PFGC - NYSE

Performance Food Group Company, please go ahead, sir. Thank you, and good morning.

We are here with George Holm, PFG's CEO; Patrick Hatcher, PFG's CFO; and Scott McPherson, PFG's COO. We issued a press release this morning regarding our 2025 fiscal second 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 2024. The results discussed on this call will include GAAP and non-GAAP results adjusted for certain items. Reconciliation of these non-GAAP measures to the corresponding GAAP measures can be found in the back of the earnings release. Our remarks on this call and in the earnings release contain forward-looking statements and projections. Please review the cautionary forward-looking statement 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. I will now turn the call over to George.

Thanks, Bill. Good morning, everyone, and thank you for joining our call today. Our company remained active during the fiscal second quarter, continuing to build upon our underlying business momentum while adding new avenues for growth through targeted acquisitions. I'm very pleased with the results and believe we are well-positioned to accelerate our growth through the back half of the fiscal year. This morning, I will review some of the high-level trends in our business and industry, and touch upon our early accomplishments integrating both Jose Santiago and Cheney Brothers. I will then turn the call over to Scott, who will review details of our segment results for the quarter. Finally, Patrick will review our financial position, key priorities, and guidance for the balance of fiscal 2025. Let's begin with an overview of our second quarter results and the industry factors influencing performance. We are pleased to see an acceleration in our underlying organic growth in the fiscal second quarter. Through a combination of steady market share gains and an improving consumer backdrop. In particular, our organic independent restaurant case volume grew 5% in the quarter, stepping up from the 4.3% we reported in the fiscal first quarter. Keep in mind, this result includes a difficult year-over-year comparison in December primarily due to calendar differences compared to the prior year. In October and November combined, our organic independent restaurant case volume was up over 7%. As we moved through January, our case volume reaccelerated, part due to easier comparisons, but also reflecting the strength of our underlying business. I continue to believe we can achieve fiscal year 2025 6% independent case growth with some help from the macro. My confidence is underpinned by several factors including the excellent work of our food service teams. We continue to build our organization through targeted hiring of talented salespeople and have increased the pace of sales force hiring. Turning to our Vistar segment, business picked up modestly in the fiscal quarter. Following a challenging start to the year, total cases grew 1.4% for Vistar in the fiscal second quarter with broad growth across many channels. In particular, the vending, office coffee services, and corrections channels saw positive case and sales growth in the quarter. Theater box office revenue was strong in the final months of the calendar year, reflecting high-demand content. This by itself is encouraging for the long-term health of the movie theater channel. As we discussed last quarter, we anticipate a better back half of the fiscal year for Vistar due to improving consumer sentiment and easier year-over-year comparisons. Similarly, our convenience business is building momentum on both the top and bottom lines. As we have discussed on prior earnings calls, the convenience industry has been challenged largely due to significant inflationary pressure in candy and snacks. However, we remain encouraged by Core Mark's ability to win market share and outpace key categories compared to industry peers. Foodservice into convenience remains a large driver of our performance, but candy and other key non-nicotine categories have also boosted volume performance through low single-digit growth. As our legacy business continues to perform well, our integration team has been hard at work welcoming the teams from both Jose Santiago and Chaney Brothers. Early in the fiscal second quarter, we closed on the Chaney Brothers acquisition and have included their results in our numbers beginning on the closing date. As we discussed when we announced the deal, we have high expectations for Chaney, and I have admired their success for many years. I'm pleased to say that they have made substantial progress in the months since becoming part of PFG, and early results have been very strong. The past few months have not been without challenges, particularly in the southeast markets that have been impacted by weather, including hurricanes and a slow recovery from the consumer. However, the Cheney Brothers team is proving to be formidable at managing through these challenges and continues to grow at a brisk pace. Jose Santiago has performed well. This organization joined PFG early in the fiscal year and we remain pleased with the results. We believe Puerto Rico will be an increasingly important market, and Jose Santiago's strong market position provides an excellent platform for growth. We are excited to see what the future holds. Keep in mind that both Chaney Brothers and Jose Santiago have slightly different seasonal patterns than legacy PFG, with strong winter selling seasons. As a result, we expect a nice contribution to our top and bottom lines, particularly in our fiscal third quarter. Taken together, PFG had an excellent fiscal second quarter with contributions from all three of our business segments. Our diversification strategy across the food away from home market continues to pay dividends and provides significant areas of growth opportunity for the long term, which we believe is unique to PFG. I will now turn the call over to Scott McPherson. In December, we announced Scott's promotion to Chief Operating Officer effective the beginning of the calendar year. We were thrilled to welcome Scott to our team through the Core Mark acquisition, and we greatly value the high-level management expertise he has brought to PFG. In addition to running Core Mark, in 2023, Scott assumed oversight of the Vistar segment. And in 2024, he was named our Chief Field Operations Officer, giving him responsibility for all three business segments. In the role of COO, Scott will continue to oversee our business segments and strengthen his influence across our organization and industry. I've asked Scott to join our earnings call to provide additional insight into our business operations. He will also be available to take your questions during the Q&A portion of our call. Scott assumed the Chief Operating Officer role from Craig Hoskins. I cannot speak highly enough about the contributions Craig has made to our organization. Craig was the VP of sales of Multifoods Distribution Group in 2002, which was our first acquisition, which later became Vistar. He also served as the CEO of our Performance Customized Division and then also CEO of our Performance Foodservice Division before ascending to three years as the President and Chief Operating Officer of PFG. Craig did an excellent job onboarding Scott into his new role. I'm thrilled to have Craig as our Chief Development Officer. As we announced in December, in this role, Craig will work closely with Jose Santiago and Chaney Brothers as we integrate those organizations into PFG. I'll now turn the call over to Scott McPherson.

