Q1 2025 Performance Food Group Co Earnings Call
Speaker Change: Please stand by. Your program is about to begin if you need assistance during your conference today. Please press star zero.
Speaker Change: Good day and welcome to PFG's fiscal year Key 125 earnings conference call.
If you would like to ask a question at the conclusion that the prepared remarks, please press the star key, followed by the number one on your telephone keypad at any time.
Speaker Change: I would now like to turn the call over to Bill Marshall. Vice President, Investor Relations for PFG. Please go ahead, sir.
Bill Marshall: Thank you, Shelby, and good morning. We're here with George Holm, KFGCEO, and Patrick Hatcher, KFGCFO. We issued a press release this morning, regarding our 2025 fiscal first-quarter results, which can be found in the Investor Relations section of our website at KFGC.com.
Speaker Change: During our call today, unless otherwise stated we are comparing results to the results in the same period in fiscal 2024.
Speaker Change: The results discussed on this call will include gap and non-gap results adjusted for certain items. The reconciliation of these non-gap measures to the corresponding gap measures can be found in the back of the earnings release.
Speaker Change: Our remarks on this call in an earnings release contains forward-looking statements and projections of future results.
Speaker Change: Please review the cautionaries forward-looking statement section in today's earnings release and our SEC filing for various factors that could cause our actual results differently from our forward-looking statements and projections. Now I'd like to turn the call over to George.
George Holm: Thanks, Bill. Good morning, everyone, and thank you for joining our call today. It has been a busy beginning to fiscal year 2025, as we have built business momentum, particularly in our food service segment, while closing two excellent acquisitions.
George Holm: This morning I will discuss the early progress we have made on both Jose Santiago and Cheney Brothers and then review some highlights from our physical first quarter.
George Holm: Patrick will then discuss our financial results and outlook for fiscal year 2025. I will then provide some closing comments before taking your questions.
George Holm: We are proud of how our organization has performed over the past three months. Our three segments have executed our strategy very well and produced strong results.
George Holm: The consumer landscape has provided some challenges, but I am pleased to report that we have started to see signs of stability that we believe could put us on a solid foundation for the remainder of the fiscal year.
Speaker Change: Before getting into more specifics on our business, I wanted to say a few words about our acquisition activity.
Speaker Change: As we discussed in August, we acquired Jose Santiago early in the fiscal year.
Speaker Change: Jose Santiago is a leading broad line food service distributor in Puerto Rico with good growth momentum and attractive margins.
Speaker Change: Over the past three-plus months, we have worked diligently to integrate their business into PFG's food service operations.
Speaker Change: This process has gone extremely well due largely to the hard work by the teams of both Jose Santiago and PFG.
Speaker Change: The team in Puerto Rico is proving to be an excellent cultural fit and has already contributed nicely to PFG's business results in the physical first quarter. In early October, we closed the Chaney Brothers acquisition.
Speaker Change: I'd like to thank the team at Chaney Brothers as well as PFG for the long hours put in to get this deal across the finish line.
Speaker Change: We were ready for the early close, raising $1 billion through the issuance of new notes during September, which allowed us to pay down a portion of our ABL facility and provided us with additional borrowing capacity to fund the acquisition. Patrick will discuss the financial details shortly.
Speaker Change: While it has only been one month since the close of the Cheney deal, we have already made a great deal of progress onboarding Cheney's organization. We welcome the roughly 3,600 associates from Cheney Brothers to PFT.
Speaker Change: The southeast region, representing the majority of Cheney's operations, has experienced a difficult few months due to the hurricane activity.
Speaker Change: The focus of our organization has been first and foremost
Speaker Change: on the well-being of our associates.
Speaker Change: As a food service distributor, we also play an important role in the food supply chain.
Speaker Change: As an organization, we have been able to ship much-needed food supplies across the southeastern United States and Puerto Rico. While it will take some time for these areas to fully rebuild, our businesses are fully operational and continuing to service our customers.
Speaker Change: I'm proud of the active role our company and associates played in assisting areas impacted by the storms.
Speaker Change: In addition to supporting organizations like the American Red Cross, Mercy Chefs, and World Central Kitchen, our associates stepped up to help each other and the communities where they live and work by volunteering to provide supplies, food, and meals to first responders and those impacted.
Speaker Change: Looking ahead, we are incredibly excited about the opportunity Chaney Brothers brings to PFG. As discussed in August, Chaney's operations complement our legacy business.
Speaker Change: Cheney's strength in Florida, particularly with broad line independent customers.
Speaker Change: enhances our existing business in the region, which skews more towards the specialty area of the business. Chaney Brothers Distribution Facility in North Carolina rounds out the portfolio, providing us with additional scale across the southeastern United States.
Speaker Change: Cheney Brothers assets, particularly their distribution facilities, are exceptionally high quality and state-of-the-art.
Speaker Change: It is rare to find an asset that is operating at scale, but still has room to grow. Chaining's excess capacity should enable us to accelerate growth, build scale, and route density across the Southeast region.
Speaker Change: In August, we provided data showing the positive demographic profile of this region, which is available on our website.
Speaker Change: Cheney Brothers High Exposure to Independent Restaurants.
Speaker Change: is reflected in constant sales growth.
Speaker Change: high profit per case and EBITDA margin well above PFG's corporate average. At the same time, we believe that Cheney's relatively low private brand penetration.
Speaker Change: provides a very attractive opportunity to enhance both top-line growth
Speaker Change: and Margins.
Speaker Change: our legacy food service operations have been incredibly successful at expanding our performance brand offerings to independent restaurants. In fiscal year 2014, performance brands represented just over 39 percent of independent brand share. In the most recent quarter,
Speaker Change: Performance brands represent nearly 53% of total sales to independent restaurants.
Speaker Change: Many of you are familiar with the Reinhardt acquisition and the value created from that transaction. Similar to Cheney, Reinhardt was underpenetrated in private brands. But in the years since we have owned the operation, we have been able to expand Reinhardt's
Speaker Change: private brand portfolio penetration to levels that are similar to legacy performance food service.
Speaker Change: We believe the private brand opportunity at Cheney is even larger.
Speaker Change: In fact, our integration strategy for Cheney is very similar to that of Reinhardt. We believe we have acquired a very high-quality asset that is on an excellent growth trajectory.
