US Foods Holding Corp.USFDNYSE
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Operator: Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the US Foods Holding Corp. Q4 '25 Earnings Call. [Operator Instructions]. I would now like to turn the call over to Michael Neese, Senior Vice President, Investor Relations. Michael, please go ahead.
Michael Neese: Thank you, Tiffany. Good morning, everyone and welcome to US Foods Fourth Quarter and Full Year Fiscal 2025 Earnings Call. On today's call, we have Dave Flitman, our CEO; and Dirk Locascio, our CFO. We will take your questions after our prepared remarks conclude. Please limit yourself to one question and one follow-up. Our earnings release issued earlier this morning and today's presentation can be found on the Investor Relations page of our website at ir.usfoods.com. During today's call, and unless otherwise stated, we're comparing our fourth quarter and full year 2025 results for the same period in fiscal year 2024. In addition to historical information, certain statements made during today's call are considered forward-looking statements. Please review the risk factors in our Form 10-K for a detailed discussion of the potential factors that could cause our actual results to differ materially from those anticipated in forward-looking statements. Lastly, during today's call, we will refer to certain non-GAAP financial measures. All reconciliations to the most comparable GAAP financial measures are included in the schedules on our earnings press release as well as in the appendices to the presentation slides posted on our website. We are not providing reconciliations to forward-looking non-GAAP financial measures. Thank you. I'd like to turn the call over to Dave.
David Flitman: Thanks, Mike. Good morning, everyone, and thank you for joining us. Let's turn to today's agenda. I'll start by providing highlights from 2025, including our team's strong execution during the first year of our 2025 to 2027 long-range plan. I'll then hand it over to Dirk to review our fourth quarter and full year financial results and provide our fiscal 2026 guidance. Starting on Slide 3. Our 2025 earnings exceeded the long-range plan we outlined at our June 2024 Investor Day. We delivered these strong results despite a softer macro environment by continuing to focus on controlling the controllables, something that we have been doing well for the past several years. These include capturing incremental market share across our target customer types, and executing our operational excellence and productivity initiatives. For the year, we grew adjusted EBITDA 11% to a record of more than $1.9 billion and expanded EBITDA margin by 30 basis points. At the same time, we delivered record adjusted earnings per share of $3.98. Our adjusted EPS growth of 26% led the industry and was more than twice our double-digit adjusted EBITDA growth rate. Now that we are 1/3 of the way through our long-range plan, I remain highly confident that we'll reach our 2027 goals. Highlights of our 2025 results driven by the continued progress of our operational excellence and margin initiatives include: delivering share gains across independent restaurants, health care and hospitality, our 3 target customer types; growing adjusted gross profit dollars 190 basis points faster than adjusted operating expenses; driving more than $150 million in cost of goods savings; expanding adjusted EBITDA margin by 30 basis points to a record 4.9%; extending our technology leadership position through new embedded AI capabilities; and executing our capital allocation strategy by repurchasing approximately $930 million of our shares and completing 2 small tuck-in acquisitions for more than $130 million. In short, 2025 was a strong start to our new long-range plan. Through the extraordinary dedication and focus of our 30,000 associates, we continue to execute our strategy, serve our customers well, capture profitable market share and strengthen margins. The momentum we carried into 2026 is a testament to their tireless efforts to deliver excellence to our customers. Let's turn to broader industry trends. Chain restaurant foot traffic as published by Black Box, was down 2.8% for the fourth quarter and decelerated 230 basis points from the third quarter. Our chain business was down approximately 3.4%. Headwinds from the government shutdown, winter storms in December and a challenged lower income and younger demographic affected industry demand. We were not immune to these events as they impacted the volume acceleration we were seeing coming out of the third quarter. While these headwinds created short-term pressure, we remain confident in continuing to grow the top line and capture profitable market share in what remains a highly fragmented industry. Despite fourth quarter foot traffic being the slowest of the year, we grew independent restaurant case volume 4.1% and which accelerated from the third quarter and resulted in our 19th consecutive quarter of share gains. In the fourth quarter, we delivered our strongest net new independent account growth of the year, increasing approximately 4.7% over the prior year. This marks our best performance since the second quarter of 2023. Healthcare and Hospitality, which together comprised more than 25% of our sales, grew 2.9% and 3.1%, respectively, in the fourth quarter. We continue to gain share in both customer types. And in fact, we just posted our 21st consecutive quarter of share gains in health care. Our 2026 case growth was strong in January until the widespread storms and weather-related closures at the end of the month and beginning of February. Although the weather meaningfully impacted the industry's case volume, we were encouraged by our start to the year and are optimistic volume will recover as the weather moderates. Turning to Slide 4. Let's review some of the key achievements our team delivered under our 4 strategic pillars in 2025. Our first pillar is culture. The safety of our associates is and always will be paramount. Our injury and accident frequency rates improved 16% from the prior year on top of our 20% improvement in 2024. I'm very proud of our team for these results, but we will not rest until we reach our goal of 0 injuries and accidents. Supporting our commitment to safety is the continued rollout of the center ride powered industrial equipment across our distribution centers. We are more than 60% through this deployment and expect to fully complete the rollout by the end of this year, dramatically reducing the potential for one of our most serious injury types. Finally, we also donated more than $12.5 million to hunger relief, culinary education and disaster relief efforts last year. This contribution included more than 5 million pounds of food and supply donations, the equivalent of approximately 4 million meals. Turning to our service pillar. We are striving to differentiate our customer service platform and provide a best-in-class delivery experience. We made strong progress with our operations quality composite, which measures our ability to deliver products to our customers without errors with performance improving by 15% for the full year. These results reflect our ongoing commitment to improving our customer service experience, and we expect further improvement in 2026. We remain