Performance Food Group Company

And welcome to PFG's fiscal year Q4 2021 earnings conference call. 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, Vice President, Investor Relations for PFG. Please go ahead, sir.

Thank you, Brittany. And good morning, everyone. We're here this morning with George Holm, PFG's CEO, and Jim Hope, PFG's CFO. We issued a press release regarding our 2021 fiscal fourth quarter and full year results this morning, which can be found in the investor relations section of our website at pfgc.com. During our call today, unless otherwise stated, we are comparing results for the same period in our 2020 fiscal fourth quarter and full year. Additionally, occasionally during our call today, as noted, we are comparing results to the same period in our 2019 fiscal fourth quarter and full year. The results discussed on this call will include GAAP and non-GAAP results adjusted for certain items. The reconciliation of these non-GAAP measures to the corresponding GAAP measures can be found at the back of the earnings release. Our remarks on this call and in the earnings release contain forward-looking statements and projections of future results. 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. Now I'd like to turn the call over to George. Thanks, Bill.

Good morning, everyone, and thank you for joining our call today. It is my pleasure to discuss PFG's fourth quarter results with you this morning. Fiscal 2021 was a dynamic year for our industry and companies. We started the year with depressed levels of sales and profit as our industry and the country struggled through the COVID-19 pandemic. But I'm thrilled to say that we finished on a high note, posting several record sales weeks during the fiscal fourth quarter, accompanied by a strong recovery in earnings. The past year has shown that the restaurant industry is resilient and determined to serve everyone a wonderful dining experience. Our customers have pushed ahead, providing a steady path towards a return to better times for us all. We appreciate all the hard work undertaken by our customers and suppliers, as well as the role PFG associates play in our country's food supply chain. On May 18th, we announced our intention to acquire Cormark, which will boost our convenience store capabilities and continue to expand our presence in the food away from home market. After providing more detail on the fourth quarter results, I'd like to spend some time discussing the strategic vision we have for Cormark. I will then turn the call over to Jim, who will review our financial performance. As we entered the spring, we had high hopes that a full restaurant recovery was beginning to take hold. From a sales perspective, it is fair to say that our expectations were exceeded as our case volume and dollar sales began hitting record levels soon into the fiscal fourth quarter. The result was over $9.3 billion of net sales in the quarter, excluding the impact of the 53rd week. We estimate our net sales to be approximately $8.6 billion, well above anything our company has achieved in our history, and an increase of 9.3% compared to the fourth quarter of 2019, including pro forma results for acquisitions. Compared to the fiscal fourth quarter of 2019, this results, included 14.9% net sales growth for our legacy food service business and 7.1% growth for Reinhardt, excluding the impact of the 53rd week. We are particularly pleased with our continued strength in the independent restaurant business. In the quarter, our independent case volume increased 69.2%. Independent sales reached 37.8% of total food service sales in the fourth quarter. a 4.4% higher percentage of total sales than just two years ago. Importantly, channels that had been pockets of strength last year, namely independent pizza, Italian, and Hispanic, continue to grow in the most recent period despite difficult comparisons as the market shifted to in-store dining. And our average weekly dollar sales results in July and early August were very similar to weekly results in June. Regionally, we still see strength in the southeast, southwest, and west regions. While our total broad-line service volumes remain down for the northeast and midwest compared to the same period in 2019, both regions experienced sequential improvement into June. Our food service independent case volume is now growing in every region compared to 2019. Our food service business has taken advantage of this period of strength, continuing to roll out and expand on our customer-facing activity with many new programs designed to support the independent operator in areas such as recruiting and cost control. Also, PFT expanded its Ghost Kitchen partnership to meet the growing demand of this segment. PFT's customer-centric operating model has delivered strong results through the challenges of the past year, and we believe our business is in a stronger position today than it was before the pandemic. Illustrating our strong position, we are seeing better results with new and existing customers and lower loss rate since March. Independent cases from new customers surged in the fourth quarter of fiscal 2021, representing the main driver of growth compared to 2019. Meanwhile, retained business has been very strong as dining restrictions ease through the spring and summer. At the same time, our lost business rate has decreased to the point that it ended the quarter below pre-pandemic levels. The combination of those three factors is what has driven our strong independent sales growth and