US Foods Q2 2026 Earnings Report

US Foods EPS Results

• Actual EPS: $1.44
• Consensus EPS: $1.36
• Beat/Miss: Beat by +$0.08
• One Year Ago EPS: $1.19

US Foods Revenue Results

• Actual Revenue: $10.53 billion
• Expected Revenue: $10.46 billion
• Beat/Miss: Beat by +$68.66 million
• YoY Revenue Growth: +4.50%

US Foods Announcement Details

• Quarter: Q2 2026
• Date: 8/6/2026
• Time: Before Market Opens
• Conference Call Date: Thursday, August 6, 2026
• Conference Call Time: 9:00AM ET

US Foods (NYSE:USFD) is a foodservice distributor serving restaurants, healthcare facilities, hospitality businesses, schools, government institutions and other commercial customers across the United States. Through its distribution network, the company supplies a broad range of food and related products, including fresh produce, meat, seafood, dairy, frozen foods, grocery items, beverages and prepared foods.

In addition to food distribution, US Foods provides nonfood products such as kitchen and serving supplies, disposables, cleaning products and equipment. The company also offers menu development, culinary support, purchasing assistance and technology-enabled ordering and business management tools designed to help customers operate more efficiently.

US Foods traces its history to the mid-19th century and has grown through the development and combination of several foodservice businesses. The company adopted the US Foods name in 2011 and became a publicly traded company on the New York Stock Exchange in 2016. US Foods is headquartered in Rosemont, Illinois, and its operations primarily serve customers throughout the United States. Pietro Satriano serves as the company’s chief executive officer.

US Foods Q2 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: US Foods reported strong second-quarter results, with net sales up 4.5% to $10.5 billion, adjusted EBITDA up 10.2% to a record $604 million, and adjusted diluted EPS up 21% to $1.44. Adjusted EBITDA margin expanded 29 basis points to a record 5.7%.
• Positive Sentiment: Independent restaurant case volume accelerated 5.1%, supported by the strongest net-new-account generation in three years, while healthcare and hospitality volumes grew 3.5% and 4.4%, respectively. The company said it gained share with independent restaurants for the 21st consecutive quarter and healthcare for the 23rd.
• Positive Sentiment: Pronto sales are expected to reach approximately $1.3 billion in 2026, and US Foods raised its 2027 sales outlook for the program to more than $1.7 billion from $1.5 billion previously. Management also cited early encouraging behavior from the new sales compensation plan, though the full impact may take two to three years.
• Positive Sentiment: Self-help initiatives continued to support margins, including more than $50 million of cost-of-goods savings in the first half and over $20 million of incremental indirect procurement savings year to date. The company is also expanding AI applications in sales, forecasting, labor planning, routing, and inventory management to improve productivity and service.
• Neutral Sentiment: US Foods reaffirmed its 2026 guidance for 4%–6% net sales growth, 9%–13% adjusted EBITDA growth, 18%–24% adjusted EPS growth, and 2.5%–4.5% total case volume growth. Management continues to cite industry traffic, inflation, and fuel prices as key variables, while noting that higher sales-force costs will remain elevated for the next couple of quarters.

Presentation

[Operator]

Good morning. Welcome to US Foods' second quarter 2026 earnings conference call. At this time, all participants have been placed in a listen-only mode. A question and answer session will follow the speaker's prepared remarks. In order to ask a question, please press star followed by the number one at any time. We ask that you please limit yourself to one question and a follow-up. I will now turn the conference over to Mike Neese, Senior Vice President, Investor Relations. Please go ahead.

[Mike Neese, SVP of Investor Relations at US Foods]

Thank you. Good morning, everyone. Welcome to US Foods' second quarter fiscal 2026 earnings call. On today's call, we have Dave Flitman, Chair of the Board and CEO, and Dirk Locascio, our CFO. We will take your questions after our prepared remarks conclude. Please limit yourself to one question and one follow-up. Our earnings release issued earlier this morning and today's presentation can be found on the Investor Relations page of our website at ir.usfoods.com. During today's call, unless otherwise stated, we're comparing our second quarter fiscal 2026 results to the same period in fiscal year 2025. In addition to historical information, certain statements made during today's call are considered forward-looking statements. Please review the risk factors in our Form 10-K for a detailed discussion of the potential factors that could cause our actual results to differ materially from those anticipated in forward-looking statements.

[Mike Neese, SVP of Investor Relations at US Foods]

Lastly, during today's call, we will refer to certain non-GAAP financial measures. All reconciliations to the most comparable GAAP financial measures are included in the schedules on our earnings press release, as well as in the presentation slides posted on our website. We are not providing reconciliations to forward-looking non-GAAP financial measures. Thank you. I'd like to turn the call over to Dave.

[Dave Flitman, Chair of the Board and CEO at US Foods]

Thanks, Mike. Good morning, everyone. Thank you for joining us. Before we begin, our thoughts are with our associates, customers, and communities impacted by the devastating wildfires in Spokane, Washington. While our operating facilities were thankfully not impacted, we have three associates who tragically lost all or a portion of their homes. The US Foods family is rallying to support them, our customers, the affected communities, and the brave firefighters and first responders serving on the front lines. At the same time, we remain focused on the safety of our associates while actively supporting our customers through our business continuity plans. With that, let me turn to our second quarter performance. Starting on slide three, we delivered a strong quarter with record adjusted EBITDA and adjusted EBITDA margin and another quarter of double-digit adjusted EPS growth.

[Dave Flitman, Chair of the Board and CEO at US Foods]

Importantly, independent restaurant case growth of 5.1% was the strongest since the fourth quarter of 2023 and marks our fifth consecutive quarter of acceleration despite persistent pressure on industry foot traffic. Additionally, healthcare grew 3.5% and hospitality grew 4.4%. We also gained share with our target customer types, marking our 21st consecutive quarter of share gains with independent restaurants and our 23rd consecutive quarter of share gains with healthcare. Within independent restaurants, our momentum is strengthening, supported by healthy new account growth and improved penetration with existing customers. This top-line momentum translated into strong financial performance. We grew adjusted EBITDA 10% and adjusted diluted EPS 21% through a combination of volume growth and 29 basis points of margin expansion to a record 5.7%.

[Dave Flitman, Chair of the Board and CEO at US Foods]

Our strong and accelerating cash flow generation provides substantial financial flexibility and, during the quarter, we invested in key growth initiatives while repurchasing more than $370 million of shares, underscoring our commitment to creating long-term shareholder value. Just as important as our financial results is how we are achieving them. Across the business, our teams are applying a continuous improvement mindset while leveraging investments in technology, including artificial intelligence, to raise customer service levels, improve productivity, and create a stronger foundation for sustainable long-term growth. These efforts are strengthening our competitive position and creating additional opportunities to deliver value. I'll provide more details on our AI capabilities a bit later. This quarter represents one of our strongest since I joined US Foods three and a half years ago.

