sysco 2q16 earnings results - doclibrary.comdoclibrary.com/asc13/doc/syscoq220162154.pdf ·...
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Sysco 2Q16 Earnings Results
February 1, 2016
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� Strong second quarter;
solid first half of the year
� Reflects the continuously
improving execution of our
associates and our focus on
improving our customers’
experience
4
Sysco’s Second Quarter Fiscal 2016 Results
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Industry & Economic Trends Are Mixed
5
100.9
101.7
97
98
99
100
101
102
103
104
Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15
National Restaurant Association Restaurant Performance Index
Current Situation Index Expectations Index
93.1
101.4 99.8
102.6
96.5
80.0
85.0
90.0
95.0
100.0
105.0
110.0
115.0
Dec-14 Mar-15 Jun-15 Sep-15 Dec-15
Consumer Confidence
Pre-recession Level (2006)106
2.1%
2.7%3.1%
3.4%
2.7% 2.9%2.5%
-1%
0%
1%
1%
2%
2%
3%
3%
4%
4%
MAM'14 JJA'14 SON'14 DJF'15 MAM'15 JJA'15 SON'15
Spend Traffic
NPD: Restaurant Spend/Traffic% Change vs. Year Ago
5.6% 5.5%5.3%
5.1%5.0%
0
100,000
200,000
300,000
400,000
500,000
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
Dec-14 Mar-15 Jun-15 Sep-15 Dec-15
U.S. Unemployment RateChange in U.S. Non-Farm Payroll
Unemployment Rate & Non-Farm Payroll
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� Total Broadline case growth +3.4%; local case growth +2.9%
� Sales and gross profit adversely impacted by deflation and foreign exchange
¾ Sales +0.6%
¾ Gross profits +3.4%
¾ Gross margin +50 basis points
¾ Adjusted operating income +10.2%
� Solid execution across the business, including U.S. Broadline
� Deflation
¾ Accelerated during 2Q16 and into 3Q16
¾ Driven by center of the plate proteins and dairy
¾ Expect deflation to persist at least for remainder of fiscal year
6
2Q16 Results Include 10% Adjusted Operating Income Growth1
1 See Non-GAAP reconciliations at the end of this presentation.
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� Progress against all 4 key levers for achieving three-year targets
1. Accelerate local case growth
¾Broadline +2.8%
2. Improve gross margin
¾Gross margin +36 basis points
3. Leverage supply chain costs
¾ Making solid progress
4. Reduce administrative costs
¾Gross profit growth modestly exceeded operating expense
growth
7
1H16 Shows Progress Towards Three-Year Plan1
Result: Operating income growth +4% or $38 million
1 See Non-GAAP reconciliations at the end of this presentation.
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1H16 Financial Highlights
81 See Non-GAAP reconciliations at the end of this presentation.
Adjusted1 Reported
$MM, except per share data 1H16 YOY %
Change 1H16 YOY %Change
Sales $24,716 0.8% $24,716 0.8%
Gross Profit $4,395 2.8% $4,395 2.8%
Operating Expense $3,451 2.5% $3,469 -0.7%
Operating Income $943 4.2% $926 18.6%
Net Earnings $587 6.1% $517 18.3%
Diluted EPS $1.00 7.5% $0.88 20.5%
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Sysco is Well Positioned for the Future
9
Improve customer experience
Enhance associate engagement
Achieve our financial objectives
¾ Grow operating income by at least $400M
¾ Grow EPS faster than operating income
¾ Achieve 15% Return on Invested Capital
� Strong momentum in the business
� Persistent deflationary pressure needs to be
managed
� Aggressively reviewing all aspects of business for
incremental cost savings
� Well-positioned to achieve 2018 financial
objectives
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Tom BenePresident and COO
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11
Customer Insights Guide our Improvement Efforts
� Better serve customers and shareholders by strengthening
partnerships between business operations, commercial functions
and supply chain
¾ Enhances organizational alignment
� Customer insights work driving improvement
¾ Improved processes and tools providing robust information
capabilities
Improve customer retention1
Improve customer penetration2
Accelerate addition of new customers
3
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12
US Broadline Delivered Another Strong Quarter
� Gross profit growth +5.5%
� Gross margin +57 bps
� Operating income +9%
2.0%
2.5%
3.5%3.1%
3.7%
3.4%3.9%
1.4% 1.4%1.5%
1.7%
2.1% 2.0%
3.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16
US Broadline Case GrowthUSBL Local
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13
Marketing Update: Fresh & Local Differentiators
� Fresh & Local - educating customers about our capabilities
¾ Drives incremental case and gross profit growth for the category
� Example of Differentiation – Partnership with Produce Marketing
Associations to deliver Good Agricultural Practices (GAP) workshop to
more than 800 small farmers since 2011
¾ Helps small, local growers meet our food safety standards
Sysco is one of largest suppliers of Fresh & Local through Broadline, Specialty and FreshPoint
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14
Focus on Improving Gross Margins
� Managing deflationary environment well
� Sysco Brand and Category Management have positive contributions
� Category Management - leveraging scale and ability to commit consistent
volumes is a differentiator
� Category management continues to deliver incremental benefits to:
