US Foods Holding Corp.

a question during this time simply press star followed by the number one on your telephone keypad and if you'd like to withdraw your question simply press star one again thank you i would now like to turn the call over to mike nice senior vice president and head of investor relations mike the floor is yours thank you greg good morning everyone and welcome to the us food's fourth quarter and full year fiscal 2024 earnings call on today's call we have dave flittman ceo

and Dirk LoCascio, CFO. We will take your questions after our prepared remarks conclude. Please limit yourself to one question and one follow-up. Our earnings release issued earlier this morning and today's presentation can be found on the investor relations page of our website at ir.usfoods.com. During today's call, unless otherwise stated, we're comparing our fourth quarter and full year 2024 results to the same period in fiscal year 2023. In addition to historical information, certain statements made during today's call are considered forward-looking statements. Please review the risk factors in our Form 10-K for a detailed discussion of the potential factors that could cause our actual results to differ materially from those anticipated in forward-looking statements. Lastly, during today's call, we will refer to certain non-GAAP financial measures. All reconciliation to the most comparable GAAP financial measures are included in the schedules on our earnings press release, as well as in the presentation slides posted on our website. We are not providing reconciliations to forward-looking non-debt financial measures. With that, thank you, and I'll turn the call over to Dave. Thanks, Mike.

Good morning, everyone, and thank you for joining us today. Before we turn to today's agenda, I want to take a moment to acknowledge the devastating fires in the Los Angeles area. Our thoughts are with everyone impacted by this tragedy. I'm relieved to share that all of our associates in the LA area are safe. We eagerly supported the critical work of first responders, including Cal Fire, by providing food and hydration, and we are very thankful for their brave and tireless efforts. Now let's turn to today's agenda. I'll start by recapping our 2022 to 2024 long-range plan. Then I'll share highlights from 2024, including the significant progress our team made executing our strategy. I'll then hand it over to Dirk to review our fourth quarter and full year 2024 financial results, as well as our fiscal 2025 guidance. We delivered another strong quarter, which resulted in record 2024 full-year earnings of $1.74 billion, capping off the final year of our long-range plan. We are proud to have overachieved our original commitment, which was all underpinned by the focused execution of our strategy. The fact that we didn't get there exactly the way we originally planned three years ago demonstrates our ability to adjust to any macro environment and our team's relentless focus on controlling the controllables to ensure we reached our target. During the past three years, we accelerated our work on key initiatives, including delivering consistent share gains with our three target customer types, driving more than $230 million in cost of goods savings, extending our technology leadership position, reducing net leverage, ending 2024 at 2.8 times within our two to three times target range, and expanding adjusted EBITDA margin by 100 basis points to 4.6%. I am equally excited about starting our new long-range plan, continuing to execute our strategic initiatives to drive sustained growth and return capital to shareholders. Our future is bright, and our current momentum gives us confidence in achieving a 5% sales taker, a 10% adjusted EBITDA taker, at least 20 basis points of annual adjusted EBITDA margin expansion, and a 20% adjusted diluted EPS figure through 2027. I am highly confident in our ability to continue to outpace industry volume growth over the long term and expand margins through our extensive portfolio of self-help initiatives while driving long-term value creation for our shareholders. As we turn the page on our momentous chapter for U.S. Foods, I thank our 30,000 associates for their extraordinary effort, dedication, and sharp focus to deliver excellence and help our customers make it every day. This next chapter will be even more exciting. Turning to slide four, our strong fourth quarter results finished the year in which we achieved record adjusted EBITDA of $1.74 billion while we expanded adjusted EBITDA margin by 22 basis points. We also delivered record adjusted EPS of $3.15 which was 20% growth, and we grew adjusted EPS 8 percentage points faster than we grew adjusted EBITDA. Importantly, we deployed our strong cash flow through our $220 million acquisition of IWC and nearly $1 billion of share repurchases in 2024. Let's turn to the broader macro environment. Chain restaurant foot traffic, as published by Black Box, was down a little less than 2% for the fourth quarter, and while still negative, it showed sequential improvement from the third quarter. Independent restaurant industry volume per circana was down less than 1% in the fourth quarter, and in line with last quarter's year-over-year results. Our ability to outperform the market was again demonstrated in the fourth quarter, as we posted a 3.2% increase in total independent case volume and our 15th consecutive quarter of share gains with independent restaurants. Also, case volumes in healthcare and hospitality, which together comprise more than 25% of our sales, grew 4.7% and 2.4% respectively. We continue to gain share in both customer types, and in fact, We just posted our 17th consecutive quarter of share gains in healthcare. These two high-growth customer types are an important part of our differentiated go-to-market strategy. The fourth quarter was noisy due to the impact of the devastating hurricanes that hit near the end of the third quarter and early in the fourth quarter, affecting industry volumes, specifically in the southeast, where we have a larger portion of our independent business. In addition to storms, the election and a holiday calendar shift also impacted restaurant foot traffic. These impacts translated to an estimated 150 to 200 basis point headwind to our independent and hospitality case growth. Despite these external factors, we continue to capture possible market share, grow volumes, and expand our margins. And in the fourth quarter, We improved our share gains with independent restaurants compared to the prior year, and we also grew our new independent accounts at the fastest rate of the year in December. Moving to slide five, let's take a look at some of the key achievements in 2024 that our team delivered under our four strategic pillars. 