Performance Food Group Company

Any reference to 2025, 2026, or specific quarters refers to our fiscal calendar unless otherwise stated. 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. With that, I'd now like to turn the call over to Scott.

Thanks, Bill. Good morning, everyone, and thank you for joining our call today. Before jumping into our second quarter results, I would like to recognize George Holm. As we announced in December after nearly 25 years with Performance Food Group, George has retired from his role as CEO. Over his career, George built an impeccable reputation as an industry leader, a visionary, and an agent of growth. Since PFG's IPO in 2000, sales have more than quadrupled to over $60 billion, and the market cap of PFG has increased sevenfold, much of which can be attributed to the vision and influence George has had on the company. More importantly, because of Georgia's stewardship, PFG is defined by more than just financial results. It is a place where people want to work, where customers and suppliers want to do business, and a preferred partner for strategic M&A. There's a reason that PFG is often the first and sometimes only call from prospective acquisition opportunities. Many of you have had the opportunity to meet with George and experience his knowledge and insight firsthand. On behalf of our entire organization, I would like to share my heartfelt thanks to George for everything he has done for the many thousands of people who have crossed this path. I'm also thrilled that George will continue to play an important role for PFG. As executive chair of our board, he will be heavily involved in the pursuit of strategic M&A opportunities, maintain his connection to key customers, and be active in PFG's overarching strategy. Following an industry icon like George comes with great responsibility and I'm excited to take the helm and lead PFG through our next chapter. George and I have worked together closely for the past four years, developed a powerful friendship and collaborated on the vision for PFG. As I look ahead, I'm excited to lead this organization and I'm extremely confident in our ability to continue to drive growth and EBITDA performance by executing on our strategic priorities. In May, we outlined our three-year strategic vision, which the company and I are deeply committed to delivering. More specifically, this is a roadmap grounded by a balance of continued revenue growth and market share gains, gross margin enhancement initiatives, and improving operating leverage. The organization is off to a solid start in achieving our three-year plan and have strategies in place that give us a high level of confidence we will deliver. Let's now turn to our results for the second quarter of our fiscal 2026. Despite a difficult macro environment, I'm proud of our organization's ability to overcome the challenges in the final months of the calendar year. The quarter saw declining foot traffic, the impact of the government shutdown, and softer sales per location across our segments. Despite the challenging backdrop, our company was able to post solid revenue and profit performance within our previously stated guidance range. Breaking it down by segment, let's begin with food service. Our organization delivered 5.3% organic independent case growth, driven by a 5.8% independent account growth. During the quarter, we gained share across independent, regional, and national business, largely consistent with our gains in prior quarters. Share gains were broad-based across a range of concepts with particular strength in chicken, burger, barbecue, and seafood restaurants. To elaborate further, after a strong start to October, volume trends moderated soon after the government shutdown took effect. We did see some recovery once the shutdown was lifted, and we finished the calendar year with case growth in December roughly in line with the November result. According to black box data, industry-wide foot traffic decelerated through the quarter with December traffic down 3.5%. Our chain restaurant business followed a similar glide path, reflecting consistent industry pressures. Our total chain restaurant volume grew by low single digits year over year, as new business we've onboarded over the past several quarters offset the softer traffic environment. We attribute our consistent market share outperformance in part to our efforts behind growing, training, and supporting the best sales force in the food service industry. Our efforts in this area are proven out in the independent restaurant space. We continued to hire new associates during the period, ending December with nearly 6% more salespeople than we had at the end of calendar 2024. As we have discussed on past calls, we do not have a corporate-wide hiring mandate, nor do we require artificial hiring goals. Instead, we emphasize the importance of expanding our sales force as a key driver of volume and market share growth. while empowering our local operating companies to hire according to their specific needs. We still believe a rate of hiring at or above 6% makes sense for the long-term support of our growth rate, but