Performance Food Group Company (NYSE:PFGC) Q3 2024 Earnings Call Transcript

Performance Food Group Company (NYSE:PFGC) Q3 2024 Earnings Call Transcript May 8, 2024

Performance Food Group Company misses on earnings expectations. Reported EPS is $0.451 EPS, expectations were $0.83. 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 Q3 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, sir.

Bill 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 third 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 release 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. This morning, I’d like to share our results from the fiscal third quarter, provide some color on the current business environment and discuss our plans for the fiscal fourth quarter and beyond. As you know, the calendar year began with a challenging weather in January, a choppy inflationary environment, calendar differences and early signs of consumer pressure. Nonetheless, I am proud of our organization and how we were able to achieve positive results despite these headwinds. In particular, our Foodservice business rebounded nicely in February and March, producing improved independent case growth and stable chain performance. Our convenience segment continued to experience difficult top line trends, though it has remained focused on winning new business and tight operating expense control, helping the bottom-line performance.

We are encouraged by a sequential month-to-month improvement in C-store trends during the quarter. Vistar also experienced a more challenging top line in the fiscal third quarter after very strong growth in prior quarters. We continue to feel very good about how we are positioned in the market, which we believe will produce profitable long-term growth. We are optimistic about the fiscal fourth quarter and momentum into fiscal 2025, which is reflected in our guidance. Patrick will discuss our guidance in more detail shortly. Before turning to Patrick, I will provide color on our results, discuss our strategy and outline reasons for our optimism. Let’s review some of the highlights from our most recent quarter and various factors impacting the results.

Starting with Foodservice, segment net sales were up 1% in the fiscal third quarter with similar case volume growth in the period. However, if we walk through the 3 months of the quarter, it shows a very different picture. We started the quarter with a low single-digit case decline. In January, we went positive in February and had a strong March, which has continued into fiscal Q4. Importantly, independent case volume grew in all 3 months of the quarter, including nearly 6% growth in both February and March. Independent case growth was consistently in the middle single-digit range for each week from the second week of February through the end of the quarter. This growth outpaced the total industry producing steady market share gains. In fact, our data shows nice share performance across both independent and chain restaurant accounts for the quarter.

Gaining warm market share across our Foodservice business in the fiscal third quarter than we did in the fiscal second quarter. I’d like to repeat that because it’s so important. Our Foodservice business gained more market share in the third quarter than the second quarter. This is a testament to our sales organization’s ability to compete for and win new business despite the headwinds facing the restaurant industry. Our Foodservice business experienced a deflationary headwind in the first half of the fiscal year, which continued into early calendar 2024. We’re pleased to see this flip to modest inflation in both February and March. This improvement occurred despite persistent deflation in cheese though we are seeing sequential improvement in that important commodity as well.

Given the steady sequential move in most commodities, we continue to expect low single-digit Foodservice inflation in the fiscal fourth quarter. We expect this to provide a benefit to both the gross and adjusted EBITDA margins in the period. Turning to our Convenience business. As I mentioned at the opening of this call, industry top line trends remain difficult, which we attribute to higher candy snack and tobacco prices in the C-store. Despite some relief on gas prices, same-store sales in the Convenience channel remains soft relative to historic trends. On the positive side, our top line results continued to outpace the total industry in key categories, including Foodservice, snacks and candy reflecting new business wins and market share improvement.

We are consistently adding new accounts and expanding services to current customers. This new account growth, coupled with the successful launch of several Foodservice programs gives us confidence that our top line performance within Convenience will continue to improve moving forward. We continue to gain traction with our efforts to grow Foodservice and Convenience. This is demonstrated by our recent collaboration with GPN, launching a nationwide pizza concept and our progress in selling PFG-branded Foodservice concepts to Convenience customers. These activities drive value for both PFG and the customers we serve. Despite the challenging top line result, our Convenience organization has continued to execute extremely well, a diligent focus on reducing strength in the warehouse, coupled with tight labor management has produced good operating leverage.

