Q3 2025 Performance Food Group Co Earnings Call
year Q3 2025 earnings conference call.
Speaker Change: If you would like to ask a question at the conclusion of the prepared remarks, please press the star key followed by the number one on your telephone keypad at any time. I would now like to turn the call over to Bill Marshall, Senior Vice President and Buster Relations for PFG. Please go ahead, sir.
Thank you and good morning.
Speaker Change: We're here with George Holm, P-F-G-C-E-O, Patrick Hatcher, P-F-G-C-F-O, and Scott McPherson, P-F-G-C-O-O. We issue to press release this morning regarding our 2025 fiscal third quarter results, which can be found in the Investor Relations section of our website at pfgc.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-GAAP results adjusted for certain items. The reconciliation of these non-GAAP measures to the corresponding GAAP measures can be found in the back of the earnings release.
Speaker Change: Our remarks on this call and in the earnings release contain forward-looking statements and projections of future results.
Speaker Change: Please review the cautionary forward-looking statement section in today's earnings release and our SEC filings for various factors that could cause our actual results to differ materially from our forward-looking statements and projections.
Speaker Change: Now I'd like to turn the call over to George. Thanks Bill, good morning everyone and thank you for joining our call today.
George Holm: We have a good deal of material to cover this morning. I'm going to provide a high level overview of the current market conditions and the strategic measures we have prioritized during the volatile time.
Scott McPherson will then...
Speaker Change: provides some color around our segments performance during the third quarter and Patrick will follow with our financial performance and guidance.
Speaker Change: The physical third quarter provided some challenges to our industry, mainly due to difficult macroeconomic environment.
Patrick Hatcher: and Adverse Weather in January and February . We saw a decent recovery in March as the weather improved. Still, it appears that the underlying consumer performance remains muted.
Patrick Hatcher: Interestingly, April Results rebounded nicely and would do our sales and profit through the month. The first week in May was stronger yet producing a record sales week for food service, convenience, and total company.
Patrick Hatcher: At PFG, we recognize that we cannot control the external macroeconomic environment. However, we do determine how we approach our markets, customers, associates, and suppliers.
Patrick Hatcher: We do not know the exact path the economy will take however we are prepared for a range of scenarios.
Patrick Hatcher: First, it is worth reminding you that our company has experienced several difficult periods through our history, including the 0809 Great Recession and the pandemic in 2020.
Patrick Hatcher: These experiences provide a playbook for the actions we can take in more difficult times.
Patrick Hatcher: to not only protect our business but align our operations so we will come out strong on the other side. This is exactly what we have done in the past and what we intend to do now. Even in our soft February , our share gains were consistent with our usual performance.
Patrick Hatcher: At our investor day on May 28th, you will hear our detailed strategy that looks to capture both top and bottom line growth by being a diversified food away from home distributor.
Patrick Hatcher: We have a powerful story and a momentum continues to build and get stronger. I'm excited for what the future holds for P.F.G. and believe we are positioned to capture growth over the long term.
Patrick Hatcher: Before turning it over to Scott, a few high-level comments on recent trends. As I mentioned at the beginning of my comments, the operating environment has been dynamic to say the least. When we last reported earnings, I believe we could achieve 6% organic independent case growth for fiscal 2025.
Patrick Hatcher: Our run rate through January , along with easier year-over-year comparisons for the balance of the fiscal year, made that objective a reasonable target for our organization.
Patrick Hatcher: However, the challenges we faced in February have made this target harder to reach. At the same time as I mentioned earlier, we did see a rebound as we entered the Pisco fourth quarter with our organic independent restaurant cave growth hitting 6% in April .
Patrick Hatcher: Despite the market challenges, our broad-based structure provides stability to our bottom-line results during market challenges.
Patrick Hatcher: Capture Market Share and deliver revenue and profit results that drive shareholder value. With that, I'll turn it over to Scott McPherson for more details on our segment results in the quarter.
Scott McPherson: Thank you, George, and good morning, everyone. As George mentioned, it's been a dynamic year from a trend perspective.
Scott McPherson: It is a strong start to fiscal Q1 and we are progressing well through November . However, in December and through much of the third quarter we face disruption, including calendarships.
Scott McPherson: Adverse weather conditions in both the current year and last year period comparison and of course the dynamic macroeconomic and consumer backdrop.
Scott McPherson: February Post challenges for our industry as we experience significant weather disruptions and a consumer reacting to economic uncertainty. We've seen steady improvement through March and in April we finished the month with solid top and bottom line results.
Scott McPherson: While April's outcome is certainly encouraging and shows science, consumer trends, and improving, we remain hyper focused on what we can control.
George Holm: As George said, we have a broad and diverse business that is proven resilient in challenging operating environments.
George Holm: For us, we remain laser focused on our strategic priorities, starting with driving growth through our sales associates across all operating segments, continuing to leverage our proprietary brands and procurement synergies to expand gross margins.
and leverage technology to drive efficiency throughout our supply chain.
George Holm: Now let's take a deeper look into our three operating segments starting with our food service business.
George Holm: Overall, Food Service Growth was strong, benefiting from the addition of Cheney Brothers and Jose Santiago in the period.
George Holm: As George mentioned, organic independent case growth took a step back in February , growing 3.4% over the full third quarter
George Holm: These results reflect steady market share gains with independent customer account growth increasing 3.9% year over year and lines growing at 4.3% as we continue to broaden our offerings to customers.
