Q1 2022 Performance Food Group Co Earnings Presentation
Providing growth opportunities that were not present, just a few years ago.
It goes without saying that we could not have made this progress without the commitment and support from every PFG associates as well as our customers and suppliers.
The partnerships, we have forged and solidify that propelled our company to new Heights, we will keep executing our vision and with it the possibility for sales and gross profit gross profit over the long term.
The additions of Eby Brown and Reinhart foodservice were two of the transformative aspects of our journey by adding <unk>, we built the foundation of our convenience business paving the way for the COO.
Core Mark acquisition.
With Reinhart, we added another bedrock foodservice distribution platform to our already strong broad line business.
Let's start with an update on reinhart, who could not be more pleased with the efforts and performance of this business as we have shared with you since closing that deal. Our integration has been on or ahead of schedule. Since day. One. This is a feat in and of itself. We were confident that the business results would follow in step with the goal of accelerating right.
<unk> growth to be in line with legacy performance foodservice.
We are very pleased to share with you that we have achieved an important milestone towards that ambition.
For the second consecutive quarter Reinhart independent case volume growth outpaced our legacy foodservice business.
Shortly after the close of Reinhart.
And we thought.
And a part of PFG now that the performances are aligned we can say that reinhart in performance foodservice were truly one business. This is obviously a strong testament to the efforts from both Reinhart and performance Foodservice associates.
And work by our entire integration team.
This success story reinforces our confidence and excitement for core Mark as I mentioned, we closed the core Mark transaction in early September and one month of results are included in our fiscal 2022 first quarter numbers more importantly, the integration is off to a fast start.
A tremendous amount of work has been put in to bring these two great organizations together, we have already seen the strong camaraderie between <unk> and core Mark shortly after closing the deal both companies participated in Max and annual convenience store focused event.
I was able to witness the collaboration between <unk> and core Mark Associates firsthand, we believe that the ability of the two organizations to work together with a single focus is the key ingredient for successful M&A as I described above this element was present with Reinhart and performance foodservice it is exciting to see.
A similar dynamic with our convenience efforts.
Our early success with core Mark has already extended into business wins I am pleased to announce that we have converted an important legacy convenience customer over to our foodservice platform. While also adding a different legacy foodservice customers convenience business and it's obviously very early days, where we're already.
Seeing our convenience strategy play out as we had hoped it would in the coming quarters. We will continue to share examples of our progress in this important strategic endeavor.
Our efforts on the M&A front have added to our already strong base business, which continues to operate at a very high level.
Starting with our foodservice segment, we continue to see topline growth far exceeding what we had anticipated just a few quarters ago.
Our foodservice segment.
Sales surpassed $6 3 billion in the quarter a 26%.
<unk> percent increase over the previous year, we continue to see a significant improvement in our mix of business is our independent restaurant case and sales growth outpaced total company results.
After outperforming the industry last year, our independent business continues to impress on a two year basis independent unit case volume increased more than 11% compared to the first quarter of fiscal 2020, including pro forma Reinhart results in that period. This means that our independent case volume with <unk>.
Difficulty higher than it was entering calendar 2020 quite a feat given the operating environment since that time, specifically independent business now represents over 39% of our total foodservice net sales, which is about four percentage points higher than it was two years ago. As a reminder, we can.
Continue to find independence.
As customers with fewer than five locations.
We are also encouraged by the underlying trends within our foodservice results. For example areas of the business that had been strong over the past 18 months.
Notably Pizza Italian Hispanic continued to perform well in the fiscal first quarter of 2022. According to our data our three months dollar market share through September remains well above 2019 levels and independent restaurants. This trend holds true across pizza Italian.
And Hispanic concepts, we are continuing to invest.
Upon these areas of strength in the data shows our efforts over the past year and a half have paid off we believe that these investments will result in long term gains and bodes well.
For our sales and profit potential.
Overall, our foodservice segment continues to produce solid sales and profit growth. Despite the labor cost challenges, which the majority of our divisions are managing well.
At this time, we are incredibly pleased with the sequential improvement that business is experiencing even without a full recovery in theater in office coffee to star results have improved dramatically.
In a recent box office trends have caused us to be optimistic about the future for that channel as you know a strong recovery at this star, which is what we are expecting would prove to be very favorable.
To our margin profile in the quarters ahead.
We also wanted to discuss an area that we're particularly excited about at this stock as you recall.
We have been building our retail automation warehouse network and are pleased to announce that we are now fully operational at all three facilities.
Three locations retail east retail central and retail west are situated in areas that allow us to distribute to the vast majority of the country quickly and efficiently. While it is still early days. These operations allow us to tap into several exciting distribution opportunities including customer fulfillment.
Direct to consumer e-commerce fulfillment and virtual warehousing, we believe this sets us up for incremental selling and growth avenues, while consolidating our capacity at other operating companies for.
The nature of this business means we can efficiently sell to a legacy <unk> customer a foodservice customers are direct to consumers, while maintaining significantly more skus with less complexity.
