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Performance Food Group Company  (NYSE:PFGC)
Q2 2019 Earnings Conference Call
Feb. 06, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the PFG Fiscal Year 2019 Q2 Earnings Conference Call. Today's call is scheduled to last about one hour including remarks by PFG's management and the question-and-answer session.

I would now like to turn the call over to Michael Neese, Vice President Investor Relations for PFG. Please go ahead sir.

Michael Neese -- Vice President, Investor Relations

Thank you Laurie and good morning everyone. We're here today with George Holm, Performance Food Group CEO and Jim Hope, PFG CFO. We issued a press release regarding our 2019 fiscal second quarter results this morning. The results discussed in this call will include GAAP and non-GAAP results adjusted for certain items. The reconciliation of these non-GAAP measures to the corresponding GAAP measures can be found at the back of the earnings release. You can find our earnings release in the Investor Relations section of our website at pfgc.com. Our remarks in the earnings release contain forward-looking statements and projections of future results. Please review the cautionary forward-looking statements section in today's earnings release and our SEC filings for various factors that could cause our actual results to differ materially from our forward-looking statements and projections.

Now I'd like to turn the call over to George.

George Holm -- President and Chief Executive Officer

Thanks Michael. Good morning everyone and thanks for joining our call today. I'm pleased to report our second quarter results exceeded our expectations. Our results were driven by Vistar's strong top line growth. Vistar is having an outstanding year and grew its EBITDA by over 30% in the quarter through increases in the existing channels such as theater, retail and vending and strong results in the channels such as (inaudible). In the Foodservice segment, we are pleased with this sequential improvement from our first quarter of fiscal 2019 and our strategic investments continue to be on track to support our long-term growth objectives. We experienced slight same-store sales improvement in our casual dining customers. With these operational and financial results, we remain on track to achieve our full year guidance, representing another year of strong growth across our company.

Now let's turn our attention to our two segments. Our team's continued execution on our Foodservice segment enabled us to generate strong total case growth of 5.5%, which is slightly above our stated case range of 3% to 5% this fiscal year. The increase was driven by 4.3% increase in independent cases, chain case growth and continued growth in our performance brand cases and broad-based growth across all of Vistar sales channels. The increase in total sales volume was also partially attributable to slight same-store sales growth in the company's casual dining segment. We continue to make investments in technology and our digital ordering platform. Approximately one out of every five independent orders are placed on our technology platform today. We're also making investments in our customer facing tools including continued enhancements to our MarketWatch platform.

Vistar delivered another quarter of strong top and bottom line results. Net sales increased 12% and as I mentioned, EBITDA grew by more than 30%. The top line increase was driven by broad-based case growth across all our channels, most notably in our theater, retail, vending channels led by micro kitchen and micro markets. As you may recall, Vistar now lapped our CCSI expenses from an acquisition last year and we expect continued tailwind throughout the fiscal year. I believe our Foodservice segment is making good progress. We still face some headwinds specifically related to where we made investments in people. We continue to see a higher labor costs where we did made these investments but we're moving in the right direction. The investments are paying dividends and we feel we are headed in the right direction. Craig Hoskins Jim hope and the team are focused on leveraging our operating expenses.

Before I discuss one of our associates, I would like to briefly discuss our micro industry backdrop. We believe the food away from home continues to grow. We believe the US consumer is doing well. Consumers are prioritizing their spending, some saving and paying off debts, some spending on technology and life experiences, while others continue to want to experience a great meal outside of their homes. Overall, independents are doing well and we feel we are gaining share. We are seeing several changes in casual dining, same-store sales growth most likely driven by the promotional activities. In summary, we're on track to deliver another year of strong growth. We plan to deliver against our strategic priorities and return value to our shareholders. Vistar is exceeding our expectations and they are executing their growth plans. The Foodservice segment is making good progress and their strategic investments are on schedule and will pay-off later this year. We expect to continue to see sequential improvement in that part of our business.

This quarter we'd like to highlight an associate who fully embodied PFG's dedication to service. Charlie Lee is with PFG's Performance Foodservice (inaudible) location in Louisiana. He joined the company as a driver in 1969 and has been providing exceptional service to PFG customers ever since. During Charlie's 50-year career, he has served as a role model and mentor for not just our drivers, but all of our associates through his reliability, ambitious attitude and thoughtfulness. His customers have always been his top priority. One restaurant manager said he is very respectful, professional, ,patient and always takes time to help us whenever we're busy. I want to thank Charlie who was also a Vietnam War era veteran for his service for our country and his steadfast dedication to this company for half a century. Charlie, despite being in his 70s continues to deliver as a driver five days a week and volunteers to work half-day on Saturday as a helper.

I will now turn the call over to Jim who will discuss our second quarter results in more detail.

