Earnings Call
US Foods Holding Corp. (USFD)
Earnings Call Transcript - USFD Q3 2024
Operator, Operator
Thank you for your patience. My name is Roschelle, and I will be your conference operator today. I would like to welcome everyone to the U.S. Foods Holding Corp Third Quarter 2024 Earnings Call. All lines have been muted to avoid background noise. After the speakers’ comments, there will be a question and answer session. I would now like to turn the call over to Mike Neese, Senior Vice President of Investor Relations. Please proceed.
Mike Neese, SVP of Investor Relations
Thank you, Roschelle. Good morning, everyone, and welcome to U.S. Foods’ third quarter fiscal year 2024 earnings call. On today's call, we have Dave Flitman, our CEO; and Dirk Locascio, our CFO. We will take your questions after our prepared remarks conclude. Our earnings release issued earlier this morning and today's presentation can be found on the Investor Relations page of our website at ir.usfoods.com. During today's call, unless otherwise stated, we're comparing our third quarter fiscal year 2024 to the same period in our third quarter fiscal year 2023. In addition to historical information, certain statements made during today's call are considered forward-looking statements. Please review the risk factors in our Form 10-K for a detailed discussion of the potential factors that could cause our actual results to differ materially from those statements. During today's call, we will refer to certain non-GAAP financial measures. All reconciliations to the most comparable GAAP financial measures are included in the schedules on our earnings press release as well as in the presentation slides posted on our website. We are not providing reconciliations to forward-looking non-GAAP financial measures. Now, I’d like to turn the call over to Dave.
Dave Flitman, CEO
Thanks, Mike. Good morning, everyone, and thank you for joining us. Before we begin, our thoughts are with all of our associates, customers, and communities impacted by Hurricane Helene and Milton, which have each caused catastrophic devastation across parts of the Southeast. We are grateful to our local teams for their unwavering commitment to aiding recovery efforts and continuing to serve the community through countless hours of volunteering and donations during this difficult time. Thankfully, all of our associates are safe, but many suffer damage to their homes and property. I'll briefly highlight one of our associates who have gone above and beyond to make a difference in North Carolina during these trying times. Josh Hoge is a salesman for U.S. Foods and local to Boone County. He gathered volunteers to provide a wide variety of grassroots relief support. He and others coordinated a GoFundMe page that raised more than $400,000 in donations for those impacted, deployed 11 truckloads of food donations gathered with the support of local organizations and businesses, including U.S. Foods, and organized the purchase and delivery of 40 generators to impacted areas. Thank you, Josh, for your incredible efforts and to all our associates who have helped and continue to help our customers and communities during this challenging time. Now, let's turn to our results from the third quarter. I will then update you on core initiatives across each of our four strategic pillars before passing it to Dirk to review our financial results and provide an update to our fiscal year 2024 guidance. Turning to slide 4, we delivered 13% adjusted EBITDA growth, solid adjusted EBITDA margin expansion, and 21% adjusted EPS growth as we continue to deploy our proven operational playbook and execute our strategic initiatives. We delivered another quarter of strong results despite a challenging macro environment and unforeseen weather-related impacts that pressured industry case volumes. This is a testament to our team's focus, our execution, and our ability to control the controllables. We drove volume growth and captured market share in our target customer types of independent restaurants, healthcare, and hospitality. Total volume grew 3.8%, while our independent restaurant cases grew 4.1%, resulting in our 14th consecutive quarter of market share gains. Moving to capital deployment, we were prudently aggressive with share repurchases this quarter, totaling $580 million. We will continue to execute buybacks as we believe our shares remain undervalued. Since initiating our buyback program in late 2022, we have repurchased over $1.1 billion of our shares at an average price of $50.68 and will continue to be good stewards of capital deployment. Let's turn to the broader macro and our focus on our target customer types. In addition to the softer macro environment, there were several large storms in the third quarter that adversely impacted our Southeast business, where we over-index on independent restaurant market share. The impact from the slower Southeast growth was nearly a 100-basis point headwind to independent volume growth. Excluding the Southeast, our organic independent volume growth was modestly higher than our second quarter growth rate. Monthly foot traffic was down approximately 3.5% for the third quarter but improved throughout the quarter. Once we got past the storm impacts in early fourth quarter, we have seen further improvement, translating to an approximately 100 basis point acceleration in our organic independent case growth. We are seeing a similar improvement in our chain same-store volume. Our go-to-market strategy, including team-based selling, innovation, and digital, combined with our operational playbook, allows us to capture profitable market share no matter what external factors come our way. Despite the challenges I just outlined, we were pleased to grow independent market share in the third quarter, both sequentially and year-over-year, at a faster rate than we did in the second quarter. Now let’s move to our four strategic pillars. I will discuss our progress on each, starting with slide 5. Our first pillar is culture. Our focus and top priority are always the safety of our associates. During the quarter, our injury and accident rates were 21% better than the prior year. While we continue to make incremental progress each quarter, we will not rest until we have zero injuries for our associates. This year, we supported the