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Text: And actual results could differ in a material manner.
A copy of these materials can be found in the Investors section at sysco.com.
To ensure that we have sufficient time to answer all questions, we'd like to ask each participant to limit their time today to one question and one follow-up.
I'm pleased to report that Sysco had a strong fourth quarter to close out a fiscal year unlike any other in our company's history.
I'm proud of our team for their hard work, the results we delivered and the unrelenting support that we have provided to our customers.
I'll start my comments today with a few key points about the quarter.
First, our business recovery is stronger than anticipated in the U.S. and the recovery is taking hold in our international markets.
Our sales growth exceeded our internal projections and has continued to accelerate into our Q1 of fiscal 2022.
Second, our profitability for the quarter were stronger than anticipated, driven by the aforementioned strong sales and disciplined expense management.
Third, our strong results drove improved cash performance, exceeding the cash flow guidance that Aaron provided in our last earnings call, which allowed us to pay down more debt than originally planned.
Fourth, we made meaningful progress in advancing our Recipe for Growth strategy.
I will highlight our progress on select initiatives during our call today.
Sysco's results for the fourth quarter reflect the strength of the overall market recovery, Sysco's ability to win new business and some early wins coming from our Recipe for Growth.
Sysco's sales for the quarter across all of our businesses were up 82% versus 2020 and up 4.3% versus 2019.
Our sales results in our U.S. business were up 7.7% versus 2019.
Sales results in June benefited from accelerating inflation which Aaron will discuss in detail.
The restaurant sector of our business is near full recovery with local sales and case shift up versus 2019 volume levels.
The volume recovery has happened much faster than the industry predicted, despite the presence of the Delta variant.
The U.S. foodservice industry in total is now within 5% of 2019 levels.
Most notably, Sysco increased market share in a rapidly expanding market.
These two factors of a rapidly expanding market and Sysco's gaining of market share resulted in a strong sales quarter.
We anticipate that these trends will accelerate further in fiscal 2022.
Consumer spending power as featured on Slide 8 is robust and strong.
The key message is that food away from home is not permanently impaired.
It is vibrant, it is healthy.
Sysco is best positioned to support the rapidly increasing demand due to our balance sheet, our large physical footprint and our substantial human capital investment in sales people and in supply chain resources.
The momentum shown in the fourth quarter has continued in the first period of fiscal 2022, where our July results have further accelerated.
We see a sequentially improving market as additional sectors of recovery kick in; international, specialty, schools and colleges, business office cafeterias, just to name a few.
There is ample additional recovery beyond the robust business we are currently experiencing with restaurant partners.
Sysco's success can be directly attributed to the proactive steps we took to be ahead of the COVID business recovery.
The net promoter score of our delivery operations continues to lead the industry.
With that said, we are working aggressively to increase staffing levels across our operations, so that we can maintain our leading service position and win additional net new business.
The distributors that can ship on time and in full at this critical period have an opportunity to take market share for both the short and the long term.
One proof point of this success is the amount of net new national account wins since the onset of the pandemic.
During the fourth quarter, we won another $200 million of business with national customers bringing the cumulative total to $2 billion of net new wins since March of 2020.
While we don't plan to report on this number moving forward, as we transition to a more normalized financial reporting cadence, it is a strong indicator of our capabilities as the industry leader to gain share during a period of disruption.
As you can see on Page number 12 of our slides, in addition to the large national account wins we have delivered, we have grown our local customer account by about 10%, which is a pace of 2.5 times greater than the broadline industry.
In June, we increased our market share by 60 basis points and posted our sixth consecutive month of market share gains.
Our sales force is very motivated to win, our supply chain continues to lead the industry from a service perspective despite the substantial hiring challenges and our Recipe for Growth strategy is beginning to benefit the business and our customers.
Our top line results during the quarter were positively influenced by higher-than-normal inflation.
During the fourth quarter, our inflation rate was approximately 9.6%.
Our performance in the non-restaurant sectors of our business trailed the success of restaurants for the quarter.
