Q1 2025 US Foods Holding Corp Earnings Call
Lacey: Hello, and thank you for standing by. My name is Lacey, and I will be your conference operator today. At this time, I would like to welcome everyone to the US Foods Holding Corp First Quarter 2025 earnings call. All lines have been placed on mute to prevent any background noise.
Lacey: After the speaker's remarks, there will be 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. If you would like to withdraw your question, press star one again.
Lacey: We are asking callers, limit their questions to one question and one follow up. Thank you. I would now like to turn the call over to Mike Neese, SVP of investor relations. Please go ahead. Thank you very much.
Mike Neese: Thank you, Lacey. Good morning, everyone, and welcome to the U.S. Food's first quarter fiscal 2025 earnings call.
Speaker Change: On today's call, we have Dave Flitman, our CEO , and Dirk Locascio, CFO Hello.
Speaker Change: We will take your questions after our prepared remarks conclude. Please limit yourself to one question and one follow-up.
Speaker Change: Our earnings released issued this morning, and today's presentation can be found on the Invest Relations page of our website at ir.usfoods.com
Speaker Change: During today's call, unless otherwise stated, we're comparing our first quarter of fiscal year 2025 to the same period in fiscal year 2024.
Speaker Change: In addition to historical information, certain statements made during today's call are considered for looking statements.
Speaker Change: Please review the risk factors in our Form 10K for a detailed discussion of the potential factors that could cause our actual results to differ materially from those anticipated and forward-looking statements.
Speaker Change: Lastly, during today's call, we will refer to certain non-GAAP financial measures.
Speaker Change: 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.
Now turn the call over to the day. [inaudible]
Thanks Mike, good morning everyone, and thank you for joining us.
Let's turn to today's agenda.
Speaker Change: I'll start by sharing our key results in the quarter and then we'll provide an update on ChefStor.
Speaker Change: In the first quarter, we outperformed the industry and again delivered strong profitability with adjusted EBITDA growing more than 9% and adjusted deluded EPS increasing 26% despite the challenging operating environment and severe weather-related headwinds. [inaudible]
Speaker Change: Our results underscore the strength of our customer value proposition and our team's relentless execution of our strategy.
Speaker Change: We're delivering consistent share gains with our target customer types, including our 16th consecutive quarter of gains with independent restaurants and 18th consecutive quarter with healthcare. Thank you.
Speaker Change: I'm also pleased to announce that our board recently authorized a new $1 billion share repurchase program, which builds upon our cumulative buyback of more than $24 million shares, totally $1.3 billion since late 2022.
I'll take a minute to briefly discuss Chef's door.
Speaker Change: At our investor day last June , I announced our intent to explore strategic alternatives for our chef's door business
Speaker Change: After multiple conversations with potential buyers and engaging in active negotiations over the past several months, it became apparent that the current macro environment was not conducive to completing a transaction at an appropriate valuation. [inaudible]
Speaker Change: For the foreseeable future, we plan to retain and further improve the business
Speaker Change: While I still believe the Chef Store business is not the right long term strategic fit for our company, our team has worked very hard over the last year to improve the operations and profitability. [inaudible]
Speaker Change: More specifically, first quarter EBITDA growth was in line with the overall company [inaudible]
Speaker Change: And as a reminder, Chef Store represents less than 5% of our total EBITDA.
Speaker Change: Earlier, I discussed our strong profitability gains in the first quarter, and now we'll dive a little deeper into our case growth.
Speaker Change: Total volume increased 1.1%, with independent restaurant taste growth of 2.5%, while health care and hospitality grew 6.1%, and 3.6% respectively.
Our health care business continues to perform very well [inaudible]
Speaker Change: We are the industry leader in health care and remain confident in our ability to drive strong growth and continued market share gains this year and beyond. [inaudible]
Speaker Change: Our independent case growth was impacted by severe weather and multiple storms across the US, including the wildfires in L.A.
Speaker Change: This impact was partially offset as we lapped last year's labor disruptions, translating to a net headwind of approximately 160 basis points to independent restaurant case growth.
Speaker Change: The broader industry faced similar headwinds with foot traffic as published by Black Box, down 3% for the first quarter [inaudible]
Speaker Change: It hit a low in February , down to approximately six percent, been improved in March by nearly 350 basis points.
Speaker Change: However, we successfully gain share each month an independent restaurants and outperform the industry.
Speaker Change: Our organic independent case growth accelerated 450 basis points from February to March, and that momentum carried into April .
Speaker Change: In fact, over the last three weeks, we delivered our highest cumulative independent case volumes of the year and our net new independent account generation was the highest of the year in April . [inaudible]
Speaker Change: We now expect our growth rate to accelerate for the remainder of the quarter and be in line with our updated modeling assumption of 2 to 5% independent case growth for the full year, which Dirk will discuss shortly.
Speaker Change: As we look ahead, another topic that's on everyone's mind is a tariff environment in the impact on our industry and the economy.
Speaker Change: We are monitoring the evolving situation and staying closely connected with our suppliers to source alternative products where appropriate
Speaker Change: Imported products account for a small portion of our business, with mid to high single digit percentage of our purchases likely subject to some level of tariffs.
Speaker Change: Our customer value proposition remains our focus as we continue to help our customers and their efforts to be more efficient.
