Sysco's Second Quarter Fiscal Year 2024 Conference Call is being recorded and will begin with opening remarks and introductions from Kevin Kim, Vice President of Investor Relations. CEO Kevin Hourican and CFO Kenny Cheung are also present. Forward-looking statements and non-GAAP financial measures will be discussed, and participants are asked to limit their questions to one and one follow-up.

Sysco's CEO, Kevin Hourican, is pleased with the company's performance for the quarter, demonstrating their position as a market leader with double-digit earnings per share growth. This was achieved through volume growth, margin management, and expense control. The positive momentum is expected to continue into the second half of the fiscal year, with a 7% growth in adjusted EPS. Sysco's Recipe for Growth strategy has improved their scale and profitability, allowing them to increase their stock buyback target to $1.25 billion for the year. With their strong balance sheet and free cash flow, Sysco is able to make shareholder-friendly decisions while still funding long-term growth.

In the third paragraph, the speaker provides an overview of the company's performance in the quarter, highlighting a 3.7% sales growth driven by positive case volume growth and product cost inflation. They also mention an 11% growth in adjusted EPS and the company's focus on local case volume and supply chain productivity. The company saw a sequential increase in case volume and market share growth, with efforts to improve sales execution and add sales headcount.

Sysco is planning to increase their salesforce in order to optimize territory sizes and improve sales consultant effectiveness. They have also made changes to their compensation model to motivate their sales team and are focused on performance management and team selling. These efforts have already shown positive results and are expected to continue to improve over time. In the second quarter, their local case performance improved by 300 basis points and continued to improve each month.

The company is confident in its ability to grow local and national sales. They have been making progress in improving their supply chain through operational excellence. This has led to improved productivity and retention, resulting in lower expenses and improved service levels. The company is focused on continuing to improve colleague retention and productivity, and will also refine their staffing efforts. These efforts will benefit the P&L in the next few years and the company is optimistic about their ability to lower costs and improve customer service.

The speaker highlights the company's progress in improving sales effectiveness and supply chain productivity, as well as their ongoing Recipe for Growth business transformation. They also mention their digital efforts, product assortment, and integration with Edward Don. The company is pleased with their international performance and believes they are well-positioned to leverage their scale advantages. Fiscal 2024 has started off strong and the company remains focused on execution and advancing their growth strategy. The speaker then hands it over to another speaker to discuss the company's financial performance, which has seen positive momentum and record top and bottom-line results in Q2.

Sysco Corporation reported strong results for the second quarter, with sales and volume growth, improved cost of goods sold performance, and positive operating leverage resulting in adjusted gross profit dollar growth and margin expansion. The company is confident in its positive momentum for the remainder of the year and has increased its share repurchase expectations for FY 2024. Sysco's capital allocation is a competitive advantage, allowing for both investment in growth and rewarding shareholders. In the second quarter, enterprise sales grew 3.7%, with growth in all segments except SYGMA, which saw a planned exit of unprofitable customers. Inflation was in line with expectations, and total US foodservice volume increased by 3.4%.

The company's volume reporting includes benefits from the acquisition of BIX Produce, but does not include its Edward Don or Specialty Meat business. Gross profit and margin have improved due to effective cost management and increased penetration rates of Sysco brand products. Operating expenses were well managed, thanks to a variable labor planning tool and supply chain efficiencies. The company is on track to achieve its cost-out commitments and expects to see top and bottom line synergies from recent acquisitions. USFS, international, and SYGMA segments all contributed to bottom line performance, with international results showing continued growth over the past three years. The company's Recipe for Growth playbook is proving successful in both the US and internationally.

In the second quarter, the company's adjusted operating income and adjusted EBITDA increased by 9.2% and 11.6%, respectively. The balance sheet remains strong with a net debt leverage ratio within the target range. The company has already begun an accelerated share repurchase program and has a strong credit rating. They are committed to a balanced capital allocation strategy, including investing in the business, maintaining their credit rating, and returning cash to shareholders. In the first half of the year, they generated strong operating and free cash flow and are on track to meet their full-year free cash flow goals. They have reiterated their guidance for fiscal year 2024, with expected growth in net sales and adjusted EPS, as well as positive operating leverage.

