Sysco Reports Second Quarter Results

HOUSTON, Jan. 31, 2023 (GLOBE NEWSWIRE) -- Sysco Corporation (NYSE: SYY) (“Sysco” or the “company”) today announced financial results for its 13-week second fiscal quarter ended December 31, 2022.

Key financial results for the second quarter of fiscal year 2023 include:

• Sales increased 13.9% versus the same period in fiscal year 2022;
• U.S. Foodservice volume increased 5.2% versus the same period in fiscal year 2022;
• Gross profit increased 15.9% to $3.3 billion, as compared to the same period last year;
• Operating income increased 44.0% to $640.6 million, and adjusted¹ operating income increased to $682.1 million, as compared to the same period last year;
• Earnings before interest, taxes, depreciation and amortization (“EBITDA”) decreased 22.6% to $500.5 million, and adjusted EBITDA increased 23.9% to $831.3 million, in each case as compared to the same period last year.² During the quarter, GAAP earnings included a pension liability transfer, resulting in a non-cash charge of $315.4 million;
• Earnings per share (“EPS”)³ decreased 15.2% to $0.28, as compared to $0.33 in the same period last year. Adjusted¹ EPS increased 40.4% to $0.80, as compared to $0.57 in the same period last year; and
• Net Debt to adjusted EBITDA⁴ of 3.0x times and returned over $249 million of capital to shareholders.

“Sysco results this quarter included double-digit top-line and bottom-line growth, ongoing market share gains and continued advancement of our Recipe For Growth strategy. This includes improvements in our digital tools, supply chain investments, and sales and merchandising initiatives. We remain fully staffed, and we are resolute on continuing to drive profitable share gains and operating efficiency improvements in the second half of the year,” said Kevin Hourican, Sysco’s President and Chief Executive Officer.

“We achieved solid financial results for the second quarter, including strong top-line growth and expanded gross profit dollar growth. Sequential improvements in operating expense helped drive meaningful profit growth. We remain focused on exceeding our customers’ expectations, while continuing to manage costs, and anticipate seeing additional benefit from our Recipe For Growth strategy in the second half of this fiscal year and into next fiscal year,” said Neil Russell, Sysco’s Interim Chief Financial Officer.

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¹ _{Adjusted financial results, including adjusted operating expense, adjusted operating income (loss), adjusted other expense (income), adjusted earnings per share (EPS) and adjusted EBITDA, are non-GAAP financial measures that exclude certain items, which primarily include acquisition-related costs, restructuring costs, transformational project costs, adjustments to our bad debt reserve specific to aged receivables existing prior to the COVID-19 pandemic and adjustments to a product return allowance related to COVID-related personal protection equipment inventory. Specific to adjusted EPS, this year’s Certain Items include a pension settlement charge that resulted from the purchase of a nonparticipating single premium group annuity contract that transferred defined benefit plan obligations to an insurer. Last year’s Certain Items include the impact of losses on the extinguishment of long-term debt and an increase in reserves for uncertain tax positions.}
² _{EBITDA and adjusted EBITDA are non-GAAP financial measures. Reconciliations of all non-GAAP financial measures to the nearest corresponding GAAP financial measure are included at the end of this release.}
³ _{Earnings per share (EPS) are shown on a diluted basis, unless otherwise specified.}
⁴ _{Net debt to adjusted EBITDA is a non-GAAP financial measure frequently used by investors and credit rating agencies. Our net debt to adjusted EBITDA ratio is calculated using a numerator of our debt minus cash and cash equivalents, divided by the sum of the most recent four quarters of adjusted EBITDA.}

Second Quarter Fiscal Year 2023 Results

Total Sysco

Sales for the second quarter were $18.6 billion, an increase of 13.9% compared to the same period last year.

Gross profit increased 15.9% to $3.3 billion, and gross margin increased 29 basis points to 18.0%, compared in each case to the same period last year. Product cost inflation was 8.3% at the total enterprise level, as measured by the estimated change in Sysco’s product costs, primarily in the dairy, fresh produce and frozen food categories. The increase in gross profit for the second quarter was primarily driven by higher volumes, as well as continued progress with effective management of product cost inflation and our partnership growth management initiatives.

