The paragraph is an introduction to Sysco Corporation's Third Quarter Fiscal Year 2025 earnings call. It begins with a welcome message from the operator and introduces Kevin Kim, the Vice President of Investor Relations, who provides details about the call. Kevin Kim announces the presence of key executives—Kevin Hourican, Chair of the Board and CEO, and Kenny Cheung, CFO—who will be addressing the call. He emphasizes the forward-looking nature of the statements that might be discussed, referring listeners to the company's SEC filings for more information on risk factors. The presentation includes non-GAAP financial measures, with reconciliations provided in the presentation slides and on the company's website. Participants are requested to limit their questions to one each to allow for a comprehensive Q&A session. Kevin Kim then hands the call over to Kevin Hourican.

In this paragraph, Kevin Hourican discusses the challenges Sysco Corporation faced in Q3, including significant impacts from California wildfires, historic winter storms, and reduced consumer confidence due to trade policy uncertainties. These factors led to a 3.1% decline in restaurant traffic, worse than the 1.6% decline in Q2. Despite these setbacks, March showed signs of improvement, and Sysco’s volume trends mirrored the industry. However, there's concern about ongoing consumer confidence and tariffs affecting future performance, contrary to earlier expectations of a macroeconomic recovery.

In the paragraph, the company discusses its performance at the beginning of Q4, noting that April's traffic and volume growth rates were stronger than March and Q3, despite calendar shifts like Easter. They emphasize caution in future planning due to economic uncertainties. The company, Sysco Corporation, reported Q3 sales of $19.6 billion, a 1.1% increase, or 1.8% excluding the Mexico divestiture, with adjusted operating income down 3.3% and flat adjusted EPS. They converted reduced restaurant foot traffic into sales by gaining new business and managing inflation. Progress on a $100 million profit improvement is noted, with positive contributions from strategic sourcing and logistics. Their international segment achieved another quarter of double-digit profit growth, while USFS national sales saw flat volume and 2.3% sales growth, both below expectations.

The national restaurant sector is experiencing softness, impacting local business with a negative 3.5% volume growth for the quarter, though this aligns with industry trends. In contrast, the Sigma segment saw a 9.5% sales increase due to significant customer acquisitions, although such growth will slow as recent wins are cycled. Despite overall financial disappointment, driven by weaker macroeconomic conditions, Sysco Corporation remains focused on improving local business performance. Progress in important initiatives is noted, particularly with the productivity and retention of 2025 sales consultant hires meeting targets.

In the first half of fiscal 2025, Sysco Corporation faced challenges due to high employee turnover, particularly in September, which negatively impacted customer retention and business performance. Departures caused immediate disruptions, while new hires take 12 to 18 months to become fully productive, depending on their experience. The company has since stabilized its retention rates, and new hires are showing positive signs of performance. Sysco expects these factors to shift from being a net negative in 2025 to a positive influence in fiscal 2026.

The paragraph discusses several key business developments. It highlights the success of a new colleague compensation model that has resulted in increased earnings and successful acquisition of new accounts, although customer retention remains a challenge. Efforts are being made to improve retention, which is expected to have a greater positive impact in fiscal 2026. The expansion of fulfillment capacity is also discussed, with new facilities opening in Allentown, PA, Tampa, FL, Sweden, and Ireland to support business growth, especially in populous and strategically significant areas. Lastly, the company is working on improving pricing agility.

At the CAGNY conference in February, Sysco Corporation announced a new pilot local sales initiative aimed at speeding up the price approval process for sales representatives, allowing them to make on-the-spot decisions to match competitor prices and potentially save sales. This initiative is designed to maintain margin discipline while improving case volume and customer retention. The company plans to roll out the new model more broadly once the pilot proves successful and staff are trained. Additionally, Sysco's international segment reported strong results, with increased local volume and operating income, particularly in Canada, Great Britain, and Ireland. Lastly, the company addressed the potential impact of tariffs on the food distributor industry.

Sysco Corporation sources over 90% of its products domestically in each country it operates, reducing its exposure to tariffs compared to other industries. However, it still faces challenges, such as tariffs on imports like Mexican tomatoes. To address this, Sysco has established a tariff management task force that focuses on maintaining product availability, defending against supplier price increases, sourcing alternatives, and advising customers on cost-effective options. Despite tariff uncertainties, Sysco's global scale and procurement capabilities provide it with a strategic advantage. Their primary concern with tariffs is not cost but the negative impact on consumer confidence and sentiment.