In today's operating environment, where supply chains are stressed and customers are demanding an increasing number of products.
We believe we have an advantage compared to our competition as we continue to grow this business you will hear more about our progress and this strategic objective.
Summarize we're off to a strong start to fiscal 2022, our foodservice business continues to perform well with sizable gains in the high margin independent restaurant business.
This start seeing steady sequential improvement, which we expect to continue in the quarters ahead.
We're thrilled to have closed the <unk> acquisition during the quarter and the integration process is already ahead of schedule. We have added new business in the convenience channel on the traditional <unk> side as well as within C store foodservice.
Our company is executing at a very high level, while also making progress in our strategic vision.
Sales growth will continue to be a priority for PFG and overtime, we expect to see improvement in EBITDA margin, which is another focus area for our organization.
As Jim will discuss in a moment, we have a strong balance sheet and cash flow profile, which supports our investment in the business.
I am excited about the progress we have made in a few short years and the potential we have for the years ahead I'll now turn it over to Jim for an update on our fiscal first quarter and financial position.
Thank you George and good morning, everyone before I review our results for the first quarter I would like to review, our financial position and cash flow dynamics.
As George mentioned, we're very pleased with the strong recovery of our business is experiencing we believe that these results are supported by our solid balance sheet and cash flow profile, which has helped fund the expansion of our business and support our working capital investments.
We ended the quarter with $2 $5 billion of total liquidity at the highest level in our company's history.
We upsized, our ABL facility during the quarter for a potential borrowing base.
$4 billion up from $3 billion.
We believe that our ability to increase our ABL to this level.
The largest in the country reflects our banking partners confidence that our business model and strategic vision.
We also issued $1 billion of senior notes during fiscal Q1 at an interest rate of 425%.
We were able to take advantage of the interest rate environment to lock in this attractive rate to partially fund the cash portion of the core Mark acquisition.
As well as pay off $350 million of 2024 notes, which had a five 5% coupon.
All in we finished the quarter with approximately $4 1 billion of total debt, including our finance lease obligations.
Turning to cash flow in the first quarter, we generated about $32 million of operating cash flow.
As our team continues to do a fantastic job managing our working capital position.
Accounts receivable increased along with the sales recovery and our receivables over 60 days outstanding remained at a very low level.
Disciplined management of inventory and accounts payable drove cash generation at both line items.
We believe that our inventory build is now substantially complete.
Factoring in the $24 4 million of capital expenditures in the quarter.
<unk> generated positive free cash flow of seven $4 million in the quarter.
We are pleased with our organization's ability to generate positive cash flow, even while investing in the working capital needed to keep pace with the rapidly improving business environment.
We expect our cash generation to improve even further with the addition of the <unk> business.
With that let's quickly review some highlights from our fiscal first quarter business performance.
Net sales increased 47, 4% in the quarter to $10 $4 billion driven by one month of <unk> sales. In addition to the inflation driven pricing and a continued recovery in the business environment.
Total case volume increased approximately 27% and was up 17, 8%, excluding the contribution from core Mark Keith.
Keep in mind that the highest selling price of cigarettes. In addition to high rates of inflation impact the difference between case volume increases at our topline growth.
Independent cases increased 21, 1% in the fiscal first quarter as we continue to see solid momentum in our independent business.
We continue to be very pleased with our independent results and believe it provides a solid foundation for long term profit growth.
At PFG.
As George mentioned earlier on the call over a two year period from the fiscal first quarter of 2020 through the most recent quarter, our independent cases increased over 11%, including Reinhart cases in the first quarter of 2020 period.
We believe that this is truly a remarkable result, highlighting our business resiliency.
And the hard work of our associates through some challenging times for our industry.
Total PFG gross profit increased 41% compared.
Compared to the prior year quarter helped by the independent case growth I just mentioned.
Core Mark contributed $89 1 million to gross profit, including an $8 $8 million amortization step up on inventory acquired.
Our reported gross profit margin in the quarter was 11% down from 11, 6% in the prior year period, but impacted by the addition of <unk>.
Food cost inflation continue to move higher in the quarter, our weighted food cost inflation was about 11, 1% up sequentially as we continue to see double digit increases in our foodservice commodities, including meat poultry seafood and disposables.
Keep in mind that our total company inflation is impacted by somewhat lower levels seen at thus far.
Has more exposure to packaged goods in tobacco.
Our foodservice operations experienced inflation in the low teens during the fiscal first quarter.
While inflation has kept pace well above historic levels, we are successful and pass along those increases.
Gross profit per case was up over 52% in the first quarter compared to the prior year period.
Keep in mind that this includes one multiple core Marshalls and is impacted by the higher gross profit per case for tobacco.
In the first quarter PFG had a net income of $4 $7 million.
Adjusted EBITDA increased 35, 9% to $183 7 million.
Diluted earnings per share was <unk> <unk> in the first quarter, while adjusted diluted earnings per share was <unk> 43.
