Release Date: October 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sysco Corp (SYY, Financial) reported a total revenue of $20.5 billion for the first quarter, marking a growth of 4.4%.
- The international business segment showed strong performance with a 3% increase in top-line growth and a 12% rise in adjusted operating income.
- Sysco Corp (SYY) reconfirmed its full-year guidance, indicating confidence in meeting its financial targets.
- The company is seeing strong performance in non-restaurant sectors, particularly in the business and industry sector.
- Sysco Corp (SYY) is actively expanding its specialty platform, which is expected to contribute significantly to future growth.
Negative Points
- Foot traffic to restaurants was down 3.6% for the first quarter, impacting overall sales.
- Gross profit margin decreased by 27 basis points year-over-year, primarily due to customer mix and strategic sourcing timing.
- Local case growth was only 0.2% for the quarter, indicating challenges in expanding local business.
- There were transitional issues with the new sales consultant compensation model, affecting short-term performance.
- Sysco Corp (SYY) experienced a nominal decline in Sysco brand penetration year-over-year.
Q & A Highlights
Q: Can you elaborate on the stronger exit trends in September and the impact of the compensation change on local case growth?
A: Kevin Kim, Vice President of Investor Relations, explained that the EPS growth rate is expected to be slightly higher in Q2 compared to Q1, with further improvement in the second half of the year. The October traffic trends are similar to September, with stronger performance in the latter half of October. The new compensation model is expected to positively impact local case growth, with increased customer count and team selling activities contributing to this improvement.
Q: What are the factors affecting the US gross margin, and are there external dynamics impacting it?
A: Kevin Kim noted that the gross margin decline is primarily due to customer mix, strategic sourcing timing, and Sysco brand penetration. The national sales growth has a downward impact on margin percentage, but this is expected to decrease as local sales improve. Strategic sourcing efforts are expected to contribute positively to margins in the second half of the year. Sysco brand penetration is slightly down due to improved fill rates from national brand suppliers, but efforts are underway to improve this.
Q: How has the sales force compensation change affected turnover, and is the 20% sales force growth target still valid?
A: Kevin Kim stated that the compensation change led to some turnover in July, which was anticipated. The retention of sales colleagues has stabilized, and top performers are benefiting from the new pay-for-performance model. The company remains committed to growing the sales force by 20% over the next few years, with a focus on disciplined hiring based on market conditions and volume expectations.
Q: How is the sales force adapting to territory reductions and team-based selling?
A: Kevin Kim explained that new hires are being added to high-growth markets, and the impact on existing colleagues is minimal. The focus is on growing customer count and book of business without increasing territory size for existing colleagues. The team-based selling approach is progressing well, with collaboration between broadline and specialty sales teams to increase customer engagement and sales.
Q: What gives you confidence in achieving the fiscal 2025 guidance, and what are the risks to local case growth acceleration?
A: Kevin Kim expressed confidence in achieving the fiscal 2025 guidance based on three main levers: volume growth, gross margin, and expense management. Key regions are already meeting volume growth targets, and the new compensation model is expected to be a tailwind. The company is making steady progress in team-based selling and customer count growth. The main risk to local case growth acceleration would be if these initiatives do not play out as expected, but the company is confident in its strategies and execution.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
