Q4 2022 Performance Food Group Co Earnings Call
And discuss some of the recent trends we have observed in the market. It is a dynamic time for our industry and the economy, but we believe we're very well positioned to continue to produce strong results and maintain the momentum we saw as we closed out the fiscal year.
Our organization is operating at a high level and the dedication of our workforce has made this performance possible.
Fortunately as we shared with you just over a month ago at our Investor Day, We believe our company is uniquely constructed to do well and create value for our shareholders and a range of economic climates. Our company has been resilient during challenging times in the past and our recent strategic activity, including the core Mark acquisition.
Have only increased our ability to weather various challenges.
But as you saw on our press release earlier today, we have not yet seen significant impact from what some believe may continue to be more difficult environment for the consumer.
Our fourth quarter results show, how our company is balanced across a range of channels and categories. In particular, the continued rebound of our <unk> business, which experienced strength in the movie theater and vending channels, along with consistent performance from our convenience segment helped.
To help offset modest slowing some of our chain restaurant business, we're seeing the benefit of returned to more normal activities, including vacations business travel and family outings to the movies sporting events and other group activities for several quarters, we have discussed how certain areas of our business.
Particularly at this star would extend our recovery and build upon the strength we have seen in restaurants. This is exactly what is playing out today. We believe there is still room to improve which gives us confidence in the duration of our strong top line results.
We are also beginning to see some encouraging signs that the supply chain is improving.
Our inbound fill rate closely and during the last week of July in early August we were pleased to see our fill rates from performance foodservice suppliers reached the highest level in over a year. There are certainly more room to improve but we are hopeful that this is an indication that we are heading in the right direction and we believe another reason why we feel confident for the.
<unk>.
Similarly, the labor market has slowly improved better labor trends, along with the focus on our cost structure and favorable product and channel mix produced another strong quarter of year over year margin expansion.
Considering all of these factors, we feel very good about the potential to continue to grow revenue and profit as shown by the fiscal 2023 guidance. We set this morning, Jim will describe some of the items impacting our guidance in a moment.
As you know inflation remains elevated however, there have been some signs of moderation, particularly due to declines in some commodity proteins. This may continue in the short term. However, we believe inflation will remain high for the next several quarters, particularly as shortages in certain grains seed and fertilizer.
Or impact the supply of center of the plate items, we will continue to work with our customers to find alternatives to keep costs down but allow for the same high quality meals that their consumers are looking for.
We believe this dynamic creates a great opportunity for our company owned brands as we shared at Investor Day performance brands, often provide a win win situation, where a customer is able to find high quality products at a lower price for.
For PFG increased sales of our own band brands includes customer loyalty and gives us better control of the supply chain.
Through the fiscal year inbound fill rates our company brands have been generally higher than for national brands.
In the quarter.
Performance brands grew.
Eight 4%.
Another topic that has gained significant attention over the past few months is the possibility.
Of a recession hitting the U S economy.
While we do not have the ability to predict the likelihood of this happening we do plan for a range of outcomes that could impact our business through this process. We believe that we are well positioned to handle a softer economic landscape.
In fact, we believe that we are moving towards a more normal supply chain environment, which we expect will lead to better productivity and higher profit margins going forward.
Furthermore, we have high exposure to resilient channels and categories in the restaurant space our strength in pizza continues to pay dividends.
We have once again gained significant share in independent pizza during the fourth quarter as.
As we saw during the depths of the pandemic pizza and Italian cuisine tend to perform very well in difficult times as an affordable meal option for families I'm very happy with how our pizza business has performed and we have not missed a beat but pizza is not the only area of strength in fact during the quarter we.
<unk> share in all 15 of our largest independent categories. This includes very strong share performance in seafood.
Hispanic and C store concepts. In addition to the pizza gains I just mentioned overall, our year over year independent restaurants share gains improved sequentially each month of the fourth quarter, demonstrating our leadership in this important area for our business our organic independent restaurant case in the fourth quarter.
<unk> were up 16% compared to the fourth quarter of 2019.
Within this toward the value store channel and vending have also been bright spots. We believe that both of these lines of business are also very recession, resilient, particularly value stores and vending our micro market business remains one of the more exciting growth initiatives at our company. If you are interested in more details I would point.
You back to our Investor day presentation, which gives good insight into the micro market opportunity and it goes without saying that our theater business saw a strong fourth quarter as box office numbers rebounded significantly our theater business will fluctuate depending on upon.
Alrighty of factors, including the quality of the movies being released but we were very encouraged by the consumer's willingness to return to the theater when theres good content in the market.
Finally, we have all seen the consistent performance of the convenience store channel has provided not only during the pandemic, but also through previous economic downturns. We see no reason for this to change in the future and believe that our emphasis on food foodservice and our related products elevates the opportunity that this channel provides an.
The fourth quarter dollar sales of food foodservice related products into our convenience channel increased 17, 6%.
