Q4 2022 Chefs' Warehouse Inc Earnings Call
[music].
Okay.
Greetings and welcome to the chefs warehouse fourth quarter 2020.
Earnings Conference call.
As a reminder, this blocker.
Got it.
I would now like to turn the path towards New York Walsh, Alex Aldous General Counsel corporate Secretary.
<unk> solvent relations officer.
Please go ahead Sir.
Thank you operator, good morning, everyone with me on today's call are Chris Pappas, founder, Chairman and CEO and Jim Leddy, our CFO by now you should have access to our fourth quarter 2022 earnings press release. It can also be found at www Dot chefs warehouse dot com under the Investor Relations section throughout this conference call.
We will be presenting non-GAAP financial measures, including among others historical and estimated EBITDA and adjusted EBITDA as well as both historical and estimated adjusted net income and adjusted earnings per share. These measurements are not calculated in accordance with GAAP and maybe calculated differently than similarly, titled non-GAAP financial measures used by other.
Quantitative reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today's press release.
Before we begin our formal remarks I need to remind everyone that part of our discussion today will include forward looking statements, including statements regarding our estimated financial performance such forward looking statements are not guarantees of future performance and therefore, you should not put undue reliance on.
These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect.
Some of these risks are mentioned in today's release.
Others are discussed in our annual report on Form 10-K, and quarterly reports on Form 10-Q, which are available on the SEC website.
We are going to provide a business update and go over our fourth quarter results. In detail. Then we will open up the call for questions with that I will turn the call over to Chris Pappas Chris.
Thank you Alex and thank you all for joining our fourth quarter 2022 earnings call.
Fourth quarter business activity continued the return to more normal seasonality heading into the year end period celebrations and event related business.
To build upon emerging third quarter trends.
We are extremely proud of our team's execution during the fourth quarter.
Especially their ability to overcome challenging weather across our markets and mid to late December .
Our people continue to drive the chef warehouse high quality product and high touch service model to our 40000 plus customers and we are grateful to each and every one of them contributing to our strong performance rounding out 2022.
A few highlights from the fourth quarter as compared to the fourth quarter of 2021 include 22, 7% organic growth in that.
Yes.
Specialty sales were up 34, 2% organically over the prior year, which was driven by unique customer growth of approximately 18, 9%.
Placement growth of 14, 5% and specialty case growth of 19, 1%.
Organic pounds in center of the plate, we're approximately 15, 2% higher than the prior year fourth quarter.
Gross profit margins increased approximately 116 basis points.
Gross margin in the specialty category decreased 91 basis points as compared to the fourth quarter of 2021, while gross margin at the center of the plate category increased 133 basis points year over year.
Jim will provide more detail on gross profit margins in a few moments.
As previously announced during the fourth quarter, we are excited to enter the dynamic markets within the United Arab Emirates, Qatar and Oman, with our acquisitions of chefs middle East.
We look forward to supporting Steve pile and the CMA team as we expand our capacity in the region grow categorically and leverage our combined strengths over the months and years to come.
In addition to our expansion outside North America during the quarter, we added a few key components to our east coast markets.
The addition of the guaranteed fresh produce company and down the seafood guaranteed fresh is a specialty produce company located in Cape Cod of <unk>.
New England, serving primarily independent restaurants, we anticipate pulling their operations into our new Bedford, Massachusetts, producing specialty operation in the coming months.
<unk> seafood is a fresh seafood processing company located in Europe flagship chef warehouse facility in the Bronx, New York.
Adding fresh seafood and the New York Metro market provides us with another key step in building out our growing center of the plate capabilities.
We continue to add categories and customers.
<unk>.
And the southern New Jersey, and Philadelphia market, We recently signed a lease for a 175000 square foot facility.
This new building will consolidate service great affiliate area in the southern and Central New Jersey parts of our business once fully operational this will allow for a more efficient distribution model in the region and we will provide additional capacity for growth in our New York Metro area and mid Atlantic markets going forward.