2024 was another strong year for U.S. Foods. As I reflect on my two years here, I am now even more confident in delivering our new long-range plan and our ability to consistently gain profitable market share in our three target customer types of independent restaurants, healthcare, and hospitality, the three most profitable segments of the food service industry. We also have line of sight to continue productivity gains of 3% to 5% and further gross margin expansion. Now let's move to some highlights in each of our pillars. Our first pillar is culture. The safety of our associates continues to be and always will remain our number one priority. Our injury and accident frequency rates improved 19% from the prior year on top of our 23% improvement in 2023. These safety results are our best in many years, but we still have more work to get to our ultimate goal of zero. As we look to further reduce associate injuries, The rollout of center ride power industrial equipment is a key initiative that is underway across the network. We are nearly 50% through this deployment, and importantly, where this equipment has been already rolled out, we have not had a single injury. In 2024, we donated more than $14.5 million to support hunger relief, culinary education, and disaster relief efforts. This contribution included nearly 7 million pounds of food and supply donations, the equivalent of approximately 6 million meals or more than 260 truckloads of product. Turning to our service pillar, we're striving to differentiate our service platform to our customers to provide a best-in-class delivery experience. In 2024, we deployed Descartes, a leading routing technology, in 25 markets, resulting in nearly 50% of our routed miles on the system at year-end. It enabled us to route more dynamically and drive even greater delivery efficiency, while also providing a better customer experience by delivering their orders within a more precise time window. We improved distribution productivity in 2024 by delivering our best cases per mile performance in our company's history. This was driven for our market-led routing initiative, combined with a more than 2% productivity uplift in markets where Descartes has been deployed. We are making continued progress with the rollout of the card and expect to complete it by the end of this year. We are also transforming the experience for our customers through our continued enhancements to our Moxie digital solutions platform that enables customers to easily place orders, manage inventory, and pay their bills. We have been and will continue to be the e-commerce leader in our industry. We closed the year at 77% e-commerce penetration for our independent customers and 87% for the total company. The 77% is an all-time high for our independent customers and represents a 4.5 percentage point improvement versus 2023 and an 11% percentage point improvement versus 2021. Now let's turn to our growth pillar. In 2024, net sales grew 6.4% to $37.9 billion through continued market share gains in all three of our target customer types. Our differentiated team-based selling model and consistent addition of new seller headcount over time, which was up 5% in 2024, remain at the core of our growth plan. We continue to invest in our Hungry for Better program with three distinct product portfolios of over 4,000 products. Serve you, serve good, and serve local. Hungry for Better makes it easy for our customers to help meet diners' preferences for delicious on-trend meals, from clean ingredients that support individual dietary and lifestyle needs to sustainably sourced products. In fact, in 2024, our responsibly sourced serve good portfolio of private label products achieved record-breaking sales, surpassing $1 billion for the first time. Pronto, our small truck delivery service, continues to grow and is live in 40 markets. We remain excited about this growth opportunity and its ability to reach hard-to-service customers in dense geographies. Pronto provides these previously untapped independent restaurant customers with smaller, more frequent deliveries and later cut-off times. In addition, we launched Pronto Penetration in the middle of 2024 in two pilot markets and expanded that to six later in the year, with the goal to launch 15 to 20 more markets in 2025. This service fills in non-routine delivery days for our existing independent restaurant customers, leading to the potential for further wallet share for U.S. foods. In our first two pilot markets, we are seeing an approximate 20% uplift in our overall case growth from customers in the program. As expected, Pronto exited 2024 with approximately $730 million of annualized run rate sales, and we expect it to grow double digits this year. Turning to M&A, we completed one tuck-in acquisition last year by purchasing IWC Food Service, which serves the greater Nashville area. More recently, in January, we acquired Jake's Finer Foods in Houston, our fourth acquisition over the last two years. Jake's also includes a quality meat cutting facility, which will fit in nicely with our Stockyards network. With more than $160 million in annual revenue, this acquisition increases our local capacity and expands our presence in South Texas. Finally, let's move to our profit pillar. Adjusted gross profit grew 7.3% in 2024 to $6.6 billion. We continue to make additional progress on cost of goods through our strategic vendor management efforts, realizing more than $70 million in savings last year. We also remain focused on growing our private label brands, where our full-year penetration was up nearly 50 basis points to 52% with our core independent restaurant customers. Our momentum accelerated throughout the year with penetration nearing 53% by the end of 2024. And we see no near-term ceiling with our ability to further increase our private label brand penetration. Finally, as part of our ongoing goal of achieving 3% to 5% annual productivity improvement, we made significant progress in 2024 to streamline administrative processes and costs and achieved $120 million in annualized operating expense savings. Regarding ChefStore, we are nearing the conclusion of exploring the sale of this business and expect that we will have more to say about that by the end of this quarter or early in the second quarter. We remain fully committed to supporting the business, our associates, and our customers throughout the process. As we have previously said, in the event of a sale, we would expect to deploy the majority of the proceeds to repurchasing shares. Before I hand it over to Dirk, I would like to recognize two associates who have gone above and beyond during the wildfires that raged across California. Two of our associates, Danny Moore and Paul Wheeler, dedicated their personal time to serving the approximately 10,000 firefighters in the area. With Danny supporting the Pacific Palisades fire and Paul supporting the Eaton fire, both were on-site daily to coordinate the delivery of over 75 truckloads of product and were in the kitchens preparing food for first responders. Both have made incredible personal sacrifices being away from their families and I thank them and all of our associates for their service to support those who are on the front line during this tragedy. Let me now turn the call over to Dirk to discuss our fourth quarter results and our 2025 guidance.

