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

Good morning, everybody. I'm Kelly Bania, food retail analyst at BMO. I'm thrilled to host next fireside chat with US Foods. US Foods is food service distributor with a laser focus on its core customers of independent restaurants, health care and hospitality customers. Just using round numbers here, but correct me where I'm wrong. We have about 70 distribution centers, about 4,000 sales associates, 400,000 SKUs and over 250,000 customer locations. We have the company forecasted just shy of $40 billion in revenue in 2025. And this is a great time because you're coming off a very strong quarter to start the year in what was -- looks like not an easy quarter to operate in. And I believe you were the only of the big 3 distributors to really reiterate your full year guidance at earnings just in the last couple of weeks. So I'm thrilled to have Dave Flitman, CEO with us. Dave joined, I think it was about 2.5 years ago now, has brought an incredible high level of focus and execution to the organization. And also Dirk Locascio. Dirk has been with US Foods since, I believe it's been 2017. So thrilled to have you both, as always. Time flies.

I'm going to dive into questions here. Dave, one of the things that struck me as I've kind of followed you guys over the years is just this journey that you've been talking about in terms of decentralizing. And it maybe sounds easier -- it's easier said than done because we see some companies struggle with what to centralize, what to decentralize, but maybe you can start with some examples of where that's being implemented today? What is best centralized? What is best given back to the field leaders and where do you see more opportunity on that front?

Sure. Good morning, Kelly. Good to be with you. Thanks for having us. So we have been on the decentralization journey for the last couple of years, and just fundamentally believe that having the right resources closest to the customer is the right way to run a distribution business. So we've been unwinding a lot of that decentralization simple things. I can give you an example, when I joined the company back in January '23, our local sales organization reported centrally into corporate. And so we've unwound that. They now report to the local presidents in the area. And again, fundamentally, you're touching customers every day. You need speed of decision making, you need execution capability, and that's best served out in the field. Now having said that, Dirk and I are very aligned that we believe in fundamental standardized business processes and practices. And you take supply chain, the metrics that we have, you take pricing and our approach to pricing as a standard approach. But our sales force, every market is different. The competitive situation is different locally. They have the autonomy they need to make those local sales decisions and price accordingly to the market.

Okay. And one of the things that we always ask about, I feel like every quarter, as we think about your 3-year plan is the COGS savings initiatives, because it is really critical to kind of the total EBITDA growth plan that you have outlined. And you continue to move forward this with this, no delay in the recent quarter. Maybe just can you help us understand what are the challenges in achieving those goals? I know you started with some of the bigger suppliers and are maybe moving down into some of the smaller suppliers that haven't really been touched yet. But how should we think about your visibility in accomplishing this over the next 3 years and where the opportunity is?

Yes. I think, Dirk, I can tag team this one. Let me just start. We just tied a bow around our last 3-year plan where we delivered $230 million in COGS savings. So my point in saying that is the company has been at this for quite some time and has developed a lot of muscle in terms of the how. And then going forward, we've committed an additional $260 million in the next 3 years. And fundamentally, it's -- we call it strategic vendor management. It's a process that we run in parallel with our vendors, and we do this in a win-win way. What makes us stand out, I believe, to our vendors is the fact that we consistently take market share. And a lot of these suppliers serve retail volume has been hard to come by. And so they're quite willing to step in with us where we can consistently guarantee them above-market growth and participate in that process. And then we've gone down a couple of new paths in our most recent plan, and I'll let Dirk maybe talk about some of that.

Yes, a couple of things on that one, as Dave said. So this one, we have a high level of confidence. This is multiple times that we've done this over the years. And some of it is continuation. Some of it you get smarter and improve the process in order to deliver different outcomes. But Dave's point around trying to approach it with a win-win with vendors is very important for that mutual opportunity for growth going forward. You mentioned about going further down so that the tail vendors or the smaller vendors are something where at your point, that's an enhancement this time around where we haven't focused as much in the past and now are focused more on that. Also just looking more strategically at the category level, where it's the vendor, but also are we making sure that we're priced right relative to share gains that we're striving for. And so just enhancing some of our capabilities as far as it as well versus simply a COGS play.

