Sysco Corporation · NYSE:SYY
Sysco — CAGNY 2018
57 slides from Sysco's conference presentation, 2018
Slide 1: CAGNY 2018
CAGNY | 2018
Slide 2: Forward Looking Statements
FORWARD LOOKING STATEMENTS Certain statements made herein 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
Slide 3: Tom Bené, President & CEO
TOM BENÉ PRESIDENT & CEO
Slide 4: Our Vision
To be our customers’ most Our VISION valued and trusted business partner
Slide 5: Our core values represent who we are, what we stand for
OUR CORE VALUES REPRESENT WHO WE ARE, WHAT WE STAND FOR… & WHAT WE ASPIRE TO BE Integrity Inclusiveness Excellence Teamwork Responsibility Committed to doing Creating an open, diverse In everything we do Working as one to help To our customers, the right thing and respectful environment our customer
Slide 6: Our customer-centric approach leverages our expertise across functions
OUR CUSTOMER-CENTRIC APPROACH LEVERAGES OUR EXPERTISE ACROSS FUNCTIONS Enabling our companies to serve our customers flawlessly Customers Operating Operate the Execute companies business flawlessly Enable the Provide Business units operating resources companies & support Create tools, processes Corp
Slide 7: Sysco's Business & Strategy
SYSCO’S BUSINESS & STRATEGY
Slide 8: Sysco has a presence in a roughly $400B, large & fragmented foodservice market
SYSCO HAS A PRESENCE IN A ROUGHLY $400B, LARGE & FRAGMENTED FOODSERVICE MARKET While also serving customers in another 81 countries 8
Slide 9: We operate the business in four major segments
WE OPERATE THE BUSINESS IN FOUR MAJOR SEGMENTS THAT COMPRISE THE SYSCO PORTFOLIO OF BUSINESSES % OF FY17 Core market TOTAL REVENUE U.S. U.S. broadline serves as the foundation Foodservice Specialty companies enhance our portfolio Operations of products 68% International Foodservice Geographic expans
Slide 10: The U.S. market is the foundation of our business
THE U.S. MARKET IS THE FOUNDATION OF OUR BUSINESS, WITH MEANINGFUL GROWTH POTENTIAL Broad Fresh Fresh Meat, Assortment Produce Poultry, Seafood Serves diverse customer base of Deep knowledge CAPABILITIES local and contract customers Specialized solutions UNIQUE Efficient model Operational Flexibilit
Slide 11: International represents growth opportunities in existing markets & targeted geographic expansion
INTERNATIONAL REPRESENTS GROWTH OPPORTUNITIES IN EXISTING MARKETS & TARGETED GEOGRAPHIC EXPANSION LATIN CANADA EUROPE AMERICA International Americas International Europe Estimated Market Size ~ $25B ~ $100B ~ $250B • Grow gross profit & • Positioned for longer-term • Platform for future optimize cos
Slide 12: SYGMA operates in the systems distribution space
SYGMA OPERATES IN THE SYSTEMS DISTRIBUTION SPACE & SPECIALIZES IN SERVING AT-SCALE CHAIN CUSTOMERS EXAMPLE CUSTOMERS 2016 U.S. foodservice Systems distributors market size $45B $B, excluding alcohol 16% $279B total Source: Technomic, Nov 2016, company info & financials 12
Slide 13: Guest Supply is the leading global manufacturer & distributor to the lodging industry
GUEST SUPPLY IS THE LEADING GLOBAL MANUFACTURER & DISTRIBUTOR OF SUPPLIES TO THE LODGING INDUSTRY • 30,000 hotels in 113 countries Global Lodging • Leading presence in U.S. market $10B Opportunity • Manufacture personal care amenity 175,000 Hotels products & textile products 16MM Rooms • Distribute
