US Foods - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered solid execution: net sales rose 3.8% to $10.082B, gross profit increased 4.2% to $1.777B, net income rose 13.1% to $224M, and Adjusted EBITDA reached a record $548M (5.4% margin); Adjusted Diluted EPS increased 28% to $1.19.
• EPS beat S&P Global consensus, while revenue was slightly below: Primary EPS $1.19 vs $1.133* and revenue $10.082B vs $10.178B*; strength came from margin expansion, vendor cost savings, and buybacks, while chain volume declines and Freshway divestiture modestly weighed on cases.
• Guidance raised at the low-end: FY25 Adjusted EBITDA growth to 9.5–12% (from 8–12%) and Adjusted EPS growth to 19.5–23% (from 17–23%); net sales growth maintained at 4–6%; interest expense guided lower to $300–$315M.
• Catalysts: continued independent/healthcare/hospitality share gains (17th consecutive quarter with independents), Pronto program scaling toward $1.5B sales by 2027, productivity wins (Descartes, UMOS), and $250M Q2 repurchases; management also addressed potential strategic combination with PFG as exploratory, reinforcing confidence in multi-year algorithm.

Values with * retrieved from S&P Global.

What Went Well and What Went Wrong

What Went Well

• Record profitability: Adjusted EBITDA reached $548M (+12.1% YoY) and Adjusted EBITDA margin expanded 40 bps to 5.4%; “our record adjusted EBITDA margin is not a ceiling,” highlighting long runway for margin expansion.
• Share gains and mix: Independent cases +2.7%, healthcare +4.9%, hospitality +2.4%; “seventeenth consecutive quarter of market share gains with independent restaurants” and nineteenth with healthcare.
• Productivity and digital: Record cases per mile, Ops QC improved ~28% YoY, and independent e-commerce penetration reached 78% (89% total); Moxie digital platform cited as industry-leading.

What Went Wrong

• Chain volumes and portfolio actions: Chain restaurant volume declined 4% due to a strategic exit (≈300 bps drag) and Freshway divestiture (~50 bps impact to total case growth).
• Revenue modestly below consensus: Net sales of $10.082B came in a touch light versus $10.178B* despite underlying case growth and 2.5% food cost inflation.
• Inflation/macro overhang: While center-of-the-plate inflation moderated (eggs, beef), broader macro and tariffs continue to pressure consumer demand and traffic, keeping top-line growth below long-term aspirations.

Values with * retrieved from S&P Global.

Transcript

Speaker 0

Thank you for standing by. My name is Jordan and I'll be your conference operator today. At this time I'd like to welcome everyone to the US Foods Holding Corp. second quarter 2025 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press STAR followed by the number one on your telephone keypad. If you'd like to withdraw your question, press STAR one again. Thank you. I would now like to turn the call over to Mike Neese, Senior Vice President of Investor Relations. You may begin. Thank you, Jordan. Good morning everyone and welcome to the US Foods second quarter fiscal 2025 earnings call. On today's call we have Dave Flitman, our CEO, and Dirk Locascio, our CFO.

We will take your questions after our prepared remarks conclude. Please limit yourself to one question and one follow-up. Our earnings release issued earlier this morning and today's presentation can be found on the investor relations page of our website at ir.usfoods.com. During today's call, and unless otherwise stated, we're comparing our second quarter fiscal year 2025 to the same period in fiscal year 2024. In addition to historical information, certain statements made during today's call are considered forward-looking statements. Please review the risk factors in our Form 10-K for a detailed discussion of the potential factors that could cause our actual results to differ materially from those anticipated in forward-looking statements. Lastly, during today's call we will refer to certain non-GAAP financial measures.

All reconciliations to the most comparable GAAP financial measures are included in the schedules on our earnings press release as well as in the presentation slides posted on our website. We are not providing reconciliations to forward-looking non-GAAP financial measures. With that, I'll turn the call over to Dirk. Thanks Mike. Good morning everyone and thank you for joining us. Let's turn to today's agenda. I'll start with our key results for the second quarter and first six months of the year, which are underpinned by significant achievements across our strategic pillars as our team continues to execute very well. I will then hand it over to Dirk to review our second quarter financial results and our updated fiscal 2025 guidance.

Turning to Slide 3, we delivered strong second quarter and year to date financial results as we continue to demonstrate consistent progress against the long range plan we presented at our Investor Day last year. Importantly, our year to date earnings and EPS are in line with our long range plan algorithm. Year to date we grew adjusted EBITDA 11%, expanded adjusted EBITDA margin by nearly 30 basis points, and grew adjusted EPS 27%, which highlights our team's consistent execution and the strength of our differentiated business model. This momentum has fueled further market share gains with our independent restaurant, healthcare, and hospitality customers. I am incredibly proud and appreciative of our talented team of 30,000 associates whose dedication and hard work are delivering on our promise to help our customers make it.

Moving to Slide 4, we delivered record second quarter adjusted EBITDA of $548 million and a record adjusted EBITDA margin of 5.4%, a 40 basis point increase through a combination of top line growth, strong gross profit gains, and disciplined cost management. Our record adjusted EBITDA margin is not a ceiling, and we have significant margin expansion opportunity for years to come, largely through continued improvement in the execution of our core business processes and benefits from improved customer mix. Again this quarter, we gained market share with our target customer types of independent restaurants, healthcare, and hospitality. This is the 17th consecutive quarter of market share gains with independent restaurants and the 19th consecutive quarter of market share gains with healthcare. In addition to our strong financial performance, we remain committed to delivering shareholder value through our capital return strategy.

