Performance Food Group Company Stock

Good morning, everyone. Thank you for joining us. I hope everyone had a chance to grab breakfast in the room, and hello to everyone out on the webcast. My name is Jeff Bernstein, and I'm the restaurant and food service distribution analyst here at Barclays. To be clear, I do have plans to retire at the end of actually this month after 25-plus years in a row. So I'm officially the outgoing analyst with the next analyst to be named hopefully shortly.

But I did want to welcome all to day 3 of the 19th Annual Global Consumer Conference. We have had 14 restaurant and food service distribution companies here with us between Tuesday, Wednesday, Thursday, we had BJ's, Cheesecake and [ Kura ] on Tuesday. Bloomingdine, First Watch Restaurant Brands, Sysco, Texas Roadhouse, Wendy's, US Foods, Yum! and Wingstop yesterday, and we are excited to have one company today, which is Performance Food Group.

So we hope you have found the conference a good use of time. And at this point, I would love to introduce our final presenting company for the day, at least for me, which is Performance Food Group. So with us this morning from Richmond, Virginia, we have got Scott McPherson to my immediate right, he's the CEO; and Patrick Hatcher to his right, who is the CFO.

By way of background, for those not familiar -- bless you. Performance Food Group is one of the largest food service distributors in North America. They have 150-plus locations. They deliver food and related products to 350,000 or more locations, including independent and chain restaurants, schools, business and industry locations, vending and office coffee service distributors, retailers, convenience stores and theaters.

So clearly, a very broad swath of food service distribution. So we want to thank Performance Food Group for joining us this morning. I've got a slew of questions on the broader consumer and industry and then lots of specifics on Performance Food Group. So with that said, again, we want to thank Performance Food Group, specifically Scott and Patrick, and Bill in the front row. And with that said, we will kick it off. So thank you again.

Very good. Thank you.

So we wanted to start with just a few higher-level questions about the consumer since you see presumably a lot of them across the country. Maybe you could start by just providing your thoughts on the state of the food away-from-home operating environment more broadly.

Yes. Certainly in the consumer -- the consumer has been, I'd say, on a little bit of a roller coaster over the last handful of years. When you think about tariffs and inflation and fuel price. But for us, I think the consumer has been very resilient. And we -- we have a great vantage point on that. We obviously look at Blackbox when we think about the consumer, and that traffic has been pressured, but fairly consistently. We look at Circana data, which is all transaction data, which gives us really good insight. And then obviously, we have a great handle on the independent consumer as well.

For us, we really focus on the controllables. And for us, it's been growing share and really excited to be in all 3 of our segments growing share as we actually did this year and have really good momentum. And as far as the broader food away-from-home space, I think it's been a bit of an evolution. I mean food away from home has been growing for a couple of decades. Certainly, coming out of COVID, there was -- there was some interesting trends.

I mean you saw coming out of COVID, food inflation went kind of crazy. And so we saw menu prices kind of hold. And so coming out of COVID, the consumer was flooding to restaurants. And over time, those menu prices crept up and food away from home got a little pricey. And now I think we've kind of reached that equilibrium. And I think that's really good for us, and we're looking forward to the future.

Being that we're at a staples conference, well, staple and discretionary. Now we're proud to have merged, but there are a lot of staple peers, on the other side of this wall who would say that food at home is prone to be taking share. We have had a thesis for decades, the food away from home, like you said, continues to take share. So I'm just wondering, do you feel like the more recent restaurant industry has returned to a little bit more aggressive value will give -- allow the food away from home segment to retain the upper hand? How do you believe the rest industry is positioned as they do battle food at home?

Sure. Well, I think you hit the key word. I think it's value. I think when you have a pressured consumer, they're looking for value options, and I think about the food away from home space, I think about the independent restaurant, which, from our perspective, has been outperforming for some time. And I think the reason they've been able to accomplish that is really their flexibility. I mean they can shift on a dime whether it be shifting their menu, shifting to menu pricing and the offer that they have.

So they can create value. They really understand their customer well. And I think that's how they've been very successful. We see it in the convenience store space as well, where we see shifts in how people are pricing in store and the food offer that we see in convenience and that we bring to convenience that we think brings great value to the consumer. So I feel really good about the food away from home space, being able to fight for that consumer share of wallet.

As you sit through investor meetings, and you will do lots of those today. But in recent months, what questions do you get from investors that will either surprised you that you're getting the question or surprise you that you're not getting the question that perhaps they should be asking?

Sure. Pat, do you want to --

Jeff, I'll jump in. First of all, I just want to say congratulations on your retirement. It's been a pleasure to work with you.

Thank you very much.

But just I think one of the questions we get a lot of times that we is how we get compared and people think of us just as a large food service distributor. But in reality, and we talked a little bit about this at Investor Day, we actually have 3 distinctive segments, food service, obviously, by far, our largest and most important in the company, but we also have a very large segment in convenience. And in your intro, you've talked about how we could cover convenience stores and then specialty covers a broad array of channels, including theater.

And we think it sets a powerful diversification and that gives us such a broad footprint in terms of food away from home. Almost -- I said it's a Staples conference. But in this sense, we're talking about food away from home. And since we are a staple in -- or we're similar to one and that everyone has to eat, right? And we cover such a broad food away-from-home category. And then also, we -- our customers are public and private restaurants, public and private convenience stores. So we just think it's a really good diversification story.

Very durable.

Yes. Jeff, one of the things I told you before we started was as I look back over the last 4 years and how the company has performed, I think about this last year, convenience had a great year -- the year before that, foodservice really outperformed. And the year before that, it was specialty. And I think that just shows over the course of 3 years where the consumer has been pressured that they tend to shift their behaviors and we've been able to really capture the best part of that in our 3 segments.

One question we get a lot, although it is -- has its ups and downs, is around GLP-1s as people think about the future of food away from home. It feels like this is a more -- a greater risk than we've seen in past diet plans or whatnot because it is more readily available, and it is becoming lower cost and it just seems like it's gaining more and more traction. How do you see that impacting -- or are operators asking you for help and changing their menu because of it? Or do you think in a couple of years, we'll be talking about a different strategy?

I think as GLP-1 started to emerge, it's probably been over a year ago when you started to hear about it actively. I think everybody thought maybe it was a trend. I don't think it's a trend. I think it's a real shift in behavior. And we've seen that across all 3 of our segments.

And I think about the word I hear the most is protein, probably secondly is around fresh food. But the one thing that folks that are using GLP-1 behaviorally indulgence hasn't gone away either. And I think that's one of the things about the independent restaurant is their flexibility. We've seen them already shift to more protein-focused menus, to make sure that they have dessert options on the menu fresh food, they can adapt portion size really easily.

And we see it in the convenience space, too. If you go in convenience stores now, you see whole sections that are protein focused. So I think across the food away-from-home space for decades, foot away from home has been adapting to consumer behavior. And really, to me, this is just a shift in consumer behavior. People are not -- they're not quitting consuming food at all. So I think it's really good for us. People want to be out and we're in an industry that can adapt to that change.

Yes. And just lastly, from a high-level perspective, as we wrap up on calendar '26, which is hard to believe. But looking to calendar '27, what are you most excited about as we think of the next year? I mean clearly, you're relatively new to the CEO role, and next calendar year have a full year? Like is there anything in particular that you're most excited about?

Yes. I think what's most important in any business is just momentum. And for us to exit this last year and enter calendar fiscal 2027 for us with great top line momentum across all 3 segments with really solid margin momentum. We've talked about our procurement initiative that we have going, how we're shifting mix and convenience by selling food service.

So I feel really good about the top half of the income statement. And then on the bottom half, we've talked a lot about uses of technology, and I feel really good about the initiatives that we have going on around fleet utilization, fleet efficiency in our warehouse as well. So we feel great about how the company is positioned for 2027.

We talked about the resilience of the food service model, like you said, different segments outperforming in different years. Like what do you see are the primary differences between yourself and your largest peers and then just as importantly, between the whole rest of the industry that is so much more fragmented?

Yes. I think the largest peers, we all have differences in how we go to market. Certainly, I think our investment in our sales organization, the consistency that we've had there from a compensation structure standpoint, and then I think, structurally, we give our salespeople full authority to price, product selection.

I think they would tell you one of our biggest levers is our exclusive brands. And we use that across all the Foodservice, and it's now spilling into convenience and specialty as well. So we think we have really good levers in the independent space. I look at the chain space in foodservice and feel like we've done a great job optimizing that portfolio.

We talked about some new wins in that space that will come on second half of the year kind of Q3, Q4. So gaining share there as well. So I think what we've been doing is resonated and it is a fragmented space. So certainly part of our growth algo will be M&A and has been in the past, and that pipeline remains robust.

And you mentioned M&A, which gets talked about a lot. But when I think about just broader market share. I think investors look at this as a roll-up story where the big keep getting bigger. But I'm just reminded of the fact that the big 3 still have collective. I mean as well as you have differences, you collectively pull in the same direction and you only have 35%, 37% market share between the 3 of you. So where do you expect that trend to go over time? And it seems like even if the industry of restaurants was relatively flat, there's just an opportunity for you guys to continue to gain market share.

You want me to jump in?

Yes, go ahead.

Well, it's interesting. When we look at how our independent case growth has been going specifically, and we think there's ample room for market share gains. And we get this question a lot, like you guys are growing market share, where you're taking that from? I mean if you look at the industry, we talked about the big 3, but then there's lots of large regionals and even below that, there's lots of specialty distributors.

So we don't really know where the market share gains come from, but we have been consistently quarter after quarter generating very consistent market share gains. And even as we exited the last quarter -- the last 2 quarters really how -- it's a little exciting for us is that we started to see more penetration. Most of our independent case growth was coming from new account growth.

But then the last 2 quarters, we actually saw relatively around 100 basis points of that growth. So like, call it 5.8% was total independent case growth, about 100 basis points that came from penetration where we're selling more to our current base. And that's -- that, again, shows us taking market share with our current customers and also gaining market share by expanding our customer base.

Yes, one other add there is just compared to the other 3. I mean, we have a lot of white space. We -- obviously, our acquisition in Florida, we had a lot of white space in Florida. We only have 3 distribution centers. A couple of those were subscale in Florida. So that really filled out Florida and the Carolinas. And then obviously, in the West, we have a lot of white space. That's our fastest-growing region. We continue to look for opportunity in that market. But beyond just the organic, we certainly have some M&A opportunity and some areas that we can fill in geography.

So first and foremost on the organic side, as we think about your business before M&A. Like how do you think about the balance of further penetrating existing accounts versus adding new accounts? And maybe just because we talk about a lot, maybe share your mix of chain versus independent? How do you think about your mix of business between -- I mean we look at all the big chains. But often times, we're reminded that they might have mediocre results of some chains, but then the independents are doing so much better. So how do you think about your business?

Yes. Right now, our mix is -- we're a little higher than 40% on independent. That has been growing consistently and that's where we continue to gain more share. But right now, we're 60-40-ish mix chain and independent I'm really comfortable with that. I think that's a good blend, somewhere in that 50-50 space. I would say we're very similar in convenience as well.

As I think about penetration, I mean, obviously, that's the most profitable thing to do is to sell more to every unit that we have. When you have a challenging macro, that's tough. And like Patrick just said it, it was great to see us have almost 100 basis points of penetration over the last couple of quarters. I think one of the big game changers there over time is going to be technology. And we've invested a lot of time and effort and resources into our sales facing and customer-facing tools.

And I think the AI enablement that we've embedded there now is really important in us being able to gain share within -- or share of wallet, essentially share within a restaurant. And I think those have started to come to bear. I think there's a long road map there to continue to improve, but I really look for that technology to play a big role and obviously, at the end of the day, though, it's our investment in our salespeople, and that's something that we're really proud of.

Right. And then thinking about your different business lines, again, foodservice distribution to restaurants is the big one. It gets the most attention. Your confidence in that kind of mid-single-digit independent case growth and then how do you reverse the negative trend with national accounts? Is there things you could do? Or is that just the broader macro that's taking its toll?

Yes. The 6% gets talked about a lot. That's kind of our internal target has been for decades. The way we've gotten there the last few years, I'd say, has been the hard way. It's just net new accounts. When the same-store growth is not there, I'm really proud of the sales organization's ability to continue to gain net new and gained some penetration. And last year, we finished at 5.9% and change.

I was frustrated. We were like a take away from getting to finish last quarter at 5.8%. So certainly, internally, that's always our target and something that we continue to strive for. And our salespeople, if you ask them, internally like what are you shooting for? They always want to grow 6% or more. That's just culturally how we think about it. The second half of your question, I'm sorry?

Yes. Just more on the national account side, it's a challenge for all of the big distributors, and that's tough when it's 60% of your business.

It is. And we had -- I'd say over the last couple of years, we did a great job of what I'd say, optimizing our portfolio. And so we've partnered with some of the more progressive foodservice players in the space. Certainly, same-store comps in chain has not been great. It's not been quite as good as independent. But bringing on partners like Jersey Mike's here coming this year, who is doing a great job from a same-store comp standpoint.

And we have a number of other progressive retail groups in the foodservice space. So we feel good about the portfolio we have today. If the macro gets better, we feel really good about it.

We're all hoping for that.

Yes. So am I.

So when you talk about 5.8%, 5.9%, I think if you just suddenly change it from 6% to mid-single digit, you'd be able to say --

If you had any same-store accretion to that, that would be a really good number.

For sure. And then maybe shifting to the convenience segment, which is really where you're differentiated, and we find some investors love that differentiation and others say, "I don't really love convenience." So it depends on who you're talking to. But why do you believe in that channel so much? Obviously, I should just be clear, you came from that channel -- so I'm guessing you believe in it and the advantages you think it brings to PFG.

Yes. I think when PFG made that acquisition, there were certainly some people that doubted that weren't sure that, that was the right avenue to go. And I think 5 years later, I don't think there's a lot of doubters. I mean if you look at the top line revenue growth, if you look at the EBITDA dollar and percentage growth over 5 years, and really for that space, it's been more than 5 years. I think history would say that, that segment has performed really well.

They're positioned really well in '27 and beyond. I think they've become one of the leaders in the space. And I think a lot of that comes from a couple of things. I think the connectivity of PFG or the PFS segment and really bringing food service to convenience is a big driver. I think that's resonated. It's been a key part in us picking up market share, and that segment is a share over the last few years.

And they continue to drive food service performance in that segment, whether it's turnkey solutions or just adding branded items, -- so they're really starting to differentiate themselves in the foodservice space and convenience. So I have a lot of confidence in their ability to continue to grow both top line but also from a margin and EBITDA standpoint.

I found it most interesting when the combination happened, just the -- as George used to say, just the opportunity to some of your food service accounts had convenience and now you can service them and some of your convenience accounts are moving into food service. Can you just talk about how you try and bring those together, which would seemingly give you a tremendous benefit versus peers?

Yes, it's really interesting. We have -- we are growing food service and convenience at a really great clip from both avenues. So our broadline foodservice PFS is growing high single digit. These even headquarters of double-digit growth in the convenience. So they really focus on the convenience stores that have a broader, almost restaurant offer. That would be more expansive than what a traditional Core-Mark convenience wholesaler would carry. And in those cases, we kind of partnered.

So we picked up a lot of chains working together. But then just with your independence, your smaller chains, our regular convenience group has done an incredible job of growing foodservice. So we kind of hit it at 2 angles. And one of the things you bring up is really, in my mind, just the food away-from-home space. The number of times now that we present to customers with all 3 segments in the room is very frequent. And that's served us really well. We've gained a lot of market share by presenting as one united force and leveraging 2 platforms to service the customer.

And being the headline every other day is gas prices, I often get the question of just gas prices being so elevated, people think of convenience or oftentimes tied with guest stations at times. And is that a meaningful headwind when gas prices are elevated. I feel like I've learned more recently that sometimes the consumer doesn't necessarily fill up their car with a full tank. They just go with smaller amounts at a time to make it more affordable, and that where they might be in the convenience store more often. How do you think about gas prices impact on convenience?

Yes. I agree with what you just said. I think there's a point where as fuel prices rise, people tend to not fill up as much, which means they could return to the store more frequently over the course of a week or over the course of the month. I think there's also an inflection point.

Once fuel price gets to a certain point, then you're talking more about pressure on the consumer and discretionary income. So I think there's a balance there. We've grown in convenience by gaining share and growing food service and alternative nicotine, and that's served us very well, and that continues to be our focus.

I saw a headline yesterday that I guess first, they're going to come down right after the midterm. So be patient for a couple of months, everyone will be happy.

Everybody will be happy in 2 months. Okay. I'm going to quote you on that.

And when you think about specialty and Vistar, strong growth acceleration. I'm just wondering if you could talk about what you think of the specific drivers and the new verticals and how they kind of all fit together?

So I'm going to talk about the --

I'll jump in, Jeff. Yes, so especially, they've been such a unique business because they always are finding those new verticals and recently, we talked about how now they're getting into grocery, which is great for them. They've got a couple of great opportunities there. They've also spent the last so many months working with a lot of their key customers. And securing those businesses going forward.

So we have a lot of excitement about them getting some new business, opening up some new geographies, which is really exciting with the current base. And then we've talked about the e-commerce -- and this is really a B2B opportunity, but it's also a B2C opportunity. And when you talk about some of those things, you're mainly talking about food service and convenience, but -- and Scott mentioned, we bring all 3 segments to move these customers Vistar on their e-commerce platform is now distributing small wares to a food service customer of ours. So we're trying to bring all these different solutions to our customers, and it's really working.

Got it. Scott, you mentioned AI subtly, and it feels like that's always a topic du jour. Can you talk about how that is infiltrating your business, what you're most excited about over the next few years in terms of how that could really benefit the business?

Yes. Patrick and I spend a lot of time. We've stood up a group in our organization that is solely focused on that. I'll just hit maybe 3 or 4 topics. We talked about our sales-facing technology, so I won't dig too much more into that, but I feel like that will be a big driver for penetration for new account growth.

Beyond that, warehouse wise, we have 2 technologies that we've signed enterprise agreements with. One of them is you think about inventory accounting, there's really 2 options. You can have robots on the floor or drones in the air. We've gone the drone route. About 8 months ago, we started testing drone technology. That drone technology now, we're expanding to multiple facilities.

And like I said, a sign an agreement that allows us to expand doesn't fit in every facility just based on box configuration. But basically, what it does is count all your back stocks in the building. It's been incredibly effective. Over time, that will allow us to reduce the number of folks that we have in the buildings count inventory on a regular basis.

And we have one other warehouse technology that we're excited about it's really around safety. If you know distribution, you know that workers' comp cost, insurance cost is a big number. So we have another technology called [ Boxel ]. And [ Boxel ] basically sits on top of your camera system and identifies unsafe behavior in the warehouses. And it's all AI-enabled. It gives us a daily report that talks about safety behavior and the performance we've had in the buildings that have tested has been really impressive.

So we started to roll that out across a broader platform in warehouse. Trans, I think we've talked a lot about TransRouting technology. I think everybody in the space is using 3 or 4 or 5 of the big players. We use the card and road map, both of them have AI-enabled tools now that we're training on for all of our routers across the network. So obviously, route optimization is a huge, huge part of cost efficiency.

And then the last I'll touch on quickly is really more enterprise facing. So we've partnered with an external company on 2 big initiatives that Patrick and I and the whole team are involved in. One of them is around, we'll call it, data synthesis. So if you think about our 3 segments and you think about how we've grown through acquisition, being able to have all your item set up all your vendor set up all on one platform and us to be able to look at that data holistically allows us to do a lot of things. And so the second part of that is really around procurement.

So it allows us to look at how we procure within the box, how we procure within the segment of the business, and then we can look across all 3 segments. And then the future beyond that is how do you think about all the inbound. So as you buy things, getting product into your buildings more efficiently drives cost out of the system. So we're really excited about all the initiatives we have going. It's something that we spend a lot of time on. Our Board spends a lot of time on and it makes me excited for the future of our business.

We look forward to hearing more about that. It seems like this industry is prime for some core saving benefits as distribution is so manual. You mentioned M&A earlier, you of the big 3, at least, it seems like you have the greatest opportunity where you don't yet have a national footprint to the same degree that others might. And therefore, that would seem like a big opportunity. Can you just talk about whether it's harder or easier today, you think, to get deals done versus several years ago? Maybe how you think about the M&A opportunity and valuations and things like that?

Yes. I would say the M&A pipeline, I mean, we are always active in discussion with a number of people across primarily the foodservice industry, but we've also acquired in the convenience and specialty industry as well. And so we keep an active pipeline there. Obviously, timing is everything. And certainly, valuations, I would say, every deal is different.

And obviously, for great assets and a great company, you're going to pay a little more for one that means a little more help, but the multiples are obviously going to be smaller. We think that's going to be a key part of our growth algo as we think about the next couple of years and beyond. And as you mentioned, certainly, we have white space that acquisition would help us in. And I think today's environment is tough on independent broad line.

I mean you think about what they face today with technology and the investments you have to make there I think that there's big decisions for independents to make over the next handful of years. So I think that brings a good opportunity for us.

I would think if I was a small distributor, the idea would be daunting to try and take on some of the things you just talked about, and therefore, the gap would get much wider, why not join up?

Yes, there's really 2 things. To me, it's technology and then we think one of our biggest competitive advantages is our brand portfolio. And for an independent to be able to create a brand portfolio is next to impossible. And those 2 things, we feel like give us a competitive advantage. And so that's -- to your point, it's going to be tougher the independent down the road, I think.

Scott, I know George has always thought of as kind of a legend in the industry and always having relationships. You're still in regular contact, speaking to George, about the opportunities there and how he sees it kind of a collaboration of minds?

George and I are both early riser. So I usually get the first text about 4:00 a.m. But yes, George and I are very close friends. He's obviously our Chairman, and we talk multiple times a week. And I would say 90% of the time, it's about relationships and opportunities.

4 am.

I don't get up as early as he does.

No. Yes. That's great. Maybe just thinking about when you guys do M&A, it seems like you have some of a different approach. I feel like you are more hands off and let each individual segment kind of run themselves. Like how do you think about your strategy versus others and how that might benefit you?