positive business mix. All in all, our food service business is performing very well on the top and bottom line. Our integration of Reinhart continues to progress at We're above expectations, and we expect this momentum to continue into fiscal 2022. At Vistar, the recovery in movie theaters and office coffee remains slow, but we are seeing steady progress off a low base. Other Vistar channels, including convenience stores, retail, value, and corrections, have remained resilient. Those channels all grew sales in the quarter compared to fiscal 2019, excluding the additional week. We do expect theaters and office coffee to remain under pressure, at least through the summer, as continued office closures and a slow build in theater persist. As a result, Vistar experienced 43.4% sales growth in the fiscal fourth quarter, excluding the extra week. Of course, these strong top-line results in both of our segments do come with costs. As you all know, the labor market has been tight up and down the supply chain. While this is not a PSG-specific problem, we are not immune. With that said, our team has done an outstanding job in most markets managing the staffing issues, and we believe that the labor supply situation will eventually ease. Right now, we are focused on improving our service levels with the customers who are experiencing challenges. We recognize our customers also have labor issues, and we will push to get back to exemplary service levels as soon as possible. To wrap up the discussion of our base business, we are extremely pleased with the top line recovery and our company's performance during this period. Certain cost items have been near term challenges, but we believe much of this is transitory. We continue to invest in driving sales growth and have expanded on key partnerships with our customers to adapt to the changing landscape. With the efforts across our enterprise, we believe we are all situated for a strong fiscal 2022. Switching to Coremark, we are moving quickly through the closing process. Last week, we announced that the HSR waiting period expired with no second request from the FTC. As a result, the next step is the Coremark shareholder vote, which is scheduled for next week. Assuming approval by Coremark shareholders, we anticipate a close of the transaction in late August or early September. When we announced the Coremark acquisition three months ago, we were excited with the opportunity Since then, our enthusiasm has only grown as we continue to evaluate the potential for value creation that this transaction brings. We're also very pleased with the quality of management at both Cormark and E.B. Brown. Convene store distribution represents about $110 billion of total addressable market. We are particularly excited about the $55 billion food and food service portion of in-store sales, and we believe We're uniquely qualified to capture share and grow the overall market. Not only is food service the fastest growing area in the C-Store, it brings meaningful margins for both the distributor and the C-Store operator. We expect the C-Store mix to continue to shift away from low margin tobacco products towards more food service, boosting both sales and profit growth long term. We have continued to work with our current convenience store business to plan for an acceleration in food service opportunities. And food service is not the only area of value creation for PFT in the convenience channel. Currently, many convenience stores receive a significant number of deliveries from various direct store delivery suppliers. Over time, we hope to bring some of these suppliers to our network, helping the suppliers lower costs and achieve better margins. Adding sales to the PFT network and reducing complexity for the C-Store operators. We have been successful with this strategy at Vistar over the years and hope to see similar results in the C-Store space. We are incredibly excited to close the Cornmark transaction, welcome the new associates to PFG, and begin unlocking the value of this deal. We see significant top-line opportunities that we can take to the 40,000 customers Cornmark serves. We will continue to share more about the convenience store space as we move forward in this important strategic area. Before turning it over to Jim, I want to highlight some of our recent efforts in the ESG arena. ESG is an important focus area for our company, and we significantly stepped up our commitment in fiscal 2021. This included allocating dedicated resources to ESG-related initiatives, creating a reporting structure for our ESG activities, and heightened disclosure of our ESG-specific activities. In December, we published our first ESG report and expect to follow this up with an update by the end of the calendar year. Our upcoming ESG report will include additional details around our 2030 goals and objectives. Last month, we announced the Community Solar Project as the next step in PFG's journey towards delivering on our commitment to renewable energy procurement. Over the 20-year term of this agreement, PFG will purchase power generated from the 2.25 megawatt project, estimated to be about 3,000 megawatt hours annually. This is a step towards our goal of purchasing 10% of our consumed power from renewable energy by 2030. Our entire team is proud of our ESG efforts to date, You should expect to hear more in this area in the months and years ahead. With that, I'm going to turn things over to Jim, who will give you more detail on our fourth quarter and our financial position.

