Q3 2024 US Foods Holding Corp Earnings Call
[music].
Thank you for standing by my name is for Michelle and I will be your conference operator today at this time I would like to welcome everyone to the U S Foods holding Corp, third quarter 'twenty 'twenty four earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a.
A question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star one again, thank you.
I would like to turn the call over to Michael Neese Senior Vice President of Investor Relations. Please go ahead.
Thank you Michele good morning, and welcome to the U S Foods third quarter fiscal year 2024 earnings call.
On today's call, we have Dave <unk>, CEO and Dirk Locascio, our CFO.
We will take your questions. After our prepared remarks conclude please limit yourself to one question and one follow up.
Our earnings release issued earlier this morning, and today's presentation can be found on the Investor Relations page of our website at IR deck U S foods Dot com.
During today's call unless otherwise stated, we're comparing our third quarter fiscal year 2024 to the same period in our third quarter fiscal year 2023.
I'm Dirk Locascio, and I'll see you next time.
In addition to historical information certain statements made during today's call are considered forward looking statements.
In addition to historical information, certain statements made during today's call are considered forward-looking statements.
Please review the risk factors in our Form 10-K for a detailed discussion of potential factors that could cause our actual results to differ materially from those statements.
Please review the risk factors in our Form 10-K for a detailed discussion of the potential factors that could cause our actual results to differ materially from those statements.
During today's call, we will refer to certain non-GAAP financial measures.
During today's call, we will refer to certain non-GAAP financial measures.
All reconciliations to the most comparable GAAP financial measures are included in the schedules on our earnings press release as well as in the presentation slides posted on our website.
All reconciliations to the most comparable GAAP financial measures are included in the schedules on our earnings press release, as well as in the presentation slides posted on our website. We are not providing reconciliations to forward-looking non-GAAP financial measures.
We are not providing reconciliations to forward looking non-GAAP financial measures.
Jay: I would like to turn the call over to Jay.
Jay: Thanks, Mike Good morning, everyone and thank you for joining us.
Jay: Before we begin our thoughts are with all of our associates customers and communities impacted by Hurricane believes in Dawson.
Before we begin, our thoughts are with all of our associates, customers, and communities impacted by Hurricanes Helene and Milton, which have each caused catastrophic devastation across parts of the Southeast.
Jay: Which of each cause catastrophic devastation across parts of the southeast.
Jay: We are grateful to our local teams for their unwavering commitment to aiding recovery efforts and continuing to serve the community through countless hours of volunteering donations. During this difficult time thankfully all of our associates are safe.
We are grateful to our local teams for their unwavering commitment to aiding recovery efforts and continuing to serve the community through countless hours of volunteering and donations during this difficult time. Thankfully, all of our associates are safe, but many suffered damage to their homes and property.
Jay: Many suffered damage to their homes and property.
Jay: Ill briefly highlight one of our associates, who have gone above and beyond to make a difference in North Carolina. During these trying times.
I'll briefly highlight one of our associates who have gone above and beyond to make a difference in North Carolina during these trying times.
Jay: Josh food as a salesman for U S foods and local to Booz Allen.
Speaker Change: Josh Hogue is a salesman for U.S. Foods and local to Boone County.
Jay: You gathered volunteers to provide a wide variety of grassroots released support.
Speaker Change: He gathered volunteers to provide a wide variety of grassroots relief support. He and others coordinated a GoFundMe page that raised more than $400,000 in donations for those impacted.
Speaker Change: He and others coordinator to go fund me base that raised more than $400000 of donations for those impacted.
Speaker Change: Deployed 11 truckloads of food donations gathered with the support of local organizations and businesses, including U S foods.
Speaker Change: Organize the purchase and delivery of 40 generators to impacted areas.
Organize the purchase and delivery of 40 generators to impacted areas.
Speaker Change: Thank you Josh for your incredible efforts into all of our associates, who helped and continue to help our customers and communities. During this challenging time.
Speaker Change: Thank you Josh for your incredible efforts and to all our associates who have helped and continue to help our customers and communities during this challenging time.
Speaker Change: Now, let's turn to our results from the third quarter.
Now let's turn to our results from the third quarter. I will then update you on core initiatives across each of our four strategic pillars before passing it to Dirk to review our financial results and provide an update to our fiscal year 2024 guidance.
Speaker Change: I will then update you on important initiatives across each of our four strategic pillars before passing it to Derek to review, our financial results and provide an update to our fiscal year 2020 for guidance.
Speaker Change: Turning to slide four.
Speaker Change: We delivered 13% adjusted EBIT growth solid adjusted EBITDA margin expansion and 21% adjusted EPS growth as we continue to deploy our proven operational playbook and execute our strategic initiatives.
