Q2 2025 US Foods Holding Corp Earnings Call
Thank you for standing by. My name is Jordan and I'll be your conference operator. Today at this time, I'd like to welcome everyone. To the US Food holding Corp, second quarter 2025 earnings call all lines have been placed on mute to prevent any background noise. After the speakers 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 1 on your telephone keypad. If you'd like to withdraw your question, press star 1 again, thank you. I would now like to turn the call over to Mike n senior vice president of the Vesta relations. You may begin.
Thank you, Jordan. Good morning, everyone and welcome to the US Food. Second quarter, fiscal, 2025 Rings call.
On today's call, we have Dave flipman our CEO.
And Durk lassio or CFO.
we will take your questions after our prepared remarks conclude,
Please limit yourself to 1 question and 1 follow-up.
Our earnings release issued earlier this morning and today's presentation can be found on the investor relations page of our website at IR usfoods.com.
During today's call unless otherwise stated, we're comparing our second quarter fiscal year 2025 to the same period in fiscal year 2024.
In addition, to historical confirmation.
Certain statements made during today's call are considered forward-looking statements.
Please review the risk factors in our form 10-K for a detailed discussion of the potential factors that could cause our actual results to differ materially from those anticipated in forward-looking statements.
lastly, during today's call, we will refer to certain non-gaap Financial measures
All reconciliations to the most comparable. Gaap Financial measures are included in the schedules, on our earnings, press release, as well. As in the presentation, slides posted on our website.
With that, I'll turn the call over to David Flitman.
Thanks, Mike. Good morning everyone. And thank you for joining us.
Let's turn to today's agenda. I'll start with our key results for the second quarter and the first six months of the year, which are underpinned by significant achievements across our strategic pillars as our team continues to execute very well.
I will then hand it over to Durk to review our second quarter Financial results and our updated fiscal 2025 guidance.
Turning to slide 3.
We delivered, strong second quarter, and year-to-date Financial results. As we continue to demonstrate consistent progress against the long-range plan. We presented at our investor Day last year.
Importantly, our year-to-date, earnings and EPS are in line with our long-range plan algorithm.
year to date, we grew adjusted, ebata 11%, expanded, adjusted, ebit, or margin by nearly 30 basis points, and grew adjusted EPS 27%, which highlights our team's consistent execution, and the strength of our differentiated business model,
This momentum is fueled further by market share gains with our independent restaurant, healthcare, and hospitality customers.
I am incredibly proud and appreciative of our talented team of 30,000 Associates whose dedication and hard. Work are delivering on our promise to help our customers. Make it
Moving to slide 4, we delivered a record second quarter, adjusted EBITDA of $548 million and a record adjusted EBITDA margin of 5.4%, a 40 basis point increase.
Through a combination of Topline growth.
Strong growth, profit gains and discipline cost management.
Our record adjusted ibido margin is not a ceiling and we have significant margin expansion opportunity for years to come.
Largely through continued Improvement in the execution of our Core Business processes and benefits from improved customer mix.
And again, this quarter we gained market share with our Target customer types of independent restaurants, Healthcare and hospitality.
This is the 17th consecutive quarter of market share gains with independent restaurants in the 19th consecutive quarter of market share gains with Healthcare.
In addition to our strong financial performance, we remain committed to delivering shareholder value through our Capital return strategy.
The second quarter and balance of the Year, given our strong cash flow.
We did just that and repurchased 250 million of shares in the second quarter.
We will remain prudent as we allocate Capital first by investing in the business to drive growth.
And then balancing share repurchases with tuck in m&a opportunities.
Let's turn to our case growth in our perspective, on the industry.
We continue to outperform the market and take share as our independent volume growth with 2.7% in line with our 2 to 5% guidance for the year.
Our organic independent case. Growth accelerated 100 basis points from q1 to Q2, and we gained share in every month of the second quarter.
Total Independent Restaurant volumes per second, increase from the first quarter to the second quarter similar to our Improvement in case growth.
our organic independent case, volume also accelerated throughout the second quarter with June show growing at approximately 3%,
July continued. The approximately 3% growth rate.
During the second quarter, we grew net accounts approximately 4% over the prior year.
Which was our strongest growth rate since the fourth quarter of 2023.
As a result of continued acceleration in our net accounts, we expect to build further momentum in our independent growth rate through the back half of the year.
Additionally, Healthcare and Hospitality continue to help Drive our overall volume growth with approximately 5% and 2.4% case growth respectively.
Turning to our chain business.
Restaurant foot traffic is reported by blackbox improved sequentially. Throughout the second quarter versus the first quarter. But remained down 1.1% from the prior year.
We continue to be disciplined and optimizing our chain portfolio to improve profitability.
In the second quarter, our chain restaurant volume declined 4% primarily driven by a strategic exit, which negatively impacted our total chain volume growth by approximately 300 basis points.
We've recently onboarded several new business wins and expect our chain volume performance will improve in the back, half of the year.
Additionally, in the first quarter, we divested Freshway a small produce processing business that provided us with higher volume,
But with lower margin.
the destitute resulted in nearly a 50 basis point impact to our total case growth in the second quarter,
Regardless of the operating environment, we remain Guided by 4 strategic pillars and I will highlight key elements of our progress, over the next several slides.
Moving the slide 5, our first pillar is culture.
We remain committed to our goal of zero injuries and accidents for our Associates.
In the second quarter, our injury and accident rates, were 21% better than the prior year.
and over the past 2 years, we've improved our safety performance by 35%
Our team is made great progress in creating a strong safety culture, but we have more work to do.
