted we are comparing results to the same period in 2019 fiscal fourth quarter and full year.
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 in the earnings release contain forward looking statements and projections of future results. Please review the cautionary forward looking statements section in today's earnings release and our SEC.
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 Pfg's fourth quarter results with you. This morning.
Fiscal 2021 was a dynamic year for our industry and company. We started the year with depressed levels of sales and profit as our industry and the country struggled through the COVID-19, pandemic, but I'm thrilled to say that we finished on a high note posting several record sales weeks during the fiscal fourth quarter.
Accompanied by a strong recovery in earnings.
The past year has shown that the restaurant industry is resilient and determined to serve everyone a wonderful dining experience.
Customers have pushed ahead, providing a steady path towards a return to better times for US all we appreciate all the hard work undertaken by our customers and suppliers as.
As well as the role PFG associates play in our country's food supply chain.
On may 18th we announced our intention to acquire core Mark which will boost our convenience to our capabilities and continue to expand our presence in the food away from home market.
After providing more detail on the fourth quarter results I'd like to spend some time discussing the strategic vision to have.
We have for core Mark I will then turn the call over to Jim who will review our financial performance.
As we entered the spring we have high hopes that a full restaurant recovery was beginning to take hold from a sales perspective. It is fair to say that our expectations were exceeded as our case volume and dollar sales again hitting record levels.
Soon into the fiscal fourth quarter.
The result was over $9.3 billion of net sales in the quarter, excluding the impact of the 50 <unk> week, we estimate our net sales to be approximately $8.6 billion.
Well above anything our company has achieved in our history and an increase of nine 3% compared to the fourth quarter of 2019.
Including pro forma results for acquisitions.
Compared to the fiscal fourth quarter of 2019. This results included $14, 9% net sales growth for our legacy foodservice business and seven 1% growth for Reinhart, excluding the impact of the 50 <unk> week.
We are particularly pleased with our continued strength in the independent restaurant business in.
In the quarter, our independent case case volume increased 69, 2%.
Independent sales reached 37, 8% of total foodservice sales in the fourth quarter, a four 4% higher percentage of total sales in just two years ago importantly.
Importantly channels that had been pockets of strength last year, namely independent Pizza, Italian and Spanish continue to grow in the most recent period despite difficult comparisons as the market shifted to in store dining.
And our average weekly dollar sales results in July and early August were very similar to weekly results in June.
Regionally, we still see strength in the southeast southwest and west regions.
While our total broad line service volumes remains down for the northeast and Midwest compared to the same period in 2019, both regions experienced sequential improvement into June.
Our foodservice independent case volume is now growing in every region compared to 2019.
Our foodservice business has taken advantage of this period of strength continuing to rollout and expand on our customer facing activity with many new programs.
To support the independent operator in areas, such as recruiting and cost control.
Also PMT expanded its ghost kitchen partnership to meet the growing demand of this segment.
Pfg's customer centric operating model has delivered strong results through the challenges of the past year and we believe our business is in a.
Stronger position today than it was before the pandemic.
Illustrating our strong position, we're seeing better results with new and existing customers and lower loss rate since March.
Independent cases from new customer surge in the fourth quarter of fiscal 2021, representing.
Representing the main driver of growth compared to 2019.
Meanwhile, retained business has been very strong as dining restrictions.
<unk> through the spring and summer at the same time, our Los business rate has decreased to the point that it ended the quarter below pre pandemic levels. The combination of those three factors is what has driven our strong independent sales growth and positive business mix.
All in all our foodservice business is performing very well on the top and bottom line. Our integration of Reinhart continues to progress at or above expectations and we expect this momentum to continue into fiscal 2022.
At the start of the recovery in movie theaters in office coffee remains slow, but we are seeing steady progress off a low base other visits our channels, including convenience stores retail value and collections have remained resilient.
Those channels all grew sales in the quarter compared to fiscal 2019, excluding the additional week, we do expect theaters in office coffee to remain under pressure at least through the summer is continued office closures and a slow build and theater persist as a result.