[Dave Flitman, Chair of the Board and CEO at US Foods]

As we navigated a dynamic and volatile environment during the second quarter, our team stayed focused on controlling what we could control while acting decisively in response to what we could not. I am incredibly proud of our team for delivering these results through outstanding execution in what remains a challenging operating environment. As we look to the balance of 2026, we will remain grounded in disciplined execution and focused on the actions that will strengthen our business. We are also committed to further strengthening the competitive advantages that differentiate our business while delivering consistent volume growth, double-digit earnings growth, and long-term value creation for our shareholders. I thank our 30,000 associates for their unwavering commitment to delivering excellence in serving our customers and to pursuing our ambition to become the undisputed best in our industry. The strength of our team is what reinforces my confidence in our continued success.

[Dave Flitman, Chair of the Board and CEO at US Foods]

I'll now highlight the progress we made in the second quarter under each of our four strategic pillars. Dirk will then provide additional detail on our second quarter financial performance and full year guidance. Turning to slide four, our strong culture is a competitive differentiator. We remain focused on keeping our people safe, investing in their development, and building an empowered workforce that supports our long-term growth. Safety remains our top priority, and we are making meaningful progress in protecting our associates while strengthening our operations. In fact, we have improved our injury and accident rates by over 50% over the last three and a half years. Aiding this improvement is the deployment of approximately 2,500 center ride pallet jacks across our distribution network. Our rollout is now 87% complete, and we anticipate full deployment by the end of this year.

[Dave Flitman, Chair of the Board and CEO at US Foods]

This investment is reducing exposure to one of our most serious workplace hazards and reflects our ongoing commitment to providing a safer work environment for our associates. Where we have converted to center ride pallet jacks, the most serious injuries associated with this type of equipment have essentially been eliminated. Our commitment to building a strong culture also extends to talent acquisition and development. During the second quarter, we launched our VALOR campaign to advance our mission 2030 goal of hiring 3,000 military veterans by the end of the decade. Through VALOR, we are expanding our veteran recruiting efforts with a dedicated webpage, new strategic partnerships, and ongoing investments to recognize and support the more than 1,500 and growing number of veteran associates already contributing to our business.

[Dave Flitman, Chair of the Board and CEO at US Foods]

Veterans bring proven leadership, a strong work ethic, discipline, and teamwork to US Foods. We are honored to support those who have served while strengthening our workforce for the future. Our focus on people is also reflected in our recently published 2025 Sustainability Report, which highlights our progress across key focus areas and our commitment to building a stronger and more sustainable business. In 2025, we invested 1.2 million hours in training to build critical skills, develop leaders, and equip our teams to execute at a high level. I encourage you to read the report on our website to learn more about our sustainability journey and the initiatives we have underway across the business. Moving to slide five in our service pillar, we strive to deliver a best-in-class customer experience by continuously improving the consistency of our service reliability across our network.

[Dave Flitman, Chair of the Board and CEO at US Foods]

A key measure of that progress is Operations Quality Composite, or Ops QC, which tracks our ability to deliver accurate, error-free orders to customers. In the second quarter, Ops QC improved 13% compared to the prior year, and over the last two years, it has improved 37%, reflecting disciplined execution and ongoing improvement work in this important customer experience metric. Earlier this year, we began testing autonomous inventory scanning robotics in one of our warehouses, and the early results have been encouraging. We believe this technology will help to further improve inventory accuracy and warehouse efficiency. Based upon the results of the pilot, we plan to expand testing to six additional locations by year-end. Our focus on operating discipline is improving our efficiency and strengthening our customer value proposition by helping us deliver the reliable, consistent service our customers count on and deserve every day.

[Dave Flitman, Chair of the Board and CEO at US Foods]

Let's turn to our growth pillar on slide six. We are consistently accelerating profitable growth and gaining market share across our target customer types, highlighting the durability of our model during times of macro uncertainty. I'm very pleased with the progress we've made over the last five quarters in accelerating our independent restaurant case volume growth. Pronto, our small truck delivery service, is a key enabler of that growth and remains a powerful competitive differentiator. Through Pronto, we provide customers with greater convenience and flexibility, including later cutoff times, smaller order sizes, and more frequent deliveries. This opens up our addressable market by enabling us to compete more effectively with local and specialty distributors. We're expanding the reach of Pronto, which is now live in 52 markets.

[Dave Flitman, Chair of the Board and CEO at US Foods]

At the same time, Pronto Next Day, which extends the service to our existing independent customers, is now live in 35 markets with plans to add an additional eight markets this year. The overall Pronto program is growing at strong double-digit rates. After delivering $1 billion in sales in 2025, we estimate Pronto will deliver approximately $1.3 billion in sales this year. Based on our recent success, we now believe Pronto can generate more than $1.7 billion in sales in 2027, up from our prior estimate of $1.5 billion. Moving now to our sales compensation change. Our new seller compensation plan successfully went live across the company in June, an important milestone to further align our sales force incentives with our business strategy and long-term growth objectives.

[Dave Flitman, Chair of the Board and CEO at US Foods]

Early results are very encouraging. We are already seeing positive indicators in seller engagement that are consistent with our strategy and key growth priorities. Sellers understand how to maximize their earnings, have confidence in the plan and their leaders, and are moving quickly to align their actions and behaviors in ways that will accelerate long-term profitable growth. Year-over-year attrition remains flat, which we believe reflects our robust investment in seller training, sales leader preparation, and clear ongoing communication and support over the last year and throughout implementation. As we have previously discussed, we've taken a very thoughtful approach to this transition. It may take two to three years for the majority of our local sales force to fully transition to 100% variable compensation. Together, Pronto and our seller compensation change underscore our confidence in our ability to accelerate profitable growth and drive further share gains with independent restaurants.

[Dave Flitman, Chair of the Board and CEO at US Foods]

Our healthcare and hospitality businesses, which represent over 25% of total sales, continue to deliver strong performance. Backed by a strong pipeline and the success of our VITALS and SIGNATURE programs, we see meaningful opportunities to drive growth through the remainder of 2026 and into the years ahead. Let's move to our profit pillar on slide seven. Our disciplined execution and self-help initiatives drove another quarter of profitable growth and margin expansion. Adjusted EBITDA grew over 10% to a record $604 million. EBITA margin expanded by 29 basis points to a record 5.7%. Strategic Vendor Management remains a key contributor to margin expansion and a clear example of our self-help initiatives delivering measurable value.

[Dave Flitman, Chair of the Board and CEO at US Foods]

During the first half of the year, we generated more than $50 million in additional cost of goods savings. We are highly confident in our ability to deliver more than $300 million over the three-year long range plan ending in 2027. We are also driving measurable value from our initiatives in inventory management and indirect spend. For inventory management, we expect to generate an additional $10 million of gross profit benefit in 2026, building on the $35 million realized last year. This work is also improving in-stock performance, product quality, and service levels for our customers. In the area of indirect spend, we completed the baseline deployment of our new indirect procurement system during the first half of this year, creating a stronger platform to capture additional savings.

