Attached files

file filename
EX-10.1 - EX-10.1 - SYSCO CORPd231441dex101.htm
8-K - FORM 8-K - SYSCO CORPd231441d8k.htm

Exhibit 99.1

 

 

LOGO

SYSCO REPORTS FIRST QUARTER DOUBLE DIGIT EARNINGS GROWTH

HOUSTON, November 7, 2016 — Sysco Corporation (NYSE: SYY) today announced financial results for its 13-week first fiscal quarter ended October 1, 2016.¹ These results reflect the performance of the newly acquired Brakes Group, which are incorporated for the first time.

First Quarter Fiscal 2017 Highlights

 

    Sales increased 11.2% to $14.0 billion; excluding Brakes, sales increased 1.0% to $12.7 billion

 

    Gross profit increased 20.3% to $2.7 billion; gross margin increased 146 basis points to 19.27%; excluding Brakes, gross profit increased 5.0% to $2.3 billion; gross margin increased 70 basis points to 18.52%

 

    Operating income increased 14.9% to $567 million; adjusted operating income increased 23.8% to $627 million; excluding Brakes, adjusted operating income increased 15.3% to $584 million

 

    Earnings Per Share (EPS) increased $0.17 to $0.58; adjusted EPS increased $0.15 to $0.67; excluding Brakes adjusted EPS increased $0.11 to $0.63

“I am pleased with our first quarter performance which built upon the favorable results we have achieved over the past several quarters,” said Bill DeLaney, Sysco’s chief executive officer. “We continued to focus on supporting the needs of our customers and achieved strong earnings growth through solid execution in a softening industry environment. We remain committed to achieving our three-year plan financial goals.”

New Segment Reporting Structure

Beginning in fiscal year 2017, as a result of completing our recent acquisition of the Brakes Group, Sysco will report results based on four operating segments: the two largest of which are U.S. Foodservice Operations and International Foodservice Operations.

 

¹ Financial comparisons presented in this release are compared to the same period in the prior year. Earnings Per Share (EPS) and Adjusted EPS are shown on a diluted basis unless otherwise specified. Adjusted financial results exclude certain items, which primarily include restructuring and merger-related costs. A reconciliation of non-GAAP measures is included in this release.


First Quarter Fiscal 2017 Results

U.S. Foodservice Operations

Sales for the first quarter were $9.5 billion, an increase of 0.8% compared to the same period last year. Gross profit increased 4.3% to $1.9 billion; gross margin increased 68 basis points to 20.18%. Operating expenses increased $20 million, or 1.8%, compared to the same period last year, due mainly to higher payroll expenses, which were driven by higher case volume. Adjusted operating expenses increased $21 million, or 1.8%, compared to the same period last year. Operating income was $745 million, an increase of $59 million, or 8.5%, compared to the same period last year. Adjusted operating income was $745 million, an increase of $58 million, or 8.4%, compared to the same period last year.

Case volume for the company’s U.S. Broadline operations grew 1.8% during the quarter. Local case growth within U.S. Broadline operations grew 1.9%.

International Foodservice Operations

Sales for the first quarter were $2.7 billion, compared to $1.4 billion dollars in the same period last year. Operating income was $79 million, an increase of $28 million, compared to the same period last year. Adjusted operating income was $104 million, an increase of $50 million, compared to the same period last year. The significant improvement in both sales and operating income is primarily attributable to the Brakes Group acquisition.

Capital Spending and Cash Flow

Capital expenditures, net of proceeds from sales of plant and equipment, totaled $138 million for the first 13 weeks of fiscal 2017, which was $18 million higher compared to the same period last year.

Cash flow from operations was $249 million for the first 13 weeks of fiscal 2017, which was $510 million higher compared to the same period last year. Free cash flow for the first 13 weeks of fiscal 2017 was $111 million, which was $492 million higher compared to the same period last year. The significant improvements in both cash flow from operations and free cash flow are due mainly to improved working capital and payments made in the prior year related to the proposed merger with US Foods.

Conference Call & Webcast

Sysco’s first quarter fiscal 2017 earnings conference call will be held on Monday, November 7, 2016, at 10:00 a.m. Eastern. A live webcast of the call, a copy of this news release and a slide presentation will be available online at investors.sysco.com.

 

2


     13-Week Period Ended  
Financial Comparison:    October 1, 2016     September 26, 2015     Change  

Sales

   $ 14.0 billion      $ 12.6 billion        11.2

Gross Profit

   $ 2.7 billion      $ 2.2 billion        20.3

Gross Margin

     19.27     17.81     146 bps   

GAAP:

      

Operating Expenses

   $ 2.1 billion      $ 1.7 billion        21.8

Certain Items

   $ 60 million      $ 13 million        361.3

Operating Income

   $ 567 million      $ 493 million        14.9

Operating Margin

     4.06     3.93     13 bps   

Net Earnings

   $ 324 million      $ 244 million        32.5

Diluted Earnings Per Share

   $ 0.58      $ 0.41        41.5

Non-GAAP(1):

      

Operating Expenses

   $ 2.1 billion      $ 1.7 billion        19.3

Operating Income

   $ 627 million      $ 506 million        23.8

Operating Margin

     4.49     4.03     46 bps   

Net Earnings

   $ 376 million      $ 312 million        20.7

Diluted Earnings Per Share

   $ 0.67      $ 0.52        28.8

Case Growth:

      

U.S. Broadline

     1.8     3.4  

Local

     1.9     2.0  

Sysco Brand Sales as a % of Cases:

      

U.S. Broadline

     37.62     37.54     8 bps   

Local

     45.26     44.88     38 bps   

Note:

 

(1)  A reconciliation of non-GAAP measures is included in this release.