Thank you, George, and good morning, everyone. I'm excited to join today's call and share some insights into our performance, the broader market, and some of the initiatives that will help PFG maintain our long track record of growth and operational execution. Before I jump in, I want to reflect on my journey to the COO role over the past three years. Coming to a company through acquisition is not always the easiest transition, but it quickly became evident why PFG excels in this space. We target well-run companies and leverage the talent and knowledge they possess for the betterment of the broader organization. This approach has created a culture that embraces growth, welcomes change, and inspires people to go the extra mile. During the past year, I've had the opportunity to interact with PFG associates across our entire business platform. I've seen firsthand the dedication that our associates bring to work every day, which is instrumental in our ability to exceed the high expectations we set for ourselves. I want to highlight a few examples of the talented and dedicated associates that make PFG different. In our Vistar segment, Jose Luis Arias started as a sanitation specialist with our organization over fifty years ago, advancing to become a CDL driver, and this year will eclipse the three million mile mark accident-free. Our former SVP of HR, Ali Marciano, was named as a top woman in Convenience, one of the industry's top honors. And at PFS, Jasmine Dan was the recipient of the 2025 Women's Foodservice Forum Changemaker Award. It's individuals like Jose, Ali, and Jasmine that inspire our forty thousand associates to come to work every day with a passion to succeed. Now let's take a deeper look into our three operating segments, starting with our foodservice business. Foodservice had an outstanding second quarter driven by case volume growth across our independent and chain accounts, solid margin improvement, and expense control. Both Cheney Brothers and Jose Santiago contributed nicely to these results, producing double-digit top and bottom line performance for the segment. Stripping out the benefit of these two acquisitions, our underlying business momentum produced approximately 3% total organic independent case growth with organic independent case growth of 5% and low single-digit case increases in our chain business. We are pleased to see our chain business adding top line growth and anticipate even better performance in the second half of the year due to new business wins and signs of stabilization from some of the more challenged accounts. We also continue to pick up new independent accounts. Our 5% organic independent case growth was driven by a 5% growth rate in new accounts, as penetration across the full quarter was flat. With that said, excluding the difficult December calendar comparison, penetration was up in independent and total foodservice in October and November. While we're certainly not back to normalized levels of restaurant performance, we are seeing early signs of stabilization. Within our independent business, PFG's company-owned brands continue to be a significant growth driver. These brands account for nearly 53% of total sales in the independent channel. As we've discussed in the past, brands' growth is a key strategy as they provide high quality and great value to our customers, enhance our margins, and increase customer retention. Expansion of our brand portfolio will continue to be a key strategic initiative going forward. Also key to our growth is continuing to attract talented sales associates, which help drive our independent case growth. In the second quarter, our sales force headcount increased nearly 7% as we added over 200 new sales associates compared to the same period last year. From a profit perspective, positive mix shift due to faster independent growth, along with a more profitable chain business, drove gross margin performance in the quarter. Our focus on operating metrics, including reducing shrink and workforce efficiency, reduced leverage to our gross profit performance, leading us to a 29.4% growth in adjusted EBITDA for the quarter. In our convenience segment, the underlying industry fundamentals remain challenged as anticipated. However, a combination of new account growth and market share gains resulted in a positive total volume in the period, outpacing the industry in key product categories. The declines in cigarette carton sales were a drag on topline performance. Both of these declines have had minimal impact on our bottom line results. Our convenience team continues to roll out new food service offerings for customers, which is becoming a key part of our growth story. In the fiscal second quarter, foodservice cases in convenience increased at a mid-single-digit pace with sales growing at a high single-digit clip. Importantly, this growth is coming from some of our largest accounts, including double-digit sales growth in three of the top five accounts we service. The number of turnkey convenience foodservice programs sold has grown steadily since the beginning of fiscal 2024. We are proud of the progress our Core Mark team has made and believe there is much more to come down the road. These efforts produced another double-digit performance for the convenience segment, with adjusted EBITDA of 28.5% in the second quarter on a purely organic basis. At our Investor Day in late May, we will cover the progress Core Mark has made since being acquired, which will highlight strong profit growth. Finally, Vistar made progress in the second quarter despite some difficult dynamics. Case growth from some of Vistar's largest channels, including office coffee services, theater, and corrections, produced low single-digit case increases for the segment. Vistar's largest channel, Vending, also saw case increases year-over-year. The legacy vending machine business declines continue to be offset by growth in micro markets, which we include in our vending channel reporting. We are optimistic about the micro market channel, which is not only a growth area for the industry, but allows for a wider product assortment and ultimately higher profit realization for Vistar. The theater business also had a strong quarter despite heightened competition in the market. We are pleased to see strong box office results with high-quality content and believe it is a positive sign for the long-term health of the channel. With that said, we do expect some near-term volatility due to competitive pressures and a lighter box office slate in the fiscal third quarter. This is all included in our projections. Taken together, all three segments contributed to a strong second quarter, and the outlook is bright. We are pleased with the stand-alone results of each segment and are even more excited with the power we generate when our businesses join forces to serve our broad spectrum of accounts. I will now turn the call over to Patrick, who will review our financial performance and outlook.