It's an interesting point to make about the retail side, where maybe some of the growth isn't quite what it used to be. Have you kind of done an analysis and looked at where you are in terms of your size and growth relative to maybe your supplier partners on the retail side and how much potential -- is it just catching up to where maybe you should be in terms of buying efficiencies with some of these vendors?

Well, I think there's a lot of momentum that we build based on our growth. The vendors continue to improve their operations, get more efficient and effective, and we can couple that together in a way where we share in that benefit and really drive that win-win focus. But we've got partners in all product categories that we've had for a number of years. Sometimes you have leverage and you can switch sources if you need to. We've done some of that in the past, not as much lately because again, the vendors have leaned in pretty well with us and really driving that partnership is winning.

Okay. Let's switch gears to another area of cost savings, which -- just kind of more on the overhead. You announced an additional $30 million. I've been getting questions just on exactly where that was. How are you monitoring those kind of cost savings initiatives to make sure there's absolutely no impact on the customer and what are -- you've talked also about further levers to pull if the environment is tough. Maybe just let's spend a few moments on that front. First, where was the $30 million? And what else can you do if the environment gets tougher?

Sure. So we've been on this journey again for a couple of years. And that $30 million one is on top of $120 million that we've done in the last 18 months. And that decentralization journey that we're on affords us the opportunity to really look at the whole cost structure, not only where the resources are, but do we have an optimized plan of where they're deployed. And what we found is, as we've decentralized we've been able to take some corporate costs out where we just right mindedly had added a lot of complexity to some of our processes, including sales, including supply chain. And we've unwound a lot of that and importantly, moves some of the right resources back to the field. I think there's still more of that to do. But as you've said, we've taken a pretty hard swing at it here in the last couple of years. Then there are some other areas of inefficiency. Dirk is leading a process around indirect spend, which is a $1 billion category for us. I'll let him talk about that.

Yes. That's another area where we haven't really looked at it holistically over the years. And it's -- as you say, it's over $1 billion of spend. Our goal is $60 million of savings in 2027. We achieved $30 million last year, so we're well on our way to get there. We also, this year, as part of the $30 million Kelly that you referenced, there were some additional non-people spend in there. So one example there is consulting spend. So for example, looking at third-party spend and instead enhancing some of our own capabilities with some high potential, high-caliber individuals who can do that work more effectively, more efficiently and then they know the company and they're around. So it's -- some of it's just rethinking how we invest and where we spend. But we often will get asked on cost and productivity is what's the silver bullet, and there's not a silver bullet. It's really a lot of the fancy word we use is the grind. It's the grind across each of these, and it really is at its simplest form, holistically looking at spend and then continuous improvement.

Yes, that continuous improvement theme is one I'm pressing really hard with the organization. We've got a plan to deliver 3% to 5% annual productivity. And behind that is generally in normal times, that will generally offset inflation. So that's the thinking and just finding ways to get more efficient and effective at what you do. I missed the other part of your question at the first, which was around supply chain and how do we make sure we're not impacting the customer. We talked about this a little bit on our earnings call last week. We're right now achieving all-time record high service levels for the organization. Everybody was impacted coming out of COVID and got disproportionately hit. Our driver selector turnover is back to historic levels. We're getting productivity and efficiency as a result of that. But importantly, I think in this industry, no one has been consistently great at service over the long haul. And I really think we have an opportunity here to create a competitive advantage with that. And so that's why I'm so pleased that our service levels are as high as they are all-time highs, while we're gaining these efficiencies. So it's not an either/or, we've got to be able to do both, and we're doing that well right now.

Do service levels vary across the different customer cohorts, like independents, chains, health care hospitality? Do you measure it differently? Or does it not matter?