George Holm: Performance brands sold to independent restaurants were 53% in the quarter, continuing our strong momentum in creating value for our customers with our company-owned brand portfolio.
George Holm: As we emphasize last quarter, these metrics show that while we cannot control the industry backdrop, we can arm our organization with the products and resources to provide our customer base a differentiated value proposition.
George Holm: Shifting to our chain restaurant business, we grew cases by 1.5% in the quarter, an excellent result given the current backdrop .
George Holm: The growth for our chain business was boosted by the onboarding of new business which has been ongoing since the second quarter and continues into the fourth quarter. We expect these new business wins to boost fourth quarter results providing incremental case growth and favorable profit profile versus our legacy chain business.
George Holm: Stills and margins were held by pricing inflation in the quarter. Current inflation rates and food service remain in a range that we consider very manageable. We are closely watching the broad commodities market and preparing for any increases driven by recent tariff considerations.
George Holm: We have not experienced any disruption from tariff actions to date but continue to assess our exposure which is currently not looked at as material.
George Holm: Albert and we are working closely with our suppliers and customers on contingency plans in the event inflation moves meaningfully higher.
George Holm: One inflation strategy we are focused on is positioning our high quality company on brands as the best value proposition for our customers.
George Holm: Again, our Salesforce continues to win new accounts and gainshare despite the difficult operating environment. We have steadily increased our Salesforce headcount through the year, attracting talent from across the Food Service landscape.
George Holm: Fiscal year-to-date, our Food Service Sales Force Headcount increased by 250 associates or 8% year-over-year. This is roughly the pace of hiring we anticipate for the balance of the year, assuming we continue to see positive signs from the consumer.
George Holm: From a profit perspective, the Food Service segment continues to experience positive more as a momentum driven by favorable mixed shift, profitable chain business growth, and procurement synergies.
George Holm: These factors, in addition to the contributions of Cheney Brothers and Jose Santiago, drove 29% segment adjusted evid dog growth in the quarter, translating to 25 basis points of margin expansion.
George Holm: Turning to our convenience segment, the narrative for the convenience industry has remained consistent throughout the fiscal year.
George Holm: Despite a challenging volume backdrop, Colmar continues to win new business, take market share and expand within existing customers through new offerings, particularly in food service.
George Holm: In the third quarter, the convenience segment, volume grew by approximately 1% well above the industry performance.
George Holm: Through the full fiscal year, the convenience industry, key categories including snacks, candy, and health and beauty have declined at a mid-single digit rate while most other key categories are down low single digits.
George Holm: Over the same time frame, Chromark was growing each of these areas by low single digits except candy which is flat.
George Holm: More recently, we remain cautiously optimistic about sales performance in April , which was notably better than recent periods, while too early to call it a trend is certainly a positive indicator.
George Holm: We were very excited about our pipeline of new business and convenience. We have found that our proposition as a consolidated convenience and food service distributor provides a competitive advantage and it's been one of the key reasons that we continue to add new accounts at a fast pace.
George Holm: We will expand more on this topic at our investor day.
George Holm: Finishing up our segment commentary with specialty, formerly known as our Vistar Segment, total net sales for specialty were roughly flat in the third quarter on a low single visit volume decline in the period.
George Holm: As expected, the third quarter was difficult for both theater and value channels due to a lack of content and competitive activity in the theater and consumer challenges for the value segment.
George Holm: On the positive side, we've seen stabilization in our bending and office coffee business, benefiting from the return to office trend. Our small parcel business has improved as we build upon our small but rapidly growing e-commerce business.
Something you hear more about at our investor day.
George Holm: In conclusion, full PFG operating companies weathered a difficult backdrop. From a competitive positioning standpoint, we grew share across all three segments.
George Holm: We have continued to make progress in our mix and margins and our performing well operation. We feel good about our positioning to drive growth and deliver on our customer value proposition.
Patrick Hatcher: I'll now turn the call over to Patrick, who will review our financial performance and outlet. Patrick?
Patrick Hatcher: Thank you, Scott. This morning I will review our financial results from our third quarter, provide some color on our financial position, a review our guidance for the balance of the year. Before jumping into our results for the quarter, we have two housekeeping items to address.
Patrick Hatcher: First, as noted in our press release, our VISTA segment has been renamed a specialty to line our naming conventions across the three operating segments. We did not add or remove any operations from this segment in our financial reporting. It is simply a name change.
Patrick Hatcher: As we always do, we will continue to assess our segment reporting structure to align with how we operate the business
Patrick Hatcher: On that front, also noted in our earnings press release, during the fiscal third quarter we moved a few small items from corporate and all other into the food service segment.
Patrick Hatcher: These changes are immaterial to our results and are reflected in both the current and your cargo periods for comparability.
Speaker Change: As you've already heard from George and Scott, it is a dynamic time for our industry and the broad economic landscape. For this reason we believe it is as important as ever to maintain a strong financial position.
Speaker Change: We believe that our balance sheet in cash low, not only inflate us from external shocks, but also allow us to take advantage of market dislocation.
Speaker Change: As George describes supporting our associates, customers and vendors through difficult times has allowed us to build upon the strong foundation of our business position.
Speaker Change: This was only possible because we had the financial resources to invest to find our organization.
Speaker Change: In the first three quarters of our fiscal year we have used our balance sheet and cash flow to finance growth initiatives including two attractive acquisitions, Cheney Brothers and Jose Santiago, and over 300 million in capital projects.