This past May, we published our 2024 sustainability report, highlighting our progress in the three focus areas of products, people, and planet.
I am proud of the work we accomplished in 2024, to further align our approach to sustainability with our strategy and our operating model.
We have reduced our Scopes 1 and 2 greenhouse gas emissions by 16% since 2019 and are nearly halfway to our goal of reducing these emissions by 32 and 1.5% by 2032.
Turning the slide 6, our second pillar service.
Our focus on service is 1 of the many reasons that our customers choose US Foods.
Our ability to deliver service excellence is driven by our initiatives to improve reliability, enhance operational efficiency, and provide a best-in-class customer experience through our Moxy digital platform.
We improved routing productivity again this quarter as we continue the Descartes rollout across our distribution network.
We are now live or inactive deployment in 65, markets, representing approximately, 90% of routed miles, and remain on track to be fully deployed by year end.
We delivered more than a 2% Improvement in cases per mile over the prior year and nearly 6% over 2 years via our routing initiatives.
And in the second quarter, we achieved our best cases per mile performance in our company's history.
While enabling a better customer experience.
As we discussed last quarter, an important element of our service. Is our operations quality composite or Ops QC.
Which measures our ability to deliver products to our customers without errors.
during the second quarter, we made steady progress on OBS, QC, resulting in nearly 28% improvement, from the prior year,
Over the past few quarters. We have also implemented new inventory, control processes, including scanning technology, which reduces manual inputs and results in fewer errors.
We continue to sequence new opportunities, to improve our service and reduce costs for our customers.
Also recently completed an independent net promoter score study where customers provided their feedback and views regarding digital technology leadership in our industry.
The results show that US Foods Moxy, platform has a distinct advantage over the competition.
We also have the highest customer digital adoption in the industry.
Significantly more US Foods. Customers use Moxy for all of their self-help needs including purchasing delivery, tracking and bill payments, which is a testament to our online leadership versus our competition.
As we remain focused on enhancing our technology leadership. We drove record Independent Restaurant, e-commerce, penetration of 78% and total company of 89%
We are on track to hit our goal of 95% penetration by 2027.
Turning to our growth pillar on slide 7.
The remain focused on accelerating profitable growth and gaining market share with our 3, Target customer types.
We have continued investing in our Pronto, small truck delivery service and are now live in 44 markets with plans to add a few more this year.
We are nearly complete in launching Pronto Legacy across the company but still have plenty of growth opportunity ahead by adding more trucks, within our existing markets.
In addition to Pronto Legacy, we have expanded Pronto penetration to 15 markets to further grow our share of wallet with our existing customer base.
We continue to see a double-digit percent uplift in overall case growth with customers in the program.
And we will be in a total of 20 markets by the end of 2025.
Given the success of both Pronto Legacy and penetration. The overall program is on track to deliver over 900 million in sales this year. And we now believe it will reach 1 and a half billion dollars in sales by 2027.
Up from the 1 billion dollars that we've previously discussed.
Beyond Pronto. We remain committed to investing in the business to fuel growth and enhance operational efficiencies.
I'm excited to announce that. We began limited shipping from our first new semi-automated facility in Aurora Illinois. Last month.
This 310,000 square foot Distribution. Center is a state-of-the-art facility that will enable us to be more efficient accelerate productivity.
Improve our obsc, QC metric, and inventory accuracy and further, reduce accidents and injuries.
Finally, we broke ground on a semi-automated expansion in our distribution center, in Austin, Texas, which will effectively expand our capacity in another high growth Market.
Targeted investments in semi-automatic will support our growth initiatives and help us accelerate. Our supply chain Excellence work while delivering strong Capital returns for the business.
moving the slide 8, our profit pillar,
our consistently strong execution, drove adjusted gross profit growth during the second quarter and the first 6 months of the year,
Second quarter adjusted. Gross profit was 1.8 billion up 5% from the prior year driven by volume growth improved, cost of goods. More disciplined Inventory management and increased private label penetration,
Our strategic vendor management initiative has delivered more than 50 million dollars in year-to-date cost of goods savings and for the full year, we expect to drive more than 110 million.
As we realize these benefits, we are reinvesting a portion of those savings to help accelerate growth.
And we now have line of sight to exceed our 2027 long-range plan commitment of $260 million.
private label penetration with our core independent restaurants grew by more than 80 basis points to over 53%.
Enable us to deliver significant value as we help customers offset inflationary pressures with lower costs.
Before passing it to Durk, I'd like to highlight 1 of our distribution centers and Associates.
Last month, several US Foods, military veteran Associates from our Manasses Virginia distribution center and I took part in a wreath laying ceremony at the Arlington National Cemetery, Tomb of the Unknown Soldier to honor the sacrifices of our nation's service members.
We are proud of our veteran, Workforce and remain committed to recognizing the leadership, integrity and service that our military Community brings to US Foods.
And we're committed to increasing veteran new hires through our mission 2030 recruitment initiative in which we intend to hire an additional 3,000 military veterans by 2030.
I thank our Manasses team, our veteran associates across the company, and all veterans for their service.
Let me now turn the call over to Durk to discuss our second quarter results and our updated 2025 guidance.
Thank you, Dave. And good morning, everyone.
Our second quarter results, demonstrate the consistent execution of our strategy and continued progress on our self-help initiatives.
We deliver Topline growth and margin expansion, combined with a creative share BuyBacks, which resulted in strong double-digit, adjusted ibida and adjusted EPS growth.
Starting on slide 10, second quarter, net, sales increased 3.8% to 10.1 billion dollars driven by case, volume growth of 0.9% and food cost inflation and mixed impact of 2.9%.
