In this file:
· Sysco posts strong Q3 2022 sales, earnings
· SYSCO CORP Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)
· Sysco (SYY) Q3 2022 Earnings Call Transcript
Sysco posts strong Q3 2022 sales, earnings
May 11, 2022
Sysco Corp. posted strong sales and earnings for Q3 2022 against the prior year period, according to an earnings release. Highlights include:
Sales rose 42.9% from $11.8 billion in Q3 2021 to $16.99 billion in the quarter ending April 2, 2022 in the comparative quarters.
Net earnings rose 241.1% from $88.9 million to $303.3 million.
Basic earnings per share rose from 17 cents to 60 cents while diluted earnings per share jumped from 17 cents to 59 cents.
Adjusted EPS rose from 22 cents to 71 cents.
U.S. foodservice sales for the third quarter were $12 billion, an increase of 43.6% compared to the same period last year. Local case volume within U.S. broadline operations increased 14.1% for the third quarter, while total case volume within U.S. broadline operations increased 18.8%, in each case as compared to the same period last year. Both increases represent organic growth.
International foodservice sales for the third quarter were $2.8 billion, an increase of 64.5% compared to the same period last year. On a constant currency basis, sales for the third quarter for international foodservice were $2.9 billion, an increase of 69.3% compared to the same period last year.
Company sales rose 41.3% from $35.16 billion for the 39-week period ending March 27, 2021 to $49.7 billion for the 39-week period ending April 2, 2022.
Net earnings rose from $373.12 million to $848,79 million for the comparative 39-week periods.
Basic earnings per share rose from 73 cents to $1.66 for the comparative 39-week periods while diluted EPS rose from 73 cents to $1.65 for the comparative 39-week periods.
SYSCO CORP Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)
Source: Sysco Corporation
via MarketScreener - 05/11/2022
This discussion should be read in conjunction with our consolidated financial
statements as of July 3, 2021, and for the fiscal year then ended, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations, both contained in our Annual Report on Form 10-K for the fiscal year
ended July 3, 2021 (our fiscal 2021 Form 10-K), as well as the consolidated
financial statements (unaudited) and notes to the consolidated financial
statements (unaudited) contained in this report.
Our third quarter of fiscal 2022 results were strong, reflecting sequential
sales growth improvements and accelerating market share gains. Our share gains
in the U.S. and International segments continued to accelerate and demonstrated
the impact of our Recipe for Growth strategy on our business. Additionally, our
teams made significant improvements in operating expense leverage, with lower
business recovery costs, good progress in our operations productivity
performance efforts and continued re-investments to drive profitable growth. See
below for a comparison of our fiscal 2022 results to our fiscal 2021 results,
both including and excluding Certain Items (as defined below).
Comparisons of results from the third quarter of fiscal 2022 to the third quarter of fiscal 2021 are presented below:
•increased 42.9%, or $5.1 billion, to $16.9 billion;
•increased 110.1%, or $259.8 million, to $495.7 million;
•adjusted operating income increased 124.6%, or $319.2 million, to $575.4
•increased 241.1%, or $214.4 million, to $303.3 million;
•adjusted net earnings increased 216.1%, or $248.1 million, to $362.9 million;
•Basic earnings per share:
•increased 252.9%, or $0.43, to $0.60 per share;
•Diluted earnings per share:
•increased 247.1%, or $0.42, to $0.59 per share;
•adjusted diluted earnings per share increased 222.7%, or $0.49, to $0.71 in
•increased 65.2%, or $277.6 million, to $703.3 million; and
•adjusted EBITDA increased 72.8%, or $318.4 million, to $755.8 million.
Comparisons of results from the first 39 weeks of fiscal 2022 to the first 39 weeks of fiscal 2021 are presented below:
•increased 41.3%, or $14.5 billion, to $49.7 billion;
•increased 81.2%, or $704.8 million, to $1.6 billion;
•adjusted operating income increased 105.4%, or $901.2 million, to $1.8 billion;
•increased 127.5%, or $475.7 million, to $848.8 million;
•adjusted net earnings increased 189.9%, or $710.6 million, to $1.1 billion;
•Basic earnings per share:
•increased 127.4%, or $0.93, to $1.66 per share;
•Diluted earnings per share:
•increased 126.0%, or $0.92, to $1.65 per share; and
•adjusted diluted earnings per share increased 189.0%, or $1.38, to $2.11 in
•increased 52.5%, or $747.5 million, to $2.2 billion; and
•adjusted EBITDA increased 65.9%, or $905.4 million, to $2.3 billion.
