Sysco(SYY) - 2024 Q3 - Quarterly Results

Executive Summary & Third Quarter Fiscal Year 2024 Highlights CEO & CFO Commentary Sysco's leadership highlighted strong profit growth and operating leverage in Q3 FY2024 despite a softer macro environment - CEO Kevin Hourican emphasized strong profit growth in Q3 FY2024, attributing it to disciplined gross profit margin management and expense control, despite softer sales and case volumes due to lower restaurant traffic[1] - CFO Kenny Cheung highlighted the sixth consecutive quarter of positive operating leverage, with gross profit expanding faster than operating expenses, and raised cost-out targets for fiscal year 2024 from $100 million to $120 million[2] Key Financial & Operational Highlights Sysco's Q3 FY2024 results show increased sales, gross profit, and adjusted EPS, alongside growth in U.S. Foodservice volume Q3 FY2024 Key Financial Highlights (YoY Change) | Metric | Value (Q3 FY2024) | Change (YoY) | | :-------------------------------- | :------------------ | :----------- | | Sales | $19.4 billion | +2.7% | | Gross Profit | $3.6 billion | +5.2% | | Operating Income | $722.0 million | +3.8% | | Adjusted Operating Income | $799.3 million | +8.4% | | EBITDA | $933.0 million | +5.4% | | Adjusted EBITDA | $976.6 million | +8.5% | | EPS | $0.85 | +1.2% | | Adjusted EPS | $0.96 | +6.7% | Q3 FY2024 Key Operational Highlights (YoY Change) | Metric | Change (YoY) | | :-------------------- | :----------- | | U.S. Foodservice volume | +2.9% | | U.S. local volumes | +0.4% | - Sysco returned approximately $753 million of capital to shareholders in Q3 FY2024, comprising $500 million in share repurchases and $253 million in dividends[2] Fiscal Year 2024 Guidance Sysco reaffirmed its adjusted EPS growth guidance for fiscal year 2024 and raised its annual cost-out targets - Sysco remains confident in its fiscal year 2024 guidance of five to ten percent adjusted EPS growth, targeting an adjusted EPS range of $4.20 to $4.40[3] - The company raised its cost-out targets for fiscal year 2024 from $100 million to $120 million[2] Third Quarter Fiscal Year 2024 Financial Performance Total Sysco Consolidated Results Consolidated Q3 FY2024 results feature growth in sales, gross profit, and operating income, with a notable gross margin expansion Total Sysco Q3 FY2024 Financial Performance (YoY) | Metric | Q3 FY2024 Value | YoY Change | | :-------------------- | :---------------- | :--------- | | Sales | $19.4 billion | +2.7% | | Gross Profit | $3.6 billion | +5.2% | | Gross Margin | 18.6% | +44 bps | | Operating Income | $722.0 million | +3.8% | | Adjusted Operating Income | $799.3 million | +8.4% | - Product cost inflation at the total enterprise level was 1.9%, mainly in the meat and frozen categories[5] - The increase in gross profit was driven by positive volumes and effective management of product cost inflation and strategic sourcing[5] U.S. Foodservice Operations The U.S. Foodservice segment saw increased sales and gross profit driven by volume growth, though operating income slightly decreased U.S. Foodservice Q3 FY2024 Performance (YoY) | Metric | Q3 FY2024 Value | YoY Change | | :-------------------------- | :---------------- | :--------- | | Sales | $13.7 billion | +3.4% | | Total Case Volume | - | +2.9% | | Local Case Volume | - | +0.4% | | Gross Profit | $2.7 billion | +4.2% | | Gross Margin | 19.4% | +15 bps | | Operating Income | $852.4 million | -0.5% | | Adjusted Operating Income | $874.8 million | +0.7% | International Foodservice Operations The International Foodservice segment delivered strong growth in sales, gross profit, and operating income, aided by favorable currency exchange rates International Foodservice Q3 FY2024 Performance (YoY) | Metric | Q3 FY2024 Value | YoY Change | Constant Currency Change | | :-------------------------- | :---------------- | :--------- | :----------------------- | | Sales | $3.5 billion | +4.5% | +2.4% | | Gross Profit | $719.7 million | +12.0% | +9.5% | | Gross Margin | 20.6% | +138 bps | +134 bps | | Operating Income | $83.9 million | +73.9% | - | | Adjusted Operating Income | $109.4 million | +63.4% | +60.4% | - Foreign exchange rates positively impacted International Foodservice Operations sales by 2.1% and total Sysco sales by 0.4% during the quarter[10] Other Segments and Corporate Performance varied across other segments, with SYGMA and 'Other' declining while the Global Support Center reduced its operating loss SYGMA SYGMA Q3 FY2024 Performance (YoY) | Metric | Q3 FY2024 Value | YoY Change | | :---------------- | :---------------- | :--------- | | Sales | $1,903.9 million | -3.5% | | Gross Profit | $153.3 million | -7.7% | | Gross Margin | 8.05% | -37 bps | | Operating Income | $16.8 million | -34.4% | Other Other Segment Q3 FY2024 Performance (YoY) | Metric | Q3 FY2024 Value | YoY Change | | :---------------- | :---------------- | :--------- | | Sales | $275.2 million | -8.9% | | Gross Profit | $71.0 million | -10.6% | | Gross Margin | 25.81% | -50 bps | | Operating Income | $6.4 million | -46.2% | Global Support Center Global Support Center Q3 FY2024 Performance (YoY) | Metric | Q3 FY2024 Value | YoY Change | | :-------------------- | :---------------- | :--------- | | Gross Profit (loss) | $12.2 million | NM (from loss) | | Operating Expenses | $249.7 million | +2.3% | | Operating Loss | $(237.5) million | +3.9% (reduced loss) | Balance Sheet, Cash Flow and Capital Allocation Balance Sheet Overview As of March 30, 2024, Sysco maintained a cash balance of $598.3 million Cash Balance (End of Q3 FY2024) | Metric | Value | | :---------- | :---------- | | Cash Balance | $598.3 million | Cash Flow from Operations and Free Cash Flow For the first 39 weeks of fiscal year 2024, cash flow from operations was $1.4 billion, while free cash flow was $863.7 million Cash Flow Performance (First 39 Weeks FY2024 vs. FY2023) | Metric | FY2024 (39 Weeks) | Change (YoY) | | :-------------------------- | :------------------ | :----------- | | Cash Flow from Operations | $1.4 billion | -$52.6 million | | Capital Expenditures (net) | $509.5 million | - | | Free Cash Flow | $863.7 million | -$115.9 million | Shareholder Returns Sysco returned $1.5 billion to shareholders during the first 39 weeks of fiscal year 2024 and is on track to return $2.25 billion for the full year Shareholder Returns (First 39 Weeks FY2024) | Metric | Value | | :----------------- | :-------------- | | Total Returned | $1.5 billion | | Share Repurchases | $699.9 million | | Dividends | $758.1 million | - Sysco is on target to return approximately $2.25 billion to shareholders in fiscal year 2024[2] Consolidated GAAP Financial Statements Consolidated Results of Operations (Income Statement) Sysco's GAAP income statement for Q3 FY2024 shows sales of $19.38 billion and net earnings of $424.7 million Consolidated Results of Operations (GAAP) - Q3 FY2024 | Metric | Mar. 30, 2024 (13-Week) | Apr. 1, 2023 (13-Week) | | :-------------------------- | :---------------------- | :--------------------- | | Sales | $19,379,500 | $18,875,676 | | Cost of sales | $15,770,444 | $15,444,316 | | Gross profit | $3,609,056 | $3,431,360 | | Operating expenses | $2,887,010 | $2,735,633 | | Operating income | $722,046 | $695,727 | | Net earnings | $424,688 | $429,604 | | Diluted earnings per share | $0.85 | $0.84 | Consolidated Results of Operations (GAAP) - 39-Week Period FY2024 | Metric | Mar. 30, 2024 (39-Week) | Apr. 1, 2023 (39-Week) | | :-------------------------- | :---------------------- | :--------------------- | | Sales | $58,287,896 | $56,596,459 | | Cost of sales | $47,517,435 | $46,326,628 | | Gross profit | $10,770,461 | $10,269,831 | | Operating expenses | $8,544,790 | $8,196,480 | | Operating income | $2,225,671 | $2,073,351 | | Net earnings | $1,343,322 | $1,036,388 | | Diluted earnings per share | $2.66 | $2.03 | Consolidated Balance Sheets As of March 30, 2024, total assets were $24.71 billion and total liabilities were $22.58 billion Consolidated Balance Sheet (GAAP) - Mar. 30, 2024 vs. Jul. 1, 2023 | Metric | Mar. 30, 2024 | Jul. 1, 2023 | | :--------------------------------- | :-------------- | :------------- | | ASSETS | | | | Cash and cash equivalents | $598,322 | $745,201 | | Accounts receivable, net | $5,556,703 | $5,091,970 | | Inventories | $4,733,966 | $4,480,812 | | Total current assets | $11,204,875 | $10,608,364 | | Plant and equipment, net | $5,290,437 | $4,915,049 | | Goodwill | $5,220,989 | $4,645,754 | | Total assets | $24,712,340 | $22,821,145 | | LIABILITIES & EQUITY | | | | Accounts payable | $5,869,479 | $6,025,757 | | Total current liabilities | $8,366,271 | $8,540,433 | | Long-term debt | $12,113,205 | $10,347,997 | | Total long-term liabilities | $14,212,559 | $12,238,878 | | Total liabilities | $22,578,830 | $20,779,311 | | Total shareholders' equity | $2,100,953 | $2,008,622 | | Total liabilities and shareholders' equity | $24,712,340 | $22,821,145 | Consolidated Cash Flows For the 39-week period, net cash from operating activities was $1.37 billion, while investing activities saw a significant use of cash due to acquisitions Consolidated Cash Flows (GAAP) - 39-Week Period FY2024 vs. FY2023 | Metric | Mar. 30, 2024 | Apr. 1, 2023 | | :------------------------------------ | :-------------- | :------------- | | Net cash provided by operating activities | $1,373,193 | $1,425,782 | | Net cash used for investing activities | $(1,700,649) | $(481,354) | | Net cash provided by (used for) financing activities | $60,260 | $(1,023,052) | | Net decrease in cash, cash equivalents and restricted cash | $(273,402) | $(76,911) | | Cash, cash equivalents and restricted cash at end of period | $692,631 | $854,465 | - Acquisition of businesses, net of cash acquired, was a significant use of cash in investing activities, totaling $1.18 billion for the 39-week period, compared to $37.4 million in the prior year[23] - Financing activities saw a shift from net cash used to net cash provided, primarily due to $1.26 billion in other debt borrowings, including senior notes[23] Non-GAAP Financial Measures and Reconciliations Non-GAAP Definitions and Rationale Sysco utilizes non-GAAP measures to provide a clearer perspective on underlying business trends by excluding certain items and currency impacts - Non-GAAP measures exclude restructuring charges, transformational project costs, severance costs, and acquisition-related costs to provide insight into underlying business trends[25] - Constant currency results are calculated by translating current-period local currency results using prior-year exchange rates to remove the impact of foreign currency fluctuations[26] - Management believes these adjusted measures facilitate year-over-year comparisons and are indicative of the company's underlying operational performance[27] Consolidated Non-GAAP Reconciliations This section provides detailed reconciliations of GAAP to non-GAAP financial measures for the consolidated entity 13-Week Period Reconciliation Consolidated Non-GAAP Reconciliation (13-Week Period) | Metric | GAAP (Mar. 30, 2024) | Adjusted (Non-GAAP) | GAAP % Change | Adjusted % Change | | :------------------------------------ | :------------------- | :------------------ | :------------ | :---------------- | | Sales | $19,379,500 | $19,309,924 (constant currency) | 2.7% | 2.3% | | Gross Profit | $3,609,056 | $3,593,394 (constant currency) | 