We increased volumes with our Target. Customer types of independent restaurants, Healthcare and hospitality.
Despite a dynamic macro, we grew Independent Restaurant, organic volume 2.3%.
Healthcare continues to perform well and grew 4.9% while Hospitality grew 2.4%.
Shifting to our financial performance, we delivered strong earnings, growth and margin expansion. I'm pleased to report that adjusted EBA increased 12% from the prior year. Achieving a quarterly record of 548 million.
this growth was fueled by consistent progress, of our initiatives aimed at driving profitable volume growth, and sustainable growth profit, gains coupled with disciplined, operating expense management,
As a result, adjusted EBITDA margin expanded by 40 basis points, achieving an all-time high of 5.4%.
Finally, adjusted diluted EPS increased 28% to 1.19 per share.
Our strong adjusted. EPS growth is powered by our earnings growth combined with a creative share, repurchases, and continues to significantly outpace adjusted Eva dog growth.
We expect to maintain his Trend as we deploy our robust and growing cash flow to invest in the business to drive profitable growth, and execute additional BuyBacks.
Turning to slide 11.
We again drove operating leverage gains through the execution of our initiatives, including strategic vendor management, private label, penetration and a new initiative, targeted to reduce inventory losses.
Adjusted gross profit per case improved 32 cents or 4% compared to the prior year.
A large part of the performance is driven by the success of our Inn Place strategic vendor management initiative to improve cost of goods sold.
As Dave highlighted earlier, we now have line of sight to exceed our 2027 long-range plan commitment of $260 million.
We have made significant improvements in more effectively managing inventory on hand in recent years. While at the same time improving customer service levels.
To that end, we've made great strides on a new initiative to eliminate waste and reduce write offs. The focus here is on reducing losses from products. The can't be sold due to damage or spoilage from improvements in process and insights.
As a result of our actions, we expect to reduce inventory losses by over 30 million dollars in 2025 and believe there is further savings opportunity in 2026.
Adjusted operating expense per case increased 9 cents or 1.6%.
We continue to offset a considerable portion of operating cost inflation by driving productivity Improvement in both operations and administration through eliminating waste in our supply chain and instituting greater process discipline across the business.
As a reminder, indirect spend is a 1.
We are on track to generate 45 million in total savings this year, which is about 15 million above last year.
As a result of the strong, execution of our strategy, adjusted ebit Opera case, increased 25 cents or 11% to a record high of $2.52 cents.
Moving to slide 12.
US Foods continues to generate strong cash flow. Funding record capital investment to maintain our business support growth and drive attractive returns, while also, delivering on our commitment to return Capital, to shareholders through share repurchases.
Year to date our operating cash flow.
Increased by 104 million to 725 million driven by earnings growth.
During the second quarter, we significantly accelerated the pace of share buybacks as we repurchased $250 million of shares overall. We bought a total of 3.6 million shares for $273 million so far in 2025 and have $800 million remaining on our $1 billion program authorized in May of this year.
Finally, we ended the quarter at 2.6 times. Net Leverage.
Down from 2.8 times at the end of last year. And well, within our stated 2, to 3 times, target range,
our debt structure is strong and we have no long-term debt maturities until 2028,
Now, turning to our guidance and modeling assumptions, on slide 13.
Given our year to date, performance and outlook for the remainder of the year, we are updating our fiscal year 2025 guidance.
We can continue to expect net sales, growth to be in the range of 4 to 6%.
Due to our solid progress this year and our ability to deliver balanced profitable growth and enhance margins, we are raising the low end of our guidance for adjusted ibida and adjusted diluted eps.
We now, expect adjusted, EBA dog, growth of 9 and a half to 12% and adjusted diluted EPS growth of 19 and 1.5 to 23%.
We also now, expect interest expense to come in, slightly lower at 300 million to 315 million.
I'm pleased with the progress we have made this year on execution within our business.
As we navigate the dynamic macro we continue to grow our Top Line.
Gain share, expand our margins and deploy, our strong cash flow toward our Capital priorities, and we remain committed to achieving the financial Targets in our long-range plan.
With that, I'll now pass it back to Dave for his closing remarks.
Thanks, Durk as we close this quarter, I am encouraged by the progress that we've made in driving strong. Profit growth. Executing our self-help initiatives in the ongoing opportunity, we have ahead to drive significant value for our stakeholders
We operate in a large fragmented resilient and growing industry with our focus on Independent restaurants, Healthcare and Hospitality, which are the fastest growing and most profitable customer types.
And food away from home, continues to steadily increase, a multi-decade trend that we believe will continue.
US Foods is a national leader with significant, sustainable advantages, and the only Pure Play Us focused Broadline, Food Service, distributor with national scale.
We will remain disciplined with our Capital allocation strategy, which will enable us to be a consistent double-digit earnings compounder for many years to come.
Before we move to Q&A, I want to address the recent speculation about a potential transaction with Performance Food Group.
many of you know that as part of our commitment to generating long-term profitable growth and creating shareholder value,
US Foods regularly considers accretive tuck in m&a.
And evaluates potential strategic opportunities.
We believe that a combination with PFG has the potential to create significant value for both companies and our collective stakeholders while enhancing competition in the food service industry.
We approach PFG to work with us, to explore the merits and opportunities of a combination.
To date, PFG has declined our invitation to do. So.
Let me provide some thoughts about the Strategic rationale of a potential transaction based on our knowledge of food service. Both companies
And where the industry is going.
We believe a combination will bring together the best of both companies, resulting in meaningful economies of scale.
Expanded growth opportunities.