Our experienced 43, 4% sales growth.
In the fiscal fourth quarter, excluding the extra week.
Of course, these strong topline results in both of our segments do come with costs as you all know the labor market has been tight up and down the supply chain.
While this is not a PFG specific problem, we are not immune.
With that said our team has done an outstanding job in most markets managing of staffing issues and we believe that the labor supply situation will eventually ease right now we're focused on improving our service levels with the customers who are experiencing challenges. We recognize our customers also have labor issues and we will get pushed.
To get back to an exemplary service levels as soon as possible.
To wrap up the discussion of our base business. We are extremely pleased with the top line recovery and our company's performance. During this period certain cost items have been near term challenges, but we believe much of this is transitory we continue to invest in driving sales growth and have expanded on key partnerships with our customers to.
Adapt to the changing landscape with the efforts across our enterprise. We believe we are all situated for a strong fiscal 2022.
Switching to core Mark we are moving quickly through the closing process last week, we announced that the HSR waiting period expired with mills second request from the FTC.
As a result, the next step is the core mark shareholder vote, which is scheduled for next week, assuming approval by core Mark shareholders. We anticipate the close of the transaction in late August or early September.
When we announced the <unk> acquisition three months ago, we're excited with the opportunity. Since then our enthusiasm has only grown as we continue to evaluate the potential for value creation that this transaction brings we're also very pleased with the quality of management at both core Mark and Eby Brown.
Convenience store distribution represents about $110 billion total addressable market.
We are particularly excited about the $55 billion food and foodservice portion of in store sales and we believe we're uniquely qualified to capture share and grow the overall market.
Not only is foodservice the fastest growing area in the C store it brings meaningful margins for both the distributor and the C store operator.
We expect to see store mix to continue to shift away from low margin tobacco products towards more foodservice boosting both sales and profit growth long term. We have continued to work with our current convenience store business to plan for an acceleration in foodservice opportunities.
In foodservice is not the only area of value creation for PFG in the convenience channel currently.
Currently many convenience stores received a significant number of deliveries from various direct store delivery suppliers.
Over time, we hope to bring some of these suppliers to our network, helping to suppliers lower costs and achieve better margins.
Adding sales of the PFT network and reducing complexity for the C store operators, we have been successful with the strategy of this stock over the years and hope to see similar results, you'll see store space.
We are incredibly excited to close the corn more transaction welcomed into associates to PFG and begin and begin unlocking the value of this deal we see significant topline opportunities that we can take to the 40000 customers core Mark serves we will continue to share more about the convenience store space.
As we move forward in this important strategic area.
Before turning it over to Jim I want to highlight some of our recent efforts in the ESG Arena ESG is an important focus area for our company and we significantly stepped up our commitment physical 2021.
This included allocating dedicated resources to ESG related initiatives, creating a reporting structure for our ESG activities and heightened disclosure of our ESG specific activities.
In December we published our first ESG report and expect to follow this up with an update by the end of the calendar year or.
Our upcoming ESG report will include additional details around our 2000.22030 goals and objectives.
Last month, we announced the community Solar project is the next step in Pfg's journey towards delivering on our commitment to renewable energy procurement.
Over the 20 year term of this agreement PFG will purchase power generated from the 225 megawatt project.
Estimated to be about 3000 megawatt hours annually.
This is a step towards our goal of purchasing 10% of our consumer power from renewable energy by 2030.
Our entire team is proud of our ESG efforts to date, you should expect to hear more in this area in the months and years ahead.
With that I'm going to turn things over to Jim who will give you more detail on our fourth quarter and our financial position.
Thank you George and good morning, everyone.
Before I review our results for the fourth our strong recovery continues.
While supply chain labor related cost pressures are not unique to our company our sector. They are an area of focus for us to manage.
I am extremely.
And then stepped up to the challenge.
Handle the situation, allowing us to deliver strong profit recovery.
We assume that works.
Divers and warehouse associates.
Okay.
We will persist however.