5.2% | 4.7% | | Operating Expenses | $2,887,010 | $2,809,804 | 5.5% | 4.3% | | Operating Income | $722,046 | $799,252 | 3.8% | 8.4% | | Net Earnings | $424,688 | $483,384 | (1.1)% | 5.0% | | Diluted EPS | $0.85 | $0.96 | 1.2% | 6.7% | - Adjustments for the 13-week period included $28.5 million for restructuring and transformational project costs and $48.7 million for acquisition-related costs, impacting operating expenses and income[30] 39-Week Period Reconciliation Consolidated Non-GAAP Reconciliation (39-Week Period) | Metric | GAAP (Mar. 30, 2024) | Adjusted (Non-GAAP) | GAAP % Change | Adjusted % Change | | :------------------------------------ | :------------------- | :------------------ | :------------ | :---------------- | | Sales | $58,287,896 | $58,009,496 (constant currency) | 3.0% | 2.5% | | Gross Profit | $10,770,461 | $10,770,461 | 4.9% | 4.9% | | Operating Expenses | $8,544,790 | $8,372,030 | 4.2% | 3.7% | | Operating Income | $2,225,671 | $2,398,431 | 7.3% | 9.4% | | Net Earnings | $1,343,322 | $1,474,000 | 29.6% | 8.3% | | Diluted EPS | $2.66 | $2.92 | 31.0% | 9.4% | - Adjustments for the 39-week period included $59.6 million for restructuring and transformational project costs and $113.2 million for acquisition-related costs[33] - The prior year's GAAP net earnings and EPS were significantly impacted by a $315.3 million pension settlement charge, which is excluded from adjusted figures[33] Segment Non-GAAP Reconciliations This section provides detailed non-GAAP reconciliations for each operating segment 13-Week Period Segment Data Segment Adjusted Operating Income (13-Week Period) | Segment | GAAP Operating Income (Mar. 30, 2024) | Adjusted Operating Income (Non-GAAP) | GAAP % Change | Adjusted % Change | | :-------------------------- | :------------------------------------ | :----------------------------------- | :------------ | :---------------- | | U.S. Foodservice Operations | $852,444 | $874,792 | (0.5)% | 0.7% | | International Foodservice Operations | $83,898 | $109,359 | 73.9% | 63.4% | | SYGMA | $16,805 | $16,805 | (34.4)% | (34.4)% | | Other | $6,371 | $6,371 | (46.2)% | (46.2)% | | Global Support Center | $(237,472) | $(208,075) | 3.9% | 11.8% | - International Foodservice Operations adjusted operating income on a constant currency basis increased by 60.4% to $107.4 million[34] 39-Week Period Segment Data Segment Adjusted Operating Income (39-Week Period) | Segment | GAAP Operating Income (Mar. 30, 2024) | Adjusted Operating Income (Non-GAAP) | GAAP % Change | Adjusted % Change | | :-------------------------- | :------------------------------------ | :----------------------------------- | :------------ | :---------------- | | U.S. Foodservice Operations | $2,632,451 | $2,679,492 | 3.5% | 4.0% | | International Foodservice Operations | $260,311 | $327,922 | 35.1% | 29.9% | | SYGMA | $45,918 | $45,918 | 20.3% | 20.3% | | Other | $26,581 | $26,581 | (20.0)% | (20.0)% | | Global Support Center | $(739,590) | $(681,482) | (0.7)% | 3.6% | - International Foodservice Operations adjusted operating income on a constant currency basis increased by 27.9% to $322.8 million[36] Free Cash Flow Reconciliation Free cash flow for the first 39 weeks of fiscal year 2024 was $863.7 million, a decrease of $115.9 million compared to the prior year Free Cash Flow Reconciliation (39-Week Period) | Metric | Mar. 30, 2024 | Apr. 1, 2023 | Change in Dollars | | :------------------------------------ | :-------------- | :------------- | :---------------- | | Net cash provided by operating activities (GAAP) | $1,373,193 | $1,425,782 | $(52,589) | | Additions to plant and equipment | $(530,161) | $(474,456) | $(55,705) | | Proceeds from sales of plant and equipment | $20,708 | $28,313 | $(7,605) | | Free Cash Flow (Non-GAAP) | $863,740 | $979,639 | $(115,899) | - Free cash flow is considered a liquidity measure providing insight into cash generated after capital expenditures, potentially available for strategic uses[39] EBITDA and Adjusted EBITDA Reconciliation For Q3 FY2024, adjusted EBITDA grew 8.5% to $976.6 million, while for the 39-week period, it increased 10.6% to $2.93 billion EBITDA and Adjusted EBITDA Reconciliation (13-Week Period) | Metric | GAAP (Mar. 30, 2024) | Adjusted (Non-GAAP) | GAAP % Change | Adjusted % Change | | :------------------------------------ | :------------------- | :------------------ | :------------ | :---------------- | | Net earnings | $424,688 | - | (1.1)% | - | | EBITDA | $933,049 | - | 5.4% | - | | Adjusted EBITDA | - | $976,595 | - | 8.5% | EBITDA and Adjusted EBITDA Reconciliation (39-Week Period) | Metric | GAAP (Mar. 30, 2024) | Adjusted (Non-GAAP) | GAAP % Change | Adjusted % Change | | :------------------------------------ | :------------------- | :------------------ | :------------ | :---------------- | | Net earnings | $1,343,322 | - | 29.6% | - | | EBITDA | $2,850,254 | - | 24.3% | - | | Adjusted EBITDA | - | $2,928,503 | - | 10.6% | - Adjusted EBITDA is considered a measure of overall financial performance and profitability, facilitating consistent period-to-period comparisons[41] Net Debt to Adjusted EBITDA As of March 30, 2024, Sysco's Net Debt to Adjusted EBITDA ratio was 2.81 Net Debt to Adjusted EBITDA Ratio (Mar. 30, 2024) | Metric | Value | | :-------------------------------- | :-------------- | | Current Maturities of long-term debt | $93,225 | | Long-term debt | $12,113,205 | | Total Debt | $12,206,430 | | Cash & Cash Equivalents | $(598,322) | | Net Debt | $11,608,108 | | Adjusted EBITDA (previous 12 months) | $4,127,132 | | Net Debt/Adjusted EBITDA Ratio | 2.81 | - Net Debt to Adjusted EBITDA is a non-GAAP financial measure frequently used by investors and credit rating agencies to assess capital structure[45] Company Overview About Sysco Sysco is a global leader in distributing food products and related supplies to a wide range of foodservice customers - Sysco is the global leader in selling, marketing, and distributing food products to restaurants, healthcare, educational facilities, lodging establishments, and other away-from-home meal preparers[19] - The company operates 334 distribution facilities worldwide, serves approximately 725,000 customer locations, and generated over $76 billion in sales for fiscal year 2023[19] Investor Relations Information Sysco's investor relations website serves as a primary channel for publishing key information to investors - Sysco uses the Investor Relations section of its website (investors.sysco.com) as a primary channel for publishing key information to investors[20] Forward-Looking Statements This section contains forward-looking statements regarding future performance and associated risks and uncertainties - Statements in the press release that look forward in time or express management's beliefs, expectations, or hopes are forward-looking statements under the Private Securities Litigation Reform Act of 1995[17] - These statements include expectations regarding future productivity, international volume, the 'Recipe for Growth' strategy, supply chain efficiency, and capital allocation[17] - Actual results could differ materially from projections due to numerous factors, as detailed in the company's Annual Report on Form 10-K and subsequent SEC filings[18] Conference Call & Webcast Sysco provided details for its Q3 FY2024 earnings conference call and webcast held on April 30, 2024 - Sysco hosted a conference call on April 30, 2024, at 10:00 a.m. EDT to review its Q3 FY2024 financial results[15] - A live webcast, slide presentation, and news release were available online at investors.sysco.com[15]