US Foods Holding Corp. 2026 Q2 Earnings Call

Good morning, everyone. Welcome to US Foods' second quarter fiscal 2026 earnings call. On today's call, we have Dave Flitman, Chair of the Board and CEO, and Dirk Locascio, our CFO. We will take your questions after our prepared remarks conclude. Please limit yourself to one question and one follow-up. Our earnings release issued earlier this morning and today's presentation can be found on the Investor Relations page of our website at ir.usfoods.com. During today's call, unless otherwise stated, we're comparing our second quarter fiscal 2026 results to the same period in fiscal year 2025. In addition to historical information, certain statements made during today's call are considered forward-looking statements. Please review the risk factors in our Form 10-K for a detailed discussion of the potential factors that could cause our actual results to differ materially from those anticipated in forward-looking statements.

Lastly, during today's call, we will refer to certain non-GAAP financial measures. All reconciliations to the most comparable GAAP financial measures are included in the schedules on our earnings press release, as well as in the presentation slides posted on our website. We are not providing reconciliations to forward-looking non-GAAP financial measures. Thank you. I'd like to turn the call over to Dave.

Thanks, Mike. Good morning, everyone. Thank you for joining us. Before we begin, our thoughts are with our associates, customers, and communities impacted by the devastating wildfires in Spokane, Washington. While our operating facilities were thankfully not impacted, we have three associates who tragically lost all or a portion of their homes. The US Foods family is rallying to support them, our customers, the affected communities, and the brave firefighters and first responders serving on the front lines. At the same time, we remain focused on the safety of our associates while actively supporting our customers through our business continuity plans. With that, let me turn to our second quarter performance. Starting on slide three, we delivered a strong quarter with record adjusted EBITDA and adjusted EBITDA margin and another quarter of double-digit adjusted EPS growth.

Importantly, independent restaurant case growth of 5.1% was the strongest since the fourth quarter of 2023 and marks our fifth consecutive quarter of acceleration despite persistent pressure on industry foot traffic. Additionally, healthcare grew 3.5% and hospitality grew 4.4%. We also gained share with our target customer types, marking our 21st consecutive quarter of share gains with independent restaurants and our 23rd consecutive quarter of share gains with healthcare. Within independent restaurants, our momentum is strengthening, supported by healthy new account growth and improved penetration with existing customers. This top-line momentum translated into strong financial performance. We grew adjusted EBITDA 10% and adjusted diluted EPS 21% through a combination of volume growth and 29 basis points of margin expansion to a record 5.7%.

Our strong and accelerating cash flow generation provides substantial financial flexibility and, during the quarter, we invested in key growth initiatives while repurchasing more than $370 million of shares, underscoring our commitment to creating long-term shareholder value. Just as important as our financial results is how we are achieving them. Across the business, our teams are applying a continuous improvement mindset while leveraging investments in technology, including artificial intelligence, to raise customer service levels, improve productivity, and create a stronger foundation for sustainable long-term growth. These efforts are strengthening our competitive position and creating additional opportunities to deliver value. I'll provide more details on our AI capabilities a bit later. This quarter represents one of our strongest since I joined US Foods three and a half years ago.

As we navigated a dynamic and volatile environment during the second quarter, our team stayed focused on controlling what we could control while acting decisively in response to what we could not. I am incredibly proud of our team for delivering these results through outstanding execution in what remains a challenging operating environment. As we look to the balance of 2026, we will remain grounded in disciplined execution and focused on the actions that will strengthen our business. We are also committed to further strengthening the competitive advantages that differentiate our business while delivering consistent volume growth, double-digit earnings growth, and long-term value creation for our shareholders. I thank our 30,000 associates for their unwavering commitment to delivering excellence in serving our customers and to pursuing our ambition to become the undisputed best in our industry. The strength of our team is what reinforces my confidence in our continued success.

I'll now highlight the progress we made in the second quarter under each of our four strategic pillars. Dirk will then provide additional detail on our second quarter financial performance and full year guidance. Turning to slide four, our strong culture is a competitive differentiator. We remain focused on keeping our people safe, investing in their development, and building an empowered workforce that supports our long-term growth. Safety remains our top priority, and we are making meaningful progress in protecting our associates while strengthening our operations. In fact, we have improved our injury and accident rates by over 50% over the last three and a half years. Aiding this improvement is the deployment of approximately 2,500 center ride pallet jacks across our distribution network. Our rollout is now 87% complete, and we anticipate full deployment by the end of this year.