On our last earnings call, we stated we would accelerate share repurchases in the second quarter and balance of the year given our strong cash flow. We did just that and repurchased $250 million of shares in the second quarter. We will remain prudent as we allocate capital, first by investing in the business to drive growth and then balancing share repurchases with tuck-in M&A opportunities. Let's turn to our case growth and our perspective on the industry. We continue to outperform the market and take share as our independent volume growth was 2.7% in line with our 2% to 5% guidance for the year. Our organic independent case growth accelerated 100 basis points from Q1 to Q2, and we gained share in every month of the second quarter. Total independent restaurant volumes per Circana increased from the first quarter to the second quarter.

Similar to our improvement in case growth, our organic independent case volume also accelerated throughout the second quarter, with June growing at approximately 3%. July continued the approximately 3% growth rate. During the second quarter, we grew net accounts approximately 4% over the prior year, which was our strongest growth rate since the fourth quarter of 2023. As a result of continued acceleration in our net accounts, we expect to build further momentum in our independent growth rate through the back half of the year. Additionally, healthcare and hospitality continue to help drive our overall volume growth, with approximately 5% and 2.4% case growth, respectively. Turning to our chain business, restaurant foot traffic as reported by Black Box improved sequentially throughout the second quarter versus the first quarter, but remained down 1.1% from the prior year. We continue to be disciplined in optimizing our chain portfolio to improve profitability.

In the second quarter, our chain restaurant volume declined 4%, primarily driven by a strategic exit, which negatively impacted our total chain volume growth by approximately 300 basis points. We've recently onboarded several new business wins and expect our chain volume performance will improve in the back half of the year. Additionally, in the first quarter, we divested Freshway, a small produce processing business that provided us with higher volume but with lower margin. The divestiture resulted in nearly a 50 basis point impact to our total case growth in the second quarter. Regardless of the operating environment, we remain guided by four strategic pillars, and I will highlight key elements of our progress over the next several slides. Moving to slide five, our first pillar is culture. We remain committed to our goal of zero injuries and accidents for our associates.

In the second quarter, our injury and accident rates were 21% better than the prior year, and over the past two years, we've improved our safety performance by 35%. Our team has made great progress in creating a strong safety culture, but we have more work to do. This past May we published our 2024 sustainability report highlighting our progress in the three focus areas of Products, Safety, People, and Planet. I am proud of the work we accomplished in 2024 to further align our approach to sustainability with our strategy and our operating model. We have reduced our Scope 1 and 2 greenhouse gas emissions by 16% since 2019 and are nearly halfway to our goal of reducing these emissions by 32.5% by 2032. Turning to Slide 6, our second pillar, Service. Our focus on service is one of the many reasons that our customers choose US Foods.

Our ability to deliver service excellence is driven by our initiatives to improve reliability, enhance operational efficiency, and provide a best-in-class customer experience through our MOXē digital platform. We improved routing productivity again this quarter as we continue the Descartes rollout across our distribution network. We are now live or in active deployment in 65 markets representing approximately 90% of routed miles and remain on track to be fully deployed by year-end. We delivered more than a 2% improvement in cases per mile over the prior year and nearly 6% over two years via our routing initiatives, and in the second quarter, we achieved our best cases per mile performance in our company's history. Our routing initiatives helped to drive greater delivery efficiency while enabling a better customer experience.

As we discussed last quarter, an important element of our service is our Operations Quality Composite, or OPS QC, which measures our ability to deliver products to our customers without errors. During the second quarter, we made steady progress on OPS QC, resulting in nearly 28% improvement from the prior year. Over the past few quarters, we have also implemented new inventory control processes, including scanning technology, which reduces manual inputs and results in fewer errors. We continue to sequence new opportunities to improve our service and reduce costs for our customers. We also recently completed an independent Net Promoter Score study where customers provided their feedback and views regarding digital technology leadership in our industry. The results show that US Foods MOXē platform has a distinct advantage over the competition. We also have the highest customer digital adoption in the industry.

Significantly more U.S. US Foods customers use MOXē for all of their self-help needs including purchasing, delivery, tracking, and bill payments, which is a testament to our online leadership versus our competition. As we remain focused on enhancing our technology leadership, we drove record independent restaurant e-commerce penetration of 78% and total company of 89%. We are on track to hit our goal of 95% penetration by 2027. Turning to our growth pillar on slide 7, we remain focused on accelerating profitable growth and gaining market share with our three target customer types. We have continued investing in our Pronto small truck delivery service and are now live in 44 markets with plans to add a few more this year. We are nearly complete in launching Pronto Legacy across the company but still have plenty of growth opportunity ahead by adding more trucks within our existing markets.

In addition to Pronto Legacy, we have expanded Pronto penetration to 15 markets to further grow our share of wallet with our existing customer base. We continue to see a double-digit % uplift in overall case growth with customers in the program, and we will be in a total of 20 markets by the end of 2025. Given the success of both Pronto Legacy and penetration, the overall program is on track to deliver over $900 million in sales this year, and we now believe it will reach $1.5 billion in sales by 2027, up from the $1 billion that we've previously discussed. Beyond Pronto, we remain committed to investing in the business to fuel growth and enhance operational efficiencies. I'm excited to announce that we began limited shipping from our first new semi-automated facility in Aurora, Illinois last month.

