PFGC Q1 FY2027 earnings call transcript, November 4, 2026

Good day, and welcome to PFG's Fiscal Year Q1-2027 Earnings Conference call. If you would like to ask a question at the conclusion of the prepared remarks, please press the star key followed by the number 1 on your telephone keypad at any time. I would now like to turn the call over to Bill Marshall, Senior Vice President.

of Investor Relations for PFG. Please go ahead, sir. Thank you and good morning. We're here with Scott McPherson, PFG CEO, and Patrick Hatcher, PFG CFO. We issued a press release this morning regarding our 2027 fiscal first 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 2026. Any reference to 2026, 2027, or specific quarter. Refers to our fiscal calendar unless otherwise stated. The results discussed on this call will include gap and non-gap results adjusted for certain items. The reconciliation of these non-gap measures to the corresponding gap measures can be found at the back of the earnings release. Our remarks on this call and in the earnings release contain forward-looking statements and projections of future results. Please review the cautionary forward-looking statement section in today's earnings release and our SEC filings for various factors that could cause our actual results to differ. Curially from our forward-looking statements and projections. With that, I'd now like to turn the call over to Scott.

Thanks, Bill. Good morning, everyone, and thank you for joining our call today. We began fiscal 2027 with a strong first quarter, highlighted by consistent top-line growth and continued margin expansion, despite the challenging economic environment. These results reflect the strength of our organization, our consistent execution, and the dedication of our organization. of our more than 44,000 associates. This morning, I will touch on the backdrop in the food away from home market, cover strategic highlights for our business segments, and turn it over to Patrick to walk through the financials for the quarter and our

outlook for the remainder of the fiscal year. Today's consumer environment remains challenging, but stable. Restaurant traffic continues to run down approximately 2%, according to Black Box, as consumers remain value conscious and collected with discretionary spending. At the same time, gasoline prices rose throughout the quarter, averaging more than $4 a gallon, adding further pressure on household budgets. Despite the software industry backdrop, we continue... ...see opportunities to gain share and outpace industry growth trends. Our organizational focus to win new accounts, increase business with existing accounts, and find new avenues for revenue and margin growth continues to pay dividends. In the quarter, the... ...organization produced 5.5% revenue growth with contributions from all three segments. Additionally, we saw gross margins improved by 33 basis points supported by our procurement initiatives, brand penetration, and inventory. ...management. I'm proud of our sales and purchasing organizations. Their strong relationships with our customers and vendors, effective use of technology, leverage of exclusive brands, and commitment to service continue to differentiate PFG and drive profitable growth. Much like our intense focus on growth, the organization's operational leverage remains key to our success. Central to these efforts are our technology investments, focused on three areas that we believe can drive meaningful productivity gains and greater operational leverage over...

The first is operational technology. We continue to expand our use of AI-enabled routing to improve fleet utilization and route efficiency while deploying AI-powered inventory drones and camera... ...technology to improve inventory management and further strengthen our safety culture. Combined with goods-to-person automation and more advanced slotting capabilities, these technologies are helping us build a more efficient and scalable operating model. The second pillar is data. We are working with an external... ...AI partner to create a common thread across our item, customer, and vendor data. This foundational work is important because it will allow us to better identify and capture opportunities across procurement, inbound logistics, and ultimately synergies across our... ...segments. Finally, we continue to see rapid growth in the organic adoption of AI across our workforce. Our associates are increasingly using AI to simplify transactional and administrative work, improve access to information, and increase productivity. We are early in this journey, but we believe the combination of operational technology, a stronger data foundation, and broader AI adoption can become an increasingly important driver of productivity and margin improvement over time. We witness some of these benefits in the quarter and expect the continued progress to be a driver in the 50 to 60 basis points of margin improvement outlined in our three-year plan.

Let's move to some specific highlights from our three operating segments, starting with our food service. business. Our independent case growth remained strong in the first quarter, posting 7.8% total growth, bolstered by a 5.5% increase on an organic basis. On a two-year stack, organic independent cases have increased over 12% for the second consecutive. This growth is coming from a combination of new account wins and increased sales to existing accounts. New account growth continues to hover near 5%, representing a dominant factor in our share gains and case volume. Increases. With that said, we are very pleased to see a third consecutive quarter of positive penetration into existing accounts, driven by an increase in lines per drop. This reflects increased wallet share with existing accounts, helping to offset lower foot traffic trends. for the industry. Our continued success in gaining share with independent restaurants is led by our outstanding sales force, which we continue to expand by mid single digits again in the first quarter. Our ability to consistently attract growth minded sales leaders, arm them and our customers with AI enabled sales tools, PFG brands, and great service is central to our ability to consistently win share. During the quarter PFG brands were nearly 50. 1% of our cases sold to independent restaurants. As a frame of reference, when we acquired Cheney Brothers, our PFG brands were less than 50% of the cases sold to independent restaurants. As our team has done an excellent job expanding and selling that piece of our business. I want to take a minute to