Looking ahead to the fiscal fourth quarter, we expect sequential improvement in sales and continued operating expense control. Turning to Vistar. Total case volume was essentially flat in the fiscal third quarter as growth in the vending, travel and hospitality channels were offset by declines in theater and office supply. Segment net sales increased 1.7% in the quarter. As expected, the rate of inflation at Vistar continued to decelerate, was up 4.7% in the fiscal third quarter. The rate of deceleration was similar to the rate declines from the fiscal first quarter of the fiscal second quarter. As we have discussed on prior calls, we expect inflation to settle in at a low single-digit year-over-year rate as we closed fiscal 2024 and hold steady in that range going forward.

This starts high exposure to consumer packaged goods products, support consistent inflation in this range. As we look ahead to the fiscal fourth quarter, we anticipate better volume, sales and profit performance at Vistar due to improving fill rates in the vending channel and better growth in the value channel. This is a direct result of new and expanding business opportunities. Before turning to Patrick, who will discuss our results and specific drivers of our performance and then provide more color on our guidance for fiscal 2024 and beyond. I want to summarize our fiscal third quarter and review with a few thoughts on the future. The fiscal third quarter was certainly challenging for our industry and organization, primarily due to January’s inclement weather conditions and some calendar differences.

However, we are encouraged by more recent trends. Additionally, we have line of sight to new business wins in each of our 3 operating segments, which we expect will provide a tailwind to top line performance in the months ahead. A more stable and stationary environment also bodes well for the future. In our Foodservice business, this means a return to more normal rates of low single-digit inflation, which provides visibility towards improving gross margins. For Convenience and Vistar, lower levels of absolute inflation should ease pressure on the end consumer. Over the long term, PFG’s position as a leader in the food away-from-home market provides diversification across a range of profitable and growing channels in markets with significant white space.

We are confident that our investment in PFG’s core initiatives and our associates will enable us to achieve long-term profitable growth. which we believe will result in positive shareholder returns. We appreciate your interest in Performance Food Group. With that, I will turn it over to Patrick, who will provide more detail on our financial performance and outlook. Patrick?

Patrick Hatcher: Thank you, George, and good morning, everyone. As George mentioned, there are certainly headwinds to overcome in fiscal third quarter of 2024. However, our strong financial footing and market position produced a solid profit result that we expect to build from in the fiscal fourth quarter and into fiscal 2025. This morning, I will review a few highlights from our most recent quarter and spend most of my time discussing our financial position, priorities for the months ahead and provide some additional detail on 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 solid profit and cash flow results during the fiscal third quarter.

This was possible because of our company’s focus on driving sales into the most profitable channels and a disciplined focus on cost control while also continue to invest behind future growth initiatives. As we mentioned last quarter, we started the calendar year facing a difficult January due to bad weather throughout the month. This resulted in a slight case decline for our total business in the fiscal third quarter of 2024. PFG generated total net sales of about $13.9 billion or a 0.6% increase year-over-year. Trends improved in February to March, which allowed us to finish the quarter on solid footing. For the full third quarter, organic independent restaurant case growth was 4.3%, including nearly 6% growth in both February and March. We continue to gain market share in the independent restaurant channel across a broad range of geographies and concepts highlighting our favorable position in this important area of our business.

Over the full 3-month period, chain restaurant cases were essentially flat, which we were very pleased with, given the impact of a tough January. We recently onboarded new chain business, which should help accelerate growth in the fiscal fourth quarter and into fiscal 2025. Total PFG gross profit increased 3.8% in the fiscal third quarter to $1.6 billion. Once again, our business benefited from positive mix shift in the period. Importantly, our Foodservice segment experienced inflation in the quarter after 2 consecutive quarters of deflationary pressure. The resumption of inflation in several key commodities gives us confidence in improving profit conditions going forward, which I will touch upon when I review our guidance. On a total company consolidated basis, Inflation was slightly higher in the fiscal third quarter compared to the fiscal second quarter, up 3.6% year-over-year.