We measure it the same. There is some minor variation. But when I say we're at all-time service levels, it's not for any one customer cohort.

Perfect. Just a reminder, you can submit questions to the iPad here. I'll try to remember to take a look at those. But I want to spend a couple of minutes on sales reps. It's probably the topic that we get the most questions on across the space. I think you're at about 3,000 local sales reps and about $13 billion in independent sales. I guess the question is, as we look at it from the outside and kind of the ratios of sales reps to dollars, how do we think about the right number there? And how is your technology and things like MOXe and the different technology tools that you afford your sales reps? How is that changing that ratio, if at all?

We really think MOXe on our digital leadership affords us the opportunity to have a more effective and productive sales force. You can compare those ratios across the big 3, and I'm sure you've done that. But importantly, what the technology does for us is it enables our sellers to go penetrate an existing customer, go find the next increment of growth with a new customer as opposed to dealing with where is the delivery helping the customer with the credit app. We can all handle that in our MOXe application, which is, by the way, the only one-stop shop in the industry for digital capability. So it really takes the friction out of the relationship with our customer. They can look at our inventory, determine when their truck is going to be there. It's like a credit app, pay their bills, whatever they need to do. It's easy for them to do that in MOXe. And so our salespeople have adopted that very well. And that's why day 1, we ask them and they do get our customers up on MOXe, because it helps them be more productive and efficient. But our algorithm is a low to mid-single-digit growth in headcount every year. We feel that, that's the sweet spot for us in terms of new seller headcount. Get a lot of questions around are we having challenges finding sellers. We're really not. And I think people get too hung up on the big 3 swapping cells reps, where is the source of sellers. Actually, competitive reps from direct competition is the minority of who we hire for sellers. We hire a lot of people with industry experience. Oftentimes, they were operators. They were chefs. They understand -- they've got the culinary background. So we find them from all over and then train them in our sales process.

And how -- what does that training process look like when you take someone that might have been an ex-chef and who knows the industry, but maybe hasn't been a direct rep. How important is that training process?

We've got a 9-week program that we put them through initially. It's called STEPs. Part of that is training them on the product line. But that's something that never really ends. That journey continues. So we've got general sales meetings out in each one of the areas that happened on a monthly basis. A portion of that is dedicated to the selling process, new capabilities that we're bringing to bear, training them on new products. So that's an ongoing piece of work that never really stops. I think we do an excellent job of onboarding new sellers, whether they've got a background in the industry or not, we put them through that. Here's how you sell at US Foods.

And what is that typical time that it takes for a new rep that might be new to the industry versus a more experienced rep that came with book of business or that experience level? How does that look in terms of the ramp that they...

So if we hire a competitive rep, they typically come with a noncompete, so they can't call on their prior customers for typically a 12-month period of time, but they can be very productive very early because they understand the industry. We do teach them our product line. They have a good background, so they pick that up very quickly. And oftentimes, we find they're very productive in a new sales territory. And when their noncompete rolls off, sometimes they want to go back, sometimes they don't because they built a new customer book of business and new relationships. And then if you take a rep without any direct sales experience in the industry, it could take them 2 to 3 years to be fully productive. And so we push them to get on our compensation plan as soon as possible. And we try to get that done in the first 12 to 15 months or so, but then their productivity ramp just continues beyond that.

And a lot of focus on the restaurant traffic, which is just one measure of the health of the industry, but it has been pretty weak for a couple of years now. What is your commitment to keeping that low to mid-single-digit sales force growth if that continues? Obviously, you're gaining market share within that. But how committed do you...

We're very committed to it regardless of the macro. We think it's the right thing to do for long-term health and growth of the company. And look, we don't get hung up on the macro, and I say this a lot, and I really mean it. We have a relatively minor market share in the 3 most profitable customer types in the industry, which is where our strength is, where we've applied our technology and our resources. The macro can ebb and flow. There's still plenty of share for us to go gain, that's why we'll stick with our hiring plan for our sellers. We'll stick with our commitments because we just believe there's ample runway for growth here regardless of what's going on with foot traffic.