dive a little deeper into our sales and customer facing technology called customer first. This technology has continued to grow in its capabilities, quickly becoming a critical tool for both our customers and our sales force. With AI enabled search feed features customer first is the ability to translate menus and recipes and seamlessly facilitates two way communication with our customers. The success of the customer first tool is captured in the results. We have seen significant growth outperformance for our customers sharing both a digital and direct ordering relationship with their account managers and quick adoption of new functionality added to the platform with more to come. Shifting to our chain restaurant business, we continue to outperform the industry with organic case volume just slightly negative in the period. We would expect a similar result in the second quarter, followed by an acceleration through the third and fourth quarters as we began onboarding Jersey Mike's in February. We are excited to bring Jersey Mike's into the PFG family. As a reminder, we are batting three of the four geographic regions of Jersey Mike's and it comes with margins in line with our overall chain business. Taken together, our food service segment delivered a solid start to fiscal 2027 with mid single digit revenue growth and double digit segment adjusted diva dog. Turning to our convenience business, we continue to see the benefit of new account wins that rolled on early last year. As we hit the end of the quarter, we began lapping the addition of loves and we'll start lapping racetrack in mid December.

Our convenience business has benefited from the total PFG platform, which is the only US convenience distributor that brings broad line food service capabilities to the traditional convenience distribution long. We believe this combination has been instrumental in our new account wins. And a driver of our revenue and profit growth since PFG acquired Cormark. An excellent example of our success has been the investment behind branded programs tailored to the convenience space. These programs span a variety of product offerings and including pizza, chicken, Asian, and barbecue. During the first quarter, case volume associated with our branded programs increased 11% producing nearly 15% sales growth on those programs in the period. We plan to. expand these programs and drive sales to both existing and new accounts. Our research has shown that convenience stores with a food service offering have outperformed the broader industry, making these programs appealing to a range of convenience customers. Overall, the convenience. segment posted another solid top line quarter with 5.4% sales growth through a combination of 4.1% case growth and low single digit price mix contribution. This growth came despite a sluggish factor. for total industry in-store sales, as higher fuel prices have had an impact on both foot traffic and in-store purchase behavior. Foremark's ability to pick up market share and expand the food service programs I just discussed.

provided consistent growth despite the industry challenges. In the prior year period, Foremark benefited from candy inventory holding gains and promotional activity in the alternative nicotine space that did not reoccur in the current period. As a result, segment EBITDA growth was below recent trends, though that should recover as these items normalize. Looking ahead to the back half of the fiscal year, once we have fully lapped the large customer wins, we would expect convenient segment revenues to resume the historical run rate of low single digit growth with segment adjusted EBITDA increasing at a high single digit to low double digit pace. We are very optimistic about the outlook for our convenience segment, despite the industry challenges I mentioned earlier. I'll finish up. with our specialty segment. Top line momentum for specialty remains strong with double digit revenue growth for the first quarter. We've seen particular strength in our sales to vending and office coffee, including micro markets and micro kitchens, which continue to be a strong avenue of growth for specialty. We also saw a nice rebound in the movie theater space, which together with our concessions and hospitality business, make up the entertainment channel. We expect the entertainment channel to remain robust in the upcoming quarter due to a strong move hitting theaters later in the quarter. Grocery retail, a channel that we have expanded in recent quarters, also posted solid double digit sales growth in the period. Grocery retail is expected to continue with solid revenue.

growth through the fiscal year. While specialty was our fastest growing segment on the top line, non-reoccurring candy inventory holding gains, competitive pressure, and higher fuel prices are weighing on margins. Fuel has an outsized impact on specialties expense lines. due to heavy use of third-party carriers, particularly in the small parcel channel. We expect specialty to continue to see margin pressure in the second quarter with strong profit results in the back half of the fiscal year as we begin to lap higher fuel expenses starting in March. To summarize, we started fiscal 2027 with strong top line performance in a choppy external market and made solid progress in margin expansion. I'll now turn it over to Patrick who will review our financial performance, include some details around our productivity and efficiency efforts.

and guidance. Patrick? Thank you, Scott, and good morning. We have a number of exciting initiatives underway at PFG, which are driving top line outperformance in the market and expanding our margin profile and product. I'll start with some details on a few projects that are helping our profit performance before reviewing our results and discussing our financial guidance for 2027. As we announced at our investor day in May of 2025, we have undertaken a comprehensive review of our procurement activities. with the goal of benefiting from our purchasing scale and enhancing our vendor relationships. Fiscal 2026 was a foundational year in these efforts, and through data analysis focused on our food service businesses, we were able to begin discussing discussions with our vendors to negotiate around our purchasing programs. During the first quarter of fiscal 2027, we saw the savings from these efforts steadily increase month to month. We expect these savings to be spread evenly through fiscal 2027 and 2028. At the end of fiscal 2028, we are confident the savings levels will be at the upper end of the range we provided at investor day or about 125 million. We expect a combination of our typical positive gross. margin mix shift in our underlying business plus these procurement savings will generate consistent gross margin improvement over the next two years and beyond. In addition to our gross margin focus, we continue to invest in

technology to accelerate our operating margin efficiency. As Scott mentioned, this includes routing efficiency software to improve our transportation costs and technology in our warehouses to minimize shrink, reduce obsolescence, and automate service. We have also added technology in our trucks and warehouses to improve safety. Last quarter, we called out improvement in our safety metrics, which saw a reduction in accidents and injuries. Benefits from these gains continued in the first quarter and were reflected in our lower insurance accruals. These are just a few examples of the many work streams we have underway and we are excited for what the future holds. With that, let's review some financial highlights from the quarter. before turning to our outlook. PFG's total net sales grew 5.5% in the first quarter with growth in all three operating segments. Total company cases increased 4.2% during the quarter, highlighted by the 5.5% organic independent restaurant case growth. Total company cost inflation was approximately 3.4% for the quarter, a modest deceleration from the fourth quarter. which was in line with our expectations. food service inflation was 0.5% in the quarter as the deceleration that we highlighted on our last earnings call persisted through the quarter. lower level of food service inflation were the result of continued deflation in chicken and dairy and lower levels of inflation in beef. Through June, beef inflation had been running at a double-digit pace. This decelerated through the three months of the first quarter.