Speaker Change: We believe that these initiatives put us in a strong position to thrive in a range of operating environments.
Let's review our third quarter business results [inaudible]
Speaker Change: PFG total net sales grew 10.5 percent in the quarter due to the addition of Jose Santiago and Cheney Brothers as well as volume growth and net price realization.
Speaker Change: Our total independent restaurant cases grew 20% in the quarter, or 3.4% on an organic basis.
Speaker Change: Organic Independent Case Growth was lower than we had hoped entering the quarter. However, Scott detailed the underlying metrics, including market share, new account growth, and lines per account reflects strong execution.
While it is still early, our April results improved noticeably.
Speaker Change: Total campaign cost inflation was about 4.9% for the third quarter, an uptick from our prior period, but steady year to date.
Speaker Change: Food service product cost inflation was 3.7% in the quarter, while specialty cost inflation was 2.8% year-over-year, and it can be increased 6.7%
Speaker Change: We are closely watching input cost inflation, particularly with the implementation of tariffs, and have not yet seen an impact from tariffs.
Speaker Change: Importantly, we source the majority of our inventory from domestic suppliers. At the same time, we believe we are well positioned in the event of an acceleration inflation and are maintaining close communication with customers and suppliers. [inaudible]
Speaker Change: We have a proven track record of Managing Inflation, expect to navigate the current market using the similar playbook.
Speaker Change: Total company gross profit increased 16.2% in the fiscal third quarter, representing a gross profit per case increase of 39 cents in the quarter as compared to the prior year's period.
Speaker Change: Strong operating expense control and productivity efforts produce adjusted even a growth for the food service, specialty and communicative segments.
Speaker Change: In particular, our specialty segment, despite a difficult top-line environment, produced 6.9% adjusted ebit of growth.
Speaker Change: In the third quarter of 2025, PFG reported net income of $58.3 million. Adjusted EBITDA increased 20.1% to $385.1 million.
Speaker Change: Deluded earnings per share in the fiscal third quarter was $0.37, while adjusted deluded earnings per share was $0.79.
Speaker Change: Our effective tax rate was 25.8% in the third quarter. We anticipate a higher tax rate in the fourth quarter closer to our historical range.
Speaker Change: After $332.7 million of capital expenditures, PFG delivered free cash of about $494 million.
Speaker Change: Delegant Working Capital Management and our operating results contributed to the strong cash low result through the fiscal year.
Speaker Change: As we described last quarter, our capital spending levels for our legacy business have remained fairly steady over the first three quarters of the fiscal year at a run rate of approximately $100 million per quarter.
Speaker Change: The increase we experienced in the third quarter was largely related to the addition of capital expense to support Cheney and Jose Santiago businesses as expected.
Speaker Change: We anticipate an increase to our capital expenditures in the fourth quarter, which is typical for our company. While we remain committed to capital investment in capacity and fleet to support our growth, we are closely following the external landscape and will take appropriate steps to adjust our spending if necessary.
Speaker Change: At this time, however, we feel good about the level of investment we are undertaking [inaudible]
Speaker Change: During the third quarter, we began to pay down debt through reduction in the outstanding balance of our ABL facility and line with our stated near term objective of reducing debt.
Speaker Change: During the quarter, we also repurchased about 138,000 shares of our stock at an average cost of $76.82 per share for a total of $10.6 million.
Speaker Change: While we are prioritizing debt reduction, we also take various marketplace conditions into account when determining our capital allocation strategy.
Speaker Change: This means that we have, and expect to continue to, opportunistically, repurchase our shares during market downturn [inaudible]
This is supported by our financial position in cash flow.
Speaker Change: The M&A pipeline is robust, and we continue to evaluate strategic M&A. As always, we will apply our high standards and due diligence process in the evaluation of these acquisition opportunities.
Turning to our guidance for fiscal 2025 .
Speaker Change: Today we are narrowing our sales and adjusted EBITDA guidance, primarily flowing through the result from the third quarter.
Speaker Change: We now expect net sales to be in a $63 to $63.5 billion range, adjusting the top end of the range by $500 million and leaving the bottom end unchanged.
Speaker Change: Our just-a-debate guidance for the full year is now a range of 1.725 to 1.75 billion narrowing the upper end by $50 million.
Speaker Change: As we enter the final months of the fiscal year, we feel confident in these targets and each of these ranges suggests full year 2025 results in line or above the three-year plan we set at our investor day in 2022.
Speaker Change: In a few weeks, we will provide more color around our successful execution of the long-term plan and discuss our vision for the next three years.
Speaker Change: To summarize, PFG successfully navigated a difficult environment in the third quarter, and is prepared to maintain strong growth in a range of economic scenarios. Our financial position is strong, and we have a balanced capital allocation plan to generate long-term shareholder returns.
Speaker Change: We're excited about what the future holds and our investing capital to sustain our growth.
Speaker Change: Thank you for your time today. We appreciate your interest in performance food group and with that George Scott and I would be happy to take your questions.
Speaker Change: Thank you. And at this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two. Once again, that is star and one to ask a question. And your first question comes from the line of Mark Carden with UBS. Please go ahead to where line is open.
Speaker Change: Hi, this is Matthew Rothway on from Mark Carden. Thanks for taking our question.
Thank you.
Speaker Change: Glad to hear that the trends are improving a little bit of late
Speaker Change: Although it sounds like maybe still a little weak in the independent channel, I was curious if you could help us understand a little bit more what you're seeing with consumer demand and behavior. Are you seeing any trade down or trade out any shifts in cuisine types from consumers any additional color would be great. Thank you very much.
