Operator: Good day, and welcome to PFG's Fiscal Year Q2 2020 Earnings Conference Call. [Operator Instructions]. I would now like to turn the call over to Bill Marshall, Vice President, Investor Relations for PFG. Please go ahead, sir.

Bill Marshall: Thank you, Lori and good morning.

We're here this morning with George Holm, PFG's CEO; and Jim Hope, PFG's CFO.We issued a press release regarding our 2020 fiscal second quarter and first half results this morning. The results discussed in 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. You can find our earnings release in the Investor Relations section of our website at pfgc.com.Our remarks in the earnings release contain forward-looking statements and projections of future results. Please review the cautionary forward-looking statements section in today's earnings release and our SEC filings for various factors that could cause our actual results to differ materially from our forward-looking statements and projections.Now, I'd like to turn the call over to George.

George Holm: Thanks, Bill. Good morning, everyone and thank you for joining our call today. We're joining you from southern Florida where we're hosting the Annual President's Meeting with our field leadership organization. For the past few days, we have discussed our vision for success and I am thrilled with the level of excitement across the entire organization.As our company has been busy growing our legacy business while expanding into new channels and territories through acquisitions, including Eby-Brown and Reinhart. Today we will provide an update on how these initiatives have progressed.We also look forward to speaking at the CAGNY conference in a couple weeks where we provide more detail into our vision and strategy for PSG.

But first I'd like to start by reviewing some highlights of our second quarter business results before providing a quick update on the Reinhart acquisition.Jim will then discuss our financial results and annual outlook in more detail. And then finally, we will be happy to take your questions. Let's turn to our results. After a strong start to the year we're pleased to share that our sales and EBITDA growth continued in the second quarter of fiscal 2020.Total case volume increased by 6.7% driven by the Eby-Brown acquisition, a 4.9% increase in independent cases, and growth in performance brands. We are pleased that our independent case growth for the quarter continued to the mid-single digit range, which was in line with our expectations.We believe we will be able to achieve our long term objectives with this level of independent case growth in our legacy business.

As we look ahead, we expect Reinhart's level of independent case growth to be below the mid-single digit range in the short term but will accelerate over time to be more in line with our legacy business.We continue to believe the overall health of independent restaurants remains strong and will continue to be a key driver of our long term profit growth. As we closed the Reinhart acquisition in late December completing the transaction by the end of our calendar 2019 or fiscal quarter two.We're excited to add the Reinhart business to our organization and welcome the many talented Reinhart associates to the PFG family of companies. Reinhart brings over $6 billion in annual net sales taking PFG's annual revenue run rate to approximately $30 billion. The transaction increases our Foodservice division scale distribution platform, particularly in the independent channel and market density.Over time, we expect this to improve our network efficiency, reduce mileage and create additional sales opportunities as we share best practices. We're also excited about the cultural fit between PFG and Reinhart.

Both organizations go to market with a focus on success at the customer level.We believe that we will be able to enhance Reinhart's operations and increase the combined company's depth of differentiated private label brand offerings. The increased density of our combined sales associates will also enable more face time with customers and should reduce future operating expense.Reinhart also brings a diverse customer base, including independent restaurants, healthcare providers, education and other attractive end markets. We believe that these strategic merits will strengthen our combined business and increase shareholder value over the long term.While we are just over a month from the completion of the transaction, integration is going very well and we are pleased with the progress that has been made bringing these two great companies together. Each quarter during these calls, we like to highlight one associate who goes above and beyond to serve our customers and colleagues.Today we'd like to recognize one of our new associates joining the PFG family from Reinhart. John Hayes is a shuttle supervisor based out of Columbus, Ohio.

He has 30 years of experience in Foodservice, including time as a driver, lead and driver trainer, and has been the supervisor for the past eight years.When PFG and Reinhart announced the acquisition John was quick to contact all of his drivers and met with key customers in the Columbus market. His efforts have ensured that customers and drivers are in tune with Reinhart's transition to PFG.His level of enthusiasm, commitment to success and overall positive attitude are important reason why we continue to win in the Columbus and Dayton areas. Whenever two companies the size of PFG, and Reinhart come together, there's significant amount of work that needs to take place to ensure a smooth transition.It is stories like this that give us confidence in the future success of our company. I'd like to personally thank John and all the associates who put in hard work every day to make our company great. With that, I'm going to turn things over to Jim, who’ll give you more detail on our second quarter results.

