Q4 2023 Performance Food Group Co Earnings Call
we could be looking for on the horizon. Well, our retail pick and pack business and where we fulfill for other people, that business continues to go well.
micro markets are improving at a fast rate.
theater, theater surprisingly strong.
and has been for a while. And we're seeing the office coffee make a comeback as people are going from maybe three days a week at work to four days a week at work. So those areas would be the areas that I would say we're probably strongest in right now as far as growth. The value category.
Good day and welcome to PFG's fiscal year Q4 2020 earnings conference call.
If you would like to ask a question at the conclusion of the prepared remarks, please press the star key followed by the number 1 on your telephone keypad at any time.
the dollar store area is doing quite well too. Great, thank you.
I would now like to turn the call over to Bill Marshall, Vice President Investor Relations for PFG.
Thank you.
Our next question comes from Brian Harper with Morgan Stanley .
Please go ahead, sir.
Thank you and good morning. We are here with George Holm, PFG's CEO and Patrick Hatcher, PFG's CFO . We issued a press release this morning regarding our 2023 fiscal fourth quarter and full year results which can be found in the investor relations section of our website at pfgc.com. During our call today, unless otherwise stated, we are comparing results to the results in the same period in fiscal 2022. The results discussed on this call will include gap and non-gap results adjusted for certain items. The reconciliation of these non- GAAP measures to the corresponding GAAP measures can be found in the back of the earnings release. As a reminder, in the fiscal first quarter of 2023, we updated our segment reporting metrics to adjusted EBITDA from the prior EBITDA metric.
Yeah, thank you. Good morning. I wanted to ask just about the performance brands. You've obviously kind of continued to see sales increase of those. I'm sure it's driven by kind of your independent case growth. But have you also seen kind of within existing accounts?
Our organization is executing our strategy and we believe we are well positioned to continue our success and create value for our stockholders over the long term. Thank you for your time today. We appreciate your interest in Performance Food Group and with that we'd be happy to take your questions. Thank you for your time today.
more sales of performance brands, has the macro perhaps supported that side of the business?
Thank you. At this time, if you would like to ask a question, please press the star and one keys on your telephone keypad. You may remove yourself from the queue at any time by pressing star two.
Our brands are doing very well and the business is almost entirely with independent customers.
you look at our customer base and food service outside of.
It's basically restaurant chain. So we're doing little to no business with contract feeders and food service or nursing homes or hospitals, you know, those parts of the business, hotels.
Once again, that is star and one to ask a question.
Accordingly, the segment results for the fourth fiscal quarter of 2022 have been stated to reflect this change. Our remarks on this call and the earnings release contain forward-looking statements and projections of future results.
And our first question will come from Edward Kelly with Wells Fargo.
Our first question will come from Edward Kelly with Wells Fargo.
Hi guys, good morning and nice quarter. Could we start with gross profit per case? Another quarter of good strong performance of gross profit dollars relative to case volumes and this is where it's a little bit of deflation.
So we really build our product for restaurants and where we're seeing the best growth right now is at the higher end of our products from a quality standpoint, so that's really what's driving it.
Please review the Cautionary Forward Looking Statement section in today's earnings release and our SEC filings for various factors that could cause our actual results to differ materially from our forward looking statements and projections.
review the Cautionary Forward Looking Statement section in today's earnings release and our SEC filings for various factors that could cause our actual results to differ materially from our forward looking statements and projections. Now I'd like to turn the call over to George.
the food service segment, and obviously, lapping at procurement gains. How do you think about the relationship with gross profit dollar growth versus case volume growth in 24 with the continued deceleration of inflation? I know there's a lot of positive mix in the business. But George, maybe could you just talk about how –
Thanks, Bill. Good morning, everyone, and thank you for joining our call today. PFJ had an outstanding fiscal 2023, and we are proud with what we were able to accomplish. More importantly, we are just as excited about the upcoming fiscal year, which we believe will include additional growth opportunities and continued financial success.
Okay, great. Thanks. And by the way, yeah, by the way, Coromark also has been adopting these brands and are doing very well with it.
Just on capital allocation then, do you have any sort of annual target for how much you might repurchase or do you think this is just going to be purely opportunistic? And then also how are you thinking about kind of.
How we should be thinking about that relationship.
Well, mix is the big issue, particularly with independent growing at a good rate and...
and businesses continuing to pick up market share in independent restaurants and building upon our strengths and convenience in this star.
