UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
Form 10-Q | | | | | |
(Mark One) | |
☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended October 2, 20211, 2022
OR | | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 1-6544
________________
Sysco Corporation
(Exact name of registrant as specified in its charter) | | | | | | | | | | | |
Delaware | 74-1648137 |
(State or other jurisdiction of incorporation or organization) | (IRS employer identification number) |
1390 Enclave Parkway, Houston, Texas 77077-2099
(Address of principal executive offices and zip code)
Registrant’s Telephone Number, Including Area Code:
(281) 584-1390
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | | | | | | | |
Title of each class | | Trading Symbol | | Name of each exchange on which registered |
Common stock, $1.00 Par Value | | SYY | | New York Stock Exchange |
1.25% Notes due June 2023 | | SYY 23 | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
Large Accelerated Filer | ☑ | Accelerated Filer | ☐ |
Non-accelerated Filer | ☐ | Smaller Reporting Company | ☐ |
(Do not check if a smaller reporting company) | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
512,656,343506,767,526 shares of common stock were outstanding as of October 22, 2021.14, 2022.
TABLE OF CONTENTS
| | | | | | | | |
| | |
| PART I – FINANCIAL INFORMATION | Page No. |
| | |
| | |
| | |
| | |
| PART II – OTHER INFORMATION | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share data) | | | Oct. 2, 2021 | | Jul. 3, 2021 | | | Oct. 1, 2022 | | Jul. 2, 2022 | |
| | (unaudited) | | | | | (unaudited) | | | |
ASSETS | ASSETS | ASSETS |
Current assets | Current assets | | | Current assets | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 2,067,873 | | | $ | 3,007,123 | | | Cash and cash equivalents | $ | 437,670 | | | $ | 867,086 | | |
Accounts receivable, less allowances of $126,759 and $117,695 | 4,309,883 | | | 3,781,510 | | | |
Accounts receivable, less allowances of $74,002 and $70,790 | | Accounts receivable, less allowances of $74,002 and $70,790 | 5,336,857 | | | 4,838,912 | | |
Inventories | Inventories | 4,054,844 | | | 3,695,219 | | | Inventories | 4,682,609 | | | 4,437,498 | | |
| Prepaid expenses and other current assets | Prepaid expenses and other current assets | 255,588 | | | 240,956 | | | Prepaid expenses and other current assets | 310,131 | | | 303,789 | | |
| Income tax receivable | Income tax receivable | — | | | 8,759 | | | Income tax receivable | — | | | 35,934 | | |
Total current assets | Total current assets | 10,688,188 | | | 10,733,567 | | | Total current assets | 10,767,267 | | | 10,483,219 | | |
Plant and equipment at cost, less accumulated depreciation | Plant and equipment at cost, less accumulated depreciation | 4,343,263 | | | 4,326,063 | | | Plant and equipment at cost, less accumulated depreciation | 4,462,608 | | | 4,456,420 | | |
Other long-term assets | Other long-term assets | | | Other long-term assets | | |
Goodwill | Goodwill | 4,402,354 | | | 3,944,139 | | | Goodwill | 4,434,476 | | | 4,542,315 | | |
Intangibles, less amortization | Intangibles, less amortization | 927,966 | | | 746,073 | | | Intangibles, less amortization | 906,385 | | | 952,683 | | |
| Deferred income taxes | Deferred income taxes | 360,193 | | | 352,523 | | | Deferred income taxes | 382,778 | | | 377,604 | | |
Operating lease right-of-use assets, net | Operating lease right-of-use assets, net | 750,675 | | | 709,163 | | | Operating lease right-of-use assets, net | 704,664 | | | 723,297 | | |
Other assets | Other assets | 630,227 | | | 602,011 | | | Other assets | 552,765 | | | 550,150 | | |
Total other long-term assets | Total other long-term assets | 7,071,415 | | | 6,353,909 | | | Total other long-term assets | 6,981,068 | | | 7,146,049 | | |
Total assets | Total assets | $ | 22,102,866 | | | $ | 21,413,539 | | | Total assets | $ | 22,210,943 | | | $ | 22,085,688 | | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | LIABILITIES AND SHAREHOLDERS’ EQUITY | LIABILITIES AND SHAREHOLDERS’ EQUITY |
Current liabilities | Current liabilities | | | Current liabilities | | |
Notes payable | $ | 8,909 | | | $ | 8,782 | | | |
| Accounts payable | Accounts payable | 5,238,313 | | | 4,884,781 | | | Accounts payable | $ | 6,018,227 | | | $ | 5,752,958 | | |
Accrued expenses | Accrued expenses | 1,809,459 | | | 1,814,837 | | | Accrued expenses | 2,177,793 | | | 2,270,753 | | |
Accrued income taxes | Accrued income taxes | 83,141 | | | 22,644 | | | Accrued income taxes | 113,388 | | | 40,042 | | |
Current operating lease liabilities | Current operating lease liabilities | 106,927 | | | 102,659 | | | Current operating lease liabilities | 94,027 | | | 105,690 | | |
Current maturities of long-term debt | Current maturities of long-term debt | 491,233 | | | 486,141 | | | Current maturities of long-term debt | 555,829 | | | 580,611 | | |
Total current liabilities | Total current liabilities | 7,737,982 | | | 7,319,844 | | | Total current liabilities | 8,959,264 | | | 8,750,054 | | |
Long-term liabilities | Long-term liabilities | | | Long-term liabilities | | |
Long-term debt | Long-term debt | 10,645,443 | | | 10,588,184 | | | Long-term debt | 10,263,331 | | | 10,066,931 | | |
Deferred income taxes | Deferred income taxes | 171,653 | | | 147,066 | | | Deferred income taxes | 241,748 | | | 250,171 | | |
Long-term operating lease liabilities | Long-term operating lease liabilities | 672,465 | | | 634,481 | | | Long-term operating lease liabilities | 628,861 | | | 636,417 | | |
Other long-term liabilities | Other long-term liabilities | 1,167,875 | | | 1,136,480 | | | Other long-term liabilities | 971,190 | | | 967,907 | | |
Total long-term liabilities | Total long-term liabilities | 12,657,436 | | | 12,506,211 | | | Total long-term liabilities | 12,105,130 | | | 11,921,426 | | |
| Noncontrolling interest | Noncontrolling interest | 34,156 | | | 34,588 | | | Noncontrolling interest | 31,208 | | | 31,948 | | |
Shareholders’ equity | Shareholders’ equity | | | Shareholders’ equity | | |
Preferred stock, par value $1 per share Authorized 1,500,000 shares, issued none | Preferred stock, par value $1 per share Authorized 1,500,000 shares, issued none | — | | | — | | | Preferred stock, par value $1 per share Authorized 1,500,000 shares, issued none | — | | | — | | |
Common stock, par value $1 per share Authorized 2,000,000,000 shares, issued 765,174,900 shares | Common stock, par value $1 per share Authorized 2,000,000,000 shares, issued 765,174,900 shares | 765,175 | | | 765,175 | | | Common stock, par value $1 per share Authorized 2,000,000,000 shares, issued 765,174,900 shares | 765,175 | | | 765,175 | | |
Paid-in capital | Paid-in capital | 1,655,110 | | | 1,619,995 | | | Paid-in capital | 1,754,409 | | | 1,766,305 | | |
Retained earnings | Retained earnings | 10,288,291 | | | 10,151,706 | | | Retained earnings | 10,757,136 | | | 10,539,722 | | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (1,217,937) | | | (1,148,764) | | | Accumulated other comprehensive loss | (1,711,325) | | | (1,482,054) | | |
Treasury stock at cost, 252,825,080 and 253,342,595 shares | (9,817,347) | | | (9,835,216) | | | |
Treasury stock at cost, 258,414,989 and 256,531,543 shares | | Treasury stock at cost, 258,414,989 and 256,531,543 shares | (10,450,054) | | | (10,206,888) | | |
Total shareholders’ equity | Total shareholders’ equity | 1,673,292 | | | 1,552,896 | | | Total shareholders’ equity | 1,115,341 | | | 1,382,260 | | |
Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | $ | 22,102,866 | | | $ | 21,413,539 | | | Total liabilities and shareholders’ equity | $ | 22,210,943 | | | $ | 22,085,688 | | |
Note: The July 3, 20212, 2022 balance sheet has been derived from the audited financial statements at that date.
See Notes to Consolidated Financial Statements
Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED RESULTS OF OPERATIONS (Unaudited)
(In thousands, except for share and per share data) | | | 13-Week Period Ended | | | 13-Week Period Ended | |
| | Oct. 2, 2021 | | Sep. 26, 2020 | | | Oct. 1, 2022 | | Oct. 2, 2021 | |
Sales | Sales | $ | 16,456,546 | | | $ | 11,777,379 | | | Sales | $ | 19,126,830 | | | $ | 16,456,546 | | |
Cost of sales | Cost of sales | 13,484,838 | | | 9,557,534 | | | Cost of sales | 15,637,975 | | | 13,484,838 | | |
Gross profit | Gross profit | 2,971,708 | | | 2,219,845 | | | Gross profit | 3,488,855 | | | 2,971,708 | | |
Operating expenses | Operating expenses | 2,340,026 | | | 1,800,266 | | | Operating expenses | 2,754,522 | | | 2,340,026 | | |
Operating income | Operating income | 631,682 | | | 419,579 | | | Operating income | 734,333 | | | 631,682 | | |
Interest expense | Interest expense | 128,214 | | | 146,717 | | | Interest expense | 124,150 | | | 128,214 | | |
Other (income) expense, net | (3,252) | | | 14,124 | | | |
Other expense (income), net | | Other expense (income), net | 15,281 | | | (3,252) | | |
Earnings before income taxes | Earnings before income taxes | 506,720 | | | 258,738 | | | Earnings before income taxes | 594,902 | | | 506,720 | | |
Income taxes | Income taxes | 128,707 | | | 41,838 | | | Income taxes | 129,334 | | | 128,707 | | |
Net earnings | Net earnings | $ | 378,013 | | | $ | 216,900 | | | Net earnings | $ | 465,568 | | | $ | 378,013 | | |
| | | | | | | | | | |
Net earnings: | Net earnings: | | | | | Net earnings: | | | | |
Basic earnings per share | Basic earnings per share | $ | 0.74 | | | $ | 0.43 | | | Basic earnings per share | $ | 0.92 | | | $ | 0.74 | | |
Diluted earnings per share | Diluted earnings per share | 0.73 | | | 0.42 | | | Diluted earnings per share | 0.91 | | | 0.73 | | |
| Average shares outstanding | Average shares outstanding | 512,516,067 | | | 509,127,405 | | | Average shares outstanding | 507,578,576 | | | 512,516,067 | | |
Diluted shares outstanding | Diluted shares outstanding | 515,782,928 | | | 510,738,760 | | | Diluted shares outstanding | 510,383,149 | | | 515,782,928 | | |
See Notes to Consolidated Financial Statements
Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(In thousands) | | | 13-Week Period Ended | | | 13-Week Period Ended | |
| | Oct. 2, 2021 | | Sep. 26, 2020 | | | Oct. 1, 2022 | | Oct. 2, 2021 | |
Net earnings | Net earnings | $ | 378,013 | | | $ | 216,900 | | | Net earnings | $ | 465,568 | | | $ | 378,013 | | |
Other comprehensive (loss) income: | Other comprehensive (loss) income: | | | Other comprehensive (loss) income: | | |
Foreign currency translation adjustment | Foreign currency translation adjustment | (87,194) | | | 113,140 | | | Foreign currency translation adjustment | (232,182) | | | (87,194) | | |
Items presented net of tax: | Items presented net of tax: | | | Items presented net of tax: | | |
Amortization of cash flow hedges | Amortization of cash flow hedges | 2,155 | | | 2,155 | | | Amortization of cash flow hedges | 2,155 | | | 2,155 | | |
Change in net investment hedges | Change in net investment hedges | 10,165 | | | (11,261) | | | Change in net investment hedges | 23,509 | | | 10,165 | | |
Change in cash flow hedges | Change in cash flow hedges | (429) | | | (12,967) | | | Change in cash flow hedges | (26,390) | | | (429) | | |
| Amortization of prior service cost | Amortization of prior service cost | 74 | | | 137 | | | Amortization of prior service cost | 74 | | | 74 | | |
Amortization of actuarial gain | 6,367 | | | 7,765 | | | |
Amortization of actuarial loss | | Amortization of actuarial loss | 6,891 | | | 6,367 | | |
| Change in marketable securities | Change in marketable securities | (311) | | | (474) | | | Change in marketable securities | (3,328) | | | (311) | | |
Total other comprehensive (loss) income | (69,173) | | | 98,495 | | | |
Total other comprehensive loss | | Total other comprehensive loss | (229,271) | | | (69,173) | | |
Comprehensive income | Comprehensive income | $ | 308,840 | | | $ | 315,395 | | | Comprehensive income | $ | 236,297 | | | $ | 308,840 | | |
|
See Notes to Consolidated Financial Statements
Sysco Corporation and its Consolidated Subsidiaries
CHANGES IN CONSOLIDATED SHAREHOLDERS’ EQUITY (Unaudited)
(In thousands, except for share data)
| | | Accumulated Other Comprehensive Loss | | | Accumulated Other Comprehensive Loss | |
| | Common Stock | | Paid-in Capital | | Retained Earnings | | Treasury Stock | | | | Common Stock | | Paid-in Capital | | Retained Earnings | | Treasury Stock | | |
| | Shares | | Amount | | Shares | Accumulated Other Comprehensive Loss | | Amounts | | Totals | | Shares | | Amount | | Shares | Accumulated Other Comprehensive Loss | | Amounts | | Totals |
Balance as of July 3, 2021 | 765,174,900 | | | $ | 765,175 | | | $ | 1,619,995 | | | $ | 10,151,706 | | | $ | (1,148,764) | | | $ | (9,835,216) | | | $ | 1,552,896 | | |
Balance as of July 2, 2022 | | Balance as of July 2, 2022 | 765,174,900 | | | $ | 765,175 | | | $ | 1,766,305 | | | $ | 10,539,722 | | | $ | (1,482,054) | | | $ | (10,206,888) | | | $ | 1,382,260 | |
Net earnings | Net earnings | | | | | | | 378,013 | | | | | | | | | 378,013 | | Net earnings | | | | | | | 465,568 | | | | | | | | | 465,568 | |
| Foreign currency translation adjustment | Foreign currency translation adjustment | | (87,194) | | | (87,194) | | Foreign currency translation adjustment | | (232,182) | | | (232,182) | |
Amortization of cash flow hedges, net of tax | Amortization of cash flow hedges, net of tax | | 2,155 | | | 2,155 | | Amortization of cash flow hedges, net of tax | | 2,155 | | | 2,155 | |
Change in cash flow hedges, net of tax | Change in cash flow hedges, net of tax | | (429) | | | (429) | | Change in cash flow hedges, net of tax | | (26,390) | | | (26,390) | |
Change in net investment hedges, net of tax | Change in net investment hedges, net of tax | | 10,165 | | | 10,165 | | Change in net investment hedges, net of tax | | 23,509 | | | 23,509 | |
| Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax | Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax | | 6,441 | | | 6,441 | | Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax | | 6,965 | | | 6,965 | |
Change in marketable securities, net of tax | Change in marketable securities, net of tax | | (311) | | | (311) | | Change in marketable securities, net of tax | | (3,328) | | | (3,328) | |
| Dividends declared ($0.47 per common share) | | (241,428) | | | (241,428) | | |
| Dividends declared ($0.49 per common share) | | Dividends declared ($0.49 per common share) | | (248,154) | | | (248,154) | |
Treasury stock purchases | | Treasury stock purchases | | 3,099,268 | | | (267,727) | | | (267,727) | |
| Share-based compensation awards | Share-based compensation awards | | 35,115 | | | (517,515) | | | 17,869 | | | 52,984 | | Share-based compensation awards | | (11,896) | | | (1,215,822) | | | 24,561 | | | 12,665 | |
Balance as of October 2, 2021 | 765,174,900 | | | $ | 765,175 | | | $ | 1,655,110 | | | $ | 10,288,291 | | | $ | (1,217,937) | | | 252,825,080 | | | $ | (9,817,347) | | | $ | 1,673,292 | | |
Balance as of October 1, 2022 | | Balance as of October 1, 2022 | 765,174,900 | | | $ | 765,175 | | | $ | 1,754,409 | | | $ | 10,757,136 | | | $ | (1,711,325) | | | 258,414,989 | | | $ | (10,450,054) | | | $ | 1,115,341 | |
| | | Accumulated Other Comprehensive Loss | | | Accumulated Other Comprehensive Loss | |
| | Common Stock | | Paid-in Capital | | Retained Earnings | | Treasury Stock | | | | Common Stock | | Paid-in Capital | | Retained Earnings | | Treasury Stock | | |
| | Shares | | Amount | | Shares | Accumulated Other Comprehensive Loss | | Amounts | | Totals | | Shares | | Amount | | Shares | Accumulated Other Comprehensive Loss | | Amounts | | Totals |
Balance as of June 27, 2020 | 765,174,900 | | | $ | 765,175 | | | $ | 1,506,901 | | | $ | 10,563,008 | | | $ | (1,710,881) | | | $ | (9,965,590) | | | $ | 1,158,613 | | |
Balance as of July 3, 2021 | | Balance as of July 3, 2021 | 765,174,900 | | | $ | 765,175 | | | $ | 1,619,995 | | | $ | 10,151,706 | | | $ | (1,148,764) | | | $ | (9,835,216) | | | $ | 1,552,896 | |
Net earnings | Net earnings | | | | | | | 216,900 | | | | | | | | | 216,900 | | Net earnings | | | | | | | 378,013 | | | | | | | | | 378,013 | |
Foreign currency translation adjustment | Foreign currency translation adjustment | | 113,140 | | | 113,140 | | Foreign currency translation adjustment | | (87,194) | | | (87,194) | |
Amortization of cash flow hedges, net of tax | Amortization of cash flow hedges, net of tax | | 2,155 | | | 2,155 | | Amortization of cash flow hedges, net of tax | | 2,155 | | | 2,155 | |
Change in cash flow hedges, net of tax | Change in cash flow hedges, net of tax | | (12,967) | | | (12,967) | | Change in cash flow hedges, net of tax | | (429) | | | (429) | |
Change in net investment hedges, net of tax | Change in net investment hedges, net of tax | | (11,261) | | | (11,261) | | Change in net investment hedges, net of tax | | 10,165 | | | 10,165 | |
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax | Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax | | 7,902 | | | 7,902 | | Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax | | 6,441 | | | 6,441 | |
Change in marketable securities, net of tax | Change in marketable securities, net of tax | | (474) | | | (474) | | Change in marketable securities, net of tax | | (311) | | | (311) | |
Adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), net of tax | | (2,068) | | | (2,068) | | |
Dividends declared ($0.45 per common share) | | (231,242) | | | (231,242) | | |
| Dividends declared ($0.47 per common share) | | Dividends declared ($0.47 per common share) | | (241,428) | | | (241,428) | |
| Share-based compensation awards | Share-based compensation awards | | 27,380 | | | (840,053) | | | 31,933 | | | 59,313 | | Share-based compensation awards | | 35,115 | | | (517,515) | | | 17,869 | | | 52,984 | |
Balance as of September 26, 2020 | 765,174,900 | | | $ | 765,175 | | | $ | 1,534,281 | | | $ | 10,546,598 | | | $ | (1,612,386) | | | 256,075,772 | | | $ | (9,933,657) | | | $ | 1,300,011 | | |
Balance as of October 2, 2021 | | Balance as of October 2, 2021 | 765,174,900 | | | $ | 765,175 | | | $ | 1,655,110 | | | $ | 10,288,291 | | | $ | (1,217,937) | | | 252,825,080 | | | $ | (9,817,347) | | | $ | 1,673,292 | |
See Notes to Consolidated Financial Statements
Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED CASH FLOWS (Unaudited)
(In thousands) | | | 13-Week Period Ended | | 13-Week Period Ended |
| | Oct. 2, 2021 | | Sep. 26, 2020 | | Oct. 1, 2022 | | Oct. 2, 2021 |
Cash flows from operating activities: | Cash flows from operating activities: | | | | Cash flows from operating activities: | | | |
Net earnings | Net earnings | $ | 378,013 | | | $ | 216,900 | | Net earnings | $ | 465,568 | | | $ | 378,013 | |
Adjustments to reconcile net earnings to cash provided by operating activities: | Adjustments to reconcile net earnings to cash provided by operating activities: | | Adjustments to reconcile net earnings to cash provided by operating activities: | |
Share-based compensation expense | Share-based compensation expense | 29,313 | | | 25,834 | | Share-based compensation expense | 27,224 | | | 29,313 | |
Depreciation and amortization | Depreciation and amortization | 186,466 | | | 180,520 | | Depreciation and amortization | 188,924 | | | 186,466 | |
Operating lease asset amortization | Operating lease asset amortization | 28,221 | | | 27,379 | | Operating lease asset amortization | 27,542 | | | 28,221 | |
Amortization of debt issuance and other debt-related costs | Amortization of debt issuance and other debt-related costs | 5,577 | | | 6,554 | | Amortization of debt issuance and other debt-related costs | 5,435 | | | 5,577 | |
| Deferred income taxes | Deferred income taxes | (30,452) | | | (53,579) | | Deferred income taxes | (31,226) | | | (30,452) | |
Provision for losses on receivables | Provision for losses on receivables | 2,097 | | | (77,790) | | Provision for losses on receivables | 3,865 | | | 2,097 | |
Loss on sale of business | — | | | 12,043 | | |
| Other non-cash items | Other non-cash items | (201) | | | (6,641) | | Other non-cash items | 5,011 | | | (201) | |
Additional changes in certain assets and liabilities, net of effect of businesses acquired: | Additional changes in certain assets and liabilities, net of effect of businesses acquired: | | Additional changes in certain assets and liabilities, net of effect of businesses acquired: | |
Increase in receivables | Increase in receivables | (478,671) | | | (111,261) | | Increase in receivables | (576,585) | | | (478,671) | |
Increase in inventories | Increase in inventories | (294,517) | | | (23,320) | | Increase in inventories | (283,252) | | | (294,517) | |
(Increase) decrease in prepaid expenses and other current assets | (12,528) | | | 5,577 | | |
Increase in prepaid expenses and other current assets | | Increase in prepaid expenses and other current assets | (28,372) | | | (12,528) | |
Increase in accounts payable | Increase in accounts payable | 329,523 | | | 577,013 | | Increase in accounts payable | 288,517 | | | 329,523 | |
(Decrease) increase in accrued expenses | (103,483) | | | 56,042 | | |
Decrease in accrued expenses | | Decrease in accrued expenses | (10,893) | | | (103,483) | |
Decrease in operating lease liabilities | Decrease in operating lease liabilities | (34,146) | | | (31,167) | | Decrease in operating lease liabilities | (33,319) | | | (34,146) | |
Increase in accrued income taxes | Increase in accrued income taxes | 69,256 | | | 98,712 | | Increase in accrued income taxes | 109,280 | | | 69,256 | |
(Increase) decrease in other assets | (9,345) | | | 7,187 | | |
Increase in other long-term liabilities | 45,689 | | | 20,911 | | |
Decrease (increase) in other assets | | Decrease (increase) in other assets | 17,627 | | | (9,345) | |
(Decrease) increase in other long-term liabilities | | (Decrease) increase in other long-term liabilities | (16,740) | | | 45,689 | |
| Net cash provided by operating activities | Net cash provided by operating activities | 110,812 | | | 930,914 | | Net cash provided by operating activities | 158,606 | | | 110,812 | |
Cash flows from investing activities: | Cash flows from investing activities: | | Cash flows from investing activities: | |
Additions to plant and equipment | Additions to plant and equipment | (85,019) | | | (75,539) | | Additions to plant and equipment | (167,260) | | | (85,019) | |
Proceeds from sales of plant and equipment | Proceeds from sales of plant and equipment | 5,627 | | | 7,064 | | Proceeds from sales of plant and equipment | 22,448 | | | 5,627 | |
Acquisition of businesses, net of cash acquired | Acquisition of businesses, net of cash acquired | (714,010) | | | — | | Acquisition of businesses, net of cash acquired | (32,651) | | | (714,010) | |
Purchase of marketable securities | Purchase of marketable securities | (9,925) | | | (26,557) | | Purchase of marketable securities | (3,296) | | | (9,925) | |
Proceeds from sales of marketable securities | Proceeds from sales of marketable securities | 8,700 | | | 12,166 | | Proceeds from sales of marketable securities | 2,650 | | | 8,700 | |
Other investing activities | Other investing activities | 6,022 | | | — | | Other investing activities | 3,274 | | | 6,022 | |
| Net cash used for investing activities | Net cash used for investing activities | (788,605) | | | (82,866) | | Net cash used for investing activities | (174,835) | | | (788,605) | |
Cash flows from financing activities: | Cash flows from financing activities: | | Cash flows from financing activities: | |
Bank and commercial paper borrowings, net | Bank and commercial paper borrowings, net | — | | | 3,110 | | Bank and commercial paper borrowings, net | 97,000 | | | — | |
Other debt borrowings | 3 | | | 6,159 | | |
Other debt repayments | (10,051) | | | (762,858) | | |
Other debt borrowings including senior notes | | Other debt borrowings including senior notes | 59,063 | | | 3 | |
Other debt repayments including senior notes | | Other debt repayments including senior notes | (18,104) | | | (10,051) | |
| Proceeds from stock option exercises | Proceeds from stock option exercises | 17,881 | | | 31,933 | | Proceeds from stock option exercises | 24,561 | | | 17,881 | |
| Stock repurchases | | Stock repurchases | (267,727) | | | — | |
Dividends paid | Dividends paid | (240,561) | | | (228,714) | | Dividends paid | (249,294) | | | (240,561) | |
| Other financing activities | Other financing activities | (5,003) | | | (457) | | Other financing activities | (45,851) | | | (5,003) | |
Net cash used for financing activities | Net cash used for financing activities | (237,731) | | | (950,827) | | Net cash used for financing activities | (400,352) | | | (237,731) | |
Effect of exchange rates on cash, cash equivalents and restricted cash | Effect of exchange rates on cash, cash equivalents and restricted cash | (9,355) | | | 17,095 | | Effect of exchange rates on cash, cash equivalents and restricted cash | (11,369) | | | (9,355) | |
Net decrease in cash, cash equivalents and restricted cash | Net decrease in cash, cash equivalents and restricted cash | (924,879) | | | (85,684) | | Net decrease in cash, cash equivalents and restricted cash | (427,950) | | | (924,879) | |
Cash, cash equivalents and restricted cash at beginning of period | Cash, cash equivalents and restricted cash at beginning of period | 3,037,100 | | | 6,095,570 | | Cash, cash equivalents and restricted cash at beginning of period | 931,376 | | | 3,037,100 | |
Cash, cash equivalents and restricted cash at end of period | Cash, cash equivalents and restricted cash at end of period | $ | 2,112,221 | | | $ | 6,009,886 | | Cash, cash equivalents and restricted cash at end of period | $ | 503,426 | | | $ | 2,112,221 | |
Supplemental disclosures of cash flow information: | Supplemental disclosures of cash flow information: | | | | Supplemental disclosures of cash flow information: | | | |
Cash paid during the period for: | Cash paid during the period for: | | Cash paid during the period for: | |
Interest | Interest | $ | 225,031 | | | $ | 104,879 | | Interest | $ | 84,010 | | | $ | 225,031 | |
Income taxes, net of refunds | Income taxes, net of refunds | 76,712 | | | 6,851 | | Income taxes, net of refunds | 47,985 | | | 76,712 | |
See Notes to Consolidated Financial Statements
Sysco Corporation and its Consolidated Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Unless this Form 10-Q indicates otherwise or the context otherwise requires, the terms “we,” “our,” “us,” “Sysco,” or “the company” as used in this Form 10-Q refer to Sysco Corporation together with its consolidated subsidiaries and divisions.
