Performance Food Group Company (PFGC) Earnings Call Transcript

Good day and welcome to PFG's Fiscal Year Q1 2027 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Bill Marshall, Senior Vice President of Investor Relations for PFG. Please go ahead, sir.

Thank you, and good morning. We're here with Scott McPherson, PFG's CEO; and Patrick Hatcher, PFG's CFO. We issued a press release this morning regarding our 2027 fiscal first quarter results which can be found in the Investor Relations section of our website at pfgc.com. During our call today, unless otherwise stated, we are comparing results to the results in the same period in fiscal 2026. Any reference to 2026, 2027 or specific quarters refers to our fiscal calendar unless otherwise stated. The results discussed on this call will include GAAP and non-GAAP results adjusted for certain items. The reconciliation of these non-GAAP measures to the corresponding GAAP measures can be found at the back of the earnings release. Our remarks on this call and in the earnings release contain forward-looking statements, 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. With that, I'd now like to turn the call over to Scott.

Thanks, Bill. Good morning, everyone, and thank you for joining our call today. We began fiscal 2027 with a strong first quarter, highlighted by consistent top line growth and continued margin expansion despite the challenging economic environment. These results reflect the strength of our organization, our consistent execution and the dedication of our more than 44,000 associates. This morning, I will touch on the backdrop in the food away-from-home market, cover strategic highlights for our business segments and turn it over to Patrick to walk through the financials for the quarter and our outlook for the remainder of the fiscal year. Today's consumer environment remains challenging, but stable. Restaurant traffic continues to run down approximately 2% according to Black Box as consumers remain value-conscious and selective with discretionary spending. At the same time, gasoline prices rose throughout the quarter, averaging more than $4 a gallon, adding further pressure on household budgets. Despite the softer industry backdrop, we continue to see opportunities to gain share and outpace industry growth trends. Our organizational focus to win new accounts, increased business with existing accounts and find new avenues for revenue and margin growth continues to pay dividends. In the quarter, the organization produced 5.5% revenue growth with contributions from all 3 segments. Additionally, we saw gross margins improve by 33 basis points, supported by our procurement initiatives, brand penetration and inventory management. I'm proud of our sales and purchasing organizations. Their strong relationships with our customers and vendors, effective use of technology, leverage of exclusive brands and commitment to service continue to differentiate PFG and drive profitable growth. Much like our intense focus on growth, the organization's operational leverage remains key to our success. Central to these efforts are our technology investments focused on 3 areas that we believe can drive meaningful productivity gains and greater operational leverage over time. The first is operational technology. We continue to expand our use of AI-enabled routing to improve fleet utilization and route efficiency while deploying AI-powered inventory drones and camera technology to improve inventory management and further strengthen our safety culture. Combined with goods-to-person automation and more advanced slotting capabilities, these technologies are helping us build a more efficient and scalable operating model. The second pillar is data. We are working with an external AI partner to create a common thread across our item, customer and vendor data. This foundational work is important because it will allow us to better identify and capture opportunities across procurement, inbound logistics and ultimately, synergies across our segments. Finally, we continue to see rapid growth in the organic adoption of AI across our workforce. Our associates are increasingly using AI to simplify transactional and administrative work, improve access to information and increase productivity. We are early in this journey, but we believe the combination of operational technology, a stronger data foundation and broader AI adoption can become an increasingly important driver of productivity and margin improvement over time. We witnessed some of these benefits in the quarter and expect the continued progress to be a driver in the 50 to 60 basis points of margin improvement outlined in our 3-year plan. Let's move to some specific highlights from our 3 operating segments, starting with our foodservice business. Our independent case growth remained strong in the first quarter, posting 7.8% total growth bolstered by a 5.5% increase on an organic basis. On a 2-year stack, organic independent cases have increased over 12% for the second consecutive quarter. This growth is coming from a combination of new account wins and increased sales to existing accounts. New account growth continues to hover near 5%, representing a dominant factor in our share gains and case volume increases. With that said, we are very pleased to see a third consecutive quarter of positive penetration into existing accounts, driven by an increase in lines per drop. This reflects increased wallet share with existing accounts, helping to offset lower foot traffic trends for the industry. Our continued success in gaining share with independent restaurants is led by our outstanding sales force which we continue to expand by mid-single digits again in the first quarter. Our ability to consistently attract growth mind at sales leaders are them and our customers with AI-enabled sales tools, PFG brands and great service is