Cap ex for this year, any sort of increase in growth capital if you're expanding facilities or anything like that. Could you walk us through some of the different components there?
our national accounts in a declining mode right now.
Our disciplined cost controls and focus on our financial position have enabled us to continue to invest behind growth opportunities while returning cash to stockholders.
I think that we'll do well the rest of the year. You had mentioned overcoming the inventory gains. When you think about those...
Yeah, I'll answer the second part first. When it comes to the CapEx, as we've always stated, that's our number one priority for our capital allocation is to continue to invest in the business and as George was just describing, we're seeing great growth in independent cases. So we'll continue to invest.
You know, that's not really additional cases sold, yet you're getting that gross profit. And our other businesses outside of food service is really the same thing. You know, VISTAR has done excellent contract feeding businesses.
for that growth as we've been doing. And then on the share repurchase, I would characterize as we're trying to be very strategic. I mean, we look at a few things. I'm not gonna go into too many details, but we do look at historic multiples and relative valuation that help guide us on when we should be in the market and how we should be in the market.
is back really strong and they're strong in that from a convenience and micro market and that part of the business.
And then when you get to our...
our Coremark business.
You know, the tobacco gains were large and the reason that they were still able to run good margins is their food business is very, very good. And you know, that's where the higher margins are. So once again, it's kind of more mixed than getting more from the customer.
All right, thank you.
Our next question will come from Alex Slagle with Jefferies.
Thanks. Good morning and congrats on the success. I wanted to ask on the independent case growth in the fourth quarter, I knew it was really strong and barely below the third quarter level, which I would imagine had some benefit of lapping Omicron.
Okay, and just as a follow up to something that you guys seem to emphasize a little bit more on this call today, is related to capital allocation. You guys have been very good at M&A historically, but your stocks also trading, I think pretty close to a historical trough, even down multiple.
and adjusted EBITDA between $1.15 billion and $1.25 billion. I'm pleased to report that our net sales result came in above the midpoint of that original range and adjusted EBITDA was $163 million above the midpoint of the target we set last year. I am proud of our organization's ability to accomplish these milestones and navigate what at times was a difficult operating environment. This morning we also reiterated our previously announced long-term targets. We remain confident in these projections, particularly after such a strong fiscal 2023.
And I guess just wanted to sort of dive in and just trying to see what the impact of that might have been.
you could buy more. Could you maybe talk a bit about how you're thinking about the trade-off of all of this, the value of where your stock is today, your maybe appetite to do a bit more, given where being strategic with M&A, but also where the stock price is? Yeah, this is Patrick. Thanks for the question.
a little bit more view on the acceleration in the underlying case group that you saw through the fourth quarter. And we talked about the strong trend into the first quarter, but just a little bit more on that step up.
Yeah, if you look at the last two quarters, just kind of stepping through the calendar, January was an unusually high.
As you saw in our earnings release, the top end of our fiscal 2024 adjusted EPDOT guidance is already at the low end of our fiscal 2025 target. Let's discuss the key components that are driving these strong results.
Case growth month and that had, I think, a lot to do with omicron.
As you pointed out, we've talked about our capital allocation strategy multiple times, and with our leverage goal of reducing leverage into that two and a half to three and a half times, and hitting the 2.9 this past quarter, it gives us a lot of confidence on how we're managing our leverage and when we look at what we've projected outwards.
We saw.
slightly less growth in February and then slightly less growth again in March. And then as we got into the fiscal fourth quarter, the opposite happened where we actually gained momentum each one of those three months.
and then gained more momentum in July , and actually August so far has been better yet.
So.
So I think that.
fiscal year period. Importantly, our independent case growth continued to accelerate at the start of fiscal 2024, coming in at about 9% in the first few weeks of the quarter. The investment in our sales force is paying off. So far, during the first quarter of fiscal 2024, we have seen consistent increases in independent cases per salesperson. We believe there is a long tail for our growth in independent restaurants, particularly as new members of our sales team continue to hit their stride.
So that allowed us to really look at the fourth pillar, if you will, of our capital allocation strategy, which was to execute on that $300 million share repurchase program that the Board had authorized for us. So as we just reported, we did have some activity this quarter.
In some ways that's like what the last three years have been like, right? I mean, there's always been something that was unusual in each quarter. And I think we finally reached that point where, although the industry may be a little slow right now, I think that it's more consistent. And I think it will continue to be more of the seasonal flows that we've typically had.