Thank you. Thank you, George, and good morning, everyone. Before I review our results for the fourth fiscal quarter, I would like to discuss some of the financial items. As George mentioned, our strong recovery continues. While supply chain labor-related cost pressures are not unique to our company or sector, they are an area of focus for us to manage. I am extremely pleased with how our organization has stepped up to the challenge and handled the situation, allowing us to deliver strong profit recovery in the fourth quarter despite the cost pressure. We assume that worker shortages, particularly for drivers and warehouse associates, will persist. However, we do believe that the market will ultimately stabilize and reach equilibrium. We also closed out the fiscal year with a solid balance sheet position, and this included total liquidity of $2.3 billion, which is an all-time high for Performance Food Group. We believe that our capital structure is in excellent shape. At the close of fiscal 2021, PFG had just over $2.5 billion of total net debt outstanding. Using our trailing 12-month adjusted EBITDA, this means we were approximately four times net debt to adjusted EBITDA at the end of the year, achieving the goal we set out at the announcement of the Rhinox transaction, well ahead of schedule. Despite depressed levels of adjusted EBITDA early in the year due to the impact of COVID-19, As you know, after the quarter closed, we went to the debt markets to pre-finance the Cormark transaction and retire $350 million of our outstanding 2024 notes, which had a 5.5% coupon rate. Oversubscription of our debt offering allowed us to upsize the issuance to $1 billion at 4.25%. We are very pleased with this rate, which we believe reflects both the strength of the company and its capital position. As George mentioned earlier, our recent sales trends in July and early August have kept pace with a strong finish to fiscal 2021, and we feel very good about the momentum our business has created. While we have not yet seen any indication that business will slow with the recent uptick in COVID cases, we are prepared for any change in the external environment. This includes our strong capital position, which we will not only use to support our growth profile, but also have in reserve in the event of another temporary decline in business volume. We certainly did not expect to see anything nearly as bad as what the country experienced in early calendar 2020. However, we believe that our company is in as strong of a financial position as we have ever been. One use of our balance sheet could be for strategic M&A activity. We are excited to welcome the Coremark team to our organization, hopefully within the next few weeks. In the meantime, we still have the reserves, the resources, both financial and organizational, to pursue other M&A opportunities if they were to arise and would enhance our business. This includes both potential transactions in the food service space, But as you know, these types of deals did not happen overnight and require significant due diligence from both the buyer and the seller. We want to protect our well-established reputation for a high-quality M&A process, and we will not deviate from our typical routine. Turning our results for the fiscal fourth quarter and full year 2021, a strong financial position is underpinned by our ability to generate cash and, as appropriate, reinvest behind our growth initiatives. In total for the full fiscal year, cash flow from operating activities was $64.6 million. This was down from the prior year as we continued to ramp up our inventory and experienced an increase in accounts receivable. The movement in working capital is a direct result of strong sales growth and a healthier operating environment. As we mentioned last year, our business typically generates cash in periods of sales declines as less working capital is necessary. However, this often reverses when the business builds back up, as we are seeing now. The capital allocation decisions we made last year and during the early part of this fiscal year had us well prepared for these investments. Importantly, we continue to see favorable trends in our working capital. For example, our accounts receivable aging schedule has improved significantly, including the smallest amount of receivables over 60 days due since the pandemic began. Similarly, while our total inventory level increased in the quarter to support higher order flow, June's days of inventory outstanding was near all-time lows at 21.2 days. Throughout the fiscal year, PFG invested $188.8 million in capital expenditures, largely to support our growth by adding additional capacity to our warehouse space. We continue to build capacity to support the growth in our business while also prioritizing more profitable business and making the right business decisions for our organization. With that, let's quickly review some highlights from our fiscal fourth quarter business performance. Note that when stated, we've adjusted for the extra week to provide numbers more comparable to a typical 13-week quarter. Net sales increased significantly in the fourth quarter to $9.3 billion, the highest level of net sales in our company's history. Adjusting for the extra week, this was a 49.6% increase over last year and 9.3% growth compared to the same period in fiscal 2019, including pro forma acquisitions. Our net sales performance was driven by a 55.8% increase in total case volume or 44.7% growth, adjusting for the extra week. Independent cases increased 69.2% in the fiscal fourth quarter. We could not be happier with the results in our independent business. Not only does this have a positive impact on our net sales results, it also provides positive mix to our profit. Total PFG gross profit increased 66.8% in the quarter to $1.1 billion and was up 54.9% after adjusting for the extra week. A reported gross profit margin in the quarter was 11.5%, up from 11.1% in the prior year period. On an adjusted basis, gross profit margins were 11.7%, up 66 basis points over the year-ago period and 17 basis points from the fiscal third quarter. The improvement in gross margins was due to better mix and some benefit from inflation. Food cost inflation moved higher as expected. Our weighted cost inflation was about 7.8% in the quarter, driven by increases in disposables and poultry products. As illustrated by our gross profit dollar results, we successfully passed along cost inflation and expect this trend to continue into fiscal year 2022. Gross profit per case was up 34 cents in the fourth quarter compared to the prior year period. In the fourth quarter, PFG had a net income of $31.4 million. Adjusted EBITDA increased substantially to $210.9 million. Please note that our adjusted EBITDA result for the quarter included a $6.4 million net benefit related to reserves for expected credit losses and cost of inventory write-offs. Early in the pandemic, we made the decision that credit-related reserves and inventory write-offs, while certainly impacted by the pandemic, were part of our ongoing operations, and as such, we absorbed these items in our adjusted results. With an improved operating environment, we are now seeing the benefit these items have flowing through our financials. While we continue to believe that it is appropriate to record both the ups and downs of these items as they occur, it is likely that some of these benefits will dissipate as the operating environment continues to normalize. Diluted earnings per share was 23 cents in the fourth quarter, while adjusted diluted earnings per share was 56 cents. In summary, we are extremely pleased with how we closed out the fiscal year. While there are certainly challenges in the market, PFG has successfully navigated a dynamic fiscal 2021. Our independent restaurant business continues to impress, outpacing the overall market and remaining well above 2019 levels. Our balance sheet is strong, which should allow us to invest behind long-term growth while protecting us from an unforeseen downturn in the market, and recent business trends have been strong, extending our current positive momentum. Organization is engaged, and we're pushing forward with important enterprise initiatives, we are specifically focused on our ESG efforts. We are very proud of how our organization and associates performed, and our success is directly attributable to their hard work. We're looking forward to closing the Cormark transaction, which we believe will generate long-term value for PFG shareholders and provide the company with another avenue for growth, particularly in the food service space. We look to build off the strong finish to 2021 as we move into fiscal 2022. And we appreciate your interest in Performance Food Group. And with that, we'd be happy to take your questions.

