Performance Food Group Company (NYSE:PFGC) Q2 2024 Earnings Call Transcript

Performance Food Group Company (NYSE:PFGC) Q2 2024 Earnings Call Transcript February 7, 2024

Performance Food Group Company misses on earnings expectations. Reported EPS is $0.9 EPS, expectations were $0.92. Performance Food Group Company isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, and welcome to PFG’s Fiscal Year Q2 2024 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Bill Marshall, Vice President, Investor Relations for PFG. Please go ahead.

William S. Marshall: Thank you, and good morning. We’re here with George Holm, PFG’s CEO; and Patrick Hatcher, PFG’s CFO. We issued a press release this morning regarding our 2024 fiscal second 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 the same period in Fiscal 2023. The results discussed on this call will include GAAP and non-GAAP results adjusted for certain items. The reconciliation of these non-GAAP measures to the corresponding GAAP measures can be found in the back of the earnings release. As a reminder, in the fiscal first quarter of 2023, we updated our segment reporting metrics to adjusted EBITDA from the prior EBITDA metric.

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 statements section in today’s earnings and our SEC filings for various factors that could cause our actual results to differ materially from our forward-looking statements and projections. Now, I’d like to turn the call over to George.

George Holm: Thanks, Bill. Good morning, everyone, and thank you for joining our call today. I’m excited to share our fiscal second quarter 2024 results with you today, which were strong and accelerated into the close of the calendar year. Building on a strong start to our fiscal year, second quarter results came in at the high-end of the expectations we announced three months ago. Once again, we saw broad strength across our business units with strong momentum in our high margin focus areas. This morning, I will review our business performance and discuss some recent trends we have seen in the market. Patrick, will review our financial performance and outlook for the remainder of the fiscal year. Then we look forward to taking your questions.

Last quarter, we discussed our strategic focus on being a leader in the food-away-from-home industry with broad exposure to a variety of channels and products. We believe that our position in the market produces consistent growth across our top and bottom lines and provides resiliency during different economic conditions. The second quarter was an excellent example of this with each of our business segments contributing to our performance. Let’s begin with our Foodservice segment. We are pleased with how Foodservice continues to perform with accelerating case volume growth across both independent and chain restaurants. The outstanding case performance drove sales growth in the quarter despite another period of modest deflation. We’ll provide more detail about our inflation expectations in a moment.

Independent case volume accelerated from the fiscal first quarter, growing 8.7% year-over-year in the second quarter due to a very strong finish and favorable calendar. We have consistently grown our market share in the independent restaurant space, which remains an important component of our long-term profit growth aspirations. The increased headcount within our sales force is certainly an important factor. However, I cannot overstate the quality of these individuals and the hard work they contribute to PFG everyday. Their performance is supported by our Company’s rigorous training, emphasis on product knowledge and the development of relationships. PFG has been building and maintaining this area of our business for decades. In our view, this emphasis is a key driver of our independent performance, and we expect this to provide continued momentum in the quarters ahead.

As we have discussed on the past several earnings calls, new account growth has been the main driver of case growth in the independent channel. This largely continued in the fiscal second quarter with active independent customers increasing by nearly 8% over the prior year. However, we did begin to see improved penetration within existing accounts, particularly in November and December. In fact, sales to existing customers increased more in December on a year-over-year basis than we have seen since January of last year. We are optimistic that growing business with our existing customers will become a more important piece of our case growth trends. Last quarter, we highlighted the sequential performance of our Chain business, and we’re optimistic that we could see positive case growth over the next several quarters.

We are pleased to see that Chain business continue to accelerate sequentially, swinging to positive case growth in the fiscal second quarter. The growth in our Chain business was mostly driven by improved performance of our existing customers with a small contribution from new accounts. As you are aware, we have produced several excellent results in our Foodservice business despite several quarters of deflationary pressure. Sequentially, deflationary moderated in the fiscal second quarter compared to the fiscal first quarter as we had expected. While the moderation was slightly less than we had originally anticipated, our strong case performance and positive mix shift offset the deflationary pressure, resulting in gross profit improvement in the quarter.

As we turn our attention to the back half of 2024, we continue to expect moderating deflation turned very slight inflation by the time we reach the end of the fiscal year. We are extremely proud of how our Foodservice business has performed I believe it will continue to be the engine for our profit growth over time. Turning to Vistar, we were very pleased with results in the fiscal second quarter. Vistar is an important growth engine for our Company and has consistently produced strong top and bottom line results. As we discussed on last quarter’s earnings call, Vistar did have a difficult comparison in the fiscal second quarter due to higher than typical inventory holding games last year. They were able to successfully overcome this hurdle and grow bottom line results in the period.

One of Vistar’s strength is the ability to compete in a wide variety of channels selling a broad range of products. This diversity helped once again in fiscal second quarter, allowing the segment to produce high-single-digit sales growth. Vistar saw particularly strong sales results in the important vending office coffee and office supply channels. One of the key drivers of the top line performance was a continued improvement of fill rates, both inbound and outbound. As you may remember, Vistar’s fill rates have been slower to recover than our Foodservice business, and we are pleased to see gains in this area recently. Vistar has continued to enhance their ecommerce platform, which we believe will offer further growth potential in this channel enable us to increase sales to existing customers as well as open new lines of business directly to consumers.

Vistar has a strong pipeline of new business, and we are excited about the future. Finally, our Convenience business has powered through a difficult macroeconomic environment to produce very strong bottom line results. On the topline, our Core-Mark operations continue to win new business and outperform the broader c-score landscape, particularly in the largest and most important channels. And particularly, Core-Mark has been able to outperform in the foodservice, candy and snack areas of the Convenience business. While topline growth is not quite as robust as we might like, Core-Mark has shown their ability to win market and take share from competition. We believe that inflationary pressure, both inside the convenience store and the gas pump has kept consumer demand muted over the past several quarters.

Over time, we expect this to normalize and allow top line trends to revert to historic growth rates in the convenience space. Meanwhile, Core-Mark has done an outstanding job capturing efficiencies on the operating income line, particularly in workforce productivity. Core-Mark’s operating expense efficiencies are attributed to record low temporary workers and overtime expense, which has decreased by approximately half from Q2 of 2023. A stable full-time workforce has several long-term advantages including fewer picking errors, lower levels of shrink, and higher worker productivity. As a result of these efficiencies, the Convenience segment experienced 20% adjusted EBITDA growth in the quarter. This profit performance is despite lower inventory holding gains on a year-over-year basis.

