Prepared remarks
Good day, and welcome to PFG's Fiscal Year Q3 2024 Earnings Conference Call. I would now like to turn the call over to Bill Marshall, Vice President, Investor Relations for PFG. Please go ahead, sir.
Thank you, and good morning. We're here with George Holm, PFG's CEO; and Patrick Hatcher, PFG's CFO. We issued a press release this morning regarding our 2024 fiscal third quarter results, which can be found in the Investor Relations section of our website at pfgc.com. During our call today, unless otherwise stated, we are comparing results to the results in the same period in fiscal 2023. 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 in the back of the earnings release. As a reminder, in the fiscal first quarter of 2023, we updated our segment reporting metrics to adjusted EBITDA from the prior EBITDA metric. Our remarks on this call and in the earnings release contain forward-looking statements and projections of future results. Please review the cautionary forward-looking statements section in today's earnings release and our SEC filings for various factors that could cause our actual results to differ materially from our forward-looking statements and projections. Now, I'd like to turn the call over to George.
Thanks, Bill. Good morning, everyone, and thank you for joining our call today. This morning, I'd like to share our results from the fiscal third quarter, provide some color on the current business environment and discuss our plans for the fiscal fourth quarter and beyond. As you know, the calendar year began with challenging weather in January, a choppy inflationary environment, calendar differences and early signs of consumer pressure. Nonetheless, I am proud of our organization and how we were able to achieve positive results despite these headwinds. In particular, our Foodservice business rebounded nicely in February and March, producing improved independent case growth and stable chain performance. Our convenience segment continued to experience difficult top line trends, though it has remained focused on winning new business and tight operating expense control, helping the bottom-line performance.
We are encouraged by a sequential month-to-month improvement in C-store trends during the quarter. Vistar also experienced a more challenging top line in the fiscal third quarter after very strong growth in prior quarters. We continue to feel very good about how we are positioned in the market, which we believe will produce profitable long-term growth. We are optimistic about the fiscal fourth quarter and momentum into fiscal 2025, which is reflected in our guidance. Patrick will discuss our guidance in more detail shortly. Before turning to Patrick, I will provide color on our results, discuss our strategy and outline reasons for our optimism. Let's review some of the highlights from our most recent quarter and various factors impacting the results. Starting with Foodservice, segment net sales were up 1% in the fiscal third quarter with similar case volume growth in the period. However, if we walk through the 3 months of the quarter, it shows a very different picture.
We started the quarter with a low single-digit case decline. In January, we went positive in February and had a strong March, which has continued into fiscal Q4. Importantly, independent case volume grew in all 3 months of the quarter, including nearly 6% growth in both February and March. Independent case growth was consistently in the middle single-digit range for each week from the second week of February through the end of the quarter. This growth outpaced the total industry producing steady market share gains. In fact, our data shows nice share performance across both independent and chain restaurant accounts for the quarter. Gaining more market share across our Foodservice business in the fiscal third quarter than we did in the fiscal second quarter. I'd like to emphasize that our Foodservice business gained more market share in the third quarter than the second quarter. This is a testament to our sales organization's ability to compete for and win new business despite the headwinds facing the restaurant industry.
Our Foodservice business experienced a deflationary headwind in the first half of the fiscal year, which continued into early calendar 2024. We're pleased to see this flip to modest inflation in both February and March. This improvement occurred despite persistent deflation in cheese; however, we are seeing sequential improvement in that important commodity as well. Given the steady sequential move in most commodities, we continue to expect low single-digit Foodservice inflation in the fiscal fourth quarter. We expect this to provide a benefit to both the gross and adjusted EBITDA margins in the period. Turning to our Convenience business, as I mentioned at the opening of this call, industry top line trends remain difficult, which we attribute to higher candy, snack and tobacco prices in the C-store. Despite some relief on gas prices, same-store sales in the Convenience channel remains soft relative to historic trends.