And when we're adding sellers, we're not adding them peanut butter across the board. So it's faster markets that can grow, get more reps, those that have opportunity for growth, get more reps. So it's also quite targeted in order to make sure that we're getting the highest and best use out of the reps we are adding.

We've talked a lot about how we use the Circana data to target where the growth is greatest even within a market, what customer types are going to be successful where we might have share opportunities, bring in the right basket of products, make sure we have the right assortment in our distribution centers, then we're off to the races.

And is there any trends that you can talk about beyond that? I wish I could look at the Circana data and see which markets are growing and where everyone is investing. But we kind of look at it on a national basis. So what -- what -- where are there areas of growth?

I think if you just follow where population has grown and shifted. The Southeast is strong. Texas is strong. Florida is strong typically, over time, that's where we'll invest the most, but we're investing pretty much across the board.

Right. Okay. I want to talk about also just you mentioned pricing as one of the things that is more centrally managed, but how much autonomy do you give your sales reps to kind of be reactive. There's questions about how competitive, I guess that local competition is -- but how are your sales reps empowered to kind of make those decisions day-to-day versus relying on technology or local market dynamics? How do you strike that balance on pricing?

Great question. We have a standard tool that we've applied across the company. But within that, there's a framework. And the sellers have a lot of autonomy to a point. But then even beyond that point, if there's a local competitive situation, there's an approval process that they can get around whatever floor may or may not be in place. The beauty of the tool is with AI embedded in it, it gets smarter. It learns more by product category, by customer type and gets more effective at making those pricing recommendations to the sellers. But they've got the autonomy they need to make those local pricing decisions.

It really helps the seller because as a person, you can only know the right price points on a certain number of products. So let's say you've got 100 or 200 products. And if you think across somebody's entire route, and also by giving them the target and the guardrails that are out there, it helps whether it's a new customer or products that your existing customer hasn't bought helps them be more on mark when they're getting to a price point versus just trying to gauge themselves what they think it is.

And the other thing they have autonomy around is really the basket of products for the customers. So yes, we price at the product -- individual product level. But if they need to give a little on a certain product here and that they can look at optimizing the total for the customer as well. So that gives them additional flexibility.

And so Dave, you mentioned AI. I think you're the only distributor that's really been prolific about talking about how AI and how you're using that and embedding that into tools for, I think, your employees and your sales reps, but across the organization, I guess. Do you think that's becoming a bigger competitive advantage, a bigger moat, -- are there any distributors maybe outside our purview that are also investing heavily in that?

I'm not sure what the competitive landscape looks like. But given the platforms that we have, particularly around our digital strength, so think about MOXe, we launched that 2.5 years ago with certain ability to make product recommendations for a customer with the advent of AI. We're now able to tailor those much more specific to that individual customer making -- versus making general product recommendations. We talked a little bit on the earnings call about the way we're helping our sales reps with menu design. So imagine they can go into an account that they've never been at before. With the advent of AI, they've already scoured what their menus look like match to our products. They go in with full pricing capability and have a very educated conversation, the first time they meet the customer versus saying, "Hey, I'm here from US Foods, show me your menu, I'm here to help you." You know what I mean? So it just helps them put their best foot forward. And then there's things like labor planning, where we can use that internally with how we plan our distribution labor. The routing tool that we use, Descartes that we talk about a lot has AI embedded in that. So routing is a very dynamic process. You gain customers, you lose customers, you penetrate customers. You have to stay on top of that all the time. And AI helps us do that and optimize the efficiency there. So we're excited about it and what it can mean for the future.