Yeah, I'll take that to the sky [inaudible]
Speaker Change: So first off, you know, talking about just independent demand and our independent case volume as we talked about, you know, if you think about the quarter
Speaker Change: The beginning of the quarter was pretty strong. We were mid-single digit in January . Obviously February was the big setback for everybody in the quarter.
Speaker Change: and then March kind of back to that mid-single digit range and as George mentioned, you know, we were up to 6% in April so feel really good about how that's progressing when I think about you know any trade down. We really can see you know obviously on a same store basis restaurants were pretty flat. [inaudible]
Speaker Change: We performed well from a penetration and growing account standpoint, which really is what drove our independent volume.
Speaker Change: I'd say the last piece is from a segment standpoint. Our Mexican segment did really well, and also our convenience segment did really well from a food service standpoint.
Speaker Change: And I know we've been repeating ourselves some, but I think it's important to stress that February was the month that really changed our quarter.
Speaker Change: But when we track our business, we track it closely by what our new business is in our lost business and our penetration.
Speaker Change: and virtually all of the difference in February was penetration, and it wasn't just in our independent, it was in the chain business, and also it was in convenience.
Speaker Change: Minutes just showed that people weren't out there. [inaudible]
We didn't see it in our-
Speaker Change: You know, our specialty business or this star business and a lot of that is kind of logical people are at work
Speaker Change: When these weather issues happened, if they were able to get to work, they didn't go out to lunch, they hit the micro market, they hit the vending, and it was actually a positive for that part of our business.
But, it was all about February . [inaudible]
Great. And then at the follow-up question, [inaudible]
Speaker Change: Just curious to get your outlook on food inflation. You know, as we go through the year here, sounds like maybe a little early for any tear-related inflation. But would you see any opportunities for pre-vise if you do start to see inflation, particularly with your specialty and convenience segments? Thank you very much.
Speaker Change: Matthew, this is Patrick, I'll start with there and maybe Scott wants to add a little more detail, but when it comes to how we're looking at inflation, again as we reported, very much in line for Q3, very similar to what we saw in Q2 with a little bit of an uptick and food service.
Speaker Change: But this are and can be especially staying pretty close to where they've been. And as we look into Q4, we're at least modeling that. That will be very similar. That food service will be in that mid single digits. That's a nice one.
Speaker Change: Vistar will be very similar to what they were in Q3 and comedians also around 7%.
Speaker Change: It's too early to really understand what's going on with terrorists, to be honest with you, and as far as the opportunity to pre-buy, we'll just have to look at that that's really going to be as more information becomes available.
Speaker Change: Yeah, the only tag onto that I would have is when we think about tariffs, you know, I would say that first off...
Speaker Change: Our biggest concern with tariffs is just the macro environment, you know, and consumers share a wallet and if, you know, if automotive or some of those industries have big impacts, how does that affect the food away from home space?
Speaker Change: When it comes to cost of goods and our actual cost of goods, you know, very minor impact. We import less than 10% of our goods and especially with
Speaker Change: Mexico and Canada with the USMCA sounds like there's not going to be much of a tariff impact there and that really minimizes what we think the impact will be too much domestically.
Great. Thank you.
Speaker Change: Thank you. And your next question comes from the line of Edward Kelly with Wells Fargo. Please go ahead to where the line is open.
Edward Kelly: Yeah, hi. Good morning. Thanks for all the color. I wanted to follow up on organic independent case growth trends. I mean, it sounds like a pretty robust recovery in April , especially off probably what was a pretty rough February .
Edward Kelly: and maybe even a better end of April , you know, sort of like early May. Just curious.
Edward Kelly: George, to the extent that you think that that's a good run rate for the business currently, you know, are there things that we need to consider maybe around comparisons there?
Edward Kelly: and then given that, you know, the Q4 guidance at the midpoint did come down by $10 million, I guess, despite, you know, the strong start. So is that just incremental conservatism on, you know, your part, or is there anything else to consider there? [inaudible]
Edward Kelly: Well, we're going to be real cautious around the macro environment.
What we are seeing now is a real positive, but…
There's been some calendar differences.
Edward Kelly: These are two really good weeks for us all the time, the week before Cinco de Mayo and the Mother's Day week. This week so far we are having a really strong week and last week was our first week.
that really had ever done exceeded 1,300,000,000 in sales.
Edward Kelly: And like I said, this week is better. I don't know that we can take a fifth-three lap around it yet. We'll just have to see what comes up.
Edward Kelly: in the month of June . And I look at what is a good run rate. If you go back and you look at this quarter, we just ended our fiscal third quarter.
Edward Kelly: If the market was down about 3% which seems to be what people think, we would have been well above our 6%.
Um
Target, I guess.
Edward Kelly: I don't think that the market is necessarily any stronger today than it was just a matter of a few weeks ago because we don't see it in our national accounts. We've seen a nice uptick in our independent but the national account looks a lot like April . [inaudible]
Edward Kelly: The other thing I would like to mention, as far as total cases with performance,
Edward Kelly: You know, we're very, very large in the casual dining area. You know, we have one that's doing exceptional right now.
Edward Kelly: We have another one that's two and okay but for the most part they are really struggling. [inaudible]
Edward Kelly: and we've been able to overcome that with other business and obviously with some growth from independent. So from a top-line standpoint, we feel real good going into next fiscal year
Scott McPherson: Scott comment, but we have had some real good wins there, and we are expecting to see much greater growth next fiscal year than we're seeing this fiscal.