Speaker Change: Run more profitably and optimize their menu offerings, most notably with our private label brands.
Speaker Change: Turning to slide four. We operate in a large, resilient and growing industry where restaurants, healthcare, and hospitality to fastest growing and most profitable customer types represent a $270 billion addressable market.
Speaker Change: And food away from home continues to steadily increase in multi-decade trend that we believe will continue.
Speaker Change: Our business and industry have proven to be quite stable across macro cycles.
Speaker Change: As I've mentioned before, our self-help initiatives are in the early to-mid innings of implementation, and thus US Foods is well positioned despite the slower macro backdrop.
Speaker Change: If demand softens further, we have various levers that we can pull in addition to those we already have in place. These include reducing discretionary spend, further accelerating productivity and moderating capital expenditures. Thank you very much.
Speaker Change: Importantly, 80% of our distribution operating expense is variable and flexes during sustained periods of softer demand. [inaudible]
Speaker Change: As a reminder, during the great financial crisis, our volume was down just mid-single digits while
Speaker Change: We will continue to adjust to the macro environment as appropriate while staying focused on executing our proven playbook.
Speaker Change: Turning to our focus plan to profitably grow US Foods, we are guided by four strategic pillars, and I'll discuss our progress on each over the next several slides.
Moving Slide 5, our first pillar is culture. [inaudible]
Speaker Change: Keeping our associates safe is our top priority, and during the first quarter, our injury and accident rates were 12% better than the prior year. [inaudible]
Speaker Change: We've made strong progress, and over the past two years, our rates have improved by 38%.
Speaker Change: I'm proud of our team's success, but we will not waver until we reach our goal of zero injuries and accidents
Speaker Change: In March, I held my second annual CEO Award Ceremony to celebrate associates who ignited excellence across US Foods.
Speaker Change: Shortly, I'll highlight two winners in particular who exemplify our cultural beliefs and drive our results.
Speaker Change: Not only are we supporting our associates, we are helping our communities [inaudible]
Speaker Change: Last week, we announced an increased strategic investment in support of our helping communities make it program, which represents more than a five-fold increase over the last two years.
Speaker Change: This part of this commitment, we donated $250,000 to giving kitchen to provide emergency assistance to food service workers.
Speaker Change: We're also proud to have renewed our American Red Cross partnership as an annual disaster giving partner.
Turning to slide six, our second pillar service. [inaudible]
Speaker Change: We continue to make excellent progress in improving our on-time delivery and service levels to our customers, and we are currently at our best service levels since 2019.
Speaker Change: An important element of our service is Operations Quality Composite or Ops QC, which measures our ability to deliver products to our customers without errors. [inaudible]
Speaker Change: We continue to roll out our Descartes Rounding Platform, which was driving delivery efficiency gains and providing better customer service. [inaudible]
Speaker Change: and we remain on track to be fully deployed by your end. Thank you very much.
Speaker Change: In the fourth quarter of 2024, we launched a new generative AI automatic order guide for our sellers to make it more efficient for them to create customer proposals and onboard new business.
Speaker Change: This more efficient process, along with other activities we've taken off our sellers' plates.
Speaker Change: Resolved in an acceleration in net new independent accounts during March and further acceleration in April
Speaker Change: We're in the early stages of leveraging proprietary AI tools and we're excited about the momentum we're building.
Let's now turn to our growth pillar on slide seven.
Speaker Change: We remain focused on accelerating profitable growth and gaining market share with our target customer types.
Speaker Change: We continue to invest in our Pronto small truck delivery service.
Speaker Change: Last year, we launched pronto penetration in six markets to further increase our share of wallet with our existing customer base. [inaudible]
Speaker Change: As a reminder, Pronto penetration extends our Pronto service to existing independent customers who will be able to order on non-routine delivery days with later cutoff times.
Speaker Change: As a result, we now have pronto of penetration in 10 markets and plan to be in a total of 20 markets by the end of 2025.
We are also continuing to gain new business in healthcare and hospitality [inaudible]
Speaker Change: During the quarter, we began onboarding more than $100 million in annualized new business wins across hospitals, senior living, lodging, and recreation facilities. [inaudible]
Speaker Change: We captured additional share gains during the first quarter in both healthcare and hospitality by leveraging our expertise.
are differentiated selling model and our long-term relationships. Thank you very much.
Speaker Change: And we are thrilled to announce that our Scoop products surpassed $1 billion in annual sales for the first time in 2024.
Speaker Change: We just launched our new Spring Scoop, which features 18 high-quality, innovative and labor-saving products designed to attract and retain diners and address back-of-house pain points.
Speaker Change: The great example is our chef's line on natural beef barria, a trending Mexican beef dish that is projected to grow by more than 100% over the next four years.
Turning to slide eight, our prophet door.
Speaker Change: Adjusted gross profit grew 5% in the first quarter to $1.6 billion driven by volume growth, improved cost of good savings and increased private label penetration.
Speaker Change: We made further progress on cost of goods by collaborating with additional vendors, and we remain confident in achieving $260 million of COG savings under our new long-range plan.
Speaker Change: Total company private label penetration increased 90 basis points to 34% and core independent restaurant penetration grew by nearly 50 basis points to a quarterly record of more than 53%.