Jim Hope: Thank you, George. And good morning, everyone. Our second quarter results were strong, with net sales and EBITDA growing nicely. Total case volume increased 6.7% for the second quarter compared to the prior year period. Underlying organic case growth was 0.7% in the second quarter.Net sales for the second quarter of fiscal 2020 improved 31.5% compared to the prior year period to $6.1 billion.

The increase in net sales was primarily due to Eby-Brown and sales growth in Vistar and case growth in Foodservice, particularly in the independent restaurant channel.The acquisition of Eby-Brown contributed approximately $1.3 billion to net sales for the quarter, including $267.3 million related to excise taxes. The increase in net sales was also attributable to higher selling price per case, as a result of inflation and mix.Overall food cost inflation was approximately 3% in the second quarter, especially in the center of plate items, such as cheese, meats and poultry. Gross profit for the second quarter of fiscal 2020 increased 15.7% compared to the prior year period to $711.2 million.The strong gross profit increase was led by recent acquisitions as well as case growth from an improved mix of customer channels and products specifically in Vistar’s channels and to the independent restaurant channel.Gross profit per case was up $0.39 in the second quarter versus the prior year period. Gross profit margin as a percentage of net sales was 11.7% for the second quarter, compared to 13.3% for the prior year period. The gross margin decline was driven by the addition of Eby-Brown, which has lower margins due to tobacco sales.Operating expenses rose by 16.5% to $630.7 million in the second quarter compared to the prior year period.

The increase in operating expenses was primarily due to the acquisition of Eby-Brown, and increase in case volume and the resulting impact on variable operational expenses.Operating expenses also increased in the second quarter as a result of increases in personnel expenses. EBITDA increased 13.8% to $124.5 million in the second quarter and adjusted EBITDA rose 22.2% to $142.9 million compared to the prior year period.Net income for the second quarter declined 4.4% year-over-year to $41.2 million. The decline was primarily the result of the $10.4 million increase in interest expense, partially offset by the $7.5 million increase in operating profit. The increase in interest expense was primarily the result of additional debt issued to help finance the Reinhart acquisition.Effective tax rate in the second quarter was approximately 24.2% compared to 23.4% in the second quarter of fiscal 2019. Diluted EPS declined 4.9% to $0.39 in the second quarter over the prior year period.

And adjusted diluted EPS increased 9.4% to $0.58 per share over the prior period.Please note that PFGs definition of adjusted diluted EPS now excludes the effect of intangible asset amortization expense. Please see this morning's earnings press release for GAAP to non-GAAP reconciliation and restated adjusted diluted EPS for prior periods.Let's turn to our second quarter results for our two segments. Net sales for Vistar increased 135.6% compared to the prior year period to $2.2 billion. This increase was driven by the acquisition of Eby-Brown and sales growth in the segments of corrections, vending and office coffee channels.Second quarter EBITDA for Vistar increased 24.7% to $56.6 million versus the prior year period. Gross profit dollar growth of 49% in the quarter was fueled by the acquisition of Eby-Brown.

Our Foodservice segment generated fiscal second quarter net sales growth of 4.8%, to $3.8 billion.The customer centric focus and strategic investments in people and technology drove EBITDA growth of 8.9% in the second quarter. Turning to our cash flow. In the first six months of fiscal 2020 PFG generated $157.8 million in cash flow from operating activities, an increase of $87.8 million versus the prior year period.The improvement in cash flow from operating activities was largely driven by higher operating income and improvements in working capital. For the first six months, PFG invested $49 million in capital expenditures, a decrease of $11.1 million versus the prior year period.PFG delivered free cash flow of $108.8 million, an increase of approximately $98.9 million versus the prior year period. I'd like to briefly comment on Reinhart and the impact we expect on our financial results.