Individual components in the table above may not sum to the totals due to rounding.

About Sysco

Sysco is the global leader in selling, marketing and distributing food products to restaurants, healthcare and educational facilities, lodging establishments and other customers who prepare meals away from home. Its family of products also includes equipment and supplies for the foodservice and hospitality industries. The company operates 198 distribution facilities serving approximately 425,000 customers. For fiscal year 2016 that ended July 2, 2016, the company generated sales of more than $50 billion. Subsequent to fiscal year 2016, the company completed the acquisition of the Brakes Group, a leading European foodservice distributor with operations in the United Kingdom, Ireland, France, Sweden, Spain, Belgium and Luxembourg.

For more information, visit www.sysco.com or connect with Sysco on Facebook at www.facebook.com/SyscoCorporation or Twitter at https://twitter.com/Sysco. For important news and information regarding Sysco, visit the Investor Relations section of the company’s Internet home page at www.investors.sysco.com, which Sysco plans to use as a primary channel for publishing key information to its investors, some of which may contain material and previously non-public information. Investors should also follow us at www.twitter.com/SyscoStock and download the Sysco IR App, available on the iTunes App Store and the Google Play Market. In addition, investors should continue to review our news releases and filings with the Securities and Exchange Commission. It is possible that the information we disclose through any of these channels of distribution could be deemed to be material information.

 

3


Forward-Looking Statements

Statements made in this news release or in our earnings call for the first quarter of fiscal 2017 that look forward in time or that express management’s beliefs, expectations or hopes are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the views of management at the time such statements are made and are subject to a number of risks, uncertainties, estimates, and assumptions that may cause actual results to differ materially from current expectations. These statements include our outlook for fiscal 2017, our plans and expectations related to our three-year financial objectives and the key levers for realizing these goals, our ability to return additional value to our shareholders, expectations regarding the Brakes Group acquisition and related benefits, including its impact on future earnings per share, and expectations regarding deflation trends, and the impact of our fuel strategy. The success of our plans and expectations regarding our operating performance, including expectations regarding our three-year financial objectives, are subject to the general risks associated with our business, including the risks of interruption of supplies due to lack of long-term contracts, severe weather, crop conditions, work stoppages, intense competition, technology disruptions, dependence on large regional and national customers, inflation risks, the impact of fuel prices, adverse publicity, and labor issues. Risks and uncertainties also include risks impacting the economy generally, including the risks that the current general economic conditions will deteriorate, or consumer confidence in the economy or consumer spending, particularly on food-away-from-home, may decline. Market conditions may not improve. If sales from our locally managed customers do not grow at the same rate as sales from regional and national customers, our gross margins may decline. Our ability to meet our long-term strategic objectives depends largely on the success of our various business initiatives, including efforts related to revenue management, expense management, our digital e-commerce strategy and any efforts related to restructuring or the reduction of administrative costs. There are various risks related to these efforts, including the risk that these efforts may not provide the expected benefits in our anticipated time frame, if at all, and may prove costlier than expected; the risk that the actual costs of any initiatives may be greater or less than currently expected; and the risk of adverse effects to our business, results of operations and liquidity if past and future undertakings, and the associated changes to our business, do not prove to be cost effective or do not result in the cost savings and other benefits at the levels that we anticipate. Our plans related to and the timing of any initiatives are subject to change at any time based on management’s subjective evaluation of our overall business needs. If we are unable to realize the anticipated benefits from our efforts, we could become cost disadvantaged in the marketplace, and our competitiveness and our profitability could decrease. Periods of high inflation, either overall or in certain product categories, can have a negative impact on us and our customers, as high food costs can reduce consumer spending in the food-away-from-home market, and may negatively impact our sales, gross profit, operating income and earnings, and periods of deflation can be difficult to manage effectively. Fluctuations in inflation and deflation, as well as fluctuations in the value of foreign currencies, are beyond our control and subject to broader market forces. Expanding into international markets presents unique challenges and risks, including compliance with local laws, regulations and customs and the impact of local political and economic conditions, including the impact of Brexit, and such expansion efforts, including our Brakes acquisition, may not be successful. Any business that we acquire, including the Brakes transaction, may not perform as expected, and we may not realize the anticipated benefits of our acquisitions. The Brakes Group acquisition will require a significant commitment of time and company resources, and realizing the anticipated benefits from the transaction may take longer than expected. Expectations regarding the financial statement impact of any acquisitions may change based on management’s subjective evaluation. For a discussion of additional factors impacting Sysco’s business, see the company’s Annual Report on Form 10-K for the year ended July 2, 2016, as filed with the Securities and Exchange Commission, and the company’s subsequent filings with the SEC. Sysco does not undertake to update its forward-looking statements, except as required by applicable law.

