Performance Food Gr Q1 2027 Earnings Call Transcript

Performance Food Gr (NYSE:PFGC) reported first-quarter financial results on Wednesday. The transcript from the company’s first-quarter earnings call has been provided below.

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Access the full call at https://events.q4inc.com/attendee/775006640

Summary

Performance Food Group reported a 5.5% revenue growth in Q1 2027, with gross margins improving by 33 basis points, driven by procurement initiatives and inventory management.

The company continues to invest in technology, enhancing operational efficiency with AI-enabled routing, inventory drones, and data integration, aiming for significant productivity gains over time.

Foodservice segment showed strong performance with 7.8% total growth in independent case volumes, supported by new account wins and increased sales to existing accounts.

Convenience and Specialty segments also reported solid growth, with Specialty seeing double-digit revenue growth despite margin pressure from fuel costs.

Q1 2027 net income increased by 38.4% year-over-year to $129.5 million, with adjusted EBITDA up 10% to $528 million.

The company reaffirmed its full-year guidance, targeting net sales of $72.5 to $73 billion and adjusted EBITDA of $2.125 to $2.225 billion, supported by a 53rd week in the fiscal year.

Management highlighted continued challenges from high fuel prices impacting consumer behavior but remains confident in market share gains and margin improvement.

Investments in AI tools for the workforce are expected to enhance productivity without altering the pace of hiring, which remains in the mid-single-digit growth range.

Full Transcript

OPERATOR

Good day and welcome to Performance Food Gr’s fiscal year Q1 2027 earnings conference call. If you would like to ask a question at the conclusion of the prepared remarks, please press the star key followed by the number one on your telephone keypad at any time. I would now like to turn the call over to Bill Marshall, Senior Vice President of Investor Relations for Performance Food Gr. Please go ahead, sir.

Bill Marshall (Senior Vice President, Investor Relations)

Thank you and good morning. We’re here with Scott McPherson, Performance Food Gr CEO, and Patrick Hatcher, Performance Food Gr CFO. We issued a press release this morning regarding our 2027 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 2026. Any reference to 2026, 2027 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 statement 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.

Scott McPherson (President & Chief Executive Officer)

Thanks, Bill. Good morning, everyone, and thank you for joining our call today. We began fiscal 2027 with a strong first quarter highlighted by consistent top line growth and continued margin expansion despite the challenging economic environment. These results reflect the strength of our organization, our consistent execution, and the dedication of our more than 44,000 associates. This morning I will touch on the backdrop in the Food Away from Home market, cover strategic highlights for our business segments, and turn it over to Patrick to walk through the financials for the quarter and our outlook for the remainder of the fiscal year.

Today’s consumer environment remains challenging, but stable restaurant traffic continues to run down approximately 2% according to Black Box as consumers remain value conscious and selective with discretionary spending. At the same time, gasoline prices rose throughout the quarter, averaging more than $4 a gallon, adding further pressure on household budgets. Despite the softer industry backdrop, we continue to see opportunities to gain share and outpace industry growth trends.

Our organizational focus to win new accounts, increase business with existing accounts, and find new avenues for revenue and margin growth continues to pay dividends. In the quarter, the organization produced 5.5% revenue growth with contributions from all three segments. Additionally, we saw gross margins improve by 33 basis points, supported by our procurement initiatives, brand penetration, and inventory management. I’m proud of our sales and purchasing organizations.

Their strong relationships with our customers and vendors, effective use of technology, leverage of exclusive brands, and commitment to service continue to differentiate PFG and drive profitable growth. Much like our intense focus on growth, the organization’s operational leverage remains key to our success. Central to these efforts are our technology investments focused on three areas that we believe can drive meaningful productivity gains and greater operational leverage over time. The first is operational technology. We continue to expand our use of AI-enabled routing to improve fleet utilization and route efficiency while deploying AI-powered inventory drones and camera technology to improve inventory management and further strengthen our safety culture.

Combined with goods-to-person automation and more advanced slotting capabilities, these technologies are helping us build a more efficient and scalable operating model. The second pillar is data. We are working with an external AI partner to create a common thread across our item, customer, and vendor data. This foundational work is important because it will allow us to better identify and capture opportunities across procurement, inbound logistics, and ultimately synergies across our segments.

Finally, we continue to see rapid growth in the organic adoption of AI across our workforce. Our associates are increasingly using AI to simplify transactional and administrative work, improve access to information, and increase productivity. We are early in this journey, but we believe the combination of operational technology, a stronger data foundation, and broader AI adoption can become an increasingly important driver of productivity and margin improvement over time.

