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Edited Transcript of USFD earnings conference call or presentation 6-Aug-19 2:00pm GMT

Q2 2019 US Foods Holding Corp Earnings Call

Rosemont Sep 5, 2019 (Thomson StreetEvents) -- Edited Transcript of US Foods Holding Corp earnings conference call or presentation Tuesday, August 6, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Dirk J. Locascio

US Foods Holding Corp. - CFO

* Melissa Napier

US Foods Holding Corp. - Senior VP of IR & Treasurer

* Pietro Satriano

US Foods Holding Corp. - Chairman & CEO

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Conference Call Participants

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* Andrew Paul Wolf

Loop Capital Markets LLC, Research Division - MD

* Edward Joseph Kelly

Wells Fargo Securities, LLC, Research Division - Senior Analyst

* Jeffrey Andrew Bernstein

Barclays Bank PLC, Research Division - Director & Senior Equity Research Analyst

* John William Ivankoe

JP Morgan Chase & Co, Research Division - Senior Restaurant Analyst

* Judah C. Frommer

Crédit Suisse AG, Research Division - Senior Analyst

* Kelly Ann Bania

BMO Capital Markets Equity Research - Director & Equity Analyst

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Presentation

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Operator [1]

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Good morning. My name is Roel, and I will be your conference operator today. At this time, I would like to welcome everyone to US Foods second quarter performance review. (Operator Instructions) Thank you. Now I would like to turn over the call to Ms. Melissa Napier. Ma'am, the floor is yours.

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Melissa Napier, US Foods Holding Corp. - Senior VP of IR & Treasurer [2]

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Thank you very much, Roel. Good morning, everyone. Welcome to our second quarter fiscal 2019 conference call. During today's call, Pietro Satriano, our CEO; and Dirk Locascio, our CFO will provide an update on our second quarter and first half fiscal year 2019 results. We'll take your questions after our prepared remarks conclude. (Operator Instructions)

During today's call and unless otherwise stated, we're comparing our second quarter results to the same period in fiscal year 2018. Our earnings release issued earlier this morning and today's presentation slides can be accessed on the Investor Relations page of our website.

In addition to historical information, certain statements made during today's call are considered forward-looking statements. Please review the risk factors in our latest Form 10-K filed with the SEC for these potential factors, which could cause our actual results to differ materially from those expressed or implied in those statements.

Lastly, I'd like to point out that during today's call, we will refer to certain non-GAAP financial measures. All reconciliations to the most comparable GAAP financial measures are included in the schedules on our earnings press release.

And now I'll turn the call over to Pietro.

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Pietro Satriano, US Foods Holding Corp. - Chairman & CEO [3]

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Good morning, everyone, and thank you for joining us for our second quarter earnings call. The positive momentum we saw in our first quarter results continued into the second quarter. And we remain on track to achieve our 2019 full year guidance that we discussed earlier this year.

So let's begin on Slide 2 with an overview of this quarter's results. First, from a volume perspective, total organic case growth for the quarter was a solid 1.7%. The result of strong independent case growth of 4.8% as well as improvements in the health care and hospitality and the all other customer types.

Second, we expanded our operating leverage for the 14th quarter in a row. Gross profit outgrew operating expense by $0.08 per case, and that expansion in operating leverage is in line with the gains that we have achieved for the last 2 years. Expansion in gross profit per case was driven by strong freight performance as well as the continued improvement in customer mix and private brands. With respect to operating expenses, our continued focus on improving productivity help maintain our operating leverage gains despite a continued tough operating environment.

Third, we grew adjusted EBITDA by a healthy 6.7% and increased our adjusted diluted EPS by 12.3%. As we look towards the second half of the year, we expect adjusted EBITDA growth to be similar to our second quarter results, and we remain confident in achieving our full year guidance of at least 5%.