I think you're right. I think we're a little slower out of the gates. I think we really were thoughtful about, I think, number one, the biggest asset in any acquisition is the people. And so to really understand their culture, what makes that business work well and not destroy that, disrupt that harm that in any way.

I think secondarily, I think if you just jump right in and take over, you miss some of the value they can bring to the broader company. And I'll give a great example in Cheney. We've talked a lot about brands and putting our brands into Cheney. The first brand that has been launched -- was launched the other way. Cheney had an incredible line of deli meats and soups for sandwiches and whatnot, and we've now launched that across all of PFS.

So really spending the time to be thoughtful about where is the value in this acquisition to us in the long run. And then I would say, over the first 12 to 24 months is really where we start to kind of connect in a broader way and figure out how we extract value. And I think that's worked well for George. It's the same approach I've taken for years in acquisitions. And I think that's one of the reasons that we're looked at as a very favorable acquirer.

You talk about brands. Just maybe just a little insight into how you think about your private label because clearly, that is a way of differentiating yourself versus smaller competitor distributors. But how has that business evolved? What's the mix of that? Kind of where do you see that going?

Yes. Like I said, I think it's one of the most powerful levers that we have today. We have 85 different brand families and about 25,000 brand SKUs across the company. We use those in all 3 of our segments now. And it's something we continuously develop new brands. We're launching -- I think last year, we were 65,700 new brand items.

So it's a brand machine. And you think about how hard that is to replicate. We're about 54% of our brand -- of our sales to independents are brand cases. We'll use -- we'll kind of reset that with the Cheney and Cash-Wa acquisition. So that kind of pulls us back down to 50 overall. But it's something that we'll continue to grow and continue to use as a big lever.

And we talk a lot about from a sales perspective, but just from an OpEx perspective as you think about how you can drive those margins. Maybe just talk about the long-term spend as a percentage of sales or a percentage of total costs and maybe the key self-help initiatives you think you have to further reduce from an expense standpoint?

Yes. I mean I think we certainly have a big opportunity in OpEx efficiency. I think we looked at it in our 3-year plan, and we called out 50 to 60 basis points of margin enhancement over the 3 years. And that's really a combination of a couple of things. It's -- it's our procurement initiative and really happy with how that's progressed. And I said on the last earnings call that we're really comfortable at the high end of that range, which was $125 million.

And the other pieces around leveraging the technologies I talked about in fleet. I think fleet and fleet utilization is going to be a big lever for us. And then obviously, we talked about a couple of technologies in warehouse as well. All of those contribute to that 50 to 60 basis points of margin enhancement.

All right. And lastly, with our final minute or so, when you talk to restaurants, you have to talk about inflation and presumably, you're selling the products that tend to have the greatest volatility in inflation. Just wondering how you think about the inflation outlook over the next 12 months where you think relief could come from what you envision as just the ideal rate of inflation?

I guess I'll wrap this up. So it's interesting. I mean we haven't talked about it at the last call that as we went into July, we saw food service inflation dip again. So we were running less than 1%. And that's really being driven by beef has been in the high teens of inflation. It's recently come down into the high single digits. Cheese and poultry for us have been consistently deflationary for many, many months. And again, consistently is important.

What we don't like to see is spikes going up and down either way. But overall, inflation is actually running a little lower than what we would expect. We were expecting more like in the 2% range. So now it's sub 1%. For the full year, we would expect it still to be in that low single digit, 1% or 2% range. And then on our other 2 segments, just real quick, convenience, we expect it to be very -- well, I'll start with specialty. We expect that to be mid-single digits and then convenience a couple points higher than that, which is very typical of them.

Great. Well, I think we've exhausted our time, but we wanted to thank Performance Food Group very much for joining us, specifically Scott and Patrick. I hope everyone gets a chance to see management and otherwise, I hope everyone has a great day. Thank you very much.

Thanks, Jeff.

Good morning, everyone, and welcome to PFG's Fiscal Year Q4 2026 Earnings Conference Call. [Operator Instructions] And just a reminder, today's call is being recorded. I would now like to turn the call over to Mr. Bill Marshall, Senior Vice President, Investor Relations for PFG. Please go ahead, sir.

Thank you, and good morning. We're here with Scott McPherson, PFG's CEO; and Patrick Hatcher, PFG's CFO. We issued a press release this morning regarding our 2026 fiscal fourth quarter results, which can be found in the Investor Relations section of our website at pfgc.com. During our call today, unless otherwise stated, we are comparing results to the results in the same period in fiscal 2025. Any reference to 2025 or 2026 or specific quarters refers to our fiscal calendar year unless otherwise stated.

The results discussed on this call will include GAAP and non-GAAP results adjusted for certain items. The reconciliation of these non-GAAP measures to the corresponding GAAP measures can be found at the back of the earnings release. Our remarks on this call and in the earnings release contain forward-looking statements and projections of future results. Please review the cautionary forward-looking statements section in today's earnings release and our SEC filings for various factors that could cause our actual results to differ materially from our forward-looking statements and projections.

With that, I'd now like to turn the call over to Scott.

Thanks, Bill. Good morning, everyone, and thank you for joining our call today. This morning, Patrick and I will review our results for 2026, discuss industry trends and walk you through our expectations for 2027 and beyond. As we close out the fiscal year, I'm proud of the passion, dedication and resilience shown by our 44,000-plus associates. The year certainly brought its share of challenges as consumers continue to navigate higher prices, distributors faced operating cost pressures and external factors weighed on the broader food-away-from-home industry.

Despite these headwinds, our team rose to the occasion and posted excellent results. We are excited about what 2027 has in store for Performance Food Group. Our company is well positioned to build upon recent trends and accelerate our financial performance. For the upcoming fiscal year, we have visibility into revenue, margin and profit opportunities, positioning us favorably to achieve our 3-year outlook. Headlining our performance in 2027 is anticipated growth across all 3 of our business segments. The foundation of that growth is our continued investment in our sales organization, sales technology and most importantly, our customer relationships.

In Foodservice, ongoing market share gains with independent restaurants, recently awarded national account business and a strong pipeline of opportunities position the segment well for another year of solid growth. In Convenience, we look to benefit from the momentum generated by our 2026 market share wins, supported by a healthy sales pipeline and continued outperformance relative to industry trends. Our differentiated value proposition, scale and customer service capabilities continue to resonate in the marketplace and create opportunities for profitable growth.

Specialty enters 2027 with strong sales momentum, expanding opportunities across new verticals and significant long-term potential in e-commerce. Together, these growth drivers reinforce our confidence that all 3 segments are well positioned to contribute meaningfully to PFG's performance in the year ahead.

From a margin perspective, we continue to benefit from our scale, growth profile and vendor relationships as we work to achieve the $120 million to $125 million procurement synergy target we outlined at our Investor Day. I'm confident we will meet or exceed the high end of that target by the end of fiscal 2028. Additionally, we launched over 580 brand SKUs in 2026, bringing our total number of branded SKUs to approximately 25,000 across more than 85 brand families. Our customers and sales organization find tremendous value in our high-quality brands, and we see this as a competitive advantage in the market.

Lastly, let's touch briefly on our commitment to drive operational efficiency and safety results. In transportation and warehouse, we continue to make significant investments in infrastructure, technology and staff, building a foundation to efficiently onboard future growth. On the safety front, I can only thank our people and the work they have put into PFG's safety culture as 2026 saw reductions in accidents and injuries benefiting insurance costs.

Taking a step back, let's now discuss some of the highlights from the quarter across our 3 business segments. Our Foodservice results can be summarized in one word, consistency. Through the ups and downs of the external market, our organization has delivered independent case growth, market share gains and margin improvement. We closed the fourth quarter with 5.8% organic independent case growth, putting our full year improvement at 5.9%. In the context of the external environment, these numbers are powerful and a testament to our sales organization's connection with our customer base.

According to Black Box, foot traffic trends in the restaurant space were consistently negative every month of fiscal 2026. However, by adding new independent accounts at a pace of roughly 5% in the fourth quarter and gaining wallet share with existing accounts, we have continued our pace of market share gains. A key driver to our continued independent performance is our unwavering focus on our selling organization. Investments in high-performing sales associates, customer-facing technology and continuous expansion of our brand portfolio will continue to be foundational in our success.

Our PFG brand portfolio grew faster than our overall business and represented approximately 54% of cases sold to independent restaurants during the fourth quarter, excluding Cheney Brothers or just over 50%, including Cheney. We see our brands as a competitive advantage with a long runway of profitable growth ahead. In our chain restaurant portfolio, we saw case volume decline slightly in the quarter, though still outperforming the foot traffic results reported by Black Box. We are now lapping new account onboarding from last year and anticipate fairly similar results over the next 2 quarters. We have visibility to new business in the second half of the fiscal year as we expand our relationship with Jersey Mike's. This additional business will help our chain volume as we progress through the fiscal year.

Looking across the entirety of '26, I'm incredibly proud of our Foodservice segment performance. Despite several headwinds, our Foodservice organization posted nearly 6% independent case growth and nearly 9% revenue growth. As we look ahead to 2027, we believe we can build on our momentum and layer in efficiencies in both gross profit and operating expense to deliver profit growth for the organization.

Shifting gears, our Convenience segment continues to be the engine of our profit performance as new business wins, market share gains and solid execution converted mid-single-digit revenue growth into double-digit segment level adjusted EBITDA performance. The performance is even more impressive in the context of the industry backdrop, which continues to deal with the impact of high gasoline prices and inflation-led pricing across in-store product categories. Over the course of the fiscal year, Core-Mark grew sales across all customer account types, national, regional and independent. The biggest contributor to this success was our national accounts portfolio led by the addition of Love's and RaceTrac.

Overall, national store count grew 16% in 2026, producing 6.9% case growth. Market share growth underpinned the success of our Convenience segment. In fiscal 2026, Core-Mark grew cases in each of the key non-nicotine categories of Foodservice, candy, snacks and health and beauty. Taken together, these categories increased mid-single digits in the fourth quarter compared to an industry decline of nearly 6%. The result was a sizable pickup in market share. These top line wins are flowing down the income statement, resulting in double-digit segment profit growth. Total segment EBITDA increased 10.4% in the fourth quarter, driven by gross margin improvement and disciplined operating expense controls.

Looking ahead, the addition of Love's and RaceTrac will continue to be an incremental benefit to our Convenience performance through mid-fiscal 2027. As we discussed last quarter, we have visibility into both additional customer wins and some offsetting losses across the fiscal year. We believe that our ability to service the Convenience market with a full portfolio of both traditional center store, consumer packaged goods and Foodservice items is a key component in our ability to win new business. Our customer discussions often include representatives from our Core-Mark segment as well as from Performance Foodservice and Vistar, setting PFG apart from the competition and resulting in higher conversion of our customer pipeline opportunities.

Overall, our convenience organization is well positioned to have another strong year in fiscal 2027 and build upon its momentum in the coming years. I will close with our Specialty segment, which rounds out our portfolio across the food-away-from-home market. Specialty certainly wrestled with its own challenges in '26 as persistent candy and snack inflation, a choppy consumer environment and elevated operating costs impacted results for the year. At the same time, there were a number of highlights and reasons for optimism as we move through 2027. Top line performance for Specialty accelerated in each of the final 3 quarters of the year, finishing with solid 6.6% growth in the fourth quarter.

Case and sales growth was the result of new account wins and positive performance in the vending, campus, travel and hospitality channels. As we move into 2027, we expect operating cost pressures to persist in the first half of the year, eclipsed by continued sales momentum, providing a strong top and bottom line close to the year. Specialty has also entered new markets, which are providing pathways for growth in '27. By collaborating with our Foodservice organization, Vistar identified opportunities in the Specialty grocery channel and began shipping products to various customers in late fiscal 2026.

We believe that the unique position Vistar holds with direct-to-business and consumer opportunities, fresh and frozen shipping and a delivery platform tailored to smaller venues will continue to pave the way for sustainable growth in the diverse food-away-from-home market. To summarize, we finished 2026 with solid revenue growth from all 3 of our operating segments. Our strategy of competing across the entire food-away-from-home market is paying off and producing consistent market share gains. We believe we are well positioned for an excellent 2027, keeping us on track to achieve our 3-year targets.

I'll now turn it over to Patrick, who will review our financial performance and outlook. Patrick?

Thank you, Scott, and good morning. Today, I will review our fourth quarter results, provide color on our financial position and review our newly issued guidance for 2027. PFG's total net sales grew 6.4% in the fourth quarter with growth in all 3 operating segments and particular strength in Foodservice. Total company cases increased 3.5% during the quarter, highlighted by a 5.8% organic independent restaurant case growth. Total company cost inflation was approximately 4.7% for the quarter, in line with what we experienced in the prior quarter. Foodservice inflation of 2.7% accelerated sequentially as we had expected. We experienced continued deflation in the cheese, poultry and egg categories and inflation in beef. We did see a deceleration in Foodservice product inflation in July to just below 1%.

Specialty segment cost inflation was up 5.3% year-over-year and just slightly higher than the prior quarter, mainly the result of candy and beverage inflation. Convenience cost inflation was 7.1% year-over-year and was 64 basis points lower than the prior quarter. The inflationary environment has been active over the past several years, but as a company, we have demonstrated our ability to handle a range of outcomes. We expect the overall inflation rate to remain in the low to mid-single-digit range for fiscal 2027.

Moving down the P&L. Total company gross profit increased 8.3% in the fourth quarter, representing a gross profit per case increase of $0.34 as compared to the prior year period. This improvement was driven by strong mix, execution of our procurement initiatives outlined in our Investor Day and continued growth of our brands. We're very pleased with our gross profit results, which demonstrate our ability to execute on our priorities outlined in our 3-year plan. In the fourth quarter of 2026, PFG reported net income of $162.3 million, a 23.4% increase year-over-year. Adjusted EBITDA increased 7.4% to $587.5 million, which was at the upper end of our guidance range implied by the full year outlook we provided in May.

Diluted earnings per share in the fiscal fourth quarter was $1.03, while adjusted diluted earnings per share was $1.59, an increase of 2.6% year-over-year. Our effective tax rate was 26.8% in the fourth quarter, an increase from 25.6% last year. We expect our full year 2027 tax rate to be close to our historical range of around 26% to 27%. A note on our exposure to diesel. During fiscal 2026, our team worked to manage the increase in diesel prices through our surcharge program. In the fourth quarter, the net impact from higher diesel expense was approximately $16 million, a sizable increase but roughly in line with the projection we provided back in May.

Due to the volatility in fuel prices, we have examined our approach to fuel expense. While our strategy has done a nice job of mitigating fuel volatility, we are looking at additional ways to help manage our exposure in the future. In early July, we entered into a diesel fuel swap contract on a portion of the fuel exposure that is not covered by surcharges. This contract runs for a 12-month period. We're evaluating hedge accounting treatment for our fuel swap under the updated accounting standards, which could allow us to directly offset movement in fuel expense in the operating expense line. Our strategy is to provide additional visibility into our cash flow, reduce volatility and increase our ability to forecast financial performance.

Turning to our financial position and cash flow performance. Over the full fiscal year 2026, PFG generated over $1.4 billion of operating cash flow, an increase of approximately $200 million compared to last year. We invested $384.1 million in capital expenditures during 2026. We have been diligent around new capital projects and expect full year 2027 CapEx to remain below our long-term target of 70 basis points of net revenue. The organization is striking a good balance of investing in infrastructure and high-return projects to support our long-term growth while maintaining excellent free cash flow performance. In 2026, we generated more than $1 billion of free cash flow, up approximately $326 million compared to last year. We are extremely pleased with our cash flow, and we are fully committed to investing back into our business to support our growth.

We closed the fiscal year with net debt just below the top end of our 2.5 to 3.5x leverage target range, benefiting from disciplined working capital management and strong cash flow. As a reminder, the first quarter is typically a period of investment. And as a result, we anticipate our leverage to remain towards the top end of our range. The M&A pipeline remains robust, and we continue to evaluate strategic M&A. We will continue to apply our typical high standards and robust due diligence to evaluate high-quality acquisition opportunities.

Turning to our guidance. Today, we shared guidance for fiscal 2027. For the first fiscal quarter of 2027, we expect net sales to be in the range of $17.9 billion to $18.1 billion and adjusted EBITDA to be in the range of $510 million to $530 million. We expect our quarterly EBITDA growth to accelerate as we move through the fiscal year. In addition to new business wins in all 3 segments, which will help our top line, we have a number of initiatives that are expected to boost our profit results, including an acceleration of our procurement efficiency efforts, comparing against elevated OpEx related to the opening of the Florence, South Carolina building and continued progress on cost synergy targets related to M&A activities.

For the full fiscal year, our sales target is in a range of $72.5 billion to $73 billion. We expect full year adjusted EBITDA in the range of $2.125 billion to $2.225 billion. Our full year guidance range includes the benefit of a 53rd week, which will occur in the fiscal fourth quarter and helps results by approximately 2%. The midpoint of these ranges represents year-over-year growth of 7.2% for sales and 12.7% for adjusted EBITDA. This keeps us on track to achieve the 3-year projections we announced at Investor Day with sales in a range of $73 billion to $75 billion and adjusted EBITDA between $2.3 billion and $2.5 billion in fiscal '28.

To summarize, we are very pleased with our progress. We are in a solid financial position, which supports our growth investments and capital return to our shareholders and our execution sets the stage for a strong fiscal 2027. Thank you for your time today. We appreciate your interest in Performance Food Group. And with that, Scott and I would be happy to take your questions.

[Operator Instructions] We'll go first this morning to Kelly Bania with BMO Capital Markets.

I wanted to start with just the outlook for fiscal '27. And I think, Patrick, I think I heard you say growth for all 3 segments, but can you share with us any more specific color by segment in terms of how they fit into the EBITDA outlook for the year, I guess, really kind of in that 8% to 13% range, excluding the extra week, should they all be within that range? Or is there any outliers or any factors? And also, what is the outlook for your corporate overhead, I guess, given the improvement that you had there in the fourth quarter?

Kelly, this is Scott. Thanks for the question. A lot to unpack there. So let me just start with growth. I think that was really the headline of the question. So when we think about Foodservice, always internally, we are focused on independent account growth and independent case growth. And so certainly, internally, we're always shooting for that 6%. And so that will certainly be a driver when we talked about our case volume for national. We were a little bit negative this year. That was largely based on the macro, but we did talk about Jersey Mike's that will come in, in the back half of the year. So that will be a really nice boost in our national accounts. So really a good pipeline beyond that with national accounts. So from a Foodservice standpoint, I feel really good about the growth algorithm that we'll see in '27.

Convenience, we obviously have the benefit of Love's and RaceTrac, continued strong pipeline there and their continued outperformance. And then Specialty has been a really nice story for the last 3 quarters, they've accelerated. And really have great line of sight to continued growth in Specialty. We talked about a couple of new verticals we're working on that are starting to pay dividends. So feel really, really good about the growth perspectives for '27.

And I'll just touch on margins, and I'll let Patrick talk about the expenses. And from a margin standpoint, again, the mix that I just talked about will really help drive margins. Then we've talked a lot about our procurement synergies. And we have great line of sight as we move through '27. That's going to be a building story, but really have a great visibility into quarter-by-quarter where we'll see gains in procurement synergy. So feel -- top half of the income statement, we feel great about how we're set up for '27. And Patrick, do you want to touch on the expense side?

Yes, Kelly, just a couple more things on OpEx. Obviously, talking about the full year guidance, we're going to see in Q3 and Q4 specifically, we'll start to see easier comps related to the Cheney OpEx that we've talked about for the last couple of quarters moving into the new Florence building as well as we obviously had some fuel pressures at the end of Q3 and Q4 that we'll start to see those ease in the balance of half of this year.

And then finally, is your question on corporate. Again, that's really -- it's really a segment thing. It's related to safety. We saw great progress in our trends with our segments. And so that did improve, and we saw that benefit flow into corporate in Q4. The trends are in a positive momentum. So we should see some improvement. Lots of different dynamics go into those numbers, but that's all incorporated in the Q1 and the full year guidance.

Okay. And maybe just a follow up. You talked about some good visibility into the procurement savings and the initiative there. Maybe could you just expand on which segment that will flow through or maybe all of them? And just what you're learning through that process as you have those discussions with vendors?

Yes, Kelly, it's a great question. And as far as the flow-through, most of that flows through Foodservice -- that's been the real focus of that initiative. As we move into the back half of the year, we'll also add Cheney's volume to that. So that will certainly help with their procurement synergies as well. And then as far as the interaction that we've had that gives us great visibility, we've really sat down with our entire vendor community and really walked through our growth over the last 5 years and the prospects that, that creates for them around efficiency, how we approach the supply chain. So really, it's really been a win-win for both sides. And we've had great dialogue and we've had great negotiations. And through that, it's given us, like I said, great visibility kind of quarter-to-quarter of when we'll start to see those benefits flow through the income statement.

We'll go next now to John Heinbockel with Guggenheim.

I want to start top line. Patrick, you mentioned 1% -- I think it was 1% Foodservice inflation in July. So what kind of took that down? And is that temporal? What are you budgeting for the year? And then maybe for Scott, the drop size, right? So drop size was up 1% or just about, I assume, right, cases per line were down and penetration is up. What's your sense of that for the balance of the year?

Yes, John, I'll start and then turn it over to Scott on the second question. So on inflation, we did exit the quarter in that range exactly as we had projected. I think we said sub-3%, and we ended at 2.7%. I did call out that July dropped to sub-1% in Foodservice. Largely, we obviously always are managing a large basket of commodities, and we do an excellent job of managing those. What we saw in July is that actually beef is starting to lap this mid-teen inflation from prior year and now is running in kind of the high single digits. So maybe it's early signs of beef normalizing.

And then the other commodities that we continue to see deflation in are cheese, chicken and eggs. But those have been relatively stable from a month-to-month standpoint. And I'll turn it over to -- I'm sorry. And as far as how we modeled the year, Foodservice, we did model in that low single digit, around 2% for the year. And the other segments very similar to how we exited Q4 with Vistar mid-single digits and Convenience just slightly higher than that.