[Dave Flitman, Chair of the Board and CEO at US Foods]

Year to date, we generated more than $20 million in incremental savings, and we expect this initiative to deliver more than $75 million of benefit this year. We remain on track for over $100 million of savings in 2027. Next on slide eight, I'll highlight the ways we are leveraging AI to further widen our competitive moat. AI is embedded in the way we serve our customers, enable our sales force, optimize our supply chain, and manage core enterprise functions. Our approach remains focused on deploying AI against the highest return opportunities and tying those initiatives to measurable business outcomes. A key area of focus is sales force productivity. Visit Assistant Insights is an internally developed AI-enabled tool that provides sellers with customer-specific insights to identify priority opportunities, improve sales call preparation, and make those visits more productive.

[Dave Flitman, Chair of the Board and CEO at US Foods]

By streamlining the preparation work that sellers would otherwise do on their own, Visit Assistant allows them to spend more time engaging with customers. In the first six weeks, the tool delivered more than 700,000 actionable insights to our sellers across the independent restaurant accounts. As the AI model continues to learn and scale, we expect these insights to become increasingly valuable, supporting stronger sales execution, deeper customer engagement, and sustained growth over time. In parallel, we're piloting our AI sales assistant, known internally as Sue AI Assistant, which is a generative AI-powered chatbot that enables sellers to ask questions and receive real-time answers, insights, and recommendations directly within their daily workflow. We are also applying AI across our supply chain. AI-driven product demand forecasting, labor planning, and Descartes routing are helping improve service and productivity while reducing working capital.

[Dave Flitman, Chair of the Board and CEO at US Foods]

Better forecasting supports stronger in-stock performance and less waste, while more efficient routing enables better delivery execution and fewer miles driven. When we talk about AI, we are talking about practical capabilities embedded in our core business processes that are already improving how we operate. While we are still in the early innings, we see meaningful opportunities to deepen our differentiation, accelerate volume growth, and improve our supply chain productivity. Of course, technology and stronger processes only create value when paired with talented associates who bring them to life every day. I saw that firsthand at my third annual CEO award ceremony, where we celebrate associates who ignited excellence across US Foods while exemplifying our cultural beliefs. One of those outstanding associates was Lori Mericle, who is the manager of Inventory Control in Tampa and received a CEO award.

[Dave Flitman, Chair of the Board and CEO at US Foods]

Lori and her team streamlined South Florida's inventory tracking efforts by getting to the root cause of over-shipment occurrences and building a new system for tracking inventory discrepancies that enabled real-time selector coaching to stop future errors. Her work optimized product recovery, reduced excess stock, and improved receiving accuracy, generating $4 million in annual inventory adjustment savings in her area. Her processes have been scaled company-wide and are now used across all markets. Thank you, Lori, for your commitment to embracing our cultural beliefs of deliver excellence and stop waste to drive meaningful cost savings. With that, let me now turn the call over to Dirk to discuss our second quarter financial performance and 2026 guidance.

[Dirk Locascio, CFO at US Foods]

Thank you, Dave, and good morning, everyone. Our second quarter results demonstrate the financial benefits of disciplined execution, continued progress on our self-help initiatives, and effective capital allocation. We delivered profitable volume growth, expanded adjusted EBITDA margin to a record level, and generated adjusted diluted EPS growth that significantly outpaced adjusted EBITDA growth. Starting on slide 10 with our financial results. Second quarter net sales increased 4.5% to $10.5 billion from total case volume growth of 1.9%, plus food cost inflation and mix impact of 2.6%. Total and independent restaurant case growth both accelerated this quarter. Independent restaurant volume grew 5.1%, while healthcare increased 3.5% and hospitality grew 4.4%. Chain restaurant volume declined 1.5%, 30 basis points better than industry traffic, as reported by Black Box.

[Dirk Locascio, CFO at US Foods]

Turning to profitability, second quarter adjusted EBITDA grew 10.2% to a record $604 million, driven by volume growth with our target customer types and progress on our continuous improvement efforts to increase gross profit and enhance operational efficiency. Finally, adjusted diluted EPS increased 21% to $1.44, meaningfully outpacing adjusted EBITDA growth. We expect adjusted EPS to grow faster than adjusted EBITDA over time, as it has for the past several years, supported by earnings growth and the disciplined deployment of our strong cash flow towards share repurchases. Turning to slide 11. We again drove operating leverage with adjusted gross profit per case growing faster than adjusted operating expenses per case and resulting in strong adjusted EBITDA per case growth.

[Dirk Locascio, CFO at US Foods]

Adjusted gross profit per case increased $0.41, or 5% compared to the prior year, supported by profitable volume growth and our self-help initiatives, including strategic vendor management and improved inventory management. Adjusted gross profit per case was higher this quarter, primarily due to timing of strategic vendor management gains and higher customer fuel surcharges to offset the higher fuel expense we incurred. Adjusted operating expenses per case increased $0.21, or 3.7%. We continue to offset a portion of operating cost inflation through productivity improvements across the business, including warehouse productivity gains, process standardization, labor planning, and disciplined expense management. Our adjusted operating expenses were also higher this quarter, with roughly a 1/3 of the increase versus prior year from higher fuel costs, combined with the higher sales costs related to the compensation plan transition. As a result, adjusted EBITDA per case increased $0.21, or 8.3%, to $2.73.

[Dirk Locascio, CFO at US Foods]

Importantly, adjusted gross profit per case grew 130 basis points faster than adjusted operating expenses per case, demonstrating our consistent ability to drive operating leverage through profitable growth and disciplined cost management. As you can see on slide 12, our strong cash flow generation and balance sheet provide significant flexibility and support our balanced capital allocation priorities. Year-to-date, we generated $725 million of operating cash flow from strong earnings and effective working capital management. This performance enables us to invest in the business to drive growth, return capital to shareholders through share repurchases, and pursue accretive tuck-in M&A. During the second quarter, we repurchased $374 million of shares, bringing year-to-date repurchases to approximately $500 million. We ended the quarter with net leverage of 2.6x, well within our 2x-3x target range, and our leverage profile remains among the strongest in the industry.

[Dirk Locascio, CFO at US Foods]

We successfully refinanced our ABL facility during the quarter, extending the maturity to 2031 and modestly increasing the size of the facility to $2.5 billion. Our debt structure is strong, and we have no long-term debt maturities until 2028. Together, our cash flow generation, disciplined capital allocation, and industry-leading leverage position demonstrate the financial strength of our business and support further investment in our growth. Turning to our guidance on slide 13. Given our year-to-date performance and outlook for the balance of the year, we are reaffirming our fiscal year 2026 guidance. We expect net sales growth of 4%-6%, adjusted EBITDA growth of 9%-13%, and adjusted EPS growth of 18%-24%, driven by total case volume growth of 2.5%-4.5%.

[Dirk Locascio, CFO at US Foods]

As a reminder, our full year guidance includes the impact of a 53rd week, which we expect to add approximately 1% to total case growth and adjusted EBITDA growth. While there is a range of potential outcomes depending on how macro conditions evolve, including restaurant industry traffic, inflation, and fuel prices, the midpoint of our guidance represents our best estimate for 2026, and we are confident in our ability to deliver within our reaffirmed guidance range. The business is positioned for consistent double-digit adjusted EPS growth over time as we focus on achieving our long range plan. I'll now pass it back to Dave for his closing remarks.