However, we do believe that the <unk> and then reached equilibrium.
Fiscal year with a solid balance sheet.
Liquidity of $2.3 billion.
Performance food group.
<unk>.
Excellent shape.
At the close.
Those.
Of course.
At just over $2.5 billion.
Using our trailing 12 months.
Adjusted EBITDA. This means we were approximately four times net debt.
To adjusted EBIT.
EBITDA at the end of the year, achieving the goal we set out at the announcement of the Reinhart transaction.
Well ahead of schedule.
Despite depressed levels of adjusted EBITDA early in the year due to the impact of Covid.
As you know after the quarter close we went to the debt markets to pre finance the core Mark transaction and retire $350 million of our outstanding 2024 notes, which had a five 5% coupon rate overall.
Oversubscription of our debt offering allowed us to upsize the issuance to $1 billion at 425%.
We are very pleased with this rate, which we believe capital position.
As George mentioned earlier, our recent sales trends in July and early August have kept pace with the strong finish to fiscal 2021, and we feel very good about the momentum our business has created.
We are prepared for any change in the external environment.
This includes our strong capital position, which we will not only used to support our growth profile.
But also have in reserve in the event of another temporary decline in business volume.
We certainly did not expect to see anything nearly as bad as what the country experienced in early calendar 2020.
However, we believe that our company is in a strong financial position as we have ever been.
One use of our balance sheet could be for strategic M&A activity we.
We are excited to welcome the core Mark team to our organization hopefully within the next few weeks.
In the meantime.
We still have the reserves the resources both financial.
Two other M&A opportunities if they were to arise and would enhance our business. This includes both potential transactions in the foodservice space.
But as you know these types of deals did not happen overnight and requires significant due diligence from both the buyer and the seller.
We want to protect our well established reputation for a high quality M&A process, and we will not deviate from our typical routine.
Turning to our results for the fiscal fourth.
For 2021, a strong funnel.
Financial position is underpinned by our ability to generate cash and has a tie into our growth initiatives.
In total for the full fiscal year cash flow from operating activities was 64 point. This was down from the prior year as we can.
Continued to ramp up our inventory and experienced an increase in accounts receivable.
The movement.
And working capital is a direct result of strong sales growth and a healthier operating environment as.
As we mentioned last year, our business typically generates cash and periods of sales declines is less working capital as necessary.
As we are seeing now.
Late last year and during the early part.
Part of this fiscal year had us well prepared for these investments.
Importantly, we continue to see favorable trends.
Our working capital for example, our accounts receivable aging schedule has improved significantly including the smallest amount of receivables over 60 days.
Since the pandemic began.
Similarly, while our total inventory level.
Increased in the quarter to support higher order flow June's days of inventory outstanding was near all time lows at 21 two days.
Throughout the fiscal year, PFG invested $188.8 million and capital expenditures.
Largely to support our growth by adding additional capacity to our warehouse space.
We continue to build capacity to support the growth in our business, while also prioritizing more profitable business and making the right business decision for our organization.
With that let's quickly review some highlights from our fiscal fourth quarter business performance note that wound stated we've adjusted for the extra week to provide numbers more comparable to a typical 13 week quarter.
Net sales increased significantly in the fourth quarter to $9.3 billion the highest level of net sales in our company's history.
Adjusting for the extra week. This was a 49, 6% increase over last year and nine 3% growth compared to the same period in fiscal 2019, including pro forma acquisitions.
Our net sales performance was driven by a 55, 8% increase in total case volume or 44, 7% growth adjusting for the extra week.
Independent cases increased 69, 2% in the fiscal fourth quarter, we could not not only does this have a positive impact on our net sales results that also provides a positive mix to our plan.
Profit.
Total PFG gross profit increased 66, 8% in the quarter to $1.1 billion and was up 54, 9% after adjusting for the extra week.
Our reported gross profit margin in the quarter was 11, 5% up from 11, 1% in the prior year period.
On an adjusted basis.
Gross profit margins were 11, 7% up 66 basis points over the year ago period, and 17 basis points from the fiscal third or some benefit from inflation.