American Red Cross with a donation of $300,000 to support disaster relief efforts, including Hurricane Helene and Milton. Our U.S. Foods teams also sent thousands of cases of product to disaster relief organizations across the impacted footprint. Additionally, we announced a national partnership with the Military Family Advisory Network, or MFAN, this July, and made a $250,000 contribution. This organization's mission is to understand and amplify the needs of military-connected families who face food insecurity. Our contribution will help MFAN distribute 500 pantry stock boxes per month, designed to get transferred military families started in their new homes, with essential items typically discarded during a movement. The MFAN collaboration is our first national hunger relief partnership supporting military families, a group disproportionately impacted by food insecurity. Turning to slide 6, our second pillar is service. Again this quarter, we delivered year-over-year improvement with on-time and in-full service levels. We also remain focused on delivering improved distribution productivity through our Descartes Routing technology, which is now live in 15 markets. By year-end, we expect to launch an additional 11 markets and remain on track to have approximately 50% of our routed miles on the cart. We continue to see this technology produce incremental improvement in cases per month. We continue to enhance the user experience of our proprietary leading digital platform, MOXē, which enables our customers to place orders, track deliveries, pay bills, and seamlessly manage inventory. Given the significant portion of the total cost that food represents for our customers, we introduced a new food cost calculator feature embedded into MOXē. This tool tracks and manages food costs over time, providing customers with valuable insights to help them with their menu prices, inventory, and product selection. This innovative solution is available to all U.S. Foods customers and further enhances our digital leadership position. Now let's turn to growth, our growth pillar on slide 7. Pronto, our small truck delivery service, continues to gain steam and is now live in 40 markets. We're excited about this rapidly growing opportunity and its ability to reach hard-to-service customers in dense geographies. Pronto provides these previously untapped customers for U.S. Foods with smaller, more frequent deliveries and later cutoff times. Earlier this year, we launched Pronto penetration in two pilot markets. This service fills in non-routine delivery days for our existing independent restaurant customers, leading to further wallet share for U.S. Foods. In these pilot markets, we are seeing an approximate 20% uplift in case volumes while showing no cannibalization in broad line delivery size or frequency. The successful launch and early learnings gave us confidence to expand Pronto penetration from two pilot markets to six. We remain on track for Pronto to deliver nearly $700 million of annualized sales this year. Moving to national sales, our targeted business development activity drove new wins during the quarter, and we onboarded more than $100 million in annualized sales in healthcare and hospitality. Finally, in September, we launched our Scoop theme to Barn, Grill, and Beyond. Our Fall Scoop highlights 24 new on-trend products designed by U.S. Foods product development experts who leverage a wealth of culinary expertise, industry experience, and data-driven insights to bring new product innovation to our private label brands. Many of you saw this in action on our Investor Day last June. My favorite from the Fall lineup is the Chef's Line Natural Smoked Pork Butt, which tastes amazing and saves customers approximately 40 minutes of labor per case. Turning to slide 8, our profit pillar. Our go-to-market strategy and strong execution drove a 7% increase in adjusted gross profit to $1.7 billion. This was primarily driven by total case volume growth and improved costs of goods sold. We grew adjusted gross profit 240 basis points faster than adjusted operating expense, driving a 27 basis point adjusted EBITDA margin expansion. We also made additional progress on the cost of goods through our strategic vendor management efforts, realizing more than $70 million year-to-date. We now expect to deliver more than $230 million in cost of goods savings in our current 2022 to 2024 long-range plan, which is nearly complete. On the productivity front, we delivered a 3.5% improvement in warehouse productivity in line with our goal of 3% to 5% annual productivity gains to offset wage inflation. Regarding CHEF’STORE, a quick update. As a reminder, we are actively exploring strategic alternatives for this business and have recently begun discussions with several potential buyers. We remain fully committed to supporting the business, our associates, and our customers through this process. We will continue to keep you informed as we make further progress. As we have previously said, in the event of a sale, we would expect to deploy the majority of the proceeds to repurchasing shares. Before I hand it over to Dirk, in September, the International Food Service Distributors Association inducted 20 U.S. Foods drivers into its Truck Driver Hall of Fame. This honor recognizes the food service industry's top drivers with an exceptional safety record and length of service, each having more than 25 years of service at U.S. Foods. It's a highly coveted honor for truck drivers in our industry. With Veterans Day just around the corner, I want to highlight two of the Hall of Fame drivers, both of whom are veterans that served in the U.S. Armed Forces and hail from our Fort Mill, South Carolina facility. The first is Orlando Smith, who has 30 years of service at U.S. Foods. The second is Larry Boyer, who has been a driver for us for 34 years. I thank them both not only for their decades of service to our company, but especially for their bravery and courage in serving and protecting our great nation. Finally, I also thank all veterans within and outside of U.S. Foods who have served our country and protected our freedom. We owe you all a huge debt of gratitude that can never be repaid. Let me now turn the call over to Dirk to discuss our third-quarter results in more detail and our updated 2024 guidance.
