Q2 2021-presentation
- 1. Sysco 2Q FY21 Earnings Results February 2
- 2. Forward Looking Statements Statements made in this presentation or in our earnings call for the second quarter of fiscal 2021 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: the effect, impact, potential duration or other implications of the recent outbreak of a novel strain of coronavirus (“COVID-19”) and any expectations we may have with respect thereto, including the extent and duration of lockdowns in the U.S. and Europe; our expectations regarding our ability to manage the current downturn and capitalize on our position as the industry leader as the global economy recovers; our expectations regarding future market share gains; our expectations regarding the effects of our business transformation initiatives, including our belief that our strategic initiatives will enable profitable future growth and drive future value for our associates, shareholders and customers; our belief that our transformation initiatives will improve how we serve customers, differentiate Sysco from our competitors and deliver strong business results; our expectations regarding our efforts to regionalize our operations and the benefits to our company from regionalization; our expectations that our efforts across our customer-facing tools and technology will improve service to our customers; our plans regarding the timing of the roll out of our new pricing software; our plans regarding our sales transformation initiative and our expectations regarding the effects of our new sales process, including the timing of the roll-out of this program to additional cuisine segments; our expectations regarding our company, and our ability to attract and serve new customers, following the COVID-19 crisis; our expectations regarding our ability to win meaningful business in the national account space; our plans regarding minimum delivery requirements and delivery service days; the effects of our planned investments in digital technology; our expectations regarding the timing of the business recovery following the COVID-19 crisis; the impact on our results of government-imposed restrictions on restaurant operations; our expectations that our work to accelerate growth will return to pre-COVID levels as demand resurges; our belief that our improved retention rates will benefit our sales productivity metrics; our expectations regarding the effect of our retention of drivers on transportation expenses in the short term; our belief that our retention of drivers will help ensure that Sysco is able to maximize our share gain during the upcoming business recovery; our expectations regarding our ability to become the most customer-centric foodservice distributor in the industry; our expectations regarding our ability to accelerate profitable growth; our expectations regarding future sales; our expectations regarding cost savings over the next several quarters; our expectations that our investments in technology and our business will allow for future growth and exceptional customer service; our belief that the steps undertaken as part of our management of the COVID-19 crisis to date will help us retain and win additional business from our independent restaurant customers beyond the pandemic; our expectations regarding our preparations for the business recovery and our plans to be ahead of the recovery curve; our expectations regarding the hiring of additional employees in connection with the anticipated business recovery; our expectations of significant returns on our investments in our capability builds in service of our transformation; our expectations regarding the impact of our investments in our transformation initiatives on our results in the second half of fiscal 2021; our expectations regarding improvements in the SYGMA segment; our plans to reinvest a portion of our cost savings into our growth agenda; our ability to deliver against our strategic priorities; statements regarding economic trends in the United States and abroad; our expectations regarding the deployment of capital proceeds that Sysco currently holds; and our expectations regarding our cash performance in the third quarter of fiscal 2021. The success of our plans and expectations regarding our operating