On the positive side, our top line results continued to outpace the total industry in key categories, including Foodservice, snacks and candy reflecting new business wins and market share improvement. We are consistently adding new accounts and expanding services to current customers. This new account growth, coupled with the successful launch of several Foodservice programs gives us confidence that our top line performance within Convenience will continue to improve moving forward. We continue to gain traction with our efforts to grow Foodservice and Convenience. This is demonstrated by our recent collaboration with GPN, launching a nationwide pizza concept and our progress in selling PFG-branded Foodservice concepts to Convenience customers. These activities drive value for both PFG and the customers we serve. Despite the challenging top line result, our Convenience organization has continued to execute extremely well, with a diligent focus on reducing strength in the warehouse coupled with tight labor management producing good operating leverage.
Looking ahead to the fiscal fourth quarter, we expect sequential improvement in sales and continued operating expense control. Turning to Vistar, total case volume was essentially flat in the fiscal third quarter as growth in the vending, travel, and hospitality channels were offset by declines in theater and office supply. Segment net sales increased 1.7% in the quarter. As expected, the rate of inflation at Vistar continued to decelerate, was up 4.7% in the fiscal third quarter. The rate of deceleration was similar to the rate declines from the fiscal first quarter of the fiscal second quarter. We expect inflation to settle in at a low single-digit year-over-year rate as we close fiscal 2024 and hold steady in that range. Looking ahead to the fiscal fourth quarter, we anticipate better volume, sales and profit performance at Vistar due to improving fill rates in the vending channel and better growth in the value channel.
This is a direct result of new and expanding business opportunities. Before turning to Patrick, who will discuss our results and specific drivers of our performance, and then provide more color on our guidance for fiscal 2024 and beyond, I want to summarize our fiscal third quarter and review a few thoughts on the future. The fiscal third quarter was certainly challenging for our industry and organization, primarily due to January's inclement weather conditions and some calendar differences. However, we are encouraged by more recent trends. Additionally, we have visibility on new business wins in each of our 3 operating segments, which we expect will provide a tailwind to top-line performance in the months ahead. A more stable and stationary environment also bodes well for the future. In our Foodservice business, this means a return to more normal rates of low single-digit inflation, which provides visibility towards improving gross margins.
For Convenience and Vistar, lower levels of absolute inflation should ease pressure on the end consumer. Over the long term, PFG's position as a leader in the food away-from-home market provides diversification across a range of profitable and growing channels in markets with significant white space. We are confident that our investments in PFG's core initiatives and our associates will enable us to achieve long-term profitable growth, which we believe will result in positive shareholder returns. We appreciate your interest in Performance Food Group. With that, I will turn it over to Patrick, who will provide more detail on our financial performance and outlook.
Thank you, George, and good morning, everyone. As George mentioned, there are certainly headwinds to overcome in the fiscal third quarter of 2024. However, our strong financial footing and market position produced a solid profit result that we expect to build on in the fiscal fourth quarter and into fiscal 2025. This morning, I will review a few highlights from our most recent quarter and spend most of my time discussing our financial position, priorities for the months ahead and provide some additional detail on our guidance. We'll then be happy to take any questions you have during the Q&A portion of the call. As you saw in our press release this morning, PFG delivered solid profit and cash flow results during the fiscal third quarter. This was possible because of our company's focus on driving sales into the most profitable channels and a disciplined focus on cost control while also continuing to invest behind future growth initiatives.
As we mentioned last quarter, we started the calendar year facing a difficult January due to bad weather throughout the month. This resulted in a slight case decline for our total business in the fiscal third quarter of 2024. PFG generated total net sales of about $13.9 billion or a 0.6% increase year-over-year. Trends improved in February to March, which allowed us to finish the quarter on solid footing. For the full third quarter, organic independent restaurant case growth was 4.3%, including nearly 6% growth in both February and March. We continue to gain market share in the independent restaurant channel across a broad range of geographies and concepts highlighting our favorable position in this important area of our business. Over the full 3-month period, chain restaurant cases were essentially flat, which we were very pleased with, given the impact of a tough January. We recently onboarded new chain business, which should help accelerate growth in the fiscal fourth quarter and into fiscal 2025.
