Good day, and welcome to PFG's Fiscal Year Q4 2025 Earnings Conference Call. If you would like to ask a question at the conclusion of prepared remarks, please press the star key followed by the number 1 on your telephone keypad at any time. I would now like to turn the call over to Bill Marshall, Senior Vice President, Investor Relations for PFG. Please go ahead, sir.

Thank you, and good morning. We're here with George Holm, PFG CEO, Patrick Hatcher, PFG CFO, and Scott McPherson, PFG's COO. We issued a press release this morning regarding our 2025 fiscal fourth quarter results, which can be found in the investor relations section of our website at pfgc.com. During our call today, unless otherwise stated, we are comparing results to the results in same period in fiscal 2024. Any reference to 2025, 2026, or specific quarters refers to our fiscal calendar unless otherwise stated. The results discussed on this call will include gap and non-gap results adjusted for certain items. The reconciliation of these non-gap measures to the corresponding gap measures can be found at the back of the earnings release. Our remarks on this call and in the earnings release contain forward-looking statements and projections of future results please review the cautionary forward-looking statement section in today's earnings release and our sec filings for various factors that could cause our actual results to differ materially from our forward-looking statements and projections with that i'd like to turn the call over to george thanks bill good morning everyone and thank you for joining our call today i'm excited to review our company's progress through fiscal 2025 and provide our current thoughts on the industry and external environment.

PFG finished the fiscal year with excellent results and momentum to set us up for a strong 2026. While the food away from home industry is still not quite operating at a level we would like, our company has executed our strategy to take market share and win new business while improving our margins. In 2025, we grew our top line and have now exceeded the $63 billion mark. Importantly, we grew our bottom line even faster through a combination of improving business mix and diligent focus on our gross and operating margins. As we highlighted at our investor day in May, PFG has carved out a unique niche in the food away from home market. Our range of capabilities of our associates to aggressively pursue new business anywhere that consumers purchase food away from home, with little restriction on where we can grow. At the same time, there is still ample white space for us to grow into over time, which we believe provides a runway of strong top and bottom line performance for many years to come. We would not be in this position without the cooperation across our three segments, food service, convenience, and specialty. At Investor Day, we described our PFG One strategy, which is focused on capturing top and bottom line opportunities across the entire PFG platform. As we closed out the fiscal year, all our business units were contributing to our performance. Through a volatile market, each business gained momentum. We're excited about PFG's potential in 2026, as we expect to propeller results to new highs. In a moment, Patrick will provide a detailed review of our financial outlook. We are often asked how we are able to outperform and win market share at such a consistent clip. The simple answer is it starts with our 43,000 dedicated associates. We hire the best in the industry and give them the autonomy to build and grow business. In the fourth quarter, we continue to hire food service sales reps at a very aggressive rate, ending the year with an 8.8% increase compared to prior year. We are not slowing down this important investment in our business. As I mentioned earlier, the industry backdrop has room to improve, and I'm confident that we will see better trends in the future. The investments we are making in our people now will enable us to significantly accelerate growth as the industry finds its footing. Our efforts are producing results. As you know, our organization targets 6% independent restaurant case growth or better. While we were not quite at that level in 2025, I am proud of what we were able to achieve. For the full year, we grew organic independent cases by 4.6 percent, despite facing several difficult periods. If we exclude just a February result, which was heavily impacted by severe weather, our independent case growth would have been 5 percent. In the fourth quarter, our independent cases were up 5.9 percent organically, with consistent results in each of the final three months of the fiscal year. This is encouraging as we enter 2026, and we believe we'll go right around the 6% growth level for the full year. We have also seen success growing our chain business profitably. Over the past several years, we have shifted our portfolio of chain restaurant towards high-performing customers who are growing. We are excited to have partnered with several new accounts through the year, generating 2.2 percent case growth over the full year and four and a half percent case growth in the fourth quarter we still have a robust pipeline of potential new accounts that the team is working diligently to secure which will provide additional growth overall our food service segment had an outstanding 2025 and we believe is poised to produce an even better 2026 despite several casual chains experiencing sales declines. We also closed the year strong in our convenience and specialty segments. Both organizations executed their strategic plans and saw sequential improvement into the end of the year. In convenience, the total industry continues to see mid-single-digit sales declines across many of the key categories. By adding new accounts, broadening our food service offerings, and partnering with strong customers, convenience produced positive case growth in each of the four quarters with a stronger performance in the second half of the fiscal year. It's hard to overstate what an accomplishment this is in the current environment. A strong focus on procurement opportunities and cost management generate a double-digit profit growth for the convenience segment over the full year. Even with a very difficult fourth quarter comparison, convenience grew adjusted EBITDA and is entering 2026 with a great deal of momentum. Our specialty business faces historically high prices across the candy and snack industry. High competition in the theater channel and financial struggles for several customers in 2025. The organization rose to the occasion by securing new business, identifying efficiency gains, and fostering collaboration across our broader organization. These concerted efforts led to continuous improvement throughout the fiscal year. As we enter fiscal 2026, our financial position is strong and we're continuing to execute our balanced capital allocation plan, bringing our balance sheet back within our target range over the next several quarters. We'll also continue to look at disciplined M&A, where we have a track record of delivering sustainable growth across our three business segments. Before I turn the call over to Scott, I want to take a moment to address U.S. Foods' statements from last week. PFT's board has a track record of regularly evaluating a range of potential paths to generate shareholder value. We are committed to taking actions that are in the best interests of PFT shareholders and we will continue to focus on ways to deliver further growth and value creation. The outreach from U.S. Foods was a request for information sharing to explore regulatory considerations and potential synergies related to a possible business combination. We have a clear strategy in place to effectively build upon the company's position as a leading North American food and food service distributor in the food away from home market. We are executing at a high level, continuing to make progress on our three-year plan, and advancing toward the targets we outlined at Investor Day in May. We're doing this by aggressively pursuing new business and capitalizing on additional opportunities in the market while continuing to vest in our people. We expect to be well positioned to accelerate growth. PFG is building a formidable organization that is set up to grow and win for many years to come. Because of the successful execution of our strategy and our confidence in the path forward, any transaction action would need to clear a high bar on all fronts, value and speed and certainty to completion, taking into consideration associated risks, including regulatory, synergy, and integration risks. After careful consideration, the PFG Board determined that there was no basis to engage in the information sharing requested by U.S. Foods. We have demonstrated PFG's powerful value proposition across our three business segments, have strong momentum underway, and have conviction in the value-creating potential of our strategy. That is all we have to share today on this subject, and when we get to Q&A, we ask that you keep questions focused on our results and outlook. I'd like to conclude my remarks by highlighting how proud I am of our team's efforts throughout the year and how excited I am about what lies ahead in 2026 and beyond. With that, I'll turn it over to Scott. Scott?

