US Foods Holding Corp. Q2 FY2025 earnings call

• Culture: Committed to zero injuries/accidents, with injury/accident rates 21% better than prior year and 35% improved over 2 years. Progress in sustainability, reducing Scopes 1 and 2 greenhouse gas emissions by 16% since 2019.
• Service: Improved routing productivity with Descartes rollout in 65 markets (90% of routed miles), achieved best cases per mile performance, made progress on Ops QC (nearly 28% improvement from prior year), and completed Net Promoter Score study showing MOXe platform advantage. Record independent restaurant e-commerce penetration of 78% and total company of 89%.
• Growth: Pronto small truck delivery service live in 44 markets with plans to add more, expanding to 15 markets for Pronto penetration, expecting $1.5 billion in sales by 2027. Began limited shipping from new semi-automated facility in Aurora, Illinois, and broke ground on semi-automated expansion in Austin, Texas.
• Profit: Second quarter adjusted gross profit $1.8 billion, up 5% from prior year. Strategic vendor management initiative delivered over $50 million in year-to-date cost of goods savings, with line of sight to exceed $260 million by 2027. Private label penetration with core independents grew over 80 basis points to over 53%.

In the second quarter, US Foods delivered strong financial results. Adjusted EBITDA was a record $548 million with a margin of 5.4%. Independent restaurant organic volume grew 2.3%, healthcare grew 4.9%, and hospitality grew 2.4%. Year-to-date, adjusted EBITDA grew 11%, adjusted EBITDA margin expanded by nearly 30 basis points, and adjusted EPS grew 27%. Independent volume growth was 2.7% year-to-date, with organic independent case growth accelerating from Q1 to Q2, and gaining share in every month of Q2. Healthcare and hospitality also contributed to overall volume growth with approximately 5% and 2.4% case growth respectively. Chain restaurant volume declined 4% in Q2, primarily due to a strategic exit.

US Foods updated fiscal 2025 guidance: expects net sales growth in the range of 4% to 6%. Raised the low end of adjusted EBITDA guidance to 9.5%-12% and adjusted diluted EPS guidance to 19.5%-23%. Also expects interest expense to come in slightly lower at $300 million to $315 million.

Potential risks include macroeconomic factors that could impact industry performance, competition in the foodservice industry, and uncertainties related to market share gains and execution of strategic initiatives.

Q: Could you talk about changes to M&A philosophy given openness to engage with Performance Food Group?

A: No change to philosophy, company from time to time explores strategic opportunities to create value for stakeholders.

Q: What's the industry outlook and impact on case volume targets?

A: Industry is soft but stable, attributed to macro factors, and company believes it can achieve case volume targets with continued execution.

Q: Color on Pronto raising the target and customer perspective?

A: Pronto has seen strong growth, with target raised to $1.5 billion by 2027, and it's an incremental service not cannibalizing broadline business.

Q: On capital allocation and share repurchase with potential PFG conversation?

A: Continue to balance capital allocation, with Q2 proxying ongoing cash flow and share repurchases aligned with cash flow and other capital priorities.

Q: On Descartes productivity gains and Aurora warehouse economics?

A: Descartes productivity gains start at 2% with more to come, Aurora warehouse is early with preliminary learnings to apply to Austin expansion.