central to our ability to consistently win share. During the quarter, PFG brands were nearly 51% of our cases sold to independent restaurants. As a frame of reference, when we acquired Cheney Brothers, our PFG brands were less than 50% of the cases sold to independent restaurants as our team has done an excellent job expanding and selling that piece of our business. I want to take a minute to dive a little deeper into our sales and customer-facing technology called Customer First. This technology has continued to grow in its capabilities, quickly becoming a critical tool for both our customers and our sales force, with AI-enabled search features, Customer First is the ability to translate menus and recipes and seamlessly facilitate 2-way communication with our customers. The success of the Customer First tool is captured in the results. We have seen significant growth outperformance for our customers sharing both a digital and direct order relationship with their account managers and quick adoption of new functionality added to the platform with more to come. Shifting to our chain restaurant business. We continue to outperform the industry with organic case volume just slightly negative in the period. We would expect a similar result in the second quarter, followed by an acceleration through the third and fourth quarters as we began onboarding Jersey Mike's in February. We are excited to bring Jersey Mike's into the PFG family. As a reminder, we are adding 3 of the 4 geographic regions of Jersey Mike's and it comes with margins in line with our overall chain business. Taken together, our Foodservice segment delivered a solid start to fiscal 2027 with mid-single-digit revenue growth and double-digit segment adjusted EBITDA growth. Turning to our convenience business. We continue to see the benefit of new account wins that rolled on early last year. As we hit the end of the quarter, we began lapping the addition of Love's, and we'll start lapping racetrack in mid-December. Our convenience business has benefited from the total PFG platform, which is the only U.S. convenience distributor that brings broadline food service capabilities to the traditional convenience distribution model. We believe this combination has been instrumental in our new account wins and a driver of our revenue and profit growth since PFG-acquired Core-Mark. An excellent example of our success has been the investment behind branded programs tailored to the convenience space. These programs span a variety of product offerings, including pizza, chicken, Asian and barbecue. During the first quarter, case volume associated with our branded programs increased 11%, producing nearly 15% sales growth on those programs in the period. We plan to expand these programs and drive sales to both existing and new accounts. Our research has shown that convenience stores with a food service offering have outperformed the broader industry. making these programs appealing to a range of convenience customers. Overall, the convenience segment posted another solid top line quarter with 5.4% sales growth through a combination of 4.1% case growth and low single-digit price/mix contribution. This growth came despite a sluggish backdrop for total industry in-store sales as higher fuel prices have had an impact on both foot traffic and install purchase behavior. Core-Mark's ability to pick up market share and expand the food service programs I just discussed have provided consistent growth despite the industry challenges. In the prior year period, Core-Mark benefited from candy inventory holding gains and promotional activity in the alternative nicotine space that did not reoccur in the current period. As a result, segment EBITDA growth was below recent trends, though that should recover as these items normalize. Looking ahead to the back half of the fiscal year, once we have fully lapped the large customer wins, we would expect convenience segment revenues to resume the historical run rate of low single-digit growth with segment adjusted EBITDA increasing at a high single-digit to low double-digit pace. We are very optimistic about the outlook for our Convenience segment despite the industry challenges I mentioned earlier. I'll finish up with our Specialty segment. Top line momentum for Specialty remains strong with double-digit revenue growth for the first quarter. We have seen particular strength in our sales to vending and office coffee including micro markets and micro kitchens, which continue to be a strong avenue of growth for specialty. We also saw a nice rebound in the movie theater space, which together with our concessions and hospitality business make up the entertainment channel. We expect the entertainment channel to remain robust in the upcoming quarter due to a strong movie slate hitting theaters later in the quarter. Grocery retail, a channel that we have expanded in recent quarters also posted solid double-digit sales growth in the period. Grocery retail is expected to continue with solid revenue growth through the fiscal year. While specialty was our fastest-growing segment on the top line, nonreoccurring candy inventory holding gains, competitive pressure and higher fuel prices are weighing on margins. Fuel has an outsized impact on specialties expense lines due to heavy use of third-party carriers, particularly in the small parcel channel. We expect specialty to continue to see margin pressure in the second quarter with strong profit results in the back half of the fiscal year as we begin to lap higher fuel expenses starting in March. To summarize, we started fiscal 2027 with strong top line performance in a choppy external market and made solid progress in margin expansion. I'll now turn it over to Patrick, who will review our financial performance, include some details around our productivity and efficiency efforts and guidance. Patrick?