Speaker Change: Our initial efforts were focused on integrating the organization while minimizing any impact to Chandy's associates, customers, and suppliers.
Speaker Change: Over time, we will share best practices across the two organizations and expect to accelerate sales and profit growth as a combined entity. Patrick will discuss some of our specific financial goals from the transaction in a moment.
Speaker Change: The Cheney Brothers transaction fits nicely with our total PFG strategy to continue to build upon a leading position in the food away from home space. Cheney is another high quality growth asset in the food service space and we are excited to add this organization to PFG.
Speaker Change: Food service is an important piece of the total PFG portfolio. However, what defines us are the additional avenues for growth, including Vistar and Cormark. The combination of these three units provides a powerful offering that we believe appeals to customers across the food away from home landscape.
Speaker Change: As our organization continues to grow, both organically and through targeted M&A opportunities, PFG is increasingly a leader in the food-away-from-home space. In late October, IFTA held its national championship event in Orlando, Florida.
Speaker Change: The event honored some of the industry's safest associates, allowing them to compete in a range of skill competitions.
Speaker Change: PFG had a fantastic showing including 95 associates and over 300 PFG attendees including family and friends to support the event.
Speaker Change: PFG's associates accepted a number of awards across multiple categories within warehouse and transportation events.
Speaker Change: Four of our competitors' children were recognized for their essays detailing why their PFG parent was their hero. It's a great event and PFG is proud of participating in leading the industry forward.
Speaker Change: In October, our Cormark business displayed its strength in the convenience space at the National Association of Convenience Stores conference.
Speaker Change: Cornmark's offerings, not only in traditional center-of-the-store convenience,
Speaker Change: but in food service products tailored to the convenience landscape set PFG apart. Our three segments are working together to create cross-selling opportunities that we believe will produce additional market share opportunities.
Speaker Change: Technology is an increasingly important part of our cross-segment collaboration and selling. One platform that we
Speaker Change: are particularly excited about is our customer-first digital ordering application.
Speaker Change: We began discussing this initiative at our June 2022 Investor Day. Since then, we have expanded the offering across the organization and are seeing excellent progress. At PFG, we believe that our sales force should always be at the front line of our selling efforts.
Speaker Change: a key competitive advantage that has allowed our company to consistently gain market share. At the same time, we have continued to provide our sales team and our customers with the tools, resources, and knowledge to help them grow their businesses.
Speaker Change: Importantly, Customer First will eventually be rolled out across all three business segments, allowing cross-selling opportunities that we believe will further enhance our value proposition.
Speaker Change: Overall, I am proud of our organization's performance and believe that we are well positioned to continue executing our growth strategy. I'll now turn it over
Speaker Change: to Patrick who will review our financial performance and outlook. I will then return with some final comments on our quarter and the business environment. Patrick.
Patrick Hatcher: Thank you, George, and good morning. PFG is off to a strong start in fiscal 2025, with net sales results at the upper end of our previously disclosed guidance range, and adjusted EBITDA just above the midpoint of our previously disclosed guidance range.
Speaker Change: We are very pleased with the top line momentum, which has slightly accelerated early in the fiscal second quarter, providing a high degree of confidence in our 2025 outlook. Before discussing our fiscal 2025 plan, let's review some highlights from our first quarter.
Speaker Change: CFG's net sales grew 3.2% in the fiscal first quarter, a one-point acceleration compared to the fourth quarter of 2024.
Speaker Change: Our top-line performance remains balanced between volume improvement and net price realization.
Speaker Change: Total case volume increased 2.6%, including a 7.8% increase in total independent restaurant volume. Excluding acquisitions, our total volume increased 1.2% in the fiscal first quarter, including a 4.3% gain in our independent restaurant cases.
Speaker Change: Total company cost inflation was about 5% for the fiscal first quarter. Food service cost inflation was 3.8% in the quarter, an acceleration from the end of fiscal 2024 due to double-digit year-over-year inflation in poultry and cheese.
Speaker Change: Cost inflation in the convenience segment was 7%, consistent with the trends seen in the fiscal fourth quarter.
Speaker Change: FISTAR's cost inflation continued to decelerate sequentially and was up 1.9% in the fiscal first quarter on a year-over-year basis.
Speaker Change: Inflation was slightly more than anticipated in the quarter, particularly in the food service segment, but we believe we are well equipped to manage the price volatility as a normal course of business.
Speaker Change: Total company gross profit increased 6.1% in the fiscal first quarter, representing a gross profit per case increase of $0.23 in the first quarter as compared to the prior year's period.
Speaker Change: We have continued to see excellent cost control once again led by an outstanding profit performance from food service and convenience segments.
Speaker Change: Both Food Service and Commands produced double-digit adjusted EBITDA growth in the quarter, increasing 13.8% and 11.2% respectfully.
Speaker Change: Vistar did see a modest adjusted EBITDA decrease driven by continued lower foot traffic in some of our customers channels.
Speaker Change: The balance across our three segments displays our strong diversification strategy. We anticipate VISTAR's results to improve towards the back half of the fiscal year.
Speaker Change: We expect to build upon these strong profit results as we move through fiscal 2025, which I will address in a moment when I review our guidance.
Speaker Change: In the first quarter of fiscal 2025, PFG reported net income of $108 million. Adjusted EBITDA increased 7.3% to approximately $412 million above the midpoint of the guidance we announced last quarter.
Speaker Change: Diluted earnings per share in the fiscal first quarter was $0.69.
Speaker Change: while adjusted diluted earnings per share was $1.16, a 0.9% improvement year-over-year. Our effective tax rate of 26.5% in the first quarter was up slightly compared to the 26.1% rate in the last year's comparable period.
Speaker Change: Turning to our financial position and cash flow performance, in the first three months of fiscal 2025, PFG generated $53.5 million of operating cash flow. This includes a sizable investment in candy and tobacco inventory during the quarter in anticipation of future potential price increases.
Speaker Change: We often invest in increasing the inventory of these two categories because of manufacturer pricing activity, which allows us to generate a holding gain profit.
Speaker Change: We believe that this is a very efficient use of our balance sheet and cash flow position, generating a high rate of return in future periods.
