2019 syy bernstein slides v final
- 1. Bernstein Strategic Decisions 2019
- 2. Forward Looking Statements 2 Statements made in this presentation that look forward in time or that express management’s beliefs, expectations or hopes are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the views of management at the time such statements are made and are subject to a number of risks, uncertainties, estimates, and assumptions that may cause actual results to differ materially from current expectations. These statements include: our expectations that our four strategic priorities, which include the customer experience, delivering operational excellence, optimizing the business and activating the power of our people, will accelerate our current growth and guide us into the future; our expectations regarding our adjusted operating income growth target and our ability to meet our target; our expectations that our investments in technology and our business will allow for future growth and exceptional customer service; our expectations regarding our recruiting, onboarding and retention initiatives; our expectations regarding initiatives that will drive cost improvement and enhance customer service; our expectations regarding our ability to leverage operating expense growth to gross profit growth; our expectations regarding our investments across Europe; our ability to deliver against our strategic priorities, which we believe will provide excellent customer service and improve our overall performance; statements regarding economic trends in the United States and abroad; our expectations regarding our ability to create a more focused and agile organization to better meet the changing needs of our customers; our expectation regarding our effective tax rate for the fourth quarter of fiscal 2019; our expectations regarding the amount of our capital expenditures in fiscal 2019; and our expectations with respect to achieving our three-year financial targets through fiscal 2020. The success of our plans and expectations regarding our operating performance, including expectations regarding our three-year financial objectives, are subject to the general risks associated with our business, including the risks of interruption of supplies due to lack of long-term contracts, severe weather, crop conditions, work stoppages, intense competition, technology disruptions, dependence on large, long-term regional and national customers, inflation risks, the impact of fuel prices, adverse publicity, labor issues, political or financial instability, trade restrictions, tariffs, currency exchange rates, transport capacity and costs and other factors relating to foreign trade, any or all of which could delay our receipt of product or increase our input costs. Risks and uncertainties also include risks impacting the economy generally, including the risks that the current general economic conditions will deteriorate, or consumer confidence in the economy or consumer spending, particularly on food-away-from-home, may decline. Market conditions may not improve. Competition and the impact of GPOs may reduce our margins and make it difficult for us to maintain our market share, growth rate and profitability. We may not be able to fully compensate for increases in fuel costs, and fuel hedging arrangements intended to contain fuel costs could result in above market fuel costs. Our ability to meet our long-term strategic objectives depends on our ability to grow gross profit, leverage our supply chain costs and reduce administrative costs. This will depend largely on the success of our various business initiatives, including efforts related to revenue management, expense management, our digital e-commerce strategy and any efforts related to restructuring or the reduction of administrative costs. There are various risks related to these efforts, including the risk that if sales from our locally managed customers do not grow at the same rate as sales from regional and national customers, or if we are unable to continue to accelerate local case growth, our gross margins may decline; the risk that we are unlikely to be able to predict inflation over the long term, and lower inflation is likely to produce lower gross profit; the risk that our efforts to modify truck routing, including our small truck initiative, in order to reduce outbound transportation costs may not be effective; the risk that our efforts to mitigate increases in warehouse costs may be unsuccessful; the risk that we may not be able to accelerate and/or identify additional administrative cost savings in order to compensate for any gross profit or supply chain cost leverage challenges; the risk that these efforts may not provide the expected benefits in our anticipated time frame, if at all, and may prove costlier than expected; the risk that the actual costs of any initiatives may be greater or less than currently expected; the risk that the actual costs of any initiatives may be greater or less than currently expected; and the risk of adverse effects to our business, results of operations and liquidity if past and future undertakings, and the associated changes to our business, do not prove to be cost effective or do not result in the cost savings and other benefits at the levels that we anticipate. Our plans related to and the timing of any initiatives