And if you would like to ask a question at this time, please press the star and 1 on your telephone keypad. you may remove yourself from the queue at any time by pressing the pound key. Once again, that is star and one if you would like to ask a question. And we will take our first question from John Hanbuckle with Guggenheim Partners.

George, let me start with labor costs right in the supply chain. It sounds like it may last longer than you thought a couple of months ago. Is that fair? And is the primary challenge Is it finding new people because of the growth you've seen, or is it existing employees are getting bit away and retaining them is a challenge? And then what do you do about that? Is there anything to mitigate that, or you just have to pay market prices for now?

Well, the challenge is, number one, getting new employees. And then the second challenge would be churn, you know, people that, that don't stay very long. They find the work to be too physical or something they don't like about it. Maybe they don't like the hours. As far as our core of workers not having issues there, and we don't know who we're losing people to. And that's just something that's hard to determine. What we do know is that we were for a period of time there losing drivers to over-the-road jobs, and many of those came back. And I think that had to do with just that, being out over the road and spending nights away from home. And they found that the additional pay they got for that job wasn't worth the change in lifestyle. But I do think that the employment issues are probably around for a while. We've done the best job that we could do to offer the right incentives. to attract people and to retain people. And it's a very localized situation. We have markets where we have been highly affected by a shortage of people, and we've had markets where we've benefited tremendously by not having that issue.