Thank you, Scott. I'm excited to share some of the financial details from our second quarter and first half of fiscal 2025. As George and Scott have detailed, our business is executing well, driving strong operational results. This translated into another quarter of robust financial performance. Both our sales and adjusted EBITDA came in above the upper end of our guidance ranges we laid out three months ago. Furthermore, we continue to use our cash flow and balance sheet to drive long-term shareholder value. Let's review some highlights from our fiscal second quarter. PFG's total net sales grew 9.4% in the quarter. Our result was aided by the addition of both Jose Santiago and Cheney Brothers. However, excluding the acquisition benefits, all three of our segments produced positive organic case growth in the quarter. In particular, total independent restaurant cases were up 19.8% in the period. Excluding the acquisition benefit, organic independent cases were up 5% for the quarter. We are pleased with our organic independent case growth result, which was an acceleration from the prior two quarters despite a very difficult December, which due to calendar differences. As George described, combining October and November, our organic independent case growth was more than 7%. Early in the fiscal third quarter, we saw faster underlying case growth in our independent restaurant business. We remain optimistic with respect to our growth. Though we would note that January was impacted by a number of factors, including an easy comparison due to tough weather last year somewhat offset by a choppy start to calendar 2025 due to unusual weather across various regions of the United States. Looking past the January noise, which is typically the smallest volume month of the year, we are optimistic for the balance of fiscal 2025. Total company cost inflation was about 4.6% for the second quarter, slightly lower than the 5% we reported in the first quarter. Foodservice cost inflation was 3.2% in the quarter, moving down sequentially and roughly in line with our expectation for long-term inflation rates. We would note elevated year-over-year inflationary prices in poultry, cheese, and beef, three of our largest categories in foodservice. Cost inflation for Vistar was roughly 2% in the quarter, while convenience experienced cost inflation of 6.7%. Keep in mind that convenience inflation is typically boosted by cigarette and other nicotine pricing, which is typically in the mid to high single-digit range. Sequential inflation produced a modest year-over-year image in the second quarter. So within the normal range of holding gain variances. Given our current projections, we are modeling very little year-over-year holding gain impact over the back half of the fiscal year. Total company gross profit increased 14.4% in the fiscal second quarter, representing a gross profit per case increase of 29 cents in the quarter as compared to the prior year's period. We've continued to see excellent cost control producing another quarter of double-digit profit performance from our foodservice and convenience segments. Both foodservice and convenience produced 29.4% and 28.5% adjusted EBITDA growth in the quarter, respectively. Vistar's adjusted EBITDA growth turned positive year-over-year as the segment continues to be impacted by lower foot traffic and customer-specific challenges in some channels. We continue to anticipate Vistar's results will improve in the back half of the fiscal year. In the second quarter of fiscal 2025, PFG reported net income of $42.4 million. Adjusted EBITDA increased 22.5% to $423 million, above the high end of the guidance we announced last quarter. Diluted earnings per share in the fiscal second quarter was $0.27, while adjusted diluted earnings per share was 98 cents, an 8.9% improvement year-over-year. Our effective tax rate was 25.2% in the fiscal second quarter. We anticipate a higher tax rate in the back half of the fiscal year closer to our historical range. Turning to our financial position and cash flow performance. In the first six months of fiscal 2025, PFG generated $379 million of operating cash flow, after adjusting for $204 million of capital expenditures, PFG delivered free cash flow of about $175 million. We have selectively invested in inventory of candy and tobacco through the first half of the year in anticipation of potential price increases in those categories. Still, the team did an excellent job managing working capital to drive the strong cash flow performance in the period. Our capital spending levels remained fairly steady over the first two quarters of the fiscal year, with a run rate of approximately $100 million per quarter in our legacy business. We expect to maintain a similar level of spending over the next several quarters to maintain our growth investments in facilities, fleet, and other technology. We will then layer in some additional capital expense to support growth projects at both Cheney Brothers and Jose Santiago. These capital projects are important to the long-term growth of our company and typically generate a high rate of return. During the fiscal second quarter, we drew down our ABL facility by approximately $2 billion to fund the Cheney Brothers acquisition, which closed in early October. As we discussed last quarter, this pushes our net leverage above the top end of our 2.5 times to 3.5 times target range. We feel very comfortable with our current leverage and the available liquidity of our ABL facility. Phil, as we highlighted in November, we expect to prioritize debt reduction in the short term to move our leverage back within our target range over the next several quarters. We believe this is the best use of capital at this time and will position us to look at additional M&A and share repurchases opportunistically in the future. In fact, our M&A pipeline is very robust. PFG has a history of successful acquisitions to drive growth, and we expect that to continue. At the same time, we will apply our typical high standards and robust due diligence to target high-quality acquisition opportunities. Opportunistic share repurchases also remain an important component of our capital allocation strategy. As we prioritize debt reduction and look out for value-creating M&A, we will likely repurchase fewer shares in the near term. However, all of our capital allocation decisions are based on marketplace conditions. We envision a return to higher levels of share buybacks in the future. Turning to our guidance for fiscal 2025. For the full fiscal year, we now expect net sales to be within a $63 billion to $64 billion range, which is a $500 million increase on both ends from the $62.5 to $63.5 billion range we discussed last quarter. Our net sales have been trending favorably, and we anticipate this to continue in the back half of the fiscal year. We also see upside to our profit forecast. We now anticipate full-year 2025 adjusted EBITDA to be in the range of $1.725 billion to $1.8 billion. An increase to the bottom end of our previously disclosed target. Our increased outlook to both sales and adjusted EBITDA is based on...

