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spk07: Please stand by, your program is about to begin. If you should need audio assistance during your call today, please press star zero. Good day and welcome to PFG's Fiscal Year Q3 2024 earnings conference call. If you would like to ask a question at the conclusion of the prepared remarks, please press 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.
spk11: Thank you and good morning. We're here with George Holm, PFG CEO, and Patrick Hatcher, PFG CFO. We issued a press release this morning regarding our 2024 fiscal third quarter results, which can be found in the investor relation section of our website at pfgc.com. During our call today, unless otherwise stated, we are comparing results to the results in the same period in fiscal 2023. The results discussed on this call will include gap and non-gap results adjusted for certain items. The reconciliation of these non-gap measures to the corresponding gap measures can be found in the back of the earnings release. As a reminder, in the fiscal first quarter of 2023, we updated our segment reporting metrics to adjusted EBITDA from the prior EBITDA metric. 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.
spk17: Thanks, Bill. Good morning, everyone, and thank you for joining our call today. This morning, I'd like to share results from the fiscal third quarter, provide some color on the current business environment, and discuss our plans for the fiscal fourth quarter and beyond. As you know, the calendar year began with a challenging weather in January, a choppy inflationary environment, calendar differences, and early signs of consumer pressure. Nonetheless, I am proud of our organization and how we were able to achieve positive results despite these headwinds. In particular, our food service business rebounded nicely in February and March, producing improved independent case growth and stable chain performance. Our convenience segment continued to experience difficult top-line trends, though it has remained focused on winning new business and tight operating expense control, helping the bottom-line performance. We were encouraged by a sequential -to-month improvement in C-store trends during the quarter. This star also experienced a more challenging top line in the fiscal third quarter after very strong growth in prior quarters. We continue to feel very good about how we are positioned in the market, which we believe will produce profitable long-term growth. We were optimistic about the fiscal fourth quarter and a momentum into fiscal 2025, which is reflected in our guidance. Patrick will discuss our guidance in more detail shortly. Before turning to Patrick, I will provide color on our results, discuss our strategy, and outline reasons for optimism. Let's review some of the highlights from our most recent quarter and various factors impacting the results. Starting with food service, segment net sales were up 1% in the fiscal third quarter, with similar case volume growth in the period. However, if we walk through the three months of the quarter, it shows a very different picture. We started the quarter with a low single-digit case decline in January. We went positive in February and had a strong March, which has continued into fiscal Q4. Importantly, independent case volume grew in all three months of the quarter, including nearly 6% growth in both February and March. Independent case growth was consistently in the middle single-digit range for each week from the second week of February through the end of the quarter. This growth outpaced the total industry, producing steady market share gains. In fact, our data shows nice share performance across both independent and chain restaurant accounts for the quarter. Gaining more market share across our food service business in the fiscal third quarter than we did in the fiscal second quarter. I'd like to repeat that because it's so important. Our food service business gained more market share in the third quarter than the second quarter. This is a testament to our sales organization's ability to compete for and win new business to fight the headwinds facing the restaurant industry. Our food service business experienced a deflationary headwind in the first half of the fiscal year, which continued into early calendar 2024. We're pleased to see this flip to modest inflation in both February and March. This improvement occurred despite persistent deflation in cheese, though we are seeing sequential improvement in that important commodity as well. Given the steady sequential move in most commodities, we continue to expect low single-digit food service inflation in the fiscal fourth quarter. We expect this to provide a benefit to both the gross and adjusted EBITDA margins in the period. Turning to our convenience business, as I mentioned at the opening of this call, industry top-line trends remain difficult, which we attribute to higher candy, snack, and tobacco prices in the C store. Despite some relief on gas prices, same-store sales in the convenience channel remain soft relative to historic trends. On the positive side, our top-line results continue to outpace the total industry in key categories, including food service, snacks, and candy, reflecting new business wins and market share improvement. We are consistently adding new accounts and expanding services to current customers. This new account growth, coupled with the successful launch of several food service programs, gives us confidence that our top-line performance with inconvenience will continue to improve moving forward. We continue to gain traction with our efforts to grow food service and convenience. This is demonstrated by our recent collaboration with GPM, launching a nationwide pizza concept, and our progress in selling PFG-branded food service concepts to convenience customers. These activities drive value for both PFG and the customers we serve. Despite the challenging top-line result, our convenience organizations continue to execute extremely well. A diligent focus on reducing shrink in the warehouse, coupled with tight labor management, has