1. BASIS OF PRESENTATION
The consolidated financial statements have been prepared by the company, without audit. The financial statements include consolidated balance sheets, consolidated results of operations, consolidated statements of comprehensive income (loss), changes in consolidated shareholders’ equity and consolidated cash flows. In the opinion of management, all adjustments, which consist of normal recurring adjustments, except as otherwise disclosed, necessary to present fairly the financial position, results of operations, comprehensive income (loss), cash flows and changes in shareholders’ equity for all periods presented have been made.
These financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended July 3, 2021.2, 2022. Certain footnote disclosures included in annual financial statements prepared in accordance with generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to applicable rules and regulations for interim financial statements.
Supplemental Cash Flow Information
The following table sets forth the company’s reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the amounts shown in the consolidated statement of cash flows:
| | | Oct. 2, 2021 | | Sep. 26, 2020 | | Oct. 1, 2022 | | Oct. 2, 2021 |
| | (In thousands) | | (In thousands) |
Cash and cash equivalents | Cash and cash equivalents | $ | 2,067,873 | | | $ | 5,985,532 | | Cash and cash equivalents | $ | 437,670 | | | $ | 2,067,873 | |
Restricted cash (1) | Restricted cash (1) | 44,348 | | | 24,354 | | Restricted cash (1) | 65,756 | | | 44,348 | |
Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows | Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows | $ | 2,112,221 | | | $ | 6,009,886 | | Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows | $ | 503,426 | | | $ | 2,112,221 | |
(1)Restricted cash primarily represents cash and cash equivalents of Sysco’s wholly owned captive insurance subsidiary, restricted for use to secure the insurer’s obligations for workers’ compensation, general liability and auto liability programs. Restricted cash is located within other assets in each consolidated balance sheet. | | | | | |
(1) | Restricted cash primarily represents cash and cash equivalents of Sysco’s wholly owned captive insurance subsidiary, restricted for use to secure the insurer’s obligations for workers’ compensation, general liability and auto liability programs. Restricted cash is located within other assets in each consolidated balance sheet. |
2.NEW ACCOUNTING STANDARDS
Liabilities – Supplier Financing Programs
In September 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2022-04, Liabilities—Supplier Finance Programs, Subtopic 405-50, that requires entities to disclose in the annual financial statements the key terms of supplier finance programs they use in connection with the purchase of goods and services, along with information about their obligations under these programs, including a rollforward of those obligations. Additionally, the guidance requires disclosure of the outstanding amount of the obligations as of the end of each interim period. The guidance does not affect the recognition, measurement, or financial statement presentation of supplier finance program obligations.
The guidance is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2022, which is the first quarter of fiscal 2024 for Sysco, except for the rollforward requirement, which is effective annually for fiscal years beginning after December 15, 2023, which is fiscal year 2025 for Sysco. Early adoption is permitted.
The guidance requires retrospective application to all periods in which a balance sheet is presented, except for the rollforward requirement, which will be applied prospectively. The company is currently reviewing the provisions of the new standard.
3. REVENUE
The company recognizes revenues when its performance obligations are satisfied in an amount that reflects the consideration Sysco expects to be entitled to receive in exchange for those goods and services. Customer receivables, which are included in accounts receivable, less allowances in the consolidated balance sheet, were $4.0$4.9 billion and $3.5$4.6 billion as of October 2, 20211, 2022 and July 3, 2021,2, 2022, respectively.
Sysco has certain customer contracts in which upfront monies are paid to its customers. These payments have become industry practice and are not related to financing of the customer’s business. They are not associated with any distinct good or service to be received from the customer and, therefore, are treated as a reduction of transaction prices. All upfront payments are capitalized in other assets and amortized over the life of the contract or the expected life of the relationship with the customer. As of October 2, 2021,1, 2022, Sysco’s contract assets were not significant. Sysco has no significant commissions paid that are directly attributable to obtaining a particular contract.
The following tables present our sales disaggregated by reportable segment and sales mix for the company’s principal product categories for the periods presented:
| | | 13-Week Period Ended Oct. 2, 2021 | | 13-Week Period Ended Oct. 1, 2022 |
| | US Foodservice Operations | | International Foodservice Operations | | SYGMA | | Other | | Total | | US Foodservice Operations | | International Foodservice Operations | | SYGMA | | Other | | Total |
| | (In thousands) | | (In thousands) |
Principal Product Categories | Principal Product Categories | | Principal Product Categories | |
Canned and dry products | | Canned and dry products | | $ | 2,577,255 | | | $ | 691,374 | | | $ | 236,168 | | | $ | 2,068 | | | $ | 3,506,865 | |
Fresh and frozen meats | Fresh and frozen meats | | $ | 2,444,461 | | | $ | 417,171 | | | $ | 474,656 | | | $ | — | | | $ | 3,336,288 | | Fresh and frozen meats | | 2,465,450 | | | 453,364 | | | 463,440 | | | — | | | 3,382,254 | |
Canned and dry products | | 2,076,779 | | | 581,895 | | | 137,597 | | | — | | | 2,796,271 | | |
Frozen fruits, vegetables, bakery and other | Frozen fruits, vegetables, bakery and other | | 1,501,293 | | | 518,255 | | | 273,148 | | | — | | | 2,292,696 | | Frozen fruits, vegetables, bakery and other | | 1,843,464 | | | 580,032 | | | 309,197 | | | 149 | | | 2,732,842 | |
Poultry | Poultry | | 1,351,200 | | | 241,202 | | | 229,357 | | | — | | | 1,821,759 | | Poultry | | 1,574,251 | | | 292,849 | | | 277,464 | | | — | | | 2,144,564 | |
Dairy products | Dairy products | | 1,101,423 | | | 305,112 | | | 140,224 | | | — | | | 1,546,759 | | Dairy products | | 1,525,483 | | | 366,847 | | | 164,648 | | | — | | | 2,056,978 | |
Fresh produce | Fresh produce | | 986,998 | | | 218,963 | | | 66,563 | | | — | | | 1,272,524 | | Fresh produce | | 1,337,919 | | | 254,737 | | | 65,244 | | | — | | | 1,657,900 | |
Paper and disposables | Paper and disposables | | 911,350 | | | 119,740 | | | 188,243 | | | 15,499 | | | 1,234,832 | | Paper and disposables | | 1,022,904 | | | 144,068 | | | 209,358 | | | 15,056 | | | 1,391,386 | |
Seafood | Seafood | | 693,013 | | | 121,465 | | | 33,224 | | | — | | | 847,702 | | Seafood | | 638,405 | | | 121,201 | | | 40,124 | | | — | | | 799,730 | |
Beverage products | Beverage products | | 256,385 | | | 117,220 | | | 137,515 | | | 22,089 | | | 533,209 | | Beverage products | | 315,619 | | | 136,475 | | | 138,169 | | | 24,657 | | | 614,920 | |
Other (1) | | Other (1) | | 301,732 | | | 242,788 | | | 29,645 | | | 265,226 | | | 839,391 | |
| Other (1) | | 280,061 | | | 254,224 | | | 23,506 | | | 216,715 | | | 774,506 | | |
Total Sales | Total Sales | | $ | 11,602,963 | | | $ | 2,895,247 | | | $ | 1,704,033 | | | $ | 254,303 | | | $ | 16,456,546 | | Total Sales | | $ | 13,602,482 | | | $ | 3,283,735 | | | $ | 1,933,457 | | | $ | 307,156 | | | $ | 19,126,830 | |
| | | | | |
(1) | Other sales relate to non-food products, including textiles and amenities for our hotel supply business, equipment, and other janitorial products, medical supplies and smallwares. |
(1)Other sales relate to non-food products, including textiles and amenities for our hotel supply business, equipment, and other janitorial products, medical supplies and smallwares.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 13-Week Period Ended Sep. 26, 2020 |
| | US Foodservice Operations | | International Foodservice Operations | | SYGMA | | Other | | Total |
| | (In thousands) |
Principal Product Categories | | | | | | | | | | |
Fresh and frozen meats | | $ | 1,491,000 | | | $ | 314,172 | | | $ | 428,919 | | | $ | — | | | $ | 2,234,091 | |
Canned and dry products | | 1,391,218 | | | 391,578 | | | 29,573 | | | — | | | 1,812,369 | |
Frozen fruits, vegetables, bakery and other | | 1,048,833 | | | 426,565 | | | 256,787 | | | — | | | 1,732,185 | |
Poultry | | 830,775 | | | 179,026 | | | 216,635 | | | — | | | 1,226,436 | |
Dairy products | | 819,493 | | | 232,956 | | | 147,029 | | | — | | | 1,199,478 | |
Fresh produce | | 767,097 | | | 170,538 | | | 64,982 | | | — | | | 1,002,617 | |
Paper and disposables | | 677,321 | | | 90,709 | | | 179,174 | | | 11,638 | | | 958,842 | |
Seafood | | 481,717 | | | 88,567 | | | 25,096 | | | — | | | 595,380 | |
Beverage products | | 179,652 | | | 77,466 | | | 148,591 | | | 11,210 | | | 416,919 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Other (1) | | 234,427 | | | 192,116 | | | 27,362 | | | 145,157 | | | 599,062 | |
Total Sales | | $ | 7,921,533 | | | $ | 2,163,693 | | | $ | 1,524,148 | | | $ | 168,005 | | | $ | 11,777,379 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 13-Week Period Ended Oct. 2, 2021 |
| | US Foodservice Operations | | International Foodservice Operations | | SYGMA | | Other | | Total |
| | (In thousands) |
Principal Product Categories | | | | | | | | | | |
Fresh and frozen meats | | $ | 2,444,461 | | | $ | 417,171 | | | $ | 474,656 | | | $ | — | | | $ | 3,336,288 | |
Canned and dry products | | 2,076,779 | | | 581,895 | | | 137,597 | | | — | | | 2,796,271 | |
Frozen fruits, vegetables, bakery and other | | 1,501,293 | | | 518,255 | | | 273,148 | | | — | | | 2,292,696 | |
Poultry | | 1,351,200 | | | 241,202 | | | 229,357 | | | — | | | 1,821,759 | |
Dairy products | | 1,101,423 | | | 305,112 | | | 140,224 | | | — | | | 1,546,759 | |
Fresh produce | | 986,998 | | | 218,963 | | | 66,563 | | | — | | | 1,272,524 | |
Paper and disposables | | 911,350 | | | 119,740 | | | 188,243 | | | 15,499 | | | 1,234,832 | |
Seafood | | 693,013 | | | 121,465 | | | 33,224 | | | — | | | 847,702 | |
Beverage products | | 256,385 | | | 117,220 | | | 137,515 | | | 22,089 | | | 533,209 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Other (1) | | 280,061 | | | 254,224 | | | 23,506 | | | 216,715 | | | 774,506 | |
Total Sales | | $ | 11,602,963 | | | $ | 2,895,247 | | | $ | 1,704,033 | | | $ | 254,303 | | | $ | 16,456,546 | |
(1)Other sales relate to non-food products, including textiles and amenities for our hotel supply business, equipment and subscription sales for our former Sysco Labs business, and other janitorial products, medical supplies and smallwares. | | | | | |
(1) | Other sales relate to non-food products, including textiles and amenities for our hotel supply business, equipment, and other janitorial products, medical supplies and smallwares. |
3.4. ACQUISITIONS
During the first quarter13 weeks of fiscal 2022,2023, the company paid cash of $714.0$32.7 million for acquisitions. These acquisitions did not have a material effect on the company’s operating results, cash flows or financial position. Certain acquisitions involve contingent consideration that may include earnout agreements that are typically payable over periods of up to three years in the event that certain operating results are achieved. As of October 2, 2021,1, 2022, aggregate contingent consideration outstanding was $79.7$93.0 million, of which $78.1$89.0 million was recorded as earnout liabilities. Earnout liabilities are all measured using unobservable inputs that are considered a Level 3 fair value measurement.
Greco and Sons
On August 12, 2021, Sysco consummated its acquisition of Greco and Sons (Greco), a leading independent Italian specialty distributor in the United States, operating out of 10 distribution centers and servicing 22 geographies nationwide. Greco imports and distributes a full line of food and non-food products and manufactures specialty meat products. The acquisition also includes Bellissimo Foods Company, which distributes a broad selection of Italian and Mediterranean ingredients, including a proprietary branded line of products that are sold exclusively through the Bellissimo Foods Company distribution network, serving independent pizza and Italian restaurants. The purpose of the acquisition iswas to strengthen Sysco’s business within the Italian foodservice sector.
The assets, liabilities and operating resultsDuring the first quarter of Greco are reflected infiscal 2023, the company’s consolidated financial statements in accordance with ASC Topic No. 805, Business Combinations, commencing fromcompany completed the acquisition date. In certain circumstances, the purchase price allocations may be based upon preliminary estimates and assumptions. Accordingly, the allocations are subject to revision until Sysco receives final information and other analysis during the measurement period. These include items such as finalizing valuationdetermination of acquired tangible and intangible assets and related tax attributes.
The purchase price was allocated based on the company’s preliminary estimated fair value of the assets acquired and liabilities assumed, as follows:
| | | | | |
| Preliminary Purchase Price Allocation |
| (In millions) |
Accounts receivable, net | $ | 69 | |
Inventories | 79 | |
Plant and equipment | 24 | |
Other assets | 151 | |
Goodwill and other intangibles (1)
| 717 | |
Total assets | 1,040 | |
Accounts payable | (73) | |
Accrued expenses | (17) | |
Deferred tax liabilities | (35) | |
Other liabilities | (154) | |
Total consideration | $ | 761 | |
(1)assumed. The excess purchase price of $717.1 million was assigned to goodwill and intangibles, a portion of which is deductible for income tax purposes. Goodwill of $491.4 million has been assigned to the U.S. Foodservice Operations reportable segment. Intangible assets include customer relationships of $116.0 million with a weighted average life of 8 years and trade names of $109.7 million with a weighted average life of 15 years. Amortization expense is being recognized on a straight-line basis and for the firstcompany recorded certain measurement period adjustments during each quarter of fiscal 2022 was $3.0 million.
The quarter ended October 2, 2021 includes the resultsand fiscal 2023, none of operations of Greco for the period from August 12, 2021 to October 2, 2021. The resultswhich were notindividually or in aggregate material to the consolidated results of the company for the first quarter of fiscal 2022.company’s financial statements.
4.5. FAIR VALUE MEASUREMENTS
Sysco’s policy is to invest in only high-quality investments. The fair value of the company’s cash deposits and money market funds included in cash equivalents are valued using inputs that are considered a Level 1 measurement. Other cash equivalents, such as time deposits and highly liquid instruments with original maturities of three months or less, are valued using inputs that are considered a Level 2 measurement. The fair value of the company’s marketable securities are all measured using inputs that are considered a Level 2 measurement, as they rely on quoted prices in markets that are not actively traded or observable inputs over the full term of the asset. The location and the fair value of the company’s marketable securities in the consolidated balance sheet are disclosed in Note 5,6, “Marketable Securities.” The fair value of the company’s derivative instruments are all measured using inputs that are considered a Level 2 measurement, as they are not actively traded and are valued using pricing models that use observable market quotations. The location and the fair value of derivative assets and liabilities designated as hedges in the consolidated balance sheet are disclosed in Note 6,7, “Derivative Financial Instruments.”
The following tables present the company’s assets measured at fair value on a recurring basis as of October 2, 20211, 2022 and July 3, 2021:2, 2022:
| | | Assets Measured at Fair Value as of Oct. 2, 2021 | | Assets Measured at Fair Value as of Oct. 1, 2022 |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In thousands) | | (In thousands) |
Assets: | Assets: | | Assets: | |
Cash equivalents | Cash equivalents | | Cash equivalents | |
Cash and cash equivalents | Cash and cash equivalents | $ | 1,610,164 | | | $ | 400,003 | | | $ | — | | | $ | 2,010,167 | | Cash and cash equivalents | $ | 183,816 | | | $ | 5,008 | | | $ | — | | | $ | 188,824 | |
| Other assets (1) | Other assets (1) | 44,348 | | | — | | | — | | | 44,348 | | Other assets (1) | 65,756 | | | — | | | — | | | 65,756 | |
| Total assets at fair value | Total assets at fair value | $ | 1,654,512 | | | $ | 400,003 | | | $ | — | | | $ | 2,054,515 | | Total assets at fair value | $ | 249,572 | | | $ | 5,008 | | | $ | — | | | $ | 254,580 | |
|
(1)Represents restricted cash balance recorded within other assets in the consolidated balance sheet.
| | | | | | | | | | | | | | | | | | | | | | | |
| Assets Measured at Fair Value as of Jul. 3, 2021 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| (In thousands) |
Assets: | | | | | | | |
Cash equivalents | | | | | | | |
Cash and cash equivalents | $ | 2,805,961 | | | $ | 3 | | | $ | — | | | $ | 2,805,964 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Other assets (1) | 29,977 | | | — | | | — | | | 29,977 | |
| | | | | | | |
Total assets at fair value | $ | 2,835,938 | | | $ | 3 | | | $ | — | | | $ | 2,835,941 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
(1) | | | | | |
(1) | Represents restricted cash balance recorded within other assets in the consolidated balance sheet. |
| | | | | | | | | | | | | | | | | | | | | | | |
| Assets Measured at Fair Value as of Jul. 2, 2022 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| (In thousands) |
Assets: | | | | | | | |
Cash equivalents | | | | | | | |
Cash and cash equivalents | $ | 625,281 | | | $ | 10,007 | | | $ | — | | | $ | 635,288 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Other assets (1) | 64,290 | | | — | | | — | | | 64,290 | |
| | | | | | | |
Total assets at fair value | $ | 689,571 | | | $ | 10,007 | | | $ | — | | | $ | 699,578 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | |
(1) | Represents restricted cash balance recorded within other assets in the consolidated balance sheet. |
The carrying values of accounts receivable and accounts payable approximated their respective fair values due to their short-term maturities. The fair value of Sysco’s total debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the company for new debt with the same maturities as existing debt, and is considered a Level 2 measurement. The fair value of total debt was approximately $13.3$10.2 billion as of October 1, 2022 and $10.5 billion as of July 2, 2022, while the carrying value was $11.1$10.8 billion as of both October 1, 2022 and $10.6 billion as of July 2, 2021 and July 3, 2021.2022.
5.6. MARKETABLE SECURITIES
Sysco invests a portion of the assets held by its wholly owned captive insurance subsidiary in a restricted investment portfolio of marketable fixed income securities, which have been classified and accounted for as available-for-sale. The company includes fixed income securities maturing in less than twelve months within prepaid expenses and other current assets and includes fixed income securities maturing in more than twelve months within other assets in the accompanying consolidated balance sheets. The company records the amounts at fair market value, which is determined using quoted market prices at the end of the reporting period.
Unrealized gains and any portion of a security’s unrealized loss attributable to non-credit losses are recorded in accumulated other comprehensive loss. There were no significant credit losses recognized in the first quarter13 weeks of fiscal 2022.2023. The following table presents the company’s available-for-sale marketable securities as of October 2, 20211, 2022 and July 3, 2021:2, 2022:
| | | Oct. 2, 2021 | | Oct. 1, 2022 |
| | Amortized Cost Basis | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Short-Term Marketable Securities | | Long-Term Marketable Securities | | Amortized Cost Basis | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Short-Term Marketable Securities | | Long-Term Marketable Securities |
| | (In thousands) | | (In thousands) |
Fixed income securities: | Fixed income securities: | | Fixed income securities: | |
Corporate bonds | Corporate bonds | $ | 94,706 | | | $ | 2,311 | | | $ | (509) | | | $ | 96,508 | | | $ | 6,024 | | | $ | 90,484 | | Corporate bonds | $ | 96,457 | | | $ | — | | | $ | (8,615) | | | $ | 87,842 | | | $ | 5,955 | | | $ | 81,887 | |
Government bonds | Government bonds | 30,283 | | | 3,402 | | | (5) | | | 33,680 | | | — | | | 33,680 | | Government bonds | 29,997 | | | — | | | (1,885) | | | 28,112 | | | — | | | 28,112 | |
Total marketable securities | Total marketable securities | $ | 124,989 | | | $ | 5,713 | | | $ | (514) | | | $ | 130,188 | | | $ | 6,024 | | | $ | 124,164 | | Total marketable securities | $ | 126,454 | | | $ | — | | | $ | (10,500) | | | $ | 115,954 | | | $ | 5,955 | | | $ | 109,999 | |
| | | Jul. 3, 2021 | | Jul. 2, 2022 |
| | Amortized Cost Basis | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Short-Term Marketable Securities | | Long-Term Marketable Securities | | Amortized Cost Basis | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Short-Term Marketable Securities | | Long-Term Marketable Securities |
| | (In thousands) | | (In thousands) |
Fixed income securities: | Fixed income securities: | | Fixed income securities: | |
Corporate bonds | Corporate bonds | $ | 92,547 | | | $ | 2,491 | | | $ | (456) | | | $ | 94,582 | | | $ | 11,570 | | | $ | 83,012 | | Corporate bonds | $ | 96,167 | | | $ | 8 | | | $ | (5,995) | | | $ | 90,180 | | | $ | 5,983 | | | $ | 84,197 | |
Government bonds | Government bonds | 31,552 | | | 3,556 | | | — | | | 35,108 | | | — | | | 35,108 | | Government bonds | 30,070 | | | — | | | (302) | | | 29,768 | | | — | | | 29,768 | |
Total marketable securities | Total marketable securities | $ | 124,099 | | | $ | 6,047 | | | $ | (456) | | | $ | 129,690 | | | $ | 11,570 | | | $ | 118,120 | | Total marketable securities | $ | 126,237 | | | $ | 8 | | | $ | (6,297) | | | $ | 119,948 | | | $ | 5,983 | | | $ | 113,965 | |
As of October 2, 2021,1, 2022, the balance of available-for-sale securities by contractual maturity is shown in the following table. Within the table, maturities of fixed income securities have been allocated based upon timing of estimated cash flows. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.
| | | | | |
| Oct. 2, 20211, 2022 |
| (In thousands) |
Due in one year or less | $ | 6,0245,955 | |
Due after one year through five years | 81,77971,062 | |
Due after five years through ten years | 42,38538,937 | |
| |
Total | $ | 130,188115,954 | |
There were no significant realized gains or losses in marketable securities in the first quarter13 weeks of fiscal 2022.2023.
6.7. DERIVATIVE FINANCIAL INSTRUMENTS
Sysco uses derivative financial instruments to enact hedging strategies for risk mitigation purposes; however, the company does not use derivative financial instruments for trading or speculative purposes. Hedging strategies are used to manage interest rate risk, foreign currency risk and fuel price risk.
Hedging of interest rate risk
Sysco manages its debt portfolio with interest rate swaps from time to time to achieve an overall desired position of fixed and floating rates.