We witnessed some of these benefits in the quarter and expect the continued progress to be a driver in the 50 to 60 basis points of margin improvement outlined in our three-year plan. Let’s move to some specific highlights from our three operating segments, starting with our Foodservice business. Our independent case growth remained strong in the first quarter, posting 7.8% total growth, bolstered by a 5.5% increase on an organic basis. On a two-year stack, organic independent cases have increased over 12% for the second consecutive quarter. This growth is coming from a combination of new account wins and increased sales to existing accounts.

New account growth continues to hover near 5%, representing a dominant factor in our share gains and case volume increases. With that said, we are very pleased to see a third consecutive quarter of positive penetration into existing accounts driven by an increase in lines per drop. This reflects increased wallet share with existing accounts, helping to offset lower foot traffic trends for the industry. Our continued success in gaining share with independent restaurants is led by our outstanding sales force, which we continue to expand by mid single digits again in the first quarter.

Our ability to consistently attract growth-minded sales leaders, arm them and our customers with AI-enabled sales tools, PFG brands, and great service is central to our ability to consistently win share. During the quarter, PFG brands were nearly 51% of our cases sold to independent restaurants. As a frame of reference, when we acquired Cheney Brothers, our PFG brands were less than 50% of the cases sold to independent restaurants. As our team has done an excellent job expanding and selling that piece of our business, I want to take a minute to dive a little deeper into our sales and customer-facing technology. Called Customer First, this technology has continued to grow in its capabilities, quickly becoming a critical tool for both our customers and our sales force. With AI-enabled search features, Customer First has the ability to translate menus and recipes and seamlessly facilitates two-way communication with our customers.

The success of the Customer First tool is captured in the results. We have seen significant growth outperformance for our customers sharing both a digital and direct ordering relationship with their account managers and quick adoption of new functionality added to the platform, with more to come. Shifting to our chain restaurant business, we continue to outperform the industry. With organic case volume just slightly negative in the period, we would expect a similar result in the second quarter followed by an acceleration through the third and fourth quarters as we begin onboarding Jersey Mike’s in February. We are excited to bring Jersey Mike’s into the PFG family. As a reminder, we are adding three of the four geographic regions of Jersey Mike’s, and it comes with margins in line with our overall chain business.

Taken together, our Foodservice segment delivered a solid start to fiscal 2027 with mid single digit revenue growth and double-digit segment adjusted EBITDA growth. Turning to our Convenience business, we continue to see the benefit of new account wins that rolled on early last year. As we hit the end of the quarter, we began lapping the addition of Love’s and will start lapping RaceTrac in mid-December. Our Convenience business has benefited from the Total PFG platform, which is the only U.S. convenience distributor that brings broadline foodservice capabilities to the traditional convenience distribution model.

We believe this combination has been instrumental in our new account wins and a driver of our revenue and profit growth since PFG acquired Core-Mark. An excellent example of our success has been the investment behind branded programs tailored to the convenience space. These programs span a variety of product offerings including pizza, chicken, Asian, and barbecue. During the first quarter, case volume associated with our branded programs increased 11%, producing nearly 15% sales growth on those programs in the period.

We plan to expand these programs and drive sales to both existing and new accounts. Our research has shown that convenience stores with a foodservice offering have outperformed the broader industry, making these programs appealing to a range of convenience customers. Overall, the Convenience segment posted another solid top line quarter with 5.4% sales growth through a combination of 4.1% case growth and low single digit price/mix contribution. This growth came despite a sluggish backdrop for total industry in-store sales, as higher fuel prices have had an impact on both foot traffic and in-store purchase behavior.

Core-Mark’s ability to pick up market share and expand the foodservice programs I just discussed have provided consistent growth despite the industry challenges in the prior-year period. Core-Mark benefited from candy inventory holding gains and promotional activity in the alternative nicotine space that did not recur in the current period. As a result, segment EBITDA growth was below recent trends, though that should recover as these items normalize.

Looking ahead to the back half of the fiscal year, once we have fully lapped the large customer wins, we would expect Convenience segment revenues to resume the historical run rate of low single digit growth with segment adjusted EBITDA increasing at a high single digit to low double digit pace. We are very optimistic about the outlook for our Convenience segment despite the industry challenges I mentioned earlier. I’ll finish up with our Specialty segment. Top line momentum for Specialty remains strong with double-digit revenue growth for the first quarter. We have seen particular strength in our sales to vending and office coffee, including micro markets and micro kitchens, which continue to be a strong avenue of growth for Specialty. We also saw a nice rebound in the movie theater space, which together with our concessions and hospitality business make up the entertainment channel.

We expect the entertainment channel to remain robust in the upcoming quarter due to a strong movie slate hitting theaters later in the quarter. Grocery Retail, a channel that we have expanded in recent quarters, also posted solid double-digit sales growth in the period. Grocery Retail is expected to continue with solid revenue growth through the fiscal year. While Specialty was our fastest growing segment on the top line, non-recurring candy inventory holding gains, competitive pressure, and higher fuel prices are weighing on margins.