performance 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 the impact and effects of public health crises, pandemics and epidemics, such as the COVID-19 pandemic, and the adverse impact thereof on our business, financial condition and results of operations, including, but not limited to, our growth, product costs, supply chain, labor availability, logistical capabilities, customer demand for our products and industry demand generally, consumer spending, our liquidity, the price of our securities and trading markets with respect thereto, our credit ratings, our ability to maintain compliance with the covenants in our credit agreement, our ability to access capital markets, and the global economy and financial markets generally. 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 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; 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, pension reform 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 27, 2020, as filed with the SEC, and our subsequent filings with the SEC. We do not undertake to update our forward-looking statements, except as required by applicable law. 2
- 3. KEVIN HOURICAN President & CEO
- 4. Sysco is Gaining Market Share and Leading the Foodservice Distribution Industry Throughout the Disruption Sysco is not just managing through the COVID disruption – we are transforming the business by creating new capabilities for our future Delivered a profitable second quarter despite a 23% decline in our topline sales and investments against our transformation We gained overall market share versus the rest of the industry 4
- 5. We Have Made Investments in Preparation for the Pending Business Recovery 5 Customers People Working Capital Technology Restaurants Rising Campaign, no minimum delivery requirements, continuation of delivery frequency Drivers, warehouse associates, sales associates and leadership team Sysco Shop technology and new pricing software Broad product portfolio with the right products, in the right locations, shipped in-full and on-time, payment plans in partnership with our customers
- 6. Restaurants Rising Helps Restaurants Succeed and Strengthen Their Business No Delivery Minimums Fast Onboarding & Credit Card Payments Menu Optimization and Web-Enablement Outdoor Dining Solutions Restaurant Marketing Tools Maintaining Delivery Frequency
- 7. The Rate of Closures at Sysco Customers Continues to be Lower Than Overall Restaurant Industry 7 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Jan U.S. Restaurant closures vs. Jan 20201 Total Restaurants Sysco Source: Yelp! Restaurant Closures 1Baseline of January 2020 open restaurants Sysco customer closure rate 50% lower than industry average
- 8. Where Restrictions Have Eased, Consumers Show They Are Ready to Eat Away From Home 8 29-Nov 6-Dec 13-Dec 20-Dec 27-Dec 3-Jan 10-Jan 17-Jan Denver Weekly Volume vs. FY191 Restrictions2 Eased 12/30 1Normalized for Winter holiday demand 2Restrictions eased from 0% indoor dining capacity to 25% indoor dining capacity
- 9. We Will Deliver Upon the Largest Business Transformation in Our Company’s History We are making great progress on our transformational efforts while leading through the COVID crisis Sysco will be positioned as the most customer-centric foodservice distributor in the industry Our transformational strategy will drive long-term, profitable growth 9
- 10. AARON ALT EVP & CFO
- 11. 2Q21 Total Sysco Results 23.1% Adj. EPS 1 Sales $11.6B Total Sysco 2Q21 Gross Profit $2.1B $234M $0.17 25.8% 62.7% 80.0% Adj. Operating Income 1 11 1 See Non-GAAP reconciliations at the end of the presentation. Profitable quarter despite a 23% decline
- 12. 2Q21 U.S. Foodservice Results 23.9% $7.9B U.S. Foodservice 2Q21 $1.6B $1.1B $472M 23.9% 18.9% 33.4% 12 1 See Non-GAAP reconciliations at the end of the presentation. Record number of new customers in U.S. Foodservice Segment Sales U.S. Foodservice Gross Profit Adj. Operating Expenses 1 Adj. Operating Income 1
- 13. 2Q21 SYGMA Results 4.4% $1.5B 2Q21 $129M $118M $11M 4.1% 4.0% 4.7% 13 1 See Non-GAAP reconciliations at the end of the presentation. Second consecutive quarter of SYGMA sales growth Sales SYGMA Gross Profit Adj. Operating Expenses 1 Adj. Operating Income 1