 

4


Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED RESULTS OF OPERATIONS (Unaudited)

(In Thousands, Except for Share and Per Share Data)

 

     13-Week Period Ended  
     Oct. 1, 2016     Sep. 26, 2015  

Sales

   $ 13,968,654     $ 12,562,611  

Cost of sales

     11,276,735       10,324,616  
  

 

 

   

 

 

 

Gross profit

     2,691,919       2,237,995  

Operating expenses

     2,125,086       1,744,521  
  

 

 

   

 

 

 

Operating income

     566,833       493,474  

Interest expense

     73,623       126,907  

Other expense (income), net

     (7,216     (15,240
  

 

 

   

 

 

 

Earnings before income taxes

     500,426       381,807  

Income taxes

     176,539       137,387  
  

 

 

   

 

 

 

Net earnings

   $ 323,887     $ 244,420  
  

 

 

   

 

 

 

Net earnings:

    

Basic earnings per share

   $ 0.58     $ 0.41  

Diluted earnings per share

     0.58       0.41  

Average shares outstanding

     555,437,764       596,698,935  

Diluted shares outstanding

     560,954,068       600,789,913  

Dividends declared per common share

   $ 0.31     $ 0.30  

 

- more -

 

5


Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED BALANCE SHEETS (Unaudited)

(In Thousands, Except for Share Data)

 

     Oct. 1, 2016     July 2, 2016     Sep. 26, 2015  

ASSETS

      

Current assets

      

Cash and cash equivalents

   $ 759,898      $ 3,919,300      $ 388,256   

Accounts and notes receivable, less allowances of $41,246, $37,880 and $46,470

     4,191,460        3,380,971        3,531,105   

Inventories

     3,025,811        2,639,174        2,841,361   

Deferred income taxes

     —          —          85,416   

Prepaid expenses and other current assets

     158,301        114,454        93,015   

Prepaid income taxes

     —          —          88,807   
  

 

 

   

 

 

   

 

 

 

Total current assets

     8,135,470        10,053,899        7,027,960   

Plant and equipment at cost, less depreciation

     4,418,524        3,880,442        3,961,299   

Other assets

      

Goodwill

     3,815,674        2,121,661        1,981,390   

Intangibles, less amortization

     1,203,888        207,461        168,541   

Deferred income taxes

     198,867        207,320        —     

Other assets

     252,387        251,021        232,361   
  

 

 

   

 

 

   

 

 

 

Total other assets

     5,470,816        2,787,463        2,382,292   
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 18,024,810      $ 16,721,804      $ 13,371,551   
  

 

 

   

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

      

Current liabilities

      

Notes payable

   $ 6,834      $ 89,563      $ 51,806   

Accounts payable

     3,716,517        2,935,982        2,887,863   

Accrued expenses

     1,381,300        1,289,312        999,337   

Accrued income taxes

     252,681        110,690        —     

Current maturities of long-term debt

     9,218        8,909        31,810   
  

 

 

   

 

 

   

 

 

 

Total current liabilities

     5,366,550        4,434,456        3,970,816   

Other liabilities

      

Long-term debt

     7,843,517        7,336,930        3,004,618   

Deferred income taxes

     218,414        26,942        160,688   

Other long-term liabilities

     1,498,680        1,368,482        885,501   
  

 

 

   

 

 

   

 

 

 

Total other liabilities

     9,560,611        8,732,354        4,050,807   

Commitments and contingencies

      

Noncontrolling interest

     76,863        75,386        44,243   

Shareholders’ equity

      

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

     765,175        765,175        765,175   

Paid-in capital

     1,313,245        1,281,140        1,231,506   

Retained earnings

     9,159,866        9,006,138        8,816,245   

Accumulated other comprehensive loss

     (1,434,940     (1,358,118     (1,007,539

Treasury stock at cost 216,182,061, 205,577,484 and 169,052,528

     (6,782,560     (6,214,727     (4,499,702
  

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

     3,020,786        3,479,608        5,305,685   
  

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 18,024,810      $ 16,721,804      $ 13,371,551   
  

 

 

   

 

 

   

 

 

 

 

- more -

 

6


Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED CASH FLOWS (Unaudited)

(In Thousands)

 

     13-Week Period Ended  
     Oct. 1, 2016     Sep. 26, 2015  

Cash flows from operating activities:

    

Net earnings

   $ 323,887      $ 244,420   

Adjustments to reconcile net earnings to cash provided by operating activities:

    

Share-based compensation expense

     25,127        11,636   

Depreciation and amortization

     211,685        135,961   

Amortization of debt issuance and other debt-related costs

     6,560        6,161   

Gain on foreign exchange remeasurement

     —          —     

Loss on extinguishment of debt

     —          86,460   

Deferred income taxes

     11,374        124,631   

Provision for losses on receivables

     (440     1,546   

Other non-cash items

     (6,829     (4,511

Additional changes in certain assets and liabilities, net of effect of businesses acquired:

