Performance Food Group Company (PFGC) Earnings Call Transcript & Summary

Good day, and welcome to PFG's Fiscal Year Q4 2024 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Bill Marshall, Vice President, Investor Relations for PFG. Please go ahead, sir.

Thank you, and good morning. We're here with George Holm, PFG's CEO; and Patrick Hatcher, PFG's CFO. We issued a press release this morning regarding our 2024 fiscal fourth quarter results, which can be found in the Investor Relations section of our website at pfgc.com. During our call today, unless otherwise stated, we are comparing results to the results in the same period in fiscal 2023. 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 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 statements section in today's earnings release and our SEC filings for various factors that could cause our actual results to differ materially from our forward-looking statements and projections. Now I'd like to turn the call over to George.

Thanks, Bill. Good morning, everyone, and thank you for joining our call today. We have a good deal of material to cover this morning, and hopefully, you all had a chance to review the announcements we made earlier today. To ensure we can touch on each topic, we are adjusting the format of this call. I will start with a discussion of our M&A activity, including our agreement to acquire Cheney Brothers as part of our long-term acquisition strategy. Patrick will then review our financials, including the anticipated impact from the transaction, in addition to our reported results and outlook for fiscal 2025. I will then come back for some closing comments on the state of our business and the industry. This is an exciting day for PFG as we not only closed out a very strong fiscal year and look ahead to an equally bright fiscal 2025, but also announced our definitive agreement to acquire Cheney Brothers, a leading distributor in the Southeastern United States. Today, we also disclosed our purchase of José Santiago, a leading broadline food service distributor in Puerto Rico in a deal that closed in early July. These two transactions are expected to build upon our Foodservice strength, adding to our presence in the Southeast and expanding into the Caribbean. Let's start with our agreement to acquire Cheney. Last night, we entered into a definitive agreement to acquire Cheney in an all-cash transaction for approximately $2.1 billion. We expect this transaction will be accretive to our adjusted diluted EPS by the end of the first fiscal year after closing and drive additional shareholder value for the long term. Patrick will provide more details on the financial impact in a moment. I have followed Cheney's success for many years and have been impressed with their ability to execute and win business. Cheney is one of the largest privately held broadline foodservice distributors in the United States and generates over $3 billion in annual net revenue. The company is known for its strength in the Southeast region, particularly in Florida. The transaction, if approved by regulatory authorities, will add five broadline facilities across the Southeast region and several smaller specialty facilities. Cheney is led by an excellent and experienced management team with a culture that we believe will fit very well within the PFG organization. Byron Russell has been at the helm of Cheney for over 40 years. And under his leadership, the company has grown into one of the most successful privately held broadline foodservice distributors in the United States. As you know, we have had success in our M&A efforts in the past, including Reinhart, Core-Mark and Merchants, all of which are generating nice results for our company. We believe this success is rooted in how quickly the organizations have come together to work towards a single goal. We expect Cheney to be similar and quickly add to our food service platform. We believe Cheney will fit nicely with our legacy business with a focus towards independent restaurants, resorts, country clubs and export. Of the five broadline distribution facilities, four are located in the Florida market with remaining facility in North Carolina and additional facilities under construction in South Carolina. The Cheney facilities are state-of-the-art and importantly, have additional capacity that we expect to quickly fill and utilize to build and expand our business. Cheney's distribution facilities are in a unique position of having scale while offering additional capacity, the facilities serve a broad and different customer base than our Performance foodservice business. As with Reinhart, Merchants and core-Mark, we plan to continue to operate all existing Cheney and Performance foodservice distribution centers, taking advantage of the additional capacity of the Cheney facilities. Florida is an important market with demographics and economics that are growing faster than most of the Southeast region and United States. By combining our legacy resources with the Cheney organization, we anticipate an acceleration in growth, sales and profitability. In our earnings release, we also disclosed the purchase of Jose Santiago, a family-owned broadline distributor headquartered in Puerto Rico. This is PFG's first entry into the Caribbean market and dovetails nicely with the Cheney deal. Jose Santiago comes with an attractive market position and strong sales growth. We have already welcomed our management team to the PFG organization and are extremely impressed with their operations. They have hit the ground running and are already collaborating with our PFG business. While small, relative to PFG's total business, we believe Jose Santiago will be accretive to earnings, cash flow and margins immediately. Taken together, we believe these two deals position PFG very well for the future growth in the Southeastern United States and the Caribbean territories. With that, I will turn it over to Patrick, who will provide more detail on our financial performance and outlook. Patrick?