- 14. 2Q21 International Results 31.9% $2.0B 2Q21 $374M $429M ($55M) 36.2% 16.2% 174.6% 14 1 See Non-GAAP reconciliations at the end of the presentation. Continued restrictions in the countries in which we operate Sales International Gross Profit Adj. Operating Loss 1 Adj. Operating Expenses 1
- 15. $8 billion of Liquidity Cash from Ops Free Cash Flow1 $754M $371M $788M $937M $182M 1 See Non-GAAP reconciliations at the end of the presentation. $417M 15 First 26 Weeks of FY20 First 26 Weeks of FY21 In-line with first 26 weeks cash flow expectations
- 16. 16 We Remain Focused on Investments for Long-Term Accelerated Growth Local government restrictions placed on our customers will continue to have an impact on our business results Sysco is not just managing the COVID disruption – we are substantially transforming our company for long-term improvement We are confident in our ability to accelerate future growth via our transformational business strategy We delivered a profitable quarter despite a 23% decline in our topline results and investments against our transformations
- 19. Impact of Certain Items Sysco’s results of operations for fiscal 2021 and fiscal 2020 were impacted by restructuring and transformational project costs consisting of: (1) restructuring charges; (2) expenses associated with our various transformation initiatives; and (3) facility closure and severance charges. Sysco’s results for fiscal 2021 and fiscal 2020 were also impacted by intangible amortization expense related to the fiscal 2017 acquisition of Cucina Lux Investments Limited (the Brakes Acquisition). Additionally, our results for fiscal 2021 were impacted by the loss on the sale of Cake Corporation. Fiscal 2021 results of operations were also positively impacted by the reduction of bad debt expense previously recognized in fiscal 2020 due to the unexpected impact of the COVID-19 pandemic on the collectability of our pre-pandemic trade receivable balances. Many of Sysco’s customers, including those in the restaurant, hospitality and education segments, are operating at a substantially reduced volume due to governmental requirements for closures or other social-distancing measures and a portion of Sysco’s customers are closed. Some of these customers ceased paying their outstanding receivables, creating uncertainty as to their collectability. We experienced an increase in past due receivables and recognized additional bad debt charges in the third and fourth quarters of fiscal 2020; however, collections have improved in fiscal 2021. We have estimated uncollectible amounts based on the current collection experience and by applying write-off percentages based on historical loss experience, including loss experience during times of local and regional disasters. The COVID-19 pandemic is more widespread and longer in duration than historical disasters impacting our business, and it is possible that actual uncollectible amounts will differ and additional charges may be required; however, if collections continue to improve, it is also possible that additional reductions in our bad debt reserve could occur. While Sysco traditionally incurs bad debt expense, the magnitude of such expenses and benefits, that we have experienced is not indicative of our normal operations. Our adjusted results have not been normalized in a manner that would exclude the full impact of the COVID-19 pandemic on our business. As such, Sysco has not adjusted its results for lost sales, inventory write-offs or other costs associated with the COVID-19 pandemic not previously stated. The results of our foreign operations can be impacted due to changes in exchange rates applicable in converting local currencies to U.S. dollars. We measure our International Foodservice Operations results on a constant currency basis. Constant currency operating results are calculated by translating current-period local currency operating results with the currency exchange rates used to translate the financial statements in the comparable prior-year period to determine what the current-period U.S. dollar operating results would have been if the currency exchange rate had not changed from the comparable prior-year period. The constant currency impact on our adjusted International Foodservice Operations