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Scott McPherson

Thank you, George, and good morning, everyone. I'm excited to join today's call and share some insights into our performance, the broader market and some of the initiatives that will help PFG maintain our long track record of growth and operational execution.
Before I jump in, I want to reflect on my journey to the [CFOO] role over the past three years. Coming to a company through acquisition is not always the easiest transition, but it quickly became evident why PFG excels in this space.
We target well-run companies and leverage that talent and knowledge they possess for the betterment of the broader organization. This approach has created a culture that embraces growth, welcomes change and inspires people to go the extra mile.
During the past year, I've had the opportunity to interact with PFG associates across our entire business platform. I've seen firsthand the dedication that our associates bring to work every day, which is instrumental in our ability to exceed the high expectations we set for ourselves.
I want to highlight a few examples of the talented and dedicated associates that make PFG different. In our Vistar segment, Jose Luis Arias started as a sanitation specialist with our organization over 50 years ago, advancing to become a CDL driver, and this year will eclipse the 3 million mile-mark accident-free.
Our Core-Mark SVP of HR, Ali Marciano, was named a Top Woman in convenience, one of the industry's top honors. And at PFS, Jasmine Dan was the recipient of the 2025 Women's Foodservice Forum Changemaker Award. It's individuals like Jose, Ali and Jasmine that inspire our 40,000 associates to come to work every day with a passion to succeed.
Now let's take a deeper look into our three operating segments, starting with our Foodservice business. Foodservice had an outstanding second quarter driven by case volume growth across our independent and chain account, solid margin improvement and expense control. Both Cheney Brothers and Jose Santiago contributed nicely to these results, producing double-digit top and bottom line performance for the segment.
Stripping out the benefit of these two acquisitions, our underlying business momentum was strong. Organic independent case growth of 5% and low single-digit case increases in our chain business produced approximately 3% total organic case growth for Foodservice and we are pleased to see our chain business adding top line growth and anticipate even better performance in the second half of the year due to new business wins and signs of stabilization from some of the more challenged accounts.
We also continue to pick up new independent accounts. Our 5% organic independent case growth was driven by a 5% growth rate in new accounts as penetration across the full quarter was flat. With that said, excluding the difficult December calendar comparison, penetration was up in the independent and total Foodservice in October and November. While we're certainly not back to normalized levels of restaurant performance, we are seeing early signs of stabilization.
Within our independent business, PFG's company-owned brands continue to be a significant growth driver. These brands account for nearly 53% of total sales in the independent channel. As we've discussed in the past, brands growth is a key strategy as they provide high quality and great value to our customers, enhance our margins and increase customer retention. Expansion of our brand portfolio will continue to be a key strategic initiative going forward.
Also key to our growth is continuing to attract talented sales associates which help drive our independent case growth. In the second quarter, our sales force head count increased nearly 7% as we added over 200 new sales associates compared to the same period last year.
From a profit perspective, positive mix shift due to faster independent growth, along with more profitable chain business, drove gross margin performance in the quarter. Our focus on operating metrics, including reducing shrink and workforce efficiency, produce leverage to our gross profit performance, leading us to a 29.4% growth in adjusted EBITDA for the quarter.
In our Convenience segment, the underlying industry fundamentals remain challenged as anticipated. However, a combination of new account growth and market share gains resulted in a positive total volume in the period, outpacing the industry in key product categories. The declines in cigarette carton sales were a drag to top line performance, though these declines have had minimal impact on our bottom line results.
Our Convenience team continues to roll out new foodservice offerings for customers, which is becoming a key part of our growth story. In the fiscal second quarter, the foodservice cases in the Convenience increased at a mid-single-digit pace with sales growing at a high single-digit clip.
Importantly, this growth is coming from some of the largest accounts, including double-digit sales growth in three of the top five accounts we service. The number of turnkey convenience foodservice this program sold has grown steadily since the beginning of fiscal 2024.
We are proud of the progress our Core-Mark team has made and believe there is much more to come down the road. These efforts produced another double-digit performance for the Convenience segment with adjusted EBITDA of 28.5% in the second quarter on a purely organic basis. At our Investor Day in late May, we will cover the progress Core-Mark has made since being acquired, which will highlight strong profit growth.
Finally, Vistar made progress in the second quarter despite some difficult industry dynamics. Case growth from some of Vistar's largest channels, including office coffee services, theater and corrections, produced low single-digit case increases for the segment.
Vistar's largest channel, vending, also saw case increases year-over-year. The legacy vending machine business declines continue to be offset by growth in micro markets, which we include in our vending channel reporting. We are optimistic about the micro channel, which is not only a growth area for the industry that allows for a wider product assortment, and ultimately, higher profit realization for Vistar.
The theater business also had a strong quarter despite heightened competition in the market. We are pleased to see strong box-office results with high-quality content and believe it is a positive sign for the long-term health of the channel. With that said, we do expect some near-term volatility due to competitive pressures and a lighter box-office slate in the fiscal third quarter. This is all included in our projections.
Taken together, all three segments contributed a strong second quarter, and the outlook is bright. We are pleased with the stand-alone results at each segment but are even more excited with the power we generate when our businesses join forces to serve our broad spectrum of accounts.
I will now turn the call over to Patrick, who will review our financial performance and outlook. Patrick?

