US Foods Holding Corp. (USFD) Q2 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call summary suggests a positive outlook with strong financial metrics, optimistic guidance, and strategic initiatives like the Pronto platform and generative AI tools. The Q&A section reinforces this with confidence in case growth, market share gains, and productivity improvements. The reaffirmation of guidance and share repurchase program further supports a positive sentiment. Despite some industry pressures, management's confidence in growth and strategic initiatives indicates a likely positive stock price movement over the next two weeks.

Key Financial Performance

Adjusted EBITDA Record second quarter adjusted EBITDA of $548 million, a 12% increase from the prior year. Adjusted EBITDA margin reached 5.4%, a 40 basis point increase. Growth was driven by top-line growth, strong gross profit gains, and disciplined cost management.

Net Sales 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%.

Adjusted Gross Profit Adjusted gross profit was $1.8 billion, up 5% from the prior year. Growth was driven by volume growth, improved cost of goods, disciplined inventory management, and increased private label penetration.

Adjusted EPS Adjusted diluted EPS increased 28% to $1.19 per share. Growth was powered by earnings growth and accretive share repurchases.

Independent Restaurant Volume Independent restaurant organic volume grew 2.3% year-over-year. Growth was supported by market share gains and improved case growth.

Healthcare Volume Healthcare case volume grew 4.9% year-over-year, contributing to overall volume growth.

Hospitality Volume Hospitality case volume grew 2.4% year-over-year, contributing to overall volume growth.

Chain Restaurant Volume Chain restaurant volume declined 4% year-over-year, primarily due to a strategic exit, which negatively impacted total chain volume growth by approximately 300 basis points.

Share Repurchases Repurchased $250 million of shares in the second quarter, contributing to a total of $273 million in 2025 so far.

Operating Cash Flow Year-to-date operating cash flow increased by $104 million to $725 million, driven by earnings growth.

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Operating Highlights

Pronto small truck delivery service: Expanded to 44 markets with plans to add more. Expected to deliver over $900 million in sales this year and $1.5 billion by 2027.

Semi-automated facility in Aurora, Illinois: Began limited shipping from a new 310,000 square foot distribution center to improve efficiency, productivity, and safety.

Private label penetration: Grew by over 80 basis points to 53% with independent restaurants, offering high-quality, margin-driving products.

Market share gains: Achieved 17th consecutive quarter of market share gains with independent restaurants and 19th with healthcare customers.

Independent restaurant growth: Organic independent case growth accelerated to approximately 3% in June and July.

Healthcare and hospitality growth: Healthcare case growth at 5% and hospitality at 2.4%.

Routing productivity: Improved cases per mile by over 2% year-over-year and nearly 6% over two years, achieving the best performance in company history.

Inventory control processes: Implemented scanning technology, reducing errors and improving operational quality by 28% year-over-year.

Strategic vendor management: Delivered over $50 million in cost savings year-to-date, with a full-year target of $110 million.

Capital return strategy: Repurchased $250 million of shares in Q2, with $800 million remaining in the buyback program.

Potential merger with Performance Food Group: Exploring a combination to create economies of scale, operational efficiencies, and growth opportunities, though PFG has declined to engage so far.

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Risk or Challenges

Market Conditions: Restaurant foot traffic remained down 1.1% from the prior year, indicating potential challenges in consumer demand. Additionally, the divestiture of Freshway impacted total case growth by nearly 50 basis points.

Competitive Pressures: The company faces competitive pressures in the foodservice industry, as highlighted by the strategic rationale for a potential combination with Performance Food Group to achieve economies of scale and operational efficiencies.

Regulatory Hurdles: No explicit regulatory hurdles were mentioned, but the company’s forward-looking statements and risk factors in Form 10-K suggest potential regulatory risks.

Supply Chain Disruptions: The company is investing in semi-automated facilities to improve supply chain efficiency, indicating current inefficiencies or challenges in the supply chain.

Economic Uncertainties: Dynamic macroeconomic conditions were mentioned, which could impact consumer behavior and overall market performance.

Strategic Execution Risks: The company’s reliance on self-help initiatives and strategic vendor management to drive cost savings and margin improvements highlights the risk of execution failure. Additionally, the potential combination with PFG introduces strategic uncertainty.

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Guidance & Outlook

Net Sales Growth: Expected to be in the range of 4% to 6% for fiscal year 2025.

Adjusted EBITDA Growth: Updated guidance to 9.5% to 12% growth for fiscal year 2025.

Adjusted Diluted EPS Growth: Updated guidance to 19.5% to 23% growth for fiscal year 2025.

Interest Expense: Expected to be slightly lower at $300 million to $315 million for fiscal year 2025.

Independent Restaurant Volume Growth: Expected to build further momentum in growth rate through the back half of the year.

Chain Volume Performance: Expected to improve in the back half of the year due to onboarding of new business wins.

Pronto Program Sales: Expected to deliver over $900 million in sales in 2025 and reach $1.5 billion in sales by 2027.

Semi-Automated Facilities: Limited shipping began from the first new semi-automated facility in Aurora, Illinois, with further expansion planned in Austin, Texas.

Private Label Penetration: Expected to exceed the 2027 long-range plan commitment of $260 million in cost savings.

Inventory Loss Reduction: Expected to reduce inventory losses by over $30 million in 2025 with further savings opportunity in 2026.