With that said, we are beginning to see improvements in the travel, hospitality and FSM sectors of our business as restrictions eased and leisure travel has commenced this summer.
As businesses begin returning more to an office environment, we expect our FSM segment to further improve.
Our international segment improved sequentially throughout the fourth quarter as restrictions on businesses began easing in late May and into June.
Notably, our international segment broke even for the quarter, reflecting a $92 million profit improvement over the third quarter.
The improvement displays the positive impact that increased sales and disciplined expense management will have on our international P&L.
We expect to benefit significantly in fiscal 2022 from the improving international financial statements.
I would like to take a few moments to provide an update on our Recipe for Growth transformation.
You will remember our introduction of the Recipe for Growth at our May 20 Investor Day.
I'll quickly provide an update on the main pillars of our growth strategy.
Digital; our first pillar is to become a more digitally enabled company so that we can better serve our customers.
We continue to see excellent utilization of our Sysco Shop platform by our customers and we are enhancing the website with new features and benefits every month.
Our pricing system is now live in over 25% of our regions, and we remain on track to complete the implementation by the end of this calendar year.
Our personalization engine, which is currently under construction, remains on track and initial manual tests of the capability with pilot customers are proving beneficial.
Products and solutions; our second pillar is to improve our merchandising and marketing solutions to grow our business.
In this regard, our team is doing good work in developing improved merchandising strategies against specific cuisine segments.
I'll speak more about the Greco acquisition in a moment and how that acquisition accelerates our efforts to better serve Italian customers.
Supply chain; growth pillar number three is to develop and create a more nimble, accessible and productive supply chain.
As I mentioned earlier, we are better positioned to support customers in their recovery as our supply chain network is better staffed than the industry at large.
We remain the only national distributor with no order minimums for our customers at a time when competitors have been increasing their order minimums and select competitors are releasing customers who can't hit those raised minimums.
Lastly, our strategic projects to increase delivery frequency and enable omni channel inventory fulfillment remain on track.
Customer teams; our fourth growth pillar is to improve the effectiveness of our sales organization.
As we have said many times, our sales consultants are our number one strength.
The net promoter scores our associates receive is the best indication of their impact on our business.
Meanwhile, our efforts to better leverage data to increase the yield of our sales process are paying dividends.
Future horizons; our final growth pillar is to explore and develop future horizons.
This work has two major parts; assessing new business opportunities, including M&A and becoming a more efficient company so that we can fund our growth.
We are pleased to report that we will close on the Greco and Sons acquisition in the coming weeks.
Greco's business is highly specialized in the Italian segment and brings net new capabilities and products that are accretive to Sysco.
Sysco is excited to expand the Greco Italian specialty platform to new geographies across the U.S. As I mentioned, our future horizon's work also includes becoming a more efficient company so that we can fund our growth.
We are making substantial investments in technology and infrastructure capabilities to strengthen the Company.
Our disciplined cost network is funding those investments.
We are on track to deliver $750 million of structural cost reductions inclusive of what we delivered in fiscal 2021.
Aaron will discuss this program in more detail in a few moments.
As I stated at our Investor Day, the power of our Recipe for Growth comes from our ability to deliver all five of the growth elements that are displayed, not just from one key element.
We believe only Sysco has the breadth, depth and expertise to leverage each of these five elements to better serve our customers.
The food-away-from-home supply chain is under significant pressure.
A robust customer demand environment is outpacing the available supply in select categories.
Our supplier partners are struggling with meeting the demand of Sysco's orders.
And certain product categories remain in short supply.
I am confident that Sysco is performing better than the industry at large in delivering what we call customer fill rate.
But we are performing below our historical performance standards.
Our merchant teams are working closely with current suppliers, actively sourcing incremental supply from new suppliers, and we are working with our sales teams to offer product substitutions to our customers.
This work is challenging, but we can execute this work better than others in this industry.
In addition to the challenges we've experienced with product supply, the labor market has been challenging.
We mentioned in a previous earnings call that we would hire over 6,000 associates in the second half of fiscal 2021.