Speaker Change: Private label growth remains a significant opportunity for foods and helps our customers offset inflationary pressure.
Speaker Change: Our products offer the competitively priced high quality value proposition that our customers are looking for while improving our margins.
Speaker Change: As a reminder, we did not see a near-term ceiling to our private label growth.
Speaker Change: We also continue to drive significant improvement in associate retention across our supply chain network.
Speaker Change: Our annualized selector turnover improved by approximately 20 percentage points and driver turnover improved by low single digits over the prior year both driven by our initiatives including flexible scheduling.
Speaker Change: While there's more to do in this area, this is our best turnover rate for both selectors and drivers in the last five years.
Speaker Change: We're also seeking ways to identify cost savings and further streamline administrative processes.
Speaker Change: We removed spans and layers in 2024 and earlier this year we took steps to reduce complexity, waste, and non-value added work across the organization and focus resources closer to the customer.
Speaker Change: This is in addition to the $120 million in annualized operating spent savings actions we took last year.
Speaker Change: Our focus strategy and our ability to drive improved profitability through controlling what we can control highlight the resilience of our business model and our ability to adjust to any macro environment.
Speaker Change: I very much appreciate each of our associates for their hard work and dedication supporting our customers and executing our strategy.
Speaker Change: Before passing it to Dirk, I'll highlight two CEO award-winning associates both of whom are veterans.
Speaker Change: His contributions made a positive impact on our safety results and to date, there's not been a single recorded injury with the new Sunride powered industrial equipment. Thank you, Brian for not only keeping our associate safe, but keeping our country safe through your.
Speaker Change: I'd also like to acknowledge Philip Sagradoy region margin manager, who served in the Marines for four years for his contributions as part of our next generation pricing team. This initiative provides an integrated and agile platform source.
Speaker Change: Thank you Philip for your work on this important initiative and for serving our country. So bravely.
Speaker Change: As we approach Memorial day, I Express my deepest gratitude to Brian Phillip and all of our veterans, including our associates, who have served our great Nation U S foods proudly supports those who have sacrificed for our country from our those who serve employ.
Speaker Change: To our new partnership with Skillbridge, which connects transitioning service members with hands on civilian career experience through innovative internship partnerships.
Speaker Change: This holiday is a time for reflection appreciation and Rememberance as you spend time with family and friends. Please join me in honoring the heroes, who made the ultimate sacrifice for our country and for our Freedom. Let me now turn the call over to.
Speaker Change: First quarter results in our 2025 guidance. Thank you, Dave and good morning, everyone. We again delivered solid top line and strong bottom line growth as we gain share in each of our target customer types and grew our business profitably. This growth is dis.
Speaker Change: Restaurant traffic driven by widespread extreme weather and weaker consumer sentiment.
Speaker Change: Starting on slide 10, first quarter net sales increased 4.5% to $9.4 billion, driven by case volume growth of 1.1% and food cost inflation and mix impact of 3.4% our independent restaurant.
Speaker Change: 2.5%, including 120 basis points from acquisitions healthcare growth remains strong at 6.1% and hospitality accelerated to 3.6% as we continue to successfully onboard new business.
Speaker Change: We expect health care and hospitality to show continued growth over the coming quarters based on our differentiated strategy our chain restaurant volume declined 4.3%. It was broadly in line with industry foot traffic reported by Black box.
Speaker Change: First quarter adjusted EBITDA grew 9.3% from the prior year to $389 million from a combination of volume growth gross profit gains and operating expense productivity, we again delivered meaningful operating leverage improvement adjusted.
Speaker Change: Dollars grew 120 basis points faster than adjusted operating expenses driven by the strong execution of our self help initiatives as a result, adjusted EBITDA margin increased by 18 basis points to 4.2%.
Speaker Change: Finally, adjusted diluted E. P. S increased 26% to 68 cents, we continue to grow adjusted E. P. S significantly faster than adjusted EBITDA due to the combination of earnings growth and Accredi.
Speaker Change: Turning to slide 11, we increased adjusted EBITDA per case again this quarter as we drove further operating leverage improvement adjusted gross profit per case continued its strong growth trajectory, improving 30 cents or 4% compared to the prior year driven.
Speaker Change: The administrative processes and capturing savings on indirect procurement spend.
Speaker Change: First quarter adjusted EBITDA per case was $1.90 up 15 cents from the prior year as our increase in adjusted gross profit per case was nearly twice as large as the increase in adjusted operating expense per case.
Speaker Change: We have consistently grown adjusted gross profit per case faster than adjusted operating expense per case with our first quarter results building on consistent operating leverage gains every quarter of the last three years, this consistency and execution and growth and.
Speaker Change: Positions us well, even in a slower macro backdrop, our results demonstrate our sharp focus and effective execution of our strategy as we've commenced our 2025 to 2027 Longrange plan, we are confident in our ability to deliver on the financial.
Speaker Change: Nine at our Investor Day last June.
Speaker Change: Moving to slide 12, we continue to increase our cash flow and deploy capital and a manner, that's consistent with our capital allocation priorities investing in the business to support growth returning capital to shareholders via share repurchases maintaining net leverage.
Speaker Change: And executing accretive tuck in Ma.