Higher inflation in Foodservice was offset by decelerating inflation in both Convenience and Vistar which was in line with our model. As George mentioned, Vistar inflation was squarely in the mid-single-digit range, while Convenience inflation moderated slightly to just below 7% for the fiscal third quarter. Based on our experience, it’s not uncommon for Convenience inflation to remain slightly more elevated due to consistent price increases in the tobacco space. I will touch upon tobacco inflation and its impact on our results in a moment. Gross profit per case was up $0.27 in the third quarter as compared to the prior year’s period. We expect our gross profit per case to benefit from inflation in Foodservice. This is an important component to our bottom line results and help support our growth through targeted investments in our workforce and technology.

In the third quarter of fiscal 2024, PFG reported net income of $70.4 million down 12.3% year-over-year. Adjusted EBITDA increased 1.9% to approximately $321 million, just above the midpoint of the guidance we announced last quarter. Diluted earnings per share in the fiscal third quarter was $0.45, a decrease of 11.8% while adjusted diluted earnings per share was $0.80, a 3.6% decline year-over-year. Our effective tax rate of 27.3% in the fiscal third quarter was down compared to the 28.1% rate in last year’s comparable period, mainly due to lower foreign taxes as a percentage of income, slightly offset by an increase in nondeductible expenses and state taxes as a percent of income. Our financial position remains very strong, we are generating significant cash flow through a combination of operational performance and diligent working capital management.

Over the first 9 months of fiscal 2024, PFG generated operating cash flow of $956.7 million, a nearly $300 million increase compared to the first 9 months of last year. Free cash flow increased to $712.3 million over the first 9 months of the fiscal year, up from $480 million last year. We expect to deploy our cash flow and value-creating activities including capital expenditures to expand our capacity and support our growth. Over the first 9 months of fiscal 2024, PFG invested $244.4 million in CapEx. After capital expenditures, our remaining priorities for capital deployment are unchanged and include M&A, leverage reduction and share repurchases. We evaluate these decisions based upon the value we believe each would create for our shareholders and strategically deploy capital towards this view.

Our share repurchase program takes several factors into consideration, including the relative value of our stock as well as the valuation compared to historic levels. While we did not repurchase any shares in the fiscal third quarter, we believe that our repurchase authorization, which had about $211 million remaining as of March is an important component of our capital allocation plan. We also continue to look at strategic M&A as another avenue to create shareholder value. We are proud of PFG’s track record of completing and integrating acquisitions throughout our history. The team is continuously working to identify interesting opportunities while remaining disciplined on price and strategic fit. Finally, we continue to focus on maintaining a healthy balance sheet.

We closed the fiscal third quarter below the midpoint of our 2.5 to 3.5x net debt to adjusted EBITDA target. I feel very comfortable in this range. Earlier this month, we called $275 million of our outstanding 2025 notes utilizing our ABL facility to take advantage of relative rate efficiencies. In total, at the close of the fiscal third quarter of 2024, 86% of our total outstanding debt was at a fixed rate including interest rate swap contracts. We believe that our current level of debt provides ample flexibility to fund our ongoing operations while leaving room for capital allocation priorities that I just highlighted. I’ll finish up with an update on our guidance and some factors impacting our outlook. For the fiscal fourth quarter of 2024, we expect net sales to be in the range of $15 billion to $15.4 billion and adjusted EBITDA to be in the range of $430 million to $450 million.

On the top line, our sales guidance for the fourth quarter suggests a full year net sales result of $58.1 billion to $58.5 billion. This is below our $59 billion to $60 billion range we had provided last quarter and largely reflects the top line softness experienced in the fiscal third quarter. However, despite the top line challenges, we are tightening and raising the bottom end of our full year adjusted EBITDA guidance to a range of $1.48 billion to $1.5 billion compared to the prior $1.45 billion to $1.5 billion range. As you can see, we expect strong profit growth acceleration in the fiscal fourth quarter. We are confident in our projections due to the line of sight on several key items. First, as mentioned earlier, we are onboarding new business in all 3 segments, which should drive profitable top line case sales in the coming months.