Thank you, Dave, and good morning, everyone. Our fourth quarter performance finished out strong in 2024. We continued to execute our strategy of driving healthy, balanced growth through the P&L, which resulted in margin expansion and double-digit earnings growth. Turning to slide 7, fourth quarter net sales increased 6.2% to $9.5 billion, driven by total case volume growth of 3.5%, and food cost inflation and mixed impact of 2.7%. Our independent restaurant volume grew 3.2%, including 140 basis points from acquisitions. Healthcare growth remained strong at 4.7%, and hospitality grew 2.4%. As Dave mentioned earlier, industry case volumes were impacted by storms, the election, and timing of the holiday season. Despite the noise in the quarter, we continue to focus on the outcomes that we can control, and we again drove healthy share gains in all three of our target customer types. We remain encouraged that 2025 will produce a stronger macro backdrop than 2024, and when combined with our focus on share gains, will enable us to accelerate organic case growth. January growth rates in independent cases, although significantly impacted by weather and the California fires, showed signs of strengthening over Q4. Fourth quarter adjusted EBITDA grew 13.7% from the prior year to $441 million through a balance of profitable volume growth, gross profit gains, and operating expense productivity. Our actions to drive profitable growth resulted in 30 basis points of adjusted EBITDA margin expansion to 4.6%. Importantly, adjusted gross profit dollars grew 240 basis points faster than adjusted operating expense dollars. Finally, adjusted diluted EPS increased 31.3% to 84 cents. We again grew adjusted EPS significantly faster than adjusted EBITDA, And we expect this to continue as we execute our share repurchase plan on top of strong adjusted EBITDA growth. Zooming out to the full year, we delivered record profitability as we grew adjusted EBITDA by 11.7% to $1.74 billion. expanded adjusted EBITDA margin by 22 basis points to 4.6%, and increased adjusted diluted EPS by 19.8% to $3.15, despite the macro challenges that persisted throughout 2024. Our results are a testament to the focused execution of our self-help initiatives and our ability to control the controls. This performance gives us confidence that we have the right strategy and initiatives in place to achieve our new long-range plan. Moving on to slide 8, we continued to drive significant gains in operating leverage. We again grew adjusted gross profit per case faster than adjusted operating expense per case. In the fourth quarter, adjusted gross profit per case grew by 28 cents, or 3.6%, compared to the prior year, while adjusted operating expense per case increased by 8 cents, or 1.4%. Fourth quarter adjusted EBITDA per case was $2.12, up 19 cents from the prior year, as we grew adjusted gross profit per case three and a half times as fast as adjusted operating expense per case. The full year result was very similar as we increased adjusted EBITDA per case 14 cents to $2.07. We continue to drive gross profit gains and offset a significant portion of operating expense inflation with supply chain productivity improvement and other efficiency gains, including streamlining administrative processes and costs and realizing indirect procurement spend savings. Specific to indirect spend, we achieved more than $30 million in savings for full year 2024, above the $20 million estimate I discussed on the last earnings call. and we remain on track for $60 million by 2027. Our fourth quarter and full year results demonstrate our ability to drive strong leverage through the P&L. We expect to maintain that operational discipline in 2025 and beyond. Turning to slide nine, we are growing our business in a responsible and sustainable way to drive earnings, cash flow, and improve return on investment capital. Over the past three years, we delivered significant profit growth from a balance of top-line growth and EBITDA margin expansion, including an 18% adjusted EBITDA CAGR and a 27% adjusted diluted EPS CAGR. As a result, we increased ROIC by 1,300 basis points to 31%. Turning to slide 10, our strong cash flow combined with our healthy leverage profile enables us to deliver on our capital allocation priorities of investing in the business for growth, returning capital to shareholders, and executing accretive tuck and M&A. We ended the year at 2.8 times net leverage within our two to three times target range. Our net leverage remains in line with 2023, even with repurchasing 16.4 million shares for $958 million and closing on the $220 million acquisition of IWC. In 2024, we invested $341 million in cash capex as we continue to focus on projects to enable organic growth, including expanding our fleet, investing in capacity, as well as enhancing our technology lead. So far in 2025, we completed the acquisition of Jake's Finer Foods for $92 million and repurchased $23 million of shares. We are disciplined in our capital deployment, and we remain committed to returning capital to shareholders. We expect to return to more meaningful share repurchases in the second quarter and balance of the year, and we'll adjust based on future Tuck and M&A opportunities. As a reminder, we expect to generate more than $4 billion of cash flow over our new long-range plan period of 2025 through 2027, and expect to deploy approximately half of these proceeds, or $2 billion, towards share repurchases. Additionally, we expect to reduce net leverage due to earnings growth. Moving on to slide 11 and our guidance and modeling assumptions for fiscal year 2025. We expect to grow total company net sales by 4% to 6% compared to prior year, driven by total case growth of 2% to 4%, which includes faster independent restaurant case growth of 4% to 7%. The lower end of our range assumes a slower macro environment persists. We expect a normal inflationary environment with sales inflation and mixed impact of approximately 2%. We expect to grow adjusted EBITDA 8-12% and adjusted diluted EPS 17-23%. Our expected double-digit earnings growth will be driven by the combination of profitable volume growth and margin expansion as a result of adjusted gross profit per case continuing to grow faster than adjusted operating expense. In closing, I am very pleased with our financial performance as we delivered record-adjusted EBITDA for 2024 and achieved the long-range plan that we presented in early 2022. We did this by staying focused on executing our strategy, being agile, and controlling the controllables during times of macro uncertainty. I am excited about the opportunity in front of us as we embark on our new long-range plan, and we are confident in our ability to achieve it given the momentum we are generating. I'll now pass it back to Dave for his closing remarks. Thanks, Dirk.