Our new facility in Florida is substantially complete and we expect to move in by the end of the first quarter of 2023.
2022 was a stellar year for our company for our people and for our customers and supplier partners during.
During the pandemic years, two 'twenty into 'twenty one.
Our teams continued to execute at a high level to ensure that we brought the highest quality products to the market and maintained our high touch delivery for our customers.
We kept the balance sheet is strong we got ahead of the labor constraints associated with the snapback in demand and we restarted investment in talent and capital deployment to build out our la and Florida expansion facilities.
In 2022, we started the process of mining these investments and our teams delivered strong organic growth complemented by adding key acquisitions to multiple domestic market as well as our foray into the global specialty food distribution arena.
As we continue to grow chefs will remain the most unique food service partner to upscale independent establishment of the worlds top artisan food producers.
We will continue to enhance our business model as a family of brands and companies laser focus on the high end with an unmatched hybrid sell and service model. We will continue to make investments in facilities and market expansion operational technology, and our customer facing digital platform to provide.
Improving efficiency for all CDW stakeholders.
Our people remain our greatest asset and source of our differentiation from the rest of the foodservice industry.
We are focused on adding retaining and developing the best culinary and operational talent in the markets we serve.
Our teams have never been more excited to drive chefs warehouse growth into 2023 and beyond.
With that I'll turn it over to Jim to discuss more detailed financial information for the quarter and an updated on our liquidity Jim.
Thank you, Chris and good morning, everyone I'll now provide a comparison of our current quarter operating results versus the prior year quarter and provide an update on our balance sheet and liquidity.
Our net sales for the quarter ended December 30, <unk> 2022 increased approximately 41, 8% to $791 3 million from $558 3 million in the fourth quarter of 2021 the.
The growth in net sales was the result of an increase in organic sales of approximately 22, 7% as well as the contribution of sales from acquisitions, which added approximately 19, 1% sales growth for the quarter approximately 6% of year over year sales was due to the 14.
<unk> week fiscal quarter in 2022 versus a 13 week fourth quarter in 2021.
Net inflation was seven 1% in the fourth quarter, consisting of 14, 1% inflation in our specialty category and.
Year over year inflation of 0.4% and our center of the plate category versus the prior year quarter.
Gross profit increased 49% to $187 3 million for the fourth quarter of 2022 versus $125 7 million for the fourth quarter of 2021.
Gross profit margins increased approximately 116 basis points to 23, 7%.
Well year over year inflation was broad based across across both specialty categories average pricing was up moderately at approximately 2% versus the third quarter of 2022 in aggregate center of the plate pricing was essentially flat versus the prior year quarter.
Selling general and administrative expenses increased approximately 44% to $153 4 million for the fourth quarter of 2022.
From $109 2 million for the fourth quarter of 2021.
Primary drivers of higher expenses were higher compensation and benefits costs facility costs and distribution costs associated with year over year volume growth.
Adjusted operating expenses increased 43, 7% versus the prior year fourth quarter as a percentage of net sales adjusted operating expenses were 17, 3% for the fourth quarter of 2022 compared to 17, 1% for the fourth quarter of 2021.
Operating income for the fourth quarter of 2022 was $29 8 million compared to $15 8 million for the fourth quarter of 2021.
The increase in operating income was driven primarily by higher gross profit, partially offset by higher higher operating costs.
Income taxes income tax expense was $4 3 million for the fourth quarter of 2022 compared to $3 2 million for the fourth quarter of 2021. Please.
Please note that our fourth quarter effective tax rate was 78, 6% due to the non deductibility for tax purposes of the $14 1 million debt extinguishment loss associated with the refinancing of a portion of our $200 million.
All of our convertible notes due in 2024.
Our GAAP net income was $1 2 million or <unk> <unk> per diluted share for the fourth quarter of 2022 compared to net income of $8 4 million or 22 per diluted share for the fourth quarter of 2021.
On a non-GAAP basis, we had adjusted EBITDA of $50 1 million for the fourth quarter of 2022 compared to $30 2 million for the fourth quarter of the prior year.