Turning the slide forward, we delivered 13% adjusted EBITDA growth, solid adjusted EBITDA margin expansion, and 21% adjusted EPS growth as we continue to deploy our proven operational playbook and execute our strategic initiatives.
Speaker Change: We delivered another quarter of strong results, despite a challenging macro environment and unforeseen weather related impacts, which pressured industry case case volumes.
Speaker Change: We delivered another quarter of strong results, despite a challenging macro environment and unforeseen weather-related impacts, which pressured industry case volumes.
Speaker Change: This is a real testament to our team's focus our execution.
Speaker Change: And our ability to control the controls.
Speaker Change: We drove volume growth and captured market share in our target customer types of independent restaurants health care and hospitality.
David Flitman, Dirk Locascio, Unknown Executive
Speaker Change: We drove volume growth and captured market share in our target customer types of independent restaurants, healthcare, and hospitality. Total volume grew 3.8%, while our independent restaurant cases grew 4.1%, which resulted in our 14th consecutive quarter of market share gains.
Speaker Change: Total volume grew three 8%, while our independent restaurant cases grew four 1%, which resulted in our 14th consecutive quarter of market share gains.
Speaker Change: Moving to capital deployment, we were prudently aggressive with share repurchases this quarter totaling $580 million.
David Flitman, Dirk Locascio, Unknown Executive
Speaker Change: Moving to capital deployment, we were prudently aggressive with share repurchases this quarter totaling $580 million.
Speaker Change: We will continue to execute buybacks as we believe our shares remain undervalued.
Speaker Change: We will continue to execute buybacks as we believe our shares remain undervalued.
Okay.
Speaker Change: Since initiating our buyback program in late 2022, we have repurchased over one 1 billion of our shares at an average price of $50 68.
Speaker Change: Since initiating our buyback program in late 2022, we have repurchased over $1.1 billion of our shares at an average price of $50.68 and will continue to be good stewards of capital deployment.
Speaker Change: And we will continue to be good stewards of capital deployment.
Speaker Change: Let's turn to the broader macro and our focus on our target customer types.
David Flitman, Dirk Locascio, Unknown Executive
Speaker Change: Let's turn to the broader macro and our focus on our target customer types.
Speaker Change: In addition to the softer macro environment. There were several large storms in the third quarter that adversely impacted our southeast business, where we over index on independent restaurant market share.
Speaker Change: The impact from the slower southeast growth was nearly a 100 basis point headwind to independent volume growth.
Speaker Change: Excluding the southeast or organic independent volume growth was modestly higher than our second quarter growth rate.
Speaker Change: and repurchased 10.4 million shares for a total of $580 million.
Speaker Change: In the fourth quarter today, through November 4th, we purchased an additional $160 million of shares. We have $238 million of remaining funds authorized under our $1 billion share repurchase program.
Speaker Change: We will remain disciplined and continue to execute our share repurchase program in addition to continued investment in the business for organic growth and opportunistic tuck-in M&A.
Turning to Net Leverage on slide 14.
Speaker Change: Net leverage is unchanged from your end, even with the significant share repurchases this quarter.
Speaker Change: We also extended the maturity of the remaining balance of our term loan due 2026 to 2031, lowered the interest rate margin on both of our term loan facilities by 25 basis points and eliminated the credit spread adjustment of 11 basis points on the facility due 2031.
Speaker Change: As a result of this, we capture approximately $9 million in annualized interest savings.
Thank you.
Speaker Change: Our debt structure is strong, and we have no long-term debt maturities until 2028.
Speaker Change: With that, let me now turn to our updated outlook for 2024 on slide 15.
Speaker Change: Given our year-to-date performance and outlook for the remainder of the year, we're updating our fiscal year 2024 guidance.
Speaker Change: We're increasing the bottom end of our adjusted EBITDA range to $1.72 to $1.74 billion. Finally, we're tightening our adjusted diluted EPS range to $3.05 to $3.15.
Moving to modeling assumptions.
Speaker Change: I expect total case growth of four to four and a half percent.
Speaker Change: We're also updating our Sales Inflation Assumption, which includes MIX, to a range of 2 to 2.5%.
Speaker Change: Interest expense is projected to be lower than our previous forecast and is now expected to be in the range of $310 to $320 million.
Speaker Change: Finally, depreciation and amortization is at the higher end of our range, partially due to M&A, and is now projected to be in the range of $435 million to $445 million.
Speaker Change: Despite the software macro backdrop, we continue to strengthen our execution and remain confident in our ability to grow volume, gain share with target customer types.
increase profitability, and return capital to shareholders.
Speaker Change: I'm pleased with our strong progress this year as we've driven balanced profitable growth.
