US Foods Hldg Q3 2026 Earnings Call Transcript

US Foods Hldg (NYSE:USFD) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

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Access the full call at https://events.q4inc.com/attendee/627276561

Summary

US Foods Hldg reported strong Q3 2026 results, with a 10% increase in adjusted EBITDA and an 18% rise in adjusted diluted EPS, driven by market share gains in independent restaurants and healthcare sectors.

The company acquired Primeline Specialty, a distributor of gourmet Italian products, to enhance its specialty and import offerings, and completed $191 million in share repurchases.

Strategic initiatives include the expansion of the Pronto platform, which has surpassed $1 billion in sales year-to-date, and the integration of AI tools to boost sales force productivity, contributing to a $75 million EBITDA benefit.

US Foods Hldg updated its 2026 guidance, projecting 4-5% net sales growth, 9-11% adjusted EBITDA growth, and 18-20% adjusted EPS growth, supported by strategic vendor management and productivity initiatives.

Fuel costs and a temporary increase in selling expenses due to the transition to a variable compensation model for sellers are noted as short-term headwinds.

Management expressed confidence in sustaining growth through technology advancements, disciplined capital allocation, and a robust M&A pipeline, despite a challenging macroeconomic environment.

Full Transcript

OPERATOR

Placed in a listen-only mode. A question-and-answer session will follow the speakers’ prepared remarks. In order to ask a question, please press star followed by the number one. At any time, we ask that you please limit yourselves to one question and a follow-up. I will now turn the conference over to Michael Neese, Senior Vice President, Investor Relations. Please go ahead.

Michael Neese (Senior Vice President, Investor Relations)

Thank you. Good morning, everyone, and welcome to the US Foods fiscal third quarter 2026 earnings call. Joining us on today’s call are David Flitman, Chair and CEO, and Dirk Locascio, our Chief Financial Officer. We will take your questions after our prepared remarks conclude. We ask you to please limit yourself to one question and one follow-up. Our earnings release issued this morning and today’s presentation are available on the Investor Relations page of our website at ir.usfoods.com.

During today’s call, unless otherwise stated, we will compare our fiscal third quarter 2026 results to the same period in 2025. In addition to historical information, certain statements made during today’s call are considered forward-looking statements. We ask that you review the risk factors contained 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 these forward-looking statements.

Lastly, during today’s call we will refer to certain non-GAAP financial measures. All the reconciliations to the most comparable GAAP financial measures are included in the schedules for our earnings release as well as in the presentation slides posted on our website. We do not provide reconciliations of forward-looking non-GAAP financial measures. Thank you, and I’ll turn the call over to Dave.

David Flitman (Chief Executive Officer)

Thanks, Mike. Good morning everyone and thank you for joining us. I want to begin by thanking our 30,000 associates for their relentless focus on helping our customers make it and for their hard work that is making our company stronger, both of which are enabling us to consistently deliver above market results. The strength of our team is the key reason we were the only food service distributor recently named to the Forbes list of Most Trusted Companies in America for the second consecutive year.

Starting on Slide 3, our third quarter results reflect continued market share gains and strong earnings growth supported by focused execution in a more challenging environment. We extended our track record of share gains to 22 consecutive quarters with independent restaurants and 24 consecutive quarters with healthcare. Adjusted EBITDA increased 10% and adjusted EBITDA margin expanded by 38 basis points while adjusted diluted EPS increased 18%, reflecting top line growth, margin expansion and the benefit of continued share repurchases.

Our differentiated model is a clear competitive advantage. Our focus on the areas we are best positioned to win, independent restaurants, healthcare and hospitality, resulted in solid growth across each target customer type. Independent restaurant case growth remains strong at 5% with a two-year stack at 9%. Net new account growth improved once again to 5.5%, our strongest performance in more than three years. At the same time, the macroeconomic backdrop deteriorated during the quarter. Consumer confidence and labor market conditions weakened, fuel prices moved higher and consumers became more value conscious. Although these factors pressured overall demand and resulted in total volume growth below our expectations, we remain focused on execution, gained share with our target customer types and delivered strong earnings growth. Beyond our share gains, our self-help initiatives drove meaningful operating leverage with adjusted gross profit once again growing 170 basis points faster than adjusted operating expenses.

Our operating leverage, robust cash generation and strong balance sheet give us the flexibility to invest in the business while returning capital to shareholders. In October, we acquired Primeline Specialty, distributor of gourmet Italian products that generates more than $110 million in annual sales and will broaden our specialty and import assortment while adding complementary capabilities to Pronto and our broadline business. Since our start 45 years ago in South Florida, Primeline has been a pioneer in imported specialty foods. Over the past year, the company has delivered double-digit revenue growth while expanding margins, underscoring its attractive growth profile.

We are excited to welcome the Primeline team to US Foods Hldg. Alongside this acquisition, we also repurchased $191 million of shares during the quarter, bringing year-to-date buybacks to $690 million. Taken together, our third quarter performance reinforces my continued confidence in our ongoing ability to translate profitable volume growth and our self-help work into double-digit earnings growth even in what remains a challenging operating environment.

Next, I’ll walk through the progress we are making across our four strategic pillars beginning with our people and culture on Slide 4. Sustainable performance starts with a strong culture, one rooted in safety and supporting our communities. As our injury and accident rates improve, we are evolving our safety program from broad interventions to more targeted prevention. We are now combining operating data with AI-guided root cause analysis to better identify high-risk locations and behaviors.