We now expect food service inflation to trend at the bottom end of a low single-digit range for the full fiscal year. While this is lower than we had previously anticipated, we view this as manageable and what we contemplate. ...in our guidance. Specialty segment cost inflation was up 4.9% year-over-year and just slightly lower than the prior quarter. Convenience cost inflation was 6.5% year-over-year. Similar to specialty, this was slightly lower than... ...in the prior quarter. The inflationary environment has been dynamic over the past several years. We remain confident in our ability to handle a range of outcomes. We expect the overall inflation rate to remain in the low to mid-single-digit range. for fiscal 2027. Moving down to P&L, total company gross profit increased 8.5% in the first quarter, representing a gross profit per case increase of $0.30 as compared to the prior year period. This improvement was driven by positive makeshift, execution of our procurement initiatives outlined earlier in this call, and a continued growth of our performance brands. We remain very pleased with the gross profit results, which we believe demonstrate our ability to execute our priorities outlined in our three-year plan. Our operating expense rose in the quarter due to several factors, including elevated diesel prices, which have remained well above levels from last year. As we discussed last quarter, our

team has evaluated several ways to mitigate higher fuel costs. The primary mechanism is our surcharge program. This remains an effective way to mitigate the impact of fuel expense increases. As we announced last quarter, in addition- to costless callers, we entered into a fuel swap covering approximately 15% of our estimated fuel use for fiscal 2027. During the quarter, we elected to apply hedge accounting to both our fuel Thank you, folks. the result was a partial offset on the operating income line of the higher fuel expense. This benefit helped offset some of the higher diesel prices experienced throughout the quarter. As a result, for the first quarter, after netting I'll see you next time. Without the benefits of surcharges and or hedges, the net impact from higher diesel expense was approximately $16 million in line with the estimate we provided last quarter. We continue to watch the fuel volatility closely. But continue to feel confident that the actions we have taken will allow us to navigate through the uncertainty or remain on track to achieve our 2027 guidance, building upon our strong profit results in the first quarter. In the first quarter of 2027, PFG reported net income of $129.5 million, a 38.4% increase year-over-year. Adjusted EBITDA increased 10% to $528 million, and a 38.4% increase year-over-year. which was at the upper end of the guidance range we provided in August.

diluted earnings per share in the first fiscal quarter was $0.82, while adjusted diluted earnings per share was $1.32, an increase of $11.9. year-over-year. Our effective tax rate was 25.2% in the first quarter, an increase from 23% in the first quarter of last year. We now expect our full year 2027 tax rate to be close to our historical rate of approximately 27%. Turning to our financial position, the cash flow performance. During the first quarter, PFG used $89.3 million of operating cash flow, an improvement from the first quarter of 2026, which used a hundred 45.2 million dollars of operating cash flow. We invested $53.9 million in capital expenditures during the quarter. We have been diligent around new capital projects and continue to expect full year 2027 capex to remain below our long-term target of 70 basis points of net revenue. As we highlighted last quarter, it is typical for the first quarter of our fiscal year to be a use of cash flow as we build inventory early in the year. We anticipate another year of strong operating free cash flow over the course of the full fiscal year. We close the quarter with net debt at the top end of our two and a half to three and a half times leveraged target range. And we expect this to move lower within the range through fiscal 2027 as we prioritize debt reduction and see positive cash flow. The M&A pipeline remains robust and we continue to evaluate strategic M&A. We will continue to

apply our typical high standards and robust due diligence to evaluate high quality acquisition opportunities. Turning to our guidance. For the second quarter of 2027, we expect net sales to be in a range of seven. 17 to $17.2 billion and adjusted EBITDA to be in a range of 490 to $510 million. We continue to expect our quarterly EBITDA growth to accelerate as we move through the fiscal year. We are reiterating our expectations for the full fiscal year. Our sales target for 2027 is a range of $72.5 billion to $73 billion, and we continue to expect full-year adjusted EBITDA in the range of $2.5 billion to $2.5 billion.

Our full-year guidance range includes the benefit of a 53rd week, which will occur in the fiscal fourth quarter and help results by approximately 2%. The midpoint of these ranges represent year-over-year growth of 7.2% for sales and 12.7% for adjusted EBITDA. This keeps us on track to achieve the three-year projections we announced at Investor Day, with sales in a range of 73 to 75%. $25 billion and adjusted EBITDA between $2.3 and $2.5 billion in fiscal 2028. To summarize, we are very pleased with our progress. We are in a solid financial position, which supports our growth in the investment and capital return to our shareholders, and our execution in the first quarter sets the stage for a strong fiscal 2027. Thank you for your time today. We appreciate your interest in Performance Food Group. And with that, Scott and I would be happy to take your questions. Thank you. If you'd like to ask a question, press star 1 on your keypad. To leave the queue at any time, press star 2. Once again, that is star 1 to ask a question. In the interest of time, we ask that you please limit your questions to one question and one follow-up, and we'll pause for just a moment to allow everyone a chance to join the queue.