Thank you, Scott, and good morning. We have a number of exciting initiatives underway at PFG, which are driving top line outperformance in the market and expanding our margin profile and profit growth. I'll start with some details on a few projects that are helping our profit performance before reviewing our results and discussing our financial guidance for 2027. As we announced at our Investor Day in May of 2025, we have undertaken a comprehensive review of our procurement activities with the goal of benefiting from our purchasing scale and enhancing our vendor relationships. Fiscal 2026 was a foundational year in these efforts and through data analysis focused on our food service businesses, we were able to begin discussions with our vendors to negotiate around our purchasing programs. During the first quarter of fiscal 2027, we saw the savings from these efforts steadily increase month-to-month. We expect these savings to be spread evenly through fiscal 2027 and 2028. By the end of fiscal 2028, we are confident that savings levels will be at the upper end of the range we provided at Investor Day or about $125 million. We expect a combination of our typical positive gross margin mix shift in our underlying business plus these procurement savings will generate consistent gross margin improvement over the next 2 years and beyond. In addition to our gross margin focus, we continue to invest in technology to accelerate our operating margin efficiency. As Scott mentioned, this includes routing efficiency software to improve our transportation costs and technology in our warehouses to minimize strength, reduce obsolescence and automate certain procedures. We have also added technology in our trucks and warehouses to improve safety. Last quarter, we called out improvement in our safety metrics, which saw a reduction in accidents and injuries. The benefits from these gains continued in the first quarter and were reflected in our lower insurance accruals. These are just a few examples of the many work streams we have underway, and we are excited for what the future holds. With that, let's review some financial highlights from the quarter before turning to our outlook. PFG's total net sales grew 5.5% in the first quarter with growth in all 3 operating segments. Total company cases increased 4.2% during the quarter, highlighted by the 5.5% organic independent restaurant case growth. Total company cost inflation was approximately 3.4% for the quarter, a modest deceleration from the fourth quarter which was in line with our expectations. Food service inflation was 0.5% in the quarter as the deceleration that we highlighted on our last earnings call persisted through the quarter. Lower levels of food service inflation were the result of continued deflation in chicken and dairy and lower levels of inflation in beef. Through June, beef inflation had been running at a double-digit pace. This decelerated through the 3 months of the first quarter. We now expect food service inflation to trend at the bottom end of a low single-digit range for the full fiscal year. While this is lower than we had previously anticipated, we view this as manageable and what we contemplated in our guidance. Specialty segment cost inflation was up 4.9% year-over-year and just slightly lower than the prior quarter. Convenience cost inflation was 6.5% year-over-year. Similar to Specialty, this was slightly lower than in the prior quarter. The inflationary environment has been dynamic over the past several years. We remain confident in our ability to handle a range of outcomes. We expect the overall inflation rate to remain in the low to mid-single-digit range for fiscal 2027. Moving down the P&L. Total company gross profit increased 8.5% in the first quarter, representing a gross profit per case increase of $0.30 as compared to the prior year period. This improvement was driven by positive mix shift, execution of our procurement initiatives outlined earlier in this call and the continued growth of our Performance Brands. We remain very pleased with the gross profit results, which we believe demonstrate our ability to execute our priorities outlined in our 3-year plan. Our operating expense rose in the quarter due to several factors, including elevated diesel prices, which have remained well above levels