are subject to change at any time based on management’s subjective evaluation of our overall business needs. If we are unable to realize the anticipated benefits from our efforts, we could become cost disadvantaged in the marketplace, and our competitiveness and our profitability could decrease. Adverse publicity about us or lack of confidence in our products could negatively impact our reputation and reduce earnings. Capital expenditures may vary based on changes in business plans and other factors, including risks related to the implementation of various initiatives, the timing and successful completion of acquisitions, construction schedules and the possibility that other cash requirements could result in delays or cancellations of capital spending. Periods of significant or prolonged inflation or deflation, either overall or in certain product categories, can have a negative impact on us and our customers, as high food costs can reduce consumer spending in the food-away-from-home market, and may negatively impact our sales, gross profit, operating income and earnings, and periods of deflation can be difficult to manage effectively. Fluctuations in inflation and deflation, as well as fluctuations in the value of foreign currencies, are beyond our control and subject to broader market forces. Expanding into international markets presents unique challenges and risks, including compliance with local laws, regulations and customs and the impact of local political and economic conditions, including the impact of Brexit and the “yellow vest” protests in France against a fuel tax increase and the French government, and such expansion efforts may not be successful. Any business that we acquire may not perform as expected, and we may not realize the anticipated benefits of our acquisitions. Expectations regarding the financial statement impact of any acquisitions may change based on management’s subjective evaluation. A divestiture of one or more of our businesses may not provide the anticipated effects on our operations. Meeting our dividend target objectives depends on our level of earnings, available cash and the success of our various strategic initiatives. Changes in applicable tax laws or regulations and the resolution of tax disputes could negatively affect our financial results. We rely on technology in our business and any cybersecurity incident, other technology disruption or delay in implementing new technology could negatively affect our business and our relationships with customers. For a discussion of additional factors impacting Sysco’s business, see our Annual Report on Form 10-K for the year ended June 30, 2018, as filed with the SEC, and our subsequent filings with the SEC, including our Quarterly Report on Form 10-Q for the third quarter of fiscal 2019. We do not undertake to update our forward-looking statements, except as required by applicable law.
- 3. TOM BENÉ CHAIRMAN, PRESIDENT & CEO
- 4. Our VISION To be our customers’ most valued and trusted business partner
- 5. WE OPERATE THE BUSINESS IN FOUR MAJOR SEGMENTS THAT COMPRISE THE SYSCO PORTFOLIO OF BUSINESSES 5 SYGMA U.S. Foodservice Operations International Foodservice Operations OTHER Canada, Europe and Latin America Growth opportunities in existing markets & targeted geographic expansion Systems distribution Specializes in serving at-scale chain customers Leading global manufacturer & distributor of supplies to the lodging industry Innovation team, leveraging agile & design thinking to reimagine the customer experience Core market U.S. broadline serves as the foundation Specialty companies enhance our portfolio of products 68% 19% 11% 2% % OF FY18 TOTAL REVENUE
- 6. SYSCO HAS CONSISTENLY DRIVEN STRONG RESULTS IN A LARGE, GROWING INDUSTRY 6 Sales ($B) Dividend Foodservice Industry Growth Rates $0.60 $0.76 $0.96 $1.04 $1.12 $1.20 $1.32 $1.44 $0.50 $0.70 $0.90 $1.10 $1.30 $1.50 CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18 $58.7B $25.0 $30.0 $35.0 $40.0 $45.0 $50.0 $55.0 $60.0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 Source: Technomic LTF, Feb 2019 1.5% 1.5% 0.7% 1.8% 1.6% 2.0% 1.4% 1.2% Total Foodservice Top 100 chains 101--500 chains Small chains & Independents Restaurants Retailers Travel&Leisure Noncommercial 5-year Real CAGR 2019-2024
- 7. 7 RECENT RESTAURANT TRENDS ARE SOFTENING Restaurant Industry In April, the restaurant industry saw a decline in same-store sales growth and same-store traffic Black Box and Knapp Track Same-Store Sales & Traffic Trends
- 8. 8 TRANSFORMATIONAL INITIATIVES VALUE ADDED PRODUCTS INNOVATIVE SOLUTIONS “SHOP” e-Commerce App Delivery Service Centers THE U.S. MARKET IS THE FOUNDATION OF OUR BUSINESS, WITH MEANINGFUL GROWTH POTENTIAL Finance Transformation Roadmap Smart Spending
- 9. OUR INTERNATIONAL INITIATIVES ARE PROGRESSING WELL 9 Canada Regionalization Supply Chain & Multi-temperature Initiatives Long-term Platform for Growth Integration of Businesses
- 10. M&A IS A KEY LEVER OF OUR GROWTH STRATEGY 10 Strategically acquire companies in existing markets • Grow our share with local operators • Achieve supply chain synergies • Fill potential gaps in our product offerings and capabilities Thoughtfully expand into new markets • Develop platforms for further growth • Leverage local market knowledge and expertise to help grow our business IRELAND U.S.