Operational efficiencies in a differentiated go-to-market offering based on service excellence.
Industry-leading digital capabilities, and a strong customer-centric sales force.
We Believe customers would further benefit from the broader product offering our strengthened ability to compete in the marketplace and increase efficiencies.
We believe the combination will result in a thriving inspired culture supported by investment in the development of Associates.
Finally, we estimate a combination of would generate meaningful, multi-year synergies and significant opportunities for profitable growth.
And shareholder returns.
Our ask a PFG is simply to work together to further understand the merits and opportunities of a potential combination.
At this time, we have no further information to disclose on this topic and will not be taking any questions, regarding our Outreach to PFG.
Regardless of the outcome, and I want to be crystal clear about this.
I remain highly confident in US Foods future.
And our ability to deliver our long-range plan and financial algorithm.
As a reminder we expect a delivery 5% sales kager 10% adjusted IBA kager. At least 20 basis points of annual adjusted EBA margin expansion and a 20% adjusted, EPS Kerr through 2027.
With that Jordan, please open up the line for questions about our results.
just as a reminder, if you'd like to ask the question press star 1 on your telephone keypad,
Your first question comes from the line of Lawrence Silverman from Deutsche Bank. Your line is live.
Thanks so much. I want to try to follow up a bit on your last comments. Dave, you talked about, you've talked about a preference for more tuck in Acquisitions rather than anything. Transformative obviously pfgc would be pretty transformative. So can you just talk about any changes?
To your philosophy on M&A, given the openness to engage with performance.
Yeah, really no change to our philosophy. And I, you know, I would probably Warren, just leave it with my prepared remarks and, you know, in that I stated that, you know, the company from time to time, explores strategic opportunities, to create value for all of our stakeholders and I would, um, just point you to that comment.
Okay, there on the traffic chain restaurant traffic across the industry. Improved nearly 200 basis points, caught over a quarter. What are you seeing from the Independent side on at an industry level? Did it accelerate at the same Pace? Are you seeing it? Less than that? Um, any color in terms of those Dynamics would be helpful.
Yeah, I think, um, let me start with the chain piece because you asked about that first the 200 basis points Improvement and that accelerated, um, you know, throughout the quarter versus q1, but it was still down over a, a 100 basis points in the quarter, but we're encouraged by that improving momentum Independence. You know, according to sirana accelerated, as I mentioned, in my prepared, remarks about 100 basis points slightly less than that. Um, and so, you know, it's improving but not to the extent we'd like to see it, but I'm hopeful that uh that will continue to improve and we've kind of seen the turn on the bottom here. Um for our results. You know we we accelerated our case growth within dependents throughout the second quarter. As I mentioned in my prepared, remarks ended up in June about 3 uh that carried over to July. And uh we're encouraged by what we see in the early days of August so far.
Thank you very much.
Thank you.
your next question comes from the line of
Brian Harbor from Morgan Stanley. Your line is live
Hi, this is Hillary lie on for Brian Harbor. Um, you know just want to talk about the sales guide and the sales Dynamics for the court. So you know, you're tracking around, you know, 4% year to date at the low end of guidance. So what kind of gives you guys a confidence to, you know maybe reach the midpoint or even higher for the rest of the year?
Yeah, I had I pointed 2 things and um you know, as we commented we did have a strategic exit in the chain business early in the second quarter. Uh we have since or in the process of onboarding a few new Concepts and we've we're encouraged to and believe that that will accelerate in the back half of the year and my comments just uh, to the last question on the independent side, uh we've seen acceleration as we finish the second quarter, we're encouraged by what we see in in July and August and we would expect those volumes to accelerate in the back half of the year as well.
Just to follow up. Um,
You know, inflation seems pretty tempered this quarter compared to Prior quarters and you know, from what we've been here compared to what we've been hearing across on the in restaurant industry. So could you talk about what you're seeing particularly uh, kind of interested in, you know, beef and eggs? As we've kind of seen that uh, inflation, those categories go up the past couple months.
And this is Derek. You're right. It has a tempered. So the quarter was less than it was last quarter. Uh you've seen uh several Center play categories to your point, either moderate or see some sequential deflation, both eggs and beef, squarely fit within their, I'd say, you know, you you see broadly speaking grocery continues to see, very modest inflation and center of the plate. Overall, as a basket is still seeing a little higher inflation. But as you pointed out, definitely seeing some moderation for where it had been. So while within the range of the 2 to 3% that we all talk about that we like as an industry and you see through the first half of the Year we're basically right on between that and mix with our 3%. That's embedded in our modeling assumption.
Your next question comes from the line of John heinbockel from Guggenheim. Your line is lies.
Hey, Dave wanted to start with um your thoughts on uh expanding the sales force, right? I I think you've always said, I, I guess mid single digit, 4 to 5.
Thoughts on that today, sort of the quality of, um, of people. You're on boarding.
And then I know it's been a bit of a struggle, right, for all of you guys to improve wallet penetration.
you know, is is there, is there something that can uh sort of jumpstart that uh, you know, going forward or
Uh, that that's just going to be a challenge for for all of you.
Yeah, no, good morning John. Appreciate the questions. Um, yeah, we will stay in that mid, uh, single digit, you know, I think I have bracketed around the 4 to 6%, uh, sales force growth. And I've I've been trying to be clear about regardless of what's going on with the macro. We think that is the right number for us, uh, in order to be able to support the development and onboarding of those sales reps, um, and and feather them into our organization. So we don't anticipate anything changing that. Um, second, uh, question you had there was around the quality of the sellers. Uh, I I continue to be very excited about the quality of the incoming hires that we've had we've seen no change or degradation in that we are able to attract high-quality sales Talent uh into the organization.
