- Revenue: $79 billion for the year, a growth of 3.3% versus fiscal 2023.
- Adjusted Earnings Per Share (EPS): $1.39 for the quarter and $4.31 for the year.
- US Foodservice Volume Growth: 3.1% for the year.
- US Foodservice Inflation: 0.5% for the year.
- Local Case Growth: 0.7% year-over-year for the quarter.
- International Segment Local Case Growth: 5% for the quarter.
- SYGMA Case Growth: 5% from Q3 to Q4.
- Gross Profit Growth: 4.2% year-over-year for the quarter.
- Gross Profit Per Case Growth: 1.3% versus prior year.
- Operating Expenses: Corporate expenses down 10% year-over-year for the quarter.
- Operating Income Growth: 6.4% year-over-year for the quarter.
- Adjusted Operating Income: $1.1 billion for the quarter, improving to 5.3% margins.
- Adjusted EBITDA: $1.3 billion for the quarter, up 5.4%.
- Net Debt Leverage Ratio: 2.7 times, within target.
- Operating Cash Flow: Approximately $3 billion for the year.
- Free Cash Flow: Over $2.2 billion for the year, a new record.
- Shareholder Returns: Over $2.2 billion returned to shareholders in FY24.
- Net Sales Growth Guidance for FY25: 4% to 5%.
- Adjusted EPS Growth Guidance for FY25: 6% to 7%.
- Tax Rate for FY25: Approximately 25%.
- Interest Expense for FY25: Expected to be $650 million.
- CapEx for FY25: Expected to be approximately 1% of sales.
Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sysco Corp (SYY, Financial) delivered $79 billion in top-line revenue for the year, a growth of 3.3% versus fiscal 2023.
- Adjusted earnings per share (EPS) for the quarter were $1.39, and $4.31 for the year, exceeding the midpoint of initial guidance.
- Gross profit rate for the quarter was strong, with GP growing 4.2% year-over-year and GP per case growing 1.3% versus prior year.
- International segment delivered compelling local case growth of 5% for the quarter and a 13.1% profit growth.
- Corporate expenses were down 10% for the quarter on a year-over-year basis due to efficiency improvements.
Negative Points
- Traffic to restaurants was down approximately 3% year-over-year for the quarter, impacting overall market conditions.
- Local case growth in the US was only 0.7% year-over-year, indicating room for improvement.
- Sysco brand penetration rates decreased slightly, with a 51 basis point drop in US Broadline and a 37 basis point drop in US local results.
- Gross margin in the US foodservice business was down, primarily due to customer and product mix.
- The new compensation model for sales colleagues may cause short-term disruption and requires careful monitoring to ensure retention and productivity.
Q & A Highlights
Q: Are you seeing trade down and trade out impacting a broader customer demographic? And would uncertainty around the election have much incremental impact on food away from home demand in the quarters ahead?
A: Kevin Hourican, President and CEO: We are seeing consistent performance across all restaurant types, with traffic to restaurants down approximately 3% year-over-year. We don't anticipate significant improvement in the near term, likely through the election. We believe the cumulative impact of inflation over the past three years is a key factor. Despite this, we can profitably grow our business even in a slower backdrop, as demonstrated by our recent performance in non-restaurant segments and international local business.
Q: How is retention trending relative to your expectations for the new sales force hires? Does it become tougher to hold on to new salespeople in an increasingly challenging macro environment?
A: Kevin Hourican, President and CEO: Retention is solid, with no notable changes. The key to success will be ramping up the productivity of the new sales colleagues by providing them with the necessary training. We are optimistic that the new compensation model, which offers higher earnings potential, will positively impact results.
Q: Are you seeing an increase in promotional activity to drive customer acquisition, and how is this affecting gross margins?
A: Kevin Hourican, President and CEO: With traffic down, competitive intensity has increased. We remain disciplined in our pricing strategies and do not sell cases below cost. Our pricing system allows us to sell competitively within guardrails. Kenny Cheung, CFO, added that the slight decline in gross margins is primarily due to mix, with growth in the CMU space diluting margin rates despite being margin dollar accretive.
Q: What are your thoughts on the cadence of case growth throughout the quarter and expectations for fiscal Q1?
A: Kevin Hourican, President and CEO: We expect similar industry traffic patterns from Q4 to continue into Q1, with modest improvements in the macro environment in the second half of fiscal 2025. New customer prospecting is a key focus, and the new compensation model is designed to motivate profitable new customer acquisition.
Q: Should we expect any near-term disruption from the large investments in the sales force?
A: Kevin Hourican, President and CEO: While there may be some short-term disruption due to territory realignment, the positive yields of increased face time with customers outweigh this. The new compensation model, which incentivizes performance, is expected to have a positive impact, particularly in the second half of the year. Kenny Cheung, CFO, added that the investments are ROIC positive and that other levers in the P&L will ensure margin expansion.
Q: Can you provide more color on the US gross margin decline and expectations for fiscal 2025?
A: Kevin Hourican, President and CEO: The decline is primarily due to customer mix and Sysco brand percentage mix. We are focused on improving local case growth and Sysco brand penetration. Kenny Cheung, CFO, added that GP dollar per case is expected to expand in 2025, driven by local sales, Sysco brand, and specialty growth.
Q: What are the opportunities for improving existing account penetration?
A: Kevin Hourican, President and CEO: The main opportunities are total team selling and Sysco Your Way neighborhoods. Total team selling involves bringing specialty produce and protein experts into existing Broadline accounts, significantly increasing customer spend. Sysco Your Way neighborhoods focus on under-penetrated urban areas, offering substantial growth potential.
Q: Can you provide more details on the international segment's performance and expectations for fiscal 2025?
A: Kevin Hourican, President and CEO: The improvement is driven by self-help activities such as productivity improvements, technology enhancements, and Sysco brand introduction. Local case growth in international markets was 5% for the quarter. Kenny Cheung, CFO, added that every market within Europe and International Americas grew double digits in operating income, and this trend is expected to continue.
Q: How should we think about the cadence of fiscal 2025 guidance? Are you comfortable with Q1 consensus numbers?
A: Kenny Cheung, CFO: We are confident in both Q1 and full-year guidance. We expect industry traffic to improve modestly in the back half of the year, with benefits from sales force investments and the new compensation model also materializing in the second half. Productivity improvements and supply chain efficiencies will provide consistent benefits throughout the year.
Q: Have you seen any price investments by restaurant operators to drive industry volumes?
A: Kevin Hourican, President and CEO: We have seen some price investments, particularly in the QSR space, which is focusing on value menus. However, our guidance for the year does not assume lower menu prices. We expect consumer confidence to improve modestly in the second half, driven by potential interest rate reductions. Sysco can profitably grow its business in the current market conditions through new customer acquisition and penetration opportunities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