- 11. THREE-YEAR PLAN FINANCIAL OBJECTIVES 11 1 See Non-GAAP reconciliations at the end of the presentation. Investor Day – December 7, 2017: Updated FY 2018-20201 3-year plan
- 12. SUMMARY 12 1 See Non-GAAP reconciliations at the end of this presentation. Foodservice industry data shows same store sales declined and traffic was down in April We expect to see softness in volume and decreased gross profit growth in Q4 FY19 Our overall fundamentals are solid, and we remain focused on delivering against our updated three-year plan financial objectives
- 13. JOEL GRADE EVP & CFO
- 14. 3Q19 FINANCIAL HIGHLIGHTS BY SEGMENT 14 U.S. Foodservice Operations $MM, except per share data 3Q19 YoY % Change Sales $10,105 4.1% Gross Profit $2,009 5.1% Adj. Operating Expense1 $1,241 2.3% Adj. Operating Income1 $768 10.0% International Foodservice Operations $MM, except per share data 3Q19 YoY % Change Sales $2,758 (1.5%) Gross Profit $565 (3.1%) Adj. Operating Expense1 $507 (5.8%) Adj. Operating Income1 $58 30.0% SYGMA $MM, except per share data 3Q19 YoY % Change Sales $1,537 (4.3%) Gross Profit $126 (0.9%) Adj. Operating Expense1 $114 (7.1%) Adj. Operating Income1 $12 NM Other $MM, except per share data 3Q19 YoY % Change Sales $258 7.3% Gross Profit $64 (1.0%) Operating Expense $58 3.5% Operating Income $6 (28.9%) 1 See Non-GAAP reconciliations at the end of the presentation.
- 15. STRONG OPERATING PERFORMANCE 15 3.8% 5.0% 5.6% 5.7% 3.9% 2.7% 2.9% 3.4% 5.5% 5.4% 2.7% 3.6% 2.1% -0.4% -3.0% -1.0% 1.0% 3.0% 5.0% 7.0% 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 Total Sysco Adj. Operating Leverage1 GP growth OPEX growth 3Q19 1 2.9% -0.4% … Although it will vary from quarter to quarter, we are targeting a 150bps gap for FY18-FY20 three-year plan 1 See Non-GAAP reconciliations at the end of the presentation. 2 Average of FY18, 1Q19 , 2Q19 and 3Q19 (Most recent 7 quarters, coinciding with three-year plan) 7 Quarter Average 1,2 4.2% 3.2%
- 16. Fiscal 2019 year-to-date cash flow: 16 $244.3MCash from Ops $1.37B $1.00BFree Cash Flow $1.12B $765.2M $233.5M 1ST 39 WEEKS OF FY191 1ST 39 WEEKS OF FY181 1 See Non-GAAP reconciliations at the end of the presentation. WE HAVE A PROVEN TRACK RECORD OF CASH FLOW GENERATION 1 See Non-GAAP reconciliations at the end of the presentation.
