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01/11 03:35
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Sysco's earnings call reveals strong financial performance, with double-digit profit growth and gross margin expansion. Despite some challenges in local business volume, the company shows improved productivity and retention. The Q&A highlights management's confidence in achieving guidance, with initiatives like AI360 and Perks 2.0 driving growth. The 6% dividend increase and $1 billion share repurchase plan further support a positive outlook. The company's strategic focus on specialty categories and market share growth adds to the optimism. Overall, the sentiment is positive, likely resulting in a stock price increase of 2% to 8%.
Sales Growth 3.2% on a reported basis and up 3.8% to last year when excluding the divestiture of Mexico. The growth was driven by volume improvement, expanded gross margins, and solid expense control.
Gross Profit Grew 3.9%. This was attributed to excellent work by merchandising teams on gross profit expansion and strong productivity improvement from the supply chain.
Adjusted EPS Grew 5.5%. This growth was supported by strong performance in the International segment, gross profit expansion, and disciplined expense management.
International Segment Sales Growth 4.5% on a reported basis and up 7.9% when excluding the divestiture of Mexico. The growth was driven by positive customer mix benefits and local segment growth.
International Segment Adjusted Operating Income Growth 13.1%. This was the eighth consecutive quarter of double-digit profit growth, driven by strong performance across all regions and customer mix shift to local.
U.S. Broadline Local Business Volume Growth 0.4%. This was a sequential improvement of 130 basis points compared to Q4, significantly outpacing the restaurant traffic improvement of 60 basis points.
USFS Total Local Business Volume Posted a negative 0.2% case volume result. However, excluding the FreshPoint business exit, the total local business grew 0.3%.
SYGMA Segment Sales Growth 4%. This growth was attributed to operating efficiencies.
SYGMA Segment Operating Income Growth 39%. This was driven by operating efficiencies.
Gross Margin Expanded by 13 basis points to 18.5%. This improvement reflects effective management of product cost inflation and strategic sourcing initiatives.
Operating Cash Flow $86 million, up 62% year-over-year. This increase was due to working capital optimization.
Free Cash Flow Negative $15 million. This was due to typical seasonality and the timing of CapEx.
AI360: Introduced as an AI-empowered sales tool, with 90% of sales consultants actively using it. It helps balance activities, improve customer service levels, and increase selling time.
Perks 2.0: A customer loyalty program targeting high-value local street customers. It has improved customer retention and penetration of additional product lines.
International Segment Growth: Delivered 4.5% sales growth on a reported basis and 7.9% excluding the divestiture of Mexico. Local case volume grew approximately 5%, with adjusted operating income growth of 13.1%.
Acquisition of Fairfax Meadow: Expanded specialty capabilities in the U.K. with the acquisition of a leading center-of-plate protein supplier, following last year's acquisition of Campbell's Prime Meat.
Supply Chain Improvements: Improved customer service levels, reduced accidents, decreased product shrink, and increased productivity. This was the strongest quarter for supply chain performance in six years.
Gross Margin Expansion: Achieved 13 basis points of gross margin expansion year-over-year, driven by strategic sourcing and cost management.
Focus on Local Business: Sysco's U.S. Broadline local business showed volume growth of 0.4%, outperforming the industry traffic rate. The company plans to improve local business performance by at least 100 basis points in Q2.
Stabilized Sales Workforce: Improved retention and productivity of sales consultants, supported by tools like AI360 and enhanced training.
Macroeconomic Backdrop: The company acknowledges operating in a less-than-compelling macroeconomic environment, which could pose challenges to achieving growth targets.
FreshPoint Business Exit: The intentional exit from the FreshPoint business negatively impacted total local performance by over 50 basis points in Q1, creating a headwind for overall growth.
Supply Chain and Operational Costs: While supply chain productivity has improved, ongoing investments in fleet, building expansion, and sales headcount could strain operational costs if not managed effectively.
Inflation Management: Inflation rates in the U.S. Broadline and International segments remain a concern, with rates of 2.6% and 4.5% respectively, potentially impacting profitability.
Retention and Productivity: Although sales consultant retention has improved, maintaining this trend and ensuring productivity gains from new hires remain a challenge.
Divestiture of Mexico Business: The divestiture of the Mexico business impacts year-over-year sales growth comparability, creating a potential drag on reported financial performance.
Incentive Compensation Impact: Lapping $10 million in incentive compensation from the prior year negatively impacted adjusted operating expense growth by approximately 100 basis points and adjusted EPS growth by approximately 150 basis points.
Economic Volatility: The company highlights the need to weather volatility in the current macroeconomic environment, which could impact customer demand and financial performance.
Revenue Growth: Sysco expects reported net sales growth of approximately 3% to 5% for FY 2026, reaching approximately $84 billion to $85 billion. This includes inflation of approximately 2%, volume growth, and contributions from M&A.
Adjusted EPS Growth: The company projects full-year adjusted EPS of $4.50 to $4.60, representing growth of 1% to 3%. Excluding the negative impact of incentive compensation, adjusted EPS growth is expected to be approximately 5% to 7%.
Volume Growth: Sysco anticipates continued year-over-year momentum in volume growth rates during FY 2026, with a specific expectation of at least 100 basis points sequential improvement in U.S. local volume in Q2 compared to Q1.
International Segment Performance: The International segment is expected to continue delivering strong top and bottom-line growth, leveraging investments to unlock future growth. Recent acquisitions, such as Fairfax Meadow, are expected to contribute to incremental growth.
Capital Expenditures: CapEx for FY 2026 is expected to be approximately $700 million, representing less than 1% of sales. This includes growth and maintenance CapEx.
Dividend and Share Repurchase: Sysco plans approximately $1 billion in dividends and $1 billion in share repurchases for FY 2026. The dividend payout represents a 6% year-over-year increase on a per-share basis.
Tax Rate: The expected tax rate for FY 2026 is approximately 23.5% to 24%.
Operational Improvements: Sysco expects to continue improving gross profit through strategic sourcing and tightly managing expenses through supply chain productivity improvements.
Dividend Growth: Sysco plans to distribute approximately $1 billion in dividends for FY 2026, representing a 6% year-over-year increase on a per-share basis.
Share Repurchase Program: Sysco has planned approximately $1 billion in share repurchases for FY 2026, which is part of their shareholder return strategy.
Sysco's earnings call reveals strong financial performance, with double-digit profit growth and gross margin expansion. Despite some challenges in local business volume, the company shows improved productivity and retention. The Q&A highlights management's confidence in achieving guidance, with initiatives like AI360 and Perks 2.0 driving growth. The 6% dividend increase and $1 billion share repurchase plan further support a positive outlook. The company's strategic focus on specialty categories and market share growth adds to the optimism. Overall, the sentiment is positive, likely resulting in a stock price increase of 2% to 8%.
The earnings call summary presents a mixed picture. While there are positive elements such as gross profit increase and strategic initiatives, there are concerns regarding lowered sales growth guidance and increased operating expenses. The Q&A section highlights management's confidence in future growth and strategic initiatives, but also reveals uncertainties in M&A and price agility impacts. Considering these factors, along with no clear market cap influence, the sentiment is neutral, suggesting a stock price movement within -2% to 2% over the next two weeks.
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