As we've previously disclosed, we expect to achieve approximately $50 million in annual run rate synergies in the third full fiscal year, which represents our fiscal 2023.We will act prudently to integrate these two companies and expect to ramp to our $50 million target fairly consistently across the first three full fiscal years. Savings will come predominantly from procurement opportunities with a balance from operations and logistics. Also, as you consider your model, we wanted to provide some insight into Reinhart's business seasonality.Given their geographic footprint, which skews more towards Northern U.S. compared to PFG's legacy business. Reinhart's profit contribution will over index during our fiscal fourth quarter and fiscal first quarter and underwriting index in fiscal 2Q and 3Q.Specifically approximately 60% of their EBITDA is realized from April through September, representing our fiscal fourth and first quarters.

Reinhart's EBITDA contribution is lowest from January through March, representing our fiscal third quarter.Turning to our fiscal 2020 guidance. We increased our adjusted EBITDA growth outlook to be in a range of 27% to 33%. The new range includes contribution from Eby-Brown and 2 full fiscal quarters from Reinhart.Fiscal 2020 adjusted EBITDA excluding Reinhart, but including Eby-Brown is projected to grow 13% to 16% versus our previously announced range of 10% to 14%. PFG also updated its fiscal 2020 adjusted diluted EPS guidance to a range of $2.17 to $2.28 representing growth of 2% to 7% compared to adjusted diluted EPS of $2.13 in fiscal 2019.As previously noted, all past and future adjusted diluted EPS figures including the guidance range excludes the effect of intangible asset amortization expense. This guidance is based on the following assumptions for the full fiscal year 2020.

Organic case growth in a range of 3% to 5%, which excludes contributions from Eby-Brown and Reinhart.Interest expense in a range of approximately $115 million to $120 million, and an effective tax rate on operations of approximately 26%. PFG also expects capital expenditures to be between $180 million and $200 million with depreciation in a range of $175 million and $185 million and amortization in a range of $65 million and $75 million.In summary, our second quarter fiscal results were solid. We're pleased with the consistent top-line growth in our businesses and the strong EBITDA results for both our Foodservice and Vistar segments. We continue to feel confident that PFG will deliver another year of strong growth.And with that, we'd be happy to take your questions.

Operator: Thank you.

[Operator Instructions] Your first question comes from the line of John Heinbockel of Guggenheim Securities.

John Heinbockel: Hey George. Can you maybe talk to another two unit for a month? What do you think the cadence of investment in Reinhart's sales force will be? And then the timing of the progression of independent case growth? Is it a two year timeframe to get too close to the mid-single digits, is longer than that? Thoughts on both would be great.

George Holm: Yeah, I wouldn't expect it to take two years. I don't want to underestimate what's involved here.

But I wouldn't expect it to take that long. We certainly need to make some investments in people. And, to a degree some things are just about how they approach the marketplace.It's basically what we expected. It's a very well-run company that's just struggled to grow, to grow that top line particularly an independent. And we feel as we put the right number of people in place, with the right training that will get there.And what we plan to do is continue to give our organic independent growth until we have left the Reinhart sales.

We know we have some work to do around making sure that we align exactly what we've always reported as independent customer to do that with their numbers.And then once we get through that four quarters, then we'll be putting out just our organic growth as we always have.

John Heinbockel: And you think you would get their sales force, the growth in their sales force up to what 5% or 6% in the next nine to 12 months are not that high?

George Holm: Probably not that high but certainly at least 3%. We do have a situation where their average sales person does a fairly significant amount of business, less than ours. So we feel just getting people up to a higher level of weekly sales themselves. Kind of the equivalent of adding people.

So we're kind of there.

John Heinbockel: And then just lastly. The implied second half EBITDA guide is below your historical algorithm, which has been more high-single digit. Is there a reason for that or is that just because, we're only six months in. And we've got potentially weather impacted third quarter in front of us.

Jim Hope: Yeah, that's exactly right John. Look we feel good about the guidance range we've provided today. As I mentioned in the prepared remarks Reinhart's smallest quarter from an EBITDA contribution standpoint is our fiscal Q3. So some of the impact is seasonality. And you always look at it two year stack on Q4 for us.

Right.

John Heinbockel: Okay, thank you.