Hedging of foreign currency risk
The company uses euro-bond denominated debt to hedge the foreign currency exposure of our net investment in certain foreign operations. Additionally, Sysco’s operations in Europe have inventory purchases denominated in currencies other than their functional currency, such as the euro, U.S. dollar, British pound sterling, Polish zloty and Danish krone. These inventory purchases give rise to foreign currency exposure between the functional currency of each entity and these currencies. The company enters into foreign currency forward swap contracts to sell the applicable entity’s functional currency and buy currencies matching the inventory purchase, which operate as cash flow hedges of the company’s foreign currency-denominated inventory purchases.
Hedging of fuel price risk
Sysco uses fuel commodity swap contracts to hedge against the risk of the change in the price of diesel on anticipated future purchases. These swaps have been designated as cash flow hedges.
None of the company’s hedging instruments contain credit-risk-related contingent features. Details of outstanding hedging instruments as of October 2, 20211, 2022 are presented below:
| | | | | | | | | | | | | | |
Maturity Date of the Hedging Instrument | | Currency / Unit of Measure | | Notional Value |
| | | | (In millions) |
Hedging of interest rate risk | | | | |
June 2023 | | Euro | | 500 |
March 2025 | | U.S. Dollar | | 500 |
| | | | |
Hedging of foreign currency risk | | | | |
Various (October 2021)2022 to January 2023) | | Swedish Krona | | 54131 |
Various (October 20212022 to JuneDecember 2022) | | British Pound Sterling | | 2610 |
| | | | |
| | | | |
| | | | |
June 2023 | | Euro | | 500 |
| | | | |
Hedging of fuel risk | | | | |
Various (October 2021October 2022 to June 2022)December 2024) | | Gallons | | 3059 |
The location and the fair value of derivative instruments designated as hedges in the consolidated balance sheet as of October 2, 20211, 2022 and July 3, 20212, 2022 are as follows:
| | | | Derivative Fair Value | | | Derivative Fair Value |
| | Balance Sheet location | | Oct. 2, 2021 | | Jul. 3, 2021 | | Balance Sheet location | | Oct. 1, 2022 | | Jul. 2, 2022 |
| | | | (In thousands) | | | | (In thousands) |
Fair Value Hedges: | Fair Value Hedges: | | Fair Value Hedges: | |
| | Interest rate swaps | Interest rate swaps | Other assets | | $ | 39,124 | | | $ | 43,217 | | Interest rate swaps | Other current liabilities | | $ | 7,136 | | | $ | 2,820 | |
| | Cash Flow Hedges: | Cash Flow Hedges: | | Cash Flow Hedges: | |
Fuel swaps | Fuel swaps | Other current assets | | $ | 16,199 | | | $ | 16,732 | | Fuel swaps | Other current assets | | $ | 16,188 | | | $ | 47,170 | |
Foreign currency forwards | Foreign currency forwards | Other current assets | | 70 | | | 42 | | Foreign currency forwards | Other current assets | | 945 | | | 633 | |
| Fuel swaps | | Fuel swaps | Other assets | | 3 | | | — | |
| Fuel swaps | | Fuel swaps | Other current liabilities | | 1,647 | | | — | |
| Foreign currency forwards | Other current liabilities | | 69 | | | 46 | | |
Fuel swaps | | Fuel swaps | Other long-term liabilities | | 3,844 | | | 209 | |
|
Gains or losses recognized in the consolidated results of operations for cash flow hedging relationships are not significant for each of the periods presented. The location and amount of gains or losses recognized in the consolidated results of operations for fair value hedging relationships for each of the periods, presented on a pretax basis, are as follows:
| | | 13-Week Period Ended | | | 13-Week Period Ended | |
| | Oct. 2, 2021 | | Sep. 26, 2020 | | | Oct. 1, 2022 | | Oct. 2, 2021 | |
| | (In thousands) | | (In thousands) |
Total amounts of income and expense line items presented in the consolidated results of operations in which the effects of fair value hedges are recorded | Total amounts of income and expense line items presented in the consolidated results of operations in which the effects of fair value hedges are recorded | | $ | 128,214 | | | $ | 146,717 | | | Total amounts of income and expense line items presented in the consolidated results of operations in which the effects of fair value hedges are recorded | | $ | 124,150 | | | $ | 128,214 | | |
Gain or (loss) on fair value hedging relationships: | Gain or (loss) on fair value hedging relationships: | | | Gain or (loss) on fair value hedging relationships: | | |
Interest rate swaps: | Interest rate swaps: | | | Interest rate swaps: | | |
Hedged items | Hedged items | | $ | (2,433) | | | $ | (9,998) | | | Hedged items | | $ | 2,376 | | | $ | (2,433) | | |
Derivatives designated as hedging instruments | Derivatives designated as hedging instruments | | (8,390) | | | 3,457 | | | Derivatives designated as hedging instruments | | (4,759) | | | (8,390) | | |
|
The gains and losses on the fair value hedging relationships associated with the hedged items as disclosed in the table above consist of the following components for each of the periods presented:
| | | 13-Week Period Ended | | | 13-Week Period Ended | |
| | Oct. 2, 2021 | | Sep. 26, 2020 | | | Oct. 1, 2022 | | Oct. 2, 2021 | |
| | (In thousands) | | (In thousands) |
Interest expense | Interest expense | | $ | (6,526) | | | $ | (14,834) | | | Interest expense | | $ | (1,939) | | | $ | (6,526) | | |
Decrease in fair value of debt | Decrease in fair value of debt | | (4,093) | | | (4,836) | | | Decrease in fair value of debt | | (4,315) | | | (4,093) | | |
Hedged items | Hedged items | | $ | (2,433) | | | $ | (9,998) | | | Hedged items | | $ | 2,376 | | | $ | (2,433) | | |
The location and effect of cash flow and net investment hedge accounting on the consolidated statements of comprehensive income for the 13-week periods ended October 1, 2022 and October 2, 2021, and September 26, 2020, presented on a pretax basis, are as follows:
| | | 13-Week Period Ended Oct. 2, 2021 | | 13-Week Period Ended Oct. 1, 2022 |
| | Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives | | Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income | | Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income | | Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives | | Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income | | Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income |
| | (In thousands) | | | | (In thousands) | | (In thousands) | | | | (In thousands) |
Derivatives in cash flow hedging relationships: | Derivatives in cash flow hedging relationships: | | Derivatives in cash flow hedging relationships: | |
Fuel swaps | Fuel swaps | $ | (485) | | | Operating expense | | $ | 7,972 | | Fuel swaps | $ | (36,295) | | | Operating expense | | $ | 12,985 | |
Foreign currency contracts | Foreign currency contracts | (78) | | | Cost of sales / Other income | | — | | Foreign currency contracts | 286 | | | Cost of sales / Other income | | — | |
| Total | Total | $ | (563) | | | $ | 7,972 | | Total | $ | (36,009) | | | $ | 12,985 | |
| Derivatives in net investment hedging relationships: | Derivatives in net investment hedging relationships: | | Derivatives in net investment hedging relationships: | |
| Foreign denominated debt | Foreign denominated debt | $ | 13,553 | | | N/A | | $ | — | | Foreign denominated debt | $ | 31,346 | | | N/A | | $ | — | |
Total | Total | $ | 13,553 | | | $ | — | | Total | $ | 31,346 | | | $ | — | |
| | | 13-Week Period Ended Sep. 26, 2020 | | 13-Week Period Ended Oct. 2, 2021 |
| | Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives | | Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income | | Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income | | Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives | | Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income | | Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income |
| | (In thousands) | | | | (In thousands) | | (In thousands) | | | | (In thousands) |
Derivatives in cash flow hedging relationships: | Derivatives in cash flow hedging relationships: | | Derivatives in cash flow hedging relationships: | |
Fuel swaps | Fuel swaps | $ | 2,891 | | | Operating expense | | $ | (8,652) | | Fuel swaps | $ | (485) | | | Operating expense | | $ | 7,972 | |
Foreign currency contracts | Foreign currency contracts | (19,732) | | | Cost of sales / Other income | | (2,692) | | Foreign currency contracts | (78) | | | Cost of sales / Other income | | — | |
| Total | Total | $ | (16,841) | | | $ | (11,344) | | Total | $ | (563) | | | $ | 7,972 | |
| Derivatives in net investment hedging relationships: | Derivatives in net investment hedging relationships: | | Derivatives in net investment hedging relationships: | |
| Foreign denominated debt | Foreign denominated debt | $ | (36,550) | | | N/A | | $ | — | | Foreign denominated debt | $ | 13,553 | | | N/A | | $ | — | |
Total | Total | $ | (36,550) | | | $ | — | | Total | $ | 13,553 | | | $ | — | |
The location and carrying amount of hedged liabilities in the consolidated balance sheet as of October 2, 20211, 2022 are as follows:
| | | Oct. 2, 2021 | | Oct. 1, 2022 |
| | Carrying Amount of Hedged Assets (Liabilities) | | Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of Hedged Assets (Liabilities) | | Carrying Amount of Hedged Assets (Liabilities) | | Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of Hedged Assets (Liabilities) |
| | (In thousands) | | (In thousands) |
Balance sheet location: | Balance sheet location: | | Balance sheet location: | |
Current maturities of long-term debt | | Current maturities of long-term debt | $ | (568,766) | | | $ | 7,136 | |
| Long-term debt | $ | (1,065,690) | | | $ | (39,124) | | |
The location and carrying amount of hedged liabilities in the consolidated balance sheet as of July 3, 20212, 2022 are as follows:
| | | Jul. 3, 2021 | | Jul. 2, 2022 |
| | Carrying Amount of Hedged Assets (Liabilities) | | Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of Hedged Assets (Liabilities) | | Carrying Amount of Hedged Assets (Liabilities) | | Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of Hedged Assets (Liabilities) |
| | (In thousands) | | (In thousands) |
Balance sheet location: | Balance sheet location: | | Balance sheet location: | |
Current maturities of long-term debt | | Current maturities of long-term debt | $ | (568,601) | | | $ | 2,820 | |
| Long-term debt | $ | (1,065,364) | | | $ | (43,217) | | |
7.8. DEBT
The companySysco has a $2.0 billion long-term revolving credit facility that expires on June 28, 2024, subjectincludes aggregate commitments of the lenders thereunder of $3.0 billion, with an option to extension.increase such commitments to $4.0 billion. As of October 2, 2021,1, 2022, there were no borrowings outstanding under this facility. During the first quarter of fiscal 2022, Sysco amended its revolving credit facility to (a) eliminate the covenant that had restricted (i) increases to the company’s regular quarterly dividend and (ii) share repurchases, in each case, until the earlier of September 2022 or the date on which Sysco has achieved a certain ratio of consolidated EBITDA to consolidated interest expense, and (b) adjust the covenant requiring Sysco to maintain a certain ratio of consolidated EBITDA to consolidated interest expense.
Sysco has a U.S.U.S commercial paper program allowing the company to issue short-term unsecured notes innotes. On September 2, 2022, Sysco entered into an amended and restated commercial paper dealer agreement increasing the issuance allowance from an aggregate amount not to exceed $2.0 billion to an aggregate amount not to exceed $3.0 billion. Any outstanding amounts are classified within long-term debt, as the program is supported by the long-term revolving credit facility. As of October 2, 2021,1, 2022, there were no$97.0 million in commercial paper issuances outstanding under this program. During the first 13 weeks of fiscal 2022, there were no borrowing activities under our commercial paper programs, long-term revolving credit facility or short-term bank notes.
8.9. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
| | | 13-Week Period Ended | | | 13-Week Period Ended | |
| | Oct. 2, 2021 | | Sep. 26, 2020 | | | Oct. 1, 2022 | | Oct. 2, 2021 | |
| | (In thousands, except for share and per share data) | | | (In thousands, except for share and per share data) | |
Numerator: | Numerator: | | | | | Numerator: | | | | |
Net earnings | Net earnings | $ | 378,013 | | | $ | 216,900 | | | Net earnings | $ | 465,568 | | | $ | 378,013 | | |
Denominator: | Denominator: | | | | | Denominator: | | | | |
Weighted-average basic shares outstanding | Weighted-average basic shares outstanding | 512,516,067 | | | 509,127,405 | | | Weighted-average basic shares outstanding | 507,578,576 | | | 512,516,067 | | |
Dilutive effect of share-based awards | Dilutive effect of share-based awards | 3,266,861 | | | 1,611,355 | | | Dilutive effect of share-based awards | 2,804,573 | | | 3,266,861 | | |
Weighted-average diluted shares outstanding | Weighted-average diluted shares outstanding | 515,782,928 | | | 510,738,760 | | | Weighted-average diluted shares outstanding | 510,383,149 | | | 515,782,928 | | |
Basic earnings per share | Basic earnings per share | $ | 0.74 | | | $ | 0.43 | | | Basic earnings per share | $ | 0.92 | | | $ | 0.74 | | |
Diluted earnings per share | Diluted earnings per share | $ | 0.73 | | | $ | 0.42 | | | Diluted earnings per share | $ | 0.91 | | | $ | 0.73 | | |
The number of securities that were not included in the diluted earnings per share calculation because the effect would have been anti-dilutive was approximatelyapproximately 1,393,000 and 1,963,000 and 6,110,000 for the first quarter of fiscal 20222023 and fiscal 2021,2022, respectively.
9.
10. OTHER COMPREHENSIVE INCOME
Comprehensive income is net earnings plus certain other items that are recorded directly to shareholders’ equity, such as foreign currency translation adjustment, changes in marketable securities, amounts related to certain hedging arrangements and amounts related to pension and other postretirement plans. Comprehensive income was $308.8$236.3 million and $315.4$308.8 million for the first quarter of fiscal 20222023 and fiscal 2021,2022, respectively.
A summary of the components of other comprehensive income (loss) and the related tax effects for each of the periods presented is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | 13-Week Period Ended Oct. 1, 2022 |
| Location of Expense (Income) Recognized in Net Earnings | | Before Tax Amount | | Tax | | Net of Tax Amount |
| | | (In thousands) |
Pension and other postretirement benefit plans: | | | | | | | |
| | | | | | | |
| | | | | | | |
Reclassification adjustments: | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Amortization of prior service cost | Other expense, net | | $ | 99 | | | $ | 25 | | | $ | 74 | |
Amortization of actuarial loss, net | Other expense, net | | 9,186 | | | 2,295 | | | 6,891 | |
Total reclassification adjustments | | | 9,285 | | | 2,320 | | | 6,965 | |
Foreign currency translation: | | | | | | | |
| | | | | | | |
Foreign currency translation adjustment | N/A | | (232,182) | | | — | | | (232,182) | |
Marketable securities: | | | | | | | |
Change in marketable securities (1) | N/A | | (4,212) | | | (884) | | | (3,328) | |
Hedging instruments: | | | | | | | |
Other comprehensive income (loss) before reclassification adjustments: | | | | | | | |
Change in cash flow hedge | Operating expenses (2) | | (36,009) | | | (9,619) | | | (26,390) | |
Change in net investment hedge | N/A | | 31,346 | | | 7,837 | | | 23,509 | |
| | | | | | | |
Total other comprehensive income before reclassification adjustments | | | (4,663) | | | (1,782) | | | (2,881) | |
Reclassification adjustments: | | | | | | | |
Amortization of cash flow hedges | Interest expense | | 2,874 | | | 719 | | | 2,155 | |
| | | | | | | |
Total other comprehensive income (loss) | | | $ | (228,898) | | | $ | 373 | | | $ | (229,271) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | 13-Week Period Ended Oct. 2, 2021 |
| Location of Expense (Income) Recognized in Net Earnings | | Before Tax Amount | | Tax | | Net of Tax Amount |
| | | (In thousands) |
Pension and other postretirement benefit plans: | | | | | | | |
| | | | | | | |
| | | | | | | |
Reclassification adjustments: | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Amortization of prior service cost | Other expense, net | | $ | 99 | | | $ | 25 | | | $ | 74 | |
Amortization of actuarial loss, net | Other expense, net | | 8,486 | | | 2,119 | | | 6,367 | |
Total reclassification adjustments | | | 8,585 | | | 2,144 | | | 6,441 | |
Foreign currency translation: | | | | | | | |
| | | | | | | |
Foreign currency translation adjustment | N/A | | (87,194) | | | — | | | (87,194) | |
Marketable securities: | | | | | | | |
Change in marketable securities (1) | N/A | | (393) | | | (82) | | | (311) | |
Hedging instruments: | | | | | | | |
Other comprehensive income (loss) before reclassification adjustments: | | | | | | | |
Change in cash flow hedge | Operating expenses (2) | | (563) | | | (134) | | | (429) | |
Change in net investment hedge | N/A | | 13,553 | | | 3,388 | | | 10,165 | |
| | | | | | | |
Total other comprehensive income before reclassification adjustments | | | 12,990 | | | 3,254 | | | 9,736 | |
Reclassification adjustments: | | | | | | | |
Amortization of cash flow hedges | Interest expense | | 2,874 | | | 719 | | | 2,155 | |
| | | | | | | |
Total other comprehensive loss | | | $ | (63,138) | | | $ | 6,035 | | | $ | (69,173) | |
| | | | | |
(1) |
(1)Realized gains or losses on marketable securities are presented within other (income) expense, net in the consolidated results of operations; however, there were no significant gains or losses realized in the first quarter of fiscal 2022.
(2)ble securities are presented within other (income) expense, net in the consolidated results of operations; however, there were no significant gains or losses realized in the first quarter of fiscal 2023.
|
(2) | Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges. |
| | | | | 13-Week Period Ended Sep. 26, 2020 | | | | 13-Week Period Ended Oct. 2, 2021 |
| | Location of Expense (Income) Recognized in Net Earnings | | Before Tax Amount | | Tax | | Net of Tax Amount | | Location of Expense (Income) Recognized in Net Earnings | | Before Tax Amount | | Tax | | Net of Tax Amount |
| | | | (In thousands) | | | | (In thousands) |
Pension and other postretirement benefit plans: | Pension and other postretirement benefit plans: | | | | | | | | Pension and other postretirement benefit plans: | | | | | | | |
| Reclassification adjustments: | Reclassification adjustments: | | | | | | | | Reclassification adjustments: | | | | | | | |
Amortization of prior service cost | Amortization of prior service cost | Other expense, net | | $ | 183 | | | $ | 46 | | | $ | 137 | | Amortization of prior service cost | Other expense, net | | $ | 99 | | | $ | 25 | | | $ | 74 | |
Amortization of actuarial loss, net | Amortization of actuarial loss, net | Other expense, net | | 10,353 | | | 2,588 | | | 7,765 | | Amortization of actuarial loss, net | Other expense, net | | 8,486 | | | 2,119 | | | 6,367 | |
| Total reclassification adjustments | Total reclassification adjustments | | 10,536 | | | 2,634 | | | 7,902 | | Total reclassification adjustments | | 8,585 | | | 2,144 | | | 6,441 | |
Foreign currency translation: | Foreign currency translation: | | Foreign currency translation: | |
Foreign currency translation adjustment | Foreign currency translation adjustment | N/A | | 113,140 | | | — | | | 113,140 | | Foreign currency translation adjustment | N/A | | (87,194) | | | — | | | (87,194) | |
Marketable Securities: | | |
Marketable securities: | | Marketable securities: | |
Change in marketable securities (1) | Change in marketable securities (1) | N/A | | (600) | | | (126) | | | (474) | | Change in marketable securities (1) | N/A | | (393) | | | (82) | | | (311) | |
Hedging instruments: | Hedging instruments: | | Hedging instruments: | |
Other comprehensive income (loss) before reclassification adjustments: | Other comprehensive income (loss) before reclassification adjustments: | | Other comprehensive income (loss) before reclassification adjustments: | |
Change in cash flow hedge (3) | Operating expenses (2) | | (16,841) | | | (3,874) | | | (12,967) | | |
Change in cash flow hedges | | Change in cash flow hedges | Operating expenses (2) | | (563) | | | (134) | | | (429) | |
Change in net investment hedges | Change in net investment hedges | N/A | | (20,399) | | | (9,138) | | | (11,261) | | Change in net investment hedges | N/A | | 13,553 | | | 3,388 | | | 10,165 | |
| Total other comprehensive income before reclassification adjustments | Total other comprehensive income before reclassification adjustments | | (37,240) | | | (13,012) | | | (24,228) | | Total other comprehensive income before reclassification adjustments | | 12,990 | | | 3,254 | | | 9,736 | |
Reclassification adjustments: | Reclassification adjustments: | | Reclassification adjustments: | |
Amortization of cash flow hedges | Amortization of cash flow hedges | Interest expense | | 2,874 | | | 719 | | | 2,155 | | Amortization of cash flow hedges | Interest expense | | 2,874 | | | 719 | | | 2,155 | |
Total other comprehensive income | Total other comprehensive income | | $ | 88,710 | | | $ | (9,785) | | | $ | 98,495 | | Total other comprehensive income | | $ | (63,138) | | | $ | 6,035 | | | $ | (69,173) | |
| | | | | |
(1) | Realized gains or losses on marketable securities are presented within other (income) expense, net in the consolidated results of operations; however, there were no significant gains or losses realized in the first quarter of fiscal 2022. |
(2) | Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges. |
(1)Realized gains or losses on marketable securities are presented within other (income) expense, net in the consolidated results of operations; however, there were no significant gains or losses realized in the first quarter of fiscal 2021.
(2) Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.
(3) Change in cash flow hedges includes the termination of some cash flow hedges.
The following tables provide a summary of the changes in accumulated other comprehensive (loss) income for the periods presented:
| | | 13-Week Period Ended Oct. 2, 2021 | | 13-Week Period Ended Oct. 1, 2022 |
| | Pension and Other Postretirement Benefit Plans, net of tax | | Foreign Currency Translation | | Hedging, net of tax | | Marketable Securities, net of tax | | Total | | Pension and Other Postretirement Benefit Plans, net of tax | | Foreign Currency Translation | | Hedging, net of tax | | Marketable Securities, net of tax | | Total |
| | (In thousands) | | (In thousands) |
Balance as of Jul. 3, 2021 | $ | (1,061,991) | | | $ | (40,092) | | | $ | (51,096) | | | $ | 4,415 | | | $ | (1,148,764) | | |
Balance as of Jul. 2, 2022 | | Balance as of Jul. 2, 2022 | $ | (1,011,335) | | | $ | (501,517) | | | $ | 35,770 | | | $ | (4,972) | | | $ | (1,482,054) | |
Equity adjustment from foreign currency translation | Equity adjustment from foreign currency translation | — | | | (87,194) | | | — | | | — | | | (87,194) | | Equity adjustment from foreign currency translation | — | | | (232,182) | | | — | | | — | | | (232,182) | |
| Amortization of cash flow hedges | Amortization of cash flow hedges | — | | | — | | | 2,155 | | | — | | | 2,155 | | Amortization of cash flow hedges | — | | | — | | | 2,155 | | | — | | | 2,155 | |
| Change in net investment hedges | Change in net investment hedges | — | | | — | | | 10,165 | | | — | | | 10,165 | | Change in net investment hedges | — | | | — | | | 23,509 | | | — | | | 23,509 | |
Change in cash flow hedge | Change in cash flow hedge | — | | | — | | | (429) | | | — | | | (429) | | Change in cash flow hedge | — | | | — | | | (26,390) | | | — | | | (26,390) | |
| Amortization of unrecognized prior service cost | Amortization of unrecognized prior service cost | 74 | | | — | | | — | | | — | | | 74 | | Amortization of unrecognized prior service cost | 74 | | | — | | | — | | | — | | | 74 | |
Amortization of unrecognized net actuarial losses | Amortization of unrecognized net actuarial losses | 6,367 | | | — | | | — | | | — | | | 6,367 | | Amortization of unrecognized net actuarial losses | 6,891 | | | — | | | — | | | — | | | 6,891 | |
Change in marketable securities | Change in marketable securities | — | | | — | | | — | | | (311) | | | (311) | | Change in marketable securities | — | | | — | | | — | | | (3,328) | | | (3,328) | |
Balance as of Oct. 2, 2021 | $ | (1,055,550) | | | $ | (127,286) | | | $ | (39,205) | | | $ | 4,104 | | | $ | (1,217,937) | | |
Balance as of Oct. 1, 2022 | | Balance as of Oct. 1, 2022 | $ | (1,004,370) | | | $ | (733,699) | | | $ | 35,044 | | | $ | (8,300) | | | $ | (1,711,325) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 13-Week Period Ended Sep. 26, 2020 |
| Pension and Other Postretirement Benefit Plans, net of tax | | Foreign Currency Translation | | Hedging, net of tax | | Marketable Securities, net of tax | | Total |
| (In thousands) |
Balance as of Jun. 27, 2020 | $ | (1,265,714) | | | $ | (402,384) | | | $ | (49,878) | | | $ | 7,095 | | | $ | (1,710,881) | |
| | | | | | | | | |
Equity adjustment from foreign currency translation | — | | | 113,140 | | | — | | | — | | | 113,140 | |
Amortization of cash flow hedges | — | | | — | | | 2,155 | | | — | | | 2,155 | |
| | | | | | | | | |
Change in net investment hedges | — | | | — | | | (11,261) | | | — | | | (11,261) | |
Change in cash flow hedge | — | | | — | | | (12,967) | | | — | | | (12,967) | |
| | | | | | | | | |
Amortization of unrecognized prior service cost | 137 | | | — | | | — | | | — | | | 137 | |
Amortization of unrecognized net actuarial losses | 7,765 | | | — | | | — | | | — | | | 7,765 | |
Change in marketable securities | — | | | — | | | — | | | (474) | | | (474) | |
Balance as of Sep. 26, 2020 | $ | (1,257,812) | | | $ | (289,244) | | | $ | (71,951) | | | $ | 6,621 | | | $ | (1,612,386) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 13-Week Period Ended Oct. 2, 2021 |
| Pension and Other Postretirement Benefit Plans, net of tax | | Foreign Currency Translation | | Hedging, net of tax | | Marketable Securities | | Total |
| (In thousands) |
Balance as of Jul. 3, 2021 | $ | (1,061,991) | | | $ | (40,092) | | | $ | (51,096) | | | $ | 4,415 | | | $ | (1,148,764) | |
| | | | | | | | | |
Equity adjustment from foreign currency translation | — | | | (87,194) | | | — | | | — | | | (87,194) | |
Amortization of cash flow hedges | — | | | — | | | 2,155 | | | — | | | 2,155 | |
| | | | | | | | | |
Change in net investment hedges | — | | | — | | | 10,165 | | | — | | | 10,165 | |
Change in cash flow hedge | — | | | — | | | (429) | | | — | | | (429) | |
| | | | | | | | | |
Amortization of unrecognized prior service cost | 74 | | | — | | | — | | | — | | | 74 | |
Amortization of unrecognized net actuarial losses | 6,367 | | | — | | | — | | | — | | | 6,367 | |
Change in marketable securities | — | | | — | | | — | | | (311) | | | (311) | |
Balance as of Oct. 2, 2021 | $ | (1,055,550) | | | $ | (127,286) | | | $ | (39,205) | | | $ | 4,104 | | | $ | (1,217,937) | |
10.11. SHARE-BASED COMPENSATION
Sysco provides compensation benefits to employees under several share-based payment arrangements, including various long-term employee stock incentive plans and the 2015 Employee Stock Purchase Plan (ESPP).