This allows us to take more targeted corrective action and reinforce accountability at every level. We’re 95% complete with our center-ride pallet jack rollout and remain on track for full deployment by year end. This initiative is helping to reinforce safer operating practices and sustain the progress we have made by significantly reducing one of our most serious injury types. Our work on safety is never complete. We remain committed to our path to zero and ensuring every associate returns home safely each day.

Building a strong culture also means investing in our communities and the next generation of talent for our industry. This year we awarded scholarships to 20 students from 18 schools, with each student receiving $20,000 along with professional development opportunities as they pursue careers in culinary arts, hospitality, and related fields. Since launching the US Foods Hldg Scholars Programs in 2017, we have awarded nearly $3 million to more than 140 students.

Turning to Slide 5, reliable service is critical to winning and retaining customers. We continue to improve product availability, order accuracy and delivery performance across our network. Year to date, our operations quality composite improved approximately 10% from the prior year. This progress reflects more consistent execution and a sharper focus on the markets and processes with the greatest opportunity. This improvement was broad based, including meaningful reductions in order markouts, which occur when an item a customer orders is unavailable, and truck shorts, which occur when an item is not delivered as planned.

So far this year, order markouts have been reduced by 25% while truck shorts improved 10%. For our customers, these improvements mean fewer disruptions and a more consistent service experience. For US Foods Hldg, they improve customer loyalty and wallet share, drive efficiency and reduce recovery costs. Turning to our growth pillar on Slide 6, we’re investing in differentiated capabilities that expand our addressable market and strengthen customer relationships. Pronto remains a key driver of our independent restaurant growth and a powerful competitive advantage. The platform offers later cutoff times, smaller order sizes and more frequent deliveries, giving customers greater convenience and flexibility while allowing us to compete more effectively with local and specialty distributors.

Pronto has generated more than $1 billion in sales year to date, already surpassing last year’s total. We now operate in 52 markets, with Pronto next day available in 38. We plan to extend next day to five additional markets by year end. Following another quarter of strong double-digit growth, we remain on track for $1.3 billion this year and more than $1.7 billion in 2027. Importantly, we see opportunity to substantially grow Pronto well beyond these milestones.

Our acquisition of Primeline has a broader assortment of specialty and imported Italian products that we can offer through Pronto and our extensive broadline distribution network. We see an opportunity to scale this offering and expand our addressable market. I’d also like to share a few highlights on the progress we are making with our new local seller compensation plan. The simpler plan gives sellers greater visibility into how their actions translate into their personal earnings while aligning incentives more directly with our strategic priorities. Approximately 40% of our sellers are now compensated entirely through variable pay and many of our top performing sellers have progressed through the program faster than we initially anticipated.

As sellers progress through the program at different rates, we continue to provide the training, coaching and support needed to ensure a seamless transition. Importantly, our seller retention has remained strong throughout the rollout. Our sellers are the lifeblood of our company. We are equipping them with AI-enabled tools in Moxie to prioritize the highest value opportunities and respond more effectively to customer needs. Combined with the compensation plan’s stronger alignment to our strategy, these tools free up sellers’ time to grow existing accounts and win new business.

As these tools become increasingly embedded in the selling process, they will drive greater seller productivity and enable our existing team to support more growth. Beyond independent restaurants, our dedicated healthcare and hospitality teams are creating opportunities in two large, growing and resilient markets. Our approach is consistent: win new business through differentiated service and tailored offerings, then accelerate penetration through stronger customer relationships. These opportunities are supported by business solutions specific to each customer type. Our Vitals program helps healthcare customers improve patient satisfaction, manage labor costs and strengthen menu and retail performance.

Similarly, our Signature program combines technology, operational tools and industry expertise to help hospitality operators improve labor efficiency and elevate their guest experience. Combined with our reliable service and national scale, these capabilities position us to capture more of the opportunity ahead. Turning to our Profit pillar on Slide 7, our top line growth, improved mix and progress on our self-help initiatives translated into 10% adjusted EBITDA growth, 38 basis points of adjusted EBITDA margin expansion and 18% adjusted EPS growth. Adjusted gross profit increased 5.7% to $1.9 billion in the third quarter, driven by increased volume and benefits from strategic vendor management. Importantly, adjusted gross profit grew 170 basis points faster than adjusted operating expenses, demonstrating the consistent operating leverage generated by our self-help initiatives.

We continue to make strong progress on strategic vendor management by expanding the program across more categories and suppliers and using enhanced data analytics to identify new opportunities. We remain confident we will deliver more than $300 million of cost of goods savings over our three-year long-range plan ending next year. As we realize these benefits, we will continue to reinvest a portion to strengthen our competitive advantage. Beyond strategic vendor management, we remain focused on our goal of delivering 3% to 5% annual operating expense productivity. We are standardizing our warehouse and delivery processes with technology increasingly enabling our teams to work more efficiently and effectively. Together, these efforts are helping us offset a portion of inflationary pressures, improve service levels and create capacity to support future growth. What gives me confidence in the durability of our model is the breadth of our opportunity.

We are consistently gaining market share with our target customer types while improving procurement and productivity across our operations. Technology and AI will play an increasingly important role in driving our sustained growth over the next several years. Slide 8 highlights the measurable value these capabilities are already delivering. We identify high value opportunities, prove the return, and then scale capabilities across the enterprise. The AI initiatives we have deployed over the past two years are now generating more than $75 million of adjusted EBITDA across sales, supply chain and enterprise functions, and we are on a clear path to ramp these initiatives to more than $110 million next year.