You've heard about the great progress that we made last year. We are extremely pleased with how we successfully completed our prior long-range plan and are very optimistic about our momentum heading into 2025 and beyond. Ours is very much a self-help and execution story with a long runway of top and bottom line growth in front of us. We will continue to run our playbook, execute our strategy, and effectively deploy capital. I would like to quickly draw your attention to slide 12 and what differentiates U.S. Foods versus our competition. We are the only pure-play, U.S.-focused food service distributor with national scale. We have a differentiated value proposition and significant scale with the three most profitable customer types in the industry. independent restaurants, healthcare, and hospitality. We have the industry-leading digital ecosystem. We're in the early innings of self-help initiatives that will drive sustained profitable growth for many years to come. We believe we have the fastest P&L growth algorithm in the industry, underpinned by a creative capital allocation, which will enable us to grow adjusted EPS faster than adjusted EBITDA over the next several years. And finally, we are accelerating cash flow generation, which will result in more than $4 billion to deploy over the next three years. We are much stronger today than we were several years ago, and we are just getting started. We have sustainable competitive advantages to outperform the market well into the future, and we will continue to drive shareholder value for many years to come. With that, Greg, please open up the line for questions.

Great. Thanks, Dave. And at this time, I would like to remind everyone, in order to ask a question, press star and the number one on your telephone keypad. Once again, star one. And as Mike mentioned earlier, in the interest of time, we ask that you please limit your question to one primary question and one follow-up. Thanks in advance. And we'll pause just a moment to compile the Q&A roster. Okay, looks like our first question today comes from the line of Mark Carden with UBS. Mark, please go ahead.

Great, good morning, and thanks so much for taking the question. So to start, it seems like there's new tariff news every day, including today with reciprocal tariffs. What percentage of your offering do you import overall? And then if tariffs on food products end up occurring, would you expect to pivot sourcing or would the industry simply be able to pass through the pricing?

Yeah, good morning, Mark, and thanks for the question. I would just point out that the overwhelming majority of our products are produced and distributed in the United States. We have a low to mid single digit importing from the various countries that have been mentioned. And just recall that the majority of our customer interactions and our agreements are pass-through. in nature. But having said all that, at the heart of our work with our customers is helping them handle inflation. I would wrap the tariff issue into just more inflationary pressures on our customers. So how we go to market, the way our restaurant operation consultants work to help take costs and waste out of the back office of our operators, our scoop products, our private label brands that end up being cheaper for our customers, and help them save time and money in the kitchens. That's at the heart of what we do every day, and we'll continue to work hard to help support our customers.

That's great. Thank you. And then as you think about your independent case growth assumptions in the year ahead, how are you thinking about the balance of new account growth versus penetration growth and how that could progress really throughout the year?

Yeah, so, you know, penetration has been a challenge given the foot traffic challenges really all throughout 2024, especially in the back half of the year. But just over time, the overwhelming majority of our growth comes from new account generation. That's why I pointed out, you know, we had the highest new account generation of the year in December, even with all the calendar and foot traffic challenges. I am very encouraged. We also had one of our strongest monthly year over year share gains in the month of December. And all that positions us you know, very well for growth going forward, especially when that foot traffic environment improves, which we expect to happen, you know, throughout the course of 2025.

All right. Thanks for the question, Mark. And our next question comes from the line of Edward Kelly with Wells Fargo. Ed, please go ahead.

Yeah. Hi. Good morning, everyone. I wanted to maybe just start with double-clicking on the independent case growth. I mean, you're clearly taking share. There's no doubt about that. But you're below the 5 to 8 percent, you know, out though, right, that you've kind of talked about. I mean, guidance seems to be that, you know, because you're talking about, you know, the 2 to 4 percent total organic case growth that, you know, you see a sharp improvement in the independent side. Could you just maybe talk about the expectation for the year, your confidence, the visibility, how maybe you think about bridging back to that target and how we should be thinking about the cadence of the year as that occurs?

Sure. Well, let me just start by just reframing that 5% to 8% case growth as we did at Investor Day. And recall that the underlying assumption there was a normalized plus 2% foot traffic environment, which we did not see in 2024. So I'd start with that. And if you just bridge, you know, the performance that we had there in the fourth quarter at that 1.8% organic growth, you add the 2% foot traffic back and that 150 to 200 basis point impact that we had from the storms, weather, and calendar, you know, that all puts us right in the heart of load of upper fives, even in that environment. So I'm confident in what we put forward. And then as you heard Dirk comment, you know, we saw some improved traffic trends in January. in the way, you know, kind of we're looking at the month of January, if you take the impact of the strike that we had last year in the weather, it in fact offsets completely the weather, which was much more significant this year. So I would call that year over year for U.S. foods a wash. And then underneath that, we saw strengthening from December to January. So as Dirk pointed out, you know, the low end of that range assumes that the foot trapping environment doesn't improve. We're confident it will. It's just at what rate. 2025, but we've got a lot of confidence based on the underlying momentum that we've seen the share gains that we're taking to put forward that guidance range for the year.