- 17. WE FOLLOW A DISCIPLINED APPROACH TO CAPITAL ALLOCATION 17 1 2 3 4 Invest in the business Grow the dividend Strategic M&A Pay Down Debt / Opportunistic Share Repurchase For the full year fiscal 2019, we expect a capital expenditures forecast of approximately 1.1% of sales
- 18. SUMMARY 18 Small adjustments to three-year plan Continued work to do to manage overall costs Committed to supporting our customers and executing at a high level for continued improvement of our financial performance
- 19. Q&A
- 21. IMPACT OF CERTAIN ITEMS 21 Our discussion below of our results includes certain non-GAAP financial measures that we believe provide important perspective with respect to underlying business trends. Other than free cash flow, any non-GAAP financial measures will be denoted as adjusted measures and exclude the impact from restructuring and transformational project costs consisting of: (1) expenses associated with our various transformation initiatives; (2) severance and facility closure charges; and (3) restructuring charges. The non-GAAP financial measures presented in this report also exclude the impact of the following acquisition-related items: (1) intangible amortization expense and (2) integration costs. In addition, fiscal 2018 results of operations were impacted by MEPP withdrawal charges and debt extinguishment charges. Sysco’s results of operations for fiscal 2019 and 2018 are also impacted by reform measures from the Tax Act. The impact for fiscal 2019 and 2018 includes a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries and the impact for fiscal 2019 also includes the impact of recognizing a foreign tax credit. The impact for fiscal 2018 also includes: (1) a net benefit from remeasuring Sysco’s accrued income taxes, deferred tax liabilities and deferred tax assets due to the changes in tax rates; and (2) a benefit from contributions made to fund the Pension Plan. The third quarter fiscal 2019 and fiscal 2018 items described above and excluded from our non-GAAP measures are collectively referred to as "Certain Items." All acquisition-related costs in fiscal 2019 and 2018 that have been excluded relate to the fiscal 2017 acquisition of Cucina Lux Investments Limited (the Brakes Acquisition). In addition, with respect to the adjusted return on invested capital targets, our invested capital is adjusted for the accumulation of debt incurred for the Brakes Acquisition that would not have been borrowed absent this acquisition. Management believes that adjusting its operating expenses, operating income, interest expense, net earnings and diluted earnings per share to remove these Certain Items, provides an important perspective with respect to our underlying business trends and results and provides meaningful supplemental information to both management and investors that (1) is indicative of the performance of the company's underlying operations, facilitating comparisons on a year-over-year basis and (2) removes those items that are difficult to predict and are often unanticipated and that, as a result, are difficult to include in analysts' financial models and our investors' expectations with any degree of specificity. Although Sysco has a history of growth through acquisitions, the Brakes Group was significantly larger than the companies historically acquired by Sysco, with a proportionately greater impact on Sysco’s consolidated financial statements. Accordingly, Sysco is excluding from its non-GAAP financial measures for the relevant period solely those acquisition costs specific to the Brakes acquisition. We believe this approach significantly enhances the comparability of Sysco’s results for fiscal 2019 and fiscal 2018. The company uses these non-GAAP measures when evaluating its financial results, as well as for internal planning and forecasting purposes. These financial measures should not be used as a substitute for GAAP measures in assessing the company’s results of operations for periods presented. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. As a result, in the table below, each period presented is adjusted for the impact described above. In the table below, individual components of diluted earnings per share may not add to the total presented due to rounding. Adjusted diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding.
- 22. OPERATING INCOME TARGET 22 We expect to achieve our gross profit, operating income and earnings per share targets under our 3-year strategic plan by fiscal 2020. We cannot predict with certainty when we will achieve these results or whether the calculation of our gross profit, operating income and/or earnings per share will be on an adjusted basis in future periods to exclude the effect of certain items. Due to these uncertainties, we cannot provide a quantitative reconciliation of these potentially non-GAAP measures to the most directly comparable GAAP measure without unreasonable effort. However, we expect to calculate these adjusted results, if applicable, in the same manner as the reconciliations provided for the historical periods that are presented herein.
