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SYSCO CORP (SYY)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 FY25 was soft versus expectations: sales $19.6B (+1.1% YoY), gross margin 18.3% (-35 bps YoY), GAAP EPS $0.82 (-3.5% YoY) and adjusted EPS $0.96 (flat YoY) as U.S. Foodservice case volume fell 2.0% and local cases declined 3.5% .
  • Both revenue and EPS missed S&P Global consensus as weather, California wildfires, lower restaurant traffic, and weaker consumer confidence/tariff uncertainty weighed on demand; management broke down the EPS miss as ~$0.05 volume and ~$0.01 sourcing timing (Q3 vs Street: revenue $19.60B vs $20.05B*, EPS $0.96 vs $1.02*) .
  • Guidance cut: FY25 sales growth reduced to ~3% (from 4–5%) and adjusted EPS growth to at least 1% (from 6–7%), reflecting a weaker macro in H2; management still targets ~$2.25B capital return in FY25 and raised the quarterly dividend 6% to $0.54 starting July 25, 2025 .
  • Offsets: International delivered another double‑digit profit increase (adj. operating income +17.4%), cost actions are tracking to ~$100M annualized, supply chain service levels are strong, and Q4 started better than March; management highlighted DC expansions and a Cash & Carry pilot as incremental growth vectors .

Note: Asterisks (*) denote S&P Global consensus figures; see Estimates Context for details. Values retrieved from S&P Global.

What Went Well and What Went Wrong

What Went Well

  • International momentum: Sales ex-Mexico JV grew 2.5%; gross margin +45 bps to 21.1%; adjusted operating income +17.4% (+21.1% constant currency). CEO: “International local volume increased 4.5% … adjusted operating income increased 17.4%” .
  • Expense discipline and service: Adjusted operating expenses improved to 14.33% of sales (−17 bps YoY) and corporate expenses declined 16.8% YoY on an adjusted basis; supply chain delivered the highest on‑time service levels of the year .
  • SYGMA strength: Sales +9.5% YoY, operating income steady; driven by customer wins, with YTD top line +9% and bottom line +17% .

What Went Wrong

  • U.S. Foodservice pressure: Local case volume −3.5%, gross margin −50 bps to 18.9%, GAAP operating income −11.5% and adjusted −9.7% amid negative industry traffic and mix headwinds .
  • Gross profit decline and mix: Gross profit −0.8% YoY, pressured by lower volumes and mix, including lower Sysco brand penetration; Sysco Brand as % of cases fell (U.S. Broadline −72 bps) .
  • EPS/revenue below Street: Q3 EPS missed by ~$0.06 and revenue trailed consensus, with the miss driven ~85% by volumes and ~15% by delayed strategic sourcing benefits; weather added Opex (delivery disruptions, snow removal, perishable losses) .

Financial Results

Quarterly trend and profitability (FY25)

MetricQ1 FY25Q2 FY25Q3 FY25
Revenue ($B)$20.5 $20.2 $19.6
Gross Margin (%)18.3% 18.1% 18.3%
Operating Margin (GAAP, %)3.9% 3.5% 3.5%
Adjusted Operating Margin (%)4.3% 3.9% 3.9%
Diluted EPS (GAAP, $)$0.99 $0.82 $0.82
Adjusted EPS ($)$1.09 $0.93 $0.96

Q3 FY25 actual vs S&P Global consensus

MetricActualConsensusSurprise
Revenue ($B)$19.60 $20.05*Miss
EPS (Adjusted, $)$0.96 $1.02*Miss

Note: Asterisks (*) denote S&P Global consensus. Values retrieved from S&P Global.