Maybe just a follow-up to that, Dave. I mean, you've pretty consistently talked about that you can adjust to the macro and controlling the controllables. And I think 24 obviously proved that. But you're exiting the year with a lot of momentum and profit per case, you know, like the self-help side of the profitability equation. So does the same mentality apply as you're thinking about, you know, 25 guidance? Just curious is that, you know, how you would size the self-help opportunity in 25 versus what we, you know, what you accomplished in 24?

Yeah, I would say we feel really good about the momentum. And as I pointed out, Ed and I, I, really believe this. We're in the early innings of all the work that you see us doing. You know, on the top line, continuing to take share. There's a lot more share for us to be had in all three of our targeted customer types. I feel really good around the way the team's aligned around our mission there and the numbers that we're putting up, but there's more to do. And then as you think about the gross profit per case work that we have going on, and our margin improvement work, our strategic vendor management work, that $260 million target we've got over the next three years, the momentum we're exiting the year with in that area, our exclusive brands, you know, nearing 53% at the end of the year. There's a lot more for us to do and to be had. And then supply chain productivity with all the framing that we've done and the structural improvement work, Overlaying things like the cart, you know, we're going to just get continued momentum as we roll that out across the rest of this year. Our turnover continues to reduce in both selectors and drivers. I'm confident that our delivery and outbound productivity will continue to improve throughout the year. So just feel really good about the execution story that we have in front of us and the way the team is driving the outcomes.

I think, Ed, the other thing to not forget is the benefit that we have from not just from a growth, not just independence, but a strong base. As Dave mentioned, it's more than a quarter of our business in healthcare and hospitality. significant rate with healthcare at almost 5% for the fourth quarter, hospitality at 2.4%, despite having the same headwinds basically as Independence had. And both of those have come out of the gate in January, well within our guidance range. So that's another good growth engine for us as we talk about that, our EBITDA growth and EPS growth come from a balance of top line growth and margin expansion.

All right. Thanks for the question, Ed. And our next question comes from the line of Jeffrey Bernstein with Barclays. Jeffrey, please go ahead.

Great. Thank you very much. My first question is just kind of bigger picture. I think you guys mentioned you're assuming or suggesting a stronger macro backdrop in 25 versus 24. I'm just wondering what metrics gives you that confidence? I know there are some that are concerned that the consumer environment isn't getting much better. especially around that because you're talking about the long-term algo for case growth 5% to 8%, which assumes positive 2% industry traffic. There's definitely a question as to whether or not the industry will ever get back to positive 2% traffic. It just seems like it's year after year. There are always challenges there. So just wondering your kind of broader view on the macro backdrop and the confidence you have in getting back to that 2% positive industry traffic.

Good morning, Jeff. It's Dirk. You know, Technomic is one source that we use. It's calling for a healthy improvement in 2025 over 2024. Also, when you had a decline last year, sort of reset a base and not expect further declines again versus some improvement. We have likely some more stability with the election behind. So, you know, those all give us the optimism that the foot traffic environment will continue to get better. thing that we say on that, but the other thing that's not new that you've heard us talk a lot about is things that we can control around the share gains, and all three of our target customer types work to continue to drive that. And it's self-help, control the controllables, however you want to talk about it. That is at the heart of how we're thinking about it, whether it's top-line growth or just bottom-line earnings growth.

Got it. And my follow-up is just on Dave, you mentioned the independent customer gains about the fastest growth was just in the month of December and that January is on a strong start. I'm just wondering, is there anything that you view as the key driver of that acceleration and maybe what's your expectation? Is that sustainable throughout 2025 specific to that independent customer gain metric? Thank you.

I think the focus that we've had in Independence, you know, 15 quarters of share gains run in our playbook. You know, the way we use this are kind of data to target customer growth by market, by zip code. You know, our team is on it. You augment that with our continued hiring of sellers. Some of them are maturing over the last 12 to 18 months. We'll continue to hire in that direction. low to mid single digit range as we committed to as we did the last two years. And it's just continuing to run our playbook. And, you know, I remind our team all the time, given our share position, regardless of the macro, there's plenty of volume to be had in the industry and specifically with independent customers. And our job is to go get those cases. And that's what our team continues to do.

All right. Thanks, Jeff. And our next question comes from the line of Lauren Silberman with Deutsche Bank. Lauren, please go ahead.

Thanks so much. So I wanted to ask if you can expand a bit more on what you saw in terms of cadence in 4Q and into January. It's good to hear growth accelerated in January. I guess, are you within striking distance of the 4% to 7% independent case growth target for the year? Just trying to understand whether the guide implies industry trends improve from here or the magnitude of that.

Good morning, Lauren. This is Dirk. So in the fourth quarter, we saw more growth in October, November, just like the rest of the industry and peers have talked about it. In December, with the shift in the holiday timing, you saw slower growth overall. We did see some acceleration in January. I think with the weather and the fires made it pretty noisy. So I think for the, you know, when you think of the first quarter, just a reminder, kind of January and then early February, lower volume periods relative to overall. So our expectation is that we will accelerate throughout the year and have that confidence for the reasons Dave talked about earlier, that we achieved that four to 7% independent case growth, as well as our overall two to 4% case growth.

Great. On that 2% to 4% case growth, I want to confirm what's organic versus whether there's any M&A contribution embedded, and just more broadly, how you're thinking about the M&A environment for 25?