Second, the resumption of low single-digit inflation in Foodservice compared to deflation in the first half of the year is expected to result in higher gross profit per case. As a reminder, deflationary pressures were felt more heavily in our independent restaurant case business due to product mix and pricing structure in that business, which is largely based on a percent markup. Positive inflation should help our profit performance over the next several quarters with a benefit from both year-over-year gains as well as a stronger mix shift. Finally, several tobacco suppliers have announced price increases on their products, which we expect to result in favorable inventory holding gains in the fiscal fourth quarter of our Convenience segments.

Taken together, we believe our fiscal fourth quarter profit growth rate will accelerate nicely over the coming months. This should also provide a tailwind into fiscal 2025. We are currently reviewing our fiscal 2025 targets and expect to provide an update on our August earnings call in line with our normal cadence. With that said, our strong adjusted EBITDA result over the past 2 years coupled with the tailwinds I just mentioned, should put us comfortably within the $1.5 billion to $1.7 billion adjusted EBITDA range that we set as a 3-year target at our June 2022 Investor Day. As we’ve previously noted, our expectation is to be close to the $1.5 billion adjusted EBITDA level in fiscal 2024 and expect solid growth in fiscal 2025. To summarize, we are pleased with how we are operating as a company and believe that the industry challenges seen in the fiscal third quarter will prove to be temporary.

We expect results to accelerate in the fiscal fourth quarter and into fiscal 2025 underpinned by specific items that are in our forecast model. 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.

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Q&A Session

Operator: [Operator Instructions]. We will take our first question from Mark Carden with UBS.

Mark Carden: To start, you noted your market share growth accelerated relative to 2Q. And it sounds like you guys weathered some of the macro headwinds a bit better relative to the industry as a whole. Do any initiatives jump out at you in terms of driving the stronger relative performance just what, in your mind, what was most important in driving that improvement there?

George Holm: Well, it would be definitely new accounts. We still have seen a difficult penetration market out there. It’s the existing accounts as, I guess, in aggregate, just aren’t doing the business that they were doing before. I would also note, too, with the quarter that if you took 2-year stack on our independent, it would have been a 13% growth. So we were north of 82 years ago and then 4.3% this year — or last year and this year. But it’s definitely new business that’s driving our growth.

Mark Carden: Okay. Great. That’s helpful. And then — just overall, have you seen much of a shift in distributor price competition just given some of the broader challenges that are in the industry have been calling out?

George Holm: Well, I think that our industry has always been very competitive. There’s a lot of players in it. And I think when growth is hard to come by, I think that you tend to get a market that’s a little bit more competitive. But we really haven’t seen that much of a change.

Operator: We’ll take our next question from Jake Bartlett with Truist Securities.

Jake Bartlett: Mine is on the environment out there. And you gave guidance for the third quarter after the weather in January. So presumably, that was kind of incorporated. So seems like the sales miss was more due to the environment, you talked about an improvement since. So I’m wondering whether the competitive — or not competitive, whether the consumer environment has gotten any better? Is that driving any accelerating trends? Or is it just that your new customers and your pipeline and your actions are driving that improvement? Trying to get a sense as to the trajectory of the consumer right now and your customer business?

George Holm: Well, the softness for the quarter is — it’s almost entirely a January story. January was really difficult. I would say if you looked at our customer base, QSR has definitely softened. It’s a fairly large part of our business, definitely casual dining. I mean there’s winners in both, but casual dining is very soft and we’re finding the independent restaurant to be doing okay. I wouldn’t say great, but I would say, okay, but there are many more of them than there were before. So it’s the new accounts and our ability to continue to run in that 6%, 7% growth in new customers sold. But I don’t see a really bad environment out there. I just think that we’ve got some stressed consumers that are probably at the lower income level.