Through the remainder of fiscal 2024, we anticipate inventory holding gains to moderate to a normal level. Still, our Convenience segment’s profit momentum is strong due to the excellent management of underlying cost items. Core-Mark’s ability to deliver both traditional convenience store goods as well as broad line foodservice expertise and capabilities has enabled us to capture additional business opportunities since the acquisition. We have expanded our capabilities to incorporate additional branded concepts, including various cuisine types, such as Hispanic fried chicken and barbecue. We have used the strong brand equity in several of our performance brands, including Contigo, Perfectly Southern Fried Chicken, Red Seal Pizza, and Tru-Q Barbecue.

We believe that these programs help to drive our strong sales pipeline and expect them to result in additional business in years ahead. Before turning to Patrick, who will discuss our results and specific drivers for our performance and then provide more color on our guidance for 2024 and beyond, I want to leave you with a few key messages from our second quarter results and expectations for the future. We believe that PFG’s position as a leader in the growing food-away-from-home market will enable us to consistently grow our sales and profit over the long-term, resulting in additional shareholder value. Our commitment to invest in new fiscal capacity and customer facing employees has produced market share gains in the highly profitable channels in which we compete.

Our broad channel exposure gives us access to significant white space opportunities that we believe insulates our business from changes in the external macroeconomic climate. We are excited for what the future holds and appreciate your interest. I will now turn it over to, Patrick.

Patrick Hatcher: Thank you, George, and good morning, everyone. I’d like to start this morning by reviewing our performance for the fiscal second quarter of 2024 and commenting on PFG’s financial position and capital allocation priorities. I’ll then review our outlook for the remainder of fiscal 2024 and discuss some key drivers embedded in our guidance. We’ll then be happy to take any questions you have during the Q&A portion of the call. As you saw in our press release this morning, PFG delivered strong results during the fiscal second quarter. Building on the momentum from our first quarter, we were particularly pleased with how we closed the calendar year during the important holiday selling season, which experienced accelerated growth.

In the fiscal second quarter of 2024, PFG generated total net sales of $14.3 billion, a 2.9% increase year-over-year. Our revenue was at the upper-end of the guidance range we laid out last quarter, and we are very pleased with this result. Our sales performance was driven by a 2.1% increase in total case volume growth. Our case performance was boosted by an acceleration independent restaurant case growth, which increased 8.7% in the quarter. This result was more than a full percentage point higher than the prior two fiscal quarters, highlighting the solid momentum in this area of our business. As George mentioned, we attribute this strength and resulting market share gains to our investment in our growing outstanding sales force. I’m also pleased to report that case volume to chain restaurants grew in the fiscal quarter after several consecutive quarters of decline.

As we discussed in our last earnings call, our chain performance had improved sequentially as a result of improvements in some of our key accounts and new business wins. It is rewarding to see this area of our business move back towards positive growth, creating a powerful combination with our independent strength. We expect to continue to add new accounts to our Chain business, emphasizing profitability as we partner with strong and growing restaurants. Total PFG gross profit increased 6.6% in the fiscal second quarter to $1.6 billion. Positive mix shift continues to drive gross profit growth and margin expansion for PFG. While deflation in foodservice moderate in the second quarter compared to the first quarter, it remains a modest headwind.

Our gross profit performance in the quarter once again reflects our ability to produce solid profit growth despite the deflationary backdrop. Total company inflation increased slightly in this fiscal second quarter due to moderating deflation in the Foodservice segment that I just mentioned. This offset the slowing rates of year-over-year inflation at both the Vistar and Convenience segments. Total company product cost inflation was 3.6% in the fiscal second quarter, up half a percentage point sequentially from the fiscal first quarter. Deflation in the Foodservice segment moderate to 0.4% in the fiscal second quarter, compared to 2.3% deflation in the fiscal Q1. As expected, Vistar inflation continued to slowly trend lower in the quarter, though it remains elevated compared to historic norms.

Vistar finished the second quarter with inflation just below 7%. The Convenience segment is experiencing a similar dynamic with 7.5% inflation in the fiscal second quarter. Looking ahead, we continue to expect Foodservice deflation to move toward inflation by the end of the fiscal year, with Vistar and Convenience inflation settling in at a more normal low-to-mid-single-digit range. These are the assumptions in our fiscal 2024 guidance. Gross profit per case was up $0.29 in the second quarter as compared to the prior year’s period. Our ability to increase gross profit at this rate is an important factor in our bottom line growth. You will see in our earnings release, our operating expense did increase at a mid-single-digit pace in the fiscal second quarter.

This increase is mostly due to higher personnel expense and an increase in insurance costs. Higher personnel expense is partly a factor of our larger workforce to match our increase in demand. These increases were partially offset by increased productivity. We expect these improvements to continue in future periods as we steadily capture opportunities to become more efficient, particularly in the areas of warehouse and delivery. In our second quarter, PFG reported net income of $78.3 million a 10% increase year-over-year. Adjusted EBITDA increased nearly 12% to $345 million. Our adjusted EBITDA result was at the very top end of the guidance we provided last quarter. Diluted earnings per share in the fiscal second quarter was $0.50, an increase of 8.7%, while adjusted diluted earnings per share was $0.90, an 8.4% increase year-over-year.

We did see a higher effective tax rate in the fiscal second quarter of 29.9%, which is due to an increase in non-deductible expenses and state and foreign taxes as a percentage of our income. Turning to our guidance. For the fiscal third quarter of 2024, we expect net sales to be in the range of $14 billion to $14.3 billion, and adjusted EBITDA to be in a range of $310 million to $330 million. Keep in mind that fiscal third quarter is typically the smallest quarter in our fiscal year due to relatively light industry volume in January and February. A couple of thoughts on the assumptions we have applied to our fiscal third quarter outlook. First, as expected, the Foodservice segment continued to experience mild deflation in the fiscal second quarter.

We continue to expect this deflation to move towards flat during the fiscal third quarter, although the pace of this improvement maybe a bit slower than we originally anticipated. Second, while we closed out our fiscal second quarter with significant momentum, bad weather in early January resulted in an impact to our volume and sales results. Typically, January is a very small month, so we do not believe that the weather will result in a significant impact to our full third quarter. However, we are mindful of the slower start to the calendar year than we originally expected. Despite these challenges, we are reaffirming our full year fiscal 2024 guidance. We continue to expect net sales to be in the range of $59 billion to $60 billion and adjusted EBITDA to come in at the upper-end of our previously announced 1.45 billion to $1.5 billion range.