James Hope -- Executive Vice President and Chief Financial Officer

Thank you George. Good morning everyone. I'm pleased with our second quarter results. Total case volume increased 5.5% with underlying organic growth of 3.6%. Total case volume included planned chain sales growth of 4.3% increase in independent cases, growth in performance brands cases and broad-based growth across Vistar sales channels. The increase in total case volumes was also partially attributable to slight same-store sales growth in the company's casual dining customers.

Net sales grew 7.1% to $4.6 billion. The increase in net sales was primarily attributable to growth in Vistar most notably in the theater retail and wending channels and case growth in Foodservice specifically in the independent restaurant channel. The increase in net sales also reflects an increase in selling price per case as a result of inflation and mix. Overall, food cost inflation was approximately 1.2% in our second quarter. We experienced inflation in frozen foods, meats produced and seafood. And some categories were deflationary such as cheese, poultry, and eggs. Given what we're seeing today, we expect inflation to increase approximately 1% to 2% this calendar year. Gross profit for the second quarter grew 8.3% to $614.6 million. The strong gross profit increase was led by case growth and from selling an improved mix of customer channels and products, specifically in Vistar's channels and the independent restaurant channel. Gross profit margin as a percentage of net sales was up 10 basis points over the prior year period to 13.3%.

Operating expenses rose 4.5% to $541.6 million. The increase in operating expenses was primarily due to the increase in case volume and the resulting impact on variable operational and selling expenses as well as the continuing expense associated with the second half of fiscal 2018 investments in sales, warehouse and delivery personnel within the Foodservice segment. Our OpEx control was improving sequentially from our fiscal fourth quarter of 2018, but we have more work to do in this area.

Net income for the second quarter of fiscal 2019 declined 44.7% year-over-year to $43.1 million. The decline was primarily a result of a $57.1 million increase in income tax expense partially offset by the $23.9 million increase in operating profit. The increase in income tax expense was primarily a result of the prior year impact of the Tax Cuts and Jobs Act and the prior year excess tax benefit associated with the performance vesting of certain stock-based compensation awards. The effective tax rate in the second quarter of fiscal 2019 was approximately 23.4% and we expect our full year effective tax rate for fiscal 2019 to be approximately 26%. EBITDA increased 34.2% to $109.4 million in the second quarter. Adjusted EBITDA rose 11.3% to $116.9 million compared to the prior year period. This increase was higher than expectations driven by Vistar's results, improved sequential performance in our Foodservice segment and same-store sales growth in casual dining. Diluted EPS declined 45.3% to $0.41 per share in the second quarter due primarily to the increase in income tax expense. Adjusted diluted EPS increased 15% to $0.46 per share in the second quarter over the prior year period.

Turning to cash flow. In the first six months of fiscal 2019 PFG generated $70 million in cash flow from operating activities, an increase of $37.4 million versus the prior year period. The improvement in cash flow from operating activities was largely driven by lower income taxes paid and improvements in working capital. For the first six months of fiscal 2019, PFG invested $60.1 million in capital expenditures, an increase of $21.6 million versus the prior year period. We expect our fiscal 2019 CapEx spending to be approximately $150 million to $170 million. In the first six months of fiscal 2019, PFG delivered free cash flow of $9.9 million, an increase of approximately $15.8 million versus the prior year period. We are focused on our working capital initiatives and increasing our free cash flow for the remainder of the year.

As we announced in November, the Board authorized a share repurchase program for up to $250 million of the company's outstanding common stock. During the three months ended December 29, 2018, we repurchased 157,900 shares of common stock for a total of $5.2 million for an average cost of $32.76. As of December 29, 2018, approximately 244.8 million remained available for additional share repurchases.

Now let me take you briefly through our segment results. Second quarter net sales for Foodservice increased 5.8% to $3.7 billion compared to the prior year period. Net sales growth was driven by an increase in cases sold including independent case growth of 4.3% and solid independent customer demand for Performance Brands. This increase in net sales was also attributable to an increase in selling price per case as a result of inflation. For the second quarter of fiscal 2019, independent sales as a percentage of total segment sales was 32.5%. Second quarter EBITDA for Foodservice increased 2.2% to $104.3 million compared to the prior year period.

Gross profit increased 5.3% in the second quarter of fiscal 2019 compared to the prior year period as a result of an increase in cases sold as well as an increase in gross profit per case. The increase in gross profit per case was driven by a favorable shift in the mix of cases sold including more performance brands products sold to our independent customers. The second quarter EBITDA was impacted by higher operating expenses driven largely by the prior year strategic investments in sales, warehouse and delivery associates and higher fuel prices.

Vistar continued to have another robust quarter. For the second quarter of fiscal 2019 net sales for Vistar increased 12.3% to $941.9 million compared to the prior year period. This increase was driven by strong case sales growth in the segments, theater, retail, and vending channels. Second quarter EBITDA for Vistar increased 33.5% to $45.4 million versus the prior year period. Gross profit dollar growth of 19.4% for the second quarter of fiscal 2019 compared to the prior year period was fueled by an increase in the number of cases sold. Operating expense dollar growth of 13.8% for the second quarter of fiscal 2019 was primarily the result of higher variable operating costs associated with the higher case volume. The CCSI integration continue to show good improvement and we're realizing solid synergies from the transaction.