Patrick Hatcher

Thank you, Scott. I'm excited to share some of the financial details from our second quarter and first half of fiscal 2025. As George and Scott have detailed, our business is executing well, driving strong operational results. This translated into another quarter of robust financial performance.
Both our sales and adjusted EBITDA came in above the upper end of our guidance ranges we laid out three months ago. Furthermore, we continue to use our cash flow and balance sheet to drive long-term shareholder value.
Let's review some highlights from our fiscal second quarter. PFG's total net sales grew 9.4% in the quarter. Our result was aided by the addition of both Jose Santiago and Cheney Brothers. However, excluding the acquisition benefits, all three of our segments produced positive organic case growth in the quarter. In particular, total independent restaurant cases were up 19.8% in the period. Excluding the acquisition benefit, organic independent cases were up 5% for the quarter.
We are pleased with our organic independent case growth result, which was an acceleration from the prior two quarters despite a very difficult December comparison due to calendar differences. As George described, combining October and November, our organic independent case growth was more than 7%.
Early in the fiscal third quarter, we saw faster underlying case growth in our independent restaurant business. We remain optimistic with respect to our growth, though we would note that January was impacted by a number of factors, including an easy comparison due to tough weather last year, somewhat offset by a choppy start to calendar 2025 due to unusual weather across various regions of the United States.
Looking past the January noise, which is typically the smallest volume month of the year, we are optimistic for the balance of fiscal 2025. Total company cost inflation was about 4.6% for the second quarter, slightly lower than the 5% we reported in the first quarter.
Foodservice cost inflation was 3.2% in the quarter, moving down sequentially and roughly in line with our expectation for long-term inflation rates. We would note elevated year-over-year inflationary prices in poultry, cheese and beef, three of our largest categories in Foodservice.
Cost inflation for Vistar was roughly 2% in the quarter, while Convenience experienced cost inflation of 6.7%. Keep in mind that Convenience inflation is typically boosted by cigarette and other nicotine pricing, which is typically in the mid- to high single-digit range.
Sequential inflation produced a modest year-over-year inventory holding gain benefit in the second quarter, though within the normal range of holding gain variances. Given our current projections, we are modeling very little year-over-year holding gain impact over the back half of the fiscal year.
Total company gross profit increased 14.4% in the fiscal second quarter, representing a gross profit per case increase of $0.29 in the quarter as compared to the prior year's period. We have continued to see excellent cost control, producing another quarter of double-digit profit performance from our Foodservice and Convenience segments. Both Foodservice and Convenience produced 29.4% and 28.5% adjusted EBITDA growth in the quarter, respectively.
Vistar's adjusted EBITDA growth turned positive year-over-year, though the segment continues to be impacted by lower foot traffic and customer-specific challenges in some channels. We continue to anticipate Vistar's results will improve in the back half of the fiscal year.
In the second quarter of fiscal 2025, PFG reported net income of $42.4 million. Adjusted EBITDA increased 22.5% to $423 million, above the high end of the guidance we announced last quarter. Diluted earnings per share in the fiscal second quarter was $0.27, while adjusted diluted earnings per share was $0.98, an 8.9% improvement year-over-year. Our effective tax rate was 25.2% in the fiscal second quarter. We anticipate a higher tax rate in the back half of the fiscal year closer to our historical range.
Turning to our financial position and cash flow performance. In the first six months of fiscal 2025, PFG generated $379 million of operating cash flow. After adjusting for $204 million of capital expenditures, PFG delivered free cash flow about $175 million.
We have selectively invested in inventory of candy and tobacco through the first half of the year in anticipation of potential price increases in those categories. Still, the team did an excellent job managing working capital to drive the strong cash flow performance in the period.
Our capital spending levels remained fairly steady over the first two quarters of the fiscal year with a run rate of approximately $100 million per quarter. In our legacy business, we expect to maintain a similar level of spending over the next several quarters to maintain our growth investments in facilities, fleet and other technology.
We will then layer in some additional capital expense to support growth projects at both Cheney Brothers and Jose Santiago. These capital projects are important to the long-term growth of our company and typically generate a high rate of return.
During the fiscal second quarter, we drew down our ABL facility by approximately $2 billion to fund the Cheney Brothers acquisition, which closed in early October. As we discussed last quarter, this pushes our net leverage above the top end of our 2.5 times to 3.5 times target range. We feel very comfortable with our current leverage and the available liquidity of our ABL facility.
Still, as we highlighted in November, we expect to prioritize debt reduction in the short term to move our leverage back within our target range over the next several quarters. We believe this is the best use of capital at this time and will position us to look at additional M&A and share repurchases opportunistically in the future.
In fact, our M&A pipeline is very robust. PFG has a history of successful acquisitions to drive growth, and we expect that to continue. At the same time, we will apply our typical high standards and robust due diligence to target high-quality acquisition opportunities.
Opportunistic share repurchases also remain an important component of our capital allocation strategy. As we prioritize debt reduction and look out for value-creating M&A, we will likely repurchase fewer shares in the near term. However, all of our capital allocation decisions are based on marketplace conditions, and we envision a return to higher levels of share buybacks in the future.
Turning to our guidance for fiscal 2025. For the full fiscal year, we now expect net sales to be within a $63 billion to $64 billion range, which is a $500 million increase on both ends from the $62.5 billion to $63.5 billion range we discussed last quarter. Our net sales have been trending favorably, and we anticipate this to continue in the back half of the fiscal year.
We also see upside to our profit forecast. We now anticipate full year 2025 adjusted EBITDA to be in the range of $1.725 billion to $1.8 billion, an increase to the bottom end of our previously disclosed target. Our increased outlook to both sales and adjusted EBITDA is based on strong underlying fundamentals of our three business segments, a modestly improved consumer outlook and strong early results from both Cheney Brothers and Jose Santiago.
For the third quarter of 2025, we anticipate net sales to be in a $15.2 billion to $15.6 billion range with adjusted EBITDA in a $390 million to $410 million range. As you can see from our third quarter projections, the addition of both Cheney Brothers and Jose Santiago helps smooth out some seasonal volatility our business has historically experienced. As George mentioned earlier, both Cheney Brothers and Jose Santiago typically experience stronger winter months due to their geographies.
To summarize, PFG built upon a strong start to fiscal 2025 with better-than-anticipated second quarter growth on both the top and bottom lines. Our financial position is strong, and we are generating substantial cash flow, which we are investing behind growth initiatives and debt reduction. We also believe both additional M&A and share repurchase equity will play important roles in creating long-term shareholder value.
The integrations of both Cheney Brothers and Jose Santiago are going well, and we are on pace to achieve the financial targets we set out for these deals. We are optimistic for the back half of the fiscal year, allowing us to increase our full year guidance.
Our diverse business model spanning a wide range of food-away-from-home channels provides growth opportunities that our teams are actively pursuing, and we are hiring talented salespeople to capture this growth.
Thank you for your time today. We appreciate your interest in Performance Food Group. And with that, George, Scott and I would be happy to take your questions.