produced good operating leverage. Looking ahead to the fiscal fourth quarter, we expect sequential improvement in sales and continued operating expense control. Turning to Vistar, total case volume was essentially flat in the fiscal third quarter, as growth in the vending, travel, and hospitality channels were offset by declines in theater and office supply. Segment net sales increased .7% in the quarter. As expected, the rate of inflation at Vistar continued to decelerate and was up .7% in the fiscal third quarter. The rate of deceleration was similar to the rate declines from the fiscal first quarter to the fiscal second quarter. As we have discussed on prior calls, we expect inflation to settle in at a low single-digit -over-year rate, as we close fiscal 2024 and hope steady in that range going forward. Vistar's high exposure to consumer packaged goods products support consistent inflation in this range. As we look ahead to the fiscal fourth quarter, we anticipate better volume, sales, and profit performance at Vistar, due to improving fill rates in the vending channel and better growth in the value channel. This is a direct result of new and expanding business opportunities. Before turning to Patrick, who will discuss our results and specific drivers of our performance and then provide more color on our guidance for fiscal 2024 and beyond, I want to summarize our fiscal third quarter and leave you with a few thoughts on the future. The fiscal third quarter was certainly challenging for our industry and organization, primarily due to January's inclement weather conditions and some calendar differences. However, we are encouraged by more recent trends. Additionally, we have line of sight to new business wins in each of our three operating segments, which we expect will provide a tailwind to top line performance in the months ahead. A more stable and stationary environment also bodes well for the future. In our food service business, this means a return to more normal rates of low single digit inflation, which provides visibility towards improving gross margins. For convenience in Vistar, lower levels of absolute inflation should ease pressure on the end consumer. Over the long term, PFG's position as a leader in the food away from home market provides diversification across a range of profitable and growing channels and markets with significant white space. We are confident that our investment in PFG's core initiatives and our associates will enable us to achieve long-term profitable growth, which we believe will result in positive shareholder returns. We appreciate your interest in performance food group. With that, I will turn it over to Patrick, who will provide more detail on our financial performance and outlook. Patrick.
spk14: Thank you, George, and good morning, everyone. As George mentioned, there are certainly headwinds to overcome in fiscal third quarter of 2024. However, our strong financial footing and market position produced a solid profit result that we expect to build from in the fiscal fourth quarter and into fiscal 2025. This morning, I will review a few highlights from our most recent quarter, then spend most of my time discussing our financial position, priorities for the months ahead, and provide some additional detail on our guidance. We'll then be happy to take any questions you have during the Q&A portion of the call. As you saw in our press release this morning, PFG delivered solid profit and cashflow results during the fiscal third quarter. This was possible because of our company's focus on driving sales into the most profitable channels and a disciplined focus on cost control. We'll also continue to invest behind future growth initiatives. As we mentioned last quarter, we started the calendar year facing a difficult January due to bad weather throughout the month. This resulted in a slight case decline for our total business in the fiscal third quarter of 2024. PFG generated total net sales of about $13.9 billion or a .6% increase year over year. Trends improved in February and March, which allowed us to finish the quarter on solid footing. For the full third quarter, organic independent restaurant case growth was 4.3%, including nearly 6% growth in both February and March. We continue to gain market share in the independent restaurant channel across a broad range of geographies and concepts, highlighting our favorable position in this important area of our business. Over the full three-month period, chain restaurant cases were essentially flat, which we were very pleased with given the impact of a tough January. We recently onboarded a new chain business which has helped accelerate growth in the fiscal fourth quarter and into fiscal 2025. Total PFG gross profit increased .8% in the fiscal third quarter to $1.6 billion. Once again, our business benefited from positive mix shift in the period. Importantly, our food service segment experienced inflation in the quarter after two consecutive quarters of deflationary pressure. The resumption of inflation in several key commodities gives us confidence in improving profit conditions going forward, which I will touch upon when I review our guidance. On a total company consolidated basis, inflation was slightly higher in the fiscal third quarter compared to the fiscal second quarter of .6% year over year. Higher inflation in food service was offset by decelerating inflation in both convenience and Vistar, which was in line with our model. As George mentioned, Vistar inflation was squarely in the -single-digit range while convenience inflation moderated slightly to just below 7% for the fiscal third quarter. Based on our experience, it's not uncommon for convenience inflation to remain slightly more elevated due to consistent price increases in the tobacco space. I will touch upon tobacco inflation and its impact on our results in a moment. Gross profit per case was up 27 cents in the third quarter as compared to the prior year's period. We expect our gross profit per case to benefit from inflation in food service. This is an important component to our bottom line results and helps support our growth