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    Sysco Corp (SYY)

    Business Description

    Sysco Corporation is a global leader in the sale, marketing, and distribution of food products to various sectors, including restaurants, healthcare, educational facilities, and lodging establishments . Operating primarily in North America and Europe, Sysco holds a significant presence in the U.S. foodservice market with a 17% market share of a $370 billion industry . The company offers a wide range of food and non-food items, including frozen foods, fresh produce, and restaurant equipment . Sysco's business strategy focuses on expanding specialty operations and enhancing supply chain efficiency through digital transformation and strategic acquisitions .

    1. U.S. Foodservice Operations - Provides a comprehensive range of food and non-food products to restaurants and other foodservice establishments across the United States.
    2. International Foodservice Operations - Delivers food and non-food products to foodservice customers outside the U.S., primarily in Europe.
    3. SYGMA - Supplies quick-service chain restaurants with food and non-food items, focusing on efficiency and reliability.
    4. Other Operations - Includes specialty operations like FreshPoint for fresh produce, Greco & Sons for Italian specialties, and hotel supply services.

    Q4 2024 Summary

    Initial Price$80.88March 29, 2024
    Final Price$71.39June 29, 2024
    Price Change$-9.49
    % Change-11.73%

    What went well

    • Sysco is confident in profitably growing its business by taking market share, acquiring new customers, and penetrating opportunities in produce and protein, even in current market conditions.
    • The company is capitalizing on a significant $10+ billion opportunity through Total Team Selling and expanding its specialty products, where customers that buy both Broadline and Specialty products spend 3x more per week, enhancing growth potential.
    • Sysco maintains strong pricing discipline, will not sell cases below cost, and is focusing on supply chain productivity improvements and investments in sales professionals, expecting low single-digit local volume growth for the year and modest industry traffic improvements in the back half of FY'25.

    What went wrong

    • Sysco's U.S. gross margin declined due to unfavorable customer and product mix, with national accounts growing faster than local accounts, leading to margin rate pressure.
    • Increased competitive intensity due to decreased restaurant traffic has led to more promotional activity and potential pressure on Sysco's margins as distributors compete for profitable cases.
    • Local case growth was only 0.7% year-over-year, and the company is not satisfied with its local performance, indicating a need to improve in this important segment.

    Q&A Summary

    1. Gross Margin Outlook
      Q: Is margin pressure due to mix and will it persist?
      A: Margin decline is primarily due to customer and product mix shifts, specifically increased growth in Corporate Multi-Unit (CMU) accounts, which, while profitable, dilute the margin rate. Additionally, improved fill rates from national brand suppliers reduced Sysco Brand penetration, slightly impacting margin rate. We expect gross profit dollars per case to expand in 2025, with actions to drive Sysco Brand penetration and specialty growth.

    2. Sales Force Investments
      Q: Will new sales hires cause near-term disruption?
      A: While there may be manageable disruption as existing sales associates transition some customers to new hires, each associate is giving up approximately one customer, minimizing impact. New hires focus on acquiring new customers, and we're carefully managing change to mitigate disruption. We're confident in our guidance and expect positive returns from these investments.

    3. Guidance and Volume Growth
      Q: How should we think about guidance cadence and Q1 expectations?
      A: We're confident in achieving Q1 numbers and full-year guidance. Volume improvement is expected in the back half of the year due to benefits from investments in new associates and an anticipated modest improvement in industry traffic. Productivity gains will be consistent throughout the year, supporting our guidance.

    4. International Growth Momentum
      Q: What's driving international growth and expectations for 2025?
      A: Improvement is driven by self-help initiatives like supply chain productivity, technology enhancements, and introducing Sysco Brand in new countries. Local case growth was up 5%. We expect continued growth and profit improvement in 2025.

    5. Macro Environment and Demand Trends
      Q: Are demand pressures consistent, and how is Sysco adapting?
      A: Restaurant traffic is down 3% for the quarter, consistent across all types. We anticipate similar conditions in Q1, with some improvement in the second half of the fiscal year. We're focusing on new customer acquisition and leveraging our compensation model to drive growth.