Speaker Change: Operating cash flow increased $252 million to $391 million driven by earnings growth and working capital management as well as a shift in the year over year timing of holiday related inventory build in the second quarter, we expect inventory levels to normalize.
Speaker Change: We repurchased $23 million of shares during the first quarter and closed on the acquisition of Jake's finer foods for $92 million as we stated last quarter, we remain committed to returning capital to shareholders and will return to more purchases.
Speaker Change: Balance of this quarter and the remainder of 2025 as Dave noted earlier, our board recently authorized a new 1 billion dollar share repurchase program. Finally, we ended the quarter at 2.7 times net leverage well within our two to three times target.
Speaker Change: This is a slight reduction compared to year end and the same period last year. Our debt structure is strong and we have no long term debt maturities until 2028 I'm also pleased to report another positive development related to our credit rating our corporate credit rating was recently upgraded.
Speaker Change: Double B plus based on continued improvements in our financial performance and ability to sustain lower leverage now turning to our guidance and modeling assumptions on slide 13.
Speaker Change: Given our year to date performance and outlook for the balance of the year, we are reaffirming our fiscal year 2025 guidance and updating several modeling assumptions. Despite the softer macdrop, we continue to execute our self help initiatives to drive profitable.
Speaker Change: Enhance gross profit streamline operating expenses and deliver strong earnings growth as a result, we continue to expect adjusted EBITDA growth of 8% to 12% and adjusted diluted E. P. S growth of 17% to 23%. We also still expect.
Speaker Change: Sales growth within the sales growth. However, we expect higher sales inflation and mix of approximately 3% and lower case growth given the slower foot traffic and the soft macro environment. We now expect total case growth of 1% to 3% which includes.
Speaker Change: Growth of 2% to 5% as Dave mentioned.
Speaker Change: All other modeling assumptions remain unchanged.
Speaker Change: We have a long runway of growth ahead of us with distinct competitive advantages scale, a diverse customer base and brand awareness that sets us apart we remain focused on executing our margin expansion initiatives delivering strong earnings growth.
Speaker Change: Hello, which drives our confidence in achieving our long range plan with that I'll pass it back to Dave for his closing remarks. Thanks. Dirk looking ahead, we remain intensely focused on executing our strategy amid this challenging environment.
Speaker Change: Despite the noisy quarter, we drove solid adjusted EBITDA growth increased our margins and delivered industry, leading 26% adjusted EPS growth, we operate in a highly resilient industry.
Speaker Change: Ours is a self help and execution story and we have multiple gross profit and operating expense levers to pool to deliver results within our guidance range. We have the fastest growth algorithm among our large competitors, we remain confident to deliver our new.
Speaker Change: 5% sales CAGR, 10% adjusted EBITDA, Cager, 20, plus basis points of annual adjusted EBITDA margin expansion and a 20% adjusted E. P. S. Cager through 2027, I am convinced that U S foods will continue.
Speaker Change: And deliver value for our customers and our shareholders in any environment with that Lacey. Please open up the line for questions.
Speaker Change: At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we are limiting callers to one question and one follow up we will pause for just a moment to compile the QA roster.
Speaker Change: Your first question comes from the line of Edward Kelly with Wells Fargo. You May go ahead, Yeah, Hi, good morning, guys and nice quarter and a tough backdrop, David I wanted to ask you you know you delivered EBITDA growth with your Expite.
Speaker Change: We saw this quarter I guess first like what does that say about you know your ability to flex the self help momentum of the business and then you know you maintain the full year guidance. Despite added uncertainty. So I just want to be clear about what you're saying there does that mean that.
Speaker Change: Sort of chipped away at maybe some of the upside that you might have expected and conditions stay where they are you can hit that range. You know maybe just update us on on what sort of defines the top end of the bottom end for the year at this point, Yeah, I think I'll take second part of your question.
Speaker Change: Absolutely, we're confident in hitting that range and underlying that assumption is that the macro stays where the macro is and that leads me into the first part of your question, which is exactly the self help story that we have I think this better than any quarter since.
Speaker Change: One the strength of our strategy and our ramped up execution, which we've been working hard on over the last two and a half years as you know we have so much help help self help at the operating expense and gross margin level, you've seen us execute that.
Speaker Change: Also underscores a differentiation of our business model the way we go to market. The fact that we're focused on three of the fastest growing and most profitable segments of the customer base in food service distribution healthcare, we talk a lot about we continue to gain share despite our strength and that industry and it.
Speaker Change: What's going on with the macro so I, just really love our model I love our execution and we've got a lot of self help ahead of us and I feel really good about our momentum.
Speaker Change: I wanted to just follow up on independent cases, I think sequentially you know your gap versus your your biggest peers, probably improved a little bit. This quarter can you maybe just talk about the underlying momentum. There you know you mentioned, some things like Toronto and stuff.
Speaker Change: Is to how April and May you know are running versus that two and a half 2% to 5% for your goal well I'll take the second part of that you know we saw you know good strength in the back half of March that carried into the first several weeks of April then we had.
Speaker Change: After Easter is always fairly weak as it is every year, but we're squarely within that range of the new guide the Dirk outlined in April and we had increased strength as we started the month of May here. So I feel really good about our momentum within.