through targeted investments in our workforce and technology. In the third quarter of fiscal 2024, PFG reported net income of $70.4 million, down .3% year over year. Adjusted EBITDA increased .9% to approximately $321 million, just above the midpoint of the guidance we announced last quarter. Deluded earnings per share in the fiscal third quarter was 45 cents, a decrease of .8% while adjusted diluted earnings per share was 80 cents, a .6% decline year over year. Our effective tax rate of .3% in the fiscal third quarter was down compared to the .1% rate in last year's comparable period, mainly due to lower foreign taxes as a percentage of income, slightly offset by an increase in non-deductible expenses and state taxes as a percent of income. Our financial position remains very strong and we are generating significant cash flow through a combination of operational performance and diligent working capital management. Over the first nine months of fiscal 2024, PFG generated operating cash flow of $956.7 million, a nearly $300 million increase compared to the first nine months of last year. Free cash flow increased to $712.3 million over the first nine months of the fiscal year up from $480 million last year. We expect to deploy our cash flow in value creating activities, including capital expenditures to expand our capacity and support our growth. Over the first nine months of fiscal 2024, PFG invested $244.4 million in CapEx. After capital expenditures, our remaining priorities for capital deployment are unchanged and include M&A, leverage reduction, and share repurchases. We evaluate these decisions based upon the value we believe each would create for our shareholders and strategically deploy capital towards this view. Our share repurchase program takes several factors into consideration, including the relative value of our stock, as well as the valuation compared to historic levels. While we did not repurchase any shares in the fiscal third quarter, we believe that our repurchase authorization, which had about $211 million remaining as of March, is an important component of our capital allocation plan. We also continue to look at strategic M&A as another avenue to create shareholder value. We're proud of PFG's track record of completing and integrating acquisitions throughout our history. The team is continuously working to identify interesting opportunities while remaining disciplined on price and strategic fit. Finally, we continue to focus on maintaining a healthy balance sheet. We closed the fiscal third quarter below the midpoint of our two and a half to three and a half times net debt to adjusted EBITDA target and feel very comfortable in this range. Earlier this month, we called $275 million of our outstanding 2025 notes, utilizing our ABL facility to take advantage of relative rate efficiencies. In total, at the close of the fiscal third quarter of 2024, 86% of our total outstanding debt was at a fixed rate, including interest rate swap contracts. We believe that our current level of debt provides ample flexibility to fund our ongoing operations while leaving room for capital allocation priorities that I just highlighted. I'll finish up with an update on our guidance and some factors impacting our outlook. For the fiscal fourth quarter of 2024, we expect net sales to be in a range of 15 to $15.4 billion and adjusted EBITDA to be in a range of $430 to $450 million. On the top line, our sales guidance for the fourth quarter suggests a full year net sales result of $58.1 to $58.5 billion. This is below our 59 to $68 billion range we had provided last quarter and largely reflects the top line softness we experienced in the fiscal third quarter. However, despite the top line challenges, we are tightening and raising the bottom end of our full year adjusted EBITDA guidance to a range of $1.48 to $1.5 billion compared to the prior $1.45 to $1.5 billion range. As you can see, we expect strong profit growth acceleration in the fiscal fourth quarter. We are confident in our projections due to line of sight on several key items. First, as mentioned earlier, we are onboarding new business in all three segments which should drive profitable top line case sales in the coming months. Second, the resumption of low single digit inflation food service compared to deflation in the first half of the year is expected to result in higher gross profit per case. As a reminder, deflationary pressures were felt more heavily in our independent restaurant case business due to product mix and pricing structure in that business which is largely based on a percent markup. Positive inflation should help our profit performance over the next several quarters with a benefit from both year over year gains as well as stronger mix shift. Finally, several tobacco suppliers have announced price increases on their products which we expect to result in favorable inventory holding gains in the fiscal fourth quarter of our convenience segments. Taken together, we believe our fiscal fourth quarter profit growth rate will accelerate nicely over the coming months. This should also provide a tailwind into fiscal 2025. We are currently reviewing our fiscal 2025 targets and expect to provide an update on our August earnings call in line with our normal cadence. With that said, our strong adjusted EBITDA result over the past two years coupled with the tailwinds I just mentioned should put us comfortably within the 1.5 to $1.7 billion adjusted EBITDA range that we set as a three year target at our June 2022 investor day. As we've previously noted, our expectation is to be close to the 1.5 billion adjusted EBITDA level in fiscal 2024 and expect solid growth in fiscal 2025. To summarize, we are pleased with how we are operating as a company and believe that the industry challenges seen in the fiscal third quarter will prove to be temporary. We expect results to accelerate in the fiscal fourth quarter and into fiscal 2025 underpinned by specific items that are in our forecast model. Thank you for your time today. We appreciate your interest in performance food group and with that, we'd be happy to take your questions.