Fuel has an outsized impact on Specialty’s expense lines due to heavy use of third-party carriers, particularly in the small parcel channel. We expect Specialty to continue to see margin pressure in the second quarter, with strong profit results in the back half of the fiscal year as we begin to lap higher fuel expenses starting in March. To summarize, we started fiscal 2027 with strong top line performance in a choppy external market and made solid progress in margin expansion. I’ll now turn it over to Patrick, who will review our financial performance, include some details around our productivity and efficiency efforts, and guidance. Patrick.

OPERATOR

Thank you. If you’d like to ask a question, press star one on your keypad. To leave the queue at any time, press star two. Once again, that is star one to ask a question. In the interest of time, we ask that you please limit your questions to one question and one follow-up. We’ll pause for just a moment to allow everyone a chance to join the queue, and we will take our first question from Mark Carden with UBS. Please go ahead.

Mark Carden (Analyst)

Good morning. Thanks so much for taking the questions. So to start, I was wondering if you could walk through the cadence of your organic independent sales growth, or case growth, throughout the period. And then, just within that, are you guys seeing any differences in performance by geography or between customers that might skew towards a higher-income customer base versus those that have more of a lower-income one? Just any differences you’re seeing across the spectrum there?

Thank you.

Scott McPherson (President & Chief Executive Officer)

Yeah, I appreciate the question, Mark. So just walking through the cadence of our independent case growth for the quarter, really fairly consistent through the quarter. Just a little bit as we exited the quarter, and we’ve seen that be fairly consistent as we work through the first handful of weeks of Q2. So I feel really good about how our sales organization is performing. Continue to drive that performance with net new account wins and penetration.

Taking a step back and looking at the consumer, looking at the chain consumer, I would say to your point, the lower-end consumer, the QSR space, we’ve seen more pressure in for sure. The casual dining space seems to be performing a little better, which points to a little more affluent consumer. And that’s been, I’d say, fairly consistent with what we’ve seen over the last few quarters. And then, as far as geographical, I would say for us the West continues to perform exceptionally well.

But we’re obviously underdeveloped in the West. Outside of that, I called out the Midwest in the past. Midwest is, I’d say, a little more in line with what we’ve seen across the country. And maybe the Southeast a little bit soft, but overall, a little better balance in the quarter.

Mark Carden (Analyst)

Great. And then as a follow-up, what are you hearing from your convenience customers on any shifts in demand patterns? Just with fuel prices remaining elevated, are higher prices keeping customers from purchasing as much? Are you seeing a tailwind for more shots on goal? And then you alluded to your cross-selling differentiation. Just any updates on what you’re seeing on that front from a demand perspective?

Scott McPherson (President & Chief Executive Officer)

Yeah, it’s a great question. So certainly fuel price, you know, when you get to this level of fuel price, it puts pressure on the consumer, not just in convenience, but you know, across all the food-away-from-home space. You know, I think our convenience segment has done an incredible job really focused on foodservice. You were talking about the cross-sell. You know, our foodservice continues to grow in that mid to high single digit, especially in places where we have branded concepts.

We called out in the script that those branded concepts are growing at double digit. And so that, you know, I think overall the segment’s performing well. Certainly fuel price puts pressure on the in-store sales piece. You’ve seen that in some of the other, you know, chains that report publicly. So, you know, the segment has done really well, gaining share, you know, gaining penetration in the stores. But, you know, it’s certainly a challenging macro.

Thank you,

OPERATOR

Thank you. And we’ll move next to Edward Kelly with Wells Fargo. Please go ahead.

Edward Kelly (Analyst)

Hi, good morning, guys. I wanted to ask you about Q2, you know, second quarter, you know, it’s hard, it’s kind of hard to tell because, like, the business has moved around, you know, a bit over the last couple years. But I think seasonally Q2 is usually a stronger quarter than Q1. Has that changed? And maybe Patrick, could you just sort of, like, unpack the Q2 guide a little bit more as it relates to that. And then you do have this step down in sales growth that sort of steps back up into the back half.

So could you talk about that as well?

Patrick Hatcher (Chief Financial Officer)

Yeah, thanks for the question. So as we look at exiting Q1, obviously we talked about in the script some of the really nice improvements or tailwinds. We saw really strong revenue growth across all three segments. The procurement initiative is working well, but there were some headwinds that we talked about. First and foremost is the fuel. And so as we look at Q2, those headwinds persist. So we’re going to have fuel; we expect it to be very similar to the Q1 impact in Q2, and we also expect that we’ll have, you know, Scott mentioned these inventory comps from last year for specialty and convenience, will also be a bit of a headwind in Q2, and then finally just the compression of inflation for foodservice. So, you know, we look at a 4% sales and I’ll touch on that question here in a second. But then 10.8% EBITDA growth is actually an acceleration. Q1 and Q2 are fairly similar now just because of the mix of business has changed a little bit.