We will now open for questions. We will take our first question from Kelly Bania with BMO Capital. Please go ahead.

Good morning. Thanks for taking our questions. Just curious if you could comment a little bit more in-depth about which segments are contributing to the higher sales outlook. Is that kind of broad-based across the three segments of the M&A? And maybe you can fold into that just more specifics on the comments you made about signs of stabilization for the consumer and some signs in regard to food service.

Morning, Kelly. This is Scott. Yeah, on the second sales piece, obviously, really happy with how our trends look on independent growth. You know, we are up in AM headcount about 7%. We're up in new accounts about 5%. The other thing we feel really good about is our lines per order on our existing accounts continue to go up. So, you know, we feel like if the macro, you know, swings back a little bit, we're in a really good position. The other thing I said was optimistic in the food space was our chain accounts, our national chains were up as well, which is a little bit of a rebound from what we've seen in the past. On the convenience side, I would say, you know, we just continue to take share and outperform the macro in convenience, and we expect that to continue. We feel like really, in both of those, we have a solid pipe as we finish out the back half of the year.

I would say that we're going to see some continued challenges in Vistar the rest of this fiscal year. Although we're up against some easier comparisons, we see several of the channels that will show some good growth, but that will be kind of our laggard from a sales growth standpoint for the rest of this fiscal.

Okay. That makes sense. And there was a comment about cost of goods optimization and procure beneficiary efficiencies. Can you just elaborate on that? It doesn't seem like that has been a focus of the organization as much in the past. Maybe I am wrong, but can you just tell us about the work you're doing on cost of goods optimization and also which segments that should impact?

Kelly, this is Scott. Yes. I would say it has been something that has always been maybe something we haven't talked about as much. But always something's been in play. I would say that we worked a lot harder in collaborating across the segments over the past twelve to eighteen months, which has helped us gain some traction, both in driving sales growth but also in cost of goods optimization. So, definitely something we're focused on, we'll continue to focus on, and it's just part of our strategy around growing margins.

Alright. Thank you.

Thank you. We will take our next question from Edward Kelly with Wells Fargo. Please go ahead.

Hi. Morning, everybody. I wanted to start on the food service business and just your thoughts on sort of like underlying momentum of the business. You grew EBITDA obviously very well this quarter. I was curious if you could help us with underlying EBITDA growth of the business. I think if you take out the deals, kind of thinking like maybe mid-single digit, organic case growth was about 3%. Just curious if that's right and how you think about that. And then looking forward, to get the 6% organic growth for the year, you probably need to do 7 to 8 in the back half. Just any color on your confidence in that outlook?

Yeah. You're correct. It's going to, you know, 7 to 8% increase in the back half. At least our internal measurements, how we look at the marketplace and what information we get from outside of our company, it appears there was probably a 1% reduction in traffic. Which is probably about where independent was. So if that got just back to normal, we would be running in that 7 to 8% increase in cases. We do expect that to get better. Have not seen that yet. We thought we would have easier comparisons in January, and our January growth looks pretty similar to Q2, and we thought it would be better. But we had bad weather in both years. So just the fact that this year, we were able to do a little better job of overcoming that bad weather, I think bodes well for us also. But I would say for us to get to that 6% for the year, we're probably going to need some help from the industry and, you know, see a little better macro backdrop than what we see today. But we just see signs that that's coming. Also, the other thing that gives us a lot of confidence is that we're growing our SKUs or our line items at a much faster rate than we're growing our cases. So we're penetrating better within the accounts. They're just not buying as much of the product as they were a year ago. So that gives us some confidence too, should the industry get a little bit more vibrant. And then, I would call our EBITDA, we were very close to double digit, but not quite without Jose Santiago and without Cheney.

By the way, as mentioned by Patrick, those two are performing well. And I would say that Cheney is really performing exceptional.

Great. Thanks. And then just a quick follow-up. I wanted to ask you about inventory holding gains. Just curious if you could provide any color on the second quarter and year-over-year change there. Was that a material benefit at all? And then, in terms of the guidance, you said that I think this is what you said, that there's not, you're not anticipating in candy and tobacco inventory, you know, material holding in the back half. But then I think after you said you invested had a price increases. So is that an opportunity, I guess, versus guidance if those price increases happen?

Yeah. Thanks, Ed. This is Patrick. I will address those questions. So in the second quarter, we did see some benefit of inventory holding gains as we mentioned. But I want to stress, all of these gains are manageable. There's nothing extravagant about them. We did invest in inventory, but for the back half of the year, we do not expect substantial holding gains. And for the full year, Q3 and Q4, we expect the total holding gains to be very minimal. So it's really immaterial and relatively manageable.

