US Foods Holding Corp. (NYSE:USFD) Q2 2023 Earnings Call Transcript

David Flitman : Yes. I appreciate the question. I’ll start at the higher level and give Dirk a chance to win in any of the specifics. But as we’ve said the last couple of quarters, we feel very good about the momentum we’re getting on productivity, both in our warehouse and delivery. And you heard me say on the call there, we had sequential improvement as well as year-over-year improvement in both. And so the initiatives we’re driving, we’re very excited about. We expect those to continue to get traction in the back half of this year. And I would point out to your point, this is five or six quarters in a row where our operating expense growth that continues to decline. And that’s based in large part by the good work our team is doing, particularly in supply chain.

Dirk Locascio : And the only thing I would add is, in the quarter, as I commented, overall distribution cost per case was lower than it was a year ago. And the two areas that really drove our increase were seller compensation, which is driven by the strong gross profit results we’ve had. And then secondly, incentive compensation, which is a good place you’re going to have higher costs because it drives team to continue to perform at a stronger level. So we feel, as Dave said, very good about the progress and the path ahead and our ability to effectively manage costs and gain leverage.

Edward Kelly : And then just a follow-up on gross profit per case. The 6% gain this quarter with some deflation is obviously very encouraging. As we think about the quarters ahead, is there any reason that you shouldn’t at least be gaining in that gross profit per case? I mean, just where you stand today, it doesn’t seem unreasonable at all that you had at least a low single-digit year-over-year gain there continuing. But maybe just some color there and where do you think you stand in terms of like the innings in terms of the upside here?

David Flitman : Sure. Good question. So for the second quarter, adjusted gross profit dollars were up about 9%. So pleased with that. And I think the — if I think of the year-over-year, you may see some lesser year-over-year increases just because we’ve had such strong gains as we’re lapping those. We get to your point, get back to a more normalized environment, but continue to feel very good about the durability and strength of our gross profit per case. And I think the way we continue to look at it is there’s not an end. We’re going to continue to focus on the gross profit gains. And our goal here is to continue to run the play to pro gross profit faster to OpEx to drive margin because as you know, our overall EBITDA growth is a balance of profitable growth, especially in those target customer types. And we think we have — we’re happy with the progress we’ve made and we have a lot of runway ahead.

Operator: Your next question comes from the line of Brian Harbour from Morgan Stanley.

Brian Harbour: Yes. Can you maybe just comment also on the chain restaurants? I know it’s kind of not the customer focus at this point, but any change in trends with case volumes for chains?

David Flitman : Yes, I’ll take you back, Brian — good question. I’ll take you back to some of the commentary we had in the last quarter. And if you recall, one of the things I said when we were down a little bit less than the market was don’t read too much into that. It has in large part to do with the portfolio change each of the competition has, number one. Number two, we weren’t surprised at all because of the lapping of the Omicron effect that we pointed to in the first quarter. And then the second thing is the backdrop within the chain segment has gotten softer as the year has progressed. I’d point to two things. One is the Technomic data that said the change, we’re going to be up about 200 basis points back in January.