Okay, great. And then maybe there's a second topic, right? Going back on to C-Stores and Cormark, How quickly do you think, once this closes, you can begin to get the cross-selling mechanism in place, your guys and theirs? And I guess, is the opportunity more, I guess, would be more existing customers, right? Because new ones will have contracts that have to expire, or some of them will. So is it more their existing customers doing more on the food service front? And then lastly, do you think the potential is there, when I think about their non-tobacco growth, can that exceed performance legacy case growth? Think about apples to apples. Can their growth rate be higher than yours because of the share opportunity?

Well, I'll start with that food service ramp-up. You know, we, we've got some experience doing this with, with our involvement with EB Brown. Uh, certainly it was somewhat curtailed by COVID. Uh, it was a, it was a tough period of time for the food service side of the convenience business, but we've got programs put in place. Uh, you know, we're ready to hit the ground running. Uh, certainly we, you know, during this period of time, we're not able to do detailed. work with Cormark, but I can tell you that their senior people are anxious. They understand it. They see the fit between the two businesses. And, you know, it's not just in the food service area. I would put it broadly in the food area. And I think I would say that candy is a great opportunity for us as well. As far as what the growth potential there is, Certainly the initial focus will be on the existing customer base because they're experiencing, as I think anybody in distribution, they're experiencing the same labor shortages that we are. But I do think that it won't take long and we'll be pursuing new business, but that's where I believe the opportunities are going to be with their existing customer base. And of course, you know, we'll be early on focused on making sure that we deliver on the synergies I think that will be a little bit easier to do than it was with Reinhardt just because the SKU mixes are so similar. As far as growth, I think in the independent area that will do well, E.B. Brown has done exceptionally well in that area since we've owned them. But when you get outside of the independent, I think it will come in chunks, and that's something that that we'll be very transparent about and very communicative about. But it will come in bigger chunks when you get outside of the independent.

Thank you.

Thanks, John.

And we will take our next question from Alex Daigle with Jeff Rees.

Hey, good morning. I just wanted to follow up on the previous question, maybe just thinking about the magnitude, the impact on operating expenses related to the staffing during the fourth quarter and what you expect into the first quarter. Just again, trying to figure out when you think you kind of hit the peak of these incremental costs and start to see it moderate a bit.

Well, once again, I'm going to say that's a very localized you know, when you talk to the guys that run our companies and the ladies that run our companies, some will tell you that it's as difficult as it's ever been and some will tell you they feel they're over the hump and some just haven't experienced serious issues. So that's how much it varies by marketplace. So it's kind of hard for us to tell. I think one thing that will help us is as people come back to work and people go back to school is, you know, kind of that contract feeding area and the school area are areas that we don't participate very much in. So I think that if we continue to run the increases that we're running over two years ago and prefacing it where we don't get a big surge this time of year, I think we will improve.

And then on the rebound in the casual dining chain business, just curious how much that sort of recovery is driving your stronger than expected top line, and if you think there's opportunity to build some more share in that channel going forward?

Well, once again, I say this often. You know, we don't want to report on how any specific customer is doing. The chain casual diner, has not been a big contributor to our rebound. They have certainly rebounded, but not to the extent that our independent business has. And in many ways, that has been the more difficult part of our business to handle through this process.

Gotcha. Thank you.

And we will take our next question from, I apologize, Lauren Silverman with Credit Suisse.

Thank you. First on the core acquisition, you talked about the opportunity to expand further food service into the C stores. So can you talk about how that relationship currently works? Would you deliver to a customer from the Performance Food Service Division or E.V. Brown? And then if core is integrated into the business, is food service coming from Performance Food Service or core?