Dirk Locascio, CFO
Thank you, Dave, and good morning, everyone. Our double-digit adjusted EBITDA growth is the result of consistent execution of our strategy to capture market share and expand margins. Starting on slide 11, third-quarter net sales increased 6.8% to $9.7 billion driven by total case volume growth of 3.8% and food cost inflation and mixed impact of 3%. We drove solid case growth and cash flow share gains in each of our target customer types. Our independent restaurant volume grew 4.1%, including 170 basis points from acquisitions. Healthcare growth remained strong at 5.7%, and hospitality growth accelerated further to 3% as we onboarded new business. Adjusted EBITDA increased 13.2% from the prior year to $455 million, and we expanded the adjusted EBITDA margin by 27 basis points to 4.7%. As we continue to execute our profitable growth strategy and proactively manage gross margin and operating expenses, we see these actions drive margin expansion. During the third quarter, as Dave mentioned, we made further progress on our strategic vendor management work and now expect to achieve more than $230 million in cost of goods savings from 2022 through the end of this year. We also remain on track to realize the $120 million of annualized operating expense savings that we highlighted last quarter, and we are on track to deliver more than $20 million in savings this year from the indirect spend work that we previously discussed. This highlights our team's strong ability to execute initiatives regardless of the macro environment. We are pulling the appropriate levels to sustainably grow the gross profit rate and drive operating expense productivity. As a reminder, a significant portion of our operating costs are structured as variable to provide us flexibility to match expense to volume in different market scenarios. Finally, adjusted diluted EPS increased 21.4% to $0.85, demonstrating our ability to grow adjusted diluted EPS meaningfully faster than adjusted EBITDA. We expect this to continue as we deploy our strong free cash flow towards share repurchases, which I'll talk more about shortly. Moving to slide 12, we made significant progress in growing adjusted gross profit per case faster than adjusted operating expense per case again this quarter. Adjusted gross profit per case grew by $0.24 or more than 3% versus the prior year. This growth was primarily driven by executing initiatives within our control, including our strategic vendor management work and continued focus on private label penetration. Adjusted operating expense per case increased $0.04 or less than 1%. We're offsetting a significant portion of operating cost inflation with productivity, including improving supply chain productivity, streamlining administrative processes and costs, and realizing indirect spend procurement savings. This has all led to adjusted EBITDA per case of $2.12, up $0.17 or 8.7% from the prior year. We expect continued adjusted EBITDA per case growth as we execute our initiatives. Moving on to slide 13, our strong cash flow generation was evident again this quarter. Year-to-date, we've generated $891 million of operating cash flow and $658 million of free cash flow driven by increased profitability and disciplined working capital management. Our robust cash flow creates financial flexibility to deploy capital strategically, enabling us to invest in the business for growth and return capital to shareholders via share purchases. We invested $236 million in cash CapEx for the first nine months, mainly focused on projects to support growth, including information technology, property and equipment, as well as maintenance of our distributing facilities. During the quarter, we significantly accelerated the pace of share repurchases in line with our commentary last quarter and repurchased 10.4 million shares for a total of $580 million. In the fourth quarter, through November 4th, we purchased an additional $160 million of shares. We have $238 million of remaining funds authorized under our $1 billion share repurchase program. We will remain disciplined in continuing to execute our share repurchase program in addition to continued investment in the business for organic growth and opportunistic tuck-in M&A. Turning to net leverage on slide 14, we ended the quarter at 2.8x net leverage within our 2x to 3x target range. Net leverage is unchanged from year-end, even with the significant share repurchases this quarter. Subsequent to quarter end, we addressed the net maturity and our debt structure. We issued $500 million in senior notes due 2033 at 5.75% and used the proceeds to repay a portion of our term loan facilities. We also extended the maturity of the remaining balance of our term loan due 2026 to 2031, lowered the interest rate margin on both of our term loan facilities by 25 basis points, and eliminated the credit spread adjustment of 11 basis points on the facility due 2031. As a result of this, we capture approximately $9 million in annualized interest savings. Our debt structure is strong, and we have no long-term debt maturities until 2028. With that, let me now turn to our updated outlook for 2024 on slide 15. Given our year-to-date performance and outlook for the remainder of the year, we're updating our fiscal year 2024 guidance. We now expect net sales to be in a range of $37.7 billion to $38 billion. We're increasing the bottom end of our adjusted EBITDA range to $1.72 billion to $1.74 billion. Finally, we're tightening our adjusted diluted EPS range to $3.05 to $3.15. Moving to modeling assumptions. For 2024, given the continued soft macro environment and the unanticipated hurricane impacts, we now expect total case growth of 4% to 4.5%. We're also updating our sales inflation assumption, which includes mix, to a range of 2% to 2.5%. Interest expenses projected to be lower than our previous forecast and is now expected to be in the range of $310 million to $320 million. Finally, depreciation and amortization are at the higher end of our range, partially due to M&A, and is now projected to be in the range of $435 million to $445 million. Despite the softer macro backdrop, we continue to strengthen our execution and remain confident in our ability to grow volume, gain share with target customer types, increase profitability, and return capital to shareholders. I'm pleased with our strong progress this year as we've driven balanced profitable growth. We remain well-positioned to achieve our current long-range plan in 2024 financial targets, and I look forward to getting off to a strong start to our next long-range plan beginning in 2025. With that, I'll now pass it back to Dave for his closing remarks.
