US Foods Holding Corp. (USFD) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The company demonstrated strong financial performance with raised EPS guidance and positive case growth expectations. Pronto program expansion and semi-automation initiatives signal future growth. While some responses lacked specific quantifications, the overall sentiment from management was optimistic, with a focus on continuous improvement and leveraging AI for productivity gains. The positive feedback on sales compensation changes and a focus on margin improvement further support a positive outlook. Despite some uncertainties, the overall tone suggests a positive stock price movement in the short term.
Key Financial Performance
Adjusted EBITDA Grew 11% to a record of more than $1.9 billion, with a margin expansion of 30 basis points to 4.9%. This growth was driven by operational excellence, productivity initiatives, and cost of goods savings of more than $150 million.
Adjusted Earnings Per Share (EPS) Increased by 26% to $3.98, leading the industry and growing more than twice the adjusted EBITDA growth rate. This was attributed to operational leverage and share repurchases.
Net Sales Grew 4.1% to $39.4 billion, driven by market share gains, increased seller headcount, and the expansion of the Pronto delivery service.
Independent Restaurant Case Volume Grew 4.1% in Q4, marking the 19th consecutive quarter of share gains. This growth was attributed to strong net new independent account growth and acquisitions.
Healthcare and Hospitality Sales Grew 2.9% and 3.1% respectively in Q4, with healthcare achieving its 21st consecutive quarter of share gains.
Private Label Penetration Increased by approximately 90 basis points to nearly 54% with core independent restaurant customers, contributing to gross profit gains.
Cost of Goods Savings Achieved more than $150 million in savings in 2025 through strategic vendor management and inventory management improvements.
Gross Profit Per Case Increased by $0.23 or 2.9% in Q4, driven by cost of goods savings, reduced waste, and increased private label penetration.
Operating Expenses Per Case Increased by $0.02 or 0.3% in Q4, with productivity gains offsetting a portion of operating cost inflation.
Adjusted EBITDA Per Case Increased by $0.22 to $2.34 in Q4, reflecting strong leverage through gross profit and operating expenses.
Operating Cash Flow Generated nearly $1.4 billion in 2025, enabling investments in business growth, share buybacks, and tuck-in acquisitions.
Share Repurchases Repurchased 11.9 million shares for $934 million in 2025, contributing to adjusted EPS growth.
Tuck-in Acquisitions Completed 2 acquisitions for $131 million in 2025, supporting growth in target customer types.
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Operating Highlights
AI-driven ordering feature: Launched a new AI-driven ordering feature in the MOXe platform, allowing customers and sellers to upload photos, PDFs, and handwritten notes to seamlessly translate them into orders.
Pronto small truck delivery service: Expanded to 46 markets with plans to launch in 10-15 additional markets in 2026. Pronto generated over $1 billion in sales in 2025.
Fresh produce and center-of-plate protein offerings: Grew these categories with independent restaurants approximately 150 basis points faster than the industry in 2025.
Independent restaurant case volume: Grew 4.1% in Q4 2025, marking the 19th consecutive quarter of share gains.
Healthcare and hospitality sectors: Healthcare grew 2.9% and hospitality grew 3.1% in Q4 2025, with 21 consecutive quarters of share gains in healthcare.
Pronto next-day service: Introduced in mid-2024, now live in 24 markets with plans to expand to 10 additional markets in 2026.
Cost of goods savings: Achieved over $150 million in savings in 2025, with a revised target of $300 million by 2027.
Routing efficiency: Completed deployment of Descartes routing system, improving cases per mile by approximately 2%.
Private label penetration: Increased penetration by 90 basis points to nearly 54% with core independent restaurant customers.
Inventory management: Enhanced processes to eliminate waste, resulting in $40 million in gross profit benefit in 2025.
Sales compensation structure: Transitioning to a 100% variable commission structure for the local sales force, expected to be fully implemented over 2-3 years.
Capital allocation strategy: Repurchased $930 million in shares and completed two tuck-in acquisitions for $130 million in 2025.
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Risk or Challenges
Macroeconomic Environment: The company faced a softer macro environment in 2025, which could continue to pose challenges to growth and profitability.
Chain Restaurant Foot Traffic: Foot traffic in chain restaurants declined by 2.8% in Q4, impacting the company's chain business, which was down approximately 3.4%.
Weather-Related Disruptions: Severe weather events, including winter storms, caused disruptions in Q4 2025 and early 2026, negatively affecting case volume and operational costs.