Jake Bartlett: Got it. Great. And my second question is on margins. You beat on margins a little bit in the third quarter? The question is, what was the driver of that? Was it the gross profits and the inflation being a little stronger than expected? Or was it about productivity improvements that helped in the third quarter. And I think as you — Patrick, as you listed, I think the 3 drivers for improving a solid fourth quarter, improving productivity wasn’t one of them. I’m wondering what the trajectory is there on just your operating costs, your leverage and how you — what kind of progress you’re making there in bringing down costs.

George Holm: Yes. Well, as far as margin, particularly gross profit per case, that’s a function of mix as we continue to grow at a faster rate and independent than we do the chain business. As far as productivity goes, I would assume you’re speaking warehouse and delivery productivity or operational productivity. We continue to improve. We’re not back to 2019 levels, but we do like the improvement that we’re seeing. And then when you get to both our Convenience business and our customized business, they’re really doing well from a productivity standpoint — doing actually better than 2019 numbers.

Patrick Hatcher: And Jake, I was just going to add. I mean, it’s a good point that we didn’t call that out specifically as one of the things that are going to drive our Q4 results. But as George mentioned in his comments, we do expect operational efficiencies certainly in Convenience and all the businesses to continue to performance, they’ve been performing and to improve.

Operator: We’ll take our next question from Edward Kelly with Wells Fargo.

Edward Kelly: I wanted to start with just Q4. And I guess maybe a bit more detail and level of confidence. So EBITDA is up 14% at the midpoint. Can you talk a little bit more about the bridge, Patrick, when you gave those few factors, I don’t know if they were listed in order of magnitude, I’m curious about the size of any tobacco gain, for instance. And then within the guidance, do you really just need trends in April to hold? Or are you expecting any improvement in that regard? And as it relates to ’25 with all this, I mean, if you do this number, I mean, doesn’t this speak well about like how you’re thinking about ’25, particularly the first sort of 3 quarters of the year or are there other puts and takes to consider.

Patrick Hatcher: Yes. Thanks, Ed. I’ll start, and I’m sure George will add some comments. I mean, to your last point on ’25, let’s just start there. I mean that’s exactly right. We’ve mentioned in the call, like the guidance for ’24 is really we’re saying we’re going to be close to the top end of our range on EBITDA, which is the bottom end of the range on the 3-year guide. So that puts us comfortable within that 3-year guide. So we do feel really good about where we’re ending this year and then what that means for next year. And again, we’ll give you much more detail in our August call. And then in terms of the things that I unpack and how we’re going to hit these numbers, yes, I would say I wouldn’t necessarily put them in terms of order of magnitude, I put it in terms of order of like P&L.

I mean I really wanted to start with the fact that we have a lot of new business coming on — and it’s not just in one segment, but it’s across all 3 segments. We’ve already onboarded a lot of the new Foodservice business in the last couple of weeks. We expect to onboard the Convenience business, a little later in May. And then Vistar has new business coming on in June. So really pleased with our sales development efforts across all the segments. And then it’s really important, obviously, the fact that we’ve been looking at 2 quarters previously of deflation. And then in the third quarter, we saw that deflation in Foodservice move to very moderate inflation, but we’ve continued to see that modest improvement in inflation, and we continue to believe that that’s what’s going to happen for the rest of the quarter, which as we’ve noted, really helped in our GP per case.

And also the mix of our business is really improving as well. And then finally, just the cigarette price increases. The way I think about that, it’s largely in line with what we saw last year. So — but we just called that out because it will help our bottom line as we get those inventory gains.