Speaker Change: We also increased our capital spending in the quarter to $96.5 million. We have been actively building new capacity in state-of-the-art warehouse facilities, as well as building our fleet to support our long-term growth.
Speaker Change: Some of the capital spending is a catch-up from delays in building and fleet purchases due to disruption in the global supply chain following the pandemic.
Speaker Change: In fact, we expect over 10 new building projects to come online over the next 12 months. We believe these new facilities will not only support our consistent top-line growth, but also incorporate designs and technologies to provide long-term cost efficiencies.
Speaker Change: Our balance sheet remains healthy, supporting our capital projects and M&A activity.
Speaker Change: Our debt balances increased during the fiscal first quarter reflecting the ABL borrowings used to finance the Jose Santiago acquisition, putting our leverage just above the midpoint of our two-and-a-half to three-and-a-half times target range.
Speaker Change: As you know, we closed the Cheney Brothers acquisition early in the fiscal second quarter. As a result, we expect our net leverage to be above the top end of our target range when we close the second quarter.
Speaker Change: We expect to use available cash flow to pay down our AVL facility and bring our leverage back to within our target range over the next several quarters.
Speaker Change: We feel very comfortable with our debt balance at this time and have historically operated well above our current leverage.
Speaker Change: With that said, we believe our 2.5x to 3.5x target range provides future opportunities to use our balance sheet to finance reinvestment, including capital spending, M&A, and share repurchases.
Speaker Change: On the topic of share repurchases, during the fiscal first quarter, we paid $29.5 million to acquire 0.4 million shares of our company at an average price of $74.69.
Speaker Change: There is about $181 million remaining on the $300 million share repurchase authorization.
Speaker Change: While our share repurchase activity remains active, we may execute lower levels of buybacks due to the early closing of the Cheney acquisition as we look to reduce our leverage in the short term.
Speaker Change: With that said, our share repurchases reflect several factors, including market conditions, our share price, and relative valuation, and we may become more active with our share repurchases depending on those conditions.
Speaker Change: 5 billion dollar range. We expect adjusted EBITDA to be in a range of 1.7 to 1.8 billion dollars
Speaker Change: We increased both our net sales and adjusted EBITDA outlook with the close of the chaining acquisition early October.
Speaker Change: These ranges include estimated changing results representing approximately 12 of the 13 weeks in the fiscal second quarter and a full year's benefit from Jose Santiago.
Speaker Change: We feel very comfortable with our net sales and adjusted EBITDA targets, and have become increasingly optimistic due to improving industry trends.
Speaker Change: For the second fiscal quarter of 2025, we anticipate net sales to be in a $15.2 to $15.6 billion range, with adjusted EBITDA in a $400 to $420 million range.
Speaker Change: As a reminder, the Cheney acquisition will only impact 12 weeks vs. 13 weeks of the quarter's financial results.
Speaker Change: Our guidance includes the expected benefits from the Cheney acquisition that we discussed in August.
Speaker Change: notably $50 million in annual run rate synergies.
Speaker Change: by the third full fiscal year following closing and accretion to adjusted diluted EPS by the end of the first full fiscal year, including year one synergies.
Speaker Change: To summarize, we are very pleased with our start to fiscal 2025. Our underlying business is on a strong footing, setting us up well for the future. Meanwhile, we have closed two excellent acquisitions since the beginning of the fiscal year, and both are expected to add nicely to our growth and margins.
Speaker Change: Our balance sheet is healthy and we intend to continue to use our financial position to create shareholder value through reinvestment in our businesses along with selective M&A, share repurchase activity, and leverage reduction.
Speaker Change: Our capital allocation decisions are always based on marketplace conditions, but at this time we would expect to emphasize debt reduction due to the timing of the Cheney close.
Speaker Change: I would now like to turn it back to George, who will close with some thoughts about our results and industry.
George Holm: As Patrick mentioned, we're excited about the future of our business. All three of our operating segments are executing well, despite a challenging external environment. Our food service segment has continued to build market share and grown cases ahead of the industry trends.
George Holm: Convenience continues to pick up momentum. Despite industry declines in convenience, our business outperformed all major categories and was able to increase sales and profit nicely.
George Holm: And as we look out across the landscape, we are starting to see a better backdrop. This star continues to experience a challenging macroeconomic environment, but we are pleased with the progress they have made on several emerging channels and are confident that they will resume the strong top and bottom line momentum that we are accustomed to seeing.
Speaker Change: As we look across the landscape, we are pleased to report that over the past few weeks, we have seen an uptick in our volume performance, particularly in independent restaurants, and expect our fiscal second quarter to improve sequentially.
George Holm: Keep in mind, we experienced a very strong December in fiscal 2024, but as we enter the back half of the year, we're increasingly confident that we will experience an acceleration in our top and bottom line trends.
Speaker Change: Our results, both with our underlying businesses and the new opportunities that Cheney and Jose Santiago are due to the hard work of our associates across the country. I believe we have some of the best talent in the food service industry, and I'm confident that we will continue to build upon our position as a leading food service distribution company in the United States.
Speaker Change: Before opening the line to take your questions, I wanted to take a moment to recognize Pat Haggerty ahead of his upcoming retirement. Pat has been part of the VISTA organization for over 30 years, most recently serving as PFG's chief commercial officer.
Speaker Change: Pat has been an integral part of our company's success for decades.
George Holm: In 2008, he was named President and CEO of Vistar and went on to shape that organization into what it has become today.
George Holm: From the time Pat took the helm at Vistar through the end of fiscal 2024, the organization has expanded into a number of new channels, growing the top line by over 240%.
Speaker Change: and become the highest margin contributing segment to Performance Food Group's bottom line. I would like to personally thank Pat for his decades of service and dedication to our organization. I wish him the best in retirement.
George Holm: 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.
Speaker Change: At this time, if you would like to ask a question, please press the star and 1 on your telephone keypad.
Speaker Change: You may remove yourself from the queue at any time by pressing star 2.
Speaker Change: Once again, that is star and one to ask a question. We will pause for a moment to allow questions to queue.
Speaker Change: And we'll take our first question from Mark Carden with UBS. Your line is open.
Mark Carden: Good morning, guys. Thanks so much for taking the question. So to start, just on the sales force, are you guys seeing much of a normalization on your pace of hires at this point? And has competition for these hires shifted at all, just given the tough macro? Thanks.