Speaker Change: We remain well-positioned to achieve our current long-range plan and 2024 financial targets.
Speaker Change: And I look forward to getting off to a strong start for our next long-range plan beginning in 2025.
Speaker Change: With that, I'll now pass it back to Dave for his closing remarks. Thanks, Dirk. Not only are we a market leader, but we have significant sustainable competitive advantages that position us well to win in any environment, as we are demonstrating.
Speaker Change: We are the only pure plate, U.S. only, food service distributor with national scale.
Speaker Change: Our focus is to grow volume and gain share with the highest value customer types in the industry, independent restaurants, healthcare, and hospitality.
Speaker Change: We are focused on executing and delivering the outcomes of our new long-range plan, which comprehends significant upside from our self-help initiatives. Many of these are in the early innings of deployment and have a long runway of profitable growth.
Speaker Change: We are the industry leader in digital innovation and have built a strong competitive advantage that we will maintain.
Speaker Change: and we are confident in achieving our 2025 to 2027 Long-Range Plan.
Speaker Change: As a reminder, our growth algorithm introduced at our June Investor Day includes a 5% sales growth cater.
Speaker Change: 10% adjusted EBITDA growth CAGR, at least 20 basis points of annual adjusted EBITDA margin expansion, and a 20% adjusted diluted EPS growth CAGR.
Speaker Change: This will generate at least $4 billion of capital to deploy against our capital allocation priorities over the three-year period, including approximately half towards buying back stock.
Speaker Change: Our third quarter results of net sales growth of 6.8 percent.
Speaker Change: 13% adjusted EBITDA growth, a 27 basis point increase in adjusted EBITDA margin, and a 21% adjusted EPS growth affirm my strong conviction that we have the right strategies in place to deliver our next long-range plan.
Speaker Change: and our team is 100% aligned and excited about our future.
Speaker Change: and the ability to achieve exactly what we say we're going to do over the next three years.
Speaker Change: Finally, I sincerely thank each of our 30,000 associates for their dedication to executing and to serving our customers well as we continue to pursue our ambition to become the undisputed best in the industry.
Speaker Change: And with that, Rochelle, please open up the line for questions.
Speaker Change: Certainly. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again.
Speaker Change: Your first question comes from the line of Brian Harbour with Morgan Stanley. Your line is open.
Brian Harbour: Yeah, thank you. Could you talk a little bit more about sort of, you know, private label penetration, where that's tracking, and just, you know, what you continue to see there on both?
Thanks for staying independent!
Speaker Change: Yeah, we're excited about our private label brands. Good morning, Brent. We've had continued increase in penetration there, particularly with our independent restaurants. We're running roughly at 52 percent.
Brian Harbour: As I say all the time to our team and externally to you guys, there's no barrier to increasing that. I see no near-term ceiling.
Brian Harbour: You know, I talked a little bit here this morning about our new Scoop launch.
Brian Harbour: We're leading in innovation, very strong adoption in all those products. We continue to take those products really across the portfolio in all of our customer types, and we've got great momentum.
Okay, great. Thank you.
Speaker Change: Excuse me. We're, maybe talk about just independent health as well, right? It sounded like sort of some of the
Brian Harbour: uplift you've seen recently after the weather impact was similar for independence and change is that if I understood that correctly, but could you talk about that customer and how do you how you sort of expect the trend?
through this quarter and into early next year.
Speaker Change: Yeah, we're encouraged by what we've seen. And just a little context, you know, the foot traffic challenges are well documented, really beginning in the second quarter of this year.
Speaker Change: importantly put traffic decelerated in the third quarter. You heard me say this morning that our market share gains actually accelerated.
Speaker Change: You know, we had a hurricane last week in September. We had another one in early October. And once we cleared all that, I'm very encouraged by the momentum that we've seen more than 100 bases point acceleration in case growth, both as you mentioned with our independent restaurants and also chains.
Speaker Change: and importantly in our health care and hospitality where we took share again this quarter in our differentiated portfolio remain very strong both of those have very strong pipelines and I couldn't be more excited about the way we're going to finish the year and what that means for 2025.
Thank you.
Thank you.
Speaker Change: Your next question comes from the line of Lauren Silberman with Deutsche Bank. Your line is open.
Hi, thank you very much.
Speaker Change: First on the guidance, you're guiding to the high end of the full year EBITDA guide, lower end of the case growth guide. So it seems like you're outperforming within the P&L relative to your initial expectations. Can you just talk about where that's coming from? Have you pulled forward any initiatives?
Speaker Change: No, we really haven't pulled anything forward, Lauren, you know, as we've been doing for a long time now. We're just continuing to execute that portfolio initiative, of initiatives that we have, which really span the entire spectrum of the P&L, from top line to gross profit expansion. You heard Dirk comment this morning on our continued momentum that we're gaining on operating expense and productivity.