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 free cash
flow, any non-GAAP financial measures will be denoted as adjusted measures to
remove the impact of restructuring and transformational project costs consisting
of: (1) restructuring charges, (2) expenses associated with our various
transformation initiatives and (3) facility closure and severance charges;
acquisition-related costs consisting of: (1) intangible amortization expense and
(2) acquisition costs and due diligence costs related to our acquisitions; 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. Our results for the first 39 weeks of fiscal 2022
were also impacted by (1) a write-down of COVID-related personal protection
equipment inventory due to the reduction in the net realizable value of
inventory (2) debt extinguishment costs and (3) the increase in reserves for
uncertain tax positions. Our results for the first 39 weeks of fiscal 2021 were
also impacted by losses on the sale of businesses.
The fiscal 2022 and fiscal 2021 items discussed above are collectively referred
to as "Certain Items." The results of our foreign operations can be impacted by
changes in exchange rates applicable to converting from local currencies to U.S.
dollars. We measure our total Sysco and our International Foodservice Operations
results on a constant currency basis.
Economic and Industry Trends
The food-away-from-home sector continues to experience an overall recovery as
compared to fiscal 2021. Our third quarter began with disruptions from the
Omicron variant of COVID-19, which negatively impacted consumer demand and our
customers due to the reintroduction of significant restrictions on their
businesses. These conditions persisted through February; however, we experienced
a strong market rebound beginning in late February and during March, as the
impact of this variant lessened and restrictions eased.
Sales and Gross Profit Trends
Our sales and gross profit performance can be influenced by multiple factors,
including price, volume, inflation, customer mix and product mix. The most
significant factor affecting performance in the third quarter of fiscal 2022 was
volume growth, as we experienced strong results from both independent and chain
customers, driven by a 14.1% improvement in local case volume and an 18.8%
improvement in total case volume within our U.S. Broadline operations, in each
instance as compared to the third quarter of fiscal 2021. This growth enabled us
to gain market share during the third quarter of fiscal 2022. We have two
customer business segments that remain impacted by the COVID-19 pandemic, namely
"Business and Industry" (which includes, for example, office cafeterias) and
"Travel and Hospitality." We anticipate that both of these segments will make
progress in their recovery in future quarters, which will contribute to our
continued volume growth. We are on track to exceed our stated goal of achieving
growth at a rate of 1.2 times the industry in fiscal 2022, and we believe that
our Recipe for Growth strategy will enable us to accelerate over the next three
years and grow at 1.5 times the pace of the industry by the end of fiscal 2024.
Product cost inflation has also been a driver of our sales and gross profit
performance. We experienced inflation at a rate of 15.8% and 14.4% in the third
quarter and first 39 weeks of fiscal 2022, respectively, in our U.S. Broadline
operations, primarily driven by inflation in the poultry, produce and dairy
categories. We have been successful in managing our inflation, resulting in an
increase in gross profit dollars. Gross margin decreased 12 and 45 basis points
in the third quarter and the first 39 weeks of fiscal 2022, respectively, as
compared to the same prior year periods, largely due to the impact of product
cost inflation. We are concerned about the long-term effect of elevated
inflation, and we are taking actions to address it. We are actively working to
improve our cost of goods sold to Sysco, so that we can pass along value to our
customers. We are also pursuing Sysco brand penetration, as we believe that
Sysco products can save our customers money. Lastly, we are working with our
customers to help them with their menu design and locate product alternatives to
avoid highly inflationary items and sub-categories.