Question and Answer Session

Operator

(Operator Instructions) Kelly Bania, BMO Capital.

Kelly Bania

Just was curious if you could comment a little bit more in depth about which segments are contributing to the higher sales outlook. Is that kind of broad-based across the three segments or the M&A? And maybe you can fold into that just more specifics and -- on the comments that you made about signs of stabilization for the consumer and some signs of stabilization in some of the challenged accounts. I think that was in regard to Foodservice, but any elaboration there?

Scott McPherson

Kelly, this is Scott. Yeah, on the segment sales piece, obviously, really happy with how our trends look on independent growth. We're up in AM head count about 7%. We're up in new accounts about 5%. And the other thing that we feel really good about is our lines per order on our existing accounts continue to go up. So we feel like if the macro swings back a little bit, we're in a really good position.
The other thing I'd say that was optimistic in the food space was our chain accounts. Our national chains were up as well, which is a little bit of a rebound from what we've seen in the past. On the Convenience side, I would say we just continue to take share and outperform the macro in Convenience, and we expect that to continue. And we feel like really, in both of those, we have a really solid pipe as well as we finish out the back half of the year. Anything else? Go ahead, Patrick.

Patrick Hatcher

Yeah. I would say that we're going to see some continued challenges in Vistar the rest of this fiscal year, although we're up against some easier comparisons. So we see several of the channels that will show some good growth, but that will be kind of our laggard from a sales growth standpoint, the rest of this fiscal.

Kelly Bania

Okay. That makes sense. And there was a comment about cost of goods optimization and procurement efficiencies. Can you just elaborate on that? It doesn't seem like that has been a focus of the organization as much in the past. Maybe I'm wrong, but can you just tell us about the work you're doing on cost of goods optimization and also which segments that should impact?

Scott McPherson

So Kelly, this is Scott. Yes, I would say it's been something that has always been maybe something we haven't talked about as much but always something that's been in play. I would say that we worked a lot harder in collaborating across the segments over the past 12 to 18 months, which has helped us gain some traction, both in driving sales growth but also in cost of goods optimization.
So definitely something we're focused on. We'll continue to focus on and just part of our strategy around growing margins.

Operator

Edward Kelly, Wells Fargo.

Edward Kelly

I wanted to start on the Foodservice business and just your thoughts on sort of like underlying momentum of the business. You grew EBITDA, obviously, very well in the quarter. I was curious if you could help us with the underlying EBITDA growth of the business.
I think if you take out the deals, kind of thinking like maybe mid-single-digit EBITDA growth on about 3% organic case growth. Just curious if that's right and how you think about that performance. And then looking forward, to get the 6% independent organic growth for the year, you probably need to do 7% to 8% in the back half. Just color on your confidence in that outlook?