And I think to your point around penetration, you know, the industry has been challenged for, you know, a couple years, we're just coming off of 8, consecutive quarters of Black Box data being down quarter over quarter, uh, and and so, penetration has been a challenge Independence have not been immune to that. I will tell you that I was encouraged to see our penetration albeit still pressured. Uh, improved from q1 to Q2 slightly on the independent side. Uh, so we think that, uh, is, is a, is a turn potentially and, and, you know, a sign of good things to come, but I would say the thing that we're most excited on at penetration side is Pronto, um, and as I've stated before, you know, that, that enables us to compete against the part of the market, particularly the specialty suppliers that historically. We haven't had the service model to compete against
Uh, and with the uplift, in case growth, we're seeing as we expand Pronto across the company. You know, that gives me, um, real real encouragement around that penetration ramping up in the future.
And then, uh, just as a follow-up, right? Um, I I don't think you talked about UMAS and where we are in that, in that role out and its contribution to productivity. Uh, but, you know, where are we? And how do you, how do you think about that relative to the the daycare contribution?
Yeah, great question. I I didn't mention UMAS this morning, you know, we have uh youmust across 37 markets and we're currently in live deployment and an additional 10.
Uh, by the end of the year, we expect to be um live and complete across more than 60 of our 74 markets. So we haven't forgotten about UMAS uh with things like the cart. Uh that has certainly taken the priority for us. And as you see, you know, we've ramped that up now to 65 markets, covering 90% of our miles. It's really just been a prioritization effort for us John. Uh, but I'm, I'm pleased with the progress we've seen in in UMass the consistency in our operating practices that that brings. And uh I think that means good things for productivity um, and the quality of product that our customers are going to get in the long term. So we're moving it all ahead.
Your next question comes from the line of Kelly Daniel from BMO Capital markets, your line is live.
Good morning. Thanks for taking our questions.
Uh Dave um the quarter and and the year and and the last few quarters continue to be strong on a bottom line. Um perspective I guess there's a little bit of investor questions just about the the top line and the case growth. Um, and if there is starting to get to any risk of maybe cutting expenses too aggressively, um,
Maybe, can you just talk to that and why? That's maybe not a concern or something that investors should worry about and, and maybe just any sort of timeline on
When we should expect that case growth and EBA growth to get a little bit more in balance with your, with your longer term plan.
Yeah, I'd point you to my earlier comments around the expectation that that case growth would. Um,
You know, continue to accelerate in the back half of the year. We've got line of sight to that happening. I feel really good about it. And I think Kelly, you know, for the past 18 months or so given the industry pressure, our ability to drive the double digit, EB better growth and hit our algorithm in the new long range plan. Uh, should give investors confidence that as the volumes come back in the industry, and we continue to accelerate our growth on the top line. Uh, it's really going to mean, very, very good things across the p&l. Um, I'm not concerned, personally, obviously, I'd like to see the Top Line, be stronger. Uh, we're working on that aggressively and I and I have an expectation that it, it will do just that.
Hey, Kelly. The other thing that I would add is if you look at what's driving a lot of our margin expansion, it really isn't, uh, just an Opex reduction. Its we are seeing some good productivity, offsetting a portion of, uh, um cost inflation. However, we've got a number of the initiatives across gross profits, whether it be the cost of goods, the customer, mix private label, the inventory management that we talked about, but are all contributing. So there's not a single thing. And I think it really demonstrates that portfolio of initiatives that we have faced throughout our long range plan, and that's why we have such confidence in our ability, to continue to deliver on this outcome. And the last thing I would say there's, you know, I came in day, 1 2 and a half years ago, talking about the importance of 3 to 5% productivity. Uh, you see us delivering that and as Durk says, all the time, we are doing this in a very healthy and sustainable way for the business.
Thank you.
Thank you.
Your next question comes from the line of Alex swaggle from Jeffrey's. Your line is live.
Hey, thanks. And uh, congrats on the momentum here. Uh, I wanted to ask on the net new independent account growth, how that's been accelerating. I know that's a key driver and source of disability and confidence. Uh, if you just hitting the, the independent case growth targets and you had talked about the New Gen AI automatic order guide, and
I know that was rolled out a couple quarters ago and was driving some of the acceleration and March and April and I imagine that's continued, but wanted to get a sense for just how fully your sales team's already learning how to fully harness, some of this. Um, and and the learning curve there, I know it sometimes takes a little bit but um, just wanted to kind of understand what that learning curve looks like and the potential benefits ahead as as they start to figure that out and get the muscle memory and, you know, use these tools better and really set in and
um,
maybe just a little bit more color there. What gives you confidence?
Yeah sure. Good morning, Alex and thanks for the questions on the net New Generation, you know, we're excited that we had um, you know the highest levels since the fourth quarter of 2023. And as you hear us, say all the time, uh the lifeblood of our growth is that net new account generation. So it's clear. Our teams are are very focused on that and as we continue to take market share and onboard new, net new customers that also informs my confidence in the future of us. Continuing to ramp up that growth. Uh, so I feel very, very good about that. Our sales teams intensely focused on that and will remain focused on that, you know, well, into the future, and to your point on the generative, AI stuff, we continue to deploy that across the company, you know, the automated order guide. We spoke about, um, continues to get very good traction and we're making that very easy for our sellers, uh, to adopt and uh, just help make it easier.