Dave Flitman, CEO
Thanks, Dirk. Not only are we a market leader, but we have significant, sustainable competitive advantages that position us well to win in any environment, as we are demonstrating. We are the only pure play, U.S.-only food service distributor with national scale. Our focus is to grow volume and gain share with the highest value customer types in the industry: independent restaurants, healthcare, hospitality. We are focused on executing and delivering the outcomes of our new long-range plan, which comprehends significant upside from our self-help initiatives. Many of these are in the early innings of deployment and have a long runway of profitable growth. We are the industry leader in digital innovation and have built a strong competitive advantage that we will maintain. We are confident in achieving our 2025 to 2027 long-range plan. As a reminder, our growth algorithm introduced in our June Investor Day includes a 5% sales growth CAGR, 10% adjusted EBITDA growth CAGR, at least 20 basis points of annual adjusted EBITDA margin expansion, and a 20% adjusted diluted EPS growth CAGR. This will generate at least $4 billion of capital to deploy against our capital allocation priorities over the three-year period, including approximately half towards buying back stock. Our third-quarter results of net sales growth of 6.8%, 13% adjusted EBITDA growth, a 27 basis point increase in adjusted EBITDA margin, and a 21% adjusted EPS growth affirm my strong conviction that we have the right strategies in place to deliver our next long-range plan. Our team is 100% aligned and excited about our future and the ability to achieve exactly what we say we're going to do over the next three years. Finally, I sincerely thank each of our 30,000 associates for their dedication to executing and distributing to our customers well as we continue to pursue our ambition to become the undisputed best in the industry. With that, Roschelle, please open up the line for questions.
Operator, Operator
Your first question comes from the line of Brian Harbour with Morgan Stanley.
Brian Harbour, Analyst
Yes, thank you. Could you talk a little bit more about sort of private label penetration, where that's tracking and just what you continue to see there on both, especially on the independent side?
Dave Flitman, CEO
Yes, we're excited about our private label brands. Good morning, Brian. We've had continued increases in penetration there, particularly with our independent restaurants. We're running roughly 52%. As I say all the time to our team and externally, there's no barrier to increasing that. I see no near-term ceiling. I talked a little bit here this morning about our new Scoop launch. We're leading in innovation. There has been very strong adoption of all those products. We continue to take those products across the portfolio and all of our customer types, and we've got great momentum.
Brian Harbour, Analyst
Okay, great. Thank you. And maybe talk about just independent health as well. It sounded like some of the uplift you've seen recently after the weather impact was similar for independent and changes that, if I understood that correctly, but could you talk about that customer and how do you sort of expect the trend for this quarter and into early next year?
Dave Flitman, CEO
Yes, we're encouraged by what we've seen. The foot traffic challenges were well documented, really beginning in the second quarter of this year. Importantly, foot traffic decelerated in the third quarter. You heard me say this morning that our market share gains actually accelerated. We had a hurricane last week in September and another one in early October. Once we cleared all of that, I'm very encouraged by the momentum that we've seen with more than a 100 basis point acceleration in case growth, both with our independent restaurants and also chains. Importantly, our healthcare and hospitality where we took share again this quarter, and our differentiated portfolio remain very strong. Both of those have very strong pipelines, and I couldn't be more excited about the way we're going to finish the year and what that means for 2025.
Operator, Operator
Your next question comes from the line of Lauren Silberman with Deutsche Bank.
Lauren Silberman, Analyst
Hi. Thank you very much. First on the guidance, you're guiding to the high end of the full year EBITDA guide, lower end of the case growth guide. So it seems like you're outperforming within the P&L relative to your initial expectations. So can you just talk about where that's coming from? Have you pulled forward any initiatives?
Dave Flitman, CEO
No, we really haven't pulled anything forward, Lauren. As we've been doing for a long time now, we're just continuing to execute that portfolio of initiatives that we have, which really span the entire spectrum of the P&L from top line to gross profit expansion. You heard Dirk comment this morning on our continued momentum that we're gaining on operating expenses and productivity. All of that will continue. I feel like we're in the very early innings of a lot of that work, and that's what gives me great confidence and excitement for the new long-range plan.
Dirk Locascio, CFO
I think, Lauren, what you continue to see is the balance of the control the controllable focus that we've had. So solid top-line growth, not only in independents but healthcare and hospitality, and overall growth, and then our margin expansion has been strong. You see us EBITDA growth is one thing, and we're very pleased with 13%, but being able to convert that to EPS is important. In this quarter, you saw 13% EBITDA growth to 21% EPS growth. We're pleased with that.