Operating expenses increased $262.7 million, or 10.7%, compared to the same period last year, driven by increased volumes, cost inflation, operational pressures from the operating environment and our planned investments to drive our transformation initiatives. Adjusted operating expenses increased $272.1 million, or 11.4%, compared to the same period last year.

Operating income was $640.6 million, an increase of $195.7 million, or 44.0%, compared to the same period last year. Adjusted operating income was $682.1 million, an increase of $186.4 million compared to the same period last year.

Other expense (income), net was $330.1 million, and included a pension liability transfer, resulting in a non-cash charge of $315.4 million. Adjusted other expense (income), net was $15.2 million, an increase of $25.9 million, compared to the same period last year, primarily due to increased pension expenses.

U.S. Foodservice Operations

The U.S. Foodservice Operations segment generated strong sales growth, overall share gains and improved profitability.

Sales for the second quarter were $13.1 billion, an increase of 13.7% compared to the same period last year. Local case volume within U.S. Foodservice grew 3.2% for the second quarter, while total case volume within U.S. Foodservice grew 5.2%, in each case as compared to the same period last year.

Gross profit increased 16.5% to $2.5 billion, and gross margin increased 45 basis points to 19.1%, compared in each case to the same period last year.

Operating expenses increased $249.7 million, or 17.1%, compared to the same period last year. Adjusted operating expenses increased $247.6 million, or 17.0%, compared to the same period last year.

Operating income increased 15.4% to $781.0 million, an increase of $104.1 million compared to the same period last year. Adjusted operating income increased 15.5% to $790.9 million, an increase of $106.2 million compared to the same period last year.

International Foodservice Operations

The International Foodservice Operations segment continued to deliver positive results, with strong sales and significant profit growth.

Sales for the second quarter were $3.3 billion, an increase of 17.0% compared to the same period last year. On a constant currency basis⁵, sales for the second quarter were $3.6 billion, an increase of 28.6% compared to the same period last year. Foreign exchange rates decreased both International Foodservice Operations sales by 11.6% and total Sysco sales by 2.1% during the quarter.

Gross profit increased 10.3% to $624.5 million, and gross margin decreased 115 basis points to 19.0%, compared in each case to the same period last year. On a constant currency basis⁵, gross profit increased 22.0% to $690.3 million. Foreign exchange rates decreased both International Foodservice Operations gross profit by 11.7% and total Sysco gross profit by 2.3% during the quarter.

Operating expenses increased $11.9 million, or 2.1%, compared to the same period last year. Adjusted operating expenses increased $19.5 million, or 3.7%, compared to the same period last year. On a constant currency basis⁵, adjusted operating expenses increased $80.8 million, or 15.3%, compared to the same period last year. Foreign exchange rates decreased both International Foodservice Operations operating expenses by 11.6% and total Sysco operating expenses by 2.8% during the quarter.

Operating income was $57.4 million, an improvement of $46.6 million compared to the same period last year. Adjusted operating income increased $39.0 million compared to the same period last year. On a constant currency basis⁵, adjusted operating income was $83.3 million, an increase of $43.6 million compared to the same period last year. Foreign exchange rates decreased both International Foodservice Operations operating income by $4.6 million and total Sysco operating income by $0.9 million during the quarter.

⁵ _{Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on current year results. These adjusted measures are non-GAAP financial measures. Reconciliations of all non-GAAP financial measures to the nearest corresponding GAAP financial measure are included at the end of this release.}

Balance Sheet, Cash Flow and Capital Spending

As of the end of the quarter, the company had a cash balance of $500.3 million and approximately $11.1 billion of debt outstanding.

During the first 26 weeks of fiscal 2023, Sysco returned $766.0 million to shareholders via $267.7 million of share repurchases and $498.3 million of dividends.

Cash flow from operations was $503.5 million for the first 26 weeks of fiscal 2023, which was an increase of $126.4 million over the prior year period.

Capital expenditures, net of proceeds from sales of plant and equipment, for the first 26 weeks of fiscal 2023 were $284.2 million.

Free cash flow⁶ for the first 26 weeks of fiscal 2023 was $219.3 million, which was an increase of $18.2 million over the prior year period.