Speaker Change: All of that will continue. I feel like we're in the very early innings of a lot of that work, and that's what gives me great confidence and excitement for the new long-range plan.
Brian Harbour: I think, Lauren, what you continue to see is come to fruition, this balance.
of the controllable focus that we've had.
Brian Harbour: So, solid top line growth, not only in independence, but health care and hospitality and overall growth.
Brian Harbour: If you see us, EBITDA growth is one thing, and we're very pleased with 13%.
Brian Harbour: But being able to get that down to EPS is important, and we've leveraged that now for multiple quarters. In this quarter, you saw it from 13% EBITDA growth to 21% EPS growth, so pleased with that.
Speaker Change: Great, thanks. And just a follow-up on the independent case growth trends. Outside of the Southeast, are you also seeing improvements in underlying traffic trends? Just trying to understand, are you communicating that you're currently running close to that 2% organic?
Speaker Change: No, I'd say we're running higher than that, Lauren. And yes, I think, you know, we've seen some acceleration really across the country in independent case growth.
Speaker Change: And I'm actually very encouraged. You know, we talked last quarter about a little bit of the pucker factor, if you will, given the presidential election. We've got that behind us now. I see the consumer gaining confidence a bit, and I think that means good things for 2025.
Thanks so much.
Thank you.
Speaker Change: The next question comes from the line of John Heinbockel with Guggenheim Securities. Your line is open.
Hey, Dave, can you talk to...
Speaker Change: Salesforce growth or expansion is running what about now? 5% or so. And maybe, you know, talk about productivity of recent cohorts. And then I think you're still right, all of your, is all of the case growth coming from new accounts.
Are there any green shoots with regard to drop size?
Speaker Change: Yeah, John, good morning. And yeah, we're running in that mid-single digit as we expected to for the year.
Speaker Change: We'll see how that finishes for the year, but I will tell you, you know, I talked to all of our new incoming sales training classes. We just had another one here.
Speaker Change: Tuesday, we were bringing in very strong sales talent. I'm actually as excited as I've been since I've been here about our ability to bring in high quality
New Sellers.
Brian Harbour: along with an increase in competitive sales talent here over the past several months.
Brian Harbour: I'm really excited about that, and yeah, the lifeblood of our growth has been, and I think will continue to be, new account generation. We're excited about that, but we're also managing loss. Well, penetration has been a challenge with the foot traffic.
Brian Harbour: I wouldn't say we've seen any great acceleration in the penetration yet, although we have seen some green shoots here over the last three weeks, as I mentioned, as the overall case growth has begun to accelerate.
Brian Harbour: So I think the consumer is going to gain more confidence, I think we'll get past those foot traffic challenges here soon and just continue to strengthen that momentum.
Speaker Change: And then where are we on the UMAS rollout, right? And I know you said warehouse productivity is up three and a half percent. I don't know what you're seeing with regard to miles driven productivity. Is that sort of in the same range?
Speaker Change: Yeah, that's a big enabler in the delivery productivity. And, you know, I mentioned last quarter that we're basically back to pre-COVID levels with that. We're not quite back there yet in the warehouse, but we did see an acceleration in warehouse productivity from the second quarter to the third quarter. That's why I called that one out this morning in my prepared remarks.
Speaker Change: Very, very encouraged with what we're seeing, both in terms of
Brian Harbour: Reduction and Stabilization and Turnover and How That's Translating to Improved Productivity.
Brian Harbour: Specific, John, to your UMass question, so we've got 18 markets, so we've got six more, so that continues to roll out. It'll continue through 2025, continue to be pretty pleased with the results that we're seeing. And it really is the foundation for a lot of the other things that we're driving in supply chain.
Brian Harbour: And it's having exactly the desired effect in terms of standardizing those operating practices and driving a consistent uplift in productivity across the company.
Thank you guys. Thank you.
Speaker Change: Your next question comes from the line of Kelly Banya with BMO. Your line is open.
Kelly, your line is open. Please ask your question.
Good morning. Thanks for taking our question.
Brian Harbour: I wanted to just ask a little bit about the COGS initiative. It sounds like that initiative continues to go quite well. I think you maybe slightly exceeded your goals for this last three-year plan, but...
Brian Harbour: Um, can you just talk about the confidence in the plan there over the next three years, how vendors are reacting to your strategy there and working with you and just how
Brian Harbour: volume dependent, the savings could be there in the coming years, and just a little bit more detail on that as you look to 2025.
Speaker Change: Yeah, so thanks for the question. Very confident in what we said we would deliver in the new long-range plan, which was $260 million over the three years. You just heard us wrapping up the year saying we're gonna deliver 230 million.