John, on the question around independent cases. So as you pointed out, really nice quarter as far as penetration. Most of that was lines per drop. So continuing to benefit from our salespeople and their connection to our customers. I think another big part of that is just the technology that we are now putting in front of our salespeople and our customers that's really helping with recommendations, new item selection. So that -- I think that's really been a nice benefit to penetration.

So that's been back-to-back quarters where we've seen nearly 100 basis points of penetration. And again, that's really driven by lines per drop. At the end of the day, though, the real driver of market share win has been net new accounts. We came in again right around 5%. So that's 4 consecutive quarters in that range. And that's going to continue to be the driver. It's really nice to see the penetration. Hopefully, that continues. Love to see that grow. But again, we're really focused on that net new account number as well.

And a quick follow-up for Scott. The -- you guys don't talk as much about labor productivity, but I'm curious, from a margin standpoint, right, cases per hour per labor hour and cases per mile driven, what is -- when you look at going after that and the ability to move the dial, where are we on that?

Yes, John, I think it's a big opportunity. It's one of the places where when we talk about technology, I think there's been a lot of conversation in our industry about AI. I'll start with fleet. We've done a lot of work on evaluating fleet utilization as well as our routing technologies. And we deploy standard software plus AI enablement that helps that. And so certainly, I think there's runway there. We have always been focused on our routing and routing efficiency, but definitely, I think there will continue to be runway.

And then the other place is in our warehouse. And I think there's really 2 things there that I focus in on. One of them is really technology enabled, which is really how we lay out our warehouses. So how you slot your facilities to optimize that pick path. The other thing that we're doing technology-wise is around inventory management. So we have been running a test now and have expanded that fairly rapidly around inventory counts using drone technology.

So again, leveraging technology to be more efficient in our facilities. And when I think about metrics, I really look at, we'll call it, cases per route. That's a key metric for us. We're constantly focused on improving our cases per route. And then to your point, it's really -- it's either cost per case or from a selection standpoint, it's how many units a selector selects in an hour. So it's our productivity metrics that we really hone in on.

We'll go next now to Edward Kelly with Wells Fargo.

I wanted to start with the guidance. And I was really hoping that you could maybe dissect how you lap some of these onetime issues in terms of what you were thinking about for '27. I mean if we think about Cheney, I don't know, maybe this is a $30 million, $40 million drag in '26 and then you have synergies ramping. It seems like that would be a big inflection. Fuel, I don't know, maybe that's more neutral now if that continues into the first half. deflation hurt, you have the cash flow deal coming in. I guess what I'm trying to say at the end of the day is that the EBITDA guide ex the 53rd week is within the range, but it seems like you have a number of idiosyncratic drivers to do much better than that. And I'm just trying to figure out what's in the guidance for that.

Yes, Ed, let me start and then if Scott wants to add some comments, certainly can do that, too as well. I mean I think one of the key points is we provided Q1 guidance to really show the cadence of the year. I just want to make sure that we're showing that Q1, we're exiting Q4 with some strong momentum, but we do have some of those headwinds like fuel still impacting us. And we actually expect the headwind in fuel Q1 to be very similar to what it was in Q4, maybe just slightly better. And then we'll see our acceleration on the top line, obviously, from the customer stuff that Scott ran through. But the things that you're bringing up, we think that as we get into the second half of the year specifically, that's when you start to see the benefit of us lapping that OpEx from Cheney.

And I think we sized that up in Q3 and Q4 as well. It's probably not as big as you highlighted there. But we do see some benefits there, obviously. And then the fuel becomes neutral to possibly a tailwind as we go throughout the year. But we did plan for fuel to be a higher expense this year based on how we exited Q4. And then we've talked about cash flow and -- yes, so we really think that those are the key factors that are going to help us achieve that guidance, and we're really happy with where we are. And obviously, Scott mentioned the procurement savings, those will ramp throughout all of '27 and all the way through '28. So again, it's really a year of acceleration.

Yes. Let me just add a couple more things. We're a couple of months into the year. I think when we think about guidance, there's obviously a range for a reason. We think about the current state of the macro and how we're performing. And certainly, if we deliver that, we think about that getting us to the middle end of that range. If we get some tailwinds, certainly focus on getting to the upper end. And then don't want to talk about it. But if there's headwinds, certainly, that could push you to the lower end of the range.

And so that's, I think, how we think about framing up the range. I do want to just touch on a couple of other things. You brought up Cheney, and Cheney has certainly been an expense headwind over the last couple of quarters. We'll see that persist a little bit into Q1. But really, we've turned the corner there. That facility in Florence is fully rolled out. That actually is the fastest growing as far as case volume facility in the Southeast for us. So they've really kind of hit the ground running.

And the other comment I'd make about just the Cheney infrastructure, we talked a little bit about Jersey Mike's in the back half of the year. And that's volume that we probably wouldn't have been able to bid on or bid on effectively without the infrastructure of Cheney. So that investment is really going to pay off as we get to the back half of the year and be able to fit in that volume into great facilities, great infrastructure, and that should really help us deliver from a bottom line standpoint. So I think Patrick touched on the highlights for me. It's growth across all 3 segments. It's procurement synergies. It's lapping some key costs. And then certainly, with Cheney, we'll grow in momentum throughout the year.

Great. And Scott, can I just ask you on the cost savings side. I think I've heard you talk about sort of like a greater focus on sort of the middle of the P&L moving forward. And certainly, looking at the margins of the company, it seems like they're -- from 30,000 feet anyway, it seems like there could be some real opportunity. Can you maybe just update us on sort of like what you think you guys can do there over time and the size of the opportunity in terms of like a generally more efficient organization?

Yes, Ed, I'd say from a gross profit standpoint, I was really happy with how we exited the year. I mean we had one of the best performances in Q4 in GP across the organization that we've had in the last handful of years. That said, certainly feel really strongly about the procurement opportunity, and I framed that up in my script as far as the $120 million to $125 million, and a good portion of that falls into '27 and '28, and that will build through '27 and continue on into '28.

When I talk -- when you talk more about efficiency, call it, at the bottom half of the income statement, I certainly think there are opportunities. I think we've kind of framed that up in our 3-year guide when you talk about 50 to 60 basis points of margin enhancement. But the things I talked about earlier on the question from John really about what we're doing with fleet, fleet utilization, where we're leveraging technology in the supply chain. I think that's going to really help us. And so that's -- when we frame up that 3-year, I think that's how I think about the opportunity is being able to really add that 50 or 60 bps to EBITDA margins.

We'll go next now to Mark Carden with UBS.

This is Matt Rothway on for Mark Carden. So I was wondering if you could share a little bit more about the cadence of independent case growth in the quarter and maybe how it's trending quarter-to-date.

Yes, great question. One of the things I just want to take a step back and maybe a shout out to our sales organization to finish the year at 5.9% and change. I've talked earlier on this call about us targeting internally 6%. And we almost got there. I wish we had a 6 handle on it, but it was a great year from an independent case growth standpoint. In Q4, we were at 5.8%, which we are really proud of considering that on a 2-year stack, that's right at 12%. So really solid performance there.

When I think about the cadence of Q4, we were, I think, -- in April, I think it was right around -- just under 6%. I think May was right at 6%. And our exit in June was just sub-6%, just a couple of ticks below. So -- and then we entered July kind of in that same range, just a couple of ticks below 6%. So still really focused for the quarter on the year as a company on being right around that 6% range and feel like we've got the pieces in place to get that done.

Great. And then any noticeable lift from the World Cup or sporting events like that?

It's a good question. We spent a fair amount of time kind of dissecting the bigger markets. You think about Boston and Kansas City and Dallas and places where we have facilities and quite a bit of presence. I wouldn't say that we saw anything that was earthshattering. We saw some short-term lift around event days, but really nothing that I would say created meaningful volume differential because of the World Cup in our space.

We'll go next now to Lauren Silberman with Deutsche Bank.

I just want to start on the Convenience case growth side. I think, Scott, you mentioned some new business wins offset by some losses. Can you expand on what you're seeing in that segment from a competitive environment? And any color on how to think about Convenience in fiscal '27. I think you guys said mid- to high single in 2Q, 3Q, 3.4% in 4Q. So just trying to understand some of those dynamics.

Yes. No, great question. And as you mentioned, I mean, this year was -- I wouldn't call this a normal year from a growth standpoint. I mean we had an exceptional year, 2 big iconic retailers. So certainly drove case growth and sales growth in the higher single-digit range. I would say historically, Convenience is low single-digit range revenues and really strong high single-digit, low double-digit EBITDA performance. That's how I think about a normal Convenience algo for that segment. As I think about '27 and how that's going to frame up, I mean, certainly, we'll see some nice benefit in the first couple of quarters from Love's and RaceTrac.

In the back half, we certainly have some really nice pipeline opportunities that will help us in the back half. We have had a couple of competitive losses that I would say we were just priced at a level where we weren't going to stay there. But feel like that segment, I go back 5 years, that segment has continued to gain share quarter-over-quarter, year after year. And so I think the back half of the year set up is really strong. You're going to see nice growth, continued market share gains and nice EBITDA performance for them even as we lap Love's and RaceTrac. So I think it's -- they're set up for a really solid year.

Great. And then I wanted to follow up on like operating leverage. So '26 driven by gross profit, OpEx, we've talked about some of those dynamics. How are you thinking about gross margin versus OpEx in fiscal '27? And I just wanted to clarify the Cheney piece. Are you saying you expect Cheney to remain a slight drag in Q1? Or is it just not a headwind in Q1, it starts to become a tailwind in Q2? Just trying to understand that.

Yes. Maybe I'll take the first part. And yes, so Lauren, as we go into '27, we actually -- one, as we highlighted or Scott highlighted, our gross profit margin was really strong for the total company in Q4 and for Foodservice at 15% was very strong, probably the best it's been. And we continue to see really nice gross profit accretion due to our mix, due to the procurement initiatives. And so we should see some really nice leverage. Again, as Scott has highlighted, all the activities that we're doing around below the line -- or below the bottom half of the P&L on OpEx. So we do believe that we will see nice accretion. And again, it's an acceleration as we go throughout the year. So again, as I mentioned, we're going to see more fuel pressure this quarter, but we do expect that all to dissipate as we get into the comps in the back half of the year.

Yes. And Lauren, I'll take the second half around Cheney. So one of the things to remember about them is seasonality-wise, they're kind of contra to the rest of the country. So this is really a soft quarter for them. Our Q1, they build in Q2 and Q3. That's really their season. So there -- I would say they're minimal headwind to neutral in the first quarter, but their momentum will really build as we move throughout the year. And the reason we have so much confidence in that is, I mentioned earlier, the Florence facility is fully operational, operating really well and growing faster than any OpCo that we have in the Southeast right now. So that's, I guess, one headline.

The other piece would be the Jersey Mike's I mentioned and being able to flow that into not just the Cheney facilities in the Southeast. We are -- that will flow into some of our legacy facilities as well. But without Cheney, that would have been a real challenge. So that really makes it a great opportunity for us. And then we've talked about structurally as we get into the 2-year lap of that acquisition, which is in October, there is some structural costs that come out in October that start coming out for next year. And then we are starting to -- with our brands, with our procurement initiative to incorporate Cheney into all of those activities. And so we have a great line of sight to building synergies with them as we move through '27 and into '28.

We'll go next now to Alex Slagle with Jefferies.

I wanted to ask any thoughts on interest expense, debt paydown expectations, just to help us sort of get a feel for earnings, EPS growth relative to the EBITDA growth outlook.

Yes, Alex, thanks for the question. So as we look at what we saw in Q4, and we go forward into '27 guidance below the line items, I think the Street did a really nice job of modeling some of those below-the-line items. Interest expense specifically should stay relatively flat for the balance of '27. We'll see some improvement towards the end of '27. But I think if you would model it very similar to how we exited Q4, that will be a good direction.

Okay. Then on headcount growth in the Foodservice business in the fourth quarter, I know you're lapping some really strong growth last year, upwards of 9%. Can I get some color on that and what to expect for '27 as you look for that 6% case growth target was that we looked at.

Yes. No, absolutely. And as you pointed out, we had a really strong year last year in headcount growth. I mean we were 8% plus for most of the year. And I think some of that was, I think, heightened a little bit by some of the activities that were going on with competition and changes they were making in their model. So it was really a nice opportunity for us to pick up really quality headcount. Through this whole year, I'd say it's been very consistent. We've been right there in the mid-single-digit range, finding great talent available in the market.

And I've said many times, I don't have a target or a mandate on our OpCos. I really rely on the OpCos and our OpCo presidents to determine their correct level of staffing. And as I look OpCo to OpCo, we may have OpCos that are hiring double digits right now because they see great growth opportunity, and they know that they need to get people in place to satisfy that. And we have other OpCos that feel like they've got the right headcount, and they may be higher in low single digits. So I'd say it's, like I said, really up to them. I think as a company, we feel really comfortable in that mid-single-digit range. And I think that I would be surprised if that's what we saw continue through '27.

We'll go next now to Andrew Charles with TD Cowen.

Okay. Great. Can you start off by talking about your free cash flow priorities for 2027? You mentioned you're keeping a close eye on M&A. Do you still have the lion's share of the $500 million share repurchase authorization through 2029 remaining? And I'm curious, are these 2 priorities mutually exclusive?

Yes. So good question. Obviously, when we think about how we look at our capital allocation, we are continuing to look at how we reduce our leverage, pay down debt. And then we're also -- and we're really happy that we got within the 2.5 to 3.5x leverage range that's our target. We also are still investing in capacity. I mean we're a growth company, and we continue to invest in our growth projects for primarily Foodservice, but across all 3 segments. And we are obviously still looking at M&A. The share repurchase program is something we look at all the time. It's not the top 3 priorities, but it becomes a bigger priority as we get further within our leverage range.

That's helpful. And then maybe just on technology. Just kind of curious where you are within the PFG One journey on this. Are you beginning to harvest the data, procurement and operating benefits of the technology? Or would you say you're kind of still in an investment and implementation phase with most of the benefits of technology still ahead?

No, that's a great question. Technology is -- for us is, obviously, I think for everybody, it's been a journey. I'd say that the one thing that our exploration around AI has really helped us with is data assimilation. And so we have a number of initiatives going on around technology and AI, everything from just organic users that are using large language models to our customer-facing technologies that has a lot of AI enablement.

To get to the specific of your question, one of the things that we are working on today with a couple of external partners is, I'll call it, master data management. And that is really being able to assimilate data across all 3 of our business segments. And what that does for us is allow us to work with customers interchangeably, also allows us to start to look at procurement and supply chain and logistics opportunities. So certainly, we are in the, I'd say, still the early innings of that exploration, but we are doing a lot of work to figure out how we leverage that.

And then outside of technology, you brought up PFG One. That's one of the things that I'm really proud of our segment leaders. We have 3 leaders, a leader for each segment, and they work together day in and day out. And the amount of cross-sell that we do today, where we have Foodservice OpCos that are supporting convenience stores across the country and collaboration. We mentioned it in our script where we have our e-commerce platform through Specialty doing smallwares distribution for restaurants today. So there are numerous examples of where our segments are working together under that PFG One umbrella. And technology is just another leg to that stool, but feel really good about how our segments are working together to create synergy and momentum and really helping us drive growth.

We'll go next now to Brian Harbour with Morgan Stanley.

Just the acquisition impact that we saw in the fourth quarter, would you expect that to be fairly similar through the -- into fiscal '27, at least through 3Q? And could you remind us how much EBITDA that's adding this coming fiscal year?

So the acquisition impact, are you talking specifically about Cheney?

No, Cash-Wa that you did most recently.

Yes, yes, for sure. So Cash-Wa, we haven't called out revenue specifically. It's south of $1 billion in total revenue. The one thing that's unique about Cash-Wa, it's kind of a reflection of PFG overall. So they are very much in broadline Foodservice, a good mix of independent and chain and regional volume. But the other thing that's unique about Cash-Wa is they are also very much in the convenience store space. So they sell a full line of convenience store products and have a number of convenience store customers. That's a big part of their portfolio.

So when you look at them from a revenue standpoint, I kind of gave you that. When you look at them from a margin profile, I think of them as something a hybrid between Convenience and Foodservice. They fall somewhere in between from a margin standpoint. But really excited to have them on board. They'll be a great addition to us. They fill in great geography for us and a really great group of people that run that company. And like I said, we're glad to have them as part of the PFG family.

Okay. Sounds good. When I look at OpEx in the Foodservice segment in the quarter, I think it was up about 10%. I guess just to help us kind of think about that going forward, how much of that was sort of fuel impact? How much of that was sort of just personnel versus any other kind of discrete buckets you'd call out that were driving that?

Yes. This is Patrick. So in terms of fuel, we gave you the $16 million for the quarter. The bulk of that is in Foodservice. So that pretty much goes to Foodservice. And then really, the other OpEx challenge that we had in the fourth quarter was related to the Cheney move. In terms of personnel and those type of expenses, those were all in line. And again, we were able to achieve the upper end of our guidance. So we felt really good about the performance. And we know we have clear line of sight on the fuel expenses going forward. And as Scott already mentioned, we have pretty good line of sight on how Cheney expenses are dissipating.

Yes. I would just add one thing to that. And those are by far the 2 biggest buckets, but we certainly have an opportunity across Foodservice, Convenience and Specialty to be more operationally efficient and certainly something that we'll continue to focus on.

We go next now to Peter Saleh with U.S. Bancorp BTIG.

I was hoping you could elaborate a little bit more on the Jersey Mike's partnership. I think you mentioned it a couple of times. But I think I heard you say that it's more second half is when this partnership begins. If you could give us a little bit more color on the timing, the region? Is it just the Southeast? Or what should we be expecting? And any benefit that you can quantify on the case counts in the second half?

Yes. So Jersey Mike's, obviously, is -- we're really excited to be partnered with them. Obviously, a great performing concept that is somewhere I like to eat myself. They do an incredible job. As far as the timing, it's middle of the year, just past middle of the year that they'll start to flow into the network. They're a public company, so I don't want to get too much into store counts and numbers, but there was basically 4 regions that were in that RFP, and we have been awarded 3 of those regions. So certainly, it would be a nice opportunity for us in the back half of the year.

Great. And then are you guys seeing any sort of discernible consumer behavior change with respect to GLP-1s? Anything you guys can call out would be helpful.

We certainly spend a fair amount of time with folks looking at data around GLP-1. It's honestly one of the reasons I think the independent restaurant has held up pretty well is they have that real-time flexibility to change menu, to change portions. And what we're really seeing is a movement towards more proteins, a movement towards more fresh food. And then I'd say in the Convenience store space, I mean, they're still indulging. So there's still a lot of snack and candy being consumed, but protein is really the word of the day. And so you see out there protein cereals, protein bars are on fire. So there is a lot of focus on protein. And we're seeing a lot of shift in behavior of manufacturers around bringing brands out and new items out that satisfy that need. But certainly, we're seeing a shift in behavior as that progresses.

We'll go next now to Danilo Gargiulo with Bernstein.

Scott, it's the end of the year. So I want to ask a question that really reflects maybe the go forward for one of the things that probably are close to your heart, which is the Convenience. And specifically, there are some major, major regional Convenience players that are not your clients yet. So I'm wondering, obviously, some of them are vertically integrated, so you cannot access to them. But what feedback are you receiving from the clients who could be a potential client? And what are you prepared to do over the next few years to unlock this meaningful opportunity?

Well, I think it's a great question. I think Love's and RaceTrac, like I said, those are 2 iconic retailers that I think put us at the forefront of the industry as a partner that really is focused on Foodservice growth as a partner that's flexible. And certainly, they have great reputations and what they share about us in the industry goes a long way. And so certainly, we have been able to engage in new conversations because of that and continue to build on our reputation.

And I think we have a great reputation as being really a customer-forward supplier that is really focused on Foodservice, focused on sales growth and feel like our pipeline over the next 2 to 3 years is really strong, whether it be independents, regionals or some of the bigger players in the space. So to your point, we definitely don't have them all. There's a lot of market share opportunity out there. And I feel like that team of any team is one that's aggressive on going out there and building those partnerships.

And then, Patrick, a question regarding guidance and specifically on the labor side. I mean, we've seen some tightening in terms of availability of labor for truck drivers specifically. So can you share your expectations on the turnover rate that you might be seeing internally? And also what kind of labor cost inflation you're embedding in your guidance?

Yes. I'll take the part on drivers, and I'll let Patrick hit on the, what's embedded in the guidance. So I would just say drivers and warehouse overall, I look at kind of 3 key metrics around that. I look at overtime, I look at turnover and I look at temp labor. And really, all 3 of those metrics have been consistent over the last couple of years. We haven't seen any material shifts in any of the 3 of them. We have very little, almost no temp labor in the system. We have, for the most part, manageable overtime across the network and turnover has been basically flat over the last couple of years.

That being said, and to your point, there are a couple of hotspots in -- across the country, probably more specifically for drivers. And I wouldn't say that, that's materially different this year than it was last year. But certainly, something that we as a growth company, are constantly focused on is making sure that we have driver availability to be able to manage the growth that we have coming into the network. So continual focus. I don't see it as a big headwind at this point, but something we're always very sensitive to.

Yes. And just building on what Scott said, obviously, because we are really not seeing too much in terms of market dynamics in that space, our guidance is very consistent. Now obviously, we are experiencing the fuel -- higher fuel costs. So we did model that into our guidance for, as I mentioned, for the whole year at higher costs. And again, we expect Q1 to be very similar to what we saw in Q4, but we do expect that to slowly tick down throughout the year once we start comping over those fuel costs. And then we're onboarding some new customers. Sometimes that can cause some OpEx spikes. But other than that, we're expecting a very consistent rate for the year and expect to get leverage.

And we'll go next now to Karen Holthouse with Citi.

One more on the Convenience segment. Just looking at the sequential tick down in case growth, is there potentially some noise just when you're onboarding these big new customers and some kind of timing differences quarter-to-quarter? Or should we think of the underlying business really did slow by about 5% sequentially? And if it did, maybe dig into your views on why that's happening and how much that's just tied to higher fuel prices?