Thank you, George, and good morning, everyone. I'm excited to take you through our recent performance and discuss how we plan to continue our success in 2026. As George mentioned we had a strong finish to 2025 picking up momentum into the summer months and maintaining strong growth in the early days of fiscal 2026. despite an imperfect backdrop our team is executing at a high level which is reflected in our results and outlook we plan on building upon this momentum in the months ahead let's walk through a number of areas where we've had success due to the strategic actions we've taken starting with our food service business as george described we were able to accelerate our performance in the quarter through a combination of strong execution and broader market improvement restaurant foot traffic has improved month by month and while it declined year over year during the quarter our food service organization was able to offset this headwind with new accounts and increased penetration into existing accounts, driving our nearly 6% organic independent case growth for the quarter. Our commitment to adding high-quality sales force talent is unwavering and a key component to our growth. In Q4, our total organic independent case growth accelerated 250 basis points sequentially, which was faster than the rate of industry foot traffic improvement, showing our consistent ability to take market share there are several factors underpinning this success in the quarter we grew new independent accounts by 5.3 percent the highest level in 2025 it is also the first time in 2025 that total organic case growth was greater than new account additions which translates to increased penetration within existing accounts we also saw our lines per drop increase in the quarter which has been a consistent component of our success our ability to increase penetration and grow lines per drop despite industry-wide foot traffic declines is a very positive sign for our long-term growth potential we believe that the industry will continue to recover at which point pfg will be very well positioned to accelerate total case growth in addition our chain business performed extremely well in the quarter while our independent business and its contributions to profitability often gets the headlines, our chain business continues to be a valuable contributor to our overall performance. Over the past few years, we have slowly transformed our chain business portfolio to align with our goal of faster and more profitable growth. The results of these actions are apparent in our fourth quarter, as we not only saw case and volume growth, but higher margin contribution. This success was achieved by winning new chain business with strong and growing partners, supported by long-term contracts that are beneficial to both PFG and our customers. We are also seeing positive signs from some of our legacy chain accounts, particularly in the casual dining space. While some casual dining chains continue to struggle, there is a subset that has seen success by creating a value proposition to attract foot traffic from consumers who are increasingly selective in their restaurant choices. We are thrilled to be partnering with several of these chains and are excited to see their growth in the months ahead. Overall, our food service organization is seeing accelerating results in both independent and chain business with higher profit contribution, setting the stage for a strong 2026. Turning to our convenience segment, while the backdrop for the total C-store industry remains consistently difficult, our organization was able to outperform and finish 2025 in a strong position. In fact, through 2025, our convenience segment sales growth accelerated in each of the four quarters. Cormark continues to grow case volume while facing an environment of total industry case declines. In key areas like food service and snacks, Cormark saw cases up low single digits despite low to mid single digit total industry category decline. This is through a combination of increased food service programs to existing customers and new account wins. I'd point you to our Investor Day presentation for more details on some of these key initiatives. Looking ahead, we are even more excited about what's in store. As we discussed briefly on our third quarter call, Hallmark has signed agreements with several new customers representing over 1,000 additional stores. We will be onboarding these stores through our fiscal 2026 second and third quarters. While there will be startup costs associated with onboarding this new business, we expect a nice contribution to our sales and profit growth in the second half of fiscal 2026. Finishing up our segment commentary with specialty, both net sales and adjusted EBITDA growth for the specialty segment saw a nice acceleration in the fourth quarter. Total net sales for specialty increased 4.1% in the quarter, an excellent recovery. Notably, the vending, office coffee services, retail, and value channels all experienced an upswing in sales performance during the quarter. Our e-commerce platform, while still small, also continues to grow at a double-digit clip. We have very high expectations for this area of the business over the long term. Overall, we are very optimistic about the future of specialty, despite some of the persistent growth hurdles and believe 2026 will build on this momentum. In summary, all three of PFG's operating segments accelerated their growth in the final quarter of the year and are well-positioned entering 2026. I'll now turn it over to Patrick, who will review our financial performance and outlook.

