Performance Food Group Co (PFGC) 2016 Q4 法說會逐字稿

Good morning and welcome to the PFG fourth quarter and full year FY16 earnings conference call. Today's call is scheduled to last about one hour, including remarks from PFG's management and the question-and-answer session. I would now like to turn the call over to Michael Neese, Vice President Investor Relations for PFG. Please go ahead, sir.

Thank you, Maria. Good morning and thank you for joining us. We are here with George Holm, Performance Food Group's CEO, and Bob Evans, Performance Food Group's CFO, to discuss our fourth quarter and full year FY16 business results.

During our call today, unless otherwise stated, we are comparing fourth quarter and full year FY16 results versus the same period in FY15. Earlier this morning, we issued a press release regarding our results.

One item to note, our financial results announced today include a 14th week for the fourth fiscal quarter and a 53rd week for the FY16 ended July 2, 2016. In FY15, the fourth quarter included 13 weeks and the year included 52 weeks.

Results shown on a comparable 13 or 52 week basis have been adjusted to remove dollar amounts equal to 1/14 of the fourth-quarter results. You can find our earnings release on the Investor Relations section of our website at pfgc.com.

Our remarks and the earnings release contain forward-looking and cautionary statements and projections of future results. Please review the Forward-Looking Statements section in today's earnings release and in our SEC filings for various factors that could cause actual results to differ materially from forward-looking projections.

On today's call, we may reference certain non-GAAP financial measures. Descriptions of these non-GAAP financial measures and reconciliations to the most closely comparable financial measures calculated in accordance with GAAP are included in today's earnings release and in our presentation slides.

Now I would turn over the call over to George.

Thanks, Michael. Good morning, everyone, and thank you for joining us today. I'm pleased to announce PFG's results for the full year, which were strong and in line with our expectations.

FY16 results were driven by strong independent case growth with good momentum in the fourth quarter, with independent sales peaking in that quarter at 9% growth, margin expansion for the full year and strong operating cash flow growth. Full-year net sales topped $16 billion and gross profit topped $2 billion for the first time. We grew our total cases by 4.8%, excluding the extra week, and we continue to gain market share.

We grew our gross profit per case and increased our gross profit margins. Margin growth showed the benefits of improved mix, operating leverage from strong sales growth and PFG's Winning Together program.

Our net income growth of 20.9% and adjusted EBITDA growth of 11.6% reflected the strong performance of our diverse business model, and our diluted EPS grew by 9.4% and our adjusted diluted EPS grew by 23.5%. We remain focused on improving sales productivity and profitability, and we continue to develop opportunities to add to our growth story both organically and through value added M&A.

Most importantly, we've got a great team focused on serving our customers. And I want to thank all of our associates, and let them know how proud I am of the job you did this year. Thank you for your hard work and your commitment to our great Company, and I look forward to more great things in FY17.

I would like to highlight one of our associates for his service to our country. Ralph Wright has been a driver for our Performance Food Group operating Company and its predecessor companies in Hickory North, Carolina since 1981. Ralph is also a patriot who believes in serving his country with his time and talent.

A few years ago, he retired from the Army National Guard after serving 35 years. During that time, Ralph was regularly called on to support the citizens of North Carolina during natural disasters, he also completed two deployments to Iraq and was awarded the Purple Heart after being injured during his first trip there. Thank you, Ralph, for your service to our Company and our country.

Bob will be going into the detailed financial results, but I'd like to discuss a couple key highlights for the quarter and the year. Our case growth continued to exceed forecasted real industry case growth of around 1% to 2%, excluding the extra week. Case growth would have been 5.8% in the fourth quarter and 4.8% for the FY16.

Case volume growth reflected new and expanded business, with street customers in the Performance Food Service segment and broad-based growth in the Vistar's sales channels. Excluding the extra week for the year, case growth to independent street customers was 8.6%, and that was organic, as was the fourth quarter growth of 9%.