Importantly, we see a significantly larger opportunity in the years ahead as AI adoption further expands and additional capabilities are deployed and become more deeply embedded in our workflows. We recently launched Scout AI, our new AI assistant within Moxie and our CRM platform, embedding AI capabilities directly in the tools our sellers use every day. Scout AI is evolving beyond answering questions to taking action and becoming an active partner for our sales force. By combining our proprietary AI models with frontier large language models, Scout will help resolve issues and automate administrative work. This enables sellers to spend more time serving customers and winning new business.

And since introducing Visit Assistant Insights last quarter, we have rapidly expanded its use across our sales force. The tool helps sellers win back cases customers previously purchased from us and uses customer menus to recommend products they have not yet bought from us. We delivered more than two and a half million customer-specific insights this quarter, up from 700,000 last quarter. More importantly, accounts supported by these insights are growing cases nearly 10% faster than accounts without them.

Together, Scout AI and Visit Assistant are helping us build a more productive and differentiated selling model. As a result of the AI-driven technology advancements we have deployed across the sales force over the last two years, going forward, we now expect seller headcount to grow at a low single-digit rate versus our prior mid single-digit target. These capabilities demonstrate how we are leveraging AI across our business to increasingly drive productivity.

Before I pass it to Dirk, in September, the International Foodservice Distributors Association inducted 19 US Foods Hldg drivers into its 2026 Truck Driver Hall of Fame. This honor recognizes the food service industry’s top drivers who have exceptional safety records and length of service, each with more than 25 years at US Foods Hldg. It’s a highly coveted honor for truck drivers in our industry. With Veterans Day just around the corner, I want to highlight two of our IFDA Hall of Fame drivers, both of whom are veterans.

The first is Ronnie Holte from Grand Forks, North Dakota, who has 30 years of service at US Foods Hldg. The second is Charles Armitage out of Roanoke, Virginia, who has been a driver with us for 27 years. I thank both of them not only for their decades of service to our company, but especially for their bravery and courage in serving and protecting our great nation. Finally, I’d like to recognize all veterans within and outside of US Foods Hldg who have served in the US Armed Forces.

We are deeply grateful for your service, sacrifice and commitment to our country. Let me now turn the call over to Dirk to discuss our third quarter financial performance and our updated 2026 guidance.

Dirk Locascio (EVP)

Thank you, Dave, and good morning everyone. Our third quarter results demonstrate the strength of our value creation model. Profitable share gains and progress on our self-help initiatives supported adjusted EBITDA growth and margin expansion while capital deployment enabled even stronger adjusted diluted EPS growth. Starting on Slide 11, third quarter net sales increased 2.1% to $10.4 billion, reflecting total case volume growth of 1.3% and food cost inflation and mix of 0.8%.

Lower than expected inflation, primarily in center of the plate categories was an approximate 100 to 150 basis point headwind to net sales. Independent restaurant case growth remained strong at 5%, healthcare increased 3.3% and hospitality grew 3.7%, while chain restaurant volume declined 1.5%, 50 basis points better than industry foot traffic as reported by Black Box. Turning to profitability, third quarter adjusted EBITDA increased 9.9% to $555 million and adjusted EBITDA margin expanded 38 basis points to 5.3%. The increase was driven by growth with our target customer types, gross profit improvement and productivity gains from our self-help initiatives.

Adjusted diluted EPS increased 17.8% to $1.26, outpacing adjusted EBITDA growth. Looking ahead, we expect adjusted diluted EPS to continue growing faster than adjusted EBITDA as we compound earnings, expand margins and deploy our strong cash flow through disciplined capital allocation. Slide 12 shows the operating leverage we delivered in the quarter. Adjusted gross profit per case grew 170 basis points faster than adjusted operating expenses per case, driving strong growth in adjusted EBITDA per case. Adjusted gross profit per case increased $0.36, or 4.3%, compared with the prior year. The increase was supported by profitable volume growth, strategic vendor management gains and the impact of fuel surcharges. Our established surcharge mechanisms effectively passed through a meaningful portion of the year-over-year increase in fuel costs.

We recovered approximately 70% of the increase during the quarter compared with our typical recovery rate of 30% to 40%, reflecting disciplined execution across the organization. Adjusted operating expenses per case increased $0.16, or 2.7%, with higher fuel expense representing nearly one half of the year-over-year increase. Selling costs were also higher as we carried additional seller headcount and supported sellers through the transition to 100% variable compensation.

Productivity gains across our operations partially offset OPEX inflation. We view the additional selling costs as a prudent, temporary investment in executing the transition, thoughtfully retaining our sellers and positioning them to increase their earnings under the new plan. Retention remained healthy and we expect the new plan to drive greater seller productivity and profitable growth over time. As a result of these factors, adjusted EBITDA per case increased $0.20, or 8.6%, to $2.53.

Turning to Slide 13, our consistent cash flow generation and balance sheet strength give us the flexibility to fund organic growth, return capital to shareholders, and pursue disciplined, accretive tuck-in acquisitions. Through the first nine months of the year, we generated nearly $1.2 billion of operating cash flow, fueled by earnings growth and effective working capital management. Investing in the business remains our first capital allocation priority.

Year to date, we have invested $266 million in cash capital expenditures to support growth, strengthen our operations and advance technology and productivity initiatives while maintaining a focus on returns. Alongside these investments, we repurchased $191 million of shares during the third quarter, bringing year-to-date repurchases to $690 million. In October, we acquired Primeline. Consistent with our disciplined approach to tuck-in M&A, the acquisition adds specialty capabilities that we can scale throughout our existing distribution network.

