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

 

Vending Times

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.

 

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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.

 

Highlights

 

 

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:

 

•Sales:

 

•increased 42.9%, or $5.1 billion, to $16.9 billion;

•Operating income:

•increased 110.1%, or $259.8 million, to $495.7 million;

•adjusted operating income increased 124.6%, or $319.2 million, to $575.4

million;

•Net earnings:

•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:

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•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

fiscal 2022;

•EBITDA:

•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:

 

•Sales:

 

•increased 41.3%, or $14.5 billion, to $49.7 billion;

•Operating income:

•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;

•Net earnings:

•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

fiscal 2022;

•EBITDA:

•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.

 

Trends

 

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

 

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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 ...

 

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Sysco (SYY) Q3 2022 Earnings Call Transcript

 

By Motley Fool Transcribing

May 11, 2022

 

Sysco

Q3 2022 Earnings Call

May 10, 2022

 

Contents:

 

    Prepared Remarks

    Questions and Answers

    Call Participants

 

Prepared Remarks:

 

Operator

 

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.

 

Last quarter...

 

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