Patrick? Thank you, Scott, and good morning, everyone. This morning, I will review our financial results from our fourth quarter and full year, provide color on our financial position, and review the guidance we announced for 2026. We are pleased with our 2025 performance, ending the period in a strong financial position with momentum into 2026. In fiscal 2025, we achieved net sales above the midpoint of the long-term target range we announced in 2022, with adjusted EBITDA above the high end of the target range. The financial priorities we outlined at our investor day in May support our operating strategy and new three-year sales and adjusted EBITDA targets. We are focused on translating our profit into strong and stable cash flow, which we then look to deploy in value-creating investments and cash return to shareholders. We believe that these initiatives have put us on a path to deliver strong returns over the next three years. Some financial highlights from the quarter and year. PFG's total net sales grew 11.5% in the fourth quarter as strong underlying trends in all three of our operating segments were boosted by the addition of Jose Santiago and Cheney Brothers. As a reminder, we will begin lapping the Jose Santiago acquisition in the first quarter of 2026. We have one more quarter of incremental acquisition contribution from Cheney Brothers and will begin lapping these results in the second week of the second quarter. Total company cost inflation was about 4.3 percent for the fourth quarter, a slight sequential slowdown from the third quarter. The main driver of the lower inflation was in the food service area, which experienced product cost inflation of 2.5% in the quarter, more than a point lower than the third quarter. The deceleration in food service inflation was largely the result of lower year-over-year increases in poultry and dairy, somewhat offset by cost increases in other proteins, including beef and seafood. Specialty segment cost inflation was up 3.3 percent year-over-year and convenience costs increased 6.5 percent. We are closely watching product cost inflation. At this time, we are continuing to model low single to mid-single digit inflation in 2026. As a reminder, we source the majority of our inventory from domestic suppliers and therefore do not expect a material impact from tariff increases. Still, we are remaining vigilant and in close communication with suppliers and customers to be able to adjust, if necessary, as the situation evolves. We have historically been able to manage price swings, including both inflation and deflation, and expect to use a similar playbook going forward. Moving down the P&L, total company gross profit increased 14.6% in the fourth quarter, representing a gross profit per case increase of $0.17 as compared to the prior year's period. In the fourth quarter of 2025, PFG reported net income of $131.5 million. Adjusted EBITDA increased 19.9% to $546.9 million, topping our previously stated guidance range. All three operating segments contributed to our strong adjusted EBITDA performance. In particular, specialty saw a nice rebound to 9% segment adjusted EBITDA growth in the period. We are also particularly pleased with the convenience segment profit performance, which saw adjusted EBITDA growth of 4.8% in the quarter. This result was despite a difficult year-over-year comparison due to both a strong underlying performance and a large accrual true-up in the prior year period. Over the full year, the convenience segment increased adjusted EBITDA margins by 20 basis points. Diluted earnings per share in the fiscal fourth quarter was $0.84, while adjusted diluted earnings per share was $1.55, representing a 6.9% increase year-over-year. Our effective tax rate was 25.6% in the fourth quarter. Our quarterly tax rate benefited from the increase in stock-based compensation and income tax credits. At this time, we expect our 2026 tax rate to be closer to our historical range. Turning to our financial position and cash flow performance, In fiscal 2025, PFG generated $1.2 billion of operating cash flow. We invested $506 million on capital expenditures during 2025, resulting in free cash flow of about $704 million. As we described last quarter, our capital expenditure level has increased due to investments to support capacity expansion at Cheney Brothers. We are currently expecting a full-year CapEx number in fiscal 2026 in line with our long-term outlook of 70 basis points on total net sales as we continue to invest in growth projects, including warehouse expansions and increasing our fleet. These are high-return projects that will support our long-term growth goals. During the fourth quarter, we also repurchased about 177,000 shares of our stock at an average cost of $75.39 per share for a total of $13.4 million. While share repurchases are a key component of our capital allocation strategy, we're currently prioritizing debt reduction. As you heard us discuss, our capital allocation strategy focuses on four key levers, capital expenditures, leverage reduction, share repurchases, and M&A. Most of our capital spend is directed towards infrastructure to support our growth through warehouse capacity expansion and increased fleet. At the same time, our strong balance sheet enables us to explore new investment opportunities. We will continue to take various marketplace conditions into account when determining our capital deployment. As George said earlier, we will maintain our balanced capital allocation strategy to best position the company to capitalize on opportunities in the market and drive shareholder value. The M&A pipeline remains robust, and we continue to evaluate strategic M&A. PFG has a history of successful acquisitions to drive growth and shareholder value, and we expect that to continue. At the same time, we will apply our typical high standards and robust due diligence to evaluate high-quality acquisition opportunities. Turning to our guidance, today we announced guidance for the first quarter in full year 2026. For the first quarter, we expect net sales to be in a range of $16.6 to $16.9 billion and adjusted EBITDA between $465 and $485 million. For the full fiscal year, we project net sales between $67 and $68 billion and adjusted EBITDA between $1.9 and $2 billion. dollars. As previously mentioned, the first fiscal quarter will include the incremental results from Cheney Brothers, which we will begin lapping during the second week of the second quarter in fiscal 26. These targets are aligned with our three-year projections we announced at Investor Day with sales in the range of 73 to 75 billion dollars and adjusted EBITDA between $2.3 and $2.5 billion in fiscal 2028. When building your models, keep in mind that fiscal 2027 will include a 53rd week. To summarize, PFG closed our 2025 with strong results and solid momentum into 2026. All three of our operating segments are performing well and contributing to our overall results. We are in a solid financial position supporting our growth investments and capital return to our shareholders we are excited about the future and believe we are well positioned to continue to win business within the u.s food away from home market thank you for your time today we appreciate your interest in performance food group and with that george scott and i would be happy to take your questions at this time if you would like to ask a question please press star 1 on your telephone keypad you may remove yourself from the queue at any time by pressing star 2.

Once again, that is star 1 to ask a question. Our first question comes from Mark Carden with UBS. Your line is open. Please go ahead.

Mark Carden Good morning. Thanks so much for taking the questions. So to start, sounds like the overall industry backdrop continues to slowly improve. How are you feeling about your July and August to date? And as you think about your guidance for the year ahead, what kind of industry traffic backdrop are you building it on?