Lauren Silberman, Analyst
Great, thanks. And just a follow-up on the independent case growth trends outside of the Southeast. Are you also seeing improvements in underlying traffic trends? Just trying to understand, are you communicating that you're currently running close to that supercenter organic?
Dave Flitman, CEO
No, I'd say we're running higher than that, Lauren. Yes, I think we've seen some acceleration across the country in independent case growth. I'm encouraged. We talked last quarter about a little bit of the concern given the presidential election. We have that behind us now. I see the consumer's confidence returning a bit, and I think that means good things for 2025.
Operator, Operator
The next question comes from the line of John Heinbockel with Guggenheim Securities.
John Heinbockel, Analyst
Hey, Dave, can you talk to the salesforce growth or expansion? It's running about 5% or so right now. And maybe talk about the productivity of recent cohorts. Also, I think you're still, right, all of your case growth coming from new accounts. Do you see any green shoots regarding drop size?
Dave Flitman, CEO
Yes, John, good morning. We're running in that mid-single-digit as we expected to for the year. We'll see how that finishes for the year, but I will tell you, I talked to all of our new incoming sales training classes, and we just had another one here on Tuesday. We are bringing in very strong sales talent. I'm actually as excited as I've been since I've been here about our ability to bring in high-quality new sellers, along with an increase in competitive sales talent here over the past several months. So I'm really excited about that. Yes, the lifeblood of our growth has been, and I think will continue to be new account generation. We're excited about that. We're also managing loss well. Penetration has been a challenge with the foot traffic. I wouldn't say we've seen any great acceleration in penetration yet, although we have seen some green shoots over the last three weeks, as I mentioned, as the overall case growth has begun to accelerate. I think the consumer is going to gain more confidence, and I think we'll get past those foot traffic challenges here soon and just continue to strengthen that momentum.
John Heinbockel, Analyst
And then where are we on the UMass rollout? And then I know you said warehouse productivity is up 3.5%. What are you seeing regarding miles driven productivity? Is that sort of in the same range?
Dave Flitman, CEO
Yes, that's a big enabler in the delivery productivity. I mentioned last quarter that we're basically back to pre-COVID levels with that. We're not quite back there yet in the warehouse, but we saw an acceleration in warehouse productivity from the second quarter to the third quarter. That's why I called that one out this morning in my prepared remarks. I'm very encouraged with what we're seeing, both in terms of reduction, stabilization, and turnover, and how that's translating to improved productivity. Dirk?
Dirk Locascio, CFO
Specific John, good morning, to your UMass, we've got 18 markets. So we've got six more. It continues to roll out and will continue through 2025. We're pleased with the results that we're seeing. It really is the foundation for a lot of the other things that we're driving in supply chain.
Dave Flitman, CEO
It's having exactly the desired effect in terms of standardizing those operating practices and driving a consistent uplift in productivity across the company.
Operator, Operator
Your next question comes from the line of Kelly Bania with BMO.
Kelly Bania, Analyst
Good morning. And thanks for taking our questions. I wanted to just ask a little bit about the COGS initiative. It sounds like that initiative continued to go quite well. I think you may have slightly exceeded your goals for this last three-year plan. But can you just talk about the confidence in the plan there over the next three years, how vendors are reacting to your strategy there and working with you, and just how volume-dependent the savings could be in the coming years?
Dave Flitman, CEO
Yes, thanks for the question. Very confident in what we said we would deliver the new long-range plan, which was $260 million over three years. As we mentioned wrapping up the year, we're going to deliver $230 million. This is a piece of work that we've been working on for a long time inside the company. As I've commented previously, we do this in a highly collaborative manner with our vendors. We've been doing it for a long time. It's really a win-win approach in terms of our ability to outpace the market with market share gains and not just with independent restaurants, which is the most important piece, but also healthcare and hospitality. They want that volume growth. Everybody's looking for that growth, and they're more than willing to engage with us and do this in a way that makes sense for both organizations. In fact, we just had our annual vendor report forum in the last couple of weeks, probably the best attended ever, with a lot of excitement coming out of our vendor community about our future. We feel great about it.
Kelly Bania, Analyst
Great. That is helpful. And thank you on the healthcare business. You mentioned the new $100 million that came on during the quarter. Just can you elaborate on that and the pipeline that you have over the next couple of years in healthcare in particular and the capacity to take on those kinds of accounts?
Dirk Locascio, CFO
Sure, good morning, Kelly, it's Dirk. We're pleased with that. We have always had a strong pipeline across both healthcare and hospitality. Healthcare, you're pretty familiar with; we've talked about our leadership position there, largely because of the value we can bring customers from both the partnership, service model, and the economic value. I'm confident that we can continue to grow at a healthy rate and above the market and gain share in each of those customer types. With healthcare, you see us growing at almost 6%. The thing that is good about growing with healthcare and hospitality is, typically when you're bringing those customers on, they are buying the same product you already have in your distribution facilities. So they're far more capital-effective than bringing on a lot of chain business. That's why you see us continue to focus on over-indexing with independent, healthcare, and hospitality while being thoughtful and optimizing around changes.