Cool year. Now turn over Scott for a minute.
Scott McPherson: Yeah, just to reflect a little more on the convenience piece that George mentioned.
Scott McPherson: You know, first off, as I said in the prepared remarks, you know, the macro, there's been tough. A lot of the center store categories have been down mid single digits and
Scott McPherson: And then we've talked a lot about pipeline opportunities in the selling cycle and convenience being a little slower but it felt really good about our positioning and over the last few weeks we've had three or four big wins.
Speaker Change: Those are, you know, wins that will roll on over the course of the next, well through the balance of the calendar year. But as George said, I think, you know, convenience is really well positioned. We'll see some more growth out of them. Into next year and operationally they've done a great job and margin wise as well. We'll see you next year and we'll see you next year.
There may be just a follow-up [inaudible]
Speaker Change: But I'm just curious how she may play out relative to your expectations. Was there anything within that that came in unexpectedly higher and is there anything there that maybe translates into Q4?
Speaker Change: Well, in February it was our difficult sales month. It was also a difficult expense month. We should have a lot of product out that turned around and came back.
Speaker Change: and that impacts your payroll, but it impacts your shrink.
Speaker Change: It's just really difficult to go through a period like that, but that is behind us. The other thing we've continued to do, Scott mentioned that we have 8% more salespeople, and we've just made the decision that
Speaker Change: We're looking at that the way we always look at it and even though it's a slow market for us to back off from continuing to move forward there, it's just going to hurt us in the future. So we're living with
Speaker Change: You know, if you look at just from a percentage standpoint, when you're growing your people 8% and you're growing your cases 3.4, looking backwards, that's going to cost you some money and we're willing to spend that money and we think we're making the right decision there.
Makes sense. Thank you.
Speaker Change: Thank you. And your next question comes from the line of Alex Slagle with Jeffries. Please go ahead to where line is open.
Alex Slagle: All right, thanks. Morning. I think you talked about Minions Trends in April , Underline Trends maybe improving and maybe can't clarify that and whether that had to do it.
Alex Slagle: Fuel cost moderating, if that's starting to be any kind of tailwind, I know it's been challenging and then on convenience I know the 4Q lap is really tough.
Alex Slagle: Maybe some color on how we should think about that dynamic as, you know, we go through modeling and...
Alex Slagle: You know, trying to see whether that can grow earlier .
Speaker Change: I wouldn't say Alex that we've seen any improvement in the industry itself.
Speaker Change: We just have a little better penetration and we've got some nice new business coming on so that's what gives us the confidence. We are certainly hopeful that the industry itself is going to improve but that's not something that we've seen at this point.
Speaker Change: Yeah, now if I just add on the key four comedians, thanks for pointing that out, I think-
Speaker Change: You know, if they didn't have that lap from prior year and half to come, I'm hoping seeing close to double digit or double digit ebit of growth in the fourth quarter. So we're still very happy with the trends that the community has been able to deliver on the bottom lines. And now I'll continue to the fourth quarter, except for that comp that he brought up.
Speaker Change: Okay. And then with the restaurants, were there any changes between kind of underlying volume dynamics and the changes or some dependence worth calling out, if he touched on it, I even touched that.
Speaker Change: Well, we're certainly seeing, once again, this is just for the last few weeks, but we're seeing the independent doing better. I don't know that that...
Reflex on the industry or reflex on our customer base.
Speaker Change: Unfortunately, we haven't seen any real improvement in casual dining. We do have some QSR business that has been doing fairly well. Any comments beyond that, Scott? I think that probably covers that. Yeah.
Thanks for that.
Speaker Change: Thank you. And your next question comes from the line of John Heinbockel with Guggenheim, please go ahead to the line that's open.
John Heinbockel: Hey guys, want to start with cases per account or cases per line rather, right, so lines were up 4% or so, and I think you said complications flat. So is that right, the cases per line down 4, drop size kind of flatish.
John Heinbockel: and are we seeing an inflection in drop size? I think you were down, but now looks like April and go forward, you might actually be up.
Speaker Change: to another one of those. Yes, another one of those, John , that it's February .
Speaker Change: and in the month of February we didn't see that much of a decline in lines, but we saw a big decline in cases per order.
Thank you. Thank you.
Speaker Change: Okay, but I mean, you know, point being, have we seen now a sort of an inflection in drop size, right? Because if drop size can now increase, right? Because lines, lines per, a counter, you know, up, whatever, three or four cases, you know, prevent line or flat, or we're down slightly, are we now seeing an inflection there? Edward and, um...
Speaker Change: Yeah, John . As you pointed out, clearly our lines are up per account, but our drop sizes remain relatively flat. So when you think about our growth, almost 100% of our independent growth is driven by new accounts and driven by lines per order.
Speaker Change: And that's really what's getting us there. It's really the new account growth so that the stops aren't getting more eager right now.
Speaker Change: In one last thing for Scott, right, what do you think about the opportunity on the convenience side?
Speaker Change: I'm curious, you know, what percent of your base has now adopted, you know, all of your prepared, or most of your prepared food programs, right, pizza chicken, etc. And then do you think you're getting a mid to high single digit lift? Yeah.
Speaker Change: on those accounts that do adopt those programs and prepare food.