I'd like to finish by discussing our outlook for the remainder of fiscal 2022.
As noted in our earnings press release. This morning, we anticipate fiscal second quarter 2022, net sales to be in a range of $12 7 billion to $12 $9 billion, highlighting the strong topline momentum our business has achieved.
We also look for adjusted EBITDA for the upcoming quarter in a range of $210 million to $245 million.
For the full fiscal year, we are guiding the net sales of 49 5 billion.
The 55 billion.
And adjusted EBITDA between 940 and $960 million.
Let me provide some additional color on the quarterly cadence for the upcoming year.
As you know the winter months are typically the smallest from a seasonality perspective.
As a result, we would expect our <unk> 2022 net sales.
And adjusted EBITDA to be similar to Q <unk>.
Celebrating in fiscal <unk>.
The fourth quarter acceleration in sales and adjusted EBITDA.
Reflects the typical summer seasonality.
Plus some expected easing of the labor cost pressures that George mentioned earlier in the call.
In summary, we are extremely pleased with the beginning of fiscal 2022.
<unk> continues to be an industry leader with continued success in the independent restaurant space and consistent recovery in our <unk> business.
During the quarter, we successfully closed the core Mark transaction.
We're well underway in our plan to unlock sizable value from the convenience store space.
Our balance sheet is strong and has allowed us to invest behind long term market share and sales growth in.
And we believe PFG is in a great position to convert our topline sales into sustainable profit growth.
Our organization is engaged and focused on important enterprise initiatives that we believe will create long term value for all stakeholders.
We appreciate your interest in performance food group and with that we'd be happy to take your questions.
At this time, if you would like to ask a question. Please press star one on your Touchtone phone you may remove yourself from the queue at any time by pressing pound key once again that is star one if you would like to ask a question.
We will take our first question from Kelly Bania with BMO capital. Your line is now open.
Hi, good morning, Thanks for taking our questions.
There was a discussion of some of the encouraging signs.
And what Youre seeing maybe in the theater business.
Can you give us a little color in what you're expecting in terms of improvement.
And EBITDA at the star business to kind of legacy Westar businesses as we think about your guidance for the year.
But we're very encouraged and I think the biggest reasons for our encouragement is the amount of new business that we picked up going through this pandemic.
We are very close to fiscal 2020 sales.
We've gotten closer each month with October being the best month.
We are back to the.
The same return on sales.
Or I guess I would put it EBITDA margin that we had before.
So we're looking for improvement with with some of these channels coming back.
The biggest ones would be office coffee in theater.
We're not sure that they'll come back to the levels they were before but if they don't we will certainly be exceeding.
Fiscal 2020 sales without that happening.
So just really encouraged.
Great.
Very helpful and I guess, just another one here just a lot of discussion across the space on fill rates.
Obviously labor constraints, that's happening both internally and at the customer level.
Can you just talk about where you think you stand on those two factors, particularly relative to a lot of the other competitors.
Out there.
While we've certainly had our struggles this has not been easy.
Going into what we thought we had made some really good decisions.
We used to like a lot of companies had daily calls as we have gone through the real difficult times.
And that recall with you can't have too much inventory and you can't have too many people.
Because this is going to come Roaring back.
And I think that helped us, but it didn't help us from a real long period of time, because we didn't anticipate how difficult it would be to hire people.
And we didn't anticipate.
The depth of the problems that some of our suppliers would have.
I think they were dealing with the same things that we were dealing with but I think the COVID-19 issues more difficult for them.
<unk> is stable or somebody that operated with one or two plants and.
I think it just made it difficult.
It's it's moved around on Us, where we've had tough times.
We spent the money.
Slide 10-K would fly in people from other distribution centers that warrant at that time negatively impacted.
September was a pretty tough months.
October.
It's the first time, we've seen a real good decline in the number of temp people that we have.
So that's very encouraging.
But one thing that.
That we've been cautious with.
Is that as Jim has put together.
The type of guidance that we gave.
We're expecting to continue to have some difficulties.
And it would be into 2022 before it reaches some level of normalcy I want to also add that.
Our shortage of people isn't.
As acute as it was before.
We've done a pretty good job of getting the staffing Darrin as I've said a reduction in camps, which of course are very expensive replicate needs catch today, but.
The encouraging part is that.
I think that.
We moved a little bit more towards.
The learning curve issues versus the number of people.
And.
This is a job, particularly in the warehouse, where you can train people for the job fairly quickly.
As far as them getting really productive in that job. It takes a period of time.
That's a really long answer.
We don't want to portray ourselves as having this.
<unk> solved.
But we certainly feel like it.
We're getting ourselves over the hump.
Thank you.
And we will take our next question from Edward Kelly with Wells Fargo. Your line is now open.
Yes, hi, good morning, guys. Thanks, great color this morning.
Could you talk a bit more.
Just around the outlook for the temporary labor costs over the next few quarters. So I heard you mention that you would expect some easing in Q4.