results are disclosed when the impact exceeds a defined threshold of greater than 1% on the growth metric. If the amount does not exceed this threshold, a disclosure will be made that the impact of the currency change was not significant. Management believes that adjusting its operating expenses, operating income, net earnings and diluted earnings per share to remove these Certain Items and presenting its International Foodservice Operations results on a constant currency basis, 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 the impact of acquisition-related intangible amortization specific to the Brakes Acquisition. We believe this approach significantly enhances the comparability of Sysco’s results for fiscal 2021 and fiscal 2020. Set forth below is a reconciliation of sales, operating expenses, operating income, interest expense, other (income) expense, net earnings and diluted earnings per share to adjusted results for these measures for the periods presented. Individual components of diluted earnings per share may not add up to the total presented due to rounding. Adjusted diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding. 19
- 20. Impact of Certain Items, 2Q21 20 Sysco Corporation and its Consolidated Subsidiaries Non-GAAP Reconciliation (Unaudited) Impact of Certain Items (Dollars in Thousands, Except for Share and Per Share Data) 13-Week Period Ended Dec. 26, 2020 13-Week Period Ended Dec. 28, 2019 Change in Dollars % Change Operating expenses (GAAP) $ 1,886,396 $ 2,275,906 $ (389,510) -17.1% Impact of restructuring and transformational project costs (1) (34,160) (57,105) 22,945 -40.2% Impact of acquisition-related intangible amortization (2) (18,125) (17,312) (813) 4.7% Impact of bad debt reserve adjustments (3) 30,271 - 30,271 NM Operating expenses adjusted for Certain Items (Non-GAAP) $ 1,864,382 $ 2,201,489 $ (337,107) -15.3% Operating income (GAAP) $ 212,062 $ 552,493 $ (340,431) -61.6% Impact of restructuring and transformational project costs (1) 34,160 57,105 (22,945) -40.2% Impact of acquisition-related intangible amortization (2) 18,125 17,312 813 4.7% Impact of bad debt reserve adjustments (3) (30,271) - (30,271) NM Operating income adjusted for Certain Items (Non-GAAP) $ 234,076 $ 626,910 $ (392,834) -62.7% Net earnings (GAAP) $ 67,289 $ 383,410 $ (316,121) -82.4% Impact of restructuring and transformational project costs (1) 34,160 57,105 (22,945) -40.2% Impact of acquisition-related intangible amortization (2) 18,125 17,312 813 4.7% Impact of bad debt reserve adjustments (3) (30,271) - (30,271) NM Tax impact of restructuring and transformational project costs (4) (10,666) (15,372) 4,706 -30.6% Tax impact of acquisition-related intangible amortization (4) (5,850) (4,658) (1,192) 25.6% Tax Impact of bad debt reserve adjustments (4) 13,071 - 13,071 NM Net earnings adjusted for Certain Items (Non-GAAP) $ 85,858 $ 437,797 $ (351,939) -80.4% Diluted earnings per share (GAAP) $ 0.13 $ 0.74 $ (0.61) -82.4% Impact of restructuring and transformational project costs (1) 0.07 0.11 (0.04) -36.4% Impact of acquisition-related intangible amortization (2) 0.04 0.03 0.01 33.3% Impact of bad debt reserve adjustments (3) (0.06) - (0.06) NM Tax impact of restructuring and transformational project costs (4) (0.02) (0.03) 0.01 -33.3% Tax impact of acquisition-related intangible amortization (4) (0.01) (0.01) - 0.0% Tax Impact of bad debt reserve adjustments (4) 0.03 - 0.03 NM Diluted earnings per share adjusted for Certain Items (Non-GAAP) (5) $ 0.17 $ 0.85 $ (0.68) -80.0% Diluted shares outstanding 512,742,792 515,517,792 NM represents that the percentage change is not meaningful. - more - (4) The tax impact of adjustments for Certain Items are calculated by multiplying the pretax impact of each Certain Item by the statutory rates in effect for each jurisdiction where the Certain Item was incurred. (5) Individual components of diluted earnings per share may not add up to the total presented due to rounding. Total diluted earnings per share is calculated using (2) Represents intangible amortization expense from the Brakes Acquisition, which is included in the results of International Foodservice. (1) Fiscal 2021 includes $22 million primarily related to restructuring charges and $12 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy. Fiscal 2020 includes $34 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy and $23 million related to restructuring, facility closure and severance charges. (3) Represents the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