Segment performance (Q3 FY25)

MetricU.S. FoodserviceInternationalSYGMAOther
Sales ($B)$13.8 (+0.7% YoY) $3.457 (−1.1% YoY); +2.5% ex-Mexico JV; +2.2% cc $2.084 (+9.5% YoY) $0.257 (−6.5% YoY)
Gross Margin (%)18.86% (−50 bps YoY) 21.06% (+45 bps YoY) 7.97% (−7 bps YoY) 23.35% (−247 bps YoY)
Operating Income (GAAP, $MM)$754 (−11.5% YoY) $96 (+14.3% YoY) $17 (flat YoY) $(3) (vs $6 prior)
Operating Income (Adjusted, $MM)$790 (−9.7% YoY) $128 (+17.4% YoY; +21.1% cc) N/AN/A

KPIs and balance sheet/cash flow

KPIQ3 FY25
U.S. Foodservice case growth−2.0%
Local case growth−3.5%
Sysco Brand % of cases (U.S. Broadline / Local)35.5% / 45.6%
Enterprise product cost inflation2.1% (dairy, meat)
EBITDA / Adjusted EBITDA ($MM)$910 / $969
YTD Free Cash Flow ($MM)$954
Cash & Equivalents ($B)$1.5
Net Debt / Adj. EBITDA (TTM)2.80x

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Sales GrowthFY254–5% growth ~3% growth Lowered
Adjusted EPS GrowthFY256–7% growth At least 1% growth Lowered
Share RepurchasesFY25~$1.25B (raised in Q2) ~$1.25B; Q4 plan ~$550M Maintained
DividendsFY25~$1.0B ~$1.0B; Q4 plan ~$250M Maintained
Quarterly Dividend/ShareFY26 start$0.51$0.54 (effective Jul 25, 2025) Raised 6%
Net Leverage TargetFY252.5–2.75x 2.5–2.75x (at ~2.8x exit Q3) Maintained
Q4 Modeling ItemsQ4 FY25N/ATax rate ~24%; Adjusted D&A ~ $200MM; Interest expense ~ $170MM New detail

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 FY25)Current Period (Q3 FY25)Trend
Local salesforce retention/productivityQ1: pipeline and NPS improving; local +0.2% cases; reiterated FY guide . Q2: local −0.9% cases; progress, reiterated 4–5% sales and 6–7% adj. EPS .Retention stabilized; cohorts on track; local −3.5% cases in Q3, but March/April improved; tailwind expected in FY26 .Near‑term soft, improving into FY26
Pricing agilityNot highlighted in Q1/Q2 press releases .New local pricing agility pilot to speed approvals while maintaining margin discipline .New initiative
Macro/traffic & weatherQ1: steady growth; no weather impact noted . Q2: solid, no macro reset .California wildfires, severe winter storms; restaurant traffic down 3.1% in Q3 (Jan −1.3%, Feb −5.7%, Mar −2.3%); consumer confidence/tariff uncertainty .Deteriorated
International performanceQ1: adj. OI +12.1% . Q2: adj. OI +26.5% .Adj. OI +17.4% (+21.1% cc); sixth straight double‑digit profit growth quarter .Sustained strength
Cost actionsOpex control, margin discipline in Q1/Q2 .~$100MM annualized cost savings tracking; heavier Q4 benefit expected .Accelerating benefits
Capital returnOn track to return ~$2B (Q1); upsized buybacks to $1.25B (Q2) .~$2.25B FY25 (repurchases + dividends); dividend raised 6% .Increased payout

Management Commentary

  • CEO Kevin Hourican: “Q3 results were negatively impacted by multiple factors: California wildfires, significantly adverse weather, and… weakening consumer confidence… [which] led the quarter… to fall short of our internal expectations” .
  • CEO on international: “International local volume increased 4.5%… adjusted operating income increased 17.4%… strength from Canada, Great Britain and Ireland” .
  • CEO on pricing: “We’re working to speed up [approvals] and provide our frontline colleagues with decision‑making authority… enabling incremental opportunities… while maintaining strong margin discipline” .
  • CFO Kenny Cheung: “We are lowering our full year guidance… now expect reported net sales growth of approximately 3%… adjusted EPS growth of at least 1%… assumes no further degradation of the restaurant traffic environment” .
  • CFO on EPS miss: “We did miss EPS by up to $0.06… roughly $0.05 driven by volumes… [and] ~$0.01… timing shifts from strategic sourcing deals” .
  • CEO on new formats: “We will open 2 Cash & Carry store locations… ‘Sysco To Go’… eliminating final mile delivery costs to better serve value‑seeking customers” .