George Holm

Yeah. You're correct that it's going to take a 7% to 8% increase, the back half. And at least our internal measurements, how we look at the marketplace and what information we get from outside of our company, it appears there was probably a 2% maybe reduction in traffic, which is probably where independent was. So if that got just back to normal, we would be running in that 7% to 8% increase in cases.
We do expect that to get better, have not seen that yet. We thought we would have easier comparisons in January, and our January growth looks pretty similar to Q2, and we thought it would be better. But we had bad weather in both years. Just the fact that this year, we were able to do a little better job of overcoming that bad weather, I think, bodes well for us also.
But I would say, for us to get to that 6% for the year, we're probably going to need some help from the industry and see a little better macro backdrop than what we see today. But we just see signs that that's coming.
Also, the other thing that gives us a lot of confidence is that we're growing our SKUs, our line items at a much faster rate than we're growing our cases. So we're penetrating better within the customer. They're just not buying as much of the product as they were a year ago. So that gives us some confidence, too, should the industry get a little bit vibrant.
And then as far as underlying, I would call our EBITDA. We were very close to double digit, but not quite without Jose Santiago and without Cheney. And by the way, as was mentioned by Patrick, those two are performing well. And I would say that Cheney is really performing exceptional.

Edward Kelly

Great. And then just a quick follow-up. I wanted to ask you about inventory holding gains. Just curious if you could provide any color on the second quarter and year-over-year change there. Was that a material benefit at all?
And then in terms of the guidance, you said that -- I think this is what you said, that there's -- you're not anticipating material holding gains in the back half. But then I think after, you said you invested in candy and tobacco inventory ahead of price increases. So is that opportunity, I guess, versus guidance if those price increases happen?

Patrick Hatcher

Yeah. Thanks, Ed. This is Patrick. I'll address those questions. So in the second quarter, we did see some benefit of inventory holding gains, as we mentioned. But I do want to stress all of these gains are managed, so there's nothing outsized about them.
We did invest in inventory. But for the back half of the year, we do not expect between Q3 and Q4 to really experience any substantial holding gains. And for the full year, the total holding gains, we expect to be very minimal. So there's little quarter-to-quarter differences. But other than that, it's really manageable and relatively immaterial.

Operator

John Heinbockel, Guggenheim.

John Heinbockel

A couple of things on the independent case growth, right? So the penetration in lines, is that more center store, not simply, right, the non-fresh? Or are you sort of eating into specialty competitor market share? Curious because that seems like a big opportunity.
And then when you think about -- let's say, if you pick up -- if you can pick up another 200 basis points or 300 basis points in case growth, do you think that's more -- you break it down, is it more new accounts, lines or actually cases per line? Where do you think that comes from? Where are you most optimistic?

George Holm

Well, we're still fairly reliant on new customers. We were running about 5% more as far as new customers go. lines, we're doing a couple of points better than we're doing in case growth. So I would say that part of the upside for us would be if they start buying more cases of what they're already using.
And that, of course, is going to mean that the market has to get a little stronger. I think we'll continue to do well from a line standpoint, and we'll continue to do well with new accounts. I'm also going to have Scott make a couple of comments there.

Scott McPherson

No, I agree, George. I think I look at the new accounts as right now being primarily the driver of our growth. I think we've done really, really well with same-store penetration. And as we see the macro pick up, we feel like that's positioned us extremely well.

John Heinbockel

And then maybe for you, Scott, right, since you know the Convenience store business so well. I'm curious, if you look out over the next -- I know the contracts, right, are lengthy. But you look out over the next, I don't know, three to five years, maybe talk to the opportunity to win a lot of these RFPs. Because it would just seem like your product lineup lines up really well with what most C-stores want. So I would think there's an opportunity to meaningfully move the dial on, on top line as those RFPs come up.

Scott McPherson

No, I think you made some great points, John. And we've worked really hard to combine our strength in Foodservice and Convenience to create an offer that's really compelling to our national chain customers but also to the independents as well.
So to your point on top line drivers, most of our contracts are three years, some of them are five years. We feel like we have a really strong pipeline. We worked really hard jointly across our segments to create a compelling offer, and we feel like we're going to win our fair share as those come available.

George Holm

I should also mention that we're doing well within Core-Mark in the Foodservice business, but we're actually growing even faster in Performance Foodservice, where that operator is using a broader assortment of items than we can handle, particularly in the freezer and cooler out of Core-Mark. So those products are being delivered on performance who serves trucks and show up in our Performance Foodservice sales.

Operator

Mark Carden, UBS.

Mark Carden

So to start, how are you thinking about the inflation outlook at this point over the next few quarters in Foodservice? We've seen egg prices really tick off recently, for example. And then how do you think about the potential impact if tariffs ultimately go into effect on Mexico or Canada?

