Executive Summary / Key Takeaways

• Digital and Operational Excellence Drive Share Gains: US Foods (NYSE:USFD) is leveraging its industry-leading MOXe e-commerce platform, AI-powered tools, and advanced routing technologies like Descartes to enhance customer service, improve operational efficiency, and consistently gain market share, particularly with independent restaurants and healthcare customers.
• Robust Financial Performance Amidst Macro Headwinds: Despite a challenging macro environment, US Foods delivered strong financial results for the first nine months of 2025, with 10.9% adjusted EBITDA growth and 26.7% adjusted EPS growth, aligning with its long-range plan algorithms. This performance underscores the effectiveness of its "self-help" initiatives.
• Strategic Growth Initiatives Accelerating: The Pronto small truck delivery service is a significant growth engine, projected to reach $1.5 billion in sales by 2027, while private label penetration, offering higher profitability, continues to expand, exceeding 53% with independent restaurant customers.
• Disciplined Capital Allocation and Strong Liquidity: The company maintains a healthy balance sheet with a net leverage of 2.6x and robust operating cash flow, enabling strategic tuck-in acquisitions and substantial share repurchases, with $467 million remaining on its current $1 billion authorization.
• Confident Outlook Supported by Long-Range Plan: US Foods reaffirms its long-range plan through 2027, targeting a 5% sales CAGR, 10% adjusted EBITDA CAGR, and 20% adjusted EPS CAGR, driven by continued market share gains, margin expansion, and operational discipline.

Setting the Scene: A Resilient Distributor in a Dynamic Market

US Foods Holding Corp. stands as a pivotal player in the vast and resilient U.S. foodservice distribution industry. Incorporated in 2007 and operating as a single business segment, the company specializes in marketing, selling, and distributing a comprehensive array of fresh, frozen, and dry food and non-food products. Its diverse customer base spans independently owned restaurants, national chains, hospitals, nursing homes, hotels, and government organizations across the nation. This broad reach positions US Foods at the heart of the "food away from home" trend, a multi-decade phenomenon that continues to see steady growth, underpinning a substantial $270 billion addressable market across its core restaurant, healthcare, and hospitality segments.

The industry landscape is characterized by its fragmented nature, with roughly 35% to 38% of the market share held by the "Big 3" distributors, leaving ample opportunity for regional and local competitors. In this competitive arena, US Foods has strategically carved out a differentiated value proposition, focusing on agility, customer-centric solutions, and a robust operational network comprising over 70 distribution facilities and a fleet of more than 6,500 trucks. This infrastructure, combined with a centralized management structure and shared systems, allows the company to leverage national scale while executing locally, a critical advantage in serving its targeted, high-growth, and more profitable customer types.

A Legacy of Growth and Adaptation

US Foods' journey has been marked by strategic evolution and a consistent ability to adapt to market dynamics. The company successfully overachieved its 2022-2024 long-range plan, culminating in record full-year earnings of $1.74 billion in 2024. This period saw significant achievements, including over $230 million in cost of goods savings, a 100 basis point expansion in adjusted EBITDA margin to 4.6%, and a reduction in net leverage to 2.8 times. These accomplishments were not merely a product of favorable market conditions but a testament to the company's "self-help" initiatives and operational rigor.

The company has also strategically expanded its footprint and capabilities through targeted tuck-in acquisitions. In January 2025, US Foods acquired Jake's Finer Foods, a broadline distributor in Texas, adding over $160 million in annual revenue and enhancing local capacity in South Texas. This followed the 2024 acquisition of IWC Food Service in Tennessee, expanding its reach into the Southeast. Most recently, in the third quarter of 2025, US Foods announced an agreement to acquire Shetakis, an independent food distributor in Las Vegas, further solidifying its presence in key markets. Conversely, the company strategically divested its Freshway produce processing business in the first quarter of 2025, a move aimed at optimizing its portfolio rather than signaling a strategic shift.

Technological Edge: The Digital Differentiator

At the core of US Foods' competitive strategy and operational efficiency lies its significant investment in technological differentiation and innovation. The company's flagship MOXe digital solutions platform is a prime example, serving as an industry leader in e-commerce. By the second quarter of 2025, MOXe achieved an impressive 89% total company e-commerce penetration and 78% for independent restaurant customers, with a clear trajectory to reach 95% by 2027. This high adoption rate is a testament to the platform's ability to deliver a transparent, best-in-class customer experience for ordering, delivery tracking, and bill payments, providing a distinct advantage over competitors.