Alright. Thanks, guys.

Thank you. We'll take our next question from John Heinbockel with Guggenheim. Please go ahead.

A couple of things on the independent case growth. Right? So the penetration in lines is that more center store not center of the plate, right? The non-fresh? Or are you sort of eating into specialty competitor market share? I'm curious because that seemed like a big opportunity. Then when you think about, let's say, if you pick up another two or three hundred basis points in case growth, you think that's more new accounts, lines, or actually cases per line? Where do you think that comes from? Where are you most optimistic?

Part of the upside for us would be if they start buying more cases, the market has to get a little stronger. I think we'll continue to do well from a line standpoint. We'll continue to do well with new accounts. I'm also going to have Scott make a couple of comments there.

No. I agree, George. I think, you know, I look at the new accounts as right now being primarily the driver of our growth. You know, I think we've done really, really well with same-store penetration. And as we see the macro pick up, we feel like that's positioned us extremely well.

Then maybe for you, Scott, since you know the convenience store business so well. I'm curious, you look out over the next, I don't know, three to five years, maybe talk to the opportunity to win a lot of these RFPs. It would just seem like your product lineup lines up really well with what most C stores want. So I would think there's an opportunity to meaningfully move the dial on top line as those RFPs come up.

No. I think you make some great points, John. And we worked really hard to combine our strength in foodservice and convenience to create an offer that's really compelling to our national chain customers, but also to the independents as well. So your point on top line drivers, most of our contracts are three years, some of them are five years. We feel like we have a really strong pipeline. We worked really hard jointly across our segments to create a compelling offer, and we feel like we're going to win our fair share as those come available.

I just also mentioned that, you know, we're doing well within Core Mark in the foodservice business, but we're actually growing even faster in Performance Foodservice where that operator is using a broader assortment of items than we can handle on Performance Foodservice trucks and show up in our Performance Foodservice sales.

Thank you, guys.

Thank you. We'll take our next question from Mark Carden with UBS. Please go ahead.

Great. Good morning. Thanks so much for taking the questions. So to start, how are you thinking about the inflation outlook at this point over the next few quarters in foodservice? We've seen egg prices really tick off recently, for example. And then how do you think about the potential impact if tariffs ultimately go into effect on Mexico or Canada?

Yeah. Mark, this is Patrick. On inflation, we're really thinking what we saw in Q2 is what we're expecting to experience by segment going forward and for the latter half of the year. So again, just very similar for foodservice to be in those low to mid single digits. Vistar in the low single digits and convenience more on those mid single digits. Naturally, what we're projecting for the back half of the year, and that's for us, that's a really good place to be. We can manage this inflation, and we think it's good for the industry. Now on the question of tariffs, there's a lot of discussion obviously going on around this. We certainly can't predict what's going to happen, which countries, which products, those type of things. But I think if you take a step back and think about this just holistically, we kind of view tariffs similar to inflation. It's going to potentially increase the cost of goods, but we're largely a pass-through organization. So it's a little bit of a simplistic view, but right now, that's how we're viewing it because we don't have any details on it. So just like inflation, we'll manage it, and that's pretty much how we're going to handle it.

Great. That's helpful. And then you guys talked about acceleration in vending case volume in January. Understand it's a small month, but are you able to quantify at least for January the impact of the winter storms? And then just how did Cheney hold up given its southeastern footprint?

Yeah. January is not a very important month in the year. Certainly, the least important as far as how it impacts sales results. So I think for us, it's going to be more about February and March as far as the third quarter goes. Now Cheney was obviously impacted by the hurricanes but recovered very quickly. There's still some impact on the West Coast, primarily of Florida, where we have many restaurants that are still closed down. But all in all, their sales growth has been great, and they just seem to work their way through this. They're very experienced dealing with hurricanes and they did a great job.

Great. Thanks so much. Good luck, guys.

Thank you. We will take our next question from Alex Slagle with Jefferies. Please go ahead.

Alright. Thanks. Good morning. Had a follow-up. It's sort of along the lines of what Mark was getting to, and maybe the potential implications for the industry and PFG specifically related to maybe the potential immigration enforcement actions under the new administration. I mean, again, a lot of unknowns there, but just curious your initial views there.

Yeah. Hey, Alex. It's Patrick again. I think, you know, obviously very important, all of our employees are documented, and, you know, we can't really speak on what's going to go on with immigration as well. But, you know, we don't see it impact our company. But there...

And we're in a position right now where we've got kind of record low overtime and temp expense. Our workforce is in great shape. Safety performance is really strong. We feel like we've kind of created a work culture where people want to be. So we feel really good about being able to navigate in a tough environment.

Thanks for that. Also wanted to ask your views on new customer acquisitions, new restaurant formation and, I guess, the focus on new.

Yeah. There continues to be new restaurants. Obviously, coming around. I think the effect of COVID is pretty much gone. I think that most of those restaurants have gone from dark to, maybe not vibrant, but open. And there's been a considerable amount of closings of particularly casual dining chain restaurants. So I think those buildings are single-purpose as well and will eventually be occupied by restaurants. So I see continued increase in particularly independent restaurants, and there are some chains that are growing fast right now and are putting up units at a brisk pace. And, you know, we're selling some of those.