George Holm: And I should mention another thing that's not necessarily seasonality. But we have a stub period coming up with six months. And I found in acquisitions that typically people have a higher level of earnings in that last month of the fiscal year, part of it reconciliations but a lot of it growth programs.So we do expect that when we get into next fiscal year a little weaker from a comparison standpoint fiscal second quarter, just trying to get ahead of this for Reinhart, but a stronger fiscal fourth quarter for Reinhart as we get these programs to match up from a fiscal year standpoint.

Operator: Your next question comes from one of Edward Kelly of Wells Fargo.

Edward Kelly: Hi, guys. Good morning. So George, if I look at total organic case growth this quarter was a little soft. Can you provide a bit more color on what occurred here? What you're seeing in January? And then you maintain your full year outlook for 3% to 5%.

And you're running it about two right now. So can you breach us as to how you still achieve that 3% to 5%?

George Holm: Yeah. A 0.7% real growth is certainly not where we wanted to be, although the quality of that growth was very good. What we saw was a weak December in theater, part of it being kind of the product that was out there and part of it being one less week between Thanksgiving and Christmas, which is typically the peak for theatre going.We also saw in that same period of time, some real weakness in some of the casual dining chain business that we do. And we also saw some weakness in value stores and more of that was us having one less market with our largest value customer.But obviously, the earnings held up extremely well.

And I think that speaks to, the quality of the growth we did have. We also saw some inflation which helped us but we saw increased average case price and independent go up more than we saw the inflation. So 4.9% increase in cases, that we ended up having a 9% increase in sales.So, I think that helped us a lot. We have a good pipeline. The people that run our two main businesses are confident in that pipeline they have.

So, we elected to keep that 3% to 5%. We have seen in the month of January; things go back to this kind of pretty unusual holiday period.We try not to get too encouraged with anything in January because it can be so weather related and we really haven't had weather issues, but I will say also, we didn't last year. So, we're encouraged but we just try not to put too much into how things go in the month of January. But I think when we get through our fiscal Q3 we will have a much better idea how the years going to develop.

Edward Kelly: Okay.

And I also wanted to ask you about case level profitability performance. So, let's call it gross profit per case. I mean, you seem to be doing really well. So, it's almost like silly question, but can you talk about ex Eby-Brown?What's happening with gross profit per case? How are you doing with the pass through of inflation? There’s a large peer of yours who sort of call that out, which I think surprised everybody. And then what you're seeing generally in a competitive environment and how it's just impacting it all?

George Holm: I would say that when it came to dairy and meat, we've probably had similar difficulty passing it through.

What helped us is that we just had such a good mix of business and it was the high case cost items which come with sometimes lower margin, but more gross profit per case.And that's where our heavy growth was. I don’t think it's probably any more complicated than that. But it is a little bit more inflation than we would like to see in the industry.

Edward Kelly: Okay, thank you.

Operator: Our next question comes from a line of Kelly Bania of BMO Capital.

Kelly Bania: Hi, good morning, George and Jim. I guess as you look at your core Foodservice week now with Reinhart, granted only a month in. Just curious if you could talk a little bit about capacity, your own capacity, are their pockets where you see opportunity to add or maybe have too much. And then also from a competitive standpoint, do you see any changes in terms of competitors building out capacity in certain regions?

George Holm: Well, we would always like more capacity. And certainly we have many things in the pipeline and many things that are being constructed right now.

It just seems to be a slower process than it's been in the past. As far as competitors adding capacity, we don't see too much of that.I know there's a large win going and in the Midwest area, a large facility. There's a large win going into kind of the Southeast Gulf area. And then we also have a competitor that's putting a large facility in Denver. So, those are only three I know, but those are all three big projects.

Kelly Bania: Okay, and then maybe just another one just on wages. From a lot of the data we track. It seems to have stabilized but still seems to be growing at a healthy pace. Just curious if you could comment on, what you're seeing on that front?How you feel about the investments you've made over the last year or two on delivery and warehouse personnel? But also how your core restaurant customers are dealing with and dealing with labor and turnover and how that's impacting their business and I guess in turn your business?

