PresentationJeffrey BernsteinDirector & Senior Equity Research Analyst Good morning, everyone. My name is Jeff Bernstein, and I'm the restaurant and foodservice distribution analyst at Barclays. I'm pleased to introduce our next presenting company, Sysco Corporation. With us this morning, we have Kevin Hourican to my immediate right, President and CEO; Kenny Cheung, CFO, sitting right next to him; and in the audience, we have Kevin Kim, Head of IR; and Joshua Long, Senior Director of IR. And obviously, we a ...

Sysco (SYY) FY 2025 Conference September 03, 2025 11:15 AM ET Company ParticipantsKevin Hourican - Chair of the Board & CEOKenny Cheung - EVP & CFOConference Call ParticipantsJeffrey Bernstein - MD - Senior Restaurant AnalystJeffrey BernsteinGood morning, everyone. My name is Jeff Bernstein, and I am the restaurant and foodservice distribution analyst at Barclays. I'm pleased to introduce our next presenting company, Sysco Corporation. With us this morning, we have Kevin Hurican, to my immediate right, Pres ...

Financial Data and Key Metrics Changes - The company reported a 3.8% increase in net sales to $10.1 billion, driven by case volume growth of 0.9% and food cost inflation and mix impact of 2.9% [29] - Adjusted EBITDA increased by 12% year-over-year, achieving a record of $548 million, with an adjusted EBITDA margin expansion of 40 basis points to 5.4% [30][31] - Adjusted diluted EPS rose by 28% to $1.19 per share, significantly outpacing adjusted EBITDA growth [31] Business Line Data and Key Metrics Changes - Independent restaurant organic volume grew by 2.3%, healthcare by 4.9%, and hospitality by 2.4% [30] - The company gained market share for the seventeenth consecutive quarter with independent restaurants and the nineteenth consecutive quarter with healthcare [11][30] - Chain restaurant volume declined by 4%, primarily due to a strategic exit impacting total chain volume growth by approximately 300 basis points [14] Market Data and Key Metrics Changes - Independent case growth accelerated to approximately 3% in June and July, with expectations for continued growth in the back half of the year [12][30] - The company reported a 2.7% independent volume growth, aligning with its guidance of 2% to 5% for the year [12] - Restaurant foot traffic improved sequentially but remained down 1.1% from the prior year [14] Company Strategy and Development Direction - The company remains focused on its strategic pillars: culture, service, growth, and profit, aiming for continuous improvement in operational efficiency and customer service [15][19][25] - Investments in semi-automated facilities and the Pronto delivery service are expected to enhance operational efficiencies and drive growth [24][25] - The company is committed to a disciplined capital allocation strategy, balancing investments in growth with share repurchases [11][35] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to achieve long-term growth targets despite a soft but stable industry environment [38][86] - The company anticipates continued market share gains and expects to maintain a strong pipeline in healthcare and hospitality [88] - Management acknowledged the impact of macroeconomic factors on the industry but remains optimistic about future growth opportunities [86] Other Important Information - The company repurchased $250 million of shares in the second quarter, with a total of $273 million repurchased year-to-date [11][35] - The company aims to hire an additional 3,000 military veterans by 2030 as part of its Mission 2030 recruitment initiative [28] Q&A Session Summary Question: Changes in M&A Philosophy - Management stated there is no change in M&A philosophy, emphasizing the exploration of strategic opportunities to create value for stakeholders [45] Question: Independent Restaurant Traffic Dynamics - Management noted that independent restaurant traffic has improved but not to the extent desired, with case growth accelerating in recent months [46][48] Question: Confidence in Sales Guidance - Management expressed confidence in achieving sales guidance due to onboarding new concepts and improving independent case growth [52][53] Question: Inflation Trends - Management confirmed that inflation has moderated, particularly in categories like beef and eggs, aligning with industry expectations [54] Question: Sales Force Expansion - Management plans to maintain mid-single-digit growth in the sales force, emphasizing the quality of new hires and the importance of productivity [57][59] Question: Independent Case Growth Confidence - Management expressed confidence in independent case growth, supported by a strong pipeline and market share gains [92] Question: Chain Business Strategy - Management clarified that the strategy for the chain business remains focused on optimization rather than capital investment for growth [95] Question: Pronto Service Update - Management reported positive developments in the Pronto service, with increased case growth and market penetration [102] Question: Market Share Goals - Management remains committed to gaining market share with targeted customer types, expecting continued growth as macro conditions improve [104][105]