And then finally on your question on the sales growth in Q2 that dips down a little bit, mainly just, or almost primarily, because we’re comping over the two customer wins from convenience, the Loves which we comped over at the end of Q1, and we’ll comp over Racetrack at the end of Q2.

Edward Kelly (Analyst)

And then that back half step up again. Is that, I guess that’s Jersey Mike’s.

Patrick Hatcher (Chief Financial Officer)

It’s definitely Jersey Mike’s. And also just the great performance by the sales organization and confidence in our ability to continue to get new customers, both independent and chained, across all three segments.

Edward Kelly (Analyst)

And just a quick follow-up now. So on specialty, Scott, could you just maybe talk a little bit more about specialty and the outlook as you get into the back half of the year and sort of, like, returning to a normal algo in that business and what that algo looks like.

Scott McPherson (President & Chief Executive Officer)

Yeah, no, it’s a great question. So as Patrick just mentioned, from a top line standpoint, I think we’re in our fourth consecutive quarter of sales momentum growth for specialty, and that’s coming off of a year that sales was—top line was really challenging. So really happy with the organization and their top line performance. They’re up against a couple of headwinds that will persist in the first quarter and second quarter, and we talked about that in Q4.

One of those is the inventory holding gains, you know, significant candy inventory holding gain that impacted convenience and specialty. The other one is obviously fuel price, and they, like everybody, have a fuel price headwind. They also, in their e-commerce platform, obviously are subject to third-party shipping as well. So that’s kind of a double impact on fuel. And then lastly, on a good note, we had a lot of renegotiation last year, and we renegotiated a significant portion of our customer base. And most of those are long-term, three- to five-year agreements. So super positive there. The challenge is, in the short run, that puts a little bit of pressure on margin. So from a cadence standpoint, I would expect a similar performance in Q2, and then we see a really nice rebound in Q3 and 4 for specialty as they lap inventory headwinds.

They lap some of the fuel headwinds as well. Thanks, guys.

OPERATOR

Thank you. And we’ll move next to John Heinbockel with Guggenheim. Please go ahead.

John Heinbockel (Analyst)

So, Scott, I wanted to start with composition of local case growth, of the 5% net new accounts. Has there been much change in gross versus loss rate? And then I guess lines per account would be up, what, you know, one and a half or two, and then you’re losing traffic. Is that fair? And where do you think the biggest opportunity is here to move any of those needles in the next six months or so?

Scott McPherson (President & Chief Executive Officer)

Yeah, no. All good questions. So, you know, first maybe just to take a step back, and you know, we came in at 5.5 for the quarter. So independent case growth that stepped up a little bit over the course of the quarter. And most of that, as you said, was driven by net new accounts. So we came in just a tick below 5 on net new accounts. The balance was, as you said, made up all of really lines per drop. So that’s really share of wallet penetration in the accounts.

And I would really credit that to our sales organization and the technology that we put in front of them and our customers. I think this has really helped penetration. You know, as I look forward, you know, certainly as you look back at last year, you know, we had quarters that were in the low fives and quarters as high as six and a half. You know, so we have a little easier comp in the back half of this quarter and feel like we have great momentum with the sales organization. You know, we’ve been hiring at about 5% increase. This quarter was actually a little higher than that. So, you know, mid single digit or slightly above in the quarter.

So, you know, honestly, John, feel really good about the setup. It’s a challenging macro, but we keep driving net new accounts and driving penetration and, you know, happy with the organization.

John Heinbockel (Analyst)

Then the follow-up would be where are we now with—because it’s been two years—the integration, right, and realization of the Cheney opportunity. I think a year ago about now some of the capacity investments began to hit. So where are we with that private brand penetration and then kind of ramping up of synergy between now and the end of the year?

Scott McPherson (President & Chief Executive Officer)

Yeah, great question. And really as we’ve talked about, Cheney will be a build story throughout this year. They performed well in the quarter, and I would say in line with expectations, and really good momentum. As far as brands, I think when we talked about our new kind of brand benchmark at 50%, we were a little bit sub-50% a year ago when we, or a little over a year ago when we bought Cheney. We’re now up to 51, and a lot of growth is starting to come from Cheney.

So we’re starting to have positive momentum in the brands integration. And then I would say just overall procurement alignment, I would say alignment of our operations groups, you know, really starting to hit our stride there. And then really where you see, you know, great benefit, John, is the infrastructure that we got with Cheney is, you know, incredibly helpful as we roll on Jersey Mike’s. And so being able to flow that volume into that infrastructure, you know, provides a nice tailwind for us in the back half of the year.

Thank you, thank you,

OPERATOR

Thank you. And we will move next to Kelly Banya with BMO Capital. Please go ahead.