Thank you, George, and good morning, everyone. As George mentioned, we have a number of items to cover, including our strong fiscal 2024 results, our outlook on fiscal 2025 and the financial impact from the two transactions George just described. First, our organization closed fiscal 2024 on a high note. We were able to leverage our sales growth through tight cost control, driving OpEx leverage and strong bottom line growth. As we anticipated, adjusted EBITDA accelerated significantly in the fiscal fourth quarter, growing 18.4% year-over-year and exceeding the top end of the guidance range we provided with third quarter results. The better-than-expected adjusted EBITDA resulted in margin improvement in the quarter, a testament to our focus on profitable growth and returns. PFG's broad and unique diversification and the food away-from-home channel provide resilience. And once again, we achieved record results. Our top line growth of 2.2% in the fiscal fourth quarter was the result of a balance between case volume gains and modest inflation across all three business segments. Total case growth of 1.1% was driven by 3.7% independent restaurant case increases and the addition of new business in all three reported segments. In particular, we added new chain restaurant business during the fiscal fourth quarter that contributed to both case growth and profit margins. Case growth for our chain business within foodservice increased 2.1% in the fiscal fourth quarter, reflecting new business wins, which we largely onboarded in the middle of the quarter. This additional business should continue to help our fiscal 2025 chain business results. Our convenience business also brought on several new accounts in the period. Total company cost inflation was 4.7% in the quarter, including 2.9% inflation in Foodservice, 3% inflation at Vistar, and 7% inflation for Convenience driven by nicotine. We believe that this pace of inflation, particularly in Foodservice and Vistar, is a better reflection of ongoing inflation and will be similar in fiscal 2025. While absolute price points remain high and are having an impact on the consumer purchasing behavior, particularly in candy and snacks, a more moderate, low single-digit pace of inflation should produce better top and bottom line results going forward. In addition to the top line benefit from inflation, we also saw a lift to our gross profit, particularly due to positive mix shift. Total company gross profit increased 4.7% in the fiscal fourth quarter. Gross profit per case was up $0.24 in the fourth quarter as compared to the prior year's period. We believe that the continuation of low single-digit inflation will drive additional gross margin improvement in fiscal 2025, particularly in the Foodservice segment. Our segments did an excellent job keeping operating expenses low, providing fixed cost leverage and driving bottom line growth ahead of our guidance expectations. This was particularly true of our Convenience segment, which was able to produce 42% segment adjusted EBITDA growth in the fiscal fourth quarter. The Foodservice segment also experienced solid adjusted EBITDA growth of 14%, reflecting a combination of gross profit expansion and tight cost control. Vistar adjusted EBITDA was flat in the quarter, but expanded adjusted EBITDA margins by 12 basis points year-over-year. We expect to build upon these strong profit results in fiscal 2025 which I'll address in a moment when I review our guidance for the fiscal year. In the fourth quarter of fiscal 2024, PFG reported net income of $166.5 million, up nearly 11% year-over-year. Adjusted EBITDA increased 18.4% to approximately $456 million, just above the top end of the guidance we announced last quarter. Diluted earnings per share in the fiscal fourth quarter was $1.07, an increase of 11.5%, while adjusted diluted earnings per share was $1.45, a 27.2% improvement year-over-year. Our effective tax rate of 26% in the fiscal fourth quarter was down compared to 27.2% rate in last year's comparable period, mainly due to an increase in income tax credits partially offset by an increase in foreign and state income taxes as a percent of income. Our financial position remains very strong. And we're generating significant cash flow through a combination of operational performance and diligent working capital management. Through the course of the full fiscal year of 2024, PFG generated operating cash flow of approximately $1.2 billion, a $330 million increase compared to last year. PFG generated over $767 million of free cash flow, a $205 million increase from fiscal 2023. We are pleased with our current cash flow and balance sheet position. Strong financial performance and capital management has allowed for value-creating opportunities such as the items we announced today. During fiscal 2025, we expect to continue to invest behind our organic growth, mostly to fund capacity expansion and investment in our fleet. These activities are expected to support our top and bottom line growth over the long term and generate attractive returns for our business. After funding CapEx, we then looked at three areas of capital deployment: M&A activity, share repurchases and leverage reduction. Today, we are excited to announce two transactions to support our long-term growth. I will discuss more about the financial impact of these deals in a moment. With this news public, we also anticipate an acceleration of our share repurchase activity. We currently have over $200 million remaining on our $300 million share repurchase authorization. Depending on marketplace conditions, we believe we could complete this program within the fiscal year. We will continue to maintain a strong balance sheet to fund these activities. We anticipate remaining in the lower half of our 2.5 to 3.5x leverage range until the close of the Cheney transaction. Once that deal closes, we expect leverage to move to or slightly above the top end of that leverage range, which we will then pay down with our available cash flow. Turning to our guidance for fiscal 2025. For the full fiscal year, we expect net sales to be in the range of $60 billion to $61 billion. We expect adjusted EBITDA to be in the range of $1.6 billion to $1.7 billion. This is the upper end of the $1.5 billion to $1.7 billion long-term range we discussed at our Investor Day 2 years ago. We are pleased with how the past 2 years have progressed, achieving our long-term target a year early with fiscal 2024 adjusted EBITDA above the lower end of our 3-year projection, we expect this success to continue. For the first fiscal quarter of 2025, we anticipate net sales to be in a $15.2 billion to $15.5 billion range, with adjusted EBITDA in a $400 million to $420 million range. Due to several timing factors, we expect higher growth rates in both sales and adjusted EBITDA in the final 3 quarters of fiscal 2025 than the fiscal first quarter. A few things to note in our guidance. First, we have included a full year's benefit from the addition of Jose Santiago in our guidance ranges. With that said, we believe we would still be within the stated ranges without the benefit of Jose Santiago. We have not included any benefit from Cheney and expect to update our financial projections once that deal has closed, which we expect to occur sometime during calendar 2025. To summarize, today is an important day for our company. Not only are we announcing very strong fiscal fourth quarter results, the culmination of a strong fiscal 2024, we are also setting ambitious and achievable financial goals for fiscal 2025. We have recently closed the Jose Santiago transaction, which expands PFG's Foodservice territory into the Caribbean and is expected to continue their track record of excellent sales growth. Additionally, we are on the path to acquire Cheney, one of the largest privately held Foodservice distributors in the U.S. Cheney's strength in the Florida market, along with their outstanding management team and associates is expected to provide another strong platform to accelerate our Foodservice sales and profit growth. I would now like to turn it back to George, who will close with some thoughts about our results and industry.