    6. Corporate Cost Reductions
      Q: Are ongoing corporate cost improvements expected?
      A: Yes, we have ongoing initiatives in digital, automation, shared services, and procurement savings. After achieving over $120 million in savings last year, we have a robust pipeline to continue reducing costs throughout the fiscal year.

    7. Inflation Outlook
      Q: Is the 2% inflation outlook consistent throughout the year?
      A: We expect inflation to remain around 2% throughout the year, with some fluctuations across categories. This is already reflected in our current numbers.

    8. Decline in Private Label Penetration
      Q: What's causing the decline in Sysco Brand penetration?
      A: Improved fill rates from national brand suppliers reduced substitutions to Sysco Brand products. While this slightly impacts margin rate, it's positive overall for operations and customer satisfaction.

    9. Promotional Environment and Competition
      Q: Is there increased promotional activity affecting margins?
      A: Competitive intensity has increased due to lower traffic, but we maintain disciplined pricing strategies. While gross margin rate is slightly down due to mix, gross profit grew 4%, and gross profit per case grew 1%. We focus on profitable growth and have plans to drive Sysco Brand penetration.

    10. Menu Price Investments by Restaurants
      Q: Are restaurants lowering prices to drive volumes?
      A: Pricing decisions are up to our customers, but we're seeing some movement, especially in QSRs with value menus. We didn't factor lower menu prices into our guidance but expect consumer confidence to improve in the second half due to potential interest rate reductions.

    Key Metrics

    View all financials →
    Revenue by Segment - in Millions of USDQ2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024Q4 2024FY 2024Q1 2025
    U.S. Foodservice Operations13,745.853,682.913,723.813,494.413,707.114,413.755,33914,362
    International Foodservice Operations3,649.413,559.63,683.23,596.53,493.23,788.114,5613,794
    SYGMA2,0047,843.11,906.01,913.71,903.92,044.47,7682,046
    Other3291,239.1307.4283.3275.2310.11,176282
    Broadline--------
    Intersegment Sales--------
    Canned and Dry Products3,767.614,351.93,749.23,631.13,693.73,82814,9023,762
    Fresh and Frozen Meats3,504.713,490.13,569.53,581.93,452.33,691.314,2953,684
    Frozen Fruits, Vegetables, Bakery, and Other3,011.511,364.53,006.82,994.52,983.23,076.512,0613,070
    Dairy Products2,0558,209.52,009.61,978.11,944.42,098.98,0312,169
    Poultry1,900.47,751.71,926.71,886.71,831.82,040.87,6862,096
    Fresh Produce1,704.36,681.31,706.41,639.91,699.01,779.76,8251,708
    Paper and Disposables1,3765,442.41,337.81,303.51,332.71,4125,3861,400
    Seafood777.83,023.0746.2662.1693.8718.92,821695
    Beverage Products707.92,558.0703.3660.6680.4747.72,792748
    Equipment and Smallwares----453.0-1,545513
    Other Products-3,452.4865.0949.4615.270.42,500639
    Medical Supplies--------
    Total Revenue19,728.276,324.719,620.519,287.919,379.520,556.178,84420,484
    Revenue by Geography - in Millions of USDQ2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024Q4 2024FY 2024Q1 2025
    U.S. Foodservice Operations22,466.4962,403.56313,723.813,494.413,707.10823,005.6963,93114,362
    International Foodservice Ops4,010.8813,921.1123,683.23,596.53,493.232--3,794
    - Canada-5,827.806----5,993-
    - United Kingdom-3,340.281----3,760-
    - France-1,591.125----1,712-
    - Other-3,161.900----3,448-
    SYGMA----1,903.922--2,046
    Other----275.238--282
    Total Revenue19,728.2476,324.67519,620.519,287.919,379.520,556.178,84420,484
    KPIs - Metric (Unit)Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024Q4 2024FY 2024Q1 2025
    Case Volume Growth (%)2.3%-1.6%3.4%2.9%3.5%-2.7%
    Local Case Volume Growth (%)0.8%--2.9%0.4%0.7%-0.2%