Net sales for FY16 increased 5.5% to a record $16.1 billion, excluding the extra week net sales in FY16 would've increased 3.4%. Overall food cost deflation was approximately 1.7% in the fiscal fourth quarter of 2016. We continue to experience deflation in center-of-the-plate categories like meat and poultry, and to a lesser degree in dairy.

Gross profit for FY16 increased 8.7% compared to the prior-year period to $2 billion, excluding the extra week gross profit in FY16 would've increased 6.6%. The increase in gross profit was the result of growth in cases sold and higher gross profit per case, which was driven by selling an improved mix of customer channels and products.

Our adjusted EBITDA as a percentage of gross margin for FY16 rose by 40 basis points to 18.2%. Our solid top-line growth combined with increased gross profit per case and strong operating expense management led to profitability at the high end of our expectations for the year.

Our team executed well on our FY16 strategic initiatives. Our customer centric business model and expanding motivated salesforce provide us meaningful opportunities to continue gaining share and growing profits in FY17.

Let's turn to the performance in our three segments. Performance Foodservice, our largest segment, had net sales for FY16 of $9.6 billion, an increase of 5.8%. Excluding the extra week, net sales for FY16 would've increased 3.8%. Our ongoing focus in Performance Foodservice is to shift our mix towards independent and proprietary performance brands, while supporting our committed national brand suppliers.

For 28 consecutive quarters, Performance Foodservice has delivered independent case growth in our target range of 6% to 10% and has grown our proprietary performance brands by at least 1% to 4% faster than total independent growth. Independent cases now account for 44.1% of Performance Foodservice sales, up 100 basis points over the prior year.

The largest part of our growth continues to come from new customers, that's been the case as long as I've been in the business. We are also doing a better job of retaining existing customers, and we are improving our penetration.

Strong case growth combined with gross margin expansion from selling an improved mix of channels and performance brand drove EBITDA growth of 20.8% for FY16. PFG Customized net sales for FY16 increased 0.8% to $3.8 billion. Excluding the extra week, net sales would've declined by an estimated 1.1% over the prior year driven by a decrease in case volume that reflected soft trends among some customers in the casual dining segment.

For FY16, EBITDA decreased 6.6% to $34.1 million, with the majority of the decline in the fourth quarter. The decrease was driven by an increase in operating expenses, partially offset by an increase in gross profit.

As we've previously mentioned, PFG Customized had planned exits of some customers to free up capacity for the addition of new business with Red Lobster to which we began making shipments in some geographies this week. Early results have been good. The planned exit of customers affected Customized fourth-quarter financial results, but we expect to offset this in the back half of FY17.

Turning to Vistar. Net sales increased 11.4% in FY16 to $2.7 billion, driven by broad-based case growth. Excluding the estimated impact of the extra week in FY16, net sales would've increased by an estimated 9.1% over the prior year. This 9.1% increase in sales was driven by case and sales growth in the segments of retail, theater vending and hospitality channels and by recent acquisitions.

EBITDA for Vistar increased 7.1%, and was paced by 9.1% gross profit dollar growth. In the first half of FY17, Vistar's results will reflect some investments in this growth. Current Q1 growth for Vistar is at the highest level in Vistar's history.

First, in the latter part of FY16 fourth quarter, Vistar began service into new geographies in the dollar store channel. Which will require some extra short-term expense until the volume can be efficiently integrated into Vistar's distribution network.

A second investment for Vistar is a new prototype distribution center for handling our pick-and-pack volume more efficiently. This prototype will use scanner and sorter technology that will enhance our productivity, and enable us to be more competitive. This will also allow us to expand our e-commerce fulfillment business.

As is typical with investments that use new technologies, we are fine tuning the mechanics and the processes. We believe that once the project is fully operational it will drive future productivity and profitability.

Before I turn it over to Bob, I want to again thank our talented associates who helped us achieve our strategies and objectives. We hit all our stated targets for FY16.

Our case volume growth of approximately 4.8% on a 52 to 52 week basis was at the top of our projected range of 3% to 5%. Our Performance Foodservice independent case volume growth of 8.6% was in our projected range of 6% to 10%. Our Performance brand grew in excess of double digits, and our adjusted EBITDA growth of 11.6% was at the top of our projected range of 9% to 12% on a 53 to 52 week basis.