[Dave Flitman, Chair of the Board and CEO at US Foods]

Thanks, Dirk. Reflecting on the second quarter, I am encouraged by the strength of our performance and the momentum we are building across the business. We are gaining profitable share and strengthening our competitive position because our model is working, supported by greater alignment throughout our sales force, growth initiatives like Pronto, and continued productivity improvements, all increasingly enabled through the application of AI. Our strong cash flow and balance sheet provide significant flexibility to invest in growth, return capital to shareholders, and pursue accretive tuck-in acquisitions that strengthen our local market presence. I have never been more confident in our ability to deliver our long range plan and sustain our momentum well beyond next year. That confidence is grounded in the quality of our team and the durable competitive advantages that we continue to strengthen.

[Dave Flitman, Chair of the Board and CEO at US Foods]

US Foods maintains a unique position in the industry as the only pure play U.S.-focused food service distributor with national scale. That focus allows us to go deep on broad line distribution and concentrate our resources on the three fastest-growing and most profitable customer types in the industry, independent restaurants, healthcare, and hospitality. For our differentiated service model, digital capabilities, and track record of share gains position us to win in any environment. We are also the industry leader in digital innovation with an ecosystem increasingly enhanced by AI that makes it easier for customers to do business with us, improves seller productivity, and strengthens our supply chain. We continue to advance our operational excellence initiatives and see a meaningful opportunity to gain further share, improve productivity, and expand margins over the long term.

[Dave Flitman, Chair of the Board and CEO at US Foods]

We are also just beginning to unlock the benefits of AI and automation, which we believe will further enhance the customer experience, drive efficiencies across our operations, and support profitable growth for years to come. Let me close with one final point highlighted on slide 14. Since 2023, we have consistently delivered volume growth and double-digit adjusted EPS growth, creating meaningful shareholder returns through the combination of compounded earnings growth and accretive share repurchases. Importantly, our earnings growth over that period has significantly outpaced our foodservice distribution peers, industrial distributors, and consumer staples companies. Yet, we do not believe our current valuation fully recognizes our track record of execution, sustained margin expansion, disciplined capital allocation, and the substantial runway we see for continued earnings growth and shareholder value creation. Our strategy is working. Our strong execution is delivering results, and our competitive position continues to strengthen.

[Dave Flitman, Chair of the Board and CEO at US Foods]

We are building a more differentiated, profitable, and durable US Foods, and I am confident in our ability to create compelling long-term value for our associates, customers, suppliers, and shareholders. Thank you for your continued interest in US Foods. With that, operator, please open up the line for questions.

[Operator]

Thank you. We will now conduct the question and answer portion of today's conference call. As a reminder, to ask a question, please press star followed by the number one. Once again, please limit yourself to one question and a follow-up. Our first question is coming from Lauren Silverman with Deutsche Bank. Please go ahead.

[Lauren Silverman, Analyst at Deutsche Bank]

Hey, thanks so much. Congrats on the great quarter. I guess I'll just start on the independent case growth, real strong, I think best in over two years. Can you talk about the cadence you saw throughout the quarter? Given traffic has been pretty steady in the industry, it seems like you're accelerating your pace of share gains there. What's driving that? As the sales compensation transition happens, do you think you can help further accelerate share gains over the next few years?

[Dave Flitman, Chair of the Board and CEO at US Foods]

Good morning, Lauren. Thanks for the question. I think we saw a fairly consistent case growth throughout the quarter. Feel really good to your point, the strongest since second quarter of 2023. Lots of good momentum consistent with what we've been accelerating over the past four or five quarters here. Feel really good about that. At the heart of it is our net new account generation, which has always been the lifeblood of our growth. Our teams have really focused on that over the past couple of years, and you're seeing that continue to gain traction. I'm really confident that we're going to continue to lean into independents and expect that volume to continue to accelerate. Importantly, the sales comp change will be a long-term growth driver. Really pleased with the start up here.

[Dave Flitman, Chair of the Board and CEO at US Foods]

I think Randy Taylor and the team have been working on that for a year and a half. Did a really good job of leading up to the implementation here in June. Pleased with the start. That will definitely impact our growth going forward. As I said, it's going to take a while to get everybody up to that full commission rate. Our early returns are exciting. Importantly, our turnover remained flat, as I said in the prepared remarks. We're off to the races and excited about the future.

[Lauren Silverman, Analyst at Deutsche Bank]

Great. You guys originally guided in Q2 to mid-single or upper single digit, I believe, EBITDA growth. You beat that with 10% despite elevated fuel. What drove the upside relative to your expectations? Dirk, what are you embedding for fuel costs in the back half of the year?

[Dirk Locascio, CFO at US Foods]

Good morning, Lauren. There's a couple of main things that drove the beat. One is our fuel recovery was higher and better than we expected. We expected, as we commented before, about a 2% headwind from fuel and ended up being less than half of that. It really relates to just the discipline and making sure that we were enforcing the surcharges that we have. Also with fuel getting to higher levels, some of the surcharges for some of our larger customers that don't kick in until higher prices did go into effect. Our recovery rate, instead of our typical 30%, 40%, was more like 70% for the quarter. Pleased with the execution of the team there.

[Dirk Locascio, CFO at US Foods]

The second piece was some of the strategic vendor management negotiations and outcomes that we expected to be completed in the second half of the year were completed sooner. That team delivered some incremental value. Otherwise, the business performed largely as we expected. Our outlook for the year of the range and then my comments in there about the midpoint being our best estimate assumes fuel stays around where it's at currently. We feel very good about coming out of Q2, where we are, and the balance of the year, and thus the strong confidence in delivering the guidance.

[Operator]

Your next question comes from the line of Jacob Aiken-Phillips with Melius Research. Please go ahead.

[Sam Barton, Analyst at Melius Research]

Good morning. Thanks so much for taking our question. This is Sam Barton for Jacob. You described the early results from the new sales compensation plan as encouraging. I'm just wondering if you could double-click on that a little bit. What behaviors or results specifically changed, if there's anything results-wise that you could provide for us? How do you distinguish the early impact of the compensation plan from the independent momentum that was already building before the rollout? Thanks.

[Dave Flitman, Chair of the Board and CEO at US Foods]

I think it's early to comment on a lot of that, but I would just say that the early behaviors that we've seen around growth, as you'll recall, we aligned specifically this compensation plan exactly with our strategy. Things around our brands, independent restaurants, growth, importantly incenting Pronto. We're starting to see some early returns and the focus that we like to see in those areas. It'll take a while for that to impact our growth in a big way. As I said, we just started this a month or so ago, and turnover's flat, our teams are excited, and we're starting to see good behaviors.

[Operator]

Your next question comes from the line of Alex Slagle with Jefferies. Please go ahead.