Sysco expects positive industry volume growth and inflation, with a focus on integration efforts, capturing synergies, and returning excess cash to shareholders. They anticipate a 2.9% growth in US local case volume and are confident in sustaining this momentum, with a strong exit rate in the fiscal second quarter. They prioritize market share growth, profitability, and strong cash generation, ultimately aiming to reward shareholders.

The speaker explains that the average case volume growth for Sysco has improved each month and they are confident in their ability to continue this trend. The main drivers of this growth are performance management, compensation changes, total team selling, and increased headcount. The speaker also mentions a slowdown in January due to calendar unfavorability and extreme weather, but is not overly concerned as it is the lowest volume month of the year. The speaker then passes the question to Kenny for any additional comments on January.

The company has the ability to adjust labor and mitigate the impact of lower volume, but weather can also affect productivity and costs. However, the full year guidance remains intact and the company is seeing growth in its international business. The company has reiterated its mid-single-digit topline and 5% to 10% EPS growth for fiscal 2024, with 7% at the midpoint. In the first half of the year, the company has seen double-digit EPS growth for 11 consecutive quarters and plans to continue investing and capturing growth with discipline. The company expects challenges in the second half of the year, but remains optimistic due to its recent momentum and an additional $500 million in share repurchases.

Sysco has demonstrated their ability to manage their business successfully in various environments. They have seen growth in operating margin and GP margin in the first half of the year, despite slight deflation in Q1 and slight inflation in Q2. They expect lower market volume growth for the full year, but plan to continue gaining market share and driving profitable growth. Inflation is expected to remain slightly positive in the back half of the year. The company is also focused on reducing expenses and maintaining a steady tax rate. The only change is a slight increase in interest expense due to additional share repurchases, but overall the EPS is expected to be accretive.

The company is expecting a net accretion of $0.05 for the fiscal year due to an increase in interest expenses and retirement of shares. They are reiterating their full year guidance of $4.20 to $4.40 with a 7% growth. The progress of hiring new salespeople is going well and they are not having difficulties filling their classes. They are not solely relying on competitors for talent, but also looking at other sources such as restaurants and culinary schools. They believe they can train these individuals to be the best in the industry based on their Net Promoter Score.

The speaker is pleased with the first cohorts and believes they are on track to hit their targeted hiring rate, which will positively impact growth in 2025. They then address M&A, stating that the integration of Edward Don has gone well and that they have not included Don's volume in their case growth figures. They also mention the benefits of the acquisition, such as purchasing and targeting joint customers together. The speaker recently met with Don's leadership team to discuss synergy capabilities between the two companies.

Sysco's CEO Kevin Hourican discusses the potential for growth in the company's newly acquired Don business, which will be integrated into Sysco's digital platforms and delivered to customers. He also talks about the recent acquisition of Ready Chef in Ireland, which gives Sysco a fresh cut produce business. Hourican emphasizes that the company's strategy is to be the leader in broadline and specialty capabilities in each major country they compete in. He expresses confidence in the leadership team in Ireland and their ability to grow the business and increase penetration with existing customers. When asked about key performance indicators, Hourican mentions visit frequency and quality of visit as important metrics for driving sales.

Kevin Hourican, in response to a question about quantifying quality, explains that their improvement in performance is due to their focus on visit frequency and quality. They have a specific target for the number of visits per week per SE and they track it through their CRM tool. They also measure quality by close rate against specific tasks assigned to SEs.

The company has a ranking system for salespeople and uses it to manage performance. The top performers are recognized, the middle performers are coached, and those who are not performing well are held accountable. The company aims to grow gross profit dollars above SG&A. In the second quarter, the company saw a 4% increase in sales and a 5% increase in gross profit due to strategic sourcing and other factors. The company is also working to reduce SG&A costs and has already seen $100 million in cost savings. This has resulted in double-digit growth in net earnings compared to the previous year. The company is focused on leveraging both the cost of goods and operating expenses to drive growth. In the Q&A portion, John Heinbockel asks about the company's thoughts on the right level of gross profit and SG&A, to which Kevin Hourican responds that they are focused on both and have initiatives in place to drive growth in both areas. The next question is from Edward Kelly with Wells Fargo.

Edward Kelly asks about the case line growth in Q2 and how it will continue in the back half of the year. Kevin Hourican explains that they are confident in their ability to profitably grow the local business and that there was a speed bump in January due to industry growth. He also mentions the two-year stack phenomenon and that they are not giving a specific number for local case volume growth, but it is factored into their guidance. Kenny Cheung adds that their focus is on profitable growth.