This 310,000 square foot distribution center is a state-of-the-art facility that will enable us to be more efficient, accelerate productivity, improve our ops, QC metric and inventory accuracy, and further reduce accidents and injuries. Finally, we broke ground on a semi-automated expansion at our distribution center in Austin, Texas, which will effectively expand our capacity in another high-growth market. Targeted investments in semi-automation will support our growth initiatives and help us accelerate our supply chain excellence work while delivering strong capital returns for the business. Moving to slide 8, our profit pillar, our consistently strong execution drove adjusted gross profit growth during the second quarter and the first six months of the year. Second quarter adjusted gross profit was $1.8 billion, up 5% from the prior year, driven by volume growth, improved cost of goods, more disciplined inventory management, and increased private label penetration.

Our Strategic Vendor Management initiative has delivered more than $50 million in year-to-date cost of goods savings, and for the full year we expect to drive more than $110 million. As we realize these benefits, we are reinvesting a portion of those savings to help accelerate growth, and we now have line of sight to exceed our 2027 Long Range Plan commitment of $260 million. Private label penetration with our core independent restaurants grew by more than 80 basis points to over 53%. These margin-driving, high-quality, innovative products enable us to deliver significant value as we help customers offset inflationary pressures with lower costs. Before passing it to Dirk, I'd like to highlight one of our distribution centers and associates.

Last month, several US Foods military veteran associates from our Manassas, Virginia distribution center and I took part in a wreath-laying ceremony at the Arlington National Cemetery Tomb of the Unknown Soldier to honor the sacrifices of our nation's service members. We are proud of our veteran workforce and remain committed to recognizing the leadership, integrity, and service that our military community brings to US Foods. We are committed to increasing veteran new hires through our Mission 2030 recruitment initiative, in which we intend to hire an additional 3,000 military veterans by 2030. I thank our Manassas team, our veteran associates across the company, and all veterans for their service. Let me now turn the call over to Dirk to discuss our second quarter results and our updated 2025 guidance. Thank you, Dave, and good morning, everyone.

Our second quarter results demonstrate the consistent execution of our strategy and continued progress on our self-help initiatives. We delivered top-line growth and margin expansion combined with accretive share buybacks, which resulted in strong double-digit adjusted EBITDA and adjusted EPS growth. Starting on slide 10. Second quarter net sales increased 3.8% to $10.1 billion, driven by case volume growth of 0.9% and food cost inflation and mix impact of 2.9%. We increased volumes with our target customer types of independent restaurants, health care, and hospitality. Despite a dynamic macro, we grew independent restaurant organic volume 2.3%. Healthcare continues to perform well and grew 4.9% while hospitality grew 2.4%. Shifting to our financial performance, we delivered strong earnings growth and margin expansion. I'm pleased to report that adjusted EBITDA increased 12% from the prior year, achieving a quarterly record of $548 million.

This growth was fueled by consistent progress of our initiatives aimed at driving profitable volume growth and sustainable gross profit gains, coupled with disciplined operating expense management. As a result, adjusted EBITDA margin expanded by 40 basis points, achieving an all-time high of 5.4%. Finally, adjusted diluted EPS increased 28% to $1.19 per share. Our strong adjusted EPS growth is powered by our earnings growth combined with accretive share repurchases and continues to significantly outpace adjusted EBITDA. We expect to maintain this trend as we deploy our robust and growing cash flow to invest in the business to drive profitable growth and execute additional buybacks. Turning to slide 11, we again drove operating leverage gains through the execution of our initiatives including Strategic Vendor Management, private label penetration, and a new initiative targeted to reduce inventory losses.

Adjusted gross profit per case improved $0.32 or 4% compared to the prior year. A large part of the performance is driven by the success of our in-place Strategic Vendor Management initiative to improve cost of goods sold. As Dave highlighted earlier, we now have line of sight to exceed our 2027 Long Range Plan commitment of $260 million. We have made significant improvements in more effectively managing inventory on hand in recent years while at the same time improving customer service levels. To that end, we've made great strides on a new initiative to eliminate waste and reduce write-offs. The focus here is on reducing losses from product that can't be sold due to damage or spoilage through improvements in process and insights. As a result of our actions, we expect to reduce inventory losses by over $30 million in 2025 and believe there is further savings opportunity.

In 2026, adjusted operating expense per case increased $0.09 or 1.6%. We continue to offset a considerable portion of operating cost inflation by driving productivity improvement in both operations and administration through eliminating waste in our supply chain and instituting greater process discipline across the business. As previously communicated, a key element of our expense management where we are driving results is our Indirect Spend management initiative. As a reminder, indirect spend is a $1 billion plus bucket of addressable spend. We are on track to generate $45 million in total savings this year, which is about $15 million above last year. As a result of the strong execution of our strategy, adjusted EBITDA per case increased $0.25 or 11% to a record high of $2.52.

Moving to slide 12, US Foods continues to generate strong cash flow funding record capital investment to maintain our business, support growth, and drive attractive returns while also delivering on our commitment to return capital to shareholders through share repurchases. Year to date, our operating cash flow increased by $104 million to $725 million, driven by earnings growth. During the second quarter, we significantly accelerated the pace of share buybacks as we repurchased $250 million of shares. Overall, we bought a total of 3.6 million shares for $273 million so far in 2025 and have $800 million remaining on our $1 billion program authorized in May of this year. Finally, we ended the quarter at 2.6 times net leverage, down from 2.8 times at the end of last year and well within our stated two to three times target range.