[Alex Slagle, Analyst at Jefferies]

Hey, thanks, and good morning. I wanted to ask on Pronto, the progress on the incremental investments you're making in the business this year and clearly seeing results on the top line. I'm just curious where you're seeing the most success, if there are certain markets or customer types that really stand out and really, how the team is managing this growth, managing the margins as they continue to accelerate the growth.

[Dave Flitman, Chair of the Board and CEO at US Foods]

Yeah. Good morning, Alex. Thanks for the question. Just as you'll recall, this is a multi-year journey around Pronto. We did a lot of piloting work first as we were applying the new model to just looking for new customers. We spent several years doing that, and it was only a couple of years ago that we actually started to pilot the work to our existing customers. Importantly, there were two pieces of work that we went slow to go fast around as we took it to our existing independent customers. That was exactly what you asked about, was will we maintain the margins and the profitability to support the incremental costs of that service? Then secondly, importantly, we just didn't want to cannibalize our existing broad line business and just shift those volumes over to smaller, more inefficient deliveries. We proved that.

[Dave Flitman, Chair of the Board and CEO at US Foods]

We're thoughtful as we take it into new markets to make sure that those two key pieces are performing as intended. What you've seen us do then over the past few quarters is start to accelerate that penetration across our existing markets with our existing customers because we are confident in the model. As I highlighted there, we're pleased with the performance last year. We're looking at $1.3 billion this year, and we expect that model to continue to drive growth for the future.

[Dirk Locascio, CFO at US Foods]

Just to add, Alex, that as you pointed out, the return on this investment is quite high and quite strong, and we see a long runway, a lot of years of growth here. We've got good partnership across my team, Randy's team, as we deploy more trucks into markets and being very thoughtful and, like Dave said, speeding up the pace of deployment, but not lose the pragmatic approach we have to achieving such good outcomes on volume growth and margin growth overall. There's nothing that we see that will slow our pace of investment in Pronto, and we continue to be as excited as ever on that.

[Alex Slagle, Analyst at Jefferies]

Great. A follow-up on the gross profit per case growth, which continues to be really strong, ramping year-over-year, and you explained the OpEx per case bump as well. I realize going into the third quarter, we're going to be lapping a bump from Food Fanatics. I think that event was last year. Just curious if that's a recurring event that you expect to be able to

[Alex Slagle, Analyst at Jefferies]

Sort of grow the gross profit per case on top of that and what the OpEx per case might look like, or if we should expect some sort of moderation.

[Dirk Locascio, CFO at US Foods]

Sure. The increase last year from the event in the third quarter has been spread throughout this year. This is not an every year event. You've seen the gross profit gains and the OpEx happening throughout the different quarters. You're right, you will see a slowing of increase in gross profit per case and OpEx per case in the third quarter. Our expectation is that we will still grow GP per case meaningfully in the quarter. Just expectation is not as strong as it's been. We feel very good about our ability to grow gross profit per case for the back half of the year and for a number of years to come because of the various initiatives we've talked about, two of which were mentioned today in strategic vendor management and the inventory adjustments work.

[Operator]

Your next question comes from the line of Edward Kelly with Wells Fargo. Please go ahead.

[Edward Kelly, Analyst at Wells Fargo]

Hi, good morning, guys. Great quarter.

[Dave Flitman, Chair of the Board and CEO at US Foods]

Morning.

[Edward Kelly, Analyst at Wells Fargo]

Dave, I wanted to follow up. You mentioned on independent case volumes that you expect this business to continue to accelerate. Curious, specifically what you saw in July. Then your compares do get harder in the back half of the year. I just want to parse out sort of that comment about acceleration.

[Dave Flitman, Chair of the Board and CEO at US Foods]

Yeah. Great question. Appreciate it, Ed. I would say largely July was consistent with what we saw in the second quarter, so maintained that momentum. My point around continued expectations, not only for the back half of this year, but going forward, when you combine the differentiation that we bring, the focus that we have on this segment, our continued ability to add high quality sellers to our team, and importantly, just the deep focus that we have, not only on generating new business, but also penetrating our existing customers, gives me the confidence that that momentum will continue. You overlay the sales comp change on top of that, and as I've said before, I believe that's going to be the key unlock for the future in this organization to accelerate growth. Couldn't feel better about the momentum and what the future looks like.

[Edward Kelly, Analyst at Wells Fargo]

Great. Just to follow up on the AI comments. Food service seems like a business where you could really generate some large benefits over time. You've been the tech leader, I think specifically as it relates to customer-facing stuff. How much of the opportunity here are you capturing so far? I think you've kind of said you're in the early innings. Then, if we zoom out, Dave, you've captured a lot of opportunity and upside from better sort of operational execution. Is the opportunity with the implementation of AI into the sales force and the supply chain as big as that over time? Just kind of curious as to how you're thinking about sizing, the size of the prize long term here.

[Dave Flitman, Chair of the Board and CEO at US Foods]

Yeah. We've been working on this for quite some time in very practical applications for the business. As we talked about there in the prepared remarks, it's touched supply chain, it's touched sales. You think about MOXÄ“ and some of the things that we've talked about over the last couple of years, anything from "Where's my truck?" to improving product recommendations for customers, "Did you forget something?" Last quarter, I believe we talked about our rollout of Menu IQ. All of these applications are AI-based and very practically oriented around our customer, making it easier to do business with us. Importantly, also our sales force productivity, because to the extent the customers are helping themselves more, it gives our sellers more time to go find the next customer and importantly, drive penetration. More recently, things like Visit Assistant that we talked about this morning.

[Dave Flitman, Chair of the Board and CEO at US Foods]

All AI-based, helping our salespeople just be more productive. You think about Descartes, which has AI embedded in it, and how we do our routing, the labor planning tools we've developed there, some back office work that we've got going on. While I believe that we're in the early innings, I do believe long term, there will potentially be some transformational opportunities as we apply this more broadly across the business. I think for the near term, what you can expect us to do is more of the same. All of this, I would point to helping to support our underlying performance and the strength of both our top-line and bottom-line growth that you guys have come to expect from us.

[Dirk Locascio, CFO at US Foods]

I think the other thing, when we talk about the early innings, is although I'm quite pleased with the progress that our team has made in the last few years of applying these and measuring the results where it's helped drive, whether it's additional case growth, improved working capital management and customer service levels and productivity. We know the pace of change in the models and the capabilities for AI is rapidly advancing. As we continue to take advantage of that's why we believe there's significant opportunity, and that will continue to be across growth in the customer experience as well as productivity.

[Operator]

Your next question comes from the line of John Heinbockel with Guggenheim. Please go ahead.

[John Heinbockel, Analyst at Guggenheim]

Dave, I want to start. I know that net account growth, right, is the biggest driver. Where do we stand now on drop size? I think we may be in positive territory. You think about penetration, right, versus cases per line. Maybe talk about that and between the AI and the change in compensation, can penetration, we've been sort of waiting for penetration for all you guys really to move. Do you think we're on the cusp of that, where that can be the biggest change in local case growth?