I am pleased to report that we have successfully achieved our hiring target, but we continue to have hiring needs as the business recovery is happening faster than we had modeled.
It is a very tight labor market out there and we are working extremely hard to ensure we can fill all of our warehouse and driver positions.
While we are in decent shape nationally, we have hotspots around the country that present challenges.
The product and labor shortages situation is undoubtedly putting some pressure on our cost to serve at this time.
I would describe these incremental costs as mostly transitory as we are making responsible decisions on where and how to invest.
I am confident we will see a return to a more balanced supply and demand equation in the future, which will return inflation to more normal levels.
I cannot predict a specific by-when date on inflation normalization, but I am confident it will eventually normalize.
In the meantime, we have robust sales results that are offsetting the margin rate pressure introduced by elevated inflation.
In regards to labor cost, we are being very judicious to avoid creating a structural cost increase going forward.
What that means specifically is that we are being very aggressive in adopting mostly temporary wage actions like hiring bonuses, referral bonuses and even retention bonus programs, all of which can be leveraged extensively while the hiring process remains challenging and then reduced or eliminated as conditions improve.
We intend to be responsible and judicious in structural increases to base pay that cannot be easily removed when the labor market improves.
We will work aggressively to offset these cost increases in wage through improved productivity.
We are also taking aggressive actions to improve the labor market itself by investing in our future.
I'm excited to announce today that we are investing in our first Sysco Driver Academy.
The Driver Academy will enable us to recruit our own drivers and train them in the work we do at Sysco.
We will be better able to source drivers from our own warehouse associate population and teach them to become drivers with this unique industry program.
We will pay trainees to attend our academy and we'll cover all of their licensing and certification fees.
These associates will sign a contract to work for Sysco for an agreed-upon period of time.
I'm excited for what this driving academy will do for our recruitment pipeline and I believe we are likely to expand the program nationally once we have worked through the learning curve of our first location.
In summary, we had a strong fourth quarter that exceeded our sales and profit expectations.
The results during the quarter sequentially accelerated and they bode well for a successful fiscal 2022.
During fiscal 2022, we expect to achieve growth at a rate of 1.2 times the industry.
That rate of growth is expected to accelerate across the three years of our long-range plan and we intend to deliver 1.5 times the market growth in fiscal 2024.
We expect to expand our leadership position while we grow profitably and we intend to return compelling value to our shareholders.
The business recovery has presented challenges that our business associates have embraced head on.
Aaron, over to you.
Our key fourth quarter fiscal 2021 headlines are strong demand; increasing sales; a profitable quarter increasingly reminiscent of pre-COVID operations; and stronger cash flow than anticipated.
Our fiscal fourth quarter results provide excellent proof points that consumers continue to seek relief from food-at-home fatigue that the restaurant industry recovery is in full swing in the U.S., and that the international restaurant industry has the potential to come roaring back.
During the fourth quarter, we did what we said we were going to do at Investor Day as we balanced five financial priorities, early and tactical investments in labor and inventory to be better prepared than anyone else in the industry for the chaotic industry recovery; thoughtful strategic investments in capabilities and technologies to advance our Recipe for Growth over the long-term; continued focus on our cost-out program to fund both the snap-back costs and our growth agenda; accelerated reduction of our debt levels; and increased return of capital to shareholders.
Today, I'm going to lead off with the income statement for the quarter, briefly discuss the cash flow and balance sheet, and then I will close with a positive update to our guidance for fiscal year 2022, which reflects the rapid acceleration of the recovery of our business and other factors.
As Kevin noted, fourth quarter sales were $16.1 billion, an increase of 82% from the same quarter in fiscal 2020 and a 4.3% increase from the same quarter in fiscal 2019.
Please note that this year, our fiscal year had a 53rd week, which included 14 weeks in the fourth quarter as compared to only 13 weeks in the fourth quarter of each of fiscal 2020 and fiscal 2019.
That additional week was worth just under $1.2 billion in sales.