Turning to our outlook. For fiscal 2019, we reaffirmed our full year adjusted EBITDA growth to be in a range of 7% to 10%. We continue to expect with the 7% to 10% adjusted EBITDA growth will reflect second half adjusted EBITDA growth in the high single to low double-digit range. We also reaffirmed our fiscal 2019 adjusted diluted EPS to grow in a range of 10% to 16%.

In summary, our first six months results are on track. We are seeing strong topline growth in our business. The investments we made in Vistar nearly 18 months ago are paying off and we're beginning to see sequential improvement in our Foodservice segment. Free cash flow continues to improve and we are continuing to focus on working capital.

And with that I'm going to turn the call back to George.

George Holm -- President and Chief Executive Officer

Thanks Jim. In summary, our associates are determined to provide the best customer experience and we believe we have the right strategies and made the right investments to deliver best-in-class service and sustainable annual growth.

And with that we're here to take your questions.

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from the line of Edward Kelly of Wells Fargo.

Edward Kelly -- Wells Fargo & Company -- Analyst

Hi guys, good morning. George, could we start with independent case growth. Can you just provide some color on what you saw there during the quarter? Obviously there was a little bit of a sequential deceleration. And I think the slide (ph) from you guys has been that we should see some acceleration throughout the year based upon the investments that you're making, is that still on the cards? And just thoughts around what you're seeing there? Any outlook?

George Holm -- President and Chief Executive Officer

Yeah. We believe that we will improve as the year moves along. People were coming off non-competes, we feel like we made some pretty good investments in people. We had an exceptional January as far as independent growth goals. Now we also feel that we probably had I guess more difficult weather last year than we had this year. So we're at this point trying not to get too excited about the first six weeks, but so far so good and we feel like sometime between now and the end of this fiscal year we're hopeful to get back in that 6% to 10% range that we've been doing for about a decade.

Edward Kelly -- Wells Fargo & Company -- Analyst

All right. And I guess just a follow up is related to guidance then. You maintain your full year guidance, you're tracking ahead of it today, you're expecting a strong back half. Is there any reason that you're keeping the low-end in play here or is it just simply conservatism, weather volatility? Just trying to understand the thought process around guidance.

James Hope -- Executive Vice President and Chief Financial Officer

Yeah. Thanks Ed, it's Jim. Look, I believe our Foodservice segment is making good progress, we're encouraged. They still face some headwinds specifically related to higher labor, but they're moving in the right direction. Craig Hoskins and his teams are focused on what matters including leveraging operating expenses. Weather could always impact us in our fiscal third quarter. So we're watchful and we're realistic when it comes to weather in Q3 results. We started Q3 back in our independent case range as George mentioned, however we do believe there was an easy comp due to weather in January 2018 and we all know March makes the quarter. So we have to get through March.

Edward Kelly -- Wells Fargo & Company -- Analyst

George, can I just sneak in one more on Vistar for you? I know this has been business that has just put up stellar performance. As you take a step back, can you just talk about what longer-term opportunity is for this business? What your vision is? How much of it do you get there organically and how much is, how important M&A is going to be here?

George Holm -- President and Chief Executive Officer

Well, we typically had a higher percentage of our both sales and EBITDA growth come from M&A in Vistar than we have in Foodservice and we actually see that continuing for a period of time. It's hard to say how long, but I think we're probably in good shape for at least another year. The business is extremely well managed. We've been added for a long time. I think the business has matured and certainly we have high shares in the channels that we're in. But we also see other channels that we can continue to provide good service in and if it's kind of heavy single-served in a channel if it's heavy with candy, snacks, particularly specialty beverage, I guess the beverage in general where particularly specialty beverage, we feel we belong in those channels. So I think that's where our growth is going to come and it's just a very well-managed business and as I said, we've done it for a long time and we think we're pretty ingrained.

Edward Kelly -- Wells Fargo & Company -- Analyst

Okay. Thanks guys.

Operator

Your next question comes from the line of Karen Short of Barclays.

Karen Short -- Barclays PLC -- Analyst

Hi, thanks very much. So actually just wanted to look at each segment, but you know as Ed said, obviously Vistar's performance has been outstanding, but I guess what I'm wondering as we look forward, how should we think about EBITDA growth range of kind for each segment in the second half that I guess as well just on the longer-term algorithm?

James Hope -- Executive Vice President and Chief Financial Officer

Yeah. Karen, we haven't provided guidance and we'll provide guidance on the segments going forward. I think we'll stick to our 7% to 10% range. Appreciate the question, but we'll stick to our 7% to 10% range that we provided.

Karen Short -- Barclays PLC -- Analyst

Yeah. I guess just I mean thinking about going forward, I mean obviously we all scrutinize performance of each segment. So just to be helpful, directionally, if you could kind of give some commentary?