Slide 14: Sysco Labs is our innovation team
SYSCO LABS IS OUR INNOVATION TEAM, LEVERAGING AGILE & DESIGN THINKING TO REIMAGINE THE CUSTOMER EXPERIENCE Customer-centric Innovation Culture Cross-functional Pace over perfection Customers in the room and Silicon Valley thinking Cross-functional Rapid design, build out, and involved throughout des
Slide 15: We have consistently delivered strong results, translating into solid returns for shareholders
WE HAVE CONSISTENTLY DELIVERED STRONG RESULTS, WHICH HAVE TRANSLATED INTO SOLID RETURNS FOR SHAREHOLDERS FINANCIAL RESULTS THROUGH TO BE OUR CUSTOMERS’ 10 QTRS1 MOST VALUED AND TRUSTED BUSINESS PARTNER • Local Cases 2.8% GROW LEVERAGE SUPPLY CHAIN REDUCE ADMINISTRATIVE • Gross Profit 4.0% GROSS PROF
Slide 16: Three-Year Plan FY18 – FY20
THREE-YEAR PLAN FY18 – FY20
Slide 17: Key trends in the industry
KEY TRENDS IN THE INDUSTRY HEALTHY & LOCAL ETHNIC TECHNOLOGY 67% 68% 50% $5.2B Consumers: Consumers: of restaurant in estimated Healthy options Say they are 2016 orders searches are an important more likely to went through done on mobile factor when choose Consumers: Responses of agree and Food Deli
Slide 18: Technomic's foodservice industry real growth rates
TECHNOMIC’S FOODSERVICE INDUSTRY REAL GROWTH RATES 5-year Real CAGR 2017-2022 Noncommercial 1.1% Travel&Leisure 1.8% • We are focused on gaining share Retailers 2.4% across multiple higher-growth segments Restaurants 1.7% Small chains & Independents 1.9% • Accelerate growth and gain 101--500 chains
Slide 19: Sysco is well positioned to win in the marketplace
SYSCO IS WELL POSITIONED TO WIN IN THE MARKETPLACE Strong Depth customer of product relationships offering Enterprise scale Customer facing & highly Technology efficient supply solutions chain Strong cash flow Best in class & balance sheet salesforce Sysco is rooted in a strong foundation and a hist
Slide 20: Our four strategic priorities will accelerate our current growth
OUR FOUR STRATEGIC PRIORITIES WILL ACCELERATE OUR CURRENT GROWTH & POSITION US WELL FOR THE FUTURE 20
Slide 21: Transitioning to an increasingly consultative sales approach
WE ARE TRANSITIONING TO AN INCREASINGLY CONSULTATIVE SALES APPROACH SUPPORTED BY NEW TOOLS & CAPABILITIES Capabilities & Processes & tools Sales support development Technology and Training and Resources that processes that allow development programs are differentiated sales teams more time to to adv
Slide 22: Innovative processes & tools provide our sales team more time to sell
SYSCO’S INNOVATIVE PROCESSES & TOOLS PROVIDE OUR SALES TEAM MORE TIME TO SELL & SUPPORT OUR CUSTOMERS Support our MAs through processes & Enhancing our eCommerce capabilities tools that improve their productivity Provide customers with a choice to order how, when, and where they want Data-driven ter
Slide 23: Sysco, one company, many solutions, enabling customer success
SYSCO, ONE COMPANY, MANY SOLUTIONS, ENABLING CUSTOMER SUCCESS The right products Deep customer The right customer insights Delivered through experience The right multiple channels services + for our customers solutions + innovation 23
Slide 24: Joel Grade, EVP & CFO
JOEL GRADE EVP & CFO UF, ee
Slide 25: Strong momentum in the first ten quarters of our three-year plan