Well, you know, once again, we've had experience in that area with EB. What we have found is that if their food service offering goes beyond what we consider to be a certain point where we got from the SKU standpoint, and it's different by distribution center because they have different size coolers and freezers, but there is a point at which there's much more logic in delivering out-of-performance food service than there is delivering it out of Cormark or EB. And then we have decisions to make as to, you know, where we expand facilities to handle that business. Today, we do more convenience store food service business out of our performance food service than we do out of EB, significantly more. And they'll be comparable when we close on the Cormark acquisition. So I think it's going to be mixed as we move forward, but certainly our goal is to expand the food service offering within a core market EB distribution center as much as possible.

On gross margin, looking at the adjusted gross profit margin excluding the LIFO impact, it looks like it improves sequentially and year over year. Seems like food service growth margins were flat year-over-year, Vistar, nice improvement despite the elevated inflation. Can you talk about the dynamics of that gross profit margin? I think we've seen just across other peers, right, inflation weighing on the percentage. And then excluding core, how do we think about that gross margin percentage going forward?

Well, you know, much of our increase in gross margin is a function of the change in mix. as our independent business continues to grow at a faster rate. You know, we not only passed it on per case profit, but we did it in actual margin as well in spite of the heavy inflation. And I think that a lot of it is attributed to our salespeople and their ability to make sure that they've kind of got that ratio right with the customers to what value they're bringing versus what they charge. And then we've had great success at the higher end of our product line. So we've had better growth than just the increase in inflation because our business has grown faster in the higher case cost areas, which is even more significant when you consider that we were able to raise the margin as well. And then, you know, our chain business has just, you know, not been as robust.

And if I could just ask one more related to core. Within food service, and I guess among independents, we often think about independents having about five to seven distributors, 30% average wallchairs or so. How does that compare in the C-store space in terms of average wallet share, and how do you see those opportunities in new customers versus gaining wallet share with the acquisition or anything on the competitive dynamics?

Yeah, I can tell you what I've seen so far, and I don't profess to be an expert at this point in convenience store food service distribution. But I've been out with our people, and I've been in a tremendous amount of convenience stores. They typically, for a core supplier, they pick someone. So normally the core of the store will come all from one person. Now, if they have a larger food service offering, they could be buying from a food service distributor as well. And then there are multiple DFD players that are in the business. And that can be fairly regional, but there's a great deal of them. But as far as like splitting the business, which is, you know, so common in food service or having like a main supplier and a backup supplier on those core convenience items, you know, I think I can count on one hand the number of times I've seen that. They pick somebody and they go with them.

Thank you guys so much.

Yeah.

And we'll take our next question from Edward Kelly with Wells Fargo.

Hi, guys. Good morning. I jumped on the call a little bit late, so hopefully I didn't miss this, but I don't think you gave any guidance. You have been giving sort of like an at-least number for the out-quarter. Any color here that you could provide? And I'm just kind of curious as to why you didn't provide any guidance.

Yeah, Ed, we gave guidance on a quarter basis for a couple of quarters just to make sure we had good information out there. I think that there's still plenty of uncertainty in the market. We heard George's commentary about labor and very difficult to predict when that issue will turn. And, of course, there's other unknowns in the marketplace. So you didn't miss anything. We are not providing guidance.

Okay. You know, maybe just to follow up on that, George, you mentioned average weekly sales July and August similar to June levels. You know, I think in June you mentioned you were $100 million a week ahead of 2019. I'm just kind of curious, does that hold and then does that mean that Q1 sales are kind of running, you know, at least like that $9.3 billion range or better?

Well, certainly not 9.3. We don't get a 14-week quarter every quarter. I wish we did. Oh, sorry. Right, right, right, right. That's all right. That's all right. Yeah, you know, we do have some seasonal differences. You know, typically January and July are kind of the tougher months, and our sales held up extremely well in July. We have a little bit of softness just in, like, the last nine days. You know, it takes some work to figure that out. Last year, we did not have a back to school. I think that's had an impact. And then we don't know what impact the Delta variant has had. But when you go back to when we did have a normal back to school, that slight softening is quite normal for us. So I would say all in all, and we're being cautious here because, you know, you just don't know what's going to happen out there with restrictions, and that's a good reason for not giving guidance. But all in all, we haven't seen a change as things are kind of rolling along as good as they were in June, despite, you know, some of the pockets of very difficult labor issues that we're dealing with.