We’re currently tracking sales at the lower-end of the $59 billion to $60 billion range, though we do expect to have a strong fiscal fourth quarter. We’re also reiterating our long-term outlook which projects net sales to be in the $62 billion to $64 billion range in the fiscal 2025. Adjusted EBITDA is expected to be comfortably within the $1.5 billion to $1.7 billion range in fiscal 2025. As you can see from our outlook for the next two fiscal years, we are confident in PFG’s current trajectory and believe that our business is on solid footing. I’d like to conclude our prepared remarks today with our financial position, including our cash flow generation, balance sheet, and capital allocation priorities. Over the first six months of the fiscal 2024, PFG generates strong operating free cash flow.

Operating cash flow was $554 million in the first six months of fiscal 2024, an increase from $424.5 million over the first six months of fiscal 2023 due to improvement in our working capital and higher operating income. After investing about a $147 million in capital expenditures, PFG generated $406.9 million of free cash flow. Investing in our business remains the top priority, including growth projects to build additional capacity to support our long-term growth aspirations. After capital expenditures, we have three main uses for our additional cash flow, including M&A, leverage reduction, and share repurchases. We evaluate these decisions based upon the value we see each would create for our shareholders and strategically deploy capital towards this view.

Our share repurchase program considers the value of our stock as well as the relative evaluation compared to historic levels. In the fiscal second quarter, PFG repurchased 0.8 million shares for a total of $50 million for an average cost of $58.01 per share. We are confident in our long-term prospects and reflect this through share repurchases. We also continue to look at strategic M&A as another avenue of shareholder value creation. We are proud of PFG’s track record completing and integrating acquisition throughout our history. The team is continuously working to identify interesting opportunities while remaining disciplined on price and strategic fit. Finally, we have focused our efforts on maintaining a healthy balance sheet. We closed the quarter just below the midpoint of our 2.5 times to 3.5 times net debt to adjusted EBITDA target and feel very comfortable in this range.

We also carefully consider the balance between fixed rate and floating rate debt and used interest rate swaps to convert a portion of our ABL balance to a fixed rate. At the close of the fiscal second quarter of 2024, 80% of our total outstanding debt was at a fixed rate, including these swap contracts. We believe that our current level of debt provides ample flexibility to fund our ongoing operations while leaving room for the capital allocation priorities, I just highlighted. To summarize, PFG finished calendar 2023 with a strong fiscal second quarter. We believe our business is well-positioned to achieve strong results despite changes in the macroeconomic environment, and we are investing in the long-term success of our organization and our shareholders.

Thank you for your time today. We appreciate your interest in Performance Food Group. And with that, we’d be happy to take your questions.

See also 15 Best Gay Dating Sites and Apps of 2024 and 20 Best Small Towns in Florida to Retire.

Q&A Session

Operator: [Operator Instructions] And we do have our first question from Jake Bartlett with Truist Securities.

Jake Bartlett: Great. Thank you so much for taking the question. My question was on the cadence of the sales and the EBITDA guidance in the third quarter and the fourth. You mentioned weather, but you also mentioned that it wasn’t going to have very large of an impact given how small, the January is. So the question is, what gives you so much confidence that sales growth will accelerate in the fourth quarter? By my math, it’s about 6% growth at the low-end of guidance, in the fourth quarter, up from, call it, 2.5% to 3% in the third. So, what gives you confidence in that level of acceleration?

George Holm: Well, momentum in our independent business is a big help. We have new business coming in, in our national account area that, starts anywhere from the beginning of fourth quarter and some of it starts in May and the same in our Core-Mark business. We have some new business that, we’ve already signed up and we know is coming in. So, those are the things that give us confidence as we get into the fourth quarter.

Jake Bartlett: Okay.

George Holm: And Jake

Jake Bartlett: And then, sure. Thanks.

Patrick Hatcher: Oh, sorry. I was just going to add, what we’re really trying to do is make sure that we give you guys some clarity on the cadence of Q3 to Q4.

Jake Bartlett: Got it. But the third quarter is impacted by weather but not by much. Is there any way you can kind of quantify how much just you’ve seen in January, it’s done? How much of an impact do you think January was to the quarter as a whole?

George Holm: Well, January was a significant impact. I mean, it was a slow month. We’re glad to be doing this quarter having, a week in February under our belt, once we got past the bad weather, which is really just California now, things were right back to normal, and our case growth was back to normal. So, we’ve got nine weeks to make up for a difficult four weeks, but, we want to communicate that does have an impact on our third quarter. But, March is so critical to Q3 that, we don’t have full insight into what impact it would have on us. January is always a low EBITDA month for us.

Jake Bartlett: Great. I appreciate it. I’ll pass it on. Thank you.

Operator: And we do have our next question from Mark Carden with UBS.

Mark Carden: Great. Thanks so much for taking the question. So, I wanted to dig into Convenience a bit. You mentioned that you’re taking share there both overall and in Foodservice, still cases in Convenience Foodservice were down. I’m curious if this would have been positive if you include the Foodservice sales that are embedded within your performance Foodservice business? And then —

George Holm: Yes. It would have been a 6.3% case increase, if you, include the foodservice.

Mark Carden: 6.3?

George Holm: Yes.

Mark Carden: Okay. Great. Are you seeing much of a change in consumer behavior as gas prices have moderated a bit?

George Holm: I think it’s too early to tell with that because it’s pretty recent that it’s, we’ve had that moderation, and we’ve had the weather component to deal with there. At least, if you look at it historically, we’re going to see some positive impact from that. Where we’re seeing, the softness is one large account, that is very soft. And, the Monday and Friday morning traffic is still not quite, back to normal. I think it’s because a lot of people aren’t working five day week or going into the office for all five days. But other than that, we see some good success. And then, it has a long sales cycle, which I’ve mentioned several times, Convenience in general. But in the Foodservice where there are branded programs, those are typically fairly long contractual arrangements, so maybe three years and maybe five years.

So, with our turnkey programs that I mentioned in the prepared remarks, our Perfectly Southern Chicken or Tru-Q Barbecue, those type of programs. Were they’re not doing something like that, we get in quick, were they have to change out signage and they’re doing that with somebody else who maybe had a three or five year agreement, sometimes those are going to be six months, 12 months before they’re actually up and gone. But what we do is we keep track every month of how many new programs that we’ve signed up, and, we just feel real good there. Even the month of January where it was difficult to get those things done, we did sign up, significant amount of customers. So our Foodservice business, and the Convenience, we’re real pleased with where we’re at this stage.