As Patrick mentioned, it is truly an important day for our company. We recognize that the external environment has various challenges for our industry and the broader consumer landscape. As always, PFG looks at these challenges as opportunities to work with existing and potential customers to solidify our position in the market and build stable platforms for long-term performance. We have historically seen some of our biggest success when times get difficult. Today is no different. As you can see from our fiscal 2024 performance and outlook for fiscal 2025, we have built significant momentum. In areas where our top line growth is not as strong as we would like, we have leaned into margin gains and operating efficiencies to produce profit performance. Convenience is an excellent example of this, which is reflected in the double-digit adjusted EBITDA growth for the fiscal year. In Foodservice, we are picking up market share in independent restaurants and growing our chain business with new customers at a higher-than-average margin. Vistar is expanding into some of the most exciting areas of the market, including e-commerce and micro markets. We are pleased with how we closed our fiscal 2024 and expect our momentum to continue into fiscal 2025. We expect to host an Investor Day in the late spring and are excited to share our long-term growth plans for all three of our segments. We believe our diversified approach to the food away from home market provides opportunities of scale and synergies. Adding Jose Santiago and Cheney should only amplify these advantages and provide additional outlets for growth. I'm excited for our company's future and welcoming the teams from Jose Santiago and Cheney to the PFG family. 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.

[Operator Instructions] We'll take our first question from Kelly Bania with BMO Capital.

I wanted to just ask one about the business and then another one about Cheney. But the gross margin, I guess, was quite strong this quarter. I was wondering if you could just maybe unpack the drivers of that in more detail within each segment and particularly a note on the inventory gains? And then maybe help us understand what, if anything, is different regarding the drivers and magnitude for fiscal '25 in terms of gross margin support?

Kelly, thanks for the question. This is Patrick. I'll start with the inventory gains and some of the gross margin impacts and maybe George will jump in as well. But as we look at Q4, there was really what we're finding is the inventory gains are normalizing significantly, and we continue to feel that it's going to be the case in 2025 as well. Quarter-to-quarter, there may be some impacts, but again, it'll be something that's much more manageable than what maybe we experienced in '24. In Q4 specifically, we did have some gains mainly in Foodservice related to our over-indexing of things like cheese and poultry. But other than that, we really didn't see much impact from inventory gains in the quarter, particularly. We are really pleased with how each segment performed in gross profit. And then as we've mentioned before, their control of OpEx really saw a great EBITDA margin expansion as well. Some of the drivers of gross profit were really around our growth in independent cases, our growth in Performance Brands, food and foodservice and Convenience. So again, the things that we're focusing on are all the things that really help drive that gross profit expansion. And I don't know, George, do you want to add anything?

Kelly, it's really the same story that we've had for quite a while, and that's just growing better in those higher-margin areas. I think Convenience is a great example of it. That industry is challenged right now. We're seeing fairly significant declines with nicotine in store and we're making up for that with Foodservice, where the margins are much better. And we expect to continue to see that happen. Then when you get to our Foodservice business, we certainly aren't pleased with running 3.7% case growth, but we are pleased that we're continuing to get the same type of market shares that we've gotten in the past. So as we go through this year, the way our comparisons will work. Last year, we had one of those kind of upside down hockey sticks where our first quarter, we were well above 7% in case growth. We were 8.8% in the second quarter and then January through the end of the fiscal year, it softened. So we're hopeful this year that the opposite of that will take place. But so far, in July, it looks pretty similar to what Q4 looks like.

Okay. That's very helpful. And then maybe just a little bit more on Cheney Brothers. Looks like a little bit of a higher valuation segment than past deals but also higher margin. So can you just help us understand the factors that in your mind supports a higher valuation? It looks like they don't have quite as strong of a private label business, maybe the mix and the state-of-the-art facilities are very efficient. But maybe can you just help us understand the margin profile there and the valuation?