Speaker Change: And as I said in my prepared remarks, we expect that to continue to strengthen throughout this quarter net new account generation in April was the strongest of the year. We're squarely focused on taking market share where we need to in the right way that's highly profitable. So our team is focused we continue to add.
Speaker Change: In the mid single digit range, that's playing out this year just in similar fashion and what it has for the last two years. So I like our model, we're executing a consistently and I think it's going to mean good things for the future. Thanks.
Kelly Bamia: Your next question comes from the line of Kelly Bamia with B M. O capital markets. You May go ahead.
Kelly Bamia: Good morning, Thanks for taking our questions what ask Dave and Dirky noted some of the additional levers on the expense side that you could pull I guess, if the demand backdrop does is weekend here have you.
Kelly Bamia: I think you called out 30 million an expense savings. This year I just want to confirm that was above and beyond what you had already planned for and just where the what what buckets those are in and the timing of how that will impact this year.
Kelly Bamia: Yeah, I'll I'll take the second part of your question there and then flip it over to Dirk to add some color and give you a little more detail. So the $30 million, yes is incremental to any actions that we took last year as you've heard me talk for the past year and a half or so we're taking some of the cost burn out of.
Kelly Bamia: And pushing the right resources back into the field to get the organization increasingly focused on the customer, but importantly, giving them the resources that they need to execute and with that shift to the field. We're taking some cost out so that 30 million is incremental to the 120 that we did.
Speaker Change: And kill you all add Kelly is you're right. It was executed and it's beginning to show savings toward the end of the first quarter and through the year and it's really as we saw this software market it was being proactive and working against it but they're all still good healthy things that we can.
Speaker Change: Make the business stronger as we move ahead, but I think that the bigger picture on gross profit and Opex is what Dave said earlier in his other comments is with our self help and the things we have in play both on gross profit and Opex, we're not starting from a standstill position, we really have.
Speaker Change: Play and that's how you really see that that excellent balance of top line growth margin expansion and resulting in that industry, leading EPS that they've talked about and and just to give our team all the credit that they deserve you know I've never worked in a with a team a strong as this leadership team and my.
Speaker Change: Our team is very aligned on what we have to do to execute and you see all parts of the organization all functions aligned on our customer and executing to deliver our results and that's really what informed our confidence in maintaining our guide for the year. If we can execute like we did in the first.
Speaker Change: Challenges that we had there's no reason that we can't continue that execution and hit that guide we're highly confident.
Speaker Change: Thank you that's helpful. Just just following up on the turnover points. The turnover rates, you mentioned with selectors and drivers that sounds like substantial improvement. There I was just curious if you can give some more historical perspective how.
Speaker Change: Would compare I guess beyond the last five years, which which maybe are not quite normal and then also if you can give an update on on sales force turnover and where that is typically and where that is today if anything to note there yeah.
Speaker Change: This team because we're winning and consistently taking share back to the supply chain side of it I pointed out it was the strongest performance in five years, because if you go back to the pandemic, we had our challenges for the first couple years coming out of the pandemic for a lot of reasons the whole industry.
Very helpful. Thank you. Your next question comes from the line of Lauren Silberman from Deutsche Bank You May go ahead.
Speaker Change: Thank you very much I want to follow up on the independent case growth can you just levels that expectations for where you're running in April should we see in the low end of the two to five per 10 guide and you expect acceleration as you move through the quarter, what's driving that assumption.
Speaker Change: Back to gain incrementally more market share as you move through the quarter any color on that would be helpful. Yeah. Great question. Lauren Good morning, Yeah. We're at the lower end of that range now, but I expect us to move closer to the mid and perhaps the highest and what gives me confidence in that.
Speaker Change: And it always has been and it always will be the lifeblood of our growth and so I'm very encouraged by the momentum you know it was hard with with all the storms in January and February you know people places weren't open it's hard to generate new business, if they're not serving you know existing customers, but that start.
Speaker Change: And accelerated in April and I expect good things in May and June as well so feel good about the underlying momentum and how we started the quarter versus Q1, great. Thank you for that and then if I could ask about the competitive environment are you seeing any increase in the.
Speaker Change: Promotional intensity and just historically do you tend to see that fueled more by the smaller local competitors or the larger national players. Thank you.
Speaker Change: Sure I I really am not seeing a significant change and I'll I'll predict that with the foundation of what I always say in this question is it's is a very competitive industry you know with the fragmented nature that we have you know with roughly 35, 38% of of the share.
Speaker Change: Very highly fragmented industry and so to your point you know a lot of those smaller regional and even local competitors drive a lot of that competitive intensity, but what you've seen over the last decade. In this industry is is the big three have been and continue to take share and.
Speaker Change: We're gonna do our part.
Speaker Change: Thank you very much thank you.
Speaker Change: Your next question comes from the line of John Heinbachle with Guggenheim Security. You May go ahead, Hey, Dave what are you seeing with lines per account and penetration generally right and I would assume drop size is still declining low single.
Speaker Change: Is that fair Yeah, I think our lifeblood is a new account generation there our ability to generate new business and penetration the foot traffic challenges have shown up in penetration, which means less cases per line our lines per account or fairly stable.
Is obviously in the first quarter, we're down just because the volume was down overall, but I really haven't seen any significant shift in how that's playing out and you know we just got the black box data for April it was still down but it accelerated from March was down about 1.5% I think we're kind of seeing.