Operator, Operator
Your next question comes from the line of Mark Carden with UBS.
Mark Carden, Analyst
Good morning. Thanks for taking the questions. So I want to start off with Descartes. You're rolling that out now to some of your more impactful markets. How has that rollout gone relative to your expectations and any incremental learnings from your latest batch of markets?
Dave Flitman, CEO
It's going extremely well. We were very thoughtful about how we rolled this out across the company. We spent a lot of time early on in those pilot markets, and there was a tremendous amount of learnings around that. You can't do this work without engaging your customers around delivery windows and all that. We've done a great job of getting ahead of that now as we've rolled Descartes out to new markets, enabling a great dialogue with our customers, and actually gotten them a lot more confident that we're going to deliver exactly in the window that they need and when we say we're going to deliver. We're confident about rolling this out aggressively, and we'll have half our miles on Descartes by the end of the year.
Mark Carden, Analyst
Great. And then on hospitality, you've been benefiting from some nice new business wins. You guys are taking market share. How did overall hospitality industry demand shake out for the third quarter relative to your expectations? Did you see much hurricane impact there? And how was your business with your existing customer base?
Dirk Locascio, CFO
Good morning, Mark. It's Dirk. I'd say for the third quarter, outside of the underlying demand and the weather, it shook out largely as we expected. It had very similar impacts from the storms, from the overall underlying foot traffic, as we saw in the restaurant space. So we saw the same pressures and a similar start to the quarter, and have seen the improvement that Dave talked about with independent and chain show up in hospitality as well. We're encouraged. I think at the same time our team continues to be very active, working the pipeline for new business, and feel good about our ability to grow and take share there as well as in healthcare.
Operator, Operator
The next question comes from the line of Jeffrey Bernstein with Barclays.
Jeffrey Bernstein, Analyst
Great, thank you very much. Two questions. The first one just trying to clarify the total case growth for the full year is now 4% to 4.5%, tempered from the 4% to 6%. I was hoping you could prioritize what drove the reduction. I know weather was clearly a component, but in clarifying an earlier question, I think you said something was running currently greater than 2% case growth. So just trying to get at least directionally, sounds like 3Q is better than 2Q with further improvement in 4Q, all excluding the weather. Just wanting if you could provide any specifics in terms of numbers to support kind of the reacceleration you've seen through the third quarter into the fourth quarter.
Dirk Locascio, CFO
All right, Jeff, it's Dirk. The adjustment was a combination of the weather, as you pointed out, which impacted us toward the end of the third quarter and the start of the fourth quarter. Given our size in the Southeast, it had an impact on us. The second piece is the overall traffic environment in the third quarter; it stayed softer for longer, although we saw positive signs as we were coming out of the quarter before the storms hit. The important part is, even during that period, we gained share in the quarter again in each independent, healthcare, and hospitality, which is our guidepost that it is sort of the macro environment, putting the storms aside, and we didn't lose share. I think the other thing it does is set us up to be confident in our ability to deliver what we committed for 2025.
Jeffrey Bernstein, Analyst
Understood. Right. And then in terms of the new wins, I know you highlighted healthcare and hospitality as very encouraging. I'm wondering whether there's any big gains or changes, maybe accounts that you've given up with on restaurants or how the pipeline is looking going into next year in terms of new business.
Dirk Locascio, CFO
Well, I mean, with independent being smaller, that's always a constant pipeline, and that's a constant focus on winning and seeking to win a lot more than you lose in that sector. Our teams are doing that well, given that we continue to grow and take share in an environment where the industry tells us is down from a traffic perspective. From a chain perspective, we've onboarded, and our expectation is to continue to onboard some new business as we head into 2025. The pipeline remains very robust. We are thoughtful in what we're focused on for chain business but feel good about that pipeline as we head into next year. The healthcare and hospitality pipelines remain very strong.
Operator, Operator
Your next question comes from the line of Edward Kelly with Wells Fargo.
Edward Kelly, Analyst
Hi. Good morning, guys. Nice quarter. I wanted to ask you, if you look at this quarter, right, like volume growth is a little soft because of obviously weather macro-related stuff, but you still delivered EBIT growth that's above the algorithm. As we think about going forward into ‘25, and I'm not looking for guidance on ‘25, but what does the gross profit per case and the OpEx per case opportunity look like in ‘25 versus what you saw in ‘24? I want to ask that question because it certainly seems like industry volumes have the potential to get better, and you have clearly the potential to deliver better volume numbers that shared. I'm just kind of curious, the composition of the P&L in this quarter, what it says about the outlook.