spk07: And Lee, at this time, if you would like to ask a question, please press star one on your telephone keypad. You may withdraw your question at any time by pressing star two. Again, that is star and one. We'll take our first question from Mark Carden with the QPS, please go ahead.
spk16: Good morning, thanks so much for taking the questions. To start, you noted your market share growth accelerated relative to QQ and it sounds like you guys, whether some of the macro wins better relative to the industry as a whole. Do any of the initiatives jump out at you in terms of driving the stronger relative performance? Just what in your mind, what was most important in driving that improvement there?
spk17: Well, it would be definitely new accounts. We still have seen a difficult penetration market out there. The existing accounts, as I guess an aggregate, just aren't doing the business that they were doing before. I would also note too, with the quarter, that if you took a two-year stack on our independent, it would have been a 13% growth. So we were north of eight two years ago and then 4.3 this year or last year and this year. But it's definitely new business because driving our growth.
spk01: Okay,
spk16: great, that's helpful. And then just overall, have you seen much of a shift in distributor price competition just given some of the broader challenges other than the industry has been calling out?
spk17: Well, I think that our industry has always been very competitive. There's a lot of players in it. And I think when growth is hard to come by, I think that you tend to get a market that's a little bit more competitive. But we really haven't seen that much of a change.
spk16: Great, question, good luck. Thanks.
spk07: Thank you, we'll take our next question from Jake Bartlett with TruS Securities. Please go ahead.
spk04: Great, thanks for taking the question. Mine was on the environment out there and you gave guidance for the third quarter after the weather in January. So presumably that was kind of incorporated. So it seems like the sales miss was more due to the environment. You talked about an improvement since, so I'm wondering whether the competitive or not competitive, whether the consumer environment has gotten any better. Is that driving any accelerating trends or is it just that your new customers and your pipeline and your actions are driving that improvement? Trying to get a sense to the trajectory of the consumer right now, your customer business.
spk17: Well, the softness for the quarter is, it's almost entirely a January story. January was really difficult. I would say if you looked at our customer base, QSR is definitely softened. It's a fairly large part of our business. Definitely casual dining. I mean, there's winners in both, but casual dining is very soft. And we're finding the independent restaurateur to be doing okay. I wouldn't say great, but I would say okay. But there are many more of them than there were before. So it's the new accounts and our ability to continue to run in that six, 7% growth in new customers sold. But I don't see a really bad environment out there. I just think that we've got some stressed consumers that are probably at the lower income level.
spk04: Got it, great. And my second question is on margins. You beat on margins a little bit in the third quarter. The question is, what was the driver of that? Was it the gross profits and the inflation being a little stronger than expected, or was it about productivity improvements that helped in the third quarter? And I think as Patrick, as you've listed, I think the three drivers for improving solid fourth quarter, improving productivity wasn't one of them. I'm wondering what the trajectory is there on just your operating costs. Your leverage and what kind of progress you're making there in bringing down costs.
spk17: Yeah, well, as far as margin, particularly gross profit per case, that's a function of mix. As we continue to grow at a faster rate and independent than we do the chain business. As far as productivity goes, I would assume you're speaking warehouse and delivery productivity or operational productivity. We continue to improve. We're not back to 2019 levels, but we do like the improvement that we're seeing. And then when you get to both our convenience business and our customized business, they're really doing well from a productivity standpoint, doing actually better than 2019 numbers.
spk13: And Jake,
spk17: I
spk14: was just gonna add, I mean, it's a good point that we didn't call that out specifically as one of the things that are gonna drive our Q4 results, but as George mentioned in his comments, we do expect operational efficiency, certainly in convenience and all the best businesses to continue to perform as they've been performing and to improve. I
spk04: appreciate it, thank you.
spk07: Thank you, we'll take our next question from Edward Kelly with Wells Fargo, please go ahead.
spk05: Hi, good morning everyone. I wanted to start with just Q4, and I guess maybe a bit more detail on the level of confidence. So EBITDA is up 14% at the midpoint. Can you talk a little bit more about the bridge? Patrick, when you gave those few factors, I don't know if they were listed in order of magnitude, I'm curious about the size of any tobacco gain, for instance. And then within the guidance, do you really just need trends in April to hold, or are you expecting any improvement in that regard? And as it relates to 25 with all this, I mean, if you do this number, I mean, doesn't this speak well about like how you're thinking about 25, particularly the first sort of three quarters of the year, or are there other puts and takes to consider?