To create, you know, the right recipes for our customers to to drive that growth around their proposals. And it's it's being well adopted and well accepted by our sales force. So we continue to expect good things. Um, there we continue to deploy AI across, not only the sales part of the business, but also internally around our replenishment organization. The way we do labor planning AI is here to stay, and we are embracing it fully to drive profitability growth productivity and efficiency for our teams.
Got it. Thank you. And I had a follow-up on the cost of good vendor management initiative and you talked about reinvesting, a portion of the savings this year to further accelerate the growth. And is there an example what that means and
How we should think about that.
Overall Alex, that would be and this is not new. Uh we we do this regularly and as part of driving these savings portion of giving a portion of a back through typically it comes in the form of whether it's customer, promotions, customer incentives, or in order to again pass some of that savings back on the customers. That's the primary way. You see it show up.
But again, it's not new. It's as we drive these savings that have driven them; that's what we do.
Your next question comes from the line of Ed Kelly from Wells, Fargo. Your line is live.
Hi. Uh,
Given, you know, we've learned a lot on this call. Um, if you could just maybe assess the industry for us, you know, at the moment you know you think about uh you're driving a lot of self-help so it's not surprising to me that you're very confident in you know, your 3 year outlook, but the industry has been soft there and I'm curious like taking a step back. Has your view on the industry, you know, started to change at all related to that or do you just simply attribute it to the macro? Um,
Is that a catalyst at all, you know, for thinking about things like, you know, whether it's more transformational m&a, or maybe even like leaning in on tuck-ins? I'm just kind of curious because ultimately, I think, what we're all, you know, sort of wondering is like the case volume targets that you laid out over the 3 year, whether you can, you know, get back to those numbers
Yeah, I I believe we can with 1 caveat and and we were clear at investor day you know that that 5 to 8% independent case growth. If that's what you're referencing was predicated on 2% traffic growth which was historical in the industry and as excited as we are about, you know, what seems to be a stabilization in the industry and blackbox improving and all that. Um, you know the industry was was still challenged in pressured and I feel that it's uh, I would describe it as soft but stable at this point softer than we'd like to see. But stable, it's certainly not getting worse and look I I do attribute it to the macro as we've been talking about for a long time, which is seen a lot of pressure. You know, more recently, you've got tariff impacts and while that is a very minor impact to our company and to our customers, uh, it's a big impact to the consumer, right? And I think that uncertainty is, is kind of kept a little bit of the pressure and the lid on on the industry for a while. Now, I fully expect this industry is extremely resilient as I said in my
Prepared remarks and continue to say, uh, I believe there's a day coming, hopefully sooner than later where we get back to that standard growth piece of it. But in the meantime, we continue to take market share support, our customers Drive costs and productivity and make sure we're delivering as efficiently and cost-effectively, as we can for our customers and importantly position ourselves with our share gains to drive that Top Line growth into the future.
All right, and just 1 quick followup Healthcare Hospitality um sequentially. You know, a touch slower, not a big deal, um but just kind of curious as to what the underlying momentum of demand looks like there. Um what the pipeline looks like on the new business side and and how you're thinking about the back half?
Yeah, pipeline remains strong in both of those. Um, you know Healthcare we continue to take share very solid numbers. Uh Hospitality has followed a little bit more like the local customer piece of it and and recall that historically we've been, uh, over indexed, a bit to lodging. And so as you see some of those consumer pressures, you know, less less travel, those sorts of things. Uh, we've had a little bit of impact there but the pipeline remains strong and uh, We've shifted our Focus as we've talked about before a bit away from lodging to drive. Growth in other segments, that are growing inside a Hospitality. So, we've got a solid Pipeline and we expect growth in share gains to continue in both of those.
Your next question comes from the line of Jeffrey Bernstein from Barclays. Your line is live.
Great, thank you. Uh my first question is just on the the independent case growth uh I think you mentioned. You're up now, 3% or so in June and July and I think you mentioned even early thought on August. Um, just wondering whether you're seeing, I think you just said, stable. Um,
it would seem like it's been
somewhat volatile. I'm just wondering your level of confidence in that further acceleration in the second half.
Small players. So just your level of confidence that you can get that independent to accelerate further from here and then I had 1 follow up.
Yeah, we do have confidence, um, Jeff and and believe you know, line of sight to new customer onboarding and all that while they're not as large in any 1 area as as a potential chain on boarding, uh, you know, by region, and by market, we do understand what our pipeline looks like. Um, that's informing the confidence as well, as what I had previously mentioned around our share gains, uh, and our continued focus on net account generation, so feeling good about my commentary there.
Got it. And the follow-up is just on the um,
Chain business. I think he said down 4% for the past quarter but you have some unique drivers there. I'm just wondering with the new account you're adding like, how do you think about the right balance of Chain versus kind of total restaurants and how you think about the
The margin of those chains, because it does seem like, from an independent side.
You know, you're hiring at a mid-single-digit clip, but maybe growing a little bit below that. So just trying to figure out how you think holistically about balancing, um, kind of more of the uncertainty here on a dependence versus perhaps the consistency of chains, but yet the different profitability profile of the two. Any thoughts would be great. Thank you. Yeah, yeah, we've got a good question. We've got, um, you know, a large portfolio of chain business. We will always have a large portfolio of chain business. I don't think the recent pressures of the industry or anything has shifted our strategy at all, which we've always said is an optimization.
Play with the chain portfolio, it's not an area. You will see us invest capital in to, to drive growth to support. But it's very, very important base load for our operations and and when I say optimize it's exactly what you see playing out in the second quarter. Uh we'll continue to look to optimize the margin profile um and find the right change that support uh where we have capacity across our network uh to to base load those operations and and drive it consistent uh volume approach to that. So nothing's really changed in our strategy and I don't expect it to
Your next question comes from the line of Jacob. Akin Phillips from malus research, your line is live.