Yeah.
Food costs are weighted cost inflation was about seven 8% in the quarter driven by increases in disposable and poultry products.
As illustrated by our gross profit dollar results, we successfully passed along cost inflation and expect this trend to continue into fiscal year 2022.
Gross profit per case was up 34 cents in the fourth quarter compared to the prior year period.
In the fourth quarter.
<unk> of $31.4 million.
Billion.
Adjusted EBITDA increased substantially.
The $210.9 million.
Note that our adjusted EBITDA results for the quarter included a $6.4 million net benefit related to reserves for expected credit losses.
And cost of inventory write offs.
Early in the pandemic, we made the decision that credit related reserves and inventory write offs, while certainly impacted by the GAAP.
Operations and as such.
The results.
With an improved operating environment. We are now seeing the benefit these items have flowing through our financials.
While we continue to believe that it is appropriate to record both the ups and downs of these items as they occur it is likely that some of these benefits will dissipate.
As the operating environment continues to normalize.
Diluted earnings per share was <unk> 23 in the fourth quarter, while adjusted diluted earnings per share was <unk> 56.
In summary, we're extremely pleased with how we closed out the fiscal year, while there are certainly challenges in the market.
PMT has successfully navigated a dynamic fiscal 2021.
Our independent restaurant business continues to impress outpacing the overall market remaining well above 2019 levels.
Our balance sheet is strong which should allow us to invest behind long term growth, while protecting us from an unforeseen downturn in the market and recent business trends have been strong extending our current positive momentum.
Our organization is engaged and we're pushing forward with important enterprise initiatives. We are specifically focused on our ESG efforts we are.
We're very proud of how our organization and associates performed and our success is directly attributable to their hard work.
We're looking forward to closing the core Mark transaction, which we believe will generate long term value for <unk> shareholders and provide the company with another avenue for growth, particularly in the foodservice space.
We look to build off the strong finish to 2021 as we move into fiscal 2022.
And we appreciate your interest in performance food group and with that we'd be happy to take your questions.
And if you would like to ask a question at this time. Please press the star and <unk> on your telephone keypad.
We have yourself in the queue at any time by question about key west.
Hey, Ken.
If you would like to ask a question.
Take our first question from John <unk> with Guggenheim Partners.
Hey, George let me start with.
Labor cost right.
In the supply chain it sounds like it may last longer than you thought a couple of months ago is that fair and is that is the primary challenge.
Is it finding new people.
Because of the growth you've seen.
Or is it existing employees are getting bid away and retaining them is a challenge.
Or do you feel about that as revenue is there anything to mitigate that or you just have to pay.
Market prices for now.
Well the challenges is number one getting new employees and then the second challenge would be churn.
People don't stay very long dated they find to work could be.
Two physical or something they don't like the bottom maybe they don't like the hours as far as our core of workers.
Not have any issues there and.
<unk>.
We don't.
We don't know, who we're losing people too.
And that's just something that's hard to determine what we do know is it is.
We will refer a period of time, they are losing drivers to over the road jobs and many of those came back and I think that.
Had to deal with.
No. It was just that being out over the road and spending nights away from home and they found that.
The additional pay they cannot for that job was the change in lifestyle.
I do think that the employment initiatives are probably around for a while.
We've done the best job that we could do.
Offer the right incentives.
Two.
To attract people to retain people and it's a very localized situation, we have markets where we.
We have been highly affected by a shortage of people and we've had markets, where we've benefited tremendously by not having that that issue.
Okay.
Great and then maybe as a second.
Topic right.
Throwing back onto C stores in core Mark.
How quickly do you think once this closes you can begin to get the cross selling mechanism in place.
Guidance and theirs.
And I guess is the opportunity more I guess, it would be more existing customers right because.
New ones will have contracts that have to expire or some of the well so is it more.
They're existing customers doing more of a foodservice front.
And then and then lastly, do you think the potential is there when I think about their non tobacco growth.