Well, so far, this is George. So far, July and the first couple weeks of August, we have seen an uptick primarily in our independent food service business. I'm going to have Scott kind of comment on the other channels. I guess when you just go to our prepared remarks, I think there's a lot of confidence around here that we'll be able to achieve that 6% number this year. but we are off to a start that gives us that type of confidence.

Yeah, I think the other comment I'd make there is if you look at black box results over the quarter, they continue to improve over the fourth quarter. And we actually saw our first positive result in July. So really, you know, really positive trends around traffic and restaurant. Looking at the other two segments, you know, the convenience segment continues to be pressured. but you know what gives us a lot of confidence and convenience is we continue to grow share and outperform there and we talked about in the remarks a couple of really nice wins that we'll we'll add on over the next couple of quarters that will really contribute to our growth and profitability and convenience and then when i think about uh the specialty segment you know we've got a couple channels that that are still pressured but overall uh we had a really nice fourth quarter you know have a lot of momentum in our e-commerce space and a couple of our other segments the return to work really helps us across all three of our segments so you know feel really

good about the landscape and mark this patch goes add on to the last part of your question around how our outlook obviously we're really confident our foliar numbers we obviously use a range and that range is based on kind of current economic trends and how we're performing and then and And that's kind of how we built that outlook for it, but we definitely have some confidence in those numbers.

That's great. And then it's my follow-up, a two-part question just on Salesforce. First, just with one of your larger competitors moving past some of its Salesforce issues from a year ago, are you seeing any changes in the availability of quality talent?

And then second, any anticipated changes in your pace of hiring over the course of the year ahead with the improving traffic background? yeah mark this is scott um you know clearly in the fourth quarter uh we saw great availability of talent fourth quarter was actually our strongest hiring quarter of the year and for the year we finished um you know in a high eight percent range as far as uh new sales people that we've hired over the course of the year we're a decentralized company we allow our opcos to make those decisions You know, we have some that are hiring at a clip greater than 8% or 9%, and some that are a little lower than that. But when we look at that, you know, we got 6% case growth, feel really good about that momentum. And even with that, you know, we have really good leverage in the food service space. So, you know, we feel really good about the landscape of hiring. We've got great talent available to us and feel like we're a great place for them to land.

Yeah, I'll make a couple other comments there. I mean, on paper, it looks like we're, you know, we're hiring, you know, I guess beyond the pace that we typically do. The restaurant business has been challenged for quite a while. Where we get our numbers as far as market share and the best information we can get shows that in our food service business, we're about 82% of our business is restaurants, where the rest of the industry is about 57%. So, you know, we're really dependent on the growth of restaurants. I think when you go through as many quarters as we went through where it was challenged, you end up spending a lot of time on defense when we like to go out and aggressively pursue business. So for us to get that people count up, to get our salespeople in a position where they voluntarily take some territory splits, and we got the people to let that happen, has been very good for us. will probably, you know, down the road come down a little bit. Like Scott says, it's their decisions. I would suspect that that's what will happen, but having what our average salesperson does a week in business come down has been good for us. We look back all the way back to that COVID period, and we weren't hiring, and we didn't realize the level to which our people were improving until the rebound from COVID. And then, you know, you wake up one day and the average person is doing probably more business than what you would want to have to put out consistent growth. I mean, there's only so many hours in a day for them. And when we have our calls with our people, Scott ends every call, every single call, encouraging our people to add salespeople. And for the most part, that's what they're doing. Some of them are in a little different position. They've already done that. But we're getting good response from our people. And an 8.8 number for us today, it's a big expense to hand, but it's the right move for us to make.

Makes sense. Thanks so much. Good luck, guys. Thanks, Mark.

And we'll go next to Kelly Bania with BMO Capital. Your line is open. Please go ahead.

Good morning. Just wanted to talk about the procurement savings target that you outlined at the analyst day and how much progress there does that contribute to the fiscal 26 outlook specifically?

Hi, Kelly. This is Scott. So, we talk a lot about that at Investor Day. we feel really good about our progress and and just to take a step back you know we are always constantly working with our vendors um and working on you know procurement opportunities you know but as we as we looked at the landscape we made the acquisitions of cheney brothers and jose santiago and we continue to do a much better job working together between our segments you know we saw an opportunity to create you know win-win scenarios with our vendors which is what we're doing today um i think as i look at the spread over our three-year guidance i think that that spread of procurement synergy will be pretty balanced um and we're well on pace in this first

year to achieve that okay that's that's helpful and just wanted to also ask a couple questions about convenience um obviously the broader restaurant traffic is really improving here but the convenience um division remains kind of pressured obviously you have some new business wins. But I was just curious, maybe Scott, what do you think needs to happen here? It looked like maybe easier comparisons were starting to help in the industry, but just when do you think that will start to turn, if at all? Is that in your outlook? What do you think the operators need to do?

And just any color on the food service kind of sales and where that's tracking in that division? sure kelly when i look at the the landscape of convenience overall you know one of the things that really um hurt convenience was you know the the work from home um and as we've seen that increase and you know i see nationally numbers where people are back in the office three and a half days a week you know a lot of people are four and five you think about that commuter traffic that that morning you know traffic that's getting coffee and breakfast that was that was a big part of where convenience lost um and so you know definitely i think the macro is improving a little bit we've talked a little bit about the illicit vape issue in the in the country and i think that this administration is looking a little more favorable on that meaning that they're going to enforce it um that's a big upside for our convenience segment as well uh and and then i think the other thing that gives me you know great confidence is we we continue to grow share uh and you know not just the big customer wins that that we've talked about but you know our street folks are out there our independent performance is getting better uh and so i think we're gonna we're gonna fare well even if the macro remains pretty challenged yeah and kelly to that last point on the outlook we really didn't plan for the macro to improve um really what's in in the

outlook as far as convenience goes is um just the excellent business wins that scott talked about earlier in his remarks. And just as you look at how they finished up Q4, they have just a lot of momentum. They're executing extremely well. So it's really more of that than say that the macro is going to improve as far as the outlook goes.