excited about our ability to improve routing efficiency through our enterprise routing initiatives, including market-led routing and Descartes. In 2025, we completed the deployment of Descartes across our distribution network and achieved an approximately 2% improvement in cases per mile across our broad line deliveries compared to the prior year. And while we are pleased with this early success, more opportunities remain to further increase our routing productivity. Also in 2025, we made significant advancements in our MOXe platform, including additional AI capabilities. One example is the launch of our new AI-driven ordering feature, which enables customers and sellers to upload photos, PDFs and even handwritten notes directly into MOXe and seamlessly translate them into an order, saving them both time and effort. Now let's turn to our growth pillar. In 2025, net sales grew 4.1% to $39.4 billion through continued market share gains. Our go-to-market strategy and consistent addition of new seller headcount, which was up nearly 7% in 2025, remain at the core of our growth plan. Pronto, our small truck delivery service continues to expand and is now live in 46 markets with plans to launch in 10 to 15 additional markets in 2026. We also see excellent traction from Pronto next day, formerly known as Pronto Penetration, which we introduced in mid-2024. This service is already live in 24 markets and we expect to add approximately 10 markets in 2026. Last year, Pronto generated over $1 billion in sales, underscoring its importance as a long-term growth driver. Additionally, we remain focused on enhancing our center of plate protein and fresh produce offerings. Several years ago, we upgraded our assortment and focus on quality in these key product categories. Last year, we grew our fresh produce and center of plate categories with independent restaurants, approximately 150 basis points faster than the industry and nearly 400 basis points faster over the past 2 years. Moving now to our sales compensation change. As we discussed last quarter, we are transitioning to a 100% variable compensation structure for our local sales force which we believe will be an additional long-term growth driver and enable higher earnings potential for our sellers. For context, currently, a seller enters our company at a 100% base salary. From there, we execute a click down process at a pace specific to each individual that moves them to a 50-50 fixed and variable mix over time. Moving forward, we will transition our sellers to our new 100% variable commission plan following a similar individualized click-down process. We believe that managing this transition well is more important than getting everyone to full commission by a date certain. As a result, while we plan to launch the new compensation plan in the middle of this year, it may take us 2 to 3 years to get the majority of our sales force to the 100% variable commission structure. We strongly believe this thoughtful transition plan will enable us to effectively and fully support each of our sellers through this important change. We are currently piloting the plan in several areas across the company and feedback thus far has been very positive. And recently, through our sales leadership academy, we have trained all of our frontline sales leaders on the design and execution of the new compensation structure. Our sales leaders have given us great feedback and are excited for the launch of our new plan. Finally, we are highly confident the new compensation structure will drive stronger alignment to our business objectives and unleash our world-class sales force to help us further accelerate long-term growth. Finally, let's move to our profit pillar. Our strong execution and margin initiatives resulted in adjusted EBITDA margin expanding by 30 basis points to a record 4.9%. We continue to drive gross profit gains and offset a portion of operating expense inflation with supply chain and other productivity improvements. I'd like to highlight 4 key drivers of our industry-leading margin expansion. We continue to make progress on cost of goods through our strategic vendor management efforts, realizing more than $150 million in savings last year. Our execution and our win-win collaboration with suppliers are delivering more than we expected. We now believe we can deliver at least $300 million of cost of goods savings over our 3-year plan, compared to our original $260 million goal laid out at our 2024 Investor Day. We also remain focused on growing our private label brands where our full year penetration was up approximately 90 basis points to nearly 54% with our core independent restaurant customers. Private label growth remains a significant opportunity for U.S. Foods as we have ample room to drive penetration higher. Our enhanced inventory management process to eliminate waste resulted in an approximately $40 million gross profit benefit up from our prior $35 million estimate. We believe there is more to do in this area and expect to generate additional savings in 2026. Furthermore, we achieved approximately $45 million in indirect cost savings in 2025. This is another area where our initiatives are delivering greater benefits than we had originally anticipated. Based on the progress we've seen we now expect to generate over $100 million in indirect savings by 2027. Finally, for 2025. We accelerated our overall operating expense productivity gains as we make progress to our -- towards our 3% to 5% annual improvement goal. We remain committed to building a foundation that not only drives efficiency today but also positions us for sustained growth and value creation in the years ahead. Turning to Slide 5. As you can see, we are consistently driving sales growth, expanding margins and delivering double-digit earnings growth. When combined with our capital allocation framework, we are compounding that earnings growth to an industry-leading adjusted EPS growth of more than 20%. We have been and will continue to be prudent stewards of capital, consistently increasing our return on invested capital year after year which also underscores our commitment to creating long-term shareholder value. We remain confident in the earnings power of our operating model, and we believe we are well positioned to compound results for years to come, driving sustainable growth and reinforcing the strength, diversification and resilience of our business model. Before I hand it over to Dirk, I'd like to recognize our inventory adjustments team led by Jason Hall, our Senior Vice President of Transportation and Logistics. Jason led a cross-functional team that worked together to develop a strategy and implement solutions to reduce waste and improve our inventory health. As I alluded to earlier, this team, along with our field teams and our distribution centers across the country delivered more than $40 million in gross profit benefit in 2025. In addition to driving stronger profitability across the business, this team's efforts resulted in better in-stock performance, quality and freshness for our customers to support sales growth. Thank you, Jason and team for your commitment to delivering excellence through this important company-wide initiative. Let me now turn the call over to Dirk to discuss our fourth quarter results and our 2026 guidance.