Operating Expense Trends
Total operating expenses increased 33.4% and 31.0% during the third quarter and
first 39 weeks of fiscal 2022, respectively, as compared to the third quarter
and first 39 weeks of fiscal 2021, driven by the variable costs associated with
significantly increased volumes, our transformation initiatives under our Recipe
for Growth strategy, investments in business recovery costs and expenses due to
lower productivity resulting from high turnover in our teams. Our operating
results in the third quarter and first 39 weeks of fiscal 2022 included
$48 million and $116 million, respectively, of operating expense investments for
our Recipe for Growth strategy. We are making these necessary investments to
ensure that we can serve our customers to enable us to continue increasing
market share, profitably, at the national and local level. We have made a
purposeful response to the COVID-generated labor and safety environment in which
we are operating, with $35 million and $165 million in business recovery
operating investments such as recruiting costs, hiring marketing, vaccination
promotion, contract labor and sign-on and retention bonuses during the third
quarter and first 39 weeks of fiscal 2022, respectively. We continued to improve
our staffing levels in the third quarter of fiscal 2022, primarily for
transportation and warehouse staff. Incremental training and overtime costs were
approximately $30 million in the third quarter of fiscal 2022, which is lower
than the approximately $40 million for these same costs in the second quarter of
fiscal 2022. These efforts, along with productivity improvements from prior
quarters, are lowering our business recovery costs, and we expect these expenses
to continue to decline in the fourth quarter of fiscal 2022. Even with those
significant business recovery and transformation operating expense investments,
offset by the continued benefit of our cost-savings efforts, we leveraged our
adjusted operating expense structure.
Income Tax Trends
Our provision for income taxes primarily reflects a combination of income earned
and taxed in the various U.S. federal and state, as well as foreign,
jurisdictions. Tax law changes, increases or decreases in book versus tax basis
differences, accruals or adjustments of accruals for unrecognized tax benefits
or valuation allowances, and our change in the mix of earnings from these taxing
jurisdictions all affect the overall effective tax rate.
Our effective tax rate has been influenced by discrete events, such as tax law
changes and excess tax benefits attributable to equity compensation exercises as
discussed in Note 12, "Income Taxes," in the Notes to Consolidated Financial
Statements in Item 1 of Part I of this Form 10-Q.
Comparisons to Fiscal 2019 ...
Sysco (SYY) Q3 2022 Earnings Call Transcript
By Motley Fool Transcribing
May 11, 2022
Q3 2022 Earnings Call
May 10, 2022
Questions and Answers
Good morning, and welcome to Sysco's third quarter fiscal 2022 conference call. As a reminder, today's call is being recorded. We will begin with opening remarks and introductions. I would like to turn the call over to Kevin Kim, vice president of investor relations.
Please go ahead.
Kevin Kim -- Vice President, Investor Relations
Good morning, everybody, and welcome to Sysco's third quarter fiscal '22 earnings call. On today's call, we have Kevin Hourican, our president and chief executive officer; Aaron Alt, our CFO; and Neil Russell, our SVP of corporate affairs and chief communications officer. Before we begin, please note that statements made during this presentation which state the company's or management's intentions, beliefs, expectations or predictions of the future are forward-looking statements within the meaning of the Private Securities Litigation Reform Act, and actual results could differ in a material manner. Additional information about factors that could cause results to differ from those in the forward-looking statements is contained in the company's SEC filings.
This includes, but is not limited to, risk factors contained in our annual report on Form 10-K for the year ended July 3, 2021, subsequent SEC filings and in the news release issued earlier this morning. A copy of these materials can be found in the Investors section at sysco.com. Non-GAAP financial measures are included in our comments today and in our presentation slides. The reconciliation of these non-GAAP measures to the corresponding GAAP measures is included at the end of the presentation slides and can be found in the investors section of our website.
[Operator instructions] At this time, I'd like to turn the call over to Kevin Hourican.
Kevin Hourican -- President and Chief Executive Officer
Good morning, everyone. Thank you for joining our call. Our financial performance this quarter exceeded our internal expectations, driven by strong top line performance, accelerating market share gains, solid gross margin management and improvement in our operations expenses. Earlier today, we raised our full year guidance, and Aaron will walk you through the details in just a few moments.
