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    Sysco Corp (SYY)

    Q2 2025 Earnings Summary

    Reported on Feb 7, 2025 (Before Market Open)
    Pre-Earnings Price$76.86Last close (Jan 27, 2025)
    Post-Earnings Price$73.80Open (Jan 28, 2025)
    Price Change
    $-3.06(-3.98%)
    • Despite weather-related disruptions like the Southern storms and California wildfires in January, Sysco expects accelerated growth in the second half of fiscal 2025 due to investments in sales professionals and operational improvements.
    • Sysco anticipates over $100 million in annualized savings starting in the second half of fiscal 2025, driven by strategic sourcing, supply chain efficiencies, and organizational optimization, which will enhance gross profit and operating expenses.
    • Improvements in Sysco's local business, including increased sales headcount and a new compensation program that has significantly boosted new customer win rates, are expected to contribute to stronger performance in the second half of fiscal 2025.
    • Sysco's local case volumes are declining and underperforming the industry, with local case volume down 1.9% in Q2, compared to industry restaurant traffic decline of approximately 2%, indicating potential market share loss in the local segment.
    • The company is relying on cost-saving initiatives, including an expected $100 million in annualized savings, to drive EPS growth, rather than organic sales growth, suggesting that future earnings growth may be driven more by cost-cutting than by top-line expansion.
    • Sysco brand sales as a percentage of total sales are declining, potentially impacting margins, as customers shift back to national brands, reducing the higher-margin Sysco brand sales.
    MetricPeriodPrevious GuidanceCurrent GuidanceChange

    Net Sales Growth

    FY 2025

    4% to 5%

    4% to 5%

    no change

    Adjusted EPS Growth

    FY 2025

    6% to 7%

    6% to 7%

    no change

    Net Leverage

    FY 2025

    2.5 to 2.75x

    2.5 to 2.75x

    no change

    Adjusted Tax Rate

    FY 2025

    25%

    24.5% to 25%

    lowered

    Return to Shareholders

    FY 2025

    $2B in total returns

    $1B in dividends + $1.25B in share repurchases ($2.25B total)

    raised

    International Sales Impact

    FY 2025

    ~$500M from Mexico JV divestiture

    ~$500M from Mexico JV divestiture

    no change

    Adjusted Depreciation and Amortization

    FY 2025

    no prior guidance

    $800M

    no prior guidance

    Operating Cash Flow

    FY 2025

    no prior guidance

    ~70% conversion from adjusted EBITDA

    no prior guidance

    Free Cash Flow

    FY 2025

    no prior guidance

    ~50% conversion from adjusted EBITDA

    no prior guidance

    TopicPrevious MentionsCurrent PeriodTrend

    Local case volume

    Q1: +0.2% growth; Q4: +0.7%; Q3: +0.4%.

    Down 1.9%, citing hurricane and holiday shifts; confident in improvement for 2H FY25.

    Recurring topic with varying growth across periods.

    Forecasted second-half FY25

    Q1: Confidence based on macro improvements and new comp model; Q4: “modest improvements” expected; Q3: no explicit mention of 2H FY25.

    Accelerated performance expected, driven by sales initiatives, strategic sourcing, and improved foot traffic.

    Recurring topic with increased optimism.

    Cost-saving initiatives

    Q1: Emphasis on productivity, corporate expense cuts; Q4: 10% corporate expense reduction and digital initiatives; Q3: Raised cost-saving target to $120 million, reduced 500 roles.

    Over $100 million in annualized structural savings, focusing on strategic sourcing and supply chain efficiencies.

    Recurring and expanding cost-saving focus.

    Sysco brand penetration

    Q1: Decline of ~59 bps; Q4: Decline of ~37 bps; Q3: Focus on local penetration increase.

    Approximately 46% of local cases; slight year-over-year decline attributed to improved national brand fill rates.

    Recurring brand focus with short-term challenges.

    New sales compensation model

    Q1: Turnover spike in July; Q4: Launched July 1, 2024 with 2H FY25 benefit; Q3: Positive feedback from top performers.

    Stabilized after initial Q1 disruption; improved new customer wins and retention.

    Recurring with positive evolution and results.

    Gross margin

    Q1: Pressure (-27 bps to 18.3%); Q4: Mostly flat with mix pressure; Q3: 44 bps expansion.