Total PFG gross profit increased 3.8% in the fiscal third quarter to $1.6 billion. Once again, our business benefited from positive mix shift in the period. Importantly, our Foodservice segment experienced inflation in the quarter after 2 consecutive quarters of deflationary pressure. The resumption of inflation in several key commodities gives us confidence in improving profit conditions going forward, which I will touch upon when I review our guidance. On a total company consolidated basis, inflation was slightly higher in the fiscal third quarter compared to the fiscal second quarter, up 3.6% year-over-year. Higher inflation in Foodservice was offset by decelerating inflation in both Convenience and Vistar, which was in line with our model. As George mentioned, Vistar inflation was squarely in the mid-single-digit range, while Convenience inflation moderated slightly to just below 7% for the fiscal third quarter.
Based on our experience, it's not uncommon for Convenience inflation to remain slightly more elevated due to consistent price increases in the tobacco space. Gross profit per case was up $0.27 in the third quarter as compared to the prior year's period. We expect our gross profit per case to benefit from inflation in Foodservice. This is an important component of our bottom line results and help support our growth through targeted investments in our workforce and technology. In the third quarter of fiscal 2024, PFG reported net income of $70.4 million down 12.3% year-over-year. Adjusted EBITDA increased 1.9% to approximately $321 million, just above the midpoint of the guidance we announced last quarter. Diluted earnings per share in the fiscal third quarter was $0.45, a decrease of 11.8%, while adjusted diluted earnings per share was $0.80, a 3.6% decline year-over-year. Our effective tax rate of 27.3% in the fiscal third quarter was down compared to the 28.1% rate in last year's comparable period, mainly due to lower foreign taxes as a percentage of income, slightly offset by an increase in nondeductible expenses and state taxes as a percent of income.
Our financial position remains very strong; we are generating significant cash flow through a combination of operational performance and diligent working capital management. Over the first 9 months of fiscal 2024, PFG generated operating cash flow of $956.7 million, a nearly $300 million increase compared to the first 9 months of last year. Free cash flow increased to $712.3 million over the first 9 months of the fiscal year, up from $480 million last year. We expect to deploy our cash flow in value-creating activities including capital expenditures to expand our capacity and support our growth. Over the first 9 months of fiscal 2024, PFG invested $244.4 million in CapEx. After capital expenditures, our remaining priorities for capital deployment are unchanged and include M&A, leverage reduction and share repurchases. We evaluate these decisions based upon the value we believe each would create for our shareholders and strategically deploy capital towards this view.
Our share repurchase program takes several factors into consideration, including the relative value of our stock as well as the valuation compared to historic levels. While we did not repurchase any shares in the fiscal third quarter, we believe that our repurchase authorization, which had about $211 million remaining as of March, is an important component of our capital allocation plan. We also continue to look at strategic M&A as another avenue to create shareholder value. We are proud of PFG's track record of completing and integrating acquisitions throughout our history. The team is continuously working to identify interesting opportunities while remaining disciplined on price and strategic fit. Finally, we continue to focus on maintaining a healthy balance sheet. We closed the fiscal third quarter below the midpoint of our 2.5 to 3.5x net debt to adjusted EBITDA target. I feel very comfortable in this range.
Earlier this month, we called $275 million of our outstanding 2025 notes utilizing our ABL facility to take advantage of relative rate efficiencies. In total, at the close of the fiscal third quarter of 2024, 86% of our total outstanding debt was at a fixed rate including interest rate swap contracts. We believe that our current level of debt provides ample flexibility to fund our ongoing operations while leaving room for capital allocation priorities that I just highlighted. I'll finish up with an update on our guidance and some factors impacting our outlook. For the fiscal fourth quarter of 2024, we expect net sales to be in the range of $15 billion to $15.4 billion and adjusted EBITDA to be in the range of $430 million to $450 million. On the top line, our sales guidance for the fourth quarter suggests a full year net sales result of $58.1 billion to $58.5 billion. This is below our $59 billion to $60 billion range we provided last quarter and largely reflects the top line softness experienced in the fiscal third quarter.
However, despite the top line challenges, we are tightening and raising the bottom end of our full year adjusted EBITDA guidance to a range of $1.48 billion to $1.5 billion compared to the prior $1.45 billion to $1.5 billion range. As you can see, we expect strong profit growth acceleration in the fiscal fourth quarter. We are confident in our projections due to the visibility on several key items. First, as mentioned earlier, we are onboarding new business in all 3 segments, which should drive profitable top line case sales in the coming months. Second, the resumption of low single-digit inflation in Foodservice compared to deflation in the first half of the year is expected to result in higher gross profit per case. As a reminder, deflationary pressures were felt more heavily in our independent restaurant case business due to product mix and pricing structure in that business, which is largely based on a percent markup.