spk14: Yeah, thanks, I'll start, and I'm sure George will add some comments. I mean, to your last point on 25, let's just start there. I mean, that's exactly right, as we've mentioned in the call, like the guidance for 24 is really we're saying we're gonna be close to the top end of our range on EBITDA, which is the bottom end of the range on the three-year guide. So that puts us comfortable within that three-year guide. So we do feel really good about where we're ending this year, and then what that means for next year. And again, we'll give you much more detail in our August call. And then in terms of the things that I unpacked and how we're gonna hit these numbers in Q4, yeah, I would say I wouldn't necessarily put them in terms of order of magnitude, I put them in terms of order of like P&L. I mean, I really wanted to start with the fact that we have a lot of new business coming on, and it's not just in one segment, but it's across all three segments. We've already onboarded a lot of the new food service business in the last couple of weeks. We expect to onboard the convenience business a little later in May, and then Vistar has new business coming on in June. So really pleased with our sales development efforts across all the segments. And then, it's really important, obviously, the fact that we've been looking at two quarters previously of deflation, and then in the third quarter, we saw that deflation in food service move to very moderate inflation. But we've continued to see that modest improvement in inflation, and we continue to believe that that's what's gonna happen for the rest of the quarter, which, as we've noted, really help on our GP per case. And also, the mix of our business is really improving as well. And then finally, just the cigarette price increases. The way I think about that, it's largely in line with what we saw last year. But we just call that out because it will help our bottom line as we get those inventory gains.
spk17: Yeah, I'll add a few to that without getting too long-winded here, but he mentioned inventory gains. We overcame about 60 million last year of inventory gains that were above this year. And as we get into the fourth quarter, we don't have that to overcome anymore. So that's a positive for us. I would also say the calendar, where we got benefit in fiscal second quarter with additional delivery day, which meant a lot at the end of the calendar quarter. And it affected January the opposite way. And then when you get to Q4, we started out with the week after Easter, which is typically our slowest week of Q4. Yet we still had a good April top and bottom line. We don't have any calendar issues to deal with for the rest of the year, so that's very helpful. The new business, as Patrick mentioned, big help. Then last year we were running close to 10% additional salespeople. So we were carrying a pretty good expense there. And we lapped that, we're up about .5% right now, and salespeople were starting to get the good productivity out of the new ones. And we won't have that additional sales expenses. We go through the fourth quarter that we've handled for most of the year. And I'll stress with COREmark, the additional business they're bringing on, will also be a big help. So we have a lot of things that have gone in a positive direction for us right now, and that's what gives us confidence for the fourth quarter. And really into next year, which will give some good communication on our August call around what our guidance will be for first quarter of next year and then the total year.
spk05: Just maybe I could just ask a quick follow up. It's sort of related to this, I guess, but you're generating really good cash flow, leverage is in a good spot. Your stock's probably trading at like eight times EBITDA on what you're probably gonna end up earning next year. I think you may end up, M&A usually a bit higher than that. How are you thinking about that type of stock buyback versus M&A at this point?
spk14: Yeah, Ed, when we've talked about our capital allocation strategy, we've always said number one is to invest in capacity, and we've done a really good job and we have a lot of new buildings or additional building expansions coming online, and you can see what we've done in terms of our investments there. And I'm just gonna go through these, and obviously reduced leverage is one of them, and we've continued to perform well there. And the other two pieces are M&A, and we continue to look at opportunities, and then the share repurchase review is incredibly important, but as I mentioned, we didn't buy anything this quarter, but we still have 211 million in the repurchase program available to us, and we'll continue to use that in junction with all the other priorities I just laid out. So we just look at them very strategically and deploy that capital accordingly. Thanks, guys.
spk07: Thank you, we'll take our next question from Alex Legle with Jeff Rees, please go ahead.
spk02: Hey, good morning, thanks for all the color this morning. I just wanted to circle back on Jack Jake's question a little bit, just the revenue drivers during the quarter across your different businesses and like what the biggest headwind that you experienced in the February and March was that kind of kept a lid on the top line. I mean, it's like the independents and restaurants overall bounced back solidly and pricing firmed up, so it appeared to be more of a sluggish recovery and this star and convenience cases, and although I guess the pricing was about as you expected, but perhaps you can flesh that out a bit more into what surprised you.