<unk> net income was $18 8 million or <unk> 48 per diluted share for the fourth quarter of 2022 compared to $10 2 million or 26 cents per diluted share.
<unk> for the prior year fourth quarter.
Turning to the balance sheet and an update on our liquidity during the fourth quarter. We completed the issuance of 287 5 million convertible notes maturing in December of 2028.
The proceeds of the notes were used to repay approximately $158 million of the 200 million convertible notes maturing in December of 2024 pay fees and expenses associated with the transaction and we retained approximately $120 million in cash on the balance sheet.
Interest expense for the fourth quarter of 2022 was $24 3 million compared to $4 2 million in the fourth quarter of 2021 the.
The increase was driven primarily by the $14 1 million loss on debt extinguishment.
Your levels of outstanding debt balances and higher floating interest rates versus the prior year period.
At the end of the fourth quarter, we had total liquidity of $294 6 million comprised of $158 8 million in cash and $135 8 million of availability under our ABL facility.
As of December 32022, net debt was approximately $507 1 million inclusive of all cash and cash equivalents.
Turning to our full year guidance for 2023 based on the current trends in the business, we are providing our full year guidance as follows.
We estimate that net sales for the full year of 2023 will be in the range of $2 85 billion to $2 95 billion.
Gross profit to be between $684 million of $708 million.
And adjusted EBITDA to be between $180 million and $190 million.
Our full year estimated diluted share count is approximately $45 2 million shares. We currently expect our senior unsecured convertible notes to be dilutive for the full year and accordingly.
Shares could be issued upon conversion of the notes are included in the fully diluted share count.
Thank you and at this point, we will open it up to questions operator.
Thank you we will now.
We'll be conducting a question and answer session.
To ask a question please press star one.
T spot.
Formation.
Your line is open for questions.
Thanks Scott.
Like to remove your question Paul.
We will pause.
It may be necessary to pick up your handset before.
Pressing the stocking.
One moment, please while we poll for questions.
Our first question is from the line of Kelly Bania.
BMO capital. Please go ahead.
Hi, good morning, and congrats on a great year.
Just first housekeeping question for the model.
6% top line impact from the extra week did that impact both organic and acquired.
The same magnitude and do you have an estimate on.
The overall profit impact to EBITDA for the fourth quarter from the extra week.
Yeah, Hey, Kelly Thanks for the question.
Yes, the 6% was just overall revenue so in that was both organic and any acquisitions that.
That we had that we didn't have in 2021 so it.
It would be the.
Similar mix of that.
And then in terms of the.
The second question in terms of the impact of profitability.
<unk>.
Right.
The fourth quarter was.
Pretty much how we expected it to play out the first part of December the holiday season, and the event season was just as strong as we had kind of indicated on our.
Our third quarter call, where we had more visibility into the bookings et cetera. So that played out I think what was different was generally in a normal year, the 52nd week of the year.
Which is usually the week of Christmas is generally weak people are generally celebrating at home and so we model that in the 50 <unk> week, we had two weeks.
That at the end of the year and so we did lose a little bit of operating leverage but it was still.
A very strong fourth quarter for us and a good December except for that final 50, <unk> week, which generally falls in the first quarter and as a fairly.
Low volume week as well.
Okay.
Helpful.
I guess there was the comment in the release about seasonality.
That seems to be maybe getting back to more normal.
And I guess.
Just wanted to ask about the 2023 outlook and what Youre thinking of seasonality because the way that we see at about 85%.
The company EBITDA is generally.
<unk> generated in the last three quarters of the year and just curious if you can comment on all comment at all on how you think about the seasonality today at that historical pattern is it maybe a good place to date expectation or if there's anything that's really changed with seasonality, particularly with all the recent.
M&A.
Flowing through.
Yes, I would say I'll, let Chris comment as well in terms of for your modeling purposes, you are right about.
15 or high teens type of EBIT.