Speaker Change: Yeah, John the way I'd answer that is I'd say we're still in the second or third inning as far as food service goes the number of
Speaker Change: Concepts that we place is growing significantly. Every month, every quarter, we add a lot of turnkey concepts into convenience, but when you think about 50,000 stores that we have
Speaker Change: You know, we've got a long, a long run way ahead of us. I think we're getting better at it, more convenient segments doing really well there.
Speaker Change: And to your point, you know, in food service, whether it be coming out of convenience or whether it be coming from PFS in the convenience, you know, we're growing in that mid single to low double digit range on a pretty consistent basis.
Thank you.
Thank you.
Speaker Change: Thank you. And your next question comes from the line of Kelly Bania with BMO Capital. Please go ahead, your line is open.
Hi, good morning. Thanks for taking our questions.
Speaker Change: George, which is wondering how you are seeing smaller competitors and other competitors react to this environment. Obviously, February was very tough, but it feels like it.
Speaker Change: could remain volatile here and so just are you seeing others react more with respect to costs and service levels and is that creating any areas where you can mean into from a market share perspective.
Speaker Change: I would say that the market is more competitive than it has been.
really in quite a while probably going back to...
Speaker Change: to the Great Recession. I think that's normal when you have volume harder to get. I think things are going to get more competitive.
as far as the smaller competitors. [inaudible]
if you consider the...
Speaker Change: The information is made as far as how the restaurant part of the industry is doing.
Speaker Change: versus what we see on our Serkana report. I think it shows that the large distributors are continuing to get a bigger market share than the smaller ones would be getting.
Speaker Change: And I guess on that note, just on competition, are you seeing any change in competition for the failed force in terms of the talent you're able to hire the cost of hiring that talent any color on that front?
We're not seeing any change there at all.
We are
Speaker Change: We have a great pipeline of salespeople that are available, that have experience and...
Speaker Change: That's why we're part of why we're continuing to grow ourselves for set the rate we're growing in.
Speaker Change: That's very helpful. Last one for me, I know you have the analyst day coming up in a couple of weeks here, but lots of questions on what that guidance could look like and just curious if you wanted to give us any bit of a teaser for how to think about your plan for the next several years.
Speaker Change: Hey, Kelly, this is Pat. They're called us jump in here. We're very excited to see all of you at a investor day and we'll be really happy to share the guidance at that time.
Thank you.
Thank you
both.
Speaker Change: Thank you. And your next question comes from the line of Brian Harbour with Morgan Stanley . Please go ahead to where the line is open.
Bryan Harbor: Yeah, thanks for the morning guys. George, is that coming about competition? I mean, is it sort of like changes in price at the margin? Is that what you're referring to or how does that manifest itself?
Bryan Harbor: Well, you know, I think that we're an industry that's pretty rational, but we all want to grow, and I think that when growth is hard to come by, I think people get more competitive, we're certainly looking closely at our pricing, looking closely at our cost structure all the time.
And then I would say that the
Bryan Harbor: Creepang or upfront monies are certainly something that has become more commonplace in our industry. Other than that, it really don't see changes.
Okay, thanks.
with the Vistar, I guess, specialty now, did.
Bryan Harbor: Did he sort of expect it to be a bit slower quarter there? I guess, you know, and also just as I think about kind of the future growth rate, would...
Bryan Harbor: You know, fork you look similar, have you seen kind of recovery in that business, too? I know the comparison's a little bit different, but could you talk about your expectations there?
Scott McPherson: Sure, I'll take that. This is Scott. We called out last quarter in our in our remarks that, you know, we knew we were going to have a pressured quarter.
Scott McPherson: for Vistar, you know, particularly in the theater space, you know, Q3s, traditionally not a great, you know, theater quarter. Also, you know, we had some pressure in the value channel as well which, you know, we expected.
Scott McPherson: As we've moved into March and into April similar to the other segments, theaters had great content.
Scott McPherson: Theatre, looks like Q4 is going to be really strong content as well. But, you know, beyond theatre, you know, visitors are very diverse business. We feel really good about the pipeline we have with our e-commerce platform.
Scott McPherson: and then also with Return to Work. We're starting to see some real signs there in our office in this coffee and our vending.
Scott McPherson: So we're really optimistic about this star and they had a couple of tough quarters to start the year. Obviously had a nice EBITDA quarter to this quarter and we'll start to see some growth out of that segment. So really, really feel good about where they're headed.
Thanks
Speaker Change: Thank you. And your next question comes from the line of Jake Bartlett with tourist securities. Please go ahead to where line is open.
Speaker Change: Great, thanks for taking the question. I'm sorry to go back to some of the near-turn dynamics, but I just want to make sure I understood what's happened in April . One question is whether spring break shift, along with Easter, seems like that could have had a pretty big impact. I just want to make sure that that's not what's partially driving the better April . And also just looking back at last year, I believe you started the quarter with a fairly solid April . And so the question is what your compares are liking in the next...
couple months. And then I have another question.
Well, that's part of why we're being cautious.
as far as the change in...
Easter and Easter being later.
Speaker Change: We're past the Easter for both years as gone. The week after Easter is always a light week for us. So our April , although a good month was very choppy and when we did have, we were up against the end of. So we're going to have a little bit of fun, but we're going to have a little bit of fun.
Speaker Change: Easter, those are tough comparisons. I don't think the shift mattered really.
It did.