Well, I think you touched on really the 3 things that I would answer with. One of those is we had talked about a couple of competitive losses. So that did have a little bit of an impact in the quarter, and we'll see a little bit of an impact over the first couple of quarters of the year. So that was part of it. To your point, higher fuel prices certainly does have an impact, and we've seen a bit of a slowdown in just per store case volume. So those 2 things certainly are impactful. But I feel really good, as I said, for the full year that they've got a really nice pipeline and they're going to finish the year with a really strong case growth number and a strong bottom line number.

And ladies and gentlemen, that's all the time we have for questions today. Mr. Marshall, I'd like to turn things back to you, sir, for any closing comments.

Thank you for joining our call today. If you have any follow-up questions, please reach out to us in Investor Relations. Thank you.

Thank you, ladies and gentlemen. Again, that will conclude PFG's Fiscal Year Q4 2026 Earnings Conference Call. We'd like to thank you all so much for joining us and wish you all a great day. Goodbye.

Good day, and welcome to PFG's Fiscal Year Q3 2026 Earnings Conference Call. I would now like to turn the call over to Bill Marshall, Senior Vice President, Investor Relations for PFG. Please go ahead, sir.

Thank you, and good morning. We're here with Scott McPherson, PFG's CEO; and Patrick Hatcher, PFG's CFO.

We issued a press release this morning regarding our 2026 fiscal third quarter results, which can be found in the Investor Relations section of our website at pfgc.com. During our call today, unless otherwise stated, we are comparing results to the results in the same period in fiscal 2025. Any reference to 2025, 2026 or specific quarters refers to our fiscal calendar unless otherwise stated.

The results discussed on this call will include GAAP and non-GAAP results adjusted for certain items. The reconciliation of these non-GAAP measures to the corresponding GAAP measures can be found at the back of the earnings release. Our remarks on this call and in the earnings release contain forward-looking statements and projections of future results. Please review the cautionary forward-looking statements section in today's earnings release and our SEC filings for various factors that could cause our actual results to differ materially from our forward-looking statements and projections. With that, I'd now like to turn the call over to Scott.

Thanks, Bill. Good morning, everyone, and thank you for joining our call today. I'm excited to share our results from the third quarter, which demonstrate the strength of our strategy, solid execution in the field and building momentum that we expect to continue through the fourth quarter and into fiscal 2027. At our Investor Day last May, we laid out the long-term vision for the company. Central to this plan is leveraging the diversification of our business across the entire food-away-from-home market. We believe that our broad position across the U.S. is a unique strength for PFG and will result in many years of sustained growth.

The most recent quarter demonstrates the benefits of this strategy. There has been much discussion about the challenges facing our industry, including soft foot-traffic into restaurants, price inflation, major weather events and political disruption. Despite these items, we were able to achieve the high end of our guidance outlined in February, exceeding expectations in several of the metrics that underpin our projections. All 3 of our operating segments displayed positive signs of resilience and a strong foundation to grow upon in future quarters.

Let's discuss some of the business highlights from the quarter in each of our businesses. I'll then turn the call over to Patrick, who will review our financial performance and updated outlook for the fiscal year.

Starting with our Foodservice segment. Strong sales execution combined with disciplined margin management translated into high single-digit EBITDA growth in our Foodservice business, excluding Cheney. This performance underscores the durability of our food service model and our ability to grow profitably even in a choppy macro environment. Our ability to gain market share and grow independent cases has been a strength of PFG's business throughout our history.

Consistent with that theme, we are incredibly proud of our sales organization and their independent performance in the third quarter. For the period, independent cases accelerated from the second quarter growing 6.5% exceeding our stated benchmark of 6%. Our performance was the result of consistent market share gains through the quarter and wallet share gains from existing customers. Net new account growth was approximately 5.4% as account wins continue to drive the majority of our case growth.

At the same time, we were pleased to see 100 basis point differential between new account growth and total case growth, which indicates positive trends and account penetration within existing accounts. This performance occurred within a backdrop of consistent low single-digit foot traffic declines according to Black Box, demonstrating the strong execution of our sales force. Our focus on recruiting, training and incentivizing our sales force is a key factor in our multiyear outperformance within the independent restaurant space. We continue to strengthen our talented sales team by providing them with industry-leading brands, technology that enables great customer engagement. And once again, we increased our headcount by mid-single digits compared to the prior year.

Double-clicking on technology, we continue to see excellent traction from our online ordering platform CustomerFirst. Since highlighting this technology at our Investor Day, we have deployed multiple AI agents that provide our customers and salespeople, a digital partner with researching items, recipes and products to place the optimal order. CustomerFirst is not only a powerful tool for our restaurant business but will become our digital solution for all 3 operating segments, demonstrating the cross-company collaboration that defines our PFG One initiative.

Turning to our chain business, we saw case volume increase in the third quarter. This was particularly impressive given the difficult backdrop that chains have experienced and reflect our efforts to partner with growth concepts. Also encouraging is our pipeline of new chain business, which is robust and should provide a lift to our foodservice volume performance in fiscal 2027.

Before turning from the Foodservice segment, a few comments on Cheney Brothers. In the third quarter, we continued to see strong sales growth from Cheney, particularly with independents where cases grew north of 6% as did the sales headcount. Their growth culture remains vibrant and their brand portfolio is growing, providing additional sales and margin opportunities ahead. Critical to continuing this growth are the investments we have made in their physical infrastructure discussed last quarter. The headline investment is our recently opened state-of-the-art broadline distribution facility in Florence, South Carolina, which started shipping to existing and new customers towards the end of the second quarter.

This new facility will not only provide room to grow in the Carolinas, but will also free up capacity in other facilities in the Southeast. We are making investments today that will pay dividends in future periods. These activities did cause higher-than-anticipated expenses in the fiscal second and third quarters, and we have embedded a continuation of some cost items in our fourth quarter outlook.

As we move through the fourth quarter and into fiscal 2027, we are confident Cheney will become a significant contributor to our revenue and profit growth moving forward.

Turning to our Convenience segment results. I'm extremely proud of how our Core-Mark associates have risen to the occasion and led our company in revenue and EBITDA growth. For the past 2 quarters, we have discussed adding 2 meaningful pieces of business with Love's and RaceTrac. While exciting in these types of large customer wins also bring potential execution risk. I'm proud to say that Core-Mark has done a great job onboarding these customers and continues to work tirelessly to execute while building strong and lasting partnerships with these iconic convenience retailers.

The results speak for themselves. Convenience delivered 8.3% organic case growth and 8.7% total revenue growth in the quarter and an outstanding 34.1% adjusted EBITDA performance. While the top line performance is certainly impressive, Core-Mark's ability to deliver on volume increases of this magnitude exemplifies the commitment this organization has to its customers.

As I said at the onset of the call, PFG aspires to be the leader in the food away-from-home space, and this diversification has played a significant role in the success we are seeing with Core-Mark. Core-Mark has leveraged the broader enterprise to develop food expertise, expanding its food and brand portfolio, providing customers with a differentiated offer. That, coupled with great customer-facing technology, strong supply chain execution and a focus on building lasting partnerships, has resulted in significant market share wins for the segment.

Looking ahead, the addition of Love's and RaceTrac will continue to be an incremental benefit to our convenience performance through mid-fiscal 2027. We have visibility into additional customer wins and some offsetting losses though not nearly the size of either of these 2 pieces of business. We believe the outlook for our Convenience segment is bright, and we continue to resonate with customers looking through a partner to help them drive their business performance.

Finishing with our Specialty segment. This is a unique asset within the PFG portfolio as there is no pure-play competitor that has the reach of Vistar in the candy snack and beverage market. As a result, we are able to pursue a range of business opportunities for long-term growth. An example of this is the continued expansion into the e-commerce fulfillment space. While still a relatively small channel for us, our ability to ship direct to businesses and consumers across the U.S. makes Vistar an attractive partner for a wide array of businesses and manufacturers trying to reach their end consumer.

Vistar also continues to benefit from growth in other emerging channels, including specialty grocery and campus retail and is currently pursuing additional avenues that we are confident will fuel future growth. During the quarter, growth across most of Specialty's channels drove solid top line performance. Case growth of 1.1% produced a 5.3% revenue increase year-over-year. During the quarter, Specialty saw difficult margin comparisons, including lapping higher prior year inventory gains. Expenses in the third quarter were also elevated due to shipping and fuel costs resulting in negative EBITDA performance in the quarter compared to the prior year period.

Despite a challenging quarter, the Specialty segment's attractive overall margins and prospects for continued revenue performance give us a high degree of confidence in their long-term profit opportunities.

To summarize, all 3 of our operating segments contributed nicely to our top line growth, allowing us to achieve sales results at the top end of the guidance we laid out in February. Our adjusted EBITDA came in above the high end of our guidance range even as we invested in our business to support future growth. This performance was possible because of our diversification efforts and share gains across the U.S. food away-from-home market. I'm excited for the final months of fiscal 2026 and expect a nice acceleration in fiscal 2027, putting us well on track to achieve our 3-year targets laid out last May.

I'll now turn the call over to Patrick, who will review our financial performance and outlook. Patrick?

Thank you, Scott, and good morning. Today, I will review our third quarter financial results, provide color on our financial position, I'll review our tightened guidance for 2026.

PFG's total net sales grew 6.4% in the third quarter, with growth in all 3 operating segments and particular strength in Convenience. Total company cases increased 4.4% during the quarter, highlighted by a 6.5% organic independent restaurant case growth and an 8.3% organic case gain for our Convenience segment. We are very pleased with the contribution from the addition of the Love's and RaceTrac business, which accounted for the majority of the growth in Convenience.

Total company cost inflation was approximately 4.5% for the quarter, in line with what we experienced in the prior quarter. Foodservice inflation of 1.5% was slightly below recent trends with continued deflation in the cheese, poultry and egg categories, somewhat offset by higher inflation in beef. At the same time, while cheese and poultry remained deflationary on a year-over-year basis, we did not see the dramatic declines we experienced during the fiscal second quarter, and as a result, these items were less impactful to our overall financial results.

Specialty segment cost inflation was up 5.1% year-over-year, about 25 basis points lower than the prior quarter, mainly the result of candy and hot drink price inflation. Convenience cost inflation increased 7.9%, slightly higher than the prior quarter due to inflation in tobacco and Candy. The inflationary environment has been active over the past several years, but as a company, we have demonstrated our ability to handle a range of outcomes. We expect the inflation rate to remain in the low to mid-single-digit range for the remainder of fiscal 2026.

Moving down the P&L. Total company gross profit increased 6.4% in the third quarter, representing a gross profit per case increase of $0.20 as compared to the prior year's period. This improvement was driven by strong mix, execution of our procurement initiatives outlined at our Investor Day and continued execution of our brand strategy. We are very pleased with our gross profit results which demonstrate our ability to execute on our priorities outlined in our 3-year plan.

In the third quarter of 2026, PFG reported net income of $41.7 million, a 28.5% decrease year-over-year due to an increase in operating expenses. Adjusted EBITDA increased 6.6% to $410.6 million, Diluted earnings per share in the fiscal third quarter was $0.27, while adjusted diluted earnings per share was $0.80, an increase of 1.3% year-over-year. Our EPS was impacted by below-the-line items, including higher interest and depreciation expense. Our effective tax rate was 25.4% in the third quarter, a slight decrease from 25.8% last year. We expect our full year 2026 tax rate to be close to our historical range of around 27%.

Turning to our financial position, cash flow performance. In the first 9 months of 2026, PFG generated over $1 billion of operating cash flow, an increase of approximately $245 million compared to the same period last year. We invested approximately $266 million in capital expenditures during the first 9 months of 2026. We have been diligent around new capital projects and expect full year 2026 CapEx to be below our long-term target of 70 basis points of net revenue. The organization is striking a good balance of investing in infrastructure and high-return projects to support our long-term growth while maintaining excellent free cash flow performance.

In the first 9 months of 2026, we generated $806 million of free cash flow, up $312 million compared to last year. We are extremely pleased with our cash flow performance. We are fully committed to investing back into our business to support our growth. And as you can see from our 9-month results, we are generating significant cash flow to fund this investment.

During the quarter, we repurchased a total of $1.2 million of our stock at an average cost of $83.11 per share. We will continue to be opportunistic around share repurchase where our priority remains debt reduction and investing in our growth.

The M&A pipeline remains robust, and we continue to evaluate strategic M&A. PFG has a history of successful acquisitions to drive growth and shareholder value and we expect that to continue. At the same time, we will apply our typical high standards and robust due diligence to evaluate high-quality acquisition opportunities.

Turning to our guidance. Today, we tightened the guidance range for fiscal 2026. For the full fiscal year, our sales target is now a range of $67.7 billion to $68 billion compared to the previously stated $67.25 billion to $68.25 billion range. We now expect full year adjusted EBITDA in a range of $1.9 billion to $1.93 billion compared to the previously stated $1.875 billion and $1.975 billion in 2026.

Our results keep us on track to achieve the 3-year projections we announced at Investor Day with sales in the range of $73 billion to $75 billion and adjusted EBITDA between $2.3 billion and $2.5 billion in fiscal 2028.

To summarize, we are very pleased with our progress despite a challenging business environment in the third quarter. We are in a solid financial position, which supports our growth investments and capital return to our shareholders and expect strong execution to finish the year setting the stage for a strong fiscal 2027.

Thank you for your time today. We appreciate your interest in Performance Food Group. And with that, Scott and I would be happy to take your questions.

[Operator Instructions] And our first question comes from Edward Kelly with Wells Fargo.

And nice quarter, good to see such strong top line momentum in the business. What I wanted to ask about that, though, is that you did trim the Q4 guidance. At the midpoint, I think you had an acquisition that came into the quarter, so presumably maybe there's some help there. But can you just talk about the offsets that you're seeing in Q4 to drive a slightly more conservative view?

Yes. Ed, this is Patrick. I'll take that and maybe Scott will add something on the acquisition if he wants to. But really, we gave the full year guidance. You're talking about the implied Q4 and how we're looking at it as we exit Q3 with a really strong top line momentum and a nice EBITDA increase of 6.6% at the top end of our guidance. So we're feeling really confident about the things that are -- we have line of sight of controllables. As we mentioned in our comments, really strong momentum. We are seeing positive improvement at Cheney, although there will be some pressure there during the quarter. And we're obviously seeing improvement in Specialty.

Outside of our control are things like the macro environment. Obviously, there's some pressure from fuel that we experienced a little in Q3. We expect some of that pressure in Q4 as well. So really very confident about Q4. There are some pressures on the numbers, as I mentioned. And then we're looking really towards '27 where we see a really nice setup, and we'll obviously give you guys much more color to that in August.

This is Scott. Yes, just real quick on the acquisition. We did have an acquisition that came in late in the third quarter, some that we've been really excited about. Cashway is a distributor -- in a broad line foodservice distributor in Cerny, Nebraska, 3 facilities that really cover Nebraska and the Dakotas. So again, kind of giving us a little more presence facing West. And a great family company, great culture. I think they're really excited to be a part of PFG, and we're excited to have them in the fold.

Great. And then maybe just a follow-up. And Patrick, you kind of hinted at this a little bit, but Cheney had some drags as we think about fiscal '26. I was hoping maybe you could talk about what that drag was, again, in Q3? And then I don't know if you can sort of summarize like what the drag has been for the year. I mean, I think the math would say it could be $30 million, something like that. Can you get all of that back next year? Because I think you have talked about you expect Cheney to be a pretty strong contributor in '27.

No, a really good question, Ed. So from a Cheney standpoint, the first thing I'd say that we're really happy about it is we mentioned their top line. And Cheney has done a great job continuing to grow independent cases, continuing to grow share across Florida and the Carolinas. I think their sales culture is fantastic. And like I said, I think they're set up for the balance of this year and '27 from that perspective is great.

Over the last couple of quarters with the opening of the new facility, we certainly saw some expense drag. And we mentioned that, that will carry on into the fourth quarter. But really, we have great line of sight to get those things under control. The rollout of that facility has gone very well. We've transitioned 3 of our 4 phases of customers into there. And so again, we feel like their setup for '27 is great and really looking forward to their contributions, both top and bottom line going forward.

And we'll move next to Lauren Silberman with Deutsche Bank.

Congrats on the quarter. A couple of follow-ups and then one question. But just on Q4, are you able to quantify the net impact of fuel costs that you're embedding for the quarter? I know there's some offset that surcharges but not fully figure out it's like basically accounts for the $20 million to $30 million down in the implied Q4.

Yes, Lauren, good question. Obviously, as we exited Q3, we saw the impact of fuel come in. You're going to get much more detail in the Q on this, but that gross impact for Q3 for that month was 7.3%, and that's not just because of higher fuel prices, that's also because of new customers, miles driven. Now because of the timing of surcharges, we weren't able to adjust the surcharge in March, but that was adjusted in April and again adjusted in May.

So we do have some headwind in Q4, but it's not material. It's something we're working through, obviously. It's just we called it out as a headwind because it is one, but it's one of a few things that we embedded into our guidance, and that's why we gave the range we did.

And then on the Cheney expense drag, what exactly is driving these higher expenses? I guess I'm just trying to understand whether these expenses roll forward into fiscal '27 just within the base or some of them come off?

Yes. So there's a couple of things that I would outline there. One of them, and it's the primary one, Lauren, is the new facility in Florence. So if you think about right now, we have customers that we are shifting from other buildings into that facility. So we had to hire and staff that facility for all of that inbound volume and at the same time, we're still -- before we transition those customers, we're still servicing them in our existing facilities. So it's kind of double headcount to service that volume. And that's obviously continued over the course of 4 or 5 periods. So certainly been impactful from an expense standpoint.

The other thing that drops off in expense, and we've talked about our synergy kind of flow. And at the end of Q3, of this year really at the end of the second year of the anniversary of Cheney, we have a nice pickup in synergy and that will continue on through year 3 and beyond. So definitely have a couple of things that will be good momentum from the Cheney expense standpoint.

Great. And then on the independent case side, there's obviously a lot of different dynamics and noise throughout the quarter. Any color you could provide on the cadence you saw as you move through the quarter? And anything you can share on what you've seen into April thoughts on the fourth quarter?

Sure. So as I think about Q3, really, January was a great month. And towards the end of January, first of February, you saw pretty material weather impacts. So if I look at the average of January, February, that's kind of what we saw in March and saw that continue into April. So we've been pretty consistent over the last couple of months. And like I said, if we took the January, February average, that kind of equals what we saw in March and April.

And we'll now move back to Kelly Bania with BMO Capital.

Scott, just to clarify one point on the Cheney expenses. Did your view of the impact of those to the fourth quarter change since you reported last quarter? Or did that -- is that just coming in line as you expected, as it still is an impact into the fourth quarter?

Thanks for the question, Kelly. There was a little more spillover into the fourth quarter than we probably anticipated a few months ago. And really, that's because we had kind of 4 waves of customer transition that were shifting business from existing buildings into that new facility. We've completed 3 of those waves, and that fourth wave will take place here in the next couple of weeks. And that's really what shifted is, we thought we were going to have all 4 of those waves completed in the third quarter. But really just we had a little weather impact when we started opening that building that pushed it back a couple of weeks.

And then we've just taken our time to make sure we do a great job servicing those customers we shift over. And really happy to say that we've seen sales growth in that new building on a same-store basis since day 1. So all those customers that we shifted in there have continued to grow. So really positive results that we've seen out of the transition.

Okay. That's very helpful. And Scott, you made the comment about fiscal '27 and looking for an acceleration in sales and profit growth there. You mentioned, I guess, we covered kind of cycling some of these expense headwinds and also the synergies, but you also mentioned some new chain business, I believe it's foodservice. So I was wondering if you could kind of help maybe bucket some dollars around how we should think about what that might look like in the coming quarters? And then also, I believe the procurement savings target should maybe start to build. Is that a factor we should think about being impactful in fiscal '27 as well?

No. Appreciate the questions, Kelly. You touched on a lot of the key drivers that we think about in the setup for '27 right there in your question. When I think about Foodservice, I would just say that the continued momentum in independent case growth, we did say in our prepared remarks that we have a really nice chain pipeline that we think is going to help us keep that chain growth positive for next year. Convenience has always, obviously had a great year from a market share gain standpoint, and obviously has some carryover into next year.

And then Specialty, if you look at Specialty over the last 3 quarters, they've improved their growth 3 quarters in a row, and we feel like they have a really nice pipeline as well. So that kind of hits the top half of the income statement. I'd say the margin setup is really good, too. And you talked about procurement synergy, I'd say, really how we feel about mix and how we feel about those procurement synergies, that really helps the margin profile as well. And then clearly, we'll have some spring back on Cheney expenses and then just overall efficiency of adding that volume. And I think the setup is really nice for next year.

And we'll move next to Mark Carden with UBS.

So to start, I know it's pretty much impossible to predict the duration of the Middle East conflict. But if we see higher oil prices continue at their current level for an extended period of time, how much of an impact would you expect for it to have on your product inflation outlook over, call it, the next few quarters?

Let me -- I'll take a stab at this, Mark, and I'll let Patrick fill in the blanks. But I would say we've talked about how we handle fuel surcharges and fuel inflation and I think we've got a really good plan around that. Our fuel surcharges mitigate a lot of that impact. But certainly, there is going to be a little bit of headwind in Q4. Obviously, can't anticipate whether fuel prices go up significantly or down over that period of time and beyond. But we think we've got a good setup around fuel surcharges.

As far as other product inflation, we haven't seen any material impacts to date other than there's been a little noise around, we'll call it, petroleum-based products. So we certainly sell some products that are petroleum based in containers and packaging that we sell. And then obviously, I think the longer duration, I think everybody would anticipate that at some point, you're going to see inflation tick up. What we've seen in recent months is across the third quarter, we saw inflation tick up a little bit period by period, and we've seen inflation tick up a little bit as we started this quarter. So -- but we feel like we're really well positioned to navigate that right now.