Dave Flitman, CEO
Great point, and that's what gives me excitement about entering 2025. The well-documented industry challenges and the devastating weather impacts that affected many in the third and early part of the fourth quarter, and we still delivered our new algorithm. That gives me great encouragement and confidence that our team is ramping up the right activities. With regard to your question about the GP per case and OpEx per case, as I mentioned, we are in the early innings of this work. You can expect that this work will continue roughly as it did this year because our team is focused on it, and with each quarter that goes by, we continue ramping these initiatives. The momentum continues to build. Our team gets more confidence in these pieces of work, and I am very encouraged going into 2025 in all parts of the P&L, including the top line.
Edward Kelly, Analyst
Great. Just a quick follow-up on the share repo. I mean, you've talked about half of the $4 billion going to repo, but you've done 25% of that this quarter, and then you're buying back more stock in Q4. How do we think about the cadence of that repo? It certainly seems like it may end up being much more front-end loaded. Are you still targeting to take the leverage ratio down to the level that you talked about at the Investor Day?
Dave Flitman, CEO
We have been doing in the back half of the year exactly what we told you we would do, which is to lean into share repurchases, given what we believe is a significant undervaluation of our shares. Importantly, what we delivered and bought back during the quarter doesn't impact the next algorithm at all. That $4 billion is between ‘25 and ’27. If we generate more than what we said there in terms of capital cash flow, you can expect us to deploy roughly half of what we generate towards share repurchases. If you think about where the stock ought to be as we deliver that algorithm in 2027, we're significantly undervalued. You heard me talk about all the confidence in the momentum that we have in the business. We'll lean in. As we've also said, we'll toggle between M&A and share repurchases depending upon the M&A opportunity. That pipeline remains strong. We're confident in the algorithm we put forward, and we're going to continue to drive that outcome.
Dirk Locascio, CFO
Just to reiterate what you said, that's one of the things we like so much about share repurchase. It has the ability to toggle as M&A comes up, and in a particular quarter, you may repurchase more or less depending on that. We're pleased to have made a significant portion of repurchases given the share value relative to what we expect for the future.
Operator, Operator
The next question comes from the line of Jake Bartlett with Truist Securities.
Jake Bartlett, Analyst
Great. Thanks for taking the question. My first was just a clarification. I just want to make sure I have the trend right in terms of the near term and the cadence. So in the third quarter, organic independent case codes were 2.4. You're saying that would have been roughly 3.4 without the impact of the hurricanes. Has the trend improved 100 basis points since that? So basically, you're running 4.4 in October. Is that the right way to think about it?
Dirk Locascio, CFO
Good morning, Jake. It's Dirk. What it means is instead of the 2.4, after we got past the first couple of weeks of October with the storm impacts, it's been 100 basis points higher than what we had in Q2. So back to that mid-3.
Jake Bartlett, Analyst
All right. So October is 100 basis points stronger than Q2?
Dirk Locascio, CFO
Yes, the last three weeks or so.
Dave Flitman, CEO
Once we lapse the storms. We're expecting them to continue to improve.
Operator, Operator
Okay, got it. Just want to make sure I understood the trajectory, because it looked like you were just kind of benefiting from lapping the storms in the third quarter, but that's helpful. My other question is about just your operating cost efficiencies and productivity improved by 3.5%, which is great. Your long-term guidance is 3% to 5%. So my question is the path, your visibility on the path towards the middle or even the higher end of that 3% to 5% range. Is that something you're working towards, and might we expect to see in ‘25 some increased productivity gains, increased momentum on that side? What's the trajectory of the productivity gains?
Dirk Locascio, CFO
Hi, Jake. It’s Dirk. I'm not going to give specifics on 2025, but within that 3% to 5%, we have good visibility on what's driving it. All of the things that we talked about on our June Investor Day span across supply chain, people and non-people, admin, and indirect spend savings. Each of these things, we will expect to drive the initiatives that will drive productivity. Our goal is to offset or largely offset the inflation we face, so the strong gross profit gains we generate flow through in the form of the 20-plus basis points of margin expansion we talked about. The concrete things we are doing are why we believe it is sustainable to continue to grow at a healthy rate that we have and that we've talked about for the next three years.
Operator, Operator
The next question comes from Peter Saleh with BTIG.
Peter Saleh, Analyst
Great. Thanks for taking the question, and congrats on a strong quarter. I wanted to ask about the salesforce compensation. I think you guys made some changes earlier this year. It's been called three quarters or so since that change. Can you just talk about how that's been received so far and if you're contemplating any other changes to the compensation structure in 2025?
Dave Flitman, CEO
Yes, great question. It's been received very well. I think our salesforce is excited. They understand the linkage between what we modified there. The key pieces of those changes were relatively minor but directionally aligned with what we expect to happen in terms of performance. That was to variable-ize more of their pay to increase their hunger. Secondly, to lean in more aggressively on our exclusive brands. I see these as tweaks, and we didn't fundamentally change the structure. We just made some tweaks here to align with what we expect to happen in our growth algorithm going forward. It's having the right outcome, and the expected behavior changes are there. Our salesforce is excited, and we're growing it. Good things are going to happen here on the top line going forward.