Speaker Change: Yeah, we've been fairly consistent with the growth of our sales force. We're running in the five to six percent range.
Speaker Change: And that's, you know, about where our growth has been running of late. So we feel good about what we're doing there, and really no big changes from a comp standpoint. Our people are commissioned salespeople, so they, to some degree, write their own paycheck.
Speaker Change: Okay, great. And then just in terms of on your independent case growth, obviously it took up a little bit from July. I don't think you exited the quarter on a high note.
Speaker Change: How did it play out throughout the quarter from a cadence perspective? And then are you seeing any surprising pockets of strength or weakness from a category standpoint just within your business?
George Holm: Thank you very much.
Speaker Change: Yeah, we're seeing, you know...
George Holm: a point to two point.
George Holm: increase.
George Holm: better than we ran in the first quarter so far, but I want to caution that the second physical quarter last year for us we had 8.7%.
George Holm: independent case growth, and December was 10.9%, a strong kind of party season and the calendar fell very well as far as the amount of time between Thanksgiving and Christmas.
George Holm: So, that said,
George Holm: Each week actually has gotten better since we've gotten into the second quarter So we're real confident and particularly confident about the back half of the year
George Holm: and we're continuing to add people who would like to get a little bit above that range we're at right now, that 5 to 6 and more, and to the 7 plus percent increase in salespeople, and we're determined to get there.
George Holm: We just have to find the right people.
Speaker Change: Thanks so much. Good luck.
Speaker Change: Thanks.
Speaker Change: Thank you. We'll take our next question from Kelly Dania with BMO Capital. Your line is open.
Kelly Dania: Good morning. Thanks for taking our questions. George, I was wondering if you could just kind of elaborate on the signs of the stability. I mean, you talked about a little acceleration here. I think it sounds like with independence. But can you maybe go channel by channel and what you're seeing in consumer behavior, what you think is changing? And then I just had a quick follow up with respect to Cheney.
Speaker Change: if we have time.
Speaker Change: Okay.
Speaker Change: At this point, I don't know that I, that
George Holm: How much of our increase that we're experiencing so far this quarter is us just doing a better job or the market itself, I think we'll get a better feel for that as we get some of our market share numbers. But our ability, I guess, to gain share and the independent has been quite consistent. It's just that the market has been down.
Speaker Change: From what we see, it's somewhere in that 3% negative to the previous year.
Speaker Change: If you look at last year, though, as we got through our physical second quarter, I'm sure everyone remembers that January was really tough, so we expect to see some better increases as we get further into it. As far as where that growth is coming from, for us, it certainly has not come from casual dining chains.
Speaker Change: You know, we have some that are really struggling there.
Speaker Change: We've seen some fast-food chains that we supply do better, but there are more at the high end of the QSR.
Speaker Change: And then our independent business is really more towards the high end, and I think that
Speaker Change: the
Speaker Change: There's challenges probably in maybe that bottom 20% of income.
Speaker Change: and we're still seeing those.
Speaker Change: I would say more price-sensitive QSR chains. We're seeing them continuing to be challenged. This year's numbers versus last year's numbers.
Speaker Change: Can you talk a little bit about convenience and Vistar on the same note?
Speaker Change: Sure.
Speaker Change: I think that there's an adjustment going on there in convenience with price increases. I mean, they're used to price increases. As we've said earlier, they have a 5% inflation rate, which to us is still high.
Speaker Change: and I think the consumer is just adjusting to that.
Speaker Change: and we're running, you know, mid-single-digit same-store sales declines.
Speaker Change: in that business. As far as Vistar goes, we have some challenges in the theater part of our business. Number one, it being somewhat soft, and number two, we have some competitive challenges there.
Speaker Change: In retail, we've seen the same thing as far as the traffic not being there.
Speaker Change: Values Stores
Speaker Change: moreso not being there. And then we've had several closings of accounts where we had the, I guess I would call it the impulse buy business, you know, the product that's at the cash register. And then we've seen it in value stores where there's been some
Speaker Change: Some fairly heavy closings
Speaker Change: That's helpful. I just wanted to ask about Cheney.
Speaker Change: and the integration timeline. Has anything changed with how you approach integrations of acquisitions of that size? And I guess particularly I was wondering if you had any color on the cadence of the synergies that you expect kind of year one, year two, year three.
Speaker Change: Well, the integration, I guess it depends on how you define integration, but.
Speaker Change: Thank you.
Speaker Change: We're doing our best to only do the things that we need to do. We put them through a lot, as you can imagine, with due diligence.
Speaker Change: they spent some long hours or just
Speaker Change: getting the integration done that we need to get done I guess as a public company probably a good way to put it. And then as far as synergies, I think a lot of those will develop in the second and third year.
Speaker Change: We don't look at getting synergies from the people, part of the business. They're running intact, and that's what we want. They're doing very well, by the way. I know it's only one month, but their sales growth has been really pleasing.
Speaker Change: And a lot of it will come from brands, as we mentioned.
Speaker Change: But with those brands, first of all, we need to figure out what brands they have today that we would adopt as a company and, you know, consider them to be our brands.
Speaker Change: And then, as we offer the product up to them, it's their decision as to whether or not they use our branded products. And that typically takes time, but no different than a Reinhart situation or a Cormark or a Merchants.
Speaker Change: will get the synergies.
Speaker Change: Thank you. Bye.
Speaker Change: They may come quick. They may come slow. And I mean that. It could be either way. It just depends on what they want to adopt.
Speaker Change: And what's more important than when we get those synergies is how the company continues to perform as part of our company. And sometimes you can get so focused on getting those synergies that it has a negative impact on the company.
Speaker Change: and going from a private company where
Speaker Change: They can pick up their cell phone and call the owner and have a conversation to being part of a of a large public company We want to make that as seamless as possible for the people so we're not overly focused right now
Speaker Change: on synergies, but we're very confident that those will develop.
Speaker Change: Thank you.
Speaker Change: Thank you. We'll take our next question from John Heigenboggle with Guggenheim. Your line is open.
John Heigenboggle: Hey guys, I wanted to start with the ten new buildings.