    

(Increase) in receivables

     (136,097     (211,035

(Increase) in inventories

     (149,759     (162,867

(Increase) decrease in prepaid expenses and other current assets

     (12,657     165   

Increase in accounts payable

     110,914        23,580   

(Decrease) in accrued expenses

     (259,698     (470,409

Increase in accrued income taxes

     145,601        5,833   

(Increase) in other assets

     (17,066     (10,354

Increase (decrease) in other long-term liabilities

     1,340        (38,419

Excess tax benefits from share-based compensation arrangements

     (5,268     (4,280
  

 

 

   

 

 

 

Net cash provided by (used for) operating activities

     248,674        (261,482
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Additions to plant and equipment

     (142,255     (121,243

Proceeds from sales of plant and equipment

     4,261        1,506   

Acquisition of businesses, net of cash acquired

     (2,910,461     (83,598

Decrease in restricted cash

     —          168,274   
  

 

 

   

 

 

 

Net cash used for investing activities

     (3,048,455     (35,061
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Bank and commercial paper borrowings (repayments), net

     442,777        717,600   

Other debt borrowings

     1,201        4,148   

Other debt repayments

     (94,935     (3,659

Senior note redemption repayments

     —          (5,050,000

Debt issuance costs

     (2,846     —     

Cash received from the termination of interest rate swap agreement

     —          14,496   

Proceeds from stock option exercises

     32,307        54,768   

Accelerated share and treasury stock purchases

     (600,139     —     

Dividends paid

     (173,292     (179,037

Excess tax benefits from share-based compensation arrangements

     5,268        4,280   
  

 

 

   

 

 

 

Net cash used for financing activities

     (389,659     (4,437,404
  

 

 

   

 

 

 

Effect of exchange rates on cash

     30,038        (7,841
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (3,159,402     (4,741,788

Cash and cash equivalents at beginning of period

     3,919,300        5,130,044   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 759,898      $ 388,256   
  

 

 

   

 

 

 

Supplemental disclosures of cash flow information:

    

Cash paid during the period for:

    

Interest

   $ 118,426      $ 93,976   

Income taxes

     24,406        13,298   

 

- more -

 

7


Sysco Corporation and its Consolidated Subsidiaries

COMPARATIVE SEGMENT DATA RECLASSIFIED FOR NEW SEGMENT REPORTING STRUCTURE (Unaudited)

(In Thousands)

In connection with the Acquisition, the company has reassessed its reportable segments based on how the chief operating decision maker assesses performance and allocated resources. Sysco has aggregated its operating companies into three reportable segments. “Other” financial information is attributable to the company’s other operating segments that have not been aggregated into one of the three reporting segments as follows:

 

  U.S. Foodservice Operations - primarily includes U.S. broadline operations, custom-cut meat companies, FreshPoint (our specialty produce companies) and European Imports (a specialty import company);

 

  International Foodservice Operations - includes broadline operations in Canada and Europe, including the Brakes Group, Bahamas, Mexico, Costa Rica and Panama, as well as a company that distributes to international customers;

 

  SYGMA - our chain restaurant distribution subsidiary; and

 

  Other - primarily our hotel supply operations and our Sysco Ventures platform, which includes our suite of technology solutions that help support the business needs of our customers.

Broadline operating companies distribute a full line of food products and a wide variety of non-food products to both traditional and chain restaurant customers, hospitals, schools, hotels, industrial caterers and other venues where foodservice products are served. SYGMA operating companies distribute a full line of food products and a wide variety of non-food products to certain chain restaurant customer locations. The following tables set forth certain financial information for Sysco’s business segments. Prior year amounts have been reclassified to conform to the current year presentation and include the impact of a change in allocation between corporate and the segments that is not significant but is consistent with management’s assessment of segment performance in fiscal 2017.

 

     Q1 FY17      Q1 FY16      Q2 FY16      Q3 FY16      Q4 FY16      53-Week Period  
     Oct. 1, 2016      Sep. 26, 2015      Dec. 26, 2015      Mar. 26, 2016      July 2, 2016      July 2, 2016  

Sales:

                 

U.S. Foodservice Operations

   $ 9,481,115       $ 9,407,923       $ 9,135,327       $ 9,037,418       $ 10,195,775       $ 37,776,443   

International Foodservice Operations

     2,728,360         1,390,259         1,280,773         1,251,816         1,513,361         5,436,209   

SYGMA

     1,504,692         1,445,904         1,506,836         1,497,366         1,652,221         6,102,327   

Other

     254,487         318,525         230,690         216,191         286,534         1,051,940   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 13,968,654       $ 12,562,611       $ 12,153,626       $ 12,002,791       $ 13,647,891       $ 50,366,919   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     Q1 FY17      Q1 FY16      Q2 FY16      Q3 FY16      Q4 FY16      53-Week Period  
     Oct. 1, 2016      Sep. 26, 2015      Dec. 26, 2015      Mar. 26, 2016      July 2, 2016      July 2, 2016  