The paragraph discusses Sysco Corporation's response to potential economic challenges and its preparation for a more difficult environment by focusing on cost management and contingency planning. Sysco is leveraging its strong balance sheet to continue investing in growth opportunities, such as winning new customers and expanding inventory. Additionally, Sysco is introducing a pilot program for two cash and carry store locations called "Sysco to Go" in Houston, targeting a market segment they haven't served yet. This move aims to capture a share of the fastest-growing part of the food away-from-home industry by offering value and convenience to customers who prefer picking up their products. This approach reduces delivery costs, allowing for more competitive pricing.

The paragraph discusses the future of an initiative that involves opening two stores in Houston, leveraging Sysco Corporation's existing supply chain to manage costs efficiently. The success of this initiative will be evaluated based on the outcomes at these test locations. It highlights the importance of their supply chain proximity to the distribution center and expresses enthusiasm for welcoming customers. Kenny Cheung then takes over to review the company's Q3 performance and fiscal year 2025 guidance, noting sales growth and stable adjusted EPS despite challenging market conditions. Although the quarter's results missed expectations, Sysco maintains a strong financial foundation and a balanced approach to capital allocation, focusing on generating free cash flow for long-term growth and shareholder rewards.

In the third quarter, the company repurchased $700 million in shares and paid $752 million in dividends, including $400 million in shares repurchased this quarter. The quarterly cash dividend was increased by three cents to $0.54 per share, a 6% year-over-year rise, setting up for continued dividend growth in FY 2026. Enterprise sales grew 1.1% as reported, or 1.8% excluding the divested Mexico business, with stable volumes across the enterprise. The US food service volume decreased by 2%, and local volume fell by 3.5%, but the national business remained stable. The deceleration in local volume was attributed to industry traffic slowdowns and sales colleague turnover, with future improvements expected from new sales professionals. The international segment, excluding Mexico, showed strong top-line momentum with double-digit operating income growth and 4.5% local volume growth, driven by the successful implementation of the Sysco Corporation playbook.

In the third quarter, the company reported a $3.6 billion gross profit, a 0.8% decline, with a gross margin of 18.3%. The decrease in gross profit was mainly due to negative volumes and an unfavorable mix. Despite challenges in macroeconomic conditions and traffic, the company saw growth in recession-resilient sectors. A pressured mix resulted from the national business outperforming local performance and lower penetration rates of Sysco Corporation brands. Delays in strategic sourcing deals were also noted, but benefits are anticipated in Q4. The company expects improved gross margins from strategic sourcing initiatives and better product mix. Inflation was at 2.1%, consistent with expectations. Operating expenses were $2.8 billion, a slight improvement from the previous year. Improved retention and productivity in the supply chain contributed positively, leading to high service levels and supporting long-term growth. Investments were made in higher growth areas, and expenses were impacted by lower bonus incentives.

The paragraph discusses the company's financial performance and strategic advantages. Corporate expenses decreased by 16.8% from the previous year, contributing to a $100 million cost savings program. The company leverages its size and scale advantages, efficient customer mix, and high inventory turnover to manage pricing and inflation effectively. Adjusted operating income for the quarter was $773 million, driven by international growth and expense management, despite declines in the USFS segment. Adjusted EBITDA was $969 million, a slight decrease from the previous year. The company's strong balance sheet, with $4.4 billion in liquidity and a 2.8 times net debt leverage ratio, provides financial flexibility. Operating cash flow reached $1.3 billion, and free cash flow was $954 million year-to-date, reflecting strong earnings quality and working capital management. The quarter marked their highest conversion rate of the year.

The company is adjusting its financial expectations for FY 2025 due to an uncertain macroeconomic environment and concerns about consumer confidence. They are now projecting a net sales growth of 3%, down from the previous target of 4-5%, largely due to lower volume growth. Inflation assumptions and contributions from M&A remain unchanged. Adjusted EPS growth is expected to be at least 1% for the year, with Q4 EPS anticipated to be flat. The guidance revision considers the uncertain economy's impact on the typically more profitable second half of the year. Despite challenges, the company plans strategic investments in refreshing its fleet and building capacity and expects to achieve cost savings of around $100 million, which should help in Q4 and the first half of 2026. The company remains committed to operational discipline and long-term growth investments.

The company aims to reward shareholders through over $1 billion in dividends and $1.25 billion in share repurchases, with specific Q4 repurchases of $550 million and dividends of $250 million. They plan to maintain a net leverage ratio between 2.5 to 2.75 times and keep an investment-grade balance sheet. For Q4, they anticipate a 24% tax rate, $200 million in adjusted depreciation and amortization, and $170 million in interest expense. Despite Q3 not meeting expectations due to a decline in volume linked to industry-wide decreases in restaurant traffic, progress is noted in stabilizing colleague retention, increasing new customer acquisitions, and improved performance of new hires responding well to updated compensation models. These factors are expected to become advantageous as fiscal 2026 approaches.