Reflecting the benefit of inflation same store sales growth and market share gains. This compares to sales of nicotine products, which were down three 5% in the quarter.
This shows the incremental sales opportunity and positive mix shifts that we believe will drive significant value for the core Mark transaction.
We're also very pleased with the pipeline of new business in the convenient space since closing the core Mark transaction. We have highlighted several of these new business wins, we continue to see a similar consistency of potential new business in this space.
This could only be achieved with a smooth integration process, which is exactly what we are seeing the integration and related synergies are very much on track.
Taken altogether, we are pleased with our segment's ability to collaborate and create new business opportunities, while also providing diversification, which reduces volatility created by external factors.
Our fourth quarter results position us well for the upcoming fiscal year, we posted net sales at the top end of our guidance range and higher than anticipated margins.
Sales results in July and early August continued to keep pace with our June run rate.
Before turning it over to Jim I wanted to make a few comments about the announcement, we made last week that Jim will be retiring at the end of the calendar year in transitioning the CFO role to Patrick capture.
I've known Jim personally and professionally for 34 years and consider him a personal friend as well as a close colleague Jim's leadership over these years has been an important part of PFG success.
For the past five years, Jim has guided pfg's financials through some of the most challenging conditions.
And multiple acquisitions, but through it all Jim was the consummate professional has achieved the monumental task of creating an even stronger financial position than he inherited when he took over he.
It is also leaving behind a topnotch SaaS.
I will Miss Jim's stewardship as he enters the next chapter of retirement at the same time I'm incredibly excited to see Patrick catch horizons of the CFO role Patrick has been with the organization since 2010, holding a number of leadership positions at <unk>.
Including the CFO of that division Patrick's knowledge of our business and financial position will be an invaluable asset to our organization like Tim Patrick has excelled in both financial and operating goals.
A number of you were able to meet Patrick at our Investor Day in June as we transition the role from Jim to Patrick over the next several months there will be many more opportunities to interact with Patrick I'm confident that it will be a smooth transition process, Jim and Patrick will work closely over the next several months as they have for many years as lead.
And the organization.
We are pleased to have Patrick join US on this call is first of many to come. Please join me in congratulating, both Jim and Patrick one of the new endeavors, we wish them both the best.
I would now like to turn it over to Jim who will review, our financial position and earnings results in more detail Jim.
Thank you George and good morning, everyone.
As George mentioned, we had a strong close to our fiscal 2022, and we entered fiscal 2023 with solid momentum and a strong capital position.
As a result, we were able to set solid financial targets through 2023.
These measures keep us on track for the three year goals, we discussed with you during our Investor day in June .
Our cash flow and balance sheet position is strong and allows us to maintain the flexibility to invest behind organic and inorganic growth.
We finished fiscal 2022 by generating about $277 million in cash from operating activities.
And positive free cash flow of $61 million, both substantially higher than our 2021 results.
Our cash flow success came despite necessary increases in working capital to keep pace with demand and advanced purchases to take advantage of preferred pricing on certain products.
We also increased inventory from one of our tobacco suppliers ahead of that suppliers planned manufacturing shutdown for their system conversion.
We closed the fiscal year with $4 $3 billion of net debt, which is a leverage ratio of four <unk> times trailing 12 month pro forma adjusted EBITDA.
72% of our debt is fixed rate, representing very attractive financing levels.
As we highlighted in June reducing our leverage is a key financial priority for the company and we have made significant strides both by growing our EBITDA along with targeted reduction in our outstanding debt balances.
In the absence of accretive M&A opportunities, we continue to target a leverage range of two five times to three five times.
At the end of the fiscal year, we added $2 2 billion of available liquidity I am proud of our team's efforts to maximize our balance sheet and financial position, while continuing to invest behind growth opportunities.
We have also continued to make strong progress on the integrations of core Mark and Reinhart.
I am pleased to report that we have now achieved the $50 million of planned annual run rate synergies related to the rhinehart acquisition.
This milestone reflects improved buying power with suppliers.
Operations, and logistics efficiencies and corporate cost reductions.
As always we will continue to look for efficiencies and cost savings opportunities across all of our business units.
With that let's quickly review some highlights from our fiscal fourth quarter and full year business performance.
At the enterprise level PFG net sales increased 57% in the fourth quarter to $14 6 billion, which was at the upper end of our implied guidance range.
Total case volume increased 17% in the fourth quarter, including the contribution from core Mark and merchants.
Excluding the impact of the 50 <unk> week last year organic independent cases increased four 7% in the fiscal fourth quarter outperformance in independent case volume reflects market share gains.
And new business wins.
This also represents a favorable mix shift, which drives profit growth margin expansion and high quality earnings.
Total <unk> gross profit increased 40% compared to the prior year quarter, including the addition of the core market business and the independent case growth, which I just mentioned.
<unk> contributed about $270 million in gross profit during the fiscal fourth quarter.