Our debt structure is strong and we have no long-term debt maturities until 2028. Now turning to our guidance and modeling assumptions on slide 13, given our year to date performance and outlook for the remainder of the year, we are updating our fiscal year 2025 guidance. We continue to expect net sales growth to be in the range of 4% to 6%. Due to our solid progress this year and our ability to deliver balanced profitable growth and enhanced margins, we are raising the low end of our guidance for adjusted EBITDA and adjusted diluted EPS. We now expect adjusted EBITDA growth of 9.5% to 12% and adjusted diluted EPS growth of 19.5% to 23%. We also now expect interest expense to come in slightly lower at $300 million to $315 million.

I'm pleased with the progress we have made this year on execution within our business as we navigate the dynamic macro. We continue to grow our top line, gain share, expand our margins, and deploy our strong cash flow toward our capital priorities, and we remain committed to achieving the financial targets in our long range plan. With that, I'll now pass it back to Dave for his closing remarks. Thanks Dirk. As we close this quarter, I am encouraged by the progress that we've made in driving strong profit growth, executing our self help initiatives, and the ongoing opportunity we have ahead to drive significant value for our stakeholders.

We operate in a large, fragmented, resilient, and growing industry with our focus on independent restaurants, health care, and hospitality, which are the fastest growing and most profitable customer types, and food away from home continues to steadily increase, a multi decade trend that we believe will continue. US Foods is a national leader with significant sustainable advantages and the only pure play U.S. focused broadline food service distributor with national scale. We will remain disciplined with our capital allocation strategy, which will enable us to be a consistent double digit earnings compounder for many years to come. Before we move to Q and A, I want to address the recent speculation about a potential transaction with Performance Food Group.

Many of you know that as part of our commitment to generating long term profitable growth and creating shareholder value, US Foods regularly considers accretive tuck in M and A and evaluates potential strategic opportunities. We believe that a combination with PFG has the potential to create significant value for both companies and our collective stakeholders while enhancing competition in the food service industry. We approached PFG to work with us to explore the merits and opportunities of a combination. To date, PFG has declined our invitation to do so. Let me provide some thoughts about the strategic rationale of a potential transaction based on our knowledge of food service, both companies, and where the industry is going.

We believe a combination would bring together the best of both companies, resulting in meaningful economies of scale, expanded growth opportunities, complementary geographic reach, operational efficiencies, and a differentiated go to market offering based on service excellence, industry leading digital capabilities, and a strong customer centric sales force. We believe customers would further benefit from the broader product offering, our strengthened ability to compete in the marketplace, and increased efficiencies. We believe the combination will result in a thriving, inspired culture supported by investment in the development of associates. Finally, we estimate a combination would generate meaningful multi-year synergies and significant opportunities for profitable growth and shareholder returns. Our ask of Performance Food Group is simply to work together to further understand the merits and opportunities of a potential combination.

At this time, we have no further information to disclose on this topic and will not be taking any questions regarding our outreach to Performance Food Group. Regardless of the outcome, and I want to be crystal clear about this, I remain highly confident in US Foods' future and our ability to deliver our long-range plan and financial algorithm. As a reminder, we expect to deliver a 5% sales CAGR, 10% adjusted EBITDA CAGR, at least 20 basis points of annual adjusted EBITDA margin expansion, and a 20% adjusted EPS CAGR through 2027. With that, Jordan, please open up the line for questions about our results. Just as a reminder, if you'd like to ask a question, press Star one on your telephone keypad. Your first question comes from the line of Lawrence Silberman from Deutsche Bank. Your line is live. Thanks so much.

I want to try to follow up a bit on your last comments. Dave, you talked about, you've talked about a preference for more tuck-in acquisitions rather than anything transformative. Obviously, Performance Food Group would be pretty transformative. Can you just talk about any changes to your philosophy on M&A given the openness to engage with Performance? Yeah, really no change to our philosophy. I would probably, Warren, just leave it with my prepared remarks. In that, I stated that the company from time to time explores strategic opportunities to create value for all of our stakeholders. I would just point you to that comment. Okay, fair. On the traffic, chain restaurant traffic across the industry improved nearly 200 basis points quarter over quarter. What are you seeing from the independent side at an industry level? Did it accelerate at the same pace? Are you seeing it less than that?

Any color in terms of those dynamics would be helpful. Yeah, I think. Let me start with the chain piece because you asked about that first, the 200 basis points improvement, and that accelerated throughout the quarter versus Q1, but it was still down over 100 basis points in the quarter. We're encouraged by that improving momentum. Independents, according to Circana, accelerated, as I mentioned in my prepared remarks, about 100 basis points, slightly less than that. You know, it's improving, but not to the extent we'd like to see it. I'm hopeful that that will continue to improve. We've kind of seen the turn on the bottom here for our results. We accelerated our case growth with independents throughout the second quarter. I mentioned in my prepared remarks, ended up in June about 3% that carried over to July.

We're encouraged by what we see in the early days of August so far. Thank you very much. Thank you. Your next question comes from the line of Brian Harbor from Morgan Stanley. Your line is live. Hi, this is Hilary Lee on for Brian Harbor. I just want to talk about the sales guide and the sales dynamics for the Corp. You're tracking around 4% year to date at the low end of guidance. What kind of gives you guys the confidence to maybe reach the midpoint or even higher for the rest of the year? I point to two things and, as we commented, we did have a strategic exit in the chain business early in the second quarter.