Positive inflation should help our profit performance over the next several quarters with a benefit from both year-over-year gains as well as a stronger mix shift. Finally, several tobacco suppliers have announced price increases on their products, which we expect to result in favorable inventory holding gains in the fiscal fourth quarter of our Convenience segments. Taken together, we believe our fiscal fourth quarter profit growth rate will accelerate nicely over the coming months. This should also provide a tailwind into fiscal 2025. We are currently reviewing our fiscal 2025 targets and expect to provide an update on our August earnings call in line with our normal cadence. With that said, our strong adjusted EBITDA result over the past 2 years coupled with the tailwinds I just mentioned should put us comfortably within the $1.5 billion to $1.7 billion adjusted EBITDA range that we set as a 3-year target at our June 2022 Investor Day.
As we've previously noted, our expectation is to be close to the $1.5 billion adjusted EBITDA level in fiscal 2024 and expect solid growth in fiscal 2025. To summarize, we are pleased with how we are operating as a company and believe that the industry challenges seen in the fiscal third quarter will prove to be temporary. We expect results to accelerate in the fiscal fourth quarter and into fiscal 2025 underpinned by specific items that are in our forecast model.
Questions and answers
We will take our first question from Mark Carden with UBS.
To start, you noted your market share growth accelerated relative to 2Q. And it sounds like you guys weathered some of the macro headwinds a bit better relative to the industry as a whole. Do any initiatives jump out at you in terms of driving the stronger relative performance just what, in your mind, what was most important in driving that improvement there?
We are seeing new accounts contributing to our growth. The market remains challenging for penetration, and existing accounts aren't performing as well as they used to. It's worth mentioning that if we look at a 2-year stack on our independent figures, we would see a 13% growth, having been above 82 two years ago, and experiencing a growth of 4.3% last year and this year. New business is definitely what is driving our growth.
Okay, that's helpful. Have you noticed any changes in distributor price competition considering the broader challenges currently facing the industry?
Well, I think that our industry has always been very competitive. There's a lot of players in it. And I think when growth is hard to come by, I think that you tend to get a market that's a little bit more competitive. But we really haven't seen that much of a change.
We'll take our next question from Jake Bartlett with Truist Securities.
I'm focused on the current environment. You provided guidance for the third quarter after the January weather, which I assume was factored in. It appears that the sales miss was primarily influenced by the environment you mentioned has since improved. I'm curious if the consumer environment has improved and whether that's leading to any accelerated trends, or if it's more about your new customers, pipeline, and actions contributing to that improvement. I'm trying to understand the current trajectory of the consumer and your customer business.
The challenges we faced this quarter were mainly related to January, which was particularly tough. Our QSR segment has definitely seen a decline, and it's significant since it's a large part of our business. Casual dining has also been quite weak, while the independent restaurants are performing reasonably well—not outstanding, but manageable, and we have more of them now than before. We're continuing to see growth in new customers at around 6% to 7%. Overall, I don't consider the environment to be dire. However, there are stressed consumers, particularly among those with lower income levels.
Got it. Great. My second question is about margins. You exceeded expectations on margins slightly in the third quarter. What was the reason for that? Was it due to gross profits and inflation being higher than anticipated, or was it related to productivity improvements in the third quarter? As you mentioned, Patrick, I believe the three drivers for a strong fourth quarter did not include increased productivity. I'm curious about the progress on your operating costs, your leverage, and how you're making advances in reducing costs.
Yes. Regarding margin, specifically gross profit per case, this is influenced by our mix as we continue to grow at a faster rate compared to the chain business. In terms of productivity, if you are referring to warehouse, delivery, or operational productivity, we are making progress. While we haven't returned to 2019 levels, we are pleased with the improvements we are observing. Additionally, both our Convenience and customized businesses are performing well in terms of productivity, actually exceeding 2019 figures.