Our strong performance for the quarter demonstrates our focus on the customer and the advancement of our recipe for growth strategy. Simply put, we are winning in the marketplace. The best measure of this success is the continued market share gains that we are delivering. Our performance versus the market accelerated in the quarter, and we solidly exceeded our fiscal 2022 goal of growing 1.2 times the market.
I will highlight three topics during our call today. First, I will touch on our financial results. Second, I'll discuss the state of the current operating environment. And finally, I will highlight progress from our recipe for growth transformation.
I'll then turn it over to Aaron to discuss our financial results in more detail. So let's get started with our financial results displayed on slide No. 4. Our third quarter results were fueled by strong top line performance across the US and international segments and progress made in lowering operating expenses as a percentage of sales.
As a result, our profit results were ahead of our internal expectations this quarter. While our operational expenses remain elevated versus our historical standards, we've begun making progress in improving our productivity. We will continue to make progress in the coming quarters. Key headlines this quarter include market share gains that significantly exceeded our 1.2 times the market growth target, significant volume improvements with US broadline volume up approximately 19% versus the same period in fiscal year 2021 and our USFS business delivering volume growth versus 2019 in total.
This also included another quarter of profitable growth coming from our international segment. Our expense structure is improving. As I mentioned, we still have work to do in order to return to our standard of excellence but we have begun making progress. Importantly, our snapback investments were reduced by more than 50% versus the prior quarter.
Our strong sales results and continued progress in improving operating expenses drove solid profit growth. We delivered adjusted earnings per share of $0.71 for the quarter. We achieved these results while meaningfully advancing our recipe for growth strategy. This included successfully closing on The Coastal Companies transaction during the quarter, further expanding our industry-leading produce business that is high growth at attractive margins.
Topic two for today, an update on the current environment. The third quarter started with COVID-related disruptions from the Omicron variant. Recall that the negative impact from Omicron started in late November and the effects were felt through February. Sysco delivered a strong quarter of growth despite the headwind from Omicron.
Two factors played to our favor: a strong market rebound in late February and into March and Sysco winning market share throughout the entire quarter. Combined, these factors enabled both our US and international businesses to deliver volumes greater than our internal forecast for the period. As I mentioned a moment ago, volume in our US foodservice operations exceeded pre-COVID-19 levels for the quarter. The positive momentum was strong across geographies, as well as across different customer types.
With that said, we expect additional momentum over time from improved international volume as the recovery in the food-away-from-home market strengthens internationally. At Sysco, we have two business sectors that remain heavily impacted by COVID, business and industry, which includes customers such as office cafeterias and travel and hospitality, which is heavily impacted by conferences and large group catering events. We anticipate both segments making progress this summer and into the fall. For example, many major employers have begun returning to the office, and recent reports from airline and hotel CEOs have cited steadily improving bookings for this summer.
An advantage of Sysco is that we are fully diversified across the food-away-from-home business. While high cost of fuel is being felt by our customers, we have not experienced a reduction of consumer demand. The fact that we cover all restaurant types up and down the price point spectrum provides us some protection in an unpredictable economy. Additionally, the pricing relationship between food at home and food away from home is favorable to Sysco versus historical relationships, as you can see on slide six in our presentation.
With that said, we remain concerned about the long-term effect of elevated inflation, and we are taking strong actions to manage the situation. We are actively working to improve cost of goods sold inbound to Sysco so that we can pass along value to our customers. We are aggressively pursuing Sysco brand penetration opportunities as we know that Sysco products save our customers' money. We are also working aggressively with our customers to help them with their menu design, and therefore, helping these customers find alternatives to step around highly inflationary items in subcategories.
We are also helping them to have confidence in their menu pricing strategies. This work helps us go earn trust and respect with our large customer base. In regards to our supply chain, I'd like to report that conditions are improving. Applicant flow to open positions has increased, and our talent acquisition team has helped us make progress in improving our staffing health.
As a result, we have been able to reduce associate overtime and improve our service levels to our customers over the past quarter. Our NPS, or Net Promoter Score, results this quarter improved and continue to lead versus the market. It is still a very dynamic environment, but the size and scale advantages of Sysco are enabling us to succeed in a turbulent environment. Topic three for today, I'll provide select highlights of our recipe for growth progress.