Thanks.

Thank you. We'll take our next question from Jacob Bartlett with Truist Securities. Please go ahead.

Hi. Thanks for the question. Congrats, Scott. So I wanted to ask a little bit more about Cheney last quarter. You raised guidance, like, a hundred million, which seems a little low when you prorate, like, the hundred and sixty million trailing twelve months, the same as you were last quarter?

Yeah. Jacob, this is Patrick. On the guidance, I mean, again, we felt really good about how we performed in the first half of the year. And as we mentioned, we took up, you know, the sales guidance by five hundred million, both on the top and bottom end. I would say that that was the area where we were maybe a little more conservative because we're looking at a lot of different factors, and we've seen things improve as we mentioned on the call with our earlier comments. And then on EBITDA, we brought up the bottom end by twenty-five million. So again, a beat-and-raise. It's a very clean beat-and-raise. And we were probably feeling we had the EBITDA numbers a little tighter, but, you know, we feel comfortable about the improvement in the guidance. And it's still a little early in the year in terms of we've got another six months or as you mentioned, there's been some choppiness to January. There's a few other things. So we feel good about our results, and we'll continue to adjust accordingly.

Yeah. I should add with Cheney that they're being very aggressive around hiring. And I think they're making some wise investments in people, particularly in salespeople. And we want that to continue. For that said, you know, obviously, we're going to be running higher expense ratios than they were running because of that. But that said, they're still performing very, very well on that EBITDA line. And we don't see anything that gives us any concern moving forward with Cheney.

Thanks. And then could you talk about any updates you have on the private label pertaining? I know it's pretty underpenetrated compared to, like, the PHS legacy business. I think you said fifteen percent last quarter. And that you're maybe looking into what products you want to keep and which PSG products you want to implement there.

Yeah. The number that we gave for our percentage of that was our organic number without the two acquisitions. I would suspect that for a while, both of those acquisitions are going to be a lower percentage. You know, there's good reason for that. Part of it is Cheney's go-to-market strategy that they've had, and we certainly want to do well with our brands there. But we also don't want to disrupt how they go to market. They also have some brands of their own, and we're in the process of determining which of those we're going to consider to be our brands and move forward with those. Then when you get to Jose Santiago, it's a different structure. In Puerto Rico, there's exclusivity that is part of its a law where you can have exclusivity on a national branded product. They're doing well with those items. And I envision us continuing to market ourselves in Puerto Rico the way Jose Santiago has always marketed themselves.

Thanks. Congrats on the quarter.

Thank you. And we will take our next question from Jeffrey Bernstein with Barclays. Please go ahead.

Great. Thank you very much. Two questions. The first one, just on the broader consumer outlook. I'm just keen to clarify your view. I think you mentioned October and November trends were encouraging, and you seem confident in improvement to come for the rest of the year. But I think you mentioned that you're maybe not seeing it yet. So I'm just wondering what has you confident whether there are some metrics that you view as leading indicators or otherwise? But the consumer doesn't improve as you're anticipating; know, your level of confidence in that guidance because it does seem like you mentioned needing a little help from the consumer. Then I had one follow-up.

Yeah. I'm going to look backward a little bit here before I answer the question going forward. If you look at October and November, you know, it was encouraging. But because where December had difficult comparisons, November had easy comparisons. Thanksgiving changed from year to year, and that's a low month. So October is probably more effective number to use to project forward. But it's also a ways back. January, I think, is a real hard month to use because last year was heavily affected by weather and so was this year. But if we look at October's number, which we think is more reflective of the marketplace. And we put some improvement in there, which we're expecting from the market. I don't know that we have clear reasons that we can give for that. It's just something that we feel today. And that gives us encouragement for the second half of the year. The other thing with it too is we've got more people coming off non-competes. We've continued to hire aggressively in this marketplace. And then on the national account area, we got some business going out. But we have much more coming in in the rest of this fiscal year. So you just put those things together. We feel good with it. Then when we look at the convenience part of the business, that's a challenged segment today. We continue to do well. We've added several new accounts. We have some coming on board. And some that are sizable. So we feel good about the growth there. Now in that business, a couple percentage points in growth when you consider what's happening in the tobacco world, that's great growth. And we can leverage a couple of points in growth to good earnings growth. And we feel we're on a path to get to that couple points and we'll continue to look at this closely and adjust accordingly.

Understood. And then just following up on the M&A commentary, clearly, it's been a busy year or so. And, Scott, I think you mentioned the pipeline is very robust. But at the same time, I know you mentioned your leverage levels are elevated, and you're looking to pay that down. So wondering first if you could share what that leverage level is and does it temper the appetite for further M&A in the near term, especially with the big West Coast opportunity. Just trying to gauge how you think about that if an opportunity were to present itself. Thank you.

Yeah, Jeffrey. It's Patrick. Leverage, as we mentioned, our goal is to be between two and a half and three and a half times, and we're outside that range. And we expect to be back within that range within the next several quarters. In terms of additional M&A, George can comment on this as well. We did comment that it's active, but for right now, our focus is on reducing that leverage.