Dirk Locascio: Thank you, Dave, and good morning, everyone. Our fourth quarter performance capped off a solid 2025, underscoring the strength and resilience of our business model, profitable growth engine and disciplined capital allocation framework. Starting on Slide 7 in our financial results. Fourth quarter net sales increased 3.3% to $9.8 billion, driven by total case volume growth of 0.8% and food cost inflation and mix impact of 2.5%. Excluding the Freshway divestiture, total case growth was 1.2%. Our independent restaurant volume continues to accelerate and grew 4.1%, including 40 basis points from acquisitions. Healthcare grew 2.9% and hospitality grew 3.1%. Our chain restaurant volume was down 3.4%, primarily driven by slower industry traffic as well as the strategic exit we discussed in the second quarter, largely offset by new business wins. Broadly speaking, our chain volume was in line with the industry. Moving to our financial performance. We again delivered strong earnings growth and margin expansion, driven by continued operating leverage gains. Fourth quarter adjusted EBITDA grew 11% from the prior year to $490 million, driven by continued volume growth with our target customer types, increased gross profit and operating expense productivity. Adjusted gross profit dollars grew 250 basis points faster than adjusted operating expenses. As a result, adjusted EBITDA margin expanded 35 basis points to 5%. Finally, adjusted diluted EPS increased 24% to $1.04, demonstrating our continued ability to grow adjusted EPS significantly faster than adjusted EBITDA. We expect this trend to continue as we deploy our robust and growing cash flow towards share repurchases, which I will talk more about shortly. When we step back and look at the full year, our performance was strong. We grew adjusted EBITDA by 11% to more than $1.9 billion, expanded adjusted EBITDA margin by 30 basis points to 4.9% and increased adjusted diluted EPS by 26% to $3.98, all while navigating a difficult macro environment. Turning to Slide 8. We continue to drive significant gains in operating leverage, and we again grew adjusted gross profit per case faster than adjusted operating expenses per case. In the fourth quarter, adjusted gross profit per case increased by $0.23 or 2.9% compared to the prior year. We continue to gain leverage through improved cost of goods savings, reduced waste through better inventory management, and increased private label penetration. These focus areas led to success in 2025, and we expect further improvement in these areas for 2026. Adjusted operating expenses per case increased $0.02 or 0.3%. We continue to successfully mitigate a portion of operating cost inflation through disciplined cost management and initiatives focused on driving productivity gains. These include routing enhancements, greater process standardization in our operations and increased savings through indirect spend procurement. As a result, fourth quarter adjusted EBITDA per case increased by $0.22 to $2.34. Our fourth quarter and full year results demonstrate our ability to drive strong leverage through the P&L. For the full year, we grew adjusted gross profit per case, 180 basis points faster than adjusted OpEx per case, which is above the 100 to 150 basis point annual target that we highlighted as part of our long-range plan. In 2025, our adjusted EBITDA per case increased nearly 10%. Importantly, since 2019, we have increased our adjusted EBITDA per case by $0.65 or approximately 40% through continuous improvement across gross profit and operating expenses. Turning to Slide 9. Our robust and growing cash flow, coupled with our strong balance sheet enables us the financial flexibility to deliver on our capital allocation priorities. In 2025, we generated nearly $1.4 billion in operating cash flow and deployed that capital to fund strong investments in our business, execute share buybacks and pursue accretive tuck-in M&A. As Dave mentioned earlier, we are on track to deliver our 2025 to 2027 financial targets, including generating more than $4 billion of cumulative operating cash flow over that period. Over the past year, we invested $410 million in cash CapEx to support our business and enable organic growth, including enhancing our capacity and strengthening our technology leadership. Additionally, share repurchases and tuck-in M&A remain important components of our capital allocation strategy to drive shareholder value creation. In 2025, we repurchased 11.9 million shares for $934 million and completed 2 tuck-in acquisitions for $131 million. We have approximately $1.1 billion remaining under share repurchase authorizations. Since 2022, we have repurchased 36.1 million shares for $2.2 billion. Finally, we ended the year at 2.7x net leverage well within our 2x to 3x target range and our leverage profile is the strongest within our industry. I'm also pleased to report another positive development related to our credit rating. Our corporate credit rating was recently upgraded 1 notch by Moody's to Ba1 based on our continued solid operating performance and credit metric improvement. Moving on to Slide 10 and our guidance and modeling assumptions. Our fiscal year 2026 includes a 53rd week, which is expected to add approximately 1% to total case growth and adjusted EBITDA growth. This assumption is included in the fiscal year 2026 guidance we are providing today. We expect to grow total company net sales by 4% to 6% compared to the prior year driven by total case growth of 2.5% to 4.5%. We are projecting independent case growth of 4% to 7% for the full year. We expect a lower inflationary environment than we had for much of 2025 with sales inflation mix impact of approximately 1.5%. We expect to grow adjusted EBITDA 9% to 13% and adjusted diluted EPS 18% to 24%. The midpoint of our outlook for the full year assumes the macro environment remains largely unchanged. Now let's look at our first quarter outlook. Due to the severe and widespread weather-related issues that impacted the industry in January and February, many of our customers and our distribution centers in impacted areas, experienced closures and other disruptions, particularly in the Southeast, which is our largest region. We have already had approximately 35% more distribution center closure days in 2026 than all of Q1 of last year, which negatively impacts our volume and cost. As a result, we expect first quarter adjusted EBITDA will be upper single-digit growth over the prior year. We fully expect we will achieve our 2026 full year guidance despite the weather-related disruptions we experienced in January and February. Last year, we started with weather-related slower EBITDA growth in Q1 yet we ultimately delivered our full year adjusted EBITDA and EPS targets through strong execution in the remaining quarters, even against a softer macro backdrop. I remain confident in our ability to deliver solid top line performance and double-digit adjusted EBITDA growth. This isn't new for us. Over the past 4 years, we have consistently delivered strong profitable growth while significantly improving our return on invested capital. While consumer sentiment remains cautious, we are optimistic about 2026. We operate in a resilient industry and continue to run our proven playbook. We are executing our strategy to enhance the customer experience, drive profitable volume growth, improve supply chain productivity and return capital to shareholders, which enables our continued ability to compound double-digit earnings growth. In closing, I'm encouraged by our financial performance and the progress we've made completing the first year of our long-range plan. I'll now pass the back to Dave for his closing remarks.