from last year. As we discussed last quarter, our team has evaluated several ways to mitigate higher fuel costs. The primary mechanism is our surcharge program. This remains an effective way to mitigate the impact of fuel expense increases. As we announced last quarter, in addition to costless collars, we entered into a fuel swap covering approximately 15% of our estimated fuel use for fiscal 2027. During the quarter, we elected to apply hedge accounting to both our fuel collar and swap contracts. The result was a partial offset on the operating income line of the higher fuel expense, this benefit helped offset some of the higher diesel prices experienced throughout the quarter. As a result, for the first quarter, after netting out the benefits of surcharges and our hedges, the net impact from higher diesel expense was approximately $16 million, in line with the estimate we provided last quarter. We continue to watch the fuel volatility closely but continue to feel confident that the actions we have taken will allow us to navigate through the uncertainty and remain on track to achieve our 2027 guidance building upon our strong profit results in the first quarter. In the first quarter of 2027, PFG reported net income of $129.5 million, a 38.4% increase year-over-year. Adjusted EBITDA increased 10% to $528 million, which was at the upper end of the guidance range we provided in August. Diluted earnings per share in the first fiscal quarter was $0.82, while adjusted diluted earnings per share was $1.32, an increase of 11.9% year-over-year. Our effective tax rate was 25.2% in the first quarter, an increase from 23% in the first quarter of last year. We now expect our full year 2027 tax rate to be close to our historical rate of approximately 27%. Turning to our financial position and the cash flow performance. During the first quarter, PFG used $89.3 million of operating cash flow an improvement from the first quarter of 2026, which used $145.2 million of operating cash flow. We invested $53.9 million in capital expenditures during the quarter, we have been diligent around new capital projects and continue to expect full year 2027 CapEx to remain below our long-term target of 70 basis points of net revenue. As we highlighted last quarter, it is typical for the first quarter of our fiscal year to be a use of cash flow as we build inventory early in the year. We anticipate another year of strong operating and free cash flow over the course of the full fiscal year. We closed the quarter with net debt at the top end of our 2.5 to 3.5x leverage target range, and we expect this to move lower within the range through fiscal 2027 as we prioritize debt reduction and see positive cash flow. The M&A pipeline remains robust, and we continue to evaluate strategic M&A. We will continue to apply our typical high standards and robust due diligence to evaluate high-quality acquisition opportunities. Turning to our guidance. For the second quarter of 2027, we expect net sales to be in the range of $17 billion to $17.2 billion and adjusted EBITDA to be in the range of $490 million to $510 million. We continue to expect our quarterly EBITDA growth to accelerate as we move through the fiscal year. We are reiterating our expectations for the full fiscal year. Our sales target for 2027 is a range of $72.5 billion to $73 billion, and we continue to expect full year adjusted EBITDA in the range of $2.125 billion to $2.225 billion. Our full year guidance range includes the benefit of a 53rd week, which will occur in the fiscal fourth quarter and help results by approximately 2%. The midpoint of these ranges represent year-over-year growth of 7.2% for sales, and 12.7% for adjusted EBITDA. This keeps us on track to achieve the 3-year projections we announced at Investor Day, with sales in the range of $73 billion to $75 billion, adjusted EBITDA between $2.3 billion and $2.5 billion in fiscal 2028. To summarize, we are very pleased with our progress. We are in a solid financial position which supports our growth investments and capital return to our shareholders and are executing in the first quarter sets the stage for a strong fiscal 2027. Thank you for your time today. We appreciate your interest in Performance Food Group. And with that, Scott and I would be happy to take your questions.