Finally, I would like to provide a brief update on the SGA Food Group acquisition. While the regulatory process has taken more time than we did originally anticipate, we do expect this transaction to close in September. As a result, we are launching financing for the deal later today, and we will announce the leadership team for the soon-to-be-formed Northwest region in the coming days. Operating results for SGA continued to be strong, which is a real testament to the commitment to customers that SGA associates continue to demonstrate. I also note from my own visits that SGA associates are excited to join this group and combine the strength of our 2 companies. Until we receive final approval from the FTC, we are not in a position to comment on any other aspects of this transaction.

Let's now take a closer look at our volumes growth for the quarter, beginning on Slide 3. As I said, total organic case growth was 1.7% for the quarter and accelerated sequentially for the sixth quarter in a row.

Starting with independent restaurants. Organic case growth of 4.8% was towards the top end of our outlook for the year. Fill rates and on-time delivery to our customers continued to trend above prior year and our all-in outlook for the industry as well as that from the latest industry data remains positive. We continue to feel good about delivering independent case growth at the high end of our 4% to 5% range for the year.

Health care and hospitality growth improved over prior year and came in at 1.6%, also in line with our outlook for the year. We experienced better performance with both new and existing customers during the quarter, and we remain confident we will achieve our 1% to 2% case growth outlook for the full year.

Last in our discussion is volume for the second quarter. The all other customer type came in essentially flat at negative 10 basis points. We continued to trend on a positive direction with this group of customers, and we expect to achieve our outlook of roughly flat case growth for the year, which does imply an acceleration during the second half. Some concepts are performing better than others, which is consistent with publicly available data from Black Box and Knapp Track, which continued to show negative restaurant traffic for chain operators. Overall, the competitive environment remains stable, and we are well positioned to achieve our case growth for the year.

Turning to Slide 4. I'd like to give a quick update on 2 of the 3 elements of our differentiated platform, namely innovative products and technology. First, let's talk about our Summer Scoop, our 3 times a year platform by which we launch innovative products that are new to the industry and exclusive to US Foods. The theme of the Summer Scoop is anytime, anywhere dining, aimed at helping restaurateurs take advantage of the explosive growth in take out, which has grown by over 300% since 2014. The latest Scoop features a variety of sustainable packaging and to-go food offerings. Lastly on Scoop, our most recent analytics confirmed that customers who purchase Scoop products continue to have higher retention rates and larger basket sizes.

Moving to the right. Our e-commerce platform continues to evolve, and we now have over 60% of independent restaurant sales coming through e-commerce. Here too, our most recent analysis confirms that customers who purchase through e-commerce continue to have higher retention rate and larger basket sizes. We believe our leading technology gives us a competitive advantage especially over the smaller players of which they are many in our industry.

And the last, we continue to expand our suite of value-added services or what we call check business tools. We recently announced a new exclusive partnership with Toast. Toast is a cloud-based point-of-sale solution that is one of the fastest growing in the U.S. It integrates seamlessly with the myriad of restaurant management solutions, including some tools in our own portfolio. We believe Toast will further strengthen our offering of value-added services, giving our sales force an additional point of difference.

In summary, we continue to improve both our products and technology offerings of our customers and it is this differentiated platform that continues to support a profitable growth especially with independent restaurants.

Before I turn the call over to Dirk, I would like to close by thanking associates at US Foods for their commitment to help them keep our promise to our customers of helping them make it. I'd also like to thank associates at SGA Food Group for their dedication and their hard work. We are really excited to welcome them to US Foods.

I will now turn it over to our CFO, Dirk Locascio, for a walk down of our financial results.

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Dirk J. Locascio, US Foods Holding Corp. - CFO [4]

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Thank you, Pietro, and good morning. Our business performance in the second quarter continued the positive momentum we experienced in the first quarter, and we are reiterating our guidance for the full year as Pietro noted. We are very pleased with our strong independent restaurant case growth and improvement in our operating leverage despite the higher cost environment we continue to operate in. Adjusted EBITDA for the quarter increased 6.7% and adjusted diluted EPS of $0.64 increased over 12% from the second quarter of 2018.

Starting on Slide 5. Second quarter net sales were $6.4 billion, an increase of 4.6% from the prior year. We experienced 290 basis points of year-over-year inflation in product mix and 170 basis points of case growth. Inflation was across multiple commodity in grocery product categories and increases in commodities remained very manageable.