Yes. Well, we feel that we paid a full price, and we feel that they deserved that full price. We paid about a turn more than we did for Reinhart and for Core-Mark. And I think the difference is it's a market that's growing faster, it's a company that's growing faster. And in the case of Reinhart, their earnings have been fairly flat, extremely well-run company, but fairly flat with earnings. And many more distribution centers, including three that handle strictly national accounts where Cheney, they're all broadline, full-scale facilities. They have always built ahead of the need for capacity, and that is a big part of it for us as well. And as far as the margins go, it's just under a 5% EBITDA margin, which is certainly significantly higher than what we run as a total corporation. But if you looked at just our broadline, scaled facilities, it's pretty much in line. We actually have a few that are double that type of EBITDA margin. So I think there's some upside there. I think that upside probably does exist with brands. But the way we operate our business, we have to go in and earn those branded sales, and we have to convince their management, the products that fit for them. We might have to do some work on some products, that will be their choice, not ours. I think it will take a while, but I think there will be some margin gains coming from an increased brand portfolio for them. I would also note that if you look at Reinhart and Core-Mark, on both of those we paid in that 12x range. If you go back with Reinhart, we did that acquisition at the end of December 2019. And if you took our fiscal year that just ended, that company has taken EBITDA from 166 to 346. And as is our practice, we've kept that company intact. So if you took today's EBITDA numbers, that would be 5.8x that we paid of today's EBITDA. And Core-Mark, which we closed on in September of 2021, and if you took the combination of Core-Mark and Eby, and what we paid for those two acquisitions, we've actually taken that down to a current 7x multiple. So a 13 multiple with a 99 post-synergies. We're real confident in the synergies and those come through procurement, some logistics, some area like that. We don't really do that by cutting people, not the way we do things. So we're real confident in what we paid. Like I said, I think we paid a full price, and I also think they deserve the price they got.

We'll take our next question from Alex Slagle with Jefferies.

Congrats. I know it's exciting to have an opportunity like this with Cheney and Santiago. On Cheney, I guess, I just wanted to ask a little bit more on sort of the growth profile, EBITDA growth history. And maybe you could kind of talk to the importance of driving greater density in the Southeast and how that might trigger an ability to accelerate share gains kind of getting closer to the customer or just how you're thinking through that?

Well, their distribution centers are in great locations for us. Our current ones are in Tampa, Orlando and Miami. Our current facilities do well. They do it with an almost entirely different customer base than Cheney. We've kind of stepped into some broadline type business but have been, in spite of our people's great efforts, not all that successful. So we'll run these companies as separate businesses with mostly separate brand portfolios. And like I said, it's very similar to what we did at Reinhart. The Cheney business will report into our Chief Operating Officer and President, Craig Hoskins, and he was the main kind of day-to-day person as we put together the Performance Foodservice and the Reinhart world.

And Alex, I'll just add a little on the growth profile, especially on sales. It's one of the things that we're so attracted about Cheney is they're really focused largely on restaurants, independent restaurants, but as well as hotels and country clubs and export. So we think there's a huge opportunity for us, and we also think -- or when we look at their growth rates in the past history, they're growing at a really nice clip. So as George is saying, we're going to continue to operate them separately and have them keep growing.

And like us, they're really not in the chain lodging business. They're not much into the chain restaurant business, which we are, but they're not in the business of supplying contract management people or health care, either acute or long term, they're very small there. But where they're different is independent hotels and resorts, they do extremely well. They do very well in country clubs and catering and those type of businesses that are broadline in nature, but not restaurants. And within those markets, we'll utilize that Cheney brand to pursue that type of business. And our distribution centers will continue to do what they do a good job of accomplishing today.

And a question on the quarter on Vistar and Convenience business, just how big the inventory holding gains were you rolling over? And just any color on the profit benefits that you might have gotten on Convenience related to tobacco pricing and the accruals release?

Yes. On the inventory gains, again, really not a big impact to the quarter. As I mentioned, there were some in Foodservice mainly. When you look down at Vistar and Convenience, actually year-over-year, there's pretty negligible. It's actually a little slight decline. So as I said, again, we expect this to kind of get back to normal, where we're not really talking about inventory gains. We didn't have any massive increases last year. We might have some year-over-year slight impact in Q1. But past that, we think it should be pretty normal. When you look at Convenience and the results, obviously, really amazing job again of that gross profit and cost control, as George mentioned, they did an excellent job of cost control. So they saw a really nice increase to EBITDA. A part of that, a small portion of that was related to those accruals. And we just called that out, but it was mostly due to operating performance.

I also want to mention with Convenience that we see some softness in same-store sales that's actually unique time for Convenience. They haven't seen this type of same-store sales declines. So the new business that we picked up isn't showing up as much as it would in maybe a little bit different environment. But we're excited about what we have in front of us from a Convenience standpoint. And during this last year, they did an amazing job of getting their arms around warehouse delivery expense, merging Convenience together as far as Eby and Core-Mark goes, just a lot of progress was made, and we're excited about what we have coming up in Convenience. By the way, we also, just this last week, had a record for Foodservice and Convenience.

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

And I'll add my congrats on your -- on the news today. I was hoping you could give us a little bit more color on the Santiago deal, sales, EBITDA, purchase price multiple, synergies and the same type of stuff that you provided for Cheney. And then you mentioned that the guidance excluding Santiago would still be within the range. I assume you still mean within the $1.6 billion to $1.7 billion range. I just want to clarify that.

Yes, I'll take that. So one, just on -- as we think about Jose Santiago, we're really excited about this acquisition and the strategic rationale is, again, gives us the ability to expand geographies into the Caribbean and then all the surrounding areas around the Caribbean. This is a high-growth business as it comes with excellent leadership and they're really sales-driven and focused. There is also a really strong cultural fit and they've been working with our teams very closely since the close. We're not disclosing any financial metrics related to the deal.

Can I just confirm, Patrick, that when you say that excluding Santiago, you'd still be within the range for this year, did you mean the $1.6 billion to $1.7 billion?

I apologize. Yes, absolutely I forgot to answer the last part of your question. So the range of $1.6 billion to $1.7 billion, yes, that remains the same with or without Santiago.