Is generated in the first quarter, because that's usually our weakest quarter and then you have the second quarter and the fourth quarter are generally are strongest in the third quarter is kind of the middle and you get that kind of 80% to 85% of our of our EBIT generation is is in the final three quarters of the year I'd say, the only change and it's not going to be.
<unk> will change to that is that chefs middle east has their strongest peer.
Periods in the fourth quarter and first quarters, so basically our winter and our first quarter, which are the weakest they have the strongest and because of their summer being so extremely hot.
And people generally leave for a little while there are weakest periods are due.
During our second quarter and our third quarter. So that's the only change, but I don't think it materially changes.
The percentage ranges that you just mentioned.
Perfect.
And Kelly just a little color I mean, I think you asked about.
Going coming into the first quarter, which is our weakest quarter, but.
We actually.
Except for the first week of January which is always one of our work week getting back to <unk>.
After the holidays and as Jim said, even though we had that extra week.
And last years.
Numbers that week.
So it's almost like a throw away week, because it's it's a week of travel or it's a week regrouping.
Well in the fourth quarter, so we really didn't get much out of it.
But.
First quarter going into the first January going into February .
Strong.
We're all looking at.
How does this year really start to shape up coming out of 'twenty.
'twenty two.
No Big <unk>.
Surges of.
Omicron.
Well, we're really pleased to see that.
Spending continued and.
A lot of events finally are happening a lot of conferences are happening in business travel is picking up so we're very pleased to see how the new year started.
Perfect that's helpful and I just had one more.
I wanted to go back to from from the third quarter and.
I believe Chris maybe it was you that had made a comment about how the business has changed from.
Gross profit margin business to a gross profit dollar business and I thought that was very interesting.
Because I think there are some investors who are just broadly worried about the impact of a lower inflationary environment and how that can impact profitability.
I thought you could just maybe elaborate on that comment and how youre thinking about that.
In your guidance.
But just any more color on that topic I think might be helpful.
Sure so.
The way this industry works is that.
As prices are going up sometimes you can't pass along.
The increase for many reasons as fast as you would like so there is sometimes a lag and then the opposite effect happens on the way down do you try to hold on to price as long as possible.
Have a big shift if you have a deflationary environment, you, usually able to capture a little bit more margin. So.
My comment about look at gross profit and an inflationary environment look at gross profit dollars versus margin because that's really what counts right is how much gross profit dollars and you get leverage.
On your overhead.
And I think that's what we did see during.
As we are experiencing inflation.
Excess inflation right, usually 2%, 3% was inflationary times in this industry never mind, what we're seeing today.
As long as you can capture those dollars.
The margin becomes a little less important so of course, you would like if you were at 25% and you can keep 25% youre, making a lot of money.
Because it's not really costing you more to move that box.
Now that it went from $30 to $40.
I think that's where we're seeing since we're really not a contract company. We don't go out with long term contracts to two customers.
Get locked into.
A certain dollar per box, it's a different part of the industry it's huge.
It is.
It's a gazillion billion dollar industry servicing a lot of the chains.
Doing a per box kind of contract.
That's not who ship chef's is right we serviced mostly the independence.
And our prices moved so.
In a deflationary environment, if we started to see some deflation I think you would see the opposite of what's happening now you'd probably see margins going up.
And.
Keeping those gross profit dollars kind of where they are right now so if we were making we.
We will make a 25% now we're making 24 I mean, we're making 27%.
On a less expensive box.
That's kind of our hedge to keep our profitability kind of equal.
Okay.
Very helpful. Thank you very much.
Thanks Kelly.
Thank you.
Next question is from the line of.
Thanks Lisa.
Jefferies. Please go ahead.
Thanks, Good morning, guys.
Payout.
Im wondering if you could just follow up on previous questions comment a little bit more on the demand environment.
Observed.
Start the year out from a high level perspective, it seems like the underlying traffic trends in the industry are holding up fairly well, but it's hard to read through kind of all the weather and the Amazon lap cross currency.