Speaker Change: And importantly, Kelly, you know, this is a piece of work that we've been at for a very long time inside the company.
Brian Harbour: And as I've commented previously, we do this in a highly collaborative manner with our vendors. We've been doing it for a long time. It's really a win-win approach in terms of our ability to outpace the market with market share gains.
Brian Harbour: and not just with independent restaurants, which is the most important piece, but also healthcare and hospitality. They want that volume growth. Everybody's looking for that growth and they're more than willing to engage with us.
Brian Harbour: and do this in a way that makes sense for both organizations. In fact, we just had our annual vendor forum in the last couple weeks, probably the best ever attended and a lot of excitement coming out of our vendor community about our future. So we feel great about it.
Great, that is helpful.
Speaker Change: Health care business. You mentioned the new hundred million dollars, I guess that came on during the quarter. Just can you elaborate on that and the pipeline that you have over the next couple of years in health care in particular and the capacity to take on those kinds of accounts?
Good morning, Kelly. It's Dirk.
Speaker Change: I'm pleased with that. We always have a strong pipeline across both healthcare and hospitality. Healthcare, I think you're pretty familiar, as we've talked about, is our leadership position there. And also, largely because of the value that we can bring customers from both the partnership, the service model, as well as the economic value.
Speaker Change: So I'm confident that we can continue to grow at a rate that's very healthy and above market and gain share in each of those customer types. I think with healthcare what you see is
Speaker Change: Typically when you're bringing those customers on, they are buying the same product you already have in your distribution facilities. So they're far more capital effective than bringing on a lot of chain business. And that's why you see us continue to focus on over-indexing with independent healthcare and hospitality and being thoughtful and optimizing around the chain business.
Thank you.
and David Flitman. Thank you. Thank you.
Speaker Change: Your next question comes from the line of Mark Carden with UBS. Your line is now open.
Mark Carden: Good morning, thanks so much for taking the questions. So I want to start off with Descartes, you're rolling that out now to some of your more impactful markets. How has that rollout gone relative to your expectations and any incremental learnings from your latest batch of markets?
Speaker Change: Yeah, Mark, good morning. It's gone extremely well, and we were very thoughtful about how we rolled this out across the company, and that's why we spent a lot of time early on in those pilot markets, and there were a tremendous amount of learnings around that.
Speaker Change: And just as a recall there, you know, you can't do this work without engaging your customers, right, around delivery, windows, and all that. We've done a great job of getting ahead of that now as we've rolled Descartes out to new markets and actually doing that work before we bring the technology into the space.
Speaker Change: and so you know that's that's why we're confident about rolling this thing out now as aggressively as we are and we'll have half our miles on the cart by the end of the year here and finish it up next year so we're excited about it.
Speaker Change: Great, and then on hospitality, you've been benefiting from some nice new business wins. You guys are taking market share. How did overall hospitality industry demand shake out for 3Q relative to your expectations? Did you guys see much hurricane impact there? And how was your business with your existing customer base?
Speaker Change: Good morning Mark, it's Dirk. So I'd say for the third quarter outside of
Dirk Locascio, Michael Neese, David Flitman
Speaker Change: impacts and hospitality often is pretty similar to what you see in the restaurant space.
Speaker Change: So, we saw that the same pressures and then similar start to the quarter and have seen.
Speaker Change: Again, feel good just as I answered a previous question on our ability to grow and take share there as well as in healthcare.
Great. Thanks so much. Good luck, guys.
Thanks a lot.
Speaker Change: The next question comes from the line of Jeffrey Bernstein with Barclays. Your line is open.
Speaker Change: Great, thank you very much. Two questions. The first one, just trying to clarify, the total case growth for the full year is now four to four and a half percent tempered from the four to six.
I was hoping you could maybe prioritize what drove the reduction.
I know whether it was clearly a component, but in clarifying the earlier question...
I think you said something was running currently greater than 2% case growth. So just trying to get at least directionally, sounds like 3Q is better than 2Q, further improvement at 4Q. Paul X, the weather, just wondering if you could provide any specifics in terms of numbers to support kind of that re-acceleration you've seen through the third quarter into the fourth quarter.
Jeff, sir. It really, the adjustment was a combination of the weather, as you pointed out, which.
quarter and then to start the fourth quarter and given our size in the southeast it had a
and impact on us.
The second piece is the overall traffic environment in the third quarter stayed softer for longer, although we did see as we were coming out of the quarter before the storm set, we saw some positive signs. And as Dave mentioned, we've seen that those signs show up again in more recent weeks.