Operating Income:

                 

U.S. Foodservice Operations

   $ 745,231       $ 686,669       $ 625,216       $ 643,326       $ 816,721       $ 2,771,931   

International Foodservice Operations

     79,435         51,920         42,212         33,021         50,006         177,158   

SYGMA

     4,908         5,123         5,659         9,344         7,343         27,468   

Other

     8,001         10,770         6,380         6,616         8,820         32,586   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 837,575       $ 754,482       $ 679,466       $ 692,306       $ 882,889       $ 3,009,143   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 

- more -

 

8


Sysco Corporation and its Consolidated Subsidiaries

Non-GAAP Reconciliation (Unaudited)

Impact of Certain Items

Sysco’s results of operations are impacted by restructuring costs consisting of (1) severance charges, (2) professional fees related to our three-year strategic plan, (3) restructuring expenses within our Brakes Group operations and (4) expenses associated with our revised business technology strategy announced in fiscal 2016, as a result of which we recorded accelerated depreciation on our existing system and incurred costs to convert to legacy systems. Our results of operations are also impacted by the following acquisition-related items: (1) intangible amortization expense (2) transaction costs and (3) integration costs. All acquisition-related costs in fiscal 2017 that have been excluded relate to the Acquisition. Fiscal 2016 acquisition-related costs, however, include (i) termination costs in connection with the merger that had been proposed with US Foods, Inc. (US Foods) and (ii) financing costs related to the senior notes that were issued in fiscal 2015 to fund the proposed US Foods merger. These senior notes were redeemed in the first quarter of fiscal 2016, triggering a redemption loss of $86.5 million, and we incurred interest on these notes through the redemption date. The Acquisition also resulted in non-recurring tax expense in fiscal 2017, primarily from non-deductible transaction costs. These fiscal 2017 and fiscal 2016 items are collectively referred to as “Certain Items.”

Management believes that adjusting its operating expenses, operating income, operating margin as a percentage of sales, interest expense, net earnings and diluted earnings per share to remove these Certain Items 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 facilitates comparisons on a year-over-year basis and (2) removes those items that are difficult to predict and are often unanticipated, and which as a result, are difficult to include in analysts’ financial models and our investors’ expectations with any degree of specificity.

Although Sysco has a history of growth through acquisitions, the Brakes Group is significantly larger than the companies historically acquired by Sysco, with a proportionately greater impact on Sysco’s consolidated financial statements. Accordingly, Sysco is excluding from its non-GAAP financial measures for the relevant period solely for those acquisition costs specific to the Acquisition. We believe this approach significantly enhances the comparability of Sysco’s results for the first quarter of fiscal 2017 to the same period in fiscal 2016. Also, given the significance of the Acquisition, management believes that presenting Sysco’s financial measures, excluding the Brakes Group operating results, enhances comparability of the period over period financial performance of Sysco’s legacy business and allows investors to more effectively measure Sysco’s progress against the financial goals under Sysco’s three year strategic plan.

Set forth below is a reconciliation of sales, operating expenses, operating income, interest 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 to the total presented due to rounding. Adjusted diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding.

 

- more -

 

9


Sysco Corporation and its Consolidated Subsidiaries

Non-GAAP Reconciliation (Unaudited)

Impact of Certain Items and Brakes

(In Thousands, Except for Share and Per Share Data)

 

     13-Week
Period Ended
Oct. 1, 2016
    13-Week
Period Ended
Sep 26, 2015
    13-Week
Period Change
in Dollars
    13-Week
Period
% Change
 

Sales

   $ 13,968,654      $ 12,562,611      $ 1,406,043        11.2

Impact of Brakes

     (1,283,524     —          (1,283,524     NM   
  

 

 

   

 

 

   

 

 

   

 

 

 

Sales excluding the impact of Brakes (Non-GAAP)

   $ 12,685,130      $ 12,562,611      $ 122,519        1.0

Gross profit

   $ 2,691,919      $ 2,237,995      $ 453,924        20.3

Impact of Brakes

     (343,051     —          (343,051     NM   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit excluding the impact of Brakes (Non-GAAP)

   $ 2,348,868      $ 2,237,995      $ 110,873        5.0

Gross margin

     19.27     17.81     1.46     8.2

Impact of Brakes

     0.75     —          0.75     NM   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin excluding the impact of Brakes (Non-GAAP)

     18.52     17.81     0.70     3.9

Operating expenses (GAAP)

   $ 2,125,086      $ 1,744,521      $ 380,565        21.8

Impact of restructuring costs (1)

     (38,285     (3,189     (35,096     NM   

Impact of acquisition-related costs (2)

     (21,710     (9,816     (11,894     121.2
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses adjusted for certain items (Non-GAAP)

   $ 2,065,091      $ 1,731,516      $ 333,575        19.3

Impact of Brakes

     (322,843     —          (322,843     NM   

Impact of Brakes restructuring costs (3)

     3,074        —          3,074        NM   

Impact of Brakes acquisition-related costs (2)

     19,498        —          19,498        NM   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses adjusted for certain items and excluding the impact of Brakes (Non-GAAP)