On Slide 6, we delivered strong gross profit gains again for the quarter. Gross profit was $1.1 billion, a 2.5% increase over the prior year period on a GAAP basis and 4.8% increase on an adjusted basis. As a percent of sales, gross profit was 17.7% on a GAAP basis and 17.9% on an adjusted basis. This is 40 basis points lower than the prior year on a GAAP basis due to an unfavorable year-over-year change in the LIFO reserve and as flat to prior year on an adjusted basis.

Adjusted gross profit as a percent of sales was flat as a result of higher year-over-year product inflation, as I noted in various commodity care categories as well as in grocery and would have increased almost 30 basis points if inflation had been flat. Our adjusted gross profit rate per case expansion was strong again this quarter, up $0.18 per case, an acceleration from the first quarter. The expansion, as Pietro noted, was driven by a continuation of initiatives we discussed, such as private brand penetration and freight optimization combined with customer mix.

Moving to operating expenses on Slide 9. OpEx increased 4.4% from the prior year quarter to $948 million driven primarily by higher wages, acquisition-related costs and depreciation expense. Adjusted operating expenses increased $32 million or 4% over the prior year quarter. And as a percent of sales was 13%, a decrease of 10 basis points. Adjusted operating expense as a percent of sales would have increased approximately 25 basis points without the impact of inflation on net sales.

We continue to manage through the supply chain wage pressures impacting us and others in the industry. Our focus on reducing turnover and improving productivity is delivering benefits. However, as we have previously discussed, these benefits did not fully mitigate the higher cost we are seeing. Over time, we expect that we can mitigate more of the higher wage cost as we execute against the initiatives on our supply chain road map, which includes our focus on continuous improvement.

On Slide 8, our operating leverage gain for the quarter was $0.08 per case as a result of adjusted gross profit per case increasing $0.18 and adjusted OpEx per case increasing $0.10. As Pietro mentioned, our $0.08 per case of leverage expansion for the quarter is in line with the gains we've produced consistently for the last 3 years and highlights the continued work we are doing to meaningfully drive operating leverage expansion. In the second half of the year, expect OpEx per case to be in line with our Q2 results, and expect the drivers of our adjusted gross profit per case growth to be largely consistent throughout the year.

I'm now on Slide 9. Adjusted EBITDA was $320 million in the second quarter, up 6.7% over the prior year period. As a percent of sales, adjusted EBITDA was 5%, an increase of 10 basis points over the prior year and the first time we've reached the 5% adjusted EBITDA margin. Adjusted diluted EPS increased $0.07 or 12.3% to $0.64 per share for the quarter. Adjusted diluted EPS, again, grew faster than adjusted EBITDA as we continue to leverage the strong free cash flow of the business to reduce debt and the associated interest expense. Finally, on the far right, Q2 net income decreased 8% while adjusted net income increased 13%. The decline in GAAP net income was primarily due to a $25 million higher LIFO charge that I discussed earlier.

Turning now to cash flow and net debt on Slide 10. Operating cash flow for the first 6 months of 2019 was $394 million compared to $311 million in the prior year. The increase is primarily related to a prior year pension contribution of $70 million that did not reoccur this year combined with increased operating results. If you recall, in Q2 of 2018, we accelerated our planned 2019 pension contribution amount in order to capture a tax benefit. Our business again produced strong operating cash flow, and we've continued to decrease our debt levels and improve our leverage ratio. Net debt at the end of the quarter was $3.1 billion, a decrease of approximately $244 million from prior -- from year-end 2018 and our net debt to adjusted EBITDA leverage ratio decreased to 2.7x.

Moving to Slide 11. For fiscal 2019, we are reiterating the guidance ranges that we provided in February but do expect to be toward the high end of adjusted diluted EPS range and at the low end of the interest expense range.

I'll now turn it over to Pietro for a few comments before we go to Q&A.