Stock Incentive Plans
In the first quarter 13 weeks of fiscal 2022,2023, options to purchase 1,150,645882,359 shares were granted to employees. The fair value of each option award is estimated as of the date of grant using a Black-Scholes option pricing model. The weighted average grant-date fair value per option granted during the first quarter13 weeks of fiscal 20222023 was $17.36.$24.58.
In the first quarter 13 weeks of fiscal 2022, 412,5982023, employees were granted 420,627 performance share units (PSUs) were granted to employees.. Based on the jurisdiction in which the employee resides, some of these PSUs were granted with forfeitable dividend equivalents. The fair value of each PSU award granted with a dividend equivalent is based on the company’s stock price as of the date of grant. For PSUs granted without dividend equivalents, the fair value was reduced by the present value of expected dividends during the
vesting period. The weighted average grant-date fair value per PSU granted during the first quarter 13 weeks of fiscal 20222023 was $76.81. $85.43.
The PSUs will convert into shares of Sysco common stock at the end of the three-year performance period based on actual performance targets achieved, as well as the market-based return of Sysco’s common stock relative to that of each company within the S&P 500 index.
In the first quarter 13 weeks of fiscal 2022, 172,7392023, employees were granted 172,987 restricted stock units were granted to employees.units. The weighted average grant-date fair value per restricted stock unit granted during the first quarter13 weeks of fiscal 20222023 was $76.63.$85.38.
Employee Stock Purchase Plan
Plan participants purchased 235,197326,226 shares of common stock under the ESPP during the first quarter13 weeks of fiscal 2022.2023. The weighted average fair value per employee stock purchase right issued pursuant to the ESPP was $11.78$10.61 during the first quarter13 weeks of fiscal 2022.2023. The fair value of each stock purchase right is estimated as the difference between the stock price at the date of issuance and the employee purchase price.
All Share-Based Payment Arrangements
The total share-based compensation cost that has been recognized in results of operations was $29.3$27.2 million and $25.8$29.3 million for the first quarter 13 weeks of fiscal 20222023 and fiscal 2021,2022, respectively.
As of October 2, 2021,1, 2022, there was $154.1$152.0 million of total unrecognized compensation cost related to share-based compensation arrangements. This cost is expected to be recognized over a weighted-average period of 1.962.16 years.
11.12. INCOME TAXES
Effective Tax Rate
The effective tax ratesrate for the first quartersquarter of fiscal 2023 was 21.74% and was favorably impacted by the excess tax benefits of equity-based compensation, which totaled $8.9 million. The effective tax rate for the first quarter of fiscal 2022 and 2021 werewas 25.40% and 16.17%, respectively.. As compared to the company’s statutory tax rate, the higher effective tax rate for the first quarter of fiscal 2022 was impacted by the increase in our reserve for uncertain tax positions of $12.0 million, partially offset by (1) the favorable impact of corporate owned life insurance policies that total $1.9 million, and (2) the favorable impact of excess tax benefits of equity-based compensation that totaled $1.4 million. As compared to the company’s statutory tax rate, the lower effective tax rate for the first quarter of fiscal 2021 was impacted by (1) the $7.6 million tax benefit attributable to the sale of the stock of Cake Corporation, (2) the impact of changes in tax law in the United Kingdom (U.K.) of $5.5 million and, (3) the favorable impact of excess tax benefits of equity-based compensation that totaled $2.3 million.
Uncertain Tax Positions
As of October 2, 2021,1, 2022, the gross amount of unrecognized tax benefit and related accrued interest was $32.4 million and $3.8$6.6 million, respectively. It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain of the company’s unrecognized tax positions will increase or decrease in the next twelve months. At this time, an estimate of the range of the reasonably possible change cannot be made.
Other
The determination of the company’s provision for income taxes requires judgment, the use of estimates and the interpretation and application of complex tax laws. The company’s provision for income taxes reflects income earned and taxed in the various U.S. federal and state, as well as foreign jurisdictions. Tax law changes, increases or decreases in permanent book versus tax basis differences, accruals or adjustments of accruals for unrecognized tax benefits or valuation allowances, and the company’s change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate.
12.13. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
Sysco is engaged in various legal proceedings that have arisen but have not been fully adjudicated. The likelihood of loss for these legal proceedings, based on definitions within contingency accounting literature, ranges from remote to reasonably possible to probable. When probable and reasonably estimable, the losses have been accrued. Although the final results of legal proceedings cannot be predicted with certainty, based on estimates of the range of potential losses associated
with these matters, management does not believe the ultimate resolution of these proceedings, either individually or in the aggregate, will have a material adverse effect upon the consolidated financial position or results of operations of the company.
13.
14. BUSINESS SEGMENT INFORMATION
Sysco distributes food and related products to restaurants, healthcare and educational facilities, lodging establishments and other foodservice customers. Our primary operations are located in North America and Europe. Under the accounting provisions related to disclosures about segments of an enterprise, we have aggregated certain operating segments into 3three reportable segments. “Other” financial information is attributable to our other operating segments that do not meet the quantitative disclosure thresholds.
•U.S. Foodservice Operations – primarily includes (a) our U.S. Broadline operations, which distribute a full line of food products, including custom-cut meat, seafood, specialty produce, specialty Italian, specialty imports and a wide variety of non-food products;products and (b) our U.S. Specialty operations, which include our FreshPoint fresh produce distribution business, our Specialty Meats and Seafood Group specialty protein operations, our growing Italian Specialty platform anchored by Greco & Sons, our Asian specialty distribution company and a number of other small specialty businesses that are not material to our operations;
•International Foodservice Operations – includes operations in the Americas (primarily outside of the U.S. and Europe,United States (U.S.), which distribute a full line of food products and a wide variety of non-food products. The Americas primarily consists of operations in Canada, Bahamas, Mexico, Costa Rica and Panama, as well as our export operations that distribute to international customers. Our European operations primarily consist of operations in the U.K.United Kingdom (U.K.), France, Ireland and Sweden;
•SYGMA – our U.S. customized distribution operations serving quick-service chain restaurant customer locations; and
•Other – primarily our hotel supply operations, Guest Worldwide.
The accounting policies for the segments are the same as those disclosed by Sysco for its consolidated financial statements. Our Global Support Center generally includes all expenses of the corporate office and Sysco’s shared service operations. These also include all U.S. share-based compensation costs.
The following tables set forth certain financial information for Sysco’s reportable business segments.segments:
| | | 13-Week Period Ended | | | 13-Week Period Ended | |
| | Oct. 2, 2021 | | Sep. 26, 2020 | | | Oct. 1, 2022 | | Oct. 2, 2021 | |
Sales: | Sales: | (In thousands) | | Sales: | (In thousands) | |
U.S. Foodservice Operations | U.S. Foodservice Operations | $ | 11,602,963 | | | $ | 7,921,533 | | | U.S. Foodservice Operations | $ | 13,602,482 | | | $ | 11,602,963 | | |
International Foodservice Operations | International Foodservice Operations | 2,895,247 | | | 2,163,693 | | | International Foodservice Operations | 3,283,735 | | | 2,895,247 | | |
SYGMA | SYGMA | 1,704,033 | | | 1,524,148 | | | SYGMA | 1,933,457 | | | 1,704,033 | | |
Other | Other | 254,303 | | | 168,005 | | | Other | 307,156 | | | 254,303 | | |
Total | Total | $ | 16,456,546 | | | $ | 11,777,379 | | | Total | $ | 19,126,830 | | | $ | 16,456,546 | | |
| | | 13-Week Period Ended | | | 13-Week Period Ended | |
| | Oct. 2, 2021 | | Sep. 26, 2020 | | | Oct. 1, 2022 | | Oct. 2, 2021 | |
Operating income (loss): | Operating income (loss): | (In thousands) | | Operating income (loss): | (In thousands) | |
U.S. Foodservice Operations | U.S. Foodservice Operations | $ | 797,523 | | | $ | 588,409 | | | U.S. Foodservice Operations | $ | 903,828 | | | $ | 797,523 | | |
International Foodservice Operations | International Foodservice Operations | 36,676 | | | (537) | | | International Foodservice Operations | 87,208 | | | 36,676 | | |
SYGMA | SYGMA | (2,447) | | | 11,692 | | | SYGMA | 5,471 | | | (2,447) | | |
Other | Other | 6,456 | | | (5) | | | Other | 11,538 | | | 6,456 | | |
Total segments | Total segments | 838,208 | | | 599,559 | | | Total segments | 1,008,045 | | | 838,208 | | |
Global Support Center | Global Support Center | (206,526) | | | (179,980) | | | Global Support Center | (273,712) | | | (206,526) | | |
Total operating income | Total operating income | 631,682 | | | 419,579 | | | Total operating income | 734,333 | | | 631,682 | | |
Interest expense | Interest expense | 128,214 | | | 146,717 | | | Interest expense | 124,150 | | | 128,214 | | |
Other (income) expense, net | (3,252) | | | 14,124 | | | |
Other expense (income), net | | Other expense (income), net | 15,281 | | | (3,252) | | |
Earnings before income taxes | Earnings before income taxes | $ | 506,720 | | | $ | 258,738 | | | Earnings before income taxes | $ | 594,902 | | | $ | 506,720 | | |
15.SUBSEQUENT EVENTS
In October 2022, Sysco and an independent fiduciary of the Sysco Corporation Retirement Plan (the Plan), entered into a commitment agreement with Massachusetts Mutual Life Insurance Company (the Insurer), which has AA+, Aa3, and A++ credit ratings from S&P Global, Moody’s, and AM Best, respectively, under which the Plan agreed to purchase a nonparticipating single premium group annuity contract that will transfer to the Insurer approximately $700 million of the Plan’s defined benefit pension obligations related to certain pension benefits.
The purchase of the group annuity contract by the Plan closed on October 25, 2022. The contract covers approximately 10,000 Sysco participants and beneficiaries (the Transferred Participants). Under the group annuity contract, the Insurer will make an unconditional and irrevocable commitment to pay the pension benefits of each Transferred Participant that are due on or after January 1, 2023. The transaction will result in no changes to the amount of benefits payable to the Transferred Participants.
As a result of the transaction, the company expects to recognize a one-time, non-cash pre-tax pension settlement charge of approximately $250 to $300 million in the second quarter of fiscal 2023.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion should be read in conjunction with our consolidated financial statements as of July 3, 2021,2, 2022, and for the fiscal year then ended, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, both contained in our Annual Report on Form 10-K for the fiscal year ended July 3, 20212, 2022 (our fiscal 20212022 Form 10-K), as well as the consolidated financial statements (unaudited) and notes to the consolidated financial statements (unaudited) contained in this report.
Highlights
Our first quarter of fiscal 20222023 results were strong duereflected continued positive momentum in our business to substantialstart the fiscal year, delivering our highest ever quarterly sales momentum surpassing first quarter of fiscal 2019 levels. Our results increased sequentially each month ofat Sysco. We generated double-digit sales and earnings growth compared to the quarter, despite the presence of the Delta variant of COVID-19. Customers are responding positively to Sysco’s relative supply chain strength, our new purpose platform and our improving capabilitiessame period last year, driven by higher volumes, effective management of inflation and market share gains. We continued to advance our Recipe forFor Growth strategy. Our financial results demonstratestrategy, including within our ability to gain market share in this business climate.International Foodservice Operations segment, while addressing operational improvement opportunities. See below for a comparison of our fiscal 20222023 results to our fiscal 20212022 results, both including and excluding Certain Items (as defined below).
Comparisons of results from the first quarter of fiscal 20222023 to the first quarter of fiscal 20212022 are presented below:
•Sales:
◦increased 39.7%16.2%, or $4.7$2.7 billion, to $16.5$19.1 billion;
•Operating income:
◦increased 50.6%16.3%, or $212.1$102.7 million, to $631.7$734.3 million;
◦adjusted operating income increased 87.9%12.4%, or $320.4$85.2 million, to $685.1$770.3 million;
•Net earnings:
◦increased 74.3%23.2%, or $161.1$87.6 million, to $378.0$465.6 million;
◦adjusted net earnings increased 147.9%14.6%, or $256.5$62.7 million, to $429.9$492.6 million;
•Basic earnings per share:
◦increased 72.1%24.3%, or $0.31,$0.18, to $0.74$0.92 per share;
•Diluted earnings per share:
◦increased 73.8%24.7%, or $0.31,$0.18, to $0.73$0.91 per share;
◦adjusted diluted earnings per share increased 144.1%16.9%, or $0.49,$0.14, to $0.83$0.97 in fiscal 2022;2023;
•EBITDA:
◦increased 40.2%10.5%, or $235.4$86.6 million, to $821.4$908.0 million; and
◦adjusted EBITDA increased 62.5%7.5%, or $328.1$64.1 million, to $852.8$916.9 million.
The discussion of our results includes certain non-GAAP financial measures, including EBITDA and adjusted EBITDA, thatas we believe these metrics 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 to remove the impact of 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; and acquisition-related costs consisting of: (1)(a) intangible amortization expense and (2)(b) acquisition costs and due diligence costs related to our significant acquisitions. Our results for fiscal 2022 are also impacted by the increase in reserves for uncertain tax positions. Our results for the first quarter of fiscal 2021 were also impacted byacquisitions; and the reduction of bad debt expense previously recognized in fiscal 2020 due to the impact of the COVID-19 pandemic on the collectability of our pre-pandemic trade receivable balances, by a loss on the sale of a business and by a net benefit from remeasuring net deferred tax assets due to the changes in U.K. tax rates.balances.
The fiscal 20222023 and fiscal 20212022 items discussed above are collectively referred to as “Certain Items.” The results of our foreign operations can be impacted by changes in exchange rates applicable to converting from local currencies to U.S. dollars. We measure our total Sysco and our International Foodservice Operations results on a constant currency basis.
Trends
Economic and Industry Trends
Despite the presence of the Delta variant of COVID-19, Sysco’s sales improved sequentially throughThe food-away-from-home sector experienced growth in the first quarter of fiscal 2022 and have2023. Restaurants continued to grow through October 2022, showingbe resilient and our abilitytravel/hospitality and business/industry segments results posted year-over-year improvements. We are closely monitoring macro-economic conditions for signs of business slow down. At this time, we are not seeing recession concerns negatively impacting our business results. We have experienced a strong start to gain market-sharethe year in this environment. There was a high volume of cases shipped withinboth national and local sales, which has driven market share gains overall, as we grew more than 1.4 times the restaurant sector duringmarket for the first quarter of fiscal 2022, and additionalperiod. We are on track to deliver our stated growth is still expected to come in certain segments suchobjective for the year, as hospitality, business and industry and foodservice management. International travel restrictions are beginning to ease, which we expect will benefit our hospitality sector in specific regions of our business. Our International Foodservice Operations segment improved sequentially throughout the first quarter of fiscal 2022, as restrictionssee continued to ease across our international regions. The relative performancegrowth opportunities, particularly in the international sector still lags the U.S. sector; however, we believe that the international foodservice markets will experience further recovery as the global effects of the COVID-19 pandemic subside.non-commercial sector.
Sales and Gross Profit Trends
Our sales and gross profit performance can beare influenced by multiple factors, including price, volume, inflation, customer mix and product mix. The most significant factor affecting performance in the first quarter of fiscal 20222023 was volume growth, as we are experiencingexperienced strong results from both independentnational and chainlocal customers driven by a 23.8%5.4% improvement in local case volume and a 28.1%an 7.3% improvement in total case volume within our U.S. Broadline operations,Foodservice segment, in each caseinstance as compared to the first quarter of fiscal 2021. Sysco continues to lead the industry2022. This volume reflects our broadline and specialty businesses except with our specialty meats business which measures its volume in how we are supporting our customers during this challenging supply chain period.pounds. This hasgrowth enabled us to gain market share during the first quarter of fiscal 2022.2023. We expect additional recovery to occur, ascontinue seeing momentum on our volume is yet to fully recover in certain segments, such as hospitality, businessrate of growth and industry, and foodservice management. We are on track to deliverexceed our stated goal of achieving growth at a rate of 1.21.5 times the industry in fiscal 2022, and we believe that our Recipe for Growth strategy will enable us to accelerate over the next three years and grow at 1.5 times the pace of the industry by the end of fiscal 2024.
In termsProduct cost inflation has also been a driver of customer mix,our sales and gross profit performance. We experienced inflation at a rate of 9.7% in the first quarter of fiscal 2022 represented another period of strong net new business wins for Sysco, as we continued our strong momentum and posted compelling wins2023 at the national and localtotal enterprise level, primarily driven by inflation in the U.S. In Europe,dairy and frozen categories. We continue to be successful in managing our business is skewed towards the business, industry and travel segments, which remain constrained due to the continuing effects of the COVID-19 pandemic. We expect that our Recipe for Growth strategy will enable our International Foodservice Operations segment to improve how we serve local customers over time and will create a better balanceinflation, resulting in our customer mix to the more profitable local sector over our current three-year plan.
Although ouran increase in gross profit dollars. Gross margin decreased 79increased 18 basis points in the first quarter of fiscal 2022,2023, as compared to the same prior year period, largely due toprimarily driven by higher volumes, the impacteffective management of inflation onand progress against our sales, we believe we managed our profitability well in the inflationary environment. We passed along this inflation to our customers, and we are successfully growing gross profit dollars. In terms of the impact on pricing, we experienced inflation at a rate of 12.8% combined for the U.S. and Canada during the first quarter of fiscal 2022, primarily in the meat, poultry and canned and dry foods categories. While challenging to predict, we expect inflation to moderate by the fourth quarter of fiscal 2022. The gross margin dilution at the enterprise level was also driven by margin changes at our higher-margin businesses, with the larger U.S. Foodservice Operations segment business growing volume at lower-margin rates. Across our enterprise, each business segment experienced an increase in gross profit dollars per case, despite the decline in the gross margin rate.partnership growth management initiatives.
Operating Expense Trends
Total operating expenses increased 30.0%17.7% during the first quarter of fiscal 2022,2023, as compared to the first quarter of fiscal 2021,2022, driven by the variable costs associated with significantly increased volumes, one-timecost inflation, continued operational cost pressures from the operating environment and short-term transitory expenses associated with theour planned investments to drive our transformation initiatives under our Recipe For Growth strategy. This quarter included transformation investments of $63.4 million, new-associate related productivity costs of $41.1 million and a sequential improvement in business recovery and transformation investments towards our Recipe for Growth strategy. The largest contributor to the increase was the higher associate-related expenses associated with elevated overtime rates and intentional expenditures to improve our staffing in preparation for additional growth and for increased throughput capacity.costs. We have continued to invest in associate retention and best-in-class training, primarily for transportation and warehouse staff. Our Sysco Driver Academy is contributing to improved retention and productivity, and we expect to see this trend improve, as the percentage of drivers trained from within Sysco continues to grow. We believe the advancements we are making in our staffingphysical capabilities, and the investments we are making in improved training, will provide improved service levels to our customers and strengthen Sysco’s ability to profitably win market share in the coming quarters and years.
Pension Settlement Charge
As discussed in Note 15. “Subsequent Events,” the Sysco Corporation Retirement Plan (the Plan), entered into a commitment agreement to purchase a nonparticipating single premium group annuity contract that will transfer approximately $700 million of the Plan’s defined benefit pension obligations related to certain pension benefits. As a result of the transaction, we expect to recognize a one-time, non-cash pre-tax pension settlement charge of approximately $250 to $300 million in the second quarter of fiscal 2022, adding 1,0002023. The actual charge will depend on finalization of the actuarial and other assumptions. This charge will be treated as a Certain Item. We will also compute a new supply chain associates, consisting primarilyamount of transportation and warehouse staff. Additionally, we had an unfavorable comparison of bad debton-going expense as we recognized a $98.6 million benefit in the first quarter of fiscal 2021 from reducing our reserves on pre-pandemic receivables. In the first quarter of fiscal 2022, we recognized a benefit of $7.1 million from the reversal of pre-pandemic receivable allowances.
Our operating results in the first quarter of fiscal 2022 included $57.0 million of one-time and short-term transitory expenses related to the business recovery, including investments in incremental marketing to advertise open positions, sign-on bonuses for new associates, and referral and retention bonuses for existing staff, and more than $24.4 million of operating expense investments for our Recipe for Growth strategy. We are making these necessary investments to ensure that we can serve our customers to enable us to continue winning market share, profitably, at the national and local level; however, the higher operating expenses had a negative impact on our results for the quarter, and we expect these investments to have a similar impact on our resultsPlan for the second quarter of fiscal 2022. We anticipate making progress on reducing overtime and on the incremental investments in hiring during the remainder of the fiscal 2022; however, we expect investments in transformation to remain elevated early in the transformation process.
Income Tax Trends
Our provision for income taxes primarily reflects a combination of income earned and taxed in the various U.S. federal and state, as well as foreign, jurisdictions. Tax law changes, increases or decreases in book versus tax basis differences, accruals or adjustments of accruals for unrecognized tax benefits or valuation allowances, and our change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate.
Our effective tax rate has been influenced by discrete events, such as tax law changes and excess tax benefits attributable to equity compensation exercises as discussed in Note 11, “Income Taxes,” in the Notes to Consolidated Financial Statements in Item 1 of Part I.
Comparisons to Fiscal 2019
In assessing our financial performance through the business recovery, Sysco’s management compared our results in the first quarter of fiscal 2022 against the first quarter of fiscal 2019. These results include:
•Sales:
◦increased 8.2%, or $1.2 billion, as compared to fiscal 2019;
•Operating income:
◦increased 0.6%, or $3.5 million, as compared to fiscal 2019;
◦adjusted operating income decreased 1.0%, or $6.6 million, as compared to fiscal 2019;
•EBITDA:
◦increased 0.8%, or $6.8 million, as compared to fiscal 2019;
◦adjusted EBITDA decreased 0.6%, or $4.8 million, as compared to fiscal 2019;
•Diluted earnings per share:
◦decreased 9.9%, or $0.08, as compared to fiscal 2019; and
◦adjusted diluted earnings per share decreased 8.8%, or $0.08, as compared to fiscal 2019.
Key items impacting the comparability of Sysco’s results in the first quarter of fiscal 2022 to the first quarter of fiscal 2019 included the one-time and short-term transitory expenses associated with the business recovery and the operating expense investments towards our Recipe for Growth strategy. Additionally, in the first quarter of fiscal 2022, Sysco incurred $50.9 million of on-going interest expense related to senior notes issued in April 2020 as a precautionary measure in response to the COVID-19 pandemic, as the company sought to preserve its available liquidity. Some of the senior notes issued in April 2020 remain outstanding as part of our capital structure.year.
Mergers and Acquisitions
We continue to focus on mergers and acquisitions as a part of our growth strategy, where we plan to cultivatereinforce our existing businesses, while cultivating new channels, new segments and new capabilities. We have completed the following acquisitions thus far in fiscal 2022.2023:
•In the first quarter of 2022,fiscal 2023, we acquired Greco and Sons, a leadingtwo small U.S.-based independent specialty Italian distributor in the United States. We expect this acquisition to deliver over $1 billion in incremental sales to Sysco in fiscal 2022.
•In the first quarter of fiscal 2022, we acquired a specialty food distributor in the United Kingdom.
•In the second quarter of 2022, we acquired a regional broadline fresh produce distributor. The acquisition will operatedistributors as part of Sysco’s U.S. specialty produce business.our plan to meaningfully scale our growing Italian platform.
The results of these acquisitions were not material to the consolidated results of the company for the first quarter of fiscal 2023.
