Sysco Reports First Quarter Sales and Operating Income Growth; Reiterates Fiscal Year 2024 Guidance

HOUSTON, Oct. 31, 2023 (GLOBE NEWSWIRE) -- Sysco Corporation (NYSE: SYY) (“Sysco” or the “company”) today announced financial results for its 13-week first fiscal quarter ended September 30, 2023.

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

• Sales increased 2.6%; U.S. Foodservice volume increased 1.6%;
• Gross profit increased 4.6% to $3.6 billion;
• Operating income increased 9.1% to $803.6 million, and adjusted¹ operating income increased 10.6% to $854.3 million;
• EBITDA increased 10.5% to $1.0 billion, and adjusted EBITDA increased 11.7% to $1.0 billion²;
• EPS³ increased 8.8% to $0.99 and adjusted¹ EPS increased 10.3% to $1.07; and
• Sysco returned approximately $352.9 million of capital to shareholders via $100.0 million of share repurchases and $252.9 million of dividends and remains on target to return approximately $1.75 billion back to shareholders in FY 2024.

“Sysco delivered another quarter of compelling earnings results, growing operating income by 9.1% and adjusted operating income by 10.6%. This was fueled by volume growth, excellent margin management, and disciplined productivity improvement. Our actions to improve efficiency continued, with progress in supply chain productivity and implementation of structural cost-out actions. We advanced our competitive advantages as the global leader in foodservice distribution through our Recipe for Growth strategy. This includes our planned acquisition of Edward Don & Company, one of the largest kitchen equipment and supplies distributors, which will add new capabilities and diversified offerings to our product assortment. Combining DON and Sysco will enable us to better serve our hundreds of thousands of customers with a more complete restaurant and hospitality assortment. Sysco’s strong profitability, size and scale advantages, and balance sheet position us for profitable growth for the remainder of fiscal year 2024 and beyond,” said Kevin Hourican, Sysco’s President and Chief Executive Officer.

“Our record first quarter operating profit, of $803.6 million, included meaningful gross margin expansion and positive operating leverage. This further illustrates the strength of Sysco and reinforces that our Recipe for Growth strategy is yielding results. Our balanced approach to capital allocation continued this quarter, while ending the quarter at 2.6 times net debt to adjusted EBITDA. Looking ahead, we plan to deliver continued productivity gains. Adding to our track record, we rewarded our shareholders by returning approximately $352.9 million of cash during the quarter. Our positive momentum in the first quarter gives us confidence in reiterating our FY24 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.

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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 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.}

First Quarter Fiscal Year 2024 Results

Total Sysco

Sales for the first quarter were $19.6 billion, an increase of 2.6% compared to the same period last year.

Gross profit increased 4.6% to $3.6 billion, and gross margin increased 35 basis points to 18.6%, compared in each case to the same period last year. Product cost inflation was 1.7% at the total enterprise level, as measured by the estimated change in Sysco’s product costs, primarily in the frozen and canned and dry categories. The increase in gross profit for the first 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 3.3% compared to the same period last year, driven by increased volumes and cost inflation, partially offset by improved productivity. Adjusted operating expenses increased 2.9% compared to the same period last year.

Operating income was $803.6 million, an increase of 9.1% compared to the same period last year. Adjusted operating income was $854.3 million, an increase of 10.6% compared to the same period last year.

U.S. Foodservice Operations

The U.S. Foodservice Operations segment continued to grow profitably during the quarter.

Sales for the first quarter were $13.7 billion, an increase of 0.9% compared to the same period last year. Total case volume within U.S. Foodservice grew 1.6% for the first quarter, while local case volume within U.S. Foodservice decreased 0.1%, in each case as compared to the same period last year.

Gross profit increased 2.8% to $2.7 billion, and gross margin increased 36 basis points to 19.6%, compared in each case to the same period last year.

Operating expenses increased 2.2% compared to the same period last year. Adjusted operating expenses increased 2.0% compared to the same period last year.

Operating income increased 3.9% to $941.0 million compared to the same period last year. Adjusted operating income increased 4.1% to $953.6 million compared to the same period last year.

International Foodservice Operations

The International Foodservice Operations segment delivered higher sales and profit growth, as the company continued to grow globally.

Sales for the first quarter were $3.7 billion, an increase of 12.2% compared to the same period last year. On a constant currency basis⁴, sales for the first quarter were $3.6 billion, an increase of 9.0% compared to the same period last year. Foreign exchange rates increased both International Foodservice Operations sales by 3.2% and total Sysco sales by 0.6% during the quarter.

Gross profit increased 12.7% to $732.0 million, and gross margin increased 11 basis points to 19.9%, compared in each case to the same period last year. On a constant currency basis⁴, gross profit increased 8.6% to $705.3 million. Foreign exchange rates increased both International Foodservice Operations gross profit by 4.1% and total Sysco gross profit by 0.7% during the quarter.

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4} _{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.}

Operating expenses increased 13.6% compared to the same period last year. Adjusted operating expenses increased 13.6% compared to the same period last year. On a constant currency basis⁴, adjusted operating expenses increased $48.1 million, or 8.9%, compared to the same period last year. Foreign exchange rates increased both International Foodservice Operations operating expenses by 4.7% and total Sysco operating expenses by 0.9% during the quarter.

Operating income increased 7.5% to $93.5 million compared to the same period last year. Adjusted operating income increased 8.7% to $116.2 million compared to the same period last year. On a constant currency basis⁴, adjusted operating income was $114.9 million, an increase of $8.0 million compared to the same period last year. Foreign exchange rates increased both International Foodservice Operations operating income by 1.2% and total Sysco operating income by 0.1% during the quarter.

Balance Sheet, Cash Flow and Capital Spending

As of the end of the quarter, the company had a cash balance of $569.1 million.

During the first 13 weeks of fiscal year 2024, Sysco returned $352.9 million to shareholders via $100.0 million of share repurchases and $252.9 million of dividends.

Cash flow from operations was $87.2 million for the first 13 weeks of fiscal year 2024, which was a decrease of $71.5 million over the prior year period.

Capital expenditures, net of proceeds from sales of plant and equipment, for the first 13 weeks of fiscal year 2024 were $160.4 million.

Free cash flow⁵ for the first 13 weeks of fiscal year 2024 was negative $73.2 million, which was a decrease of $87.0 million over the prior year period. The first quarter is typically the lowest cash flow quarter of the year due to seasonality, and this year was impacted by the timing of working capital.

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5} _{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.}

Conference Call & Webcast

Sysco will host a conference call to review the company’s first quarter fiscal year 2024 financial results on Tuesday, October 31, 2023, 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 first 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 effect, impact, potential duration or other 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 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 2022 Sustainability Report and 2022 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 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.