George Holm -- President and Chief Executive Officer

Yeah, I'll do that. Once again I would state that I think we've got some tailwinds in Vistar for a while to come. I also feel that the sequential improvement we're getting in Foodservice there, we're going to continue to get. Running 30% EBITDA growth for a long-term period of time is not something we're suggesting would happen in Vistar, but as we see the continued improvement in Foodservice that has a more significant impact on the total company just because of the sheer size of our Foodservice. So I think that what Jim stated is very accurate that we're real comfortable in that 7% to 10% range. We have been in that range for a long time, but we're not always going to do it in the same way and we'd love to see Vistar continue that kind of EBITDA growth, but we're not so sure that that's a kind of thing you plan for.

Karen Short -- Barclays PLC -- Analyst

Okay. And then I just wanted to ask a little bit about Craig's position. As of last call, the last call you didn't seem to show you needed to put anyone in the role of President and CEO. So I just was wondering what changed there?

George Holm -- President and Chief Executive Officer

We've always thought like we're going to put somebody into that position. We just wanted to make sure that we looked at all potential candidates that are internal and external and in the end we made the great choice of putting Craig into that position. I think it's going to go add a great deal of position for us. because of his background. He's had a very senior role in Vistar, he had a very senior role in Roma and a very senior role in -- well, he actually was the CEO of Customized for seven years. So he has seen the whole company and I've always been a believer that there's more that we can do as a group than we have done in the past. And he and Pat Hagerty that runs Vistar have worked together for many many years, they were both at Multifoods Distribution Group when I did the original acquisition which actually goes back to 2002. So we got two really experienced people running our two largest businesses and I think we're just in great shape for the future.

Karen Short -- Barclays PLC -- Analyst

Okay. And then last question just on Vistar. In terms of May be branching into some other I guess verticals. Is that something we should still expect may be more driven by M&A or would that be organic in nature?

George Holm -- President and Chief Executive Officer

We have always entered a new channel through some type of M&A and have not really done it just Greenfield and historically we've had about 50% of our increase in both sales and EBITDA have come from M&A and we see that continuing really for the foreseeable future and that's 50% of our increase in sales and EBITDA, I'm sorry.

Karen Short -- Barclays PLC -- Analyst

Yeah, thank you.

Operator

You're next question comes from the line of Christopher Mandeville of Jefferies.

Christopher Mandeville -- Jefferies Group LLC -- Analyst

George, on your comment about January being exceptional if I looked at that on a two-year basis would -- you have actually seen a sequential improvement of the near 11% growth rate that you showed in Q2? Just trying to get a sense of the actual magnitude of improvement?

George Holm -- President and Chief Executive Officer

Yes. We do have good sequential improvement. I think you've kind of asked unlike about a two-year stack improvement.

Christopher Mandeville -- Jefferies Group LLC -- Analyst

Correct.

George Holm -- President and Chief Executive Officer

We had a good January.

Christopher Mandeville -- Jefferies Group LLC -- Analyst

Okay. And you're still committed to trying to get yourself to a 6% independent number by the end of the year?

George Holm -- President and Chief Executive Officer

Always committed to that. And the one thing that we're being cautious with is that March typically exceeds 50% of our EBITDA for the Q3 and I think we're in a better shape to comment on the year once we get through the month March and see how that goes.

Christopher Mandeville -- Jefferies Group LLC -- Analyst

Okay, that make sense. Very prudent. And then maybe just a follow-up on Karen's question to get a sense of segment EBITDA growth. Can you help me square some of your comments on being ahead of schedule on Vistar, but then maybe then Jim having mentioned that you guys are kind of tracking in line with your plan for the first half. Just trying to figure out what's going on between the segments here? You also referenced that you're seeing sequential improvements in PFS but then maybe also not to expect continued 30% growth on Vistar?

George Holm -- President and Chief Executive Officer

Yeah. Breaking into two pieces. Vistar is doing exceptionally well and typically expect the company to deliver those kind of results year-over-year. I mean it's impressive and we're still pleased and encouraged with the work and the results they have delivered. Performance Foodservice, our Foodservice division is starting to show signs of delivering slightly better results. I made remarks about the specifics there and it's early and we're encouraged there by what they're starting to do.

Christopher Mandeville -- Jefferies Group LLC -- Analyst

Okay. And then just the final house-keeping question. What was the private brand makes and online mix for independents in the quarter?

George Holm -- President and Chief Executive Officer

Chris, I'll follow up and get that back to you after the call if that works?

Christopher Mandeville -- Jefferies Group LLC -- Analyst

All right. No problem mate. Thanks guys.

Operator

Your next question comes from the line of Gregory Badishkanian of Citi.

Frederick Wightman -- Citigroup Global Markets -- Analyst

Hey guys, good morning. It's actually Fred Wightman on for Greg. I think you'd mentioned a slight -- some slight same-store sales growth in casual during the quarter. It sounds like at least a portion of that was due to promotional activity. How does that category feel to you today and historically what is that elevated level of activity meant for case growth in the category?