We closed the quarter with net leverage of 2.4 times, well within our target range of 2 to 3 times. This leverage position preserves meaningful capacity to invest in growth and respond to attractive capital deployment opportunities. Subsequent to quarter end, we completed a term loan refinancing that extended our debt maturity profile and increased liquidity. We entered into a new $810 million term loan due in 2033, priced 25 basis points below the term loan due in 2028.

We used the proceeds to fully repay the 2028 term loan and reduce borrowings under other facilities. Now, turning to our updated guidance on Slide 14, based on our year-to-date performance and expectations for the balance of the year, we are tightening our fiscal year 2026 guidance ranges. We now expect net sales growth of 4% to 5%, adjusted EBITDA growth of 9% to 11% and adjusted diluted EPS growth of 18% to 20%, supported by total case volume growth of 2.5% to 3.5%. Our updated outlook incorporates our latest view on the macro environment and our current assumptions for restaurant industry traffic, inflation and fuel prices through the remainder of the year.

Even against the more challenging backdrop, we remain confident in our ability to deliver within our updated guidance range, supported by profitable share gains with our target customer types and the measurable benefits of our self-help initiatives. As a reminder, our full-year guidance includes the impact of a 53rd week, which we expect to add approximately 1% to total case growth and adjusted EBITDA growth. More broadly, we remain confident in our ability to generate double-digit adjusted EPS growth over time as we execute our long-range plan and deploy capital across our strategic priorities.

With that, I’ll now pass it back to Dave for his closing remarks.

David Flitman (Chief Executive Officer)

Thanks, Dirk. Our strategy is working. Our differentiated capabilities and targeted investments are translating into market share gains. Pronto is expanding our addressable market across our sales force, stronger alignment around profitable growth, and the momentum of our dedicated healthcare and hospitality teams are reinforcing those gains. At the same time, our continued technology leadership and AI applications are becoming an increasingly important driver of our performance and a clear competitive advantage. We are scaling AI-powered solutions that grow sales, improve productivity, strengthen seller effectiveness and enhance how we serve our customers. And there is more to come. Our strong cash flow and balance sheet give us the flexibility to invest in the business and pursue accretive tuck-in acquisitions like Primeline while consistently returning capital to shareholders.

We are executing against each of these priorities while maintaining a balanced approach to capital allocation. The operating environment has become more challenging, but my confidence in our ability to deliver results has never wavered. We remain confident in our ability to deliver consistent adjusted EBITDA growth and compound adjusted EPS at a strong double-digit rate over time. More importantly, we are gaining profitable share while building a more durable company with meaningful opportunities to create long-term value for our associates, customers, suppliers and shareholders.

Thank you for your continued interest in US Foods Hldg. With that, operator, please open up the line for questions.

OPERATOR

Thank you. At this time I would like to remind everyone, in order to ask a question, press star followed by the number one on your telephone keypad. We ask that you please limit your questions to one question and one follow-up. We’ll pause for a moment to compile the Q&A roster. Your first question is from Jacob Aiken Phillips with Melius Research.

Jacob Aiken Phillips (Analyst)

Hey, good morning, everyone. So, you’re lowering the ongoing seller headcount growth target from mid- to low-single digits because of some of the productivity tools that you’ve deployed. What have you seen in seller capacity or production that gives you confidence you can sustain the same independent growth ambitions with fewer new hires? And why not just continue to grow at mid-single digits and get even faster growth?

David Flitman (Chief Executive Officer)

Yeah, appreciate it. Great question, Jacob. Let me just give you a little context on specifically why we made that change and why we feel now is the right time for it. So if you think about our digital leadership, that’s been 15 years in the making. We just lapped our fourth year having Moxie, which is a great tool, and we’ve embedded a lot of capabilities in that for our sales force. You couple that with the seller compensation plan, and you heard us talk about in our prepared remarks the way the team is ramping up.

You know, we’re a little bit higher in terms of people on full commission than we expected to be at this point. We’ve got line of sight to that continuing, really embracing the journey very well. You think about the macro backdrop and the fact that our independent case growth maintained that strong 5%. You know, in a quarter where Circana says independent restaurant foot traffic was down about 40 basis points from Q3, we’re seeing all the behavior changes that we like to see. You overlay on top of that the recent things that we’ve talked about over the last couple years on AI and the way we’ve embedded it in the seller tools. I’ll just take you way back to a couple of years ago when we started with the automated order guide; things like AI-powered search that we’ve enabled our customers to search our tools and understand our inventory; the way we’ve embedded prospecting—we’ve talked about that, the effectiveness of that. We just talked about Visit Assistant and Scout AI. These are comprehensive, game-changing technology capabilities that are really driving the effectiveness of our sales force.

And we believe now is the right time, given the productivity that we’re seeing, to drop that target down. We may change it over time, but we think now is the right time to lean in hard with the maturity of our sales force and the great progress we’re seeing as people ramp up in the new commission system, to drop that target down. And as I said in the prepared remarks, there’s more to come on the AI front. You know, we’re leaning into this hard, and we’ve talked about it here on the call—more to come in a big way.

Love the way our team is really embracing the technology and that capability, and we’re just seeing a continued ramp-up in the productivity of the sales force.

Jacob Aiken Phillips (Analyst)

And then the follow-up is on the AI piece. You quantified the 75 million growing into next year. How should we understand the overlap between your existing procurement and productivity initiatives, and how much of that increase should translate into incremental earnings versus reinvestment? Thank you.