We look at this as very strategic and we'll continue, as I made in my comments, to strategically look at that and be in the market at the appropriate times based on several factors. Okay. Thanks, Ed. Yeah, Ed, this is George. I would also add that
platform if you could comment on the rollout progress and how important this will be in driving that favorable mix where
Within independent restaurants, performance brands were approximately 52% of total sales, again showing the strength in our organization and our lead products.
you know, we will continue to be acquisitive. We haven't been quite as acquisitive of late, and that's not for lack of effort, or for, you know, just opportunities and what's out there today, but we feel real confident in future M&A.
You've been seeing that kind of where digital mix stands now, maybe where that goes in the future.
On the chain side of our business, some underlying weakness remains in foot traffic and the results in case volume performance. However, due to our strong independent case growth, total food service cases were up year over year.
Yeah, and this Patrick, I'll touch on that a little bit. Again, we, as we commented previously on Customer First as our digital ordering platform, I mean we've been really happy with the progress of the rollout. I believe the star is almost complete on their rollout or it has completed their rollout and we're making a lot of progress on the food service side as well.
Okay, thank you.
Thanks, Ed.
Thank you.
Our next question will come from John Heimbuckel with Guggenheim Securities.
Hey George, I want to start with...
You know, we view it as very important. Again, it's never to replace our sales force. As you've heard from us, we believe our sales force is absolutely a very strategic asset, and we can see that with all our independent case growth. But we do view it as a tool that will actually augment how the salesperson works with the customer.
Your thoughts on food service growth, right? So Salesforce has been growing very rapidly. What's, you'll lap that at some point here. What's your thought on the right annual growth rate in the Salesforce?
You know, and then if I think about it, drop size is up, or maybe with inflation is kind of flat, units are up a little bit, that still seems like a big opportunity. You know, when you think about 24, 25, do we get back to a point where account growth and drop size are equally important.
and help that customer in their journey with PFG as they order and give them opportunities to order in a much more seamless way online. So we see a lot of value there. And then as we've talked about in the past, eventually we'll have it across all three segments. So we can have customers cross order.
you know to that 7.6% or 7-8% case growth. Do we see that soon or is that going to be pushed out a while?
Yeah, those are good questions. As far as the growth in salespeople, we've actually continued to take that up, particularly as we got into the fourth quarter of fiscal 23.
into food service if they're a convenience customer or into VISTAR as they would like to and as they need to.
Thanks.
We've also been able to get where we have our growth as a company and independent is about equal to our growth in people.
We are leveraging these top line trends to continue to focus on operating expense control, particularly in labor. Combined personnel expense per case for delivery and warehouse workers were down year over year, driven by improvements in lower contract labor costs and stable overtime expense. We are simultaneously investing in our sales force, which is driving our strong independent case growth. All these factors combined produced a strong finish to fiscal 2023, particularly in the independent restaurant space. We're excited for what fiscal 2024 has in store for our food service operations. FISDAR had another outstanding quarter, finishing off a very strong fiscal 2023.
And we're about a point shy in growth of accounts.
as we are sales. So I think those things bode well because we feel like that we've got a good training system in place. We're going to get good productivity from these new people down the road. That's going to help fuel us there and just having that increased customer base is going to give us more opportunity for penetration.
And I would say all in all that there probably is some softness from a macro standpoint. And I think when that comes back, and it will, I think that we'll get much better drop sizes.
I think we have these things going in the right direction.
Okay, and then follow up, maybe talk about the C-Store pipeline. Right, so we think about their growth, I think their growth in non-tobacco is still probably well into double digits.
Despite challenging inventory gain comparisons, BISTA adjusted EBITDA increased 31.5% in the fiscal fourth quarter. Solid 18% top line sales growth was the result of case volume increases and the continued benefit from higher rates of inflation.
Inflation at this star remains elevated and was roughly 13% in the fourth quarter, which was a slight decline from the mid-team inflation rate in the prior three quarters. We anticipate a deceleration in inflation at this star, especially as we begin to lap price increases from the prior fiscal year period. Lower delivery and warehouse cost per case boosted bottom line results, helped by lower fuel prices and freight cost favorability.
Bistar had a stellar fiscal 2023 and we are excited for its prospects in the coming fiscal year. Our convenience business performed well in the fiscal fourth quarter despite significant inventory holding gain headwinds. As we have discussed on past earnings calls, the convenience segment will continue to experience one more quarter of higher than typical inventory holding gains, to expand their store footprints and product mix, lessening their reliance on fuel and tobacco.
