US Foods Holding Corp., one of the largest foodservice distributors in the United States, announced results for the third quarter and first nine months of fiscal year 2016.

Third Quarter Highlights

Total case volume growth of 4 percent, Independent Restaurant volume rose 5.5 percent.

Net sales increased 0.8 percent to $5.8 billion.

Gross profit of $1 billion, up 2 percent.

Operating income increased $42 million to $115 million.

Net income increased $128 million to $133 million.

Nine Months Highlights

Total case volume 2.5 percent higher, Independent Restaurant case volume increased 6.5 percent.

Net sales increased 0.3 percent to $17.2 billion.

Gross profit of $3 billion, up 3.1 percent.

Operating income increased $161 million to $298 million

Net income decreased $44 million to $133 million

“Our third quarter results reflected strong performance in many areas, including volume growth and improved profitability,” says president and CEO Pietro Satriano. “Top line momentum and margin expansion, despite deflationary pressures, continue to demonstrate that our Great Food. Made Easy. strategy is resonating with independent restaurants and other customers. Our M&A pipeline remains strong, with two new acquisitions closed since the beginning of the fourth quarter. With the successful rollout of our new field operating model now substantially complete, we have launched two new initiatives that will contribute to EBITDA margin expansion. As a result of our strong year-to-date performance, we have increased our outlook for full year Adjusted EBITDA growth to 9 to 10 percent.”

Third Quarter Results

Independent restaurant case volume grew 5.5 percent from the prior year, with acquisitions contributing 200 basis points (bps) to this growth. Total case volume increased 4 percent over last year’s third quarter, of which 1.7 percent was organic. Strong growth with independent restaurants and other broad-based customer wins, the wrap of planned national chain exits, and the onboarding of new customers positively impacted total case volume. Net sales of $5.8 billion increased 0.8 percent versus prior year as sales from acquisitions completed in the last 12 months boosted Net sales by 1.5 percent. Total Net sales growth was negatively impacted by deflation, particularly in beef and dairy, and product mix changes in the quarter.

Gross profit of $1 billion increased by $20 million, or 2 percent from the prior year, as the company benefitted from higher volumes, favorable customer mix, and positive impacts from merchandising initiatives. As a percentage of Net sales, Gross profit increased by 21 bps. Adjusted Gross profit of $1 billion increased by $33 million, or 3.3 percent from the prior year.

Operating expenses were $917 million, a decline of 2.5 percent from the prior year. This improvement reflects progress on initiatives to reduce distribution, selling and administrative expenses and improve the efficiency and effectiveness of the company’s operating structure. Restructuring charges taken in the third quarter include a new initiative to further centralize field procurement and replenishment activities, and completion of the field reorganization. Adjusted Operating expenses for the quarter were $781 million, 1.8 percent higher than the prior year. As a percentage of sales, Adjusted Operating expenses were 13.4 percent, up 14 bps from the prior year, as higher variable costs associated with the increased volumes were partially offset by lower fuel costs.

Operating income was $115 million, or 2.0 percent of Net sales, a $42 million increase from the prior year. Net income for the quarter was $133 million, up from $5 million in the prior year. Contributing to the 2016 result was the one-time tax benefit of $80 million, driven primarily by the release of the company’s tax valuation allowance.

Nine-Month Results

For the year-to-date, independent restaurant case growth was 6.5 percent, including 4.5 percent organic growth. Total case volume increased 2.5 percent over the prior year, including organic case volume growth of 1.1 percent. Net sales of $17.2 billion were up 0.3 percent over the prior year, with sales from acquisitions in the last 12 months increasing Net sales by approximately 1.1 percent. Net sales and case volumes continue to be affected by strong independent restaurant volume growth, planned shifts away from current national chain business, and deflation in certain categories, particularly in beef.

Gross profit of $3 billion increased $91 million, or 3.1 percent from the prior year. This was driven by higher volumes, favorable customer mix, private brand growth, and positive impacts from merchandising initiatives. As a percentage of Net sales, Gross profit increased by 48 bps. The same factors affected Adjusted Gross profit of $3.0 billion, which increased $109 million from the prior year.

Operating expenses year-to-date were $2.7 billion, down 2.5 percent from the prior year, as favorable fuel and lower benefits and administrative costs were partially offset by the payment of a consulting and management agreement termination fee and higher depreciation and amortization. Adjusted Operating expenses for the first nine months were $2.3 billion, an increase of 1 percent from the prior year, as favorable fuel costs and lower administrative expenses did not fully offset increased distribution and selling expenses.

Operating income was $298 million, or 1.7 percent of Net sales, up $161 million from the prior year. Adjusted EBITDA for the first nine months of 2016 was $707 million. This represented an increase of $87 million, or 14 percent over the prior year, driven by the Adjusted Gross profit and Adjusted Operating expense factors previously discussed. On a year-to-date basis, Net income was $133 million, down $44 million from the prior year, which included a $288 million net acquisition termination fee. The one-time tax benefit of $80 million, driven primarily by the release of the company’s tax valuation allowance as discussed above, contributed to the 2016 result. Diluted EPS was $0.68 and Adjusted Diluted EPS was $1.02.

Cash Flow and Capital Transactions

Cash capital expenditures for the first nine months of fiscal 2016 totaled $105 million, a decrease of $37 million from the prior year. On a year-to-date basis, cash flow from operations and Free cash flow were both impacted by the $288 million net cash inflow related to the Sysco acquisition termination payment discussed above. Excluding this payment, cash flow from operations improved by $142 million over the prior year period, driven by margin improvements and decreased operating expenses, and Free cash flow improved by $179 million over the prior year period, driven by stronger results from operations and lower cash capital expenditures.