US Foods is also broadly deploying Artificial Intelligence (AI) across its business to enhance both customer and associate experiences. In the third quarter of 2025, an AI-powered search feature was launched within MOXe, yielding tangible benefits: a 3% higher conversion rate of products added to carts and purchased, translating to approximately 1.3 million incremental cases annually. This innovation not only makes product discovery faster and more intuitive for customers but also improves seller productivity by surfacing more relevant search results. Furthermore, a generative AI automatic order guide, launched in late 2024, is making it more efficient for sellers to create customer proposals and onboard new business, contributing to the acceleration in net new independent accounts observed in March and April 2025.

Beyond customer-facing applications, AI informs various internal operations, including online recommendations, digital marketing, and sophisticated routing models. The deployment of Descartes (DSGX) routing technology is a critical operational differentiator, live or actively deploying in all markets by Q3 2025. This technology has already delivered a 2.3% improvement in cases per mile compared to the prior year, and nearly 6% over two years, driving greater delivery efficiency and enabling more precise time windows for customer deliveries. The UMOS deployment is also contributing to safety, service, and profitability, with plans to be live in over 60 of 74 markets by year-end.

In the healthcare segment, the proprietary VITALS program exemplifies US Foods' targeted technological solutions. This technology suite helps healthcare operators address significant challenges, with approximately 4,500 individual customer interactions projected for 2025, leading to average customer savings of 5% on total costs.

Looking ahead, US Foods is investing in semi-automated facilities to further enhance efficiency and productivity. Limited shipping began from its first new semi-automated facility in Aurora, Illinois, in Q3 2025, with approximately 50% of volume already transitioned and full operation expected in the coming months. A groundbreaking for another semi-automated expansion in Austin, Texas, underscores the company's commitment to leveraging automation for improved operational quality, inventory accuracy, and reduced injuries. These technological advancements collectively form a robust competitive moat, contributing directly to US Foods' financial performance through lower operating costs, improved margins, enhanced market positioning, and a clear roadmap for long-term growth.

Strategic Initiatives Driving Performance

US Foods' strategic framework is built upon four pillars: culture, service, growth, and profit, each supported by a suite of initiatives designed to drive sustained performance.

The Pronto small truck delivery service has emerged as a significant growth engine. Designed to serve hard-to-reach customers in dense urban geographies, Pronto offers smaller, more frequent deliveries with later cutoff times. The program is on track to deliver approximately $950 million in sales in 2025 and is expected to exceed a $1 billion run rate by year-end. Management has raised its 2027 sales target for Pronto to $1.5 billion, up from the previous $1 billion, reflecting strong confidence. Pronto Legacy is now live in 46 markets, with plans for three more in 2026. Critically, "Pronto penetration," which extends this service to existing independent customers for non-routine delivery days, has expanded to over 20 markets and delivered a double-digit percentage uplift in overall case growth among participating customers in Q3 2025. The company plans its largest annual investment in the Pronto program in 2026 to fuel future expansion.

Private label brands are another cornerstone of US Foods' growth and profit strategy. These exclusive brands, including the "Scoop" product line and the "Serve Good" responsibly sourced portfolio, offer competitively priced, high-quality, and innovative products that help customers mitigate inflationary pressures. Private label products are "roughly twice as profitable for the company and for our sellers as manufacturers brands." Penetration among core independent restaurant customers reached over 53% in Q3 2025, with total company penetration at 34% in Q1 2025. Both Scoop and Serve Good products surpassed $1 billion in annual sales in 2024, and management sees "no near-term ceiling to our private label brand penetration opportunity."

Operational efficiency and cost management are continuously refined through initiatives like strategic vendor management, which is on track to deliver over $120 million in cost of goods savings for 2025, with line of sight to exceed the $260 million 2027 long-range plan commitment. An inventory management initiative is expected to generate $35 million in savings for 2025 by reducing losses from damaged or spoiled products. Furthermore, indirect spend management is projected to yield $45 million in total savings in 2025. The company also implemented additional administrative cost actions in 2025, expected to generate $30 million in savings, incremental to the $120 million in annualized operating expense savings from 2024. These efforts contribute to the company's goal of achieving 3% to 5% annual productivity improvements.