Patrick Hatcher

Yeah. Mark, this is Patrick. On inflation, we're really thinking what we saw in Q2 is what we're expecting to experience by segment going forward and for the latter half of the year. So again, just very similar for Foodservice to be in those low to mid-single digits.
Vistar in the low single digits and Convenience more in those mid-single digits. And that's really what we're projecting for the back half of the year. And that's -- for us, that's a really good place to be. We can manage this inflation, and we think it's good for the industry.
Now on the question of tariffs, there's a lot of discussion also going on around this. We certainly can't predict what's going to happen, which countries, which products, those type of things. But I think if you take a step back and think about this just holistically, we kind of view tariffs similar to inflation.
It's going to potentially increase the cost of goods, but we're largely a pass-through organization. And so it's a little bit of a simplistic view, but right now, that's how we're viewing it because we don't have any details on it. So just like inflation, we'll manage it, and that's pretty much how we're going to handle it.

Mark Carden

Great. That's helpful. And then you guys talked about an acceleration in independent case volume in January. I understand it's a small month, but are you able to quantify, at least for January, the impact on the winter storms? And then just how did Cheney hold up given its Southeastern footprint?

Patrick Hatcher

Yeah. January is not a very important month in the year, certainly the least important as far as how it impacts sales results. So I think for us, it's going to be more about February and March as far as the third quarter goes.
Now Cheney obviously impacted by the hurricanes, recovered very quickly. And still some impact on the West Coast, primarily of Florida, where we have many restaurants that are still closed down. But all in all, I mean, their sales growth has been great. And they just seem to work their way through this. They're very experienced dealing with hurricanes, and they did a great job.

Operator

Alex Slagle, Jefferies.

Alaxander Slagle

Had a follow-up sort of along the lines of what Mark was getting to and maybe the potential implications for the industry and PFG specifically related to maybe the potential immigration enforcement actions under the new administration. I mean, again, a lot of unknowns there, but just curious your initial views there.

Patrick Hatcher

It's Patrick again. I think, yes, just it's obviously very important. All of our employees are documented, and we can't really speak to what's going to go on with the immigration as well. But we don't see an impact to our company, but there are obviously popular impacts that we just can't predict at this moment. So that's where we are.

Scott McPherson

And maybe just one tag on to that. We're in a position right now where we've got kind of record-low overtime and temp expense. Our workforce is in great shape. Safety performance is really strong and feel like we've kind of created a work culture where people want to be. So we feel really good about being able to navigate in a tough environment.

Alaxander Slagle

I also wanted to ask on your views on new restaurant formation and, I guess, the focus on new customer acquisitions. Are you seeing any signs of slowing or anything changes in certain regions as we move further past the closures from years ago and facing higher build costs, and obviously, still a tough traffic environment for the industry?

George Holm

Yeah. There continues to be new restaurants, obviously, coming around. I think the effect of COVID is pretty much gone. I think that most of those restaurants have gone from dark to maybe not vibrant but open. And there's been a considerable amount of closings of particularly casual-dining chain restaurants.
So I think those buildings are single-purpose as well and will eventually be occupied by a restaurant. So I see continued increase in particularly the independent restaurants, and then there are some chains that are growing faster right now and are putting up units at a risk pace, and we're selling some of those.

Operator

Jay Aiken Phillips, Melius Research.

Jacob Aiken-Phillips

Congrats, Scott. So I wanted to ask a little bit more about Cheney. Last quarter, you raised guidance like $100 million, which seems a little low when you prorate like the $160 million trailing 12-month numbers. And I understand there is some volatility with the hurricanes. So just curious if you're still thinking about contribution for Cheney the same as you were last quarter.

Patrick Hatcher

Yeah. Jacob, this is Patrick. On the guidance, I mean, again, we felt really good about how we performed in the first half of the year. And as we mentioned, we took up the sales guidance by $500 million both on the top and bottom end.
And I would say that was the area where we were maybe a little more conservative because we're looking at a lot of different factors, and we've seen things improve, as we mentioned on the call, with our early comments.
And then on EBITDA, we brought up the bottom end by $25 million. So again, a beaten raise. It's a very clean, beaten raise. And we were probably feeling we had the EBITDA numbers a little tighter and -- but we feel really comfortable about the improvement in the guidance.
And it's still a little early in the year in terms of -- we've got another six months or -- as you mentioned, there's been some choppiness to January, and there's a few other things. So we feel really good about our results, and we'll continue to adjust accordingly.

George Holm

Yeah. I should add with Cheney that they're being very aggressive around hiring. And I think they're making some really wise investments in people, particularly in salespeople, and we want that to continue to happen.
That said, obviously, we're going to be running higher expense ratios than they were before because of that. But that said, they're still performing very, very well on that EBITDA line. And we don't see anything that gives us any concern moving forward with Cheney.

Jacob Aiken-Phillips

And then could you talk about any learnings you have on the private label over Cheney? I know it's been underpenetrated compared to like the PFG legacy business. I think you said 15% last quarter and that you're maybe looking into what their products you want to keep and which PFG products you want to implement there.