Speaker Change: It just all washed out, and I don't think it mattered. And we're in a little different time here, too. I mean, Cinco de Mayo is always a great week for us, and Mother's Day is always close to Cinco de Mayo. And we had a real good week last week, and we didn't expect…
Speaker Change: This week to start out as big as it did, but I think a lot of people didn't bring their product in for a single demise until, until Monday.
Speaker Change: And those who just all the reasons, I think you're bringing up is why we're cautious right now. There has been all year, really there's been some calendar challenges and even a small thing having Valentine's Day on the weekend.
Speaker Change: Had a big impact on our sales because you didn't get that extra really good night during that week.
Speaker Change: Great, that's helpful. My next question is about your margin expectations in the fourth quarter and if I'm doing the math right, it looks like you're expecting fairly minimal EBITDA margin expansion in the fourth quarter. The question is whether that's just due to the compare, the really strong expansion you have last fourth quarter. But also if you can talk to some of your productivity. Everybody, um.
Speaker Change: measures how you feel like you're doing in terms of your productivity and efficiency and just anything we should think about in terms of what you're proactively doing to protect your margins.
Speaker Change: Yeah, first off, there's a biggest call I'd add to have on Abidon margins in the quarter. I think we've talked a little bit about convenience. They had a...
Speaker Change: A pretty sizable, you know, gain in 2-4 of last year, so, you know, that's one call out.
Speaker Change: When I think about margins overall, really pleased with how all three segments are operating from a margin standpoint, it really comes down to a few things. One of those is mix across all three segments. I think we've done a great job with mix.
Speaker Change: growing independent cases. We've done a really nice job with chain margins and food service as well, but that's really just as we've looked at that portfolio of customers. We've got some great customers that we've onboarded. [inaudible]
Speaker Change: So feel really good about how we're progressing margin-wise in food service. Convenience is done well. And a lot of that is just our growth in key categories. I think about food service and some of those categories that drive higher margins.
Speaker Change: and similarly in Vistar as well, in our specialty segment, some of the segments that are growing tend to be our higher margin of segments.
Speaker Change: You know, the last thing I'll call out around margins is just, you know, procurement strategies. We talked a little bit about it last quarter
Speaker Change: You know, for the last year we've been, you know, bringing our three segments together, having them work together on common vendors.
Speaker Change: We've now got Cheney and Jose Santiago and obviously we're able to look at the deals that they negotiated, stand alone and work through some of those opportunities, so we feel like our procurement opportunity is also a way to continue to keep our margins strong.
Thank you.
Speaker Change: Thank you. And your next question comes from the line of Andrew Wolf with CLK. Please go ahead. Your line is open.
Speaker Change: You know, there's different explanations. One is conservative. And when you think about conservatism, are you thinking more in terms of can you stay at the 6% case growth organically?
Speaker Change: Or is it more, I think you alluded to, George, you're being very competitive now and maybe some impact in gross profit per case. You know, if you were to come in, you know, if you...
Speaker Change: You know, somewhere in the middle of your range instead of you know what I think people expect might be a little better [inaudible]
Speaker Change: We are guidance is a reflection of how our future ones feel are looking at things and
Speaker Change: They tend to be conservative, we want them to be conservative, but
Speaker Change: The competitive nature of the industry may have something to do that. They're the ones that are on the front line dealing with that every day.
but I think it would be suitable with our guide.
Scott McPherson: We would like to think that we'll be able to say at least a 6% independent growth, but as I mentioned earlier and Scott's mentioned too, we've got to be cautiously, we really don't at this point know what June is going to be, but right now we feel good. [inaudible]
Okay, Andrew, all the time, sorry.
Speaker Change: I was just going to add real quick, you know, obviously we've taken a variety of scenarios, both economic and consumer and backdrop, but George said. So we feel really improved, but like I've made in my comments, we feel that this range is appropriate and based on what we've seen today, we feel good about the guidance that we've given.
Speaker Change: Got it. Okay, I thought that was what you're saying. I just wanted to probe it a bit. And Scott on convenience.
Speaker Change: You know, going back to when Cornmark was public, you know, a lot of the ...
the attributes to when customers was on fresh.
Speaker Change: Consolidated Delivery, Making Their Life Easier From Operational Perspective
Is that still the case, or is it now? No.
Speaker Change: You guys are sort of a third thing here with them. [inaudible]
Better Capabilities and Food Service
Speaker Change: You know, could you just sort of give us, I know you'll probably touch on this quite a little more at the best of the day, but a little bit of what's driving the new customer when's there and can be inside.
Speaker Change: No, that's a great question, Indian. When I think about, you know, the evolution of convenience or your right, and I know you used to cover the space.
Speaker Change: You know, fresh was the calling card, you know, 10 years ago and as fresh of all, fresh really, you know, morphed into a broader offering, you know, outside of center stores. So that's really, you know, food away from home. And, you know, I think the consumer expectation.
Speaker Change: Got a lot higher. It wasn't package sandwiches and burritos anymore. It became high quality restaurant quality food and convenience stores.
Speaker Change: and I think, you know, that's the real driver behind, you know, our message to the independent and the chain, and I think that, you know, it's gone a long way for us to pick up new accounts and gain share.
Okay, thank you.
Thank you.
Speaker Change: Thank you. And your next question comes from the line of Jeffrey Bernstein. With Barclays, please go ahead to our line as open.
Jeffrey Bernstein: Great, thank you very much. My first question is just on the next three-year outlook.
Jeffrey Bernstein: and I recognize that's delighted to come live this month, but George was wondering conceptually, how do you get your arms around forecasting the top and bottom line in the next few years when you're battling through the current, very cautious dynamic environment, obviously visibility's limited. Thank you very much.