[Dave Flitman, Chair of the Board and CEO at US Foods]

Yeah. I do, John, actually, as I've commented the past few quarters, our penetration, while still pressured, has improved sequentially for several quarters in a row, including in the second quarter. That's continuing to show up based on all the good work that our teams are doing and some of the AI support that we've given our sellers. Importantly, lines per customer continues to improve consistent with that penetration. I think where you see the foot traffic pressure show up in penetration is those cases per line, which are still a little bit pressured and I think more reflective of the foot traffic challenges. The things that we look at to say whether we're winning or losing continue to move in the right direction and they have been for several quarters, and I expect that will continue.

[John Heinbockel, Analyst at Guggenheim]

Maybe switching gears, the 3%-5% productivity target, where are we within that? I think last we heard maybe it was between 3% and 4%. Where are we, when you think about differences between transportation and the warehouse, are there material differences today between those two buckets or no?

[Dirk Locascio, CFO at US Foods]

Morning, John. We're still in that 3%-4% range, depending on the year, warehouse or delivery can be a little higher or a little lower. Every year we have activities and technology enablements that support both of those, and I think that'll continue to be the case going forward. I think as we think about some of the tools, whether we talk about AI and/or continued just process improvements, that will benefit both of those. One thing that is, as when you were asking about same-store penetration, as the market stabilizes and those gets back to positive, that will help that, just broadly across the network as well.

[Operator]

Your next question comes from the line of Kelly Bania with BMO Capital Markets. Please go ahead.

[Kelly Bania, Analyst at BMO Capital Markets]

Hi, congrats on a great quarter. I was wondering if we could go back to just the independent case growth, obviously quite strong, accelerating. You mentioned penetration, also it sounds like maybe a little bit more from new account growth. Maybe you can clarify that. I'm curious if there's any behavior changes that you're maybe already starting to see from the sales force in advance of the comp changes or at the start of the comp change that are working to incentivize the behaviors that you'd like, and if that's kind of already maybe starting to come through as the sales force has been aware of that and prepared for some of these changes coming through, or if you feel like there's just more to come on that front.

[Dave Flitman, Chair of the Board and CEO at US Foods]

I'll take the first question first there. Really excited about the net new account generation. It's continued to accelerate for the past several quarters. In fact, this quarter, Kelly, our net new account generation was the strongest it's been in three years. Really good momentum there. It continues to be the lifeblood of our growth. As I commented earlier, we are starting to see some early green shoots around the reshaping of the comp plan, particularly around independent growth, Pronto, which gives us the confidence to put out the forecast that we did this morning around Pronto, importantly, our brand penetration. The things that we talked about previously that we embedded into this comp plan, we're starting to see early returns on that. Again, we're 30, 40 days into this, a lot more to come in that regard.

[Dave Flitman, Chair of the Board and CEO at US Foods]

We'll continue to give color as time goes on. I think for me, we've launched this quite successfully. I give our team a lot of credit, very thoughtful approach. Change management was big. Communication is ongoing. Importantly, we haven't seen an uptick in turnover. We continue to attract new sales talent to the company. Feel really, really good, and I think we get an A+ for execution on this one.

[Kelly Bania, Analyst at BMO Capital Markets]

Agreed. Thanks. Dave, if I could just ask one other one on AI, maybe a little bit different. Obviously, you guys have been ahead on the technology and digital front, and maybe this is empowering that further, how do you think AI impacts some of the smaller private distributors? As you talk about penetration improving, presumably that's coming at the cost of some of those smaller private regional distributors. Is this something that you think further widens the gap between some of these smaller competitors that may not have this level of technology?

[Dave Flitman, Chair of the Board and CEO at US Foods]

I think over time it can, for sure. I think we've commented in the past, Kelly, that the amount of investment that we make in this area of the business, consistent with the larger competitors out there who can afford to do this work at scale like we are, it will be a competitive differentiator over time because I think it becomes increasingly more difficult for the smaller competitors to make those sort of investments over time. Not that there's not capability out there that they can't leverage, and I'm sure they are. I just stay focused on the things that we can control and accelerating independent case growth. The momentum that we've seen here in the past five quarters, the team feels really good about, and we expect that will continue over time.

[Operator]

Your next question comes from the line of Mark Carden with UBS. Please go ahead.

[Mark Carden, Analyst at UBS]

Morning. Thanks so much for taking the questions.

[Dave Flitman, Chair of the Board and CEO at US Foods]

Good morning.

[Mark Carden, Analyst at UBS]

Morning. How did headcount growth play out for your sales force in 2Q? Any shifts to how you're approaching this in the back half of the year? You talked about continued success in attracting talent to your sales force. Do you guys think that the formal move to the more variable model impacted what you're seeing from a talent pool perspective? Thanks.

[Dave Flitman, Chair of the Board and CEO at US Foods]

Yeah. Appreciate the question on headcount. I'll start with nothing has changed in terms of our expectations around what the right headcount growth number is for us. That's around the mid-single digits. I will tell you, in the second quarter, we're up 8% in seller headcount. As you might expect, in anticipation of any potential turnover uptick that we might have seen, we hired in advance of that. Again, another area that the team was very thoughtful about thinking about all eventualities. I think you'll see that settle out a bit, to get right back into the normal range that we expect here as we go into the back half of this year. What was the second part of your question, Mark?

[Mark Carden, Analyst at UBS]

Just in terms of now that you guys have formally moved over to the more variable model-

[Dave Flitman, Chair of the Board and CEO at US Foods]

Yeah

[Mark Carden, Analyst at UBS]

has that impacted what you're seeing from a talent pool perspective with respect to potential sales force candidates?

[Dave Flitman, Chair of the Board and CEO at US Foods]

Yeah, I think, I've commented previously on that, I think it will through the course of time. It's a bit early to have seen anything material there. I think it will attract a different type of seller to the company long-term who has thrived on, and maybe in other industries or other businesses, that 100% commission model. We'll see. It's early days.

[Mark Carden, Analyst at UBS]

Got you. That's great. Thanks. As my follow-up, just on the independent side of the business, have you seen much of a shift in demand between more value-oriented independent operators and some of the more premium concepts? Did your case growth performance stick up pretty consistently across concepts? Any call-out from that front?

[Dave Flitman, Chair of the Board and CEO at US Foods]

Yeah, I wouldn't say there's anything material I'd call out in the second quarter where we've seen any significant, meaningful shifts. We've been in this foot traffic challenge for quite some time. I call the market pressured but stable. I didn't see anything change around that in the second quarter. I think any of those shifts are already built in terms of what we've seen.

[Dirk Locascio, CFO at US Foods]

Just a reminder, as Dave commented earlier, that a big driver of our growth was the continued acceleration in net new accounts, and that's across the spectrum that we focus on in independents. Sales or penetration did continue to strengthen, that net new machine continues to accelerate and we feel very good about that.

[Operator]

Your next question comes from the line of Brian Herbets with Morgan Stanley. Please go ahead.