We have since are in the process of onboarding a few new concepts and we were encouraged to and believe that that will accelerate in the back half of the year. In my comments just to the last question, on the independent side, we've seen acceleration as we finish the second quarter. We're encouraged by what we see in July and August and we would expect those volumes to accelerate in the back half of the year as well. Got it, thanks. Just to follow up, inflation seems pretty tempered this quarter compared to prior quarters and from what we've been hearing across the restaurant industry. Could you talk about what you're seeing, particularly kind of interested in beef and eggs as we've kind of seen the inflation in those categories go up the past couple months. Derek, this is Dirk. You're right, it has tempered.

The quarter was less than it was last quarter. You've seen several center plate categories, to your point, either moderate or see some sequential deflation. Both eggs and beef squarely fit within there. I'd say broadly speaking, grocery continues to see very modest inflation in center of the plate. Overall, as a basket, it is still seeing a little higher inflation but, as you pointed out, definitely seeing some moderation from where it had been, so well within the range of the 2% to 3% that we all talk about that we like as an industry. You see through the first half of the year we're basically right on between that and mix with our 3% that's embedded in our modeling assumption. Your next question comes from the line of John Eimbuckle from Guggenheim. Your line is live. Hey Dave, wanted to start with your thoughts on expanding the salesforce.

Right. I think you've always said, I guess mid single digit, 4 to 5, thoughts on that today, sort of the quality of people you're onboarding. I know it's been a bit of a struggle for all of you guys to improve wallet penetration. Is there something that can sort of jumpstart that going forward or is that just going to be a challenge for all of you? Yeah. Good morning John. Appreciate the questions. We will stay in that mid single digit. I think I bracketed around the 4 to 6% salesforce growth and I've been trying to be clear about regardless of what's going on with the macro, we think that is the right number for us in order to be able to support the development and onboarding of those sales reps and feather them into our organization. We don't anticipate anything changing.

That second question you had there was around the quality of the sellers. I continue to be very excited about the quality of the incoming hires that we've had. We've seen no change or degradation in that. We are able to attract high quality sales talent into the organization. I think to your point around penetration, the industry's been challenged for a couple years. We're just coming off of eight consecutive quarters of Black Box data being down quarter over quarter, and penetration has been a challenge. Independents have not been immune to that. I was encouraged to see our penetration, albeit still pressured, improve from Q1 to Q2 slightly on the independent side. We think that as a turn potentially and a sign of good things to come. I would say the thing that we're most excited on the penetration side is Pronto.

As I've stated before, that enables us to compete against the part of the market, particularly the specialty suppliers that historically we haven't had the service model to compete against. With the uplift in case growth we're seeing as we expand Pronto across the company, that gives me real encouragement around that penetration ramping up in the future. I don't think you talked about UMass and where we are in that rollout and its contribution to productivity. Where are we and how do you think about that relative to the Descartes contribution? Great question. I didn't mention UMass this morning. We have UMass across 37 markets and we're currently in live deployment. In addition, by the end of the year we expect to be live and complete across more than 60 of our 74 markets. We haven't forgotten about UMass with things like Descartes.

That has certainly taken the priority for us. As you see, we've ramped that up now to 65 markets covering 90% of our miles. It's really just been a prioritization effort for us, John. I'm pleased with the progress we've seen in UMass, the consistency in our operating practices that brings. I think that means good things for productivity and the quality of product that our customers are going to get in the long term. We're moving it all ahead. Your next question comes from the line of Kelly Dania from BMO Capital Market. Your line is live. Good morning. Thanks for taking our questions, Dave. The quarter and the year and the last few quarters continue to be strong on a bottom line perspective.

I guess there's a little bit of investor questions just about the top line and the case growth and if there is starting to get any risk of maybe cutting expenses too aggressively. Maybe can you just talk to that and why that's maybe not a concern or something that investors should worry about and maybe just any sort of timeline on when we should expect that case growth and EBITDA growth to get a little bit more in balance with your longer term plan. I'd point you to my earlier comments around the expectation that case growth would continue to accelerate in the back half of the year. We've got line of sight to that happening.

I feel really good about it and I think, Kelly, for the past 18 months or so, given the industry pressure, our ability to drive the double-digit EBITDA growth and hit our algorithm in the new long range plan should give investors confidence that as the volumes come back in the industry and we continue to accelerate our growth on the top line, it's really going to mean very, very good things across the P&L. I'm not concerned personally. Obviously, I'd like to see the top line be stronger. We're working on that aggressively and I have an expectation that it will do just that. Kelly, the other thing that I would add is if you look at what's driving a lot of our margin expansion, it really isn't just an OpEx reduction. We are seeing some good productivity offsetting a portion of cost inflation.

However, we've got a number of the initiatives across gross profits, whether it be the cost of goods, the customer mix, private label, the inventory management that we talked about that are all contributing. There's not a single thing. I think it really demonstrates that portfolio of initiatives that we have faced throughout our long range plan and that's why we have such confidence in our ability to continue to deliver on this outcome. Last thing I would say, I came in day one, two and a half years ago talking about the importance of 3 to 5% productivity. You see us delivering that and as Dirk says all the time, we are doing this in a very healthy and sustainable way for the business. Thank you. Thank you. Your next question comes from the line of Alex Slagle from Jefferies. Your line is live.

Hey, thanks and congrats on the momentum here. Wanted to ask on the net new independent account growth, how that's been accelerating. I know that's a key driver and source of visibility and confidence for you, just hitting the independent case growth targets. You had talked about the new gen AI automatic order guide, and I know that was rolled out a couple quarters ago and was driving some of the acceleration in March and April and I imagine that's continued. Wanted to get a sense for just how fully your sales team's already learning how to fully harness some of this and the learning curve there.