And we will take our first question. from Mark Carden with UBS. Please go ahead. Good morning. Thanks so much for taking the questions. So to start, I was wondering if you could walk through the cadence of your organic independent sales growth or case growth throughout the period, and then just within that. Matt, are you guys seeing any differences in performance by geography or between customers that might skew towards a higher income customer base versus those that have more of a lower income one? Just any differences you're seeing across the spectrum there. Thank you. Yeah, I appreciate the question, Mark. So just walking through the cadence of our independent case growth for the quarter. Really fairly consistent through the quarter. Just a little bit as we access it. Quarter, and we've seen that be fairly consistent as we work through the first handful of weeks of Q2. So I feel really good about, you know, how our sales organization is performing, you know, continue to drive that performance with that. The account wins and penetration, you know, taking a step back and looking at, you know, the consumer, you know, looking at the chain consumer, I would say, you know, to your point, the lower end consumer, the QSR space, we've seen more pressure in for sure. You know, the The casual dining space seems to be performing a little well, which points to a little more affluent consumer. And that's been, I'd say, fairly consistent with what we've seen, you know, over the last few quarters.

And as far as, you know, geographical, I would say for us, the West continues to perform exceptionally well, but we're obviously underdeveloped in the West. Outside of that, you know, I've called out the Midwest in the past. Midwest. Is, you know, I'd say a little more in line with what we've seen across the country and, you know, maybe the Southeast a little bit soft, but overall a little, little better balance in the quarter. Great. And then as a follow-up, what are you hearing from your convenience customers on any shifts in demand patterns, just with fuel prices remaining elevated? Are higher prices keeping customers from purchasing as much? Are you seeing a tailwind for more shots and goal? And then you alluded to your cross-sell. And differentiation, just any updates on what you're seeing on that front from a demand perspective? Yeah, that's a great question. So certainly fuel price, you know, when you get to this level of fuel price, it puts pressure on the consumer, not just in convenience, but, you know, across all the- food away from home space. You know, I think our convenience segment has done an incredible job, really focused on food service. You were talking about the cross-sell. You know, our food service continues to grow in that mid to high single digit, especially in places where we have- branded concepts. We called out in the script that those branded concepts are growing at double digit. And so that, you know, I think overall the segment's performing well. Certainly fuel price puts pressure on the in-store sales.

You've seen that in some of the other, you know, chains that report publicly. So, you know, the segment has done really well gaining share, you know, gaining penetration in the stores, but, you know, it's certainly a challenging macro. Thanks so much and good luck, guys. Thank you. Thank you. And we'll move next to Edward Kelly with Wells Fargo. Please go ahead. Hi. Good morning, guys. I wanted to ask you about Q2. Second quarter, it's kind of hard to tell because the business has moved around a bit over the last couple of years, but I think seasonally Q2 is usually a stronger quarter than Q1. Has that changed? And maybe Patrick, could you just sort of like unpack the Q2 guide a little bit more as it relates to that? And then you do have this step down in sales growth that sort of steps back up into the back half. So could you talk about that as well?

Yeah, thanks for the question. So as we look at exiting Q1, obviously we talked about in the script some of the really nice improvements or tailwinds. We saw really strong revenue growth across all three segments. The procurement initiative is working well. But there were some headwinds that we talked about. First and foremost is the fuel. And so as we look at Q2, those headwinds persist. So we're going to have fuel. We expect it to be very similar to the Q1 impact in Q2. And we also expect that we'll have, you know, Scott mentioned these inventory comps from last year for specialty and convenience will also be a bit of a headwind in Q2. And then finally, just the compression of inflation. For food service. So, you know, we look at a 4% sales, and I'll touch on that question here in a second, but then 10.8% EBITDA growth is actually an acceleration. Q1 and Q2 are fairly similar now. Just because of the mix of business has changed a little bit, but, and then finally, on your question on the sales growth in Q2, that dips down a little bit, mainly just, or almost primarily because of, we're copying over. The two customer wins from convenience, the loves, which we comped over at the end of Q1, and we'll comp over racetrack at the end of Q2. And then that back half step up again, is that, I guess that's Jersey Mike's. It's definitely Jersey Mike's, and then also just the great performance by the sales organization and confidence in our ability to continue to get new customers, both independent and chain across all three sectors.