Does that mean that Q2 and Q3 the level of pressure is similar to Q1 mid to kind of how do we think about the magnitude of that and then you you called the cost temporary so is it right for us to look at these cost as we think about your business.
Over a multiyear period.
When we think about EBITDA guidance this year that EBITDA would obviously be higher by.
These costs.
Ultimately kind of like what gives you the confidence in the word temporary.
Yes, Thanks Ed.
Thanks for that question.
I think the first thing I'd like to say is.
While we do have these heavy kept costs.
Most food distributors do.
Really do appreciate all the hard work our supply chain has done because at the end of the day.
Regardless of the heavy labor costs, we've had and the difficulty in moving product through the supply chain is most distributors are I think you'd agree we posted some solid sales results. So that supply chain of ours is working very hard and they are getting the job done.
Second as far as temporary versus long term.
The vast majority of these costs. The majority of them are temporary and will abate. There is no doubt that some of these costs are structural.
And.
It's certainly not the majority of the minority of the costs, but I think it would be wrong for us to say that some of them arent going to be with us.
For a longer period of time these contract costs, the temporary contract workers will start to fade away.
We expect them to continue primarily through Q2, some easing in Q3, and we expect to have worked ourselves out of it in Q4.
Important to note that the entire contract labor cost.
While that number we quoted.
That particular cost goes away those contract workers will be replaced with some degree of full time workers. So it's not a dollar for dollar reduction.
Great that's helpful and I wanted to ask just one follow up.
Big picture it feels a little early to ask this question because you guys closed on core Mark.
But your financial position is strong and Jimmy you like with that can you talk about.
The M&A backdrop.
It's not getting any easier out there operate.
<unk>.
And.
Their appetite I guess at this at this point.
To do more or do you need some time to digest.
Well I think Thats a really good question.
We've done a lot recently.
<unk>.
We don't feel any stress as far as impact on the organization from that on the one hand.
But on the other hand, sometimes you want to tap the brakes, a little bit and take a take a little bit of arrested and make sure that everything is going well.
But at the same time, we want to be very strategic.
I guess on top of that we.
When it make sure that we take advantage of opportunities when they are available.
And they may not be available in the future. So we want to continue to be opportunistic I think we have a balance sheet.
That.
Is there still some flexibility.
Paying down debt is always important but it gives us some flexibility.
So I would put us in the camp of if theres something available that really fits for us will can jump through hoops to make sure that we get that done.
Hi.
Core Mark I believe is going to be very similar to Reinhart I think it's a good cultural match and thats very important to us.
In some instances.
It's more important than getting something at a really great price.
And I think I think I'll leave it at that.
We have things we're looking at now.
Not things that we went out and sourced people that came to us.
And they are opportunistic, but they're not really big.
So.
I think thats more what youll see from US is continued activity.
But not not real large.
Alright, Thanks, guys. Good luck.
Okay.
And so we will take our next question from Alex Slagle with Jefferies. Your line is now open.
Thanks, Good morning.
Question on the independent case growth.
Curious how the two year trend that you mentioned compares to the fourth quarter on an apples to apples basis. If you have that and then.
Curious with defense.
But what's driving the strong relative performance and how much of that CAD.
Category exposure versus winning new business versus other specific actions that you're taking export.
Existing customers will gain wallet share with them.
Yes.
We look at.
I guess you call it a two year stack of comparing to 2020.
We feel the 11% case growth that we've had.
Has.
It just bodes well for us in the future, particularly how well Reinhart has done through that period of time and I would say, particularly have reinhart has done in the last couple quarter.
Quarters versus not last year, but versus two years ago.
That gives us a lot of.
A lot of confidence in the future I think going to Covid itself, I think our customer base with setup pretty well for growth.
But we gained a lot of share in the categories that are paid to take out good for delivery.
And once we lap that and we thought those tough comparisons would be just that it would be tough to jump over.
Certainly havent had the huge growth that we had the year before but we've continued to have.
Low double digit growth in those channels.
So that also gives us.
A lot of confidence.
As we move forward and then I wanted to add one other thing to that.
If you take our case growth.
Versus and then you add the inflation to it.
The delta between that number and our sales growth is the highest that we've seen or in other words, our mix of business has really moved more and more to high priced product.
And we've done very well in the center of the plate.
We've actually done quite well in center of the plate in the retail area as well.
To our surprise so.
I think we're positioned well.
We are.
We're certainly not a normal environment.
And what we've been seeing is actually a slight uptick from that 11% as you look at the last couple of months. So.
It's just been really pleasing.
Great and then.
On core Mark.
Retention and turnover post acquisition I think that played out as expected I know it's early but.
Thoughts there.
Yes, we only had four weeks of that Q1 and of course, we said we said four weeks since then.
As far as business retention.
There hasnt been any business that we've lost through that period of time, we kept the same struggles from.
Labor standpoint, and core Mark that we've had in the rest of our businesses.
So it's a little tough when you've got that kind of disruption, but the momentum has continued there the only difference would be.
That.