All of our segments are executing their growth strategies today. Our diverse business model is delivering strong and consistent results.

The Performance Foodservice team is focused on continuing to grow its independent cases. We are very excited to distribute to Red Lobster, since it will strengthen PFG's Customized business for the long term, and help PFG attain a higher return on invested capital. Vistar is investing in future growth and penetrating existing channels, entering new channels and growing its EBITDA.

We have a strong pipeline of potential acquisition candidates, and we will remain disciplined in our approach to acquiring companies. And we are committed to growing value for our shareholders. Our outlook for FY17 is consistent with our long-term growth plans, and we believe we can grow our adjusted EBITDA by 7% to 10% on a 52 week to 52 week basis.

Now I'd like to turn this over to our Chief Financial Officer, Bob Evans.

Thanks, George. While George focused on the year, I will briefly go through our detailed fourth-quarter financial results, discuss our full-year cash flow and balance sheet and wrap up with our FY17 outlook.

We had solid fourth-quarter results. Net sales for the quarter were $4.4 billion, an increase of 9.8%. Excluding the extra week, net sales for the quarter were up 1.9% and cases were up 5.8%. The difference between the sales and case growth rates were the result of ongoing deflation, some case pack changes from some of our suppliers and a shifting customer mix.

Gross profit dollars increased 14.6% in the fourth quarter compared to the prior-year period and 6.4% excluding the extra week. Gross profit per case increased to 0.5%. The increase in gross profit per case was primarily driven by an improved mix of customers and products sold.

Operating expenses increased 13.2% for the fourth quarter versus the prior-year period and 5.1% excluding the extra week. The increase in operating expenses was primarily driven by the increase in case volume, business investments in Vistar and Customized, increased investment in our sales force and transportation costs. And was partially offset by productivity gains from our Winning Together program and leverage from our strong case growth.

Fourth-quarter operating expenses per case declined 0.7% over the prior-year period. Our strong case growth and disciplined operating expense management allowed us to grow fourth-quarter adjusted EBITDA by 11.9% to $114.7 million. Excluding the extra week, adjusted EBITDA grew 3.9% despite overlapping double-digit growth in the prior year and accommodating start-up investments for bringing on new customers, extending current customers to new geographies and opening a new distribution center in Vistar that is ramping up capacity in stages.

Reported net income increased 14.6% to $29 million for the fourth quarter of 2016, compared to net income of $34 million in the prior period. The decrease was driven by the $25 million pretax fee recognized in the fourth quarter of 2015 related to termination of the agreement to acquire 11 US Foods facilities in connection with a proposed Sysco and US Foods merger.

For the quarter, the income tax rate decreased 50 basis points to 40%. The decrease in the tax rate was the result of an increase and certain permanent deductions, and a reduction in non-deductible expenses and state income taxes as a percentage of income before taxes.

Adjusted diluted EPS increased 5.6% in the fourth quarter to $0.38 per share. For the full year of FY16, adjusted diluted EPS increased 23.5% to $1 per share. The difference in growth rates is primarily driven by a higher average share count in Q4 versus the full year since PFG's IPO occurred early in Q2 of FY16.

Turning to PFG's cash flows. For the full year, PFG delivered $235 million in cash flows from operating activities versus $127 million in the prior-year period, an improvement of $108 million. The increase reflected our strong operating results and the benefits of deflation in our working capital.

Turning to cash flow investments. The Company invested $120 million in cash capital expenditures or 0.7% of FY16 net sales versus $99 million in the prior year. The Company also spent $39 million on acquisitions.

We remain disciplined on uses of cash and paying down debt. PFG's net debt at the end of FY16 stood at $1.1 billion, a decline of $279 million versus year-end FY15.

Our net debt to adjusted EBITDA leverage was 3.1 times at the end of the year, which is a decrease of nearly 1.2 turns. Approximately half of that deleverage was the result of our IPO, and the other half resulted from operations.