Uh hi. Good morning. Uh, so first I wanted to ask uh if you could give a bit more color on Pronto, raising the the the target seems good but I know initially there was some concern about, I guess. Uh, I don't want to call cannibalization, but you had to like make it clear that the premium service. So
Any update on that and then any update on like frequency of use and how it affects like yeah, on our customer level.
Let's say the last part of your question again. Jacob, how it affects. What?
Uh like from a customer perspective, is it incremental or are they replacing some of their current like drops with pronto?
Yeah, so just uh just high level again. You know, we started Pronto several years ago, what we call Pronto Legacy was aimed at new customers, bringing those on board and it was just a little over a year ago where we started to to drive what we call Pronto penetration and to your point. Our cautious approach to that out of the gate, uh, was aimed at at, uh, 2 things and you set them. Both 1 is making sure that we had the right margin profile, because, as I said, we're competing largely against specialty, suppliers which command a premium for the service, and secondly, making sure we weren't cannibalizing, our broad line business, and we've convinced ourselves of both. That's why we've had a thoughtful ramp up in Pronto penetration. We're in 15 markets now. Uh, I said earlier, we'll be in a few more as time goes on encouraged. Very encouraged. Uh, by The Uplift we've seen in case growth there. Uh, and importantly, again, that's opening up a part of the market that we didn't have a service offering for previously with Pronto penetration. So I, you know,
I talked about Pronto all the time. I'd love to talk about it. You know. As as long as you want to chat, I couldn't be more excited about the Pronto platform that the team is built here and what it means for the future and all that informed, our confidence to take our, our Target up from a billion, to a billion and a half, by 2027, good things, happening in Pronto and more to come.
Jacob, when we talk about the double digit, uh, increase in those, customers are in the program that's on a net basis. So we'd still do watch for cannibalization uh across in in penetration for those customers using both.
Years ago, maybe by customer type and geography, potentially.
In terms of market share targets. Um, you know we want to gain as much market share with our 3, Target customer types as we possibly can. You know, I'm encouraged by our consistency and our market share gains particularly with Independence and Healthcare. I expect that will continue for a long time to come. And then as I said earlier, you know as that that macro drop back uh backdrop strengthens through the course of time, given the market share that we've consistently gained that's going to mean very very good things for us as we get a a macro Tailwind which will happen.
Market share. It's really a steady march, and as Dave, you know, as we talked about with the 17 and 19 quarters in a row on Independence and Healthcare, it's every quarter. It's not a big pop; you continue to gain and continue to build upon. That's why that focus on the customer and the differentiation becomes important, as we continue to gain market share quarter after quarter.
Your next question comes from the line of Mark Cardin from UBS. Your line is live.
Good morning. Thanks so much for taking the questions guys, um, to start. I wanted to dig in a bit on the consumer. You mentioned. Broader, tariff. Pressures continue to build more outside your industry that than within it. But if this continues and we see CPI, begin to outpace wage growth. How impactful is that? Historically been for demand growth. Would you expect to see much trade between channels trade out to food at home? Just your thoughts there.
Overall, yeah, we've seen the the consumer, you know, and the demand be, you know, again relatively stable as Dave talked about, so still not at the level of growth historically. But you know, the the fact that people still like to go out to eat as a positive and has been for multiple decades.
You do see operators. Uh, it's a Brazilian group and they continue to find ways, to, to drive, uh, value and get, get customers in the door. And so I know from that, I don't have a whole lot to add. I think that we do find, you may remember, I talked about this a few times in the past is, there's a study or 2 that's been done by Third parties that showed through multiple economic Cycles up and down. People consistently spend a portion of their, uh, the same 4 or 5% of their pay on dining out. And now they may to your point, May shift a little, how they spend it. But overall, it is something people continue to do. And
I think that's encouraging and you know, our expectation is that Independents do continue to uh, be a bigger better factor of that over the long term.
That's great. Thanks and then on your independent case growth are you seeing any pockets of particular Geographic strength or weakness any impacts in Border regions and then just as a clarification? Did Freshway have any impact on your independent case growth?
Uh, second 1 know. Um, immaterial, you know, some light impact on the other 1, you know, I I would just point to the strength uh, that we have in the Southeast and in the south in particular. And to your point, I mean, we have seen some softness uh, particularly in the Pacific Northwest, uh, upper New England, where, you know, we see less folks coming across the border this summer than, than, maybe in, in normal times and just a little general softness in the west relative to other regions nothing that's hugely material, but, uh, you know, it does vary a bit.
Your next question comes from the line of Peter S. from BTIG. Your line is live.
Great. Uh, thanks for taking the question. Um, I guess a couple questions first on Capital allocation, um, which share a repo, you know, given the potential conversations with PFG. Just curious, how you're thinking about Capital, allocation, are you going to continue to be aggressive with Cher repo or uh, will you
You you retain some dry powder? I guess that's my first question.
I'm not going to go into the second part. So again, Dave sort of made our comment on that, but ultimately we think Q2 is a good proxy of our ongoing cash flow and how we think about share repurchases. And, you know, we always balance sort of what we spend on that versus our other capital priorities. But I’m pleased that we're able to continue to invest strongly in the business and yet at the same time, deploy capital to share repurchases while lowering our leverage and continue to be sort of the strongest out there.
And then, how much above target do you expect to be in 2027 on that $260 million? Thank you.