Q&A Highlights

  • Local business trajectory: Management expects local to improve in Q4 versus Q3 as cohorts hit 12–18 months’ productivity, with a net tailwind in FY26; headcount up ~4% by year‑end and retention stabilized .
  • Guidance rationale and caution: The cut reflects unexpected February traffic drop (−5.7%) and macro uncertainty; management avoided short‑term cost cuts that would be reversed in March’s rebound .
  • Industry churn and pricing: Elevated churn driven by value‑seeking customers and higher price transparency online; Sysco aims to “buy better to sell better,” lean into best‑customer retention and pricing agility .
  • Capital allocation: FY25 plan remains ~$1.25B buybacks and ~$1.0B dividends; dividend raised 6% to $0.54 to align with long‑term adjusted EPS growth .
  • Tariff exposure: >90% of products sourced in‑country reduces tariff risk; task force focuses on stock availability, supplier negotiations, and menu alternatives; concern is mainly consumer sentiment, not product inflation .

Estimates Context

  • Q3 FY25: Revenue $19.60B vs $20.05B consensus*; Adjusted EPS $0.96 vs $1.02 consensus* .
  • Trailing quarters: Q2 FY25 revenue $20.15B vs $20.10B consensus*, EPS $0.93 vs $0.92*; Q1 FY25 revenue $20.48B vs $20.46B consensus*, EPS $1.09 vs $1.13* .
PeriodRevenue Actual ($B)Revenue Consensus ($B)EPS Actual ($)EPS Consensus ($)
Q1 FY25$20.48 $20.46*$1.09 $1.13*
Q2 FY25$20.15 $20.10*$0.93 $0.92*
Q3 FY25$19.60 $20.05*$0.96 $1.02*
FY25 (guide/cons.)—$81.26B*—$4.38*

Note: Asterisks (*) denote S&P Global consensus. Values retrieved from S&P Global.

Key Takeaways for Investors

  • Macro drove the miss; watch Q4 run‑rate: Management cites improved March exit velocity and stronger April, but FY25 guide embeds caution; Q4 progress on local volumes and sourcing savings is the near‑term swing factor .
  • International remains the ballast: Another double‑digit profit growth quarter with expanding margins provides earnings resilience if U.S. local remains soft .
  • Execution levers are identifiable: ~$100M annualized cost savings, pricing agility rollout, and DC expansions (Allentown; Tampa this summer) support medium‑term case growth and margin mix improvement .
  • Mix/brand penetration to monitor: Lower Sysco brand mix pressured gross profit per case; a stabilization or recovery here would aid margin trajectory .
  • Capital return and balance sheet underpin downside: ~$2.25B FY25 return targeted, dividend up 6%, net debt/Adj. EBITDA 2.8x—provides flexibility to invest through volatility .
  • Risk skew: Consumer confidence and tariff headlines weigh on restaurant traffic; weather normalized, but demand elasticity and churn remain watch‑items into FY26 .
  • FY26 setup: Management expects salesforce retention/productivity to turn from headwind to tailwind, supporting local volume inflection alongside maturing initiatives .

Appendix: Non‑GAAP adjustments (Q3 FY25)

  • Adjusted EPS $0.96 vs GAAP $0.82, driven by restructuring/transformational project costs ($0.10) and acquisition‑related costs ($0.09), partially offset by related tax impacts (−$0.05) .

Sources

  • Q3 FY25 8‑K (press release, exhibit 99.1): results, segment detail, non‑GAAP reconciliations, KPIs, cash flow, leverage, and guidance .
  • Q3 FY25 earnings call transcript: macro/traffic, guidance, miss attribution, initiatives (pricing agility, DCs, cash & carry), retention/productivity and –.
  • Q2 FY25 press release: prior quarter results and reaffirmed guidance, capital return plan .
  • Q1 FY25 press release: prior quarter results and reiterated guidance .
  • Dividend increase press release: quarterly dividend raised to $0.54 (effective July 25, 2025) .

Note: Asterisks (*) denote S&P Global consensus. Values retrieved from S&P Global.