US Foods is also enhancing its sales force effectiveness. A significant change is the transition to a 100% variable compensation structure for local sellers, uncapped and based on gross profit dollar growth. This new model, piloting in Q4 2025 for full deployment in early 2026, will specifically reward accelerating independent case growth, private label penetration, and Pronto volume growth, aiming to accelerate profitable volume growth and increase earnings potential for the sales team. The company continues to grow its sales force headcount in the mid-single-digit range (4% to 6%).

The company's commitment to its "culture" pillar is evident in its focus on associate safety, with injury and accident rates improving by 16% in Q3 2025 and 35% over the past two years. Employee turnover for selectors and drivers has returned to historical, pre-COVID levels, reflecting successful initiatives like flexible scheduling.

Financial Performance: A Story of Resilient Growth

US Foods has demonstrated a compelling financial narrative, consistently delivering strong results even amidst a challenging macroeconomic backdrop. For the first nine months of fiscal year 2025, the company reported net sales of $29.62 billion, a 4.4% increase over the prior year. This growth was underpinned by a gross profit of $5.14 billion, up 5.7%, and operating income of $878 million, a 10.2% increase. The bottom line saw even more robust expansion, with net income rising 15.0% to $492 million, and adjusted EBITDA growing 10.9% to $1.44 billion. This performance aligns precisely with the company's long-range plan algorithms, showcasing its ability to translate strategic initiatives into tangible financial gains.

In the third quarter of 2025 alone, US Foods posted net sales of $10.19 billion, a 4.8% increase, driven by case volume growth and food cost inflation of 3%. Gross profit for the quarter increased 5.2% to $1.75 billion, while adjusted EBITDA climbed 11.0% to $505 million. This resulted in a 28 basis point expansion in adjusted EBITDA margin, reaching 5.0%. The company's focus on operational leverage is clear, with adjusted gross profit per case improving $0.41 (5.2%) in Q3 2025, significantly outpacing the $0.22 (3.8%) increase in adjusted operating expense per case. This disciplined approach led to a 9.9% increase in adjusted EBITDA per case to $2.33.

Liquidity and capital allocation remain strong. As of September 27, 2025, US Foods commanded approximately $1.90 billion in cash and available liquidity. Year-to-date operating cash flow surged by $185 million to nearly $1.1 billion, driven by earnings growth and efficient working capital management. The company's net leverage stood at a healthy 2.6x at the end of Q3 2025, well within its target range of 2x to 3x, and it faces no long-term debt maturities until 2028. This robust cash generation supports a balanced capital allocation strategy, including substantial shareholder returns. In Q3 2025, US Foods repurchased approximately $335 million in shares, bringing the year-to-date total to over $600 million (7.6 million shares), with $467 million remaining on its current $1 billion authorization. The company's financial strength was further recognized with an S&P corporate credit rating upgrade to BB+ in Q1 2025.

Competitive Positioning: Outperforming in a Fragmented Market

US Foods operates in a highly competitive and fragmented foodservice distribution market, where it positions itself as a leading mid-tier player with significant regional influence. While it trails larger competitors like Sysco Corporation in overall market reach, US Foods differentiates itself through agility, customer-centric solutions, and a technologically advanced operational framework.

Compared to Sysco (SYY), US Foods emphasizes a strong regional presence and customized service tailored for mid-sized and independent operators. Sysco's larger scale often translates to broader market penetration and potentially more efficient operations through consolidated logistics. However, US Foods' focus on innovative customer solutions, such as its AI-powered MOXe platform and tailored inventory management tools, provides a qualitative edge in customer loyalty and service. US Foods' consistent market share gains, including its 18th consecutive quarter of gains with independent restaurants and 20th consecutive quarter with healthcare, underscore its ability to outperform in targeted segments.

Against Performance Food Group Company (PFGC), US Foods demonstrates strong capabilities in product variety and customer service innovation, particularly in non-food items. While PFGC has a diversified portfolio and strong relationships with national chains, US Foods' strategic emphasis on independent operators, bolstered by initiatives like Pronto, aligns with the growing trend of localized sourcing and offers a unique value proposition. US Foods' operational execution, supported by its extensive distribution network, aims for reliable and efficient delivery, a key factor in customer satisfaction.

In comparison to United Natural Foods, Inc. (UNFI), which specializes in natural and organic products, US Foods offers a more comprehensive product range, extending beyond organics to include a full spectrum of fresh, frozen, and dry goods. This broad offering provides US Foods with a wider appeal and greater operational scale, allowing it to capture market share across diverse customer needs. While UNFI holds a niche advantage in sustainability-aligned segments, US Foods' overall financial health and diversified revenue streams provide greater stability.