We did experience some sequential deceleration in overall cost inflation as we move through the quarter, though inflation remains elevated on a year over year basis and roughly in line with the third quarter level.
Total company cost inflation was up about 13, 6% representing high single digit increases in the convenience and <unk> segments and high teens increases in foodservice.
Ill discuss our assumptions for inflation through fiscal 2023 in a moment when I talk about our guidance drivers.
There are a number of ways, we are managing the higher rates of inflation, including using our scale to improve our buying power with suppliers and.
In helping customers find value through a range of product offerings and performance brand portfolio.
The result has been positive mix shift and margin improvement.
We believe we will continue to benefit from the inflationary environment going forward.
Gross profit per case was up about $1 <unk> in the fourth quarter compared to the prior year period.
The labor market has also been a tailwind for our business over the past few months and in fact, the fourth quarter represented the first time in 2022 that we saw a benefit in year over year costs associated with the temporary and contract workers.
In the quarter are temporary and contract labor costs decreased $21 million compared to the prior year period, which includes both direct contract labor costs and associated travel costs.
This reflects some improvement in the external labor market, but was also driven by the tireless efforts of our team in the field in recruiting and retention which continues to improve.
Also note that this figure includes the impact of the 50 <unk> week in the fourth quarter of last year excluding.
Excluding that extra week, our contract labor costs were down about $17 million compared to last year.
In our foodservice segment June experienced the largest monthly head count gain for all of fiscal 2022 with that said there are still some select markets, where there is room to improve on labor, even as we approach a more normal run rate.
In the fourth quarter PMT reported net income of $76 million.
Adjusted EBITDA increased 69% to $357 1 million.
Diluted earnings per share was <unk> 49 in the fourth quarter, while adjusted diluted earnings per share was $1 seven.
As we build upon momentum at the close of our fiscal 2022, we expect another strong year of top and bottom line results in fiscal 2023.
To reflect this we have set guidance for the upcoming fiscal year as follows.
In the fiscal first quarter of 2023, we expect to achieve net sales in a range of 14, two to $14 5 billion.
We estimate this will translate to $280 million to $300 million and adjusted EBITDA during the first quarter.
For the second quarter, we anticipate 13, 5% to $13 8 billion in net sales.
And $245 million to $265 million of adjusted EBITDA.
A few items of note driving our expectations for the quarterly cadence.
The difference in adjusted EBITDA is expected between the first and second quarter is primarily driven by the timing of purchasing cost gains mainly in tobacco and candy.
Not only do we anticipate high rates of inventory gains in the fiscal first quarter, but we are also lapping sizable gains in the second quarter of last year impacting the year over year comparison.
Inventory gains in these categories are not unusual however over the past year, we have seen much larger and more frequent pricing actions by consumer goods companies driving additional benefit.
And with our strong balance sheet and combination of hallmark and eby Brown.
We're in better position to take advantage of these benefits.
These gains have the largest impact on convenience and Vista our segments.
In addition, we are modeling slightly lower inflation benefit in the second quarter compared to the first quarter was modestly decelerating inflation as we progress through the year.
For the full year, we anticipate net sales in a range of $56 million to $58 million and adjusted EBITDA in a range of 115 billion to $125 billion.
These targets keep us on the growth trajectory necessary to achieve the three year 2025 targets, we set at the June Investor Day.
In summary.
We are extremely pleased with our quarterly and fiscal year financial results, we posted a strong quarter and expect the momentum to continue in 2023.
This is reflected in our strong outlook for the full year, particularly on adjusted EBITDA, demonstrating our commitment to margin improvement.
Our company is positioned to build on our strength driven by our constant focus on our existing customer base, while adding high profit new accounts across all channels.
The core Mark integration has proceeded well both culturally and from a business perspective.
Our balance sheet remains strong providing flexibility to invest in value, creating projects to drive organic growth.
We believe these factors will allow us to achieve our three main objectives.
Sustained profitable sales growth EBITDA margin expansion and lower leverage.
Before turning it over for your questions I wanted to say a few words about my upcoming retirement and my time at PFG.
I have been blessed with a long and rewarding career in the foodservice industry.
The past eight years. This is bandwidth performance food group thinking back over this time it is amazing how far we've commented on organization. In 2015, we went public was approximately $16 billion in net sales and market cap of less than $2 billion.
We reported net sales of over $50 billion in market cap recently passed 8 billion.
These achievements would not be possible without the hard work and dedication of thousands of PFG associates customers suppliers and in addition, our partners across the world.
I'm truly thankful to been able to be a part of this success.
I cannot think of a better time to be turning over our financial leadership to Patrick catcher.
Patrick has been an outstanding leader at the Star and an instrumental part of that organization is great success.
Patrick brings a unique experience of being an established member of our company's financial organization, while also having deep operating experience.
Our company is that our strong financial position today, but I have no doubt that some of Pfg's best years are ahead and Patrick is the perfect leader to guide the finance organization.