Kelly Bania (Analyst)

Good morning, thanks for taking our questions. Wanted to ask about just the AI tools across the workforce and any more details you can share on that and specifically do those tools change the way that you think about your pace of hiring and growing the salesforce, or, you know, better said, maybe what you’re hearing from your local market leaders about hiring and continuing to build that platform of growth of the salesforce?

Scott McPherson (President & Chief Executive Officer)

No, appreciate the question, Kelly. And, you know, that tool over the last 12 months has gone through a great evolution. And, you know, we have a sales council that really helps us design that customer-first tool, and it’s been a big advantage for us. I think it’s really helped penetration. I think it’s also a great tool for our customers. At the end of the day, though, what we have found through a lot of research and a lot of analyzation of data is that combination of having a customer on that digital tool, on our sales tool, along with our rep being in that store, working collaboratively with the restaurant owner—that’s where we win. You know, converting them all over to a digital tool or maintaining 100% relationship with a rep with no digital tool, that’s not the sweet spot. And so we feel like we’ve kind of hit our stride there, and I think that still supports our continued rate in hiring in the mid-single-digit range.

So we feel like that’s a good combination, and that tool is going to continue to evolve, and we’ll see where that takes us. But right now I think we’re in a good spot.

Kelly Bania (Analyst)

Thanks. And, Scott, to follow up on that, you did mention kind of the third consecutive quarter of lines per drop. How much would you attribute to those tools? Any specific categories that you are winning there, and, you know, who do you estimate you’re kind of displacing from a competitive standpoint with those lines per drop?

Scott McPherson (President & Chief Executive Officer)

It’s a really good question, Kelly, and we dig into that quite a bit. Are the tools helping? Yes. And I would say that where we have proof of that is those tools are making recommendations to our sales reps, to our customers, about things they’ve forgotten, things they might want to consider, options for limited-time offers. And we’re getting conversion on a number of those items. So certainly it’s helping the penetration. But still I stand behind our sales organization.

At the end of the day, it’s their connection with the customer that really drives all of that. But it is certainly contributing for sure.

Kelly Bania (Analyst)

Thank you.

OPERATOR

Thank you. And we’ll move next to Alex Slagle with Jefferies. Please go ahead.

Alex Slagle (Analyst)

Thanks. Wanted to dig in a little more on foodservice and, high level, I mean it was like record 1Q EBITDA margin. The gross profit growth was really strong, so really impressive. And I guess it’s on the sustainability of this and if there are any one-time items in there we should consider as we model out most of the year. It was a, you know, the backdrop wasn’t that easy overall, whether it’s the lower inflation, things like that. It seems like it was, like, continued mix and procurement and the brands, everything kind of working.

But was there anything else in there that we should consider?

Scott McPherson (President & Chief Executive Officer)

Yeah, it’s a really good question. I’ll touch on just a couple of the high points and I’ll let Patrick fill in blanks as you mentioned. You know, really excited about the ability to continue to grow top line in food service, continue to grow independent cases. Our independent percentage of sales was up to 43%. That’s the highest we’ve been, so really nice to see. You know, independent can continue to grow, so that certainly helps margins. The brands, brand sales continue to grow as well, really nice contribution there.

And our vendor procurement initiative as well is still a building story. So overall I’d say really good balance in how we’re growing the margins. You know, anything you want to add, Patrick?

Patrick Hatcher (Chief Financial Officer)

Well, just that we’re really pleased with the performance in Q1. You know, again, it’s everything Scott just mentioned, a lot of things you touched on. But really that expansion of gross profit margin is related to the mix and the brands and the independent case growth and the vendor initiatives. So we expect that to continue throughout the balance of the year.

Alex Slagle (Analyst)

Got it. And the food service inflation, I guess early into fiscal 2Q, how’s that looking? Is that still sort of the 0.5 level that you saw in the quarter?

Patrick Hatcher (Chief Financial Officer)

Yeah, it’s a great question. So we did see, as we mentioned, throughout the quarter we saw that deceleration and really it’s mostly a compression of beef prices going lower, still inflationary, but lower in inflation. We actually saw a little bit of improvement in poultry in October. So it’s still hovering in that low single-digit range. Thanks.

OPERATOR

Thank you. And we’ll move next to Lauren Silberman with Deutsche Bank. Please go ahead.

Lauren Silberman (Analyst)

Thanks, and congrats on a nice quarter. Fiscal Q1 EBITDA came in at the high end of the guide despite the step up in fuel and step down in inflation. Are there any areas where you saw upside to still hit the high end of the guide? And as we think Q2, what gets you to low end versus high end?

