US Foods Holding (USFD) 6 Aug 192019 Q2 Earnings call transcript

Good morning. My name is Roel, and I will be your conference operator today. At this time, I would like to welcome everyone to US Foods Second Quarter Performance Review. [Operator Instructions] Thank you.

Now I would like to turn over the call to Ms. Napier. Melissa is floor yours. the Ma’am,

you Roel. to morning, Welcome much, Second Thank Quarter Good our Fiscal everyone. Call. very XXXX Conference

During half your firm to after fiscal our CEO; name, our XXXX results. will your on Pietro remarks your Locascio, question. year second one call, questions take our first CFO update provide yourself conclude. and and and quarter prepared limit We’ll our an today’s Dirk Satriano, Please provide

second unless otherwise to stated, During quarter today’s our fiscal results same comparing XXXX. call in period and the we’re year

presentation earnings can Relations earlier Our issued this release our of accessed morning Investor and the today’s slides on website. be page

our to forward-looking results filed or statements. with latest call information, historical potential implied made statements the are SEC addition for those statements. during which actual the considered review those our these could cause today’s from expressed in in Form In Please factors, to XX-K certain factors materially differ risk

we during included in Lastly, I’d the are GAAP measures like on call, reconciliations financial All financial most to to that comparable to the point today’s non-GAAP measures. certain earnings will release. press our out schedules refer

I’ll over call Pietro. turn now the to And

call. year. joining earlier saw continued and our discussed full morning, you Good on to quarter momentum remain second we track quarter. for the year that this in achieve into XXXX positive for thank second our earnings our everyone, first results guidance The we us quarter And we

So an results. let’s of begin Slide on X with quarter’s overview this

growth as as health hospitality customer for The all of a and X.X%. types. the a First, result X.X% care the case total well case quarter independent the volume from was in and other growth perspective, organic improvements strong solid of

case, row. three gains for operating line that XXth Second, the and with in by leverage Gross expansion that per $X.XX for years. a achieved the we the we outgrew last operating in is operating expanded leverage expense profit in quarter our have

strong expenses, to by operating help as tough was in profit on and respect productivity focus in leverage continued improvement continued gross mix case freight customer despite operating the well our performance environment. our gains operating With Expansion continued a driven per maintain improving as brands. private

grew we our diluted and XX.X%. adjusted by EPS healthy a increased by X.X% adjusted Third, EBITDA

we second year, to achieving in full EBITDA second be half the guidance look X%. confident As expect remain quarter year towards adjusted the to and we least of of similar we growth at results, our our

Finally, on I would to Food the Group brief update like provide acquisition. a SGA

expect taken transaction regulatory time this the than September. we anticipate, more in process to close we While has did do originally

later the financing result, a we days. announce today, are As for the for will the coming region soon-to-be-formed the Northwest in launching deal team and leadership we

to of to join we receive Until other two any final this aspects group position on Operating demonstrate. to that note to be visits results testament also SGA approval for associates commitment FTC, comment a we SGA associates and continued combine that I companies. real the not in which customers own is this to the strength continue the are of transaction. strong, to excited my from from our are SGA a

Slide Let’s closer a beginning now quarter, the our for at on X. take look growth volumes

prior of case to positive. delivery that for industry As growth from with I accelerated our rates well and trend X.X% growth in our continued and quarter end industry a as the independent the case said, all-in for the remains towards sequentially row. outlook total was was X.X% restaurants. organic outlook for top our Fill the the sixth year quarter data Starting for Organic above customers year. to as latest the and on-time of

for to high end case year. independent our of feel to range X% continue growth We delivering the the X% good about at

better our Last outlook full came achieve remain the in performance will over X.X%, with at during also We Health new experienced discussion to negative outlook existing we XX in both in essentially points. came in improved the and year care with flat prior growth for and and at growth quarter. type line X% the and we year. customers hospitality basis case quarter, for X% confident our is our all customer second volume The year. other the for

flat trend with during year, continued a for achieve to an We acceleration does outlook on group of and of the the to half. direction our we which positive customers, this imply expect growth roughly second case

data Overall, is show consistent the case Some to Black performing which than to the for we for better Knapp stable, chain restaurant environment remains are concepts are operators. positioned competitive available and year. well and Box from with which our continued growth others, publicly negative Track, traffic achieve