Yes, Mark, just a little more color. Just as Scott too, we manage a very large basket of commodities. As he mentioned, maybe some of the petroleum base might see a little bit of impact here, really hard to say. And as you opened up with your question, it's very hard to predict this. But as you know, over -- if you followed us for any period of time, which I know you have, we're able to manage through a variety of markets. And right now, we're seeing, as Scott mentioned, a slight tick up on inflation, but I just want to add a little more color there. We started January very low, below 1%, and we finished in March at 2%. I'm thus talking about foodservice inflation. So while we've seen a slight uptick, it's still well within that low single-digit area that -- and we managed it very well.

Makes sense. And then a follow-up on Cashway. Just how does its mix of business compared to the base foodservice business? Does it lead any more or less heavily towards independents? And then just more broadly, how is your traction going on building out some of your independent business organically at less than flat markets?

No, really good question. So Cashway, I would say, their food service business is very much in line with what we see across broad line. They have a really nice independent mix. They also have some broadline national customers. And then the one thing that's a little unique about them is they have a segment of their business that does have some convenient sales. So they sell some snacks, some candy, a little bit of cigarette and tobacco as well. So very diversified mix that fits really well into our overall portfolio.

And then as far as out West, we've talked a lot about, we've continued to add capacity, California and Oregon and Arizona and Colorado. And actually, the West is our fastest-growing region by a fair amount, doing exceptionally well in the West, really proud of that region and their ability to gain share in that market.

We will move next to John Heinbockel with Guggenheim.

Scott, 2 quick questions on local -- independent case growth. One, is there still an opportunity to reduce the loss rate, the account loss rate where it is today? And then if you look at the pickup in lines per account, where is that concentrated? Is there -- are you gaining some traction with COP versus where you might have been?

No. Really good questions, John. As far as loss rate, I would say we've been fairly consistent over a number of quarters. Is there an opportunity to improve that? Absolutely. We're always focused on improving that. And it's something that we spend a lot of time focused on. I mean, turning customers is obviously not the goal here. But I'd say, overall, that's been fairly balanced, and we haven't seen any big shift there. As far as the lines per drop, certainly that was kind of the headliner of our penetration in this quarter. Really nice to see lines per drop, cases per do increase in a nice fashion.

As far as what that's being driven by, one of the things that has been really positive, it continues to be driven by our brands. And I would say that if you asked all of our sales reps out in the field, what their biggest lever is, brands is going to be one of those top 1 or 2 things. And then to your point, we actually have had really nice performance in center of the plate. Our protein strategy, continued to work to drive that as well as seafood. And so seeing some really nice performance in center of the plate. But brands is probably where I'd say the focus and the real growth has been.

And on Cheney, where are they now with -- now that they've got South Carolina open in terms of capacity, meaning I don't think they'll need to open another facility for a while. Where are they with that? And then if you took synergy out and just looked at Cheney kind of apples-to-apples, does it outgrow the rest of Foodservice because of the economic growth in its markets?

That's a good question. So capacity-wise, I'll hit that 1 first. So we're essentially taking volume out of a facility that I would say was 90% full that's now going to be more like 50% or 60%. So we're going to have 3 facilities that have 40% or 50% available capacity. Maybe one of them is not quite that high, but 3 facilities that have a lot of capacity, really which creates a whole network that has capacity across the network. So really well positioned to continue to grow.

And to your point, absent synergies, which are going to be a nice tailwind for Cheney, they're certainly in one of the fastest-growing markets in the country. And I think as a broad liner with a great reputation, a really good presence in that market with capacity available. Are they going to outgrow the rest of the country? I'm not sure. I hope they do, but I think they're going to have a really nice growth future ahead of them.

And we'll move next to Alex Slagle with Jefferies.

A follow-up on Cheney. I know the synergies aren't really expected until year 2 or '30, but as you've had some more time to evaluate the business, see how it pairs up against PFG. I mean do you see any incremental opportunities there? And also curious on the private label Cheney in your latest thoughts?

Yes. I would say that the 1 thing that is, I think, clearly, an opportunity has been around brands. Cheney has actually established some of their own really solid brands. their brand performance has been, obviously, brand percentage sales is a lot less than what we see across the rest of Broadline. But they do have some really strong brands. And one of those brands we've actually taken into the rest of Broadline. I do think there's a great opportunity in brands. I think that procurement piece around brands is going to be a really nice part of the synergy. But we've also found some other, I'd say, core competencies that Cheney has that we think will help the broader business.

And that's really 1 of the big reasons when we approach acquisitions that we take our time in that first year and try and -- we try not to jump in and make big changes. And that's the way we've approached this. And maybe we don't generate as much EBITDA in the first year. But in the long run, I think it positions us really well. And we feel like the future of Cheney in the setup for 2017 and beyond is really strong.

Great. Also wanted to ask on inbound logistics opportunities and just sort of how that's come together and maybe potential offsets for some of the higher freight and inbound costs that you've had?

Really, really good question. We talked at Investor Day about redistribution and that we continue to grow our redistribution network. And that network has performed really well this year. That allows us -- and I would highlight the West. We've opened up a facility in the West to help us get our brands to all of those centers in the West. And now that I see how those distribution centers that are aided by are growing, it just makes me very bullish on what we can do around redistribution.

And then I would say just the broader inbound landscape, we certainly think that's an opportunity. It's 1 that we are really starting to focus on more and more every day is just being more efficient in getting goods to our buildings. So it's a great call out. It's something that we are paying a lot of attention to. It's something that Ready helps us with, but certainly more opportunity ahead.

And we'll move next to Jeffrey Bernstein with Barclays.

My first question is just on the underlying consumer ex the weather, noise, which you talked about in Jan-Feb, but you noted the ongoing negative foot traffic for the restaurant industry. Can you just talk specifically about maybe the impact from what a spike in gas could have on your business? I mean it doesn't seem like it's had much, but maybe how have your segment has been impacted in the past. It would seem like the convenience store segment might be the most vulnerable as it kind of ties in with gas stations and whatnot. So any color you could provide in terms of that underlying consumer behavior ex the weather that you've seen in recent months and what you might expect as we close out the fiscal year?

Yes. Thanks for the question, Jeff. So when I think about the restaurant consumer in particular, we've seen our independents, obviously, with our share gain, it's been really nice, but we've seen that independent restaurant hold up exceptionally well through that foot traffic pressure. We've certainly seen a little downdraft on the chains. And so we've seen the chains feel a little more of that headwind with foot traffic. So when it comes to those 2 classes, I'd say right now, independents tend to be outperforming the chains.

When I think about just overall fuel impact, I think it really comes down to discretionary income. In the restaurant space, certainly, if fuel prices continue to climb higher, that can impact discretionary income. When I get to the convenience store space, my history would tell me that as price goes up, there's actually an environment where trips actually go up. So your convenience store consumer that's getting gas, they may even not be filling the tank every time they go in.

And so we've actually seen trips tick up over the last few months in convenience stores. There is an inflection point there, though. I think at some point when fuel price would get pretty high, then you see it really be a discretionary income issue. Right now, I think the consumer has been very resilient across convenience, across foodservice. And so we anticipate they'll continue to perform that way and we're looking forward to the fourth quarter.

Got it. My follow-up, just on the comment you made about the independent. I mean, your case growth is very strong at the 7% range, and you've seen confidence sustaining that in the fiscal fourth quarter. I think you said April was similar to recent months, and I assume that for in that range. But just wondering, who do you think you're taking share from, whether it's the large national peers or perhaps the big 3 or taking from the rest of the industry, which has kind of been the investment thesis behind the foodservice distribution segment more broadly?

Yes. I think from who we're taking it from, pretty hard for us to tell. I think from my perspective, it's -- we're really focused on gaining share in each and every customer that we service, and we saw that in the penetration numbers. So some of that is certainly coming from specialty players, some of that might be coming from bigger competitors or even smaller. So really hard for me to tell there.

And I think for us, it's really focusing in on our brands, focusing in on the core competency that we have. And I'd call out one other thing that I think has really helped us gain share, and that's our tech stack around customer-facing ordering. I called that out in the prepared remarks. And I think our relationship with our customer, both the physical relationship with our rep and the digital relationship we have with them in CustomerFirst has really helped our penetration. It's helped us gain share, and we see that as being a big lever to pull in the future.

And we'll move next to Brian Harbour with Morgan Stanley.

Scott, I guess, just following up on that. kind of the prior comments on convenience stores. What does penetration there look like lately? I guess if you sort of separate out the new customer wins, which has certainly helped. How would you describe that in the Convenience segment?

It's a really good question. Convenience is a little different than, I would say, traditional Foodservice because in Convenience, you really have kind of a primary supplier. So you don't really share between -- like in foodservice, you might have 2 or 3 broadliners in an account and Convenience, you normally have a primary supplier that is doing the broad, vast majority of the goods now where you might have penetration is in foodservice. You might have an external vendor there. And that's really where we've done a great job of penetrating in our Convenience segment.

But if I go back, really for the last couple of years, our Convenience segment on a same-store basis has greatly outperformed the industry. And I think a lot of that is the tools that we bring to our customers around product mix, how to set your store, how to grow foodservice. I think our customer-facing technology and convenience has really helped us outperform the market.

Okay. Got it. What would -- you said you've actually -- it seems like done a little bit better with chains, notwithstanding the fact that they have had a tougher traffic quarter as an industry. I mean, what -- anything you'd call out that's helping there? Or is some of the specific segments you cover? I think some of the segments where you're big actually have been a little bit tougher recently, but what would you attribute kind of the chain success to?

Well, I think it's really 2 things. One of those is we've partnered what I'd say, with a couple of the more progressive foodservice players in the space. So those are people that are continuing to grow, and that's really helped us on a, call it, same-store basis. And the other one has just been share gain. We've done a really nice job, had a really nice pipeline in the chain space. We see that continuing into 2027. So I think our ability to resonate with those chain customers and be a great partner has really helped us.

We'll move next to Peter Saleh with BTIG.

I'm curious if you guys give us a little bit more color on strength and weakness made by cuisine, more specifically on that Italian segment, if you're seeing any sort of major changes at all? And then I have a follow-up.

Sure. When talking about the Italian segment, obviously, if you look at some of the publicly reporting chains, pizza and Italian has been -- the growth has been a little muted as of late. When I look internally at the company, we continue to grow share in pizza and Italian and I think everybody knows that's a really big, strong part of our business. It's interesting, one of the places we're growing it is really outside of traditional pizza and Italian locations. We're growing pizza and Italian in bar and grill. We have -- that's been pretty prevalent as of late. We're growing that in our Convenience segment, both coming from foodservice and from our Convenience from Core-Mark.

So we're holding our own in pizza and Italian although it's a segment that's been a little more challenged. Where we're seeing really nice growth is, I'd say, some of these other specialty segments. We've seen really nice growth in our Asian segment, continue to see market share gains in our Hispanic segment. And then I called it out, but 1 of the biggest share gain areas we have in food service right now is sales into Convenience. And so the share gains we have there have been very significant. And so that's also been a big driver for us as well.

Great. And then just curious, there's been a lot of discussion in the industry around GLP-1s and the impact. Just curious if you guys have any thoughts on that, if you're seeing any sort of impact? Does it seem to be? Or if you're seeing any sort of changes in behavior among the restaurants and what they're purchasing that would indicate there's any sort of change in behavior?

Yes. Really good question. We follow the statistics a lot on GLP-1 and eating behavior. And I think certainly in the first year that's somebody is on those, there could be a tick down in their consumption across just food in general, and that's not just restaurant convenience, that's across grocery and all channels. But what we're seeing really is there's a little bit of compression on snack and candy in the first year, but then that consumer seems to bounce right back and go back into those snack and candy items. In the restaurant space, there's certainly a focus on protein, a focus on fiber. We are seeing demand for smaller portions in some places. We see more to-go containers, so we're selling more containers.

So really, that -- I think there's been some behavior shift, I think that's one of the reasons the independent restaurant has done so well as they're able to react to those things, change menus, change pricing fairly rapidly. And I think they've been able to react to that behavior really well.

And I'll move next to Danilo Gargiulo with Bernstein.

I would like to ask a couple of strategic questions. So the first 1 is on your M&A pipeline and potential future. So in your framework, you're highlighting pursuing transformational opportunities. And recently, we've seen 2 major players acquire cash-and-carry business and provide a more vertical integration through the customer life cycle. So kind of wondering if this is a strategy that you will be entertaining? Why or why not?

Well, I would say, first off, we spent a lot of time in our Investor Day outlining our M&A strategy. And certainly, our M&A strategy is really focused around broadline food service. And I think Cashway is a great example of that. And Cheney was a great example of that. And we see that we continue to have a pipeline of opportunity in that broadline food service. There's some -- probably some tangential things around foodservice that we continue to look at whether that being in the protein space, the seafood space. So we certainly see opportunity in that broadline food service space.

In Convenience and in Specialty, we made a small acquisition last year in the Convenience space. Certainly, we'll continue to look at opportunities there. But at the end of the day, our core focus is broadline foodservice, and we think that's the field that we want to play in.

Great. And then on the strength that you're seeing on the chain business, I was wondering if you can expand a little bit what is causing the incremental focus on the chain business and whether you think this is a strategic fit for you given that it will be a potentially lower margin business?

No, I wouldn't say there's been any strategic shift. The chain business has been an important part of our portfolio for a long time. Our independent to chain mix, we're about 40% or so independent, about 60% chain. So again, a really balanced portfolio. We are consistently growing independents faster than we are growing chains in foodservice and that's obviously been a calling card of ours. But certainly, when a big portion of your sales are chain, we are just as focused on growing that as well.

So I wouldn't say there's been any shift in focus. I would say that we are resonating with the customer base in both those segments and are able to gain share. So really happy with how our sales force is performing in both those areas.

And we'll move next to Karen Holthouse with Citi.

A couple on the convenience side of things. Some of the packaged group companies have started to talk about understanding pushback to inflation in the grocery aisle and you proactively actually decreasing prices on some things. Are you seeing anything similar play out on more of the single-serve convenience side of things?

No, we've not seen any deflationary noise at all as far as the Convenience segment. And I would say, historically, we don't see actual price deflation. What we see happen in the Convenience segment is we would actually see manufacturers discount, so they would discount at point of sale. It really has no impact on us or our margins, but they would go out and run promotional activity in the field that would lower the end cost of goods to the consumer. And so we have seen that activity probably tick up a little bit. It wouldn't surprise me if that continues to go on, but really doesn't have any impact to us from a revenue or profit standpoint.

And then just looking out over our call it the next 6 to 12 months, is there anything that should be on our radar for incremental new customers that might be onboarded specific to Convenience side?

Specific to Convenience. We called out in the prepared remarks. I mean, obviously, we will lap the Love's and RaceTrac next year. We have a really nice pipeline. We've picked up or haven't picked up, but we have a couple of other customers that we will onboard. And we do have a couple of customers that we will off-board in the course of the next, call it, 6 to 12 months. We have had some competitive reaction and our competitors have put a little pressure on the competitive market, but I would say, overall, the setup for Convenience for 2027 is really strong.

Their pipeline is really strong. And these customer shifts that I'm talking about are much smaller in magnitude than then a Love's or a RaceTrac. So their setup is really good.

[Operator Instructions] And we'll take our next question from Jacob Aiken-Phillips with Melius Research.

I was just curious if you could talk about the pipeline or just conversations you're having on the Convenience segment with potential customers? And then how much of your Foodservice capabilities or your broader Q1 abilities impacts those conversations?

No, that's a really good question, Jacob. And I said in the prepared remarks, I think the Foodservice -- I mean, the Convenience segments, I guess, core competency around foodservice over the past 3 years has increased dramatically. The product mix that we offer in our opcos, the turnkey solutions we offer in our opcos. And then I would say the knowledge of that organization just around food, has certainly been a big feather in our cap as far as customer interaction. At the end of the day, I mean, we've got to be a great partner. We've got to be a really efficient distributor and we've got to be able to supply the full basket of goods.

But I think having that core competency around foodservice has certainly helped in their negotiations on new chains and account wounds.

And then a question on Cheney, and don't worry, it's a top line question. Just thoughts on putting PFG private label into Cheney or taking some much Cheney in private label where you think the opportunities are there? And how we should think about that going forward?

Well, I see it going both ways. We have already taken a couple of Cheney's private labels and started to roll those out across the broader PFG organization. And we are just really -- we've been evaluating the labels that we would put into the Cheney organization as well. So I think we're really well positioned to do that. I would just take a step back and say, I think we talked about during the acquisition, Cheney's brand penetration was in that 15% to 20% range. We just had a record brand penetration in the, we'll call it, legacy Foodservice segment at 4%.

And so combined, we're now -- if we were going to reset a target we'd be right at 50% in brand cases to independents. And that's a number that I think we can grow. And I think Cheney will be a big portion of that growth.

At this time, this concludes our question-and-answer session. I will now turn the meeting back to Bill Marshall.

Thank you for joining our call today. If you have any follow-up questions, please reach out to Investor Relations.

Thank you. This concludes today's meeting. We appreciate your time and participation. You may now disconnect.

Good day, everyone, and welcome to PFG's Fiscal Year Q2 2026 Earnings Conference Call. [Operator Instructions]

I would now like to turn the call over to Bill Marshall, Senior Vice President, Investor Relations for PFG. Please go ahead, sir.

Thank you, and good morning. We're here with Scott McPherson, PFG's CEO; and Patrick Hatcher, PFG's CFO. We issued a press release this morning regarding our 2026 fiscal second quarter results, which can be found in the Investor Relations section of our website at pfgc.com.

During our call today, unless otherwise stated, we are comparing results to the results in the same period in fiscal 2025. Any reference to 2025, 2026 or specific quarters refers to our fiscal calendar, unless otherwise stated. The results discussed on this call will include GAAP and non-GAAP results adjusted for certain items. The reconciliation of these non-GAAP measures to the corresponding GAAP measures can be found at the back of the earnings release.

Our remarks on this call and in the earnings release contain forward-looking statements and projections of future results. Please review the cautionary forward-looking statements section in today's earnings release and our SEC filings for various factors that could cause our actual results to differ materially from our forward-looking statements and projections.

With that, I'd now like to turn the call over to Scott.

Thanks, Bill. Good morning, everyone, and thank you for joining our call today. Before jumping into our second quarter results, I would like to recognize George Holm. As we announced in December, after nearly 25 years with Performance Food Group, George has retired from his role as CEO. Over his career, George built an impeccable reputation as an industry leader, a visionary and an agent of growth. Since PFG's IPO in 2015, sales have more than quadrupled to over $60 billion, and the market cap of PFG has increased sevenfold, much of which can be attributed to the vision and influence George has had on the company.

More importantly, because of George's stewardship, PFG is defined by more than just financial results. It is a place where people want to work, where customers and suppliers want to do business and a preferred partner for strategic M&A. There's a reason that PFG is often the first and sometimes only call from prospective acquisition opportunities. Many of you have had the opportunity to meet with George and experience his knowledge and insight firsthand. On behalf of our entire organization, I would like to share my heartfelt thanks to George for everything he has done for the many thousands of people who have crossed his path.

I'm also thrilled that George will continue to play an important role for PFG. As Executive Chair of our Board, he will be heavily involved in the pursuit of strategic M&A opportunities, maintain his connection to key customers and be active in PFG's overarching strategy. Following an industry icon like George comes with great responsibility, and I'm excited to take the helm and lead PFG through our next chapter.

George and I have worked together closely for the past 4 years, developed a powerful friendship and collaborated on the vision for PFG. As I look ahead, I'm excited to lead this organization, and I'm extremely confident in our ability to continue to drive growth and EBITDA performance by executing on our strategic priorities.

In May, we outlined our 3-year strategic vision, which the company and I are deeply committed to delivering. More specifically, this is a road map grounded by a balance of continued revenue growth and market share gains, gross margin enhancement initiatives and improving operating leverage. The organization is off to a solid start in achieving our 3-year plan and have strategies in place to give us a high level of confidence we will deliver.

Let's now turn to our results for the second quarter of our fiscal 2026. Despite a difficult macro environment, I'm proud of our organization's ability to overcome the challenges in the final months of the calendar year. The quarter saw declining foot traffic, the impact of the government shutdown and softer sales per location across our segments. Despite the challenging backdrop, our company was able to post solid revenue and profit performance within our previously stated guidance range.

Breaking it down by segment, let's begin with Foodservice. Our organization delivered 5.3% organic independent case growth, driven by a 5.8% independent account growth. During the quarter, we gained share across independent, regional and national business, largely consistent with our gains in prior quarters. Share gains were broad-based across a range of concepts, with particular strength in chicken, burger, barbecue and seafood restaurants.

To elaborate further, after a strong start to October, volume trends moderated soon after the government shutdown took effect. We did see some recovery once the shutdown was lifted, and we finished the calendar year with case growth in December roughly in line with the November results. According to Black Box data, industry-wide foot traffic decelerated through the quarter, with December traffic down 3.5%. Our chain restaurant business followed a similar glide path, reflecting consistent industry pressures.

Our total chain restaurant volume grew by low single digits year-over-year as new business we've onboarded over the past several quarters offset the softer traffic environment. We attribute our consistent market share outperformance in part to our efforts behind growing, training and supporting the best sales force in the foodservice industry. Our efforts in this area are proven out in the independent restaurant space. We continued to hire new associates during the period, ending December with nearly 6% more salespeople than we had at the end of calendar 2024.

As we have discussed on past calls, we do not have a corporate-wide hiring mandate, nor do we require artificial hiring goals. Instead, we emphasize the importance of expanding our sales force as a key driver of volume and market share growth, while empowering our local operating companies to hire according to their specific needs. We still believe a rate of hiring at or above 6% makes sense for the long-term support of our growth rate, but expect this number to fluctuate in any given period.

I want to take a moment to discuss the integration of Cheney Brothers. As we discussed last quarter, we are pleased with the work being done at Cheney and expect this company to be a significant contributor to PFG's revenue and profit growth long into the future. That said, we have been very consistent in our messaging around synergy timing and when we expect the financial performance of Cheney to accelerate. When we made the acquisition, Cheney was making meaningful investments in its infrastructure to support growth.