Yeah. And we talk about this because we have many opportunities today. We would certainly like to have lower leverage. I think it makes M&A more appealing to us when our leverage is lower. I don't think that as an organization, you should ever pass up an opportunity like Jose Santiago and an opportunity like Cheney don't come along very often. At the same time, we want to keep our pipeline growing. We want to handle our debt responsibly. We're trying to balance those things. I think that you'll see continued M&A from us, but we'll be cautious about how we're handling our capital structure. I should add that we've now been a public company for ten years, but we've dealt with higher levels of leverage than we have today, and we've dealt with that effectively. Now, I'm not sending a signal that we're going to get our leverage higher, but I just want to make sure that people understand that this is not a high leverage for the type of business that we're in and the type of company that we are.

Can you clarify just what that leverage level is today versus the two and a half to three and a half?

Yeah. It's in the high threes.

Gotcha. Thank you very much.

Hello. Hello? Good morning.

Hello.

Yeah. I didn't hear the introduction.

Thank you. We need you too. Go ahead. Thanks.

So I wanted to do a couple of follow-ups, if you will, on the increased, it seems, pace of hiring of salespeople. Is that kind of opportunistic? Or is it more intentional, like, you know, putting the Reinhart playbook into Cheney Brothers? How should we think about why you increased the sales personnel?

Right. Hi, Andrew. This is Scott. I'll take that. Let me start by saying I just came back a couple of weeks ago from our VP of sales meeting that we have nationally every year. The focus of that meeting was fine-tuning our hiring process, our training process, and I walked away from that. You know, highly encouraged with what we have on the street as far as the availability of hiring great AMs and bringing those people to the company. Historically, we've always been in that mid to high single-digit hiring target range, and we're right now about 7%. If you look at, you know, we feel good about that. And, really, that's what's fueling our growth right now. Same-store comps are basically flat. Our AM headcount's up 7%, but our new stores are up 5%. That's really what's driving our case growth. So we'll continue to be opportunistic and look to hire great AMs on the street and get them trained up and continue to drive case growth.

I'll also say that we try hard to have consistent growth in the number of salespeople and have a consistent cadence there. We didn't get those. So we have companies that I would say today if I were managing it, I would be tapping the brakes a little bit on the number of salespeople. And, you know, they need to dig into who they have. And then we have people that are behind and should have more salespeople. So we nudge and talk to them, and we try to have a good cadence. But these decisions are made in the field, and we don't have any desire to change that. Yes. We can train better. So when you're trying to get some commonality there, doing it across a big organization around what we do. Some of our people operate where they bring in four, five larger companies, maybe as many as eight, at one time to make it more collaborative type of training. And you get to our legacy Roma companies and know; they're probably seldom going to hire more than one person at a time. So there aren't any ground rules, I guess, with this.

Right. Thank you. Do you have a sense of whether that's the sort of the proportion of folks coming from the industry versus, you know, folks you gotta really train up? Is that shifted at all?

Yeah. Right now, it's almost entirely people that are from the industry.

Okay. Thanks. Just one more follow-up, sounds like a nice uptick in foodservice sales into the convenience channel. I just want to underline that because I know you've had fits and starts. Is that driven by salespeople and just more effective selling, or do you have, like, newer, better foodservice programs that are gaining traction?

Yeah. Andrew, we have two pathways into convenience. One of those is through our convenience channel. I think the biggest advantage that came with the acquisition of Core Mark is PFG's ability to bring turnkey boot solutions and food supply to convenience. And so our convenience channel, that's our fastest-growing category in convenience, and they continue to do a good job, but I think we're still in the early innings there. And then, the second pathway in the convenience is through our traditional broadline, and that's growing significantly. Again, that's just that capability of having turnkey solutions, having a broad array of products, and really making it a focus. And so we're kind of hitting them from both sides and having nice success. And I still think it's early on.

That's good. So it's, and I'm sure the vendors and everybody's focused in that direction. So it just sounds like it's a lot of incremental movement.

Yep. No. There's been a lot of focus on it.

Great. Thank you.

Thank you. We'll take our next question from Brian Harbour with Morgan Stanley. Please go ahead.

Yeah. Thanks. Good morning, guys. Just maybe as a cleanup question, I think people aren't necessarily calibrated right on, like, interest expense and maybe just on depreciation, amortization. Do you think the prior quarter rate is good? Do you have sort of a range that you'd expect near term for interest expense?

Yeah. Hey, Brian. It's Patrick. It's a great question, and I know this has come up a couple of times. Obviously, as we mentioned, we closed the acquisition on Cheney Brothers on October 8th after the end of our first quarter. That's when we drew down the ABL $2 billion. That's what's really driving the change in interest expense, and I would say the Q2 numbers are definitely a good baseline to use going forward for both interest expense and depreciation.

Okay. Sounds good. When I look at sort of inorganic versus organic independent case growth also. Is that kind of the gap we should expect going forward? Or is there anything unusual about sort of the contribution that those two drove in the second quarter? Could you just sort of comment on that?

Yeah. There may be a little bit more of a spread in Q3 with both Jose Santiago and Cheney. February and March are big months for them. And then the spread will probably narrow again in Q4. And, of course, as we get into next fiscal year, we would have lapped the Jose Santiago right at the beginning of the fiscal year, and we will still have another fourteen weeks of Cheney's impact in Q1. It will really narrow quite a bit. That's not the time of year for Cheney.

Okay. Thanks.

Thank you. We'll take our next question from Jake Bartlett with Truist Securities. Please go ahead.