[Brian Herbets, Analyst at Morgan Stanley]

Yeah, thanks. Good morning, guys. I was curious about healthcare and hospitality. How much of that is sort of being driven by account wins versus, for example, I think hotels have actually had a pretty healthy run here year-to-date. Could you dig into that a little?

[Dave Flitman, Chair of the Board and CEO at US Foods]

Sure. There is some that's same-store or penetration. A big part of it is the continued growth of the pipeline and converting that into new business. That team's done a really nice job of continuing to have a very robust pipeline, bring our value proposition to life for those customers, and bring them on and continue to serve them. To answer your question, the strength in hospitality has been a contributor, but the net new is still the bigger driver, and our expectation is both will continue over time. Within healthcare and hospitality, the tools, for example, around VITALS and SIGNATURE will both continue to be utilized widely and we expect will help us serve existing customers better and continue to convert the pipeline.

[Brian Herbets, Analyst at Morgan Stanley]

Okay. Got it. Would you consider moving faster on the compensation change if-- You've spoken positively about it so far. Would that influence the speed at which you do it?

[Dave Flitman, Chair of the Board and CEO at US Foods]

The comp change is fully implemented for all sellers. Just a recall here, Brian, there's a click down process that supports that at the individual level. We're having very individualized conversations. There is a time period and expectation around that click down for each individual. I think the team was thoughtful about that, and we'll let that play out as it's been designed.

[Operator]

Your next question comes from the line of Peter Saleh with BTIG. Please go ahead.

[Peter Saleh, Analyst at BTIG]

Great, thanks. Congrats on the quarter.

[Dave Flitman, Chair of the Board and CEO at US Foods]

Thank you.

[Peter Saleh, Analyst at BTIG]

I wanted to ask about the EBITDA margin. Really great performance this quarter. I know you guys are getting a lot of help from the cost of sales implementation that you guys have been doing, the indirect cost savings as well. Do you see a cap here on this EBITDA margin? Maybe asked another way, when you look out, are there parts of the country or regions of the country that are operating at a much higher level than the current system that you can act as a North Star? Thank you.

[Dirk Locascio, CFO at US Foods]

Good morning, Peter. We're quite pleased and appreciate the recognition on the continued work around margin expansion, and we think that balance, along with the volume growth driven by our three target types, is the right balance over time to profitably grow the business. Because we're driving that growth through various initiatives, we really don't see a cap. I'm sure maybe there's one out there, but it's going to be long down the road. Year-over-year, that 20 basis points that we're focused on delivering, we expect that we continue to deliver on. To your question, yes, we have markets, we have parts of the country that are higher margin than others as far as our facilities, maybe within customers. We know that there is further opportunity out there to continue to grow meaningfully, and we don't see a ceiling anytime in the even mid-term.

[Peter Saleh, Analyst at BTIG]

Great. Then can I just ask, have you guys seen anything or any change in consumer behavior regarding GLP-1s in the most recent quarter?

[Dave Flitman, Chair of the Board and CEO at US Foods]

Nothing remarkable here in the quarter. I think that trend will play out long term. As we said, almost half of everything we sell is fresh in one way or another. As those culinary desires shift and portion sizes change, we're supporting our customers around that. We don't think there's a big overhang on the industry here, and certainly, we haven't seen that in terms of our growth trajectory.

[Operator]

Your next question comes from the line of Karen Holthouse with Citi. Please go ahead.

[Karen Holthouse, Analyst at Citi]

Hi. Congrats on a great quarter. Thanks for taking the question. I think there was a comment in prepared remarks in the slides about a good pipeline for tuck-in M&A. How are you thinking about that contribution to independent case growth in the second half?

[Dirk Locascio, CFO at US Foods]

Good morning. For the second half, we expect M&A to be a pretty small contribution. We have the one very small transaction that's continuing to wrap through the early part of the fourth quarter and the other ones that are out there depending on timing. I don't expect it to have a meaningful impact for the quarter, but it's not for lack of effort with the teams. The team continues to work the pipeline and defining the right transactions to bring within the US Foods network. Overall, in the meantime, we're going to continue to work on accelerating organic growth as we have independence, as Dave said, for the last five quarters. We feel very good about the strength across that and the rest of the overall case volume for the second half of the year.

[Karen Holthouse, Analyst at Citi]

Just as a follow-up on the inflation side, within the 1.5% combined for inflation and mix, any particular call-outs of commodities being outsized contributors to inflation or deflation?

[Dirk Locascio, CFO at US Foods]

Well, maybe just for context, when you look at Q1 at the 1% year-over-year going up to 2.3% in the second quarter, proteins continued to have strong levels of inflation. We saw produce with inflation. In the second quarter, dairy had less deflation than it had a year ago. There's some smaller things here and there. Broad grocery continues to be modestly inflationary. I'd say it continues to be right in that spot that we feel good about managing and passing through and that customers can handle and not all that volatile. Like I said, there's always going to be a category here and there that's moving around, we have the processes to effectively manage through that.

[Operator]

Your next question comes from the line of Danilo Gargiulo with Bernstein. Please go ahead.

[Danilo Gargiulo, Analyst at Bernstein]

Great. Thank you. You mentioned earlier the dynamics of gross profit margin relative to OpEx margin, specifically for the third quarter. I'm wondering if you can give color on how should we think strategically about the evolution of this trend in light of the recent puts and takes on the cost management initiatives that you have, also the portfolio mix that is consistently skewing toward more profitable segments of your business.

[Dirk Locascio, CFO at US Foods]

Good morning. Overall, our expectation is that we'll continue to grow gross profit dollars 100 to 150 basis points faster than OpEx. That really is unchanged. In any given quarter, it can be a little more or a little less, that's how we think about it, and it's really because we have the portfolio of initiatives and actions that we're taking across both gross profit and OpEx productivity. That's unchanged, and we expect that we can do that still for a long time to come. As you pointed out, our customer mix and product mix, that will continue to be a contributor to those gains as well over time.

[Danilo Gargiulo, Analyst at Bernstein]

Thank you. I'm wondering if you can give some color on what you're seeing on truck driver availability within your business, given the recent regulatory tightenings. Perhaps you can share your expectations on the turnover for the rest of the year and the labor cost inflation that you're embedding in the guidance. Thank you.

[Dave Flitman, Chair of the Board and CEO at US Foods]

I would just say we have no challenges with drivers, as I've commented before, that played out again in the second quarter. Our turnover is very consistent with where it was pre-COVID, our driver productivity is strong and improving. No real challenges there. I think from a productivity standpoint, both in the warehouse and with our outbound drivers, very strong. It has improved quite a bit over the past couple of years, again, right on par with where we were pre-COVID.

[Dirk Locascio, CFO at US Foods]

Yeah, I think to Dave's point, a big part of the reason we don't have challenges in hiring and retaining on that customer base is we offer a pretty attractive compensation base, and they do an important role, job, and we try to compensate people fairly for that as well. From an inflation perspective, just like we talk about productivity in the 3% to 5%, cost inflation is in that 3% to 5% as well, the way we think about the outlook.

