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    Sysco Corp (SYY)

    Q2 2024 Earnings Summary

    Reported on Jan 10, 2025 (Before Market Open)
    Pre-Earnings Price$75.17Last close (Jan 29, 2024)
    Post-Earnings Price$75.55Open (Jan 30, 2024)
    Price Change
    $0.38(+0.51%)
    • Sysco is gaining market share and outperforming the industry, with local case volume growth of 2.9%, a 300 basis point improvement from Q1, and is meaningfully outgrowing the market, leveraging its scale advantages in broadline and specialty distribution.
    • Sysco is confident in sustaining accelerating growth, focusing on initiatives like improving sales execution, increasing sales consultant headcount, refined compensation models, and total team selling, which have led to sequential improvement in local case volume growth each month in Q2.
    • Sysco is achieving profitable growth in its chain (CMU) business, which accounts for half of their business, by focusing on profitable customer relationships and increasing margins, demonstrating their ability to win and grow profitably across multiple segments.
    • Sysco acknowledged a slowdown in January sales due to weather disruptions and a two-year stack phenomenon, which may signal potential challenges in maintaining sales momentum.
    • The company expects overall market volume growth to be lower in fiscal 2024 compared to 2023, which could impact Sysco's ability to achieve strong top-line growth.
    • Sysco's adjusted EPS growth guidance for fiscal 2024 is 7% at the midpoint, which is lower than their historical double-digit EPS growth, indicating potential headwinds in achieving past earnings performance.
    1. Fiscal '24 Guidance and EPS Growth
      Q: Any surprises in first half, challenges ahead?
      A: Management affirmed their full-year guidance of $4.20 to $4.40 EPS, with 7% growth at midpoint. They managed operating margin expansion despite varying inflation environments. They expect lower overall market volume growth but continued market share gains. Inflation in the back half is expected to be slightly positive, aligning with their initial assumptions. They are on track to reduce structural expenses by $100 million.

    2. Local Case Volume Growth
      Q: Confidence in sustaining local growth?
      A: Management is confident in improving local sales, with Q2 local case volume up 2.9%. Sequential improvement each month gives them confidence to make continued progress. Key drivers are performance management of sales consultants, compensation changes, total team selling, and increased sales consultant headcount. They acknowledge a January slowdown due to weather and calendar factors but view it as temporary.

    3. Inflation Outlook and Pricing
      Q: How will inflation affect the business?
      A: They expect slight positive inflation in the back half of the year, consistent with earlier forecasts. They monitor 12 main commodities, managing both inflation and deflation daily. As costs come down, they pass value to customers while maintaining profitability ratios. Produce inflation returning to normal levels is expected to be a tailwind.

    4. Supply Chain Improvements
      Q: Status of supply chain recovery?
      A: Supply chain health has improved significantly, and they are now fully staffed. Retention is up, and staffing challenges have eased. Management believes they are in the "seventh inning" of recovery to pre-COVID levels, with room for further improvement.

    5. Edward Don and Ready Chef Acquisitions
      Q: How are recent acquisitions performing?
      A: The integration of Edward Don is progressing well, contributing $1.3 billion in profitable top-line revenue. They anticipate synergies in purchasing, targeting joint customers, and enhancing digital platforms. The acquisition of Ready Chef in Ireland strengthens their fresh produce capabilities, aligning with their strategy to expand specialty offerings.

    6. Chain Business Growth and Profitability
      Q: Update on chain business performance?
      A: Chain (CMU) business, which is half of their business, accelerated in Q2, and they are winning meaningfully in that space. They focus on creating win-win relationships with customers that contribute to profitability. The profitability gap between independents and chains has narrowed due to strategic sourcing and emphasis on profitable growth.

    7. Operating Leverage Expectations
      Q: Will operating leverage continue in H2?
      A: They expect operating leverage for the full year but anticipate a more challenging comparison in the second half due to prior cost reductions. Investments and cost management initiatives are expected to offset pressures.

    8. International Business Performance
      Q: Outlook for international operations?
      A: International performance is strong, contributing to growth and profitability. Canada has local case growth over 6%. Efforts in Great Britain and France are improving local penetration and overall performance.

    9. Sales Force Additions
      Q: Progress on sales force hiring?
      A: Initial progress is positive; they are not having challenges filling positions. They are confident in hiring quality salespeople without significant impact from competitor hires.

    10. Visit Frequency and Quality
      Q: How are sales visits impacting sales?
      A: Increasing visit frequency and improving visit quality were key drivers of local case growth improvement from flat in Q1 to 2.9% in Q2. They have specific targets for visits per week and measure quality by close rates on jobs to be done, tracked through their CRM and performance scorecards.