Mark Carden: Okay. Great. And then as a follow-up, just you talked a bit about the potential for strategic M&A. You mentioned recently that Foodservice would likely be the primary focus there. Just anything that you’ve seen recently that would make you any more or less optimistic about the volume of potential deals. And then if you did add within Foodservice, did you have any order of preference just between bolt-ons, category additions or white space or is it simply what’s going to have the highest return?

George Holm: Yes. Well, we’re always looking at white space. That’s important to us. We’ve spent a lot of time on capacity in the West Coast or the whole west, actually. If you look at our Company from a broad line standpoint, west of the Mississippi, we really only have one, and that’s in Northern California, and that’s actually our smallest broad liner in the country. So, when we get our monthly share information, which we think is fairly accurate, and it’s got all the large players. Our shares are very low in the west and very high in the east and continue to get better in the east. So, we need that capacity in the west, and we’re adding capacity as opposed to acquisitions where we feel like maybe acquisitions won’t be available. And there’s other, potential ones that we have. We don’t really look at bolt-ons or hold-ins. It’s just not something that makes a lot of sense for us right now.

Mark Carden: Got it. That make sense. All right. Thanks so much, and good luck guys.

George Holm: Thanks.

Operator: And we do have our next question from Edward Kelly with Wells Fargo.

Edward Kelly: Hi. Good morning, guys. George, maybe could we start on the independent side? I mean, obviously, you saw a nice acceleration in independent case growth. Strategy is clearly working there. It does seem like there’s a good competitive backdrop as maybe intensifying a bit just from the standpoint of the amount of focus there is on driving independent case growth. Can you just talk about what you’re seeing competitively? And then looking forward, how do we think about the right pace of growth for this business for you over time? I think it was in 2019 you talked about 6% to 10% growth that was kind of a target for a long time. Is that a reasonable target as we think about the coming couple of years. Just thoughts there would be great? Thank you.

George Holm: Yes. We’ll start with the competitive nature of the business. I think it’s always been very competitive and independent. I’ve never seen the time where it wasn’t. As far as being more competitive than normal, I don’t really hear that from our people. So, I would just say that it’s a very competitive business and it’s as competitive as ever right now, but not necessarily more so. As far as pace of growth, I think the 6% to 10% is something that we still want to hang our hat on. We’re doing that right now with, in excess of 7% new customers, and we’re doing it with about an 8% increase in salespeople. And we’re starting to lap last year when we got that busy post-COVID adding sales people. So, that number is probably going to come down as far as year-over-year.

But as these people have, gained more experience, they’re doing better, and we look to having a higher case growth than we have growth in sales people. But 6% to 10% is still something that, it’s ingrained in our people. And we’re not at a point where we want to back off from that.

Edward Kelly: And just as a follow-up, you mentioned this in the Convenience business, this notion of elasticity and the demand disruption that’s caused by the inflation. And I have to imagine that we’ve seen that probably across business, there’s been a lot of pricing in all of these businesses. Pricing is easing generally. Do you think that the industry has an upcoming benefit coming from, let’s call it, like normalization of underlying demand as inflationary pressures normalize? You’ve been putting up very solid growth, obviously, in a backdrop where I don’t think the industry is growing very much.

George Holm: Well, we see that in the share reports that we get, and that’s what gives us confidence going forward, is we’re doing a better and better job of gaining share. I mean, it’s, a tenth or two-tenths more than, say, the previous increase in share that we had the previous year, but that’s a lot, and it is through the size that we are. And with shares, I guess, to a degree as low as ours are. As far as pricing goes, I think a lot of people overshot with the pricing and to some degree, I don’t blame them. They were facing, a lot of issues with food inflation and not just food, but, rents going up, utilities going up. I mean, everything was going up. What we’re seeing now is a lot of people are not backing off on their menu prices, but there’s just a lot of promotional activity that’s going on.

Another sign that I think things are going to start to calm down, January and our Vistar and our Core-Mark business are typically a time where people increased prices, and they certainly did a year ago January. And what we saw this January was a lot of people did not take their normal price increase, and we saw a step down in inflation from December to January, more about prices going up last year and not going up this year than anything coming down. So, I don’t know. I mean, I just don’t see people reducing their menu prices. I think that it’ll be more like kind of hanging on where they’re at now and, promoting heavier.

Edward Kelly: And just quickly for you, George, you mentioned an improvement, off of the soft January on weather. Any additional color there?

George Holm: It was a normal week for us as far as percentage increase over the previous year, and January certainly was not. And there’s another factor with it too. The calendar really helped us at the end of Q2, particularly the last week, and it hurt us the first week of Q3. So, that’s another factor with it. Now, it’s a very low volume week anyway. So, when you spread that over 13 weeks and certainly over 52 weeks, it’s not real material. But I don’t see any change in the industry. I really don’t. It’s hard when you look at numbers like that. But when you look underneath things, it looks fine to me. I think the demand is still out there.

Edward Kelly: Great. Thank you.

Operator: And we do have our next question from Kelly Bania with BMO Capital Markets.

Kelly Bania: Good morning. Just wanted to follow-up, a little bit on Convenience. George, I think you’ve talked about 6% growth, there, if you include the cases that go through Foodservice, I’m assuming that’s mostly just food, Foodservice, type product, maybe correct me if I’m wrong.

George Holm: It is entire.

Kelly Bania: Entire food. Okay. But can you just talk a little bit about the appetite for Chain and independent, convenient stores to kind of make that conversion, and you talked about the turnkey programs. But, just in this cycle where maybe there is maybe a little bit of softness, what is that appetite to make that, transition? And then can you also elaborate on the new business wins you sort of touched on?

George Holm: Yes. I think the appetite is high. I mean, certainly, the tobacco side of their business, is going to continue to slide, and they have to have something to replace those gross profit dollars that that creates. And I think Foodservice is the best way for them to do that. And, I’m really enjoying watching how many of these programs were getting into places that didn’t do foodservice before where they’re finding space in that store that isn’t giving them the return that it used to give them and, putting Foodservice product in to take its place. Now typically, there’s equipment involved there. There’s signage involved there. So, it does take a good bit of time. As far as, the new business goes, we have several things that we’ll have starting in the next six months, often it’s a situation where, you have to wait for that contract to end.