Yes, I'm glad you mentioned Descartes, because it's something we've been kind of checking on every quarter. It's a big undertaking to use a whole new system for your routing. And it seems like it's gone incredibly smooth. There's been savings. How should we think about -- I think you're at the later stages of this implementation? I think you'll be done by the end of this year. Is there more benefits to come? How have you been -- how have you executed this so seamlessly?

Well, there have been a few bumps on the road.

Well it didn't look like it from the outside.

No. But I mean, you can't change the routing tool without having any impact on the customer. So we had to have lots and lots of conversations with customers. But importantly, when I talk about our service levels, it gave us the opportunity to understand what the optimal delivery window was for our customers. Historically, we weren't great at that. And so by having that conversation and matching that up with Descartes, we've built credibility with our customers because now we're doing and showing up exactly when we say we're going to. And then, Dirk, you want to talk about some of the productivity benefits we're seeing.

Sure. Yes, I say the couple of percent or so that we talked about of productivity improvements, that's really step 1. So we expect that there's further productivity that will come in the future years. Just any time you put in a new system, you want to be thoughtful on how you turn the dials. What we don't want is, we don't want customers to feel like the world's turned upside down. We don't want our supply chain to be turned upside down versus let's get the improvements. And then now that we have the platform that has much more capability than we've ever had. It really allows us to continue to drive that productivity and service improvements over several years to come.

Really, the beauty of Descartes is it's dynamic. And so rounding used to be an event for us. You had -- it was episodic. Now is that routing need changes, we can do that more dynamically and continuously. So we're really excited about getting it launched across the company and then further optimizing.

Descartes is really just a good example when Dave talked about using AI. So whether it's the machine learning, advanced analytics or degenerative AI, we think of the things that the machine can do better and learn from, let's let the machine do it. And lets the humans do, where the humans add value in these areas. And that's really the approach, whether it's something that's embedded in what we buy or some of the tools that our teams develop in-house.

One more I wanted to ask -- going back to the pricing conversation, and then I want to switch to kind of health care and hospitality. So I feel like we don't talk about that enough. But with respect to pricing, I guess, with all of this products going online. Now you're at a high percentage of what percent of your independent customers use MOXe and all these tools. How is that changing price transparency in the industry? And is that a good thing or a bad thing for US Foods and where you're positioned with your pricing and your ability to be dynamic?

I don't really think it's changed fundamentally anything around pricing transparency, I think that's always been part of the industry. Sales reps are pretty good at sniffing out competitive situations. They always have been in understanding certain products and how they're priced. We really don't think it's changed that at all and don't really spend any time thinking about it.

Perfect. Okay. On to health care. So I believe you have over 20% share in health care and...

We have a good share in health care.

Is it -- yes, maybe it's a little higher.

We are the industry leader in the health care.

You're definitely the industry leader. I guess maybe can you help us think about the competitive set here? I think we know kind of one of your primary ones. But beyond that, what does the competitive set look like? Where are the majority of the market share gains coming from? Where do you expect them to come from? And when you gain a new customer, you announced a new customer just this last quarter, what are the reasons why they're coming to you? Are they saying, it's just your Vitals platform, is it your SKUs, your expertise? Like what are you hearing most often that you can kind of continue to lean into?

Yes.

The answer is yes.

So it is an area that our team there in health care and hospitality have done an excellent job, and it's -- it really is -- has been a good growth engine for us. And it comes down to, I'd say, the yes. But it's the combination of those things. It's our offering of the technology. So in that case, we have a tool suite called Vitals that really helps operators with not only ease of interaction with us, but it's also things like some of the dietary information, patient feeding costs, things that really help them because it's a tough industry to be an operator in, and it helps them with that. Our service model is easier to interact with fewer points of contact from an end operator than, say, some competitors and also some of our sales and service model and our expertise that we have there. So we have dietitians. We have other experts that help those operators with how they run their business in order to, again, find ways to improve it. So when you think of those things and then you combine it with we have decades long partnerships with some large group purchasing organizations that we really have found that way for the win-win for sort of them, us and the customers. So it's good economics for the customer, and it's good economics for us overall with health care and hospitality being really the second most profitable behind independents. And so they're an area where I expect to -- we have share gains to be had for a long time to come, and our differentiation and our team is out really pushing with customers to really help those that aren't -- that are prospects understand how we can help them knowing that they have a hard job in running their business.