What I'd also mention with Jose Santiago with this Cheney announcement, I think that's kind of overwhelmed what had happened with Jose Santiago, but it's an excellent company, tremendous warehouse, very similar to Cheney. I mean really have spent the money to make sure that they have a facility that wouldn't have any problem with the hurricane, could get through that and just a great building. And it gives us an opportunity to get to some of those other islands between both Cheney and Jose Santiago, and it gives us a good path to get branded product into Puerto Rico as we get both of those facilities up and going.

Great. And then just a follow-up for you, George. You mentioned about like case volume trends and particularly in the independent side for fiscal '25. Hopefully, I think you were sort of implying improving through the year. Can you just maybe talk a little bit more about like the expectation that you have within the guidance around case volume growth and what you think might drive that improvement as the year progresses?

Yes. We still look at that 6% to 10% case growth is what we would like to achieve in the independent foodservice business. And for this last fiscal year, we just barely snuck in there because of kind of the macro situations we got into the second half of our fiscal year. We certainly need a better macro. I'd look at the share gains that we're running. They're very consistent, at least according to the information that we get. So we don't have concerns around hitting our goals as long as the macro does improve. Now obviously, we had a very good quarter in spite of slower growth from a case standpoint, we were helped with a little bit of inflation, so our sales growth was better. But we do have -- for this fiscal year, we got about 3 quarters coming up of this additional business with no sales history. So I think that will help fill some of the gap with national account business. But we're, in fact, off from our goal of running 6% to 10% independent case growth.

We will take our next question from John Heinbockel with Guggenheim Securities.

George, I want to start with your philosophy now on expanding the sales force in this macro, right? Because I think you guys have gotten up to a level that was higher than you'd normally like. And I think there were some issues with managing that. I think right now, you're 5% to 6%. When you look at the amount -- the onboarding of those folks, any tweaks that you would make, right? Because I think you'd like to have been like driving case growth more than 1x. Is that just not possible today and you just invest for a better macro, would do you make any tweaks?

To a degree, we're continuing to follow the same playbook we always have. Now we're 5.1% up right now, and we've seen a slight increase in our turnover, and that kind of goes more back to when we reach that 10% increase in salespeople. We had a large group come in this month. We've made another big push to get our number of people up. And the training is quite intense. We're trying as best we can to do that in groups. And we've also done more territory splits than we would normally do. Within our system, those are not involuntary, they are voluntary on the part of the people, not to say that we don't nudge it a little bit, we certainly do. But I think that will help us moving forward. We just had such an increase in what our average salesperson does in business and mix in compensation. So it's helpful for us now that we have more of our experienced people out there without having a full book of business making calls on new customers, and they're certainly much more effective making those calls than our new less experienced people.

And then maybe a follow-up on Cheney, right? So when you think about some of the key KPIs, right, the productivity of their sales force, the rate at which they're growing, labor productivity in those five DCs, cases per mile driven, which probably is pretty decent. Where do you think they stand out? And where do you think you can bring the most to the table other than private brand?

Yes, their warehouse and delivery numbers are fairly similar to us, their sales force is actually similar. We've got a lot to figure out there. But for the most part, that's going to be us communicating with their leadership and their leadership kind of making those decisions. It has been a very, very sales-focused company. And they take great pride in being real competitive and being very aggressive. I don't see us really getting in there and getting aggressive about changing anything there, it's well run. Their KPIs are very similar to us in their broadline world, which is all of their world versus our broadline world. And I just think it's a good fit. We really will make progress with the brands, but that also will be our ability to convince them that it's a better opportunity than what they're currently doing.

We'll take our next question from Andrew Wolf with CL King.

Just wanted to follow up on the cadence of sales. I think the industry is pretty well known had -- depends who you -- what you follow data-wise and companies, but that certainly things slowed in the latter part of the June quarter. Certainly, that seems to be the case for you with case growth. And I just wanted to get a sense of where you -- you said you were at something similar to what you did in the quarter in July. Does that mean things ticked up sequentially from June to July of things kind of went down? Or is it just more of a stability, things have leveled out?

Yes, flat to last quarter. We have seen from a same-store sales standpoint, a little bit further softness. We've seen a little strengthening in our ability to go out and get new business. But it's definitely a slow market, and we've seen this before, and it always tends to come back. People like to eat out.

And not more cadence, but more of the movie theater cycle, the movie film release cycle. Do you expect Vistar to turn up just kind of based on like some other folks who sell into that business, is that going to turn Vistar up kind of this quarter?

Andrew, it's Patrick. Yes, so what we're seeing in theater, I mean, certainly, last quarter for Vistar was a tough quarter in terms of theater. We did see some really nice improvement with the last two releases of Inside Out and Deadpool & Wolverine, sorry, I forgot the name of the movie. But we do expect content to improve. I think this quarter, in particular, is going to be a little bit better. But certainly, as we get into the fourth quarter of the calendar year, the content definitely improved, so we do expect them to show better results in that area.

I'll comment on some of the pricing. We've got a long history, particularly with candy and snacks. And when there's price increases, there's typically a reduction in volume and then it gradually comes back. And there's been big price increases all across those categories. I think that's got a lot to do with some of the slowness that the convenience industry is facing. That also affects Vistar in their channels where really all the prices are up. So people adjust to that, we just have a lot of confidence in those two businesses and how they're managed, and we are seeing Vistar do some perking up from a theater standpoint, and we hope that holds up.

