US Foods(US:USFD)2024-11-07 18:53Financial Data and Key Metrics - Adjusted EBITDA grew by 13% YoY, with a 27 basis point expansion in adjusted EBITDA margin to 4.7% [8][22] - Adjusted diluted EPS increased by 21.4% to $0.85, driven by strong free cash flow deployment towards share repurchases [24] - Net sales increased by 6.8% to $9.7 billion, driven by a 3.8% growth in total case volume and a 3% impact from food cost inflation and mix [22] - Free cash flow for the first nine months of the year was $658 million, supported by disciplined working capital management [26] Business Line Performance - Independent restaurant case volume grew by 4.1%, marking the 14th consecutive quarter of market share gains [8][22] - Healthcare volume growth remained strong at 5.7%, while hospitality growth accelerated to 3% [22] - Pronto, the small truck delivery service, is now live in 40 markets and is expected to deliver nearly $700 million in annualized sales this year [16] Market Performance - The Southeast region experienced a nearly 100-basis point headwind to independent volume growth due to hurricane impacts [10] - Excluding the Southeast, organic independent volume growth was modestly higher than the second quarter growth rate [10] - Monthly foot traffic was down approximately 3.5% for the third quarter but improved sequentially throughout the quarter [10] Strategic Initiatives and Competitive Positioning - The company is focused on four strategic pillars: culture, service, growth, and profit [12][14][16][18] - Descartes Routing technology is now live in 15 markets, with plans to expand to 11 more by year-end, improving distribution productivity [14] - The company is actively exploring strategic alternatives for its CHEF'STORE business and has begun discussions with potential buyers [19] Management Commentary on Operating Environment and Outlook - Management highlighted the challenging macro environment and hurricane impacts but expressed confidence in the company's ability to control controllable factors [8] - The company updated its 2024 guidance, expecting net sales of $37.7 billion to $38 billion, adjusted EBITDA of $1.72 billion to $1.74 billion, and adjusted diluted EPS of $3.05 to $3.15 [29] - Management remains confident in achieving the 2025-2027 long-range plan, which includes a 5% sales growth CAGR, 10% adjusted EBITDA growth CAGR, and 20% adjusted diluted EPS growth CAGR [33] Other Important Information - The company repurchased $580 million worth of shares in Q3 and an additional $160 million in Q4, with $238 million remaining under its $1 billion share repurchase program [9][27] - The company issued $500 million in senior notes due 2033 at 5.75% to address debt maturities and capture $9 million in annualized interest savings [28] Q&A Session Summary Question: Private Label Penetration and Independent Restaurant Trends - Private label penetration is at 52%, with strong adoption across customer types, particularly independent restaurants [35] - Independent restaurant case growth accelerated by over 100 basis points after hurricane impacts subsided, with similar improvements in chain and healthcare volumes [36] Question: Guidance and P&L Performance - The company is guiding to the high end of its full-year EBITDA range, driven by strong execution across the P&L, including gross profit expansion and operating expense productivity [38][39] Question: Salesforce Growth and Productivity - Salesforce growth is running in the mid-single digits, with strong new account generation and some green shoots in penetration trends [42] - Warehouse productivity improved by 3.5%, with further gains expected as the company continues to roll out UMass technology [44][45] Question: COGS Initiatives and Vendor Collaboration - The company expects to deliver $230 million in COGS savings from 2022-2024, with strong vendor collaboration supporting future savings [49][50] Question: Healthcare and Hospitality Pipeline - The healthcare and hospitality pipelines remain strong, with $100 million in annualized sales onboarded during the quarter [51][52] Question: Descartes Rollout and Hospitality Demand - The Descartes rollout is progressing well, with half of the company's miles expected to be on the system by year-end [54] - Hospitality demand was impacted by hurricanes but showed improvement as the quarter progressed [55] Question: Case Growth and Share Repurchase Cadence - Total case growth for 2024 is now expected to be 4%-4.5%, with hurricane impacts and softer foot traffic contributing to the adjustment [57][58] - Share repurchases are expected to be front-end loaded, with the company toggling between M&A and buybacks based on opportunities [63][64] Question: Pronto Business and Productivity Gains - Pronto is expected to contribute $700 million in annualized sales, with 20% of that being incremental [78] - Productivity gains are expected to continue within the 3%-5% range, driven by supply chain and administrative efficiencies [71] Question: Salesforce Compensation and Indirect Cost Savings - Salesforce compensation changes have been well-received, with increased variable pay driving desired performance outcomes [73][74] - The company is on track to achieve $60 million in indirect cost savings by 2027 [75] Question: Local Case Volume Assumptions - The company remains confident in its ability to achieve 5%-8% case growth, even if market growth is in the 1%-2% range [85][86]