   $ 1,764,820      $ 1,731,516      $ 33,304        1.9

Operating income (GAAP)

   $ 566,833      $ 493,474      $ 73,359        14.9

Impact of restructuring costs (1)

     38,285        3,189        35,096        NM   

Impact of acquisition-related costs (2)

     21,710        9,816        11,894        121.2
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income adjusted for certain items -GAAP)

   $ 626,828      $ 506,479      $ 120,349        23.8

Impact of Brakes

     (20,208     —          (20,208     NM   

Impact of Brakes restructuring costs (3)

     (3,074     —          (3,074     NM   

Impact of Brakes acquisition-related costs (2)

     (19,498     —          (19,498     NM   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income adjusted for certain items and excluding the impact of Brakes (Non-GAAP)

   $ 584,048      $ 506,479      $ 77,569        15.3

Operating margin (GAAP)

     4.06     3.93     0.13     3.3

Operating margin excluding Certain Items (Non-GAAP)

     4.49     4.03     0.46     11.3

Operating margin excluding Certain Items and Brakes (Non-GAAP)

     4.60     4.03     0.57     14.2

Interest expense (GAAP)

   $ 73,623      $ 126,907      $ (53,284     -42.0

Impact of acquisition financing costs (4)

     —          (94,835     94,835        -100.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense adjusted for certain items (Non-GAAP)

   $ 73,623      $ 32,072      $ 41,551        129.6

Net earnings (GAAP)

   $ 323,887      $ 244,420      $ 79,467        32.5

Impact of restructuring cost (1)

     38,285        3,189        35,096        NM   

Impact of acquisition-related costs (2)

     21,710        9,816        11,894        121.2

Impact of acquisition financing costs (4)

     —          94,835        (94,835     -100.0

Tax impact of restructuring cost (5)

     (3,593     (1,198     (2,395     199.9

Tax impact of acquisition-related costs (5)

     (4,169     (3,688     (481     13.0

Tax impact of acquisition financing costs (5)

     —          (35,632     35,632        -100.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings adjusted for certain items (Non-GAAP)

   $ 376,120      $ 311,742      $ 64,378        20.7

Impact of Brakes

     (18,852     —          (18,852     NM   

Impact of Brakes restructuring costs (3)

     (2,446     —          (2,446     NM   

Impact of Brakes acquisition-related costs (2)

     (15,514     —          (15,514     NM   

Impact of interest expense on debt issued for the Brakes acquisition (6)

     19,735        —          19,735        NM   

Tax impact of interest expense on debt issued for the Brakes acquisition (5)

     (7,460     —          (7,460     NM   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings adjusted for certain items and excluding the impact of Brakes (Non-GAAP)

   $ 351,583      $ 311,742      $ 39,841        12.8

Diluted earnings per share (GAAP)

   $ 0.58      $ 0.41      $ 0.17        41.5

Impact of restructuring costs (1)

     0.07        —          0.07        NM   

Impact of acquisition-related costs (2)

     0.04        0.02        0.02        144.8

Impact of acquisition financing costs (4)

     —          0.16        (0.16     -100.0

Tax impact of restructuring cost (5)

     (0.01     —          (0.01     NM   

Tax impact of acquisition-related costs (5)

     (0.01     (0.01     (0.00     62.9

Tax impact of acquisition financing costs (5)

     —          (0.06     0.06        -100.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted EPS adjusted for certain items (Non-GAAP) (7)

   $ 0.67      $ 0.52      $ 0.15        28.8

Impact of Brakes

     (0.03     —          (0.03     NM   

Impact of Brakes restructuring costs (3)

     (0.01     —          (0.01     NM   

Impact of Brakes acquisition-related costs (2)

     (0.02     —          (0.02     NM   

Impact of interest expense on debt issued for the Brakes acquisition (6)

     0.04        —          0.04        NM   

Tax impact of interest expense on debt issued for the Brakes acquisition (5)

     (0.01     —          (0.01     NM   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted EPS adjusted for certain items and excluding the impact of Brakes (Non-GAAP) (7)

   $ 0.63      $ 0.52      $ 0.11        20.4

Diluted shares outstanding

     560,954,068        600,789,913       

 

(1)  Includes $28 million in accelerated depreciation associated with our revised business technology strategy and $10 million related to severance charges, professional fees on 3-year financial objectives, restructuring expenses within our Brakes operations and costs to convert to legacy systems in conjunction with our revised business technology strategy.
(2)  Fiscal 2017 Includes $19 million related to intangible amortization expense from the Brakes acquisition which is included in the results of Brakes and $2 million in transaction costs. Fiscal 2016 includes US Foods merger termination costs.
(3)  Includes Brakes Acquisition restructuring charges.
(4) Includes US Foods financing costs applicable to fiscal 2016.
(5) 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. The adjustments also include $7 million in non-deductible transaction costs and $4 million in other one-time costs related to the Brakes acquisition.
(6) Sysco Corporation issued debt to fund the Acquisition. The interest expense arising from the debt issued is attributed to the incremental impact of Brakes operating results, even though it is not a direct obligation of the Brakes Group and is not considered a Certain Item.
(7)  Individual components of diluted earnings per share may not add 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.