Thank you.

We'll go next to Lauren Silberman with Deutsche Bank. Your line is open. Please go ahead. Thanks so much.

And congrats. I wanted to Just to ask on the independent case growth side, the independent account growth, the 5.3%, does that growth compound over time as presumably new accounts come in with smaller basket sizes and then build? Can you just talk about that dynamic as you've seen such strong new account growth and how that translates to increased penetration in future quarters?

We look real close at the average customer within our new business versus existing business, and there's not much difference. I mean, it's certainly less, but it's not much less. That's a tribute to our salespeople. When they pick up an account, they get a big piece of that business right away. The other thing that's been a positive for us is that we've been growing our lines all through this tough period of time. but so far this fiscal year and really most of last quarter we've been seeing our sales grow as fast as our lines have grown which before we've seen that because they weren't buying as much of the product that we sold to them both years so that's been a real positive for us as well and then by by further beefing up our sales people uh what we found and this is normal i think in any environment that gets really competitive and uh the actual channel isn't growing you know people get more aggressive and by having the people out there and having our existing people calling on new accounts as we do some splits of the territories you know what we found is we're not losing accounts at the rate we were before. I mean, we feel like we've always been good with that. But when we have single digit reductions in accounts from the previous year in an industry that's got the kind of turnover that we have, that's a good sign for us. And we've been able to get that accomplished.

Great. Thanks. And then if I could just shift and ask about what you're seeing in the M&A landscape, how your pipeline looks, willingness of potential targets to make deals come to the table and anything you're considering for 26 or how we should think about that.

We feel good about what we have going on right now. We have some nice conversations, some that are actionable. Nothing that I would call in our history that I would call significant in size, but it's a great market today. I mean, there's a great amount of activity.

Yeah, Lauren, just going back to Investor Day, we talked a lot about our strategy, and I'd say our strategy hasn't changed.

Great. Thank you, guys.

We'll go next to Edward Kelly with Wells Fargo. Your line is open. Please go ahead.

Hi. Good morning, everyone. Nice quarter. George, I wanted to, you know, ask you to maybe just kind of like take a step back on the industry. You've got more, I think, experience here than probably anybody. Things have gotten better. But if we look out, we have tariff pricing that's starting to come in. That's followed by a large refund cycle. I'm just kind of curious as to whether you think, you know, some of the volatility that we've seen continues. And is your confidence really just around your own ability to, you know, execute against But just any color on, you know, bigger picture and how you're thinking about this backdrop would be helpful.

Well, the improvement's nice to see, but it's still negative. You know, we got mixed today, you know, with a couple chains that announced real mixed results. We have, you know, a lot of casual dining and a lot of them that are really suffering. But there's a couple that have made one a good comeback, one an incredible comeback. So it can still be done out there. But for us to rely on the industry to grow right now, I would not want to do that. I think a lot of it is around pricing. You know, our customers are dealing with a lot of increased costs. And, you know, they've had to pass that on. And I think that's one of the things that, you know, keeps the industry a little lid on it. If it stays as it is now with what we got going on, I've got a high level of confidence that that we'll be in that 6% number or better because that's what we're doing today. And I just, I mean, it could get worse, I guess, but I don't think so. I think that we're going to continue to see just a little better all the time, but I don't see a big jump, and I don't see it in convenience either. We're very, very large in candy and snacks as an organization. Those prices are up significantly, and it looks like there'll be more and more states that are going to take that out of the snap card so i think that's going to impact us but if you just throw it all in a bucket and and and look at it in entirety i think that we're in the right channels ed and i i think it's it's going to go real well for us great uh and then i just wanted to follow up um maybe for scott maybe for patrick i'm not sure but on the convenience side you have some new customer counterwinds coming in, how significant in size is that?

And then you mentioned some startup costs sort of early on. So I'm kind of curious as to how you're thinking about the cadence of EBITDA growth in convenience as the year progresses and, you know, what's a good target in terms of EBITDA growth in that business for the year?

Yeah, this is Scott. So obviously we've called out that, you know, one of those chains will roll on starting September, the other in december so it kind of gives you a timing you know they'll probably roll on over a handful of weeks um we're obviously for the september one we're hiring right now so we're obviously investing in labor and fleet and some facility modification um to prepare for all of that so you know we feel like we're in a great position there um but obviously you know in this you know probably q2 I think our profits will be a little bit moderated just because of the investment that we're making, but I think they'll normalize into Q3 and Q4. We're not going to give a specific target on EBITDA Growth for convenience, but feel really good about their performance in the quarter in 2025 and also into 2026. Feel really good about how they're going to perform.

Great. Thanks, guys.

We'll go next to Alex Slegel with Jeffries. Your line is open. Please go ahead.

Thanks, and congrats. And I guess just more on the EBITDA margins, which are sort of record across basically all the divisions. And we've talked a little bit of it, but maybe you could touch on some of the incremental drivers. We haven't touched so far yet. Favorable sales mix is continuing. We talked a little bit about procurement wins. I don't know if there's any inventory holding gain near term that we saw, but you could kind of touch on some of the other pieces, the profitability.