Speaker Change: is our sort of guidepost that it is sort of the macro environment, the Android of storms versus us losing share. I think the other thing it does is it sets us up to be confident in our ability to deliver what we committed for 2025.
Speaker Change: understood right and then in terms of you know the new wins I know you highlighted health care and hospitality very encouraging I'm wondering whether there's any big gains or changes maybe
Speaker Change: accounts that you've given up with on restaurants or maybe how the pipeline is looking going into next year in terms of new business.
Speaker Change: Well, I mean, independence being smaller, that's always a constant pipeline. And so that when when Dave talks about that new accounts, we're constantly
Speaker Change: winning and you're seeking to win a lot more than you lose. And so our teams are doing that well, given that we continue to grow and take share in an environment that the industry tells us is down from a traffic perspective.
I think from a chain perspective, we've onboarded, and our expectation is to continue to onboard some new business as we head into 2025. Pipeline remains very robust. We are thoughtful in what we're...
focused on for chain business, but feel good about the pipeline there as we head into next year. And the healthcare and hospitality pipelines remain very, very strong.
Great. Thank you very much. Thank you.
Speaker Change: The next question comes from the line of Edward Kelly with Wells Fargo. Please ask your question.
Hi, good morning, guys. Nice quarter.
Speaker Change: I wanted to ask you, you know, if you look at this quarter, right, like volume growth is a little soft because of, you know, like, obviously, like weather macro related stuff, but you still delivered.
Speaker Change: EBIT growth that's above the algo. As we think about like to go forward into 25, and I'm not looking for guidance on 25, but...
Speaker Change: What does the gross profit per case and the OPEX per case opportunity look like in 25 versus what you saw in 24?
Speaker Change: You know, and I ask that question because it certainly seems like industry volumes have the potential to get better. You know, and you have clearly the potential to, you know, deliver better volume numbers next year. And I'm just kind of curious, you know, the composition of the P&L in this quarter, you know, what it says about, you know, like the outlook.
Speaker Change: Yeah, great points, and that's what gives me the excitement about entering 2025, you know, the fact that the well-documented industry challenges, the devastating weather impacts that impacted so many people.
Speaker Change: in the third and early part of the fourth quarter, and we still delivered.
Our new algorithm just gives me great encouragement and confidence.
Dirk Locascio, Michael Neese, David Flitman
because our team is focused on it.
Speaker Change: and each quarter that goes by, and as we're ramping up these initiatives.
Speaker Change: and we continue to deliver. Just the momentum continues to build, our team gets more confidence.
Speaker Change: in these pieces of work and the way we're executing them. And I'm very encouraged going into 2025 in all parts of the P&L, including the pipeline.
Speaker Change: Great. Just a quick follow-up on the share repo. You've talked about half of the $4 billion going to repo, but you did 20% of that this quarter, and then you're buying back more stock in Q4.
Speaker Change: How do we think about the cadence of that repo? I mean, it certainly seems like it may end up being much more front-end loaded. And are you still targeting to take the leverage ratio down to the level that you talked about at the investor day?
Speaker Change: Yeah, well, thanks for the question. First of all, you know, we did, we're doing in the back half of the year exactly what we told you we would do, which is we need to share repurchases given what we believe is a significant undervaluation in our shares.
But importantly, what we delivered and bought back during the quarter doesn't impact the next algorithm at all. That $4 billion is between $25 and $27.
Speaker Change: Okay, and, you know, if we generate above what we said there in terms of capital cash flow, you know, just expect us to go roughly with half of what we generate.
Speaker Change: deployed to share repurchases. You know, if you think about where the stock ought to be as we deliver that algo in 2027,
Speaker Change: We're still undervalued, significantly undervalued, and you heard me talk about all the confidence and the momentum that we have in the business.
Speaker Change: You know, we'll lean in, and as we've also said, we'll toggle between M&A and share repurchases depending upon the M&A opportunity.
Speaker Change: And that pipeline remains strong, but as we said, you know, you really can't dictate the timeline of when those things are going to pop out of the pipeline. So, what we're doing, we said we're going to do, we're confident in the algorithm we put forward and we're going to...
continue to drive that outcome. Dirk, anything to add there?
Dirk: I'd just reiterate what you said on the, again, that's one of the things we like so much about the share repurchase is that ability to toggle as M&A comes up and in a particular quarter where you may repurchase more or less depending on that.
Speaker Change: We're pleased to have made a significant portion of repurchases given, as they've said, the share value relative to what we expected to be in the future.
Great, thanks guys.
Thank you.
Speaker Change: The next question comes from the line of Jake Bartlett with Trurist Securities. Your line is open.
Jake Bartlett: Great. Thanks for taking the question. You know, my first was just a clarification. I just want to make sure I have the trend right in terms of the near-term and the cadence. So, in the third quarter, organic independent case growth was 2.4. You're saying that that would have been roughly 3.4 without the impact of the hurricanes.
