The operator introduces the participants and reminds them that the call is being recorded. Kevin Kim, Vice President of Investor Relations, welcomes everyone and introduces the speakers, Kevin Hourican, President and CEO, and Kenny Cheung, CFO. He also mentions that statements made during the call are forward-looking and directs listeners to the company's SEC filings for more information. Non-GAAP financial measures will be discussed and a limit of one question and follow-up is requested. Kevin Hourican thanks everyone for joining the call.

The speaker will cover three main themes in their prepared remarks: fiscal year '24 guidance, financial performance, and capital allocation. They will also discuss the company's Q1 results and their Recipe for Growth strategy. Despite a slowing top line macro and deflationary COGS pressure, Sysco delivered double digit growth in both operating income and EPS. This is a proof point of the company's strong position for success in the future. In Q1, they saw sales growth driven by positive case volume and effective management of product costs. The company believes their product assortment, selling organization, and supply chain will continue to drive strong results in the near and long term. They also grew volumes in their U.S. Foodservice segment and gained market share.

The national sales team at Sysco had a successful quarter, winning new contracts in various sectors. This is due to improvements in technology integration and dedicated support for large customers. The company expects this segment to continue outpacing the industry. Local performance is also strong, but there has been a slight slowdown. Instead of lowering prices, Sysco is focused on profitable growth and improving sales execution. To drive increased growth in local volumes, the company plans to invest in more sales headcount and optimize territory sizes.

In fiscal year '25, the positive impact of a new compensation model for sales consultants and increased focus on visit frequency and quality is expected to be seen. The implementation of a global operating model for leadership structure will also help accelerate progress internationally, including the adoption of best practices and new capabilities across Sysco's global footprint. This includes bringing the Sysco Your Way concept to other regions.

Greg Bertrand has been named the Global Chief Operating Officer for Sysco and will be responsible for managing global operations and driving profitable growth. The company has made progress in improving their supply chain performance and has implemented a new labor scheduling tool to increase flexibility. They are also expanding their supply chain capacity to serve rapidly growing markets, such as the recent groundbreaking for a new facility in Mesa, Arizona. Each new fulfillment center undergoes a thorough review and will support future growth in successful regions, such as the upcoming opening of a facility in Allentown, Pennsylvania to better serve the northeast corridor.

Sysco announced the planned acquisition of Edward Don, a leading distributor of food service equipment and supplies, on October 11. The business generates 1.3 billion in annual revenue and will be a valuable addition to Sysco's Recipe for Growth strategy. After the deal closes, Steve Don will continue to lead the business and Sysco plans to introduce Don's product offering to their hundreds of thousands of customers. This is expected to result in a one plus one equals three equation and contribute to the company's double digit growth in adjusted EPS. Sysco is closely monitoring the macro environment for signals on customer traffic and inflation.

Sysco is confident in its ability to succeed in the current operating conditions and is focused on delivering its plan for the year. The company had a strong start to the year, with record profits and growth in sales and volume. Its Recipe for Growth strategy is driving margin expansion and it has made strategic acquisitions to further its market penetration. Sysco is also well-positioned with a strong balance sheet and a diverse customer base.

In the first quarter, Sysco saw positive growth in its enterprise sales, with strong performance in international markets and a planned exit from unprofitable business in the SYGMA segment. Inflation rates remained positive, and gross profit increased by 4.6% due to strategic sourcing efforts, pricing discipline, and increased penetration of Sysco brand products. Operating expenses were at 14.2% of sales.

Sysco had a strong first quarter due to effective expense management and cost-saving measures. The use of shared services and the implementation of a variable labor planning tool contributed to a 7% decrease in SG&A expenses at the global support center. All four operating segments showed increased profitability, with the international segment experiencing significant growth. The company's adjusted operating income and EBITDA also saw double-digit growth. Sysco's balance sheet is in a healthy state, with a low net debt leverage ratio and a substantial amount of liquidity. The company's strong credit rating is a competitive advantage in the current economic climate.