And Jake, I was just going to add. I mean, it's a good point that we didn't call that out specifically as one of the things that are going to drive our Q4 results. But as George mentioned in his comments, we do expect operational efficiencies certainly in Convenience and all the businesses to continue to perform, they've been performing and to improve.
We'll take our next question from Edward Kelly with Wells Fargo.
I wanted to start with just Q4. And I guess maybe a bit more detail and level of confidence. So EBITDA is up 14% at the midpoint. Can you talk a little bit more about the bridge, Patrick, when you gave those few factors, I don't know if they were listed in order of magnitude, I'm curious about the size of any tobacco gain, for instance. And then within the guidance, do you really just need trends in April to hold? Or are you expecting any improvement in that regard? And as it relates to '25 with all this, I mean, if you do this number, I mean, doesn't this speak well about like how you're thinking about '25, particularly the first sort of 3 quarters of the year or are there other puts and takes to consider?
Yes. Thanks, Ed. I'll begin, and George may add some comments. Concerning your last point about 2025, let's start there. You've hit the nail on the head. As mentioned in the call, our guidance for 2024 indicates that we expect to be near the higher end of our EBITDA range, which corresponds to the lower end of our three-year outlook. This gives us confidence within that three-year framework. We're optimistic about our year-end position and what it signals for next year. Additional details will be provided in our August call. Regarding how we plan to achieve these numbers, I would frame it not by magnitude but in terms of the profit and loss statement. It's important to highlight that we have a considerable amount of new business coming in across all three segments. Recently, we have onboarded a significant portion of our new Foodservice business. The Convenience business is expected to be brought on board later in May, and Vistar will see new business starting in June.
We're pleased with our sales development efforts across all segments. It's also crucial to note that after two quarters of deflation, we witnessed a transition to very moderate inflation in the Foodservice sector in the third quarter, and we anticipate this modest improvement will continue for the remainder of the quarter, which has positively impacted our gross profit per case. Additionally, our business mix is improving. Lastly, regarding cigarette price increases, they are largely consistent with what we experienced last year, and we're highlighting this as it will contribute positively to our bottom line through inventory gains.
Yes. I'll add a few to that without getting too long-winded here, but he mentioned inventory gains. We overcame about $60 million last year of inventory gains that were above this year. And as we get into the fourth quarter, we don't have that to overcome anymore. So that's a positive for us. I would also say the calendar where we got benefit in fiscal second quarter with additional delivery days, which meant a lot at the end of the calendar quarter, and it affected January in the opposite way. And then when you get to Q4, we started out with the week after Easter, which is typically our slowest week of Q4, yet we still had a good April, top and bottom line, and we don't have any calendar issues to deal with for the rest of the year. So that's very helpful. The new business has, as Patrick mentioned, big help. Then last year, we were running close to 10% additional salespeople. So we're carrying a pretty good expense there.
And we lapped that. We're up about 5.5% right now and salespeople were starting to get the good productivity out of the new ones. And we won't have that additional sales expense as we go through the fourth quarter that we've handled for most of the year. And I'll stress with Core-Mark, the additional business they're bringing on will also be a big help. So we have a lot of things that are going in a positive direction for us right now, and that's what gives us confidence for the fourth quarter and really into next year, which will give some good communication on our August call around what our guidance will be for first quarter of next year and then the total year.
Maybe I could just ask a quick follow-up. It's sort of related to this, I guess, but you're generating really good cash flow. Leverage is in a good spot. Your stock is probably trading at like 8x EBITDA and what you're probably going to end up earning next year. I think you may end up M&A usually a bit higher than that, right? Like how are you thinking about appetite for stock buyback versus M&A at this point?
Yes, Ed. When we've talked about our capital allocation strategy, we've always said, #1 is to invest in capacity, and we've done a really good job, and we have a lot of new buildings or additional building expansions coming online, and you can see what we've done in terms of our investments there. And I'm just going to go through these and obviously reduce leverage is one of them, and we continue to perform well there. The other 2 pieces are M&A, and we continue to look at opportunities. And then the share repurchase, we view as incredibly important, but as I mentioned, we didn't buy anything this quarter, but we still have $211 million in the repurchase program available to us. And we'll continue to use that in conjunction with all the other priorities I just laid out. So we just look at them very strategically and deploy that capital accordingly.