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Pietro Satriano, US Foods Holding Corp. - Chairman & CEO [5]

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So in summary, we had a good quarter with a sustained positive momentum. Adjusted EBITDA grew sequentially, volume growth was strong and we expanded on operating leverage. So let's now turn it over to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question is from the line of John Ivankoe.

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John William Ivankoe, JP Morgan Chase & Co, Research Division - Senior Restaurant Analyst [2]

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(technical difficulty) is that more lines per account as opposed to volume per comparable line? Number one. And then secondly, what's happening to drop size? I assume it's growing, but what sort of magnitude?

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Melissa Napier, US Foods Holding Corp. - Senior VP of IR & Treasurer [3]

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So John, it's Melissa. I apologize, the first part of your question cut out. We didn't hear it.

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John William Ivankoe, JP Morgan Chase & Co, Research Division - Senior Restaurant Analyst [4]

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Okay. Yes. So the question was when you think about independent growth and you look at lines per account, right, and cases per line, I'm just curious, is most of that growth coming from new lines, new items for account as opposed to cases per item?

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Dirk J. Locascio, US Foods Holding Corp. - CFO [5]

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John, this is Dirk. So we are seeing -- coming from both, we are seeing an increase with growth that comes from our new customers as well as increases on our lines per drop is our focus. As we've talked about before, it's around balancing that growth from new and then things to improve on our same-store penetration with existing customers.

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John William Ivankoe, JP Morgan Chase & Co, Research Division - Senior Restaurant Analyst [6]

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Okay. And then maybe as a follow-up, the -- curious on the step-up in depreciation. What is that tied to? Because that is not -- that sort of a little bit of a change in trend. And is that a one-off? Or that's something tied to some capital projects that will continue this year and on into next?

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Dirk J. Locascio, US Foods Holding Corp. - CFO [7]

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Sure. So it's really 2 things: it's a split of some of the more recent ads have been a little shorter-life items and then there was about half of that increase related to some acceleration of depreciation that wouldn't repeat in the future. So think of it as part of the increase ongoing, part of it not.

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Operator [8]

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Your next question is from the line of Judah Frommer from Crédit Suisse.

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Judah C. Frommer, Crédit Suisse AG, Research Division - Senior Analyst [9]

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Congrats on the quarter. Maybe first, is there any way you could comment on kind of cadence of independent or total case growth during the quarter? Obviously, one of your big competitors kind of citing some issues on the independent case side and wondering if you maybe saw any benefit from their struggles there.

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Pietro Satriano, US Foods Holding Corp. - Chairman & CEO [10]

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So it's Pietro, Judah. In terms of the cadence, fairly consistent throughout the quarter. When we look at our internal benchmarks, whether it's some of those that John just referred to, whether we look across the growth across different geographies, no real significant changes that we've observed. And the -- from an external benchmark data, we look at the Techonomic as we've talked about in the past, and their latest outlook came out just a few days ago and no material change from their perspective in the midterm. There's really small decline in the short term of about 30 basis points, which could easily be margin for error. So put all that together, that's why we say our outlook for the industry continues to be positive.

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Judah C. Frommer, Crédit Suisse AG, Research Division - Senior Analyst [11]

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Got it. Okay. And I know you said you can't comment much beyond what you've disclosed on SGA, but is there any way you can help us with just what has taken so long in general? Or if the trajectory of the business has changed at all more recently versus call it, 6, 8 months post the deal was closed? Or have things been pretty consistent since then or since the deal was announced?

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Pietro Satriano, US Foods Holding Corp. - Chairman & CEO [12]

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Yes. So in terms of their performance, as you know, there's not a lot we can say given their stand as a different company, but believe I did say in my comments that they had a strong quarter. I think the last call, we said their performance was in line with our expectations based on what we saw as the pro forma when we did the deal. So from a performance perspective, we feel very good.

And in terms of what's taking so long, it's not a process we control. It's a very sequential or linear process in terms of you're answering one question and you answer the next. So it's -- I'm not sure we have more had, but I -- but we do feel a little confident about September, which is why we've made a couple of decisions in terms of launching financing today and announce -- and beginning to announce the various leadership teams that will be responsible for elements of the combined entity.