Turning to of the give differentiated three on technology. namely a to Slide two X. innovative our of products quick update elements and I’d platform, like

let’s the Summer X Summer to are is advantage that a new of helping about launch Scoop out, by of take in the The aimed of Scoop, and First, latest dining, talk food and variety to-go a grown which since features times platform anywhere to exclusive by restaurateurs our Foods. US our products take innovative Scoop theme packaging year XXX% growth we industry has The anytime, at XXXX. sustainable which over explosive the offerings.

sizes. continue basket and Lastly analytics who most on to confirmed our larger have Scoop, that rates purchase recent higher products customers Scoop retention

Moving right. to the

sales and independent coming restaurant e-commerce XX% e-commerce. we platform to now evolve, have of Our continues through over

most customers industry. Here us believe retention players gives the analysis especially We advantage too, leading smaller our sizes. purchase over that higher who have through e-commerce continue larger are in competitive they a and technology confirms of which recent basket our our rate to many

is products new expand to with check We Toast. tools. a call continue with including additional value-added independent technology own some of of offerings management And point and a of that business it our the solutions, giving the last, an of that is exclusive in strengthen difference. U.S. with our force is this we especially to growth of cloud-based Toast tools services, continues the our offering restaurant point-of-sale one value-added Toast sales restaurants. announced We growing support seamlessly a we portfolio. solution in customers recently In continue It our partnership services what believe further differentiated our platform both myriad improve integrates summary, profitable and will suite of fastest or we the our to

Before of Food to call for by like would like associates to hard at our over I their associates Dirk, promise I dedication their and their to US close turn the work. I’d help at customers for it. thanking keep them to make to SGA commitment Group our also helping thank them Foods

really are excited We to them to US Foods. welcome

financial it Dirk CFO, I our over for down results. a will turn Locascio, walk to of now our

good and Thank morning. Pietro, you,

in the our momentum we Pietro positive in guidance experienced continued the second full first quarter, business the the we quarter noted. as and for performance year Our are reiterating

strong quarter adjusted our growth operating despite of of case increased increased in We the independent and are second Adjusted restaurant $X.XX leverage and EBITDA higher cost X.X% XX% environment for very in. our XXXX. operate pleased improvement diluted to the quarter we with over continue the EPS from

on Starting X. Slide

points in was in $X.X Second year. increase grocery in basis growth. of points and product billion, net increases XXX commodities We inflation across mix prior sales experienced an quarter the from product multiple X.X% case and were basis commodity very Inflation of manageable. of categories remained XXX year-over-year

and profit prior year for GAAP gains strong X.X% gross over billion, we on profit basis. Gross On Slide period a an delivered quarter. the increase basis the adjusted again $X.X was a X, on increase X.X%

year-over-year year gross unfavorable basis of due percent on profit basis a basis. XX.X% This prior a change GAAP is the reserve XX.X% basis. as basis an As on to a XX lower prior an than to was LIFO and on and adjusted on the sales, flat adjusted GAAP points an year in

of as noted various well Adjusted gross as product would as as care categories was inflation profit of had sales year-over-year a in been increased have a XX grocery flat flat. higher as commodity inflation, points percent if almost basis I in and result

up case expansion an gross optimization per initiatives such continuation and discussed, expansion, strong case, Our first was driven the combined as $X.XX penetration was quarter, with private adjusted of noted, per we a freight profit as mix. The customer again from quarter. Pietro brand acceleration by this rate

costs And OpEx Slide the basis points XX to XX%, operating of a from decrease million expenses increased a increased the expenses year on acquisition-related basis over operating impact $XX operating as points. prior percent primarily prior or depreciation increased XX the have Adjusted to driven a as Moving wages, and expense Adjusted million inflation X.X% was $XXX by X% approximately quarter. would higher without X. quarter of on sales percent year sales. of of sales expense. net

the chain and through us the pressures industry. supply wage to continue impacting manage others We in