Lower Income and Younger Demographic Demand: Demand from lower-income and younger demographics was challenged, affecting industry demand and the company's volume acceleration.
Transition to Variable Compensation Structure: The transition to a 100% variable compensation structure for the sales force may take 2-3 years and could create short-term disruptions or resistance among employees.
Operating Expense Inflation: The company continues to face operating expense inflation, which requires ongoing productivity improvements to offset.
Supply Chain Productivity: While progress has been made, further improvements in routing efficiency and inventory management are needed to sustain cost savings.
Weather-Related Closures in 2026: Widespread weather-related closures in January and February 2026 have already caused significant disruptions, with 35% more distribution center closure days compared to Q1 2025.
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Guidance & Outlook
Fiscal Year 2026 Guidance: The company expects to grow total company net sales by 4% to 6% compared to the prior year, driven by total case growth of 2.5% to 4.5%. Independent case growth is projected at 4% to 7% for the full year. Adjusted EBITDA is expected to grow 9% to 13%, and adjusted diluted EPS is projected to grow 18% to 24%. The fiscal year includes a 53rd week, which is expected to add approximately 1% to total case growth and adjusted EBITDA growth.
First Quarter 2026 Outlook: Due to severe weather-related disruptions in January and February, first quarter adjusted EBITDA is expected to grow in the upper single-digit range over the prior year. Despite these disruptions, the company expects to achieve its full-year 2026 guidance.
Long-Term Financial Targets (2025-2027): The company remains confident in achieving its 2027 goals, including generating more than $4 billion of cumulative operating cash flow over the 2025-2027 period. Adjusted EBITDA margin is expected to expand further, supported by cost-saving initiatives and operational improvements.
Cost-Saving Initiatives: The company now expects to deliver at least $300 million in cost of goods savings over its 3-year plan, up from the original $260 million goal. Additionally, indirect cost savings are projected to exceed $100 million by 2027, up from the prior estimate of $90 million.
Growth Drivers: The company plans to expand its Pronto small truck delivery service to 10-15 additional markets in 2026. Pronto next-day service is expected to add approximately 10 markets in 2026. Private label penetration is projected to grow further, with significant opportunities to drive penetration higher.
Sales Compensation Transition: The company is transitioning its local sales force to a 100% variable commission structure, with the rollout expected to begin mid-2026. The transition may take 2-3 years to complete for the majority of the sales force.
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Shareholder Return Plan
Share Repurchase: In 2025, US Foods repurchased approximately $930 million of its shares. Since 2022, the company has repurchased 36.1 million shares for $2.2 billion. The company has approximately $1.1 billion remaining under share repurchase authorizations.
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Key Q&A
Q:Could you provide more color on quarter-to-date volumes and the underlying momentum in the business, especially in light of weather impacts?
A:David Flitman explained that Q1 started strong, rebounding from Q4's weather and government shutdown impacts. Early January was stronger than Q4's exit, but weather caused choppiness. Post-weather, momentum returned to early January levels. Q4 had the strongest organic independent case growth in 2 years, driven by net new independent account generation.
Q:Can you elaborate on inflation guidance and its impact on gross profit per case?
A:Dirk Locascio stated that disinflation had a slight negative impact in Q4, but strong results were still achieved. Inflation is still present year-over-year, and the company relies on self-help initiatives as the primary driver of gross profits.
Q:What is the impact of the 7% sales force expansion on local case growth and net account growth?
A:David Flitman clarified that the 7% includes internal transfers, with external hires in the 4%-5% range. Productivity from these hires will ramp up in the back half of 2026. Lost accounts remain stable, and the focus is on net new accounts for growth acceleration.
Q:What drove the strong OpEx per case performance in Q4, and is it sustainable?
A:David Flitman attributed the performance to initiatives like UMOS (80% implemented) and Descartes (2% increase in cases per mile). These initiatives are expected to continue delivering benefits. Dirk Locascio noted that year-to-year shifts can cause quarterly variations, but overall cost management remains effective.
Q:Is net new business growth primarily driven by headcount growth or existing salespeople expanding their book of business?
A:David Flitman stated that growth comes from both increased productivity of the existing sales force and consistent hiring over the past 3 years. Promotional activity remains stable, with no significant changes.
Q:What is the timeline and feedback for the sales compensation model change?
A:David Flitman explained that transitioning to 100% commission could take a couple of years. Feedback has been positive, with improved turnover rates among experienced cohorts. The rollout is being handled thoughtfully to ensure smooth transitions.
Q:Can you provide a deeper dive into the customer types and cadence for case growth in 2026?