Patrick Hatcher (Chief Financial Officer)

Yeah. Thanks, Lauren. So, you know, again, really pleased with how Q1 came in. Obviously certainly had some pressures during the quarter as we’ve already discussed, like fuel. But the hedges helped, but the hedges just helped offset the higher expense of fuel than what we were expecting as we went into the quarter. So that really was kind of a net wash. But we do expect that to be the case for Q2 as well, that we’re anticipating fuel to stay at this higher level.

So the hedges will help again. But we do expect fuel impact to Q2 to be very similar to Q1. And, you know, as we look at the Q2 guide and the low end and the high end, we really anchored to what is the current environment and that’s kind of what drives the midpoint of the guidance. That’s how we’ve always looked at it. And then we come up with, you know, various scenarios that would push us to the higher end or lower end. I mean, again, if we continue to see a very similar environment, that’s what gets us to the guidance that we gave. If things start to improve, perhaps we could get to the upper end of the guidance.

And again, it’s impossible for us to know what’s going to happen with fuel and obviously, you know, foot traffic as well.

Lauren Silberman (Analyst)

Okay, and then I want to follow up on the organic independent case growth. There’s been some noise in the restaurant industry in October, in particular some industry commentary that maybe the month started slow and picked up in the back half of the month. It sounds like maybe you haven’t seen that, and the quarter has actually started slightly higher than Q1. So I just want to confirm that’s the case and that compares easy. So perhaps there could be a quarter-over-quarter acceleration.

Scott McPherson (President & Chief Executive Officer)

Yeah, it’s a good question. So we did see a slow first couple of weeks. It’s gotten better in the last two or three. So when I look at kind of quarter-to-date versus last quarter, there’s been a slight acceleration and the comps in the back half are slightly easier. So yeah, we are running just slightly ahead of where we exited the quarter.

Lauren Silberman (Analyst)

Any thoughts as to what’s going on in the industry? Perhaps it’s just fuel costs, other noise going on, or anything else that you’re seeing?

Scott McPherson (President & Chief Executive Officer)

Yeah, I think, you know, if you think about the consumer, taking a step back a number of quarters, consumers faced tariff impacts, they’ve faced inflation, now they’re facing drastic fuel price inflation. The one thing I would say is that the consumer overall has been pretty durable. I mean, we’ve seen foot traffic be negative, but it’s been pretty consistent over a number of quarters. Now we’ve seen a little change in the chain space where there’s been a little bit of a trend to move towards the higher end, so call it the casual dine versus the QSR space.

The independent consumer, I’d say, is just continuing to be—I mean, the independent customers continue to be—resilient. So I’d say it’s been fairly consistent. Certainly a challenging macro and a challenged consumer, but also a pretty resilient consumer.

Lauren Silberman (Analyst)

Thank you very much.

OPERATOR

Thank you. And I’ll move next to Brian Harbour with Morgan Stanley. Please go ahead.

Brian Harbour (Analyst)

Yeah, thanks. Good morning, guys. I guess just when I think about, you know, obviously food inflation, deflation kind of gets passed through, but I know that a year ago there were some brief challenges when certain products moved very quickly. Did you have any issues with that in the most recent quarter? Or did you feel like the price swings are pretty manageable at this point as you think about kind of passing that through to customers?

Patrick Hatcher (Chief Financial Officer)

Yeah, Brian, it’s a great question. And as you point out, we have called that out in the past. The current environment is not that situation, really. The deflation that we’re seeing in poultry and cheese has been very consistently deflationary. As I mentioned, poultry more recently has started to improve a little, but still deflationary, but less deflationary. And beef has really been just ticking down—where it was double-digit inflationary—and that’s compressed.

But again, this is something we highlighted back in August, and as we saw the quarter progress, it progressed relatively as we expected. And we’ve embedded this into our guidance to be at this low single-digit inflation. And it’s something that we view as very manageable. We manage a very large basket of goods, and so this is, I would say, something that we can manage very well.

Brian Harbour (Analyst)

Got it. Yeah, it makes sense. You talked about the convenience channel through the year. You think it returns to low single-digit top-line growth as you lap the business wins. What’s your confidence in that? Do you have good visibility on the pipeline through the balance of the year? Does that require macro stability? Does it require a little bit of improvement? Maybe just talk about the ongoing both top- and bottom-line growth rates in that segment.

Scott McPherson (President & Chief Executive Officer)

Yeah, I think we have good line of sight to our pipeline. I mean, certainly we lap a couple of big customer wins, so being mid single-digit growth is not in the cards without big pipeline wins like that. But we feel like we have a good pipeline. We’ve got a good focus on the independent and kind of regional chain business in that segment and certainly see opportunity there continuing to grow. Food service is a big help for us as well as what continues to go on in the alternative nicotine space.

So both of those things kind of help our growth, help our margins. So I feel confident in both the top-line and bottom-line performance. And you can look back a number of years now, and the convenience segment has outperformed the market both on the top and bottom line. So that’s what gives me a lot of confidence.

