Performance Food Group Co Q2 FY2025 earnings call

• Business momentum: Underlying organic growth accelerated in Q2, with independent restaurant case volume up 5%, stepping up from prior quarter.
• Acquisitions: Closed Chaney Brothers acquisition in Q2, with strong early results despite southeast market challenges from weather. Jose Santiago performing well, with Puerto Rico as an important market.
• Segment details: Foodservice saw double-digit top and bottom line performance from acquisitions, with sales force growth. Convenience continued to gain market share despite industry challenges. Vistar showed modest growth with improving channels.
• Employee highlights: Talented associates recognized, such as Jose Luis Arias with accident-free driving and awards for others.

Foodservice: Organic independent restaurant case volume grew 5% in the quarter, with organic independent case volume up 5% excluding acquisition benefit. Sales force headcount increased nearly 7%. Gross margin improved due to positive mix shift and more profitable chain business. Adjusted EBITDA grew 29.4%. Convenience: Underlying industry fundamentals challenged, but new account growth and market share gains led to positive total volume. Foodservice into convenience grew mid-single-digit in cases and high single-digit in sales. Adjusted EBITDA grew 28.5%. Vistar: Business picked up modestly, with total cases up 1.4%. Vending, office coffee services, and corrections channels saw growth. Theater box office revenue strong in late 2024.

• Net Sales: Expected to be within $63 billion to $64 billion range, up from prior guidance.
• Adjusted EBITDA: Expected to be in $1.725 billion to $1.8 billion range, increase from prior target.
• Debt reduction: Prioritizing debt reduction to move leverage back within target range of 2.5-3.5 times.

• Weather impact: Southeast markets impacted by hurricanes and slow consumer recovery affecting Cheney Brothers.
• Inflation: Continued inflationary pressure in candy, snacks, and potential tariffs on Mexico/Canada could impact costs.
• Immigration: Uncertainty around immigration enforcement actions and potential impact on workforce, though company sees no immediate impact.

Q: Could you comment more on which segments are contributing to the higher sales outlook?

A: Scott McPherson said on the second sales piece, really happy with trends on independent growth, up in AM headcount about 7%, up in new accounts about 5%, and lines per order on existing accounts continuing to go up. On convenience, continue to take share and outperform macro. George Holm said Vistar will have continued challenges but some channels will show good growth.

Q: Can you elaborate on cost of goods optimization and which segments it impacts?

A: Scott McPherson said it has been something always in play, worked harder in collaborating across segments over past 12-18 months to drive sales growth and cost of goods optimization, part of strategy to grow margins.

Q: Thoughts on underlying momentum of foodservice business and confidence in 6% organic growth outlook?

A: George Holm said it's going to need 7-8% increase in back half, expects industry to get better, growing SKUs faster than cases gives confidence. Patrick Hatcher added Cheney is performing exceptional.

Q: Color on inventory holding gains and guidance?

A: Patrick Hatcher said in Q2 saw some benefit of inventory holding gains, but for back half of year, not expecting substantial holding gains, total holding gains for full year Q3 and Q4 expected to be very minimal.

Q: Thoughts on independent case growth, new accounts, and vending case volume in January?

A: George Holm said January not important month, February and March more important for Q3. Cheney impacted by hurricanes but recovered quickly. Scott McPherson said vending case volume in January had some impact from winter storms but January is small month.

Q: Views on broader consumer outlook, new customer acquisitions, and immigration enforcement?

A: George Holm said October and November trends encouraging, expecting improvement in second half, new restaurants continuing to open. Patrick Hatcher said company's employees are documented, can't speak on immigration but don't see impact. Scott McPherson said workforce in great shape with record low overtime and temp expense.

Q: M&A commentary, leverage levels, and appetite for further M&A?

A: Patrick Hatcher said leverage is high threes, goal is to be 2.5-3.5 times, expect to be back within range in next several quarters. George Holm said pipeline is robust, but focus is on reducing leverage, will continue to consider M&A but balance capital structure.

Q: Hiring of salespeople, proportion from industry, and foodservice into convenience?

A: Scott McPherson said sales force headcount increased nearly 7%, almost entirely people from industry. Scott McPherson also said foodservice into convenience has been a focus, with a lot of incremental movement, still early on with turnkey solutions and broad product array.

Q: Interest expense, depreciation, inorganic vs organic independent case growth, and seasonality of Santiago?

A: Patrick Hatcher said Q2 numbers good baseline for interest expense and depreciation. George Holm said there may be more spread in Q3 with Jose Santiago and Cheney, their largest quarter is Q3 historically for them.

Q: Drivers of top line increasing guidance, product cost inflation, and chains business?

A: Patrick Hatcher said it's underlying case growth, each segment performed well, strong pipeline in foodservice and convenience. Scott McPherson said chains have some performing well with double-digit growth and shift to better performing national account business.

Q: Synergies from Chaney Brothers acquisition and performance brands in foodservice?

A: Patrick Hatcher said integration efforts in full swing, $50 million of synergies expected at end of third year post-acquisition. George Holm said performance brands in foodservice run right around 53% of independent business, room for improvement as they add acquisitions.