In some instances, the current supplier has been notified, and some they haven’t. So, that’s not our job to do that. So, we don’t talk specifically about any piece of business, but we have great confidence in our future growth within our Convenience area.

Kelly Bania: Okay. That’s helpful. Maybe I’ll just tack on another one on Vistar here. I think you said the inflation was just under 7%. So, it looks like maybe cases were just slightly positive. Can you just elaborate on the channels that maybe are growing or not, and just maybe as you think about case growth for Vistar into the back half.

Patrick Hatcher: Yes. Kelly, this is Patrick. I’ll take that one. So on Vistar, the channels where we saw some really nice growth in Q2 were in vending, office coffee, office supply. Yes, theater, was a relatively soft quarter for them, just not a lot of content out there. But as we go forward and looking at the back half of the year, again, they had a really strong quarter given the fact that they were topping some inventory gains in Q2. We don’t expect that going forward, but the channels that we see growing, they always have a relatively off January as well, and then things started accelerating for them. So, we do expect most of their channels to show some nice positive growth for the balance of the year, including theater, as we get into March and later into the year with some new releases coming out and then vending and office coffee, should well, not so much office coffee, that’s kind of tail end of the season form, but vending should pick up quite a bit too.

George Holm: And then I would also add, Kelly, that our e-commerce business is doing very well.

Kelly Bania: Thank you.

Operator: And our next question comes from Alex Slagle with Jefferies.

Alex Slagle: Hi, good morning. Hi, guys. Thanks. Just wanted to touch on the Chain business, national Chain business and, you talked about some of the optimism that you’d see the case growth start to pick up, and it does seem like you’re seeing some green shoots there merging. And is this mostly a function of your customer mix, or is there signs of broader strength in the full service casual dining category where there maybe flexing, their benefits of, the marketing voice and value out there in this environment.

George Holm: Well, we do have accounts in our national account mix that, have not done well for quite a while. We’ve seen a little bit of the bouncing off the bottom, I would say. We have some that are, on a great growth path, so that mix coming together, in aggregate, they did grow, which was really nice to see. We had a little bit of new business come in. We have more that starts, actually next month, and we have more that starts in May. So, we’ll be putting out pretty good, national, account case growth, and it’s all in the restaurant area.

Alex Slagle: Got it. And as a follow-up, just more broadly, the positive mix shift that you’ve seen across products and customer types, I mean, it’s been a nice tailwind for a while, and there have been internal and external drivers behind that. And we talked about some of this with the independents, but just kind of curious where you have the most confidence in seeing these positive shifts continuing and if there are certain corners of your business that might emerge as bigger or smaller drivers in the future?

George Holm: Yes. Well, I see our independent Foodservice business continuing to grow well. I have great confidence around our Foodservice business into Convenience. E-commerce, definitely a strong point for us. And as far as the mix goes, I mean, that’s really been our story for 20 years. We’ve just always grown better in the areas that produce a higher margin. And, excluding when we’ve made some big acquisitions that maybe have a different mix of business than we have, and I think that’s going to continue to be the story for us. We certainly like the national account business, and we have some great customers and some really good relationships, but that’s not going to be what drives our gross margins, but some of the business is very efficient and very profitable.

Patrick Hatcher: And Alex, I’ll just add because George, brought up on the call, those turnkey programs go into Convenience, Perfectly Southern, they have huge potential for us.

George Holm: They do. And, we’ve got some strong brands that we’ve developed, and it took a while. I mean, it is a different business. We had to do some tweaking to product. The product has to hold up longer than, what you would typically sell to a restaurant. It’s not what I would call absolute immediate consumption. We had a lot of work to do, and we’re pretty much through that. And, we just look at this as a good growth engine for us.

Alex Slagle: That’s great. Thank you.

Operator: And our next question comes from Brian Harbour with Morgan Stanley.

Brian Harbour: Thank you. Good morning. Just maybe a quick one first. Is the weather impact in January more significant in any one of your three segments? Like, I don’t know if c-stores deals that more or anything?

George Holm: It was the most significant probably in Foodservice, but Convenience was very close to that. Vistar, not so much.

Brian Harbour: Okay. Understood. In the Foodservice segment, I think in the most recent quarter, your growth in gross profit and growth in operating expenses were sort of similar. Do you think that you can see kind of more operating leverage in that segment going forward? Is that kind of just a function of where you are with kind of the hiring cycle or what else will kind of drive, the growth rates of those two lines?

George Holm: Well, we see that, our productivity has got much better, and we’ve had a good comeback there, but there’s still more to be done. Actually, Core-Mark, who was probably affected the most, going through COVID was the one that came back the fastest from an operational standpoint, they did a terrific job. So, that’s part of it. The hiring of salespeople, we’ve carried a big payroll of people that were not on commission for a period of time. We’ll cycle through that. It was a good investment. Glad we did it. And then the capacity that we’ve added. When you open new facilities, there is a definite learning curve, and it’s going to have, it’s going to come along with higher expenses for a period of time, also good investments.

And then, from an IT standpoint, we’ve invested heavily there. We’re on the path to get to one ERP, a very slow path, because that always comes with disruption, and we’re pretty careful with that. And then those would be the areas, I would say, where our expense is higher. Certainly insurance, which I should probably have Pat address that.

Patrick Hatcher: Yes. And I’ll just jump in on that. So, I mean, as we’ve talked there, we definitely have seen some higher OpEx, but I do want to point out that, yes, we were able to grow gross profit faster and so it dropped nicely, some nice margin expansion at the EBITDA line. When it comes to insurance specifically, not to go into too much details, but we are a high deductible insurer. And, so we have third-party insurers that cover everything above the deductible with some limitations, but for that deductible, according to GAAP, we established an accrual. And, there’s just been some market dynamics. And so this quarter in particular, that expense was a little higher than what we expected. And that has a lot to do with how many miles you’re driving, it has a lot to do with the industry and the incidents they’re seeing and the severity of those incidents.

But we don’t expect going forward that we would have that additional expense like we saw this quarter. It was really a bit of a catch up. And, we expect to manage it going forward. But there are some things that we can’t manage, like we don’t manage the overall industry, obviously.