We'll take our next question from Alex Slagle with Jefferies.
Thanks for the color this morning. I just want to circle back on Jake's question a little bit, just the revenue drivers during the quarter across your different businesses. And like what's the biggest headwind that you experienced in February and March was that kind of kept a little on the top line? I mean it seemed like the independents and restaurants overall bounced back solidly and pricing firmed up. So it appeared to be more of a sluggish recovery in Vistar and Convenience cases and I guess the pricing was about as you expected, but perhaps you could flesh that out a bit more and what surprised you?
Yes. I would say in Foodservice that it wasn't so much the improvement that we had in February and March. We weren't exactly pleased with how we did in February and March. It was just getting past January and we think we're going to continue to improve from a Foodservice standpoint. I think in Vistar and Convenience, the level of inflation that they dealt with was higher and lasted longer and I think there's an adjustment for their customer base when they go to a micro market or go to a vending machine or go into a Convenience store; there's been some pretty significant price increases. And I think they need to adjust. I think they will adjust, and we are seeing same-store sales declines or what we look at as a penetration number. We were at 6.6% for the quarter for Convenience. It's huge. And it's not something that that channel has experienced before. And I just think it's time. Our Foodservice is growing well there. That will help to alleviate some of that; and I think the same with Vistar, it is the first time that we've ever had sales growth issues in Vistar, but they've got nice new business coming in. We just have a lot of confidence in that top line coming back. Now obviously, tobacco, it's not going to, that's going to be a continual decline, but we expect that.
Alex, I'll just add just on Vistar, just to give you a little bit more of a detailed example. I mean just us looking at this information, I mean when you think about Vistar and their business in theaters, the box office revenue is down. It's only comping at 78% versus prior year and at 60% versus 2019. So there's a lot going in Vistar service; it's a lot of different channels. Some are performing really well, some are having some struggles like theaters. So it's a pretty mixed bag there.
That makes sense. And on Convenience, I mean, what was the case group? I think you talked about the food and Foodservice side was down. What did that look like if you included the Foodservice and, I guess, related to Convenience that was not in that category number?
Well, yes, Foodservice and the food area itself combined or down, but Foodservice was actually up. And I would say that if you took that with the Performance Foodservice, so I'm going to give you what I think because I didn't look at that specifically. But I would say it's probably mid-single digit. It's been doing well. And as a matter of fact, last week, we set a record for the number of Convenience stores that we sold Foodservice to. We actually did with our pizza business and our Hispanic business, both actually had the most counts we've ever sold last week. That's encouraging.
We'll take our next question from Kelly Bania with BMO Capital.
I wanted to explore further the strategies you have in place regarding margins or expenses to enhance the bottom line. It seems that some of the new business wins were anticipated in your plan, and inflation appears to be developing mostly as expected. How are you managing to uphold your bottom line outlook given the current top line performance?
Yes, I believe we have effectively improved our margins in both independent and national sectors within our Foodservice area, and we are quite satisfied with the results. Most of our future gains will come from shifts in our business mix. Regarding expenses, it has taken us some time to restore our workforce to pre-COVID levels, and at this moment, there are no expenses we intend to adjust. Our focus is on expanding our warehouse and delivery team, as well as enhancing our sales force.
We'll take our next question from Lauren Silberman with Deutsche Bank.
Patrick, I just wanted to ask about the chain side of the business returning to flat. How much of this is a function of new business wins versus any signs of underlying improvement in chain traffic?
Well, I think I kind of mentioned that earlier, but it's worth talking about again. I think if you look at the chains, if you look at them in aggregate, it is definitely slow. Now we happen to have some that have been slow for a long time, but we have some that are doing real well. In aggregate, no, we don't see any strengthening in the chain business. You're going to see better numbers come from us in the chain business, but that's because of new accounts, not because of our existing account base.
Helpful. Another one on just Vistar. Can you expand on the competitive dynamics in that segment specifically and whether you're seeing any changes and it becoming a bit more promotional or competitive than you're used to?
Yes, thanks, Lauren. It's a very competitive environment for Vistar as they operate in various channels, facing a lot of competition. Most of the promotional activity primarily comes from the manufacturer, especially since they do significant work with consumer packaged goods. In terms of their daily market approach, they compete across all their channels. I hope that addresses your question.