Now I'm not going anywhere right away and I hope to have the opportunity to interact with many of you over the next several months as we transition the CFO responsibilities to Patrick.
Thank you for your time today, we appreciate your interest and performance food group and with that we'd be happy to take your questions.
Thank you 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 star Q. Once again that is star one to ask a question.
We'll pause for a moment to allow questions to queue.
Thank you. Our first question will come from Edward Kelly with Wells Fargo. Your line is now open.
Hi, good morning, everybody.
Jim I just wanted to say that you will absolutely mess by the investment community and congrats on a great career and.
We wish you all the best in class Patrick is on the promotion.
The first thing that I wanted to ask about it is on the cost side.
And.
Just around Opex per case labor productivity could you provide a little bit more color on.
Productivity.
The outlook.
How turnover is impacting you and as we think about the progress through fiscal 'twenty three.
How do we think about the trend in Opex per case year over year.
Okay.
Yes. This is George.
Turnover is certainly a problem and I think it is.
For our company our industry, probably most industries. So we're dealing with that it's getting better.
We have a lot of people that are on a learning curve more than we normally would and theyre climb in that curve and our productivity is getting better we have a ways to go.
We have some markets where were we.
We're just back to kind of normal pre COVID-19.
Era, and we have some markets, where we've got a long way to go yet.
Think in some respects that's encouraging for the future because we know we will get there.
And we see our Opex per case as something that's a nice tailwind for us going into this fiscal year.
Okay, and then just a follow up.
This is for Jim I guess, you can't get off the call Jim without answering some questions as we think about.
Free cash flow you've made investments in inventory, that's been kind of a drag on free cash flow.
In the past year, but how do we think about 2023, because it does look like you could see a nice bounce back in free cash flow.
But I'm not sure if I'm missing anything as it relates to that.
Yes. Thanks for the question no I don't think Youre missing anything I think youre right on this.
This was an important year for performance food group as we saw.
Really multiple years of really strong comeback and revenue and top line a lot of growth.
Really positive developments and market share gains so we had to build inventory and invest in working capital.
To support that and I think the field actually did a very good job managing inventory.
But we're getting close to the point, where we've got inventory calibrated with with sales and revenue growth.
I think we've been through the hardest part of that that cash burn so to speak related to that.
And yes, I would think that part of the pressure on.
Free cash flow would start to subside.
Great. Thanks, guys.
Okay.
Thank you. Our next question comes from Alex Slagle with Jefferies. Your line is now open.
Thank you good morning, and Echo my congrats to Jim and Patrick as well.
Question on.
I guess a follow up from Ed's question on the contract labor cost kind of walking through how youre thinking about the year over year benefit.
This has seen some of these direct costs come down, but you're offsetting with more of the full time.
Labor and training and you talked about the significant headwind in June .
June or I guess missing skin headcount increase in June and the training that comes with that just trying to think.
Through that a little bit.
Yes, the simplest way to think through it is.
<unk>.
I know you've seen across the last four quarters, we made a point of giving you the contract labor premium costs. So you could see.
How much more of an increase there was that we had in contract labor and now we're saying as we expected.
That number is really now below last year, so contract labor isn't the issue that it once was.
And as we've talked about in the past, we would see contract labor improve which has had which it has and we'd start to see over time increase that's happened and then we would expect over time to start to come down to a more normal rate.
It's nice to see US building staff and we need to work on reducing turnover as George mentioned.
But I think we're at the spot where contract labor in that excessive premium is no longer part of the picture as we move forward.
Got it and.
I wanted to follow up on comments on mid July August trends, and just color on the progression of sales.
During the quarter and in Nevada, that's consumer space that the higher levels of inflation in fuel costs.
Then a pretty dramatic incline.
The decline on the gas prices I guess through July and into August and curious how this impacted demand across the businesses.
Especially convenience.
Well, we do feel that the.
Cost of fuel has had a negative impact on the business.
Even in convenience we're typically.
People will be in more frequently people that buy a certain amount of gas at a time and we will purchase more.
Product, but we haven't experienced this kind of increase in fuel before and we've actually seen less traffic inconvenience, but a higher ticket.
As far as the trending.
On the foodservice side.
We have seen some uptick in July and early August from a comparison standpoint to the previous year, but I think if you look at that.
Our fiscal fourth quarter calendar second quarter. The anomaly was really more last year than this year.
The reason I say that is first of all we had mid fifties independent case growth last year versus the previous year, but if we go back to 2019, which is I think the last time, we saw anything which approached normalcy.
Our fiscal 2022, each quarter was very similar in that mid.
To high teen case growth over 2019.
But.
Quarter, four we were only I believe $4 seven was the number.
So.
If you go back and you look at the fourth quarter of last fiscal year, you had a lot of things going on first of all you had many markets opening up.
And coming back very strong you had stimulus money.
That ended up a lot of that became discretionary income and a lot of it went into restaurants.
People wanted to get out.