Speaker Change: But again, what I focus on John is our ability to generate new accounts, that's what's driving it obviously the penetration now for 18 months has been a challenge with the foot traffic, it's getting better, but it's still negative and I expect that will continue to be a challenge with us hopefully less.
Speaker Change: Forward is our team works hard to penetrate that existing customer base and do you still think right. The historical relationship right of sales force expansion sort of equating to write to case growth right. So you.
Speaker Change: Should you still and I know, it's you're five to eight's, the long term target, but when do we get to that back to that one to one relationship and what's what's holding it back other than macro I think it really is macro John and just again that five to eight that we outlined last June.
Speaker Change: More normalized foot traffic environment, which is around 2% growth, we haven't seen that since I've been with the company here in two and a half years and it's been even more pressured in the last 15 or 18 months. So it answers. Your question I think we need to get back to that more normalized state to get.
Speaker Change: If you just think about what we did organically there in the first quarter foot traffic down 3%, we needed to be up 2%, we're well in the middle of that range in a more normalized environment. So we're executing well, we're taking with the macro throws at us but.
Speaker Change: Your next question. Your next question comes from the line of Mark Cardin with UBS. You May go ahead, Hi. This is Matthew Rossway on for Mark card and thanks for taking our questions I was hoping you could dig into good morning, the trends in.
Matthew Rossway: And health care chains were you know quite a bit weaker compared to last year's growth healthcare appears to accelerate it even further how do you see those unfolding over the year and then maybe any color as far as penetration or new accounts that you can share.
Dirk Locascio: Good morning. This is Dirk I'll take that just on the chain. So our decline not all that different than the broader black box traffic for the first quarter. So if you just we saw the broader softness I think in that case that our message is really no different it continues to be about.
Speaker Change: And business, that's not where you're gonna hear us talking about the focus as Dave mentioned earlier, we continue to be focused on gaining share and driving growth from independent healthcare and hospitality both from biggest pool differentiated strategy shows up the most anima.
Speaker Change: We are continued focus we are gaining share and all three of those and we're very pleased with that you highlighted healthcare healthcare. We're extremely pleased with that continues just very strong growth and then on top of that healthcare hospitality, even accelerated again in the quarter, but healthcare.
Speaker Change: In the industry leader, we have a meaningful differentiation there from our service model to customers to the technology, we offer to make it easier for them to some of the third party partnerships that we have so our expectation is that healthcare continues to grow at a very healthy.
Speaker Change: And we are quite confident that we can continue to gain share in all three of those customer types.
Speaker Change: Thank you and then as my follow up curious about your sales force hiring plans for the year. I think you guys did 5% last year DC doing a similar amount or more or less thanks.
Speaker Change: No we do our long term strategy you know, we had 6% two years ago, 5% last year. Our target is mid single digits I think that's the right number for our company it fits well in terms of leveraging that growth momentum being able to absorb those new sellers teaching them.
Speaker Change: You know teaching them our brands all that that mid single digits, the right number for us and you'll see us deliver it again this year.
Speaker Change: Your next question comes from the line of Alex Slagel with Jeffreys you May go ahead.
Speaker Change: Next morning and congratulations.
Speaker Change: Your your gross profit per case momentum continues to be really impressive. So it just wanted to ask on the cost goods vendor management initiative and the progress on these negotiations and I guess any thoughts on how tariffs might change things.
Speaker Change: Imagine suppliers still have the desire to drive growth and that's probably even more acute but you know maybe all the noise and uncertainty also flows down our complicates the process. If there's any color on how that's progressing yeah I think the first part of your comment.
Speaker Change: I carry the day, you know to the extent there are growth challenges that that ramp up given the tariff situation, they're even more willing to hitch their wagon to people who are delivering outside growth, particularly in our industry. We have not seen any slowdown in those discussions nego.
Speaker Change: Reiterated our confidence there this morning in that 260 million over the first next three years, we're out of the gate strong. This year you've commented on the GP per case growth. It's been a consistent theme for us for a long time to a.
Speaker Change: Got it and then following up on the the Opex for case, increasing a little bit I guess, that's sort of the inefficiencies. The weather all that that happened you know in February maybe just someone your confidence of how that'll revert back to the previous trend more.
Speaker Change: Yeah, I think I think you pointed to the challenge that all of US experienced in the first quarter. You know, we lost 18 shipping days and 13 markets just due to shutdowns you can't deliver if schools are closed restaurants don't open all that sort of stuffing product.
Speaker Change: Free spoilage when some of that happens just drives a lot of inefficiencies in the supply chain that was clearly not a normal environment, but even having said that look at the rate of GP per case growth versus the opex per case growth. It continues to fit into the range that we've told you.
Speaker Change: Those macro challenges and we're confident that will continue.
Speaker Change: Thank you. Your next question comes from the line of Jacob Aiken Phillips with Melius Research you May go ahead.
Speaker Change: Hi, good morning, everyone.
Speaker Change: So I wanted to ask about you you mentioned about how you had the ability to moderate capex in the event of like a downturn I'm just curious about what you think about your current capacity and runway for growth of that capacity as well as how like you're.