The paragraph discusses Sysco Corporation's strategic initiatives to enhance their business through new distribution centers, which will help capture profitable new opportunities both domestically and internationally. They highlight self-help progress in their local business by noting strong new business openings in March and continued improvement into April. They emphasize pricing agility, improved service levels, and customer retention as core strategies. Local volume improved by 270 basis points from February to March, with further improvements in April. Despite tariff uncertainties and a volatile external environment, Sysco is confident in maintaining strong profit margins, a solid balance sheet, and fiscal responsibility. The company expects its international division, less affected by volatility, to continue performing well, leveraging its diversified business model. The paragraph ends with a call for questions in a conference call setting.

In the paragraph, Kevin Hourican discusses the company's sales headcount growth, which is expected to be approximately 4% year over year by the end of Q4. He highlights positive signs of progress, such as stronger performances in March and April compared to Q3, and an increase in new customer acquisitions, especially in March. Additionally, he notes the effectiveness of the company's training programs, with new hires meeting productivity expectations. However, he mentions that increased employee turnover earlier in the year has offset some of the potential gains in market share and volume growth.

In the article paragraph, Alex and Kenny Cheung discuss the company's improvement in specific geographies due to better retention and a new compensation model. They anticipate positive growth by Q1 of fiscal 2026 as challenges from colleague separations diminish. They note increased productivity over time, as sales cohorts mature, leading to expected volume improvements in Q4 compared to Q3. The company plans a disciplined increase in its local sales professional headcount, aligning with market conditions.

In this paragraph, Mark Carden from UBS asks about the performance of local versus national restaurants. Kevin Hourican responds by saying that national restaurants had a difficult quarter, which was consistent with local figures. Despite the challenges faced by national restaurants, areas such as food service management, travel, entertainment, education, and healthcare showed strong performance. February was particularly tough due to adverse weather across various regions in the United States, which affected the restaurant industry overall. Although some national restaurant brands are doing well individually, the majority faced significant difficulties, compounded by harsh weather conditions throughout the country.

The paragraph features a conversation during an earnings call where Jeffrey Bernstein from Barclays seeks clarification and asks a question about fiscal year 2025 guidance. He inquires whether any local case growth issues are self-inflicted or if they align with industry trends, expressing interest in how confident the company is in not underperforming compared to peers. Additionally, Bernstein points out that while the company had previously expressed confidence in achieving 6-7% EPS growth despite potential macroeconomic pressures, they have now lowered their EPS guidance by over 5% and top-line forecasts by 1-2%. He questions whether this indicates there is less opportunity for cost savings or if the company aims to protect long-term infrastructure rather than short-term earnings. Kevin Hourican responds, ensuring market performance consistency in Q3.

The paragraph discusses the company's performance from Q2 to Q4, indicating that their growth is consistent with industry trends and showing a positive start in Q4. The comparison of months shows improvement, with April outperforming March. The company anticipates better market performance as certain cohorts reach their twelve-month anniversaries into fiscal 2026. Unexpected challenges in Q3 included a sharp decline in traffic in February and increased operating expenses due to adverse weather, which affected deliveries and required adjustments without cutting costs like furloughing drivers. The company plans to provide more detailed guidance for fiscal 2026 in August.

The paragraph discusses the financial outlook for a company in light of challenges faced in Q3, including decreased foot traffic and inventory costs related to perishable goods. Kenny Cheung clarifies that the company missed its earnings per share (EPS) consensus by six cents, mainly due to a drop in volume, specifically a decrease in foot traffic. However, deals closed after the quarter's end support confidence in the $100 million impact expected for Q4. The company's guidance for the full year includes 3% sales growth and at least 1% EPS growth. Confidence in this forecast is attributed to ongoing market momentum and successful self-help initiatives.

The paragraph discusses the increasing productivity of the sales team and the positive momentum across the profit and loss statement (P&L). The company is realizing gains in Q3 and expects more in Q4, emphasizing the importance of employee retention, particularly in the supply chain sector. Kevin Hourican mentions the cautious approach for the Q4 financial guide due to market uncertainties like tariffs and consumer confidence. Despite challenges, the company remains confident in its guidance for Q4. Edward Kelly from Wells Fargo then asks about the growth plans for the sales force, noting the goal of 4% growth by 2025 and the historical addition of 450 people annually.