Great. Thanks for taking the question. Mine was just on the 2025 guidance, and sales were increased by more than the beat from the midpoint in the second quarter, but EBITDA was raised by the same amount. So essentially, you beat included that beat, but really didn't raise the back half of the year on EBITDA. So I'm just trying to understand what drove that. Is there are some incremental factors, maybe some less profit to flow through that we should expect, you know, for some reason in the back half.

Yeah, Jake. Thanks for the question. When we look at what we raised on the top line, we're confident in how the segments are performing in their sales performance. That gives us a lot of confidence to raise it by $500 million, both on top and bottom. When you look at the $25 million increase to the bottom on the EBITDA, again, we felt more confident in our EBITDA numbers. Again, we saw the opportunity, but at the same time, there are some macro things out there that always leave us to make sure we're more prudent and then also we saw a little choppiness in January. So again, lots of confidence in our numbers. We'll continue to look at this closely and, at the end of the next quarter, if we'll hopefully come up with some updated guidance for you.

Got it. And then when you said a question as well on just the drivers of the top line increasing guidance. And I guess, versus your prior expectations, is your product cost inflation expectations, has that gone up? It seems like it probably likely did. So I'm just wondering to what extent the increase top line guidance is really product cost inflation being higher than expected or whether it's kind of underlying case growth.

No. It's really the latter. It's really the underlying case growth. Each of the segments performed well. We saw a strong performance in foodservice that we've talked about quite a bit, and obviously, Chaney and Jose continue to perform. But it was really, and then as Scott alluded to, we have a strong pipeline both in foodservice with national accounts and convenience. So all these things are giving us, not only have we seen great results year to date but also giving us confidence in the balance of the year.

Alright. And then just building on the question it was asked before, but you give us a sense as to what percentage of sales and EBITDA for

Yeah. I'm sorry. We don't have that number at our fingertips. It's probably something we should have calculated.

Yeah. What I can tell you, Jake, it's their largest quarter is Q3. Where typically, historically, it would have been one of our smallest quarters for performance.

Got it. Thanks a lot. I appreciate it.

Thank you. And we will take our next question from Peter Saleh with BTIG. Please go ahead.

Hey. Great. Most of my questions were asked and answered, but I didn't want to ask on the chain business. I think you've seen some improvement there. Can you just elaborate on what you're seeing in chains and maybe what's changed recently?

Yeah. So, Peter, this is Scott. So, definitely, we have a couple of things going on with chains. One is we have three or four chains that are performing well. Seeing double-digit growth out of them and really helping to drive our national account business. I'd say the other thing is, we've had a little bit of a shift where we've had some national account business that wasn't great performing that we've traded out for national account business that is much better performing. So a little shift in our mix of customers across the national portfolio. I feel good about how that's progressing. You said you got a second one?

Yeah. And then just a follow-up. I know you commented a little bit on the seasonality of Cheney and Jose Santiago, but just curious, on the synergies that were laid out maybe several quarters ago, when should we expect to start to see some of those synergies come to fruition, particularly on the Cheney Brothers side?

Thanks. Yeah. And, Peter, it's Patrick. It's obviously early since we just recently purchased, Cheney Brothers, but I can tell you the integration efforts are in full swing, and they are doing an excellent job. Both teams are working well together. We did announce that we'd have $50 million of synergies at the end of the third year post-acquisition. So I would expect that the synergies will come later in this in the cadence. So we'll see some synergies in the first year, but we'll see more synergies in your end two and three. But that's all the detail we have for you right now.

You very much.

Thank you. And once again, as a reminder, that is star one for your questions. Alright. And we will take our final question from Carla Casella with JPMorgan. Please go ahead.

Hi. Just a couple of quick follow-ups. You talked about debt pay-down being the focus And it looks to me like there's over a couple billion drawn on the revolver. So is that what you're focusing on paying down, or would you be taking out twenty-seven bonds, which are now callable at par ahead of maturity?

Yeah. Carlos, it's a great question. Our initial focus will be right now to pay down the ABL, but we'll certainly look at the twenty-seven bonds as well. But we tend to use the ABL as our main focus.

Okay. Great. And then, I may have missed it, did you disclose how much Performance Brands products represent now of your foodservice business, and if it's kind of at a target level, there's still more opportunity there?

Well, the number we give is what our brands are as a percentage of our independent business, and that's the overwhelming percentage of our brands when you get outside of our independent restaurant business. Most all of our business are chain restaurants that typically don't use many of the distributor brands. We've made some progress there, but not what I would call meaningful. So we do very little business in health care and lodging or in contract feeding. That tend to use the distributor brand. So it runs right around 53%. I think it was 52.9% last quarter. We think that's a good number. We do see that being reduced as we add in Cheney Brothers and Jose Santiago. But once it recalibrates for that, we think we can march up from there. We do have several of our companies that are over 60% right now. So we do see that there's room for improvement. And if you get into our legacy Roma company, many of those are over 60%.

Okay. Great. And that's all 60% to 52.9% of the independent business?

That's correct.

Okay. Great. Super helpful. Thank you.

There are no further questions at this time. I'll turn the call back to Bill for any closing remarks.

Thank you for joining our call today. If you have any follow-up questions, please reach out to investor relations.