That continued in July and August of last year, and then it started to taper.
So I think we're going to have easier comparisons provided we don't go into a big recession. I think we are going to have easier comparisons later in the year and we have particularly seen it in some of our chain business that has been very slow.
Versus last year.
That's helpful. Thank you.
Thank you. Our next question will come from Jake Bartlett with <unk> Securities. Your line is now open.
Great. Thanks for taking the question.
My first is just on the two.
2023 guidance and when you gave the 25 guidance at the Investor Day, you kind of qualified it.
The low end with a mild recession.
Is that the case for your 2023 days. So I just wanted to kind of understand what kind of macro backdrop.
We really are.
Included in that guidance.
Certainly with Q1, clearly little closer to that time period now than we were with the three year guidance, we were given something way out into the future and we wanted to caveat it with thoughts around the macroeconomic environment.
With Q1, what you see is probably a little more of a traditional high and a low.
End of a range.
We're already into the quarter, a little bit so it's not as heavily impacted.
By changes in the economy as the three year outlook would be.
I would kind of wrap that comment uplift.
I think you know us we feel very confident about the guidance, we're providing today.
Okay great.
The other question is just there is some kind of modest EBITDA margin expansion built into the 'twenty three guidance I'm wondering if you could help us understand the sources of the margin expansion or whether you should see we should see gross margins expand.
Expand a little bit contribute to that to the overall margin expansion was that mostly just on the new operating expense leverage that you are expecting.
Yes. This is George I'll go ahead and take that one.
And the gross margin area, we have been doing very well.
And.
The bulk of that continues as it has for several years to come from our change in mix of business.
Our gross profit per case is at all time highs and I think our industry.
Appears to be probably at all time highs.
With that type of inflation for us to get margin.
<unk> growth as well has been a bright spot for us because we do have several large customers that are on a fee per case.
Increased.
Inflation only drags the margins down.
We've also experienced in our <unk> business, a great change in mix of business more towards where we get a higher margin.
And then when you go to convenience. It's just the same story the tobacco has been honored.
Want to decline.
Close to three 5%.
Last quarter end, we had over 17% growth growth in the food and kind of food related area and particularly good in foodservice.
So.
Don't see our margins being a big.
Challenge for us as we get into next year I think those trends will continue.
We've done real well as far as making money on the existing inventory that we have and we've modeled in for that to slow down but we've also had unusually high as we talked about with Ed's question. We've had unusually high labor costs, particularly in warehouse and delivery and if that continues the trend that it's on.
Now those two.
One headwind into one tailwind.
End of.
Offset each other.
Great. Thank you very much I appreciate it.
Yes.
Thank you. Our next question will come from Mark Carden with UBS. Your line is now open.
Good morning, Thanks, a lot for taking my questions Jim.
Also like to extend my congratulations on your retirement and also Patrick and Scott Congratulations on your promotions.
Maybe to start on market share with gains that were pretty solid across the board are you seeing any indications that it's coming more from wallet share growth with existing customers or from new customers being on boarded and then is this balance been shifting at all in recent quarters.
Well, we look at that extremely close.
And what we've seen is that our new business is real stable the percentage of our business that accounts that we didn't sell the previous year and our loss business has continued to gradually go down so we're real pleased there.
<unk> seen the big change is in penetration is our penetration has gone from a pretty good positive to a negative and I think that's understandable there's more restaurants open.
So it's more competitive and the ones that are opened.
When thats higher youre going to have more options and.
And people are going to see some decline in traffic.
Gives us encouragement there that that is temporary and more to do with the big volumes last year is that our lines are actually up so we're selling more items to the customers that we've had this year and last year.
And they're just not buying as many cases per line item. It just shows.
But their business is down so.
We know that we can do a good job with new business that hasnt been the.
The focus that we needed it to be for a while as we were struggling from an operational standpoint.
We expect that to get better.
And we're just encouraged.
Great and then on cross selling you talked about the pipeline remains quite strong as the mix been in line with what you are anticipating and buybacks.
Still skewing more heavily from convenience stores looking to cross sell foodservice RV, perhaps been surprised by the degree of foodservice customers with the convenient side that are looking to add center store.
Yes.
For us those sales show up partially in foodservice and partially inconvenience, depending on the level of commitment 50 convenient store has to foodservice in the number of Skus, but.
That involves so I think what I would be comfortable saying is that both are growing and growing well.
And our approach to the marketplace I think we're refining that.
And we're getting a better and better feel of which one of our businesses should be pursuing that business, but when we see these kind of declines which are a little bit unusual and tobacco a little more than normal I just look at that that it just takes these convenience customers, where our core mark and <unk> people have great relationships.
And it makes food and food related product more important to their future success.
Think that just bodes well for us.
Makes sense, thanks, so much and good luck.
Thank you. Our next question will come from John Heimbach <unk> with Guggenheim Partners. Your line is now open.
Thanks also congratulations Jim and Patrick.