We believe these trends play to our strengths at TFT as we work to combine our convenience expertise with vast food service resources to bring something exciting to the channel.
Our efforts are paying off as we find ourselves engaged in food service discussions with over 30 small to mid-sized chain operators, along with countless independents representing thousands of retail store locations across the US and Canada.
Beyond our efforts at Coremark, we are also growing the channel through Performance Food Service.
supporting advanced food concepts across convenience.
The channel is evolving and food service is at the heart of that innovation. PFG is here to capture that growth opportunity.
Our progress has been impressive and we believe this is just the beginning. In closing, PFG had an outstanding fiscal 2023 and enters 2024 with momentum across our business units. We believe we are well positioned to continue our success in the market.
particularly in the areas of our business that generate high profit and returns. Our exposure to a wide range of products, channels, and customer types provides resiliency in various economic scenarios.
As presented in our guidance and long-term outlook, we are confident in our ability to produce strong results for the foreseeable future. I'll now turn the call over to Patrick, who will provide additional detail on our financial performance and outlook. Patrick? Thank you, George, and good morning, everyone.
This morning I will start with a review of PFG's financial position and capital allocation priorities and provide some additional detail on the operating environment.
PFG finished Fiscal 2023 in a strong position, posting solid case growth and record net revenue, despite slowing inflation through the quarter. This resulted in double-digit gross profit improvement year-over-year and adjusted EBITDA above the upper end of our previously announced guidance range for Fiscal 2023. Our business model is showing its resiliency, with strong results across the three segments, with particular areas of strength in each.
We believe that this structure and our exposure to unique channels through VISTA and convenience provide an advantage over our competition. In particular, the high volume of consumer packaged goods products.
sold by VISTAR and convenience provide insulation from the impact caused by some of our more volatile inflationary dynamics in the food service space.
We do not expect a long cycle of deflationary pressure in food service and have seen signs of stabilization in some categories, particularly in protein like beef and cheese. With that said, we believe our food service business can succeed in a range of scenarios as seen in the fiscal fourth quarter. This is demonstrated by our outlook for fiscal 2024 and beyond, which I will discuss in more detail shortly.
Let's start by discussing a few specifics on our leverage, cash flow, and capital allocation priorities. Last year at our investor day, we announced our three key strategic priorities, consistent, equitable, top-line growth, adjusted EBITDA profit margin expansion, and a new, more efficient,
and leverage reduction. We have made significant progress in all three areas, but I would like to focus on the third item, leverage reduction.
As you know, we have a stated leverage target of 2.5 to 3.5 times net debt to adjusted EBITDA. By the end of the fiscal third quarter, we had achieved the midpoint of that range. In this quarter, we made further progress, finishing the fiscal year at 2.9 times net debt to adjusted EBITDA. I am proud of our organization's disciplined approach to our balance sheet and believe it delivers capital out of one hour and five months.
As you saw in this morning's press release, we began repurchasing shares during the fiscal fourth quarter as part of the previously announced $300 million share repurchase plan authorized by our board last November . We anticipate making future strategic share repurchases pursuant to this plan, subject to marketplace conditions. Additionally, we will continue to invest behind the business through growth capital expenditures M&A and intend to continue to be active in this area if the right deal at the right price presents itself. We believe that these areas will continue to drive long-term value for our stockholders. All of this is possible because of the strong cash flow our business generates. Through the 12 months of fiscal 2023, PFG generated $832 million of operating cash flow. After accounting for approximately 29% in the fourth quarter to $14.9 billion, our net sales performance was driven by approximately 2% organic case growth.
Our next question comes from Mark Carden with UBS.
Good morning, Thanks, so much for taking the questions. So to start the update on the Canadian business.
Helpful. It sounds like you guys are seeing a lot of momentum there from the get go you guys were always optimistic about the cross selling opportunity between convenience and foodservice just now that now that youre a little while into it how has it played out relative to your original expectations is build any faster or slower than you might have expected either from foodservice things convenient.
So from convenience <unk> foodservice just.
Is there anything surprising in that front.
Well, we would like it to have develop quicker, but sometimes things develop better when they don't develop as quick.
Took a while they are really when you get outside of the foodservice part of it there are two different businesses.
And the focus at core Mark of course has been on.
The store itself and kind of the CPG type product.
This has been a change for them, but we've got the team.