    Executive Team

    NamePositionStart DateShort Bio
    Kevin P. HouricanChair of the Board and Chief Executive OfficerApril 2024Kevin P. Hourican has served as Sysco Corporation's Chair of the Board and Chief Executive Officer since April 2024. Prior to this, he was the President and CEO and a member of Sysco's Board from February 2020 until April 2024. Before joining Sysco, Mr. Hourican was the Executive Vice President of CVS Health Corporation and President of CVS Pharmacy .
    Greg D. BertrandExecutive Vice President, Global Chief Operating OfficerSeptember 2003Greg D. Bertrand has been serving as Sysco's Executive Vice President and Global Chief Operating Officer since September 2003. He began his career at Sysco in 1991 as a Marketing Associate at Sysco Chicago and has held various leadership positions throughout his tenure .
    Kenny K. CheungExecutive Vice President and Chief Financial OfficerApril 2023Kenny K. Cheung has served as Sysco's Executive Vice President and Chief Financial Officer since April 2023. Before joining Sysco, Mr. Cheung was the Executive Vice President and Chief Financial Officer at The Hertz Corporation from September 2020 to March 2023 .
    Victoria L. GutierrezSenior Vice President, Chief Merchandising OfficerAugust 2022Victoria L. Gutierrez has served as Senior Vice President, Chief Merchandising Officer at Sysco since August 2022. She joined Sysco in July 2021 as Vice President of Category Management. Before joining Sysco, Ms. Gutierrez was a Partner at the Boston Consulting Group .
    Jennifer L. JohnsonSenior Vice President and Chief Accounting OfficerOctober 2023Jennifer L. Johnson has served as Sysco's Senior Vice President and Chief Accounting Officer since October 2023. Before joining Sysco, she was the Corporate Vice President and Principal Accounting Officer at FedEx Corporation from October 2021 to October 2023 .
    Gregory S. KellerSenior Vice President, National Accounts - Sysco, SYGMA and Guest WorldwideSeptember 2023Gregory S. Keller has served as Senior Vice President, National Accounts - Sysco, SYGMA and Guest Worldwide since September 2023. Prior to this role, he held various leadership positions within Sysco, including Senior Vice President, National Sales from November 2021 to September 2023 .
    Eve M. McFaddenSenior Vice President, Legal, General Counsel and Corporate SecretaryFebruary 2019Eve M. McFadden has served as Sysco's Senior Vice President, Legal, General Counsel, and Corporate Secretary since February 2019. She is responsible for the company's legal, compliance, ethics, enterprise risk management, and business continuity functions .
    Thomas R. Peck, Jr.Executive Vice President, Chief Information and Digital OfficerJanuary 2021Thomas R. Peck, Jr. has served as Sysco's Executive Vice President and Chief Information and Digital Officer since January 2021. Before joining Sysco, he was the Executive Vice President, Chief Information and Digital Officer for Ingram Micro Inc. .
    Ronald L. PhillipsExecutive Vice President and Chief Human Resources OfficerMay 2021Ronald L. Phillips has served as Sysco's Executive Vice President and Chief Human Resources Officer since May 2021. Before joining Sysco, he was the Senior Vice President of Human Resources, Retail, Omnicare, and Enterprise Modernization for CVS Health Corporation .
    Daniel T. PurefoySenior Vice President, Chief Supply Chain OfficerSeptember 2023Daniel T. Purefoy has served as Sysco's Senior Vice President, Chief Supply Chain Officer since September 2023. Prior to this role, he was the Chief Supply Chain Operations Officer from August 2022 to September 2023 .
    Neil A. Russell, IISenior Vice President, Corporate Affairs and Chief Administrative OfficerApril 2023Neil A. Russell, II has been serving as Sysco's Senior Vice President, Corporate Affairs and Chief Administrative Officer since April 2023. He began his career at Sysco in August 2007 as Vice President, Investor Relations .

    Questions to Ask Management

    1. Despite a 51 basis point decline in Sysco Brand penetration in U.S. Broadline, what specific steps are you taking to reverse this trend and drive private label growth in fiscal 2025, especially given the competitive pressures and improved national supplier fill rates?