In May, the Company issued and sold $350 million of 5.5% senior unsecured notes due in 2024. The senior notes' transaction extended the maturity of the Company's debt, traded floating-rate term debt for fixed-rate notes at a slightly lower interest rates, and provided the Company with a capital structure that we believe is flexible and expandable to support future growth. The transaction was modestly accretive to fourth-quarter adjusted diluted earnings per share, excluding one-time charges to interest expense in the quarter of $0.02 per share.

Let's turn to our outlook for FY17. PFG expects adjusted EBITDA growth to be on a range of 7% to 10% on a 52 to 52 week basis, and 5% to 8% on a 52 to 53 week basis. The comparable 53 week FY16 adjusted EBITDA is $366.6 million.

The Company expects that the 7% to 10% adjusted EBITDA growth for FY17 will reflect first-half growth in the low to mid-single-digit range. First half adjusted EBITDA growth is expected to reflect tough comparisons versus the first half of FY16, and planned investments in Customized and Vistar.

The second half of FY17 growth rate is expected to be in the mid-single-digit to low double-digit range versus the second half of FY16. We remind you that the second half of FY16 included the extra week.

PFG also expects FY17 adjusted diluted EPS growth to be in a range of 31% to 36% to $1.27 to $1.32 on a 52 week to 52 week basis. The comparable FY16 adjusted diluted earnings is $0.97 per share.

For the 52 to 53 week basis, PFG expects fiscal diluted adjusted EBITDA growth to be -- EPS growth, to be in the range of [27%] to [32%] to $1.27 to $1.32 per share. The comparable 53 week FY16 adjusted earnings per share is an even $1 per share.

This outlook is based on the following annual assumptions. Organic case growth in a range of 4% to 7%. This range is higher than the 3% to 5% we provided for FY16, and it reflects the new customers and new customer geographies that George referenced.

We project interest expense in the range of approximately $50 million to $60 million, and an effective tax rate on operations of approximately 40%. PFG also expects capital expenditures for FY17 will be between $140 million to $160 million, while depreciation and amortization is expected to be between $110 million to $125 million. The FY17 capital expenditures estimate is higher than FY16 because of the timing of certain projects begun in FY16 that will be completed this fiscal year.

And with that, operator, George and I will now be happy to take questions.

(Operator Instructions)

John Heinbockel of Guggenheim Securities.

George, just starting with the industry backdrop. You look at your independent case growth, are the independents simply fairing a lot better than the chains and taking share? Or are you picking up a disproportionate amount of share from your distributor customers when you look at the health of your independent customer base?

Of course we'd like to think it's more that we are picking up more than our share. I think that there's a lot of numbers come out, and I think it's difficult to determine how independent restaurants are performing. But the way we look at it and the way it feels to us, they are performing today better than the chains are performing.

Okay. And if I look at -- if I look at customized, one of the things you had talked about was Red Lobster. Because of the nature of that business, that would actually free up capacity over time in your facilities, in your network. How quickly do you see and what's the prognosis for that extra capacity then being filled? Is that more a 2018 event after you get Red Lobster in, or is that something that is happening now?

I'll go through that here without getting too much in the weeds; I'll try to go through this pretty quickly. We have 102 restaurants that we've just started with. And as I mentioned earlier, the first two days have gone very well but it's quite early and you always have a learning curve.

We have two different groups coming in September. The first one will have 121, the second 90 restaurants. October we have another two sets, one coming in early in the month at 147, one later in the month at 90. And then during the month of November, we will have 128 that will come in. And at that point, we will have 678 restaurants and we will be supplying the entire chain.

We expect that to -- we had said before about a $500 million net gain versus the chains that we'll no longer service. We have had some closures, it will still be well over $400 million, but it will still be very accretive for us. That will be done out of six distribution centers, and it is the six that we have that put out the highest fill rates, the highest on-time rates; it's the best that we have.

Okay. And then just lastly on Vistar. So two things. The technology you are testing in the prototype, to what degree can that be retrofitted in other warehouses? And how you look at the dollar stores as a -- within the retail channel, the economics of the dollar stores versus other retailers that you serve? Okay that's actually two different things, so I will try to go through that quickly as well. First of all with the dollar stores, this is a chain that we already service and it's been a great account for us.