Companies are really gelling, they've got like I said, a really good pipeline.
And we're seeing success in both parts of the business. Our foodservice people are doing very well going into.
A convenience.
Location that we don't have the assortment needed in a poor month.
And we started out with a lot of that just to separate Thrus and now we're doing real well doing it together. So we feel great. I mean, we feel it's going to be a lot of our growth here in the near future.
Good to hear and then as a quick follow up how close do you guys think you are at this stage to see normalized celebrates.
Sorry and convenience.
Well its improving all the time.
And I would say in our foodservice business that things are.
It's not normal very very close to normal.
What we're finding in the core Mark and <unk> businesses.
Some of the <unk>.
The lack of.
Sure.
Fill rate that we've had as items that were discontinued during COVID-19 to have continued to be discontinued and <unk>.
Some ways of probably permanently gone maybe it will still come back.
So that's part of it and the rest of it is somewhat unexplainable for US we were frustrated that we don't have better fill rates, but we're also pleased that theyre continuing to improve and it's pretty widespread but they're not back to to normal fill rates in those two businesses.
Got it it's helpful context, thanks, so much guys and good luck.
Thank you.
Our next question will come from Kelly Bania with BMO capital markets.
Okay.
Hi, Good morning, It's Kelly Bania here from BMO, Thanks for taking our question.
I was wondering if we could just talk a little bit about gross margin.
Across the categories, So maybe both with in the quarter and as well as the outlook for fiscal 'twenty four.
Which segments are contributing to gross margin expansion across foodservice this start convenience.
And clear.
Clearly you characterize the kind of temporary deflation is manageable.
Manageable within that.
But the drivers of what supports that being manageable how much of that is mix or other actions you're taking.
While all three businesses foodservice core Mark This star has seen gross margin expansion as I mentioned earlier, it's really mix mix is the biggest thing in all three of those businesses as to why we're seeing that growth it's product mix.
It's channel mix and then the success of the brands.
As far as just aggressive pricing I would say thats, probably not something that.
That we've really done.
Okay and within your outlook for fiscal 'twenty four we should expect continued mix and gross margin support from from that dynamic.
We should.
I guess, if we picked up some some large chunks of business.
And more than national area that could have some impact.
But the.
Pleasing part of it too is overcoming these inventory gains that we had in <unk>.
Fiscal 'twenty, two and <unk>.
<unk> three <unk>.
We actually for fiscal 'twenty three by the end of the year, we had less inventory gains than we did in 'twenty two.
And this is the last quarter that we have to deal with that.
And that obviously has helped drive some of this gross profit per case.
And without it we're still seeing good increases, but like I said, it's primarily due to mix, yes, George if I could just add I mean, Kelly if you look at.
For the last several quarters, we've been seeing these trends that showed really strong underlying performance by the.
The different businesses, so with our outlook for 2024, we did anticipate that and looked at those trends.
And that's what helped guide us on that outlook that we gave you.
Add still to it.
This is the quarter. We're in right now it was the highest that we've ever experienced and inventory gains.
And we have great confidence, obviously with our guidance that we will overcome those gains once.
Once again and.
Then I won't have to talk about it which would be really nice.
Agreed.
Can I just ask maybe one more because you have a pretty broad view of consumer trends given all of your different segments and markets. So.
Maybe can you just talk about what youre seeing with respect to trade down whether it's trade down along with price points and Keith value or trade down the model.
Customer type.
You are seeing and what you're expecting as we move forward. Thank you.
Well.
If you just look at the numbers that they get.
Published <unk> is doing better than certainly casual dining or.
Family dining.
And I think to some degree that's probably an effect of trade down I would assume that's the case I think our value stores doing well and consumable product is trade down.
Although you look at how good Walmart is doing as well, that's probably a reflection of it as well and then just.
Some confusing I guess, but it's our higher end product that has the most expensive product that we are growing the fastest with within our foodservice independent customers. So I think it's a mixed bag.
When we look at the.
The account level.
We are certainly seeing in national accounts.
<unk>.
Yes.
The casual dining it's just not in favor now is it are they people trading down or.
Are they gone to independent restaurants that we have a tough time telling.
And Kelly if I could just add when you think about the diversification of our business and we've talked about this at times about like a week in the life beats.
Between the three different segments in all the different channels.
We service, we really feel that if the consumer is trading down or trading up will still capture those sales.
And for US this move.
Into micro markets.