George Holm

Yeah. The number that we gave for our percentage of independent in our brand, that was an organic number without the two acquisitions. I would suspect that for a while, both of those acquisitions are going to be a lower percentage of our brand than what we typically had with any of our acquisitions.
And there's good reasons for that. Part of it is Cheney's go-to-market strategy that they've had. And we certainly want to do well with our brands there, but we also don't want to disrupt how they go to market.
They also have some brands of their own, and we're in the process of determining which of those we're going to consider to be our brands and move forward with those. Then when you get to Jose Santiago, it's a different structure in Puerto Rico.
There's exclusivity that is part -- it's a law where you can have exclusivity on a national-branded product. They're doing well with those items. And I envision us continuing to market ourselves in Puerto Rico the way Jose Santiago has always marketed themselves.

Jacob Aiken-Phillips

Congrats on the quarter.

George Holm

Thanks.

Operator

Jeffrey Bernstein, Barclays.

Jeffrey Bernstein

Two questions. The first one just on the broader consumer outlook. I'm just keen to clarify your view. I think you mentioned October and November trends were encouraging. And you seem confident in improvement to come for the rest of the year, but I think you mentioned that you're maybe not seeing it yet.
So I'm just wondering what has you confident? Are there some metrics that you view as leading indicators or otherwise? But if the consumer doesn't improve as you're anticipating your level of confidence in that guidance because it does seem like you mentioned you need to see a little bit help from the consumer. And then I had one follow-up.

George Holm

Yeah. I'm going to look backwards a little bit here before I answer the question going forward. If you look at October and November, it was very encouraging, but where December had difficult comparisons. November had very easy comparisons because Thanksgiving changed from year-to-year, and that's a low month. So October is probably more effective number to use to project forward, but it's also ways back.
January, I think, is a real hard month to use because last year was heavily affected by weather and so is this year. But if we look at October's number, which we think is more reflective of the marketplace -- and we put some improvement in there, which we're expecting from the market. I don't know that we have real clear reasons that we can give for that. It's just something that we feel today. And that gives us encouragement for that second half of the year.
And the other thing with it, too, is we've got more people coming off non-competes. We've continued to hire aggressively in this marketplace. And then on the national account area, we got some business going out, but we have much more coming in, in the rest of this fiscal year. So you just put those things together, we feel real good with it.
Then when we look at the Convenience part of the business, that's a very challenged segment today. We continue to do well. We've added several new accounts. We have several coming on board and some that are pretty sizable. So we feel real good about the growth there.
Now in that business, a couple of percentage points in growth when you consider what's happening in the tobacco world, that's great growth. And we can leverage a couple of points in growth to very good earnings growth, and we feel we're on a path to get to that couple of points.

Jeffrey Bernstein

Understood. And then just following up on the M&A commentary, clearly, it's been a busy year or so. And Scott, I think you mentioned the pipeline is very robust. But at the same time, I know you mentioned your leverage levels are elevated and you're looking to pay that down.
So wondering, first, if you could just share what that leverage level is. And does it temper the appetite for further M&A in the near term, especially with the big West Coast opportunity? Just trying to gauge how you think about that if an opportunity were to present itself.

Patrick Hatcher

Yeah, Jeffrey, it's Patrick. Leverage, as we mentioned, I mean, obviously, we've stated obviously, our goal is to be between 2.5 times and 3.5 times. And we're outside that leverage range, and we expect to be back within that leverage range within the next several quarters. In terms of additional M&A, I mean, George can comment on this as well. I mean, obviously, we're always looking. We did comment that it's very active. But right now, our focus is on reducing that leverage.

George Holm

Yeah. We spent a lot of time talking about this because we have so many opportunities today. We would certainly like to have lower leverage. I think it makes M&A more appealing to us when our leverage is lower. I don't think that as an organization that you should ever pass up an opportunity like Jose Santiago and an opportunity like Cheney. They don't come along very often.
At the same time, we want to keep our pipeline growing. We want to handle our debt responsibly. We're trying to balance those things. But I think that you'll see continued M&A from us, but we'll be very cautious about how we're handling our capital structure.
And then I also should add that -- I mean, we've now been a public company for 10 years, but we've dealt with much higher levels of leverage than we have today, and we've dealt with that effectively. Now I'm not sending a signal that we're going to get our leverage higher, not by any means, but I just want to make sure that people understand that this is not a high leverage for the type of business that we're in and the type of company that we are.

Jeffrey Bernstein

Can you clarify just what that leverage level is today versus the 2.5 times to 3.5 times?

Patrick Hatcher

Yeah. It's in the high-3s.

George Holm

Hello.

Patrick Hatcher

Good morning.

Jeffrey Bernstein

Yes. I didn't hear the introduction.

George Holm

Yeah, we didn't too. Go ahead.

So I wanted to do a couple of follow-ups, if you will, on the increased, it seems, pace of hiring of salespeople. Is that kind of opportunistic or is it kind of more intentional, like putting the run our playbook into Cheney Brothers? Like how should we think about why you increased the sales rate -- sales personnel rate?