Strategy
Our purpose is “Connecting the World to Share Food and Care for One Another,Another.” whichPurpose driven companies are believed to perform better, and we believe our purpose will allowassist us to grow substantially faster than the foodservice distribution industry and deliver profitable growth through our “Recipe for Growth” transformation. This growth transformation is supported by strategic pillars that we believe will allow us to better serve our customers, including our digital, products and solutions, supply chain, customer teams, and future horizons strategies.
Our various business transformation initiatives remain on track, such as the centralized pricing tool project, which is substantially complete for local customers, and which enables Sysco to strategically manage the high levels of inflation that we are currently experiencing. Other initiatives, such as our personalization engine continuethat is currently under construction and has proved to expand, while the sales transformation is helpingbe beneficial to our sales teams continue to win new business.pilot customers. Additionally, we are continuingimproving our merchandising and marketing solutions by developing improved strategies for specific cuisine segments, and we are developing a more nimble, accessible and productive supply chain that is better positioned to improve the efficiency of our organization, suchsupport customers in their business recovery. Our strategic initiatives to increase delivery frequency and enable omni-channel inventory fulfillment remain on track. From these actions as regionalizing the leadership structure of our specialty business, as we reduce our structural expenses to fund our capital investments. We are in the early stagesa part of our Recipe for Growth, but we can already see the benefits of our developing capabilities is apparent in the new customers we are winning and in the progress we are making towards gainingincreasing market share. We expect that, as our Recipe for Growth matures, the impact on our top linetop-line growth will continue to accelerate. We are committed to profitably growing 1.2 times the market for fiscal 2022 and 1.5 times the market by the end of fiscal 2024, the third year of our three-year strategic plan.
Results of Operations
The following table sets forth the components of our consolidated results of operations expressed as a percentage of sales for the periods indicated:
| | | 13-Week Period Ended | | | 13-Week Period Ended | |
| | Oct. 2, 2021 | | Sep. 26, 2020 | | | Oct. 1, 2022 | | Oct. 2, 2021 | |
Sales | Sales | 100.0 | % | | 100.0 | % | | Sales | 100.0 | % | | 100.0 | % | |
Cost of sales | Cost of sales | 81.9 | | | 81.2 | | | Cost of sales | 81.8 | | | 81.9 | | |
Gross profit | Gross profit | 18.1 | | | 18.8 | | | Gross profit | 18.2 | | | 18.1 | | |
Operating expenses | Operating expenses | 14.2 | | | 15.3 | | | Operating expenses | 14.4 | | | 14.2 | | |
Operating income | Operating income | 3.8 | | | 3.5 | | | Operating income | 3.8 | | | 3.8 | | |
Interest expense | Interest expense | 0.8 | | | 1.2 | | | Interest expense | 0.6 | | | 0.8 | | |
Other (income) expense, net | Other (income) expense, net | — | | | 0.1 | | | Other (income) expense, net | 0.1 | | | — | | |
Earnings before income taxes | Earnings before income taxes | 3.1 | | | 2.2 | | | Earnings before income taxes | 3.1 | | | 3.1 | | |
Income taxes | Income taxes | 0.8 | | | 0.4 | | | Income taxes | 0.7 | | | 0.8 | | |
Net earnings | Net earnings | 2.3 | % | | 1.8 | % | | Net earnings | 2.4 | % | | 2.3 | % | |
The following table sets forth the change in the components of our consolidated results of operations expressed as a percentage increase or decrease over the comparable period in the prior year:
| | | | | | | |
| 13-Week Period Ended | | |
| Oct. 2, 20211, 2022 | | |
Sales | 39.716.2 | % | | |
Cost of sales | 41.116.0 | | | |
Gross profit | 33.917.4 | | | |
Operating expenses | 30.017.7 | | | |
Operating income | 50.616.3 | | | |
Interest expense | 12.6 (3.2) | | | |
Other (income) expense, net (1) (2) | 123.0 (569.9) | | | |
Earnings before income taxes | (95.8)17.4 | | | |
Income taxes | 207.60.5 | | | |
Net earnings | 74.323.2 | % | | |
Basic earnings per share | 72.124.3 | % | | |
Diluted earnings per share | 73.824.7 | | | |
Average shares outstanding | 0.7 (1.0) | | | |
Diluted shares outstanding | 1.0 (1.0) | | | |
(1)Other (income) expense, net was income of $3.3 million and expense of $14.1 million in the first quarter of fiscal 2022 and fiscal 2021, respectively. | | | | | |
(1) | Other (income) expense, net was expense of $15.3 million and income of $3.3 million in the first quarter of fiscal 2023 and fiscal 2022, respectively. |
| |
The following tables represent our results by reportable segments:
| | | 13-Week Period Ended Oct. 2, 2021 | | 13-Week Period Ended Oct. 1, 2022 |
| | U.S. Foodservice Operations | | International Foodservice Operations | | SYGMA | | Other | | Global Support Center | | Consolidated Totals | | U.S. Foodservice Operations | | International Foodservice Operations | | SYGMA | | Other | | Global Support Center | | Consolidated Totals |
| | (In thousands) | | (In thousands) |
Sales | Sales | $ | 11,602,963 | | | $ | 2,895,247 | | | $ | 1,704,033 | | | $ | 254,303 | | | $ | 16,456,546 | | Sales | $ | 13,602,482 | | | $ | 3,283,735 | | | $ | 1,933,457 | | | $ | 307,156 | | | $ | — | | | $ | 19,126,830 | |
Sales increase (decrease) | 46.5 | % | | 33.8 | % | | 11.8 | % | | 51.4 | % | | 39.7 | % | |
Sales increase | | Sales increase | 17.2 | % | | 13.4 | % | | 13.5 | % | | 20.8 | % | | 16.2 | % |
Percentage of total | Percentage of total | 70.5 | % | | 17.6 | % | | 10.4 | % | | 1.5 | % | | 100.0 | % | Percentage of total | 71.1 | % | | 17.2 | % | | 10.1 | % | | 1.6 | % | | 100.0 | % |
| Operating income (loss) | Operating income (loss) | $ | 797,523 | | | $ | 36,676 | | | $ | (2,447) | | | $ | 6,456 | | | $ | (206,526) | | | $ | 631,682 | | Operating income (loss) | $ | 903,828 | | | $ | 87,208 | | | $ | 5,471 | | | $ | 11,538 | | | $ | (273,712) | | | $ | 734,333 | |
Operating income (loss) increase (decrease) | 35.5 | % | | NM | | NM | | NM | | 14.7 | % | | 50.6 | % | |
Operating income (loss) increase | | Operating income (loss) increase | 13.3 | % | | 137.8 | % | | NM | | 78.7 | % | | 32.5 | % | | 16.3 | % |
Percentage of total segments | Percentage of total segments | 95.1 | % | | 4.4 | % | | (0.3) | % | | 0.8 | % | | 100.0 | % | Percentage of total segments | 89.7 | % | | 8.7 | % | | 0.5 | % | | 1.1 | % | | 100.0 | % |
Operating income (loss) as a percentage of sales | 6.9 | % | | 1.3 | % | | (0.1) | % | | 2.5 | % | | 3.8 | % | |
Operating income as a percentage of sales | | Operating income as a percentage of sales | 6.6 | % | | 2.7 | % | | 0.3 | % | | 3.8 | % | | 3.8 | % |
| | | 13-Week Period Ended Sep. 26, 2020 | | 13-Week Period Ended Oct. 2, 2021 |
| | U.S. Foodservice Operations | | International Foodservice Operations | | SYGMA | | Other | | Global Support Center | | Consolidated Totals | | U.S. Foodservice Operations | | International Foodservice Operations | | SYGMA | | Other | | Global Support Center | | Consolidated Totals |
| | (In thousands) | | (In thousands) |
Sales | Sales | $ | 7,921,533 | | | $ | 2,163,693 | | | $ | 1,524,148 | | | $ | 168,005 | | | $ | 11,777,379 | | Sales | $ | 11,602,963 | | | $ | 2,895,247 | | | $ | 1,704,033 | | | $ | 254,303 | | | $ | — | | | $ | 16,456,546 | |
| Percentage of total | Percentage of total | 67.3 | % | | 18.4 | % | | 12.9 | % | | 1.4 | % | | 100.0 | % | Percentage of total | 70.5 | % | | 17.6 | % | | 10.4 | % | | 1.5 | % | | 100.0 | % |
| Operating income | $ | 588,409 | | | $ | (537) | | | $ | 11,692 | | | $ | (5) | | | $ | (179,980) | | | $ | 419,579 | | |
Operating income (loss) | | Operating income (loss) | $ | 797,523 | | | $ | 36,676 | | | $ | (2,447) | | | $ | 6,456 | | | $ | (206,526) | | | $ | 631,682 | |
| Percentage of total segments | Percentage of total segments | 98.1 | % | | (0.1) | % | | 2.0 | % | | — | % | | 100.0 | % | Percentage of total segments | 95.1 | % | | 4.4 | % | | (0.3) | % | | 0.8 | % | | 100.0 | % |
Operating income as a percentage of sales | 7.4 | % | | — | % | | 0.8 | % | | — | % | | 3.6 | % | |
Operating income (loss) as a percentage of sales | | Operating income (loss) as a percentage of sales | 6.9 | % | | 1.3 | % | | (0.1) | % | | 2.5 | % | | 3.8 | % |
Based on information in Note 13,14, “Business Segment Information,” in the Notes to Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q, in the first quarter of fiscal 2022,2023, U.S. Foodservice Operations and International Foodservice Operations collectively represented approximately 88.1%88.3% of Sysco’s overall sales and 99.5%98.4% of total segment operating income.income, respectively. This illustrates that these segments represent a substantial majority of our total segment results when compared to other reportable segments.
Results of U.S. Foodservice Operations
The following tables set forth a summary of the components of operating income expressed as a percentage increase or decrease over the comparable period in the prior year:
| | | | | | | | | | | | | | | | | | | | | | | |
| 13-Week Period Ended Oct. 2, 2021 | | 13-Week Period Ended Sep. 26, 2020 | | Change in Dollars | | % Change |
| (Dollars in thousands) |
Sales | $ | 11,602,963 | | | $ | 7,921,533 | | | $ | 3,681,430 | | | 46.5 | % |
Gross profit | 2,185,154 | | | 1,599,707 | | | 585,447 | | | 36.6 | |
Operating expenses | 1,387,631 | | | 1,011,298 | | | 376,333 | | | 37.2 | |
Operating income | $ | 797,523 | | | $ | 588,409 | | | $ | 209,114 | | | 35.5 | % |
| | | | | | | |
Gross profit | $ | 2,185,154 | | | $ | 1,599,707 | | | $ | 585,447 | | | 36.6 | % |
Adjusted operating expenses (Non-GAAP) | 1,389,394 | | | 1,096,675 | | | 292,719 | | | 26.7 | |
Adjusted operating income (Non-GAAP) | $ | 795,760 | | | $ | 503,032 | | | $ | 292,728 | | | 58.2 | % |
| | | | | | | |
| | | | | | | |
| |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 13-Week Period Ended Oct. 1, 2022 | | 13-Week Period Ended Oct. 2, 2021 | | Change in Dollars | | % Change |
| (Dollars in thousands) |
Sales | $ | 13,602,482 | | | $ | 11,602,963 | | | $ | 1,999,519 | | | 17.2 | % |
Gross profit | 2,612,343 | | | 2,185,154 | | | 427,189 | | | 19.5 | |
Operating expenses | 1,708,515 | | | 1,387,631 | | | 320,884 | | | 23.1 | |
Operating income | $ | 903,828 | | | $ | 797,523 | | | $ | 106,305 | | | 13.3 | % |
| | | | | | | |
Gross profit | $ | 2,612,343 | | | $ | 2,185,154 | | | $ | 427,189 | | | 19.5 | % |
Adjusted operating expenses (Non-GAAP) | 1,698,570 | | | 1,389,394 | | | 309,176 | | | 22.3 | |
Adjusted operating income (Non-GAAP) | $ | 913,773 | | | $ | 795,760 | | | $ | 118,013 | | | 14.8 | % |
| | | | | | | |
| | | | | | | |
| |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Sales
The following table sets forth the percentage and dollar value increase or decrease in the major factors impacting sales as compared to the corresponding prior year period in order to demonstrate the cause and magnitude of change.change:
| | | Increase (Decrease) | | | Increase (Decrease) | |
| | 13-Week Period | | | 13-Week Period | |
| | (Dollars in millions) | | | (Dollars in millions) | |
Cause of change | Cause of change | Percentage | | Dollars | | Cause of change | Percentage | | Dollars | |
Case volume(1) | Case volume(1) | 28.7 | % | | $ | 2,273.8 | | | Case volume(1) | 6.2 | % | | $ | 714.1 | | |
Inflation (1) | Inflation (1) | 13.5 | | | 1,069.6 | | | Inflation (1) | 9.8 | | | 1,137.1 | | |
Acquisitions (2) | 2.1 | | | 167.0 | | | |
| Other (3)(2) | Other (3)(2) | 2.2 | | | 171.0 | | | Other (3)(2) | 1.2 | | | 148.3 | | |
Total change in sales | Total change in sales | 46.5 | % | | $ | 3,681.4 | | | Total change in sales | 17.2 | % | | $ | 1,999.5 | | |
| | |
| | | | | |
| |
| |
(1)Includes product cost inflation of 13.4% for U.S. Broadline operations.(2)Includes the impact of the Greco and Sons acquisition.
(3)Case volume excludes the volume impact from our custom-cut meat companies that do not measure volume in cases. Any impact in volumes from these operations is included within “Other.”
| Case volumes increased 7.3% compared to the first quarter of fiscal 2022. This volume increase resulted in a 6.2% increase in the dollar value of sales compared to the first quarter of fiscal 2022. |
(2) | Case volume reflects our broadline and specialty businesses, with the exception of our specialty meats business, which measures its volume in pounds. Any impact in volumes from these specialty meats operations is included within “Other.” |
The primary driverdrivers of the sales increase wasin the significantfirst quarter of fiscal 2023 were inflation, along with an improvement in case volume in our U.S. Broadline operations as aFoodservice Operations, which was largely the result of the business recovery from the COVID-19 pandemic.impact of our Recipe for Growth initiatives. Case volumes from our U.S. Broadline operationsFoodservice Operations increased 28.1%7.3% in the first quarter of fiscal 2022,2023, as compared to the first quarter of fiscal 2021, and2022. This included a 23.8% improvement5.4% increase in locally managedlocal customer case growth, along with a 33.9% increasevolume in national customer case volume. The increases in U.S. Broadline case volumes represent organic growth.the first quarter of fiscal 2023.
Operating Income
The increase in operating income for the first quarter of fiscal 2022,2023, as compared to the first quarter of fiscal 2021,2022, was driven by gross profit dollar growth and partially offset by an increase in operating expenses.
Gross profit dollar growth in the first quarter of fiscal 2022,2023, as compared to the first quarter of fiscal 2021,2022, was driven primarily by the improvement in local cases andstemming from: (1) the pass throughimpact of our Recipe for Growth initiatives, (2) management of higher inflation toand (3) optimization of our customers, partially offset by a decline in penetration of Sysco-branded products.business processes and performance. The estimated change in product costs, an internal measure of inflation or deflation, for the first quarter of fiscal 20222023 for our U.S. Broadline operations was inflation of 13.4%12.0%. For the first quarter of fiscal 2022,2023, this change in product costs was primarily driven by inflation in the meat, poultry,dairy and canned and dry foodsfrozen categories. Gross margin, which is gross profit as a percentage of sales, was 18.83%19.2% in the first quarter of fiscal 2022,2023 for our U.S. Foodservice Operations, which was an increase of 37 basis points compared to gross margin of 18.8% in the first quarter of fiscal 2022.
was a decrease of 136 basis points compared to gross margin of 20.19% in the first quarter of fiscal 2021, primarily attributable to inflationary pressure.
The increase in operating expenses for the first quarter of fiscal 2022,2023, as compared to the first quarter of fiscal 2021,2022, was primarily driven by variable costs associated with increased volumes and largely from short-term transitory expenses associated with the business recovery, including increases in associate-related costs associated with recruitingfor employee training and hiring additional supply chain associates. Additionally, we experienced an unfavorable comparison of bad debt expense in the first quarter of fiscal 2022, as comparedretention designed to fiscal 2021, which included a net bad debt benefit due to the significant reduction of reserves on pre-pandemic receivables.improve productivity.
Results of International Foodservice Operations
The following table sets forth a summary of the components of operating income and adjusted operating income expressed as a percentage increase or decrease over the comparable period in the prior year:
| | | 13-Week Period Ended Oct. 2, 2021 | | 13-Week Period Ended Sep. 26, 2020 | | Change in Dollars | | % Change | | 13-Week Period Ended Oct. 1, 2022 | | 13-Week Period Ended Oct. 2, 2021 | | Change in Dollars | | % Change |
| | (Dollars in thousands) | | (Dollars in thousands) |
Sales | Sales | $ | 2,895,247 | | | $ | 2,163,693 | | | $ | 731,554 | | | 33.8 | % | Sales | $ | 3,283,735 | | | $ | 2,895,247 | | | $ | 388,488 | | | 13.4 | % |
Gross profit | Gross profit | 589,134 | | | 450,398 | | | 138,736 | | | 30.8 | | Gross profit | 649,265 | | | 589,134 | | | 60,131 | | | 10.2 | |
Operating expenses | Operating expenses | 552,458 | | | 450,935 | | | 101,523 | | | 22.5 | | Operating expenses | 562,057 | | | 552,458 | | | 9,599 | | | 1.7 | |
Operating income (loss) | $ | 36,676 | | | $ | (537) | | | $ | 37,213 | | | NM | |
Operating income | | Operating income | $ | 87,208 | | | $ | 36,676 | | | $ | 50,532 | | | 137.8 | % |
| Gross profit | Gross profit | $ | 589,134 | | | $ | 450,398 | | | $ | 138,736 | | | 30.8 | % | Gross profit | $ | 649,265 | | | $ | 589,134 | | | $ | 60,131 | | | 10.2 | % |
Adjusted operating expenses (Non-GAAP) | Adjusted operating expenses (Non-GAAP) | 525,017 | | | 431,616 | | | 93,401 | | | 21.6 | | Adjusted operating expenses (Non-GAAP) | 542,136 | | | 525,017 | | | 17,119 | | | 3.3 | |
Adjusted operating income (Non-GAAP) | Adjusted operating income (Non-GAAP) | $ | 64,117 | | | $ | 18,782 | | | $ | 45,335 | | | 241.4 | % | Adjusted operating income (Non-GAAP) | $ | 107,129 | | | $ | 64,117 | | | $ | 43,012 | | | 67.1 | % |
| Sales on a constant currency basis (Non-GAAP) | Sales on a constant currency basis (Non-GAAP) | $ | 2,773,852 | | | $ | 2,163,693 | | | $ | 610,159 | | | 28.2 | % | Sales on a constant currency basis (Non-GAAP) | $ | 3,599,186 | | | $ | 2,895,247 | | | $ | 703,939 | | | 24.3 | % |
Gross profit on a constant currency basis (Non-GAAP) | Gross profit on a constant currency basis (Non-GAAP) | 566,400 | | | 450,398 | | | 116,002 | | | 25.8 | | Gross profit on a constant currency basis (Non-GAAP) | 721,025 | | | 589,134 | | | 131,891 | | | 22.4 | |
Adjusted operating expenses on a constant currency basis (Non-GAAP) | Adjusted operating expenses on a constant currency basis (Non-GAAP) | 503,943 | | | 431,616 | | | 72,327 | | | 16.8 | | Adjusted operating expenses on a constant currency basis (Non-GAAP) | 606,843 | | | 525,017 | | | 81,826 | | | 15.6 | |
Adjusted operating income (Non-GAAP) | Adjusted operating income (Non-GAAP) | $ | 62,457 | | | $ | 18,782 | | | $ | 43,675 | | | 232.5 | % | Adjusted operating income (Non-GAAP) | $ | 114,182 | | | $ | 64,117 | | | $ | 50,065 | | | 78.1 | % |
| | |
Sales
The following tables set forth the percentage and dollar value increase or decrease in the major components impacting sales as compared to the corresponding prior year period in order to demonstrate the cause and magnitude of change.
| | | Increase (Decrease) | | | Increase (Decrease) | |
| | 13-Week Period | | | 13-Week Period | |
| | (Dollars in millions) | | | (Dollars in millions) | |
Cause of change | Cause of change | Percentage | | Dollars | | Cause of change | Percentage | | Dollars | |
Inflation | Inflation | 3.3 | % | | $ | 71.9 | | | Inflation | 14.5 | % | | $ | 418.5 | | |
| Foreign currency | Foreign currency | 5.7 | | | 122.9 | | | Foreign currency | (10.9) | | | (315.5) | | |
Other (1) | Other (1) | 24.8 | | | 536.8 | | | Other (1) | 9.8 | | | 285.5 | | |
Total change in sales | Total change in sales | 33.8 | % | | $ | 731.6 | | | Total change in sales | 13.4 | % | | $ | 388.5 | | |
| | |
(1)The impact of volumes as a component of sales growth from international operations are included within “Other.” Volume in our foreign operations includes volume metrics that differ from country to country and cannot be aggregated on a consistent, comparable basis. | | | | | |
(1) | The impact of volumes as a component of sales growth from international operations are included within “Other.” Volume in our foreign operations includes volume metrics that differ from country to country and cannot be aggregated on a consistent, comparable basis. |
Sales for the first quarter of fiscal 20222023 were higher, as compared to the first quarter of fiscal 2021,2022, primarily due to the significantinflation along with an improvement in volume, as restrictions continuedsome of which was attributable to ease across our European, Canadian and Latin American businesses.
Recipe for Growth initiatives. Partially offsetting these increases was the negative impact of foreign currency translation.
Operating Income
The increase in operating income for the first quarter of fiscal 2022,2023, as compared to the first quarter of fiscal 2021,2022, was primarily due to the continuing recoveryincrease in business resulting from COVID-19 restrictions lifting in many international regions.sales volumes, along with specific efforts to optimize our gross profit while addressing our increased operating expenses.
The increase in gross profit dollars in the first quarter of fiscal 2022,2023, as compared to the first quarter of fiscal 2021,2022, was primarily attributable to the increase in sales volume and inflation.the management of inflation, along with specific efforts to optimize our gross profit dollars.
The increase in operating expenses for the first quarter of fiscal 2022,2023, as compared to the first quarter of fiscal 2021,2022, was primarily due to an increase in associate-related costs associated with hiring associates to manage the business recovery. Additionally, we had an unfavorable comparison of bad debt expense, as fiscal 2021 included a reduction of reserves on pre-pandemic receivables.increased volume.
Results of SYGMA and Other Segment
For SYGMA, sales were 11.8%13.5% higher in the first quarter of fiscal 2022,2023, as compared to the first quarter of fiscal 2021,2022, primarily from an increase in case volumevolumes driven by the success of national and regional quick service restaurants partially offset by a decrease in volume due to the planned exit of a large regional customer.and inflation. Operating income decreasedincreased by $14.1$7.9 million in the first quarter of fiscal 2022,2023, as compared to the first quarter of fiscal 2021, as our increased investments in business recovery staffing drove an2022, primarily due to the increase in operating expensescase volumes and fee increases to exceed gross profit dollar growth from increased case volume.customers.
For the operations that are grouped within Other, operating income increased $6.5$5.1 million in the first quarter of fiscal 2022,2023, as compared to the first quarter of fiscal 2021,2022, primarily due to the recovery of our hospitality business, Guest Worldwide, which had a gross profit increase of 75.2% in the first quarter of fiscal 2022. ThisWorldwide. Volume for this business has improved, as hospitality occupancy rates have grown from prior year levels.
Global Support Center Expenses
Our Global Support Center generally includes all expenses of the corporate office and Sysco’s shared service operations. These expenses in the first quarter of fiscal 20222023 increased $29.0$59.5 million, or 16.3%28.8%, as compared to the first quarter of fiscal 2021,2022, primarily due to higher chargesinvestments for professional fees, including acquisition and due diligence costs associated certain acquisitions, as well asour Recipe for Growth strategy, higher associate-related expenses.expenses, partially from centralization of certain functions, and an increase in self-insurance reserves.
Included in Global Support Center expenses are Certain Items that totaled $6.1 million in the first quarter of fiscal 2023, as compared to $27.7 million in the first quarter of fiscal 2022, as compared to $12.0 million in2022. Certain Items impacting the first quarter of fiscal 2021.2023 were primarily expenses associated with our business technology transformation initiatives. Certain Items impacting the first quarter of fiscal 2022 were primarily expenses associated with our business technology transformation initiatives and expenses associated with acquisitions. Certain Items impacting the first quarter of fiscal 2021 were primarily expenses associated with our business technology transformation initiatives.
Interest Expense
Interest expense decreased $18.5$4.1 million for the first quarter of fiscal 2022,2023, as compared to the first quarter of fiscal 2021,2022, primarily attributable to lower fixed debt volume, along withlevels.
Other income and expense
Other (income) expense, net was expense of $15.3 million and income of $3.3 million in the first quarter of fiscal 2023 and fiscal 2022, respectively. The expense in the first quarter of fiscal 2023 was primarily attributable to expenses from our U.S. Sysco Corporation Retirement Plan due to increased interest rates and lower floating interest rates.plan asset values as compared to fiscal 2022.