Our benefits. turnover delivering reducing productivity and is focus on improving

against execute our have higher chain initiatives more we continuous are seeing. that we not road as focus wage we higher mitigate benefits cost on mitigate which fully did these includes expect time, the our of on we as map, improvement. Over cost the we can discussed, However, supply previously the

was the per increasing Slide On as per adjusted $X.XX X, quarter and $X.XX. a result OpEx $X.XX increasing profit for of adjusted operating case gross case per our leverage gain case

As the the operating line Pietro consistent year, year. the second our three the in meaningfully in to expect gross growth with our results, consistently the expansion profit the produced largely is mentioned, expect per last per case QX adjusted line of be to case gains with $X.XX In the are OpEx highlights of half of expansion. we per our the quarter and doing drive leverage drivers leverage be for case and to for throughout we’ve continued years work

on I’m over year X. now Adjusted quarter, the Slide period. up second X.X% the million was prior $XXX in EBITDA

the Adjusted the the sales, EBITDA grew margin. X% As share increase the the EBITDA EPS as interest increased expense. adjusted business per reduce basis debt an over continue diluted and quarter. we’ve $X.XX we than to and points adjusted year a cash free to time percent again, XX.X% of or to diluted first leverage $X.XX faster EPS, of associated of the the was strong EBITDA reached flow X%, adjusted for Adjusted XX prior

net XX%. LIFO million right, that adjusted far earlier. income X% while was the on $XX increased The a to income income due I decreased in QX decline net primarily discussed higher charge GAAP net Finally,

Operating year cash operating $XXX for to $XX prior a The million did compared the contribution results. XXXX year. to pension on is reoccur increased now prior primarily of was combined million not of six Slide net in first year debt Turning the flow XX. $XXX flow and that this months related million with cash to increase

our XXXX order in accelerated we XXXX, of capture planned QX in pension recall, benefit. to amount contribution a you tax If

produced EBITDA to million business levels leverage strong our debt quarter Net XXXX ratio was we’ve leverage prior and from – decrease to approximately flow, end of the of our the and $XXX debt net ratio. at X.Xx. a operating improve adjusted Our to year-end our continued and decrease from debt billion, decreased again cash $X.X

XX. Slide to Moving

adjusted of reiterating we guidance end are of at do expect ranges diluted end be we range expense but that XXXX, and February EPS low interest the fiscal toward the in range. For the the provided to high

I’ll before over now turn it comments to we go for few a Q&A. Pietro to

a sustained summary, growth good and on volume a EBITDA in operating Adjusted had sequentially, positive momentum. grew So we with we leverage. expanded was quarter strong

turn now it let’s So to questions. over

line [Operator is Instructions] John Your question from [JPMorgan]. of first Ivankoe the

open. is line Your

more is magnitude? I as that comparable volume line? And [Audio drop account what’s to lines assume sort then of it’s one. secondly, growing, Gap] size? per to Number happening opposed per what but

So first Melissa. didn’t the of part apologize, question John, out. hear it. your cut it’s I We

Yes.

to about right, I’m the growth new and cases items that per curious, lines, just look was new item? line, for think of you per opposed from at independent question So most account, per you growth lines is coming account when and as cases

Dirk. is This John. morning, Good

we So drop as with our well seeing are new – our increases as growth both, customers our on increase seeing coming comes per are that is focus. from from we lines an

things it’s to about that our around talked customers. before, and same-store existing improve we’ve then growth from balancing penetration As on with new

follow-up, bit What little into Okay. of trend. on maybe that is to the and of change that sort on not in as year some tied then step-up curious Or continue something – to? the in a And this that’s that is that will And a is that projects – Because tied next? depreciation. one-off? a a capital

Sure.

been have a and that really two of that increase half things: of shorter-life little a wouldn’t in some repeat more recent the to it’s of it’s items some So of then depreciation about there acceleration was ads the split related future.

of the of part So not. of as it part it ongoing, increase think

Thank you. Okay.