Okay, and then maybe just one last one, and maybe this is for Jim, but you had $211 million in Q4, excluding the extra week, you're at $196 million. The extra week of $15 million, right, if you were to take that a quarter, that's around $195 million. I mean, those numbers are kind of close, but there's typically seasonality in Q1, but Q4 was kind of ramping, I think. So should we expect to see some of that normal seasonality if, you know, all things sort of being equal in Q1? Just any help that you can provide in terms of, you know, how we should be thinking about, you know, the puts and takes on the EBITDA.

Yeah, Ed, I know it's tough, and it's probably tough for a lot of businesses for you to model because very few folks are providing guidance and we aren't either. I think seasonality is also a tough thing to predict because business isn't the way it was And all the years that we knew the industry in the past, things are different right now. So it's hard to use seasonality as a calibration point. I just leave it at this. We see good trends coming off of Q4 going into Q1. We're happy with how the business is running. We're pleased with our business results. We couldn't be more proud of how our employees are stepping up and working hard to take care of our customers. and we'll continue that momentum.

You know, Ed, it's hard to say much more than what Jim has said. I think we're just dealing with so many variables. But I will say this. I mean, if you look at a two-year stack of our independent growth, it's the best we've ever had for a two-year stack. And, you know, we had a pretty long history of 6% to 10% case growth, and then we disappointed ourselves a little bit, and then we kind of got back on track and And then, you know, if you take these last two years, that's the best we've ever been. So we have a lot of confidence, but we are really cautious around what kind of statements we make as far as future goes right now. Okay. Thank you.

And we will take our next question from Mark Cardin with UBS.

Good morning. Thanks a lot for taking the questions. Now that food away from home sales momentum has really picked up, have you seen independent restaurants start to work with more distributors again, or are they still concentrating more of their business with larger players that can provide more consistent service levels? Thanks.

Yeah, what I've seen, and this is mostly from conversations with our people, not the accounts, is The whole supply chain has some serious labor issues. I mean, we're not trying to downplay that. And our customers are dealing with it as well. And we don't see anybody really making changes. We do see people scrambling to get product. I mean, I look at the number of calls we get for people that don't buy from us, and I'm sure that our customers are calling other people when we disappoint them. So I don't think that that's a question that could be answered yet. I think we've got to get back into some sense of normalcy and then see what this period of time we've been through, see how that's affected how people look at their purchasing. Because I don't think you can do that right now.

Fair enough. That makes sense. And then you noted that inflation has remained elevated. Is it continuing at the peak levels that you saw this past quarter, or is it tapered off at all?

Thanks. Yeah, you're right. Inflation's been strong. At some point, it'll taper off. I don't think we see quite the trajectory that we had in the past. I mean, at some point, it begins to lap where it was the previous year. I can tell you this. I'm really pleased with how the organization is managing inflation. how we're passing inflation through to our customers appropriately and at the right pace. And we'll continue to do that. I guess in summary, I would say that I believe it's reasonable to expect inflation to be temporary. Very tough to predict.

And, you know, if you go by this, that we track our inbound service levels extremely close daily. And Last week, just last week, was the worst that we've experienced in both food service and Vistar. And scarcity brings inflation. It always does. And, you know, it's hard to get product today. And with that has come inflation. If you look at those areas that have had very little inflation, problems, those product areas, very little problems getting product to us, the inflation is nowhere near as much. It's more about, you know, there are increased fuel prices and maybe some with labor. But as long as we have the scarcity going, I think that we're going to have inflation. Got it. Thanks so much, guys.

And we will take our next question from John Glass with Walker Stanley.

Yes. Hi. This is Brian. I'm with John. Let me just first question just on the Coremark deal. Could you just kind of explain, you know, moving forward without kind of full SEC approval, or FTC, sorry, is there any risk, you know, they come back and say there's some divestitures you have to do or anything else they might require? Could you just, you know, walk us through that kind of thinking?