Cannot exceed.
Performance.
Legacy <unk> growth.
Think about it apples to apples can that growth rate to be higher than yours.
Yes.
The share opportunity.
So I'll start with that.
This ramp up.
Hum.
We got some experience doing this with with our involvement with eby Brown.
Certainly it was.
Somewhat curtailed by Covid.
It was a tough period of time for the foodservice side of the convenience business.
We've got programs put in place.
We are ready to hit the ground running.
Certainly.
During this period of time, we're not able to do detailed work with corn market, but I can tell you that there.
Theyre senior people are anxious.
Darren.
I understand it they see the fit between the two businesses.
<unk>.
It's not just in the foodservice area I would put it broadly in the food area.
And I think kind of a job.
I'd say that kandi as a great opportunity for us as well as far as what the growth potential there is.
Certainly the initial focus will be on the existing customer base because they are experiencing.
As I think anybody in distribution they are experiencing the same labor shortages that we are.
But I do think that.
It won't take long and we'll be pursuing new business, but that's where I believe the opportunities are going to deal with their existing customer base and of course, we'll be early on and focused on making sure that we deliver on the synergies I think that will be a little bit easier to do than.
And it was with Reinhart just because the SKU mixes are so similar.
As far as growth.
I think in the independent area.
That will do well in the pound has done exceptionally well in that area since since we've owned them.
But when you get outside of the independent I think it will come in chunks, and that's something that that will be very transparent about and very communicative about but it will come in bigger chunks. When you look at outside of deemed independent.
Thank you.
Thanks, John.
And we will take our next question from.
Alex Slagle with Jefferies.
Good morning.
I just wanted to follow up on the previous question, maybe just thinking about the magnitude of the impact on operating expenses.
Related to the staffing during the fourth quarter and.
What you expect in the first quarter, sorry, just again trying to figure out when you think you kind of hit that peak incremental costs.
We start to see it moderate a bit.
Well once again I am going to say, that's a very localized.
When you talk to the guys that run our companies and the latest member companies.
<unk> will tell you that.
It is difficult as it's ever been in similar peal days over the hump and some just haven't experienced.
Serious issues. So that's that's how much it varies by marketplace.
Hard for us to tell.
I think one thing that will help us as.
As people come back to work and people go back to school is.
The kind of that contract seating area in the.
The school area are areas that we don't participate very much in so I think that if we continue to run the increases that we're running over two years ago.
And.
Pressing it we don't get a big surge this time of year I think we will improve.
And then on the rebound in the casual dining chain business, just curious how much that spread out a recovery driving stronger than expected top line and there is opportunity to build some more share in that channel going forward.
Well once again I say this often we don't want to report on any specific customers doing.
The.
Chain casual diner has not been a big contributor to our rebound they are certainly rebounded but not.
Not to the extent that our independent business has.
And.
In many ways that has been.
The more difficult part of our business to handle through this.
Through this process.
Gotcha, Okay. Thank you.
And we will take our next question from David.
I apologize Lauren Silberman with credit Suisse.
Thank you Bob.
On the.
Core Asquith Wilson, you talked about the opportunity to expand further.
Thanks, Brian So can you talk about how that relationship currently work with do deliver to our customers from our performance Foodservice Division or Eby Brown, and then of course integrating the business.
It's coming from performance foodservice our core.
Well once again, we have experience in that area with EEP.
What we have found is that.
If theyre foodservice offering.
It goes beyond what we consider to be a certain point, where we got from the <unk> standpoint, and it's different by distribution center, because we have different size coolers and freezers.
But there is a point at which there is much more logic and delivering on our performance foodservice than there is delivering it out of <unk> or <unk>.
And then we have decisions to make as to where we expand facilities to handle that business today, we do more convenience store foodservice business how that.
Our performance foodservice than we do out of eby at significantly more and will be comparable.
When we close on the core Mark acquisition so.
So I think it is going to be mixed as we move forward, but certainly our goal is to expand the foodservice offering within our core market and EEP distribution center.
As much as possible.