[Operator Instructions] And we will take our first question from Mark Carden with UBS.

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

Yes, I appreciate the question, Mark. So just walk us through the cadence of our independent case growth for the quarter, really fairly consistent through the quarter. Just a little bit as we exited the quarter, and we've seen that be fairly consistent as we work through the first handful of weeks of Q2. So I feel really good about how our sales organization is performing, continue to drive that performance with net new account wins and penetration. Taking a step back and looking at the consumer, looking at the chain consumer, I would say, to your point, the lower end consumer, the QSR space, we've seen more pressure in for sure. The casual dining space seems to be performing a little well, which points to a little more affluent consumer. And that's been, I'd say, fairly consistent with what we've seen over the last few quarters. And then as far as geographical, I would say, for us, the West continues to perform exceptionally well, but we're obviously underdeveloped in the West. Outside of that, I called out the Midwest in the past. Midwest is, I'd say, a little more in line with what we've seen across the country. And maybe the Southeast, a little bit soft. But overall, a little better balance in the quarter.

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

Yes, it's a great question. So certainly, fuel price, when you get to this level of fuel price, it puts pressure on the consumer, not just in convenience, but across all the food away-from-home space. I think our convenience segment has done an incredible job, really focused on food services. You were talking about the cross-sell. Our Foodservice continues to grow in that mid- to high single digit, especially in places where we have branded concepts, we called out in the script that those branded concepts are growing at double digit. . And so that -- I think overall, the segment is performing well. Certainly, fuel price puts pressure on the in-store sales piece. You've seen that in some of the other chains that report publicly. So the segment has done really well, gaining share, gaining penetration in the stores, but it's certainly a challenging macro.

And we'll move next to Edward Kelly with Wells Fargo.

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

Yes, Ed. Thanks for the question. So as we look at exiting Q1, obviously, we talked about in the script, some of the really nice improvements or tailwinds. We saw really strong revenue growth across all 3 segments. The procurement initiative is working well. But there were some headwinds that we talked about. First and foremost, is the fuel. And so as we look at Q2, those headwinds persist. So we're going to have fuel. We expect it to be very similar to the Q1 impact in Q2, and we also expect that we'll have, as Scott mentioned, these inventory comps from last year for specialty and convenience will also be a bit of a headwind in Q2. And then finally, just the compression of inflation for food service. So we look at a 4% sales, and I'll touch on that question here in a second, but then 10.8% EBITDA growth is actually an acceleration Q1 and Q2 are fairly similar now just because of the mix of business has changed a little bit. But -- and then finally, on your question on the sales growth that dips down a little bit, mainly just -- or almost primarily because of we're comping over the 2 customer wins from convenience, the Love's which we comped over at the end of Q1, and we'll comp over racetrack at the end of Q2.

And then that back half step up again? Is that -- I guess that's Jersey Mike's?

It's definitely Jersey Mike's and also just the great performance by the sales organization and confidence in our ability to continue to get new customers, both independent and chain across all 3 segments.

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

Yes. No, it's a great question. So as Patrick just mentioned, from a top line standpoint, I think we're in our fourth consecutive quarter of sales momentum growth for Specialty. And that's coming off of a year that sales was -- top line was really challenging. So really happy with the organization and their top line performance. They're up against a couple of headwinds that will persist in the first quarter and second quarter, and we talked about that in Q4. One of those is the inventory holding gains, significant candy inventory holding gain that impacted convenience and specialty. The other one is obviously fuel price. And they -- like everybody, have a fuel price headwind. They also, in their e-commerce platform, obviously, are subject to third-party shipping as well. So that's kind of a double impact on fuel. And then, lastly, on a good note, we had a lot of renegotiation last year, and we renegotiated a significant portion of our customer base. And most of those are long-term 3- to 5-year agreements. So super positive there, the challenge is in the short run, that puts a little bit of pressure on margin. So from a cadence standpoint, I would expect a similar performance in Q2, and then we see a really nice rebound in Q3 and 4 for specialty as they lap inventory headwinds, they lap some of the fuel headwinds as well.

And we'll move next to John Heinbockel with Guggenheim.

So Scott, I wanted to start with the composition of local case growth of the 5% net new accounts, has there been much change in gross versus loss rate. And then I guess, lines per account would be up, what 1.5 or 2, and then you're losing traffic. Is that fair? And where do you think the biggest opportunity is here to move any of those needles in the next 6 months or so?