Suisse. is line from Your Credit next Frommer of question from the Judah

there. any the the comment and case of Thanks quarter? could you Maybe or first, struggles for during their there taking case kind your citing the on questions you competitors any cadence congrats one my saw independent of from of way on big of total side maybe kind is benefit some on and issues if Obviously, wondering growth independent quarter.

Judah. Pietro, it’s So

the the we’ve some terms from just In real data, across at look about in different those a cadence, that basis at just Techonomic no look external out when easily we it’s came referred to, in that growth of term changes past, the decline about the of error. across And their our consistent benchmarks, of observed. ago talked quarter, There’s the the for we and in could and fairly whether outlook John we look XX internal midterm. material change margin as no benchmark we’ve be throughout the short from significant points, small few latest their an perspective geographies, really – which days whether the

the to So we put outlook why positive. industry all our say that together, for that’s continues be

Got it.

just trajectory way there call said has closed? you Or if pretty with it, can you recently comment Okay. eight post has you’ve all the much so was general? the us Or been taken since can’t the in long any business months I is versus on And beyond or then what of help deal what disclosed but have deal consistent more things SGA, since at was you six, announced? the changed know

Yes.

lot performance, of a did as not comments that But company. their there’s as a quarter. stand say terms their given had they in can different know, I my we So believe you in strong say a

we their pro the was we expectations said the did when I last forma we saw with as think in line deal. based call, what on performance our the

in process answer feel control. taking long, linear you very It’s a very And terms we from so a you’re a performance process So of question next. terms perspective, or one in not and what’s answering it’s sequential of we good. the

we for couple combined – elements financing the in announce little confident launching announce we of to various September, feel – that but and will more and I’m teams decisions do it’s So a of not of have sure made the but had, responsible about is a why – which I leadership today terms beginning we’ve be entity.

you. Thank Great.

is Your of from Ivankoe next John JPMorgan. question

open. line Your is

maybe about First, we looks of be you that, combined to was that CapEx year-on-year. and about as some on medium spend? CapEx you’re forward, US we you slightly term projects the plan and thinking down entity should preparing about percentage Foods as how sales hoping near overall as going And for I think you could think elaborate spending. that a

good Sure, morning John.

have SGA. But change throughout not about part CapEx we’ve CapEx decline really meaningful of don’t modest as we in as so CapEx we to we in is as guidance, as the go changes part more we provide expect meaningfully as the as a a percent of think would I of So spend would wouldn’t year-over-year that amount complete timing a or And the talked have our of result XXXX, year. to change will expect our well. guidance then And a of we that’s before, deliberate was sales of sort forward. that we and of delay

entities efficiency. a lot was in there’s side may, per I if protect I the terms chain and supply as profit your of of care secondly, ability anything to health about if your as obviously and discussions their on there’s hospitality comment distributors And forward. to sources on you. using going of transition Thank we margin account wondering across many

understood Can about more John? a say I’m your not I bit sure it. you question,

Yes.

on asking and customers the primarily larger you. side, So come I you’ve what have hospitality had if any but health is cover, certainly was which in to I restaurants, care that

not. if account. seeking cut efficiencies I to can on I and restate profitability profitability you you’re Thank that’s it the protect clear, their you. them. per your basically ability organization for You’re asking if And that own making mean to

Yes.

it. get I Okay.

a the state from do a pressure an we – is, attractive ago. there I think power, way year buyer increased pressure significant right? margins And question broad a exercise is not ago there two less is customers large type would we customers. talked the that’s independents, large always from smaller margins. look, on where coming why see in of or it’s the today the is, their I were answer difference customer But some contribution years the change than We’ve about

you. Thank helpful. That’s

next from Your Kelly of question Fargo. the Edward line Wells of is

Your open. is line

this. But play And will on how there’s amongst concern Do are quarter. to guys. point first I been SGA, clarity this speak to at Pietro, here? and you out good answer you’re track. Good see about on about morning you and can a know of just don’t extent wanted about at back to Yes, that at hi significant you have point amount things to going investors all market’s nice that? this It’s concern things to ask that I the be to able the divestitures.