Scott McPherson

Andrew, this is Scott. I'll take that. Let me start by saying I did come back a couple of weeks ago from our VP of Sales meeting that we have nationally every year. The focus of that meeting was really fine-tuning our hiring process, our training process, and I walked away from that highly encouraged with what we have on the street as far as availability of hiring great AMs and bringing those people through the company.
Historically, we've always been in that mid- to high single-digit hiring target range, now about 7%. So we feel good about that. And really, that's what's fueling our growth right now. If you look at same-store comps are basically flat.
Our AM head count is up 7%, but our new stores are up 5%. And so that's really what's driving our case growth. So we'll continue to be opportunistic and look to hire great AMs on the street and get them trained up and continue to drive case growth.

George Holm

Yeah. And I'll also say that we try hard to have a pretty consistent growth in the number of salespeople and have kind of a consistent cadence there. But we did make those decisions. So we have companies that I would say today, if I were managing it, I would be tapping the brakes a little bit on the number of salespeople, and they need to really dig into who they have.
And then we have people that are behind and should have more salespeople. So we nudge and we talk to them and we try to have a real good cadence. But these are -- decisions are made in the field, and we don't really have any desire to change that.
Yes, we can train better. So when you're doing it across a big organization, so we try to get some commonality there around what we do. Some of our people operate where they bring in four, five larger companies, maybe as many as 8 at one time to make it more collaborative type of training. And you get to our legacy Roma companies, and they're probably seldom going to hire more than one person at a time.
So there aren't ground rules, I guess, with this. But we can tell from what our people are doing from what they tell us, the confidence level that they have right now, I think we're going to continue in this kind of 7%, maybe a little more, world as far as increases in salespeople.

Okay. Do you have a sense of whether that's sort of the proportion of folks coming from the industry versus folks you've got to really train up? Has that shifted at all?

George Holm

Yeah. Right now, it's almost entirely people that are from the industry.

Okay. Just one more follow-up on the -- what sounds like a pretty nice uptick in Foodservice sales into the Convenience channel. I just want to kind of underline that because I know you've had kind of fits and starts. Is that driven by salespeople and better -- just more effective selling or some -- or do you have like new or better Foodservice programs that are gaining traction?

Scott McPherson

Yeah. Andrew, we have really two pathways into Convenience. One of those is through our convenience channel. And I think the biggest advantage that came with the acquisition of Core-Mark is PFG's ability to bring turnkey food solutions and food supply to Convenience. And so our convenience channel, that's our fastest-growing category in Convenience. And they continue to do a good job, but I think we're still in the early innings there.
And then the second pathway into convenience is through our traditional broad line, and that's growing significantly. And again, that's just the capability of having turnkey solutions, having a broad array of products and really making it a focus. And so we're kind of hitting it from both sides and having nice success, and I still think it's early on.

That's good. So it's -- I'm sure the vendors and everybody is focused in that direction. So it just sounds like it's a lot of incremental movement.

Scott McPherson

Yeah. No, there's been a lot of focus on it.

Operator

Brian Harbour, Morgan Stanley.

Brian Harbour

Just maybe as a cleanup question. I think people aren't necessarily calibrated, right, on like interest expense and maybe just on depreciation and amortization. On that, do you think the prior quarter rate is good? And do you have sort of a range that you'd expect near term for interest expense? I appreciate that you have variable rate debt, but I don't know if you have some sense.

Patrick Hatcher

Yeah. Brian, it's Patrick. It's a great question, and I know this has come up a couple of times. I think if you -- obviously, as we mentioned, we closed the acquisition of Cheney Brothers in October 8, after the end of our first quarter. And that's when we drew down the ABL $2 billion. That's what's really driving the change in interest expense. And I would say that the Q2 numbers are definitely a good baseline to use going forward for both interest expense and depreciation.

Brian Harbour

Okay. Sounds good. When I look at sort of inorganic versus organic independent case growth also, is that kind of the gap we should expect going forward? Or is there anything unusual about sort of the contribution that those two drove in the second quarter? Could you just sort of comment on that?

George Holm

Yeah. There may be a little bit more of a spread in Q3 with both Jose Santiago and Cheney busier. That's particularly February, March are big months for them. And then the spread will probably narrow again in Q4.
And of course, as we get into next fiscal year, we would have lapped the Jose Santiago right at the beginning of the fiscal year, and we'll still have another 14 weeks of Cheney's impact. Yeah, in Q1, that will -- it will really narrow quite a bit. That's not the peak time of the year for Cheney.

Operator

Jake Barlett, Truist Securities.

Jake Bartlett Bartlett

Mine was just on the 2005 [2025] guidance. And sales was increased by more than the beat from the midpoint in the second quarter. But EBITDA was raised by the same amount. So essentially, you beat -- you included that beat but really didn't raise the back half of the year on EBITDA.
So I'm just trying to understand what drove that? Is there -- are there some incremental pressures, maybe some less profit flow-through that we should expect for some reason in the back half?