Can you just offer a little bit more perspective, there and maybe what you are hearing.
Some customers either it's a sense of optimism.
Any more cautious.
As they look out.
I had.
Okay.
I think it's where you are in.
What markets you're in.
We're very pleased.
We've seen.
So I think the.
The better weather.
And parts of the country, where it usually I've really cold weather.
I always say it can't hurt but.
What we really realize it.
A major snowstorm is very disruptive to the numbers obviously, but.
January is January .
People going back kids going back to school and people really busy with a lot of other obligations. So.
Even with good weather.
It's not a great it's not going to be a great quarter compared to the rest of the year right. There theres not as much celebratory events going on I mean, there are conferences, you just had Valentine's day.
We always say the first quarter as the first quarter, but we're very pleased so far.
Yeah.
Consumer.
Business traveler.
So.
We're optimistic that that does continue.
In the press there is all of this.
Back and forth.
We are going into recession or are we.
And.
We are we are blessed with I would say we service the top 10% of the earners in the world or the corporates that are traveling and entertaining so.
We're not seeing anything.
At this point any change <unk>.
And behavior. So I think the good weather can't hurt but January February no matter what it is.
Not like its the second quarter for the fourth quarter.
Okay.
On.
On the food cost inflation I mean, it looks like your two and three year stacked inflation levels have been very consistent all through 'twenty two in.
Curious if the current cost levels are holding into the first quarter and if you have a best guess on what the year over year inflation might look like.
Here in the first quarter.
For the year.
Well.
As you can see that throughout 'twenty two.
The year over year is just got sequentially lower we started out the Q1 with 22% year over year aggregate inflation and I think we are reporting 7%.
I think sequentially versus the third quarter.
Inflation was low single digits.
Somewhere between 2% and 4%.
So I think what we're what we're starting to see is is that.
The deflation in center of the plate has kind of leveled off I know that prime.
Prices have come down, but thats more seasonal.
Coming out of the holiday season, when prime prices are high generally you go into January and February they come down.
They follow a more of a.
Seasonal pattern.
<unk>.
Certain parts of the specialty categories had been.
Extremely inflated like eggs and certain dairy products those have started to.
Somewhat normalize theres still much higher than they were in say 2019, So I think what you're starting to see as prices starting to level off and when you compare the year over year as you're just you're you are comparing to higher prices and so naturally you would expect the year over years to start to moderate.
Okay.
Thanks.
Okay.
Thank you.
Our next question just from the line of Ali with BTG.
Please go ahead.
Great Thanks, and congrats on a great year.
I wanted to ask about new restaurant formation or development and what you saw during calendar 'twenty two.
If you could talk a little bit about your expectations for 'twenty three.
And maybe how your growth is coming to be is it more from it.
Existing customers further penetration or are you seeing just a lot more development that youre able to pick up a lot new business.
Yes.
I think it's starting to.
Ah normalize.
Kind of.
I think <unk> numbers.
The organic growth.
The case growth.
<unk>.
It's kind of.
No.
I hate to use the word normalized because I don't know what normal is anymore, but.
Our really good customers, we were really reviewing this morning.
The good customers are really doing well right. So.
Again, if you happen to be in a city that in an area that just hasnt come back.
Fortunately you are suffering.
But if you are.
And a good suburb or.
In Florida or parts of Texas, or even San Francisco.
A lot of the news is all about.
Many parts of San Francisco, just haven't come back right people haven't come back to the office, but so the business has kind of moved around but we are seeing major openings I mean, we're seeing mega restaurants.
High volume restaurants, some of the highest grossing restaurants from now in the country are opening so the appetite for.
Consumers and businesses to always go to that new place.
I think is stronger than ever, especially coming out of Covid, where there wasn't a lot going on.
A lot of them have been delayed and theyre starting to open I think they are opening as labor is coming back.
It's not.
It's not ideal labor situations, but I think there is enough labor coming back into the market, where we are starting to see a lot of openings and we're seeing small openings in our neighborhoods and we're seeing the big ones.