The company's strong balance sheet and consistent cash flows allow for various options in capital allocation. They plan to acquire Edward Don and continue investing in the business, while also returning cash to shareholders through share repurchases and dividends. Despite a lower cash flow in the first quarter, they are confident in growing free cash flow in FY '24. They have returned $353 million to shareholders this quarter and expect to grow both top and bottom line results in FY '24. They are reiterating their guidance for net sales and adjusted EPS growth in FY '24.

The company is expecting positive inflation and growth in the second half of the year, driven by M&A activity and operational initiatives. They plan to maintain a strong dividend yield and continue to generate cash while staying within their leverage target. The company is the market leader in a growing industry and is investing to create more fulfillment capacity to support profitable growth.

Sysco is investing in technology and expanding their product range to make it easier for food service operators to purchase from them. They have consistently grown sales and have a strong balance sheet and dividend yield. They are focused on delivering guided results and confident in the long-term growth of the food service industry. They believe their scale gives them an advantage in the market.

Sysco's factors such as their dividend and share buyback programs will reward investors over time. The speaker is excited and proud to be a part of the company. They thank their colleagues for their commitment. The first question from Wells Fargo is about case volumes and expectations, and the speaker explains that Sysco grew volume and took market share in the first quarter, but overall volume growth is expected to be muted for fiscal year 2024. The speaker is pleased with the sales organization's performance, particularly in national success.

The success of the company in the national market has not affected their ability to succeed in the local market. The sales teams for each market are separate and there are no supply chain constraints. The company plans to improve in the local market by adding more skilled and trained headcount, reducing the number of customers served by each sales representative, and modifying their sales compensation. They are also focused on providing performance-based coaching and training to their sales team and leveraging their specialty platforms. These changes may take some time to see results, but the company is confident that they will improve outcomes in the long term.

In paragraph 15, the speaker emphasizes that price will not be the main focus for the company, instead they will prioritize capabilities, service and outcomes. They are seeing progress and an uptick in volumes, particularly in the local market. The company also has a profitable growth engine in international markets. The recent acquisitions of Edward Don and BIX are expected to contribute to volume growth in the U.S. Foodservice business.

Kevin Hourican, the CEO of Sysco, is pleased with the progress the company is making in increasing cases per operator and improving customer retention through programs like Sysco Your Way and Sysco perks. The company is also focusing on personalization and digital tools to better understand and cater to customer needs. However, there is still room for improvement in acquiring new customers, and the company plans to motivate and incentivize sales reps to win profitable new business through a new compensation program.

In the last three years, the company has been successful in winning net new business and plans to continue this trend in the upcoming year. They have invested in additional headcount to support their local cases and are focused on improving productivity in their supply chain. The company has seen positive results in terms of gross profit and is pleased with their cost reduction efforts.

The business has seen improvements in retention, productivity, and transportation, but there is still progress to be made. The company is focused on continuing to improve productivity and expects to see increased progress in the future. Corporate initiatives are underway to reduce expenses and add new employees in a disciplined and deliberate manner. The supply chain is becoming healthier, thanks to the efforts of the company and its teams.

The speaker, Kevin Hourican, responds to a question about the labor environment and staffing levels at the company. He mentions that they are fully staffed and the labor market has mostly returned to pre-COVID levels. Retention is improving, but turnover is still elevated. The company is focused on improving productivity and safety in their operations.

Sysco's leaders are focused on four critical areas and making progress in each of them. They are seeing sequential improvement week-over-week, month-over-month, and quarter-over-quarter. The company is investing in a staffing tool that will pay dividends in the long term and help reduce costs. They also have meaningful seasonality and are working on managing staffing levels to match fluctuations in volume. This, along with other systems, tools, and procedures, is driving an improving profit profile for the company.

The speaker responds to a question about the opportunity to win new customers and explains that they have improved their prospecting and targeting of high potential accounts. They also mention the success of their strategic sourcing efforts and increasing Sysco brand penetration. The combination of these factors has led to double digit bottom line growth at Sysco. The other speaker adds that gross profit grew faster than sales, proving their ability to manage deflation with pricing discipline.

In the paragraph, the speaker discusses the growth of the Sysco brand and their strategic sourcing initiatives. They also mention their focus on productivity and finding ways to drive outcomes with less. The speaker notes that they are on pace with their productivity targets for the year and are looking for even more. They also address concerns about a potential slowdown in the top line macro and explain that their volume for the quarter was mostly in line with their predictions.