The company's competitive advantages, or moats, are rooted in its extensive distribution network, fostering reliable delivery and broad product access, which in turn drives customer loyalty and recurring revenue. This network allows US Foods to target underserved regions and enhance pricing power. Its technological leadership, particularly with MOXe and AI, further strengthens its competitive standing by improving efficiency and customer experience. Barriers to entry in the industry, such as established logistics networks and stringent regulatory requirements for food safety, also help US Foods defend its market position against new entrants.

Outlook and Guidance: Confidence in a Self-Help Trajectory

US Foods' management expresses high confidence in its future trajectory, underpinned by a robust "self-help and execution story" that continues to drive results irrespective of the broader macroeconomic environment. The company has updated its fiscal year 2025 guidance, reflecting its strong year-to-date performance and outlook for the remainder of the year.

For fiscal year 2025, US Foods now expects:

• Total case volume growth tightened to a range of 1% to 2%.
• Net sales growth in the range of 4% to 5%.
• Adjusted EBITDA growth of 10% to 12%.
• Adjusted diluted EPS growth of 24% to 26%.

This updated guidance assumes a "normal inflationary environment" with sales inflation and mix impact around 2% to 3%, primarily driven by protein and eggs, while grocery categories remain modestly inflationary. Management anticipates a stronger macro backdrop in 2025 compared to 2024, which, combined with its relentless focus on market share gains, is expected to accelerate organic case growth.

The company's long-range plan through 2027 remains a cornerstone of its investment thesis, targeting:

• A 5% sales Compound Annual Growth Rate (CAGR).
• A 10% adjusted EBITDA CAGR.
• At least 20 basis points of annual adjusted EBITDA margin expansion.
• A 20% adjusted diluted EPS CAGR.

Management's confidence in achieving these targets stems from the early to mid-innings implementation of its self-help initiatives, including strategic vendor management, inventory loss reduction, and operational productivity improvements. The continued expansion of Pronto, the increasing penetration of higher-margin private label brands, and the strategic shift in sales force compensation are all expected to contribute significantly to this growth.

Risks and Challenges

While the outlook is positive, US Foods operates within an industry subject to various risks. Economic factors, including consumer confidence and discretionary spending, can impact the consumption of food prepared away from home. The highly competitive nature of the foodservice distribution market, coupled with reliance on third-party suppliers, poses risks of supply interruptions or increased product costs. Fluctuations in fuel costs, which approximated $171 million in 2024 for outbound deliveries, can also affect profitability, although the company mitigates this through fuel surcharges and forward purchase commitments.

Labor relations and the continued access to qualified labor represent ongoing challenges, as do potential disruptions from existing or new technologies and cybersecurity incidents. The effective integration of acquired businesses is crucial for realizing expected synergies. Furthermore, external events such as extreme weather conditions, natural disasters, and the impact of government shutdowns can create choppiness in demand and operational inefficiencies. The evolving tariff environment, with a mid to high-single-digit percentage of purchases potentially subject to tariffs, could introduce additional inflationary pressures. However, US Foods has demonstrated resilience, historically flexing its variable operating expenses (80% of distribution operating expense) during periods of softer demand and leveraging its self-help levers to maintain profitability.

Conclusion

US Foods is a compelling investment story, firmly rooted in a strategy of operational excellence, technological innovation, and disciplined growth. The company's consistent ability to gain market share in its most profitable customer segments—independent restaurants, healthcare, and hospitality—even amidst a challenging macroeconomic environment, underscores the effectiveness of its "self-help" initiatives. The strategic deployment of its MOXe digital platform, AI-powered tools, and the rapidly expanding Pronto delivery service are not merely incremental improvements but foundational differentiators that enhance customer value, drive efficiency, and expand market reach.

With a robust financial performance, strong cash flow generation, and a clear capital allocation strategy focused on accretive acquisitions and shareholder returns, US Foods is well-positioned for sustained profitability. The reaffirmed long-range plan, targeting double-digit adjusted EBITDA and EPS growth through 2027, reflects management's deep confidence in its strategic playbook and the long runway of opportunities ahead. For discerning investors, US Foods offers a resilient business model, a proven track record of execution, and a clear path to continued value creation, making it a compelling proposition in the dynamic foodservice distribution landscape.