George Holm -- President and Chief Executive Officer

Yeah, this is George. I mean we certainly saw improvements. There was lot of promotional activity and it was heavy and I think we have a tough time commenting on that. First of all, obviously we're not going to comment on any individual customers, but it was a quarter where in aggregate we saw case growth at the same-store level, which we have not seen for a long time, but there were winners and losers and some did better than others. I would say all-in-all we're encouraged but we just don't know the level that was weather and the level that was just promotional activity.

Frederick Wightman -- Citigroup Global Markets -- Analyst

Okay. That make sense. And as far as inflation, it seems like you're expecting similar levels of inflation and maybe just a slight uptick going forward. Could you just sort of talk about the cadence of inflation you saw in the quarter and then if that has accelerated or changed in anyway into January?

George Holm -- President and Chief Executive Officer

No, we haven't seen much change. It was steady inflation and slightly over 1% is a pretty low degree of inflation in our business.

Frederick Wightman -- Citigroup Global Markets -- Analyst

Okay. Thanks.

Operator

Your next question comes from the line of John Heinbockel of Guggenheim Securities.

John Heinbockel -- Guggenheim Securities LLC Research -- Analyst

So George, what's the -- where do you stand now with thinking about on boarding new salespeople? The right run rate I think you've talked about probably in the 2% to 4% range and the quality of the people you're seeing now as other distributors struggle, right, with cost and maybe I don't know if you're seeing a higher quality candidate pool, but where do you sit with that and what do you think the right steady state the growth rate is?

George Holm -- President and Chief Executive Officer

I would say we would like to be more than that 2%, the higher end probably 4% is good for us. We find that if we're bringing too many on, it just kind of stresses our ability to train people. As far as the quality of them I would like to think that we're getting better at picking people. We find it our turnover is early typically pretty quick and if we keep them for much over a year, they tend to stay long term. I think it's tough for us to comment on the quality of people. We have been able to continually reduce our turnover rates. So I don't know if that points more toward just the selection process or what we're seeing in people.

John Heinbockel -- Guggenheim Securities LLC Research -- Analyst

And when you think about where industry demand sits and then that 6% to 10% target including the low-end would seem to be attainable, but do you think the high-end of that range in light of where demand, is that something that's really off the table if you're growing 3% or 4% sales percent growth?

George Holm -- President and Chief Executive Officer

Yeah. John, I think we need some help from the industry if we're going to get more toward the high-end of that range. And what we continue to see today is that within our what we call existing business where we've sold the account last year we've sold the account this year, we continue to see that we are growing our line items faster than we're growing our cases which is probably not the most sophisticated way to look at same-store sales growth, but what we do see to is that products that we sold to them both years they tend to be using a little bit less of it than they did a year ago. So we need some help that kind of that same-store sales growth to get to a higher part of that range.

John Heinbockel -- Guggenheim Securities LLC Research -- Analyst

Got it. And then maybe lastly for Jim. So on the working capital front where is the biggest opportunity, right? And maybe incising that is it a $100 million opportunity in total, is it more? What's the magnitude you think?

James Hope -- Executive Vice President and Chief Financial Officer

Yeah. John, I believe we have reasonable opportunity in multiple areas in working capital and we're going to attack it from several different angles. I don't really want to put a level of magnitude on it right now on the call, but certainly appreciate your question, but we believe it's an area that we can continue to work on. I don't see it is dramatic but I see it is helpful.

John Heinbockel -- Guggenheim Securities LLC Research -- Analyst

Okay. Thank you.

Operator

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

Judah Frommer -- Credit Suisse Ag -- Analyst

Good morning guys. Maybe just go back to the EBITDA growth for a second. It sounds like you had anticipated sequential improvement throughout the year and kind of total company EBITDA growth by the out-performance at Vistar this quarter maybe changed that a little bit. Is there anything within Vistar that happened in Q2 that we can view as one-time or particular benefit for this quarter in any of the subcategories you called out?

George Holm -- President and Chief Executive Officer

Well, a year ago -- this is George. A year ago -- a little over a year ago, as we started to get the projection of what the numbers are going to be like in theater, it became quite evident that it would be acquisition that we had made where we were continuing to provide service from the acquisition that we were going to have some capacity issues. So we moved that business earlier than we had planned to move it so that we are prepared for Star Wars in December. So we had some expense last year where we were training in Q2 these employees to get them ready into Vistar facilities while we were continuing to pay the same for that business done out of the acquisition buildings and then we had some severance to deal with. So I would state and these are very hard to figure, but I would say that we probably had a decent amount of expense last year that was non-recurring expense. So as we get to now we only have one of those facilities left from that acquisition. So we're operating out of less buildings and we're operating without having an excessive amount of people in training. So yes, we definitely had easier comparisons in the second quarter of last year in Vistar than we typically would. We don't have the ability to quantify that because we're moving so much business around.