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Operator [13]

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Your next question is from John Ivankoe of JPMorgan.

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John William Ivankoe, JP Morgan Chase & Co, Research Division - Senior Restaurant Analyst [14]

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First, CapEx looks slightly down year-on-year. I was hoping that you could elaborate on that, maybe you're preparing for SGA and delayed some spending. And as we think about US Foods and the overall combined entity going forward, how should we be thinking about CapEx as a percentage of sales as you think about near- and medium-term projects that you plan to spend?

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Dirk J. Locascio, US Foods Holding Corp. - CFO [15]

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Sure, John. So I would think of the modest decline year-over-year really is timing throughout the year. But we don't expect to have a meaningful change in the amount of CapEx spend that we have so that's not a deliberate delay or changes as a result of SGA. And as we've talked about before, our CapEx was a percent of sales and we wouldn't expect to meaningfully change as we go forward. And then we will in 2020, as part of our more complete guidance, we would provide sort of CapEx guidance as part of that as well.

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John William Ivankoe, JP Morgan Chase & Co, Research Division - Senior Restaurant Analyst [16]

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And secondly, if I may, there's obviously a lot of discussions across many entities about using their supply chain and distributors as sources of efficiency. I was wondering if there's anything on the health care and hospitality side to comment on in terms of your ability to protect your profit margin per account as we transition going forward.

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Pietro Satriano, US Foods Holding Corp. - Chairman & CEO [17]

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Can you say a bit more about your question, John? I'm not sure I understood it.

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John William Ivankoe, JP Morgan Chase & Co, Research Division - Senior Restaurant Analyst [18]

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Yes. So certainly in restaurants, which is primarily what I cover, but I was asking on the health care and hospitality side, if you've had any larger customers that have come to you. You're basically seeking efficiencies for their own organization and asking you to cut the profitability that you're making on them. I mean if that's clear, I can restate it if not. And your ability to protect profitability per account.

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Pietro Satriano, US Foods Holding Corp. - Chairman & CEO [19]

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Yes. Okay. I get it. I think the way I would state the broad question is, is there a pressure -- is there an increased pressure on margins coming from large customers. And the answer is, look, large customers always exercise their buyer power, that's why it's less attractive customer type than some of the smaller independents, right? We've talked about the difference in contribution margins. But we do not see a significant change today from where we were a year ago or 2 years ago.

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Operator [20]

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Your next question is from the line of Edward Kelly of Wells Fargo.

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Edward Joseph Kelly, Wells Fargo Securities, LLC, Research Division - Senior Analyst [21]

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Nice quarter. It's good to see that things are back on track. Pietro, I wanted to ask you first just about SGA, and I don't know to the extent that you're going to be able to answer this. But there's been a significant amount of concern amongst investors at this point about divestitures. Do you have clarity at this point on how things will play out here? And can you speak to the market's concern at all about that?

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Pietro Satriano, US Foods Holding Corp. - Chairman & CEO [22]

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Look, I understand the market's concern. Unfortunately, I cannot speak to it. And here's why. Look, until we have final approval from the FTC, there is some uncertainty and it would be irresponsible for customers, for employees and for shareholders to kind of -- to essentially speculate on the ultimate outcome. So that's why we've commented enough on those things that we have complete certainty about, and we're going to stay away from commenting on things on which we don't have complete certainty. I think I did say, though, we've made really good progress since the last call in terms of where we are in the process, which is why we're more definitive about when the transaction will close than we could have been 2 or 4 months ago.

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Edward Joseph Kelly, Wells Fargo Securities, LLC, Research Division - Senior Analyst [23]

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Okay. And kind of wanted to ask you about guidance. So you maintained guidance today. You've sort of talked about back half EBITDA growth sort of similar to Q2. But you have easier execution comparisons in the back half on the top line. You do start to ramp, I guess, some of those -- or start to lap some of those ramp in expenses.