David Flitman: Thanks, Dirk. At its core, our story is one of growth, operational excellence and execution with a long runway of top and bottom line growth ahead of us. We will continue to run our proven playbook, execute our strategy with discipline, and deploy capital in ways that maximize value creation. As we enter 2026, I have strong conviction that we will deliver the remaining 2 years of our long-range plan and hit our financial targets. And we also believe we are positioning ourselves to deliver sustained growth well beyond 2027. Before we move into Q&A, I'd like to draw your attention to Slide 11, which highlights what truly differentiates US Foods from our competition. Our differentiated value proposition and meaningful scale across the 3 most profitable customer types in the industry, independent restaurants, health care and hospitality, an industry-leading digital ecosystem embedded with AI-powered features that enhances customer engagement, drives efficiency and strengthens loyalty. Substantial opportunities ahead to drive sustained profitable growth as we are in the early innings of our operational excellence journey. And finally, industry-leading adjusted EPS growth supporting our confidence in remaining a double-digit earnings compounder through 2027 and beyond. With that, Tiffany, please open up the line for questions.
Operator: [Operator Instructions] Your first question comes from the line of Edward Kelly with Wells Fargo.
Edward Kelly: Congratulations on a good quarter and a choppy backdrop. Dave, I wanted to ask you, I mean, things have been all over the place between shutdown and weather certainly seems like Q1 was choppy to date. Could you just maybe, I guess, one, provide a little bit more color on quarter-to-date volumes and kind of what you're seeing? And then if you could parse out sort of like weeks without weather and give us maybe your thoughts on what the underlying momentum of the business. And I'm hoping that you can tie all of this to your outlook for 4% to 7% independent case growth for the year because obviously, that's an acceleration.
David Flitman: Sure. Start off with a great question here. I appreciate it. But as I answer that, let me go back to the fourth quarter because I was very encouraged with the momentum that we saw. As you recall in my prior remarks about the momentum coming out of Q3 until we hit the government shutdown and the weather and choppiness there in December. We had a lot of good momentum there. The great news is we rebounded from that in the early part of January. Actually, the first several weeks were very strong, actually stronger than our exit from Q4 and then we hit the choppiness. The really good news is since we've gotten past the weather, we're right back to where we were in early January. So the rebound has been -- it's taken a little bit just with the cold weather and all the ice and snow. But I'm just really encouraged by the underlying momentum. I'd point out also, Ed, that the fourth quarter was our strongest organic independent case growth in 2 years. And as we've been talking about for a while, the bellwether of our growth to come is that net new independent account generation, which was the strongest in the fourth quarter, again, at Q3. It was the strongest also since the second quarter of 2023. So I give all the credit to our teams, they're focused on execution in driving our capability into the marketplace. So I'm really encouraged ex weather. None of us can control that, it ebbs and flows, but we're controlling the things we can control, and we will continue to do that in 2026.
Edward Kelly: Great. And then maybe just a follow-up on the inflation guidance. I mean, obviously, we're seeing this inflation, maybe you could talk a little bit more about your expectations there, sort of key drivers. And I'm just curious -- on the surface, it seems like it would make it a little bit harder to grow gross profit per case, but that was always in the details. And I'm curious as how you think about that? And then have you needed to make any adjustments on the self-help side of the story in that backdrop? Or is the impact you really just kind of minimal.
Dirk Locascio: Ed, it's overall, as we've said many times, you're not going to hear us talk about that as a key driver, our self-help initiatives are the large lion's share of our drivers of gross profits pretty much every quarter. So like the rest of the industry, disinflation had a bit of a negative impact in the fourth quarter. But again, we still put up strong results. I think the -- we are still seeing inflation year-over-year so far in the year. And it's going to be one where you're going to continue to see anything more of an impact on the top line and the bottom line, and we'll manage our way through it just as we have.
Operator: Your next question comes from the line of John Heinbockel with Guggenheim.
John Heinbockel: So Dave, 7% sales force expansion, what do you -- which is a big number for you, high end of your range. Maybe to talk about when you think about the maturation of that? Is that a key factor '26 local case growth, maybe tail end of the year, right? So is there a cadence that's later in the year? Is the sales force productivity from that 7% a key factor? And then maybe the last part of that would be, when you think about improving net account growth, how much opportunity do you think is still left in lost accounts, right? Because it just strikes me that that's still low double digit and that could be better.
David Flitman: Yes, I appreciate the question. To the first part of it, that 7% included some of the internal transfers that we talked about last quarter. So if you back that out, we were right in the middle of our range in that 4% to 5% range in terms of external hires. So we executed exactly what we've been doing. To your point, I believe that the productivity of those sellers, particularly with the number that we've had internally shifted over, will ramp up and have a meaningful impact here in the back half of '26. Not to mention the consistent sales force hiring we've done over the last 3 years. I think you're starting to see that pay off. Every quarter last year, we accelerated organic independent case growth. We continue to accelerate net new. And I expect our growth will continue to accelerate as we go forward here. The second part of your question, sure, we run all parts of NOP. We look at all that. We've talked a lot about the penetration pressure that we've seen, just given the foot traffic lost is an opportunity. I will tell you that loss is fairly stable to improving. It hasn't increased at all. And the opportunity remains here to get that a bit lower. But again, given the pressure in the industry, our focus has really been on this net new, which is at the heart of our growth acceleration, and we're going to keep the team focused there.
John Heinbockel: And maybe as a follow-up, right, you did phenomenally well on OpEx per case in the fourth quarter, right? But there's still an opportunity for Descartes to make a bigger impact in [ Yuma ] next year. So kind of what drove that in the fourth quarter? And I don't know how sustainable that is in your mind?
Dirk Locascio: Yes. Well, we had -- we talked about a lot of the initiatives there in the prepared remarks that are getting traction. And so it's really more of the same. To your point, Aron, UMAs, we continue to implement that. We're about 80% implemented across the company now in our key markets. We'll finish the Humos rollout here by the middle of this year. And again, that's the template for consistency and roles and job functions in our operations, and it's had a meaningful impact. On Descartes specifically, we commented on a 2% increase in cases per mile. We think there's at least that much opportunity again now that we've got that fully deployed across the company going forward. So we're expecting continued and ongoing benefit from that rollout.
David Flitman: And John, just as we talked about last quarter when OpEx was a little higher, you have shifts from year-to-year that can happen from quarters. So any order you can be higher or lower on cost. And really, I would think about -- if you look at all of 2025, we were up $0.10, $0.11. So you saw really come to fruition where we offset a portion of our cost inflation with the productivity things that Dave's talked about.