Judah Frommer -- Credit Suisse Ag -- Analyst

Okay, that's helpful. And maybe jumping over to your first share repo, maybe ever. How should we think about kind of share repurchases versus M&A. You sound a little bit more positive on M&A opportunities within Vistar. Obviously, you guys have talked about an expensive deal that may close any quarter now, but on the Foodservice side how are things looking over there?

George Holm -- President and Chief Executive Officer

Yeah. I'll comment on that and then I'll turn it over to Jim for the share repurchase program. We've always been very opportunistic with acquisitions and we've always been aggressively trying to find the right acquisitions, but we're also always concerned about the multiple that we pay for them and we are as concerned today as we have ever been. We do see some opportunities in Vistar, in Performance Foodservice we certainly have a several conversations that are going on. I would say that today there is a higher level of confidence around our ability to close an acquisition or two in the Vistar world than there is in our Performance Foodservice world.

James Hope -- Executive Vice President and Chief Financial Officer

Yeah. And talking about capital deployment in a way and your share repurchase question. The way to think about how we deploy capital is, well, we'll invest in the business, we'll take capital expenditures for expansions in the PFS division in Vistar, a Foodservice division in Vistar, M&A and then the share repurchase program certainly comes at the end of that. We'll also be working hard to pay down debt. I would not think of the share repurchase program as something significant. It is a small way to return capital to our shareholders.

Judah Frommer -- Credit Suisse Ag -- Analyst

Great. Thanks.

Operator

Your next question comes from the line of Vincent Sinisi of Morgan Stanley.

Vincent Sinisi -- Morgan Stanley Research -- Analyst

Hey, terrific. Good morning guys. Thanks very much for taking my question. So just wanted to go back just once again due to the sequential comment and just thinking about the back half of the year. As you mentioned, you are are hopeful that the independent growth that everyone of course is focused on gets back within your 6% to 10% range by the end of the year, but is it safe to say that obviously given the solid quarter with it below those levels though today that kind of the back of the year you're expecting some improvement, but maybe not necessarily kind of baking that meaningfully into the 6% to 10% range in the back half?

George Holm -- President and Chief Executive Officer

Well, the way I would characterize that is that we are very encouraged with our growth. Like I said we're trying not to get too excited about January. But certainly for today, we're not dependent on growing our independent business any better than we are today to hit our guidance as far as EPS and EBITDA growth.

Vincent Sinisi -- Morgan Stanley Research -- Analyst

Okay, perfect George. Thank you. And then just on M&A front, so clear that in terms of multiples and opportunities Vistar over Foodservice is more of an opportunity today, but maybe can you just give us a little bit of a more of a high-level backdrop in terms of the types of entities that are within Vistar? Is there anything given that you have the majority of share in your market, like is there anything super-needle moving or is it just more kind of either new channels or rounding out? Just give us a little sense there, that'll be helpful?

George Holm -- President and Chief Executive Officer

If you just look where candy is important, you look our snacks where important and you look where beverage is improvement particularly specialty beverage. That's where we want to play and we're in a significant number of those channels, but there are large channels within that that we're not in. So we're always looking to be in basically every channel where that is important and it's just no more complicated than that.

Vincent Sinisi -- Morgan Stanley Research -- Analyst

Okay. All right. We look forward to hearing more. Good luck guys.

George Holm -- President and Chief Executive Officer

Thanks.

Operator

Our next question comes from the line of Kelly Bania of BMO Capital.

Kelly Bania -- BMO Capital Markets -- Analyst

Hi good morning. Thanks for taking my questions. I guess I'll throw in another question there on Vistar given the strong performance there. I am just curious if you kind of step back why you don't see more competition in this segment and what are the barriers to entry given how strong this continues to perform? Just curious maybe what sort of protects this business long-term from new entrants and maybe you can also talk about the minimum drop sizes that tend to occur in this segment and also related to Vistar maybe just update us on your dollar-store business? What kind of visibility you have into the contracts and the terms there? Thanks so much.

George Holm -- President and Chief Executive Officer

Well, first of all, as far as competition, we play in many different channels and we have competition in every channel that we are in and some are stronger than others. Some of the areas of business we're in we have significant strong competition, but I just feel that we have such a assortment of product because we do hit so many channels and when you have distribution centers that have 7,000, 8,000 SKUs and it's very narrow product base, I think it makes pretty difficult to deal with. As far as drop size, that couldn't vary more than it does. We go everywhere from having a significant amount of business that we deliver on 52-foot trailers and we have a significant amount of business where the orders are small to the extent that we have that delivered to FedEx or UPS. So it's the whole gamut. And that's one of the reasons why you're seeing some fairly heavy increase in expenses and as far as expense ratio and some nice increases in margin as well. Our growth has tended to come from higher margin parts of the business that are also higher cost to serve and we just want to continue to be able to service a customer all the way from somebody that needs a couple of boxes to somebody that needs a quarter of a truckload. As far as kind of drop size minimums, we don't really think in those terms. We just want to make sure that we're servicing real well and that the orders are profitable. As far as dollar stores go, it's a very active channel for us today. We have a lot of conversations going on. It's continuing to be a good growth area for us. We have a very large anchored customer who does a great job and we feel we have a good relationship with and we just look at it as a channel that we should be able to continue to grow.