Cigarettes did well through the early and mid stages of Covid.
Now cigarettes are going back to there.
More than their historic drop I think part of that is just.
Getting more towards what would have happened over two year period of time, and we don't really pay that close attention to that I mean, it's it's obviously a lot of revenue it's not a lot of gross profit, it's not a product area that that we market there.
Go out and pursue business in so.
It's just there.
Perhaps foodservice business is doing extremely well and I also should note that we were able to take a convenience store chain that.
We did the foodservice product for added performance foodservice and we've been able to get an agreement with him.
To supply them with their convenience at a core Mark and then we did the opposite of that where we had.
A core mark customers that had a good footprint.
For convenience and we've been able to move the foodservice business.
Over the US now neither one of those have started one will start seen one will start to begin in February.
Because obviously, we want to make sure from a labor standpoint.
Positioned well to handle their business.
George I would add.
When we talked about the Reinhart acquisition that we completed that acquisition, we made it clear that we were pleased with the talent.
Ryan are brought to the organization as well as the cultural fit.
And that really bode well improve that as we move through integration and Reinhart began to deliver even better results than they had in the past.
We see those same signs with the core Mark team.
That's for sure.
Very impressed with their management team.
And I'll use the word again, the culturally it's a great fit with us.
It's a great leader.
Who.
It will contribute to our company beyond just the convenience areas. So we're pleased.
Thank you here. Thank you.
And we will take our next question from John <unk> with Guggenheim. Your line is now open.
Hey, you are going to start with.
Sure Mark So let me talk about the process of cross selling.
Right.
Institutionalizing that.
You gave two examples that really.
Addressing that.
Yes.
Attacking that every day plus.
Plus your visibility on contracts coming up more chunky stuff.
And then do you think do you think they're non tobacco business right, which is really the key can you consistently grow that double digits.
Or is that a high bar.
Yes.
I'll comment on that each one of those things.
As far as our approach to the market and somewhat our combined approach and you consider that there's significant overlap with <unk> and performance foodservice, we're working on that scale John.
<unk>.
If you look at the foodservice part of it today, we actually do more business out of performance foodservice and retail core Mark and eby. So it has huge potential for us.
So.
Theres accounts, who have.
Don't have a real heavy commitment to foodservice, where it's going to make a lot of sense for us to continue to do that type of business out of the core Mark Eby.
Structure.
And then where there is a significant commitment to foodservice.
And we will be sending to trucks into those accounts.
The two examples that I just gave are both where we will have two trucks going into those accounts. So we've still got decisions to make about that our people are working close together.
And we'll come up with the right solution that I think the solution is really going to be on an account by account basis and we just have a lot of work to do when it comes to that.
As far as growth.
I think that it's going to be.
It's going to come.
More in chunks, and we typically see in performance.
Food service.
We do very well with independent.
Convenience operators, but they tend to have either very large commitments to foodservice and that's the minority of them or almost no commitment to foodservice.
<unk>.
That I think will be steady and will be much more likely arent performing key service environment, and I think non tobacco double digit growth I think that it's been.
Aspiration.
If you go back to kind of the 6% to 10% that we've always talked about an acute service is probably going to be similar to that.
And then that that chain, which is significant I mean lesson.
Less than half of the units, but it's much more than half of the sales that can be pretty chunky, but I will say that we have the largest funnel and Scott Macpherson will say even.
<unk> gone back.
Before the merger this is like the largest funnel that they've had as far as business that we are.
Having process today.
Not closed by any means and in process.
Correct.
Foodservice side right. So historically.
You guys have targeted independent case growth kind of mid single digit.
In more recent years right pre COVID-19.
How do you think about that the one thing that you thought was going to happen with during Covid is that.
That would be this account consolidation.
Brian automatically whatever your share was.
So all of the primary distributors, we're going to get a lot more share of wallet.
Is that is that stock and has that.
How big is that opportunity.
I looked at the kind of mid single digit.
Case growth.
Well I think thats, a great opportunity, but I think the bigger opportunity will be.
New business, we are running the highest increase per customer and both lines in cases that we've ever run a good bit.
We're real conscious of picking up business right now that we are.
We're not capable of supplying properly and.
And not only that but our salespeople are very busy making sure that we're servicing our customers properly. So our increase in new accounts is much lower than it typically is and I think that's where our big opportunity once.
We have full confidence from a labor standpoint, and Thats an area that we've always done well with and I think that will continue to do well with it and Thats just going out and pursuing business that we don't have at all today.
The bigger opportunity.
Okay. Thank you.
And we will take our next question from Jeffrey Bernstein with Barclays. Your line is now open.
Thanks, So much this is actually Jeff priester on for Jeff Bernstein.
One question one follow up for us.
<unk>.
Just on your capital allocation priorities overtime.
Thanks for your kind of added more and more channels. So there's kind of more mouths to feed.
How would you think about the allocation of Capex are just investments across your.
Opportunity channels.
Would you expect.