And just a quick follow-up now. So on specialty, Scott, could you just maybe talk a little bit more about specialty and the outlook as you get into the back half of the year and sort of like returning to a normal algo in that business? And what that outlook looks like? Yeah, no, it's a great, great question. So as Patrick just mentioned, you know, from a top line standpoint, I think we're in our fourth consecutive quarter of sales momentum. Growth for specialty. And that's, you know, coming off of a year that, you know, sales was top line was really challenging. So really happy with the organization and their top line performance. They're up against a couple of headwinds that will persist in the first quarter and second quarter. And we talked about that. In Q4, one of those is the inventory holding gains, you know, significant candy inventory holding gain that impacted convenience and specialty. The other one is obviously fuel price. And they, you know, like everybody have fuel price headwind. They also, in their e-commerce platform, obviously are, you know, subject to, you know, third-party shipping as well. So that's kind of a double impact on fuel. And then lastly, you know, on a good note, we had a lot of renegotiation last year, and we renegotiated a significant portion of our customer base. And most of those are long-term, three- to five-year agreements. So, you know, super positive there. You know, the challenge is

in the short run, that puts a little bit of pressure on margin. So, you know, from a cadence standpoint, I would expect, you know, a similar performance in Q2. And then we see a really nice rebound in Q3 and Q4 for specialty as they lap. inventory headwinds. They lap some of the fuel headwinds as well. Thanks, guys. Thank you. And we'll move next to John Heinbuckle with Guggenheim. Please go ahead.

So, Scott, I wanted to start with the composition of local case growth. Of the 5% net new accounts, has there been much change in gross versus loss? And then I guess lines per account would be up, what, one and a half or two, and then you're losing traffic. Is that fair? And where do you think the biggest opportunity is? Here to move any of those needles in the next, you know, six months or so? Yeah, they're all good questions. So, you know, first, maybe just to take a step back and, you know, we came in at 5.5. For the quarter, so independent case growth, that stepped up a little bit over the course of the quarter. And most of that, as you said, was driven by net new accounts. So we came in just a tick below five on net new accounts. The balance was as you said, made up all of really lines per drop. So that's really share of wallet, penetration in the accounts. And I would really credit that to our sales organization and the technology that we put in front of them and our customers. I think this has really helped penetrate. You know, as I look forward, you know, certainly as you look back at last year, you know, we had quarters that were in the low fives and quarters as high as six and a half. You know, so we have a little easier comp. The back half of this quarter, and feel like we have great momentum with the sales organization. You know, we've been hiring at about at about 5% increase. This quarter was actually a little a little higher than that. So, you know,

single digit or slightly above in the quarter. So, you know, honestly, John, feel really good about the setup. It's a challenging macro, but we keep driving that new accounts and driving penetration and, you know, happy with the organization. Then the follow up would be where are we now with, because it's been two years, the integration, right? And realization of the Cheney opportunity, right? So I think a year ago, about now, some of the capacity investments began to hit. So where are we with that private brand penetration and then kind of ramping up of synergy, you know, between now and the end of the year? Yeah, great question. And really, as we've talked about, Cheney will be a build story throughout this year. They performed, you know, well in the quarter. And I would say in line with expectations and really good momentum. You know, as far as brands, I think, you know, when we talked about our new kind of brand benchmark at 50%. We were a little bit sub 50% a year ago when we are a little over a year ago when we bought Cheney. We're now up to 51 and a lot of growth is starting to come from Cheney. So we're starting to to have positive momentum in the brand's integration. And then I would say just overall procurement alignment. I would say alignment of our operations groups, you know, really starting to hit our stride there. And then really where you see, you know, great benefit, John, is the infrastructure that we got with Cheney is, you know, incredibly helpful as we roll on Jersey mics. And so being able to flow that volume into that infrastructure, you know, provide

a nice tailwind for us in the back half of the year. Thank you. Thank you. Thank you. And we'll move next to Kelly Bania with BMO Capital. Please go ahead.

Good morning. Thanks for taking our questions. Wanted to ask about just the AI tools across the workforce and any more details you can share on that. And specifically, do those tools change the way that you think about your pace of hiring and growing the Salesforce or, you know, better said, maybe what you're hearing from your local market leaders and how about hiring and continue to build that platform of growth. Now, appreciate the question, Kelly. And, you know, that, that tool over the last 12 months has, has gone through a great evolution and, you know, we spend, we have a sales council that really helps us design. That customer first tool. And it's been a big advantage for us. I think it's really helped penetration. I think it's also a great tool for our customers. At the end of the day, though, what we have found through a lot of research and a lot of analyzation of data is that combination of having a customer on that digital tool, on our sales tool, along with our rep being in that store, working on, you know, collaboratively with, with the restaurant owner. That's where we went, you know, converting them all over to a digital tool or maintaining a hundred percent relationship with the rep with no digital tool. That's, that's not the sweet spot. And so we, we feel like we've, we've kind. of hit our stride there. And, and I think that still supports our continued rate and hiring in the mid single digit range. So we feel like that's a good combination and that tool is going to continue to evolve and we'll see where that takes us. But right now I think we're in a good spot.

Thanks. And Scott, to follow up on that, you did mention kind of the third consecutive quarter of lines per drop. How much would you attribute to those tools? Any specific categories that you are winning there and, you know, who do you estimate you're kind of displacing from a competitive standpoint with those lines per drop?

It's a really good question, Kelly. And we dig into that quite a bit. Are the tools helping? Yes. And I would say that, you know, where we have proof of that is those tools are making recommendations to our sales reps, to our customers, to about things. They've forgotten things they might want to consider options for limited time, you know, offers, and we're getting conversion on a number of those items. So certainly it's helping the penetration, but, you know, still, I stand behind our sales organization. At the end of the day, it's their connection with the customer that really, you know, that really drives all of that. But it is certainly contributing for sure. Thank you. Thank you. We'll move next to Alex Slagle with Jefferies. Please go ahead.