Speaker Change: You think there's a lot of opportunities in market share, but do you change your thought process in terms of how you guide for the next few years when you're in an environment like this? Or are you able to see through that and kind of see what the underlying opportunity is for the business? And then I have one follow up.
Speaker Change: I think the current environment always affects you, right? I mean a lot of what we do as far as our projections come from our people in the field.
Speaker Change: And like I said, a few minutes ago, there are the ones that are in the heat of the battle every day.
but I will also tell you that they're very confident.
I think February shook everybody that...
Natural,
Speaker Change: You're trying to figure out how much of it is the consumer, how much of it's the weather.
Speaker Change: How much of it is just all of the change in rhetoric around tariffs and where we're headed. But I think that we're looking at it the same way we did three years ago.
Speaker Change: We're trying to gauge another thing that's difficult to gauge is some of these smaller acquisitions that you can get that can help things. We have a nice M&A pipeline right now.
Speaker Change: and not the size of what we've done in the past at this point, but we have a nice...
A nice group there.
Speaker Change: and we're just putting all those things together, and it's just a few weeks, right? A few weeks will...
Speaker Change: We'll have a real good presentation for everybody. Yeah, and Jeffrey, I'll just add a couple other comments. I mean, you know,
Speaker Change: As we close out this three-year guidance, as I mentioned, we're well within our sales range and we're exceeding the EBITR range that we gave three years ago. So what you guys are all going to hear in a few weeks is...
Speaker Change: We're very consistent in our approach and our strategies. You'll hear some new things.
Speaker Change: But we feel like the last three years have executed very well and we've hit these numbers and we'll provide you some new numbers and how we're going to execute behind those but we're looking very forward to seeing all of you in New York in a few weeks.
Thank you.
Speaker Change: No, we appreciate you coming to New York. My follow-up is just on that M&A, George Lee, just mentioned.
Speaker Change: Obviously, it's a difficult choppy environment for you. You would think it's way more challenged for smaller mid-size food service distribution peers. So I'm just wondering if you could talk about the opportunity. I think you mentioned a robust pipeline.
Speaker Change: And I think in your prepared remarks, you mentioned taking advantage of market dislocation. I wasn't sure if that's what you were referring to, but any thoughts in terms of how the current environment helps or hurts the opportunity for you to be more aggressive with M&A versus less. Thank you.
Speaker Change: Well, obviously we've got some focus on paying down debt right now, even though for us historically the debt levels were at today, if you take into account when we're private and when we're public, we're actually kind of a low level of debt.
Speaker Change: and we tend to be maybe a little fearless about the amount of debt we have, but paying down debt is important to us, and we feel that we can do...
Speaker Change: Some fairly sizable acquisitions and not have the concern around the debt. So if you look at since the purchase of Jose Santiago and of Cheney.
Speaker Change: Had we not bought Cheney, which would have been a terrible thing, but had we not, we would have pretty much paid down the debt from Jose San Diego. So we paid down debt quickly and we're going to continue to be very opportunistic and we have...
Speaker Change: acquisitions available to us today that we're in good shape from a negotiation standpoint and they're not real significant but they will help us.
Speaker Change: from the growth standpoint, and a couple of them will probably have in our three-year plan, but probably only a couple.
Speaker Change: That's a long answer, but that's just kind of where we sit today.
Speaker Change: Understood, but nothing that you see of significant size. These are more good opportunities, but not significant to the business. That's correct.
Thank you.
Peter Sala: Thank you, and your next question comes from the line of Peter Saleh with BTIG. Please go ahead to where line is open.
Peter Sala: Great. Thanks for taking the question. I just have two questions. I guess the first one is...
Peter Sala: Are you seeing any changes in independent restaurant formation given tariffs and rise in construction costs? We've heard some concern about this. Just curious what you guys are seeing out in the field.
Peter Sala: No, I think it's a little too early to tell. I mean, the terror activity really has just started over the last couple of months we haven't.
Peter Sala: I haven't had any, you know, customers that have hit the pause button that I'm aware of, you know, I think the independent pipeline and the independent restaurant, you know, is still very healthy and vibrant.
Peter Sala: Obviously if we look back over the last four months with the exception of February , it's been pretty strong.
Peter Sala: Growth for us. Obviously, their same store sales are a little bit pressured right now, but that's a vibrant industry and I think you'll continue to see new restaurants pop up on a regular basis.
Speaker Change: We've heard some, you know, some thoughts that some of the areas more heavily related to tourism have seen a bigger decline. Have you guys seen the same or is it more of a broad based and more confined to that February timeframe? Thanks.
Yeah, I would say that...
Speaker Change: The Northeast, if you take out when the bad weather times are, is surprisingly doing the best.
Speaker Change: as far as increases go. Florida has been a little bit challenged.
I'm sorry. I'm sorry. I'm sorry. I'm sorry.
Many closures there.
Haven't been successful [inaudible]
Speaker Change: I'd say most of the rest of the country is all fairly similar, but you know slight declines but similar.
. . . . . . .
Speaker Change: Thank you. And there are no further questions at this time. I will now turn the program back to Bill Marshall for closing remarks.
Speaker Change: Thank you for joining our call today. If you have any follow-up questions, please contact us at Investor Relations.
Speaker Change: Thank you. This does conclude today's presentation. Thank you for your participation. You may disconnect at any time.