I'm going to start with.
A short term.
Tactical question, and then maybe one longer term but.
George we didn't think about.
Right the average ticket.
Casual dining obviously quite a bit from the pizza.
When you sort of dissect your business is there any sign yet how much of your business would be higher ticket meaning.
Average.
Average check maybe.
For a family right.
Higher than 50 Bucks and is there any sign yet that.
Maybe starting to see a little bit of pressure relative to lower ticket.
Because it is expensive to eat out.
<unk>.
What it used to be.
Side of that any concern on your end that part of the business.
We can hear over the next few quarters.
Well Thats really a good question.
And we're always careful as to how we comment because we.
Customers job.
But I would tell you that we see casual dining as not all of them. Okay. So I don't want to imply that but that that has been weaker for us and we're seeing a little bit more success kind of in that fast casual.
And.
Yeah.
Better lower price menu.
Casual diners.
I would say that that is already happening.
No that's just our customer base.
But thats, what we see.
Okay.
Yes.
Longer term right, so maybe overthinking this but.
When I look at the implied.
Second half of 'twenty three.
Right at the midpoint right, so thats about 10% EBITDA growth or so.
To get to the midpoint of $1 six by 'twenty five requires a step up from that.
Curious what are you.
Revenue driven.
It looks like it's more margin what drives that is that a normalization of labor is that a step up in mix.
What do you think drives that improvement in the out years.
Yes, it's definitely both of those.
Continued improvement in mix continued improvement in labor.
Really we expect every division to continue the positive momentum that they've already shown and I'll tell you we are basing our.
Projections internally based on trends that we already see today that we feel confident in.
Okay. Thanks.
Yes.
Thank you. Our next question will come from John Glass with Morgan Stanley . Your line is now open.
Thanks, Good morning, everyone, Congratulations Patrick and Jim.
I wanted to see if you could maybe just unpack a little bit in terms of your overall revenue growth for this year, the 12% I think at the midpoint. How do you think in particular, the convenience and Vista channels contribute to that I assume below but maybe some insight in how youre thinking about those businesses growing do you think the Vista business was an anomaly quarter just given <unk>.
<unk> office or do you think that's more of a durable run rate for revenues right now thanks.
Well the theater business has always been kind of choppy because it's so dependent on the quality of the content.
We see a little bit of a lull period right now, but there's some great content coming out and we expect to.
To have a real good kind of late fall in.
Early winter season.
Theaters, just made a great comeback.
This starts still has some parts of their business that haven't come back entirely.
Office coffee being one that we're not sure we'll come back entirely but it is certainly going to improve from the levels. It's at <unk>.
Now and then or.
Retail business.
Been quite strong and we don't see anything that's going to that's going to reduce the performance there. So.
We look at the next couple of quarters is just our being a good grower for us when you get to convenience.
That business tends to come in chunks, there's a longer sales cycle with it we've got a good funnel.
We've got some new business that we know for sure is coming on so we feel good about that being a growth business for us and then when it comes to our foodservice business. If you look at our National account business, we were actually for fiscal 'twenty, two we were negative.
For the year and obviously it helped a great deal in margins, but.
We've got a good funnel there we've got some business that we know is coming on as well. So we're confident that we're going to have a better growth year in foodservice in 'twenty three than we did in 'twenty two.
Okay. That's helpful. Thanks, and then Jim.
On inflation what is the I know you talked about inflation broadly, but what is the embedded overall inflation number or a range for 2023. Please.
Yeah, we didn't provide a number as part of guidance, but we certainly added some commentary and color that we expect it to.
Slowly subside.
We do expect continued inflation in 2023.
Okay. Thank you.
Thank you. Our next question will come from Fred Wightman with Wolfe Research. Your line is now open.
Hey, guys. Good morning, Thanks for the question and Jim All the best in retirement.
I was hoping you could sort of touch on the there was a comment about having the highest fill rates that you've seen it over a year I'm wondering if you could just connect the dots with what you think that might mean for targeting are ultimately securing new customer growth. It sounds like that new customer add points has been relatively steady, but with fill rates, where they are or do you think you can sort of lead into that going forward.
So we've seen a continued improvement in our inbound fill rate we've always been able.
To provide a higher fill rate to our customer than we're getting from our suppliers just through.
Experienced purchasing people and and running higher inventories as we are today.
I don't know how much of advantage that gives us in the marketplace. We don't have a great feel for our competition and what kind of fill rates that that.
There are operating with but I would imagine that it's summer.
Somewhat similar.
When you get to our convenience and our <unk> business. It has been more difficult our inbound rates have not improved to the level that anywhere near actually the level that our foodservice has and I think thats because so much of its packaged product that has several ingredients in the more ingredients there are the more likely that there.
As something Thats not available at the time.
And.
We don't know.
We just don't have a good feel for how much business that is costing us thats one of the tough things in.
In determining where you feel sales are going to go.