Thanks. Wanted to dig in a little more on food service and high level. I mean, it was like record 1Q EBITDA margin. Profit growth is really strong, but really impressive. I guess it's on the sustainability of this and if there are any one time items.

Whether it's the lower inflation, things like that. It seems like it was like continued mix and procurement and working, but was there anything else in there?

Yeah, it's a really good question. I'll touch on just a couple of the high points and I'll let Patrick fill in the blanks. As you mentioned, really excited about you know, the ability to continue to grow top line and food service, continue to grow independent cases, our independent percentage of sales was up to 43%. That's the highest we've been so really nice. to see, you know, independent can continue to grow. So that certainly helps margins. The brands, brand sales continue to grow as well. Really nice contribution there and our vendor procurement initiative as well. It's still a building story. So overall, I'd say, you know, really good balance in how we're growing the margins. You know, anything you want to add, Patrick? Well, just that, yeah, we're really pleased with the performance in Q1. You know, again, it's everything Scott just mentioned. A lot of things. touched on, but really that expansion of gross profit margin is really related to the mix and the brands and the independent case growth and the vendor initiatives. So we expect that to continue. Throughout the balance of the year. Got it. And the food service inflation, I guess, early into fiscal 2Q, how's that looking? Is that still sort of the 0.5 level? If you saw in the quarter. Yeah, it's a great question. So we did see, you know, as we mentioned throughout the quarter, we saw that deceleration and really it's mostly a compression of beef.

Prices going lower, still inflationary, but lower in inflation. We actually saw a little bit of improvement in poultry in October. So it's still hovering in that low single digit range. Okay. Thanks. Thank you. And we'll move next to. Lauren Silberman with Deutsche Bank. Please go ahead. Thanks. And congrats on a nice quarter. Fiscal Q1 came, EBITDA came in at the high end of the guide despite the step up in fuel and step down in inflation. Are there any areas like where you saw upside to still hit the high end of the guide? And as we think Q2, I guess what gets you to low end versus high end? Yeah, thanks, Lauren. So, you know, again, really pleased with how Q1 came in. Obviously, certainly had some pressures during the quarters we've already discussed, like fuel. But, you know, and then really to be honest, you know, the hedges helped, but the hedges just helped offset the higher expense of fuel than what we were expecting. as we went into the quarter. So that really was kind of a net wash. But we do expect that to be the case for Q2 as well, is that we're anticipating fuel to stay at this higher level. So the hedges will help again. But we do expect fuel impact to Q2 to be very similar to Q1. And, you know, as we look at the Q2 guide and the low end and the high end, we really anchor to what is the current environment. And that's kind of what drives the midpoint of the guidance.

And that's how we've always looked at it. And then we come up with, you know, obviously various scenarios that would push us to the higher end or lower end. I mean, again, if we continue to see a very similar environment, that's what gets us to the guidance that we gave. If things start to. To improve, perhaps we could get to the upper end of the guidance. And again, it's impossible for us to know what's going to happen with fuel and obviously, you know, foot traffic as well. Okay. And then I want to follow up on the organic independent case growth. There's been some noise in the restaurant industry in October in particular. Some industry commentary that maybe the month started slow and picked up in the back half of the year. It sounds like maybe you haven't seen that in the quarter. We started slightly higher than Q1. I just want to confirm that's the case and that like compares ease. So perhaps we should. There could be a quarter of a quarter acceleration. Yeah, that's a good question. So we did see a slow first couple of weeks. It's gotten better in the last two or three. So when I look at kind of quarter to date versus last quarter, there's been a slight acceleration and the comps in the back half are slightly easier. So, yeah, we are running just slightly ahead of where we exited the quarter. Any thoughts as to what's going on in the industry? Perhaps it's just fuel costs, other.

Noise going on or anything else that you're seeing? Yeah, I think, you know, if you think about the consumer, you know, taking a step back a number of quarters, you know, you've consumers faced, you know, tariff impacts. You know, they've faced inflation. Now they're facing, you know, drastic fuel price inflation. The one thing I would say is that the consumer overall has been, you know, pretty durable. I mean, we've seen foot traffic be negative, but it's been, you know, pretty consistent. Over a number of quarters now, we've seen a little change in the chain space where there's been a little bit of a trend to move towards the higher end. So call it the casual dine versus the QSR space. The independent consumer, I'd say, just continue to be, I mean, the independent customers continue to be resilient. So I'd say, you know, it's, it's been fairly consistent, you know, certainly a challenging macro and a challenged consumer, but, you know, also a pretty resilient. Thank you very much. Thank you. Thank you. And we'll move next to Brian Harbor with Morgan Stanley. Please go ahead.

Yeah, thanks. Good morning, guys. I guess just when I think about, you know, obviously food inflation, deflation kind of gets passed through, but I know that, you know, a year ago there were some brief challenges when certain products moved very quickly. Did you have, you know, any issues with that in the most recent quarter? You felt like, you know, the pricings are pretty manageable at this point as you think about kind of passing that through to customers. Yeah, Brian, it's a great question. And so and as you point out, we have called that out in the past in the current environment. It's not that situation. Really, the deflation that we're seeing in poultry and cheese has been very consistently deflationary. As I mentioned, poultry just actually more recently has. Start to improve a little bit still deflationary, but less deflationary and beef has really been just ticking down where it was double digit inflationary and that's compressed. But yeah, again, this is something we highlighted back in August and. As we saw the quarter progressive progress, you know, relatively as we expected and we've embedded this into our guidance to be at this low single digit inflation and it's something that we view is very manageable. We manage a very long. Basket of goods. And so this is, I would say, you know, something that we can manage very well. Got it. That makes sense. What's, you know, you talked about kind of convenience, the convenience channel through the year.