expect this number to fluctuate in any given period. I want to take a moment to discuss the integration of Chaney Brothers. As we discussed last quarter, we are pleased with the work being done at Chaney and expect this company to be a significant contributor to PFG's revenue and profit growth long into the future. That said, we have been very consistent in our messaging around synergy timing and when we expect the financial performance of Cheney to accelerate. When we made the acquisition, Cheney was making meaningful investments in its infrastructure to support growth. More specifically, the addition of a new 350,000 square foot facility in Florence, South Carolina, and a new 42,000 square foot facility in St. Cloud, Florida to expand its manufacturing capabilities. These investments, along with Other integration costs have had a short-term impact on Cheney's performance and our overall P&L. Despite this activity, Cheney continues to grow independent cases at a rate consistent with the rest of our food service operating companies, gain share in its distribution markets, and provide its customer base with great service. To close out my comments on Cheney, I want to remind you that we anticipate the majority of the synergies to start flowing through the income statement late in year two through year three after the close of the acquisition. Profit performance for Cheney should begin accelerating accordingly. All in, our food service segment had a solid second quarter, growing volume through market share gains, new business wins, and expansion of our private brand portfolio. We faced two meaningful EBITDA hurdles in the quarter that are likely to persist in the Q3 with my earlier comments on Cheney and the impact of cheese and poultry deflation. Despite the challenges, we remain confident in our strategy and expect our results to accelerate as we move through our fourth quarter, setting us up for a strong fiscal 2027. Turning to the convenience segment, on our prior earnings calls, we disclosed the addition of sizable new business wins for Cormark. In the final weeks of September, we successfully onboarded over 500 love stores, contributing nicely to our second quarter results. Also joining the Cormark fold in December, We're over 600 racetrack locations, which we successfully integrated into our network, setting the segment up for a strong finish to fiscal 2026. Let's look at the convenience segments performance during the second quarter. Net sales increased 6.1%, benefiting from market share gains and the onboarding of the new accounts just discussed. Our data shows a mid single digit industry decline in the key convenience categories as persistent inflation continues to weigh on the channel. Cormark's positive volume results reflect the company's strong share gain out performance and execution during the period. Convenient segment sales were driven by low single-digit dollar growth from food, food service, and related products, and mid-teen noncombustible nicotine product sales growth. Cigarette sales were flattish in the period. As a reminder, the mixed shift away from cigarettes towards other nicotine categories and growth in food, food service, and related products causes a revenue headwind that is nicely accretive to our gross margins. This dynamic is a consistent secular tailwind for our profit growth, which we expect to gain momentum over time. Moving on to profit, in the second quarter, our convenience segment adjusted EBITDA increased 13.4% as a result of strong cost discipline and operating efficiencies in addition to business from loves and racetrack. Once again, our great team at Cormark showed remarkable resilience and the ability to drive profit growth despite a challenging backdrop. Turning to specialty, trends in the second quarter were broadly similar to the first quarter, with a modest improvement in top-line trends coupled with nice productivity gains, which produced segment-adjusted EBITDA margin expansion. Sales growth was tempered by another difficult quarter in theater, which was down over 30%, representing an approximate $50 million drag on overall sales. Outside of theaters, specialty performed well, growing sales at a high single to low double digit rate in the vending, office coffee, retail, campus, and travel channels. Proactive management of operating expenses produced nearly 7% segment adjusted EBITDA growth in the quarter, representing 40 basis points of margin expansion. Closing out my remarks, it's certainly been a dynamic operating environment to take over as PFG's CEO. That said, I'm inspired by our organization's ability to consistently gain share across our business segments, operate safely while delivering exceptional customer service, and enhance our operating leverage, driving sustained growth in EBITDA dollars and margins for our shareholders. Our diversification seeks to provide consistent performance in a range of economic scenarios and our strong pipeline of new potential business should result in consistent long-term revenue and profit growth for PFG. I'll now turn it over to Patrick, who will review our financial performance and outlook.