Speaker Change: How that could about your ability to reach a longer term targets. Yeah. So first of all we're investing in advance in several expansions right now across the company to your point, we're starting up a semiautomated facility here outside of Chicago in Aurora in a few months.
Speaker Change: Automation capability and efficiencies that will provide to our our operations, but just clearly capacity is not we are not capacity constraint. We can support all the growth that our sales teams can deliver and we will continue to stay ahead of that well into the future.
Speaker Change: Sorry, and then just on M. A on M. A I mean, you said for the chef store, it's not the best environment to do a sale what about from the other side is there anything you could tell about current like acquisition environment.
Dirk Locascio: Good morning. This is Dirk so really the environment hasn't changed I'd say you know the backdrop doesn't change a whole lot our ability to engagement and continue to look for opportunities. Our team continues to work their pipeline and engagement with others out there so really no change overall.
Jeffrey Bernstein: Your next question comes from the line of Jeffrey Bernstein with Barclays.
Jeffrey Bernstein: [noise] great. Thank you very much day I'm just curious on the recent trends you talk about improving consistently since February I think most people thought February challenges were a combination of weather and the slowing macro the weather headwinds of the macro's not.
Jeffrey Bernstein: I'm wondering whether you're surprised at all to see the bounce back to within your new target range. Despite the macro whether maybe there's any changes you can call out in terms of consumer or restaurant behavior. Obviously, you said the chains were a little bit slower, but again, considering the macro challenges I am surprised to see such a.
Speaker Change: Going into the most recent couple of weeks and then I had one follow up yeah, Jess I think the Macro's been a challenge for a while the foot traffic challenges over the past three four quarters have been there I think the the severe weather overlay just drove it in the tank you know for five weeks.
Speaker Change: Middle of the second quarter, our first quarter, but importantly, I think people love to eat out and I continue to say this if you're going to pull back in a tough macro environment. You know you may not buy a new car remodel your kitchen or go on a big vacation, but you're going to go enjoy.
Speaker Change: Friends once or twice a week. So I think that's inherent in what we've seen over 50 year trend of food away from home growing faster than food from home. So that's the underlying piece of what I point to that that's driving it and again, we just got the black box data. So we saw while still negative we saw.
Speaker Change: Here for the increased strength in the second quarter and our focus internally just continues to be on what we can control the share gains and you talked about it an independents. We also have the benefit of just the strong momentum and health care hospitality on top of it and you put those three together and just give us.
Speaker Change: That's in as Dave said, just achieving our outcome for the year and continuing to improve our results.
Speaker Change: Yeah. My follow up Derick is just on the the top two cash flow priorities that you regularly highlight balancing between investing in the business first and then share repo just wondering what are the greatest investments you see for 25, just want to make sure you're not potentially short changing those.
Speaker Change: You're obviously excited about the new 1 billion dollar share purchase how you think about balancing those two in an environment like this thank you.
Speaker Change: Well the lens, we always apply is if we have the right return type of projects, we're going to invest in those for the business and so you've seen a step up capex. In fact, the last few years in 25 is even a step up from 24. So we're definitely not sure changing the business, we're continuing to invest in.
Speaker Change: Both Semiautomation as Dave just mentioned fleet for growth technology, So I'm highly confident that where we're investing in capex. It is for the right things to grow the business, but because our business is generating such a strong cash flow and growing we are deploying that.
Speaker Change: A way for accretive share repurchases and that's you know really what I think is as a thing. We continue to highlight is not only do we have such strong organic EBITDA growth. So the earnings power of the business, but on top of that we're leveraging that to I mean, 26% EPS growth compared.
Speaker Change: Strong we're pleased with it and as you heard us talk about in our three year outcome. An algorithm you know we believe that we can continue to grow and expect to continue to grow at a very healthy rate. So excited that we can invest in both and deploy such strong cash flow against both.
Speaker Change: Again, if you would like to ask a question press star one on your telephone keypads.
Peter Sala: Your next question comes from the line of Peter Sala with B T. I G. You May go ahead.
Peter Sala: Yeah. Thanks, just a couple questions on my end with respect to independent restaurant formation are you seeing any changes in that segment you seem more closures or.
Peter Sala: Situation and the potential for a higher I guess construction costs going forward. Yeah. It's an interesting one Peter because restaurants has been declining a bit actually for the last 15 or 18 months, but interestingly enough independent restaurant closures have also declined.
Peter Sala: Get the kind of a steady state, but I think that's about where it is given it's close to a push in terms of formations versus closures, but we have seen a decline in formos over the last year or so.
Peter Sala: Thank you for that and then just on the the inflation outlook looks like it's a little bit more elevated than at least we initially anticipated I would have thought I softer macro environment, you would have seen less inflation, but it seems like we're seeing the opposite an.
Peter Sala: Driving that inflation modestly higher.
Speaker Change: Sure going Peter it's Dirk it is really coming from protein and eggs. Those are the two biggest pieces of the drive it grocery and the rest continues to be very modestly inflationary. So there's really not a change in the trend I would say as we went through Q1.
Speaker Change: Higher inflation earlier in the quarter, a little lower inflation later in the quarter, but it's a very similar trend and I think it's important that you look at just that core grocery category et cetera, and that it's it's very stable. So I think in that we're still sort of at the higher end, but in that 2% to 3%.