Okay.
Gross margin looking at the adjusted gross margin profit margin, excluding LIFO impact it looks like it improved sequentially and year over year it.
Seems like food service gross margins were flat year over year. This are nice improvements. Despite the elevated inflation can you talk about the dynamics of that gross profit margin I think we've seen this across other peers.
Inflation Wang percentage and then excluding core how do we think about that gross margin percentage going forward.
Well.
Much of our increase in gross margin is.
A function of the change in mix.
As our independent business continues to grow at a faster rate.
<unk>.
We not only pass it on.
Per case profit, but we did it in actual margin as well in spite of the heavy inflation.
And.
I think that a lot of it is.
Attributed to our salespeople and durability to.
To make sure that they've kind of got that ratio right with the customers to what value they bring in versus what they charge.
And then we've had great success at the higher end of our product line.
<unk>.
So we've had better growth.
And then just.
The increase in inflation, because our business is growing faster than the higher case cost areas, which.
Is even more significant when you consider that we were able to raise the margin as well.
And then.
Our.
The chain business has just not been as robust.
Okay, and if I could ask one more related quad core within foodservice.
I guess among independent they also think about independence.
Thank you Mr. Gary 30% average, while churn or so how does that compare with Barclays in terms of average wallet share and how do you see those opportunities and new customers gaining off Eric with the acquisition in any form.
Yes, I can.
I can tell you what I've seen so far and I don't profess to be an expert at this point and convenience.
<unk> service distribution.
But.
In outlet, our people and I've been tremendous amount of convenience stores.
They typically for a core supplier they picked someone.
No.
So normally the core of the store will come all from one person.
Now if they have a larger foodservice offering they could be buying from a foodservice distributor as well and then there are multiple DSD players that are in the business and that can be fairly regional but there's a great deal of them, but as far as site splitting the business, which is so.
Common in foodservice are having like a main supplier in a backup supplier on those core convenience items.
I think that can count on one hand, the number of times I've seen that they pick somebody may go.
Thank you guys so much.
Yes.
And we will take our next question from Edward Kelly with Wells Fargo.
Hi, guys good morning.
I jumped on the call little bit late so hopefully I did.
But I don't think you gave any guidance.
You had been giving sort of like an at least number for the out quarter.
Any color here that you can provide and I'm just kind of curious as to as to why you didn't provide any guidance.
Yes, we gave guidance on a quarter basis for a couple of quarters just to make sure. We had good information out there I think that things are still there's still plenty of uncertainty in the market you heard Georges commentary about labor and then very difficult to predict when that issue will turn and of course theres other other unknowns in the marketplace. So.
You didn't miss anything we are not providing guidance.
Okay.
Maybe just to follow up on that.
George You mentioned average weekly sales July and August similar to June levels.
I think in June you mentioned your $100 million a week ahead of 2019 and I'm just kind of curious does that hold and then.
Does that mean that Q1 sales are kind of running at least like that $9.3 billion range or better.
While certainly not nine three we don't get a 14 week quarter every quarter I wish we had sorry right right right Alright, that's all right.
Yes, we do have some seasonal differences.
Typically January and July are kind of the tougher months and our sales held up extremely well in July.
We have a little bit of softness just didn't like the last 90 days.
It takes some work to figure that out last year, we did not have.
Hey back to school I think Thats had an impact and then we don't know what impact the.
The Delta Varian has had but when you go back to when we did have a normal.
Back to school that slight softening is quite normal for us.
So I would say all in all and we're being cautious here because you just don't know whats going to happen out there with restrictions, but and thats a good reasons for not giving guidance, but all in all we haven't seen a change as things are kind of rolling along.
As good as they were in June despite some of the the pockets of very difficult labor issues that we're dealing with.
Okay, and then maybe just one last one.
And maybe this is for Jim.
Hugh you had $211 million or neighbour guide in Q4, excluding extra week you're at 196.
The extra week of $15 million right. If you were to.
Take that a quarter thats around 195, I mean, those numbers are kind of close but.