You, you know, you think it kind of returns like low single digit top line growth as you lap the business wins. I mean, you know, what's your confidence in that, right? Do you, do you think, do you sort of have good visibility on the. The pipeline through the balance of, of the year, does that require, you know, macro stability? Does it require a little bit of improvement? Maybe just talk about the ongoing, both top and bottom line growth rates in that segment. Yeah, I think we have good line of sight to our pipeline. I mean, certainly we lap a couple of big customer wins. So, you know, being mid single digit growth is not in the cards without, you know, big pipeline wins like that. But we feel like we have a good pipeline. You know, we've got a good focus on the independent and kind of regional chain business in that segment and certainly see opportunity there. Continuing to grow food service is a big help for us as well as, you know, but continues to go on in the alternative nicotine space. So, you know, both of those things kind of help our growth, help our margins. So I feel, you know, I feel confident in both the top line and bottom line performance. You know, you can look back, you know, a number of years now and the convenience segment has outperformed the market, both on the top and bottom line. So that's what gives me a lot of confidence.

Thank you. And we'll move next to Andrew Charles with TD Cowan. Please go ahead.

Great. Thanks. You talked about procurement savings are going to be spread somewhat evenly between 27 and 28. You know, just trying to think of it from a sequential... perspective through the year on a quarterly basis. You know, what did you guys realize in the first quarter and what's implied in the second quarter just to be bidda? Yeah. Thank you, Andrew. So again, as we mentioned in the comments, you know, really 26 became a foundational year. But set us up really nicely for 27. We are going to see a nice progression of these savings Q1 through this year. And then we expect that the savings in 2027 will be very similar to the total savings. We'll see in 28. We're not really giving quarterly impacts, but just know that they're going to ramp up throughout 27.

Okay. And as we think about kind of balance the fiscal... You know, should the incremental EBITDA growth be driven more by continued gross margin expansion or by operating expense leverage? You know, I guess what I'm looking to learn is what needs to improve for SG&A growth to be more below gross profit growth on a sustained basis. Well, I would just highlight as we get into... Q3 and Q4, we're going to start comping over the fuel expense that started in March and then all through Q4. So we'll have some benefits there. So that will give us some year-over-year tailwind. We also will have some benefits. of comping over some of the cheney expenses that we experienced during those quarters last year. But largely, it will be some gross profit expansion related to mix, related to all the things that we always are focused on, independent case growth, performance. brands, food service, and convenience, and the procurement savings, as well as some of those easing comparisons as we go throughout the year. Great. Thank you. Thank you. Thank you. And we'll move. Next to Dani Lo Gargiulo with Bernstein. Please go ahead. Great. First of all, I'd like to understand or get more color on the inflation evolution and specifically to what extent was inflation in the past? A couple of years driven by the spike in this. And is it a risk that we're going to get into deflationary levels, say in 2027 calendar, as the big supply starts to kick in and perhaps the demand starts to normalize the big prices?

The risk that essentially the deflation on beef coupled with deflation on chicken and dairy could result into overall deflation for you? And if so, how would you manage that? Well, again, you know, what we can manage a very large basket of commodities. And as we've mentioned, cheese and poultry have been deflationary for quite a few quarters. The thing that was propping us up a little bit was that really high inflation in beef. But if we focus on these three commodities, but there's actually dozens and dozens of commodities that make up this basket. So beef has come down and that's compressed the overall inflation number to this low single digit. Slightly below low single, you know, 0.5 is what we reported. You know, if it continues to move down and we dip into slight deflationary, that is manageable. And as I mentioned, most recently we've seen poultry in. improve, still deflationary, but made a nice improvement. And, you know, so again, as long as the movements aren't steep up or down, we can manage this commodity of basket or this basket commodity, sorry.

Great, thank you. And then the follow up is a bit more strategic in nature. So the, you know, the pressure that we are seeing among independent food distributors seems to be quite elevated right now, right? You have the the diesel cost going up. At the same time, we've been talking about, you know, the track driver availability in the industry coming down. So, you know, there is an opportunity for, you know, you at scale to be potentially gaining more market share. So I was wondering if you are, you could be using price as a incremental lever, a little bit more aggressively to gain volume, to be affecting some of the lower inflation rate and maybe achieve some of these outside market share gains. to gain some capped customer base. And thank you. No, I completely understand the question. I think we're an organization that focuses on the value we bring to our customer. Price is certainly a component of that value, but I think that. If you talk to our salespeople, they lead with the fact that we have incredible brands and that we can bring unique value to them beyond price with the products we're able to sell them. The marketing that we do around our goods, their knowledge as sales reps to help a restaurateur navigate menu and pricing and limited time offers. Certainly, we are large enough to compete. But, you know, I think if everybody was trying to do that, you'd have a race to the bottom. And I think we've got rational competitors and we feel like we bring different value to the customer. And so that's the last place we go.