That incorporates anything that we've transacted already. So it includes IWC and the small contribution from Jakes, which is relatively small, as I mentioned. Our pipeline continues to be to be worked and we continue to look for opportunities out there and we'll continue to be opportunistic with the right businesses And Jakes is a good example of fit the network very well, doubled our capacity in the Houston area, allowed for continued growth, as Dave mentioned, a very good meat cutting facility that fits well into our network. So I would say the environment remains healthy and we continue to work our pipeline and engage with people. And as you've heard us say plenty of times, the thing you can't determine is when they're ready. And so our work continues on that front.

Thank you very much.

All right. Thank you, Lauren. And our next question comes from the line of John Heinbockel with Guggenheim Partners. John, please go ahead.

Hey, guys. Wanted to start with, can you discuss what you're seeing? You sort of take out weather and calendar trend line on lines per account and cases per line, right? And obviously, cases per line, right, as we see the macro impact. Is it possible? Could that be down 5% or mid-single-digit? with the bulk of that being macro?

Yes. The cases per line has been the challenge, John. I think lines are relatively stable. Obviously, we continue to look for those penetration opportunities. But it's just particularly in the back half of the year, it's been kind of overwhelmed by the foot traffic challenges. And that's where that shows up.

OK. Maybe a totally different topic. Where are we, if you think about the rest of this year, The rollout of Descartes and UMass, the rollout on that, and then I think last quarter you talked about productivity was up 3.5%. I don't know what that was for the full year. Maybe it was similar. Could that be higher in 2025 because of the rollout of those programs, or do you think it's about the same?

Good morning, John. It's Derek. I think so with Descartes. expect to be fully rolled out by the end of this year. UMass continues to deploy to more markets. I would say that our expectation is the productivity impact is pretty similar to what it was last year, because you're rolling off some older ones that didn't last and then continue to add new ones. But as we come into 2025, we're still very pleased with the outcomes that both of those are offering. And then for Descartes,

opportunity that it will continue to afford us in the coming years by having a more advanced routing platform thanks for the question john and our next question comes from the line of peter salla with btig peter please go ahead great uh thanks uh just a couple of questions first i i wanted to come back to the conversation around tariffs. I think, Dave, you mentioned low to mid-single digit imports from the countries that may be affected. Just curious if the private label brands that you guys have, are they more or less exposed to those countries versus the branded? That's my first question.

I'd say it's about equal there, Peter. No plus or minus on a relative basis.

Okay. That's very helpful. And then just On the MOXIE rollout, I know you gave some metrics there. Are you still seeing the case count growth there? I think maybe several quarters ago you were mentioning about a case and a half more per order. Just any update on that would be helpful. Thank you.

Yeah, Peter, it's relatively the same. That case and a half in that one to two cases is where we continue to land with Moxie, and we're confident in that, and we expect that will continue.

Okay, thank you for the question, Peter. And our next question comes from the line of Brian Harbor with Morgan Stanley. Brian, please go ahead.

Yeah, thanks. Good morning, guys. Just on the healthcare and hospitality side, has that been – You know, mostly kind of new business wins versus penetration. I know the new business wins there can be a little bit lumpier, but would you expect that rate to kind of continue into this year or anything that affected 4Q?

Good morning, Brian. This is Dirk. So overall, as you said, we're quite pleased with the way both are performing. And it's really coming from a combination of new and penetration across that customer base. And our expectation is we continue to grow at a very healthy rate. And as I mentioned, we're growing well within our guidance range for the year. We have differentiation with those customer types, just like we do in our go-to-market with independent restaurants. And the wins can be, yes, there can be some chunky pieces, but there also can be smaller that we continue to bring on on a regular basis. So we think we're very well positioned and excited about the growth that comes from those customer types.

Okay, thanks. Dirk, what's a rough CapEx number for this year, and I guess just kind of any changes in the different buckets of that versus 24? Sure.

So we guided to $375 to $425 million for the year. That's a step up from a little under $350 in 2024, and it's really right in line with what we talked about in investor day. And it's a combination of, as the business gets a little bit bigger, it's fleet, it's a little more IT to support some of our initiatives. It's some of the work around building maintenance capacities. There's not a single driver there, but I think the important part is that and depreciation both are what we have been contemplating, and it's really, as we step up coming off of, period of getting back to investing in a healthy way. And what you see is even with that, we continue to grow EPS meaningfully faster than adjusted EBITDA.

All right. Thank you for the question, Brian. And our next question comes from the line of Kelly Banya with BMO Capital Markets. Kelly, please go ahead.

Oh, thanks. Just a couple of questions from us. Lots of focus on the restaurant traffic and the broader trends there, but anything you're seeing underneath the hood, whether it's cuisine types that are performing better or income cohort dynamics or even regional dynamics, I'm just curious if there's areas that are stronger that maybe you might be leaning into for growth as we think about 2025.

I wouldn't point to any regional challenges. I think that foot traffic pressure has been pretty broad-based, particularly in the back half of the year. You know, our strength, we have a lot of strength in the bar and grill area. Our team continues to do a nice job there of taking care, tends to hold up on a relative basis better than some other segments. But that's really the only thing I would probably point out and mention there.

Okay, that's helpful. Dave, I think you mentioned Salesforce headcount was up 5% in 2024. Is it safe to assume 25 is on a similar trajectory? And just color on how you feel about the compensation structure for the team and feedback and how that's going or any changes or things that we should consider on that front.