Sales in U.S. foodservice were up 88.4% versus the fourth quarter of fiscal 2020 and up 7.7% versus the same quarter in fiscal 2019.
SYGMA was up 45.3% versus fiscal 2020 and up 20.9% versus the same quarter in fiscal 2019.
For the quarter, local case volume within a subset of U.S. FS, our U.S. Broadline operations increased 74.3% while total case volume within U.S. Broadline operations increased 71.4%.
Given the interest in the recovery curve from COVID-19, today we are disclosing that our July fiscal 2022 sales were also quite strong.
Sales were more than $4.9 billion, an increase of 44.3% from the same period in fiscal 2021 and a 7% increase over the same period in fiscal 2019.
Kevin brought up the top of inflation.
The headline is that inflation during the quarter was up 9.6% for total Sysco.
Manufacturers passed inflation to us and we successfully passed it on to our customers across categories and customer types.
Let me call it a couple of numbers and then we'll discuss our response to inflation further.
Gross profit for the enterprise was $2.9 billion in the fourth quarter, increasing 86.2% versus the same quarter in fiscal 2020.
Most of the increase in gross profit was driven by year-over-year increases in sales, the 53rd week in fiscal 2021 worth about $208 million and marginal rate improvement at our largest business U.S. FS.
Gross margin as a percentage of sales during the quarter actually increased 41 basis points versus the same period in fiscal 2020 and finished at a rate of 18.1%.
The gross margin increase was driven by business mix with the higher margin in U.S. foodservice businesses growing alongside improvements in higher margin countries in our international segment.
Importantly, the enterprise margin rate improvement was also driven by 17 basis points of margin rate improvement in our largest business.
Now, I'm sure you think I'm calling out the obvious when I say that in an inflationary environment, what counts at the end of the day is the health of our dollar gross profit that which we put in the bank.
The good news for us is that in the U.S., as our sales have been rising in part due to inflation, our dollar profit per case has also been increasing.
Notably in the U.S., our dollar profit per case is higher now than it was in fiscal year '19.
You may ask why do we have confidence that we can protect gross profit dollars in the short term and rate over time.
The answer is that Sysco has some advantages.
We have significant scale in purchasing, which is an asset, and which our suppliers will be hearing more about as we leverage the power of buying as One Sysco.
In addition, the majority of our customer contracts contain cost escalation clauses.
Finally, our merchandising transformation includes implementation of center-led pricing technology and other changes, which allow us to navigate through the inflationary environment.
No one tactic should be viewed in isolation, but the combination of our efforts arms us to deal with what we expect to be continued inflation in categories like poultry, beef, paper and disposables.
That said, you can expect that we will be careful and tactical as we keep our eye on the real prize, execution against our Recipe for Growth.
Let's now turn to our international business.
Restriction started to visibly ease in key jurisdictions toward the end of the quarter.
For the fourth quarter, international sales were up 83.4% versus fiscal 2020, but down 14.6% versus fiscal 2019.
Foreign exchange rates had a positive impact of 2.9% on Sysco's sales results.
What we see in our largest international markets gives us additional signs of confidence for fiscal 2022.
Local consumers are eager to get back to normal.
And importantly with the playbook established and significant operational change behind us, we do not expect that the reimposition of additional COVID restrictions would, if it happened, have a severe of an impact on our business as was the case during the past year.
Just like our efforts in the U.S., the international operations have been sourcing inventory and hiring staff aggressively to move up the recovery curve.
Turning back to the enterprise, adjusted operating expense increased 44.5% to $2.3 billion with increases driven by the variable cost that accompanies significantly increased volumes, one-time and short-term expenses associated with the snap-back, and investments against our Recipe for Growth.
Our expense performance reflects the great progress we have made against our $350 million cost-out savings goal as well as the need to invest in both the current demand recovery and the long-term issues that Kevin mentioned earlier.
In fact, we exceeded our $350 million cost-out goal during the full year.