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Shareholder Return Plan

Share Repurchase: 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.

Share Buyback Program: 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.

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Key Q&A

Q:Can you talk about any changes to your philosophy on M&A given the openness to engage with performance?

A:David E. Flitman stated that there is no change to their philosophy. He reiterated that the company explores strategic opportunities to create value for stakeholders and referred back to his prepared remarks.

Q:What are you seeing from the independent side at an industry level in terms of traffic dynamics?

A:David E. Flitman mentioned that chain restaurant traffic improved nearly 200 basis points quarter-over-quarter but was still down over 100 basis points. Independents accelerated about 100 basis points, slightly less than chains. He noted that their case growth with independents accelerated throughout the second quarter, ending June at about 3%, which carried over to July and showed encouraging signs in early August.

Q:What gives you confidence to reach the midpoint or higher of your sales guidance for the year?

A:David E. Flitman pointed to the onboarding of new chain concepts and the acceleration of independent volumes as key drivers. He expressed confidence in these factors contributing to growth in the back half of the year.

Q:What are you seeing in terms of inflation, particularly in beef and eggs?

A:Dirk J. Locascio noted that inflation has tempered compared to prior quarters. Categories like beef and eggs have seen sequential deflation or moderation. Overall, grocery inflation remains modest, and the basket inflation aligns with their 2%-3% industry target.

Q:What are your thoughts on expanding the sales force and improving wallet penetration?

A:David E. Flitman stated they will maintain mid-single-digit sales force growth (4%-6%) and are attracting high-quality sales talent. He acknowledged challenges in wallet penetration but noted slight improvement from Q1 to Q2. He highlighted the Pronto platform as a key driver for future penetration growth.

Q:Where are you in the rollout of UMass and its contribution to productivity?

A:David E. Flitman shared that UMass is live in 37 markets, with deployment ongoing in 10 more. By year-end, it will be live in over 60 of 74 markets. He emphasized its role in improving productivity and operational consistency.

Q:How do you address concerns about cutting expenses too aggressively and balancing case growth with EBITDA growth?

A:David E. Flitman expressed confidence in accelerating case growth in the back half of the year. He highlighted their ability to deliver double-digit EBITDA growth despite industry pressures. Dirk J. Locascio added that margin expansion is driven by productivity and gross profit initiatives, not just expense cuts.

Q:How is net new independent account growth progressing, and what is the impact of generative AI tools?

A:David E. Flitman reported the highest level of net new independent account growth since Q4 2023. He noted that generative AI tools like the automated order guide are gaining traction and helping sales teams drive growth. AI is also being used in replenishment and labor planning.

Q:What is the progress and impact of the cost of goods vendor management initiative?

A:Dirk J. Locascio explained that savings are reinvested in customer promotions and incentives. He emphasized the initiative's role in driving value and supporting long-term growth.

Q:What is your assessment of the industry and its impact on your case volume targets?

A:David E. Flitman described the industry as soft but stable, attributing challenges to macroeconomic pressures. He remains confident in their ability to meet case volume targets, supported by market share gains and self-help initiatives.

Q:What is the momentum in healthcare and hospitality segments?

A:David E. Flitman noted strong pipelines and continued share gains in healthcare. Hospitality has been softer due to consumer pressures and less travel, but they are shifting focus to other growing segments within hospitality.

Q:What is your level of confidence in accelerating independent case growth in the second half?

A:David E. Flitman expressed confidence based on new customer onboarding, share gains, and net account generation. He highlighted their consistent market share gains as a positive indicator.

Q:How do you balance chain and independent business growth, considering profitability differences?

A:David E. Flitman stated that chain business is optimized for margin and baseload operations, while independents are the focus for growth investments. He emphasized the importance of balancing both segments strategically.

Q:What is the progress and impact of the Pronto platform?

A:David E. Flitman highlighted Pronto's expansion to 15 markets and its role in opening new market opportunities. He expressed confidence in its ability to drive case growth and raised the target from $1 billion to $1.5 billion by 2027.

Q:What are your market share goals and progress?

A:David E. Flitman emphasized consistent market share gains, particularly with independents and healthcare. He expects continued gains and highlighted their ability to capitalize on future macroeconomic tailwinds.

Q:What is the impact of tariffs and macroeconomic pressures on the industry?

A:Dirk J. Locascio noted that tariffs have a minor direct impact on the company but significantly affect consumers. He emphasized the industry's resilience and the importance of operators driving value to attract customers.

Q:What is the progress of the Aurora warehouse facility and its impact on productivity?

A:Dirk J. Locascio stated that it is too early to provide specific economics but expects the facility to improve customer experience, associate experience, and productivity. Learnings from Aurora will be applied to the Austin facility.

Q:What is the status of turnover and productivity improvements?

A:David E. Flitman reported that turnover levels for drivers and selectors are back to pre-COVID levels and remain stable. Staffing is not an issue, and they continue to focus on reducing turnover further.

Q:What is the progress of private label penetration?

A:David E. Flitman noted consistent growth in private label penetration over the past 12-18 months. He highlighted innovation efforts and upcoming product launches as drivers for continued growth.

Q:Review of Unclear Management Responses

A:Management avoided giving a direct answer to the question about potential changes to their M&A philosophy, referring back to prepared remarks without providing additional details.

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Earnings Word Cloud

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