Typically seasonality in Q1, but Q4 was kind of ramping I think so.
Should we expect to see some of that normal seasonality.
For all things that are being equal in Q1.
Just any help that you can provide in terms of how we should be thinking about.
The puts and takes on the EBITDA.
Yes, Ed I know, it's tough, it's probably tough for a lot of business is for you to model because very few folks that providing guidance and we are in either.
I think seasonality is also a tough thing to predict because business. This isn't the way it was in.
In all the years that we knew the industry in the past with things or things are different right now so it's hard to use seasonality is.
As a calibration point.
I'll just leave it at this we see good trends coming off of Q4 going into Q1, we're happy with how the business is running well.
Pleased with our business results, we couldnt be more proud of how our employees are stepping up and working hard to take care of our customers.
We will continue that momentum.
Hard to say much more than what Jim has said I think we're just dealing with so many variables.
But I will say this I mean, if you look at a two year stack of our independent grew.
Growth, it's the best we've ever had for a two year stack.
We had a pretty long history of 6% to 10% case growth.
Then we disappointed ourselves a little bit and then we kind of got back on track and then if you take these last two years, that's the best we've ever been so we have a lot of confidence.
But we are really cautious around what kind of of statements, we make as far as future growth right now.
Okay. Thank you.
And we will take our next question from Mark Carden with UBS.
Good morning, Thanks, a lot for taking the questions.
Two the away from home sales momentum has really picked up have you seen independent restaurants start to work with our distributors again or are they still concentrating more of their business with larger players that can provide more consistent service levels. Thanks.
Yes, what I have seen and this is mostly from conversations with our people not.
Not the account is.
Sure.
The whole supply chain has some curious labor issues.
<unk>.
We're not trying to downplay that.
Our customers are dealing with it as well.
And.
We don't see anybody really making changes we.
We do see people scrambling to get product in there.
Look at the number of calls we get for people that don't buy from us and I'm sure that our customers are calling other people when we disappoint them.
I don't think that that's a.
Question that can be answered yet I think we've got to get back into.
Some sense of normalcy, and then see what this period of time, we've been through see how that's affected.
How people look at their purchasing because I don't think he can do that right now.
Fair enough that makes sense and then you noted that inflation has remained elevated is it continuing at the peak levels that you saw this past quarter or is it tapered off at all thanks.
Yes, Youre right inflation has been strong at some point it will taper off but I don't think we see quite the.
The trajectory that we had in the past at some point it begins to lap on where it was previous year.
I can tell you this.
I'm really pleased with how the organization is managing inflation, how we're passing inflation through to our customers appropriately and at the right pace.
And we'll continue to do that I guess in summary, I would say that.
I believe it's reasonable to expect inflation to be temporary very tough to predict.
By this.
That.
We track our inbound service levels extremely close.
Daily.
And last week, just last week was the worst that we've experienced in both foodservice and at this time.
And scare.
Scarcity.
Brings inflation.
It always does.
Okay.
It's hard to get product today.
And with that has come inflation and if you look at those areas that have had very little.
<unk> those product carries very little problems.
Getting product to us.
The inflation is nowhere near as much it's more about the increased fuel prices and.
And maybe maybe some of the labor, but as long as we have the scarcity going I think that we're going to have inflation.
Got it thanks, so much guys.
And we will take our next question from John Glass with Morgan Stanley.
Yes.
Yes, Hi, this is Brian on for John.
Maybe just first question just on the core Mark.
Can you.
Just kind of explain moving forward without kind of for a SEC approval.
Eric FTC sorry.
Is there any risk they come back and say, there's some divestitures you have to do or or anything else. They might require could you just walk us through that kind of thinking.
Yes, I think the only comment we want to make on that is that we have.
We have what we need and the information we need to be able to move forward and we're going to do that we're very very comfortable with the situation. We're in I would add that we believe we worked well with the FTC and provided them the information they needed for them to do their job and now we're moving forward.
Okay great.
Other questions with final kind of independent case growth.