A:David Flitman highlighted strong pipelines in healthcare and hospitality, with $100 million in onboarding expected to complete by Q1. Independent case growth is expected to ramp despite tougher comps, driven by strong sales force focus and leadership.
Q:What is the expected impact of the sales compensation model change on case growth over time?
A:David Flitman believes the change will unleash the sales force's potential, driving growth and aligning with business objectives. The rollout is expected to be neutral to positive in the short term and beneficial over time.
Q:What is the outlook for M&A activity, and are there opportunities for more sizable deals?
A:David Flitman emphasized a focus on tuck-in M&A for local market density. Larger deals are not a priority, but the company remains open to opportunities. Dirk Locascio noted that multiples remain rational, and the company balances M&A with share repurchases.
Q:What are the key drivers for margin improvement in 2026?
A:Dirk Locascio mentioned vendor management, inventory management, and indirect costs as key drivers. Continuous improvement initiatives are expected to sustain margin growth, with no significant changes in trajectory.
Q:What is the impact of AI capabilities on sales force productivity and customer engagement?
A:David Flitman stated that AI enhances sales force productivity by automating tasks and improving customer engagement. The company is exploring further AI applications for training and operational efficiency.
Q:Are there any areas where execution is not meeting expectations?
A:David Flitman expressed confidence in the team's execution but emphasized continuous improvement across the organization. Opportunities for enhancement exist in various areas of the business.
Q:What is the impact of Pronto on independent case volumes and wallet share?
A:Dirk Locascio noted meaningful double-digit uplifts in markets with Pronto, with no significant cannibalization of core broadline business. Pronto is expected to remain a growth driver.
Q:What are the levers to push private label penetration higher?
A:David Flitman highlighted the profitability and quality of private label products. With 25% of independent restaurant customers having over 70% penetration, there is significant room for growth. Innovation and sales force incentives support this strategy.
Q:What is the expected impact of GLP-1 drugs on the restaurant industry and US Foods' business?
A:David Flitman stated that healthier menu options and portion sizes align with US Foods' capabilities. The company is well-positioned to adapt to any shifts in customer preferences.
Q:What are the key factors influencing the 4%-7% independent case growth guidance?
A:David Flitman stated that the midpoint assumes a consistent macro environment. Downside in foot traffic could lower growth, while upside factors like tax refunds could push growth higher.
Q:What is the impact of labor contracts on OpEx per case?
A:Dirk Locascio stated that labor contract increases are consistent with prior years and are not expected to significantly impact OpEx per case. Productivity initiatives are expected to offset cost pressures.
Q:What are the opportunities for AI in sales force training and deployment?
A:David Flitman mentioned that AI could enhance training and productivity, allowing salespeople to handle more clients effectively. The company is exploring AI applications to further improve efficiency.
Q:What is the outlook for CapEx in 2026, and how much is allocated to Pronto?
A:Dirk Locascio stated that Pronto is a meaningful portion of the CapEx increase, along with investments in building and maintenance. The company aims to leverage these investments for strong EPS growth.
Q:What is the outlook for EPS growth beyond 2027?
A:David Flitman emphasized that US Foods aims to be a double-digit earnings compounder for the long term, with no changes to the current growth trajectory.
Q:Review of Unclear Management Responses
A:Management avoided providing specific quantifications for certain initiatives, such as the exact impact of vendor management and indirect costs on margins. Additionally, they did not provide detailed metrics on the expected uplift from the sales compensation model change or the AI tools' impact on sales force productivity. Responses to questions about the macro outlook and GLP-1 drugs were also somewhat general, lacking detailed data or projections.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI capability
Descartes
MOXe
Pronto
Vice President
allocation framework
center plate
class
closure
commission
compensation structure
credit rating
distribution center
dollar basis
effort
feedback
force term
improvement Slide
industry margin
launch
plan goal
point record
produce
productivity gain
relief
resilience model
return capital
rollout
sale leader
share industry
share tuck
shareholder value
start
structure sale
term driver
transition
tuck acquisition
value creation
waste inventory
weather
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The company demonstrated strong financial performance with raised EPS guidance and positive case growth expectations. Pronto program expansion and semi-automation initiatives signal future growth. While some responses lacked specific quantifications, the overall sentiment from management was optimistic, with a focus on continuous improvement and leveraging AI for productivity gains. The positive feedback on sales compensation changes and a focus on margin improvement further support a positive outlook. Despite some uncertainties, the overall tone suggests a positive stock price movement in the short term.
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