We took on additional volume in the Northeast. We really I would say underestimated the amount of business that was going to come in the five boroughs particularly. So we ended up adding another distribution center, which is temporary, but we added another distribution center in the metro New York area.

Obviously, it's a lot of additional expense, but we plan to continue to operate with an extra distribution center until we feel we fully have our arms around that business. We are putting out great service levels right now. We don't want to take any risk, but it is a profitable business for us and it's good business.

As far as the pick-and-pack business, we don't currently do any dollar business out of there. It's not for that channel. We don't want to take that technology and put it into any existing distribution centers. Those are set up for manual pick-and-pack. We do plan on eventually having three. The one we have an metro Memphis is already operating. It's operating well, but it's not operating at the speed in which we want it to operate.

Once again, we don't want to take any risks. So we've continued to keep the manual operation open, and our plan is to keep that open until we are fully satisfied that our prototype is working to our expectations. Okay, thank you.

Vincent Sinisi of Morgan Stanley.

Good morning, guys. Thanks very much for taking my question. Just wanted to -- when you're trying to reconcile, you said deflation of about 1.7%. And when we look at essentially a 4% delta between the case and the sales growth, I know you said the other factors in there a lot of mix, customers shifting going on, and also I'm guessing some of that may be pricing. Can you just give us any more color around the breakdown maybe around the competitive environment and/or pricing changes, as well as the mix changes?

Okay. As far as the mix, we're going to have some noise around that for a little bit. Our center-of-the-plate, our higher case cost product, particularly cheese, has been growing faster than our total. That's had an impact for us. But as we get into this fiscal year because of the change in the mix of business that we have in Vistar, you are going to see a reduced average sell price there which will skew our difference between case growth and sales growth versus a more normalized period of time.

And also in our Customized, we're going to have the opposite effect as Red Lobster has a much higher case cost average than the rest of our business has. In Performance Foodservice, we're going to be pretty consistent with what inflation is with the exception of any change in mix of business that occurs.

Okay.

As far as the competitive landscape, I think it's always been competitive, I think it's competitive now. I don't really see much difference from the last quarter when we had this call to now, with maybe the exception that I think there is less capacity in the chain business and I see some of that changing as RFPs are done, they don't seem to be quite as competitive a process.

Okay, very helpful. And maybe just one fast follow up. On the Red Lobster business, very helpful commentary around how that will come on board here.

But just with the planned exits that have been done thus far at this point, should we expect any more to come? Or is capacity at this stage where you want it to be and can handle the future Red Lobster business coming on board?

We don't expect any more to come. We are not through that process yet, so we are doing some additional handling to service more business than we should out of our first center that we do Red Lobster. But it's going well.

Okay, thanks very much. Good luck.

Zack Fadem of Wells Fargo.

Good morning. So when I look at the operating expense line in the quarter, there were several items that seemed like impacted results here. New business start-up costs, facility investments you mentioned.

Can you just talk about the cadence going into next year of some of these investments you mentioned running duplicate facilities? Is that the explanation for the first-half guidance being a little bit lower than the second half guidance? And as far as incremental investments in the pipeline, maybe you could touch on that, as well.

Yes it is I'll make a couple comments with that. First the onboarding of Red Lobster, it's very important that we don't let that impact any of our existing business. We talk a lot about Red Lobster, but all our customers are important. And we are bringing business in to six distribution centers from nine. So we actually have some that are coming into one facility initially, but at some point actually being moved to another one. So we are going to be going additional miles early on, and obviously you have training, you have a learning curve with the drivers. It's a slightly different delivery for some of the drivers. We have another account that's handled similarly.

So I think between now and November, we're going to continue to spend additionally against this transformation that we are doing in our customized, and we're not going to take any risks as we go through that. We've got a nice picture of what we are going to look like when this is all over, and we like that picture and we're not going to take risks to get to that. And we want to make sure that the business that we are exiting, that we handle that business extremely well up until the last delivery. I think that's our responsibility. So there's additional expense there.