In the paragraph, a question is posed regarding the potential for business growth by 2026, considering factors like turnover, sales force growth, and local case volumes. Concerns are raised about issues such as friction from a pricing tool, customer loss, and the impact of salespeople leaving due to non-compete clauses. Kevin Hourican responds by acknowledging these challenges and emphasizes the importance of achieving positive outcomes to demonstrate their progress. While not providing specific guidance for 2026, he expresses confidence in their strategy, attributing past difficulties to intentional and necessary changes in their compensation model, particularly in fiscal 2025.

The organization acknowledges the challenges faced due to changes in their compensation model, which led to increased employee turnover. However, they believe the changes were necessary and have stabilized retention rates. Efforts are underway to further improve retention through better hiring, training, and management practices. They anticipate that current turnover challenges will eventually become advantageous by 2026. They are aware of the impact of a noncompete clause and have strategies to mitigate its effects. Many employees are reaching a productivity threshold, particularly in the current Q4, which is likened to water beginning to flow consistently through a pipe, signaling a positive shift in performance.

The article discusses a company's headcount growth and expansion plans, particularly in Florida, where a new building is opening. The company aims to increase its workforce in regions that can support growth, with an optimistic outlook for Salesforce's impact by 2026. Additionally, the company is navigating a challenging environment marked by rising costs for restaurants, such as labor, rent, and significant food inflation, making customer value a priority. The company is focusing on agile pricing strategies and emphasizes the importance of effective change management and training for a successful rollout of their pricing agility program, which hasn't been launched nationwide yet.

The paragraph discusses issues faced by Sysco Corporation, including a higher rate of customer churn, which is not unique to the company. Sysco plans to improve service levels to reduce churn, alongside focusing on Salesforce productivity and pricing agility. These measures aim to enhance local volume growth and financial performance, with more guidance to be shared in August 2026. Regarding financials, expenses are rising by 4-5%, and the company expects the gap between sales growth and expenses to narrow as productivity initiatives take effect. There's a conversation about Salesforce initiatives and staff turnover, with expectations for improvement potentially by the first quarter or September.

In the paragraph, Kevin Hourican addresses two main topics: the sales force outlook and capital allocation strategy. He anticipates a positive shift in the sales force performance by fiscal 2026, with gradual improvements due to new hires and efforts to enhance productivity and retention. On the capital allocation front, he acknowledges a significant dividend increase after years of modest raises and elevated share buybacks projected for 2025. However, he does not confirm whether the elevated buybacks will continue beyond that year.

The paragraph highlights Sysco Corporation's commitment to maintaining a strong headcount in its sales force and its reputation as a "dividend aristocrat," having raised dividends for 56 consecutive years. Despite challenging times such as the COVID-19 pandemic, the company's strong financial position allows it to continue rewarding shareholders with dividend increases and share repurchases. The CFO, Kenny Cheung, emphasizes that Sysco's robust cash and liquidity, currently over $4 billion per quarter, enable investment in the business and shareholder returns. The company plans a 6% dividend increase, aligning with future earnings growth expectations, supported by its solid investment-grade balance sheet.

The paragraph discusses the current elevated churn in the industry, primarily attributed to customers seeking value due to increased costs in labor, rent, and food. The shift to online ordering has enhanced price transparency, allowing customers to compare prices more easily across distributors. While this increased visibility enables customers to find better deals and manage food costs, it also benefits companies like Sysco by exposing customers to a broader catalog and encouraging them to make purchases they might not have considered previously. Consequently, online ordering presents both challenges and opportunities for businesses in terms of customer retention and sales growth.

The paragraph discusses Sysco Corporation's competitiveness due to its size and purchasing scale, allowing it to buy and sell goods effectively, thereby providing value to customers. The company collaborates with suppliers on programs to offer savings, attracting customers. It highlights supply chain resiliency, noting changes post-COVID. Customers now diversify distributors to mitigate product shortages, leading to an increased reliance on backup distributors. Similarly, Sysco has expanded its supplier base, adding backup and tertiary suppliers to ensure supply continuity when primary suppliers fall short.

The paragraph discusses Sysco Corporation's strategy for fiscal year 2026, which involves focusing on a small percentage of customers who generate a significant portion of their profits. The company plans to enhance customer retention and penetration with these key customers, seeing this as a driver for growth in 2026. More details will be shared in future investment meetings. The statement concludes a conference call with a thank you from John Heinbockel and the operator announcing the end of the session.

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