Yeah, I'll start there and maybe Patrick will tag on to this. When I think about margins, you know, across the three segments, you know, mix is probably the number one theme. We had really nice, you know, mixed performance in the food service segment. Obviously, with our 6% independent case growth, that really helps margins. In the convenience space, it's really about the commodities that we're selling, much more in the food service, snack and candy area, where we're seeing nice growth, nice profit So really, it's kind of a commodity mix shift there and very similar in the specialty segment So mix across all three segments was really good. the other thing i'd say is we have really nice opx leverage across across all three segments as well so all of them are performing well from an operating standpoint warehouse transportation hiring you know has been really good retention of employees you know overtime safety you know

feel really good about that landscape um you mentioned the procurement savings as i mentioned earlier we feel like that's definitely a part of it um and and feel good about the pathway that were on there patrick yeah i'll just touch on a couple things alex um one yeah we're really pleased with the margin improvement we saw in q4 and full year fiscal 25 and you know are looking forward to continuing that in 26. you brought up inventory gains inventory gains were a slight benefit in q4 but as we look out over 2026 quarter by quarter we don't expect to see much in terms of inventory gains and that's what we modeled in our guidance bus for q1 and the full fiscal year

okay great and that follow-up you talked about stability in trends uh which i guess you're seeing that continue and i mean that comes at the same time it looks like a good deal of uncertainty and variability between the operators and brands lately so maybe you can kind of clarify what what you're seeing in terms of the stability?

Yeah, Alex, I'd say, you know, first off, I go to black box and just look at traffic. You know, we saw traffic improve sequentially over Q4. And then, as I mentioned, July was really the first positive month. But to your comment, when I look at QSR segment, when I look at fast casual segment, it's a little bit the haves and the have-nots. As George mentioned, you know, those that have created a value proposition with, you know, price to value seem to be performing really well, and then we have some other chains that are really struggling in that space. So, you know, that's kind of a blend. We've been very fortunate, as we mentioned, our chain growth was really strong. We've been very fortunate to partner with some of those more progressive restaurateurs out there, and it's really paid off for us.

Yeah, I do a call out for our chain people, both within our broad line and within our OPCOs that are strictly chain, we gave them a pretty big challenge. We have some chains that have really dropped off. And we tend to be very loyal to them and we hang in there and hope that they come back as we've seen others that have come back. But we challenge them to get themselves in a position where they could handle more SKUs than what they're handling today and to go out and get a different type of customer and customers that are in a growth mode. And they've been able to do that. And there's no small feat. It took some courage to get done what they got done. And we're in a real good spot. It was good for Q4. We've got a good bit of time ahead of this where we have some good business in place that does not have sales histories. and they'll be a big contributor for us this year.

That's great. Thank you.

We'll go next to Brian Harbour with Morgan Stanley. Your line is open. Please go ahead.

Yeah, thanks. Good morning, guys. Maybe on that topic, not to make this too macro-focused, but I think you have pretty good perspective, right? I would say, and this is sort of a black box comment, but I would say quick service has actually been pretty uninspiring lately. I know it's kind of better quarter over quarter, But it seems like that's the part of the industry that's a little more challenged. So I'm curious, I guess, if you, you know, like on the independent side, do you see full service kind of doing better than quick service? Is that, you know, sort of similar to what's going on with chains? Do you think this is sort of demographics that explain this? Do you think it's just sort of, you know, experiences that are still holding up better? I mean, what would you conclude just kind of looking across your customer base?

QSR has been interesting because where we're doing well, and we're not huge in that category, but we certainly have our share. And where we're doing well, it's actually at the top of the market in the higher priced QSRs, particularly one in the burger area that's doing great. We got a couple in chicken that are really, really doing well. But I think that what may be here to stay, there's kind of a what is hot. And if somebody's resonating with the consumer, everybody knows it very quick because the social media is such a big part of what happens in the chain restaurant business. And sometimes it's just an item that'll bring somebody up to a different level from where they were before. I would agree that if you want to call it casual dining family dining uh sit down type restaurants uh of late they appear to be coming back not everybody of course you know like i said social media is is a big component here but it seems like people are doing a little less takeout uh delivery seems to still be big but not i i don't know that it's growing fast i think people are wanting to get out again and enjoy themselves. And even with the kind of growth that we're running now and independent, we don't see that kind of growth in our takeout programs. So I think people are coming back to the restaurants a bit.

Can you comment maybe just on, you know, integration of Santiago and Cheney Brothers? You know, is that kind of on track? Is it perhaps ahead of schedule? You know, can you comment and sort of organic growth in those businesses since you've acquired them?

Well, we don't do much in the way of integration early with acquisitions because we want them to be the ones that drive what type of integration that we do. You know, there's some obvious things that we get done early on that have to be done. But I would say with both of them that it's moving at a pace that we typically do see. I mean, it's really been for us, year three just seems to be the year that we tend to take off. We saw that with Reinhardt. We're seeing it today with merchants. The legacy merchants companies are just on fire right now. And it took three years. Cheney and Jose Santiago are both extremely well-managed businesses. I think that after our purchase of Cheney, we saw that market get a lot more competitive, particularly the Florida part of that market. And that's probably, you know, normal in that type of situation. And they didn't for a while there put out kind of the typical type of growth, but now they're back and they're getting that done again. And so we're just so confident in those two companies. But I can't speak to any significant amount of integration that we've done at this point.

And we'll take our next question from John Heibuckle with Guggenheim.

Hey, George, I have a question on you're creating Salesforce capacity, individual salesperson capacity, which is great. How do you want them spending their time? And I know this is decentralized. And I wonder, because there's such a big opportunity, right, in lines per account penetration, you know, are there some opcodes that are doing phenomenally well and thus there are best practices? Because it's been an opportunity that, you know, all of you kind of struggled with. So I wonder, you know, if the sales force capacity is put toward penetration, you know, can you guys finally move the needle on lines per item in a significant way or do you really want them to prioritize their accounts?