Where they may have had or may have been a vending environment before.
And you can offer different price points and you can offer.
More product.
That is doing really well and thats doing better at the higher end of those type of products. So I just think it's very very mixed but.
I think Patrick made a good point that we're in so many different channels.
Although we're missing probably the two that are growing the fastest right now being contract seating.
In lodging.
But.
From a foodservice standpoint, but I think the other channels that we're playing in and that we're real serious about are all doing well.
Okay.
Thank you.
Thank you.
Our next question comes from Andrew Wolf with CL King.
Good morning.
George are you getting any help with the acceleration youre seeing recently in the independent case growth from drop size or is it really just being driven by gaining I guess accelerating new account growth.
We're getting a little bit from drop size with the bulk of it is coming from accelerated new account growth.
And.
Can you give us any insight on like the relative stickiness of new customers I guess.
The macro being uncertain I think you sound.
Hopeful that it will get better or maybe you have.
I think you said it will eventually but.
At least from my point of view still pretty uncertain. How sticky are these new customers I mean is that kind of.
Positive as you're building out the guidance says Hey, we've got all these new customers coming in on average.
Turn rates much lower so we're more confident in the topline even given the macro.
Well, we keep.
Real detail on <unk> business is very important.
Every year, we've been able to get better at retaining our accounts and retaining our salespeople both.
And if you consider the amount of restaurants that typically.
Go out of business, each year, and we've been able to get to.
Very high single digit turnover from the previous year and customers are lost business.
So as we're adding accounts, we feel we feel pretty confident.
<unk>.
Particularly with the retention level that we have with our sales force I think those two go hand in hand.
Got it thank you and if I could just ask as a follow up on I think your commentary on.
It was kind of overall expense ratios were down when you combined.
Driver and warehouse, but can I ask you to just unpack that a little at least as of last quarter.
Understandably I think you said the warehouse side was a little more productive.
But could you talk about.
That comparison, but also how they are progressing.
Each of them separately in terms of becoming more productive.
Yes, what we're seeing constant progress in productivity and shrink.
Those are the things that are real problems with new people.
We hired heavily in some areas, we may even overshot some.
But we feel we're going to continue to improve we're certainly not back to 2019 levels.
And we're paying more money to get a better level of service.
But the reduced overtime has helped to productivity.
Not using temporary workers to the degree that we did two or in the heavy kozak periods has really helped us helped a lot.
And then.
We feel that our expense ratios are going to continue to get a little bit better.
A lot of our I guess I would say.
Increase in expense ratios for last quarter was just continuing to add to the sales force that was are our big area of increase over the previous year.
Okay and just the last one is a follow up I think your commentary on the.
The convenience business was that the margins were good.
And I believe that was in the context, if you take out the holding gains so I just wanted to.
Double check that.
If I heard that right and if I can where you're really referring to more of the gross margin or the EBITDA margin had been substantially better.
The big I guess tobacco holding gains from the year ago period.
Yes, if you took out the holding gains from the previous year, we were actually well into double digit EBITDA growth for convenience.
And that was driven.
Food sales I mean that certainly helps.
But from an operational standpoint, warehousing and delivery.
From where we were told that to now they've probably improve the most.
Okay.
Okay. Thank you.
Thanks, Ed.
Thank you.
Our next question comes from Jake Bartlett with Cowen Securities.
Great. Thanks for taking the question my first use is wrapping up ramping in a bunch of the other questions required questions asked but when I look at the guidance for 'twenty four it looks like there is at the midpoint about 10 basis points of EBITDA margin expansion I'm, hoping you can help us.
You can figure out what the main driver of that is whether it's operating expense leverage or gross margin expansion is trying to kind of parse out which is going to be the biggest sources of margin expansion.
Yes. Thank you this is Patrick.
It's really a combination of both and it is ramping up a lot of the things we've already discussed, but it's definitely going to be expansion due to things like more independent cases.
The brands.
Obviously, and then again this star and food and foodservice into convenience and then as George just explained we do expect the operational side to continue to improve and we have seen those improvements.
And we have a lot of confidence that they will continue to.
Drive more efficiencies.
Okay great.
When I look at the operating expenses less DNA kind of the bridge between gross profits and EBITDA deleverage.
Deleverage in the last two quarters. So I'm just trying to guess get your confidence that that will reverse that you think youre going to get some operating leverage in 'twenty four.
Yeah, absolutely I mean, as George says, we've been making some investments in people and so we do have a lot of confidence that we will see that leverage.