Jim Hope: Yeah. Kelly, it's Jim, I'll take the first half about our labor and I think George will take a second half about customers.But, as you recall, almost two years ago, we really did a very important and good job of making sure we had our driver and warehouse wages where they needed to be and representing the marketplace.And since then, I think we've found our sweet spot.

And from a labor cost perspective, I don't expect anything unusual coming forward other than the typical standard approach. And I think we're in a good place from a labor wage rate management standpoint.That's the way I'd look at it and then George will address the second half.

George Holm: With the customers is something I ask everyone on my talk to, because I think they're getting hit both ways and that's where they're dealing with more inflation than they're used to in the product. And of course, we all know how difficult the wage part of it is and I just simply ask them what is the biggest problem of the two right now? And the answer is almost always wages.And I think when we get past this, it probably good for the industry because today, there's decent sales growth in the restaurant industry, but there certainly isn't traffic growth. And I think that people are - our customers are very smart around how to get menu price increases without just being a blatant these across the board menu price increases, which seemed to work very well.But when they've got both of those things to overcome, I think it's difficult.

And I think we're dealing on a higher end of the wage scale than they are. And we made our adjustments fairly aggressively when we needed to. And I think it's much harder for our customers unfortunately than it is for us.

Kelly Bania: Thank you.

Operator: Our next question comes from the line of Chris Mandeville of Jeffries.

Chris Mandeville: Hey, good morning. Jim, call it 2% to 3% EBITDA guide, ex Reinhart. Is there any ability to further break that down in terms of the drivers of the increase? And then, if I recall correctly, we spoke about this last quarter, but I'm pretty certain you guys had a third cigarette price increase in this current quarter. So if that's the case, can you break that out in terms of contribution as well?

Jim Hope: Yeah. On the second half of your question, we did not see a cigarette price increase.

And don't really know frankly how to expect one or two, expect one that we don't factor that in. And Chris, thanks for the question. But the guidance we provided in the prepared remarks is really the level of detail that we're going to provide.

Chris Mandeville: Okay, that's fair. And then I guess my follow-up would be just with respect to fuel surcharges and costs, as pricings come down pretty considerably lately.

Can you just remind us that maybe if the timing of the impact with the gross profit versus OpEx and what percentage of your needs are currently hedged down?

Jim Hope: Yeah. Look, I'll tell you, we work to do some hedging, and it's certainly not material. We think we do a pretty good job of staying on top of the prices and staying in front of it. And to some degree there is a - will cost to doing business involved in diesel pricing.I don't see it as something that has a material effect on the results. And the fuel surcharges we manage those very closely and very strictly.

And I think that that's not an important part of how we manage our business and our P&L, it's more about making sure we have the right price to our customers.

George Holm: And all of that surcharge goes into margin. So it can be a little bit deceptive when that goes away. Internally, we always look at it as an offset to fuel prices.

Chris Mandeville: Okay, thanks, guys.

Operator: Your next question comes from the line of Judah Frommer of Credit Suisse.

Judah Frommer: Hi, thanks for taking the questions. Maybe first just kind of a housekeeping item, Jim. Does the earnings accretion from the deal change at all with the new definition of EPS backing out the amortization or kind of the impacts you gave for the first couple of years are the same?

Jim Hope: Yeah, look as - Judah as we're just a month following close the transaction so far. And we mentioned integrations going well, we sure do feel good about the deal, very good about the deal.

We gave you some color on our expectations for 2020 including Reinhart for the two full fiscal quarters. And next year we'll do the same for 2021 to help you with your model.As you would expect things to move around for all our businesses and we aren't actually going to provide an update on the accretion math. But we'll focus on our current fiscal year metrics and results and of course provide an update on how synergy capture's progressing.

Judah Frommer: Okay. And so maybe just dovetailing on the synergies.

George can you help us with obviously the $50 million run rate is cost synergy. Just kind of general timeline to get at revenue, synergies maybe specifically, private label or anything else along those lines?

George Holm: Well, I think it'll, it's one of those things that will just build. We got - we have some work to do to get them in a position to grow the way we would like to see them grow. I think it will probably take us a couple quarters to start to ramp that up. But I think it will be pretty consistent to enter for a couple of years.