As we have highlighted in prior calls, the majority of the savings are coming from SG&A, but there are some savings from cost of goods sold as our teams continue to improve our capabilities to better optimize supplier relationships.
Within our operating expenses, key examples of the cost savings efforts are regionalizing first our broadline operations and most recently, our specialty produce operations.
Other examples of areas where we achieved good cost savings would be indirect sourcing, technology cost savings and sourcing of freight contract costs.
As I called out in Q3, we are investing heavily against the business both in support of the snap-back and in support of the transformation.
During the fourth quarter, we estimate that we spent more than $36 million against the snap-back including incremental investments against recruiting, training, retention and maintenance.
We also estimate that we spent more than $50 million against our transformation initiatives such as our customer-centered growth, pricing, supply chain and technology strategic initiatives.
Even with those significant investments, our adjusted operating expense as a percentage of sales improved to 14.3% from fiscal 2020 and moved to within 30 basis points of fiscal 2019's 14% as a percentage of sales for the fourth quarter.
If we adjust out the purposeful snap-back and transformation investments we are making as temporary, we can better see the savings as our opex as a percentage of sales would have been 13.8% on an adjusted basis.
Here are couple of points of emphasis for you.
Part of the future horizon's component of our Recipe for Growth is achieving cost-out to fund the growth.
We are leading with the cost-out before we make the investments.
The savings are structural.
We are not counting variable expense changes.
Our savings goals are owned by our entire executive leadership team.
The savings are intended to increase over time.
Recall that we raised our objective to $750 million with the incremental savings coming largely over the course of fiscal '23 through fiscal '24.
Kevin and I must approve all new spend on our developing capabilities that offset the savings.
Remember, it is these capabilities that are generating the market share gains of 1.2 times to 1.5 times through fiscal 2024.
All in all, we view cost-out as a good news part of our long-term story.
Finally, for the fourth quarter, adjusted operating income increased $639 million to $605 million for the quarter.
Our adjusted effective tax rate was 20.2%.
Adjusted earnings per share increased $1 to $0.71 for the fourth quarter.
The primary difference between our GAAP earnings per share and our adjusted earnings per share was the impact of our debt tender premium payment.
We are pleased with the improvement each quarter as our business has recovered from the onset of COVID over the course of the last year or so.
Let me just wrap up the income statement by observing that for the year, all in, we delivered $1.02 of GAAP earnings per share and $1.44 of adjusted EPS.
Now, a couple of comments on cash flow and the balance sheet.
Cash flow from operations for the fourth quarter was $424 million.
Net capex for the quarter was $180 million or 1.1% of sales, which was $79 million higher compared to the same quarter in the prior year.
Free cash flow for the fourth quarter was $244 million, significantly above our anticipated free cash flow, even while we grew and maintained inventory at a level $400 million higher than Q4 fiscal '19.
At the end of fiscal 2021, after our investments in the business, our significant reductions in debt and our dividend payments, we had $3 billion of cash and cash equivalents on hand.
During the year, we generated positive cash flow from operations of $1.9 billion, offset by $412 million of net capital investment, resulting in positive free cash flow of $1.5 billion for the year.
As you know, at Investor Day, we articulated, our debt pay down plans.
$2.3 billion of deleveraging already accomplished during the fiscal year through May 2021.
Plans for an additional $1.5 billion will further debt reductions by the end of fiscal year '22.
Because we have sized the headline on our Q4 tender offer to $1 billion, we are already tracking $150 million ahead of our debt repurchase commitments.
Lastly, we returned almost $1 billion of capital to shareholders in fiscal year '21 in the form of our quarterly dividends.
We were pleased to announce at Investor Day a $0.02 per share increase to our dividend, on which we made the first payment in July.
This brings our dividend to $1.88 per share for the full calendar year 2022 and enhances our track record of increasing our dividends and our status as a Dividend Aristocrat.
Now, before closing, I would like to provide you with some updated guidance for fiscal year 2022.
In May, I laid out our growth aspiration of growing at 1.2 times to 1.5 times the market.