Each channel to kind of fund their own growth, especially when you look at foodservice and core Mark.
And I guess the final piece of that is just on your balance sheet, how much cash would you be.
It keeps you comfortable to hold on the balance sheet, just a normal time, so I'm going to ask one follow up thanks.
Yes, we think on the last question, we certainly think of in terms of liquidity and we're going to optimize our capital structure and make sure that cash is actually put to good use.
So.
I would I would think about it in terms of liquidity perspective as far as Capex.
Look R R.
Our capital priorities are certainly too.
Pay down debt.
And manage our maintenance capital as well as expand for growth.
I would think of it as both the foodservice division.
As well as Vista overall will both be funding their own capex and they do a fine job of that I think that everybody will be every every one of those divisions will be taken care of.
From the standpoint of maintenance capital as well as preparing for growth.
And I'm going to give you a little bit more of an answer on that too.
Performance Foodservice, we have several projects that are in place right now.
A couple of new facilities, and some addition to existing facilities.
Just are the same.
Not quite to the extent that we've.
We've never been bashful about adding capacity to hit star and most of the distribution centers that we had.
If you go back to two.
When we bought PFG, we really redone almost all of the the store distribution centers in these retail.
Pick and pack facilities fulfillment facilities.
Three of those we have all three of them profitable at this point.
We want to get better at it coming up here in the near future, but we have aspirations to take that to probably six.
Of those distribution centers.
We have some markets where.
We.
We want to improve our brick and mortar from a convenience standpoint between core market. So we will be spending some money there.
And our national chain business.
Got you can go all the way back to 2008, when we did the original acquisition.
Tun.
Any expansion projects, we've actually closed two distribution businesses.
Businesses in there.
It's been a pretty good cash generator for us, but it's basically been maintenance capex and it doesn't come with the kind of margins that youre going to spend.
Lot of Capex on so.
If that gives you an idea from the different businesses I think that's important for us to communicate.
Where we see our growth coming.
I appreciate that and then just on inflation.
So are you and your peers are also facing some cost inflation, but just kind of what what have you been seeing so far this quarter and kind of what is your outlook look like in terms of when this might start to abate.
Yes look obviously inflation continue to be significant in the quarter coming in at 11, 1% for PMT overall and low teens for foodservice.
We had larger increase in the proteins for sure in disposables.
It was really broad based overall the categories.
It wasn't a surprise to us I don't think it would surprise anybody and we're set up to handle inflation.
And pass along quickly to our customers as appropriate and you saw that in this quarter.
We feel good about our ability to pass it along we'll continue to manage it and manage it fairly as far as predicting it.
It's pretty difficult to do but I think it will be definitely be with us in the near term harvest say Hello.
I'll give you a quick shot at an opinion I think that the.
The commodity products.
So supply and demand based big inflation.
I think that that could be transitory I, certainly don't know him but.
As you can get from being an expert on that.
Any time that something is in short supply and there is a lot of demand youre going to see nothing but inflation.
I would say that our customer today is much more concerned about getting the product and what it cost.
Which quite frankly makes us kind of.
In that same boat.
And if you go to more packaged type product or further processed products.
I think these companies fight pretty hard to get price increases through.
And I do feel that.
And by the way product is also extremely hard to get.
I think that once they establish that new level of pricing.
Theyre not going backwards, so I don't I don't see that as as transitional IC that is permanent.
The only thing that could happen is maybe.
Those that do fairly frequent price increases or even annual price increases.
May not be as driven to do increases in the future if their input products go down.
But.
I think that we're going to turn around and find ourselves in a position where inflation goes down quickly.
I don't see how that happens.
Yes.
I appreciate your insights as always thanks.
And we will take our next question from foreign coupled with credit Suisse. Your line is now open.
Thank you just wanted to follow up on the temporary contract laborer you called out of $52 million increase in the quarter can you help us understand the incremental cost of using the temporary labor relative to if you had both staffing the combination of direct coffeehouses productivity any way to quantify how much better the cost what does Damon as you think about a normalized environment.
Yes, I think the only thing I could.
Share with you and this is not specific science everybody means as we think of the temporary causes approaching double what the typical cost of unemployed would be it's it's expenses and then Theres also one other important dimension to consider.
Our full time folks are primarily very well trained on the new people that make less mistakes theyre much more efficient.
As we move out of the temporary or contract labor workforce will start to be able to train those folks in and we'll see some improvement there.
Great. That's helpful. Thank you.
Ireland also.
That'll be a gradual.
Even though we've made some good progress in October and part of the reason for that is that we've taken our best most productive people and we bought them incredible amounts of overtime.
And quite frankly in any of the break.
And so.
So we will hold on a little bit longer to some of these temps just to get our people back to two nor.
A normal cadence of work.
That's very helpful. Thank you.
Kevin the independent customers can you share what percentage of index independent customers are serving today relative to pre COVID-19 and if youre starting to see the appetite for new unit growth, increasing and then any color on the underlying performance independent restaurants versus current restaurant.