Yes. All good questions. So first, maybe just to take a step back and we came in at 5.5% for the quarter. So independent case growth. That stepped up a little bit over the course of the quarter. And most of that, as you said, was driven by net new accounts. So we came in just a tick below 5% on net new accounts. The balance was, as you said, made up all of really lines per drop. So that's really share of wallet penetration in the accounts, and I would really credit that to our sales organization and the technology that we put in front of them and our customers. I think this has really helped penetration. As I look forward, certainly, as you look back at last year, we had quarters that were in the low 5s and quarters as high as 6.5. So we have a little easier comp in the back half of this quarter and feel like we have great momentum with the sales organization. we've been hiring at about 5% increase. This quarter was actually a little higher than that. So mid-single digit or slightly above in the quarter. So honestly, John, I feel really good about the setup. It's a challenging macro, but we keep driving net new accounts and driving penetration and happy with the organization.

And then the follow-up would be, where are we now with -- as it's been 2 years, the integration right and realization of the chaining opportunity right. So I think a year ago, about now some of the capacity investments began to hit. So where are we with that private brand penetration and then kind of ramping up of synergy between now and the end of the year?

Yes. Great question. And really, as we've talked about, Cheney will be a build story throughout this year. They performed well in the quarter. And I would say, in line with expectations and really good momentum. As far as brands, I think when we talked about our new kind of brand benchmark at 50%, we were a little bit sub-50% a year ago when we were a little over a year ago when we bought Cheney, we're now up to 51% and a lot of growth is starting to come from Cheney. So we're starting to have positive momentum in the brands integration. And then I would say just overall procurement alignment, I would say, alignment of our operations groups really starting to hit our stride there. And then really where you see great benefit, John, is the infrastructure that we got with Cheney is incredibly helpful as we roll on Jersey mics. And so being able to flow that volume into that infrastructure provides a nice tailwind for us in the back half of the year.

And we will move next to Kelly Bania with BMO Capital.

I wanted to ask about just the AI tools across the workforce. And any more details you can share on that? And specifically, do those tools change the way that you think about your pace of hiring and growing the sales force? Or better said, maybe what you're hearing from your local market leaders and how hiring and continue to build that platform of growth of the sales force?

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

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

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

And we'll move next to Alex Slagle with Jefferies.

I wanted to dig in a little more on food service and high level. I mean was like record 1Q EBITDA margin, gross profit growth is really strong. So what's really impressive. I guess it's on the sustainability of this, and if there are any onetime items in there we should consider as we model out most of the year just given the backdrop wasn't that easy overall, whether it's the lower inflation and things like that. I mean it seems like it was like continued mix and procurement and the brands, everything kind of working, but is there anything else in there that we should consider?

Yes. It's a really good question. I'll touch on just a couple of the high points, and I'll let Patrick fill in the blanks. As you mentioned, really excited about the ability to continue to grow top line and food service to continue to grow independent cases. Our independent percentage of sales was up to 43%. That's the highest we've been. So really nice to see independent continue to grow. So that certainly helps margins. The brand sales continue to grow as well. really nice contribution there in our vendor procurement initiative as well. It's still a building story. So overall, I'd say a really good balance in how we're growing the margins. Anything you want to add, Patrick?

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

Got it. And the food service inflation, I guess, early end of the school 2Q, how is that looking? -- that's still sort of the 0.5% level that you saw in the quarter?

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

And we'll move next to Lauren Silberman with Deutsche Bank.

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

Yes. Thanks, Lauren. So again, really pleased with how Q1 came in. Obviously, certainly had some pressures during the quarter as we've already discussed, like fuel. But -- and then really to be -- the hedges helps, but the hedges just helped offset the higher expense of fuel than what we were expecting as we went into the quarter. So that really was kind of a net wash. And -- but we do expect that to be the case for Q2 as well, is that we're anticipating fuel to stay at this higher level. So the hedges will help again, but we do expect fuel impact to Q2 to be very similar to Q1. And as we look at the Q2 guide and the low end and the high end, we really anchor to what is the current environment, and that's kind of what drives the midpoint of the guidance. And that's how we've always looked at it. And then we come up with obviously various scenarios that would push us to the higher end or lower end I mean, again, if we continue to see a very similar environment, that's what gets us to the guidance that we gave. If things start to improve, perhaps we could get to the upper end of the guidance. And again, it's impossible for us to know what's going to happen with fuel and obviously foot traffic as well.

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