- 23. IMPACT OF CERTAIN ITEMS, 3Q19 (SEGMENT) 23 Sysco Corporation and its Consolidated Subsidiaries Segment Results Non-GAAP Reconciliation (Unaudited) Impact of Certain Items on Applicable Segments (In Thousands, Except for Share and Per Share Data) 13-Week Period Ended Mar. 30, 2019 13-Week Period Ended Mar. 31, 2018 Period Change in Dollars Period %/bps Change U.S. Foodservice Operations Operating expenses (GAAP) $ 1,243,704 $ 1,215,033 $ 28,671 2.4% Impact of restructuring and transformational project costs (1) (2,927) - (2,927) NM Impact of MEPP charge - (1,700) 1,700 -100.0% Operating expenses adjusted for Certain Items (Non-GAAP) $ 1,240,777 $ 1,213,333 $ 27,444 2.3% Operating income (GAAP) $ 765,425 $ 696,671 $ 68,754 9.9% Impact of restructuring and transformational project costs (1) 2,927 - 2,927 NM Impact of MEPP charge - 1,700 (1,700) -100.0% Operating income adjusted for Certain Items (Non-GAAP) $ 768,352 $ 698,371 $ 69,981 10.0% International Foodservice Operations Operating expenses (GAAP) 554,971 $ 563,750 $ (8,779) -1.6% Impact of restructuring and transformational project costs (2) (29,574) (3,552) (26,022) NM Impact of acquisition-related costs (3) (18,379) (21,679) 3,300 -15.2% Operating expenses adjusted for Certain Items (Non-GAAP) $ 507,018 $ 538,519 $ (31,501) -5.8% Operating income (GAAP) $ 10,145 $ 19,476 $ (9,331) -47.9% Impact of restructuring and transformational project costs (2) 29,574 3,552 26,022 NM Impact of acquisition-related costs (3) 18,379 21,679 (3,300) -15.2% Operating income adjusted for Certain Items (Non-GAAP) $ 58,098 $ 44,707 $ 13,391 30.0% SYGMA Operating expenses (GAAP) $ 114,247 $ 122,597 $ (8,350) -6.8% Impact of restructuring and transformational project costs (4) (369) - (369) NM Operating expenses adjusted for Certain Items (Non-GAAP) $ 113,878 $ 122,597 $ (8,719) -7.1% Operating income (GAAP) 11,668 4,477 7,191 NM Impact of restructuring and transformational project costs (4) 369 - 369 NM Operating income adjusted for Certain Items (Non-GAAP) $ 12,037 $ 4,477 $ 7,560 NM Other * * Segment has no applicable Certain items (1) Includes charges related to business transformation projects. (2) Includes restructuring, facility closure and severance costs in Europe and Canada. (3) Fiscal 2019 and fiscal 2018 include $18 million and $20 million, respectively, related to intangible amortization expense from the Brakes Acquisition. NM represents that the percentage change is not meaningful. (4) Includes charges related to facility closures and other restructuring charges.
- 24. ADJUSTED OPERATING LEVERAGE 24 Sysco Corporation and its Consolidated Subsidiaries Non-GAAP Reconciliation (Unaudited) Total Sysco Operating Leverage (impact of Certain Items) (In Thousands) (a) 7 quarter average gross profit (GAAP) 4.2% (b) 7 quarter average operating expenses (GAAP) 3.7% (c) 7 quarter average operating expenses adjusted for Certain Items (Non-GAAP) 3.2% Gross profit $ 2,754,298 $ 2,675,628 $ 78,670 2.9% (a) Operating expenses (GAAP) $ 2,224,713 $ 2,193,425 $ 31,288 1.4% (b) Impact of certain items (1) (90,604) (49,842) (40,762) 81.8% Operating expenses adjusted for Certain Items (Non-GAAP) $ 2,134,108 $ 2,143,583 $ (9,474) -0.4% (c) Gross profit $ 2,771,712 $ 2,699,386 $ 72,326 2.7% (a) $ 2,903,785 $ 2,793,668 $ 110,117 3.9% (a) Operating expenses (GAAP) $ 2,319,817 $ 2,170,834 $ 148,983 6.9% (b) $ 2,275,645 $ 2,174,303 $ 101,342 4.7% (b) Impact of certain items (1) (151,445) (47,176) (104,269) NM (63,539) (38,798) (24,742) 63.8% Operating expenses adjusted for Certain Items (Non-GAAP) $ 2,168,372 $ 2,123,658 $ 44,714 2.1% (c) $ 2,212,106 $ 2,135,506 $ 76,600 3.6% (c) 13-Week Period 13-Week 13-Week Period Change 13-Week PeriodMar. 