WE HAVE STRONG MOMENTUM IN THE BUSINESS FOR THE FIRST TEN QUARTERS OF OUR INITIAL THREE-YEAR PLAN… THREE-YEAR PLAN ACTUALS AS OF 1 (FY15-FY18) 2Q18 Accelerate local case growth 2 - 3% 2.8% Achieve gross profit growth 4% 4% Limit operating expense growth1 3% 2% Guiding to the Operating income growth1
Slide 26: Key underlying operating assumptions: FY18-FY20 plan
KEY UNDERLYING OPERATING ASSUMPTIONS: FY18-FY20 PLAN • Inflation: 1% - 2% Topline • Total case growth: 3.0% • Local case growth: 3.5% Acquisition • Continue to pursue core portfolio acquisitions (0.5% - 1.0% of sales) Investment • Ongoing assessment of other strategic opportunities Shares • Reduce d
Slide 27: M&A is a key lever of our growth strategy
M&A IS A KEY LEVER OF OUR GROWTH STRATEGY • Grow our share with local Strategically operators acquire • Achieve supply chain synergies companies in existing markets • Fill potential gaps in our product offerings and capabilities • Develop platforms for further Thoughtfully growth expand into new • L
Slide 28: Our three-year plan delivers targeted financial results
OUR THREE-YEAR PLAN DELIVERS TARGETED FINANCIAL RESULTS From December 2017 Investor Day Presentation Lower tax rate will improve initial EPS estimates by $0.20 to $0.25 1: See Non-GAAP reconciliations at the end of this presentation for FY17 results; 2: Estimated results 28
Slide 29: Focusing on key strategic priorities will enable solid operating performance
FOCUSING ON OUR KEY STRATEGIC PRIORITIES WILL ENABLE US TO DELIVER SOLID OPERATING PERFORMANCE FY 20 IMPACT Grow gross profit 55-65% Gross operating Leverage supply chain 10-15% income costs benefit Reduce administrative 20-25% costs Net Adjusted Operating Income Improvement: $650 - $700M1 1 See Non
Slide 30: Growth of operating income will be evenly paced throughout FY18-FY20
THE GROWTH OF OPERATING INCOME WILL BE EVENLY PACED THROUGHOUT FY18-FY20 Adjusted Operating Income1 ($B) CAGR: 9% $3.0 $2.4 2017 2018 2019 2020 1 See Non-GAAP reconciliations at the end of the presentation 30
Slide 31: We plan to continue our historical strong operating performance
WE PLAN TO CONTINUE OUR HISTORICAL STRONG OPERATING PERFORMANCE 1 1 1 2 Total Sysco Adj. Operating Leverage 2Q18 YTD18 Average 6.0% 4.8% 4.0% 4.5% 3.6% 4.1% 5.0% 4.4% 4.0% 2.0% 2.0% 5.3% 4.2% 2.3% 1.7% 0.0% FY15 FY16 FY17 GP growth OPEX growth … Anticipate improved leverage in the 2nd half of the ye
Slide 32: Proven track record of cash flow generation
WE HAVE A PROVEN TRACK RECORD OF CASH FLOW GENERATION… Annual Cash Flow1 ($M) $2,400 $1,800 $1,200 $600 $- FY15 FY16 FY17 Net cash provided by operating activities (GAAP) Free Cash Flow (Non-GAAP) … and we expect to generate improved cash flows with a continued adjusted cash conversion ratio2 greate
Slide 33: Disciplined approach to capital allocation
WE WILL FOLLOW A DISCIPLINED APPROACH TO CAPITAL ALLOCATION Approximately 1.2% - 1 Invest in the business 1.3% of sales Preferred payout ratio 2 Grow the dividend of 50-60% over time 3 Strategic M&A Pay Down Debt / 4 Opportunistic Share Repurchase 33
Slide 34: Our strong balance sheet provides flexibility
OUR STRONG BALANCE SHEET PROVIDES FLEXIBILITY Current • Solid investment-grade credit rating Balance • Substantial flexibility to pursue strategic Sheet transactions where appropriate Debt • Moody’s: A3 Ratings • S&P: BBB+ 34
Slide 35: Sufficient levels of debt capacity for acquisitions