George Holm: Yes. I’ll add a few to that without getting too long-winded here, but he mentioned inventory gains. We overcame about $60 million last year of inventory gains that were above this year. And as we get into the fourth quarter, we don’t have that to overcome anymore. So that’s a positive for us. I would also say the calendar where we got benefit in fiscal second quarter with additional delivery day, which meant a lot at the end of the calendar quarter. And it affected January the opposite way. And then when you get to Q4, we started out with the week after Easter, which is typically our slowest week of Q4, yet we still had a good April, top and bottom line, and we don’t have any calendar issues to deal with for the rest of the year.

So that’s very helpful. The new business has, Patrick mentioned, big help. Then last year, we were running close to 10% additional salespeople. So we’re carrying a pretty good expense there. And we lapped that. We’re up about 5.5% right now and salespeople were starting to get the good productivity out of the new ones. And we won’t have that additional sales expense as we go through the fourth quarter that we’ve handled for most of the year. And I’ll stress with Core-Mark, the additional business they’re bringing on will also be a big help. So we have a lot of things that are going in a positive direction for us right now, and that’s what gives us confidence for the fourth quarter and really into next year, which will give some good communication on our August call around what our guidance will be for first quarter of next year and then the total year.

Edward Kelly: Maybe I could just ask a quick follow-up. It’s sort of related to this, I guess, but you’re generating really good cash flow. Leverage is in a good spot. Your stock is probably trading at like 8x EBITDA and what you’re probably going to end up earnings next year. I think you may end up M&A usually a bit higher than that, right? Like how are you thinking about appetite for stock buyback versus M&A at this point?

Patrick Hatcher: Yes, Ed. When we’ve talked about our capital allocation strategy, we’ve always said, #1 is to invest in capacity, and we’ve done a really good job, and we have a lot of new buildings or additional building expansions coming online, and you can see what we’ve done in terms of our investments there. And I’m just going to go through these and obviously reduce leverage is one of them, and we continue to perform well there. And the other 2 pieces are M&A, and we continue to look at opportunities. And then the share repurchase, we view as incredibly important, but as I mentioned, we didn’t buy anything this quarter, but we still have $211 million in the repurchase program available to us. And we’ll continue to use that in conjunction with all the other priorities I just laid out. So we just look at them very strategically and deploy that capital accordingly.

Operator: We’ll take our next question from Alex Slagle with Jefferies.

Alexander Slagle: Thanks for the color this morning. I just want to circle back on Jake’s question a little bit, just the revenue drivers during the quarter across your different businesses. And like what’s the biggest headwind that you experienced in February and March was that kind of kept a little on the top line? I mean it seemed like the independents and restaurants overall bounced back solidly and pricing firmed up. So it appeared to be more of a sluggish recovery in Vistar and Convenience cases and I guess the pricing was about as you expected, but perhaps you could flesh that out a bit more and what surprised you?

George Holm: Yes. I would say in Foodservice that it wasn’t so much the improvement that we had in February and March. We weren’t exactly real pleased with how we did in February and March. It was just getting past January and we think we’re going to continue to improve from a Foodservice standpoint. I think in Vistar and Convenience, the level of inflation that they dealt with was higher and lasted longer and I think there’s an adjustment for their customer base when they go to a micro market or go to a vending machine or go into a Convenience store, there’s been some pretty significant price increases. And I think they need to adjust. I think they will adjust and we are seeing same-store sales declines or what we look at as a penetration number.

We were at 6.6% for the quarter for Convenience. It’s huge. And it’s not something that, that channel has experienced before. And I just think it’s time. Our Foodservice is growing well there. That will help to alleviate some of that — and I think the same with Vistar, it is the first time that we’ve ever had sales growth issues in Vistar, but they’ve got nice new business coming in. We just have a lot of confidence in that top line coming back. Now obviously, tobacco, it’s not going to, that’s going to be a continual decline, but we expect that.