Got it. And just a couple of questions on the two acquisitions. First, on Cheney Brothers, congratulations. I know it's been a [Audio Gap] lot of people would like to buy. Was that -- on the background, I guess you might have to disclose more about this, but was it kind of an active auction? Or did you -- given your reputation, having done well with Reinhart and other similar businesses, was that a little more negotiated. And I also wanted to ask about just your general outlook, I mean, Reinhart, it seems like it was very much an earnings power and then the sales were just remarkably, is probably where you beat, I would expect, at least. Is this just more strategically, and this is -- there's so much growth here, this is a -- strategically, this is a growth acquisition as well good financial -- as well as some synergies coming on it, but it's the real impetus here. I think you led with growth, that's why you paid up a little bit. Is that sort of the main strategic rationale?

Okay. Well, first, as to how it came together. It's certainly not an auction. I know [Audio Gap] people have tried to buy Cheney Brothers. It's been a prized asset in our business for a long time. But as far as we know, there was no one else involved during that period of time and it took quite a while. It wasn't a short process. As far as the future, they've been a very fast-growing company for a long time. They've been pretty fearless putting up new distribution centers and going into new territories and backing their customer base where they bring a lot of value. That's the reason we felt that it was probably worth more money than a Reinhart, although we also feel with Reinhart, we paid a full price. They are two different businesses, but for us, it's the same playbook that we'll use. We'll run the business very separately. We'll continue to let them operate from their strengths. We'll try as best we can to get our brands into that business. We think that's probably where the upside is, but it's a growth vehicle for us. And it's well run. I don't see anything in KPIs that we have any magic to bring to them, it's just growth.

Andrew, I'll just add, I mean we talked about it in our remarks. I mean, the region, we're really excited about having more presence in this region, the economy, the demographics. We just -- it's a region that's growing much faster or faster than the Southeast and faster than the U.S. So it definitely has a lot of growth potential.

Great. And if I can just revisit Ed's, asking you about the Jose Santiago deal. One way to look at it is sort of population for distribution center, and it's meaningfully less. Puerto Rico, they won distribution center, then the Southeast, then Florida and up into the Carolinas. So if we were just to look at it that way, is it fair to say that it's probably less productive on a sales per facility. We're just trying to get a sense of whether we should straight-line some proportionality here or haircut it a little because it's maybe a little less productive than what you bought with Cheney Brothers.

No. I mean it's a very well run organization. It's actually -- the KPIs are really strong, and it also has potential growth opportunities outside of the immediate Puerto Rico area. So I would say it's actually a very strong KPI organization.

I was asking more about sales productivity. I'm glad to hear...

So you're looking at population, but if you think about it, it's also a very popular tourism area. They've had a lot of expansion in that area. So they have a lot of sales productivity and a lot of sales opportunities.

Some of them are entirely independent. And to give you a feel, they do have a strong 70-person sales force.

We'll take our next question from Mark Carden with UBS.

So to start another one on M&A. It sounds like a really nice opportunity with Cheney given the growth opportunity that you guys laid out. As you look forward, how does this impact your thinking on pursuing Foodservice expansion in the Western U.S., just given that geography remains pretty wide open white space for you? Would this push out the timing on anything there a few years? Or has anything changed with respect to your capacity to pursue something in the region if the right opportunity emerged?

We would be very opportunistic if we could get something going in the west. It's obviously a desire and I think we would find a way to get it done if that opportunity presented itself.

Yes. Mark, I'll just add, I mentioned even after we closed the Cheney deal, will just be on the outside or the top end of our range. And if you look historically, we've paid down our debt very quickly with our cash flow. So we'll be ready if something comes around, but so we'll continue to look at things.

Great. And then as a follow-up, just on the Convenience business, you guys called out some lower personnel expenses. What's the makeup of that? Is that primarily consolidated warehouses, something else? Just your thoughts there.

Mark, I'm sorry, could you repeat that? I missed it, it cut out on me for a second.

Sure. Just in terms of with the Convenience business, you guys called out some lower personnel expenses. Just where are those primarily coming from?

That's really got to do with warehouse and delivery productivity.

Yes. So we've taken out all the overtime labor. We've taken a lot of the temp labor. They just -- they're just running really efficiently, and they've done an excellent job of managing their labor profiles.

We'll take our next question from Lauren Silberman with Deutsche Bank.

Just wanted to start with the Foodservice business. Can you talk about the composition of case growth, how much is coming from new customer acquisition versus wallet share? Are you seeing any change in customer churn, given what appears to be an increasing promotional environment? And any thoughts you have on the promotional environment?

Yes. We're seeing pretty good consistency, a little softer with same-store sales and a little better with new business. I think the -- we're in an industry that's always been extremely competitive. But I think any industry when you start to see negative on growth it gets more competitive. And I would say that today's world, it's probably more competitive than normal. But as I said before, our share gains have continued to be right around the same, very consistent. So we have a lot of confidence that the industry will come back, but I think it will continue to be a very competitive industry.

Are you seeing that competition manifest across all segments? And any specific things that other distributors or yourself are doing to increase the competitiveness?