Net Earnings
Net earnings increased 74.3%23.2% in the first quarter of fiscal 2022,2023, as compared to the first quarter of fiscal 2021,2022, due primarily to the items noted above for operating income and interest expense, as well as items impacting our income taxes that are discussed in Note 11,12, “Income Taxes,” in the Notes to Consolidated Financial Statements in Item 1 of Part I.I of this Form 10-Q. Adjusted net earnings, excluding Certain Items, increased 147.9%14.6% in the first quarter of fiscal 2022,2023, primarily due to a significantan increase in sales volume, partially offset by an unfavorable tax expense compared to the prior year.
Earnings Per Share
Basic earnings per share in the first quarter of fiscal 20222023 were $0.74,$0.92, a 72.1%24.3% increase from the comparable prior year amount of $0.43$0.74 per share. Diluted earnings per share in the first quarter of fiscal 20222023 were $0.73,$0.91, a 73.8%24.7% increase from the comparable prior year period amount of $0.42$0.73 per share.
Adjusted diluted earnings per share, excluding Certain Items, in the first quarter of fiscal 20222023 were $0.83,$0.97, a 144.1% decrease16.9% increase from the comparable prior year amount of $0.34$0.83 per share.
Non-GAAP Reconciliations
| | |
Our discussion of our results includes certain non-GAAP financial measures, includingsuch as EBITDA and adjusted EBITDA, that we believe provide important perspective with respect to underlying business trends. Other than free cash flow and EBITDA, any non-GAAP financial measures will be denoted as adjusted measures to remove the impact ofof: (1) restructuring and transformational project costs consisting of: (1)(a) restructuring charges, (2)(b) expenses associated with our various transformation initiatives and (3)(c) facility closure and severance charges; and by(2) acquisition-related costs consisting of: (1)(a) intangible amortization expense and (2)(b) acquisition costs and due diligence costs related to our significant acquisitions. Our results for the first quarter of fiscal 2022 are also impacted by the increase in reserves for uncertain tax positions. Sysco’s results for the first quarter of fiscal 2022acquisitions; and fiscal 2021 were also impacted by(3) the reduction of bad debt expense previously recognized in fiscal 2020 due to the impact of the COVID-19 pandemic on the collectability of our pre-pandemic trade receivable balances,balances. Our results for fiscal 2023 were also impacted by adjustments to a loss on the sale of a business andproduct return allowance related to COVID-related personal protection equipment inventory. Our results for fiscal 2022 were also impacted by a net benefit from remeasuring net deferredan increase in reserves for uncertain tax assets due to the changes in U.K. tax rates.positions. |
|
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 total Sysco and 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 total Sysco and 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 and (2) facilitates comparisons on a year-over-year basis. |
|
Although Sysco has a history of growth through acquisitions certain acquisitions were significantly larger than the companies historically acquired by Sysco, with a proportionately greater impact on Sysco’s consolidated financial statements. Accordingly, Sysco is excludingand excludes from its non-GAAP financial measures for the relevant periods the impact of acquisition-related intangible amortization, acquisition costs and due-diligence costs specific to our significantfor those acquisitions. We believe this approach significantly enhances the comparability of Sysco’s results for fiscal 20222023 and fiscal 2021.2022. |
|
Set forth below is a reconciliation of sales, operating expenses, operating income, 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. |
| | | | | | | | | | | | | | | | | | | | | | | |
| 13-Week Period Ended Oct. 1, 2022 | | 13-Week Period Ended Oct. 2, 2021 | | Change in Dollars | | % Change |
Sales (GAAP) | $ | 19,126,830 | | | $ | 16,456,546 | | | $ | 2,670,284 | | | 16.2 | % |
Impact of currency fluctuations (1) | 319,162 | | | — | | | 319,162 | | | 2.0 | |
Comparable sales using a constant currency basis (Non-GAAP) | $ | 19,445,992 | | | $ | 16,456,546 | | | $ | 2,989,446 | | | 18.2 | % |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Cost of sales (GAAP) | $ | 15,637,975 | | | $ | 13,484,838 | | | $ | 2,153,137 | | | 16.0 | % |
Impact of inventory valuation adjustment (2) | 2,571 | | | — | | | 2,571 | | | — | |
Cost of sales adjusted for Certain Items (Non-GAAP) | $ | 15,640,546 | | | $ | 13,484,838 | | | $ | 2,155,708 | | | 16.0 | % |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Gross profit (GAAP) | $ | 3,488,855 | | | $ | 2,971,708 | | | $ | 517,147 | | | 17.4 | % |
Impact of inventory valuation adjustment (2) | (2,571) | | | — | | | (2,571) | | | (0.1) | |
Comparable gross profit adjusted for Certain Items (Non-GAAP) | 3,486,284 | | | 2,971,708 | | | 514,576 | | | 17.3 | |
Impact of currency fluctuations (1) | 73,035 | | | — | | | 73,035 | | | 2.5 | |
Comparable gross profit adjusted for Certain Items using a constant currency basis (Non-GAAP) | $ | 3,559,319 | | | $ | 2,971,708 | | | $ | 587,611 | | | 19.8 | % |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Gross margin (GAAP) | 18.24 | % | | 18.06 | % | | | | 18 bps |
Impact of inventory valuation adjustment (2) | (0.01) | % | | — | % | | | | -1 bps |
Comparable gross margin adjusted for Certain Items (Non-GAAP) | 18.23 | % | | 18.06 | % | | | | 17 bps |
| | | | | | | |
| | | | | | | |
Impact of currency fluctuations (1) | 0.07 | | | — | | | | | 7 bps |
Comparable gross margin adjusted for Certain Items using a constant currency basis (Non-GAAP) | 18.30 | % | | 18.06 | % | | | | 24 bps |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Operating expenses (GAAP) | $ | 2,754,522 | | | $ | 2,340,026 | | | $ | 414,496 | | | 17.7 | % |
Impact of restructuring and transformational project costs (3) | (11,645) | | | (24,511) | | | 12,866 | | | 52.5 | |
Impact of acquisition-related costs (4) | (29,454) | | | (35,926) | | | 6,472 | | | 18.0 | |
Impact of bad debt reserve adjustments (5) | 2,592 | | | 7,061 | | | (4,469) | | | (63.3) | |
| | | | | | | |
Operating expenses adjusted for Certain Items (Non-GAAP) | 2,716,015 | | | 2,286,650 | | | 429,365 | | | 18.8 | |
Impact of currency fluctuations (1) | 70,695 | | | — | | | 70,695 | | | 3.1 | |
Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP) | $ | 2,786,710 | | | $ | 2,286,650 | | | $ | 500,060 | | | 21.9 | % |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Operating expense as a percentage of sales (GAAP) | 14.40 | % | | 14.22 | % | | | | 18 bps |
Impact of certain item adjustments | (0.20) | % | | (0.32) | % | | | | 12 bps |
Adjusted operating expense as a percentage of sales (Non-GAAP) | 14.20 | % | | 13.90 | % | | | | 30 bps |
| | | | | | | |
Operating income (GAAP) | $ | 734,333 | | | $ | 631,682 | | | $ | 102,651 | | | 16.3 | % |
Impact of inventory valuation adjustment (2) | (2,571) | | | — | | | (2,571) | | | NM |
Impact of restructuring and transformational project costs (3) | 11,645 | | | 24,511 | | | (12,866) | | | (52.5) | |
Impact of acquisition-related costs (4) | 29,454 | | | 35,926 | | | (6,472) | | | (18.0) | |
Impact of bad debt reserve adjustments (5) | (2,592) | | | (7,061) | | | 4,469 | | | 63.3 | |
| | | | | | | |
Operating income adjusted for Certain Items (Non-GAAP) | 770,269 | | | 685,058 | | | 85,211 | | | 12.4 | |
Impact of currency fluctuations (1) | 2,340 | | | — | | | 2,340 | | | 0.4 | |
Comparable operating income adjusted for Certain Items using a constant currency basis (Non-GAAP) | $ | 772,609 | | | $ | 685,058 | | | $ | 87,551 | | | 12.8 | % |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Operating margin (GAAP) | 3.84 | % | | 3.84 | % | | | | 0 bps |
| | | | | | | | | | | | | | | | | | | | | | | |
| 13-Week Period Ended Oct. 2, 2021 | | 13-Week Period Ended Sep. 26, 2020 | | Change in Dollars | | % Change |
Sales (GAAP) | $ | 16,456,546 | | | $ | 11,777,379 | | | $ | 4,679,167 | | | 39.7 | % |
| | | | | | | |
| | | | | | | |
Impact of currency fluctuations (1) | (124,726) | | | — | | | (124,726) | | | (1.1) | |
Comparable sales using a constant currency basis (Non-GAAP) | $ | 16,331,820 | | | $ | 11,777,379 | | | $ | 4,554,441 | | | 38.7 | % |
| | | | | | | |
Gross profit (GAAP) | $ | 2,971,708 | | | $ | 2,219,845 | | | $ | 751,863 | | | 33.9 | % |
| | | | | | | |
| | | | | | | |
Impact of currency fluctuations (1) | (23,863) | | | — | | | (23,863) | | | (1.1) | |
Comparable gross profit using a constant currency basis (Non-GAAP) | $ | 2,947,845 | | | $ | 2,219,845 | | | $ | 728,000 | | | 32.8 | % |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Gross margin (GAAP) | 18.06 | % | | 18.85 | % | | | | -79 bps |
Impact of currency fluctuations (1) | (0.01) | | | — | | | | | -1 bps |
Comparable Gross margin using a constant currency basis (Non-GAAP) | 18.05 | % | | 18.85 | % | | | | -80 bps |
| | | | | | | |
Operating expenses (GAAP) | $ | 2,340,026 | | | $ | 1,800,266 | | | $ | 539,760 | | | 30.0 | % |
Impact of restructuring and transformational project costs (2) | (24,511) | | | (25,964) | | | 1,453 | | | 5.6 | |
Impact of acquisition-related costs (3) | (35,926) | | | (17,755) | | | (18,171) | | | (102.3) | |
Impact of bad debt reserve adjustments (4) | 7,061 | | | 98,629 | | | (91,568) | | | (92.8) | |
| | | | | | | |
Operating expenses adjusted for Certain Items (Non-GAAP) | 2,286,650 | | | 1,855,176 | | | 431,474 | | | 23.3 | |
| | | | | | | |
| | | | | | | |
Impact of currency fluctuations (1) | (21,751) | | | — | | | (21,751) | | | (1.2) | |
Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP) | $ | 2,264,899 | | | $ | 1,855,176 | | | $ | 409,723 | | | 22.1 | % |
| | | | | | | |
Operating income (GAAP) | $ | 631,682 | | | $ | 419,579 | | | $ | 212,103 | | | 50.6 | % |
Impact of restructuring and transformational project costs (2) | 24,511 | | | 25,964 | | | (1,453) | | | (5.6) | |
Impact of acquisition-related costs (3) | 35,926 | | | 17,755 | | | 18,171 | | | 102.3 | |
Impact of bad debt reserve adjustments (4) | (7,061) | | | (98,629) | | | 91,568 | | | 92.8 | |
| | | | | | | |
Operating income adjusted for Certain Items (Non-GAAP) | 685,058 | | | 364,669 | | | 320,389 | | | 87.9 | % |
| | | | | | | |
| | | | | | | |
Impact of currency fluctuations (1) | (2,112) | | | — | | | (2,112) | | | (0.6) | |
Comparable operating income adjusted for Certain Items using a constant currency basis (Non-GAAP) | $ | 682,946 | | | $ | 364,669 | | | $ | 318,277 | | | 87.3 | % |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Other (income) expense (GAAP) | $ | (3,252) | | | $ | 14,124 | | | $ | (17,376) | | | 123.0 | % |
Impact of loss on sale of business | — | | | (12,043) | | | 12,043 | | | NM |
Other (income) expense adjusted for Certain Items (Non-GAAP) | $ | (3,252) | | | $ | 2,081 | | | $ | (5,333) | | | 256.3 | % |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net earnings (GAAP) | $ | 378,013 | | | $ | 216,900 | | | $ | 161,113 | | | 74.3 | % |
Impact of restructuring and transformational project costs (2) | 24,511 | | | 25,964 | | | (1,453) | | | (5.6) | |
Impact of acquisition-related costs (3) | 35,926 | | | 17,755 | | | 18,171 | | | 102.3 | |
Impact of bad debt reserve adjustments (4) | (7,061) | | | (98,629) | | | 91,568 | | | 92.8 | |
| | | | | | | |
| | | | | | | |
Impact of loss on sale of business | — | | | 12,043 | | | (12,043) | | | NM |
Tax impact of restructuring and transformational project costs (5) | (6,186) | | | (5,920) | | | (266) | | | (4.5) | |
Tax impact of acquisition-related costs (5) | (9,066) | | | (4,048) | | | (5,018) | | | (124.0) | |
Tax impact of bad debt reserves adjustments (5) | 1,782 | | | 22,488 | | | (20,706) | | | (92.1) | |
| | | | | | | |
Tax impact of loss on sale of business (5) | — | | | (7,553) | | | 7,553 | | | NM |
Impact of adjustments to uncertain tax positions | 12,000 | | | — | | | 12,000 | | | NM |
Impact of foreign tax rate change (6) | — | | | (5,548) | | | 5,548 | | | NM |
Net earnings adjusted for Certain Items (Non-GAAP) | $ | 429,919 | | | $ | 173,452 | | | $ | 256,467 | | | 147.9 | % |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
Diluted earnings per share (GAAP) | $ | 0.73 | | | $ | 0.42 | | | $ | 0.31 | | | 73.8 | % |
Impact of restructuring and transformational project costs (2) | 0.05 | | | 0.05 | | | — | | | — | |
Impact of acquisition-related costs (3) | 0.07 | | | 0.03 | | | 0.04 | | | 133.3 | |
Impact of bad debt reserve adjustments (4) | (0.01) | | | (0.19) | | | 0.18 | | | 94.7 | |
| | | | | | | |
| | | | | | | |
Impact of loss on sale of business | — | | | 0.02 | | | (0.02) | | | NM |
Tax impact of restructuring and transformational project costs (5) | (0.01) | | | (0.01) | | | — | | | — | |
Tax impact of acquisition-related costs (5) | (0.02) | | | (0.01) | | | (0.01) | | | (100.0) | |
Tax impact of bad debt reserves adjustments (5) | — | | | 0.04 | | | (0.04) | | | NM |
| | | | | | | |
Tax impact of Impact of loss on sale of business (5) | — | | | (0.01) | | | 0.01 | | | NM |
Impact of adjustments to uncertain tax positions | 0.02 | | | — | | | 0.02 | | | NM |
Impact of foreign tax rate change (6) | — | | | (0.01) | | | 0.01 | | | NM |
Diluted earnings per share adjusted for Certain Items (Non-GAAP) (7) | $ | 0.83 | | | $ | 0.34 | | | $ | 0.49 | | | 144.1 | % |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 13-Week Period Ended Oct. 1, 2022 | | 13-Week Period Ended Oct. 2, 2021 | | Change in Dollars | | % Change |
Operating margin adjusted for Certain Items (Non-GAAP) | 4.03 | % | | 4.16 | % | | | | -13 bps |
Operating margin adjusted for Certain Items using a constant currency basis (Non-GAAP) | 3.97 | % | | 4.16 | % | | | | -19 bps |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net earnings (GAAP) | $ | 465,568 | | | $ | 378,013 | | | $ | 87,555 | | | 23.2 | % |
Impact of inventory valuation adjustment (2) | (2,571) | | | — | | | (2,571) | | | NM |
Impact of restructuring and transformational project costs (3) | 11,645 | | | 24,511 | | | (12,866) | | | (52.5) | |
Impact of acquisition-related costs (4) | 29,454 | | | 35,926 | | | (6,472) | | | (18.0) | |
Impact of bad debt reserve adjustments (5) | (2,592) | | | (7,061) | | | 4,469 | | | 63.3 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Tax impact of inventory valuation adjustment (6) | 637 | | | — | | | 637 | | | NM |
Tax impact of restructuring and transformational project costs (6) | (2,884) | | | (6,186) | | | 3,302 | | | 53.4 | |
Tax impact of acquisition-related costs (6) | (7,295) | | | (9,066) | | | 1,771 | | | 19.5 | |
Tax impact of bad debt reserves adjustments (6) | 642 | | | 1,782 | | | (1,140) | | | (64.0) | |
| | | | | | | |
| | | | | | | |
Impact of adjustments to uncertain tax positions | — | | | 12,000 | | | (12,000) | | | NM |
| | | | | | | |
Net earnings adjusted for Certain Items (Non-GAAP) | $ | 492,604 | | | $ | 429,919 | | | $ | 62,685 | | | 14.6 | % |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Diluted earnings per share (GAAP) | $ | 0.91 | | | $ | 0.73 | | | $ | 0.18 | | | 24.7 | % |
Impact of inventory valuation adjustment (2) | (0.01) | | | — | | | (0.01) | | | NM |
Impact of restructuring and transformational project costs (3) | 0.02 | | | 0.05 | | | (0.03) | | | (60.0) | |
Impact of acquisition-related costs (4) | 0.06 | | | 0.07 | | | (0.01) | | | (14.3) | |
Impact of bad debt reserve adjustments (5) | (0.01) | | | (0.01) | | | — | | | — | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Tax impact of restructuring and transformational project costs (6) | (0.01) | | | (0.01) | | | — | | | — | |
Tax impact of acquisition-related costs (6) | (0.01) | | | (0.02) | | | 0.01 | | | 50.0 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Impact of adjustments to uncertain tax positions | — | | | 0.02 | | | (0.02) | | | NM |
| | | | | | | |
Diluted earnings per share adjusted for Certain Items (Non-GAAP) (7) | $ | 0.97 | | | $ | 0.83 | | | $ | 0.14 | | | 16.9 | % |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | |
| |
(1) | Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on the current year results. |
(2) | Fiscal 2023 represents an adjustment to a product return allowance, related to COVID-related personal protection equipment inventory. |
(3) | Fiscal 2023 includes $4 million related to restructuring, severance, and facility closure charges and $8 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy. Fiscal 2022 includes $16 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy and $8 million related to restructuring charges. |
(4) | Fiscal 20212023 includes $13 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy and $13$26 million of primarily consisting of restructuring charges. |
(3) | intangible amortization expense and $4 million in acquisition and due diligence costs. Fiscal 2022 includes $22 million of intangible amortization expense and $14 million in acquisition and due diligence costs, which are primarily included in Global Support Center expenses. Fiscal 2021 represents $18 million related to intangible amortization expense. |
(4)(5) | Fiscal 20222023 and 2021fiscal 2022 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020. |
(5)(6) | 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. |
(6) | Fiscal 2021 represents a net benefit from remeasuring Sysco’s accrued income taxes, deferred tax asset and deferred tax liabilities due to changes in tax rates in the United Kingdom. |
(7) | 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. |
| NM represents that the percentage change is not meaningful. |
| | | | | | | | | | | | | | | | | | | | | | | |
| 13-Week Period Ended Oct. 2, 2021 | | 13-Week Period Ended Sep. 29, 2018 | | Change in Dollars | | % Change |
Sales (GAAP) | $ | 16,456,546 | | | $ | 15,215,279 | | | $ | 1,241,267 | | | 8.2 | % |
Gross profit (GAAP) | 2,971,708 | | | 2,903,785 | | | 67,923 | | | 2.3 | % |
Gross margin (GAAP) | 18.06 | % | | 19.08 | % | | | | -103 |
| | | | | | | |
Operating expenses (GAAP) | $ | 2,340,026 | | | $ | 2,275,645 | | | $ | 64,381 | | | 2.8 | % |
Impact of restructuring and transformational project costs (1) | (24,511) | | | (40,903) | | | 16,392 | | | 40.1 | % |
Impact of acquisition-related costs (2) | (35,926) | | | (22,636) | | | (13,290) | | | (58.7) | % |
Impact of bad debt reserve adjustments (3) | 7,061 | | | — | | | 7,061 | | | NM |
Comparable operating expenses adjusted for Certain Items (Non-GAAP) | $ | 2,286,650 | | | $ | 2,212,106 | | | $ | 74,544 | | | 3.4 | % |
| | | | | | | |
Operating income (GAAP) | $ | 631,682 | | | $ | 628,140 | | | $ | 3,542 | | | 0.6 | % |
Impact of restructuring and transformational project costs (1) | 24,511 | | | 40,903 | | | (16,392) | | | (40.1) | % |
Impact of acquisition-related costs (2) | 35,926 | | | 22,636 | | | 13,290 | | | 58.7 | % |
Impact of bad debt reserve adjustments (3) | (7,061) | | | — | | | (7,061) | | | NM |
Operating income adjusted for Certain Items (Non-GAAP) | $ | 685,058 | | | $ | 691,679 | | | $ | (6,621) | | | (1.0) | % |
| | | | | | | |
Net earnings (GAAP) | $ | 378,013 | | | $ | 431,042 | | | $ | (53,029) | | | (12.3) | % |
Impact of restructuring and transformational project costs (1) | 24,511 | | | 40,903 | | | (16,392) | | | (40.1) | % |
Impact of acquisition-related costs (2) | 35,926 | | | 22,636 | | | 13,290 | | | 58.7 | % |
Impact of bad debt reserve adjustments (3) | (7,061) | | | — | | | (7,061) | | | NM |
Tax impact of restructuring and transformational project costs (4) | (6,186) | | | (10,674) | | | 4,488 | | | 42.0 | % |
Tax impact of acquisition-related costs (4) | (9,066) | | | (4,691) | | | (4,375) | | | (93.3) | % |
Tax impact of bad debt reserves adjustments (4) | 1,782 | | | — | | | 1,782 | | | NM |
Impact of adjustments to uncertain tax positions | 12,000 | | | — | | | 12,000 | | | NM |
Net earnings adjusted for Certain Items (Non-GAAP) | $ | 429,919 | | | $ | 479,216 | | | $ | (49,297) | | | (10.3) | % |
| | | | | | | |
Diluted earnings per share (GAAP) | $ | 0.73 | | | $ | 0.81 | | | $ | (0.08) | | | (9.9) | % |
Impact of restructuring and transformational project costs (1) | 0.05 | | | 0.08 | | | (0.03) | | | (37.5) | % |
Impact of acquisition-related costs (2) | 0.07 | | | 0.04 | | | 0.03 | | | 75.0 | % |
Impact of bad debt reserve adjustments (3) | (0.01) | | | — | | | (0.01) | | | NM |
Tax impact of restructuring and transformational project costs (4) | (0.01) | | | (0.02) | | | 0.01 | | | 50.0 | % |
Tax impact of acquisition-related costs (4) | (0.02) | | | (0.01) | | | (0.01) | | | (100.0) | % |
Tax impact of bad debt reserves adjustments (4) | — | | | — | | | — | | | NM |
Impact of adjustments to uncertain tax positions | 0.02 | | | — | | | 0.02 | | | NM |
Diluted earnings per share adjusted for Certain Items (Non-GAAP) (5) | $ | 0.83 | | | $ | 0.91 | | | $ | (0.08) | | | (8.8) | % |
| | | | | |
(1) | Fiscal 2022 includes $16 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy, and $8 million primarily consisting of restructuring charges. Fiscal 2019 includes $26 million related to various transformation initiative costs and $15 million related to severance, restructuring and facility closure charges. |
(2) | Fiscal 2022 includes $22 million of intangible amortization expense and $14 million of acquisition and due diligence costs, which are primarily included in Global Support Center expenses. Fiscal 2019 includes $21 million of intangible amortization expense and $1 million of acquisition costs. |
(3) | Fiscal 2022 represents the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020. |
(4) | The tax impact of adjustments for Certain Items is 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 adjusted net earnings divided by diluted shares outstanding. |
| NM represents that the percentage change is not meaningful. |
| | | 13-Week Period Ended Oct. 2, 2021 | | 13-Week Period Ended Sep. 26, 2020 | | Change in Dollars | | %/bps Change | | 13-Week Period Ended Oct. 1, 2022 | | 13-Week Period Ended Oct. 2, 2021 | | Change in Dollars | | %/bps Change |
U.S. FOODSERVICE OPERATIONS | U.S. FOODSERVICE OPERATIONS | | | | | | | | U.S. FOODSERVICE OPERATIONS | | | | | | | |
| Operating expenses (GAAP) | Operating expenses (GAAP) | $ | 1,387,631 | | | $ | 1,011,298 | | | $ | 376,333 | | | 37.2 | % | Operating expenses (GAAP) | $ | 1,708,515 | | | $ | 1,387,631 | | | $ | 320,884 | | | 23.1 | % |
Impact of restructuring and transformational project costs | Impact of restructuring and transformational project costs | (3) | | | (940) | | | 937 | | | 99.7 | | Impact of restructuring and transformational project costs | 48 | | | (3) | | | 51 | | | NM |
Impact of acquisition-related costs (1) | Impact of acquisition-related costs (1) | (4,654) | | | — | | | (4,654) | | | NM | Impact of acquisition-related costs (1) | (12,585) | | | (4,654) | | | (7,931) | | | NM |