And then if you turn towards Vistar, we are going to run that additional facility in Metro New York. We need to determine if we need a larger facility, if we just need an addition, what we need there. So as we get our arms around that business, we will make those determinations. So we're not really giving a timeline as to when we will do that.

And the same goes for the prototype facility that we put up. We're going to be equally as careful with that. We certainly like what we see so far. And probably by this next call we'll be able to give some guidance as to when we will move all that into the prototype facility.

Okay. Thanks, George, that all makes sense. And then big picture on the industry.

You mentioned case growth of around 1% to 2%. But just given recent same-store sales weakness for some of the publicly traded restaurant chains that we all see out there, can you just us update us on what you are seeing more recently, as in this summer, as far as chain business and how that compares to independents?

Our independent growth in the first quarter so far is really the same as it was in the fourth quarter, and exactly the same ironically. I got a sense I think we are continuing to build momentum. We have seen softness in the chains. Obviously, we're not going to comment on any of them individually. I don't know how much of that is just a change in how people eat and the trending.

We didn't have Olympus last year. We didn't have conventions last year, political conventions, and we didn't have anywhere near as much 100 degree weather or across as big a geography. So I don't know how much impact those three things have, maybe not much. But they certainly feel like they have to us as we watch our week to week same-store sales purchases. But we're definitely seeing a recent weakness in the chain business.

And by the way, that's not just our customized chains. We've actually seen weakness in our chains within Performance Foodservice. And even those that have done been doing really well are still doing well, but not as well as they were doing before.

Got it. Really helpful, George. Thanks a lot for taking my question.

Edward Kelly of Credit Suisse.

Hello. Good morning. I just wanted to ask you about the second-half guidance. So it looks like you're projecting EBITDA growth of mid-single-digits to low double digits, and I'm just curious why the range is as large as it is and what could cause you to be at the low end of that for the second half?

Well it's going to be a unique time for us. We've got confidence our Performance Foodservice will continue to grow as it is. And we are at all-time peak for growth right now with Vistar, and we know Customized provided we're stable with our existing customer base will be growing the best it's grown really since the great recession.

So we got a good picture come that time. I think we are trying to be cautious, particularly the next two quarters. I think that should we not be able to get into these two additional distribution centers to get out of those, and like I said we were are going to be real cautious with that, that could affect the second half of our year. But we feel like that at this point, we're confident that won't happen. We are particularly excited about the Memphis one because of the labor savings that will come along with that.

And, Ed, the other factor, just whenever you're looking at the second half of a fiscal year for us. It does include the winter quarter, and you never know exactly what's going to happen on winter, so you always are a little bit more cautious that you might have a bad weather pattern there.

And these issues that we are dealing with, we like to think of them as opportunities, but they are not clear cut one fiscal year and the next. When we look back, we will probably feel the greatest impact was in the month of June. So actually the greatest impact would probably be in late 2016. So we will have some easier comparisons late in the year.

And, George, it's easy to focus on first half investments and the drag that some of the stuff is causing. But could you maybe talk a bit more bigger picture, specifically on Vistar by the way, about the opportunity in that business longer term.

Obviously it's constructive that you're expanding the retail customer base, pick and pack seems to be a good opportunity for you. How should we think about that business from a growth perspective on a multi-year basis as all this is rolling out?

Once again, I'll try not to get too much in the weeds as we'd much rather talk about our 20% EBITDA growth in Performance Foodservice I guess. But it is important to go through these. Today, we have three distribution centers that handle our pick and pack business. It's entirely manual, and labor is an issue in our business. This will be a big help.

Today, we do fulfillment, e-commerce fulfillment. It's only 4.5% of our pick-and-pack business, but it's 23.8% of the orders. So we are constrained to grow that. We have several people that we are talking about today, talking to about doing their fulfillment. This will help us be able to grow that business.

It puts us in a position, it's a goal that Pat Haggerty and I have had for many years. And that's to be able to very efficiently do everything from e-commerce to 52 footers with the product base that we have within Vistar, and this gives us the opportunity to do that more efficiently. It's about a $300 million business that we have now, but there's 1.4 million orders that were doing.