Operator: Your next question comes from the line of Lauren Silberman with Deutsche Bank.
Lauren Silberman: And congrats on the quarter. Dave, you talked that strong net new business -- of course, you talked about strong net new business growth this quarter, which is accelerating. Is the net new business primarily driven by your headcount growth or your existing salespeople expanding their book of business? And then are you seeing any change in the competitive environment? Are things getting more promotional?
David Flitman: Yes, Lauren, I would say that it's coming from both. Our existing sales force being increasingly productive as well as -- and that's why I mentioned our consistency in hiring sellers over the past 3 years. That productivity continues to ramp up across all of our cohorts. And so this is our model, right, a mid-single-digit headcount increase year after year, continuing to do route splits effectively as they make sense, seeding new sellers with business. They build from that. The sales reps that you take that business from, you pay them for that business for a while as well to encourage them to make sure those transitions are smooth and then they go build a new book of business. And so that's the model, and it's working quite well for us. And I expect that to continue. To your second question around promotional activity, get ebbs and flows, Lauren, I would say the promotional activity we've seen, and I think there's been some talked about publicly here recently has been particularly at the QSR level and all that and some in chains. But I don't see that that's changed a lot here from the last quarter. I think we had -- saw similar effects, but I wouldn't see it increasing from here. We'll see what happens with foot traffic, but that promotional activity ebbs and flows. It's always there. I wouldn't point to anything significant right now.
Lauren Silberman: Okay. And then just a follow-up on the sales comp change. I believe you mentioned it could take 2 to 3 years to transition everyone to the new structure it sounds a little bit more gradual than I think you were originally communicating. Is that a fair takeaway? And any sort of feedback or attrition that you may be seeing? Anything else that you could share.
David Flitman: Yes. So actually, it's not a change. And what I'm trying to do here because I know there were a lot of questions about it when we first began to talk about it was just provide more clarity. And so the reason I commented specifically about how we bring people into the company today at 100% base is -- it takes a long time to get the majority of your sellers to the 50-50 commission today. It's very dynamic, as you would expect. We're always bringing new sellers in. We've always got retirements and all that. It's going to be the same thing going forward. It is no change in our plan. It's just the reality of how we operate the business, and I wanted to provide some clarity on that. So getting to 100% commission could take a couple of years for the majority of our sellers. That's fine. That's situation normal. It's the same game we've been playing for a long time. And then I'm very encouraged with the way the rollout is going, the feedback that we've gotten, particularly as I commented, with our sales leaders who we've had in here over the past several weeks. There's a lot of buzz and a lot of excitement. But I guess I would say I'm most encouraged looking at our turnover. Actually, since we started -- first started talking about this, all of our experienced cohorts, and we have different experience cohorts in different buckets. They've all improved since we've started to talk about this. So that's a very encouraging sign. And we'll continue to watch that closely and again, be very, very thoughtful about how we transition each individual here over time.
Operator: Your next question comes from the line of Kelly Bania with BMO.
Kelly Bania: Congrats on strong year. I wanted to also dive into the outlook for the case growth for this year, the 2.5% to 4.5%, maybe just with a little deeper dive in the customer types and then the cadence. Are those all similar ranges that you outlined kind of as part of your algorithm. Just kind of curious what you're assuming maybe within change, if you're assuming that gets back to flat or slightly positive. And any comments with new business wins in health care and hospitality. And then also within the independent cases of particular, should we expect that to kind of ramp throughout the year because the comparisons are also tougher as you pointed out, they've kind of really improved throughout this entire year. So just wondering if you had any comments on those points.
David Flitman: Yes. So let me start with the IND guidance. That 4% to 7%, Dirk talked about the 1% of the 53rd week adds that takes it to 3 to 6. You add 200 basis points of that. That's right on the algorithm that we talked about at Investor Day when the foot traffic gets to what the basis was for that, which, as you recall, is about 2%. We haven't smelled 2% since we put that algorithm out there, it's been relatively flat to down. So it's right in the heart of what we committed to do. The total case growth takes into account health care and hospitality. And let me just talk about those for a second. We're very encouraged by -- when we talked last quarter about the $100 million of onboarding in both of those target customer types. We expect to have all of that fully onboarded by the end of the first quarter here. And I would also tell you that the pipelines for both of those have never been stronger. So I would expect more through the course of time. And then to the last part of your question around independent case growth, sure, the comps get a bit more challenging, but we're not deterred by that. We've got a lot of really good momentum. Our sales force has never been more focused. Our leadership knows what we need to achieve. And I give our team a lot of credit for the momentum that we've built thus far. And I would expect you would continue to see us ramp up our growth rate. That's the plan.
Kelly Bania: That's very helpful. If I can just follow up on one more with the comp model change. It sounds like it's launching midway through the year. And so assuming maybe no real impact this year. Maybe correct me if that's wrong, but just wondering if you could talk generally about the kind of magnitude of unlock that you think that this could drive case growth over time over the next couple of years?
David Flitman: Yes. It's hard to quantify it. But I really believe, as I said in my prepared remarks, this is going to really unleash our sales force through the course of time. I think this is the last major unlock. We've got all the process stuff right. We've got the organic growth going. We've got our head count plan consistent mid-single-digit headcount additions. This is the last piece that's been missing. And as I've talked about before, I'm contemplating this since the day I got here. I feel like with the strength we -- underlying strength we've built in the business over the last 3 years, this is exactly the right time to launch this plan going forward, and I'm really excited about what it's going to mean over time.
Operator: Your next question comes from the line of Jacob Aiken-Phillips with Melius Research.
Jacob Aiken-Phillips: So on the common transition, I'm curious how we should think about seller productivity throughout the 3-year multiyear transition. Would you expect it to dip a little bit towards the beginning and then heightened afterwards? Or should it be more neutral in the acquiring over time?