 

 

- more -

 

10


Sysco Corporation and its Consolidated Subsidiaries

Non-GAAP Reconciliation (Unaudited)

Impact of Certain Items

(In Thousands, Except for Share and Per Share Data)

 

     Q1 FY17     Q1 FY16     Q2 FY16     Q3 FY16     Q4 FY16     53-Week  
U.S. Foodservice Operations    Oct. 1, 2016     Sep. 26, 2015     Dec. 26, 2015     Mar. 26, 2016     July 2, 2016     July 2, 2016  

Sales (GAAP)

   $ 9,481,115      $ 9,407,923      $ 9,135,326      $ 9,037,417      $ 10,195,775      $ 37,776,442   

Gross Profit (GAAP)

     1,913,115        1,834,354        1,759,390        1,765,279        2,054,413        7,413,436   

Gross Margin (GAAP)

     20.2     19.5     19.3     19.5     20.1     19.6

Operating expenses (GAAP)

   $ 1,167,884      $ 1,147,685      $ 1,134,174      $ 1,121,953      $ 1,237,692      $ 4,641,504   

Impact of restructuring costs

     —          (873     (561     (742     (1,175     (3,351
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses adjusted for certain items (Non-GAAP)

   $ 1,167,884      $ 1,146,812      $ 1,133,613      $ 1,121,211      $ 1,236,517      $ 4,638,153   

Operating income (GAAP)

   $ 745,231      $ 686,669      $ 625,216      $ 643,326      $ 816,721      $ 2,771,932   

Impact of restructuring costs

     —          873        561        742        1,175        3,351   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income adjusted for certain items (Non-GAAP)

   $ 745,231      $ 687,542      $ 625,777      $ 644,068      $ 817,896      $ 2,775,283   

International Foodservice Operations

            

Sales (GAAP)

   $ 2,728,360      $ 1,390,259      $ 1,280,775      $ 1,251,815      $ 1,513,361      $ 5,436,209   

Gross Profit (GAAP)

     598,406        245,462        221,198        210,682        261,600        938,942   

Gross Margin (GAAP)

     21.9     17.7     17.3     16.8     17.3     17.3

Operating expenses (GAAP)

   $ 518,971      $ 193,542      $ 178,986      $ 177,661      $ 211,594      $ 761,783   

Impact of restructuring costs (1)

     (4,680     (1,243     (586     (308     (6,808     (8,945

Impact of acquisition-related costs (2)

     (19,498     —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses adjusted for certain items (Non-GAAP)

   $ 494,793      $ 192,299      $ 178,400      $ 177,353      $ 204,786      $ 752,838   

Operating income (GAAP)

   $ 79,435      $ 51,920      $ 42,212      $ 33,021      $ 50,006      $ 177,159   

Impact of restructuring costs (1)

     4,680        1,243        586        308        6,808        8,945   

Impact of acquisition-related costs (2)

     19,498        —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income adjusted for certain items (Non-GAAP)

   $ 103,613      $ 53,163      $ 42,798      $ 33,329      $ 56,814      $ 186,104   

SYGMA

            

Sales (GAAP)

   $ 1,504,692      $ 1,445,905      $ 1,506,836      $ 1,497,365      $ 1,652,222      $ 6,102,328   

Gross Profit (GAAP)

     114,976        110,320        111,790        114,657        119,214        455,981   

Gross Margin (GAAP)

     7.64     7.63     7.42     7.66     7.22     7.47

Operating expenses (GAAP)

   $ 110,068      $ 105,197      $ 106,131      $ 105,313      $ 111,871      $ 428,512   

Impact of restructuring costs

     —          (5     (77     (20     —          (102
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses adjusted for certain items (Non-GAAP)

   $ 110,068      $ 105,192      $ 106,054      $ 105,293      $ 111,871      $ 428,410   

Operating income (GAAP)

   $ 4,908      $ 5,123      $ 5,659      $ 9,344      $ 7,343      $ 27,469   

Impact of restructuring costs

     —          5        77        20        —          102   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income adjusted for certain items (Non-GAAP)

   $ 4,908      $ 5,128      $ 5,736      $ 9,364      $ 7,343      $ 27,571   

Other

            

Sales (GAAP)

   $ 254,486      $ 318,524      $ 230,689      $ 216,194      $ 286,532      $ 1,051,939   

Gross Profit (GAAP)

     68,283        58,873        56,379        56,242        69,072        240,566   

Gross Margin (GAAP)

     26.83     18.48     24.44     26.01     24.11     22.87

Operating expenses (GAAP)

   $ 60,282      $ 48,103      $ 49,999      $ 49,626      $ 60,252      $ 207,980   

Impact of restructuring costs

     —          (11     (52     (52     (52     (167
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses adjusted for certain items (Non-GAAP)

   $ 60,282      $ 48,092      $ 49,947      $ 49,574      $ 60,200      $ 207,813   

Operating income (GAAP)