Sometimes it takes a little bit, but just wanted to kind of understand what that learning curve looks like and the potential benefits ahead as they start to figure that out and get the muscle memory and, you know, use these tools better and really set in and maybe just a little bit more color that what gives you confidence. Yeah, sure. Good morning, Alex, and thanks for the questions. On the net new generation, we're excited that we had the highest level since the fourth quarter of 2023. As you hear us say all the time, the lifeblood of our growth is that net new account generation. It's clear our teams are very focused on that. As we continue to take market share and onboard new net new customers, that also informs my confidence in the future of us continuing to ramp up that growth.

I feel very, very good about that. Our sales team's intensely focused on that and we'll remain focused on that well into the future. To your point, on the generative AI stuff, we continue to deploy that across the company. The automated order guide we spoke about continues to get very good traction and we're making that very easy for our sellers to adopt and just help make it easier to create the right recipes for our customers to drive that growth around their proposals. It's being well adopted and well accepted by our sales force. We continue to expect good things there. We continue to deploy AI across not only the sales part of the business, but also internally around our replenishment organization.

The way we do labor planning, AI is here to stay and we are embracing it fully to drive profitability, growth, productivity, and efficiency for our teams. Got it. Thank you. I had a follow up on the cost of good vendor management initiative, and you talked about reinvesting a portion of the savings this year to further accelerate the growth. Is there an example what that means and how we should think about that overall? Alex, that would be. This is not new, we do this regularly. It's part of driving these savings, the portion of giving a portion of it back through. Typically it comes in the form of whether it's customer promotions, customer incentives, in order to again pass some of that savings back on to customers. That's the primary way you see it show up. Again, it's not new.

It's as we drive these savings that have driven them. That's what we do. Your next question comes from the line of Ed Kelly from Wells Fargo. Your line is live. Hi, good morning everyone. Dave, I wanted to ask you, just maybe stepping back for a moment given we've learned a lot on this call. If you could just maybe assess the industry for us at the moment, you think about you're driving a lot of self help, so it's not surprising that you're very confident in your three year outlook. The industry has been softer. I'm curious, taking a step back, has your view on the industry started to change at all related to that or do you just simply attribute it to the macro?

Is that a catalyst at all for thinking about things like whether it's more transformational M&A or maybe even leaning in on tuck ins? I'm just curious because ultimately I think what we're all wondering is the case volume targets that you laid out over the three years or whether you can get back to those numbers. Yeah, I believe we can, with one caveat, Ed, and we were clear at investor day that 5% to 8% independent case growth, if that's what you're referencing, was predicated on 2% traffic growth, which was historical in the industry. As excited as we are about what seems to be a stabilization in the industry and Black Box improving and all that, the industry was still challenged and pressured. I feel that it's, I would describe it as soft but stable at this point. Softer than we'd like to see, but stable.

It's certainly not getting worse. I do attribute it to the macro as we've been talking about for a long time, which has seen a lot of pressure. More recently you've got tariff impacts. While that is a very minor impact to our company and to our customers, it's a big impact to the consumer. I think that uncertainty has kind of kept a little bit of the pressure and the lid on the industry for a while now. I fully expect this industry is extremely resilient. As I said in my prepared remarks, and continue to say, I believe there's a day coming, hopefully sooner than later, where we get back to that standard growth piece of it.

In the meantime, we continue to take market share, support our customers, drive cost and productivity, and make sure we're delivering as efficiently and cost effectively as we can for our customers, and importantly, position ourselves with our share gains to drive that top line growth into the future. All right, just one quick follow up. Health care, hospitality, sequentially, you know, a touch slower, not a big deal, but just kind of curious as to what the underlying momentum of demand looks like there, what the pipeline looks like on the new business side, and how you're thinking about the back half. Yeah, pipeline remains strong in both of those. You know, health care, we continue to take share, very solid numbers. Hospitality has followed a little bit more like the local customer piece of it.

Recall that historically we've been over indexed a bit to lodging, and so you see some of those consumer pressures, you know, less travel, those sorts of things. We've had a little bit of impact there. The pipeline remains strong, and we've shifted our focus, as we've talked about before, a bit away from lodging to drive growth in other segments that are growing inside of hospitality. We've got a solid pipeline, and we expect growth and share gains to continue in both of those. Your next question comes from the line of Jeffrey Berenstein from Barclays. Your line is live. Great, thank you. My first question is just on the independent case growth. I think you mentioned you're up now 3% or so in June and July, and I think you mentioned even early thought on August. Just wondering whether you're seeing, I think you just said stable.

It would seem like it's been somewhat volatile. I'm just wondering your level of confidence in that further acceleration in the second half. Unlike chain onboarding, it would seem harder to have independent visibility as they're all such small players, just your level of confidence that you can get that independent to accelerate further from here. Then I had one follow up. Yeah, we do have confidence, Jeff, and believe, you know, line of sight to new customer onboardings and all that. While they're not as large in any one area as a potential chain onboarding, you know, by region and by market, we do understand what our pipeline looks like. That's informing the confidence, as well as what I previously mentioned around our share gains and our continued focus on net account generation. Feeling good about my commentary there. Got it.