David Flitman: Yes. Good question, Jacob. I think it will be the latter more than the former. And the reason for that is -- and that's why I emphasized it earlier, these are very individualized tailored conversations. When you make a change like this, you're going to have some people out of the gate that do better and some people that are more challenged. And that's the piece that we're working through with each individual. And that's why we're taking a very thoughtful and deliberate approach on these pilots. There's a lot -- when you got a sales force of over 3,000 people, you want to do this well and you want to have those individual conversations and make sure you're making the right decision. So I would not expect us to step back. I would expect us to be neutral to going forward with this as we implement it.
Jacob Aiken-Phillips: Got it. And then separately, as you continue to layer in AI capabilities in MOXe and across your platform, should we think about that mainly as a cost productivity tool? Or do you see revenue and wallet share upside as well?
David Flitman: Yes. Good question. I think it's both. And we've talked about since we implemented MOXe over 3 years ago that we've seen the customers that use MOXe buy more from us on average and they stick with us longer. So there is growth upside to it as well. An important part of it is ease of doing business with us, kind of taking the friction out of the relationship with our customers, which we've gotten very good traction with and importantly, also improving the sales force productivity because of things that the customer can now do self-serve in a very effective way within MOXe takes that burden off of our sales force and frees up time for them to go talk about our brands, find the next customer, drive further penetration within those customers, and that's where we want to see our sellers spending their time. And so it's really both within MOXe.
Operator: Your next question comes from the line of Alex Slagle with Jefferies.
Alexander Slagle: All right. And great work in 2025. The share gains, the execution, I mean, seemingly everything has been so strong across so many initiatives, but is there anywhere that's not where you want it to be, where execution is just not ramping like you hoped and maybe as an underappreciated opportunities that you want to highlight?
David Flitman: Well, I'm glad our team is making it look easy because it's anything but this is hard work, and it takes consistency and focus. And simplification in the journey, and that's what we've done here. We've got a very focused team. I put our leadership team up against anybody anywhere in terms of knowing what we need to get done and ability to execute it. I'm one of these guys that's never satisfied in anything. And this theme of continuous improvement is real within our company and our organization. And so I just continue to see so much opportunity across the P&L for us to strengthen what we've got going on. We talk about all the good things that we have in the company, but there's plenty of opportunity to improve in areas that we've talked about this morning and in plenty of other areas of the company. In a company of 30,000 people and 75 distribution centers and $40 billion in revenue, there's a lot that needs worked on every single day. And that's why I'm so bullish on this continuous improvement journey and our ability to hit our targets. Everywhere I look, there's more opportunity for us to get better.
Alexander Slagle: That's great. And on the CapEx increase for '26, how much of that is Pronto versus other initiatives that you're looking to do?
David Flitman: It is a combination. So Pronto is a meaningful portion of that. And then the rest just comes from building spend, maintenance spends just across the board. And if you think of it just as our business continues to get bigger and we continue to invest in capability and capacity that's driving it. But overall, you see we still expect to have very strong EPS growth. So making sure that we're leveraging our investments into things that are paying off.
Operator: Your next question comes from the line of Jeffrey Bernstein with Barclays.
Jeffrey Bernstein: Great. My first question is just on the M&A environment. I know you did a tuck-in with Shakes in the fourth quarter, and I think 2 transactions for the year. Both are relatively small compared to your business. I'm just wondering how you think about the opportunity for more sizable M&A in this challenged macro maybe any thoughts on what you've seen around availability or receptivity from potential targets or where multiples are versus historical? Just wondering where you think the greatest opportunity are to enhance the U.S. food platform that you could potentially consider pursuing?
David Flitman: Thanks for the question, Jeff. I'll tag team this one with Dirk and I'll take the first part of your question. First of all, and just take you back to our strategy. Our strategy has been and will continue to be targeting tuck-in M&A. I love our footprint. We've got density in all the major MSAs across the country. And as you look back over the ones that we've acquired over the past 3 years, they've all been helping us with local market density in this tuck-in area. Putting a distribution center in the part of the market that either we haven't had a location in or that is growing faster than where we have our footprint. And it helps us get more productive, take miles out of our distribution network. And obviously, there's a lot of synergy around those. And that's our plan. It has been and it will continue to be going forward. Because given the fragmented nature of the industry, that's where the opportunity is. And thankfully, we don't need to do anything of scale. We just don't. Obviously, if something comes along that makes sense, we'll take a look at it, but it's not our day-to-day focus in M&A. Dirk?
Dirk Locascio: And just our team continues to do outreach work on building the pipeline. And as many times and we've talked about it -- sometimes it takes many years of dialogue and engagement before things come to fruition. So that's -- again, that's why we continue to like the toggle that we can do between M&A and share repurchase, so that when that M&A comes to fruition with our strong cash flow, we can move ahead on it. And if not, we'll continue to buy shares back. As far as the multiples, we've not seen that be an inhibitor. People always want to get paid fairly for their business. But that's continued to be, I'd say, rational.
Jeffrey Bernstein: Got it. And just one clarification. I think you mentioned in the press release and even on the call, I think you were talking specifically to EPS beyond '27 I think the reference was to sustain double-digit growth. I know currently, the EPS algo is for 20%. I'm just wondering whether you view that language similar to the 20% or maybe that's just a reminder that over time, 20% it's more realistic to think of double digits, but trying to just compare that to kind of the 10% EBITDA growth. So kind of how you think about things as we look past this current algo relative EBITDA versus EPS?
David Flitman: Yes, I appreciate the question, Jeff. We'll talk about beyond 2027 when we get there. But our message here is quite clear. We are and we expect to be a double-digit earnings compounder for a very, very long time in the company. We're not messaging anything about something coming down or something going up. We've been doing this for a while, and we expect to continue to do it given the strength of our model and our focus on execution here. That's it.
Operator: Your next question comes from the line of Jake Bartlett with Truist Securities.
Jake Bartlett: My first question was on the macro outlook. You mentioned that you expect a similar macro environment than '25, but there's also been a decently strong start to the year, aside from the weather, some tailwinds from tax refunds, for instance. I guess I'm asking about your confidence on '26 and maybe whether you think that there should be some potential upside from kind of that base level.