- 21. Impact of Certain Items, 2Q21 (Segment) 21 Sysco Corporation and its Consolidated Subsidiaries Segment Results Non-GAAP Reconciliation (Unaudited) Impact of Certain Items on Applicable Segments (Dollars in Thousands) 13-Week Period Ended Dec. 26, 2020 13-Week Period Ended Dec. 28, 2019 Change in Dollars %/bps Change U.S. FOODSERVICE OPERATIONS Sales $ 7,924,143 $ 10,413,575 $ (2,489,432) -23.9% Gross Profit 1,559,322 2,048,904 (489,582) -23.9% Gross Margin 19.68% 19.68% 0 bps Operating expenses (GAAP) $ 1,074,071 $ 1,344,103 $ (270,032) -20.1% Impact of restructuring and transformational project costs (1) (1,784) (3,679) 1,895 -51.5% Impact of bad debt reserve adjustments (2) 15,239 - 15,239 NM Operating expenses adjusted for Certain Items (Non-GAAP) $ 1,087,526 $ 1,340,424 $ (252,898) -18.9% Operating income (GAAP) $ 485,251 $ 704,801 $ (219,550) -31.2% Impact of restructuring and transformational project costs (1) 1,784 3,679 (1,895) -51.5% Impact of bad debt reserve adjustments (2) (15,239) - (15,239) NM Operating income adjusted for Certain Items (Non-GAAP) $ 471,796 $ 708,480 $ (236,684) -33.4% INTERNATIONAL FOODSERVICE OPERATIONS Sales (GAAP) $ 1,967,789 $ 2,890,053 $ (922,264) -31.9% Impact of currency fluctuations (3) (53,402) - (53,402) 1.8% Comparable sales using a constant currency basis (Non-GAAP) $ 1,914,387 $ 2,890,053 $ (975,666) -33.8% Gross Profit (GAAP) $ 373,840 $ 586,039 $ (212,199) -36.2% Impact of currency fluctuations (3) (11,458) - (11,458) 2.0% Comparable gross profit using a constant currency basis (Non-GAAP) $ 362,382 $ 586,039 $ (223,657) -38.2% Gross Margin (GAAP) 19.00% 20.28% -128 bps Impact of currency fluctuations (3) 0.07% 0.00% 7 bps Comparable gross margin using a constant currency basis (Non-GAAP) 18.93% 20.28% -135 bps Operating expenses (GAAP) $ 453,789 $ 551,158 $ (97,369) -17.7% Impact of restructuring and transformational project costs (4) (20,405) (21,850) 1,445 -6.6% Impact of acquisition-related intangible amortization (5) (18,125) (17,312) (813) 4.7% Impact of bad debt reserve adjustments (2) 13,797 - 13,797 NM Operating expenses adjusted for Certain Items (Non-GAAP) $ 429,056 $ 511,996 $ (82,940) -16.2% Impact of currency fluctuations (3) (15,123) - (15,123) 3.0% Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP) $ 413,933 $ 511,996 $ (98,063) -19.2% Operating (loss) income (GAAP) $ (79,949) $ 34,881 $ (114,830) NM Impact of restructuring and transformational project costs (4) 20,405 21,850 (1,445) -6.6% Impact of acquisition-related intangible amortization (5) 18,125 17,312 813 4.7% Impact of bad debt reserve adjustments (2) (13,797) - (13,797) NM Operating (loss) income adjusted for Certain Items (Non-GAAP) $ (55,216) $ 74,043 $ (129,259) -174.6% Impact of currency fluctuations (3) 3,665 - 3,665 -4.9% Comparable operating (loss) income adjusted for Certain Items using a constant currency basis (Non-GAAP) $ (51,551) $ 74,043 $ (125,594) -169.6% SYGMA Sales $ 1,520,401 $ 1,455,893 $ 64,508 4.4% Gross Profit 129,299 124,239 5,060 4.1% Gross Margin 8.50% 8.53% -3 bps Operating expenses (GAAP) $ 117,971 $ 114,378 $ 3,593 3.1% Impact of restructuring and transformational project costs (1) 6 (956) 962 0.9% Operating expenses adjusted for Certain Items (Non-GAAP) $ 117,977 $ 113,422 $ 4,555 4.0% Operating income (GAAP) $ 11,328 $ 9,861 $ 1,467 14.9% Impact of restructuring and transformational project costs (1) (6) 956 (962) -10.2% Operating income adjusted for Certain Items (Non-GAAP) $ 11,322 $ 10,817 $ 505 4.7% (1) Includes charges related to restructuring and business transformation projects. - more - (4) Includes restructuring, severance and facility closure costs primarily in Europe. (5) Represents intangible amortization expense from the Brakes Acquisition. NM represents that the percentage change is not meaningful. (2) Represents the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020. (3) Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on current year results.