Well, we're not going to specifically call out the uh, the variance versus the 260. Again, it's still relatively early, but I think that the thing to take away is the confidence that we have from the work that that team has done in order to to be able to, uh, give us not only good progress to date, but good line of sight as to, uh, the benefits we can get over time. So quite excited about that. I think the other piece, so again, not specific on what we're reinvesting. But again, that's always part of, as we drive benefits from whether it's gross, profit initiatives Opex initiatives and we consider where is the the place that we can reinvest and against continue to show value for the customers. So not A New Concept. Uh but something that I think again, when you come back to that portfolio approach, we take to how we drive value. It's just it's another piece of it.
Your next question comes from the line of Jake Bartlett from Truist Securities. Your line is live.
Great, thanks for taking the question. Um, you know, my, my first is on turnover in productivity, uh, in the last call you gave her some, uh, uh, some updates and some quantification of of how much turnover has improved. Um, if you could just um, you know, build on that, just see if there's any more progress. Um, I think you were back to pre-cooking whether you've you've built upon that.
Um, whether, um, you've kind of reached a steady state with turnover.
Yeah, I would just say Jake. Um good morning. Um,
You know, we've got a very good level of turnover in both drivers and selectors. And uh you know, as I said last quarter, we were back to pre-covered in line of sight to that in both I would say, you know, we've had consistent performance since then, um, not something that's a concern for the business, uh, at all. And we'll continue to look for ways, um, to to drive that turnover down, even further. But we feel good about where we are, Staffing is not an issue for us. It hasn't been for a long time. Uh, we feel good about our employee turnover,
great. And then and then the, the next is, is really a follow up on, on the comments on, um, independent. Um, case growth, I guess for, for the industry versus your performance. Um, you improved by, um, about a 100 basis points, your yourself, and I think the industry improved 100 basis points. I just want to kind of make sure, um, that that's, um, the case that basically kind of holding share, or or maybe maybe building, but if you can just clarify that, um, as well as the comments on June and July and the 3%, whether um, you know that reflects um, you know, continued Improvement for the industry or or whether maybe your market share, gains are accelerating.
Yeah, my my, I'll take the second 1. First the, um, my comments were specific to us in terms of our June and July performance at 3% and encouraged by what we see in the early days of of August. Um, and I I would say further Sakana data, uh, we grew faster than the market rebounded, with Independence and hence my comments in the script that we took share in every month of the second quarter.
Your next question comes from the line of Care and Hope House from City. Your line is live.
Hi, thanks.
Jen. Um, it's great to hear that there is a little bit. Um I think more strength in private label penetration year over year than we've seen uh growing 80 basis points still kind of the 53% mark. Uh, do you think we're getting maybe past that kind of Co Snapback era where it was a little bit harder to kind of build on strengths and maybe how you're thinking about that from here?
Yeah, good morning Karen. Thanks for the question. Yeah, we're excited about our private label penetration, which has been ramping up consistently for the past 12 to 18 months and to your point, uh, there was a real wall coming out of Co, you know, Supply was challenged for everything. And when manufacturers came out of Co, they weren't as interested in producing Our Brands as they were their own. And during that period of time, obviously our sales force lost confidence in selling our private label, uh, products just because we couldn't get them. Uh, that's been behind us for quite some time now. I'm
I’m really pleased with the ramp that we've seen in private label business, both with independents and in the rest of our business. Um, and importantly, I see no near-term ceiling to what that can be. We've got really good momentum. Our sales force is excited about our products, and I give our innovation team a lot of credit. Uh, we've got an exciting scoop launch plan for this fall. Uh, our products from the spring are getting really good traction. Uh, we'll continue to innovate those products and bring great new private label brands to market.
Great. Thank you.
Thank you.
Good morning, guys. Uh, my question is on the Descarte. How can I estimate the productivity gains we can expect once this is deployed across the remaining markets, especially as we continue to add new accounts? Is a 2% ongoing productivity gain estimate something we can think about? I have a follow-up.
Uh, good morning, thanks for the question. So we think the, the 2% that we've talked about is, is the start? You may remember I've talked about this before that, we, we're pretty thoughtful and we're putting it in that. We do think there's more, uh, productivity that will continue to come over the next few years, as we get it in place, but when you put something new like this in place, you don't want to turn the dials too hard. Because you don't want the, uh, whether it's the customer experience or the, uh, social experience to be 2 different. So we're we're very pleased. Uh, as we talked about Dave mentioned, uh, record cases per mile for the quarter. We are seeing that continued productivity, but just as much to come in the future years versus what we've already achieved,
Thank you and the other 1 is on the Aurora Warehouse facility. Can you discuss some preliminary economics uh for this facility uh understand its early but anything you can share on relative productivity compared to traditional warehouses and any initial learnings that you can be up uh up maybe apply to Austin.
Well it's uh it's very early so we're not going to get into specific economics at this point but you know as as we've talked a lot about we're excited about having this live and and ramping it up over the coming months. And you know, there will be learnings that come out of this, that will apply from Austin. But hopefully you can appreciate when you're, you know, multiple weeks in here. Uh you're still in the, you know, early ramp up phase but this is something that we do expect uh to improve both the quality experience for the customer for our Associates, as well as the the productivity so more to come as this gets in place for longer.
There are no further questions, I will now turn the call back over to David flitman from closing remarks.
Thanks everyone for joining us. Today, we're excited about our continued, consistent execution, in the business, uh, and the momentum that we have, we will be in earnings. Compounder for a long time to come. Thanks for joining us today. Have a great week.
Ladies and gentlemen, that concludes today's call, thank you all for joining. You may now disconnect