The follow up is just on the chain business. I think you said down 4% for the past quarter, but you have some unique drivers there. I'm just wondering, with the new account you're adding, how do you think about the right balance of chain versus total restaurants and how you think about the margin of those chains? It does seem like from an independent side you're hiring at a mid single digit clip but maybe growing a little bit below that. Just trying to figure out how you think holistically about balancing more of the uncertainty around independents versus perhaps the consistency of chains, but yet the different profitability profile of the two. Any thoughts would be great. Thank you. Yeah, we've got a large portfolio of chain business. We will always have a large portfolio of chain business.

I don't think the recent pressures of the industry or anything has shifted our strategy at all, which we've always said is an optimization play with the chain portfolio. It's not an area you will see us invest capital in to drive growth, to support, but it's very, very important baseload for our operations. When I say optimize, it's exactly what you see playing out in the second quarter. We'll continue to look to optimize the margin profile and find the right chains that support where we have capacity across our network to baseload those operations and drive a consistent volume approach to that. Nothing's really changed in our strategy and I don't expect it to. Your next question comes from the line of Jacob Aiken Phillips from Malleus Research. Your line is live. Hi, good morning.

First I wanted to ask if you could give a bit more color on Pronto raising the target. The target seems good, but I know initially there was some concern about, I guess I don't want to call it cannibalization, but you had to make it clear that it's a premium service. Any update on that and then any update on frequency of use and how it affects on a customer level? Say the last part of your question again, Jacob. How it affects what, like from a customer perspective, is it incremental or are they replacing some of their current drops with Pronto? Yeah, just high level again. We started Pronto several years ago. What we call Pronto legacy was aimed at new customers bringing those on board. It was just a little over a year ago where we started to drive what we call Pronto penetration.

To your point, our cautious approach to that out of the gate was aimed at two things and you said them both. One is making sure that we had the right margin profile because as I said we're competing largely against specialty suppliers which command a premium for the service, and secondly, making sure we weren't cannibalizing our broadline business. We've convinced ourselves of both. That's why we've had a thoughtful ramp up in Pronto penetration. We're in 15 markets now. I said earlier we'll be in a few more as time goes on. Encouraged, very encouraged by the uplift we've seen in case growth there. Importantly, that's opening up a part of the market that we didn't have the service offering for previously with Pronto penetration. I talk about Pronto all the time. I'd love to talk about it as long as you want to chat.

I couldn't be more excited about the Pronto platform that the team has built here and what it means for the future, and all that informed our confidence to take our target up from $1 billion to $1.5 billion by 2027. Good things happening in Pronto and more to come. Jacob, when we talk about the double-digit increase in those customers that are in the program, that's on a net basis. We still do watch for cannibalization across in penetration for those customers using both. Great. A lot of focus is on total case growth, but you've done very well on gaining market share even in a down environment, and when that flips is up for debate. Can you just update us on progress towards your market share goals and where you can go, maybe by customer type and geography, potentially in terms of market share targets?

We want to gain as much market share with our three targeted customer types as we possibly can. I'm encouraged by our consistency in our market share gains, particularly with independents and healthcare. I expect that will continue for a long time to come. As I said earlier, as that macro backdrop strengthens through the course of time, given the market share that we've consistently gained, that's going to mean very, very good things for us as we get a macro tailwind, which will happen in market share. It's really a steady, steady march. As Dave, you know, as we talked about with the 17 and 19 quarters in a row on independents and health care, it's every quarter, it's not a big pop.

You continue to gain and continue to build upon, and that's why that focus on the customer and the differentiation becomes important as we continue to gain market share quarter after quarter. Your next question comes from the line of Mark Cardin from UBS. Your line is live. Good morning. Thanks so much for taking the questions, guys. To start, I wanted to dig in a bit on the consumer. You mentioned broader tariff pressures continue to build more outside your industry than within it. If this continues and we see CPI begin to outpace wage growth, how impactful has that historically been for demand growth? Would you expect to see much trade between channels, trade out to food at home? Just your thoughts there. Overall, we've seen the consumer and the demand be relatively stable as Dave talked about.

Still not at the level of growth historically, but the fact that people still like to go out to eat is a positive and has been for multiple decades. You do see operators, it's a resilient group, and they continue to find ways to drive value and get customers in the door. I know from that I don't have a whole lot to add. I think that we do find, you may remember I talked about this a few times in the past, there's a study or two that's been done by third parties that showed through multiple economic cycles, up and down, people consistently spend a portion of their, the same 4 or 5% of their pay on dining out. They may, to your point, shift a little how they spend it, but overall it is something people continue to do and I think that's encouraging.

Our expectation is that independents do continue to be a bigger benefactor of that over the long term. That's great, thanks. On your independent case growth, are you seeing any pockets of particular geographic strength or weakness, any impacts in border regions? Just as a clarification, did Freshway have any impact on your independent case growth? Second one, no, immaterial, some light impact on the other one. I would just point to the strength that we have in the Southeast and the South in particular. To your point, we have seen some softness, particularly in the Pacific Northwest and Upper New England, where we see fewer folks coming across the border this summer than maybe in normal times and just a little general softness in the West relative to other regions. Nothing that's hugely material, but it does vary a bit.

Your next question comes from the line of Peter Saleh from Deutsche Bank. Your line is live. Great, thanks for taking the question. I guess a couple questions. First, on capital allocation with share repurchases. Given the potential conversations with Performance Food Group, just curious how you're thinking about capital allocation. Are you going to continue to be aggressive with share repurchases or will you retain some dry powder? I guess that's my first question. I'm not going to go into the second part again. Dave sort of made our comment on that. Ultimately, we think Q2 is a good proxy of our ongoing cash flow and how we think about share repurchases. We always balance what we spend on that versus our other capital priorities.