More specifically, the addition of a new 350,000 square foot facility in Florence, South Carolina and a new 42,000 square foot facility in St. Cloud, Florida to expand its manufacturing capabilities. These investments, along with other integration costs, have had a short-term impact on Cheney's performance and our overall P&L. Despite this activity, Cheney continues to grow independent cases at a rate consistent with the rest of our foodservice operating companies, gained share in its distribution markets and provide its customer base with great service.

To close out my comments on Cheney, I want to remind you that we anticipate the majority of the synergies to start flowing through the income statement late in year 2 through year 3 after the close of the acquisition. Profit performance for Cheney should begin accelerating accordingly.

All in, our Foodservice segment had a solid second quarter, growing volume through market share gains, new business wins and expansion of our private brand portfolio. We faced two meaningful EBITDA hurdles in the quarter that are likely to persist into Q3 with my earlier comments on Cheney and the impact of cheese and poultry deflation. Despite the challenges, we remain confident in our strategy and expect our results to accelerate as we move through our fourth quarter, setting us up for a strong fiscal 2027.

Turning to the Convenience segment. On our prior earnings calls, we disclosed the addition of sizable new business wins for Core-Mark. In the final weeks of September, we successfully onboarded over 500 Love's stores, contributing nicely to our second quarter results. Also joining the Core-Mark fold in December were over 600 RaceTrac locations, which we successfully integrated into our network, setting the segment up for a strong finish to fiscal 2026.

Let's look at the Convenience segment's performance during the second quarter. Net sales increased 6.1%, benefiting from market share gains and the onboarding of the new accounts just discussed. Our data shows a mid-single-digit industry decline in the key convenience categories as persistent inflation continues to weigh on the channel.

Core-Mark's positive volume results reflect the company's strong share gain outperformance and execution during the period. Convenience segment sales were driven by low single-digit dollar growth from food, Foodservice and related products and mid-teen noncombustible nicotine product sales growth. Cigarette sales were flattish in the period. As a reminder, the mix shift away from cigarettes towards other nicotine categories and growth in food, Foodservice and related products causes a revenue headwind, but is nicely accretive to our gross margins. This dynamic is a consistent secular tailwind for our profit growth, which we expect to gain momentum over time.

Moving on to profit. In the second quarter, our Convenience segment adjusted EBITDA increased 13.4% as a result of strong cost discipline and operating efficiencies in addition to business from Love's and RaceTrac. Once again, our great team at Core-Mark showed remarkable resilience and the ability to drive profit growth despite a challenging backdrop.

Turning to Specialty. Trends in the second quarter were broadly similar to the first quarter, with a modest improvement in top line trends, coupled with nice productivity gains, which produced segment adjusted EBITDA margin expansion. Sales growth was tempered by another difficult quarter in theater, which was down over 30%, representing an approximate $50 million drag on overall sales. Outside of theater, Specialty performed well, growing sales at a high single to low double-digit rate in the vending, office coffee, retail, campus and travel channels. Proactive management of operating expenses produced nearly 7% segment adjusted EBITDA growth in the quarter, representing 40 basis points of margin expansion.

Closing out my remarks, it's certainly been a dynamic operating environment to take over as PFG's CEO. That said, I'm inspired by our organization's ability to consistently gain share across our business segments, operate safely while delivering exceptional customer service and enhance our operating leverage, driving sustained growth in EBITDA dollars and margins for our shareholders. Our diversification seeks to provide consistent performance in a range of economic scenarios, and our strong pipeline of new potential business should result in consistent long-term revenue and profit growth for PFG.

I'll now turn it over to Patrick, who will review our financial performance and outlook. Patrick?

Thank you, Scott, and good morning. Today, I will review our financial results from our second quarter, provide color on our financial position and review our updated guidance for 2026. To echo Scott's comments, despite challenges in the quarter, we are very pleased with our progress through the first 6 months of 2026.

Through December, we continue to make progress on our financial position, as our strong cash flow was used to invest behind our business to drive growth and reduce leverage. We believe that the investments we are making today will pay off nicely as we execute our strategy. In a moment, I will provide additional color on our financial position and capital allocation priorities.

First, let's review our results for the second quarter. PFG's total net sales grew 5.2% in the second quarter, with growth in all 3 operating segments, in particular strength in Foodservice and Convenience. Total company cases increased 3.4% during the quarter, highlighted by a 5.3% organic independent restaurant case growth and a 6.3% organic case gain in our Convenience segment. As a reminder, having fully lapped the Cheney Brothers acquisition, as of the second week of the second quarter, Cheney was reported as part of our organic business for the vast majority of the period.

As Scott mentioned, in our Convenience business, we are very pleased with the contribution from the addition of Love's and are looking forward to the benefit of the RaceTrac business, which started onboarding late in the second quarter. These businesses are expected to deliver incremental sales and profit dollars over the next several quarters.

Total company cost inflation was approximately 4.5% for the quarter, just slightly higher than what we experienced in the prior quarter. With that said, there were some items moving around within our cost basket. Foodservice inflation of 1.8% was below recent trends, with notable deflation in the cheese and poultry categories somewhat offset by higher inflation in beef. Specialty segment cost inflation was 5.4% year-over-year, about 140 basis points higher than the prior quarter, mainly the result of candy and hot drink price inflation. Convenience cost inflation increased 7.4%, again, slightly higher than the prior quarter due to inflation in tobacco and candy. As Scott mentioned, the inflation impact on the Convenience segment sales growth is offset by the revenue mix shift away from cigarettes.

The inflationary environment has been volatile over the past several years, but as a company, we have demonstrated our ability to handle a range of outcomes. We continue to model inflation rates remaining in the low single to mid-single-digit range throughout 2026.

Moving down the P&L. Total company gross profit increased 7.6% in the second quarter, representing a gross profit per case increase of $0.20 as compared to the prior year's period. We are very pleased with our gross profit results, which shows our organization's resilience and long-term growth opportunity.

In the second quarter of 2026, PFG reported net income of $61.7 million, a 45.5% increase year-over-year. Adjusted EBITDA increased 6.7% to $451 million, with all 3 operating segments contributing to our adjusted EBITDA growth. Diluted earnings per share in the fiscal second quarter was $0.39, while adjusted diluted earnings per share was $0.98, flat year-over-year. Our EPS was impacted by several below-the-line items, including higher interest expense and effective tax rate in the period. Our interest expense increased due to higher finance lease costs, offsetting lower debt balances and more favorable interest rates. Looking ahead, we anticipate a very modest sequential decline in the net interest expense.

Our effective tax rate was 28.8% in the second quarter, an increase from 25.2% last year. The increase in our quarterly effective tax rate was due to a decrease in deductible items related to stock-based compensation and an increase in foreign taxes as a percentage of income, partially offset by an increase in tax credits. We continue to expect our 2026 tax rate to be close to our historical average.

Turning to our financial position and cash flow performance. In the first 6 months of 2026, PFG generated $456 million of operating cash flow, an increase of $77 million compared to the same period last year. We invested about $192 million in capital expenditures during the first 6 months. We continue to anticipate full year 2026 CapEx to be approximately 70 basis points of net revenue, in line with our long-term target. Our investments in CapEx are primarily focused on maintaining and supporting growth within our infrastructure and high-return projects that we believe will support our long-term growth goals.

In the first half of 2026, we generated about $264 million of free cash flow, up nearly $89 million compared to last year. We did not repurchase any shares under our share repurchase program in the quarter. We will be opportunistic around share repurchase, but our priority remains debt reduction.

The M&A pipeline remains robust, and we continue to evaluate strategic M&A. PFG has a history of successful acquisitions to drive growth and shareholder value, and we expect that to continue. At the same time, we will apply our typical high standards and robust due diligence to evaluate high-quality acquisition opportunities.

Turning to our guidance. Today, we announced guidance for the third quarter of 2026 and updated our range for the full year. For the third quarter, we expect net sales to be in the range of $16 billion to $16.3 billion and adjusted EBITDA between $390 million and $410 million. These ranges include continued deflation in cheese and poultry, the investment in our business, including onboarding of new capacity at Cheney, and a continuation of a difficult backdrop for our Specialty segment. We have also contemplated the impact of the recent winter storms in our outlook for the third quarter.

For the full fiscal year, our sales target is now a range of $67.25 billion to $68.25 billion. We now expect full year adjusted EBITDA in a range of $1.875 billion to $1.975 billion for 2026. The adjustments in our full year projections are largely a flow-through of the more difficult second quarter period. Our results keep us on track to achieve the 3-year projections we announced at Investor Day, with sales in the range of $73 billion to $75 billion and adjusted EBITDA between $2.3 billion and $2.5 billion in fiscal 2028.

To summarize, we are pleased with our progress despite a difficult operating environment in the second quarter. We are in a solid financial position, which supports our growth investments and capital return to our shareholders and expect strong execution in the second half of the year. Thank you for your time today. We appreciate your interest in Performance Food Group.

And with that, Scott and I would be happy to take your questions.

[Operator Instructions] We'll take our first question from Mark Carden with UBS.

So to start, on organic independent case growth, you started the quarter with some solid momentum, called out the shutdown. Any additional color you can add on performance by month? And then you also just called out some of the recent weather headwinds and impact to guidance. How has January lined up relative to your initial expectations? And do you still see a path to that 6% organic independent case growth for the full year?

Mark, this is Scott. Great questions. And as you talked about, in Q2, we started the quarter in October, fairly strong. That was the strongest period of the quarter. And then obviously, the shutdown certainly had an impact the longer it carried on. We saw in November and December months relatively equivalent, definitely some choppiness week to week. And then as we moved into January, we saw a really nice rebound, nice performance in January. And then certainly, as you know, the start of February has been materially impacted by weather last week, really, a good portion of the country was impacted. And this week, a little more isolated to the eastern half and the Southeast. But certainly had an impact and something we factored into guidance.

When I look at the big picture, we're very optimistic about the full year. And I think you called out the 6% target. That's always what we aspire to. That's kind of how our sales organization is geared as we want to be 6% or above, so we're certainly fighting to get there.

Great. And then on the sales force front, have you guys seen much of an impact on either new hiring or retention on the back of some of the earlier uncertainty relating to US Foods discussions perhaps earlier in the quarter? And then just how did the pace of your sales force growth compared to recent quarters?

That's a great question. Really, what I look at when I think about sales force hiring and performance is really market share. And as I look at the sales force's market share performance, not just over the last couple of quarters, but over the last 5 or 6 quarters, we've been very consistent in our independent market share gains.

As far as actual headcount, we've been right at that 6% range for the first 2 quarters of this year. I'm totally comfortable at that level to see them continue to grow share, to demonstrate through new account acquisition. We were at 5.8% net new account gains this quarter, same last quarter.

But at the end of the day -- and I talked about this in my comments -- we are decentralized around that hiring. We certainly have OpCos that are hiring in the double-digit range and some that are probably below that 6% range. And we really leave that up to them. But what I use as my gauge is really anchoring back to market share. So I feel really good about where we're at right now and the availability of talent.

We'll hear next from Alex Slagle with Jefferies.

Just wonder if you could dissect the dynamics at play for the Foodservice business in the second quarter? It seemed like really strong independent growth, and independent mix sales jumped a lot, but the OpEx was elevated and you called out the Cheney investments and the cheese and poultry deflation. But maybe you could kind of talk a little bit more about how impactful that was, kind of the cadence of the investments behind Cheney and how that maybe differed from expectations or if that was sort of similar to what you expected?

Yes. Let me just start off with Cheney. I want to take a step back and just -- that acquisition is something that we pursued for a long time. It's been a great acquisition to date. It's a great cultural fit. It fills in a geography that is really strategic for us. So we're really happy with the progress of the acquisition.

As we -- as I called out in my remarks, we knew going in that we were going to make some material investments in their infrastructure. We have a brand-new building that is just completed. We just started receiving product this week. It will start shipping probably over the next 3 to 4 weeks. So certainly, there are some costs related to that. We also opened a new manufacturing facility for them. So overall, I would say their costs are running a little bit higher than we anticipated.

And the other thing that we're taking them through right now is they transition into being part of a public company is the integration costs to our benefits, to our payroll, to our financial mapping. So again, really happy with the acquisition. Certainly, expenses are a little bit higher than we anticipated.

And then just you kind of asked about the overall cadence in Foodservice. As you pointed out, really happy with our market share growth, both in independent and chain. From a margin standpoint, as we continue to grow that independent market share, that mix really helps our margin. So that's performed really well.

And then I think from an OpEx standpoint in the core Foodservice ex Cheney, we have leverage, but I'd say, definitely, there's some opportunity in leveraging OpEx in that area as well. But really pretty happy with how the core Foodservice segment performed. And then we talked about the deflation in those 2 couple of categories did have an impact on margins for sure. We over-indexed in those 2 categories. So really, summing it all up, Cheney and the deflation were really at the end of the day, really, the miss in the quarter that would have gotten us to the upper half of guidance.

Okay. And then I guess along the same lines, at least in terms of the improving mix with Convenience EBITDA margin opportunity I wanted to ask about -- I mean it's expanded nicely, and some of that is the Foodservice growth and some other mix items. But I mean the Foodservice penetration actually still seems to have a long way to go. Kind of curious what that could mean over time for the overall Convenience EBITDA margins as we look out a few years and we continue to grow that portion of your business there?

It's a great call out, Alex. There's a lot of things going on in the Convenience segment that really, I think, help our margin profile over time. You certainly called out Foodservice, and I agree with you, there's a long runway ahead. We continue to grow Foodservice in the high single-digit, low double-digit range, both in our Convenience segment and our Foodservice segment into Convenience. So kind of hitting that from two ends. So that's performing really well.

When you look at the macro of Convenience though, one of the things that's, I think, really encouraging is what's happening in the noncombustible space. So noncombustible nicotine, oral nicotine and other forms of nicotine that aren't combustible are growing at a rapid pace. Those have a nicer margin profile than combustible cigarettes. So as we see that migration, there's a natural benefit to our margins in mix. So that's been a great progression, and I think that's going to continue for a long time. So we feel really good about how we're set up in Convenience from a margin standpoint.

We'll hear next from John Heinbockel with Guggenheim.

Scott, maybe you can touch on some of the self-help that you referenced back at the Investor Day, particularly strategic procurement. Where are we in that journey? And then maybe as a related question for Patrick. Just the impact of deflation on margin comes from where? I don't know if that's mix or inventory gains? Or how does that flow through?

Yes. So I'll take the first half of that and let Patrick tackle the second. So John, we, at Investor Day, talked about procurement opportunities. And we've done a lot of work on that. And certainly, in the clean room environment that we had over the last few months, that allowed us to really dig into our own side of the procurement ledger. And really, at the end of the day, it gave us that much more confidence that we're going to be able to get to that top end of the $100 million to $125 million of procurement synergies over our 3-year plan.

The cadence of that, I'd say it's fairly linear. I think we're starting to capture some of that in the back half of this year. We'll definitely see capture in year 2, in year 3 and get us to that end number. So we feel really confident about that.

Yes. And John, thanks for the question. I'll jump in here. Yes. So where we're going to see the impact from the deflation is largely going to be in margin, but it could also be a little bit of inventory gains. I mean you have to remember, we have a very large basket of commodity goods that are constantly moving around. We called out cheese and poultry because our expectations for the quarter were higher than what we actually saw come through with the inflation. So that's the reason we called it out. And it's because we also over-indexed in those 2 commodities versus the rest of the basket.

All right. Maybe a follow-up for Scott. I know as part of the U.S. food process, right, there was some chain business that has sort of gotten tabled. Does that come back? When does that come back? And how material is that?

Yes. I think as George mentioned on prior earnings call, we had 2 or 3 folks in the pipeline. I'd say fairly material pieces of business that we felt like we had a really good shot at picking up. And as we said, we felt like they were on the fence. Most of those, what they do in that situation is they will renew for the short term, and that's what happened with a couple of these. They signed 1-year extensions on their agreements.

So we're certainly still in dialogue, but I would just step back and say, overall, in the Foodservice space, we feel really good about our pipeline, both independent and chain in the convenience space. Obviously, they're performing exceptionally well from a market share standpoint. And I'd even step back and look at Specialty and say, we definitely called out the headwind in theater. That's been certainly a challenge. That challenge will really persist for us in the next quarter. That's when we lap at the end of this next -- or I guess, this third quarter that we're in, we lap a pretty material loss in theater.

And -- but the rest of the Specialty segments are really performing pretty well. When I look at vending and retail, our e-commerce platform, we're starting to see some momentum there. So I feel really good as we get into Q4 that you're going to start to see some nice performance out of the Specialty from a growth standpoint.

We'll move now to Jeffrey Bernstein with Barclays.

Great. Thank you very much. My first question is just on the M&A topic. Scott, you mentioned the pipeline is robust. Just wondering whether there's any change in Performance as specific interest? It seems like you're still working hard on the Cheney integration, maybe costs are coming a little higher than you thought. So just wondering if there's any change to the approach to that M&A, maybe with George stepping back, how we kind of prioritize that process? And then I had one follow-up.

Yes. I would say, overall, really no change to our approach to M&A. I mean, George and I have collaborated on M&A for the last 4 years. We'll continue to collaborate moving forward on that. We certainly are looking at things in our pipeline.

To your point, Cheney I think has progressed really well. We're really excited about what that's going to bring. And we called out early on that the synergies that we'll see in Cheney really come at the end of year 2 and year 3. And that's really the way we approach M&A. We try not to make any drastic changes in those first couple of years to really let them acclimate to the organization. We try and learn what we can from them as well. And we think that just makes for a much better long-term approach to M&A, and that's paid off with Reinhart, it's paid off with Core-Mark, and it's certainly going to pay off for Cheney.

Understood. And then just a follow-up on the independent organic case growth. I know you talked about always targeting kind of that 6% type range. It's going to be a little bit more of a fight to get there in the fiscal third quarter. So I'm wondering if you could share any kind of current run rate or your expectation for that third quarter?

And there was a passing mention on the weather, I was expecting to hear something more material. I was wondering whether you could quantify how much potentially that weather impact has had on sales, which were modest, was below Street expectations for the third quarter, but EBITDA, which was well below? Just trying to gauge the primary driver of that EBITDA shortfall weather, whether weather had a more outsized impact or whether it's primarily Cheney.

Well, I'll talk to the cadence of the quarter, and Patrick might want to fill in a couple of things here. We actually started January off really nicely. I would say it was, call it, a rebound from where we were at in December. It picked up nicely in January. And then certainly, last week's weather was impactful. And I think going into this week, certainly having an impact as well. And that's certainly something that we took into consideration when we talked about our guide for the third quarter and the full year. Patrick, anything you want to...

Yes. Just a couple of comments on the guidance for Q3. Really, what we have embedded in that guidance in the EBITDA is we do expect to see some continuation of the OpEx challenges that we've had to Cheney that we saw in Q2 will continue in Q3. We also are seeing that deflation impact from cheese and poultry continue into Q3.

Scott touched on Specialty. And then obviously, the weather, we contemplate that. We've had bad weather last year, 2 years ago during this quarter. It is our smaller quarter. It's very hard to obviously nail down weather, but we have recently experienced 2 weeks of impact from weather. And as Scott mentioned, we did see a nice uptick in independent cases as we entered this quarter. And we have the Convenience with their new RaceTrac customer being for the full quarter. So we have some tailwinds as well. And that's really kind of how we built out the guidance for the quarter.

We'll turn next to Edward Kelly with Wells Fargo.

Yes. Good morning, everyone. I'm sure George is listening. If he is, he will be missed. And Scott, just wanted to say congratulations. I wanted to follow up on the cost side for you. As it pertains to some of the higher-than-expected costs related to Cheney, I would think that the weather disruption probably adds some added cost too. I'm curious, as we think about when the business normalizes and we look out into the next fiscal year, are there tailwinds associated with lapping this type of stuff? Just kind of curious as to how sort of like onetime in nature some of this stuff is?

No. It's a great question, Ed. And certainly, as we talked about Cheney, the major investment in a facility, that's a 350,000 square foot facility that we're staffing and have been staffing over the last couple of months, and that won't be fully online until probably 2 months from now. So you've definitely got some expense involved with that.

And then as you called out, certainly, weather creates some expense challenges. As I look at the 3-year guidance, I think that's really where we contemplated what those tailwinds look like. And certainly, our synergies in Cheney, we expect to come in year 2 and really into year 3. And that's going to be a nice contributor to our 3-year guidance, and we feel really strong about delivering that.

All right. And then just a follow-up for you, and it pertains to the 3-year guide that you referenced, Scott. There's been concern about disinflation, you mentioned it on the call today. I guess, first, what's embedded in that 3-year guide in terms of like an inflation outlook? If Foodservice is just sort of like plotting along at 1% to 2%, is there any issue with hitting the 3-year guidance if it's a low level of inflation? Just kind of curious as to how you contemplated all that in that outlook?

Yes. This is Patrick. It's a great question. And as we think about the 3-year guidance and inflation, we embedded into our models what we thought would be a consistent number. And we've always said where we are right now is pretty good. We're calling out the deflation this quarter just because, as I mentioned, our expectations were cheese and poultry specifically were going to not be as deflationary as they are. So yes, when we think about the 3-year guidance, we have a lot of confidence in hitting that guidance. We're very much on track if you look at where we're projecting this full year guidance to be. And then as we enter next year, we have just a lot of confidence in executing our strategy, continuing to take market share and then everything else that we've talked about.

We'll move now to Kelly Bania with BMO Capital Markets.

All right. Good morning. This is Ben Wood on behalf of Kelly Bania. Could you provide any more detail on the monthly cadence of volume trends you saw in Convenience? Some of the industry data we look at suggest that sales trends really accelerated into December and through year-end. Is that consistent with what you guys saw? And if so, how are you thinking about the possibility of some of those key categories in Convenience inflecting positive going forward?

Yes, it's a great question. As I look back over the full second quarter, those results were, I would say, fairly consistent with what we've seen historically, which was kind of low to mid-single-digit declines in a number of categories.