Yes.
We sell more independent customers today than we did pre COVID-19 and I look at that every week and I look at it every week by Opco.
We do have some where we saw less at the opco level or at the distribution level and you can be pretty much equate that.
With labor issues and service issues, and where we had real problems, where our number of customers went down.
So we got some work to do.
As we come back with that as far as the health of the independent restaurant in new restaurants, opening we're seeing new restaurants opening and have been for months.
It's just such a resilient business.
I do worry.
Somewhat with.
The customer that you did.
Struggled through the PPP got them through and how are they going to be here in the future. So we're trying to work with our customers as I'm sure. Our competitors are and we're trying to be as is.
Just trying to work with them as far as we can but we also want to make sure that from a credit standpoint, we're really strict in really tight.
And I think that's important even though I see that the independent restaurant being healthy I think that.
In some ways it may even be tougher when this is over more competition.
These.
MTI locations are filling up pretty quick.
And we could go back to.
More too many seats and right now we.
Not only don't have enough seats in the industry and have enough people to wait on them. We know how many people are cooking.
It's going to change dramatically.
I don't have the crystal ball for that but I think that the independents will continue to do well.
Great and just a final one anything you can expand on what Youre seeing in October case growth and strength there.
It's not huge difference, we're seeing slight uptick.
Two.
Two years ago each month.
It's not huge we'd been.
Negatively impacted by having a distribution center that hasnt been opened since the hurricane in Louisiana.
So that's had some impact on if that is opening back up next week.
But.
I just see a just a slow steady increase but so.
Off a high level, so we don't mind that.
Okay. Thank you guys so much.
And we will take our next question from Mark Carden with UBS. Your line is now open.
Good morning, Thanks, a lot for taking my question.
Digging into labor or bit more it sounds like a lot of the temporary headwinds are kind of in the contract side, but when we think about full time non contract workers, we've heard some different perspective.
Some of them talking more about implementing based pay raises and others have talked to BARDA bonuses. What's your view on the industry. At this point are you expecting more structural pressures or do you see them being mainly transitory. Thanks.
I think we are seeing both.
<unk>.
Yes, we've had markets where.
<unk> studied the market you get somebody.
Third party to study, maybe just looking at it a little bit different.
If we're not paying enough in that market, we take our payout.
We did it pretty substantially across eby Brown I think it has helped us.
It was the right thing to do.
Most of what we've done has been in the form of sign on bonuses or stay bonuses.
Temporary.
But where we need to.
We'll make the.
The investment in people that we need to make.
Okay that makes sense.
Then building on some of the earlier core Mark question, you noted that the core mark integrations going faster than expected and that you've seen several major wins.
I know, it's still early but does your full year guidance building a material acceleration at core Mark versus what you may have anticipated at the time of the acquisition announcement or even at the time of close or is the bigger impact just can be longer term beyond 2022, yes, we did not.
Add any real improvements at.
At core Mark I think worldwide not to right now.
Because it's so early in that.
That transitions to go through.
I'll just go back to what I said before that the core.
Great.
Good.
<unk>.
The amount of sales that we're currently working on.
Really good.
The eby Brown and the core Mark people have gelled great.
Beyond what I would've expected I think from a synergy standpoint.
That.
There's a greater.
Commonality.
In job functions.
In.
Product offerings.
And how the business is run between core market there.
And there was between performance and Reinhart, particularly when you get the product a lot of the synergies that we'll get from Reinhart are yet to come.
Really little consolidation of product offerings. So I think we will be able to do those things faster than the core Mark <unk> World.
And they're moving pretty quick.
But we're also.
Really careful around lost people.
Because we need talent across the organization. So sometimes you can move too fast.
And you can mess up from that from the people standpoint.
Got it thanks, so much and good luck.
And we will take our next question from John Glass with Morgan Stanley. Your line is now open.
Thanks, very much and most of them the outcome answered, but George you did talk about this new automated facility and bolster our pick and pack.
The big idea there in terms of the opportunity set for new customers you mentioned like D. C. I'm not sure if you've done that business before.
Is it more efficient or is there actually a new revenue opportunity that comes with those facilities yes.
Yes, there is both it's certainly more efficient.
Been doing it at 21 distribution centers.
But what we had to do first is we had to get the volume.
At the point, where they could buy in truckload brackets.
On all of these key items Jeff into.
Pick and pack center Okay.
So that's why it took us really took a few years years to do this.
So early.
Good deal of it is existing business, where we are.
Picking we're packing.
And we're having it delivered fedex or ups or in some cases.
Hi.
Our own vehicles.
The future opportunities are.
Damian.
Fulfillment for other people.
Which we have great confidence in that being a big business for us we're in early stages, but it's been very successful for us.
That is supplier driven and in some cases, it's also customer driven where.
Our customer has a.
An operation where they are fulfilling orders.
And it's not their business and they would rather have us do that for them.
And then it's also.
Useful.
Two to bring product in.
Debt.