Is it unreasonable to think that EBITDA growth could accelerate from here? And maybe can you just discuss the puts and takes around it? I mean, I know you have mentioned that the operational environment is still more challenging. So just your thoughts sort of on how we should be thinking about the back half in a bit more detail.

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Dirk J. Locascio, US Foods Holding Corp. - CFO [24]

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Sure, Ed. It's Dirk. So I think -- yes, as we said, we expect the back half EBITDA growth to be similar to Q2 and confident in our ability to meet our guidance. I think the -- we think there's always puts and takes in any quarter, in any year and just, as an example, the second half, saw fuel moves from being a modest headwinds to not. And so there's things like that, that help a little bit. But ultimately, again we still expect the strong results like we had in Q2. I think when we think about second half, overall sort of volume, pretty good visibility there, especially on the larger customers because of the pipeline. And think that remains kind of sort of what we've talked about. Very pleased with the gross profit performance.

And then ultimately in OpEx, what we reflected is a more difficult environment and the higher cost comps that really will be there for the foreseeable future as the environment remains tight. I think on that case, if there were to be some stronger or outperformance, it would likely be in OpEx as we've talked about a number of the initiatives around supply chain and such as if we were to overdeliver in some of those areas. And again, coming back together, just feel good about the outlook for the balance of the year.

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Operator [25]

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Your next question is from the line of Kelly Bania of BMO Capital.

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Kelly Ann Bania, BMO Capital Markets Equity Research - Director & Equity Analyst [26]

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I guess in terms of the financing for SGA, I guess moving forward with that seems to signal some sort of confidence in that closing that we just haven't seen before. So I was just hoping you could explain that in little more detail. Are you -- how can you finance this without certainty as to potential divestitures? Maybe just explain that a little bit. And then I guess related to that, I guess rates have pulled back quite a bit in the last year or so. Any thoughts on how that impacts your expected accretion from the transaction?

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Dirk J. Locascio, US Foods Holding Corp. - CFO [27]

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Sure. Thanks for the question, Kelly. So I think we are launching today. Few comments, as Pietro commented, we expect the transaction to close in September so therefore, we have more certainty on the timing. Markets remain favorable, and so, therefore, want to be ready to go. So we will launch the financing. It wouldn't draw until the transaction closes so it's really thinking about being ready to go. From a structure of the transaction, it's a variable rate, so ultimately with the decrease in interest rates, that would benefit us a bit versus a year ago.

So moving ahead with that and I think as far as guidance, I'm going to stay away from that right now. Once the transaction closes, post that, we will provide some more specifics on the balance of 2019 and then for 2020, we would include this guidance in our overall company guidance when we get that early next year.

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Operator [28]

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(Operator Instructions) Your last question is from the line of Jeffrey Bernstein from Barclays.

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Jeffrey Andrew Bernstein, Barclays Bank PLC, Research Division - Director & Senior Equity Research Analyst [29]

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Two questions. One, Pietro, I know in your prepared remarks you talked about a tough operating environment. I wasn't sure when you make that reference if you're referring more to the sales or the cost side. Maybe you can give some directional or qualitative color there. I'm just trying to juxtapose that with the -- I think you said some of the industry data remains positive. I was assuming you were referring to sales but wondering maybe what's segment specifically you were referring to. And then I had one follow-up.

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Pietro Satriano, US Foods Holding Corp. - Chairman & CEO [30]

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Okay. Sorry for the lack of clarity. So I was referring to the cost side of things. When we talk about the operating environment, we're talking primarily about distribution, and so what we're referring to specifically is the very low unemployment rates that we continue to see result in more wage pressure and higher turnover, which then results in impact on productivity and training.

And tie it back to Ed's question, that's why Dirk talked about the continued pressure from a cost perspective on the operating side of things, which is mitigating some of the good benefits we're seeing from the initiatives we've made. So it's purely, in a nutshell, it's on the cost side.

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Jeffrey Andrew Bernstein, Barclays Bank PLC, Research Division - Director & Senior Equity Research Analyst [31]

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Got it. And the industry data that you referred to that you mentioned remains positive. I was wondering if it is a broad comment around kind of what Technomic is talking about or Knapp and Black Box. Kind of what gives you the confidence in terms of that industry data?