Like I said, it's a very well-run company. It's just a matter of getting a little bit different type of sales culture.

Judah Frommer: Got it. Thanks.

Operator: [Operator Instructions].

Your next question comes from line of Jeffery Bernstein of Barclays.

Jeffery Bernstein: Great. Thank you very much. George, I think in your prepared remarks, you said restaurant health remains strong. Just wondering if you can maybe contextualize that for us.

I know in the industry, people talk about lackluster comp growth.You mentioned the challenge from a traffic perspective and significant cost inflation, both labor as you mentioned, and commodities. I am just wondering how do you think about the health of the industry. And then maybe you're talking about change versus independence or QSR versus casual dining. Just trying to assess your view of the restaurant industry in that context?

George Holm: Well, I think casual dining is still struggling. But like you would expect there are some out there doing well.

And people can do well, but still in that business. The reason I think the industry is strong is that they've got a lot of headwinds to go against, particularly what we talked about there's some inflation.And there's certainly wage inflation. And yet, the industry is continuing to find a way to grow their top-line and a way to keep traffic pretty steady. And I think those are good accomplishments. I think it bodes well for the future of the business.

Jeffery Bernstein: Okay, and then Jim, from a commodity standpoint, you guys mentioned inflation of about 3% in the second quarter, modestly from the first quarter. And now I guess it's at the very top end of the 2% to 3% comfort range.You talked about in terms of being able to pass along to customers. Just wondering whether you think that this level is now at someplace we're going to hold steady or do you think of the past two quarters is relatively steady or maybe you think we're at the start of an upward trend?I know you talked about dairy and meat and others have talked about the same thing. So would you expect inflation to continue to creep higher outside of that 2% to 3% range?

George Holm: Well look - I don't have a crystal ball. I don't think any of us do.

And 3% is certainly we're very comfortable passing it through. And as you can see with our margins and the margin results frankly, we can we can pass through in any range between and up to 4%.I think we can make that work. I'm not too concerned about it. But we're definitely going to keep our eye on it. We won't underestimate it.

And we keep our sales force very in tune with what's going on in the commodities market.

Jeffery Bernstein: Understood. Thank you.

Operator: Our next question comes from the line of Marisa Sullivan of Bank of America Securities.

Marisa Sullivan: Thanks for taking the questions.

I guess I just wanted to touch on the Reinhart acquisition and some comments you made previously about filling a sales growth culture at Reinhart. Can you just talk about what you've done I guess the last few weeks and kind of what are your priorities for the rest of this fiscal year?

George Holm: Well we spend our time talking to people and learning. There's certainly some excellent sales people there. And they just haven't had - I guess I would say a system in place that put a high priority on growth. The last several years have basically been kind of the same type of sales, the same type of earnings.And I think it's - you just have to change the culture a little bit, but the people are very willing.

We have them all here right now. And a lot of them are people that we've worked with in the past. And we're just confident that as we get some product changes and not anything are shattering a little different approach to the marketplace and get some more people onboard. I think we'll be in good shape.

Marisa Sullivan: Got you.

And then if I could just follow up on independent case growth. Can you just parse out a little bit where you saw the growth coming from this quarter? Any changes in terms of penetration or new customer wins? And yeah, any additional color will be great. Thanks.

George Holm: Yeah. I would say for us, it's more about new customers than anything but that's normal.

That's probably most of the people in our industry. You got a fairly high turnover in restaurants. We're certainly not penetrating as well as we would like to see.But when traffic is flat, and you are penetrating, I guess you can look at that as an accomplishment. But for us, the biggest thing that we seem to be able to continue to improve is just the loss of business. It continues to go down.

It's not huge quarter to quarter, but overtime it's gone down significantly.

Marisa Sullivan: Thank you.

Operator: Thank you. At this time I'm showing no further questions. I will now turn the call to Bill Marshall for any closing comments.

Bill Marshall: Thank you for joining our call today. If you have any follow up questions please contact us at Investor Relations.

Operator: Thank you for participating in PFG's fiscal year Q2, 2020 earnings conference call. You may now disconnect your lines. And have a wonderful day.