Yes. I just don't know if there's anything from like other Foodservice distributor players in the space, if it's getting a bit more competitive in terms of share gains.
I would say yes, but I would say that's only in the theater category.
We'll take our next question from Jeffrey Bernstein with Barclays.
Two questions. The first one, just on the new business, George, I think you mentioned you're onboarding in all 3 segments, which seems quite encouraging. I'm just wondering if there's been any change in your strategy of late to achieve whether you're winning this business from your larger peers or smaller competitors, I think you mentioned independence, you're up 6% to 7%. I'm just wondering how sustainable that is. But just more broadly in terms of the onboarding in all 3 segments, how you're going about doing that, whether there's any changes you've implemented on your end to achieve?
Yes. Well, it's very different competitors that we've been able to get that business from because we have different competitor sets in the different businesses that we're in. I would say that there's no change in our strategy whatsoever. I think we're comfortable in that mid-single digit to higher as far as independent case growth goes. It's nicely a little bit of inflation to go along with it. And I think we'll always be opportunistic in the national account area. There's somebody that we're the right geographic fit for, and we feel that it's a good culture fit, and we can be profitable with it. We're always going to be looking for that type of business.
Understood. And then just on the mention of M&A and shareholder value creation, how are discussions with targets going? I'm wondering whether the slowing macro that you might be embarking on now for the industry, not necessarily for yourself, but for the industry, whether that helps or hurts in those discussions. Obviously, you have a big opportunity on the West Coast. Just wondering how that plays out in this type of environment versus others.
Yes. We're always very active from an M&A standpoint. We're always talking to several people. We try to make sure that we're talking to the people that are a really good fit and that we're not just spending time on something that isn't going to materialize. But it is a very important part of what we have gone on for our next fiscal year. And I think probably a big part of the next 3-year numbers that we put out when we get through this 3-year period we projected from our Investor Day. As far as the marketplace and how that affects it, I don't know that it really affects it that much. I mean the value is either there or it isn't. I think most of the M&A that we've been able to get done is more about it just being the right time for the person that's selling.
Understood. Just to clarify, so when you guys report your fiscal fourth quarter, is it likely that you will then give a 3-year forward outlook? So fiscal '25 would be the first year. And I think George, your comment was that M&A would play a bigger part over the next few years than perhaps it has over the past few.
Yes. We plan to have an Investor Day that would be 3 years after the last Investor Day and give 3-year numbers at that point. So what we'll be giving come August will be what we project versus our 3-year projection that we gave before. We'll tighten that number and then our guidance for fiscal 2025.
We'll take our next question from John Heinbockel with Guggenheim.
George, I wanted to drill down on the sales force expansion, right? So maybe talk to that maturation. I don't know how many of those are coming off noncompetes, maybe you have a thought on that. And then is there a rule of thumb, right, when you think about the accounts that they used to call on, can they successfully move over a quarter, a third, 50%, I'm not sure what the number is of the accounts they used to call on. So your visibility into that? And then I guess the last piece of that is, I guess, it sounds like you think because of the sheer size of the sales force that you've onboarded that 6% to 7% independent case growth is even in this environment is very achievable.
Yes, we have a number of people coming off noncompetes from various locations. We observe different outcomes with this group. Some individuals excel in new areas and prefer to stay there, while others may struggle and return to their former positions without improved results. Our approach involves a balanced integration of new hires for effective training, particularly as we expanded our hiring after the pandemic period. Overall, the increased hiring led to more individuals not succeeding, but this did not impact our turnover rates, which have remained stable over the years. As we enter Q4 with 5.5% more staff, I believe this will benefit us, and I hope we can reach closer to a 6% or 7% growth rate as we move into the next fiscal year.
Okay. Maybe switching gears, right? So if you look at the onboarding of new business, right, you said all 3 segments are benefiting. How do you size the 3 versus each other? I know C stores can be more lumpy, is that the biggest of the 3? And then how would you assess the 3- to 5-year RFP outlook for C stores, right? Because I would think you should win a disproportionate amount of those that come up, right, given the Foodservice expertise.