And are there a lot of smaller competitors in the health care segment that maybe we don't hear from every day? Is it -- I would assume that they don't have the technology that you have. Is that -- how big of a moat is that in that area?

It's a pretty big moat because in this case, the technology extends far beyond just the interaction with US Foods. So from an operator perspective between that and the GPO relationships, this all together is a pretty big moat. And as you pointed out, one large competitor that's competed in this space, also the regionals and the large locals. So it's not a one answer in every market. So when we talk about share gains, it really comes from a variety of different operators and sizes and just our team. I mean, each year, it seems like when you keep telling us, well, maybe our new business pipeline will slow a little bit and keep pushing and they push and that again, bringing that value proposition to life continues to be a very strong growth engine. And we've been extremely pleased the last year or so, and we expect that to continue to grow quickly. The other advantage we have with this being such a big part of our business is it's really economic agnostic. So when things are slowing, et cetera, it still is a good growth engine for us.

I think you've talked about this, but maybe we can kind of dig in a little bit on this, but the SKUs that you carry for health care and hospitality, how does that complement kind of the efficiency of the organization when you're attacking independents and health care, like just in terms of the SKUs that you need to carry in a DC, this is maybe something that I don't think we think about every day, but how does that complement your strategy when you have this customer focus?

Well, it really is as part of the focus on those 3 customer types, it's much more capitally effective and accretive over time, because when you typically have those SKUs in your warehouse. So there's overlap between independent health care and hospitality. All 3 are pretty conducive to private label, so that they're buying what you have in. And also, once you're servicing those customer types in a distribution center, typically, when you have new customers come in, they're buying most of the products you already have in the distribution center. So it's increasing product velocity as opposed to when you have chains come in, they come in with a fair number of their own proprietary items. And that's why even with chains, you don't hear us talk about that chains are all good and all bad. It's about optimizing. We have a number of chain partners that are excellent partners and happy to continue to do business with them. But yes, over time, what you won't hear us talking about is investing in capital to support chain business and building, especially with what construction capital costs have done over the last few years. So it's really about thoughtfully growing in that space while really focusing on continued share gains because as I think Deep and Dave said earlier today, we have so much opportunity still on share gains in those 3 and ability to really leverage our differentiation.

And I think Dirk touched on it, it's an important point, though. All 3 of our target customer types lend themselves to our exclusive brands. Those brands are high-quality products. They're cheaper for the customers and they're twice as profitable for the company. Hence, our intense focus on those. And the chain is a good baseload for a lot of our distribution centers, but not worth further investment from our perspective because of the inefficiencies that come along with supporting the chain business, particularly their proprietary brands.

And just remind me, so the penetration of private label with independence is over 50%.

Just hit a new record, 53%.

Right. Where is it on -- what's that penetration on health care and hospitality? Have we given that number?

It's a little above our overall company. So it's more conducive. And then you compare it to say a chain, which is well below the overall business.

Okay. One more on health care. That's just been on my mind as I try to think about what might happen down the road here. But if there are cuts to Medicaid, or work requirements. So we're just kind of reading the news about the budgets that are being proposed. Is that something that investors should worry about and how that could impact this segment?

I don't think so for what we do because -- so a lot of that business historically has been acute care for us, i.e., you need the service because there's a problem. We're shifting more towards senior living, which is probably the fastest growing portion of the health care space right now. But regardless of what segment it is and any potential cuts that happen, a lot of that service is going to continue to be needed, and those people need to be fed. So we're not concerned.