Speaker Change: Has the trend improved 100 basis points since that, so basically you're running 4.4 in October, is that the right way to think about it?
Speaker Change: Good morning, Jake. It's Dirk. Now, what it means is instead of the 2.4 after we got past the first couple of weeks of October with the storm impacts, it's been 100 base points higher than what we had in Q2, so back to that mid-3s range.
Sorry, so October is 100 basis points stronger than 2Q?
Speaker Change: The last, yeah, the last three weeks or so. Once we last, once we last the storms. And, you know, we're expecting that to continue to improve.
Speaker Change: Okay, got it. Just want to make sure I understood the trajectory because it looked like you were...
Speaker Change: You know just kind of benefiting from lapping the storms in the third quarter, but that's that's helpful Um, my other question is about just your your operating cost efficiencies and you know productivity improved by three and a half percent Which is which is great your your long-term guidance is three to five percent So my question is the path your visibility on the path towards You're more the middle or even the higher end of that three to five percent range
Speaker Change: Is that something you're working towards and might we expect to see in 2025 maybe some increased productivity gains, increased momentum on that side? What's the trajectory of the productivity gains?
Speaker Change: Hi Jake, it's Dirk. So, I'm not going to give specifics on 2025, but within that 3 to 5 is what our goal is. The visibility, we have good visibility as to what's driving it, and it's really all the things that we talked about in our GeoInvestor Day, and it spans across
Dirk Locascio, Michael Neese, David Flitman
Dirk Locascio, Michael Neese, David Flitman
Speaker Change: Again, it comes back to that the concrete things that we are doing is why we believe it is so sustainable to continue to grow at a very healthy rate that we have and that we've talked about for the next three years.
Thank you very much.
Speaker Change: The next question comes from Peter Saleh with BTIG. Your line is open.
Speaker Change: Great. Thanks for taking the question and congrats on a strong quarter.
I wanted to ask about the...
the Salesforce compensation. I think you guys made some changes.
Speaker Change: earlier this year. It's been, let's call it three quarters or so since that change. Can you just talk about how that's been received so far and if you're contemplating any other changes to the compensation structure in 2025?
Thank you.
to increase them being very, very hungry.
Speaker Change: and secondly, to lean in more aggressively on our exclusive brands.
Speaker Change: So, I always cast these as tweaks. We didn't fundamentally change the structure.
Speaker Change: We just made some tweaks here to align with what we expect to have happen in our...
and a current wrote down...
Speaker Change: It's having the right outcome. The expected behavior changes are there. Our sales force is excited and we're growing it and you know good things are going to happen here on the top line going forward.
understood and then just Dirk real quick on the
Speaker Change: Indirect costs, I think you mentioned $20 million of savings, or at least that may be the run rate. Are you still on track to achieve the, I think, $60 million of run rate savings by 2027 that you guys highlighted at the Investor Day?
Speaker Change: Good morning, Peter. Yes, we are. We are on track for that. And this work to achieve the $20 million this year has been underway. You know, we've talked about it for, I've talked about it for a number of quarters and as the
Speaker Change: The actual projects have come to fruition and the savings have come in, pleased with the early start we have in 2024, and yes, well on our way to that $60 million plus.
Thank you very much.
Thank you.
Speaker Change: Once again to ask a question you may press star 1 on your telephone keypad. The next question comes from Andrew Wolfe with CL King. Your line is open.
Andrew Wolfe: Thank you, good morning. I just wanted to ask you to drill into the
Andrew Wolfe: The Pronto business a little, so it's a 700 million annualized run rate budget for this year. Obviously, it's, you know, still growing and maturing. Could you give us a sense of how much that is incremental given it was, you know, it was in existence last year?
but I'm sure less mature and so on.
So we could maybe figure out the growth rate.
Andrew Wolfe: Also, if you want to speak to your expectations going forward.
Speaker Change: Dirk, good morning. I'll start on that. So it's, I'd say 20% or so of it is incremental. It is a
compliments for our existing
Speaker Change: and we've talked about that being sort of an opportunity for up to a billion dollars or around a billion dollars.
Speaker Change: but I'll tell you that is really the penetration piece that we've talked about that Dave mentioned that has moved just moved from two markets to six markets.
Andrew Wolfe: is contemplated pretty conservatively in there. So with the early positive results we're seeing there, I think there's a lot of runway, probably potentially north of the billion dollars there. So that business and that opportunity to continue to access more of the new customers, plus our existing customers,
Andrew Wolfe: We think has a lot of opportunity for growth for a number of years to come.