Can you give that number on a 13 week basis, and I guess, just curious more broadly.
Anything differently Youre doing there or anything that you think is really kind of working well right. Now obviously your trends are in that segment had been quite strong, but just curious about anything thats changed more recently.
No it really hasnt changed at all I think our approach is the same that it's always been.
What is pleasing to me is that.
We were running significant growth.
This time last year on pizza, and Italian and Spanish.
And as we came up against those big growth numbers.
I was concerned that we would have trouble continuing to put out, particularly double digit growth and we have not had trouble.
And then the other areas of the business, where we're not certainly not over indexed.
We gained share, particularly early in Covid.
<unk>.
We've been able to hold onto that share. So we're just real pleased right now.
Thank you.
Doug if you would like to ask a question I'll start and one on your Touchtone phone.
We will take our next question from Joshua long with Piper Sandler.
Great. Thank you for taking the question wanted to circle back on the food inflation front and can understand that it's difficult to forecast and follow it doesn't sound like there has been much of a of a tapering. Although some of your comments suggested you would expect some of that paper and going forward just curious that maybe coming up that question a lot.
Bit differently are there pieces in the basket that reset on a contract.
Pricing basis or things that would move around that.
That benefit that we saw about almost 8% inflation in <unk> maybe.
Maybe as we think into 2022.
Okay.
I think you can tackle it from two angles, one from a customer pricing perspective, and more and more suppliers or supplier pricing is as updated pretty frequently and at information comes to us and of course, we make decisions on what we'll buy in from whom will buy on a regular basis. So.
So thats pretty fluid.
Updated regularly with our customers we have.
Our.
Independent customers, where pricing is updated.
Much more frequent basis than our chain customers many of our chain customers have more of a monthly price or.
Twice a month price update approach.
But all in we feel very comfortable about how we pass it on.
And back to our earlier answer really not certain exactly when it will dissipate, but we're comfortable and on it either way and eventually it will dissipate.
Understood. Thank you for that.
Interesting.
Great to hear that we're not seeing any sort of slowdown here as we move from <unk> into early fiscal <unk> period, I'm curious if that stability or that trend is maintained.
Cuisine region basis as well if there's just anything as we dig a little bit further down into those trends. If there were any sort of moving pieces, but you'd be willing to share on that.
Color basis.
No. The only thing I would say there would be regionally in the northeast has been slower to recover.
We have the most.
Labor issues in the northeast.
The southeast which.
We're running nice growth this time last year.
Our growth businesses, great, but continuing to do real well.
From the cuisine standpoint.
We're not.
I don't think we have the kind of share to comment on a lot of the areas, but certainly where we have share we see those channels continuing to do real well, particularly the epic area.
Great. Thank you for that and then thinking.
Thinking about the net net leverage target that you had said that you had.
Had reached ahead of extra.
Expectations are ahead of schedule curious on how you think about.
Balancing that now you have other targets that you would work towards.
Knowing that youre going to maintain some flexibility in Europe, you had a great cash position our liquidity position to hit on some of the strategic initiatives you talked about so just curious on anything on how to think about.
Net leverage of the balance sheet going forward.
Yes, really nothing nothing has changed other than we feel confident about any markers or comments that we've made in the past about leverage and that we will manage our capital structure and the balance sheet in general.
Very pleased with liquidity that we have we're very comfortable with the liquidity, we have available to us very appreciative to the debt in the capital markets and how they responded to our request.
I think that we are also in addition.
A good job.
A strong job of managing.
Civils in inventory and payables and the way that we wanted to in the way that fit our business and I don't see any reason why that would change going forward.
We believe we are positioned really well.
Well.
Thank you for taking the questions.
And we have no further questions on the line at this time I will turn the program back over to Bill Marshall for any additional or closing remarks.
Thank you for joining our call today 70 follow up questions. Please contact us at Investor Relations.
This does conclude today's program. Thank you for your participation.
And have a wonderful day.
Okay.
Yeah.
Sure.
Sure.
Sure.
[music].