David Flitman: Yes. I just want to make one comment here. We've been operating in a very soft macro for the most part of my tenure here, and we've been executing extremely well. And we expect in a flat macro that we will continue to execute well and deliver results that are consistent with what you've come to expect out of U.S. Foods. Any tailwinds that come would be upside to that. And I'll let Dirk put it in a little more context for you.
Dirk Locascio: Yes. Just as we said in the materials and the comments, so our -- we can provide a range like we always do, and the center point of that range really assumes status quo. So to the extent the environment is better from refunds, stimulus or anything like that, then that would benefit us as it does the industry, in addition to, of course, the end consumer. But in the meantime, we still even down the middle, expect to accelerate case growth and really coming from our own ability to drive share gains, as Dave pointed out.
Jake Bartlett: Got it. And then my follow-up question was on the margin drivers in '26. Forgive me if I missed it, but I'm wondering if you can quantify some of those drivers, like the vendor management, there's $150 million to go between '26, and '27, how much you expect in '26 inventory management, indirect cost. If you can quantify those like you did in '25, that would be helpful.
David Flitman: Well, in some of those we continue to expect meaningful growth. So we're not going to specifically lay out the components and the pieces. But hopefully, what you see is what we've generated and what we've called out just in those few examples of what we expect to there's not a clip, so to speak. So we expect to make more progress in '26 and then further in '27. But quarter after quarter, hopefully, you continue to glean from our commentary is when we talk about this portfolio initiative initiatives that continues to mature, advance some of them that come on, come off. That is how we're managing the business, and that's part of how continuous improvement works and driving that through gross profit through productivity. And so each of those will continue to generate significant value. But when you think about continuing to improve EBITDA margin, you see that concreteness that is there from specific things that we're doing and we've provided that level of transparency that is really unprecedented in the industry as far as where values are coming from. And we think that's important. So you and investors build that confidence that US Foods will continue to build upon. We've done in the last 4-plus years.
Operator: Your next question comes from the line of Mark Carden with UBS.
Mark Carden: So to start another one of the compensation shift. Just now that the news has been out there for a few quarters, have you seen any shifts in your ability to attract the kinds of salespeople you'd like to get from an experience standpoint. So by that, do you see a higher proportion of more seasoned salespeople perhaps peaking at the time before? Just any change in composition from the pool?
David Flitman: Yes, Mark, I would say it's still early. We haven't had a lot of shift in that at this point. And recall that we don't typically hire competitive reps for the majority of our sellers. That's a minority of who we sell. I expect over time that will continue to be the minority of who we hire. But we do expect to be able to attract some experience over time. But really no shift. I think it's early days yet. But again, I would just underscore, we do not have trouble attracting new sellers to the company, continue to bring new ones in, have new cohorts every month.
Mark Carden: Got it. Makes sense. It's helpful. And then on the OpEx front, there have been some recent labor contract announcements in the industry that included some meaningful bumps in compensation. Just how are you thinking about labor's impacting your OpEx per case in the year ahead? And then would you expect incremental productivity gains to be able to fully offset any pressure?
Dirk Locascio: Sure. Mark, it's -- I'd say what we've seen is not that dissimilar to what we've seen over the last 3 or 4 years. In any given year, we have a number of contracts to come up. And we we reach agreements and levels of increases. In a number of cases, they're catching up with increases we've given other groups in prior years. So I don't expect it to be any meaningful change to what we've seen from an OpEx trajectory. And we still feel highly confident in our ability to grow GP dollars to 100 to 150 basis points faster than OpEx dollars.
Operator: Your next question comes from the line of Karen Holthouse with Citi.
Karen Holthouse: Congratulations on the quarter and the year. Just on the restaurant side, I feel like we're talking a lot about GLP-1s these days. Is there anything filtering up from the field in terms of what customers are concerned about, what they're asking for from an innovation standpoint and how that might play into your Scoop kind of strategy for the year?
David Flitman: Yes. I think we haven't seen significant shifts. I think to the extent that that GLP-1 transition or it impacts healthier choices for customers and ultimately, our customers. It will play very well to our portfolio. And again, over 1/3 of what we sell is center of plate or produce. Actually, it's slightly more than that. And so we feel like we're well positioned. We can bring in whatever products we need. I think some of the early things that we've seen from customers is helped with menu design. There are things looking at portion sizes, healthier options and all that, I think, plays to our strengths. So while the impact remains to be seen fully in the industry, I don't expect a significant impact outside our realm of capabilities to deliver whatever our customers need.
Karen Holthouse: And on the guidance for 4% to 7% independent case growth, if we think about what kind of pushes to the lower or higher end of that range, is that really more dependent on weather macro kind of the industry? Or are there things on more of the internal or self-help side, you could see pushing yourself towards one end or the other?
David Flitman: Well, we'll continue to push the self-help consistently. I think as Dirk said, the midpoint of that, you would expect the macro to remain fairly consistent with what we saw coming out of 2025. any downside in foot traffic would probably pull us to the lower end and any upside on some of the things that we had in an earlier question could potentially push us higher. But I think down the middle is what we're planning for as we get into the year.
Operator: Your next question comes from the line of Peter Saleh with BTIG.
Peter Saleh: Great. Just one more question on the sales force compensation. Just curious if as we go through the year and you start to transition, is there any impact to the financials, any lumpiness as we do this? Any seasonality that we should be aware of in the model?
Dirk Locascio: Peter. At this point, nothing of significance as we get further in the year, if there's any anomalies to call out, we'll do that. But really, it will be one sort of as we go, probably in the future years and you get more and more people on the plan. You may see some subtle moves quarter-to-quarter just based on the volume, but nothing of significance.
Peter Saleh: Great. And then just -- I think you highlighted a couple of incremental cost savings that you guys have found on cost of goods and indirect costs. Can you just provide a little bit more color on where those are coming from? Do you think this is the top end of those cost cuts? Or do you think there could be more to come in the future?