spk17: Yeah, I would say in food service that it wasn't so much the improvement that we had in February and March, we weren't exactly real pleased with how we did in February and March, it was just getting past January and we think we're gonna continue to improve from a food service standpoint. I think in this star and convenience, the level of inflation that they dealt with was higher and lasted longer, and I think there's an adjustment for their customer base when they go to a micro market or go to a vending machine or go into a convenience store, there's been some pretty significant price increases and I think they need to adjust, I think they will adjust, and we are seeing same store sales declines or what we look at as a penetration number, we were at 6.6 for the quarter for convenience, it's huge and it's not something that that channel has experienced before, and I just think it's time, our food service is growing well there, that'll help to alleviate some of that, and I think the same with Vistar, and this is the first time that we've ever had sales growth issues in Vistar, they've got nice new business coming in, we just have a lot of confidence in that top line coming back, now obviously tobacco it's not going to, that's going to be a continual decline, but we expect that.
spk14: And Alex, I'll just add on Vistar, just to give you a little bit more of a detailed example, I mean, just because it's looking at this information, I mean, when you think about Vistar and their business in theaters, the box office revenue is down, it's only a copy at 78% versus prior year and at 60% versus 2019, so there's a lot going on in Vistar services, there's a lot of different channels, some are performing really well, some are having some struggles like theater, so it's pretty mixed bag there.
spk02: That makes sense, yeah, and on convenience, what was the case group, I think you talked about the food and food service side was down, what did that look like if you included the food service in, I guess, related to convenience that was not in that category number?
spk17: Well, yeah, food service and the food area itself combined or down, the food service was actually up, and I would say that if you took that with the performance food service, so I'm gonna give you what I think because I didn't look at that specifically, but I would say it's probably mid single digit, it's been doing well. And matter of fact, last week, we set a record for the number of convenience stores that we sold food service to, we actually did with our pizza business and our Hispanic business, both actually had the most counts we've ever sold last week. It was encouraging.
spk02: Congrats on that, thanks.
spk17: That was very encouraging.
spk07: Thank you, we'll take our next question from Kelly Banya with BMO Capital, please go ahead.
spk08: Good morning, thanks for taking our questions. Guess I just wanted to dive in a little bit more into the levers that you're able to pull on margins or expenses to support the bottom line. I guess, I think some of, or at least some of the new business wins were already in your plan and inflation seems to be playing out largely as expected. So just how are you able to kind of maintain the bottom line outlook despite the top line coming in where it is?
spk17: Yeah, as far as the levers to be pulled, I think right now with our, in our food service area, we've done a good job getting our margins up in both independent and national, we're pretty pleased right now. And I think most of what you'll see in gains from us will be just changes in mix of business. And as far as expenses, it took us a while to get our workforce back to where it was pre-COVID. And we just, at this point, don't have any levers that we wanna pull from an expense standpoint. We wanna continue to build our warehouse and delivery crew and continue to build
spk00: our sales force.
spk06: Thank you. Thank you, we'll take our next question from Lauren Silberman with Deutsche
spk07: Bank. Please go ahead.
spk09: Hey guys, thanks so much. First I just wanted to ask about the change side of the business returning to flat. How much of this is a function of new business wins versus any signs of underlying improvement in chain traffic?
spk17: Well, I think I kind of mentioned that earlier, but it's worth talking about again. I think if you look at the change, if you look at them in aggregate, it is definitely slow. Now we happen to have some that have been slow for a long time, but we have some that are doing real well. In aggregate, no, we don't see any strengthening in the chain business. You're gonna see better numbers come from us in the chain business, but that's because of new accounts, not because of our existing account base.
spk09: Helpful. Another one on just Vistar. Can you expand on the competitive dynamics within that segment specifically, and whether you're seeing any changes and it becoming a bit more promotional or competitive than you're used to?
spk14: Yeah, thanks Lauren. It's obviously a very competitive environment and because Vistar plays in so many different channels, they do have a lot of different competitions. As far as promotional, I mean, that's, again, they do a lot of work with CPG, so most of the promotional activity is gonna come from the manufacturer, if I'm understanding your question correctly. But as far as how they go to market every day, they compete across the board in all their channels. I just wanna make sure I answered your question.
spk09: Yeah, I'm just trying to know, is there any even from other food service distributor players in the space? If it's getting a bit more competitive in terms of share gain.
spk17: I would say yes, but I would say that's only in the theater category.
spk09: Okay, super helpful. Thank you guys. Thank
spk07: you. We'll take our next question from Jeffrey Bernstein with Barclays, please go ahead.
spk13: Great, thank you very much. Two questions, the first one just on the new business. George, I think you mentioned you're onboarding in all three segments, which seems quite encouraging. I'm just wondering if there's been any change in your strategy of late to achieve, whether you're winning this business from your larger peers or smaller competitors. I think you mentioned independence, you're up six to 7%. I'm just wondering how sustainable that is, but just more broadly in terms of the onboarding in all three segments, how you're going about doing that, whether there's any changes you've implemented on your end to achieve?