This investment is reducing exposure to one of our most serious workplace hazards and reflects our ongoing commitment to providing a safer work environment for our associates. Where we have converted to center ride pallet jacks, the most serious injuries associated with this type of equipment have essentially been eliminated. Our commitment to building a strong culture also extends to talent acquisition and development. During the second quarter, we launched our Valor campaign to advance our mission 2030 goal of hiring 3,000 military veterans by the end of the decade. Through Valor, we are expanding our veteran recruiting efforts with a dedicated webpage, new strategic partnerships, and ongoing investments to recognize and support the more than 1,500 and growing number of veteran associates already contributing to our business.

Veterans bring proven leadership, a strong work ethic, discipline, and teamwork to US Foods. We are honored to support those who have served while strengthening our workforce for the future. Our focus on people is also reflected in our recently published 2025 sustainability report, which highlights our progress across key focus areas and our commitment to building a stronger and more sustainable business. In 2025, we invested 1.2 million hours in training to build critical skills, develop leaders, and equip our teams to execute at a high level. I encourage you to read the report on our website to learn more about our sustainability journey and the initiatives we have underway across the business. Moving to slide five in our service pillar, we strive to deliver a best-in-class customer experience by continuously improving the consistency of our service reliability across our network.

A key measure of that progress is Operations Quality Composite, or Ops QC, which tracks our ability to deliver accurate, error-free orders to customers. In the second quarter, Ops QC improved 13% compared to the prior year, and over the last two years, it has improved 37%, reflecting disciplined execution and ongoing improvement work in this important customer experience metric. Earlier this year, we began testing autonomous inventory scanning robotics in one of our warehouses, and the early results have been encouraging. We believe this technology will help to further improve inventory accuracy and warehouse efficiency. Based upon the results of the pilot, we plan to expand testing to six additional locations by year-end. Our focus on operating discipline is improving our efficiency and strengthening our customer value proposition by helping us deliver the reliable, consistent service our customers count on and deserve every day.

Let's turn to our growth pillar on slide six. We are consistently accelerating profitable growth and gaining market share across our target customer types, highlighting the durability of our model during times of macro uncertainty. I'm very pleased with the progress we've made over the last five quarters in accelerating our independent restaurant case volume growth. Pronto, our small truck delivery service, is a key enabler of that growth and remains a powerful competitive differentiator. Through Pronto, we provide customers with greater convenience and flexibility, including later cutoff times, smaller order sizes, and more frequent deliveries. This opens up our addressable market by enabling us to compete more effectively with local and specialty distributors. We're expanding the reach of Pronto, which is now live in 52 markets.

At the same time, Pronto Next Day, which extends the service to our existing independent customers, is now live in 35 markets with plans to add an additional eight markets this year. The overall Pronto program is growing at strong double-digit rates. After delivering $1 billion in sales in 2025, we estimate Pronto will deliver approximately $1.3 billion in sales this year. Based on our recent success, we now believe Pronto can generate more than $1.7 billion in sales in 2027, up from our prior estimate of $1.5 billion. Moving now to our sales compensation change. Our new seller compensation plan successfully went live across the company in June, an important milestone to further align our sales force incentives with our business strategy and long-term growth objectives.

Early results are very encouraging. We are already seeing positive indicators in seller engagement that are consistent with our strategy and key growth priorities. Sellers understand how to maximize their earnings, have confidence in the plan and their leaders, and are moving quickly to align their actions and behaviors in ways that will accelerate long-term profitable growth. Year-over-year attrition remains flat, which we believe reflects our robust investment in seller training, sales leader preparation, and clear ongoing communication and support over the last year and throughout implementation. As we have previously discussed, we've taken a very thoughtful approach to this transition. It may take two to three years for the majority of our local sales force to fully transition to 100% variable compensation. Together, Pronto and our seller compensation change underscore our confidence in our ability to accelerate profitable growth and drive further share gains with independent restaurants.