Dirk Locascio (EVP)

Morning, Jacob. So out of the—We’re quite pleased, and I think the amounts that we’ve talked about hopefully demonstrate all the comments we’ve made prior about concrete solutions that generate value. And that value comes really across sales, margin and productivity. As we think about that, these would not be overlapping with strategic vendor management. So this is incremental through additional sales and/or productivity. So think of it as enablers of accelerating case growth, of additional productivity to get to that 3% to 5% that we target.

Really the key message is the things that we’ve been doing are generating value, and they will generate value. And this is just the tip of the iceberg for us. We—as I think I commented last quarter, Dave commented—we’re really moving from more of the point solutions to looking at end-to-end process rewiring and re-engineering and how AI fits into that. We’ve got some good things we’re starting to work on and expect to see more meaningful value. Our expectation is the value that comes from AI in the future is significantly higher than we’ve already generated. So more to come, but excited about the journey ahead here.

OPERATOR

Your next question is from Edward Kelly with Wells Fargo.

Edward Kelly (Analyst)

Yeah, good morning, guys. Morning, Dave. I wanted to Ask you and, well, I guess you wonder, you know, you guys have been successfully battling, you know, some incremental industry pressures all year and delivering strong results, including this quarter, by the way. Right. What’s different about Q4 with, you know, the guide on EBITDA growth a touch lower than what you’ve been doing? Could you just maybe sort of parse out some of, like, the incremental, you know, headwinds that we’re thinking about? And then as you look forward into next year, you know, a lot of these headwinds either start to lap or potentially even get better.

Just curious as to how you’re feeling about the ability for the business to reaccelerate off of Q4 next year.

Dirk Locascio (EVP)

Morning, Ed. Good question. So really it’s two primary things that changed from Q3 to Q4. So selling cost, as we’ve talked about, is a temporary headwind. It’s just because it really is the first kind of full quarter and more people moving through it. So the headwind is about another point in the fourth quarter. We expect that to reduce in the first quarter and then really be eliminated by the second quarter. Fuel is about another point, point and a half headwind versus where it has been.

That’s a combination of higher fuel costs, and we had a little bit less fuel locked at lower prices for the fourth quarter. So it’s really primarily those two things. And to your last question, you know we’ll obviously give our guidance in February, but we don’t think there’s anything to read into here. Our expectation is our algo remains well on track and our execution continues to support what we think is strong EBITDA growth and EPS growth over time.

Edward Kelly (Analyst)

Okay. And then maybe just a follow-up on independent case growth. Can you talk a little bit about the cadence during the quarter, you know, what you’ve seen so far Q4 to date and your confidence in the ability to sustain sort of a mid-single-digit rate? And as part of this, just kind of big picture, just curious as to what you’re seeing competitively, you know, right now, especially as, you know, peers sort of contemplate what to do with fuel surcharges with these customers, etc.

David Flitman (Chief Executive Officer)

Yeah, thanks, Ed. This is Dave. You know, really pleased with the 5% consistency from Q2 to Q3 in independent case growth. And as I mentioned, it looked like the industry backed up a bit in Q3. Our performance in the third quarter was fairly consistent throughout the quarter. I would say that we saw a slight acceleration in September that was followed by some softness in the first two, three weeks of October, which has since re-accelerated in the last, I’d say, two to three weeks.

And, you know, we’re at or better than we came out of Q3, so feeling really good about the momentum. Importantly, I talked about it on the call. Our two-year stack on independent case growth — you know, over 9% at this point. Really good momentum. Feel great about the future. And importantly, you know, as we started to talk about the salesforce productivity and the things that we’re seeing there, all the behavior changes that we anticipated around the sales comp change are really starting to get great traction, and we’ve got confidence in Q4 and beyond that we’re going to continue to take share.

Edward Kelly (Analyst)

Thanks, guys.

OPERATOR

Thank you. Your next question is from Lauren Seiberman with Goitia Bank.

Lauren Seiberman (Analyst)

Hey, thanks a lot. I wanted to just ask on, like, the total case growth dynamics, and it’s been in the very low single digit. A lot of that’s a function of the pressure in the all-other and national chains. I guess independents, healthcare, hospitality, all quite strong. How important is, like, the all-other national segments to, like, the EBITDA growth algorithm, and to what extent do some of these losses also, like, open capacity for some of your key customer segments?

David Flitman (Chief Executive Officer)

Yeah, importantly, you know, just start with our target customer types, Lauren, and I’ll get to your question here in a second. But I just talked about independents. Really feel great about the momentum in healthcare and hospitality. Importantly, we’ve got line of sight to great pipelines there in Q4 and the first half of 2027. So feel the consistency is there, the performance is there. 24/4 in a row. Health care market share 22 with independents, our target customer types and where we’re leaning in the hardest are doing extremely well.

Feel great about that. I was pleased, you know, relative to Black Box, our chain business performed about 50 basis points better in the quarter. Importantly, we’ve got some line of sight to new business there that will start to onboard late Q — call it late Q1 — and into Q2, should provide some nice tailwinds for the back half of 2027. And then as you dig into the all-other category, which is a combination of a lot of things, just remind you of a couple points. We lost in retail a customer that everybody would recognize that shut down the retail operations. We will lap that at the end of Q1. We’ll still be a headwind here in Q4. Secondly, just in the government business — and this is a good thing for humanity — we didn’t have the wildfires that we had in Q3 of last year in Los Angeles, and that was a headwind relative to that government business.