Kelly Bania -- BMO Capital Markets -- Analyst

Okay, thanks. That's very helpful. And then you brought up Roma. I guess maybe just curious if you can you give us some update on how Roma is doing and I would think that cheese is a big component of that business and it's been deflationary for a while? Just to curious how that impacts it? And if you're seeing any different trends developing with your Roma customers just given the advent of more and more delivery options outside of what historically maybe was mostly your pizza category?

George Holm -- President and Chief Executive Officer

Yeah. Roma does extremely well. Roma grows every year. Cheese is a big part of our business and cheese grows for us every year. We are probably getting some benefit for some of the third-party delivery people who are out there since our customer base is primarily not heavy delivery. That tends to be more of the change that are fairly dominant there, but Roma is just a great business, it's a great brand and we feel very good about it.

Kelly Bania -- BMO Capital Markets -- Analyst

Thank you.

Operator

You're next question comes from the line of Andrew Wolf of Loop Capital Markets.

Andrew Wolf -- Loop Capital Markets -- Analyst

Hi good morning. On Vistar, George you noted somewhat easy comparison on the expense side, we went through that. Could you give us an update on the Memphis facility, the automated facility how it's doing its operational metrics? What the outlook is there for automation?

George Holm -- President and Chief Executive Officer

Although a rough start, it's doing extremely well and it's given us the confidence to where we're going to be doing a second facility that will be automated probably to a higher level of automation than the existing one and we've secured that property and we are moving forward.

Andrew Wolf -- Loop Capital Markets -- Analyst

Is that something that can lower the cost structure? I think originally you are planning to do internationally within five years or something a few years ago?

George Holm -- President and Chief Executive Officer

Yes. And we still have that plan. Actually we would like to do it in much less than five years. As far as lowering our cost structure I think it's how you look at it. Not necessarily lower the expense ratios for Vistar as a company, but it will lower our cost to operate in a pick and pack environment. It is still a higher cost of serve than most of our other channels within Vistar.

Andrew Wolf -- Loop Capital Markets -- Analyst

Okay. So you basically -- it helps the mix and you can get a better mix and get better unit profitability through pick and pack?

George Holm -- President and Chief Executive Officer

That's correct.

Andrew Wolf -- Loop Capital Markets -- Analyst

I wanted to ask on Vistar on the sales side. I was particularly surprised that theater accelerated because of the tough comparison you mentioned with Star Wars last year. Was that candy and stuff like that or is it more kind of what you're doing with some of the chains to help them serve food at the theaters prepared food?

George Holm -- President and Chief Executive Officer

Well, December was a tough month. Those were very tough comparisons. We are continuing to penetrate discounts a little bit better, not so much with picking up business that a competitor has but just getting them to add to what their offering is and we've got some tough comparisons coming up here in the month of February where last year it was a little bit more vibrant from a product standpoint, but it's just a good channel and we continue to do well with it. We've got good customers and our people are always looking for those opportunities to expand the product offering.

Andrew Wolf -- Loop Capital Markets -- Analyst

Thanks. And just one question for me on Foodservice (inaudible) questions. Did topline Foodservice accelerated nicely with given the case growth and independents had to come from the chains and yet you had it sounds like pretty much on planned introduction in EBITDA. So should we take away from that the chain business that you're adding now is much more profitable than reasonably more profitable than have been in the past, either folks you're mixing out or folks you're bringing in?

George Holm -- President and Chief Executive Officer

Well, our mix didn't go as much to our benefit as it should and no piece of chain business ever is at a level of profitability that's going to help your ratio I guess of EBITDA to sales, but within our independent category we did well with margin and also our average case costs we did really well in the more expensive case areas. So that also was a big help. So it's more of that and then them getting a real help, significant help to the bottom line from chain business.

Andrew Wolf -- Loop Capital Markets -- Analyst

Okay. Thank you. I appreciate it.

Operator

Your next question comes from the line of Bryan Hunt of Wells Fargo Securities.

Bryan Hunt -- Wells Fargo Securities -- Analyst

Thank you for your time. I was wondering if you can talk about with the robust growth really across all three of your businesses or at least marginal same-store sales growth on your chain business. Where do you stand with capacity utilization across the businesses and where you might need to commit capital either to consolidate or expand capabilities?

George Holm -- President and Chief Executive Officer

Yes. So we have capacity to manage growth. However as I said earlier, we're going to continue to invest back in the business and we'll be looking at some planned expansions throughout the back half of this year and next year as well. So growth driving expansions is a part of this business in the industry and we think we do a very disciplined job of managing through that.