George Holm: Yes. And I would make the statement too. When you look at the quarter that we just reported, when you look at the insurance headwinds that we had, the inventory holding gains that we had the previous year, It was quite a quarter for us. We were really up against a lot, particularly from an inventory standpoint within Vistar. So, couldn’t be more pleased.

Brian Harbour: Thank you.

Operator: And we have our next question from Joshua Long with Stephens.

Joshua Long: Great. Thank you for taking my questions. Encouraged to hear about the growth on the new account side. It also sounds like you had noted maybe a reengagement of your kind of existing consumers, maybe some opportunity to drive wallet share penetration. Could you talk a little bit more about that?

George Holm: Well, it’s interesting when you look at the detail in the account level. There are certainly more restaurants. I don’t have, what the actual numbers. I don’t think anybody does. But, these spaces are all filling up, and it’s very rare that a restaurant that goes dark, that something else ends up coming in to that location other than a restaurant, very rare. And what we see is that, our penetration within the account appears not to be what they would normally be for us. We typically have the ability to add SKUs to existing business, and that wasn’t showing up. But then when we get to the end of the month and we run reports around the amount of SKUs that they’re buying and are they not buying SKUs that they were buying a year ago.

What we’re finding is, we’re adding SKUs with that customer that was, buying 14 cases of French fries a week last year, maybe buying 11 now. I think it’s because there’s more competition out there, and there’s just more units open. So, that’ll settle back in. One of the things I think that is helping our sales at the account level is, a lot of customers reduce their days and reduce their hours. And that was more, of course, around labor, availability than anything. We’re seeing that start to go the other way as well where, they’re adding hours and they’re, going back to six days, or going back to seven days a week in which they’re open. Just another one of those many things that changed, during this pandemic, and are gradually going back to normal state.

So, the fact that we’re still adding SKUs to the account or the accounts in general tells me that, as the industry totally normalizes, these spaces are awful, then I think that’s going to show up in better, actual dollar or case penetration within those accounts. So that’s where I see some upside for us.

Joshua Long: Great. Thank you for that. And then recently, you announced a pretty interesting product partnership on the premium dessert side. I’m just curious if that’s something that was maybe a one-off opportunity or something you could see or we should expect, other opportunities down the line in terms of just being able to kind of add options, elevate, product quality, but then also, kind of speak to the convenience and just overall value proposition that you bring to your customers.

George Holm: I think if there’s an area that will do more of that, it’ll probably be in the Convenience area. But the arrangement that we did, it’s just a high quality manufacturer. We’re making sure that for our specified product that they’re using their products so that we can then market their brand alongside of ours. It would be great if we could do that in more areas. I think this is probably not a one-off, but it’s certainly not a new strategy.

Joshua Long: Got it. That’s helpful. And then last one for me. When we think about kind of segments where you’ve had an opportunity to drive continued growth and you already have a leadership position, micro markets is something that we’ve talked about on prior calls. Curious if you could just provide an update there in terms of, maybe the kind of end consumer, end customer moving towards and building out that micro market business as we think about kind of a normalization and the return to office and work environment?

Patrick Hatcher: Yes. Josh, this is Patrick. Micro markets just continue to grow. The technology gets better and better and less expensive. So, let’s checkout, and the opportunity to provide just a much broader selection, you can bring in refrigerated, frozen, hot, and then all the different types of candy snacks and beverages in all different sizes. So, there’s just a lot of attractive things to it. So as the operators that Vistar works with, they’ll sell that into office spaces. They just have the opportunity to really expand upon what they’ve had in the past, and we see just it continuing to grow, and they continue to either create new spaces for micro markets, or they replace old vending banks and put in a micro market. But either way, it’s a net positive because of all the additional SKUs and categories they can add to that market.

George Holm: Yes. We’ve also had places where they had an employee cafeteria in the past, shut that down during the COVID, and then open back up as a micro market as opposed to, a trade line type situation. And, that’s great for us because we really don’t play in most of the non-commercial areas of our business, from the Foodservice.

Joshua Long: Thank you.

Operator: And we have our next question from Jeffrey Bernstein with Barclays.

Jeffrey Bernstein: Great. Thank you very much. Two questions. First one, just the, I think you mentioned strong and accelerating sales growth to close fiscal 2Q, and I know you mentioned into the holidays, obviously, early fiscal 3Q hit by weather. But besides weather, are you seeing any change in the macro in I mean, your foodservice accounts, are they within the Foodservice segment, or do you think it’s purely weather? I know some people have talked about maybe a slower macro in recent weeks or months, I’m just trying to get your sense how you decipher between weather and perhaps a slow and macro? I’m going to have one follow-up.

George Holm: Yes. Well, we only have the one week coming out of the weather, and that was very normal. So, I mean, that’s a good sign, but it is only one week. And certainly, in Q2 at the end of Q2, we were helped by, having a five day ship week versus a four of the previous year. So, that helped at the end of the quarter. I don’t really see a difference. I just don’t know that I can say that three weeks from now. But right now, we look at what happened in January as a flip that was weather related.

Jeffrey Bernstein: Great. Now, that’s encouraging. And then, George, I think you just mentioned in terms of restaurant boxes, I feel like through COVID, a lot of people came to a consensus that maybe there were 10% fewer restaurants or 10% closed COVID. And for a while, it sounded like those boxes were not necessarily filling. That month-after-month, maybe somebody would come into one, but that there was another that was emptying out. So in the end, you weren’t seeing a net recovery in terms of the number of units, but I think you mentioned that it sounds like maybe you’re now seeing those empty boxes filling up. So, I’m just wondering I know you said it’s hard to find good data. So, for sure, it’s much harder for us than for you. But where are we in terms of the recovery back to the prior peak restaurant count? Just trying to get your sense for, those boxes filling back up again, which would be good for everybody.

George Holm: Yes. That’s hard to tell. I can say them in my travels. I don’t see many empty restaurants any longer. I probably wouldn’t have said that even six months ago. So, I think they’re filling up. I look at our number of accounts, and we’re, so far ahead of 2019 as far as number of accounts, particularly independent restaurant accounts. I think that for the health of the industry, I hope that we don’t get overbuilt again. But I think we’re in a pretty good spot.

Jeffrey Bernstein: And actually just lastly, the independent segment, I know you mentioned it’s always competitive and you continue to invest in your sales force. I think you mentioned it’s up 8% year-on-year. It sounds like some of your peers are perhaps more aggressively doing something similar. So, I’m wondering whether you’re finding any incremental challenge, finding good labor or increased turnover or anything that’s making it harder for you to pursue what you’ve always done because other players are now getting more aggressive going after similar independent salespeople perhaps? Thank you.

