Sysco Reports Second Quarter EPS Growth, Driven By Increasing Volumes and Positive Operating Leverage

HOUSTON, Jan. 30, 2024 (GLOBE NEWSWIRE) — Sysco Corporation (NYSE: SYY) (“Sysco” or the “company”) today announced financial results for its 13-week second fiscal quarter ended December 30, 2023.

Key financial results for the second quarter of fiscal year 2024 include the following (comparisons are to the same period in fiscal year 2023):

• Sales increased 3.7%; U.S. Foodservice volume increased 3.4%; U.S. local volumes grew 2.9%;
• Gross profit increased 4.9% to $3.5 billion;
• Operating income increased 9.2% to $700.0 million, and adjusted¹ operating income increased 9.2% to $744.9 million;
• EBITDA increased 82.7% to $914.3 million, and adjusted EBITDA increased 11.6% to $927.5 million²;
• EPS³ increased 192.9% to $0.82, compared to $0.28 in the same period last year, and adjusted¹ EPS increased 11.3% to $0.89;
• First half cash flow from operations increased 70.0% to $855.9 million, and free cash flow⁴ increased 140.5% to $527.4 million;
• The company now expects to return approximately $2.25 billion back to shareholders in fiscal year 2024, raising share repurchase expectations from $750 million to $1.25 billion; and
• Reaffirming fiscal year 2024 guidance expectations for top- and bottom-line growth.

“Second quarter results included adjusted EPS growth of over 11%, fueled by sales and volume growth, combined with positive operating leverage, as we continue to effectively manage margins. Our balanced efforts to deliver compelling top- and bottom-line growth were driven by sequential improvements in volume growth, including local performance, as well as supply chain productivity and implementation of structural cost-out actions. Sysco’s industry leading profitability, size and scale advantages, and strong balance sheet represent a position of strength. Combining our advantages with Sysco’s discipline on profitable growth, we expect to deliver strong results for the remainder of fiscal year 2024 and beyond,” said Kevin Hourican, Sysco’s President and Chief Executive Officer.

_{¹ Adjusted financial results, including adjusted operating expense, adjusted operating income (loss), adjusted earnings per share (EPS) and adjusted EBITDA, are non-GAAP financial measures that exclude certain items, which primarily include acquisition-related costs, restructuring and severance costs, and transformational project costs. Last year’s Certain Items include a pension settlement charge that resulted from the purchase of a nonparticipating single premium group annuity contract that transferred defined benefit plan obligations to an insurer, adjustments to our bad debt reserve specific to aged receivables existing prior to the COVID-19 pandemic and adjustments to a product return allowance related to COVID-related personal protection equipment inventory.
² Earnings before interest, taxes, depreciation and amortization (EBITDA) and adjusted EBITDA are non-GAAP financial measures. Reconciliations of all non-GAAP financial measures to the nearest corresponding GAAP financial measure are included at the end of this release.
³ Earnings per share (EPS) are shown on a diluted basis, unless otherwise specified.
⁴ Free cash flow is a non-GAAP financial measure that represents net cash provided from operating activities less purchases of plant and equipment and includes proceeds from sales of plant and equipment. Reconciliations for all non-GAAP financial measures are included at the end of this release.}

“Our second quarter operating profit included our fifth consecutive quarter of positive operating leverage, as gross profit expanded at a faster rate than operating expenses. Additionally, our balanced approach to capital allocation demonstrates the importance of investing in the business and rewarding our shareholders, all anchored by our strong balance sheet and consistent cash generation. Looking ahead, we now expect to return approximately $2.25 billion back to shareholders in fiscal year 2024, through meaningful share repurchases and dividends. Our positive momentum through the first half gives us confidence in reiterating our fiscal year 2024 guidance of mid-single digit sales growth to approximately $80 billion and five to ten percent adjusted EPS growth to $4.20 to $4.40,” said Kenny Cheung, Sysco’s Chief Financial Officer.

Second Quarter Fiscal Year 2024 Results (comparisons are to the same period in fiscal year 2023)

Total Sysco

Sales for the second quarter increased 3.7% to $19.3 billion.

Gross profit increased 4.9% to $3.5 billion, and gross margin increased 21 basis points to 18.2%. Product cost inflation was 1.1% at the total enterprise level, as measured by the estimated change in Sysco’s product costs, primarily in the meat and frozen categories. The increase in gross profit for the second quarter was primarily driven by higher volumes, as well as continued progress with effective management of product cost inflation and our strategic sourcing initiative.

Operating expenses increased 3.9%, driven by increased volumes and cost inflation, partially offset by improved productivity. Adjusted operating expenses increased 3.8%.

Operating income increased 9.2% to $700.0 million, and adjusted operating income increased 9.2% to $744.9 million.

U.S. Foodservice Operations

The U.S. Foodservice Operations segment results were driven by improved volumes, including positive local case performance, combined with effective margin management, resulting in continued profit growth.

Sales for the second quarter increased 3.2% to $13.5 billion. Total case volume within U.S. Foodservice grew 3.4% for the second quarter, while local case volume within U.S. Foodservice increased 2.9%.

Gross profit increased 3.4% to $2.6 billion, and gross margin increased 4 basis points to 19.1%.

Operating expenses increased 1.5%, and adjusted operating expenses increased 1.4%.

Operating income increased 7.4% to $839.0 million, and adjusted operating income increased 7.6% to $851.1 million.

International Foodservice Operations

The International Foodservice Operations segment delivered another quarter of sales and profit growth.

Sales for the second quarter increased 9.6% to $3.6 billion. On a constant currency basis⁵, sales for the second quarter were $3.5 billion, an increase of 6.4%. Foreign exchange rates increased both International Foodservice Operations sales by 3.2% and total Sysco sales by 0.5% during the quarter.

Gross profit increased 13.4% to $708.1 million, and gross margin increased 67 basis points to 19.7%. On a constant currency basis⁵, gross profit increased 9.5% to $684.0 million. Foreign exchange rates increased both International Foodservice Operations gross profit by 3.9% and total Sysco gross profit by 0.7% during the quarter.

Operating expenses increased 10.3%, and adjusted operating expenses increased 11.0%. On a constant currency basis⁵, adjusted operating expenses increased 6.9%. Foreign exchange rates increased both International Foodservice Operations operating expenses by 4.1% and total Sysco operating expenses by 0.9% during the quarter.

Operating income increased 44.4% to $82.9 million, and adjusted operating income increased 30.1% to $102.4 million. On a constant currency basis⁵, adjusted operating income was $100.6 million, an increase of 27.8%. Foreign exchange rates increased both International Foodservice Operations operating income by 2.3% and total Sysco operating income by 0.2% during the quarter.

Balance Sheet, Cash Flow and Capital Spending

As of the end of the quarter, the company had a cash balance of $962.2 million.

During the first 26 weeks of fiscal year 2024, Sysco returned $705.5 million to shareholders via $199.9 million of share repurchases and $505.6 million of dividends.

Cash flow from operations was $855.9 million for the first 26 weeks of fiscal year 2024, which was an increase of $352.4 million over the prior year period.

Capital expenditures, net of proceeds from sales of plant and equipment, for the first 26 weeks of fiscal year 2024 were $328.5 million.

Free cash flow⁴ for the first 26 weeks of fiscal year 2024 was $527.4 million, which was an increase of $308.2 million over the prior year period.

_{⁵ Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on current year results. These adjusted measures are non-GAAP financial measures. Reconciliations of all non-GAAP financial measures to the nearest corresponding GAAP financial measure are included at the end of this release.}

Conference Call & Webcast

Sysco will host a conference call to review the company’s second quarter fiscal year 2024 financial results on Tuesday, January 30, 2024, at 10:00 a.m. Eastern Daylight Time. A live webcast of the call, accompanying slide presentation and a copy of this news release will be available online at investors.sysco.com.

Forward-Looking Statements

Statements made in this press release or in our earnings call for the second quarter of fiscal year 2024 that look forward in time or that express management’s beliefs, expectations or hopes are forward-looking statements under the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the views of management at the time such statements are made and are subject to a number of risks, uncertainties, estimates, and assumptions that may cause actual results to differ materially from current expectations. These statements include statements concerning: the implications of the COVID-19 pandemic and any expectations we may have with respect thereto; our expectations regarding future improvements in productivity; our belief that improvements in our organizational capabilities will deliver compelling outcomes in future periods; our expectations regarding improvements in international volume; our expectations that our transformational agenda will drive long-term growth; our expectations regarding the continuation of an inflationary environment; our expectations regarding improvements in the efficiency of our supply chain; our expectations regarding the impact of our Recipe for Growth strategy and the pace of progress in implementing the initiatives under that strategy; our expectations regarding Sysco’s ability to outperform the market in future periods; our expectations that our strategic priorities will enable us to grow faster than the market; our expectations regarding our efforts to reduce overtime rates and the incremental investments in hiring; our expectations regarding the expansion of our driver academy and our belief that the academy will enable us to provide upward career path mobility for our warehouse colleagues and improve colleague retention; our expectations regarding the benefits of the six-day delivery and last mile distribution models; our plans to improve the capabilities of our sales team; our plans to refine our engineering labor standards; our expectations regarding the impact of our growth initiatives and their ability to enable Sysco to consistently outperform the market; our expectations to exceed our growth target by the end of fiscal 2024; our ability to deliver against our strategic priorities; economic trends in the United States and abroad; our belief that there is further opportunity for profit in the future; our future growth, including growth in sales and earnings per share; the pace of implementation of our business transformation initiatives; our expectations regarding our balanced approach to capital allocation and rewarding our shareholders; our plans to improve colleague retention, training and productivity; our belief that our Recipe for Growth transformation is creating capabilities that will help us profitably grow for the long term; our expectations regarding our long-term financial outlook; our expectations of the effects labor harmony will have on sales and case volume, as well as mitigation expenses; our expectations for customer acquisition in the local/street space; our expectations regarding the effectiveness of our Global Support Center expense control measures; and our expectations regarding the growth and resilience of our food away from home market.

It is important to note that actual results could differ materially from those projected in such forward-looking statements based on numerous factors, including those outside of Sysco’s control. For more information concerning factors that could cause actual results to differ from those expressed or forecasted, see our Annual Report on Form 10-K for the year ended July 1, 2023, as filed with the SEC, and our subsequent filings with the SEC. We do not undertake to update our forward-looking statements, except as required by applicable law.

About Sysco

Sysco is the global leader in selling, marketing and distributing food products to restaurants, healthcare and educational facilities, lodging establishments and other customers who prepare meals away from home. Its family of products also includes equipment and supplies for the foodservice and hospitality industries. With more than 72,000 colleagues, the company operates 334 distribution facilities worldwide and serves approximately 725,000 customer locations. For fiscal year 2023 that ended July 1, 2023, the company generated sales of more than $76 billion. Information about our Sustainability program, including Sysco’s 2023 Sustainability Report and 2023 Diversity, Equity & Inclusion Report, can be found at www.sysco.com.

For more information, visit www.sysco.com or connect with Sysco on Facebook at www.facebook.com/SyscoFoods. For important news and information regarding Sysco, visit the Investor Relations section of the company’s Internet home page at investors.sysco.com, which Sysco plans to use as a primary channel for publishing key information to its investors, some of which may contain material and previously non-public information. In addition, investors should continue to review our news releases and filings with the SEC. It is possible that the information we disclose through any of these channels of distribution could be deemed to be material information.

Sysco Corporation and its Consolidated Subsidiaries
Non-GAAP Reconciliation (Unaudited)
Impact of Certain Items

The discussion of our results includes certain non-GAAP financial measures, including EBITDA and adjusted EBITDA, that we believe provide important perspective with respect to underlying business trends. Other than EBITDA and free cash flow, any non-GAAP financial measures will be denoted as adjusted measures to remove (1) restructuring charges; (2) expenses associated with our various transformation initiatives; (3) severance charges; and (4) acquisition-related costs consisting of: (a) intangible amortization expense and (b) acquisition costs and due diligence costs related to our acquisitions. Our results for fiscal 2023 were also impacted by adjustments to a product return allowance pertaining to COVID-related personal protection equipment inventory, a pension settlement charge that resulted from the purchase of a nonparticipating single premium group annuity contract that transferred defined benefit plan obligations to an insurer and the reduction of bad debt expense previously recognized in fiscal 2020 due to the impact of the COVID-19 pandemic on the collectability of our pre-pandemic trade receivable balances.

The results of our operations can be impacted due to changes in exchange rates applicable in converting local currencies to U.S. dollars. We measure our results on a constant currency basis. Constant currency operating results are calculated by translating current-period local currency operating results with the currency exchange rates used to translate the financial statements in the comparable prior-year period to determine what the current-period U.S. dollar operating results would have been if the currency exchange rate had not changed from the comparable prior-year period.

Management believes that adjusting its operating expenses, operating income, net earnings and diluted earnings per share to remove these Certain Items and presenting its results on a constant currency basis provides an important perspective with respect to our underlying business trends and results. It provides meaningful supplemental information to both management and investors that (1) is indicative of the performance of the company’s underlying operations and (2) facilitates comparisons on a year-over-year basis.

Sysco has a history of growth through acquisitions and excludes from its non-GAAP financial measures the impact of acquisition-related intangible amortization, acquisition costs and due-diligence costs for those acquisitions. We believe this approach significantly enhances the comparability of Sysco’s results for fiscal year 2024 and fiscal year 2023.

Set forth on the following page is a reconciliation of sales, operating expenses, operating income, other (income) expense, net earnings and diluted earnings per share to adjusted results for these measures for the periods presented. Individual components of diluted earnings per share may not be equal to the total presented when added due to rounding. Adjusted diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding.

Sysco Corporation and its Consolidated Subsidiaries
Non-GAAP Reconciliation (Unaudited)
Free Cash Flow
(In Thousands)

Free cash flow represents net cash provided from operating activities less purchases of plant and equipment and includes proceeds from sales of plant and equipment. Sysco considers free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after the purchases and sales of buildings, fleet, equipment and technology, which may potentially be used to pay for, among other things, strategic uses of cash including dividend payments, share repurchases and acquisitions. However, free cash flow may not be available for discretionary expenditures, as it may be necessary that we use it to make mandatory debt service or other payments. Free cash flow should not be used as a substitute for the most comparable GAAP financial measure in assessing the company’s liquidity for the periods presented. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. In the table that follows, free cash flow for each period presented is reconciled to net cash provided by operating activities.

Sysco Corporation and its Consolidated Subsidiaries
Non-GAAP Reconciliation (Unaudited)
Impact of Certain Items on Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
(Dollars in Thousands)

EBITDA represents net earnings (loss) plus (i) interest expense, (ii) income tax expense and benefit, (iii) depreciation and (iv) amortization. The net earnings (loss) component of our EBITDA calculation is impacted by Certain Items that we do not consider representative of our underlying performance. As a result, in the non-GAAP reconciliations below for each period presented, adjusted EBITDA is computed as EBITDA plus the impact of Certain Items, excluding certain items related to interest expense, income taxes, depreciation and amortization. Sysco’s management considers growth in this metric to be a measure of overall financial performance that provides useful information to management and investors about the profitability of the business, as it facilitates comparison of performance on a consistent basis from period to period by providing a measurement of recurring factors and trends affecting our business. Additionally, it is a commonly used component metric used to inform on capital structure decisions. Adjusted EBITDA should not be used as a substitute for the most comparable GAAP financial measure in assessing the company’s financial performance for the periods presented. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. In the tables that follow, adjusted EBITDA for each period presented is reconciled to net earnings.

Sysco Corporation and its Consolidated Subsidiaries
Non-GAAP Reconciliation (Unaudited)
Net Debt to Adjusted EBITDA
(In Thousands)

Net Debt to Adjusted EBITDA is a non-GAAP financial measure frequently used by investors and credit rating agencies. Our Net Debt to Adjusted EBITDA ratio is calculated using a numerator of our debt minus cash and cash equivalents, divided by the sum of the most recent four quarters of Adjusted EBITDA. In the table that follows, we have provided the calculation of our debt and net debt as a ratio of Adjusted EBITDA.

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