And I do think that we have. You know, our investment in the sales organization and the value we bring to customers, I think we have the ability to continue to grow share. And we've done that very consistently. Thank you. Thank you. Thank you. And we'll move next to Jacob Aitken-Phillips with Milius Research. Please go ahead.

Hey, good morning, everyone, and good quarter. I wanted to ask on the procurement execution. Just beyond the timing of the savings, how much of the remaining procurement opportunity comes from better terms on products you already buy versus changing purchasing behavior across the opcodes? And what is the biggest execution opportunity still ahead? Well, yeah, I don't want to get too much in the weeds, but it's actually, we view our strategic vendors as great partners and we work very closely with them. Our goal is to really talk to them about large scale and the opportunities that we continue to present to them as new opportunities to sell. So largely speaking, we tend to stay with the same suppliers, but in some cases there have been opportunities for us to switch suppliers. The other thing I'd add to that is the great thing about this initiative for us has been really just kind of a reframing of how we approach our vendors and how we think about that negotiation, not just on cost of goods, but how we look at the supply. chain, how we move freight. And I think it's a foundation that we can use, you know, in food service, we can use it in convenience and specialty as well. And it's something that will, you know, I think, you know, go far beyond kind of our two year, three year outlook. I think. This is a great foundational approach to, to how we negotiate and partner with vendors and then on the specialty contract, the customer agreements you recently renewed, what allows you to improve profitability over their three to five year lives or their volume.

that makes them more attractive. Yeah, it's really good question. I'm glad you asked because, you know, really with, with the ones that we have resigned and partnered with, they're all growing concepts, you know, and, and growing. customers for us. So really just, just adding that volume to existing deliveries and to our, to our infrastructure is really what allows us to start to drop, you know, profit to the bottom line. And, you know, that's why we, you know, we signed long-term. agreements with these folks. And then a lot of them have been long-term partners as well. So really, you know, I think the specialty group did a great job of, of just solidifying those partnerships and, and feel, you know, a lot of confidence over the term of those agreements that we'll. continue to, to, to get more profitable. Thank you. Thank you. And we will move next to Karen Holt, Halswood City. Please go ahead. Hi, thank you. for, um, taking the question. I wanted to go back to the operating expense line and yeah, the message I think I got last quarter was that you expected that that line would still see some pressure and second. Quarter and then start to see leverage in the back half of the year, knowing what, you know, now fuels, obviously a little bit more of a headwind. Is that, is that kind of still the anchor that one Q two Q inflection is that. So we should be anchoring or one H two H inflection. Is that what we still should be anchoring to?

Yeah, that's right. Karen. So exactly. Q1, we saw the $16 million headwind for fuel. We're expecting a very similar headwind in Q2 based on current price. And then as we get into the second half, we're still anticipating higher fuel, but we'll obviously, once we get to March, start comping over the higher fuel from last year. So that's where things ease a little. And then throughout Q4. And just a quick housekeeping. Can you give us what organic and total chain case growth was for the quarter?

Let's see here. Well, I know that chain case growth was just slightly negative. The quarter, which is, you know, I think for us a great result, considering that foot traffic trends, you know, continue to be now down a couple of percentage points and really, you know, organic and. In total, we're about the same, because we didn't really have any major market share wins that impacted the quarter. Okay, great. Thank you. Thank you. And once again. If you would like to ask a question, please press V star and one on your telephone keypad now. And we will take our next question from Peter Sala with BTIG. Please go ahead. Great. Thanks for taking the question. I apologize if this was asked, but on this.

Salesforce expansion. Can you just update us on where you are there? How that expanded this quarter and maybe more specifically, what are you seeing on hiring trends? Is it becoming more difficult to find the right people easier? Any detail on that front would be helpful. And then I have a follow up. Thanks. Absolutely. So, you know, I think now for three or four quarters, I've said that we've been hiring in the mid single digit range. This quarter was no different. To be a little more specific, we were slightly above, you know, the mid point. So, you know, slightly above 5% in the quarter. And, you know, so a little higher this quarter, but I would say availability has been fairly consistent. You know, I think we've got a reputation of being a great place to work. And a great place to build your career. And so we're finding available talent that's making great contributions. Thank you for that. And then on the, just curious if you could talk a little bit about what cuisines you're seeing. Seeing strengths and where you may be seeing weakness. Anything regionally as well would be helpful. Thanks. I would say cuisine wise for us, you know, we've certainly seen probably the most strength in. In our Latin and Hispanic, certainly also in our Asian, we've done really well in the convenience segment of food service. And a lot of that in, you know, and the other one I call it is bar and grill. The interesting thing in bar and grill.

convenience, a lot of the growth is coming from pizza in Italian. It's primarily pizza. So we're doing really well with pizza into some of those segments. Um, but those are, those are kind of the outliers that are performing well. And then I would say regionally, I mentioned earlier. Um, a little more balance in this quarter regionally, maybe a little softer in the Southeast, but you know, the Midwest has perked up a little bit and we continue to grow very well in the West. Thank you. Thank you. Thank you. There are no further questions in queue at this time. I will now turn the meeting back to Bill Marshall for his closing remarks. Thank you for joining our call today. If you have any follow up questions, please reach out to us.

This concludes today's meeting. We appreciate your time and participation. You may now disconnect. Thank you.