To your point, though, as we exited the second quarter in December and maybe even into January, I think one of the things that we benefit from in the Convenience segment is when you get fuel pricing that drops down in some markets into the $2 range, that certainly helps car travel and people being out on the road.

Obviously, we were really propelled by new account wins. But even taking that away, we continue to gain share in our Convenience segment, both at the chain level, the regional level. So our segment is performing well. And to your point, I think there are some signs of improved performance in traffic and Convenience.

Great. And then just kind of following up on that. In light of the announcement yesterday from Pepsi to pretty majorly lower price in some of their key snack brands, do you expect others to follow suit? And is there a possibility that some of the snack and convenience categories might become deflationary off of this? And how does that impact your different businesses?

I wouldn't want to make predictions on whether other snack categories would become deflationary. That would be -- I've been in this space for 30 years. I've never seen those categories become deflationary. Yesterday's announcement was very interesting. What I have since heard is that, that's primarily just on the big bag. So right now, we don't see that as being a big impact on our Convenience segment. Certainly, that could change and pass along to some other SKUs. But I don't see that becoming an industry trend, just based on my historical experience.

We'll move now to Lauren Silberman with Deutsche Bank.

So I wanted to go back on the OpEx side. Can you help us understand how core underlying OpEx is growing ex Cheney? I guess I'm trying to understand how much of the growth of investments in the core business sales force versus some of the noise of Cheney with the new facilities coming online?

No, it's a great question, Lauren. I would say, and I think I said a little earlier in the call, I would say there's certainly always opportunity in getting more expense leverage across all of our segments. I would say, in the core Foodservice segment, quarter-over-quarter, our expense performance was fairly consistent. We are certainly seeing leverage as a percent of gross profit dollars in our expenses. So we feel good about how the core is performing. Certainly, opportunities to improve. But the bulk of our miss in OpEx from what we anticipated was really just the overrun we saw in Cheney.

Okay. I guess, in the back half of the year, any way to frame how we should be thinking about that growth now that it's in the full segment year-over-year clean? And I guess is the overrun more of a pull forward of expenses or higher overall expenses?

No, I think it was really situational just to Cheney. And as I talked about, with new buildings coming on, some of the things that we're doing to get them to be part of our overall public organization has certainly added some cost to them. So we expect that to continue a little bit into the third quarter, as we called out. But in the long run, we're a company that's really focused on getting OpEx leverage across all our segments. And we feel very comfortable that in our full year, we'll get that in a position that we feel really comfortable with. And that was all obviously contemplated in our guidance for the full year.

Okay. And then if I could just go on the promotional environment, can you talk about what you're seeing amongst competitors? Any changes in the promotional environment? Especially as one of your big competitors seems to be building some momentum. And then there's just the moving pieces of product inflation and how different peers react.

Certainly. What I said earlier and what I consistently look at is market share gains. And I think we have performed exceptionally well this quarter, last quarter. And now as I look back for a number of quarters, our market share gains have been very consistent across the independent space, across the chain space as well. So from that perspective, I feel good about how we're performing. That's really my focus.

As far as the competitive environment, I would say it's always competitive. I wouldn't say that I saw anything different this quarter or last quarter than I've seen from prior quarters.

We'll move next to Brian Harbour with Morgan Stanley.

[indiscernible].

Brian, we can't hear you.

Yes, your line is difficult. Are you able to pick up a handset?

Can you hear me now?

Yes.

Perfect.

Okay. Great. On your deflation comments, can you remind us how those products get marked up? And I guess, for -- like cheese, for example, I mean, how much is this sort of like category -- if you think about pizza in contrast to chicken, I would think that that's -- demand is still very good there. Could you just elaborate on that?

Yes. So just -- I'll try to keep this high level, but we're going to -- if we take our independent customers, we're going to have a markup on cost, and our salespeople are the ones that determine that in a deflationary environment. And what's happening with these 2 commodities is there's this oversupply. There's a lot of supply, lot of capacity came out with cheese. And so it's at a very low point. and same thing with poultry, they're able to increase their supply significantly. They do this from time to time, and they go oversupply and then they go undersupply. So again, it's really just our over-indexing because of our customer base in those 2 commodities that we called this out.

Yes. Okay. Understood. And then just in Convenience. I guess I would assume that there's sort of secular pressure on snack foods, that it's not just the inflation that's happened there, but sort of preferences. I think we're seeing that in grocery stores. So how much -- do you think that -- do you agree with that? And do you think that the convenience stores are sort of committed to replacing some of those products with perhaps healthier options or more on-trend options? Do you think that's happening fast enough, such that it sort of improves sales in that segment versus what you've been seeing?

No, it's a great question. There's a lot to unpack there. The first thing I'd say is just looking at product inflation. If you look at snack and candy, I guess, since pre-COVID until today, those are 2 of the categories that had the highest inflationary increases of any consumable product that's out there. So certainly, I think that price elevation had an impact on demand.

And so Frito's response, like I said, has surprised me a little bit because I do think the consumer is catching up. And so as we talked about, we've seen a little heightened demand over the last couple of periods in Convenience. As far as the mix of products, I think the one real opportunity for us is really in Foodservice. I think the convenience store more and more is becoming a relevant option for high-quality food options. And as we think about consumer behavior changing, they want fresher, they want healthier. And convenience stores have an opportunity to fill that need, and we feel that we're somebody that can certainly fill that.

As far as consumer packaged goods and that mix changing, there's been a shift in general to more healthier options in convenience. And to your point, I think could this kind of dynamic accelerate it? Certainly, it could. But I think as we all know, it takes consumer packaged companies a while to get products to market. So I don't see anything dramatically happening quickly.

We'll move next to Peter Saleh with BTIG.

Great. I did want to come back to maybe Jeff's question on the forward guide. Can you just talk a little bit about maybe what's embedded from a macro perspective going forward? I mean we do have some much higher tax refunds coming through that should benefit this quarter and maybe into the first calendar half of the year. Have you embedded any of that into your guide? Have you thought about that? I know you said January was a pretty good month, February, I guess, starting off pretty slow. But I think the quarter is really defined by how March performed. So any thoughts on that would be helpful.

Yes. Peter, that is a really good question. I spent a lot of time looking into the tax refunds, the no taxes on tips or over time, they're going to start coming through. And other tailwinds, honestly, I mean, what's the World Cup going to do, all these things as we go through Q3 and Q4.

We did not embed those in our guidance mainly because it's very hard to know what that flow-through is going to be, but we do know that putting more money in the consumers' pocket, especially the folks that are maybe on the lower end, we'll see how much of that goes into the market and how much they use that for discretionary spend into restaurants. But we do know that's a very positive thing. And then we know that the World Cup should also be another tailwind, but we didn't put that in the guidance.

Great. I appreciate that. Can you also comment, I think last quarter, George commented that there could be some changes to the SNAP benefits, and that could have an impact. Have you seen any change on that front and any impact to date?

And there's some recently contemplated changes as well. But no, I can't say that we have seen any material impact on any of the changes or contemplate the changes in SNAP at this point.

We'll move now to Karen Holthouse with Citi.

I wanted to dig into Florida a little bit and just kind of excluding Cheney Brothers or noise from that, your sense of just the underlying health of that market. I think we're hearing some confirms around travel tourism, particularly international tourism around theme parks and whatnot being down pretty materially. And then just a snowbird season has gotten underway. Any risk that Canadians are avoiding the market this year?

No, I think it's a great question. And certainly, we have our finger on that pulse pretty closely. The one thing that I would say that I've been very pleased about with Cheney is their independent share gain. They continue to grow independent share at a rate consistent with the rest of our business.

And definitely, we've been following very closely the travel patterns, and I saw the recent theme park attendance. So I do think there's been a little bit of a slowdown with international travel and the Canadian travel in the marketplace. But I'll tell you, we have a ton of confidence in Florida overall. I mean that's been a state that's been growing consistently for a number of years. And I feel like that they're poised for a big rebound in that state. But we're performing really pretty well in the state, all things considered.

And then 1 quick follow-up that just prior to the bigger weather events that we saw in the last week or so. Anything to comment in terms of geographic performance in the quarter to date?

It's a really good question. We had called out on prior earnings calls that we saw some slowness in the Midwest, and we'd also called out areas where we had fringe travel from Canada. But as I think back to last quarter, the start of this quarter, particularly the start of this quarter, January, which -- January isn't the bellwether month because it's a smaller month. But really saw pretty consistent performance across the map. I didn't see any markets that had any material lulls or surges.

[Operator Instructions] We'll turn next to Danilo Gargiulo with Bernstein.

Great. Scott, once again, congratulations on your new role. And I want to ask a more strategic question to begin with. So as you're embarking in this new role, how would you like your era to be remembered for? In other words, where do you see incremental opportunities for Performance going forward?

Really appreciate the question. I think it's a great question. One of the reasons that I'm at Performance Food Group, it's one of the reasons that, as I was running Core-Mark, that we decided to merge with them is culturally, I truly foundationally believe in what George and Performance Food Group were doing as a company. So as I've worked with George over the last 4 years, I would say that we very much align in how we look at the business. I think fundamentally, we're both believers in driving growth, both organically and through M&A. I think we both pay particular attention to margin and how mix can help and drive margin. Culture is very important to me.

And then I'd say if there's anything that maybe is a little different is I probably have a little slant towards how are we going to leverage technology, how are we going to leverage that to be more efficient as a company. But outside of that, I'd say, George and I, our approach to the business is very consistent. And my priority for this company is to continue to drive that top line growth, but make sure that everything that we do allows it to flow to the bottom line, and that we do it with a great culture and make sure there's a great place for people to work.

Okay. Great. And you mentioned margin in your answer. And earlier, you also talked about the discovery that you really had with the -- during the process of a potential merger with US Foods on the procurement side. So I'm wondering, over what time frame do you expect Performance to potentially starting to close some of the margin gap versus peers? Absent obviously, the mix impact that is going to be favoring you over time? And what are some of the low-hanging fruit that you think you could capture without impacting the case growth?

No, another great question. I would say that the work we did in the clean room was just validation. We felt like when we sat down and put together our strategy for Investor Day, this is a company, as I called out in my prior remarks, that's grown dramatically over the last 10 years. And so we felt like as we sit down with our vendors and partner with our vendors that there's an opportunity to create cost of goods benefits, to create logistics benefits, just through our size and scale and creating efficiency with our vendor partners. So I think the clean room exercise was just a further validation that, that opportunity exists and that we have a clear line of sight to go capture it. And the second -- I'm sorry, the second part of your question?

What is the right time frame for the closure of the margin gap?

Yes. I think I've called that out a little bit. We really incorporated that procurement synergy into our 3-year guide. And as I look at the cadence of that, I would say that we're in the early innings. We're in the first couple of quarters of that. But we felt like and still feel like that's going to flow fairly consistently year-to-year. So I think my thinking there is unchanged.

As there are no further questions in queue at this time, I would like to turn the call back over to Bill Marshall for any additional or closing comments.

Thank you for joining our call today. If you have any follow-up questions, please reach out to Investor Relations.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation, and you may disconnect.

Good day, and welcome to PFG's Fiscal Year Q1 2026 Earnings Conference Call. [Operator Instructions]

I would now like to turn the call over to Bill Marshall, Senior Vice President, Investor Relations for PFG. Please go ahead, sir.

Thank you, and good morning. We're here with George Holm, PFG's CEO; Patrick Hatcher, PFG's CFO; and Scott McPherson, PFG's COO.

We issued a press release this morning regarding our 2026 fiscal first quarter results, which can be found in the Investor Relations section of our website at pfgc.com.

During our call today, unless otherwise stated, we are comparing results to the results in the same period in fiscal 2025. Any reference to 2025, 2026 or specific quarters refers to our fiscal calendar unless otherwise stated.

The results discussed on this call will include GAAP and non-GAAP results adjusted for certain items. The reconciliation of these non-GAAP measures to the corresponding GAAP measures can be found at the back of the earnings release.

Our remarks on this call and in the earnings release contain forward-looking statements and projections of future results. Please review the cautionary forward-looking statements section in today's earnings release and our SEC filings for various factors that could cause our actual results to differ materially from our forward-looking statements and projections.

With that, I'd now like to turn the call over to George.

Thanks, Bill. Good morning, everyone, and thank you for joining our call today. Performance Food Group is off to a great start in fiscal 2026, building upon the momentum when we saw exiting 2025. All three of our operating segments are contributing nicely to our profit performance, and we are seeing a nice combination of revenue performance and margin expansion.

This morning, Scott, Patrick, and I will share an update on our company's progress and provide our thoughts on the industry and external environment.

We finished our first quarter with excellent results, including double-digit top line growth, acceleration in our independent restaurant case volume and gross margin expansion. Our diversified approach to the food-away-from-home market continues to pay off as we are seeing broad-based market share gains. Our success is a direct result of our team's ability to execute in the current market environment.

Within our Foodservice business, independent case growth exceeded 6%, propelled by market share wins and increases in customer penetration. We have continued to see case performance in our independent business gain momentum since early in the calendar year. Also, during the final weeks of the quarter, Core-Mark began shipping to Love's Travel Stops. The first of two large new account wins that we are onboarding in the Convenience space during the fiscal year. Scott will share more details on our progress in the Convenience segment in a moment.

Our Specialty segment continues to navigate the economic backdrop by driving efficiencies through the business leading to double-digit adjusted EBITDA growth in the quarter. We are seeing pockets of strength in our Specialty business, including vending, office coffee, campus, retail and e-commerce fulfillment channels.

Our teams are capitalizing on our PFG 1 approach, which encourages collaboration across our business segments to drive revenue and profit growth. We believe we are in the early stages of this initiative, but have already begun to see the benefits due to market share wins, sales growth and margin expansion. We are investing in our people and technology to support our growth profile.

In the first quarter, our Foodservice salesforce head count increased about 6% compared to the prior year. We are committed to adding talented salesforce head count. The slight deceleration from the fourth quarter to the first quarter was due to normal fluctuation in hiring across the organization.

We continue to attract high-caliber sales associates and believe this will be an important contributor to our growth in the years ahead.

Before turning it over to Scott, who will provide more detail on our results. I'd like to reinforce how pleased I am with our organization and the efforts from our 43,000 associates. Their hard work and dedication directly reflect our company's success. Our diversified structure across the entire food-away-from-home market is well designed to succeed, and I'm excited for the future with PFG.

With that, I'll turn it over to Scott. Scott?

Thank you, George, and good morning, everyone. Let's jump in and review some highlights of our first quarter results. As George mentioned, we are very pleased with our start to the fiscal year and are seeing contribution across the organization due to our team's solid execution.

Starting with Foodservice, the segment built upon its momentum by accelerating independent case growth compared to Q4 and maintaining chain case growth in the low single digits. Total Foodservice cases were up 15.6% in the quarter, including incremental sales from Cheney Brothers, which we began lapping in early October.

On an organic basis, Foodservice cases grew 5.1%, fueled by 6.3% organic independent case growth. Our independent case growth was driven by a 5.8% increase in new customers year-over-year and an increase in customer penetration. We were encouraged to see our lines for drop increase in the quarter, which is a key driver of long-term profitability.

Our chain business grew cases 4.4% in the quarter as we continue to benefit from new account wins that were onboarded last year. Our pipeline of potential new chain business remains robust. In total, sales for our Foodservice segment increased 18.8% in the quarter, with organic top line growth increasing 7.7%.

Shifting to margins, positive mix shift, low single-digit inflation and procurement efficiencies drove gross margin expansion. Cost inflation during the first quarter was 2.5%, roughly in line with the fourth quarter and a modest deceleration from what we experienced over the full year of fiscal 2025. Double-digit inflation in beef was largely offset by lower poultry and cheese prices in the period.

Taking a look back at the quarter, the balance of growth, margin expansion and operational execution led to very strong segment adjusted EBITDA growth of 18.1%. Excluding the contribution from Cheney Brothers, our Foodservice segment adjusted EBITDA was up by low double digits. We could not be more pleased with the performance of our largest segment. We are optimistic that these results will continue through the fiscal year as we remain laser-focused on capturing profitable market share wins and continuing to execute operationally.

Turning to Convenience. During the quarter, our Convenience segment saw a 3.5% sales growth on a modest volume increase and the benefit of inflation. Once again, our Core-Mark business outperformed the industry, delivering strong relative volume performance in many key categories, including Foodservice, snacks, and health and beauty care. Core-Mark is also seeing sizable growth in the non-combustible nicotine space led by the popularity of oral nicotine products. Core-Mark is just beginning to see the positive impact from the onboarding of one of two recent chain account wins, which George mentioned earlier.

In mid-September, Core-Mark began shipping to hundreds of additional Love's Travel centers, and in December, will begin delivering to RaceTrac locations nationwide.

I'd like to thank our Convenience associates who manage this onboarding process, which has gone extremely well to date, positioning us to build upon our partnership with these two industry-leading retailers.

We believe these wins, coupled with a strong pipeline will continue to fuel top and bottom line performance in the quarters ahead. The Core-Mark organization has been working diligently to win new business, increase efficiency and produce strong bottom line results.

In fiscal 2025, our Convenience segment saw these efforts translate into double-digit adjusted EBITDA growth. With the new business wins that have just started to roll in, we believe fiscal 2026 will deliver another year of excellent sales and profit performance.

We recently passed the 4-year anniversary of PFG's acquisition of Core-Mark, which has provided PFG's shareholders an impressive return with significant growth potential in the years ahead.

I'll finish our segment commentary with Specialty. Similar to our Convenience segment, Specialty has been impacted by a slower industry backdrop, partially due to persistently high price points in the candy and snack categories. While this continues to impact sales growth for Specialty, the segment's ability to improve operating leverage resulted in an outstanding profit performance in the quarter.

During the first quarter, Specialty's net sales declined 0.7% due to a challenging quarter for theater and value. However, as George mentioned, there were some bright spots, including vending, office coffee, campus, retail and our growing e-commerce channel. We are also very encouraged by the pipeline of new business opportunities for Specialty and expect to onboard several new accounts in the back half of the fiscal year.

Specialty is unique in the food distribution industry, which positions us to efficiently deliver to a broad range of channels and customers, which in aggregate, provide the company with a very strong return. This, along with our focus on operating efficiencies led to 13% adjusted EBITDA growth for the segment in the quarter. We expect to see improvements in volume performance over the next several quarters, blazing the path for continued contributions to PFG's EBITDA growth.

To summarize, we're extremely pleased with all three of our operating segments, each of which contributed to our strong first quarter results. Our diversification provides consistent performance in a range of economic scenarios and our strong pipeline of potential new business should result in consistent long-term revenue and profit growth for PFG.

I'll now turn it over to Patrick, who will review our financial performance and outlook. Patrick?

Thank you, Scott, and good morning. Today, I will review our financial results from our first quarter, provide color on our financial position. I'll review our updated guidance for 2026.

To echo both George and Scott, we are very pleased with our start to fiscal 2026, which helped us maintain our solid financial position. In the quarter, we achieved net sales above the top end of our guidance range we announced in August and adjusted EBITDA at the upper end of the guidance range.

As a result of the strong performance, we are raising our sales guidance for the full year and reiterating our adjusted EBITDA targets, which we have a high degree of confidence in. We also remain on track to achieve the 3-year sales and adjusted EBITDA targets announced at our Investor Day in May.

Before I give more details on our outlook, let me highlight our financial results for the quarter. PFG's total net sales grew 10.8% in the first quarter due to strong underlying trends in our three operating segments and the addition of Cheney Brothers. As a reminder, we started lapping the José Santiago acquisition at the beginning of the first quarter and closed on the Cheney Brother acquisition in the second week of October last year. This means that Cheney will be organic for 12 of the 13 weeks of the second quarter.

Total company cost inflation was about 4.4% for the quarter, which is slightly higher than what we experienced in the prior quarter. Foodservice inflation of 2.5% was in line with the prior quarter and roughly in line with our model. While certain commodities have been volatile, headline inflation in the Foodservice space remains in the low single digits, which we view as a normal level for our business.

Specialty segment cost inflation was up 3.8% year-over-year, about 50 basis points higher than the fourth quarter, mainly the result of candy price inflation.

Convenience cost inflation increased 6.8%, again, slightly higher than the prior quarter. As we have demonstrated over the past few years, our company is well equipped to handle a range of inflationary scenarios. The current inflationary environment has been consistent with our modeling, which has rates remaining in the low to mid-single-digit range throughout 2026.

As a reminder, we source the majority of our inventory from domestic suppliers, and therefore do not expect a material impact from tariff increases.

Moving down the P&L. Total company gross profit increased 14.3% in the first quarter, representing a gross profit per case increase of $0.32 as compared to the prior year's period.

In the first quarter of 2026, PFG reported net income of $93.6 million, and adjusted EBITDA increased 16.6% to $480.1 million with all three operating segments contributing to our strong performance.

Diluted earnings per share for the fiscal first quarter was $0.60, while adjusted diluted earnings per share was $1.18, representing a 1.7% increase year-over-year. Our effective tax rate was 23% in the first quarter. At this time, we continue to expect our 2026 tax rate to be closer to our historical range.

Turning to our financial position and cash flow performance. In the first quarter of 2026, PFG used $145.2 million of operating cash flow to invest in working capital to take advantage of favorable inventory buys. We invested about $79 million in capital expenditures during the quarter. We continue to anticipate full year 2026 CapEx to be approximately 70 basis points of net revenue, in line with our long-term target.

Our investments in CapEx are primarily focused on maintaining and supporting growth within our infrastructure and high-return projects that we believe will support our long-term growth goals. We did not repurchase any shares in the quarter.

Looking ahead, we will continue to prioritize debt reduction. The M&A pipeline remains robust, and we continue to evaluate strategic M&A. PFG has a history of successful acquisitions to drive growth and shareholder value, and we expect that to continue. At the same time, we will apply our typical high standards and robust due diligence to evaluate high-quality acquisition opportunities.

Turning to our guidance. Today, we announced guidance for the second quarter of 2026 and updated our range for the full year. For the second quarter, we expect net sales to be in the range of $16.4 billion to $16.7 billion and adjusted EBITDA between $450 million and $470 million.