Bryan Hunt -- Wells Fargo Securities -- Analyst

And from a regional perspective, can you give us an idea where you are maybe capacity constraint or bumping up against your capabilities?

George Holm -- President and Chief Executive Officer

No. I'd prefer not to talk about specific regions on the call, but I can tell you every area is important to us as you can imagine and we're going to pay close attention to all of them.

Bryan Hunt -- Wells Fargo Securities -- Analyst

All right. And then looking at CapEx, your guidance for the year, is there any way you can parse-out what's maintenance and what's growth as well as what's your hurdle rates are for growth CapEx? And that's it from me. Best of luck.

George Holm -- President and Chief Executive Officer

Thank you. Yeah. Look, I'd say the vast majority of CapEx is expansion and facilities and then there is certainly a good degree of maintenance capital and technology as well and those investments go across both the Foodservice and broad line area as well as Vistar and no, I wouldn't talk about our hurdle rates here, but I would tell you that we do a very disciplined job of studying and quantifying the value we'll get by investing every dollar of shareholders money.

Bryan Hunt -- Wells Fargo Securities -- Analyst

Thank you, George.

Operator

Your next question comes from the line of Bob Summers of Buckingham.

Robert Summers -- Buckingham Research Group Incorporated -- Analyst

Hi, good morning guys. So I just wanted to dig back into the Foodservice investment in people and you talked about how it's paying dividends by leveraging it further. I think investors have an expectation about what the (inaudible) case line growth might look like. You probably have your own expectation that you won't share, but with that in mind can you tell us maybe what percent of the opportunities you've captured from bringing these people on-board and just trying to frame it on how we get back to at least 6% in independent case line growth?

George Holm -- President and Chief Executive Officer

Well, I think that's a hard number for us to come up with and you bring people along, you do move a certain amount of business to people to enjoy some success of writing orders and I think it gets pretty jumbled up. What we found is that if we hire good people and train them well and give them some business to start and they'll perform well for us, in particularly if they have relationships and they come off of a one-year no compete and they can utilize those relationships they tend to even do a little bit better and we talk about our investments it wasn't just in sales people. There were parts of the country where we made increases in compensation to drivers and to warehouse people where we felt that we needed to do that and in some of those areas we've got some nice increases in productivity by doing that, some we didn't. But that's equally is important for us because of providing good service today is really harder than it has been in the past and that's really more what we were referring to as far as investments that we made. It's more in investments in warehouse people and drivers.

Robert Summers -- Buckingham Research Group Incorporated -- Analyst

Okay. And then you've talked about the importance of March. Just frame it for us the later Easter, does that have any impact?

George Holm -- President and Chief Executive Officer

It probably helps us in the south a lot of people that go south for the winter tend to come back in time for Easter. I don't think all-in-all it really affects much of anything. It just makes your sales growth a little more volatile week-to-week, but I don't think it's really very impactful weather is impactful.

Robert Summers -- Buckingham Research Group Incorporated -- Analyst

Okay, thank you.

Operator

Today's last question will come from the line of Karen Holthouse of Goldman Sachs.

Alex Scott -- Goldman Sachs & Co. -- Analyst

Hi, this is Alex on for Karen. Thank you for taking the question. Just one small question. Have you seen any disruption in sales trend during the government shutdown particularly in the DC area?

George Holm -- President and Chief Executive Officer

We did not really see much of a change. No.

Alex Scott -- Goldman Sachs & Co. -- Analyst

Great. Thank you.

Operator

Thank you. I'll now turn the call to Michael Neese for any additional or closing comments.

Michael Neese -- Vice President, Investor Relations

Thank you for your time today. We look forward to seeing everyone at the CAGNY conference down in Boca. We are going to present at 4 O'clock on February 19th and we look forward to having down there. Have a great day. Thank you.

Operator

Thank you. That does conclude today's conference call. You may now disconnect.

Duration: 56 minutes

Call participants:

Michael Neese -- Vice President, Investor Relations

George Holm -- President and Chief Executive Officer

James Hope -- Executive Vice President and Chief Financial Officer

Edward Kelly -- Wells Fargo & Company -- Analyst

Karen Short -- Barclays PLC -- Analyst

Christopher Mandeville -- Jefferies Group LLC -- Analyst

Frederick Wightman -- Citigroup Global Markets -- Analyst

John Heinbockel -- Guggenheim Securities LLC Research -- Analyst

Judah Frommer -- Credit Suisse Ag -- Analyst

Vincent Sinisi -- Morgan Stanley Research -- Analyst

Kelly Bania -- BMO Capital Markets -- Analyst

Andrew Wolf -- Loop Capital Markets -- Analyst

Bryan Hunt -- Wells Fargo Securities -- Analyst

Robert Summers -- Buckingham Research Group Incorporated -- Analyst

Alex Scott -- Goldman Sachs & Co. -- Analyst

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