Speaker Change: And Andy, you know, as we said before with CapStat and the pronto penetration is it really opens up a part of the market that we're not able to compete against in our broad line business today, that being the smaller delivery, more specialty suppliers.
Andrew Wolfe: And again, we've got all those great products inside our distribution centers today, but before Pronto, we really didn't have the service model with those more frequent deliveries.
Andrew Wolfe: in those tight urban areas. And so now we've got that.
Andrew Wolfe: And we were thoughtful about the piloting work that we did on the project, because we wanted to ensure, and that's why I commented at this point, that we weren't cannibalizing our core broad line business in any way.
Andrew Wolfe: And we've proven that we're not now, and that's why we're excited and ramping up from two to six pilots there. So I couldn't be more excited or pleased with the progress we're making with Pronto.
Great. I just want to clarify on penetration.
Speaker Change: So it's your existing broad line customer, it's not really a pronto customer, and secondly it's a different kind of product like a specialty product not a like a fill-in like you know we need more ketchup or something.
Thank you. Bye-bye.
Well, first of all, it's, you know, we
Speaker Change: We've had this model for a few years now, and until this year, it was exclusively to go after new customers. We did not allow our existing Broadline customers to lean in on Pronto. Now we are.
Speaker Change: And yes, we're competing against, when you think about specialty suppliers, think about produce, think about seafood, think about, you know, pure meat specialty suppliers. And again, we've got all those products.
Bye.
Andrew Wolfe: If we've got that truck going to the customer and they run out of a core item, that's not a specialty product, we're happy to throw it on the pronto truck, we're going to be there. So it's really going to open up some additional volume growth that incrementally we weren't able to gain with our existing customers.
Speaker Change: Okay, so the real governors have to be within the route, more or less, to make it economically viable.
Andrew Wolfe: It's 100% economically viable, and again, the customers who've bought it from...
Andrew Wolfe: Specialty suppliers, they're used to paying a premium for that service.
Andrew Wolfe: And as we've said before, Andy, Pronto is at or above the margin profile that we've got in our broad line business.
So I'm not concerned about profitability at all there.
Great, well thank you very much.
Thanks a lot.
We'll take the final question from
Speaker Change: 2% on a market level, and you guys thought that you would do 5% to 8%, in other words, outperforming kind of the base. So I wanted to ask a couple of questions. One, do you still feel good about that 2%? It's, you know, especially for what we've learned.
Speaker Change: This week, what are the you know, the really important macro factors that we should look at that could potentially drive
a return to 2% local growth.
Andrew Wolfe: you know, as we think about your outperformance, you know, is getting back to five to eight percent, you know, type of growth, does that happen regardless, you know, of the baseline assumption? Or, you know, should we just focus on the two and a half to four times the market, you know, as we think about our own assumptions over the next couple of years?
Speaker Change: Yeah, John, thanks for the question. There's a lot to unpack, and let me try to do my best.
Speaker Change: So yes, back in June, we had a core base assumption of about 2%.
Andrew Wolfe: Market growth over time and again that wasn't aimed at any quarter or any particular year But we thought over the three-year period of time that was a reasonable assumption
Because, historically, that's about what the market growth has been.
Andrew Wolfe: And so, yes, I'm confident in the 5% to 8% range.
Andrew Wolfe: I'm confident in our ability to do that, even if the market's a little bit slow. If we're in that 1% to 2% range and market growth, I'm confident of that. And I'd point to a couple of things, as we've talked about all year. First of all, you know, the election's behind us.
Michael Neese, Dirk Locascio, Michael Neese, David Flitman
Andrew Wolfe: In all four quarters of 2023, we were at or above
Michael Neese
Andrew Wolfe: Okay, and we hit first quarter of this year. Don't forget we had a strike that impacted more than 20 of our D.C.s.
Andrew Wolfe: in the first quarter on top of a pretty significant weather impact in January. By the way, we still gained share in the first quarter. We entered second quarter with foot traffic challenges. The foot traffic got worse. We had storms in the third quarter. Been a lot of noise over the last couple quarters.
Andrew Wolfe: I'm encouraged by what we're working on, I'm encouraged by the enthusiasm and our additions to the sales force. I am 100% confident in our 5-8% range in 2025-2027.
Very helpful, thank you.
Thank you.
Speaker Change: That concludes our Q&A session. I will now turn the conference back over to Dave Flitman for the closing remarks.
Dave Flitman: Thanks, Rochelle. Thank you all for joining us today. Look, this was another quarter that underscores the momentum that our team is delivering, regardless of the macro, regardless of what the weather impacts are. I couldn't be more excited about the momentum we have in the company and our ability to deliver what we say we're going to do over the next three years.
Thanks for joining us. Have a great week.
Speaker Change: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.