   $ 8,001      $ 10,770      $ 6,380      $ 6,616      $ 8,501      $ 32,267   

Impact of restructuring costs

     —          11        52        52        52        167   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income adjusted for certain items (Non-GAAP)

   $ 8,001      $ 10,781      $ 6,432      $ 6,668      $ 8,553      $ 32,434   

Corporate

            

Gross Profit (GAAP)

   $ (2,861   $ (11,014   $ 8,472      $ (3,884   $ (2,027   $ (8,453

Operating expenses (GAAP)

   $ 267,880      $ 249,994      $ 254,941      $ 310,666      $ 334,592      $ 1,150,193   

Impact of restructuring costs (3)

     (33,604     (1,057     (3,005     (58,320     (48,185     (110,568

Impact of acquisition-related costs (4)

     (2,212     (9,816     —          (586     (25,212     (35,615
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses adjusted for certain items (Non-GAAP)

   $ 232,064      $ 239,121      $ 251,936      $ 251,759      $ 261,195      $ 1,004,011   

Operating income (GAAP)

   $ (270,742   $ (261,008   $ (246,478   $ (314,550   $ (336,291   $ (1,158,327

Impact of restructuring costs (3)

     33,604        1,057        3,005        58,320        48,185        110,568   

Impact of acquisition-related costs (4)

     2,212        9,816        —          586        25,212        35,615   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income adjusted for certain items (Non-GAAP)

   $ (234,925   $ (250,135   $ (243,473   $ (255,643   $ (262,894   $ (1,012,145

Total Sysco

            

Sales (GAAP)

   $ 13,968,654      $ 12,562,611      $ 12,153,626      $ 12,002,791      $ 13,647,890      $ 50,366,919   

Gross Profit (GAAP)

     2,691,918        2,237,995        2,157,229        2,142,976        2,502,272        9,040,472   

Gross Margin (GAAP)

     19.27     17.81     17.75     17.85     18.33     17.95

Operating expenses (GAAP)

   $ 2,125,086      $ 1,744,521      $ 1,724,231      $ 1,765,219      $ 1,956,001      $ 7,189,972   

Impact of restructuring costs (1) (3)

     (38,285     (3,189     (4,281     (59,443     (56,220     (123,134

Impact of acquisition-related costs (2) (4)

     (21,710     (9,816     —          (586     (25,212     (35,615
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses adjusted for certain items (Non-GAAP)

   $ 2,065,091      $ 1,731,516      $ 1,719,950      $ 1,705,189      $ 1,874,569      $ 7,031,224   

Operating income (GAAP)

   $ 566,833      $ 493,474      $ 432,989      $ 377,757      $ 546,280      $ 1,850,500   

Impact of restructuring costs (1) (3)

     38,285        3,189        4,281        59,443        56,220        123,134   

Impact of acquisition-related costs (2) (4)

     21,710        9,816        —          586        25,212        35,615   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income adjusted for certain items (Non-GAAP)

   $ 626,828      $ 506,479      $ 437,270      $ 437,787      $ 627,712      $ 2,009,248   

 

(1)  Fiscal 2017 includes restructuring expenses within our Brakes operations.
(2)  Fiscal 2017 Includes $19 million related to intangible amortization expense from the Brakes acquisition which is included in the results of Brakes.
(3)  Includes $28 million in accelerated depreciation associated with our revised business technology strategy, professional fees on 3-year financial objectives and costs to convert to legacy systems in conjunction with our revised business technology strategy.
(4)  Fiscal 2017 Includes $2 million related to transaction costs from the Brakes acquisition. Fiscal 2016 includes US Foods merger termination costs.

 

 

- more -

 

11


Sysco Corporation and its Consolidated Subsidiaries

Non-GAAP Reconciliation (Unaudited)

Free Cash Flow

(In Thousands)

Free cash flow represents net cash provided from operating activities less purchases of plant and equipment and includes proceeds from sales of plant and equipment. Sysco considers free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after the purchases and sales of buildings, fleet, equipment and technology, which may potentially be used to pay for, among other things, strategic uses of cash including dividend payments, share repurchases and acquisitions. However, free cash flow may not be available for discretionary expenditures, as it may be necessary that we use it to make mandatory debt service or other payments. Free cash flow should not be used as a substitute for the most comparable GAAP measure in assessing the company’s liquidity for the periods presented. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. In the table that follows, free cash flow for each period presented is reconciled to net cash provided by operating activities.

 

     13-Week
Period Ended
Oct. 1, 2016
    13-Week
Period Ended
Sep 26, 2015
    13-Week
Period Change
in Dollars
    13-Week
Period
% Change
 

Net cash provided by operating activities (GAAP)

   $ 248,674      $ (261,482   $ 510,156        -195.1

Additions to plant and equipment

     (142,255     (121,243     (21,012     -17.3   

Proceeds from sales of plant and equipment

     4,261        1,506        2,755        182.9   
  

 

 

   

 

 

   

 

 

   

 

 

 

Free Cash Flow (Non-GAAP)

   $ 110,680      $ (381,219   $ 491,899        -129.0

 

 

 

12