WE HAVE SUFFICIENT LEVELS OF DEBT CAPACITY FOR ACQUISITIONS… … and will continue to use a balanced approach around capital allocation while maintaining flexibility for future investments 35
Slide 36: Current Business Update
CURRENT BUSINESS UPDATE
Slide 37: Investment considerations for tax reform benefit
INVESTMENT CONSIDERATIONS FOR TAX REFORM BENEFIT WHAT IT MEANS FOR SYSCO • Reviewing applicable changes to realize the full benefits • Determining the best way to utilize the tax savings, with a commitment to: – Reinvest in the business – Improve the customer experience – Make investments in our peo
Slide 38: Financial updates (2nd half of year, FY18, first three-year plan)
FINANCIAL UPDATES (2ND HALF OF YEAR, FY18, FIRST THREE-YEAR PLAN) • Expect stronger second half of the year • 3Q18 case growth impacted by weather and holiday timing • 2nd half of FY18 tax reform impact on EPS expected to be +$0.09 - +$0.13 • Remain confident in our ability to deliver financial obje
Slide 39: Continuing to further leverage strong momentum in the business
CONTINUING TO FURTHER LEVERAGE STRONG MOMENTUM IN THE BUSINESS LEVERAGE STRONG MOMENTUM IN THE BUSINESS1 • Grow FY20 Adjusted Operating Income by $650-$700M compared to FY17 • Expect future adjusted operating leverage gap of approximately 1.5 points • Well positioned for future growth 1 See Non-GAAP
Slide 40: Q&A
Q&A
Slide 41: Non-GAAP Reconciliations
NON-GAAP RECONCILIATIONS
Slide 42: Impact of Certain Items
IMPACT OF CERTAIN ITEMS Sysco Corporation and its Consolidated Subsidiaries Non-GAAP Reconciliation (Unaudited) Impact of Certain Items and Brakes Sysco’s results of operations for fiscal 2018 and 2017 are impacted by restructuring costs consisting of: (1) expenses associated with our revised busine
Slide 43: Operating Leverage
OPERATING LEVERAGE Sysco Corporation and its Consolidated Subsidiaries Non-GAAP Reconciliation (Unaudited) Total Sysco Operating Leverage & Operating Income (impact of Certain Items, extra week and Brakes) (In Thousands) (a) 10 quarter average gross profit excluding the impact of Brakes (Non-GAAP) 4
Slide 44: Operating Leverage (Cont'd)
OPERATING LEVERAGE (CONT’D) 13-Week 13-Week 13-Week 13-Week 13-Week 13-Week 13-Week 13-Week 13-Week 13-Week 13-Week 13-Week Period Ended Period Ended Period Change Period Period Ended Period Ended Period Change Period Period Ended Period Ended Period Change Period Sep. 30, 2017 Oct. 1, 2016 in Dolla
Slide 45: Operating Leverage (Cont'd)
OPERATING LEVERAGE (CONT’D) 13-Week 13-Week 13-Week 13-Week 13-Week 13-Week 13-Week 13-Week 13-Week 13-Week 13-Week 13-Week Period Ended Period Ended Period Change Period Period Ended Period Ended Period Change Period Period Ended Period Ended Period Change Period Dec. 31, 2016 Dec. 26, 2015 in Doll
Slide 46: Operating Leverage (Cont'd)
OPERATING LEVERAGE (CONT’D) 13-Week 13-Week 13-Week 13-Week 13-Week 13-Week 13-Week 13-Week 13-Week 13-Week 13-Week 13-Week Period Ended Period Ended Period Change Period Period Ended Period Ended Period Change Period Period Ended Period Ended Period Change Period Mar. 26, 2016 Mar. 28, 2015 in Doll
Slide 47: EPS
EPS Sysco Corporation and its Consolidated Subsidiaries Non-GAAP Reconciliation (Unaudited) Total Sysco EPS (impact of Certain Items, extra week and Brakes) (a) 10 quarter average earnings per share adjusted for certain items, extra week and excluding the impact of Brakes (Non-GAAP) 17.2% 13-Week 13