Kevin Hourican explains that the reason for the strong cash conversion and low leverage in Q2 is due to the inclusion of Edward Don in their total numbers, but not in their volume numbers. He clarifies that this will continue to be the case in the future and mentions that they are working on integrating Don's business metrics into their own. When asked about the strength of local case growth, Hourican mentions that they are focusing on increasing penetration with existing customers through their Recipe for Growth strategy and two key programs, Sysco Your Way and Perks.

The company is doing well at their Investor Day and will discuss their long-term plans for growth programs. They are also focused on their total team selling effort, which involves pairing generalist sales consultants with specialists to better serve customers in different categories. The company is seeing success in this area and is also prioritizing bringing in new customers. This is reflected in their updated compensation model, which rewards the sales force for winning profitable new business.

The speaker is pleased with the progress made in the last quarter in increasing their new business. They also discuss the overall improvement in the supply chain in the industry, with fewer people leaving their jobs and fewer job openings. This has led to improved productivity and they estimate that the supply chain is in inning seven of recovering from the disruptions caused by COVID-19. They believe there is still room for improvement and plan to introduce new technology and productivity programs to surpass pre-COVID levels.

The company is currently in the seventh inning of its progress, with room for improvement. They are focused on delivering results and have seen success in their labor planning tools and expense management. They are also pleased with the improvement in their supply chain, which is factored into their 2024 guidance. The rebound in local customer business has led to margin accretion and improved gross margin performance, and the company has also seen success in CMU.

John Ivankoe from JPMorgan asks about Sysco's outlook on inflation for the remainder of 2024. He questions the indicators they are using to predict inflation and mentions that some PPI food metrics suggest deflation. He also mentions that some grocery stores have been lowering their prices as their own commodity costs have eased.

The speaker responds to a question about competitors lowering their prices by discussing how Sysco uses data to monitor inflation and deflation, manages a diverse commodity basket, and has been able to drive positive operating leverage despite slight inflation in the second quarter. The speaker also mentions that Sysco's pricing is dynamic and reflects changes in COGS, unlike traditional retail stores.

The speaker discusses the growth and health of various categories in the industry, noting that broadline is currently winning. They mention the use of a pricing tool to maintain profitability and express confidence in the upcoming year's inflation figures. They also mention the success of the business and the types of customers that are driving growth.

The speaker discusses the success of broadline distributors and how size and scale are important factors in the industry. The speaker also mentions the growth of the market and how their company, Sysco, is outperforming in both broadline and specialty business. They also note that there has been no significant changes in consumer behavior, and that the food-away-from-home market has been strong.

In response to a question about the growth and profitability of Sysco's chain business, Kevin Hourican, the company's CEO, explains that the business has accelerated in the second quarter due to notable wins in non-national restaurant sectors such as travel, hospitality, healthcare, and education. He clarifies that the focus is on creating win-win contract relationships with customers, particularly in the non-national restaurant space, where there is a higher penetration of Sysco brand products. The company is looking for partners who want to grow and win together.

The national sales team has been performing well and is expected to continue. Kenny Cheung emphasizes the importance of ROIC in evaluating all businesses, including chain business. The company has accelerated profitably on the CMU side due to initiatives in technology and strategic sourcing. ROIC applies to both local and CMU sides. SYGMA saw a 140% increase in profit despite a decrease in volume. The industry has seen positive traffic, especially in December, for local customers.

The speaker discusses the strength of the company's performance in the food away from home sector, particularly in independent restaurants, in December. He also mentions their expectation for operating leverage in the full year, but notes that it may be slightly less in the second half due to hiring and cost out. He then addresses their international business and comments on varying performance and inflationary trends in the market.

The speaker discusses the positive performance of Sysco's international business, which has been a tailwind for growth and profitability. They highlight Canada's success, attributing it to the implementation of Sysco's strategies and a talented team. In Great Britain, efforts to increase penetration with local customers and revamp supply chain and systems capabilities have led to improved profitability. The speaker also mentions France, which has been a problem in the past, but is now showing signs of improvement.

The first half of the year has been successful for Sysco in France, thanks to a strong leadership team and the implementation of strategic sourcing and Sysco brand products. Inflation in international markets has subsided, and the company is optimistic about future growth through their one global operating model. In Q2, they saw a 10% increase in topline and a 30% increase in operating income. The conference call has now ended.

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