Speaker Change: That we all talk about and therefore, a manageable range.
Speaker Change: Thank you very much.
Speaker Change: Your next question comes from the line of Raul Crowe with Jpmorgan you May go ahead.
Speaker Change: Hi, good morning, I want to pick up on the Jane I told you mentioned, Dave that your sales force now has access to can you. Please allow critical this tool was and accelerating the generation of new businesses are accounts into April and how this.
Speaker Change: I'll start and then I'll I'll turn it over to Dirk because that group reports through Dirk and he's very close to the work, but I'm I'm very excited about it we've talked about how we've applied Jen AI to support the business in terms of things like labor planning.
Speaker Change: Things like how we're driving productivity for our sales force how we're generating the menus now we just launched this one late last year, so I wouldn't point to anything substantial yet in terms of what's that's delivering but we are starting to see that productivity as sales force ramp up as you would expect but.
Speaker Change: Is to increase the productivity of our sales force, helping to do what was historically manual work more automatically and giving them the right answer before they even get into the account and knock on the door. That's what gets me excited and there's a bunch more that we can do in that area in our.
Speaker Change: Really I'll just add that this is a great example, we combine looking and using external AI capabilities, where it exists in certain platforms into our tools and then others are internally developed as you pointed out in this case. This was developed by our team is.
Speaker Change: Ourselves and pushing hard working extremely closely with our within the business and the the operators so that whatever we're developing in this space is helping deliver value in the business as opposed to just a tool that exists out there. So as I think they've said in his prepared comments.
Speaker Change: I'm excited about the work to be done and quite proud of the work that the team is doing to really push us to the forefront here.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Andrew Wolf with C. L. King you May go ahead. Thank you.
Speaker Change: Good morning, with the announced acquisition of a Jake's finer foods you know I think acquisitions, you know helped case growth by about 1% for the total and for the independents does that is that sort of the.
Speaker Change: So far is that a the right assumption to use for the year about a percent from acquisition.
Dirk Locascio: Good morning, Andrew This is Dirk it's it's gonna be much less than that going forward because the first quarter still had the lapping of iwc that we bought outside of Nashville, plus Jake's Iwc lapped moved into organic after the first quarter. So the balance of T.
Dirk Locascio: As you look into the AD from there gotcha.
Speaker Change: The other question I have is on could you just remind us how much of the sales mixes healthcare and hospitality and hasn't I wanted to ask about the hospitality side, that's where I was kind of surprised to see the strength there given what's going on in the environment.
Speaker Change: Is there any special program going on I mean are you doing you know obviously healthcare you have a lot of differentiation as well as scale could you sort of give us a little sense of I mean that was in a sense more surprise.
Speaker Change: Health care, and hospitality and you're over 25% of the business at this point and continuing to grow that's why we're excited about it and and actually hospitality, we've been gaining share for the past several quarters and it's been growing nicely and as we've talked about previously you know we were over indexed.
Speaker Change: With sugar gains to continue into the future. Our teams really had some good success in also winning a number of new accounts and that's just like it is for independent that's a key contributor to growth and healthcare and hospitality and teams done a very nice job there and.
Speaker Change: And continue to grow those.
Jake Bartlett: Okay. That's it for me. Thank you. Thank you. Your next question comes from the line of Jake Bartlett with Truest Security you May go ahead, great. Thanks for taking the question mine was on your performance during the great.
Jake Bartlett: Elaborate that's it your market share shifts at that time, I imagine U S foods and and some of the others. Other larger players would have gained share but I just wanna, maybe confirm the dynamics that that happened then on market share on gross profit.
Dirk Locascio: Dynamics around maybe pricing and efficiencies that you got just so a picture of what that look like and maybe to give us comfort about what it could look like ahead. If there was a downturn sure. Good morning. Jake This is Dirk I would say so from a share perspective not.
Speaker Change: Yeah back then so thankfully we have it available over the last four or five years, but didn't back then so I can't comment as much on that I think what really the important parts take away from there is you know unlike a lot of industries. When we talk about a slow we were talking about down mid single digits. It just really shows the resi.
Speaker Change: You know as Dave talked about the last three or four decades, I mean NPD. The work that they did that showed that people spend a pretty steady percentage of their income no matter the macro economic cycles that were through so those all contribute to it. So in those cases, you really you know.
Speaker Change: Down mid single digit you see you know in those cases, you know maybe a little more competitive but based on very similar to what they've said and we've talked about before it's such a competitive industry to start with you still see pretty rational environment in a competitive factors in even.
Speaker Change: The thing that is different since end is even an in specific in our case. The the differentiation differentiated go to market, we have with customers that wasn't in place back then and also just our our self help portfolio and story that we have going on those.
Speaker Change: We're gonna continue to execute on and that's why we have such high confidence in not only the earnings growth, but also the margin expansion piece that drives a lot of that.
Speaker Change: Great I appreciate it that's it.
Speaker Change: That will conclude our question and answer session and I will now turn the call over to Dave Flitman. The CEO for closing remarks, you May go ahead, Dave Thanks, Lacey and thanks, everyone for joining us today, our team is executing well we're excited about our.
Speaker Change: Comes in any macro have a great week.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.