For the full fiscal year, we are increasing our sales target and now project net sales of between $67.5 billion and $68.5 billion. This new range represents a $500 million increase to the top and bottom end of the previously announced range. We are reiterating our full year adjusted EBITDA range and continue to expect results between $1.9 billion and $2 billion in 2026.

We have a high degree of confidence in our adjusted EBITDA range. Our results keep us on track to achieve the 3-year projections we announced at Investor Day, with sales in the range of $73 billion to $75 billion and adjusted EBITDA between $2.3 billion and $2.5 billion in fiscal 2028.

To summarize, PFG began fiscal 2026 with strong results. All three of our operating segments are performing well, contributing to our overall results. We are in a solid financial position which supports our growth investments and capital return to our shareholders. We are excited about the future and believe we are well positioned to continue to win business within the food-away-from-home market.

Thank you for your time today. We appreciate your interest in Performance Food Group. And with that, George, Scott and I would be happy to take your questions.

[Operator Instructions] We'll take our first question from Mark Carden with UBS.

So, to start, you guys posted another quarter of solid top line results against what's been a pretty uneven backdrop in the restaurant channel. Just curious, how did your independent case growth progress by month? How is it trending quarter-to-date? And then related, is it simply the strength that you've seen to date that led you to bring up the top of your guidance? Or are you any more optimistic about the go-forward as well?

Well, we saw consistent growth through Q1. We had a very strong October. The last few weeks, kind of since, the shutdown, we've seen a little softening. And as far as our confidence to raise it, we have some additional new business coming in primarily in the Convenience area. We've got some business in the national count within our Foodservice area that we thought we had kind of over the hump to come with us and they want to sit on the fence until it's determined what happens in our clean room. But you add all that together, and we have real good confidence in bringing up that annual sales growth number.

Got it. That's helpful. And then, you talked about the slight deceleration on sales force hiring, but it seems to be in line with normalized fluctuations. Just curious, does the heavy commission focus that you guys have ever make it any more difficult to attract talent if the environment remains challenging over an extended period of time? Any impacts from just any uncertainty related to U.S. or what you're seeing with Cisco having passed through some of the hiring challenges in the past?

Well, first off, I'd say that I think our commission structure has been a great tool to attract great talent and people that want to grow their business. When I think about the hiring pace, we came out of last quarter at 8.8%. That's pretty rich. We feel really comfortable in that 6% to 8% range. This quarter, we were at 6%. So, if you look at the two-quarter stack being at 7.5%, we feel really good about that hiring pace.

The other thing I'd say is if you just look at how we're structured from a decentralized state, we really rely on our OpCo presidents to make those hiring decisions. And George and I don't go out there and say, you've got to hire at a pace of 6% or 7% or 8%. We really let those folks make those decisions. Clearly, they're finding great talent on the street, and we've been able to continue to hire at that pace in that 6% to 8% range.

I would also add that we're very committed to having a commissioned sales force. But we also have a structure in place where we compensate them above the commission for a period of time, to make sure that we keep good people. And once we realize that someone's talented that they'll put in the effort, that they're committed to getting on commission, then we become very patient people.

Our next question comes from Alex Slagle with Jefferies.

You talked about some of the big chain business wins in Convenience. I imagine that remains a big needle mover there. But just kind of curious if you could fill us in on progress you're making, some of the smaller chains and independents just in terms of sort of winning new accounts and finding ways to accelerate the penetration of the Foodservice programs to those customers and how we should kind of think about that through the course of the year?

Yes, Alex. When I think about Convenience in particular, we're really happy with what they've done from a growth standpoint. And we're specifically talking about those two big accounts just because they're sizable. But our Convenience segment has done a great job picking up regional accounts as well. And I think through Service, everything you hear in the Convenience industry did today, we just returned from the big Convenience show, and there's so much focus on Foodservice.

And if you look across the Convenience landscape, the chains and the customers that are performing well are the ones that are deeply ingrained in Foodservices. So, we think that's a huge competitive advantage for us. We think that was a prevailing reason in us getting some of these big and regional chain wins, and we expect that to continue.

Got it. And then, on the guidance. Can you ballpark interest expense and depreciation at all just to help us calibrate our models. It seems like these were a bit higher than I expected in the quarter, but any help there would be appreciated.

Yes, Alex, I'll take that. I mean, what I would do is take this quarter and use that as a strong run rate. I mean again, we continue to invest in the business. So, we've added some new buildings that are increasing depreciation. We continue to add fleet, but continues to increase deflation. And obviously, as you saw in the quarter, we invested a lot in inventory. So, maybe a little more borrowing than normal, but that should come down a slight bit. But I think if you take this quarter as a run rate, that will be a good indicator of the future quarters.

We will move next with Edward Kelly with Wells Fargo.

I wanted to dig in on the Foodservice EBITDA growth for the quarter. If you look at EBITDA growth relative to revenue growth, they were a bit more similar, which is not typically the case for you. It seems like OpEx per case was a little high. I'm just kind of curious as to what's happened with the OpEx side of the business within Foodservice that maybe prevented you from delivering a little bit better organic EBITDA growth in the quarter. And how we should think about that relationship moving forward the rest of this year?

Yes. Ed, we've invested a good bit in brick-and-mortar for one. And in these new distribution centers, you tend not to be as efficient in the early going. And obviously, you got a little bit more expense. We've had higher expense in our acquisitions, particularly in Florida, because we're investing, and we're investing heavily, and we're doing that during their slow time of the year.

We're just so satisfied with these acquisitions and with the talent that we received, we're going to make sure they have the capacity available. We also are in the midst of a big freezer addition at our Jose Santiago building.

With that, I'll turn it to Patrick too, to see if you have some other comments.

Yes. Just to touch a little bit more on that, Ed. One, again, if you look at all three segments, actually, we saw a really nice OpEx leverage organically, specifically to Foodservice, George already mentioned. If you take out Cheney, there was OpEx leverage. Cheney, just again, it's their slowest quarter. It's similar to Foodservices Q3. So they reduced some leverage there. And then as George mentioned, we're taking on some additional expenses. But those are really the reasons why you saw that this quarter.

Okay. Great. And then, I wanted to follow up on a response that you made on independent case volume momentum. October seemed good, especially at the start, but I think your compare was easier maybe with weather. It sounds like recently, there's been a little bit of slowing there. Could you just talk a bit specifically about independent case momentum for the industry, what you're seeing there in terms of like real time, I guess? And then, how are you feeling about sustaining a 6% or a better rate in Q2?

Ed, this is Scott. So, I think you hit it as we came out of Q1 and started into Q2. It continued to be strong over the first few weeks. But then we did have a little bit of choppiness over the last few weeks when we think about kind of lapping some of the weather from last year. So, it's a little tough to get a read on it right now. I wouldn't set a target for this quarter as far as independent case growth. Well, I would say is, we still feel good about the full year targeting 6%. And what's really driving that for us is just our independent account wins. As we mentioned, those are up 5.8%, and that's really what's driving our case growth.

Our next question comes from John Heinbockel with Guggenheim.

Can you guys parse out the 5.8%, that's a net growth in new accounts. When we think about sort of the gross wins, I don't think you've ever had real elevated losses, but the wins, the losses. How does that kind of shake out? Or how has it shaken out here? And then, you talked about the lines per drop. We were waiting for a long time, right, for penetration to pick up. Is it possible we're at the early stages of that and what may be driving that?

John, this is Scott. First off, I would say we don't call out a gross number. So you're right, the 5.8% is net. I would say that our customer churn hasn't really changed materially. So, we feel that our reps are out there doing a great job retaining customers, and really happy with the 5.8%. The penetration now has been a couple of quarters. So we're really optimistic about that. If the macro gets better, that really positions us exceptionally well. And so, that's something we're focused on.

And for us, I think the differentiator out there has been our area managers. It's been our folks that are in front of our customers, working with them every day, growing those lines for drop, and that's been critical.

Yes. What I'd like to add, John, this is George. We continue to see SKUs grow faster than our penetration number into independent customers. So that tells me that they're probably in aggregate, running same-store sales declines still.

And as far as lost business, we spent a lot of years working hard to get that number to single digit. And it's a rare month that we don't come in with single-digit loss in accounts. And I think when you look at the percentage of accounts that don't make it in our difficult industry, I think, we're doing a good job of making sure we don't lose accounts. So we always, and I mean always, have a nice spread between our lost business and our new business.

And then maybe as a follow-up. I know you guys have targeted the $100 million to $125 million of COGS savings. Just remind us maybe the cadence of that. I don't think it was quite linear. And then, when you look longer term, right, is there still, because you guys have now right been breaking out segment margins. And I know customized is a drag. But when you think about the opportunity beyond the next 3 years, would still seem fairly substantial, correct?

Well, John, on the COGS savings, yes, at Investor Day, we laid it out. And I think the way to think about it is just, we always are doing work here. So this wasn't something new. I've given you guys a target was maybe something we haven't done in the past. But, we look at that as being pretty evenly spread over the 3 years, and each year pretty evenly spread over the quarters. We're actively working on those savings, and we're seeing some good opportunities out there.

We will move next with Kelly Bania with BMO Capital.

I wanted to just follow up on the Specialty segment. The profitability was quite strong there despite what seems like a pretty still soft candy snack consumer backdrop. So, just curious if you can add more color on what drove your ability to achieve that? How much more that could continue if that backdrop remains soft there?

Yes. I mean, we've made real good progress with most of the channels. If you look at the margin aspect, our theater business has been down fairly substantially. A couple of account losses plus the theater industry is not very robust at this point. That is our lowest margin business that we have within our Specialty business.

And then, the value area has also been slow, and that is our lowest gross profit per case. So, our improvement is somewhat expense control, but it's also really led by just a change in mix of business, which has been a real positive for us.

And as Scott mentioned, we've got a real good sales fund when we've got some nice business coming in the back half of the year. So, we're feeling really good with Specialty.

Now, if you look at inflation and you look at pre-COVID and you look at today, candy and snacks are way up close to the top as far as price increases. And it may appear that those are very discretionary purchases and not real price sensitive, but that's not the case. The big consumer of those products is very price sensitive. And they just got to get used to higher prices, and I think we'll see some comeback in that. When you look at the things that our Specialty area has been up against, they're doing exceptionally well.

That's very helpful. Also just wanted to ask, it seems like a growing number of complaints regarding the state of the consumer, particularly with younger consumers. And just curious if you could talk a little bit more about if you would agree with that as you look at your kind of diverse channels and customers that you serve, if you see that and if there's anything that you are doing to kind of help that either with private label or other promotional activity with vendors that you're working on to help those end customers?

Kelly, this is Scott. Certainly, we've heard that same message around the younger generation consumer. I wouldn't say that we've seen that specifically in our business. If I look across our chain segments, I mean, obviously, QSR remains highly pressured. I think that low-income consumer continues to struggle. I think for the last year, you've seen some of these fast casual concepts, I'd call them the high flyers that we're seeing double-digit same-store comps. They've kind of come back or normalized. And we've also seen some others sprout up. And I think really, right now, what we're seeing is that value proposition is what's really making the day for concepts.

If they've got a really good value proposition that resonates, they're seeing reasonable same-store sales comps. For us, I think you hit it right on the head. We're focused on brands. We think that, that's the best value we can bring to our customers. We've seen our brand share grow with independents and chains. And so that's been -- I wouldn't say it's a positive for us. We'd like to see more store traffic and a more robust consumer, but we feel like we're in a really good position.

Our next question comes from Lauren Silberman with Deutsche Bank.

I want to start, if you could just clarify, are you guys seeing disruption in your salesforce or the ability to track new customers, because of the news of the deal? Just trying to understand and how much is seasonality versus influx of new hires and what's going on there?

Well, we've just -- this is George. We just had a couple of large events, which we have at the same time of the year every year. One is what we call Circle of Excellence, where we honor our top salespeople and sales management with most of our OpCo presidents at that event. And then, we do a food-centric where it's more customer focused, and we have some large particularly independent customers from around the country come. And we have every Opco President that's present at that.

And what I would say is that morale is extremely high, particularly with the sales force. The only negative being some national accounts, like I said, sitting on the fence. And we're consistent with our people or as transparent as we possibly can be. And I don't really think that we're experiencing disruption. It doesn't seem to affect our hiring right now. It hasn't had any negative impact on our turnover.

And I'll turn it over to Scott. He's a little closer to it than I am, but that's why I see it right now.

No. I think I'm totally aligned with George's comments. We have -- we've seen great availability of reps on the street. Hiring at 6% versus last quarter at 8.8%, like I said earlier, that doesn't concern me at all. We kind of bounce back and forth between that range of 6% and 8%. There may have been a handful of reps here and there that took a pause, because they were waiting to see what happened. But I would say, overall, I think I just look at our results, our independent case growth, our new account growth, and that gives me great confidence that our Opco presidents and our area managers are focused on the right things, and we continue to grow share and grow our independent business.

Great. On the OpEx side, what seems like some incremental investments in Cheney, should we assume some pressure on that line over the next few quarters? Or is this the bigger investment in this quarter, a bit more onetime? I know there's some seasonality, but just trying to understand the magnitude and how that is based?

Yes, do you want me to...

Yes. I'll take it real quick. And then you can add to it. I think that the seasonality change will help a lot in Florida. We have also seen the international traveler and Canadian travelers just haven't shown up in Florida like they typically do. But I think a lot of this will alleviate itself as we get into season. And they're very, very focused company and a great morale there as well. And we just feel like it's just a company that's going to flourish. Go ahead, I'll turn it to you.

Yes. I'll just add a couple more things. One, as George mentioned, there's a little reduction in leverage in the first quarter. And again, they're 1 year in. And so we've been also doing a lot of integration, but the integration that happened early on is usually around IT, HR. So, sometimes that can add some additional expenses.

But when I look at how they performed in the first quarter, it was very much in line with our expectations, and it's very similar to prior year. So, we do expect that as we go a little further out, we'll start to see the synergies. As we've said, we'll really see the bulk of the synergies at the end of year 2. But we're doing a lot of integration work as we speak. So, it should dissipate as we go through the year most importantly, is what George said, though, as we get out of -- into the high season, it will definitely help.

Great. Just a final follow-up. The independent sales growth that you're seeing in October, understand started strong, a little bit slower with the government shut down. We've heard a bit of a range in restaurant world. I guess, are you guys still running in the mid-single digits? It's just hard to understand what's going on with the magnitude of a step down, particularly for the independents.

Yes. We're still running in that mid-single-digit range. Like we said, we've seen some volatility as of late, but we're still running in that range.

Our next question comes from Jeff Bernstein with Barclays.

Thanks. This is [ Pratik ] on for Jeff. You've talked about taking share for a while now. And I believe you mentioned that some of the segments like QSR and fast casual have been a bit more challenged of late. So, just wanted to unpack where you're seeing strength, what particular segments of the industry. ?And are your share gains coming from your larger peers or smaller operators? Or is it all of the above?

Well, I'll start with the last comment. We don't have a good method of knowing where our share gains come from. We have a tool report that we use that shows how we did and how the rest of the market does. So, we don't really know how anybody specifically does. So, I don't know that we can really comment that, on that.

But just to give you an idea where it's slower and where it's done better. the shutdown, of course, has affected our Virginia and Maryland company the most, and both of those were on extremely good growth rates going into that. Not much anywhere else. The international tourism, it's been the upper Midwest, where we've seen -- I mean, I'm sorry, the Upper New England area, where we've seen the total market slow. But actually, our companies there have been gaining significant share. So, it hasn't had much of an impact on us.

And of course, Florida and then Vegas has been affected quite a bit, and we do very little business in Vegas so that hasn't had much impact. Where we've seen market slowness the most has been the Midwest, the upper Midwest. And we have markets there where we're negative to last year and gaining share, which is a really unusual situation for us. So that's how I would put it.

But we don't want to overdo this. I mean, we're still running good independent growth. And if the -- I think, if we didn't have the shutdown and the slower business in a couple of markets, we would be just as we were in the first quarter.

That's very helpful. And then Patrick, on the inflation outlook, you reiterated your expectation for low to mid-single digits. Anything that would cause you concern and would maybe push that to the upper end of the range? I know you mentioned some of the Specialty and snacks items that are seeing high degrees of price increases. But anything else on the commodity side or other product lines that may kind of push that to the upper end of the range?

Yes, great question. Honestly, a lot of the candy price increases we've already seen those and other suppliers taking price. On the commodity side, so I would again just reiterate on Convenience, we expect them to be in that 6 plus range, mid-single digits, Specialty a little bit lower, but staying very consistent for the rest of the year. And Foodservice, as we mentioned, is in the low single digits, and we do expect that to continue lots of commodities. And as everyone knows, beef and pork has been pretty high lately and inflationary, but we also over-indexed in cheese, and that's been deflationary.

Poultry has been deflationary. So, the way we look at it, we -- that market basket of commodities should keep us in that low single-digit range.

We will move next with Danilo Gargiulo with Bernstein.

I was wondering if you just take a step back and we look at your very long-term strategy. How do you plan to strengthen your ROIC? And what do you think is a realistic timeline for the ROIC to be increasing by mid-single digits. So what would be the key levers to that?

Yes. Good question. We obviously look at ROIC very closely, too. And as you know, we've recently made some larger acquisitions. We've also been, as George mentioned earlier, we're investing a lot into capital for buildings and fleet. And all those things are really surrounded by growth. So, we've given you, obviously, our projections on EBITDA growth for the year, and we continue to work very closely on driving higher growth on income as well as managing our capital. So I would say, over the balance of this year, we should see improvement in ROIC.

Okay. And then, I want to follow up on the comments that you made on the M&A pipeline remaining robust. And specifically, the evaluation of strategic M&A and in light of the potential synergies that you might be having with a business combination with U.S. food. I was wondering if you can help us understand a little bit better what will you need to see in the data or in the strategic evaluation for the decision to have a positive or maybe a negative outcome? So what are the puts and takes on that?

Yes. On that, the process is ongoing. We've disclosed what we're doing in terms of the clean room. We really don't have an update to share at this time and just would ask that we keep our questions focused on our Q1 results and guidance.

Just adding on to the M&A pipeline. We talked about that. We're very active in the market. We talked about a small acquisition in our Convenience segment. And George and I continue to talk to a number of different people about opportunities primarily in the Foodservice space, but also across our other segments, we're always looking at opportunities. So, I still feel like that pipeline is robust.

And then focusing on the more near term. You mentioned the kind of market fluctuations that you're witnessing as we are in the overall restaurant segment. So, I'm wondering if there are any actions that you might be exploring in the near term to increase the capture rate of independent cases therein the better near term without necessarily compromising the quality of power, which has been extremely strong over the past few years?

Well, I would say, first off, philosophically on the street, we're decentralized. We let our OpCo presidents really drive their market area. And we're really happy with how we prepared our area managers from a training standpoint. I mentioned earlier, I think brands has been our calling card and is a big driver for us, especially in an environment where cost of goods is critical and menu pricing is critical. But I don't see anything philosophically that we're going to change materially in our approach. We believe in the partnership with our customer, and we believe in the strength of our area managers on the street.

[Operator Instructions] We will move next with Karen Holthouse with Citi.

A couple kind of more on the C-store side of things. Thanks for the guidance for mid-single-digit inflation. And I can appreciate that your suppliers are domestic. Have your conversations with them that are getting you to mid-single-digit number contemplated how tariff -- tariff-related inflation and more of like the packaging side of things might ultimately impact that number?

Yes. I think if I understand the question right, I mean, we talked about cost of goods being domestically sourced and not having a big impact there. But to your point, I think there are other inputs that could cause inflation, whether it's packaging, and for us, when we look at the broader picture of inflation, it's not as much cost of goods, it's probably share of wallet. And as we see consumers be pressured, whether it's other SNAP benefits going away or other things that are happening in the market that affect discretionary income, that definitely could have impacts. But to this point, we haven't seen anything material.

Okay. And then is there anything to consider as you're starting to onboard Love's and RaceWay (sic) [ RaceTrac ] in terms of margin profile of those businesses versus the existing business?

So first off, I would say the Love's piece, I do want to just take this opportunity to shout out to our Convenience segment. They onboarded over 600 Love's locations in September in the last couple of weeks. I did just an incredible job, including opening a new facility to help accommodate that. And it's actually RaceTrac. They are also the master -- they're the owner of the franchise RaceWay. So, you were right there, RaceTrac, we rolled out in December. So again, preparing for that, I feel like we're in a great position. And when I think about the margin profile, I would say it's consistent with the rest of our Convenience business.

And then one final one on Convenience margins. I think there was a comment in the prepared remarks about stronger performance in tobacco with growth of oral nicotine. Is that getting you to a point where like tobacco as a share of total Convenience sales is stable or even increasing?

No. I mean, I would say cigarettes, because of taxation are always the revenue driver. When you think from a margin standpoint, oral nicotine and the other alternative nicotines are really accretive to margin, but because of taxation, cigarettes are definitely a revenue driver.

We will take our last question from Peter Saleh with BTIG.

Great. I apologize if you guys covered this already. But just curious if you can comment, I know we've been seeing across the restaurant space that really casual dining has really been outperforming QSR and fast casual. And it seems like fast casual has really taken us a leg down in the most recent quarter or 2. Just curious if you guys can comment on if you're seeing the same thing within your customer base? And any thoughts on why the -- maybe why the customer shifted so much in the past couple of months?

Well, casual dining has been a big part of our business for many years, and we supply a lot of the large casual dining chains. And they're doing better versus the previous year in many instances, but they're doing much worse than they were doing in 2019. So, there's a little bit of the kind of bouncing off the bottom. I think there's some that have done some great marketing. They have their pricing to where their -- at least a similar value to fast casual with a higher touch with the customer. So, I think that's helping them. I don't know that there's a long-term change with what we're seeing today. Just got to watch it and see what happens, but I don't think there's a long-term change.

Thank you. And this concludes our Q&A session. I will now turn the call back to Bill Marshall for closing remarks.

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