Pleased that we're able to continue to invest strongly in the business and at the same time deploy capital to share repurchases while lowering our leverage and continuing to be the strongest out there. Got it. My second question on the cost savings, I think you mentioned $110 million of cost of goods savings in 2025 and I think you mentioned a portion of that would be reinvested. If you could comment on how much of that will flow through, how much of that will be reinvested, and then how much above target do you expect to be in 2027 on that $260 million. Thank you. We're not going to specifically call out the variance versus the $260 million.

Again, it's still relatively early, but the takeaway is the confidence that we have from the work that team has done in order to be able to give us not only good progress to date but good line of sight as to the benefits we can get over time. Quite excited about that. The other piece, not specific on what we're reinvesting, but that's always part of as we drive benefits from whether it's gross profit initiatives, OpEx initiatives, and we consider where is the place that we can reinvest and continue to show value for the customers. Not a new concept, but something to think again. When you come back to that portfolio approach we take to how we drive value, it's just, it's another piece of it. Your next question comes from the line of Jake Bartlett from Truist Securities. Your line is live.

Great, thanks for taking the question. My first is on turnover and productivity. In the last call you gave us some updates and some quantification of how much turnover has improved. If you could just build on that, just see if there's any more progress. I think you were back to pre-Covid levels. Just wondering whether you've built upon that or whether you've kind of reached a steady state with turnover. I would just say, Jake, good morning. We've got a very good level of turnover in both drivers and selectors. As I said last quarter, we were back to pre-Covid levels or within line of sight to that. In both, I would say we've had consistent performance since then. Not something that's a concern for the business at all. We will continue to look for ways to drive that turnover down even further.

We feel good about where we are. Staffing is not an issue for us. It hasn't been for a long time. We feel good about our employee turnover. Great. The next is really a follow up on the comments on independent case growth. I guess for the industry versus your performance, you improved by about 100 basis points yourself. I think the industry improved 100 basis points. Just want to make sure that that's the case. That basically kind of holding share or maybe building. If you can just clarify that as well as the comments on June and July and the 3%, whether that reflects continued improvement for the industry or whether maybe your market share gains are accelerating. I'll take the second one first.

My comments were specific to us in terms of our June and July performance at 3% and encouraged by what we see in the early days of August. I would say, per the Sakana data, we grew faster than the market rebounded with independents. Hence my comments in the script that we took share in every month of the second quarter. Your next question comes from the line of Karen Holthouse from Citi. Your line is live. Hi, thanks for taking the question. It's great to hear that there is a little bit more strength in private label penetration year over year than we've seen, growing 80 basis points, still kind of at 53% mark. Do you think we're getting maybe past that kind of COVID snapback era where it was a little bit harder to kind of build on strength and maybe how you're thinking about that from here.

Yeah. Good morning, Karen. Thanks for the question. Yeah, we're excited about our private label penetration which has been ramping up consistently for the past 12 to 18 months. To your point, there was a real lull coming out of COVID. You know, supply was challenged for everything. When manufacturers came out of COVID they weren't as interested in producing our brands as they were their own. During that period of time, obviously our sales force lost confidence in selling our private label products just because we couldn't get them. That's been behind us for quite some time now. I'm really pleased with the ramp that we've seen in private label business, both with independents and in the rest of our business. Importantly, I see no near term ceiling to what that can be. We've got really good momentum.

Our sales force is excited about our products and I give our innovation team a lot of credit. We've got an exciting scoop launch planned for this fall. Our products in the spring are getting really good traction. We'll continue to innovate those products and bring great new private label brands to market. Great. Thank you. Thank you. Your final question comes from the line of Raul Crow from J.P. Morgan. Your line is live. Good morning guys. My question is on the Ducati. Like how iterative can the productivity gains get once this is deployed across the remaining markets and especially as we continue to add new accounts. Is 2% an ongoing productivity gain estimate we can think about. I have a follow up. Good morning. Thanks for the question. We think the 2% that we've talked about is the start.

You may remember, I've talked about this before, that we were pretty thoughtful when we're putting it in that we do think there's more productivity that will continue to come over the next few years as we get it in place. When you put something new like this in place, you don't want to turn the dials too hard because you don't want the, whether it's the customer experience or the social experience to be too different. We're very pleased. As we talked about Dave mentioned, record cases per mile for the quarter. We are seeing that continued productivity but just as much to come in the future years versus what we've already achieved. Thank you. The other one is on the Aurora warehouse facility. Can you discuss some preliminary economics for this facility?

Understand it's early, but anything you can share on relative productivity compared to traditional warehouses and any initial learnings that you can maybe apply to Austin? It's very early so we're not going to get into specific economics at this point. As we've talked a lot about, we're excited about having this live and ramping it up over the coming months. There will be learnings that come out of this that will apply from Austin. Hopefully, as you can appreciate, when you're multiple weeks in here, you're still in the early ramp up phase. This is something that we do expect to improve both the quality experience for the customer, for our associates, as well as the productivity. More to come as this gets in place for longer. There are no further questions. I will now turn the call back over to Dave Flitman for closing remarks.

Thanks, everyone, for joining us today. We're excited about our continued consistent execution in the business and the momentum that we have. We will be an earnings compounder for a long time to come. Thanks for joining us today. Have a great week. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.