Where where the volume is Las Vegas, and Miami in Texas, Even New York and.
Parts of California.
It's starting to drive a lot of our growth.
Thank you for that and then just on the.
Freight costs I think last year, there was a lot of discussion around freight costs really skyrocketing and there was some waste associated with that can you talk a little bit about what youre seeing on the freight costs and your expectations for 'twenty three of those prices really come down significantly.
Yes, they have they are definitely moderated I think.
The West coast, they started to come down really mid year last year. It was more from Europe that you are still seeing in the back half of 'twenty, two you're still seeing some of the elevated prices but.
What we're seeing now is that freight rates are coming back down towards pre COVID-19 levels theyre not completely there, but they definitely have moderated.
Thank you very much.
Thanks Peter.
Thank you.
Our next question is from the line of Andrew Wolf with C. L. King. Please go ahead.
Yeah.
Thank you and good morning.
Yes.
Chris I think this is for you I wanted to ask about the small acquisitions you.
Just announced in.
I guess with Sid wainer and the protein.
Joining Sid wainer and produce from Cape and then <unk>.
Seafood in the Bronx.
Could you maybe give us a little.
A description of kind of the strategic.
Not just the purpose, but also the evolution like you've done similar acquisitions here over the last few years, particularly in seafood and more recently in produce.
What are these.
Are these working out strategically are they giving you the kind of synergies you wanted with.
Getting the St.
The case on the truck that's already going to a customer.
Adding new customers and expanding your penetration with existing just is that sort of delivering kind of the impacts you had expected.
Sort of on the deals you've done in the last few years.
Sure.
Greg Great question.
Okay.
<unk> often heard me say that if we could do a tuck in a day I would do it because they're low risk low risk so creative because basically what we're taking is.
The customer base some of the sales team.
Okay.
If they have some really expertise obviously, we're always looking for talent, but.
Eliminating a lot of their trucks and facilities.
A lot of that drops to the bottom line, even if you lose 20% 30% of the business. So we continue to hunt for those type of small businesses that we can hold in the case of new England.
Got it.
It's a it's a great business that service is an area that we have a lot of overlap so.
It's not.
It's not far fetched.
Model and say we can eliminate.
Many of the duplicate routes and consolidate them.
We can leverage the sales staff, we can take their sales staff and now.
Give them the 50000 items that flow through chefs warehouse for them to sale to sell so.
It's a low risk.
Acquisition with tremendous upside.
So that would that would be a typical type of folding that we would do in a market, especially if we have.
Occupancy.
<unk> ability in the facility and why you see US building all these new buildings to accommodate what we think is going to be a continued consolidation of the industry.
The little seafood company.
Companies and other companies that we're acquiring.
An area like New York Metro New York, I always said, New York is going to be at least $8 billion business port for chef.
We still don't have a actual Allen brothers steak and seafood.
I think we are starting to take the steps of there is really nobody large for us to buy so.
<unk>.
When the opportunity comes to acquire really good small businesses will start to accumulate them and then eventually put them either a facility we own or build a new one and we'll consolidate them to give us enough volume where.
It makes sense to have the staff the cutters right and part of the overhead to really attack a market.
Allen Brothers steak, and seafood and New York is a half a billion dollar business. So it.
It is kind of the first steps to kind of get going because right now we're feeding markets like New York from facilities that are a little outside the area we have facilities in.
Maryland, we have facilities now in new England and it works fine we shipped up from Chicago, that's more custom cut or from other parts of the country that where we do have these processing facilities that do something special but.
Long term.
A lot of these markets need their own special processing centers. So I think you'll continue to see us accumulating small businesses, and then consolidating them and getting the leverage and getting the synergies.
Thank you that was really helpful.
And the other question I wanted to ask on the cost structure.
Did contract year over year, obviously, a lot of inflation in there you would expect that but to what extent did.
Extra week.
And a low sales kind of negatively impact.
Operating expense.
The expense ratio I guess more generally like how.
How are you feeling about your labor productivity.