George Holm: Yes. I would say that, as I said earlier, I don’t think the market’s any more competitive now than it has been, and I think the large players are going to benefit. And, our challenge and our mission is to benefit more than the other guys, I guess. But, it’s a good industry, and, it is continuing to consolidate. And, I think there’s a lot of room for a lot of people in this type of business.

Jeffrey Bernstein: Thank you.

George Holm: Thanks.

Operator: And we have our next question from Lauren Silberman with Deutsche Bank.

Lauren Silberman: Thank you. A couple on guidance. I think you said the fiscal year is tracking at the low-end of the $59 billion to $60 billion range. As you look back, is this entirely driven by lower inflation than you would have expected? Is anything else a little bit different than expectations?

Patrick Hatcher: Yes. Lauren, this is Patrick. It is due a little bit to that and it’s also due to the fact that we’ve been speaking for several quarters about our beliefs on what deflation in Foodservice would do and what inflation would do in Vistar and Convenience. Deflation in Foodservice, it’s just been a little slower, as I mentioned in my comments, to move the direction we want wanted to. It is moving in the correct direction. It just hasn’t gone to inflationary, and we would have expected that to happen a little sooner. So, it doesn’t change dramatically, but it did, impact us a little bit there. And then a little bit there, and then we’ve already touched on the January effect as well.

George Holm: Yes. And the big one for us from a deflation standpoint is cheese, particularly cheese that goes on a pizza. And we, greatly over index in that area in the way in which we run our business, where many of our customers, our agreement with them is over the block market, as far as how we price them. And often, we’ve done well from an inventory standpoint by anticipating price increases and anticipating deflation and making sure our inventory is, as low as possible during deflationary times and as high as possible during inflationary times within that category. But once again, cheese, is the way we run our business where the age that we put on the product is extremely important to us, and we have just been taking those losses, on the inventory as cheese has continued to go down in price, and we finally have seen that turn the other way.

And we’ve had a few weeks in a row where the block market has gone up. So, that’s going to be a positive for us, if that continues or even stabilizes. But I think that’s a part of this $59 billion to $60 billion. I think another part of it is that cigarette volume typically goes down at a rate of about 4%, and it’s been higher, which is fine. That’s, just big dollar sales that, that don’t come with a lot of profit, but something you have to have to be in the business we’re in. So that, contributes to it, and I think that’s probably about it.

Patrick Hatcher: I think so. Yes.

George Holm: Yes.

Lauren Silberman: Great. Super helpful. Clarifying just the second half guide, the fiscal third quarter, and I know we talked about January inflation. To what extent is are you guys embedding, like, more of a return to normalized seasonality and this is a function of cadence just given you reiterated the full year guide versus some of these more idiosyncratic impacts in the fiscal third quarter?

Patrick Hatcher: Yes. I think it’s a lot of that of us trying to just help give some cadence to the quarters, and give you that ability to understand the cadence that we’re seeing. So, it’s a lot, it’s much more what you described the former than the latter.

Lauren Silberman: Great. And then just last one, on the fiscal ‘25 guide fiscal ‘24 come in at the low-end of the fiscal ‘25 guide, can you just help frame a little bit how we should be thinking about fiscal ‘25?

Patrick Hatcher: Yes. I mean, as we’ve continue to reiterate that guidance, and I think we’ve said that we feel really comfortable about coming in, right in the midpoint of that guidance. So, I think that’s, we continue to see really positive things, and that’s why we continue to reiterate that particular guidance.

Lauren Silberman: Thank you.

Operator: And our next question comes from Andrew Wolf with CL King.

Andrew Wolf: Good morning. I wanted to ask on the, your commentary that the penetration with, independent customers is improving. Maybe could you elaborate a little bit on, like, what parts of the sales process, is being applied as a differentiation service. Are there pricing algorithms that, maybe they get more confident with? Just help us understand why that’s happening?

George Holm: Well, we don’t have pricing algorithms, so that wouldn’t have anything to do with it. We train our people, and we train them to be equipped with the best product knowledge possible. And, therefore, they have the knowledge to add SKUs to those accounts. And, Andy, it’s really no more complicated than that.

Andrew Wolf: So, would you call it basically persuasive selling and showing up, that kind of a combination?

George Holm: Yes.

Andrew Wolf: Okay. The other question I really wanted to get into was the better operating expense much better at the convenience store, distribution business. And just, by what you’re detailing, temporary help and overtime, I wasn’t sure if that’s better results relative to the other two segments, Foodservice and Vistar, or whether they’re actually lagging maybe because, there’s a lot of tougher to hire people, so they had to hang on to overtime and temps longer. I’m just trying to get a sense of, is it really a better performance, or is it more sort of, they’re just catching up in terms of kind of getting back to having, hiring up full time folks.

George Holm: Well, they would tell you, and it certainly shows in their numbers, from an operational standpoint. They’re the best right now that they’ve ever been to putting out, really good levels of service. And, they’re paying people well and getting good productivity for what they pay them. And I just think it’s a real good situation. They were very focused on it. Certainly hit the hardest. And as I said, they came back, the fastest, and they came back to, pre-COVID levels and continue to improve. It’s just a real good situation, and we need that. We’ve got business coming on. We got to be prepared for it, and I think we’re in great shape as that comes in.

Patrick Hatcher: The only thing I’ll add is just, specifically speaking to the warehouse and not to oversimplify things, but the type of worker that we have to hire, especially in Foodservice, George, refers to as industrial athlete. They have to be very physical. But, again, not trying to oversimplify, but on the Convenience side, a lot of times they’re picking eaches or small packs, so it can be a less demanding job and therefore might be a little easier hire for us. So, I think that’s helped them in their ability to really drive that OpEx lower.

Andrew Wolf: Good. Yes, I was going to ask that sort of structural kind of question. How about on service rates, expectations by the customers? Can Convenience get a little more aggressive not having excess labor because maybe their customer is a little more tolerant of lower service level or is it more what just patches that?

Patrick Hatcher: No. I would think it’s almost the opposite. The convenience customer, yes, they don’t have any, like, real back stock. So, if we’re not making deliveries and providing great service levels, they’re going to have empty shelves. And so, now they have to be really good at that service level.

Andrew Wolf: Got it. Thank you.