We better. Yes. I would say Convenience is the bigger one for what we have coming in from a top line standpoint. But I would actually say that the Foodservice is bigger when you look at the amount of gross profit dollars it generates because it doesn't have that tobacco components. And I'll give you this number, the business that we brought in this month from a Foodservice standpoint. We'll add between 1.2% and 1.3% to our total Foodservice growth, that gives you a good feel.
We'll take our next question from Andrew Wolf from CL King.
Just wanted to revisit there were some questions around the competitive environment in the industry and Foodservice. I want to kind of parse versus for getting new customers. First of all, in the chain side, in the last, maybe even 5 years, pricing and service, that kind of balance has gotten more rational. Has there been any change there looking for any changes in the competitive environment? Do you think that rationality is still in place, not just with you, I'm sure you are, but just in general in the market?
I think it's rational, yes.
And second, for independents, sometimes when things slow, the distributors start to increase the amount of incentive for switching and switching to lower the switching costs for the independents. How is that trending in year-over-year?
I would say it's trending higher. It's still not a significant part of the business, though.
Got it. And if I could put a third one, it's not, it's more internal in the industry. How are you seeing your competitors trying to hire away your salespeople? I mean, you said your turnover rates are stable. But just in terms of more activity, more conversations to make sure you keep your people and so.
We follow our turnover very closely. We follow what they do when they leave us and very, very few go to a competitor. Most either lead the industry or they may go into the manufacturing part of it or it may be a retirement. We look at our turnover and how it impacts the customer. So if somebody retires or is promoted, we do consider that to be turnover.
We'll go next to Brian Harbour with Morgan Stanley.
Yes. We've talked about this a bit, but maybe I'll kind of ask them more directly. In looking at kind of sales in the third and fourth quarter versus your expectation. I mean it seems like Vistar is the one that's seen probably more of a downshift and maybe that's still true in the fourth quarter relative to where you were. Is that kind of a fair characterization? And maybe you've seen the Foodservice side rebounding a little bit faster?
What you said is very accurate.
And also, this is a little more in the weeds, but just at the segment EBITDA level, you had some favorability in sort of the corporate side relative to last year. I know there was a little bit of M&A in that segment. I don't know if there was any sort of changes in the corporate cost base, but could you just elaborate on that a bit?
Yes, this is Patrick. The three major segments are important, and as you mentioned, the EBITDA growth was lacking. This is largely due to the softness in January, which we've already talked about regarding Vistar. Specifically for the corporate and other segments, as noted, there have been some acquisitions, although these are mostly small companies that add capabilities to our operations. Some of these are relatively new, so we haven't compared their EBITDA yet. Additionally, we have realized some cost savings in the corporate and other category. Overall, it's a mix of these smaller companies, recent acquisitions, and the cost savings we have achieved.
Some of that would be late-coming synergies that existed with Core-Mark and with Reinhart. We've been very slow around consolidating some of those functions.
We will take our final question from Peter Saleh with BTIG.
I appreciate all the insights shared today. I wanted to revisit the discussion on the general environment, especially in Foodservice. You noted that quick-service restaurants are experiencing a decline and that casual dining is also very weak. In your view, aside from the impacts of weather and calendar changes, is the current environment significantly softer compared to the previous quarter? Do you think this softness is primarily affecting lower-income consumers, or are you observing any signs that it is extending to higher-income groups as well?
It's definitely softer than the previous quarter, especially towards the end of that quarter. We experienced strong activity late in November and in December, which was unexpected since it was just before a downturn in early January. While there has been some recovery since then, I would still describe the market as somewhat soft, leaning more towards the lower end. We do see that in the quick-service restaurant sector. There are a few quick-service restaurants in the high-end area that are performing well. Casual dining has struggled for years and still faces challenges, although some are doing well; overall, it's a tough area.
Understood. Regarding Foodservice inflation, it seems you anticipate some increase in that inflation for the fourth quarter. Could you clarify what is causing that? Is it mainly due to cheese? I've noticed cheese prices have risen from April to May. Is that the main factor, or is there something else contributing to the inflation moving forward?
Yes. We really over-index when it comes to cheese. So that would be the biggest part of it.
And there are no further questions at this time. I will turn the call back over to Bill Marshall for any closing remarks.
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