OPERATOR

Thank you. And we’ll move next to Andrew Charles with TD Cowen. Please go ahead.

Andrew Charles (Analyst at TD Cowen)

Great, thanks. You talked about procurement savings are going to be spread somewhat evenly between ’27 and ’28. Just trying to think of it from a sequential perspective through the year on a quarterly basis: what you guys realized in the first quarter and what’s implied in the second quarter adjusted EBITDA?

Patrick Hatcher (Chief Financial Officer)

Yeah. Thank you, Andrew. So again, as we mentioned in the comments, really ’26 became a foundational year but set us up really nicely for ’27. We are going to see a nice progression of these savings Q1 through this year, and then we expect that the savings in 2027 will be very similar to the total savings that we’ll see in ’28. We’re not really giving quarterly impacts, but just know that they’re going to ramp up throughout ’27.

Andrew Charles (Analyst at TD Cowen)

Okay. And as we think about the balance of the fiscal year, should the incremental EBITDA growth be driven more by continued gross margin expansion or by operating expense leverage? What I’m looking to learn is what needs to improve for SG&A growth to be more below gross profit growth on a sustained basis.

Patrick Hatcher (Chief Financial Officer)

Well, I would just highlight as we get into Q3 and Q4, we’re going to start comping over the fuel expense that started in March and then all through Q4, so we’ll have some benefits there. That will give us some year-over-year tailwind. We also will have some benefit of comping over some of the Cheney expenses that we experienced during those quarters last year. But largely it will be some gross profit expansion related to mix. But it’s all the things that we always are focused on: independent case growth, performance brands, food service and convenience, and the procurement savings, as well as some of those easing comparisons as we go throughout the year.

Thank you.

OPERATOR

Thank you. And we’ll move next to Dani Lo Gargiulo with Bernstein. Please go ahead.

Dani Lo Gargiulo (Analyst)

Great. First of all, I would like to get more color on the inflation evolution and specifically to what extent was inflation in the past couple of years driven by the spike in beef, and is there a risk that we’re going to get into deflationary levels, say in 2027 calendar, as the beef supply starts to kick in and perhaps the demand starts to normalize the beef prices? So is there a risk that essentially the deflation on beef, coupled with deflation on chicken and dairy, could result in overall deflation for you?

And if so, how would you manage that?

Patrick Hatcher (Chief Financial Officer)

Well, again, we can manage a very large basket of commodities. And as we’ve mentioned, cheese and poultry have been deflationary for quite a few quarters. The thing that was propping us up a little bit was that really high inflation in beef. But we focus on these three commodities, yet there are actually dozens and dozens of commodities that make up this basket. So beef has come down, and that’s compressed the overall inflation number to this low single digit or slightly below—0.5 is what we reported.

If it continues to move down and we dip into slight deflationary, that is manageable. And as I mentioned, most recently we’ve seen poultry improvements—still deflationary but made a nice improvement. So again, as long as the movements aren’t steep up or down, we can manage this basket of commodities. Sorry.

Scott McPherson (President & Chief Executive Officer)

No, I completely understand the question. I think we’re an organization that focuses on the value we bring to our customer. Price is certainly a component of that value. But I think that if you talk to our salespeople, they lead with the fact that we have incredible brands and that we can bring unique value to them beyond price with the products we’re able to sell them, the marketing that we do around our goods, their knowledge as sales reps to help a restaurateur navigate menu and pricing and limited time offers.

So, you know, certainly we are large enough to compete on price. But I think if everybody was trying to do that, you’d have a race to the bottom. And I think we’ve got rational competitors and we feel like we bring different value to the customer. And so that’s the last place we go. And I do think that we have our investment in the sales organization and the value we bring to customers. I think we have the ability to continue to grow share, and we’ve done that very consistently.

OPERATOR

Thank you, and we will move next to Jacob Aiken Phillips with Melius Research. Please go ahead.

Jacob Aiken Phillips (Analyst)

Hey, good morning everyone and good quarter. I wanted to ask on the procurement execution, just beyond the timings of the savings, how much of the remaining procurement opportunity comes from better terms on products you already buy versus changing purchasing behavior across OPCOs? And where’s the biggest execution opportunity still ahead?

Scott McPherson (President & Chief Executive Officer)

Well, yeah, I don’t want to get too much in the weeds, but it’s actually, you know, we view our strategic vendors as great partners and we work very closely with them. You know, our goal is to really talk to them about our scale and the opportunities that we continue to present to them as new opportunities to sell. So largely speaking, we tend to stay with the same suppliers, but in some cases there have been opportunities for us to switch suppliers.