    2. With gross margins slightly down year-over-year due to mix and increased competition, how are you balancing market share gains in the lower-margin CMU space with the need to maintain or improve overall profitability?

    3. Local case volume growth was only 0.7% for the year, and you mentioned not being satisfied with growth in the important local segment; what are your specific strategies to accelerate local case growth and how confident are you in achieving these targets amid declining restaurant foot traffic?

    4. Given that restaurant foot traffic was down approximately 3% year-over-year in the quarter and macro conditions remain challenging, how realistic is your expectation of volume growth in the low single digits for fiscal 2025, and what gives you confidence in this outlook?

    5. With your focus on expanding into the specialty market being a $10 billion-plus opportunity, what are the key challenges you anticipate in integrating your specialty assets, and how will you ensure that the Total Team Selling program effectively captures this growth potential?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateMay 20, 2021
    End Date/DurationUntil fully utilized
    Total additional amount$5.0 billion
    Remaining authorization$2.7 billion
    DetailsOffset dilution from shares issued under benefit plans and make opportunistic repurchases

    Past Guidance

    Q1 2025 Earnings Call

    • Issued Period: Q1 2025
    • Guided Period: FY 2025
    • Guidance:
      1. Net Sales Growth: 4% to 5%, including 2% inflation and positive volume growth of low single digits. Slight benefit from M&A anticipated .
      2. Adjusted EPS Growth: 6% to 7% .
      3. Tax Rate: Approximately 25% .
      4. Interest Expense: Approximately $650 million .
      5. Other Expense: Approximately $50 million .
      6. Adjusted Depreciation & Amortization (D&A): Approximately $800 million .
      7. Capital Expenditures (CapEx): Approximately 1% of sales .
      8. Net Leverage: 2.5 to 2.75x net leverage .
      9. Free Cash Flow Distribution: Distribute essentially all free cash flow to shareholders .
      10. Dividends: Over $1 billion .
      11. Share Repurchases: Approximately $1 billion .
      12. Local Volume Growth: Low single digits growth .
      13. Supply Chain Productivity: Improvements expected .

    Q4 2024 Earnings Call

    • Issued Period: Q4 2024
    • Guided Period: FY 2025
    • Guidance:
      1. Net Sales Growth: 4% to 5%, including 2% inflation and positive volume growth of low single digits. Slight benefit from M&A anticipated .
      2. Adjusted EPS Growth: 6% to 7% .
      3. Tax Rate: Approximately 25% .
      4. Interest Expense: $650 million .
      5. Other Expense: Approximately $50 million .
      6. Adjusted Depreciation & Amortization (D&A): Approximately $800 million .
      7. Capital Expenditures (CapEx): Approximately 1% of sales .
      8. Net Leverage Ratio: 2.5 to 2.75x net leverage .
      9. Free Cash Flow Distribution: Distribute essentially all free cash flow to shareholders .
      10. Local Volume Growth: Low single digits growth .
      11. Supply Chain Productivity: Improvements expected .
      12. Corporate Expense Management: Ongoing improvements .

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Adjusted EPS: $4.20 to $4.40, with 7% EPS growth at midpoint .
      2. Net Sales: Approximately $79 billion .
      3. Free Cash Flow: Increased free cash flow expected .
      4. Cost Savings: More than $120 million in cost savings .
      5. Shareholder Returns: Over $2.25 billion .
      6. Tax Rate: Increase due to global minimum tax rate changes .
      7. Interest Expense: Increase to fund capital allocation priorities .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Net Sales Growth: Mid-single digits, aiming for $80 billion .
      2. Adjusted EPS: $4.20 to $4.40, with 7% growth at midpoint .
      3. Operating Leverage: Positive operating leverage expected .
      4. Industry Volume Growth and Inflation: Slightly positive growth expected .
      5. Share Repurchases: Increased to $1.25 billion .
      6. Total Shareholder Returns: Approximately $2.25 billion .
      7. Tax Rate: 24.5% .
      8. Interest Expense: Increase of $20 million .
      9. Free Cash Flow: Growth expected .
      10. M&A Activity: 50 to 100 basis points growth contribution .