Look, Unfortunately, And irresponsible of from essentially we it. and outcome. to speak for cannot until why. would I for be for customers, it Look, I the speculate have shareholders understand here’s FTC, is there and the some market’s to kind the concern. on employees approval uncertainty final ultimate to –

So that’s enough why certainty. from stay about, we away going and commenting on commented to those which on on things certainty have we we’re complete have that we’ve things complete don’t

I since ago. call we’re or transaction is which four will been made of definitive really than we’ve the process, are about last we good have two think in more could when months I we say, close progress the though, in why the did where terms

Okay. to kind you guidance. ask And wanted of about

today. So you maintained guidance

in you talked EBITDA of sort top back about sort on half back You’ve have similar of easier to the half growth execution comparisons QX. the But line.

takes ramp, still mentioned growth it to have operational ramp you think here? mean, it? around from of guess, lap discuss And is can some EBITDA I Is that to those I in and environment some start maybe the that you start of accelerate or challenging. the do unreasonable could those know more to – You puts expenses. I just

half thinking back sort a the we should thoughts bit how more be of So just about detail. in on your

Sure, morning, Dirk. Ed. it’s Good

half confident to So our to our think – and the ability growth I be we as yes, in expect we meet said, similar EBITDA back QX to guidance.

always the any I fuel think an example, headwinds think and and saw we as moves the puts quarter, takes not. there’s from a year in just, in half, – second modest to any being

that, things results we again so little bit. And in But we expect help there’s had the like still strong a that ultimately, QX. like

of think pleased when pipeline. about good performance. overall especially there, second larger profit of about, what with I volume, remains that of half, kind gross we visibility pretty we’ve because talked And very think the sort on the think customers of the sort

And then higher in cost environment what difficult there foreseeable a be for future that OpEx, is ultimately tight. we the will and reflected the really more environment as remains the comps

back some of I think outperformance, around be areas. the to likely for were chain number that to some were as supply the if just such case, as would we it about in again, feel talked OpEx and the coming on a stronger outlook about the if balance overdeliver together, of of there or we’ve good be And those year. in initiatives

guys. Thanks, Great.

BMO Your next is of the question from Bania Capital. of Kelly line

is line open. Your

for with in forward Hi, just questions. before. for seen Thanks seems that of guess the that moving taking SGA, I closing some guess we good that financing terms morning. confidence sort of the I to signal in haven’t

that I last a expected can without or hoping the to as And bit back the – detail. just divestitures? I accretion on in you thoughts little bit. could rates certainty quite Are Thanks. that have this impacts related explain little that, Any Maybe in pulled year how explain was more your potential how So from just to you guess transaction? I then a guess that finance so. you

Kelly. for Thanks the Sure. question,

are we the think expect more Few have remain on September to we favorable, today. therefore, to want we so, be close transaction so comments, and therefore, the Pietro launching ready in commented, go. timing. to as Markets I So certainty

decrease launch transaction ultimately will transaction, would year a being that to It a so So about it’s go. bit rates, the a ago. rate, financing. wouldn’t we benefit closes draw the in variable thinking interest so until with the versus From really us a of structure the ready it’s

from that, moving that that I’m So we guidance this specifics on as our XXXX, overall far of the I will next as provide think then early include transaction and to more for right and stay now. that guidance balance closes, Once year. when in get some the post we away we company ahead XXXX going with would guidance,

you. Thank

last from Bernstein the Your is of Jeffrey Instructions] question [Operator Barclays. from line

Your line is open.