The other thing I’d add to that is, you know, the great thing about this initiative for us has been really just kind of a reframing of how we approach our vendors and how we think about that negotiation. Not just on cost of goods, but how we look at the supply chain, how we move freight. And I think it’s a foundation that we can use in food service, we can use it in convenience and specialty as well. And it’s something that will, I think, go far beyond kind of our two-year, three-year outlook.

I think this is a great foundational approach to how we negotiate and partner with vendors.

Jacob Aiken Phillips (Analyst)

And then on the specialty contract, the customer agreements you recently renewed, what allows you to improve profitability over their three to five year lives? Are there volume commitments, pricing provisions or other opportunities to lower the cost served that makes them more attractive?

Scott McPherson (President & Chief Executive Officer)

Yes, really good question. I’m glad you asked because, you know, really with the ones that we have re-signed and partnered with, they’re all growing concepts, you know, and growing customers for us. So really just adding that volume to existing deliveries and to our infrastructure is really what allows us to start to drop, you know, profit to the bottom line. And, you know, that’s why we sign long-term agreements with these folks and a lot of them have been long-term partners of as well.

So really, you know, I think the specialty group did a great job of just solidifying those partnerships and feel, you know, a lot of confidence over the term of those agreements that we’ll continue to get more profitable.

Jacob Aiken Phillips (Analyst)

Thank you.

OPERATOR

Thank you. And we will move next to Karen Holthouse with Goldman Sachs. Please go ahead.

Karen Holthouse (Analyst)

I thank you for taking the question. I wanted to go back to the operating expense line, and the message I think I got last quarter was that you expected that that line would still see some pressure second quarter and then start to see leverage in the back half of the year. Knowing what you know now, fuel’s obviously a little bit more of a headwind. Is that kind of still the anchor for that 1Q/2Q inflection? Is that still what we should be anchoring—or 1H/2H inflection—is that what we still should be anchoring to?

Patrick Hatcher (Chief Financial Officer)

Yeah, that’s right, Karen. So exactly, Q1 we saw the $16 million headwind for fuel. We’re expecting a very similar headwind in Q2 based on current prices. And then as we get into the second half, we’re still anticipating higher fuel, but we’ll obviously, once we get to March, start comping over the higher fuel from last year. So that’s where things ease a little bit. And throughout Q4

Karen Holthouse (Analyst)

And just a quick housekeeping, can you give us what organic and total chain case growth was for the quarter?

Scott McPherson (President & Chief Executive Officer)

Let’s see here. Well, I know that chain case growth was just slightly negative in the quarter, which is, you know, I think for us a great result considering that foot traffic trends continue to be now down a couple of percentage points. And really, you know, organic and total were about the same because we didn’t really have any major market share wins that impacted the quarter.

Karen Holthouse (Analyst)

Okay, great. Thank you.

OPERATOR

Thank you. And once again, if you would like to ask a question, please press the star and one on your telephone keypad now. And we will take our next question from Peter Saleh with BTIG. Please go ahead.

Peter Saleh (Analyst)

Great. Thanks for taking the question. I apologize if this was asked. But on the salesforce expansion, can you just update us on where you are there, how that expanded this quarter and maybe more specifically, what are you seeing on hiring trends? Is it becoming more difficult to find the right people—easier? Any detail on that front would be helpful. And then I have a follow-up. Thanks.

Scott McPherson (President & Chief Executive Officer)

Absolutely. So, you know, I think now for three or four quarters I’ve said that we’ve been hiring in the mid-single-digit range. This quarter was no different. To be a little more specific, we were slightly above the midpoint of that. So slightly above 5% in the quarter, and so a little higher this quarter. But I would say availability has been fairly consistent. You know, I think we’ve got a reputation of being a great place to work and a great place to build your career.

And so we’re finding available talent that’s making great contributions.

Peter Saleh (Analyst)

Thank you for that. And then on the—just curious if you could talk a little bit about what cuisines you’re seeing strength and where you may be seeing weakness. Anything regionally as well would be helpful. Thanks.

Scott McPherson (President & Chief Executive Officer)

I would say cuisine-wise for us, we’ve certainly seen probably the most strength in our Latin and Hispanic, certainly also in our Asian. We’ve done really well in the convenience segment of food service and a lot of that. And the other one I’d call out is bar and grill. The interesting thing in bar and grill and convenience, a lot of the growth is coming from pizza and Italian. It’s primarily pizza. So we’re doing really well with pizza into some of those segments.

But those are kind of the outliers that are performing well. And then I would say regionally, I mentioned earlier a little more balance in this quarter regionally, maybe a little softer in the Southeast, but the Midwest has perked up a little bit and we continue to grow very well in the West. Thank you. Thank you.

OPERATOR

Thank you. There are no further questions in queue at this time. I will now turn the meeting back to Bill Marshall for his closing remarks.

Bill Marshall (Senior Vice President, Investor Relations)

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

OPERATOR

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

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