spk17: Yeah, well, it's very different competitors that we've been able to get that business from because we have different competitor sets in the different businesses that we're in. I would say that there's no change in our strategy whatsoever. I think we're comfortable in that mid single digit to higher as far as independent case growth goes. It's nice to see a little bit of inflation to go along with it. And I think we'll always be opportunistic in the national account area. If there's somebody that we're the right geographic fit for and we feel that's a good culture fit and we can be profitable with it, we're always gonna be looking for that type of business.
spk13: Understood. And then just on the mention of M&A and shareholder value creation, how are discussions with targets going? I'm wondering whether the slowing macro that you might be embarking on now for the industry, not necessarily for yourself, but for the industry, whether that helps or hurts in those discussions. Obviously you have a big opportunity on the West Coast. Just wondering how that plays out in this type of environment versus others. Thank you.
spk17: Yeah, we're always very active from an M&A standpoint. We're always talking to several people. We try to make sure that we're talking to the people that are a really good fit and that we're not just spending time on something that isn't going to materialize. But it is a very important part of what we have gone on for our next fiscal year and I think probably a big part of the next three year numbers that we put out when we get through this three year period we projected from our investor day. As far as the marketplace and how that affects it, I don't know that it really affects it that much. I mean, the value is either there or it isn't. I think most of the M&A that we've been able to get done is more about it just being the right time for the person that's selling.
spk13: Understood. Just to clarify, so when you guys report your fiscal fourth quarter, is it likely that you will then give a three year forward outlook so fiscal 25 would be the first year? And I think George, your comment was that M&A would play a bigger part over the next few years than perhaps it has over the past few.
spk17: Yeah, we planned to have an investor day that would be three years after the last investor day and give three year numbers at that point. So what we'll be giving come August will be what we project versus our three year projection that we gave before. We'll tighten that number and then what our guidance would be for fiscal 2025.
spk13: Understood, thank you.
spk06: Thank you, we'll take our next question from
spk07: John Heinbockel with Guggenheim, please go ahead.
spk12: George, I wanted to drill down on the Salesforce expansion, right? So maybe talk to that maturation. I don't know how many of those are coming off non-competes. Maybe you have a thought on that. And then is there a rule of thumb, right, when you think about the accounts that they used to call on? Can they successfully move over a quarter, a third, 50%? I'm not sure what the number is of the accounts they used to call on. So your visibility into that. And then I guess the last piece of that is, I guess it sounds like you think because of the sheer size of the Salesforce that you've onboarded, that six to 7% independent case growth is, even in this environment, is very achievable.
spk17: Yeah, well, we have several there and it's geographically widespread that are coming off non-competes. But I'll tell you, we have every possibility that could happen with that. We have people that come to us and we put them in a different area because they'll compete. And when the year ends, they don't wanna go back to where they were before because they're doing so well. We have people that don't do very well during that year and we put them back into an area that they know and they do really well. And we have people that don't do well that year and we put them back where they were and they don't do well there. So it really is all over the board. We like to have kind of a good cadence of bringing people in so that we can train properly. And we brought a lot more in over a period of time as we were trying to catch up from pandemic times where we weren't hiring very many. And I would say that it was success for us. I would say that we hired more people so we had more people that didn't make it but it didn't affect our turnover numbers. They've been very consistent for the last several years. So I think going into this Q4 with .5% more people will be good for us. I would hope that we get back up closer to that 6% or 7% number as we get into next fiscal year.
spk12: Okay, maybe switching gears, right? So if you look at the onboarding of new business, right? So you said all three segments are benefiting. How do you size the three versus each other, right? I know C stores can be more lumpy. Is that the biggest of the three? And then how would you assess the three to five year RFP outlook for C stores, right? Because I would think you should win a disproportionate amount of those that come up, right? Given the food service expertise.
spk17: We better. Yeah, I would say convenience is the bigger one for what we have coming in from a top line standpoint but I would actually say that the food service is bigger when you look at the amount of gross profit dollars it generates because it doesn't have that tobacco component. And I'll give you this number of the business that we brought in this month from a food service standpoint. We'll add between 1.2 and .3% to our total food service growth. That gives you a good feel.
spk12: That's just this month.
spk17: That's what we brought on this month, yes.
spk12: Okay, thank you.
spk07: Thank you, we'll take our next question from Andrew Wolf with Steele King, please go ahead.