We can bring in truckload into there and then disperse out to our distribution center something at core Mark Thats, a good bit of it the.
The other thing that we've done is we've put a system in place.
We only have a few of our app, because you've met today, but where our foodservice people could right.
And order.
That be delivered to the customer, but that order comes out of one of those three centers and it's more geared to the product offering that they have.
And.
That has gone well, so far and I think that once we have that in all of our foodservice distribution centers I think it will mean, a lot for particularly our single serve business within.
Within foodservice.
Great. Thank you.
And we will take our next question from Nicole Miller with Piper Sandler Your line is now open.
Thank you so much and good morning, just two quick ones, a little bit of ticking and tying that.
Sure the conversation but.
The 52 million of expense, that's kind of one time.
Sounds like that at least carry forward into the second quarter. So I just want to make sure that I would content that is contemplated in guidance I get that right.
Doug.
When does it roll off and when it does roll off is that Opex line about a $1 billion give or take.
So it is contemplated in guidance.
We expect it.
To begin to roll off towards the end of Q2 early Q3, and we expect it to a significantly abated as we go into Q4.
Im not sure I followed your last question.
So once we.
Kind of account for that Opex that line is about $1 billion give or take rate of that.
And of that.
As I work through the numbers that is the underlying.
Expense given the guidance, we've provided and I'll make sure I'm getting that line item kind of right there.
So we've we've provided.
We believe help for guidance around sales and adjusted EBITDA.
Sure.
What I believe is hopefully helpful color around the content of the P&L and I'm going to leave the answer at that but should we appreciate the question.
Yeah, Okay, I think thats about right got it.
And then I might just ask this labor question, a little bit differently. So.
Turnover and maybe if there is a distinction between the distribution for <unk>.
The drivers.
That timing.
While our turnover is fair.
Fairly close to historical turnovers, except the churn is very very high in other words people that come in and they do the work for a week or two weeks and they leave.
Mhm, which isn't all bad because if it's not the type of work that they're capable of doing or that they want to do that.
That is the better outcome. So I think thats part of why it took us.
A long time to kind of get to where.
Our people count is not where we want it to be but getting close and as I said that our attention.
We'll always be on recruiting and hiring but our attention is really heavily focused right now on getting our productivity back to a normal standard and that only comes with time.
And is it.
That's a very helpful context, and the restaurant world.
Can get someone for 90 days that you might you may.
Have them so when they talk about their turnover rates the average.
Since the average and then it's much higher he said the first 60 90 days for you is it a few weeks is it a few months.
When do you know that.
Person might stay narrow.
Yes.
I mean this maybe.
King.
Almost as many of our people there are circumstances in the future.
What has the rationale and.
I think with the training systems, we have with the technology. We have in place you can learn to be a selective at night.
Within a couple of days you know the job, but it's probably more like <unk>.
60, 90 days before your fairly efficient at it and we have people that a year into it are still improving still reducing their number of Av.
Errors and increasing their productivity.
It really varies by person and I want to throw into each of Canada.
A selective.
In Massachusetts, and this doesn't happen very often but he just kicked in millions of cake case without a mistake. So.
You'll get some people that I call them, just great athletes that can it get out there and really get it done.
And some people never take two minutes just like any other job.
That's very helpful. I appreciate it thank you.
And so we will take our final question from Peter Peter Cella with BT.
<unk> Your line is now open.
Great. Thank you and thanks for all the color today I think you guys touched on this a little bit I was hoping you can elaborate on.
Independent case count growth can you give us a sense on how much of that growth that youre seeing is coming from new customers versus existing customers that you had maybe pre COVID-19 that are maybe accelerating their their case counts or their traffic with you.
Existing customers are producing more of our growth today, the new customers and Thats never happened with us before summer.
Some of that is self inflicted because we don't want to go out in the first experience that the customer gets with us.
Is not a great experience.
So.
Think that that will turn back again, the other way once we feel we're in a much better position from a labor standpoint.
The most difficult customer for us to handle today.
Is that.
It's mostly chain business, but don't they don't experience anybody other than us.
And.
They're not getting the experience they used to get.
And that makes it very difficult and I will also say there's been so much publicity around the supply chain issues through.
Every every industry.
Kind of waned in People's expectation level.
Unfortunately isn't what it used to be and I will tell you when I go into a restaurant my expectation level isn't what it used to be either.
Understood.
Just lastly on the food cost inflation and the ability to pass on.
Have you had any resistance by channel or different customers in terms of passing on the inflation or has it been pretty seamless.
I think it's been quite seamless.
Part of that is people that want to get product right.
This is a competitive industry.
And I think it will always be a competitive industry and we're just in a period of time.
Sure.
That has.
Wade a good bit.
Great. Thank you very much.
There are no further questions on the line at this time I will turn the program back over to Marshall for any additional or closing remarks.
Thank you for joining our call today, if you have any follow up questions. Please contact us at Investor Relations.
This does conclude today's program. Thank you for your participation you may disconnect at any time.
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