I think, you know, the additional people that we've added, I think, is helping our penetration, but I think it'll help it more as we move forward. Training always. We're going to a lot more online training. But it is very decentralized, and we do a lot of things around best practice, but that's between them or maybe some coaching that comes from Scott or from Steve Broad as to who to go talk to. But they run their businesses, and I think that things move in trends within our company, and the trend has been to beef it up, to get the more experienced people calling on new accounts, and get our people where they have more time to work on penetration, because it is certainly the most difficult part of our business today. you know people are busy a lot of ordering is done online and it's less of an opportunity to to penetrate better or to to pull skews from from your competitor this getting time freed up and getting the the real experienced talented people out there i i think that's where we're headed And I think that would be in just about every company. I think, Scott, you would look at it that way, too.

All right. Maybe for Scott, what does the RFP landscape look like, right, on the Cormark side? Right. Obviously, that comes in over time. But is that now, you know, sort of that much larger, right, over the next couple of years? And, you know, I wouldn't think you would lose many of those. particularly new ones, not ones that you have. How do you think about preparing capacity for those wins? You don't want to go too far ahead of time, but where do you stand with that?

Well, I can tell you, John, that the most recent wins that we have, we did a great job participating in capacity. We expanded into two new facilities far in advance of getting those customer wins. And had we have not done that, we probably would have had to turn that business away. So we are constantly looking at, you know, our capacity across the network, where we think new, you know, new business opportunities may come. And we base that on our relationships with customers and, you know, where we think we're going to make the most progress. And to your point, you know, in the convenience landscape, incumbency is pretty powerful. And so, you know, that's why we're so proud that we've gotten, you know, what I'd call a handful of really prominent retailers, you know, to choose us as their primary supplier across the country. So I feel really good about how the convenience group is performing and how they're servicing their customers.

And, John, as you know, we've talked about this for several quarters. we continue to invest in capex to continue to expand buildings get new buildings across all three segments and primarily our focus as we've said has been food service but as scott just alluded to we have done this in convenience and even in specialty as well yeah i want to make a couple comments there um you know we're in three different businesses we certainly don't have any intention of getting any more complicated than we are it looks complicated but the people that manage each one of those businesses and they live and die those businesses.

When we say our priority is food service, it certainly is. I have a tremendous amount of confidence in how Cormark is managed today and the same for Vistar. And when they need CapEx, it's not like they're fighting for CapEx because we're doing it in another direction. If they have something compelling, we have the confidence in them that they'll make good use of it. And that's what our people in core mark did i mean we put two places in exactly the right places in anticipation of the two pieces of business that we got so once again i'll use that word that took it took a lot of courage and a lot of commitment um we've always in the past we also been careful to spend money where we had a tremendous amount of confidence that it was going to get a return so early on we replaced almost every Vistar facility that was our our best run business at the time still is extraordinarily well run and the most profitable then we spent a lot of money where we have big broad liners and we've gotten a great payback from that now what we've done is we've gone in the west where we are very subscale and we've built new buildings we've done big additions uh that's part of why we have 8.8 percent more people we're gearing up there and i think that we've been so successful with our capex that that those people have confidence and we're going to support them so i've made a comment that i think our capex is going to get more back to that pretty consistent seven-tenths of a point of sales but if we have opportunities we'll take it higher than that and if we don't have the opportunities we're not going to throw money away and invest just for the sake of investing but i feel real good about what we're doing around gaining capacity thank you our next question comes from Jeffrey Bernstein with Barclays.

Your line is open. Please go ahead.

Great. Thank you very much. My first question is just on following up on the M&A. Obviously, from a macro perspective, still somewhat difficult. I think it's more challenged for your smaller food service distribution. I think you mentioned you have good M&A pipeline, but nothing of significant size. And I think that's been a consistent message. So as an alternative, George, how do you feel about your organic growth, whether you go full speed to head organic, or do you prefer to wait for the M&A? It seems like it's a difficult dance to decide whether to wait, presumably take a little bit more time. How do you think about it?

Well, you know, basically we are betting on organic right now. And I think it's a good bet. Scott, you might want to comment on it as well, but Scott's been very involved with what we've done in the West.

But we feel encouraged. yeah i'd say structurally we talked a little bit at investor day you know one of the the big challenges in the west of achieving you know broader scale outside of capacity is just our brands and you know that's one of our most powerful tools on the street and you know just having that critical mass in the west has been a challenge so we have invested in a redistribution facility in the west that will allow us to take brands much more broadly to those opcos so So just another lever that we can pull as we kind of march that direction.

And probably goes without saying, that doesn't mean that if we had the right opportunity from an M&A standpoint that we wouldn't take advantage of that. And you mentioned smaller ones. I mean, if our people were really committed to some type of fold-in, I guess I would be there, but I've never found that to be a successful route to go. you tend to not hold on to the right percentage of the business. And, you know, we like to do acquisitions where we feel we can hold on to all the business and then grow it from there. And if you're buying somebody that is a fold-in or, you know, whatever you want to call them, and their SKU base is significantly different, change SKUs, change customers is typically what happens. So we don't have a huge appetite for that, maybe no appetite at all.

My follow-up is more specific to the first quarter. It looks like your guidance for sales and EBITDA was below at least consensus expectations. I'm wondering whether we perhaps just mismodeled or there's some unusuals or noise that are impacting results on your end.

I know you still have the favorable benefit from both acquisitions before they get lapped, but is there any segment expected to be below the kind of longer-term run rate or any unusuals we should be aware of the fiscal first quarter or perhaps was it just a mismodeling on the streets part thank you yeah no it's a great question i appreciate it so um as you look as you know um the reason we give you uh the quarterly cadence is exactly for that reason is we want you to understand better the cadence in q1 and so a couple things we actually have lapped the jose santiago but both for jose santiago and cheney which will elap in the second quarter this is their slower period of sales the summer months are so the quarter of september would be a slower period for them in fact for cheney july is similar to what january is for the rest of food service so we just we wanted to uh definitely give you that q1 look to help you understand just that cadence but we really are anchored on the full year and we feel like I said before, really confident in our full year guidance. And again, it is August, so just starting the year, but we want to give that outlook both for the Q1 and the full year, obviously.