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Pietro Satriano, US Foods Holding Corp. - Chairman & CEO [32]

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Yes. So everyone sees Black Box and Knapp Track, which is, as you know, really about larger chain competitors and that one has been, as I said, spotty over the last period of time. The impact on us is much less because those larger customers tend to have lower margin profiles. So what I was referring to in terms of positive outlook, what was the industry being consistent, no change, but I was referring more to the environment and outlook for independent restaurants where we look at Technomic, we look at NPD data, we look at by geography and we really don't see significant change in the outlook. I think I mentioned Technomic that they're short-term outlook down 30 basis points for independent restaurants from 1.8% to 1.5%. That's really almost in the margin for error from our perspective. So at this point, our outlook for industry and for independents, in particular, remains consistent with what we've seen so far.

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Operator [33]

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(Operator Instructions) Your last question -- your next question is from the line of Andrew Wolf from Loop Capital Markets.

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Andrew Paul Wolf, Loop Capital Markets LLC, Research Division - MD [34]

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I wanted to ask about the gross margin per case increase. If you could parse it out a little more in terms of whether it's mainly benefit of improved mix or some of the operational initiatives particularly, I think, you've been talking about central procurement started to become additive.

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Dirk J. Locascio, US Foods Holding Corp. - CFO [35]

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Sure. So it's predominantly from the different initiative and focus areas that we've had, and the 2 big areas that contribute to that are the all the logistics framework that we've done as well as the private label continued growth than that, which has a much higher margin profile. And then customer mix is a secondary contributor of that but they all contribute. I think as we look back over the last 3 years and the continued strong performance there, you've heard us refer at oftentimes to a self-help plan. And although there are some market factors, the bulk of what drives the continued operating leverage gains are just internal initiatives and focus areas.

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Andrew Paul Wolf, Loop Capital Markets LLC, Research Division - MD [36]

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And just I wanted to clarify something on one of your slides on e-commerce retention being 5% higher. I just want to make sure I clearly understand that. So let's say, the typical retention, just make up a number, is 90% or churn's 10%, for e-commerce, it would be 95% with a 5% churn or is it -- is 5% just a little better or it's actually that full 5%? Just trying to make sure I understand it accurately.

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Pietro Satriano, US Foods Holding Corp. - Chairman & CEO [37]

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Yes. It's the former. So in your hypothetical example, 10% versus 5%.

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Operator [38]

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Your last question is from the line of Kelly Bania from BMO Capital.

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Kelly Ann Bania, BMO Capital Markets Equity Research - Director & Equity Analyst [39]

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If I could sort of ask one more here. Just on the comments about SG&A (sic) [SGA] with the reference to the operating results, I think the reference was they continue to be strong. Just curious if you have a sense for the state of some of the other smaller regionals and private companies that you compete with. Is SGA an exception there in terms of their performance? It seems like you're -- must be gaining some share from these smaller players at least in the independents if you kind of agree with that 1% to 2% rate there that Technomic is throwing out there. Just curious on your thoughts on that.

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Dirk J. Locascio, US Foods Holding Corp. - CFO [40]

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Yes. So it does appear like we're gaining share when we look at our own case growth versus the 2 industry sources that I cited. It's fairly consistent across the country, and we don't know how the other players are doing. And we assume that our share gains come from a variety of players, and it just really depends on the local competitive environment as to where it's coming from. In some cases, larger players, and other cases, smaller players. There's no -- when we do our conversations with the field to support what we see quantitatively, with some qualitative analysis, there's no real patterns that emerge, Kelly.

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Operator [41]

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There are no further questions. Presenter, please continue.

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Pietro Satriano, US Foods Holding Corp. - Chairman & CEO [42]

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Great. Okay. So thanks, everyone, for joining us. Appreciate the questions and I wish everyone a good rest of the week. Thank you.

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Operator [43]

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This concludes today's conference call. Thank you for attending. You may now disconnect.