John Heigenboggle: Right, so can you sort of talk through, you know, what segments they're in, you know, are they net new facilities, are they replacements?
John Heigenboggle: automation, right? And have you been capacity constrained?
Speaker Change: standpoint.
Speaker Change: Yeah, we have physical constraints, that is for sure. We don't necessarily have 10 new buildings, okay? We have one that's a replacement building. We have several that are additions to existing buildings.
Speaker Change: where we have these projects going up. They're almost all in food service. We do have a new distribution center for Cormark which will be in Houston, Texas.
Speaker Change: and I might have to turn to Pat on this I think that's the only one we have that is not boot service. There's a Vistar expansion. Okay.
Speaker Change: Bye.
Speaker Change: I want to make sure we're clear with this. So we have 10 what we would call major projects going on, but not 10 new buildings.
Speaker Change: OK. And then maybe the other thing, right, you had good success, I think, over the past six months in all three segments.
Speaker Change: of picking up chunky business, right, I guess, you know, non-independent.
Speaker Change: You know, what's your outlook here, right, for the next, um, I don't know.
Speaker Change: six to 12 or 18 months.
Speaker Change: along those lines. Similar opportunity, you know, in those three. And in particular, right, Cormark, I know there's chunky stuff out there in RFPs. How do you size that, you know, over the next year or two? Is it...
Speaker Change: you know, potentially much bigger than what we've gotten recently.
Speaker Change: We have plenty in the pipeline. We typically don't respond to RFPs. We have a couple within that segment that we are.
Speaker Change: We would be showing some excellent growth in Cormark if the
Speaker Change: same store sales weren't as negative as they are, so we're feeling very good there. We have business that we've already signed that we have coming in that we're not shipping yet.
Speaker Change: and we're experiencing double-digit growth in the food service part of not only our Cormark business but of the business that we do in the convenience stores out of performance food service.
Speaker Change: and they've come a long way.
Speaker Change: Thank you. Yeah, our pipeline and food service is also fairly good.
Speaker Change: But our focus right now is heavily on the independent customer. We've got some great national account customers that are new.
Speaker Change: We're continuing to be in conversation with people, but that part of our business, we do have some accounts that are showing some pretty serious declines, and I think it's great that we've been able to overcome that.
Speaker Change: Thank you guys.
Speaker Change: Thanks, John.
Speaker Change: We'll take our next question from Lauren Silverman with Deutsche Bank. Your line is open.
Lauren Silverman: Thank you very much and congrats on the quarter. I wanted to ask about the EBITDA guide. Raised it about $100 million for Cheney inter-quarter. I think you guys were, it was closer to $159 million.
Lauren Silverman: on a TTM basis, so is there any change in your expectations for the core business?
Lauren Silverman: Is there a relative conservatism in terms of changing expectations? Is there any additional color there that would be helpful?
Lauren Silverman: Yeah, Lauren, this is Patrick. Thanks for the question. You know, when we looked at the increase in the guidance, your numbers are correct. I mean, obviously, we're going to get about 38 weeks of chaining, but we feel very confident on how the Corps has been performing. As we talked about, we've seen
Speaker Change: It's been very early, we just closed Cheney just about a month ago.
Speaker Change: As George mentioned, we've seen some early numbers and they look good.
Speaker Change: Jose Santiago is performing exactly where we want them to be. So, you know, as I mentioned, we see a lot more confidence as we go throughout the progressing of the year. But, you know, if you look at that guidance range we gave you, we feel like it's ample room on both sides.
Speaker Change: Yeah, I want to make a comment on that as well.
Speaker Change: You know, at the time that we put that guidance out,
Speaker Change: You know, we were dealing with a hurricane and another one came after.
Speaker Change: and that's...
Speaker Change: basically had some effect on the entire distribution area for Chaney, so I thought it made a lot of sense for us to be cautious about that.
Speaker Change: they are performing extremely well.
Speaker Change: And we'll be looking at our guidance as we go through the year very closely. We also have this...
Speaker Change: Thank you.
Speaker Change: to deal with as far as, you know, we're seeing our growth accelerate.
Speaker Change: and we had such a big December last year as I mentioned earlier so we're trying to be cautious about that but as these weeks have been clipping down we've just seen continued improvement.
Speaker Change: and we haven't seen much of an impact on Cheney from these hurricanes. They've done real well all the way through it. So we'll keep looking at this. We'll continue to be cautious.
Speaker Change: but we'll update our guidance when we find it to be appropriate.
Speaker Change: Very helpful. Appreciate that. Just to follow up on the private label penetration that you discussed, so PFG, that's I think 53%. Where is Cheney running currently? And just looking at Reinhart as a read-through, where was Reinhart when you first acquired it relative to where it's running now?
Speaker Change: Well, you know, Reinhardt is a different situation than Cheney, so I'm not going to take too much time with this, but Reinhardt's increased their penetration by about 10%.
Speaker Change: So they were in the 40s, very low 40s, but they were in the 40s and we've kept a good bit of their portfolio in place and adopted that as as our branded products and then over time they have
Speaker Change: made some pretty substantial moves into our product offering.
Speaker Change: With Cheney, we're not in a position where we really know what their percentage is, because we don't know which of those brands that we're going to adopt.
Speaker Change: Now, Craig Hoskins and Joe Dobby and myself, so three of our people, went to a recent food show that they had and we saw
Speaker Change: a lot of product that we felt would be a good fit for the company as a whole. So we're going to continue to work with them on that, but I want to emphasize again that it's their choice what of our brands they adopt.
Speaker Change: and it is our OPCO's
Speaker Change: legacy performance ones choice if they adopt some of the ones
Speaker Change: that are...
Speaker Change: stocked that Cheney, but we have to get our arms around exactly what they have and what we want to offer up to them because you don't want to do too much at one time and quite frankly as they should be they're very proud of the brand offerings that they have and we don't want to disrupt that.
Speaker Change: So I really can't give you a number as to what they're at now. By the time we have this next call, you can ask that question again and we'll have it. We'll have a good answer.
Speaker Change: Thank you. Bye.
Speaker Change: Great, will do. Thanks a lot, appreciate it.
Speaker Change: Thank you. We'll take our next question from Alex Slagle with Jefferies. Your line is open.
Alex Slagle: Thanks. Good morning. That's a follow-up.