Can we talk about hospitality a little bit too. Some data points that suggest tourism is maybe down in the U.S., who knows where this will go. Do you think -- is this something -- are those data points we should follow, number one, in terms of tourism and how that equates to kind of your -- the underlying demand for the customers you have? Or do you expect that business to remain kind of steady as we go forward?

I think it will ebb and flow. I think that's a good metric to look at. And we've talked a lot about our historic focus on lodging, perhaps a little bit over-indexed in the hospitality space. But more recently, we shifted to recreation in other areas, which is opening up new pockets of growth for us. So we talked last week about onboarding $100 million of new business between health care and hospitality. It wasn't quite equally split. It's over indexed towards health care, but a significant chunk. And you saw our growth 3.5% or so in hospitality. And because of our shift in focus, we believe we've got a lot of confidence in continued growth and share gains within the hospitality space as well.

It's -- I would say, it's not immune to the slowing, and even in the fourth quarter. That's a good example where we still grew accelerated to 3.6% growth despite some slowing, and that really is the net new business conversion in the pipeline there. And the question we get out sometimes is, well, what's that mean recreation. So I think it as large-scale venues as one example of there, whether it's concert venues or other things like that and bringing some of the value and differentiation we have to that space.

Okay. Also, we spent a lot of time looking at and seeing what our retail companies are doing with supply chain automation. And I was wondering if we could touch on that for a minute because you do have your first facility, I guess, coming on board soon and near your headquarters. What does -- what do the returns look like? What have you learned so far? Could this be something that you could roll out and that could be a step function in terms of productivity at your distribution centers?

We'll tell you more about the returns once we start it up. But we're getting close. So within the next couple of months, we'll start up our first, what we call, semi-automated distribution center just outside of Chicago and Aurora. And the beauty about that, I think, is twofold. One is it's going to enable us to be a lot more efficient, i.e., less headcount required. But importantly, I think it will afford us the opportunity to have a more consistent offering for our customers. So if you think about just the night selection process now, a lot of people selecting cases, building pallets, doing their best to get them out on time and get them on the trucks. That process is typically fraught with error. We all have challenges around that. Importantly, you automate a lot of that and you have the opportunity to have a much higher success rate in terms of selecting the right products, building what I'll describe as a perfect pallet. And importantly having the customer have a much better experience on the other end of that. So I think it will help us to be more productive, yes, but we're also excited about what it means for our customers. So we'll learn a lot more. We're excited about how to apply that not just to a new facility, but our learnings and how we can take that into some of our existing facilities, certainly where we have expansions going forward, when we lean into that more aggressively based on what we learned in Aurora when we started up.

Another added benefit we have is our drivers with that perfect pallet and it makes the driver's job a little bit easier. They have a hard job. And so there's things that we can do to make that a little easier. We're very happy to do that. And this is really, as we've often said, this is not about testing does the automation work. It's really -- it's well established out there. It's just in our space. What are we going to learn from getting it into our first location in order to make sure that we adapt and deploy it in the right ways over time.

Okay. I wanted to also talk about Pronto because there's really kind of 2 components of Pronto now. where it started with kind of some maybe smaller dense markets -- or maybe not smaller, but more dense markets, but now it's kind of been extended to existing customers. So wanted to ask twofold. One, what have you been learning from your customers as you've broadened this kind of service. And where does this idea -- where does this idea generate from? Is this from a local sales rep that said, "Hey, we just -- we have a lot of clients that want more service. And we think there's an opportunity here and kind of develop the processor." Just how does that come about at the company?