Financial Data and Key Metrics Changes - The company reported sales of $21.1 billion, an increase of 2.8% on a reported basis and 3.7% excluding the divestiture of the Mexican business [7][8] - Adjusted operating income was $1.1 billion, up 1.1% year-over-year, and adjusted EPS grew to $1.48, reflecting a 6.5% increase compared to the previous year [8][27] - Gross profit increased by 3.9%, leading to a gross margin expansion of 19 basis points [28][33] Business Line Data and Key Metrics Changes - The international segment achieved 3.6% top-line growth on a reported basis and 8.3% excluding the divestiture of Mexico, with local case growth of 4% [9][30] - The U.S. Foodservice segment saw a 1.3% volume growth, with gross profit growing almost three times faster than volume [10][30] - The Sigma business reported top-line growth of 8.3% and bottom-line growth of 12.5%, marking a record year [11] Market Data and Key Metrics Changes - Restaurant traffic improved throughout the quarter, with a decline of 1.1% overall, which was an improvement of approximately 190 basis points compared to Q3 [6][30] - The company noted that the industry traffic trends were stabilizing after a rocky start to the year, with April down 1.5%, May down 1%, and June down approximately 0.9% [6][30] Company Strategy and Development Direction - The company is focused on improving local case volume growth through strategic initiatives and investments in sales resources [14][16] - The introduction of the Perks 2.0 customer loyalty program aims to enhance service for top customers, while an AI-powered sales tool is expected to improve sales productivity [20][22][105] - The company plans to continue expanding its international supply chain capacity and enhance customer engagement through technology improvements [14][15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to deliver profitable local volume growth in 2026, driven by stabilized colleague retention and improved productivity [18][44] - The company anticipates that the positive momentum from Q4 will carry into 2026, with expectations for improved financial results [24][48] - Management highlighted the importance of colleague retention and productivity as key drivers for future growth [18][44] Other Important Information - The company repurchased $1.3 billion in shares and paid out $1 billion in dividends during fiscal year 2025 [29] - The balance sheet remains robust with approximately $3.8 billion in total liquidity and a net debt leverage ratio of 2.85 times [36] Q&A Session Summary Question: On local case growth momentum and market share - Management noted that while Q4 showed progress, the stabilization of colleague retention will have a significant positive impact as they enter 2026, with a notable gap between new customer wins and losses [51][54][56] Question: Broader industry trends and sustaining momentum - Management attributed the recent improvement in industry traffic to a stabilization of consumer confidence and expects to sustain growth through market share gains despite a flat macro environment [65][67][70] Question: International growth momentum - Management expects continued strength in the international segment, driven by increased sales resources and strategic sourcing initiatives [81][82][87] Question: Sales force growth and local case growth relationship - Management anticipates a 4% increase in sales professional headcount for fiscal 2026, emphasizing the importance of colleague retention and productivity in driving positive local case growth [92][94][96] Question: Price agility initiative and financial implications - Management clarified that the goal of the price agility initiative is to improve volume profitably without sacrificing margin percentage, with a careful rollout based on colleague readiness [100][102][105]

Sysco (NYSE: SYY ) presents an intriguing opportunity for investors as it is a steady, reliable and rationally traded business in a market where volatility and unpredictability have been the norm. As a market leader in the foodservice business domestically andI am a full-time data scientist by trade and I have a growing passion for utilizing data-driven analysis to identify stock picking opportunities for long-term generation of wealth. My goal is to build as large a nest egg as possible for my retirement a ...