Sysco Corporation (SYY) 2024 Q4 Earnings Call Summary

Optimistic Highlights

• Revenue Growth

  Sysco reported $79 billion in top-line revenue for the year, marking a 3.3% growth versus fiscal 2023, driven by USFS volume growth and inflation.

• Market Share Gain

  Sysco profitably took market share in fiscal 2024, growing its business more than 1.75 times the market.

• Adjusted Earnings Per Share

  Delivered adjusted earnings per share of $1.39 for the quarter and $4.31 for the year, exceeding the midpoint of the initial guidance.

• International Segment Performance

  The international business delivered compelling local case growth of 5% for the quarter, contributing to a 13.1% profit growth.

• Supply Chain Productivity

  Improved supply chain productivity, including on-time delivery rates and fill rates, contributing to a 6.4% increase in operating income year-over-year.

Pessimistic Highlights

• Decline in Restaurant Foot Traffic

  Traffic to restaurants was down approximately 3% year-over-year for the quarter, reflecting a softer economic environment.

• Local Case Growth

  Local case growth was positive but modest at 0.7% compared to the previous year, indicating room for improvement.

• Sysco Brand Penetration

  Sysco brand penetration rates decreased slightly, indicating a minor shift in product mix towards national brand products.

Company Outlook

• Fiscal 2025 Guidance

  Sysco expects net sales growth of 4% to 5% and adjusted EPS growth of 6% to 7%, with inflation of approximately 2% and positive volume growth of low-single-digits for the year.

• Continued Focus on Growth

  Plans to hire an additional net 450 sales professionals in fiscal 2025 and focus on profitable local sales growth, specialty market expansion, and international segment growth.

• Investment in Sales Force

  Introduction of a new compensation program for U.S. broadline sales colleagues to motivate specific behaviors that will help advance Sysco's P&L.

Q & A Highlights

• Q: Are you seeing trade down and trade out impacting a broader customer demographic? And would you expect the election to impact food away from on-demand? (Mark Carden, UBS)

  A: Traffic declines are consistent across all restaurant types, not just QSR. Sysco does not anticipate significant improvement in the near term, likely through the election. The focus is on converting macro challenges into actions Sysco can take to profitably grow its business. (Kevin Hourican)

• Q: How is retention trending with the new sales force hires? Does the ramp become tougher for those with less direct foodservice sales experience? (Mark Carden, UBS)

  A: Retention is solid, and the key to success for fiscal 2025 will be ramping up the productivity of the sales force. The new compensation model is expected to positively impact results, especially in the second half of the year. (Kevin Hourican)

• Q: Can you discuss the promotional environment and gross margin trends in the U.S. Foodservice business? (Lauren Silberman, Deutsche Bank)

  A: Competitive intensity increases when traffic is down, but Sysco operates at the highest profit margin rate in the industry and is disciplined in its pricing strategies. Gross profit dollar improvement was driven by optimal pricing and sourcing improvements. (Kevin Hourican and Kenny Cheung)

• Q: What are your expectations for case growth and the cadence throughout the quarter? (Lauren Silberman, Deutsche Bank)

  A: Q1 macro environmental conditions are similar to the exit velocity of Q4, factored into the guidance for fiscal 2025. Sysco is focused on new customer prospecting and improving local case performance. (Kevin Hourican)

• Q: On the sales force investments, should we expect disruption in the near term? (Jake Bartlett, Truist Securities)

  A: The disruption from sales force investments is manageable and part of a gradual ramp-up of performance over time. The new compensation model, which went live on July 1, is expected to have more of a second-half positive impact. (Kevin Hourican and Kenny Cheung)

• Q: How do you view U.S. gross margin trends, particularly given the recent decline? (John Heinbockel, Guggenheim)

  A: The decline in U.S. gross margin was primarily due to customer and product mix shifts. Sysco is focused on improving local case performance and increasing Sysco brand penetration to drive gross profit dollar improvement. (Kevin Hourican and Kenny Cheung)

• Q: Can you elaborate on the guidance for fiscal 2025, particularly around corporate costs and the inflation outlook? (Edward Kelly, Wells Fargo)

  A: Sysco expects continued improvements in corporate costs and supply chain productivity throughout fiscal 2025. The 2% inflation outlook is expected to be reasonably consistent throughout the year. (Kenny Cheung)

• Q: What drove the decline in private label penetration, and how are you addressing it? (Kendall Toscano, Bank of America)

  A: The decline was primarily due to improved national supplier fill rates. Sysco is focused on providing value to customers and increasing Sysco brand penetration through trade management deals and product innovation. (Kevin Hourican)