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^{6 _{Free cash flow is a non-GAAP financial measure that represents net cash provided from operating activities less purchases of plant and equipment and includes proceeds from sales of plant and equipment. Reconciliations for all non-GAAP financial measures are included at the end of this release.}}

Conference Call & Webcast

Sysco will host a conference call to review the company’s second quarter fiscal 2023 financial results on Tuesday, January 31, 2023, at 10:00 a.m. Eastern Daylight Time. A live webcast of the call, accompanying slide presentation and a copy of this news release will be available online at investors.sysco.com.

About Sysco

Sysco is the global leader in selling, marketing and distributing food products to restaurants, healthcare and educational facilities, lodging establishments and other customers who prepare meals away from home. Its family of products also includes equipment and supplies for the foodservice and hospitality industries. With more than 71,000 colleagues, the company operates 333 distribution facilities worldwide and serves approximately 700,000 customer locations. For fiscal year 2022 that ended July 2, 2022, the company generated sales of more than $68 billion. Information about our Sustainability program, including Sysco’s 2022 Sustainability Report and 2022 Diversity, Equity & Inclusion Report, can be found at www.sysco.com.

For more information, visit www.sysco.com or connect with Sysco on Facebook at www.facebook.com/SyscoFoods. For important news and information regarding Sysco, visit the Investor Relations section of the company’s Internet home page at investors.sysco.com, which Sysco plans to use as a primary channel for publishing key information to its investors, some of which may contain material and previously non-public information. In addition, investors should continue to review our news releases and filings with the SEC. It is possible that the information we disclose through any of these channels of distribution could be deemed to be material information.

Sysco Corporation and its Consolidated Subsidiaries
Non-GAAP Reconciliation (Unaudited)
Free Cash Flow
(In Thousands)

Free cash flow represents net cash provided from operating activities less purchases of plant and equipment and includes proceeds from sales of plant and equipment. Sysco considers free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after the purchases and sales of buildings, fleet, equipment and technology, which may potentially be used to pay for, among other things, strategic uses of cash including dividend payments, share repurchases and acquisitions. However, free cash flow may not be available for discretionary expenditures, as it may be necessary that we use it to make mandatory debt service or other payments. Free cash flow should not be used as a substitute for the most comparable GAAP financial measure in assessing the company’s liquidity for the periods presented. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. In the table that follows, free cash flow for each period presented is reconciled to net cash provided by operating activities.

Sysco Corporation and its Consolidated Subsidiaries
Non-GAAP Reconciliation (Unaudited)
Impact of Certain Items on Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
(Dollars in Thousands)

EBITDA represents net earnings (loss) plus (i) interest expense, (ii) income tax expense and benefit, (iii) depreciation and (iv) amortization. The net earnings (loss) component of our EBITDA calculation is impacted by Certain Items that we do not consider representative of our underlying performance. As a result, in the non-GAAP reconciliations below for each period presented, adjusted EBITDA is computed as EBITDA plus the impact of Certain Items, excluding certain items related to interest expense, income taxes, depreciation and amortization. Sysco's management considers growth in this metric to be a measure of overall financial performance that provides useful information to management and investors about the profitability of the business, as it facilitates comparison of performance on a consistent basis from period to period by providing a measurement of recurring factors and trends affecting our business. Additionally, it is a commonly used component metric used to inform on capital structure decisions. Adjusted EBITDA should not be used as a substitute for the most comparable GAAP financial measure in assessing the company’s financial performance for the periods presented. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. In the tables that follow, adjusted EBITDA for each period presented is reconciled to net earnings.

Sysco Corporation and its Consolidated Subsidiaries
Non-GAAP Reconciliation (Unaudited)
Net Debt to Adjusted EBITDA
(In Thousands)

Net Debt to Adjusted EBITDA is a non-GAAP financial measure frequently used by investors and credit rating agencies. Our Net Debt to Adjusted EBITDA ratio is calculated using a numerator of our debt minus cash and cash equivalents, divided by the sum of the most recent four quarters of Adjusted EBITDA. In the table that follows, we have provided the calculation of our debt and net debt as a ratio of Adjusted EBITDA.