So obviously there's a tremendous amount of labor intensity, and we like what we see. So we're going to continue down that path, and we feel that once we get there that this will be one of our fast-growing businesses. And we've always found a way in Vistar year in and year out to work our way into different channels and continue to grow our business.

Great. Thanks.

Bryan Hunt of Wells Fargo.

Thank you. A lot of my questions have been touched on, but two remaining ones. One, I was wondering if you could just talk about the evolution of deflation, and when you feel like we are going to really lap the biggest deflationary headwinds we've seen in the last 18 months?

Yes, 18 months is exactly the number of months in which we've had deflation. So we are now into six months of deflation on top of deflation, which I haven't seen in my years in this business.

It appears as if we are going to continue to see some deflation for a period of time. It's hard to determine when that turns. I will tell you that in the quarter we are in, we've seen deflation in meat and poultry, mild in seafood. We've seen it double digit in cheese. Extremely high deflation in eggs, and slight deflation in disposable. So that's a lot of categories that are going the other way, and I don't necessarily see that turning fast.

Okay. And then my next question, and disjointed topics, you mentioned, George, you mentioned retention rates. And I was wondering if you could just talk about retention in broad terms? It sounds like your retention rates are improving. Is that the case, and what do you feel like the drivers are behind that?

Just focus. Our Performance Foodservice people, that's where we've had more turn or churn in our customer base and our people are just very focused on it. We've made it a big priority, and I think that any time you do that you are probably going to improve.

And then my last question is when you mentioned acquisitions. Can you talk about it in broad terms the acquisition pipeline, maybe what it looks like today relative to just around the IPO process and whether multiples have changed at all in your opinion?

I would think that multiples are probably around the same as they were at the time of the IPO, and we are in more conversations actually than we've ever been and we are further along in those conversations than we certainly were a quarter ago. So we are encouraged that we are going to have a pipeline coming and be able to get some of these closed. Like I said, we're deep into it today.

Very good. I'll hand it off to someone else. I really appreciate it.

(Operator Instructions)

Ajay Jain of Pivotal Research.

Yes, hello. Good morning, thanks for the question. Most of my questions have actually been asked already, I just wanted to maybe clarify the $18 million expense item on the P&L.

Is that all related to onboarding costs? And can you also just confirm how much of that expense was added back in terms of your earnings reconciliation? Basically, how much of that expense was adjusted, how much of it actually flowed through to adjusted earnings? Any more detail would be appreciated in terms of the expense itself, and then how much of that got adjusted out. Even if you can comment on a high level, thanks.

Sure. Hey, Ajay. Just help me understand where you're getting the $18 million number from, I just want to make sure I'm responding to the right (multiple speakers).

I think it was below the operating income line.

If it was below operating income, it would not have been related to anything that we would -- if it's below the operating income line, it would've possibly been something we added back. I'll have to take a look and give you a call back.

Okay, maybe I'll follow up off-line. And just as one more housekeeping item, do you have any corresponding figure for GAAP EPS guidance for FY17?

No. We actually don't. The issue on that is that the number of different things that can happen to affect GAAP EPS. One of the things George mentioned is that we've got a really strong pipeline right now. When we do our adjustments, we add back the cost of the legal fees and consulting fees and accounting fees you have for acquisitions.

We anticipate we are probably going to have, or we're hoping we have, a lot of those numbers to add back next year, but at this point in time we can't say what. So it's hard to get from the adjusted EPS back to what the GAAP EPS is, because the adjustments themselves are just so hard to predict. We've actually got a little bit of language in the earnings release itself that will talk about some of the other factors that affect that.

Okay, great. Thank you very much.

(Operator Instructions)

I'm showing no further questions at this time. I will now turn the floor back over to Michael Neese for any additional or closing remarks.

Thanks, Maria. We would like to thank everyone for their participation on today's call. We look forward to presenting at the Barclays Global Consumer Staples conference in Boston in September. Thank you.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect.