Sysco(US:SYY)2024-01-30 23:24PART I – FINANCIAL INFORMATION Item 1. Financial Statements This section presents Sysco's unaudited consolidated financial statements for the quarter ended December 30, 2023, including balance sheets, income statements, and cash flows, with detailed accounting policy notes Consolidated Financial Statements Consolidated financial statements show total assets increased to $24.7 billion, sales grew 3.1% to $38.9 billion, and net earnings rose to $918.6 million Consolidated Balance Sheet Highlights (As of Dec 30, 2023 vs. Jul 1, 2023) | Metric | Dec 30, 2023 ($ in millions) | Jul 1, 2023 ($ in millions) | | :--- | :--- | :--- | | Total Current Assets | 11,309.6 | 10,608.4 | | Total Assets | 24,740.6 | 22,821.1 | | Total Current Liabilities | 8,254.5 | 8,540.4 | | Long-Term Debt | 12,028.1 | 10,348.0 | | Total Liabilities | 22,303.2 | 20,779.3 | | Total Shareholders' Equity | 2,404.0 | 2,008.6 | Consolidated Results of Operations Highlights (YoY) | Metric | 26-Week Period Ended Dec 30, 2023 ($ in millions) | 26-Week Period Ended Dec 31, 2022 ($ in millions) | YoY Change | | :--- | :--- | :--- | :--- | | Sales | 38,908.4 | 37,720.8 | +3.1% | | Gross Profit | 7,161.4 | 6,838.5 | +4.7% | | Operating Income | 1,503.6 | 1,377.6 | +9.1% | | Net Earnings | 918.6 | 606.8 | +51.4% | | Diluted EPS | $1.81 | $1.19 | +52.1% | Consolidated Cash Flow Highlights (26-Week Periods YoY) | Metric | Ended Dec 30, 2023 ($ in millions) | Ended Dec 31, 2022 ($ in millions) | | :--- | :--- | :--- | | Net cash provided by operating activities | 855.9 | 503.5 | | Net cash used for investing activities | (1,504.9) | (319.4) | | Net cash provided by (used for) financing activities | 777.8 | (527.5) | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, acquisitions, and debt, highlighting $1.2 billion in H1 FY2024 acquisitions, $1.0 billion in new senior notes, and a $500 million ASR program - In H1 FY2024, Sysco paid $1.2 billion in cash for several acquisitions32 - On November 27, 2023, Sysco acquired Edward Don & Company for cash consideration of $969.4 million, expected to create a specialty equipment and supplies platform33 - On November 17, 2023, Sysco issued $1.0 billion in senior notes, consisting of $500 million due 2029 at 5.75% and $500 million due 2034 at 6.00%61 - Subsequent to the quarter end, on January 3, 2024, the company initiated a $500 million Accelerated Share Repurchase (ASR) program with Goldman Sachs72 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 and H1 FY2024 financial results, highlighting 3.7% Q2 sales growth to $19.3 billion, segment performance, and an increased $1.25 billion share repurchase target Highlights and Results of Operations Q2 FY2024 sales increased 3.7% to $19.3 billion, with adjusted net earnings up 10.1% to $449.0 million, driven by case volume growth and improved gross margin Q2 FY2024 Financial Highlights (vs. Q2 FY2023) | Metric | Q2 FY2024 ($ in millions) | YoY Change | | :--- | :--- | :--- | | Sales | 19,300.0 | +3.7% | | Operating Income | 700.0 | +9.2% | | Adjusted Operating Income | 744.9 | +9.2% | | Net Earnings | 415.2 | +194.0% | | Adjusted Net Earnings | 449.0 | +10.1% | | Adjusted Diluted EPS | $0.89 | +11.3% | - U.S. Foodservice case volume grew 3.4% in Q2 and 2.5% in the first 26 weeks of FY2024 compared to the prior year109 - Product cost inflation was 1.1% at the total enterprise level in Q2 FY2024, primarily in the meat and frozen categories110 Segment Performance U.S. Foodservice sales grew 3.2% with 7.4% operating income growth, while International sales increased 9.6% with 44.4% operating income growth, driven by volume and inflation Q2 FY2024 Segment Operating Income (vs. Q2 FY2023) | Segment | Operating Income ($ in millions) | YoY Change | | :--- | :--- | :--- | | U.S. Foodservice Operations | 839.0 | +7.4% | | International Foodservice Operations | 82.9 | +44.4% | | SYGMA | 16.3 | Not Meaningful | | Other | 8.4 | -15.0% | - The sales growth in U.S. Foodservice Operations was primarily driven by a 3.4% increase in case volumes in Q2 FY2024124 - International Foodservice sales growth was due to inflation (3.7%), positive foreign currency impact (3.2%), and volume improvements132134 Liquidity and Capital Resources Sysco generated $855.9 million in operating cash flow and $527.4 million in free cash flow, investing $1.2 billion in acquisitions and increasing share repurchase guidance to $1.25 billion Cash Flow Summary (First 26 Weeks of FY2024 vs. FY2023) | Metric | FY2024 ($ in millions) | FY2023 ($ in millions) | | :--- | :--- | :--- | | Net cash provided by operating activities | 855.9 | 503.5 | | Free Cash Flow (Non-GAAP) | 527.4 | 219.3 | | Acquisition of businesses, net of cash | (1,174.6) | (37.7) | | Stock repurchases | (199.9) | (267.7) | | Dividends paid | (505.6) | (498.3) | - The company increased its share repurchase guidance for fiscal 2024 to $1.25 billion, up from the prior guidance of $750.0 million177 - As of December 30, 2023, the company had $962.2 million in cash and cash equivalents, with approximately 57% held by international subsidiaries178 Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risks include interest rate, foreign currency, fuel price, and investment risks, with no significant changes since July 1, 2023 - There have been no significant changes to the company's market risks (interest rate, foreign currency, fuel price, investment) since July 1, 2023195 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of December 30, 2023, with no material changes to internal control over financial reporting during the quarter - Management concluded that as of December 30, 2023, Sysco's disclosure controls and procedures were effective at the reasonable assurance level196 - No material changes to internal control over financial reporting were identified during the fiscal quarter ended December 30, 2023197 PART II – OTHER INFORMATION Item 1. Legal Proceedings Sysco reports no material environmental matters and does not anticipate any pending legal proceedings will materially affect its financial condition or results - The company does not believe there are any pending legal proceedings that will have a material adverse effect on its financial condition, results of operations, or cash flows201 Item 1A. Risk Factors This section directs readers to the 2023 Annual Report on Form 10-K for a comprehensive discussion of the company's risk factors - The report directs readers to the 2023 Annual Report on Form 10-K for a detailed discussion of risk factors202 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q2 FY2024, Sysco repurchased 1,482,959 shares at an average price of $67.56, with approximately $3.8 billion remaining under its share repurchase authorization Q2 FY2024 Share Repurchases | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Month 1 (Oct) | 569,405 | $64.48 | | Month 2 (Nov) | 574,847 | $67.62 | | Month 3 (Dec) | 338,707 | $72.61 | | Total | 1,482,959 | $67.56 | - As of December 30, 2023, Sysco had a remaining share repurchase authorization of approximately $3.8 billion205 Item 5. Other Information This section discloses the adoption of Rule 10b5-1 trading plans by the President and CEO and two other senior executives during the quarter - During the quarter, President and CEO Kevin Hourican, and two other senior executives, adopted Rule 10b5-1 trading plans for the sale of company securities207 Item 6. Exhibits This section lists exhibits filed with the Quarterly Report on Form 10-Q, including CEO and CFO certifications and various corporate documents