And also, I want to remind you, and these are both very positive things, but we needed to keep them, take them into account with Q1. One is, you know, we're investing very heavily right now in salespeople. And when we do that, we make sure that the compensation to our existing people that suffer because of that, and that they're totally on board with moving some accounts. And so we keep that into account, and that's going to taper off some as we get further into the year. And then we have those startup costs. I mean, we feel like we're going to have a great year in Cormark, but there's very definite startup costs when you're bringing on that amount of business over a fairly short period of time. And we want to be able to day one service them as if we've always had the business. So we've got to get those people trained, ready to go, and go through a period of overstaffing in our core mark opco. So those two things we had to take into consideration and they're good problems to have.

Thank you.

Our next question comes from Peter Saleh with BTIG. Your light is open. Please go ahead.

Great. Thanks for taking the questions. A little over a year ago, I think you guys were talking about how the breakfast day part was coming back, particularly I think on Mondays and Fridays, expected to come back a little bit stronger. Can you just talk a little bit about what you're seeing? Because it seems like that day part continues to lag, at least from what we see from the restaurant space. Just curious as to your perspective and the go forward expectations on that day part.

Well, I think that Mondays or lunches are, for the most part, back. Friday, no, I would say no. The other thing that happened is a lot of people didn't open back up seven days a week, if that's what they used to do when COVID came. And a lot of them, I know some personally that found that, you know what, you know, I never made any money Sunday night or Monday night, so why was I open? So, you know, I think that is still having a little bit of a drag because I have seen some of them go back from five days to six days, not many to seven, at least in the non-metro, you know, big metro markets. Would you have some comments beyond that, Scott?

I would just to what you said, I think Monday and Friday are still pressured days and if you look nationally return to work, I think the average is somewhere in the, you know, 3.2 to 3.5 range and people tend to make Monday and Friday the days they're not coming in. So those days are still very pressured and it tends to be that morning day part is still the most pressured because work hours have also changed a little bit. we see people you know across the country coming in a little later so maybe they're having their coffee at home um doing some things at home before they come to the office so still some pressure there but certainly has improved and i think that's part of what's helped our independent case growth and and helped you know to some extent the macro and inconvenience and specialty i look at this every day and i think it's a barometer but you can tell by our sale of coffee in the convenience that that morning day part, the traffic is not back to normal.

It's still not at 2019 levels.

Thank you. Very helpful. Just a follow-up on the new account growth, you know, this quarter or maybe just this year. Was there anything specific on the type of cuisine or geographies that you're seeing?

The only thing I'd say about type of cuisine and geography you know cuisine wise you know we have performed as we've said on prior calls really well in the Mexican space really well in the food service in the convenience space have had some success in the Asian space as well and pizza Italian we're holding our own and and continue to you know it's a big part of our business continue to do well there so really seeing it you know broadly across the segments thank you very much and as a reminder if you'd like to ask a question, you may do so by pressing star one.

We'll go next to Jake Bartlett with Truist Securities. Your line is open. Please go ahead.

Great. Thanks for taking the question. Mine was on EBITDA margin guidance. I think at the midpoint of the 26 guidance, a little bit of less expansion than you saw in 25. And then I believe you're reiterating your three-year targets that you expect a reacceleration or kind of widening EBITDA margin expansion in the next two years. So can you just help us understand that dynamic, whether it's being driven purely by investments in the sales force near term or some of the convenience investments to bring on those accounts, any drivers there of the cadence of the EBITDA margin?

Yeah, Jake, I'll start and see if anyone else wants to contribute i mean if you look at it again we we exited 25 with some really nice margin improvement as we go into 26 we do have some investments as we talked about we also have some onboarding costs and then those new accounts that we talked about might have some uh margin shift as well overall but we feel really strongly that again it's august we're looking at the numbers, we're very anchored to them. They're strong numbers in terms of growth. And I would expect that there's still some room for upside there, but it does have to do with some of the onboarding new customers and the mixed shift.

Okay. And then to follow up on the comments on recent trends, and George, I believe you said that July there was an uptick, but you're also um talking about six percent independent organic case growth similar to the to the second quarter so maybe just kind of clarify or you expect it uh a slight deceleration from july or maybe the july update wasn't too material just trying to understand the cadence of what you're expecting going forward you know i think we're just being cautious uh july in the first two weeks of of august could bit better than q4 was okay and the two weeks of august are are even better than what july was but we're cautious um you know it's been a volatile market but all in

all we feel good i'll make a couple comments back to the ebida margin too um you know we're bringing on two significant convenience accounts and the product makeup of convenience is totally different and that affects us in the entirety and if you if you go back to to where we we started with with out having convenience we were less than a two percent EBITDA and we've reworked this business over several years, if you took out convenience, we were at three and a half, and we still have a substantial chain business. You get outside, we don't have non-commercial business, which, you know, is for the most part better business, and it's not something that is our focus today, or will be any time in the near future. But if you take out convenience, but you leave all of the corporate overhead in there, we're above three and a half. And that's huge progress for us, particularly with the kind of mix of business that we have, our big broadliners, of which we have many, they're over five. We don't look at it that close, but we're going to continue to put a bigger portion of our gross profit dollars to the bottom line, but we're not maniacally focused on that. A lot is just where our mix of business comes into effect. Now, we've always grown it, but we've always had a better mix of business. Can we count on that forever? I'm not sure. It just depends on what opportunities lay out there.

Great. I really appreciate it.

This does conclude today's question and answer period. I will now turn the program back over to Bill Marshall for closing remarks.

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