Peter Saleh, Analyst
Understood. And then just, Dirk, real quick on the indirect costs, I think you mentioned $20 million of savings, or at least that may be the run rate. Are you still on track to achieve the, I think, $60 million of run rate savings by 2027 that you guys highlighted at the Investor Day?
Dirk Locascio, CFO
Good morning, Peter. Yes, we are on track for that. This work to achieve the $20 million this year has been underway. We've talked about it for several quarters. As the actual projects have come to fruition, the savings have come in. I'm pleased with the early start we have in 2024, and yes, we're well on our way to that $60 million plus.
Operator, Operator
The next question comes from Andrew Wolf with CL King.
Andrew Wolf, Analyst
Thank you. Good morning. I just wanted to ask you to drill into the Pronto business a little. So it's a $700 million annualized run rate budget for this year. Obviously, it's still growing and maturing. Could you give us a sense of how much that is incremental, given it was in existence last year but likely less mature, and so on, so we could figure out the growth rate? Also, if you want to speak to your expectations going forward.
Dirk Locascio, CFO
Good morning, Andrew. I'd say, yes, about 20% of it is incremental, a supplement to what we had before. We've talked about that being an opportunity for up to a billion dollars. This is really the penetration piece that Dave mentioned, that has moved from two markets to six. It's contemplated conservatively in there. With the early positive results we're seeing, there's a lot of runway potentially over that billion dollars. That business and that opportunity to continue to access more of the new customers, plus our existing customers, we think have a lot of opportunity for growth for a number of years to come.
Dave Flitman, CEO
As we said before, the introduction of Pronto really opens up a part of the market that we're not able to compete against in our broad line business today, that being the smaller delivery, more specialty suppliers. Again, we've got all those great products inside our distribution centers today, but before Pronto, we really didn't have the service model with those more frequent deliveries in those tight urban areas. Now we've got that, and we were thoughtful about the pilot work we did on Pronto, okay, because we wanted to ensure, and that's why I commented this morning, that we weren't cannibalizing our core broadline business in any way. We've proven that we're not, and that's why we're excited and ramping up from two to six pilot markets. I couldn't be more excited about the progress we're making with Pronto.
Andrew Wolf, Analyst
Great. I just want to clarify on penetration. So it's your existing broadline customers, not really a Pronto customer. And secondly, it's a different kind of product, like a specialty product, not like a fill-in, like we need more catch-up or something.
Dave Flitman, CEO
First of all, we had this model for a few years now. Until this year, it was exclusively to go after new customers. We did not allow our existing broadline customers to lean in on Pronto. Now we are, and yes, we compete against specialty suppliers. Think about produce, seafood, or pure meat specialty suppliers. We've got all those products, and it works well. If we've got that truck going to the customer and they run out of a core item, that's not a specialty product, we'll happily throw it on the Pronto truck. So it's really going to open up some additional volume growth that incrementally we weren't able to gain with our existing customers.
Operator, Operator
We'll take the final question from John Ivankoe with JP Morgan.
John Ivankoe, Analyst
Hi, great, thank you. I wanted to revisit the underlying assumption of local case volumes, which I think was 2% on a market level. You guys thought you would do 5% to 8%, in other words, outperforming the base. So I wanted to ask a couple of questions. One, do you still feel good about that 2%, especially for what we've learned this week? What are the really important macro factors we should look at that could potentially drive a return to 2% local growth? As we think about your outperformance getting back to that 5% to 8% type of growth, does that happen regardless of the baseline assumption, or should we just focus on 2.5x to 4x to market as we think about our own assumptions over the next couple of years?
Dave Flitman, CEO
Thanks for the question. There's a lot to unpack, and let me try to do my best. Back in June, we had a core base assumption of about 2% market growth over time. That wasn't aimed at any quarter or any particular year, but we thought over the three-year period of time, that was a reasonable assumption because historically, that's about what the market growth has been. So yes, I'm confident in the 5% to 8% range. I'm confident in our ability to achieve that, even if the market's at a 1% to 2% range. I point to a couple of things as we've talked about all year. First, the elections are behind us. The consumers have faced a lot of inflation over the past several years, but interest rates are starting to come down. I think we're going to see a return to normal consumer activity. Lastly, in 2023, we were at or above the targeted range in all four quarters. Even with significant weather impacts, we gained share and stayed on course. I'm excited about our 5% to 8% growth in 2025 to 2027.
Operator, Operator
That concludes our Q&A session. I will now turn the conference back over to Dave Flitman for the closing remarks.
Dave Flitman, CEO
Thanks, Roschelle. Thank you all for joining us today. This was another quarter that underscores the momentum that our team is delivering, regardless of the macro environment or the weather impacts. I couldn't be more excited about the momentum we have in the company and our ability to deliver what we say we're going to do over the next three years. Thanks for joining us. Have a great week.
Operator, Operator
Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.