Patrick Hatcher: Alex, I’ll just add just on Vistar, just to give you a little bit more of a detailed example. I mean just us looking at this information, I mean when you think about Vistar and their business in theaters, the box office, revenue is down. It’s only comping at 78% versus prior year and at 60% versus 2019. So there’s a lot going in Vistar service is a lot of different channels. Some are performing really well, some are having some struggles like theaters. So it’s a pretty mixed bag there.

Alexander Slagle: That makes sense. And on Convenience, I mean, what was the case group? I think you talked about the food and Foodservice side was down. What did that look like if you included the Foodservice and, I guess, related to Convenience that was not in that category number?

George Holm: Well, yes, Foodservice and the food area itself combined or down, but Foodservice was actually up. And I would say that if you took that with the Performance Foodservice, so I’m going to give you what I think because I didn’t look at that specifically. But I would say it’s probably mid-single digit. It’s been doing well. And a matter of fact, last week, we set a record for the number of Convenience stores that we sold Foodservice to. We actually did with our pizza business and our Hispanic business, both actually had the most counts we’ve ever sold last week. That’s encouraging.

Operator: We’ll take our next question from Kelly Bania with BMO Capital.

Kelly Bania: I guess I just wanted to dive in a little bit more into the levers that you’re able to pull on margins or expenses to support the bottom line that I guess I think some of — or at least some of the new business wins were already in your plan and inflation seems to be, I think, playing out largely as expected. So just how are you able to kind of maintain the bottom line outlook despite the top line coming in where it is?

George Holm: Yes. As far as the levers to be pulled. I think right now, with our — in our Foodservice area, we’ve done a good job getting our margins up in both independent and national, we’re pretty pleased right now. And I think most of what you’ll see in gains from us will be just changes in mix of business. And as far as expenses, it took us a while to get our workforce back to where it was pre-COVID, and we just at this point, don’t have any levers that we want to pull from an expense standpoint. We want to continue to build our warehouse and delivery crew and continue to build our sales force.

Operator: We’ll take our next question from Lauren Silberman with Deutsche Bank.

Lauren Silberman: Patrick, I just wanted to ask about the chain side of the business returning to flat. How much of this is a function of new business wins versus any signs of underlying improvement in chain traffic?

George Holm: Well, I think I kind of mentioned that earlier, but it’s worth talking about again. I think if you look at the chains, if you look at them in aggregate, it is definitely slow. Now we happen to have some that have been slow for a long time, but we have some that are doing real well. In aggregate, no, we don’t see any strengthening in the chain business. You’re going to see better numbers come from us in the chain business, but that’s because of new accounts, not because of our existing account base.

Lauren Silberman: Helpful. Another one on just Vistar. Can you expand on the competitive dynamics in that segment specifically and whether you’re seeing any changes and it becoming a bit more promotional or competitive than you’re used to?

Patrick Hatcher: Yes. Thanks, Lauren. It’s obviously a very competitive environment because Vistar plays in so many different channels, they do have a lot of different competitions. As far as promotional, I mean, that’s — again, they do a lot of work with CPG. So most of the promotional activity is going to come from the manufacturer, if that’s — if I’m understanding your question correctly. But as far as how they go to market every day, they compete across the board in all their channels, I just want to make sure I answered your question.

Lauren Silberman: Yes. I just don’t know if there’s anything from like other Foodservice distributor players in the space, if it’s getting a bit more competitive in terms of share gains.

George Holm: I would say yes, but I would say that’s only in the theater category.

Operator: We’ll take our next question from Jeffrey Bernstein with Barclays.

Jeffrey Bernstein: Two questions. The first one, just on the new business, George, I think you mentioned you’re onboarding in all 3 segments, which seems quite encouraging. I’m just wondering if there’s been any change in your strategy of late to achieve whether you’re winning this business from your larger peers or smaller competitors, I think you mentioned independence, you’re up 6% to 7%. I’m just wondering how sustainable that is. But just more broadly in terms of the onboarding in all 3 segments, how you’re going about doing that, whether there’s any changes you’ve implemented on your end to achieve?