US Foods Holding Corp. (USFD) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the US Foods Annual Shareholder Meeting. At this time, the meeting will begin. It is now my pleasure to turn the floor over to your host, Pietro Satriano. Sir, the floor is yours.

Thank you and good morning to all, and welcome to the 2020 Annual Stockholders Meeting of US Foods Holding Corp. My name is Pietro Satriano. I'm the Chairman and CEO, and I will be presiding over the meeting. As you know, this year's annual meeting is being held entirely online. We made the decision to move to a virtual meeting this year to support the health and safety of our stockholders and associates, and in keeping with current social distancing guidelines. We appreciate your consideration as we do our part to flatten the curve and prevent the further spread of the virus. Before we begin, I would like to thank -- to take a moment to thank the health care workers and everyone in our communities on the front lines of the COVID-19 outbreak. We appreciate your service and your sacrifice. I'd also like to recognize our associates at US Foods, who are working so hard during this challenging period to maintain our critical role in the country's supply chain. Our response as a company throughout this pandemic in this time of crisis has been guided by 3 principles: first, keeping our associates safe. The social distancing measures we have put in place in our warehouses and our working from home in a universal fashion has resulted in a low number of cases; second, helping our customers through webinars, playbook, and access to expert resources, we have helped our customers navigate this unprecedented time; and third, conserve cash and generate cash through our furloughs and reductions in capital spending. As we look ahead, we continue to stay vigilant on those 3 guiding principles, while at the same time, ramping up our resources to enable the recovery that is slowly happening across different parts of our country. Joining us online for today's meeting are members of our Board of Directors and executive leadership team. I would like to thank each of our directors for the direction and valuable insight as we navigate through the unique challenges the current situation presents for our business. And I also want to thank the executive leadership team, my team, for the outstanding effort and commitment they have exhibited during this unprecedented time. Kristin Coleman, our Corporate Secretary, has advised me that a quorum is present, and the meeting is now called to order. She will present the proposals being voted upon at the meeting today. Following the voting, we will take any questions you may have. Kristin?

Thank you, Pietro, and good morning. Before turning to the matters that will be voted upon today, I'd like to mention a few housekeeping items. First, on the webcast, you'll find the meeting agenda and the rules of conduct for the meeting. In addition, if you've not voted or if you'd like to change your vote, you can do so while the polls are open by using the voting button on the website. During the formal business of the meeting, questions or comments from stockholders will be limited only to the proposals being voted upon today. After voting is complete, we'll take general questions. I see that some questions are already coming in. If you wish to ask a question or make a statement, you can do so through the website, so use the space provided in the lower left corner of the page. So on to the business of the meeting. There are 3 items of business that were set forth in the notice of the meeting that our stockholders are being asked to vote upon today. The details of those proposals are set out in the proxy statement for the meeting. I have proof by affidavit that notice of this meeting was first distributed and the proxy statement and proxy card were made available on March 27, 2020, to our stockholders of record at the close of business on March 16, 2020. The Board has appointed a representative of Broadridge Financial Services to serve as the inspector of election for this meeting. So the first item of business is the election of 3 nominees, add Court Carruthers, David Tehle and Ann Ziegler, to our Board of Directors. The Board unanimously recommends a vote for each of the nominees. The second item of business is the advisory vote on a resolution to approve the compensation paid to our named executive officers as described in the proxy statement. The Board unanimously recommends a vote for this resolution. And then the third and last item of business is the ratification of the appointment of Deloitte & Touche LLP as the company's independent registered public accounting firm for fiscal 2020. The Board unanimously recommends a vote for this proposal. Are there any questions or comments concerning any of the proposals? Just going to check to see whether we have any. So I think the answer to that is no. So with that, the polls are now closed. Any votes that are submitted online will be included in the final voting results, which we'll disclose in a Form 8-K that we'll file with the Securities and Exchange Commission. The inspector of election has advised me that based on the preliminary count of the shares voted in person or by proxy at today's meeting. The results for each proposal are as follows: for item 1, each director nominee has received more votes cast in favor of his or her election than against, and therefore, has been reelected to the Board. For item 2, the holders of a majority of the shares present or represented by proxy at the meeting have voted in favor of the advisory say on pay resolution. And therefore, it has been approved. And for item 3, for holders of a majority of the shares present or represented by proxy at the meeting have voted for Deloitte & Touche's appointment, and therefore, it has been ratified. So that concludes the formal business of the meeting. And I will hand it over briefly to Pietro before questions.