Also recall that we said, in fiscal year '22, we expected adjusted earnings per share of $3.23 to $3.43.
We also called out that in fiscal year '24, we expect adjusted earnings per share of 30% more than our high point in fiscal year 2019, call it more than $4.65.
Our projections and guidance were tied to the Technomic market projections as they existed at the time.
Frankly, the speed of recovery of consumer demand has been nothing short of remarkable.
We are seeing the positive impact broadly across our business.
Sales are recovering more quickly than we or the market trend experts anticipated.
That means that to hit our 1.2 times market growth in fiscal year 2022, we have to grow faster and we are.
As a result, we are raising our sales expectations and now expect sales for the enterprise to exceed fiscal '19 sales by mid-single digits, adding roughly $2.5 billion to our top line guidance.
Every segment of our business other than our other segment and the FSM component of our U.S. FS business is now forecast to exceed fiscal '19 sales by the end of fiscal year '22.
Inflation is more of a factor than we had anticipated for the first half of fiscal '22 and we expect it to continue into the first half of our new year, but our business is proving that it can pass along at least the increases necessary to preserve dollar per case profit.
As a result, while margin rate may be weaker than originally expected in the first half of the fiscal year, we expect strong gross profit dollars growing with sales and are holding to our Investor Day guidance that gross margins will improve over fiscal '21 and move toward fiscal '19 levels for the full year.
Regarding the cost-out program, we are working it aggressively.
We expect to invest most of the fiscal '22 savings into the snap-back, including the transitory incremental cost that Kevin discussed earlier and important transformational initiatives.
From a tax perspective, we expect our overall effective rate to be approximately 24% in fiscal 2022, as we are not assuming changes to federal tax rates in this guidance.
And based on the early strength of the recovery that Kevin mentioned during his remarks, as impacted by inflation and our continued progress against managing through the snap-back and investing for growth, we are increasing our guidance on adjusted earnings per share by $0.10 for fiscal year 2022 by moving the range up to $3.33 to $3.53.
Now, let's be clear, no one can forecast the unknown.
The Delta variant is out there and our updated guidance does not bake in a shutdown case.
We are providing this guidance based on what we can see in our business right now and we will follow with further updates, positive or negative, as the environment evolves around us, and we continue to execute against the transformation and the snap-back.
In addition, with rising sales comes an increase in operating cash flow.
We continue to maintain the balanced capital allocation strategy that we highlighted at Investor Day.
First, investing in our business for long-term growth and increasing our industry-leading position.
Capital expenditures during fiscal 2022 are expected to be approximately 1.3% of sales, reflecting the increased sales levels.
We continue to look for further sources of smart, inorganic growth as we laid out at Investor Day.
Second, we plan to maintain a strong balance sheet and expect to hit our announced net debt to EBITDA target during fiscal year '22.
And finally, recall that in May, we announced the conditions to the initiation of share repurchase, resulting from the new $5 billion share repurchase authorization.
The market recovery must be robust; that is happening.
The investments in the business must be fully funded, including M&A.
We expect to have more than adequate capital for our planned investments.
Our debt reduction must continue and our investment grade rating must be preserved.
As I discussed, we are ahead of schedule on reductions of debt and expect to hit our leverage target for the end of the year.
Excess liquidity must exist to fund the repurchase program.
It is early days, but with the accelerating recovery, we anticipate available cash to exceed our earlier forecast.
Applying the criteria we announced in May, if business trends continue, then we will consider options to return more capital in fiscal '22.
However, having said those words out loud, I want to be clear, our decision tree is based on our balanced capital allocation strategy.
In summary, our performance over the past year has been strong and the fundamentals of our business are solid as we look to the coming year.
We are excited about the future as we kick off fiscal year 2022.

user
q4 sales $16.1 billion versus refinitiv ibes estimate of $14.65 billion.
qtrly adjusted earnings per share $0.71.
currently no signs of delta variant impacting demand; strong july sales.
raise earnings per share guidance for fiscal year 2022 to $3.33 to $3.53.

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