¾ Customers
¾ Suppliers
¾ Sysco
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15
Customer Experience: Mobile Order Entry
Mobile order-entry platform
¾ The first phase of a platform agnostic digital commerce strategy
¾ Pilots went very well – strong adoption rates
¾ Fully-deployed to all OpCo’s by end of fiscal 2016
¾ Focus will be on customer and MA adoption
¾ Pilots for next phase of digital commerce strategy will soon begin
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16
Supply Chain Progress Continues
� Solid progress against initiatives
� Focus on customer service while driving improved productivity
¾ Continuous improvement mentality
¾ More structured approach to managing expenses
¾ Continued work to be done
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Joel GradeEVP and CFO
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2Q16 Financial Highlights
181 See Non-GAAP reconciliations at the end of this presentation.
Adjusted1 Reported
$MM, except per share data 2Q16 YOY %
Change 2Q16 YOY %Change
Sales $12,154 0.6% $12,154 0.6%
Gross Profit $2,157 3.4% $2,157 3.4%
Operating Expense $1,720 1.8% $1,724 -2.6%
Operating Income $437 10.2% $433 37.1%
Net Earnings $275 12.6% $272 72.4%
Diluted EPS $0.48 17.1% $0.48 77.8%
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2Q16 Modest Sales Growth…
19
� Sales increased approximately 1% vs. prior year¾ Deflation of 1.2% vs. inflation of 6.0% in prior year
¾ Lower impact relative to the industry¾ FX Impact -1.7%
¾ Strong USD vs. CND
2.1%
0.8% 0.9%
4.1%
4.9%
6.0%
3.7%
0.1%
-0.2%
-1.2%
1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16
Sysco’s Estimated Product Cost Inflation
2Q16 US Broadlinedeflation: -1.9%
Sales: +2.2% on a constant currency basis
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…But Very Solid Case Growth
2.1%
3.7%
3.0%
3.6% 3.7%3.4%
0.7% 1.8%
2.1%2.4% 2.6%
2.9%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16
Total Broadline Case Growth TBL
Local
Broadline case growth combines US and International operations
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Improved Gross Margin Performance in 2Q16
21
Gross margin improvement driven mainly by U.S. Broadline performance � Ongoing category
management benefits
� Stronger relative mix of locally-managed sales
� Improved mix of Sysco-brand in local
� Deflation
0.7%
2.7%
4.0%
6.0% 6.1%
3.1% 3.0%2.3%
3.4%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16
YOY % Change in Gross Profit
Gross profits were +5.0% on a constant currency basis
17.75%
17.2%
17.4%
17.6%
17.8%
18.0%
18.2%
18.4%
Q1 Q2 Q3 Q4
Gross Margin Seasonality
FY13 FY14 FY15 FY16
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2Q16 Adjusted Operating Expense¹
221 See Non-GAAP reconciliations at the end of this presentation
� Adjusted operating expense +$31 million, or 1.8%
¾ Drivers were increased case volume and planned business
technology investment
� Cost reduction initiatives beginning to contribute
¾ Indirect spending consolidation and reduction
¾ Lower fuel costs
¾ Slower administrative expense growth
US Broadline Cost Per Case down $0.01
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2Q16 Operating Income, Net Income, EPS¹
231 See Non-GAAP reconciliations at the end of this presentation
� Adjusted operating income +10.2%
� Previously disclosed $21 million income tax expense benefit from favorable resolution of tax contingencies; +$0.03 per share
� Adjusted net earnings +12.2%
� Adjusted EPS up 17.1% to $0.48
Adjusted operating income +11.6% on a
constant currency basis
Adjusted EPS $0.49 on a constant currency basis
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Constant Currency Comparisons
24
Adjusted1 Constant Currency1
$MM, except per share data 2Q16 YOY %
Change 2Q16 YOY %Change
Sales $12,154 0.6% $12,351 2.2%
Gross Profit $2,157 3.4% $2,190 5.0%
Operating Expense $1,720 1.8% $1,748 3.5%
Operating Income $437 10.2% $442 11.6%
Net Earnings $275 12.6% $279 14.0%
Diluted EPS $0.48 17.1% $0.49 19.5%
1 See Non-GAAP reconciliations at the end of this presentation.
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25
Cash Flow Performance
1) Capital expenditures are net of proceeds from sales of plant and equipment2) See Non-GAAP reconciliations at the end of this presentation.
($MM) 1H16 1H15 $ Chg.
Cash Flow from Operations $469 $452 $16
Capital Expenditures, net1 ($237 ) ($296) ($59)
Free Cash Flow² $231 $157 $75
Cash Impact of Certain Items ($264) ($102) ($162)
Dividends Paid $348 $341 $7
2Q16 Cash Flow from Operations was $730 million
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Strategic Investments in Capital Expenditures
26
1H15 1H16
Facilities Fleet IT-Other
$298
$248
Gross Capex$MM
1.2% 1.1% 1.1%1.0%
2013 2014 2015 1H16
CapEx as a % of Sales
CapEx as a % of Sales
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Fiscal 2016 Commentary
27
� On track to achieve fiscal 2016 plan
� Deflation is expected to persist for at least the remainder
of the fiscal year
� 4Q15 presents a challenging comparison to prior year
� Capex expected to be near the low-end of $550-$600
million range
� Expect a normalized tax rate of 36-37% over the
remaining 26 weeks
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Summary
28
� Strong quarter, continued momentum in
underlying business
� More work ahead of us to achieve fiscal 2016 and
three-year plan objectives
� More rigorous process for expense management in place
� Aggressively reviewing all aspects of our business for incremental cost
savings