US Foods Holding Corp. Q1 FY2025 earnings call

Culture

• Injury and accident rates were 12% better than prior year, 38% improvement over past two years; aim for zero injuries. CEO award ceremony celebrated associates. Increased strategic investment in helping communities program, donated $250,000 to giving kitchen and renewed American Red Cross partnership.

Service

• On-time delivery and service levels at best since 2019. Ops QC metric improved ~20% from prior year, best since Q1 2021. Cart routing platform deployed in 50 markets (nearly 70% of routed miles), on track to be fully deployed by year-end. Launched generative AI automatic order guide for sellers to improve efficiency in creating customer proposals and onboarding new business.

Growth

• Continues to invest in Pronto small truck delivery service, with Pronto penetration in 10 markets and plan to be in 20 markets by end of 2025. Gained new business in healthcare and hospitality, with over $100 million in annualized new business wins across hospitals, senior living, lodging, and recreation facilities. Scoop products surpassed $1 billion in annual sales in 2024.

Profit pillar

• Adjusted gross profit grew 5% to $1.6 billion driven by volume growth, improved cost of goods savings, and increased private label penetration. Private label penetration increased 90 basis points to 34%, core independent restaurant penetration grew nearly 50 basis points to a quarterly record. Associate retention improved, with annualized selector turnover up ~20 percentage points and driver turnover up low single-digits. Administrative cost actions expected to generate $30 million in expense savings in 2025, in addition to $120 million in annualized operating expense savings from last year.

First quarter net sales increased 4.5% to $9.4 billion, driven by case volume growth of 1.1% and food cost inflation and mix impact of 3.4%. Independent restaurant volume grew 2.5% including 120 basis points from acquisitions. Healthcare growth was 6.1% and hospitality accelerated to 3.6%, while chain restaurant volume declined 4.3%. Adjusted EBITDA grew 9.3% to $389 million. CHEF'STORE represents less than 5% of total EBITDA.

Reaffirmed fiscal 2025 guidance: expect adjusted EBITDA growth of 8%-12% and adjusted diluted EPS growth of 17%-23%; sales growth of 4%-6%. Given softer backdrop, now expect total case growth of 1%-3%, including independent restaurant case growth of 2%-5%. All other modeling assumptions remain unchanged.

• Macro environment impact on demand. - Tariffs affecting imported products, with mid to high-single-digit percentage of purchases likely subject to tariffs. - Competitive intensity in the highly fragmented food service distribution industry.

Q: Edward Kelly on self-help momentum and guidance update A: Dave and Dirk discussed the strength of the self-help strategy, differentiation of the business model, and confidence in hitting the guidance range. Dave noted good momentum in independent case growth with strong net new account generation in April.

Q: Kelly Bania on expense levers and turnover A: Dave and Dirk explained the $30 million incremental expense savings, with the actions beginning to show savings. On turnover, sales force turnover is consistent with historical levels, and supply chain turnover is at best in five years with no staffing issues.

Q: Lauren Silberman on independent case growth and competitive environment A: Dirk discussed that independent case growth is at the lower end of the range but expected to move higher, driven by net new account generation. On competition, the industry is highly fragmented with smaller competitors driving intensity, but the big three continue to take share.

Q: John Heinbockel on lines per account, sales force hiring A: Dave noted lines per account are stable, with penetration challenged by foot traffic. Sales force hiring is mid-single digits, aligning with long-term strategy.

Q: Matthew Rothway on chain, healthcare trends, sales force hiring A: Dirk discussed chain business aligning with broader softness, focus on independent, healthcare, and hospitality for growth. Sales force hiring is mid-single digits as part of the long-term strategy.

Q: Alex Slagle on COGS vendor management, tariffs, OpEx per case A: Dirk stated no slowdown in COGS negotiations, confident in $260 million COGS savings over three years. OpEx per case increase due to weather-related inefficiencies, but GP per case growth continues to outpace OpEx.

Q: Jacob Aiken-Phillips on capacity, M&A A: Dirk mentioned investing in capacity with semi-automated facilities and no capacity constraints. On M&A, environment unchanged with team continuing to engage in pipeline.

Q: Jeffrey Bernstein on macro recovery, investment balance A: Dirk explained macro challenges with food away from home still growing, and investment in business for growth, balanced with share repurchases.

Q: Peter Saleh on independent restaurant formation, inflation A: Dirk noted restaurant formation declining, closures also declining. Inflation driven by protein and eggs, remaining in manageable range.

Q: Rahul Krotthapalli on GenAI tools A: Dave and Dirk discussed GenAI tools developed internally to increase sales force productivity, starting to see productivity gains.

Q: Andrew Wolf on acquisitions, sales mix A: Dirk explained acquisitions' impact on case growth is negligible going forward. Healthcare and hospitality over 25% of business, with growth in targeted segments.

Q: Jake Bartlett on Great Recession dynamics, downturn comfort A: Dirk discussed business resiliency during Great Recession, differentiation and self-help initiatives providing confidence in future downturns