Yeah, we were up 6% in 23 and 5% last year. I think good for us. We've got good momentum around it. Our team does a nice job of onboarding new sellers. And so I think we will stay in that range. And we thoughtfully did not make any challenges to our compensation plan going into this year because we felt good about the changes we made a year or so ago. And that's playing out as we hoped. And we'll continue to review it through the course of time and make any tweaks as we need to.

Thank you, Kelly. And our next question comes from the line of Alex Slegel with Jeffrey. Alex, please go ahead.

All right, thanks. Congrats on the performance this year. I wanted to ask on the private label, environment seems primed to support further expansion here. And it sounds like you've seen the momentum climb through 24. I was wondering if you could kind of talk about some of the drivers that could allow that to ramp further in 25 as you think about the effectiveness of the seller incentives and the kinds of products you're offering or any other industry dynamics that might impact that?

Yeah, I'll just take you back in history a little bit, Alex, there with the pressure that ourselves and really the industry saw on private label coming out of COVID. We all were challenged with supply for a few years. confidence. So we entered 2024 with full supply capability. You overlay that with our innovative scoop process where we're launching new products, highly innovative products that, again, and help our customers save time and money. We do that twice a year in the spring and the fall, and those have been quite successful. And most of those products stick once we launch them. And so we feel really good about it. And that's why I pointed out earlier that, you know, we exited the year with a much stronger momentum than we had for average for the year. And I expect that that will continue. And, you know, in challenging times when our customers You know, our private label brands are exactly what they need, and our team's incented to sell those. And so it's a win-win for our customer and for our sales team. Thanks.

And a follow-up on the acquisitions, with Jake's being the newest addition, maybe an update on kind of where we are with some of the other recent acquisitions, IWC, Renzi, Saladino's, just in terms of integrating those businesses and that journey towards and getting the productivity and the growth and the synergies that you've been looking for there.

Good morning, Alex. So, Dirk, we've been pleased with each of them. They each continue to progress from an integration perspective, both from a process and system, and we'll continue that over the course of this year. As you probably remember, we've talked about, and we do, when we buy companies, we do integrate them into our systems over time. But each of them continue to largely perform as we expected, and we expect the same amount of jakes as we bring it on, and we're excited about that one as well.

Thanks for the question, Alex. And our next question comes from the line of Jake Bartlett with Truist. Jake, please go ahead.

Great. Thanks for taking the question. You know, my first one was on the product cost in mix guidance of 2% in 25. You're trending higher than that, you know, in the fourth quarter. You know, it looks to me like some, you know, food PPI is remaining elevated. So I guess the question is, is that, would you view that as kind of conservative, the 2% versus the 2.7 on a blended basis? And also, maybe there's some mixed impact in there that I'm not contemplating. So any commentary there would be helpful.

Good morning, Jake. And overall, it probably is a little on the conservative side since we don't know exactly how the inflation is going to play out. And we've used that 2% very similar to how we've talked about it previously. And just as a reminder, if the inflation plays out a little bit higher than that, it will be more of an impact on sales than it will on earnings. Just because when we think about the inflation, even in the fourth quarter and very similar to the third quarter, is more that's coming through proteins, so center of the plate. And in those cases, it has more of an impact on sales dollars than it does earnings. So we're well positioned here and we'll continue to work on managing inflation effectively just as we have the last few years.

Great. And then I had a question on some of the margin drivers in 25. And hopefully you can quantify maybe some of the, you know, what you're looking to get with procurement savings. Just remind us, you know, what you think you're going to get there, as well as the corporate cost savings. Any other, you know, initiatives maybe that you could quantify for us as we think about the margin build in 25?

Sure. Well, I'm not going to get into a lot of specifics on the components. I think on the cost of goods, the $260 million that we talked about, it's relatively balanced across the years. So you can sort of think about that in that way. Dave made the comments that I referenced on the cost savings of the $120 million that we took this year, and some of that will carry forward into next year. And then indirect spend, we achieved the more than $30 million on our way to the $60 million. You know, I would expect we'd probably get to another $15 to $20 million of gains this year incrementally. So it's that plus and the elements of productivity in supply chain that we're targeting in that, again, you know, three-plus percent range. So it all contributes, and it's why, because of the visibility we have to the actions and initiatives that will drive it, which gives us such confidence in achieving the overall earnings outlook that we put forth.

Great. Thanks for the questions, Jake. And ladies and gentlemen, just a reminder, again, if you'd like to ask a question, it's star one on your telephone keypad. Once again, star one. And our next question comes from the line of Andrew Wolf with CL King. Andrew, please go ahead.

Thank you. Good morning. I wanted to ask a couple questions around the Pronto Penetration Initiative that you've launched recently and gave some color on. First, could you just clarify, Dave, I believe that's for the entire independent customer base, not just the Pronto folks. And specifically, I wanted to ask about the 20% uplift in sales with those who have tried it. I assume that's got to be new lines based on, you know, the convenience of them, you know, having a stock out or whatever. Or, you know, just a little color on whether it's mainly new lines or what's driving that. And also the economics, because I was thinking about it near term, you know, it's a truck delivery. But longer term, you might, you know, might have a chance to consolidate that into a larger purchase. So just kind of get some clarity on how you're thinking about, you know, what it is and how the economics can sort it, sort out. if that 20% uplift holds up.