Great and then the last question is on the sales growth trajectory.
Lowest in the first quarter.
Accelerates from there just given given the guidance specifically on the foodservice segment.
I look at sales growth in the fourth quarter real sales growth taking out the inflation or deflation was about flat that.
Thats a deceleration, but what do you think the trajectory of growth sales growth in the foodservice Cheng who is going to be throughout 'twenty four.
I expect a continued drag from change in the beginning of the year, but if you could just help us.
Determining or just estimate how sales growth progressing.
How it accelerates and maybe what the acceleration on drivers are.
Yes, well I mean again this is year over year, but we have a lot of confidence in our foodservice sales growth as we've explained we are experiencing deflation in foodservice that is continuing into this quarter. So that coupled with some other factors. We did anticipate that in our outlook. So it does start off.
At a lower growth rate and then it does increase as we go through the balance of the year.
Up against easier comps and see that deflation.
Yes.
Slowly get better and then improve to hopefully what we would imagine is more of a traditional historical slight inflation number.
Okay, and just just to clarify on that do you expect to foodservice.
Deflation and become inflationary by the end of the year or do you think it's going to be deflationary throughout the whole year.
No in our outlook, we believe will become inflationary.
Okay. Thank you so much.
Thank you.
Our next question will come from Carla Casella with Jpmorgan.
Hi, I have a follow up question on your comments about M&A.
Just given the kind of.
How did this strength.
The star and convenience.
Total addressable market there would you as your M&A focus more on those categories or is there some opportunity in foodservice as well.
We're always going to be opportunistic and things that fit our business and their culture fits our culture.
Provided we can get to the right valuation.
Probably.
Two M&A in any of those three businesses our priority is certainly foodservice.
In Broadline foodservice, specifically, that's where we have more significant white space.
And.
We still have distribution centers that I would call legacy Roma distribution centers, where we have limited product offering and.
Expanding that business would probably be our biggest priority, but we will always if we have an opportunity to get a good business to be part of US we think we have.
Good method of doing M&A integrating companies will always be opportunistic.
Okay, Great and then could you just update us in terms of when you look at Capex, how much of this growth.
Or what is your maintenance capex going forward.
It's about a third is maintenance.
Great. Thank you.
Thank you.
Last question will come from Jeffrey Bernstein with Barclays.
Yes.
Great. Thank you very much.
Two questions first.
Sure. It seems like the foodservice chains of what you're seeing I think it will be referred to as macro softness and the independence.
You are saying are gaining momentum each of the past four plus months.
Which drove that seven 6% case growth I'm just wondering if all that's true.
It sounded like the first fiscal quarter of 'twenty. Four is ahead of that seven six so I'm just wondering whether you think thats sustainable and whether you think that's being seen across the entire industry or is that just unique to performance food group and your related initiatives and then I had one follow up.
Yeah, well, we're certainly gaining share but.
If you look at the percentage of the business that we have we could be going a different direction then.
And then our competitors.
Probably more likely that I guess I mean, you can see with the.
The guidance, we've given I mean.
Taken that macro into account, we're very confident.
I would like to say that we're always cautious.
But I do think there are some macro issues out there we've been through this before and this certainly isn't 2008 or nine it's not to that degree.
And as long as we keep gaining customers.
We will keep gaining share.
We're confident with what we've laid out.
Got it and then my follow up I guess as we look out to fiscal 'twenty five.
Thank you mentioned your fiscal 'twenty four EBITDA guidance the high end being one 5 billion is the low end of the fiscal 'twenty five so clearly you're moving ahead of plan I'm just wondering how we should think about that.
Should we assume therefore confidence that in coming quarters, youre going to increase fiscal 'twenty, five or what would potentially derail a continuation of that upside to EBITDA, because again being ahead of schedule by a full year within a three year guidance.
Quite impressive I'm wondering what might.
Derail that or makes that more challenging thank you.
Yes, Jeffrey as Patrick just one thanks for pointing that out because we are really excited that we had such a strong 23 and that allowed us to put that three year guidance at the top end of our range for 2024.
At this point, it's still too early to comment on anything that would make that change, but you can see what we've guided for 2024 and again the stores. Just explained we're really confident about the guidance that we've put out there. So we'll continue to update everyone on that.
Things progress.
Great. Thank you.
Thank you.
I would now like to turn the call back over to Bill Marshall for any additional or closing remarks.
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