Impact of bad debt reserve adjustments (2) | Impact of bad debt reserve adjustments (2) | 6,420 | | | 86,317 | | | (79,897) | | | (92.6) | | Impact of bad debt reserve adjustments (2) | 2,592 | | | 6,420 | | | (3,828) | | | (59.6) | |
| Operating expenses adjusted for Certain Items (Non-GAAP) | Operating expenses adjusted for Certain Items (Non-GAAP) | $ | 1,389,394 | | | $ | 1,096,675 | | | $ | 292,719 | | | 26.7 | % | Operating expenses adjusted for Certain Items (Non-GAAP) | $ | 1,698,570 | | | $ | 1,389,394 | | | $ | 309,176 | | | 22.3 | % |
| | Operating income (GAAP) | Operating income (GAAP) | $ | 797,523 | | | $ | 588,409 | | | $ | 209,114 | | | 35.5 | % | Operating income (GAAP) | $ | 903,828 | | | $ | 797,523 | | | $ | 106,305 | | | 13.3 | % |
Impact of restructuring and transformational project costs | Impact of restructuring and transformational project costs | 3 | | | 940 | | | (937) | | | (99.7) | | Impact of restructuring and transformational project costs | (48) | | | 3 | | | (51) | | | NM |
Impact of acquisition-related costs (1) | Impact of acquisition-related costs (1) | 4,654 | | | — | | | 4,654 | | | NM | Impact of acquisition-related costs (1) | 12,585 | | | 4,654 | | | 7,931 | | | NM |
Impact of bad debt reserve adjustments (2) | Impact of bad debt reserve adjustments (2) | (6,420) | | | (86,317) | | | 79,897 | | | 92.6 | | Impact of bad debt reserve adjustments (2) | (2,592) | | | (6,420) | | | 3,828 | | | 59.6 | |
| Operating income adjusted for Certain Items (Non-GAAP) | Operating income adjusted for Certain Items (Non-GAAP) | $ | 795,760 | | | $ | 503,032 | | | $ | 292,728 | | | 58.2 | % | Operating income adjusted for Certain Items (Non-GAAP) | $ | 913,773 | | | $ | 795,760 | | | $ | 118,013 | | | 14.8 | % |
| | INTERNATIONAL FOODSERVICE OPERATIONS | INTERNATIONAL FOODSERVICE OPERATIONS | | INTERNATIONAL FOODSERVICE OPERATIONS | |
Sales (GAAP) | Sales (GAAP) | $ | 2,895,247 | | | $ | 2,163,693 | | | $ | 731,554 | | | 33.8 | % | Sales (GAAP) | $ | 3,283,735 | | | $ | 2,895,247 | | | $ | 388,488 | | | 13.4 | % |
| Impact of currency fluctuations (3) | Impact of currency fluctuations (3) | (121,395) | | | — | | | (121,395) | | | (5.6) | | Impact of currency fluctuations (3) | 315,451 | | | — | | | 315,451 | | | 10.9 | |
Comparable sales using a constant currency basis (Non-GAAP) | Comparable sales using a constant currency basis (Non-GAAP) | $ | 2,773,852 | | | $ | 2,163,693 | | | $ | 610,159 | | | 28.2 | % | Comparable sales using a constant currency basis (Non-GAAP) | $ | 3,599,186 | | | $ | 2,895,247 | | | $ | 703,939 | | | 24.3 | % |
| Gross profit (GAAP) | Gross profit (GAAP) | $ | 589,134 | | | $ | 450,398 | | | $ | 138,736 | | | 30.8 | % | Gross profit (GAAP) | $ | 649,265 | | | $ | 589,134 | | | $ | 60,131 | | | 10.2 | % |
Impact of currency fluctuations (3) | | Impact of currency fluctuations (3) | 71,760 | | | — | | | 71,760 | | | 12.2 | |
Comparable gross profit using a constant currency basis (Non-GAAP) | | Comparable gross profit using a constant currency basis (Non-GAAP) | $ | 721,025 | | | $ | 589,134 | | | $ | 131,891 | | | 22.4 | % |
| Impact of currency fluctuations (3) | (22,734) | | | — | | | (22,734) | | | (5.0) | | |
Comparable gross profit using a constant currency basis (Non-GAAP) | $ | 566,400 | | | $ | 450,398 | | | $ | 116,002 | | | 25.8 | % | |
| | Gross margin (GAAP) | Gross margin (GAAP) | 20.35 | % | | 20.82 | % | | -48 bps | Gross margin (GAAP) | 19.77 | % | | 20.35 | % | | -58 bps |
Impact of currency fluctuations (3) | Impact of currency fluctuations (3) | (0.07) | | | — | | | -7 bps | Impact of currency fluctuations (3) | 0.26 | | | — | | | 26 bps |
Comparable gross margin using a constant currency basis (Non-GAAP) | Comparable gross margin using a constant currency basis (Non-GAAP) | 20.42 | % | | 20.82 | % | | -40 bps | Comparable gross margin using a constant currency basis (Non-GAAP) | 20.03 | % | | 20.35 | % | | -32 bps |
| Operating expenses (GAAP) | Operating expenses (GAAP) | $ | 552,458 | | | $ | 450,935 | | | $ | 101,523 | | | 22.5 | % | Operating expenses (GAAP) | $ | 562,057 | | | $ | 552,458 | | | $ | 9,599 | | | 1.7 | % |
Impact of restructuring and transformational project costs (4) | Impact of restructuring and transformational project costs (4) | (9,426) | | | (12,993) | | | 3,567 | | | 27.5 | | Impact of restructuring and transformational project costs (4) | (3,907) | | | (9,426) | | | 5,519 | | | 58.6 | |
Impact of acquisition-related costs (5) | Impact of acquisition-related costs (5) | (18,656) | | | (17,755) | | | (901) | | | (5.1) | | Impact of acquisition-related costs (5) | (16,014) | | | (18,656) | | | 2,642 | | | 14.2 | |
Impact of bad debt reserve adjustments (2) | Impact of bad debt reserve adjustments (2) | 641 | | | 11,429 | | | (10,788) | | | (94.4) | | Impact of bad debt reserve adjustments (2) | — | | | 641 | | | (641) | | | NM |
| Operating expenses adjusted for Certain Items (Non-GAAP) | Operating expenses adjusted for Certain Items (Non-GAAP) | 525,017 | | | 431,616 | | | 93,401 | | | 21.6 | | Operating expenses adjusted for Certain Items (Non-GAAP) | 542,136 | | | 525,017 | | | 17,119 | | | 3.3 | |
| Impact of currency fluctuations (3) | Impact of currency fluctuations (3) | (21,074) | | | — | | | (21,074) | | | (4.9) | | Impact of currency fluctuations (3) | 64,707 | | | — | | | 64,707 | | | 12.3 | |
Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP) | Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP) | $ | 503,943 | | | $ | 431,616 | | | $ | 72,327 | | | 16.8 | % | Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP) | $ | 606,843 | | | $ | 525,017 | | | $ | 81,826 | | | 15.6 | % |
| Operating income (loss) (GAAP) | $ | 36,676 | | | $ | (537) | | | $ | 37,213 | | | NM | |
Operating income (GAAP) | | Operating income (GAAP) | $ | 87,208 | | | $ | 36,676 | | | $ | 50,532 | | | NM |
Impact of restructuring and transformational project costs (4) | Impact of restructuring and transformational project costs (4) | 9,426 | | | 12,993 | | | (3,567) | | | (27.5) | | Impact of restructuring and transformational project costs (4) | 3,907 | | | 9,426 | | | (5,519) | | | (58.6) | |
Impact of acquisition-related costs (5) | Impact of acquisition-related costs (5) | 18,656 | | | 17,755 | | | 901 | | | 5.1 | | Impact of acquisition-related costs (5) | 16,014 | | | 18,656 | | | (2,642) | | | (14.2) | |
Impact of bad debt reserve adjustments (2) | Impact of bad debt reserve adjustments (2) | (641) | | | (11,429) | | | 10,788 | | | 94.4 | | Impact of bad debt reserve adjustments (2) | — | | | (641) | | | 641 | | | NM |
| Operating income adjusted for Certain Items (Non-GAAP) | Operating income adjusted for Certain Items (Non-GAAP) | 64,117 | | | 18,782 | | | 45,335 | | | 241.4 | | Operating income adjusted for Certain Items (Non-GAAP) | 107,129 | | | 64,117 | | | 43,012 | | | 67.1 | |
| Impact of currency fluctuations (3) | Impact of currency fluctuations (3) | (1,660) | | | — | | | (1,660) | | | (8.8) | | Impact of currency fluctuations (3) | 7,053 | | | — | | | 7,053 | | | 11.0 | |
Comparable operating income adjusted for Certain Items using a constant currency basis (Non-GAAP) | Comparable operating income adjusted for Certain Items using a constant currency basis (Non-GAAP) | $ | 62,457 | | | $ | 18,782 | | | $ | 43,675 | | | 232.5 | % | Comparable operating income adjusted for Certain Items using a constant currency basis (Non-GAAP) | $ | 114,182 | | | $ | 64,117 | | | $ | 50,065 | | | 78.1 | % |
| SYGMA | SYGMA | | SYGMA | |
| Operating expenses (GAAP) | Operating expenses (GAAP) | $ | 140,604 | | | $ | 119,849 | | | $ | 20,755 | | | 17.3 | % | Operating expenses (GAAP) | $ | 148,422 | | | $ | 140,604 | | | $ | 7,818 | | | 5.6 | % |
Impact of restructuring and transformational project costs | — | | | (13) | | | 13 | | | NM | |
| Operating expenses adjusted for Certain Items (Non-GAAP) | $ | 140,604 | | | $ | 119,836 | | | $ | 20,768 | | | 17.3 | % | |
| | | Operating (loss) income (GAAP) | Operating (loss) income (GAAP) | $ | (2,447) | | | $ | 11,692 | | | $ | (14,139) | | | (120.9) | % | Operating (loss) income (GAAP) | 5,471 | | | (2,447) | | | 7,918 | | | NM |
Impact of restructuring and transformational project costs | — | | | 13 | | | (13) | | | NM | |
| Operating (loss) income adjusted for Certain Items (Non-GAAP) | $ | (2,447) | | | $ | 11,705 | | | $ | (14,152) | | | (120.9) | % | |
| | | OTHER | | OTHER | |
| Operating expenses (GAAP) | | Operating expenses (GAAP) | $ | 69,300 | | | $ | 52,565 | | | $ | 16,735 | | | 31.8 | % |
| Operating income (GAAP) | | Operating income (GAAP) | 11,538 | | | 6,456 | | | 5,082 | | | 78.7 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
OTHER | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Operating expenses (GAAP) | $ | 52,565 | | | $ | 40,435 | | | $ | 12,130 | | | 30.0 | % |
| | | | | | | |
| | | | | | | |
Impact of bad debt reserve adjustments (2) | — | | | 883 | | | (883) | | | NM |
| | | | | | | |
Operating expenses adjusted for Certain Items (Non-GAAP) | $ | 52,565 | | | $ | 41,318 | | | $ | 11,247 | | | 27.2 | % |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Operating income (loss) (GAAP) | $ | 6,456 | | | $ | (5) | | | $ | 6,461 | | | NM |
| | | | | | | |
| | | | | | | |
Impact of bad debt reserve adjustments (2) | — | | | (883) | | | 883 | | | NM |
| | | | | | | |
Operating income (loss) adjusted for Certain Items (Non-GAAP) | $ | 6,456 | | | $ | (888) | | | $ | 7,344 | | | NM |
| | | | | | | |
| | | | | | | |
| | | | | | | |
GLOBAL SUPPORT CENTER | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Operating expenses (GAAP) | $ | 206,768 | | | $ | 177,749 | | | $ | 29,019 | | | 16.3 | % |
Impact of restructuring and transformational project costs (6) | (15,082) | | | (12,018) | | | (3,064) | | | (25.5) | |
Impact of acquisition-related costs (7) | (12,616) | | | — | | | (12,616) | | | NM |
| | | | | | | |
| | | | | | | |
Operating expenses adjusted for Certain Items (Non-GAAP) | $ | 179,070 | | | $ | 165,731 | | | $ | 13,339 | | | 8.0 | % |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Operating loss (GAAP) | $ | (206,526) | | | $ | (179,980) | | | $ | (26,546) | | | 14.7 | % |
Impact of restructuring and transformational project costs (6) | 15,082 | | | 12,018 | | | 3,064 | | | 25.5 | |
Impact of acquisition-related costs (7) | 12,616 | | | — | | | 12,616 | | | NM |
| | | | | | | |
| | | | | | | |
Operating loss adjusted for Certain Items (Non-GAAP) | $ | (178,828) | | | $ | (167,962) | | | $ | (10,866) | | | 6.5 | % |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 13-Week Period Ended Oct. 1, 2022 | | 13-Week Period Ended Oct. 2, 2021 | | Change in Dollars | | %/bps Change |
| | | | | | | |
GLOBAL SUPPORT CENTER | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Gross (loss) profit (GAAP) | $ | (7,484) | | | $ | 242 | | | $ | (7,726) | | | NM |
Impact of inventory valuation adjustment (6) | (2,571) | | | — | | | (2,571) | | | NM |
Comparable gross profit (loss) adjusted for Certain Items (Non-GAAP) | $ | (10,055) | | | $ | 242 | | | $ | (10,297) | | | NM |
| | | | | | | |
Operating expenses (GAAP) | $ | 266,228 | | | $ | 206,768 | | | $ | 59,460 | | | 28.8 | % |
Impact of restructuring and transformational project costs (7) | (7,786) | | | (15,082) | | | 7,296 | | | 48.4 | |
Impact of acquisition-related costs (8) | (855) | | | (12,616) | | | 11,761 | | | 93.2 | |
| | | | | | | |
| | | | | | | |
Operating expenses adjusted for Certain Items (Non-GAAP) | $ | 257,587 | | | $ | 179,070 | | | $ | 78,517 | | | 43.8 | % |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Operating loss (GAAP) | $ | (273,712) | | | $ | (206,526) | | | $ | (67,186) | | | (32.5) | % |
Impact of inventory valuation adjustment (6) | (2,571) | | | — | | | (2,571) | | | NM |
Impact of restructuring and transformational project costs (7) | 7,786 | | | 15,082 | | | (7,296) | | | (48.4) | |
Impact of acquisition-related costs (8) | 855 | | | 12,616 | | | (11,761) | | | (93.2) | |
| | | | | | | |
| | | | | | | |
Operating loss adjusted for Certain Items (Non-GAAP) | $ | (267,642) | | | $ | (178,828) | | | $ | (88,814) | | | (49.7) | % |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | |
(1) | Fiscal 2023 and fiscal 2022 includes $3 millioninclude intangible amortization expense and acquisition costs. |
(2) | Fiscal 20222023 and 2021fiscal 2022 represent 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. |
(4) | Includes restructuring and facility closure costs primarily in Europe. |
(5) | Represents intangible amortization expense. |
(6) | Fiscal 2023 represents an adjustment to a product return allowance, related to COVID-related personal protection equipment inventory. |
(7) | Includes various transformation initiative costs, primarily consisting of changes to our business technology strategy. |
(7)(8) | Represents due diligence costs. |
| |
| NM represents that the percentage change is not meaningful. |
EBITDA and Adjusted EBITDA
EBITDA and adjusted EBITDA should not be used as a substitute for the most comparable GAAP measure in assessing Sysco’s overall financial performance for the periods presented. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Key Performance Indicators” contained in our fiscal 20212022 Form 10-K for discussions aroundregarding this non-GAAP performance metric. Set forth below is a reconciliation of actual net earnings to EBITDA and to adjusted EBITDA results for the periods presented (dollars in thousands):
| | | 13-Week Period Ended Oct. 2, 2021 | | 13-Week Period Ended Sep. 26, 2020 | | Change in Dollars | | % Change | | 13-Week Period Ended Oct. 1, 2022 | | 13-Week Period Ended Oct. 2, 2021 | | Change in Dollars | | % Change |
Net earnings (GAAP) | Net earnings (GAAP) | $ | 378,013 | | | $ | 216,900 | | | $ | 161,113 | | | 74.3 | % | Net earnings (GAAP) | $ | 465,568 | | | $ | 378,013 | | | $ | 87,555 | | | 23.2 | % |
Interest (GAAP) | Interest (GAAP) | 128,214 | | | 146,717 | | | (18,503) | | | (12.6) | % | Interest (GAAP) | 124,150 | | | 128,214 | | | (4,064) | | | (3.2) | |
Income taxes (GAAP) | Income taxes (GAAP) | 128,707 | | | 41,838 | | | 86,869 | | | 207.6 | | Income taxes (GAAP) | 129,334 | | | 128,707 | | | 627 | | | 0.5 | |
Depreciation and amortization (GAAP) | Depreciation and amortization (GAAP) | 186,466 | | | 180,520 | | | 5,946 | | | 3.3 | | Depreciation and amortization (GAAP) | 188,924 | | | 186,466 | | | 2,458 | | | 1.3 | |
EBITDA (Non-GAAP) | EBITDA (Non-GAAP) | $ | 821,400 | | | $ | 585,975 | | | $ | 235,425 | | | 40.2 | % | EBITDA (Non-GAAP) | $ | 907,976 | | | $ | 821,400 | | | $ | 86,576 | | | 10.5 | % |
Certain Item adjustments: | Certain Item adjustments: | | Certain Item adjustments: | |
Impact of restructuring and transformational project costs (1) | 24,247 | | | 25,278 | | | (1,031) | | | (4.1) | | |
Impact of acquisition-related costs (2) | 14,221 | | | — | | | 14,221 | | | NM | |
Impact of bad debt reserve adjustments (3) | (7,061) | | | (98,629) | | | 91,568 | | | (92.8) | | |
Impact of inventory valuation adjustment (1) | | Impact of inventory valuation adjustment (1) | $ | (2,571) | | | $ | — | | | $ | (2,571) | | | NM |
Impact of restructuring and transformational project costs (2) | | Impact of restructuring and transformational project costs (2) | 10,509 | | | 24,247 | | | (13,738) | | | (56.7) | |
Impact of acquisition-related costs (3) | | Impact of acquisition-related costs (3) | 3,546 | | | 14,221 | | | (10,675) | | | (75.1) | |
Impact of bad debt reserve adjustments (4) | | Impact of bad debt reserve adjustments (4) | (2,592) | | | (7,061) | | | 4,469 | | | 63.3 | |
| Impact of impact of loss on sale of business | — | | | 12,043 | | | (12,043) | | | NM | |
EBITDA adjusted for Certain Items (Non-GAAP) (4) | $ | 852,807 | | | $ | 524,667 | | | $ | 328,140 | | | 62.5 | % | |
| EBITDA adjusted for Certain Items (Non-GAAP) (5) | | EBITDA adjusted for Certain Items (Non-GAAP) (5) | $ | 916,868 | | | $ | 852,807 | | | $ | 64,061 | | | 7.5 | % |
| | | | | |
(1) | IncludesFiscal 2023 represents an adjustment to a product return allowance, related to COVID-related personal protection equipment inventory. |
(2) | Fiscal 2023 and fiscal 2022 include charges related to restructuring, severance, and facility closures, as well as various transformation initiative costs, primarily consisting of changes to our business technology strategy, excluding charges related to accelerated depreciation. |
(2)(3) | Fiscal 2023 and fiscal 2022 includesinclude acquisition and due diligence costs. |
(3)(4) | Fiscal 20222023 and 2021fiscal 2022 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020. |
(4) | In arriving at adjusted EBITDA, Sysco does not adjust out interest income of $2 million and $4 million for fiscal 2022 and fiscal 2021, respectively, or non-cash stock compensation expense of $29 million and $25 million for fiscal 2022 and fiscal 2021, respectively. |
| | | | | | | | | | | | | | | | | | | | | | | |
| 13-Week Period Ended Oct. 2, 2021 | | 13-Week Period Ended Sep. 29, 2018 | | Change in Dollars | | % Change |
Net earnings (GAAP) | $ | 378,013 | | | $ | 431,042 | | | $ | (53,029) | | | (12.3) | % |
Interest (GAAP) | 128,214 | | | 89,016 | | | 39,198 | | | 44.0 | % |
Income taxes (GAAP) | 128,707 | | | 106,950 | | | 21,757 | | | 20.3 | % |
Depreciation and amortization (GAAP) | 186,466 | | | 187,627 | | | (1,161) | | | (0.6) | % |
EBITDA (Non-GAAP) | $ | 821,400 | | | $ | 814,635 | | | $ | 6,765 | | | 0.8 | % |
Certain Item adjustments: | | | | | | | |
Impact of restructuring and transformational project costs (1) | 24,247 | | | 40,903 | | | (16,656) | | | (40.7) | % |
Impact of acquisition-related costs (2) | 14,221 | | | 2,056 | | | 12,165 | | | NM |
Impact of bad debt reserve adjustments (3) | (7,061) | | | — | | | (7,061) | | | NM |
EBITDA adjusted for Certain Items (Non-GAAP) (4) | $ | 852,807 | | | $ | 857,594 | | | $ | (4,787) | | | (0.6) | % |
| | | | | |
(1) | Fiscal 2022 includes various transformation initiative costs, primarily consisting of changes to our business technology strategy, excluding charges related to accelerated depreciation. Fiscal 2019 includes $26 million related to various transformation initiative costs and $15 million related to severance, restructuring and facility closure charges, excluding charges related to accelerated depreciation. |
(2) | Fiscal 2022 includes acquisition and due diligence costs. Fiscal 2019 represents acquisition costs. |
(3) | Fiscal 2022 represents the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020. |
(4)(5) | In arriving at adjusted EBITDA, Sysco does not adjust out interest income of $2$3 million and $1$2 million for fiscal 2022 and fiscal 2019, respectively, or non-cash stock compensation expense of $27 million and $29 million in bothfiscal 2023 and fiscal 2022, and fiscal 2019.respectively. |
| NM represents that the percentage change is not meaningful. |
Liquidity and Capital Resources
Highlights
As of October 2, 2021,1, 2022, we had $2.1 billion$437.7 million in cash and cash equivalents, approximately 28% of which was held by our international subsidiaries.equivalents. We produced positive free cash flow in a period of higher working capital investments, one-time and short-term transitory costs related to the business recoverycapital expenditures and investments towards our Recipe for Growth strategy. In the table that follows, free cash flow for each period presented is reconciled to net cash provided by operating activities and comparisons of the significant cash flows from the first quarter13 weeks of fiscal 20222023 to the first quarter13 weeks of fiscal 20212022 are provided.
| | | | | | | | | | | |
| 13-Week Period Ended Oct. 2, 2021 | | 13-Week Period Ended Sep. 26, 2020 |
| (In thousands) |
Net cash provided by operating activities (GAAP) | $ | 110,812 | | | $ | 930,914 | |
Additions to plant and equipment | (85,019) | | | (75,539) | |
Proceeds from sales of plant and equipment | 5,627 | | | 7,064 | |
Free Cash Flow (Non-GAAP) (1) | $ | 31,420 | | | $ | 862,439 | |
| | | |
Acquisition of businesses, net of cash acquired | $ | (714,010) | | | $ | — | |
| | | |
Debt (repayments) borrowings, net | (10,048) | | | (753,589) | |
Dividends paid | (240,561) | | | (228,714) | |
| | | |
On September 2, 2022, we upsized our commercial paper program to $3.0 billion. The commercial paper program allows the company to issue short-term, senior unsecured notes. The notes are pari passu with the company’s other senior unsecured debt, including its senior notes and revolving credit facility. We intend to use any proceeds from the commercial paper program for general corporate purposes.
| | | | | | | | | | | |
| 13-Week Period Ended Oct. 1, 2022 | | 13-Week Period Ended Oct. 2, 2021 |
Source of cash (use of cash) | (In thousands) |
Net cash provided by operating activities (GAAP) | $ | 158,606 | | | $ | 110,812 | |
Additions to plant and equipment | (167,260) | | | (85,019) | |
Proceeds from sales of plant and equipment | 22,448 | | | 5,627 | |
Free Cash Flow (Non-GAAP) (1) | $ | 13,794 | | | $ | 31,420 | |
| | | |
Acquisition of businesses, net of cash acquired | $ | (32,651) | | | $ | (714,010) | |
| | | |
Debt borrowings (repayments), net | 137,959 | | | (10,048) | |
| | | |
Stock repurchases | (267,727) | | | — | |
Dividends paid | (249,294) | | | (240,561) | |
| | | |
| | | | | |
(1) | 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. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Key Performance Indicators” contained in our fiscal 20212022 Form 10-K for discussions aroundregarding this non-GAAP performance metric.
|
Sources and Uses of Cash
Sysco generates cash in the U.S and internationally. As of October 1, 2022, we had $437.7 million in cash and cash equivalents, approximately 85% of which was held by our international subsidiaries. Sysco’s strategic objectives are funded primarily by cash from operations and, to a lesser extent, external borrowings. Traditionally, our operations have produced significant cash flow and, due to our strong financial position, we believe that we will continue to be able to effectively access capital markets, as needed. Cash is generally allocated to working capital requirements, investments compatible with our overall growth strategy (organic and inorganic), debt management, and shareholder return. Remaining cash balances are invested in high-quality, short-term instruments.
We believe our cash flow from operations, the availability of liquidity under our commercial paper program and our revolving credit facility, and our ability to access capital from financial markets will be sufficient to meet our anticipated cash requirements for more than the next twelve months, while maintaining sufficient liquidity for normal operating purposes.