I would say that right now, it's -- everybody is looking for new accounts. And it's a very competitive situation to get new accounts and that makes sense, right? I mean the accounts are, for the most part, running negative same-store sales. So people are out looking for other business. And I would -- the same thing again, but I think it's just a little more competitive than before, but that's by no means irrational.

And Lauren, I'll just add, when you get outside of the independents and you start looking at the chain business or you look at Vistar or Convenience, we're really pleased with the sales funnel that they're working on. They have a lot of opportunities out there on new business, higher margin business. So from that standpoint, we're really pleased with what the segments have been able to do from a sales funnel.

Great. And just a follow-up, I guess, on the sales piece of it. The Convenience side, it looks like volumes were down 7% to 8% with new business wins. So presumably, the same-store sales growth got worse from 3Q, which I think you alluded to. Can you help unpack the magnitude of new business wins that are in the base as you try to think through growth in fiscal '25 and any additional color on underlying growth in Convenience?

Well, if you look at the same-store sales declines, you got a $25 billion business there that's running close to 5% same-store sales declines. So it takes tremendous amount of business to make up for the same-store issues. So we've brought on -- I just don't know exactly what those numbers are, we can certainly get back to you with. But we've brought on a significant amount of new business into the Convenience area. And also, we've been running increases in the number of independent convenience stores that we're selling, which I think is really going to help us as we get deeper into this fiscal year.

Yes. And Lauren, it's hard to see because of the same-store declines, the nicotine what that's doing. But you really do see it in the gross profit expansion. We're bringing on better business, higher-margin business, so you're gaining that mix benefit.

We'll take our next question from Jeffrey Bernstein with Barclays.

Great. My first question was just on the independent case growth. I think we confirmed that trends did slow for the industry and for yourselves in the fourth quarter, and I think you said it's now stable at the lower level in July. But I think you also mentioned your guidance for fiscal '25 enjoyed something about needing improving macro to perhaps come within that 6% to 7% independent case growth target. It seems like most people are expecting further easing from a macro or consumer perspective rather than a strengthening. So I'm just wondering how you think about your guidance, whether or not you can reaccelerate your case growth in the second half of the year, whether that can be purely done on compares alone if the macro headwinds were to persist? And then I have a follow-up.

Yes. If the macro continues, then it's going to be more difficult for us, no doubt about that. But at the current share gains that we're making from a historic standpoint, we would be well above that 6% case growth if we had normal growth in the marketplace. And we don't have a crystal ball as to where things are going, but we've always found that people eat out more, and the businesses almost always had some type of organic growth, certainly didn't during the great recession. But once the economy got going again, people started eating out again. And I don't know what more to really give as far as color goes there. I mean we can always increase our share gains, but we're pretty stable right now.

Understood. And then the -- I know you're prior 3-year guide ends this fiscal year, and I think you said you're going to have an Investor Day in the spring. Is it reasonable to assume that the growth rates you've seen over the past couple of years would continue beyond fiscal '25? Or is there the possibility that, that kind of long-term algorithm shifts materially either up or down? Just wondering if you're seeing any material change in trend as we were to at least gaze beyond the current fiscal year?

Yes, that's a great question. We're really excited to share with you what we will release at the Investor Day. I'm not going to comment on today, but I do want to just reemphasize that our previous 3-year guide, we did hit the lower end of it after 2 years. So we're really pleased with the growth that we've been able to achieve. And we think the guidance we've given for this next year shows our confidence in our ability to generate really strong results, and then we'll be -- we're ready to share with you the next 3 years come this spring.

Yes. I also mentioned from a Foodservice standpoint, we've added a good deal of capacity. We have more going in this fiscal year. And that has always, for us, bodes well, and it's giving us some growth. We feel real good about the next few years coming up. I think Cheney and Jose Santiago is going to be a big help to that. We should be able to get results at least somewhat similar to what we did with the Reinhart. And I said -- like I said, with Convenience, we have a lot of confidence in that group of people and what their game plan is today.

Got it. And just lastly on the inflation topic. I know in this quarter, the Foodservice inflation accelerated from 60 bps to close to 300 or 2.9%. Just wondering if you could share maybe the greatest drivers. And I think you mentioned you expect it to kind of stay in that maybe 3% range into fiscal '25. But that I don't think was specific to Convenience. And on the Convenience store, it was up 7% inflation which is obviously outsized. Just wondering what your outlook would be for the Convenience specific channel in fiscal '25.

Yes. So on Foodservice, the drivers really were, like I said, some things are on cheese and poultry. We expect Foodservice to kind of be in that 2% to 3% for the '25. Vistar, we also expect to be in the similar range, they've continued to experience some disinflation, but we do feel like that's going to bottom out here. And then Convenience will be a little higher. They typically are. We expect them to be probably in the middle single digits is kind of where we're targeting them for 2025. They do continue to obviously get price increases and those type of things from tobacco. But that's kind of what we're looking at but total company, we have at around 2% to 3%.

We'll take our next question from Brian Harbour with Morgan Stanley.

George, can you just comment -- you might have mentioned it, but the kind of customer difference between yourselves and Cheney in Florida, do they kind of cover roughly the same territory today? Or does it expand up into North Florida and Georgia? Just what's kind of the difference versus your current footprint?