Alex Slagle: I don't know if you could comment on the magnitude of the impact from the hurricanes, if there was any. It sounds like you were pretty happy with how things progressed. And then just on Cheney, how fast that closed.
Alex Slagle: which was faster than we expected. Were there certain dynamics that allowed for that or how did that play out?
Speaker Change: Well, if you look at our position, particularly in Florida, we've stayed pretty specialized. The bulk of our business in Florida is
Speaker Change: There's other parts of the country who are pretty cognizant about
Speaker Change: kind of stick into what we can do well with our current facilities and our current position in the marketplace. And I think that led to us being able to, you know, to get this done quickly.
Speaker Change: And then as far as the impact from the hurricanes, it has been very little.
Speaker Change: We're putting the numbers together as far as the number of accounts that we totally lost.
Speaker Change: and it's fairly substantial, but...
Speaker Change: What often happens is it just helps the average unit volumes for the people that are still open.
Speaker Change: And because the biggest impacts are right on the coast, that tends to be a higher percentage of independent restaurants versus chain restaurants. So, you know, we're seeing it greater in the independent world.
Speaker Change: Not material though, surprisingly not material.
Speaker Change: They just did a great job of working their way through this.
Speaker Change: Got it. And the cheese inflation, what's your visibility look like on that for the year ahead and if there are any potential implications, cheese or I guess anything else?
Speaker Change: Cheese has still inflated over the previous year, but sequentially cheese has been going down for a couple months now.
Speaker Change: Thanks.
Speaker Change: Thank you.
Speaker Change: Thank you. We'll take our next question from Andrew Wolfe with CL King. Your line is open.
Andrew Wolfe: Thanks. Good morning. This question first is for George.
Andrew Wolfe: Just looking at the two acquisitions combined Cheney and Jose Santiago, you know, it's not as big as Reinhart But they're big and it's approaches that in size. So in a general sense, you know, do you see these as
Speaker Change: similar to be sort of a catalyst for growth both market share and otherwise in the way that Reinhart was.
Speaker Change: Yeah, I see both of them as being very good, impactful acquisitions. If you put the two together, it does represent more EBITDA than Reinhart did at the time.
Speaker Change: Now, Reinhart, the EBITDA has doubled, and I don't expect to see that happen. These are more matured from an earnings standpoint. And actually...
Speaker Change: Cheney is very similar EBITDA margins that to what we have and what we call our full broad line companies.
Speaker Change: very similar, but there is a big difference, and that's that they've been a better grower than some of our big companies have been.
Speaker Change: I think that the other impact that we'll get from Cheney, and that's why it could prove to be the best one that we've done, in spite of the incredible earnings growth that Reinhart has put out, is I think it's going to have a great impact on our existing distribution centers in that area. We'll run them.
Speaker Change: as kind of two separate go-to-market, but we do now have the opportunity to broaden our offerings.
Speaker Change: in the distribution centers that we have that overlap with them. And we have a lot of experience in...
Speaker Change: overlapping.
Speaker Change: not as much experience where we purchased someone that was bigger than us in the markets, but we had some of that in Reinhardt. The upper Midwest was a weak area for us. Reinhardt did extremely well. We've coexisted.
Speaker Change: and with slightly different brand offerings and...
Speaker Change: very different total product offerings. And I think that's the same thing that will happen with Cheney. We will coexist.
Speaker Change: will add at least one more Cheney Distribution Center.
Speaker Change: and I just have just great great feelings about where Cheney's going to head for us. Great management team.
Speaker Change: going to their show. I was shocked at how many people that I met there that I've worked with in the past that are currently at Cheney. So I think they to some degree know us and we know them and it's going to be a good mix.
Speaker Change: Okay, thanks for that caller. Patrick, I want to ask about your CAPEX, pointing out the CAPEX and PEM projects.
Speaker Change: You know, in different phases, if you will. You did ramp up CapEx spending last year to nearly $400 million. It had been running in the $200 million.
Speaker Change: So, obviously that must have been spending going into some of these projects.
Speaker Change: Could you just talk about what the CapEx kind of budget is from here? Is it going to stay around that $400,000?
Speaker Change: or so.
Speaker Change: Yeah, Alex, thanks for the question. You're right. We did ramp it up a little bit last year. I'm sorry, Andrew.
Speaker Change: Andrew, Andrew, sorry. I apologize.
Speaker Change: I apologize.
Speaker Change: Yes, we did ramp it up last year. These are multi-year projects, and some of them are catch-up from our ability to get construction done post-pandemic, where materials or availability of workers was harder to find. We're seeing that improve a lot lately, which is good, so that's also driving some of the additional expense as these projects start to grow.
Speaker Change: move along a little faster.
Speaker Change: And we would expect that, you know, as we go through the year, we'll see that taper off a little bit.
Speaker Change: But, you know, we have, as we've been describing, a lot of opportunities for growth across all three segments, but particularly in food service.
Speaker Change: So we're going to continue to evaluate each one of our locations and determine if we need to expand them or, in some cases, even build a new building. One thing we didn't touch on much is we are adding a lot of...
Speaker Change: I shouldn't say a lot. We are adding, where appropriate, some automation into these buildings.
Speaker Change: We're building into more state-of-the-art facilities when we do greenfield facilities, and that provides a lot of efficiencies as well for us. So we take a lot of different things into consideration when we look to add or expand buildings.
Speaker Change: got it all right so one of the takeaways there is
Speaker Change: The increase in the run rate spending, some of it's catch up, but there's a lot of opportunities. So, all right.
Speaker Change: I'll work with that. Thank you.
Speaker Change: Thanks, Andrew.
Speaker Change: Thank you. We'll take our next question from Jeffrey Bernstein with Barclays. Your line is open.
Jeffrey Bernstein: Great. Thank you very much. Two questions. The first one is just on the current trends. Georgia seemed increasingly optimistic in fiscal 25, noting the improving trends in recent weeks.
Speaker Change: and I would assume that's already reflected in today's guidance, so it's not as if you're already expecting upside to that. But just trying to reconcile, I think you said the independent case growth was 7.8% growth in the first quarter.
Speaker Change: It seems like you've already seen acceleration in the fiscal second quarter, so presumably higher single digit.