And then in education, honestly, we’ve lost some business there as we saw some competitors, particularly one large competitor, chasing that business to the bottom. And that’s just not something we’re going to do because, to your point, this is not the most profitable pieces of our business and we’re not going to chase empty cases. And so some headwinds there. Some of it will persist into the first quarter of next year, but feel like we’ve got line of sight to continue to drive growth, and we’d expect to see continued acceleration as we get into the first and second half of next year.

Lauren Seiberman (Analyst)

Great. And then to follow up on the competitive point, any more you can share on what you’re seeing in the competitive environment across different segments? Pickup in activity, whether it’s healthcare, hospitality — it sounds like in the education business — and anything in the independent restaurant side? An acceleration up front or any of that would be helpful.

David Flitman (Chief Executive Officer)

Yeah. Outside of my comments there on education, which I think were, you know, quite specific to certain markets, nothing that I would comment on that’s inconsistent with anything that we’ve been saying. This is a very competitive industry all the time. It ebbs and flows, usually based on certain markets and activities going on at the time. We’ve got to be on our game all the time from a service standpoint, from a pricing standpoint. But I wouldn’t say anything has dramatically stepped up here from in Q3 or even early Q4.

Lauren Seiberman (Analyst)

Great, thanks so much.

OPERATOR

Thank you. Our next question is from John Heinbeichel with Guggenheim Securities.

John Heinbeichel (Analyst)

Dave, can you touch on lines per account? Right. And how that’s performing? And I’m curious, when you look forward between the Italian acquisition, seller maturation, Pronto Next Day — there are ample tools here, right, to drive that higher. How do you think that plays out and how much improvement can you drive?

David Flitman (Chief Executive Officer)

Yeah, just first part of your question, John. Really pleased with our net new account generation there, five and a half. You know, that’s accelerated over the past five or six quarters. Q3 was the strongest that we’ve had in more than three years. So the focus that our sales force has had on, you know, minimizing lost business and accelerating opening new business is strong and continues to gain momentum. Lines per customer up a bit, cases per line, you know, flat to slightly down.

And I think that’s where the foot traffic pressure shows up. As we’ve talked about before, you know, we’re really excited about this Prime Line acquisition. You know, you couple that with Pronto and all the great momentum we’ve had — that success in Pronto has really led us to think a bit differently about the competitive landscape and what we can do with that. And just, I mean, I could talk all day long about Primeline. You know, Dennis Landy runs a great business there. He inherited that business from his first-generation immigrant parents that came over from Italy, started the business in South Florida in the early ’80s.

Dennis has been running it for about 20 years. Really opens the aperture to high-end Italian specialty imports. Think about Parmesan cheese — wheels of it — cured meats, extra virgin olive oils, imported pastas, premium double-zero flour, those sorts of things that open the high-end Italian business for us. And so, just linking it back to Pronto, as we’ve talked a lot about, what the gap Pronto filled for us was the service model that enabled us to compete with the specialty suppliers. What acquisitions like Primeline do, as we thought more about where we can take Pronto, is really open our aperture around what that can be in terms of different areas of the specialty business. So if you think about for Pronto, what I’ve always said is, you know, we’ve got a lot of those great products in our distribution centers.

When you think about center of the plate, produce, those sorts of things where you see a lot of specialty suppliers. We hadn’t really thought a lot about, you know, things like specialty Italian and those imported products until recently. And I think our success in Pronto is basically what enables it and gives us the right to think differently about that. And, you know, this is an opening of maybe a $20 or $30 billion TAM for us. So we’re excited about it.

We think we bought a great business here, and we’re going to scale it both in our broadline business as well as Pronto.

John Heinbeichel (Analyst)

Well, let me follow up on that then, because I think, right, Prime Line is in five markets. So you can do two things, right. You can take the whole assortment to more markets, and then you can take select items into existing opcos. How do you think about staging that and doing it? Doing it sort of at the right pace?

David Flitman (Chief Executive Officer)

Yeah, I think, you know, we’ve got opportunities, and that’s why I commented in the script there that, you know, we’ve got opportunities within Pronto as well as our broadline business. I think what you’ll see us do through time is a little bit of both, John. I don’t think there’s going to be any limit on that.

John Heinbeichel (Analyst)

Thank you.

David Flitman (Chief Executive Officer)

Thank you.

OPERATOR

Your next question is from Kelly Benia with BMO Capital Markets.

Kelly Benia (Analyst)

Good morning, Dave and Dirk. Thanks for taking our questions. Wanted to go back to the seller, the variable compensation model. You noted the data point that 40% are now on that. I was wondering if you could just share a little bit more — just how, if you would be willing to — how different the local case growth performance is with that cohort of sellers versus the other 60% that have not transitioned yet. And also you mentioned that some are really progressing through the transition at a faster pace, and just wondering if you can share how that’s working and if there’s a more updated and accelerated timeline to get to completion of this transition.

David Flitman (Chief Executive Officer)

Yeah, so, you know, very good question. And I would say, Kelly, it’s performing exactly like you would expect. So those sellers that are ramping up faster than others tend to be our more tenured and more experienced sellers who are eager to drive growth and make more money. But it’s not that the 60% aren’t, it’s just that they’re — you think about their tenure is less, they’re newer to the sales force. But I’m pleased on both ends. I’m really pleased that we’ve seen a bit faster acceleration than we expected going into the 40%.

Continue to see good momentum here in Q4. But I’m also pleased at the way the other 60% is embracing the new comp model and ramping up just as we would hope, and so feeling really good about it and where it’s going. I know there was a lot of consternation as we’ve been talking about that over the last 18 months. We watch it closely. We’re still supporting them with a lot of training and support. That will continue. But this thing is going really well.