Yes. Well, they go up to North Florida out of their Port Saint Lucie facility, and we handled North Florida out of Southern Georgia. So quite a difference there. But as far as the coverage of the state, we're both in most of the state. I would say that their customer base is, like I said, more in the non-restaurant commercial area than we are. Very, very successful with resorts and independent hotels and country clubs, that type of business. Our business in Florida is very heavy pizza, Italian, Latin. We do a lot of seafood out of Miami, the company that PFG bought, this is before we bought PFG was a seafood-only company at that time. So we've built product capability beyond seafood, but it's still a heavy seafood. In Orlando, we're mostly pizza and Italian. When you get to the West Coast, I would classify us as kind of a subscale broad-liner with a heavy pizza, Italian emphasis.

Makes sense. Just on the operating expense side, I know you've kind of continued to see better warehouse and driver productivity. Any other specific actions that are kind of helping on the OpEx side right now?

Yes. I mean it's really just OpEx leverage. And then also, we're just really focused on the associates and safety and making sure that they're working smart. And so -- and I think we've seen the wage pressure that we had seen earlier dissipate. But all in all, it's just a combination of everyone just doing a much better job of managing that labor force and making sure we keep the temp labor and the contract labor to a minimal.

We'll take our next question from Carla Casella with JPMorgan.

I'm wondering if you gave the pro forma leverage for the two transactions. And then also, having just two nice acquisitions here, are you -- will you put on hold your M&A or you continue to look for more opportunities?

Yes. So on -- once we close Cheney, we believe we'll be -- our range is 2.5 to 3.5x, we'll be just at the end of the -- the high end of that range of 3.5 to just slightly above it, potentially depending on the exact timing. And then the way we're looking at things, again, we are very good at paying down debt very quickly. We'll continue to have excess capacity. So we'll continue to look at opportunities, especially if they're very strategic, as George mentioned, going forward.

And we'll take our next question from Jake Bartlett with Truist Securities.

Mine was on the macro environment and how that plays into your guidance. At the Investor Day, you framed your 3-year outlook kind of with a slight recession normal, maybe with a better macro environment. Is that a fair way to kind of frame your guidance for '25, meaning if we stay in the current pressures, that you'd be at the low end, is that -- but things improve, then you go to the high end. Is that the right -- I mean is there a read-through there in terms of your outlook on the environment in terms of that range?

Jake, I would say there's been a lot of discussion about the macro. And certainly, we've said that we see some softness. But really, that's why we talked about Q1 being a little slower out of the gate than Q2 through the Q4 in our guidance, and that's what we've really incorporated into the guidance that we provided. And so I think that gives you a general sense of how we're looking at things.

Okay. And then early in the call, you've mentioned kind of timing differences, you mentioned the cadence. But is that really the major input? What are other big moving pieces there, whether it's new accounts wins with chains and Convenience, maybe some cost comparisons that we should be mindful of as we go throughout the year? What are the other big timing impacts that will drive the cadence for both top and bottom line?

Well, there's just one thing, again, also in Q1, the Olympics just wrapped up, they had an incredible viewership. Olympics tends to keep people at home and not out to the restaurants. So we've seen some of that. And we also, for our concepts, our concepts in general that rely on media to drive foot traffic, with the election coming up and the heavy spend in media that elections do, there's always a little bit of difficulty to get your message out if you're a concept to drive the foot traffic. Outside of those two things, really, I think we've covered most of the other issues, there's nothing that we've included in the guidance outside of those things.

Yes, we try to take everything into account when we give guidance. Would get a tremendous amount of input from our people in the field. And then we try to be real cautious. I think we have a long history of being very cautious with our guidance. And we understand it's a slow macro, we're going through it. We've just gone through it for 2 quarters. And I think that if we continue to gain the share as we are, we're in a good position with the guidance that we've given. The upside would be if the macro does improve. And we expect it to improve, but we don't have any better crystal ball than you guys do. So -- but we have a confidence around the way in which we get to a guidance number.

Great. And George, could you just go into maybe a little more detail on the Convenience business seeing some headwinds? I think historically, we would have thought of the Convenience business as being a little more macro -- insulated to the macro pressures than it has proven to be, it's a unique environment. But what do you view the state of the business? What's the path forward? What's the path out in terms of trends in that business improving, whether it's just the passage of time? Or what -- how do you feel about the kind of the intermediate term, in the near term in the Convenience business and what are the drivers to that?

Well, we sell a lot of stores, a lot of boxes out there. And we're getting better and better at the Foodservice part of it where the margins are better. So that gives me a good deal of confidence. And there's price sensitivity, there's price sensitivity in all through the food area of the business right now. And I don't -- I can't think of a time where a Vistar and a Core-Mark have faced basically everything they sell having significant price increases. And we're working our way through that. And they're not big purchases, but they're still purchases that when people are very price conscious, they take that into account. We just look at it as a very healthy business. It's been healthy for a long time and will continue to be, we certainly won't see growth in nicotine but we're going to see good growth in the store and good growth in Foodservice.

And Jake, I'll just add, as we talked about, we're -- in all the key categories in Convenience, we are seeing that we're taking market share. So we're operating very well, and we're focused on the areas that are growing the fastest, which is the food and foodservice in that space.

And there are no further questions on the line at this time. So I'll turn the call back to Bill Marshall for any closing remarks.

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

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