Yeah. I think the only comment we want to make on that is we have We have what we need and the information we need to be able to move forward, and we're going to do that. We're very comfortable with the situation we're in. I would add that we believe we worked well with the FTC and provided them the information they needed for them to do their job, and now we're moving forward.

Okay, great. Maybe other questions on kind of independent case growth. You give that number on a 13-week basis, and I guess just curious more broadly, you know, anything differently you're doing there or anything that you think is really kind of working well right now? Obviously, your trends in that segment have been quite strong, but just curious about anything that's changed there recently.

No, it really hasn't changed at all. I think our approach is the same that it's always been. What is pleasing to me is that we were running significant growth this time last year in pizza and Italian and Hispanic. And as we came up against those big growth numbers, I was concerned that we would have trouble continuing to put out particularly double-digit growth, and we have not had trouble. And then the other areas of the business were certainly not over-indexed. We gained share, particularly early in COVID, and we've been able to hold on to that share. So we're just real pleased right now. Thank you.

And once again, if you would like to ask a question, that is star and one on your touchtone phone. We'll take our next question from Joshua Long with Piper Sandler.

Great. Thank you for taking the question. wanted to circle back on the food inflation front and can understand that it's difficult to forecast and follow um it doesn't sound like there has been much of a of a tapering although as some of your comments suggested you'd expect some of that tapering going forward just curious if maybe coming up that question a little bit differently are there pieces in the basket that you know reset on a contract uh pricing basis or things that would move around that um that benefit that we saw about almost 8% inflation in 4Q, maybe as we think into 2022?

You know, I think you could tackle that from two angles, one from a customer pricing perspective and one with suppliers. So our supplier pricing is updated pretty frequently and that information comes to us. And of course, we make decisions on what we'll buy and from whom we'll buy on a regular basis. So that's pretty fluid and updated regularly. With our customers, we have our independent customers where pricing is updated on a much more frequent basis than our chain customers. Many of our chain customers have more of a monthly price or a twice-a-month price update approach. But all in, we feel very comfortable about how we're passing it on. And back to our earlier answer, really not certain exactly when it will dissipate, but we're comfortable handling it either way, and eventually it will dissipate.

Understood. Thank you for that. And, you know, interesting and great to hear that we're not seeing any sort of slowdown here as we move from 4Q into the early phase. fiscal 1Q period. I'm curious if that stability or if that trend is maintained on a cuisine region basis as well, if there's just anything as we dig a little bit further down into those trends, if there were any sort of moving pieces that you'd be willing to share on an added color basis.

The only thing I would say there would be regionally and the Northeast has been slower to recover. We have you know, the most labor issues in the Northeast. The Southeast, which, you know, we were running nice growth this time last year, our growth isn't as great, but continuing to do real well. From a cuisine standpoint, you know, we're not, you know, I don't think we have the kind of share to comment on a lot of the areas, but certainly where we have share, we we see those channels continuing to do real well, particularly the ethnic area.

Great. Thank you for that. And then, you know, thinking about the net leverage targets that you had set and that you had reached ahead of expectations or ahead of schedule, curious on how you think about, you know, balancing that now if you have other targets that you would work towards, you know, knowing that you're going to maintain some flexibility and you're in a great cash position or liquidity position to hit on some of those strategic initiatives you talked about. So just curious on anything on how to think about net leverage of the balance sheet going forward.

Yeah, really nothing's changed other than we feel confident about any markers or comments that we've made in the past about leverage and how we'll manage our capital structure and the balance sheet in general. Again, we feel very pleased with liquidity that we have. very comfortable with the liquidity we have available to us, very appreciative to the debt and the capital markets and how they responded to our requests. I think that we've also, in addition to those things, really done a good job, a strong job of managing working capital, receivables and inventory and payables in the way that we wanted to, in the way that fit our business. And I don't see any reason why that would change going forward. So All in, we believe we're positioned really well.

Thank you for taking the questions.

And we have no further questions on the line at this time. I will turn the program back over to Bill Marshall for any additional or closing remarks.

Thank you for joining our call today. If you have any follow-up questions, please contact us at Investor Relations.

This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful day.