Speaker Change: But I'm just trying to juxtapose that against, I think you made a comment that you're growing
Speaker Change: in line with the sales force, which is more like five to six percent. So I'm just trying to flush out.
Speaker Change: You know, the differences in those numbers in terms of what your allocate is for independent case going forward from here.
Speaker Change: whether it's that the Salesforce number is going to accelerate or the independent case growth is going to pull back or how we should interpret those two comments. I'm going to add one follow-up. Yeah, when I look at our ...
Speaker Change: Our current organic
Speaker Change: independent growth. We're running...
Speaker Change: somewhere between 1% and 2% over what we ran in Q1.
Speaker Change: and it's accelerated each week. It's gotten slightly better.
Speaker Change: So that gives us some good confidence. We recognize that we're up against tougher comparisons as we get into the end of November and the month of December, but we also recognize we're up against very
Speaker Change: easy, I guess, would be the way to put it, comparisons in January, unless there's just some extreme weather situations.
Speaker Change: So it makes it a little bit tough for us to project. As far as the growth in the sales force right now, it is running about the same as our growth.
Speaker Change: in that 5-6% range.
Speaker Change: where we're at so far in physical Q2.
Speaker Change: and those numbers are without Cheney and without...
Speaker Change: Jose Santiago
Speaker Change: Got it. So perhaps I was exaggerating. I guess the independent case growth of 7.8%. You're saying if you just look at the organic component of that, what would that number be?
Speaker Change: 4.3%.
Speaker Change: Okay, so you're seeing a 1 to 2 percent increase off of that 4.3, which would put you in kind of 5 to 6, and that's roughly where you're running from a Salesforce perspective.
Speaker Change: Exactly.
Speaker Change: understood. Thank you for the clarification. And then in terms of the the cash usage outlook, Patrick, I know you said
Speaker Change: Well, with Cheney now, your leverage is north of 3.5. I'm just curious if you'd quantify what it is.
Speaker Change: But your time frame to get back within that two and a half to three and a half times It sounds like I think you said a couple of quarters I wasn't sure if that was implying you'd be within that range at that time
Speaker Change: But that's the case.
Speaker Change: I think last quarter you said you still plan to exhaust what is now I guess 181 million left to share of purchase authorization by year-end fiscal 25, should we now assume
Speaker Change: As you focus more on debt that you wouldn't necessarily exhaust that authorization this year anymore, how should we think about that cash usage and the leverage level?
Speaker Change: Yeah, as I mentioned, the leverage level is exceeding our 3.5 times. I said several quarters we'll be back is what we're projecting into that 3.5 or less times leverage.
Speaker Change: and as far as the share repurchase goes.
Speaker Change: As I mentioned as well, since we did close Cheney in October, which is a little earlier than what we had originally modeled, we will focus on debt reduction and the share repurchase program will probably see less activity as a result.
Speaker Change: Got it. And just to clarify for fiscal 25, do you give interest expense and D&A guidance? I know the interest expense caught us a little off guard, but obviously you got moving pieces with your leverage levels. So any directional call on interest expense and D&A for 25?
Speaker Change: Yeah, we don't give guidance, but what's going on with interest expense is really a, it's a function of
Speaker Change: obviously financing Jose Santiago, but that was more than offset by the EBITDA, but also capital leases.
Speaker Change: In addition to investing in buildings, we've also been investing in our fleet.
Speaker Change: and that goes through capital leases and that does come in as interest expense and then just overall borrowings and then undepreciation is also really a function of growth, it's again these new buildings coming online and you know that's primarily the two drivers of those things.
Speaker Change: We should assume what we saw in the fiscal first quarter is more of a reasonable run rate going forward or was there some unusual that drove that higher?
Speaker Change: No, we're experiencing somewhat similar, as I mentioned at the buildings and fleet, there are some backlogs due to
Speaker Change: availability of tractor trailers and units. We're seeing that supply chain improve now so we are seeing delivery of larger number of units so there will be a catch-up here and then and then it should again taper off.
Speaker Change: Thank you.
Speaker Change: Thank you. We'll take our next question from Brian Harbor with Morgan Stanley. Your line is open.
Brian Harbor: Thanks. Good morning, guys. Real quickly, you commented on cheese, but is your food inflation outlook, you know, any different for this year? Do you think it?
Speaker Change: is more towards the higher end of what you spoke about.
Speaker Change: No, I would really honestly, you know...
Speaker Change: Food inflation, it's...
Speaker Change: was a little higher in the quarter, but we're already seeing it taper off a little bit from there. I would expect that we're going to see low single digits for food, similar for Vistar, and convenience will be a little bit more elevated, but probably mid-single digits.
Speaker Change: Okay, thanks. And Vistar...
Speaker Change: You know, I know there's that sort of year-over-year margin pressure. I don't know if that was
Speaker Change: Could you sort of talk more about that?
Speaker Change: just with regards to...
Speaker Change: Margin progression and also kind of what you know what you think drives some of the improving
Speaker Change: sales cronies in the second half.
Speaker Change: Yeah, it's a lot to do with channel mix and also just
Speaker Change: The consumer trends that are out there and working with our customers
Speaker Change: So that's what's driving some of the margin pressure with Vistar. What we see in terms of even the balance of this quarter but going into the second half is there's they are going to see some recovery in theaters. We mentioned that was one of the things that was softer earlier and then going forward we do believe that they have a lot of things they're working on. They have a lot of potential new channels that they're exploring, new customers and that's what's going to drive their improvement in the back half of the year.
Speaker Change: Yeah, I should comment on that a little bit too. You know, we're experiencing mixed change with that business.
Speaker Change: Our Green Rabbit business is quite high on the gross margin area because we don't take possession of a lot of the product that we sell.
Speaker Change: and that's a business that we're real serious about.
Speaker Change: like to get distribution centers such that we can get to almost all the country in one day. So, you know, that's another one of those things down the road here that we'll be spending some more money on. Our theater business has been weak, but that is the lowest gross margin business that we have in Vistar.
Speaker Change: Week.
Speaker Change: Our gross margin is okay on it, but the gross profit per case, because the case cost is so low, is also on the low end of what we do in VISTAR, so there's a whole lot of noise going on with it.
Speaker Change: Thank you. Thank you.