Kelly Benia (Analyst)

Thank you. And just maybe to follow up around the comment about more of a

David Flitman (Chief Executive Officer)

Yeah, for the foreseeable future. We’ll have more to say about where it might go in the future whenever that gets here. But I feel like now is the right moment to take that step down. And look, I said in the script and I want everyone to understand the salesforce is the lifeblood of this company and it always will be. So I take nothing away from that. This is purely a reflection of the productivity gains that we’re making in the salesforce and that switch over to 100% variable compensation, which is enabling our sellers to be much more productive.

Through the course of time, we may come back and increase it again over time and I’m reserving all rights, but we think now this is the right moment to make the change that we just talked about. Thank you.

OPERATOR

Your next question is from Alex Legal with Jefferies.

Alex Legal (Analyst)

Thanks. Good morning. Just wanted to follow up a little more on the net new account growth, which we talked about was really good, and kind of opportunity to drive further penetration and lines per drop. Is there an element of that where, like, the assortment on the value tier or the value-oriented private brands — is there an opportunity to broaden that assortment? I imagine a lot of customers are still sort of key on finding ways to save. Are there opportunities to broaden what you offer on that front?

David Flitman (Chief Executive Officer)

Yeah, absolutely, Alex. And we started to lean into that value-tier offering with our brands a couple quarters ago and continue to develop the right product portfolio there, given all the pressure. And, man, this is a resilient consumer in this industry, and we’re really pleased with the way things are holding up. The industry’s resilient, the consumer’s resilient given all the pressures. But there has been a shift to more value — I think that’s well noted across the space, and that’s not a new thought.

And so, yeah, to your point, there’s opportunity there. We’re leaning into that opportunity and feel good about our brand portfolio, and we’re expanding it where it makes sense.

Alex Legal (Analyst)

Okay. And a quick follow-up. Are there changes to the service model or investments required in Pronto to support the shift toward the more differentiated specialty areas along the lines of the Prime Line path?

David Flitman (Chief Executive Officer)

Yeah, great question. We don’t anticipate that to be the case to any meaningful extent, but obviously we’re thinking through that with Dennis and our team in Pronto, kind of real time. Thank you.

OPERATOR

Your next question is from Peter Saleh with BTIG.

Peter Saleh (Analyst)

Great, thanks for taking the question. I wanted to follow up maybe on the inflation outlook. I think you mentioned inflation was a little bit less than expected, maybe a little bit of a headwind in 3Q. What’s the thought process on what’s driving that? How does the fourth quarter look? And any thoughts on the expectations heading into 2027?

Dirk Locascio (EVP)

Morning, Peter. It’s Dirk. Few thoughts or comments. First of all, on the Q2 to Q3 — the deceleration from the 2.3% to the 0.4% Q2 to Q3 was really entirely driven by center-of-the-plate categories. For us, outside of the center-of-the-plate, it’s the puts and takes, but they were largely neutral from Q2 to Q3. And so the categories of less beef inflation, poultry, pork deflation — those are not different than what others have talked about. When we go to the fourth quarter, expectation is a little bit of acceleration from what we saw in Q3. I think it’s early for 2027. You’ve heard me say plenty of times, I’ve learned a long time ago that my crystal ball isn’t all that accurate on this. But I’ll just remind you, back to when you have smaller changes like this, especially when it’s in proteins, it’s more of an impact on sales than it is on EBITDA. So our expectation, even if it stays at this lower level, it doesn’t really change the outlook for how we think about earnings growth.

Peter Saleh (Analyst)

Got it. And then just any comments on geographic and/or cuisine strength or weakness in the quarter? Anything that’s changed from 2Q?

Dirk Locascio (EVP)

Nothing remarkable, Peter. I think we had fairly consistent performance in the third quarter across our four geographic regions — maybe a slight tick down in the Northeast, but that’s our fastest-growing region this year; maybe a slight tick up in the West, but pretty good strength across the board there. I would say in the cuisine types, bar and grill is our core strength. Italian, the Hispanic segments — those were all areas that grew in the industry, and we gained share in each of those.

So I’d point to those as some of the core strengths for us.

Peter Saleh (Analyst)

Thank you.

Dirk Locascio (EVP)

Thank you.

OPERATOR

Your next question is from Brian Harbour with Morgan Stanley.

Brian Harbour (Analyst)

Thanks. Good morning, guys. I had a question about that comment you just made — where do you think that there’s kind of the most compelling share gain opportunities these days? I guess share gains plus, where do you see it just being a more attractive segment generally that you feel like you haven’t appropriately targeted in the past?

Dirk Locascio (EVP)

I don’t know that it’s areas that I’d say, Brian, that we haven’t targeted, but I’d point to some of the ethnic areas where we’re a bit under-indexed relative to our average independent market share. So areas like I just highlighted — the Hispanic and Italian — are areas that we’ve focused on and targeted, and really pleased to see that we’re gaining share in those from a relatively smaller position than our core business. The other thing that we do get excited from a restaurant type is Dave made the comment earlier — just Prime Line and that opportunity to really unlock more of the higher-end restaurant space. And that addition of all those imported products, specialty products, is part of that strategy to continue to grow our share in that part of the market as well.

Brian Harbour (Analyst)

Okay, got it. Dirk, just in thinking about 4Q, you commented on inflation, you kind of talked about your trends over the last month. I guess, was your macro assumption from a traffic perspective that it’s kind of similar to 3Q or that it’s a little bit softer? And with fuel, do you assume that the recovery through surcharges is similar to what you did in 3Q, or do you assume it’s more similar to your baseline? How do you frame your assumptions there?