Yeah, thanks, Andy. Hey, let me just take you back to the original launch of Pronto. And, you know, for several years, this was aimed at urban markets, difficult-to-reach areas, and overwhelmingly, actually 100% targeting new customers only. And it was just the middle of last year when we started to take what we call Pronto penetration to our new customer base. We started that in two markets. Towards the end of last year, we extended that pilot to four markets. So this is now, for the first time ever, aimed at our existing customer base. And it gives them a chance, and actually the lens that opens for us is competing against specialty suppliers. And so many of the products that we're delivering on ProntoPen are products that our customers are buying, some from us, some from competitors, those specialty guys, and they're really looking for more frequent deliveries of fresh product. So think about produce, think about center of the plate items, think about seafood. Those sort of things are what typically goes on a pronto truck. And to your question around the 20% uplift, that is aimed at specifically the customers in those penetration markets that we've opened this up to. And again, this is in pilot phase. So we've entered a market with one or two, just a couple of trucks to test it. And just recall to your question, you know, we were looking at two things as we took this to our existing customer base. One is our ability to maintain the profitability, which is important. And that's linked also with making sure that we don't cannibalize our existing broad line business. And that's why we're being thoughtful about the ramp up of pronto penetration. And so far we feel good. And from a profitability standpoint, you know, it's right in line with our broad line profitability.

Great. Thanks for that. If I could just get one housekeeping question in. On the DIRC, the 4% to 7% independent case growth that's in the plan, if I use the acquisitions and assume it's all for independents, at least at this juncture, what you've announced seems to add about 1% to that number. Would the organic component be about 1% lower?

So it'll be, it's not all independents. I think for each of them, they tend to be, you know, call it half on the independent side. So it'll add probably not quite that much, but it'll definitely be a contributor to it. I think the bigger sort of improvement, as Dave talked about, is the continued share gains. And then over the course of the year, some improvement in the

Thanks for the question, Andy. And our next question comes from the line of John Ivanko with JP Morgan. John, please go ahead.

Hi. The question is on the amount of broadliners that you might be able to acquire nationally that could drive your independent restaurant case volume specifically. you know, is it, um, you know, not to completely put numbers in your head, but you know, could you potentially expand that business, you know, 25%, 50%, you know, just, you know, you just give us some kind of sense in terms of, you know, how big of an acquisition opportunity there may be to be more, do you have to do more tuck in acquisitions is the first question and the related ones, you know, for some of the businesses that you've acquired, have you actually learned anything from them? I mean, have you learned anything from the various businesses that you acquired that's actually,

made us foods um you know a better operation both for customers and employees maybe that surprised you on the positive side thank you john so overall i think you know we're not gonna as you pointed out i'm not gonna get into specific numbers uh we think there are a number of opportunities primarily uh in the tuck-in space that are out there and that is one where you've heard dave say plenty of times we don't need to do them so that's why our focus is on you know and probably a couple a year. If the opportunity is more or less than a given year, we'll evaluate that. But our primary growth engine is going to be our organic growth, but these are nice compliments to add to the business. I think to your question on what have we learned, what we learned is that sort of the relationships and the ultimate density in these markets and the way they serve those local customers has been something that we've been able to then apply a little more broadly than we think of on a bigger basis. So the food group, there's some capabilities around logistics, produce, things like that that we've leveraged across our entire network. So there are learnings as we go in, and we do keep our eyes open for those rather than just the U.S. foods.

Thank you. All right. Thank you, John. And our final question today comes from the line of Jacob Aiken Phillips with Milius Research. Jacob, please go ahead.

Hi. Good morning, everyone. I wanted to ask about ROIC. You indicated and you showed a significant increase over the last few years, kind of slowing a little bit, but just how should we think about ROIC going forward over the next three years with margin expansion, kind of a reshuffle of the debt profile?

Sure. Good morning, Jacob. Our expectation is growth continues to increase. To your point, with a higher, a much, much higher base than just a few years ago on a percentage basis or basis points, likely less than it's been for the last few years. But our expectation and our long-term confidence setup is to continue to drive and improve that over time. And that balance of earnings growth, that earnings growth in a responsible way of deploying capital responsibly is All right, great.

And then just a quick one on how do you look at labor inflation and labor availability just generally, but also in the context of last year there was some union stuff within the company, but currently there's been some other industry union activity.

Overall, from a labor availability and inflation, so we continue to be successful and being fully staffed, whether it's supply chain for drivers and selectors or sellers through the organization. So that hasn't been a challenge. Of course, we want to make sure we continue to create an environment that people want to work in, and that's an important part for us. I think overall, the inflation, that's why we target 3% to 5% productivity, because our cost inflation tends to be right in that range. Overall, labor inflation, we saw the last year or so come down where it's closer around that range, which is a positive for everybody, given that it had been above that for a few years in a row. So I don't expect 2025 at this point to look very different than that. And that's contemplated in our outlook for the year.

Thank you for the questions, Jacob. And that does conclude our Q&A session today. So with that, I will now turn the call back over to Dave Flitman for closing remarks. Dave, the floor is yours.

Thank you, Greg, and thanks, everybody, for joining us today. Let me just finish by thanking our associates again for their hard work over the last three years and the foundation that they've built to strengthen our company and give us a strong launching point for our next three years, which is even more exciting. Thanks for joining us today, and have a great Valentine's Day, everybody.

Thanks, Dave. And again, ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect. Have a great day, everyone.