    Expanded to 18.1%, aided by strategic sourcing and scale.

    Recurring with improving margin trends.

    Weather-related disruptions

    Q1: Hurricanes impacted foot traffic; Q4 & Q3: No mention.

    Major hurricane and holiday shifts disrupted Q2 results.

    Event-driven disruptions mentioned periodically.

    Specialty business expansion

    Q1: Goal of a $20B specialty portfolio; Q4: Emphasis on cross-selling specialty and Broadline; Q3: Highlighted robust specialty offering.

    Recent specialty additions boosted international sales, GP, and operating income.

    Recurring driver of growth and differentiation.

    Restaurant traffic

    Q1: -4% foot traffic; Q4: ~-3%; Q3: Continued year-over-year decline but some sequential improvement.

    Down ~2%, an improvement over Q1’s -4% trend.

    Recurring with cautiously improving sentiment.

    International segment

    Q1: 3% top line, 12% OI; Q4: 7% top line, 24% bottom-line growth; Q3: 4.5% sales increase, outpacing U.S..

    3.6% sales growth, 7% GP growth, 26.5% OI growth; strong local case expansion.

    Recurring and consistently strong segment results.

    Edward Don acquisition

    Q1: Contributed +1.6% local volume; Q4: +2.7% U.S. foodservice volume; Q3: Synergies under integration with ~+1.6% local volume impact.

    No mention in Q2 2025.

    No longer mentioned but was previously a growth driver.

    1. Local Case Growth and Sales Force Performance
      Q: When will local case growth turn positive?
      A: Management is confident in improving local case growth quarter-over-quarter and anticipates showing numerical progress as the year progresses, due to increased sales headcount and the effectiveness of new hires. They expect improvement towards the end of the fiscal year, potentially turning positive in fiscal 2026.

    2. $100 Million Annualized Savings and EPS Growth
      Q: Can you expand on the $100 million in annualized savings?
      A: They have a clear line of sight to $100 million in annualized savings benefiting both gross profit and operating expenses. These savings come from strategic sourcing, supply chain efficiencies, and organizational optimization. The savings are structural, already included in the current guidance, and are a key driver for high single-digit EPS growth in the second half of the year.

    3. Impact of Compensation Change on Sales Force
      Q: How has the sales compensation change affected performance?
      A: The compensation change disrupted underperforming sales staff in Q1, but this is now behind them. Retention has stabilized, and sales reps are earning more under the new program, which rewards top performers with more upside. This is expected to drive momentum and improve local sales as the year progresses.

    4. National vs Local Growth and Long-Term Goals
      Q: Is the gap between local and national growth acceptable for multiyear goals?
      A: While national business is performing extremely well and provides route density and fixed cost coverage, management emphasizes the need to grow both local and national segments. Improving local performance is essential for achieving long-term goals, and they are confident in their strategies to drive growth in both areas.

    5. Product Cost Inflation Outlook
      Q: Do you expect higher product cost inflation ahead?
      A: They are seeing increased inflation in dairy and protein categories due to avian influenza affecting supply, and expect higher center-of-plate inflation over the next 90 days to six months. While overall inflation is around 2.1% company-wide, they acknowledge potential for higher inflation but currently operate in a normalized environment.

    6. International Margin Opportunity
      Q: How do you view the international margin opportunity?
      A: Management is extremely pleased with international business, expecting outsized top and bottom-line growth. There are no structural barriers limiting profit rates in international markets, and initiatives like Sysco Your Way expansion, specialty acquisitions, and technology investments are driving strong performance.

    7. Sysco Brand Sales and Outlook
      Q: Can you comment on Sysco Brand sales performance?
      A: Sysco Brand is performing as expected, and they remain confident in its long-term growth. The year-over-year decline is due to national branded suppliers improving their fill rates. Sysco Brand continues to offer value, especially when customers seek cost-effective options, and they anticipate stabilizing penetration rates as local performance improves.

    8. January Sales Trends and Weather Impact
      Q: How have recent weather events affected January sales?
      A: January is seasonally the lowest volume month, and while weather events like the Southern storms and California wildfires had some impact, management is not concerned. They are working through it and remain confident in their ability to serve customers and in their overall second-half outlook.