Dirk Locascio (EVP)

Sure. For fuel, we assume it stays in that 70% range that we’ve been at, to your point. Our assumption is the macro broadly — whether it’s traffic, fuel, etc. — stays pretty similar to where it’s at right now. So we don’t assume much better or much worse. And our expectation is overall, on case growth specifically, that we do strengthen in the fourth quarter from some of our own internal performance, but overall assume the macro pretty constant through the fourth quarter.

OPERATOR

Your next question is from Mark Carden with UBS.

Mark Carden (Analyst)

Good morning. Thanks so much for taking the question. So wanted to start by digging a bit into what you’re seeing on the hospitality side — still strong pace of growth, slowed a little bit relative to last quarter. Are you guys seeing any impacts from cost of living pressures picking up in this space? How did growth compare between your lodging and non-lodging channels? And what’s the reception been on Signature to date? Thank you.

David Flitman (Chief Executive Officer)

Morning, Mark. Appreciate the question. First of all, let me just start with the big picture. We’ve got great technology — think about Signature as that platform that we launched this spring that’s analogous to Vitals in healthcare. We wrap our core technologies with great expertise in the space. We’ve talked in the past about our over-indexed in lodging and our shift to areas of more entertainment. So I would say the strength and momentum is shifting just as our targeted approach is shifting a bit.

But feel really good about the pipeline in both healthcare and hospitality, not just in Q4 but, as we’ve got line of sight into the pipeline for the first half of next year, feel like that momentum will change with strength. We’ve got good momentum, great expertise, feel like we’ll continue to take share and lean into it quite aggressively. So feel good about it — not just short term but also long term.

Mark Carden (Analyst)

Great. And then as a follow-up on fuel, you called out the elevated recovery rate again this quarter. Does that continue in 4Q, or does that start to normalize?

Dirk Locascio (EVP)

Our expectation is the recovery rate in 4Q is similar to what it was in Q3, so around that 70% range.

OPERATOR

Your next question is from Andrew Charles with TD Cowen.

Andrew Charles (Analyst)

Great, thank you. Dave, you talked about in the past how the salesforce compensation transition would take about two to three years, and I’m just curious, given the faster-than-expected start, your comments on the moderated level of hiring and the impact of the AI tools — is that still the right timeline, or do you now expect that to go a bit faster?

David Flitman (Chief Executive Officer)

Appreciate the question, Andrew. It may go a bit faster. Early days still — we’re a full quarter and a month into this thing — but feel really good about it. And the fact that we’ve got 40% on full commission now is a bit ahead of the pace that we expected. So it may pull back a bit — that three years may be a bit long, maybe more solidly linked to the two-year range. Time will tell. We’ll continue to give updates as we progress.

Andrew Charles (Analyst)

Yep. And then the AI cost savings — you talked about $75 million that you guys have seen ramping to $110 million. How does that split just between gross margin benefits, SG&A versus perhaps distribution productivity?

Dirk Locascio (EVP)

Andrew, it’s Dirk. It goes across those. I’d say the biggest portion of it is from incremental sales and margin that it’s generated over time, and then the ability to — productivity is a driver but the lesser amount. And I would just come back to what Dave commented on a few things: whether it’s suggested sell, whether it’s product recommendations, AI search, even forecasting of product — those all culminate ultimately in some form of increased sales.

And so when we talk about our digital capabilities, that’s how these AI capabilities show up through our digital platform. And then we continue to use it robustly across, and I expect that our benefits as we go forward will come in a combination of sales growth and productivity as we think about next steps in the journey.

David Flitman (Chief Executive Officer)

Yeah, we leaned in heavily to the salesforce a couple of years ago as we started this thing, and I think, to Dirk’s point, as we’ve had great success there and are thinking more about some transformational opportunities that may be more productivity-focused as we gain our confidence and really understand some of these large language models and how to apply them effectively to the business. So we’re excited about what we’ve done, but even more excited about the contributions coming in the future.

Andrew Charles (Analyst)

Very helpful, thank you.

OPERATOR

Your next question is from Raul Crow with J.P. Morgan.

Raul Crow (Analyst)

Hey guys, thanks for all the color. Dave, I wanted to talk about physical automation, given you guys are already leading on the workflow adoption and automation. Update us on the inventory scanning robot pilot — are we on track to expand this for the new six locations or so you guys talked about? And what other purpose-built opportunities might there be in the near term that you can look at or work with vendors to accelerate and lead that adoption in the industry?

And specifically for this industry, is the challenge mainly around handling differences in the packaged versus perishables?

David Flitman (Chief Executive Officer)

Yeah, I think you know, we’re excited about automation. I’ll break your question up. So the second part of it around the inventory robotics that we’ve talked about previously, we started that in one location. We’re expanding that to a few more pilots. You know, as Dirk’s commented in the past, it’s basically the cost of one human and it counts the inventory quite accurately and does it, you know, within 24 hours. So it’s really good. So we expect more contributions to that going forward.

Our automation in Aurora is going well and stable. We’re learning a lot through that process and how we might apply that technology in other locations. We’ve got an expansion underway in Texas right now that will take those learnings from Aurora and apply it to, and importantly to your other question around robotics. I think there’s huge opportunities going forward around that that we’ll likely explore through the course of time as well. We’ve got our legs under us around automation and how to apply it.

As the technology continues to evolve, we’ll grasp those opportunities, apply them effectively to the business.

OPERATOR

Thank you. Next question, Wolfe Research.

Dirk Locascio (EVP)