30, 2019 Mar. 31, 2018 13-Week Period Change in Dollars 13-Week Period % ChangeDec. 29, 2018 Dec. 30, 2017 Sep. 29, 2018 Sep. 30, 2017 13-Week Period Ended 13-Week Period Ended 13-Week Period Change in Dollars 13-Week Period % Change 13-Week Period Ended 13-Week Period Ended
- 25. ADJUSTED OPERATING LEVERAGE (CONTINUED) 25 Gross profit $ 2,916,709 $ 2,759,590 $ 157,119 5.7% (a) $ 2,675,628 $ 2,534,135 $ 141,493 5.6% (a) Operating expenses (GAAP) $ 2,232,773 $ 2,201,278 $ 31,495 1.4% (b) $ 2,193,425 $ 2,097,809 $ 95,616 4.6% (b) Impact of certain items (1) (83,544) (108,870) 25,326 -23.3% (49,842) (64,337) 14,495 -22.5% Operating expenses adjusted for Certain Items (Non-GAAP) $ 2,149,229 $ 2,092,408 $ 56,821 2.7% (c) $ 2,143,583 $ 2,033,472 $ 110,111 5.4% (c) Gross profit $ 2,699,386 $ 2,571,863 $ 127,523 5.0% (a) $ 2,793,668 $ 2,691,919 $ 101,749 3.8% (a) Operating expenses (GAAP) $ 2,170,834 $ 2,079,082 $ 91,752 4.4% (c) $ 2,174,303 $ 2,124,722 $ 49,581 2.3% (c) Impact of certain items (1) (47,176) (65,460) 18,284 -27.9% (38,798) (59,995) 21,197 -35.3% Operating expenses adjusted for Certain Items (Non-GAAP) $ 2,123,658 $ 2,013,622 $ 110,036 5.5% (c) $ 2,135,506 $ 2,064,727 $ 70,778 3.4% (c) 13-Week Period Change in Dollars 13-Week Period % ChangeJun. 30, 2018 Jul. 1, 2017 Mar. 31, 2018 Apr. 1, 2017 13-Week Period Ended 13-Week Period Ended 13-Week Period Change in Dollars 13-Week Period % Change 13-Week Period Ended 13-Week Period Ended (1) Fiscal 2019 consists of restructuring and transformational project costs including business technology transformation initiative costs and related professional fees, restructuring expenses within our Sysco Europe operations, severance charges related to restructuring and facility closure charges. Fiscal 2018 includes business technology transformation initiative costs, professional fees on three-year financial objectives, restructuring expenses within our Brakes operations, severance charges related to restructuring and the impact of MEPP withdrawal charges. The Certain Items also include the impact of acquisition-related items, including intangible amortization expense and integration costs. 13-Week Period Change in Dollars 13-Week Period % ChangeDec. 30, 2017 Dec. 31, 2016 Sep. 30, 2017 Oct. 1, 2016 13-Week Period Ended 13-Week Period Ended 13-Week Period Change in Dollars 13-Week Period % Change 13-Week Period Ended 13-Week Period Ended
- 26. FREE CASH FLOW 26 Sysco Corporation and its Consolidated Subsidiaries Free Cash Flow Net cash provided by operating activities (GAAP) $ 1,365,225 $ 1,120,935 $ 244,290 Additions to plant and equipment (382,905) (372,612) (10,293) Proceeds from sales of plant and equipment 16,383 16,910 (527) Free Cash Flow (Non-GAAP) $ 998,703 $ 765,233 $ 233,470 Non-GAAP Reconciliation (Unaudited) (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 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. 39-Week Period Ended Mar. 30, 2019 39-Week Period Ended Marc. 31, 2018 39-Week Period Change in Dollars