David Flitman: Well, I'll start with, we're very pleased with each of those examples. And in the cases, these -- the teams are really able to get more out of the initiatives than we had originally contemplated. And so what's exciting is it spans gross profit, various elements of OpEx. And it is healthy ways to improve GP, healthy ways to improve OpEx and so those are things that, as we go in, the teams are continuing to push for those opportunities, and they're sustainable, and they're part of that continuous improvement that Dave mentioned earlier. So for each of those, the top end, I mean, you're never going to hear me 1 year in and say that's the most we can do. And Dave talked about our lack of satisfaction is we want to recognize the good work the teams have done. But internally, we're doing what you would want us to do is continuing to identify where we can in a healthy way, continue to get more out of our different initiatives. So we're highly encouraged and again, that all adds to the confidence that we have in our ability to deliver this year in our long-range plan.
Operator: Your next question comes from the line of Danilo Gargiulo with Bernstein.
Unknown Analyst: Great. And once again, congratulations on a very strong quarter and year so far. I wanted to follow up on a question that was asked earlier regarding the guidance, but I want to take a slightly an and specific, I want to ask among what is it within your control what do you have to believe for you to hit the high end of your EBITDA guidance? And conversely, what you may need to believe for you to go to the low end of your guidance?
David Flitman: It really comes down to just -- so there's the macro pieces that we've talked about. And then within ours, there's always the range of execution effectiveness. And that is that really is the primary variable. And no different than we've talked about the last few years. That is the part we would rather have the control over because we can influence that. And in each of those cases, we're going to continue to work on, again, the most that we can in a healthy way out of our initiatives, but we are confident in our ability to deliver the guidance that we've outlined.
Unknown Analyst: Okay. And then earlier, you mentioned that the comp changes to your sales force is the last major unlock to drive case growth. So are we to assume lower case growth once the comp changes lapses? Or are you contemplating other major opportunities in the pipeline that will help you sustain very healthy case growth going forward?
Dirk Locascio: Thanks all. not expecting anything to slow down. We think this will unleash our sales force to its fullest over the course of time. And both Dirk and I have expressed a lot of confidence here in our ability to drive both the top line and double-digit earnings for a long time to come in this company. And our sales force is strong. We believe this comp plan fully aligned to business objectives will unlock them to drive further growth. And make a lot more money individually in the process. And that's what we want to have happen here.
Operator: Your next question comes from the line of Rahul Kro with JPMorgan.
Rahul Krotthapalli: Question is on Pronto. In 46 markets now, and about half of them on proton next payer penetration. Can you share what kind of lift in independent case volumes and specifically wallet share increase are you seeing in existing customers or even when you onboard new customers in the markets with Pronto and extend penetration?
Dirk Locascio: Sure, Rahul. So we haven't shared specific numbers, but we do see a meaningful uplift in those in both the the legacy Pronto and the Pronto next day. We look very closely in those markets to make sure that we're not seeing cannibalization of our broadline business. And we've seen meaningful typically it's double-digit levels of uplift on customers that are in there. And the great thing about that, just like on the Pronto legacy is when we first launched a Pronto Next Day market, it typically has 1 or 2 trucks. And so that's -- again, that's why we expect and believe that Pronto will continue to be a meaningful growth driver for US Foods for a lot of years.
Rahul Krotthapalli: That's helpful. One follow-up. On the AI tools, in the context of sales force training and deployment, can you share some opportunities or challenges when you're onboarding new sales force or even like training the existing sales force, given the broad set of productivity enhancing tools you have talked about? And do you see a future where given this is a relationship business that maybe the number of clients like your sales force can handle, can double or like even like take a significant step-up from where we are today, given all the tools at disposal?
Dirk Locascio: Yes. Well, with the second part of your question here, absolutely. And we're already seeing that in terms of productivity. That free freeing up of time for our sellers with the digital capabilities and the embedded AI helps with is real, and we're starting to see that. I mean we started a couple of years ago talking about automated order guides and taking something that took 3 to 4 hours for a seller to prepare down to 15 minutes. They're doing something with that freed up time and it's going to see more customers or spending more time with existing customers and trying to drive penetration. And we have a very thoughtful and deliberate sales onboarding process that includes a lot of face-to-face training over a long period of time. But as you think about areas where AI could help in that in the future, after the initial training things like product training and all of that could be an area of opportunity for AI, and we may or may not be already thinking about and doing some of that. So I believe the AI opportunities here are limitless with our digital technology, and we're continuing to explore ways to both drive productivity and help us accelerate our sales force productivity.
Operator: Your next question comes from the line of Margaret Ma Binge talk with Wolfe Research.
Unknown Analyst: I just wanted to ask, it seems like you guys are seeing some acceleration in private label penetration. As we look ahead into '26, can you give a little bit of color on the specific levers that you guys have to continue to push that penetration higher?
David Flitman: Great question. We've been at this for a very long time in private label, and it adds a lot of value for our customer. Recall those products are cheaper, the manufacturer brands, importantly, they're designed with great quality in mind. We've been doing this for a very long time and are also more profitable for the company, which means our sales force gets comped higher when they sell that. So we feel like we've got the incentives right, that's obviously designed into our new sales compensation plan. What gives me confidence, and we talked about being at 54% penetrated with independent restaurants. And I keep saying this, and we talk about this a lot, that there really is no near-term ceiling. Here's a new data point. 25% of our independent restaurant customers have greater than 70% penetration with our brands. That's the key data point that gives me confidence to say that there's a lot more upside to come. And so our sales force has their arms around this. They're excited about our brands. Our innovation team brings out high-quality brands a couple of times a year here and puts new powder in the hands of our sales force to get in front of our customers with. So we've got a great machine built around our private label brands that's been accelerating penetration since I've been here, and we expect that will continue.
Operator: That concludes our question-and-answer session. I will now turn the call back over to Chief Executive Officer, Dave Flitman, for closing remarks.
David Flitman: Thanks a lot, Tiffany. We appreciate everybody's time this morning. Our team is focused. We're executing well, and we expect everything to continue that you've come to appreciate about US Foods. Thanks for your time. Have a great week.
Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.