Okay. Thank you, Kristin. At this point, the meeting is adjourned. We now would take questions from stockholders. As a courtesy, we asked that you limit yourself to one question so that we can accommodate all stockholders who might have a question. And the way we'll do this is Kristin, our General Counsel and Corporate Secretary, will read the questions aloud for everyone to hear, and I will answer the questions unless I direct them to someone from our lead independent director, Bob Dutkowsky or someone from my team.

Great. So the first question that I see is related to pension funds. Mr. Chairman, the carpenter union pension funds with combined assets of $70 billion have a collective ownership position of 502,116 shares of the company's stock. As long-term investors, we appreciate the company's actions to address employee safety and the difficulties being experienced by customers and other important corporate stakeholders related to the COVID-19 pandemic. In the recently consummated investment agreement with KKR limited partnership, it was agreed that a KKR representative, Nathaniel Taylor, would join the Board following this meeting. Is it the expectation that Mr. Taylor will stand for election at next year's annual meeting? And what voting rights does the agreement provide KKR? I actually can answer this one, Pietro, if you'd like me to. I initially thought it was about pension.

Go ahead, Kristin.

So the answer is that Mr. Taylor is expected to be elected by the Board immediately after this meeting for a 1-year term. He would stand for election at next year's annual meeting. And KKR has voting rights that are the same as other shareholders. They have voting rights consistent with the number of shares that they own. All right. With that, I'm going to go to the next question. Mr. Chairman, the recent dramatic growth in the size of passive mutual funds, corporate ownership interests in the United States raises important public policy and corporate governance issues. Currently, Vanguard and FMR, Fidelity each hold in excess of 7% of the company's outstanding shares. Each is an investment manager for a portion of the assets of the company's retirement plan. Does the Board see this growing ownership concentration as a positive or negative development as regards long-term corporate planning and performance? And also, are there potential conflicts of interest, when a 5% holder is managing company retirement plan assets?

Okay. Thank you, Kristin. So -- and thank you for the question. And the growth in passive mutual funds is a reality of corporate ownership. From a conflict perspective, we are not concerned. We do not see a conflict because both our pension and 401(k) assets are managed with oversight from our fiduciary committee that is independent of our stockholders and the relative position of various stockholders.

Okay. Our next question starts with -- wow, rough one. Looking forward to seeing how you all come out of this on the other side, hoping that we could do the next, I presume, annual meeting in person. And our questioner misses the food samples. A number of company executives and/or -- here's the question. And a number of company executives and directors have been partially or completely foregoing compensation for the next few months. How are you all thinking about that for your company?

Okay. So I will take that. So we have already put similar measures in place. One of the first things as part of our third guiding principle to conserve cash, given the dramatic impact on volume, we have not only frozen a lot of discretionary expenses, but all our senior leaders, up and down, the company took a reduction in base salary, starting with the Board and myself at 50%, to my team at 30%, vice presidents at 20%, and directors and managers in the 10% to 20% range. And those measures are in effect for the duration of the quarter, at which point, we will reevaluate based on how the recovery is coming.

Okay. I think we have just one more question. This question is, with COVID-19, wondering what supply issues you are experiencing from vendors.

Right. So I think everyone has read about the pressures on the supply chain, primarily in beef and pork as a result of the nature of those facilities, which are less automated and have a greater density of labor in them. So we've experienced some limitations of supply as everyone else across the food chain has, and we've experienced some pricing pressure as a result. But we've been able to continue to fulfill most of the needs of our customers through a well-diversified set of suppliers in those 2 categories or some substitution that is occurring across other categories. And we do expect, over time, that supply chain, which is fairly resilient to come back on stream with a more normal level of production capacity over the coming weeks and months.

Okay. I'm just confirming. I think we have no other questions. And so with that, Pietro, I think we can conclude the meeting.

Okay. Yes. So thank you, Kristin, and thanks all of you who joined for joining us today, and appreciate your support as stockholders of the company. We do feel that while we are in an unprecedented period, we do feel that we will emerge from this a stronger company. This concludes our program for today. Again, thank you for joining. Please stay safe and please stay healthy. Have a good day.

Thank you, ladies and gentlemen. This does conclude today's shareholder meeting. Thank you for your participation, and have a wonderful day.