Patrick? Thank you, Scott, and good morning. Today, I will review our financial results from our second quarter, provide color on our financial position, and review our updated guidance for 2026. To echo Scott's comments, despite challenges in the quarter, we are very pleased with our progress through the first six months of 2026. Through December, we continue to make progress on our financial position as our strong cash flow was used to invest behind our business to drive growth and reduce leverage. We believe that the investments we are making today will pay off nicely as we execute our strategy. In a moment, I will provide additional color on our financial position and capital allocation priorities. First, let's review our results for the second quarter. PFG's total net sales grew 5.2% in the second quarter, with growth in all three operating segments and particular strength in food service and convenience. Total company cases increased 3.4% during the quarter, highlighted by a 5.3% organic independent restaurant case growth and a 6.3% organic case gain in our convenience segment. As a reminder, having fully lapped the Chaney Brothers acquisition as of the second week of the second quarter, Chaney was reported as part of our organic business for the vast majority of the period. As Scott mentioned, in our convenience business, we are very pleased with the contribution from the addition of Loves and are looking forward to the benefit of the racetrack business, which started onboarding late in the second quarter. These businesses are expected to deliver incremental sales and profit dollars over the next several quarters. Total company cost inflation was approximately 4.5% for the quarter, just slightly higher than what we experienced in the prior quarter. With that said, there were some items moving around within our cost basket. Food service inflation of 1.8% was below recent trends with notable deflation in the cheese and poultry categories, somewhat offset by higher inflation in beef. Specialty segment cost inflation was 5.4% year-over-year, about 140 basis points higher than the prior quarter, mainly the result of candy and hot drink price inflation. Convenience cost inflation increased 7.4%, again, slightly higher than the prior quarter due to inflation in tobacco and candy. As Scott mentioned, the inflation impact on the convenience segment sales growth is offset by the revenue mix shift away from cigarettes. The inflationary environment has been volatile over the past several years, but as a company, we have demonstrated our ability to handle a range of outcomes. We continue to model inflation rates remaining in the low single to mid single digit range throughout 2026. Moving down the P&L, total company gross profit increased 7.6% in the second quarter, representing a gross profit per case increase of 20 cents as compared to the prior year's period. We are very pleased with our gross profit results, which shows our organization's resilience and long-term growth opportunity. In the second quarter of 2026, PFG reported net income of $61.7 million, a 45.5% increase year over year. Adjusted EBITDA increased 6.7% to $451 million, with all three operating segments contributing to our adjusted EBITDA growth. Diluted earnings per share in the fiscal second quarter was $0.39, while adjusted diluted earnings per share was $0.98, flat year over year. Our EPS was impacted by several below-the-line items, including higher interest expense and effective tax rate in the period. Our interest expense increased due to higher finance lease costs, offsetting lower debt balances, and more favorable interest rates. Looking ahead, we anticipate a very modest sequential decline in the net interest expense. Our effective tax rate was 28.8% in the second quarter, an increase from 25.2% last year. The increase in our quarterly effective tax rate was due to a decrease in deductible items related to stock-based compensation and an increase in foreign taxes as a percentage of income, partially offset by an increase in tax credits. We continue to expect our 2026 tax rate to be close to our historical average. Turning to our financial position and cash flow performance. In the first six months of 2026, PFG generated $456 million of operating cash flow, an increase of $77 million compared to the same period last year. We invested about $192 million in capital expenditures during the first six months. We continue to anticipate full-year 2026 CapEx to be approximately 70 basis points of net revenue in line with our long-term target. Our investments in CapEx are primarily focused on maintaining and supporting growth within our infrastructure and high-return projects that we believe will support our long-term growth goals. In the first half of 2026, we generated about $264 million of free cash flow, up nearly $89 million compared to last year. We did not repurchase any shares under our share repurchase program in the quarter. We will be opportunistic around share repurchase, but our priority remains debt reduction. The M&A pipeline remains robust, and we continue to evaluate strategic M&A. PFG has a history of successful acquisitions that drive growth and shareholder value, and we expect that to continue. At the same time, we will apply our typical high standards and robust due diligence to evaluate high-quality acquisition opportunities. Turning to our guidance, today we announced guidance for the third quarter of 2026 and updated our range for the full year. For the third quarter, we expect net sales to be in a range of $16 to $16.3 billion and adjusted EBITDA between $390 and $410 million. These ranges include continued deflation in cheese and poultry, the investment in our business including onboarding of new capacity at Cheney, and a continuation of a difficult backdrop for our specialty segment. We have also contemplated the impact of the recent winter storms in our outlook for the third quarter. For the full fiscal year, our sales target is now a range of $67.25 to $68.25 billion. We now expect full year adjusted EBITDA in a range of $1.875 to $1.975 billion for 2026. The adjustments in our full year projections are largely a flow through of the more difficult second quarter period. Our results keep us on track to achieve the three year projections we announced at Investor Day with sales in the range of $73 to $75 billion and adjusted EBITDA between $2.3 and $2.5 billion in fiscal 2028. To summarize, we are pleased with our progress despite a difficult operating environment in the second quarter. We are in a solid financial position which supports our growth investments and capital return to our shareholders and expect strong execution in the second half of the year. Thank you for your time today. We appreciate your interest in Performance Food Group. And with that, Scott and I would be happy to take your questions.