George Holm: And we are seeing some improvement on the inbound. And, for whatever reason, the Convenience and the Vistar suppliers just have not been able to get their service levels back to pre-COVID. And in Foodservice, we’ve seen people get back to pre-COVID service levels fill rates.

Operator: And we do have our next question from Peter Saleh with BTIG.

Peter Saleh: Great. Thanks. So, I want to come back to the comment around some of the operators adding hours and days of operating days as labor returns to more normal, is this a more recent trend that you’re seeing in the fiscal second quarter or has this been kind of going on for several quarters now? And maybe can you just help us and comment on day part mixes? What are you seeing maybe by lunch and dinner, are there specific cuisines that are kind of outperforming, given this dynamic?

George Holm: Well, what I’ve seen as far as people expanding hours again and adding more days, I think that’s the function of how they’ve gotten labor back, and that’s different market-by-market. But I’m just seeing it as a trend that’s, I think helping us. As far as cuisines and how they’re doing, certainly no expert on that, but I can tell you what I see. First of all is, third-party delivery has made, delivery much more than pizza and Asian food. And I think it’s been good for a lot of restaurants. Now, when we look at, the SKUs that we have that lean towards takeout and delivery, it certainly isn’t as high as it was during COVID, but it’s higher than it was pre-COVID. So, that in itself tells me that people did change their behavior somewhat, and that, product that is conducive to takeout and delivery is probably benefited and restaurants that can do takeout and delivery have benefited.

I’m not so sure I see a big change in general for what cuisines people eat. I think there was some fatigue around pizza, and that seems to kind of cycling back out. And then, I would also say that some of the areas where they overshot on pricing that has, resulted in some softness, and I’ll throw pizza in that too. Now breakfast has come back strong. And I think that’s a function of people working in the office, and it’s a very, breakfast is very habitual, and they’re back going to at least the ones that we supply that have a breakfast. It’s really made a nice comeback.

Peter Saleh: Thank you. That was very helpful. Just on the Monday and Friday, I think you also mentioned Monday and Friday morning traffic was still, I believe, soft. Is that something now with your comments on breakfast, are you expecting that to improve in calendar ‘24 as more return to office is happening?

George Holm: Yes, definitely.

Peter Saleh: Thank you very much.

Operator: [Operator Instructions] And our next question comes from John Heinbockel with Guggenheim Securities.

John Heinbockel: So, guys, I wanted to start with Vistar. And I know you referenced in the release, particularly on SG&A, the impact of an acquisition, which I think was GreenRabbit. And maybe for Patrick, impact on the P&L, is that a near-term weight? And then maybe for George, strategically GreenRabbit’s impact on Vistar and particularly the fulfillment business, what does that do and cannot move the needle in that business?

Patrick Hatcher: Yes. Thanks, John. There’s a couple of things going on at this time in the quarter just to highlight them. I mean, obviously, we’ve added the acquisition in, and that is showing up in OpEx. And then the thing that’s not really obvious or maybe you figured out, but it’s just the gross profit looks muted because of those inventory gains in the prior year versus this year. So, if you were able to strip out those gross the inventory gains from last year and the acquisition, the gross profit to OpEx, it’s still growing about double at Vistar. So, we’re really comfortable with how Vistar is performing? You’re just getting a lot of noise as that acquisition is getting added into the P&L and you have that year-over-year comp from inventory gains. So, I’ll turn it over to, George.

George Holm: Yes. From a strategic standpoint, I mean, the whole e-commerce area is something we’ve been at for quite a while. We were doing it out of several of our Vistar facilities, for a few years. And, Pat Hagerty, ran the Vistar business, and his idea was to go to something that’s semi-automated. We had enough volume where we didn’t need the benefit necessarily of the Vistar business to bring the product in truckloads. So we did one, and then we did two more of the semi-automated facilities, and they’re like, $30 million pops. So, they’re very expensive to do. So, we talked to the GreenRabbit people for a long time. They have three distribution centers as well like we do. Two of them are smaller than ours. One, is actually, quite large, but the larger one also does refrigerated and frozen, which we don’t do in an e-commerce standpoint.

Now, we have the right temperatures to do chocolate, but not for refrigerated and frozen product. So, for us, it takes us to six. It gives us the ability to those other two product areas, and the expertise that we’re getting with the people that run that business is exceptional. And, the products they all hit the suppliers in which we buy from. So, from a strategic standpoint, it’s a big one for us, and it’s really important. And, we had gotten those three centers to where they were actually from EBITDA margin standpoint, more profitable than a regular Vistar distribution center. Now part of that, as I’ve mentioned before too, is that we don’t take, physical possession of all of the products. So, and some of it, the margin and the sale are the same.

We don’t have the cost of goods, so that obviously helps. But this is a big part of our future within Vistar.

John Heinbockel: Great. And then let me follow-up just quick on Foodservice. Do you think, is this business still because I think you’d argue that if you’re growing independent case growth 6% to 7% with a little inflation and a little Chain business growth, this is a high-single-digit EBITDA growth business. Would you still agree with that? And we haven’t been there because of the sales force investment. Do we get back there in early part of fiscal ‘25 or no, you think?

George Holm: Well, we have eight distribution centers, which are strictly restaurant chain distribution centers.

John Heinbockel: Yes.

George Holm: So, they’re not going to put out, those kind of profitability. We know the business. We know what the profit levels are. We make acquisitions. Where we are full broad line Company, we have very good EBITDA margins. Where we are not, and we have a blend of chain business, and we have a large volume of cheese business, which comes with high $70s, $80s, sometimes over a $100 cases, you’re not going to make those kind of margins. But for us, I think the biggest thing to follow with us is that, we’re going to continue to lower EBITDA margins within that business, particularly, where it’s a broad line facility, and we’re going to continue to invest like we have invested not to the degree we have lately, and we just felt like we were going to get our independent growth back up to where it was pre-COVID, and we were going to invest against that and make sure that we got that done.

And I see our Foodservice business getting, as far as a return on sales, getting more and more profitable.

John Heinbockel: Thank you.

George Holm: Thanks, John.

Operator: And we have no further questions in the queue. That will conclude our Q&A session for the day. And, I will turn it back over to, Bill Marshall for closing comments.

William S. Marshall: Thank you for joining our call today. If you have any follow-up questions, please contact us in Investor Relations.

Operator: Thank you. That does conclude today’s teleconference. Thank you for your participation. You may now disconnect.