Sometimes the customer in both of those businesses, just put something else into that slot and youre not necessarily losing.
Sale, but in foodservice, we do believe that having a higher available product is going to it's going to help us.
Makes sense and then if we just think about the <unk>.
<unk> from giving two quarters is that something that you guys. Usually do did the street just have the seasonality wrong and you wanted to flag the timing of some of these inventory benefits or is there something that's on the horizon, maybe some of that trade down from the lower end casual thats, making you a little bit more cautious.
So it was primarily the inventory benefits and we wanted to provide the street a little more clarity on on the inventory gains that were very confident in and happening in Q1 and make sure that folks that the calibration between the two quarters.
And they saw it in a manner consistent with us that's all just trying to help perfect. Yeah, no very helpful. Thank you.
Yes.
Thank you. Our next question will come from Jeffrey Bernstein with Barclays. Your line is now open.
Great. Thank you.
Two questions one just following up on the inflation.
I know the past couple of quarters, it's been stable in that 13% to 14% range and I think you mentioned you expect it to slow as side, but nothing too Crazy I'm. Just wondering if you could maybe walk us through high level the implications of.
If it stayed at double digit versus the potential for your basket to be down to single digit or.
Some people dream of potential deflation I'm, just wondering if you could share some high level thoughts on how you think about it as a business in terms of the margin impact by your segment level and then I had one follow up.
Yes.
Yeah.
Yes, we feel that we're benefiting from the inflation actually because the way we've been handling our inventories and we've made some good income there. We certainly don't want to see inflation rates continue to be where they are at today and we didn't model in this type of inflation.
How were we.
We're planning out this next year I think that there is still some price increases that need to happen on the part of our customers who have been behind that.
That price increase.
<unk>.
And.
I think it's given some advantages to our industry versus retail that seems to be right on the.
The market with their with their price increases.
And.
I do feel that that it's going to advantage people that are a better price values that are kind of on the lower end as far as our customers go.
That's really all we can say at this point, we just don't.
Don't have a great feel for that but we don't expect to see.
A deflationary period of time.
Understood and then just more broadly in terms of the market share.
I know, Jim you mentioned earlier big gains in recent years.
Wondering how do you quantify that for some perspective from the outside I know some of your peers talk about.
What level of growth, we expect as a multiple to the broader market I'm. Just wondering whether you can share any metrics in terms of what you believe your market share.
And is there maybe you have some internal targets in terms of the growth rate versus the market just trying to level set across the big players. Thank you.
Yes, we have not quantified the market share gains, we havent put a target out there.
To date, but we feel confident that we've taken market share and we continue to grow at a very healthy manner, both from an organic as well as an inorganic perspective.
I think it's difficult to determine the size of the market and our business.
We have one set of numbers that we use and that doesn't have every distributor in it. It has all the large broad line distributors. So thats, what we look at it doesn't have the specialty guys in there, but we've very consistently been gaining share across.
Pretty much all restaurant types.
The restaurant types that we are the largest in and we have the largest shares have also been where we've been gaining the most share. So that's that's how we report.
But I don't want anybody to think that we know.
What our market share is with the total market and involves everybody in distribution, we do not.
Understood otherwise congrats Jim and good luck Patrik and Scott. Thank you.
Okay.
Thank you. Our next question will come from Peter Saleh with <unk>. Your line is now open.
Great. Thank you and thanks for taking the question also wanted to Echo my congrats to Jim Patrick and Scott.
George.
Investor Day, you indicated that sales in the foodservice were still pretty healthy, but we're seeing a significant amount of volatility week to week.
A lot more than usual.
How would you describe the current environment I know you guys gave some color on July and early August seems to be more in line with June just just trying to understand if that volatility has improved and things are more normal or if that has continued.
Things have been very stable not at the level, we'd like to see it after it's been very stable, but once again I go back to what I said earlier, if you compared fiscal 'twenty two to fiscal 19.
The increases.
We're pretty much the same all four quarters. So that tells me that when you go back to that stable period of time pre COVID-19 that we're at that same kind of level of stability and I think that Q4 of last year and into part of this year is the <unk>.
Dominantly, that's when things were extremely high.
And.
We are heading into a much more normal environment and.
In the restaurant part of our business.
Thank you for that and then just on the <unk>.
Inflation, just coming back to that are there any categories or products that you feel are.
We could see some more modest.
Inflation or maybe even deflation as we head into 'twenty, three where other categories. We may see some more inflation I'm just trying to parse out some of your comments here on the outlook for inflation in 'twenty three.
Well, let me first of all I'll, just talk to star and core Mark.
<unk> seen a good bit of inflation.
They've seen suppliers that had two price increases instead of one and the year.
Those type of packaged goods.
In all my years in the business I've never seen them lower prices. Okay that just doesn't happen. They may pass on a price increase for a year I've seen Kandy do it once for three years.
So kind of set that aside when you get into the foodservice the commodity items. They change prices may change prices regularly.