Slide 48: EPS (Cont'd)
EPS (CONT’D) 13-Week 13-Week 13-Week 13-Week 13-Week 13-Week 13-Week 13-Week 13-Week 13-Week 13-Week 13-Week Period Ended Period Ended Period Change Period Period Ended Period Ended Period Change Period Period Ended Period Ended Period Change Period Sep. 30, 2017 Oct. 1, 2016 in Dollars % Change Jul
Slide 49: ROIC
ROIC Adjusted Return on Invested Capital (ROIC) We calculate ROIC as net earnings divided by (i) stockholder’s equity, computed as the average of adjusted stockholders’ equity at the beginning of the year and at the end of each fiscal quarter during the year; and (ii) long-term debt, computed as the
Slide 50: Operating Income Growth
OPERATING INCOME GROWTH Sysco Corporation and its Consolidated Subsidiaries Non-GAAP Reconciliation (Unaudited) Operating Income Growth (In Thousands) Year Ended 26-Week Period Ended Cumulative 8- Cumulative 2- Cumulative 10- July 1, 2017 June 27, 2015 Quarter Growth December 30, 2017 December 31, 2
Slide 51: Impact of Certain Items, Brakes and Extra Week in Fiscal Year 2017
IMPACT OF CERTAIN ITEMS, BRAKES AND EXTRA WEEK IN FISCAL YEAR 2017 Sysco Corporation and its Consolidated Subsidiaries Non-GAAP Reconciliation (Unaudited) Impact of Certain Items, Brakes and extra week in fiscal year 2016 (In Thousands, Except for Share and Per Share Data) Year Ended Period Period C
Slide 52: Impact of Certain Items, Brakes and Extra Week in Fiscal Year 2017 (Cont'd)
IMPACT OF CERTAIN ITEMS, BRAKES AND EXTRA WEEK IN FISCAL YEAR 2017 (CONT’D) Year Ended Period Period Change %/bps July 1, 2017 July 2, 2016 in Dollars Change Operating expenses (GAAP) $ 8,504,336 $ 7,189,972 $ 1,314,364 18.3% Impact of MEPP charge (35,600) - (35,600) NM Impact of restructuring costs
Slide 53: Impact of Certain Items, Brakes and Extra Week in Fiscal Year 2017 (Cont'd)
IMPACT OF CERTAIN ITEMS, BRAKES AND EXTRA WEEK IN FISCAL YEAR 2017 (CONT’D) Year Ended Period Period Change %/bps July 1, 2017 July 2, 2016 in Dollars Change Diluted earnings per share (GAAP) $ 2.08 $ 1.64 $ 0.44 26.8% Impact of MEPP charge 0.06 - 0.06 NM Impact of restructuring costs (1) 0.29 0.21
Slide 54: Operating Leverage
OPERATING LEVERAGE Sysco Corporation and its Consolidated Subsidiaries Non-GAAP Reconciliation (Unaudited) Total Sysco Operating Leverage (impact of Certain Items, extra week and Brakes) (In Thousands) 26-Week 26-Week Period Ended Period Ended Period Change Period Dec 30, 2017 Dec 31, 2016 in Dollar
Slide 55: Operating Leverage (Cont'd)
OPERATING LEVERAGE (CONT’D) 53-Week 52-Week Period Ended Period Ended Period Change Period Jul. 2, 2016 Jun. 27, 2015 in Dollars % Change Gross profit $ 9,040,472 $ 8,551,516 $ 488,956 5.7% Less 1 week fourth quarter gross profit (178,774) - (178,774) NM Comparable gross profit using a 52 week basis
Slide 56: Free Cash Flow
FREE CASH FLOW 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. Sy
Slide 57: Sales, Gross Profit, Operating Expense, Operating Income, EPS Targets
SALES, GROSS PROFIT, OPERATING EXPENSE, OPERATING INCOME, EARNINGS PER SHARE TARGETS Sales, Gross Profit, Operating Expense, Operating Income and Earnings per Share Targets We expect to achieve our sales, gross profit, operating expense, operating income and earnings per share (EPS) targets under ou