- 22. Impact of Certain Items, 1H21 22 Sysco Corporation and its Consolidated Subsidiaries Non-GAAP Reconciliation (Unaudited) Impact of Certain Items (Dollars in Thousands, Except for Share and Per Share Data) 26-Week Period Ended Dec. 26, 2020 26-Week Period Ended Dec. 28, 2019 Change in Dollars % Change Operating expenses (GAAP) $ 3,686,662 $ 4,550,958 $ (864,296) -19.0% Impact of restructuring and transformational project costs (1) (60,124) (113,827) 53,703 -47.2% Impact of acquisition-related intangible amortization (2) (35,880) (34,222) (1,658) 4.8% Impact of bad debt reserve adjustments (3) 128,899 - 128,899 NM Operating expenses adjusted for Certain Items (Non-GAAP) $ 3,719,557 $ 4,402,909 $ (683,352) -15.5% Operating income (GAAP) $ 631,641 $ 1,220,811 $ (589,170) -48.3% Impact of restructuring and transformational project costs (1) 60,124 113,827 (53,703) -47.2% Impact of acquisition-related intangible amortization (2) 35,880 34,222 1,658 4.8% Impact of bad debt reserve adjustments (3) (128,899) - (128,899) NM Operating income adjusted for Certain Items (Non-GAAP) $ 598,746 $ 1,368,860 $ (770,114) -56.3% Other (income) expense (GAAP) $ (1,432) $ 2,305 $ (3,737) -162.1% Impact of loss on sale of a business (12,043) - (12,043) NM Other (income) expense (Non-GAAP) $ (13,475) $ 2,305 $ (15,780) NM Net earnings (GAAP) $ 284,189 $ 837,191 $ (553,002) -66.1% Impact of restructuring and transformational project costs (1) 60,124 113,827 (53,703) -47.2% Impact of acquisition-related intangible amortization (2) 35,880 34,222 1,658 4.8% Impact of bad debt reserve adjustments (3) (128,899) - (128,899) NM Impact of loss on sale of a business 12,043 - 12,043 NM Tax impact of restructuring and transformational project costs (4) (16,586) (29,294) 12,708 -43.4% Tax impact of acquisition-related intangible amortization (4) (9,898) (8,807) (1,091) 12.4% Tax impact of bad debt reserves adjustments (4) 35,559 - 35,559 NM Tax impact of loss on sale of a business (4) (7,553) - (7,553) NM Impact of foreign tax rate change (5,548) 924 (6,472) NM Net earnings adjusted for Certain Items (Non-GAAP) $ 259,311 $ 948,063 $ (688,752) -72.6% Diluted earnings per share (GAAP) $ 0.56 $ 1.62 $ (1.06) -65.4% Impact of restructuring and transformational project costs (1) 0.12 0.22 (0.10) -45.5% Impact of acquisition-related intangible amortization (2) 0.07 0.07 - 0.0% Impact of bad debt reserve adjustments (3) (0.25) - (0.25) NM Impact of loss on sale of a business 0.02 - 0.02 NM Tax impact of restructuring and transformational project costs (4) (0.03) (0.06) 0.03 -50.0% Tax impact of acquisition-related intangible amortization (4) (0.02) (0.02) - NM Tax impact of bad debt reserves adjustments (4) 0.07 - 0.07 NM Tax impact of loss on sale of a business (4) (0.01) - (0.01) NM Impact of foreign tax rate change (0.01) - (0.01) NM Diluted EPS adjusted for Certain Items (Non-GAAP) (5) $ 0.51 $ 1.83 $ (1.32) -72.1% Diluted shares outstanding 511,740,778 517,120,395 NM represents that the percentage change is not meaningful. - more - (2) Represents intangible amortization expense from the Brakes Acquisition, which is included in the results of International Foodservice. (1) Fiscal 2021 includes $34 million related to restructuring, severance and facility closure charges, and $26 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy. Fiscal 2020 includes $62 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy, and $52 million related to severance, restructuring and facility closure charges. (5) Individual components of diluted earnings per share may not add up to the total presented due to rounding. Total diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding. (4) The tax impact of adjustments for Certain Items are calculated by multiplying the pretax impact of each Certain Item by the statutory rates in effect for each jurisdiction where the Certain Item was incurred. (3) Represents the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
- 23. Free Cash Flow 23 Sysco Corporation and its Consolidated Subsidiaries Free Cash Flow Net cash provided by operating activities (GAAP) $ 936,678 $ 754,469 $ 182,209 Additions to plant and equipment (163,944) (393,379) 229,435 Proceeds from sales of plant and equipment 15,510 10,293 5,217 Free Cash Flow (Non-GAAP) $ 788,244 $ 371,383 $ 416,861 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. 26-Week Period Ended Dec. 26, 2020 26-Week Period Ended Dec. 28, 2019 Change in Dollars