And.
I think that we'll get to maybe a more nor.
Normalized.
Environment, where it's pretty much controlled by supply and demand but.
Today, there is still labor factors.
There there could be deflationary periods of time, we've seen some meat deflation in certain products here of late but when you look at the amount of capital out there we know that when we get into next year, probably even this fall theres going to be some fairly significant price increases so I don't.
Think anybody really knows but we follow it close.
We have people that.
Follow it much closer than we as a management team do that we get advice from and I think it's going to continue to be inflationary I, just don't think we're going to see.
These mid teen types of deflation numbers for any lengthy period of time.
Thank you very much.
Thank you. Our next question will come from Andrew Wolf with C. L. King Your line is now open.
Yes.
Thank you and Jim Congratulations on your career.
And.
Best of luck in your retirement.
I wanted to ask about the cadence I know people ask you about this but you did reference how.
July and August are doing and with.
With respect to June .
Is that because June is more normal as you've been kind of talking about George or isn't.
Was June sling was doing a lot different than the rest of the quarter or am I reading too much into that.
Not really a lot different but.
Wouldn't call.
June normal from a comparison standpoint, I think it was a fairly normal months, but the comparison versus last year was very difficult.
Reiterate this but our June like the quarter. The increase over 2019 was pretty consistent with what it's been all year long, we've seen a slight uptick in our case growth.
In July and early August , but I still look at.
Last year in that period of time as being a very.
Strong period of time.
Tough comparisons I guess is what I'm, saying.
Sure No that's really helpful and my understanding what about Reinhart as it also.
Driving the results there.
Are more of the divisions also starting to pick up the growth relative to Reinhard, Yes, Reinhart is doing terrific.
Just just really performing well couldnt be more pleased.
Thank you.
So Jim you mentioned inorganic investments.
<unk>.
As the use of free cash flow and that's a pretty broad place too.
Put a brush but could.
Could you guys just sort of talk about maybe some of the key areas of focus either 23 or beyond.
Other.
Hiring more salespeople or.
With just personnel in general it sounds like you had a nice step up but there's still a lot of job vacancies.
Sure.
It's pretty open ended question, but where do you want to invest in the business to really start getting your labor rates, where you wanted to get and so on.
Yes.
What we're referring to is we're going to continue to invest back into the business to support growth.
We will do that in multiple ways, none more important than capex to continue to build our supply chain infrastructure.
I feel like we're in very good shape of course from the standpoint of.
The balance sheet, and our ability to invest back into the business.
Got you and.
I don't know if you are.
Just a couple of modeling questions are kind of a little bigger than the last few quarters. You had a couple of like both quarters that showed $11 million.
It looks like other income is that a new component in the business or was that just some flow through.
Yes.
To continue.
Yes, no that's not a new component.
We do quite a bit of.
Probably an appropriate amount of fuel hedging to offset the rising cost of diesel fuel.
And that's what you're seeing there.
The cost of his colleagues that we work on.
Alright, and one other one for you Jim before we go into kind of Badger you.
Could you give us the holding gains maybe for the first half like what the swing might be I know core mark used to break that out.
Kind of as a useful numbers with the rest of the business is doing.
Yeah, Andy certainly appreciate and respect that question falls under the category of one that.
We're not going to share at this time, but.
It was helpful.
Appreciate the question.
Would you say, it's more of an inter quarter swing.
Swing, which is why you showed us two quarters or is it an absolute kind of boost to EBITDA for the year.
Yes, so as I mentioned earlier, that's one of the main reasons, we provided two quarters to show you. There was a little more heavier mix of the inventory gains in Q1, you are correct.
Okay. Thank you that's it for me I appreciate.
Thank you. Our next question will come from Kelly Bania with BMO capital. Your line is now open.
Good morning, and congratulate congratulations from us as well Jim.
Just a question on the margins I recall from the analyst day in June .
I believe can you expect that all three segments to contribute to the margin expansion over the three year period, but as you look at this year.
Aside from the inventory gains, which you called out which is helpful.
<unk>.
Any color on.
The segments that contribute to this and just any discussion of kind of.
Upside or downside to those those margin expansion assumption.
Yes, all three businesses today are running margin growth.
We are we have good good momentum.
Okay perfect. That's helpful and then just.
And I apologize if I missed this number but in terms of pro forma.
On an organic basis relative to 2019.
Can you give us those figures for foodservice.
Sure.
Yeah.
I don't have those numbers here with me in.
No I'm not sure we're going to disclose any more than we have but happy to help you work through what we have disclosed.
Okay.
Okay. Thank you.
Okay.
Thank you. It appears we have no further questions at this time I would now like to turn the program back over to Bill Marshall for any additional or closing remarks.
Thank you for joining our call. This morning, if you have any follow up questions. Please contact us at Investor Relations have a great day.
Thank you ladies and gentlemen. This concludes today's event you may now disconnect.
Okay.
Okay.
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