Trends in the metrics there.
As we head into 2008 2023.
Yes, Thanks, Andy.
Yes, I mean, I think yes, I think our adjusted operating expense was maybe a couple of basis points higher than the prior year.
Part of that was that 50, <unk> week and the lack of leverage on it once again I'd just go back to it was a very strong quarter and a strong December .
It just happened that fiscal week fell into there. We also had some kind of excess expenses related to our self insurance programs.
Theyre not.
Usual, we've had that before.
When you have self insurance programs from a medium to long term perspective, theyre more economical than full insurance programs, but you have a little more volatility and Lumpiness and we had we had some of that in the fourth quarter. So you add those two things together. They were they were the main reason that our.
Our EBIT margin wasn't closer to 7% with more closer to six 5%.
And that flowed through mostly on the Opex side, but.
Overall, a very strong quarter really good topline.
And.
A good year.
Good good quarter to round out the year.
Okay, and just on the kind of the metrics side I mean, how are your operations people kind of what kind of numbers are you seeing on the metrics in terms of.
The sequential or however, you guys are.
Looking at.
Meat and potatoes.
Fixed per hour type of metrics.
And that kind of thing.
Do you think Thats, yes in engineering.
Always get trained up and I guess youre, adding new employees are acquisitions, who may not know it may not be as productive I guess it's.
Kind of maybe a little complex, but just overall how are the operations are progressing as planned.
Hopefully it supply chain is continuing to normalize.
Yes, I think I think we've been progressing very well I think you've seen a lot of productivity improvement from from us and from other companies.
The industry throughout.
The come back out of Covid.
Everybody is doing more with less I know, we have a great operations team we are constantly implementing new.
Loading and picking and.
Warehouse technology process, we are constantly improving our distribution.
We're in technology.
So we have an operations team that travels around the country.
Educating and implementing our operators.
On on these improvements we've already started to work with our new partners in the Middle East.
Various pieces of their operations and then.
Chris talked about the facilities.
Building new facilities.
Doing tuck in acquisitions, we get we get leverage as we grow by consolidating companies into our facilities consolidating routes.
And that allows us to leverage our fixed cost corporate infrastructure as we bring those companies onto our backbone.
From a systems perspective from all of the support functions perspective, we get to leverage that as we grow as well.
Got it thank you.
Thank you Andy.
Thank you.
Our next question is from the line is open.
Brooks with benchmark company. Please go ahead.
Hey, Thanks, Good morning to you both and congrats on a strong finish to a good year.
Thank you too.
Youre welcome Chris.
Couple of quick questions on the on the M&A side, one for Jim and one for Chris Jim.
Now that you guys announced guaranteed and downey's with the call here can you give us a sense for what.
Youre carrying into fiscal 'twenty, three as far as incremental revenue growth from acquisitions that have already been completed.
Yes, I think the rapid impact of the acquisitions are roughly about $200 million.
That may not be exact but thats a kind of a.
Rough number.
I think the full.
Full annual impact of all the acquisitions that we did in 'twenty, two that's including capital Seaboard, because we did them on the first fiscal day of 'twenty two.
Was roughly between 400 and $500 million so.
It's not a little less than half of that.
Okay, great. Thank you and then Chris just your view on.
I always love to hear your take on the M&A pipeline out there and is there anything.
Changing as far as pace of deals on sticking or maybe magnitude of deals that are in the pipeline now as Youre looking ahead, maybe the next 12 months.
Yes.
As predicted coming out of Covid.
It's the wild west.
You just have to just have to make sure you don't walk into that.
<unk> Little town, where you get shot.
In the back.
It's.
It's an industry that's going to keep consolidating.
For many many reasons right the cost of new warehousing is very expensive a lot of these businesses.
Our second and sometimes third generation and.
They don't see.
They will continue to grow so.
They'd rather diversify.
Well they are selling so it's just really being very picky for us and.
Companies that fit our culture.
<unk>.
It fit into our long term not just our short term to get a spike so.