The CEO of Sysco discusses the company's performance in fiscal year 2024, noting that while volume growth may be softer, there is room for improvement in local volume. They were able to grow profits during a period of deflation and lower volume growth, which demonstrates the company's strong financial fundamentals. Looking ahead, the CEO has confidence in the company's long-term prospects and reiterates their guide for fiscal year 2024. October has also started off well for the company, with strong performance across all restaurant types and other sectors.

The company is optimistic about their performance for the rest of the year and is focused on controlling what they can. The CFO and CEO both feel confident in their guidance and have successfully navigated through market dynamics. They expect a return to modest inflation in the second quarter, which is one quarter ahead of schedule. This is due to a 0.4% decrease in inflation in the U.S. and a successful navigation of market dynamics.

The company is consistently showing higher sales compared to the previous year, due to positive inflation. They have a diverse range of product categories and do not over-index on any single category. The center plate category, which makes up 13% of their volume, is seeing an increase in inflation. The company is managing both deflation and inflation due to the different behaviors of their commodities basket. The sales consultant investment is currently at 7,500.

Kevin Hourican, responding to a question from Kelly, discusses the company's plans to invest in increasing their sales force. He mentions that the cost is already factored into their guidance and will ramp up over time, with a significant increase in headcount. The company is adding specialists in different areas and expects a positive impact in the long term, with the full effect not being seen until 2025. The goal is to free up more time for existing strong performers to focus on their best customers. This increase in sales force will be a step change upward compared to previous years and will be a continuous effort in the future.

The speaker is responding to a question about the improved profit profiles for national accounts. They clarify that Sysco is winning competitive bids for these accounts due to improved technological integration skills and increased accountability and capability of their national sales teams. This has allowed them to make it easier for customers to do business with Sysco and has resulted in higher profitability for these accounts.

The company has dedicated account representatives and services for their largest customers, making it easier for them to expand both domestically and internationally. They have also increased their expertise in various industries such as healthcare, hospitality, and education, resulting in increased success in acquiring new customers. The company is pleased with the performance of their national sales team and will continue to allocate capital to growth opportunities.

The sales contract process at Sysco is very thorough and prioritizes profitable growth. The addition of sales consultants will be strategic and focused on high density and high growth areas, as well as areas where Sysco Your Way is implemented. There is also room for growth within existing neighborhoods served by Sysco Your Way.

The speaker discusses the success of Sysco's sales in certain neighborhoods and the need to split them into smaller areas for better service. They also mention the high share of wallet and national business and the potential for improvement through increased penetration of Sysco brand products and partnerships with national brand customers.

The speaker discusses the importance of having win-win contracts with national sales customers in order to achieve sustainable and profitable growth. They mention that these contracts are three to five years in duration and have a high retention rate. The speaker also mentions a specific example of a customer who was not willing to have a win-win contract, and how the company ultimately walked away and became more profitable because of it. They emphasize the importance of finding the right partners in various industries and focusing on serving them better. Another key factor in growth is increasing the share of wallet, or the number of profitable cases on the truck. The speaker concludes by stating that the company is focused on sustainable and profitable growth in national sales.

Kendall Toscano asked about the factors that will drive margin expansion for Sysco in fiscal year 2024. Kenny Cheung, Sysco's CFO, explained that both gross margin expansion and operating expense leverage will contribute to bottom line accretion. In the first quarter, Sysco saw higher gross profit growth rates and flat operating expenses as a percentage of sales, which was opposite of what was expected. Cheung attributed this to strategic sourcing, Sysco brand penetration, and proper business mix. Additionally, Kevin Hourican, Sysco's CEO, added that the rate of inflation in sales a year ago may be causing some year-over-year comparison challenges, but the core drivers, such as transportation costs per piece, have improved.

The company's warehouse costs, maintenance costs, shrink, and retention all improved year-over-year, which has a positive impact on cost per piece. The leadership team is focused on making further improvements and has incorporated this into their yearly guide. The Q&A session has ended and the presenters thank everyone for participating.

This summary was generated with AI and may contain some inaccuracies.