spk03: Thank you, good morning. Just wanted to revisit, there were some questions around the competitive environment in the industry and food service. I wanted to kind of parse it versus for gaining new customers. First of all, in the change side, in the last maybe even five years, pricing and service, that kind of balance has gotten more rational. Is there been any change there? Looking for any changes in the competitive environment. Do you think that rationality is still in place? Not just with you, I'm sure you are, but just in general in the market?
spk17: I think it's rational, yes.
spk03: And second, for independence, sometimes when things slow, the distributor start to increase the amount of incentive for switching, lower the switching costs for the independence. How is that trending in your view?
spk17: I would say it's trending higher. It's still not a significant part of the business.
spk03: Got it, thank you. And if I could put a third one, it's more internal in the industry. How are you seeing your competitors trying to hire away your salespeople? You said your turnover rates are stable, but just in terms of more activity, more conversations to make sure you keep your people and stuff?
spk17: We follow our turnover very closely. We follow what they do when they leave us, and very, very few go to a competitor. Most either leave the industry or they may go into the manufacturing part of it, or it may be a retirement. We look at our turnover, how it impacts the customer. So if somebody retires or is promoted, we do consider that to be turnover.
spk03: Okay, thank you, that's it for me. Thanks,
spk06: Andy. Thank you, we'll go next to Brian Harbor with Morgan Stanley, please go ahead.
spk01: Yeah, thanks, good morning. We've talked about this a bit, but maybe I'll kind of ask them more directly. In looking at kind of sales in the third and fourth quarter versus your expectation, I mean, it seems like Vistar is the one that's seen probably more of a downshift, and maybe that's still true in the fourth quarter, relative to where you were. Is that kind of a fair characterization, and maybe you've seen the food service side rebounding a little bit faster?
spk17: What you said is very accurate.
spk01: Okay, and also, this is a little more in the weeds, but just at the segment EBITDA level, you had some favorability in sort of the corporate side relative to last year. I know there was a little bit of M&A in that segment. I don't know if there was any sort of change in the corporate cost space, but could you just elaborate on that a bit?
spk14: Yeah, this is Patrick Bryan. So, yeah, so one, obviously the three major segments and you pointed out, you know, their EBITDA growth wasn't there, and again, that has a lot to do with January and the softness on the top line, we've already discussed with Vistar, but when it comes specifically to corporate all other segment, as you point out, there have been some acquisitions there. These are really small companies that bring some capability to the company, and in some cases, you know, they're relatively new, so we haven't comped over their EBITDA, and then in addition to that, there has been some cost savings in the corporate all other line as well. So that is a combination of some of those smaller companies, some of the acquisitions, and then a little bit of savings.
spk17: Some of that would be late coming synergies that existed with Cormark and with Reinhardt. Okay,
spk01: got
spk17: it. We've been very slow around consolidating some of those functions.
spk06: And once again, as a reminder, that is star and
spk07: one for your questions. We will take our final question from Peter Saleh with BTIG. Please go ahead.
spk15: Great, thanks, and I appreciate all the color today. I did want to come back to the conversation around the overall environment, particularly in food service. I think you mentioned QSAR was definitely softer and casual dining, very soft. So it's a little bit of a different story just in your opinion, X weather and calendar shifts. Is the environment really that much softer than it was in the prior quarter? Do you feel like this is really confined to that lower income consumer? Are you seeing any evidence that this is kind of migrating up the income stream in terms of the softness?
spk17: Well, it's definitely softer than the prior quarter, particularly towards the end of that prior quarter. We saw some really, really good activity late November and the month of December, which was ironic because our best time, and this was not just independent, but it was changed as well, was just before the worst of times in early January. I think it's rebounded from there, but I would still say that the market is somewhat soft. I think it does lean more towards the lower end. We certainly see that in QSAR. We have a couple QSAR that play in the very high end of the QSAR area and they're doing quite well. It's casual dining, casual dining suffered for years and it continues. I mean, there's some doing really well, but for the most part, it's a tough area.
spk15: Understood. And then just on the food service inflation, I think you're expecting some acceleration in that inflation in fourth quarter. Can you just help us? What's driving that? Is that primarily cheese? I see cheese has kind of moved higher here in the month in April into May. Is that what's driving it or is there something else driving that inflation going forward? Thank you.
spk17: Yeah, we really over index when it comes to cheese. So that would be the biggest part of it.
spk15: Thank you very much.
spk07: And there are no further questions at this time. I will turn the call back over to Bill Marshall for any closing remarks.
spk10: Thank you for joining our call today. If you have any follow-up questions, please contact us and invest a relation.
spk07: Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at any time.
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