Performance Food Group Company

Hello and welcome to the Coremark first quarter 2020 investor call. My name is Michelle and I will be the operator for your conference. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session. And during the question and answer session, if you have a question, please press star then one on your touchtone phone. Please note that this conference is being recorded. I will now turn the call over to Mr. David Lawrence. Sir, you may begin.

Thank you and good morning, everyone. Today's call will be led by Scott McPherson, our President and Chief Executive Officer, and Chris Miller, our Chief Financial Officer. Before turning the call over to Scott, I will point out that Coremark intends to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act as noted in the earnings release we filed this morning. Please remember that our comments today may include forward-looking statements which are subject to risk and uncertainties and actual results may differ materially from those indicated or implied by such statements. Some of these risks are described in detail in the company's SEC filings, including our quarterly report on Form 10-Q. The company does not undertake any duty to update such forward-looking statements. Additionally, we will refer to certain non-GAAP financial measures during this call. You can find a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure and other related information, including a discussion of why we consider these measures useful to investors in our earnings release and our quarterly report on Form 10-Q. I'll now turn the call over to Scott.

Thanks, everyone, for joining us today on our first quarter call. Before I provide my comments on the quarter, I want to take a moment to reflect on how Cormark is maneuvering through the impact of COVID-19. From the day we assembled our COVID-19 task force in February, our mantra has been family and community. When referring to family, I'm talking about the amazing employees that make up the Cormark family. Ensuring their health and safety is our first priority and allows Cormark to maintain the integrity of our essential supply chain, servicing over 40,000 customers across North America. To that end, our vendor partners have done a great job fighting through the supply and demand challenges and our valued customers have been nothing short of spectacular as they provide essential goods and services to their communities daily. As we indicated on our April 14th press release regarding the impact of COVID-19, our company has certainly faced volume challenges with sales spikes in the first weeks of March, followed by significant sales declines in late March through the month of April. We also outline the steps we've taken to address these headwinds, including elimination of our 401 match, modifications to our vacation policy, and material headcount and work hour reductions in an effort to mitigate the impact of volume shortfalls. Despite the challenges, I am proud of how the organization has responded, making disciplined decisions to preserve the health of the Cormark family and the company. Circling back to the first quarter results, we performed solid and in line with our expectations. From a bottom line perspective, we grew EBITDA 19%, fueled by strong cigarette sales, continued growth in our non-cigarette categories, and cost leverage in our transportation and general expenses. Revenues for the quarter were driven by strong performance in carton sales, with year-over-year same-store cartons down approximately 2%. in January and February and up 6% in March. Non-cigarette sales also showed solid growth through the quarter despite the disruption caused by vape regulation and the late March impacts of COVID-19. Overall, gross profit margins finished slightly below prior year. Cigarette margins finished the quarter consistent with our expectation growing on a cents per carton basis. and non-cigarettes also improved, although below expectations due to mixed changes related to COVID-19. From an expense leverage standpoint, we saw strong performance in the quarter. Selling, general and administrative costs declined on a year-over-year basis. On the operations front, we saw solid progress in our transportation expenses with cubes per route increases throughout the quarter. Warehouse efficiency was impacted by the initial effects of COVID-19. including lower productivity, increased sick time, and costs associated with cleaning and personal protective equipment. In aggregate, we saw solid leverage with total operating expenses down as a percentage of remaining gross profit by over 200 basis points. Moving off the quarter results and in the spirit of transparency around the impact of COVID-19, I would like to provide an update on our sales trends so far in the second quarter and additional color on our continued steps to mitigate the pandemic's impacts on the company. Consistent with our April 14th update, we have seen continued downward pressure on revenues and margins thus far in the second quarter. Cigarettes and non-cigarette sales for the month of April were down approximately 3% and 20% respectively on a year-over-year basis. Margins in April continue to be impacted by both higher cigarette mix relative to total margins and higher tobacco mix relative to non-cigarette margins. The combined impact has caused total margins to decline in the range of 40 basis points in April. From a labor perspective, Cormark reduced headcount by approximately 1,000 employees in response to volume declines due to COVID-19. These actions were taken beginning in early April with most of the headcount savings realized by early May. We are achieving further labor savings by minimizing overtime costs and reducing work hours of non-exempt employees to better align to the reduced volumes. And finally, we continue to preserve our liquidity position through our cost reduction efforts, discipline around inventory management, reduced capital expenditures, and a particular focus on accounts receivable, which pose a risk to every business operating in today's environment. Chris will provide additional color on our financial performance and liquidity. Under the heading of business as usual, our leadership team remains focused on moving the business forward despite the complexity of operating during the crisis. On the technology front, we have greatly advanced our utilization of Power BI across our business, leveraging the technology for real-time operational metrics, customer data analytics, and as the intelligence backbone for our business continuity plan related to COVID-19. From a sales and marketing perspective, we are prepared to relaunch our Smart Stock program, providing a wider range of service offerings and business growth opportunities for our customers and our vendors. We are temporarily converting our center of excellence into a virtual customer experience, leveraging the vast camera and video capabilities, allowing us to bring value to our retail partners remotely. And finally, we continue to make meaningful progress on increasing the productivity of our finance and sales organizations. From a growth perspective, we were pursuing independent retailers, a meaningful number of sizable chain opportunities, along with wholesaler acquisitions before COVID-19 struck. We have continued to maintain these dialogues and believe we have a robust pipeline in place once the business environment settles. We are working hard to move these and other business initiatives forward, positioning Cormark to assist our customers in optimizing their retail offering as volumes return and providing Cormark a springboard for growth. In closing, I want to again thank the entire Cormark family. It's your commitment to working safely and providing great service to our customers and communities that will ensure the success of this company far into the future. I want to thank our customers for working side by side with us every step of the way and proving what strong partnerships can accomplish. To our vendor partners who have fought to keep our channel in stock during a period with unprecedented supply and demand curves, I appreciate your efforts. And finally, based on our first quarter results, we were well positioned to deliver another solid year, but obviously we, like every company in North America, have had to fight through this unprecedented world health pandemic. While we cannot be certain of the duration or magnitude of this crisis and its impact on our business, I am confident that we have taken the right steps to preserve the health of the company and to position Cormark to emerge quickly and lead our industry. I will now turn the call over to Chris for additional color on the quarter.