It's it's extremely frothy, you just have to be very careful because.
Coming out of Covid the numbers are a little.
A little they're not typical where do you see a company growing at 2% or 3%. Some companies have had tremendous growth for many reasons with inflation. So.
You got to somehow.
Forest through the trees.
Thank God we have.
Tremendous amount of experience.
<unk> done over 40 plus.
Acquisitions in the last 10 years.
Where we're just being very diligent and careful who we bring into the <unk> family portfolio.
That's great and then following up on that.
You've owned chef Middle East now for a number of months.
You've been through a major event in the region, obviously with the World Cup just excitement for maybe what the.
Chefs warehouse is going to bring to that property as far as.
Revenue synergies and unlocks and what you think that business can be I think it was kind of at the midpoint.
Maybe around $150 million type of business when you bought it but what what's that asset work now that you're getting to know it better than what you can bring to bear to really start to grow that business.
Yes.
Again, it was a very bold move for us too.
To buy somebody so far away when we have so much.
Opportunity in so many things to do here in North America, but it really was one of a kind it was.
It was a company that had.
Great pedigree, great management culture that really fit right, along with who CW is and.
And an appetite to really grow we had a great management team that wanted to grow.
They were set up for growth and they just needed.
The backing I call. It a partner that believed in their vision. So.
They're not a not a processor, we think Allen brothers steak and seafood.
Great.
In that marketplace, we think there's lots of room for them to to continue to grow and expand.
Our portfolio of companies we bring.
So many new suppliers.
To them, we bring a whole company that's been in this business for so long. So we think that they do need space theyre kind of maxing out and they're in their major.
Facilities. So we're going to continue to add to their building and we feel very confident that they will double that business.
The not so distant future and be a great chefs warehouse.
Great and then one last one and I'll jump back in the queue, Jim when you.
Provided the initial guidance for fiscal 'twenty three at.
During the ICR Conference I think you said when you were contemplating the revenue guidance you were baking in.
Assumption for deflation of 5%.
Given we passed another quarter here given maybe some of the.
Some of the news out about the herd sizes in the U S and what it may mean for beef prices.
How are you feeling about that that 5% type of deflation or are you feeling more confident potentially.
Set up is there to maybe beat that in fiscal 'twenty three.
Yes.
I don't know I think Todd in this environment, it's very difficult to predict inflation.
I think what we actually said.
Which kind of mirrors your comments at ICR was that we had we had risk adjusted our range.
In case there was.
Kind of that mid single digit type of deflation.
I think.
I think right now we're.
We see.
January and February playing out I would say that while we're not changing our guidance were definitely trending towards the upper end of the guidance.
Definitely too early in the year or two.
To update it based on that.
But in terms of inflation I'll just go back to my comments earlier, we kind of see it more normalizing as we go through 'twenty three now what that means from the year over year comps all depends on what it is comparing to in 'twenty, two and you saw higher prices.
In the first half of 'twenty, two and then kind of moderating in the back half of 'twenty two so the year over year numbers will depend on that.
I think more than significant changes in.
Current pricing I think youll start to see.
Kind of more mid single digit type of.
Sequential or low single digit type of sequential changes in aggregate I think there are certain categories like I mentioned earlier like eggs and dairy that.
Dairy products that have.
Recently gun.
Through the roof because of things like the avian flu.
Those those types of categories will start to moderate but in general I think we've seen a resetting higher and youll start to see more normal inflation dynamics going forward.
That's super helpful. Thanks to you both.
Thanks Todd.
Thank you.
As there are no further questions at this time I would like to turn it back.
Hi, Chris.
Closing comments.
Sure well, we thank everybody for joining us.
On our earnings call.
We are very excited about the opportunities.
In 2023, and Couldnt be prouder of the chef team they really executed in 2022.
We look forward for them to continue to do great things.
For our shareholders for many years into the future look forward to talking to you again on our next earning calls thank you.
Thank you.
Todays teleconference. You may disconnect your lines at this time.
You for your participation.
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