Speaker Change: but the mix is always going to have an impact there.
Speaker Change: Thanks.
Speaker Change: Thank you.
Speaker Change: We'll take our next question from Edward Kelly. Your line is open.
Edward Kelly: Hi. Good morning, guys.
Edward Kelly: I was curious on the convenience business, could you maybe talk a little bit about
Edward Kelly: Your ability to grow EBITDA in that business on, you know, the decline that you're seeing in case volumes, and then how do you think about, you know, the outlook for the rest of this year, if volumes are going to remain soft, the drivers to potentially continuing to grow EBITDA, if that's possible on that backdrop?
Speaker Change: Yeah, I mean, I don't have a...
Speaker Change: A great crystal ball on this one, but I'll give you what where I think I see us going.
Speaker Change: Our ability to grow EBITDA in spite of low sales growth has been because of mix. Once again, I guess it's my favorite word today, but our food service business is growing very well. It's at a higher margin.
Speaker Change: the tobacco business is experiencing about double the decline that it had for several years. I think part of that is just that you know we got through that COVID period of time and
Speaker Change: The volumes did not go down during the heavy stay-at-home periods, and I think they're making up, I guess, a little bit for lost time. So as far as an outlook, we have more new business coming on.
Speaker Change: We're doing much better in independent with inconvenience. We're doing much better in food service
Speaker Change: The volumes, I think, will come back as people get used to a little higher price point.
Edward Kelly: And I guess the only potential headwind is that we made great progress as far as our expense ratios and our productivity in both warehouse and delivery.
Speaker Change: And I think that we're going to continue to do that, but from a comparison standpoint, not at the rate that we did last year.
Speaker Change: So, I see us continuing to do well on the EBITDA line. It will come more from growth.
Speaker Change: in the future here, and it will come less from expense ratio declines.
Speaker Change: Just to follow up on independent case volumes, so, you know, it seems like momentum in the business is improving. Just curious as to how you think about getting back to, you know, that 6 to 10% organic independent case volume growth. I mean, you do have that tougher December compare, but we're
Edward Kelly: coming off an election, and then comparisons, you know, look like they get, you know, quite a bit easier to get into the back half of this year. Just curious as to how you're thinking about that target, George.
George Holm: Well, the way I model it out, okay, which is a little bit back of the envelope, but last year we, you know, we hit our 6% just barely, and it was front-end loaded.
Speaker Change: And this year, I see us getting to that again. It'll just be a little bit more back end loaded.
Speaker Change: but
Speaker Change: of late, I have developed a lot of confidence.
Speaker Change: That's 6 to 10, because we don't have that much ground to make up and we're experiencing some nice increases.
Speaker Change: Great. Thanks, guys.
Speaker Change: Thanks.
Speaker Change: And once again, if you would like to ask a question, please press star and one on your telephone keypad We'll take our next question from Peter Sillay with BTIG. Your line is open
Peter Sillay: Hey, great. Thanks for taking the question. George, I wanted to ask if you could elaborate a little bit more on digital ordering tool, how broad-based it is.
Peter Sillay: Today, maybe the penetration adoption today and what you're expecting as you go to 2025 or fiscal 2025 and just some of the benefits if you can highlight some of those, that'd be helpful. Thank you very much.
George Holm: Yeah, I'm going to just give you a couple comments. I'm going to turn that over to Patrick. He's a little closer to it than I am. We continue to see a higher percentage of our food service independent customers that want to enter their own orders.
Speaker Change: We were probably a little late to the game as far as getting
Speaker Change: the right digital program in place, but we feel real good about what we're doing. And if you go to our other businesses, they're getting close to having everybody on the system. So,
Patrick Hatcher: It's really been beneficial for us. It saves some time for the salespeople. We make sure they're still out there and still doing their job. And it's really been helpful in our VISTAR.
Patrick Hatcher: of the business. So with that, Pat, I'll have you get maybe some better numbers. Yeah, I'll just add a little more color. One, as you go to, you know, again, we track in multiple different ways. One, we're converting off of older legacy systems.
Pat Haggerty: each of our segments. And then we're also tracking how many new customers that weren't ordering on one of our platforms are now converting to the platform. And we've been really pleased, especially around Vistar, they've converted almost 100%.
Patrick Hatcher: They're just waiting for some additional capabilities to be added to the system so they can convert the balance of their customers that were traditionally on the system, and then they're continuing to add more and more new customers.
Patrick Hatcher: every day with the downloads we're seeing from the mobile app are very pleasing.
Patrick Hatcher: And then on the food service side, it's a very similar story. They've done an excellent job of converting.
Patrick Hatcher: the independent customers that were ordering on one of our legacy systems.
Patrick Hatcher: They are also converting other regionals and nationals as well. And we're continuing to see more and more adopt the new system.
Patrick Hatcher: and we expect convenience to go live with their...
Speaker Change: Thank you.
Patrick Hatcher: their platform, which is all called Customer First.
Patrick Hatcher: in Q1. And the difference of those two is they're just adding some additional capabilities on the convenience side that don't exist currently in the platform for Bestar Food Service.
Patrick Hatcher: All in all, we're really pleased with the progress. The feedback from the customers has been...
Patrick Hatcher: Very positive and we will continue to just continue to add capabilities based on customer feedback and sales people's feedback.
Speaker Change: Can I just follow up? Does Cheney have its own digital ordering tool or will they be adopting yours?
Speaker Change: They have their own. They're somewhat similar to us in that their sales people control, you know, a good bit of the ordering process.
Patrick Hatcher: But today, just to give you how wide the difference is, I've recently had conversations where I've talked to a salesperson who 100%
Speaker Change: of his orders come in through the digital program generated by the customer, and we have several that it's zero percent.
Speaker Change: So our salespeople have a little different, you know, go-to-market strategies. What I see over time is a slow but steady adoption of the customer using the system and placing their order digitally.
Speaker Change: Thank you very much.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you. And it appears that we have no further questions at this time. I will now turn the program back over to Bill Marshall for any additional or closing remarks.
Bill Marshall: Thank you for joining our call today. If you have any follow-up questions, please contact us at Investor Relations.
Speaker Change: That concludes today's teleconference. Thank you for your participation. You may now disconnect.
Bill Marshall: [music]