[Operator]

Your next question comes from the line of Margaret Binshtok with Wolfe Research. Please go ahead.

[Margaret Binshtok, Analyst at Wolfe Research]

Good morning, guys. Thank you for taking my question. I just wanted to ask, given some of the elevated costs that we've seen, I guess, over the last couple of years that could be impacting your restaurant customers, have you seen operators becoming more willing, I guess, to trade into your exclusive brands private label today perhaps versus a year ago? Is that driving any uptick in penetration? Also just on Menu IQ, is that playing into that at all? Thank you.

[Dave Flitman, Chair of the Board and CEO at US Foods]

Yeah, I think importantly, both of those are connected. We feel really good about our private label penetration and given the challenges these operators have faced really going into COVID and coming out of it that we've talked about, labor, rent, food cost inflation, all of that has really underscored the momentum we've got in our private label brands. Things like Menu IQ that helps them really look at their menu costs and optimize it in a way that many of them know is there but really don't know how to get at. It really helps them reshape their thinking and also plays to the strength of our private label brands, which are sitting at about 53% with independent restaurants. Very strong, and we expect that will continue to grow through the course of time.

[Margaret Binshtok, Analyst at Wolfe Research]

Thank you.

[Dave Flitman, Chair of the Board and CEO at US Foods]

Thank you.

[Operator]

Your next question comes from the line of Andrew Charles with TD Cowen. Please go ahead.

[Andrew Charles, Analyst at TD Cowen]

Great. Thank you. The healthcare case volumes in 2Q flowed a bit from 1Q in both the one and two year stack basis. Can you walk us through the dynamics behind that easing and, how do you think about healthcare case growth for the back half of the year?

[Dirk Locascio, CFO at US Foods]

Good morning. I think, when you talk about still being in that 3.5% or so, that's pretty strong case volume. From quarter to quarter, depending on individual customers, timing of onboards, et cetera, it can move around a little bit. I think both healthcare and hospitality being sort of at those same strong points, we feel very good about the growth rate that we generated in the second quarter and have confidence that we can continue to grow both of those at a healthy rate for the balance of the year and for periods well beyond 2026. We have differentiation in each of those, and our team's doing a nice job of bringing that differentiation to customers.

[Dave Flitman, Chair of the Board and CEO at US Foods]

Importantly, our pipelines in both are quite strong.

[Andrew Charles, Analyst at TD Cowen]

Mm-hmm. Great. Okay. Then, you talked about how the higher sales force costs drove about a 1/3 of the increase in operating expenses. Was that largely one time? Do you expect that to endure?

[Dirk Locascio, CFO at US Foods]

The 1/3 was fuel-related comments. That was there. The sales cost, we do expect to continue to drive some incremental costs for the next couple of quarters. That was largely contemplated in our outlook. As Dave said, that the team was looking ahead as to getting ahead of any potential turnover. This was, we believe, the right choice to hire ahead. As he said, as that ramps back down to that mid-single digits, then we would expect the headwind to ease. For right now, for the next couple of quarters, we do expect it will result in some elevated selling costs.

[Operator]

Your next question comes from the line of Rahul Krotthapalli with JPMorgan. Please go ahead.

[Rahul Krotthapalli, Analyst at JPMorgan]

Thanks, guys. Dave, as we look forward philosophically, how should we think about reinvesting some of the productivity benefits from the AI and the deployed capabilities versus passing through to the bottom line? Specifically on the sales force and headcounts, where do you think is the ceiling for span of control or in adding or managing accounts per salesperson? Will the productivity increase lead you to hiring more sales members to capture share aggressively or less than previously anticipated? I have a follow-up.

[Dave Flitman, Chair of the Board and CEO at US Foods]

Well, I think, again, I'll take your second question first. I think the mid-single digit headcount range is the right one for us to consistently onboard, do a high-quality job of bringing those folks up the learning curve with US Foods. I think what you see with the application of AI and all that is improved productivity of our sellers, where they're spending their mind share and their time, how they're supporting their customers. To the extent AI helps our customers help themselves more, it frees up that time and resource, that valuable time and resource of our sales force to go drive new growth. I think about AI in terms of productivity. We've taken a lot of cost out of the business in the past two years.

[Dave Flitman, Chair of the Board and CEO at US Foods]

In 2024 and 2025, we've talked about $150 million of cost out in the business that was aimed at really decentralizing the organization, putting resources closer to the customer, not AI-generated at all. As we think about AI, and I won't repeat my comments from earlier, but all the things that we're doing is aimed at labor planning, efficiency, and productivity. I think all of that factors into the 3%-5% annual productivity target that we have. AI is going to be an increasingly important part of that and an enabler to consistently drive that productivity across the business.

[Dirk Locascio, CFO at US Foods]

Year in and year out, we're always looking at reinvestment back in the business. When we talk about whether it's cost and productivity or gross profit expansion, we think about, okay, how do we reinvest a portion of that back with customers with advanced capabilities, with our data science teams for AI, et cetera. That's not something new, and AI would just be another piece that we would think about as we think about reinvestment over time.

[Rahul Krotthapalli, Analyst at JPMorgan]

Thank you. The scan-it test expansion to six locations is interesting to see. As you start focusing more on the physical or the hardware-focused solutions, are there any purpose-built robotic or automation opportunities in the near term that could make sense for you to test or look at?

[Dirk Locascio, CFO at US Foods]

Specifically, the robotics that we're testing now and moving, as you pointed out, from the one to six, we're seeing good early results from those, helping with better accuracy in the warehouse and much more efficiency so our other local teams can spend more time on other things and understanding the why and improving process. That's the main place we've seen right now. We evaluated several providers before we decided on the one that now we're moving ahead. As robotics continues to advance, we continue to evaluate, and we'll make that determination over time whether there's other uses.

[Operator]

That concludes today's question and answer session. I will now turn the call over to Dave Flitman, CEO, for closing comments.

[Dave Flitman, Chair of the Board and CEO at US Foods]

Thanks, everyone, for joining the call today. We're more excited about our future than we've ever been. Appreciate your support. Have a great rest of the week.

[Operator]

This concludes today's conference call. Thank you for your participation, and you may now disconnect.

Participants

Executives

• Mike Neese, SVP of Investor Relations
• Dave Flitman, Chair of the Board and CEO
• Dirk Locascio, CFO

Analysts

• Lauren Silverman, Analyst at Deutsche Bank
• Sam Barton, Analyst at Melius Research
• Alex Slagle, Analyst at Jefferies
• Edward Kelly, Analyst at Wells Fargo
• John Heinbockel, Analyst at Guggenheim
• Kelly Bania, Analyst at BMO Capital Markets
• Mark Carden, Analyst at UBS
• Brian Herbets, Analyst at Morgan Stanley
• Peter Saleh, Analyst at BTIG
• Karen Holthouse, Analyst at Citi
• Danilo Gargiulo, Analyst at Bernstein
• Margaret Binshtok, Analyst at Wolfe Research
• Andrew Charles, Analyst at TD Cowen
• Rahul Krotthapalli, Analyst at JPMorgan