Cash Flows
Operating Activities
We generated $110.8$158.6 million in cash flows from operations in the first quarter 13 weeks of fiscal 2022,2023, compared to cash flows from operative activitiesoperations of $930.9$110.8 million in the first quarter 13 weeks of fiscal 2021. These2022. In the first 13 weeks of fiscal 2023, these amounts includeincluded year-over-year unfavorable comparisons on working capital due to higher accounts receivables and accrued expenses, partially offset by higher operating results.
a decrease in accounts payable. Changes in working capital had a negative impact of $886.1$127.7 million on cash flowflows from operations period-over-period. There were unfavorable comparisons on receivables, inventories and accounts payable. The unfavorable comparison in cash flows from accounts receivables is primarily due to our customers beginning to purchase more in the first quarter of fiscal 2022, coupled with significantly lower sales in the first quarter of fiscal 2021 resulting from the COVID-19 pandemic. In the first quarter of fiscal 2021, we recorded a net credit to the provision for losses on receivables totaling $77.8 million, which reflects a benefit on the reduction of our allowance for pre-pandemic receivable balances, as collection rates exceeded our expectations. In the first quarter of fiscal 2022, we invested heavily in inventory, and we ended the quarter with inventory on-hand and inventory on-order in a combined amount that exceeds our pre-COVID-19 levels. This positions us to be able to ship product on time and in full during the recovery from COVID-19. Accounts payable has increased, as we continue our business recovery
efforts and investments in inventory. In the first quarter of fiscal 2021, we experienced a greater benefit within our accounts payable due to extended payment terms implemented at that time.
Included in the change in accrued expenses was a negative comparison,were positive comparisons, primarily from accrued interest, expenses dueearnout liabilities, and self-insurance in the first 13 weeks of fiscal 2023 in comparison to the timingfirst 13 weeks of interestfiscal 2022.
Income taxes positively impacted cash flows from operations, as estimated payments made in the first quarter of fiscal 2022, as compared to the first quarter of fiscal 2021. In2023 were lower than in fiscal 2022 these interest payments were included in our first quarter, whereas payments on these same notes occurreddue to overpayments in the second quarter of fiscal 2021.prior year.
Investing Activities
Our capital expenditures in the first quarter 13 weeks of fiscal 20222023 consisted primarily consisted of investments in technology equipment, buildings and building improvements, technology equipment, warehouse equipment, and fleet. Our capital expenditures in the first quarter13 weeks of fiscal 20222023 were $9.5$82.2 million higher than in the first quarter13 weeks of fiscal 2021,2022, as we made investments are made towards advancingto advance our Recipe for Growth strategy.
During the first quarter13 weeks of fiscal 2022,2023, we paid $714.0$32.7 million, net of cash acquired, for acquisitions. There were no suchacquisitions compared to $714.0 million in acquisitions made in the first quarter13 weeks of fiscal 2021.2022.
Financing Activities
Equity Transactions
Proceeds from exercises of share-based compensation awards were $24.6 million in the first 13 weeks of fiscal 2023, as compared to $17.9 million in the first quarter 13 weeks of fiscal 2022, as compared to $31.9 million in the first quarter of fiscal 2021.2022. The level of option exercises, and thus proceeds, will vary from period to period and is largely dependent on movements in our stock price and the time remaining before option grants expire.
We made noIn May 2021, our Board of Directors approved a share repurchases duringrepurchase program to authorize the first quarter of fiscal 2022; however, given the strength of our results of operations and financial position, we expect to commence share repurchasesrepurchase of up to $500 million for fiscal 2022 under our $5.0 billion of the company’s common stock, which will remain available until fully utilized. We commenced our share repurchase program beginning induring the second quarter of fiscal 2022. We repurchased 3.1 million shares for $267.7 million during the first 13 weeks of fiscal 2023. As of October 1, 2022, we had a remaining authorization of approximately $4.2 billion.
Dividends paid in the first quarter of fiscal 20222023 were $240.6$249.3 million, or $0.47$0.49 per share, as compared to $228.7$240.6 million, or $0.45$0.47 per share, in the first quarter of fiscal 2021.2022. In August 2021,2022, we declared our regular quarterly dividend for the first quarter of fiscal 20222023 of $0.47$0.49 per share, which was paid in October 2021.2022.
Debt Activity and Borrowing Availability
Our debt activity, including issuances and repayments, if any, and our borrowing availability isare described in Note 7,8, “Debt,” in the Notes to Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q. Our outstanding borrowings at October 2, 20211, 2022 are disclosed within that note.
During the first 13 weeks of fiscal 2022, we amended our revolving credit facility to (a) eliminate the covenant that had restricted (i) increases to Sysco’s regular quarterly dividend and (ii) share repurchases, in each case, until the earlier of September 2022 or the date on which Sysco has achieved a certain ratio of consolidated EBITDA to consolidated interest expense, and (b) adjust the covenant requiring Sysco to maintain a certain ratio of consolidated EBITDA to consolidated interest expense.
Guarantor Summarized Financial Information
On January 19, 2011, the wholly owned U.S. Broadline subsidiaries of Sysco Corporation, which distribute a full line of food products and a wide variety of non-food products, at that time entered into full and unconditional guarantees of all outstanding senior notes and debentures of Sysco Corporation. All subsequent issuances of senior notes and debentures in the U.S. and borrowings under the company’s $2.0now $3.0 billion long-term revolving credit facility have also been guaranteed by these subsidiaries. As of October 2, 2021,1, 2022, Sysco had a total of $10.6$10.0 billion in senior notes, debentures and borrowings under the long-term revolving credit facility that were guaranteed by these subsidiary guarantors. Our remaining consolidated subsidiaries (non-guarantor subsidiaries) are not obligated under the senior notes indenture, debentures indenture or our long-term revolving credit facility. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” contained in our fiscal 20212022 Form 10-K for additional information regarding the terms of the guarantees.
Basis of Preparation of the Summarized Financial Information
The summarized financial information of Sysco Corporation (issuer), and certain wholly owned U.S. Broadline subsidiaries (guarantors) (together, the obligor group) is presented on a combined basis with intercompany balances and transactions between entities in the obligor group eliminated. Investments in and equity in the earnings of our non-guarantor
subsidiaries, which are not members of the obligor group, have been excluded from the summarized financial information. The obligor group’s amounts due to, amounts due from and transactions with non-guarantor subsidiaries have been presented in separate line items, if they are material to the obligor financials. The following tables include summarized financial information of the obligor group for the periods presented.
| Combined Parent and Guarantor Subsidiaries Summarized Balance Sheet | Combined Parent and Guarantor Subsidiaries Summarized Balance Sheet | | Oct. 2, 2021 | | Jul. 3, 2021 | Combined Parent and Guarantor Subsidiaries Summarized Balance Sheet | | Oct. 1, 2022 | | Jul. 2, 2022 |
| | | (In thousands) | | | (In thousands) |
ASSETS | ASSETS | | ASSETS | |
Receivables due from non-obligor subsidiaries | Receivables due from non-obligor subsidiaries | | $ | 148,565 | | | $ | 171,718 | | Receivables due from non-obligor subsidiaries | | $ | 218,392 | | | $ | 264,378 | |
Current assets | Current assets | | 6,251,167 | | | 6,661,284 | | Current assets | | 5,714,872 | | | 5,658,972 | |
Total current assets | Total current assets | | $ | 6,399,732 | | | $ | 6,833,002 | | Total current assets | | $ | 5,933,264 | | | $ | 5,923,350 | |
Notes receivable from non-obligor subsidiaries | Notes receivable from non-obligor subsidiaries | | $ | 83,550 | | | $ | 83,457 | | Notes receivable from non-obligor subsidiaries | | $ | 91,138 | | | $ | 91,067 | |
Other noncurrent assets | Other noncurrent assets | | 3,981,818 | | | 3,933,833 | | Other noncurrent assets | | 3,969,771 | | | 3,910,951 | |
Total noncurrent assets | Total noncurrent assets | | $ | 4,065,368 | | | $ | 4,017,290 | | Total noncurrent assets | | $ | 4,060,909 | | | $ | 4,002,018 | |
| LIABILITIES | LIABILITIES | | LIABILITIES | |
Payables due to non-obligor subsidiaries | Payables due to non-obligor subsidiaries | | $ | 76,547 | | | $ | 203,365 | | Payables due to non-obligor subsidiaries | | $ | 60,283 | | | $ | 62,441 | |
Other current liabilities | Other current liabilities | | 2,403,275 | | | 2,299,674 | | Other current liabilities | | 2,826,594 | | | 2,765,756 | |
Total current liabilities | Total current liabilities | | $ | 2,479,822 | | | $ | 2,503,039 | | Total current liabilities | | $ | 2,886,877 | | | $ | 2,828,197 | |
Notes payable to non-obligor subsidiaries | Notes payable to non-obligor subsidiaries | | $ | 230,956 | | | $ | 269,709 | | Notes payable to non-obligor subsidiaries | | $ | 272,099 | | | $ | 315,753 | |
Long-term debt | Long-term debt | | 10,127,201 | | | 10,139,596 | | Long-term debt | | 9,718,645 | | | 9,501,842 | |
Other noncurrent liabilities | Other noncurrent liabilities | | 1,306,495 | | | 1,209,598 | | Other noncurrent liabilities | | 1,206,767 | | | 1,190,177 | |
Total noncurrent liabilities | Total noncurrent liabilities | | $ | 11,664,652 | | | $ | 11,618,903 | | Total noncurrent liabilities | | $ | 11,197,511 | | | $ | 11,007,772 | |
| | | | | | | | | | | | | | |
Combined Parent and Guarantor Subsidiaries Summarized Results of Operations | | 13-Week Period Ended Oct. 2, 20211, 2022 | | | | | | |
| (In thousands) | | | | | | |
Sales | | $ | 10,665,19912,200,611 | | | | | | | |
Gross profit | | 1,924,1232,216,571 | | | | | | | |
Operating income | | 602,325630,507 | | | | | | | |
Interest expense from non-obligor subsidiaries | | 11,0695,588 | | | | | | | |
Net earnings | | 349,251375,655 | | | | | | | |
Critical Accounting Policies and Estimates
Critical accounting policies and estimates are those that are most important to the portrayal of our financial position and results of operations. These policies require our most subjective or complex judgments, often employing the use of estimates about the effect of matters that are inherently uncertain. We have reviewed with the Audit Committee of the Board of Directors the development and selection of the critical accounting policies and estimates and this related disclosure. Our most critical accounting policies and estimates pertain to goodwill and intangible assets, income taxes, company-sponsored pension plans, allowance for doubtful accounts income taxes, share-based compensation and the company-sponsored pension plans,inventory valuation, which are described in Item 7 of our fiscal 20212022 Form 10-K.
Forward-Looking Statements
Certain statements made herein that look forward in time or express management’s expectations or beliefs with respect to the occurrence of future events are forward-looking statements under the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” “projected,” “continues,” “continuously,” variations of such terms, and similar terms and phrases denoting anticipated or expected occurrences or results. Examples of forward-looking statements include, but are not limited to, statements about:
•the effect, impact, potential duration or other implications of the COVID-19 pandemic and any expectations we may have with respect thereto, including our ability to withstand and recover from the crisis;
•our expectations regarding our business andof an improving market over the economic recovery generally as the COVID-19 pandemic subsides, including beliefs regarding future customer activity and the timingcourse of the recovery;fiscal 2023;
•our expectations regarding the impactability of the COVID-19 pandemic on our mix of earnings by jurisdiction;supply chain and facilities to remain in place and operational;
•our expectationsplans regarding the recovery of our travel, hospitality and Food Service Management sectors of our business,transformation initiatives and the impact that recovery inexpected effects from such sectors will have on our business;initiatives, including the Sysco Driver Academy;
•our expectationsstatements regarding our abilityuncollectible accounts, including that if collections continue to meet our stated growth rate goals for fiscal 2022;
•our belief that our Recipe for Growth strategy will enable us to accelerate over the next three years to meet our growth target by the end of fiscal 2024;improve, additional reductions in bad debt expense could occur;
•our expectations that our Recipe for Growth strategy will enableallow us to better serve our International Foodservice Operations segment to improve how we serve local customers and will create a better balance indifferentiate Sysco from our customer mix;competition;
•our expectations regarding inflation;our fiscal 2023 sales and our rate of sales growth in fiscal 2023 and the three years of our long-range plan;
•our expectations regarding the impact of certain investmentsinflation on our ability to serve customerssales, gross margin rates and continue to gain market share, and our expectations regarding the impact of such investments on our results for the second quarter of 2022;gross profit dollars;
•our expectations regarding the impact of the acquisition of Greco and Sons on incremental sales;gross margins in fiscal 2023;
•our expectationsplans regarding cost savings, including our efforts to reduce overtime ratestarget for cost savings through fiscal 2024 and the incremental investments in hiring, and our expectations regardingimpact of costs savings on the effects thereof on profits throughout fiscal 2022 and the size of such investments;company;
•our abilitybelief that our purpose will allow us to grow substantially faster than the foodservice distribution industry and deliver profitable growth through our Recipe for Growth strategy;
•transformation, and statements regarding our beliefplans with respect to our strategic pillars that oursupport this growth transformation will allow us to better serve our customers;
•the continuing expansion of other business transformation initiatives, such as our personalization engine;transformation;
•our expectations regarding growth in customersthe use and gains in market share;investment of remaining cash generated from operations;
•the expected long-term rate of return on plan assets of the U.S. Retirement Plan;
•the sufficiency of our available liquidity to sustain our operations for multiple years;
•estimates regarding the outcome of legal proceedings;
•the impact of seasonal trends on our expectationsfree cash flow;
•estimates regarding our capital expenditures and the usesources of remaining cash generated from operations;financing for our capital expenditures;
•our expectations regarding the impact of potential acquisitions and sales of assets on our liquidity, borrowing capacity, leverage ratios and capital availability;
•our beliefexpectations regarding real sales growth in our strong financial position;the U.S. foodservice market and trends in produce markets;
•our expectations regarding the calculation of adjusted return on invested capital, adjusted operating income, adjusted net earnings and adjusted diluted earnings per share;
•our expectations regarding the impact of future Certain Items on our projected future non-GAAP and GAAP results;
•our expectations regarding our effective tax rate for the remainder ofin fiscal 2022;2023;
•the sufficiency of our expectationsmechanisms for managing working capital and competitive pressures, and our beliefs regarding the amountimpact of the unrecognized tax benefit with respect to certain of the company’s unrecognized tax positions;
•our expectations regarding the recognition of compensation costs related to share-based compensation arrangements;these mechanisms;
•our ability to meet future cash requirements, including the ability to access financial markets effectively, including issuances of debt securities, and maintain sufficient liquidity;
•our expectations regarding the payment of dividends, and the growth of our dividend, in the future;
•our expectations regarding future activity under our share repurchase program; and
•future compliance with the covenants under our revolving credit facility;
•our ability to effectively access the commercial paper market and long-term capital markets.markets;
•the expected maturity of $482.3 million of debt in the next 12 months;
•our intention to repay our long-term debt with cash on hand, cash flow from operations, issuances of commercial paper, issuances of senior notes, or a combination thereof.
These statements are based on management’s current expectations and estimates; actual results may differ materially due in part to the risk factors set forth below, those within Part II, Item 1A of this document and those discussed in Item 1A of our fiscal 20212022 Form 10-K:
•the impact and effects of public health crises, pandemics and epidemics, such as the recent outbreak of COVID-19, 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 ability to access capital markets, and the global economy and financial markets generally;operations;
•the risk that if sales from our locally managed customers do not grow at the same rate as sales from regional and nationalmulti-unit customers, or if we are unable to continue to accelerate local case growth, our gross margins may decline;
•periods of significant or prolonged inflation or deflation and their impact on our product costs and profitability generally;
•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;
•periods of significant or prolonged inflation or deflation and their impact onthe risk that our productefforts to modify truck routing, including our small truck initiative, in order to reduce outbound transportation costs and profitability generally;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;
•risks related to unfavorable conditions in North Americathe Americas and Europe and the impact on our results of operations and financial condition;
•the risks related to our efforts to implement our transformation initiatives and meet our other long-term strategic objectives, including 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 us 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 level of cost savings and other benefits that we anticipated;
•the impact of unexpected future changes to our business initiatives based on management’s subjective evaluation of our overall business needs;
•the risk that the actual costs of any business initiatives may be greater or less than currently expected;
•the risk that competition in our industry and the impact of GPOs may adversely impact our margins and our ability to retain customers and make it difficult for us to maintain our market share, growth rate and profitability;
•the risk that our relationships with long-term customers may be materially diminished or terminated;
•the risk that changes in consumer eating habits could materially and adversely affect our business, financial condition, or results of operations;
•the risk that changes in applicable tax laws or regulations and the resolution of tax disputes could negatively affect our financial results;
•the risk that we may not be able to fully compensate for increases in fuel costs, and forward purchase commitments intended to contain fuel costs could result in above market fuel costs;
•the risk of interruption of supplies and increase in product costs as a result of conditions beyond our control;
•the potential impact on our reputation and earnings of adverse publicity or lack of confidence in our products;
•risks related to unfavorable changes to the mix of locally managed customers versus corporate-managed customers;
•the risk that we may not realize anticipated benefits from our operating cost reduction efforts;
•difficulties in successfully expanding into international markets and complimentary lines of business;
•the potential impact of product liability claims;
•the risk that we fail to comply with requirements imposed by applicable law or government regulations;
•risks related to our ability to effectively finance and integrate acquired businesses;
•risks related to our access to borrowed funds in order to grow and any default by us under our indebtedness that could have a material adverse impact on cash flow and liquidity;
•our level of indebtedness and the terms of our indebtedness could adversely affect our business and liquidity position;
•the risk that 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;
•the risk that divestiture of one or more of our businesses may not provide the anticipated effects on our operations;
•the risk that the U.K.’s exit from the European Union (EU) on January 31, 2020, commonly referred to as Brexit may adversely impact our operations in the U.K., including those of the Brakes Group;
•the risk that future labor disruptions or disputes could disrupt the integration of Brake France and Davigel into Sysco France and our operations in France and the EU generally;
•the risk that factors beyond management’s control, including fluctuations in the stock market, as well as management’s future subjective evaluation of the company’s needs, would impact the timing of share repurchases;
•due to our reliance on technology, any technology disruption or delay in implementing new technology could have a material negative impact on our business;
•the risk that a cybersecurity incident and other technology disruptions could negatively impact our business and our relationships with customers;
•the risk that changes in the method of determining LIBOR, or the replacement of LIBOR with an alternative reference rate, may adversely affect interest expense related to outstanding debt;
•the potential requirement to pay material amounts under our multiemployer defined benefit pension plans;
•our funding requirements for our company-sponsored qualified pension plan may increase should financial markets experience future declines;
•labor issues, including the renegotiation of union contracts and shortage of qualified labor;
•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; and
•the risk that the anti-takeover benefits provided by our preferred stock may not be viewed as beneficial to stockholders.stockholders; and
•the risk that the exclusive forum provisions in our amended and restated bylaws could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
For a more detailed discussion of factors that could cause actual results to differ from those contained in the forward-looking statements, see the risk factors discussion contained in Item 1A of our fiscal 20212022 Form 10-K.10-K and in Item 1A of Part II of this Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Our market risks consist of interest rate risk, foreign currency exchange rate risk, fuel price risk and investment risk. For a discussion on our exposure to market risk, see Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risks” in our fiscal 20212022 Form 10-K. There have been no significant changes to our market risks since July 3, 2021.2, 2022.
Item 4. Controls and Procedures
Sysco’s management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of October 2, 2021.1, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding the required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Sysco’s disclosure controls and procedures have been designed to provide reasonable assurance of achieving their objectives. Based on the evaluation of our disclosure controls and procedures as of October 2, 2021,1, 2022, our chief executive officer and chief financial officer concluded that, as of such date, Sysco’s disclosure controls and procedures were effective at the reasonable assurance level.
There have been no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the fiscal quarter ended October 2, 2021,1, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
Environmental Matters
Item 103 of SEC Regulation S-K requires disclosure of certain environmental matters in which a governmental authority is a party to the proceedings and when such proceedings involve the potential for monetary sanctions that Sysco’s management reasonably believes will exceed a specified threshold. Pursuant to recent SEC amendments to this item, Sysco has chosen a reporting threshold for such proceedings of $1 million. Applying this threshold, there are no material environmental matters to disclose for this period.
From time to time, we may be party to legal proceedings that arise in the ordinary course of our business. We do not believe there are any pending legal proceedings that, individually or in the aggregate, will have a material adverse effect on the company’s financial condition, results of operations or cash flows.
Item 1A. Risk Factors
There were no material changes from the risk factors disclosed in Item 1A of our fiscal 20212022 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Recent Sales of Unregistered Securities
None
Issuer Purchases of Equity Securities
As weWe made nothe following share repurchases during the first quarter of fiscal 2022, the following table represents shares tendered during the period:
| | | | | | | | | | | | | | | | | | | | | | | |
ISSUER PURCHASES OF EQUITY SECURITIES |
Period | Total Number of Shares Purchased (1) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs |
Month #1 | | | | | | | |
July 4 - July 31 | — | | | $ | — | | | — | | | — | |
Month #2 | | | | | | | |
August 1 - August 28 | — | | | — | | | — | | | — | |
Month #3 | | | | | | | |
August 29 - October 2 | 1,245 | | | 80.25 | | | 99,911 | | | — | |
Totals | 1,245 | | | $ | 80.25 | | | 99,911 | | | — | |
2023:
(1)The total number of shares purchased includes 0, 0 and 1,245 shares tendered by individuals in connection with stock option exercises in Month #1, Month #2 and Month #3, respectively. | | | | | | | | | | | | | | | | | | | | | | | |
ISSUER PURCHASES OF EQUITY SECURITIES |
Period | Total Number of Shares Purchased (1) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs |
Month #1 | | | | | | | |
July 3 - July 30 | 3,099,268 | | | $ | 86.37 | | | 267,680,804 | | | — | |
Month #2 | | | | | | | |
July 31 - Aug 27 | 4,638 | | | 86.18 | | | 399,720 | | | — | |
Month #3 | | | | | | | |
Aug 28 - October 1 | 1,191 | | | 83.89 | | | 99,913 | | | — | |
Totals | 3,105,097 | | | $ | 86.37 | | | 268,180,437 | | | — | |
(2)See the discussion in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Equity Transactions” for additional information regarding Sysco’s share repurchase program. | | | | | |
(1) | The total number of shares purchased includes 0, 4,638 and 1,191 shares tendered by individuals in connection with stock option exercises in Month #1, Month #2 and Month #3, respectively. |
(2) | See the discussion in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Equity Transactions” for additional information regarding Sysco’s share repurchase program. |
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
None
Item 6. Exhibits
The exhibits listed on the Exhibit Index below are filed as a part of this Quarterly Report on Form 10-Q.
EXHIBIT INDEX | | | | | | | | |
3.1 | — | |
| | |
3.2 | — | |
| | |
3.3 | — | |
| | |
3.4 | — | |
| | |
4.5#10.1# | — | |
| | |
10.1 | — | Amendment No. 3Amended and Restated Commercial Paper Dealer Agreement, dated as of September 22, 2021 to Credit Agreement dated as of June 28, 2019, among2, 2022, by and between Sysco Corporation, Sysco Canada, Inc., Sysco EU II S.à r.l., the subsidiary guarantors party thereto, JP Morgan Chase Bank, N.A., as administrative agent,Issuer, and the lendersapplicable Dealer party thereto, incorporated by reference to Exhibit 10.1 to the Form 8-K filed on September 22, 2021 (File No. 1-6544).thereto. |
| | |
10.2# | — | Amendment No. 4 dated as of October 14, 2021 to CreditAmended and Restated Issuing and Paying Agent Agreement, dated as of June 28, 2019, amongSeptember 2, 2022, by and between U.S. Bank Trust Company, National Association, as Issuing and Paying Agent, and Sysco Corporation, Sysco Canada, Inc., Sysco EU II S.à r.l., the subsidiary guarantors party thereto, JP Morgan Chase Bank, N.A., as administrative agent, and the lenders party thereto.Issuer. |
| | |
10.3†# | — | |
| | |
10.4†# | — | |
| | |
10.5†# | — | |
| | |
10.6†# | — | |
| | |
10.7† | — | |
| | |
10.8†# | — | |
| | |
10.9†# | — | |
| | |
10.10†# | — | |
| | |
10.11†# | — | |
| | |
10.12†# | — | |
| | |
22.1 | — | |
| | | | | | | | |
| | |
31.1# | — | |
| | |
31.2# | — | |
| | |
32.1# | — | |
| | |
32.2# | — | |
| | |
101.SCH# | — | Inline XBRL Taxonomy Extension Schema Document |
| | |
101.CAL# | — | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| | |
101.DEF# | — | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| | |
| | | | | | | | |
101.LAB# | — | Inline XBRL Taxonomy Extension Labels Linkbase Document |
| | |
101.PRE# | — | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| | |
104 | — | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
___________
† Executive Compensation Arrangement pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K
# Filed herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | |
| | Sysco Corporation |
| | (Registrant) |
| | |
| | |
Date: November 9, 20211, 2022 | By: | /s/ KEVIN P. HOURICAN |
| | Kevin P. Hourican |
| | President and Chief Executive Officer |
| | |
Date: November 9, 20211, 2022 | By: | /s/ AARON E. ALT |
| | Aaron E. Alt |
| | Executive Vice President and |
| | Chief Financial Officer |
| | |
Date: November 9, 20211, 2022 | By: | /s/ ANITA A. ZIELINSKISCOTT B. STONE |
| | Anita A. ZielinskiScott B. Stone |
| | Senior Vice President andof Financial Reporting |
| | and Interim Chief Accounting Officer |