Patrick Hatcher

Yeah. Jake, thanks for the question. I mean, again, when we look at what we raised on the top line, we're really confident in how the segments are performing in their sales performance that gives a lot of confidence to raise it by $500 million both on top and bottom.
When you look at the $25 million increase to the bottom on the EBITDA, again, we felt more confident in our EBITDA numbers. And again, we saw opportunity, but at the same time, there are some macro things out there that always leave us to make sure we're being a little bit more prudent.
And then also, we saw a little choppiness in January. So again, lots of confidence in our numbers. And we'll continue to look at this closely. And again, into next quarter, we'll hopefully come up with some updated guidance for you.

Jake Bartlett Bartlett

Got it. And then I just had a question as well on just the drivers of the top line increase in guidance. And I guess, versus your prior expectations, is your product cost inflation expectations, has that gone up? It seems like it probably likely did. So I'm just wondering to what extent the increased top line guidance is really product cost inflation being higher than expected or whether it's kind of underlying case growth.

Patrick Hatcher

No, it's really the latter. It's really the underlying case growth. Each of the segments performed well. We really strong performance in Foodservice that we've talked about quite a bit. And obviously, Cheney and Jose continue to perform.
But it was really -- and then as Scott alluded to, we have a really strong pipeline, both in Foodservice national accounts and in Convenience. So all these things are giving us -- not only have we seen great results year-to-date, but also giving us confidence in the balance of the year.

Jake Bartlett Bartlett

All right. And building just on the question that was asked before, but can you give us a sense as to what percentage of sales and EBITDA for Cheney and Jose Santiago come in the third quarter? You've mentioned it's a really big quarter for them. Just trying to frame it out just so we can kind of understand the organic versus the growth drivers in the third quarter.

Patrick Hatcher

Yeah. I'm -- we don't have that number at our fingertips. It's probably something we should have calculated.

Scott McPherson

Yeah. What I can tell you, Jake, it's their largest quarter is Q3. Typically, historically, it would have been one of our [better] performance.

Operator

Peter Saleh, BTIG.

Peter Saleh

Most of my questions were asked and answered, but I did want to ask on the chain business. I think you've seen some improvement there. Can you just elaborate on what you're seeing in chains? And maybe what's changed in the recent past? And then I have a follow-up.

Scott McPherson

Yeah. So Peter, this is Scott. So definitely, we -- I think there's a couple of things going on with chains. One is we have three or four chains that are really performing well, seeing double-digit growth out of them and really help to drive our national account business.
And I'd say the other thing is we've had a little bit of a shift where we've had some national account business that wasn't great-performing that we've traded out for national account business that is much better performing. So a little shift in our mix of customers across the national portfolio. So we feel really good about how that's progressing. Did you say you had a second one?

Peter Saleh

Yeah. And then just a follow-up. I know you commented a little bit on the seasonality of Cheney and Jose Santiago, but just curious on the synergies that were laid out maybe several quarters ago, when should we expect to start to see some of those synergies come to fruition, particularly on the Cheney's side?

Patrick Hatcher

Yeah. And -- Peter, this is Patrick. It's obviously very early since we just recently purchased Cheney Brothers, but I can tell you the integration efforts are in full swing, and we really are doing excellent job. Both teams are working very well together.
We did announce that we'd have $50 million of synergies at the end of the third year post acquisition. So I would expect that the synergies will come later in the cadence. So we'll see some synergies in the first year, but we'll see more synergies in year two and three. But that's all the detail we have for you right now.

Operator

(Operator Instructions) Carla Casella, JPMorgan.

Carla Casella

A couple of quick follow-ups. You talked about debt paydown being the focus. And it looks to me like there's over a couple of billion drawn on the revolver. So is that what you're focusing on paying down? Or would you consider taking out the '27 bonds, which are now callable at par ahead of maturity?

Patrick Hatcher

Yeah. Carla, it's a great question. Obviously, our initial focus will be right now to pay down the ABL, but we'll certainly look at those '27 bonds as well. But we tend to use the ABL as our main focus.

Carla Casella

Okay. Great. And then I may have you disclosed how much Performance Brands products represent now of your Foodservice business and if there's -- if it's kind of at a target level, if there's no more opportunity there?

George Holm

Well, we -- the number we give is what our brands are as a percentage of our independent business, and that's the overwhelming percentage of our brands. When you get outside of our independent restaurant business, most all of our business are chain restaurants that typically don't use many of the distributor brands.
We've made some progress there, but not what I would call meaningful. So we do very little business in health care, in lodging or in contract feeding that tend to use the distributor brand. So it runs right around 53%, I think it was 52.9% last quarter. We think that's a good number. We do see that being reduced as we add in Cheney Brothers and Jose Santiago.
But once it recalibrates for that, we think we can march up from there. We do have several of our companies that are over 60% right now. So we do see that there's room for improvement. And if you get into our legacy Roma companies, many of those are over 60%.

Carla Casella

Okay. Great. And that's all 60% to 2.9% of the independent business?

George Holm

That's correct.

Operator

There are no further questions at this time. I'll turn the call back to Bill for any closing remarks.

Bill Marshall

Thank you for joining our call today. If you have any follow-up questions, please reach out to Investor Relations.

Operator

Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at any time.