I One, know about referring tough Great. environment. sales talked sure very when cost I the reference specifically but referring there. you your industry juxtapose if data assuming some the follow-up. remarks operating you said the And some remains one Pietro, in segment you I’m wondering I to Thank that make trying you’re I to you had can were questions. were qualitative with much. Maybe Two a just give I wasn’t referring what’s think that of or was – side. directional to or maybe sales the color you you positive. to. then prepared you more

Okay.

of lack Sorry for the clarity.

was the things, results unemployment in from and to from made. result primarily why about higher of more we’re talk operating pressure seeing we’re low that’s very see back I the impact and talking distribution, And of Dirk we pressure on to which cost the that then When environment, good cost referring Ed’s to turnover, operating about we So wage which specifically some in to the the the training. the tie continued is so about is continue we’ve referring question, rates side on of things. initiatives and perspective mitigating we’re side talked benefits a it productivity what

on a it’s nutshell, cost in the purely, it’s side. So

you of confidence And Black that wondering Kind data? industry positive. terms you that the around kind of it. Technomic you is if talking about Knapp in remains and industry is referred Got it was what of broad what data a that mentioned the Box. gives to or I comment

Yes.

profiles. of much to and as Black because one the larger and is, you Knapp chain margin period I less been, tend that sees has spotty know, competitors Track, us said, customers larger is about on have everyone lower as which last Box those So really The time. over impact

the I consistent, at the change, positive no the what we we referring being at Technomic, more terms really don’t at of outlook. look where change and outlook geography to we to environment was outlook, was but was significant data, look I what independent referring by NPD and for So restaurants we in industry see in look

I That’s in X.X% outlook to down that think the almost our X.X%. for for Technomic mentioned really I margin error XX from basis short-term they’re restaurants points perspective. independent from

So remains at this and in we’ve so our point, what outlook far. for for independents, particular, with consistent industry seen

Understood. Thank you much. very

[Operator your line question Instructions] – Your last Wolf is from the Andrew Loop from next of question Capital Markets.

Your line is open.

Hi, margin good ask the morning. increase. to I wanted about gross per case

could about a some additive. in If been or talking to out little mix it benefit central I operational become more of mainly initiatives procurement it’s you the started think, terms of you’ve parse whether improved of particularly,

Sure. Good morning.

So And much the from margin secondary areas a all different focus a logistics are continued that two that, has framework growth as that and initiative big they label to is contributor had, profile. the that we’ve that contribute we’ve higher than that areas contribute. and as the done of customer then all which the the it’s predominantly private mix well but

and and think are although the focus initiatives internal market we factors, back are drives last the a the bulk continued there just self-help of there, continued us you’ve refer years performance over oftentimes as areas. plan. gains And the leverage I strong three look some operating at to what heard

to want to I clearly something your of X% slides I Thanks. And just that. make understand I being on just sure on e-commerce wanted one higher. retention clarify

understand churn’s just for sure a say, X% trying little e-commerce, or I – it let’s would XX% it’s with X%? just a up to accurately. actually or XX%, be the or make number, full is retention, better that churn So it a Just make is X% it XX% is typical

the It’s former. Yes.

hypothetical your example, So X%. in versus XX%

Thank for you. That’s it me.

is from of the Capital. question last line Bania BMO from Your Kelly

of Hi. I sort here. could If ask more one

with reference on the to comments I operating the strong. results, to the they was Just reference be think continue the about SGA

exception independents is kind terms like the X% you’re smaller Technomic sense to seems SGA of that in there. with Is their of of some out with. Just you and from – performance? in players at curious private X% there there regionals smaller gaining an some be if have you the state for that you of other rate that must It the share least a agree compete these if throwing companies

thoughts Just on that? curious on Thanks. your

Yes.

we’re across know sources players does It’s the And it we appear like growth gains versus doing. country, variety our and how case that that consistent gaining cited. when our come don’t share players, the own assume look other the So industry of from are a we we I fairly at two and share there’s it local other players. and it’s field where conversations do when really to depends some what some see In the cases, quantitatively, no just that competitive with environment analysis, Kelly. support cases, players, from. with coming There’s the larger as smaller on real – to no we qualitative patterns our we emerge,

you. Thank

Is questions operator? there any

questions. further no are continue. Presenter, There please

Great.

Okay.

I for the wish of Appreciate questions, rest week. Thank everyone us. a you. the and good everyone, joining thanks, So

Thank for conference you today’s concludes This attending. call.

disconnect. You now may