We're very excited about Pronto. That's why we talk about it so much. Really started several years ago aimed at unlocking a part of the market that we had a challenge competing with being the specialty suppliers. And a little bit of the frustration I think the company had at the time, I wasn't here when this started, was the fact that we had all the great products that the specialty suppliers did. We just didn't have the right service model. And so we embarked on this journey to just target new customers and learn if we could deliver that model, how we could do it efficiently. And there's really a couple of things you're worried about. One is how you price that product because it's a much less efficient delivery for us, smaller trucks, more frequent deliveries. So are we able to get the margin profile that we need to be able to generate that service. And then the second thing was we wanted to ensure that we weren't just cannibalizing our existing broadline business. And so hence, that's why we did all of the pilot work. About the middle of last year, we launched it to our existing customers. We call it Pronto penetration. And we were thoughtful around those 2 points, and that's why we started in a few markets to prove the model, to prove we could deliver the margin that we needed. And in fact, we weren't going to cannibalize anything from our larger deliveries. That's all gone extremely well, and that's why you see us stepping on the gas and rolling that out. I think it will prove to be a key unlock. We said last week where we've deployed Pronto penetration with those targeted customers, it's generated a 10% to 15% uplift in volume in cases, and we expect that will play out as we take this more broadly. So -- some of that's getting masked by the current foot traffic environment and all that, but we're tracking it closely, and we're confident in the data I just shared with you. So Pronto is a journey for us, but an exciting one and one our sales force is really excited about.

And as you think about where Pronto penetration, where that strategy could be rolled out, what component or what percentage of your markets could that be? I mean, because that's a pretty significant lift there with this service.

Yes, we'll see. I mean, we launched Pronto to target the new customers in about 40, 45 markets, something like that. So certainly, those markets are applicable. I think where you start to lose a bit of the benefit is in some of the more rural markets, where you can't justify the added expense and the inefficient deliveries just because you don't have the customer density that you have in some of the urban markets.

Even in the markets that have been existing though, there's still a lot of years of growth. I mean this -- to Dave's point, the legacy Pronto has been in place for 7, 8 years, and we still have those markets that we're adding trucks to. Because when you put it into a market, you're typically adding 1 or 2 trucks because you want to make sure just through our process that we're using them, to Dave's point effectively and efficiently. And then as that happens, you had another truck, another couple of trucks. So there's still growth opportunity in the legacy Pronto, and a lot of still in the Pronto penetration.

Okay. I think we have 2 minutes. I think I have 2 questions, so I'm going to try to fit these both in. In terms of the cash and carry. So we kind of changed course you announced last week about maybe keeping that. What did you learn? I think there were maybe some synergies that maybe didn't quite come through? What did you learn about that business? How long will you consider keeping that? Or will you reevaluate that at a future time? And then I have one closing question.

Yes. So we did announce that we intended to look at divesting that business a year ago at our Investor Day. And really, if you go back to the business case when it was purchased, we had some experience. I wasn't here at the time, but we had some experience with some stores that we had built right in the heart of our broadline markets that operated really well. We got a lot of synergy with our existing customer base. The acquisition was predominantly in the western part of the country, and those facilities just weren't as close to our broadline market. So those synergies just didn't play out with our existing customers to the extent we believed it would when the acquisition was made. And so we went through the process. Tariffs happen, foot traffic slowed, there was some retrading of the deal once we got into it, and we just decided, look, the business is not a drag on the company. In fact, it grew at the same rate that we grew EBITDA in the first quarter. So we're not going to give it away. I still fundamentally don't believe we're the right long-term owner for that business, but there's no pressure on us to do anything. So we'll operate it. We'll continue to serve our customers there unless and until there's another outcome.

Okay. I guess, less than a minute of final remarks, why is now a good time for investors to be considering US Foods? You've made a lot of progress.

Good question. I have 10 seconds. We're on an exciting journey. We've got an exciting algorithm over the next 3 years. Importantly, ours is an execution and a self-help story. You see us delivering that algorithm in some of the lowest foot traffic since COVID. That gives me and our team confidence that we've got a long runway of improvement ahead of us. We're an earnings compounder. We just delivered 26% EPS growth in a very difficult quarter. We believe our ability to do that really will transcend even this 3-year plan. So it's not too late.

Perfect. Perfect time to wrap it up. All right. Thank you so much Dave and Dirk.

Thanks, Kelly.