SYSCO CORP
10-Qs and 10-Ks
PROXIES
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
Form
10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended
April 2, 2022
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
Commission File Number
1-6544
________________
(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of incorporation or organization) | (IRS employer identification number) | ||||||||||
(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 | ||||||||||||
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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.
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☑ | Accelerated Filer | ☐ | ||||||||
| Non-accelerated Filer | ☐ | Smaller Reporting Company |
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| (Do not check if a smaller reporting company) | Emerging growth company |
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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.
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
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No
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1
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)
| Apr. 2, 2022 | Jul. 3, 2021 | ||||||||||
| (unaudited) | |||||||||||
| ASSETS | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ |
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$ |
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| Accounts receivable, less allowances of $126,580 and $117,695 |
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| Inventories |
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| Prepaid expenses and other current assets |
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| Income tax receivable |
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| Total current assets |
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| Plant and equipment at cost, less accumulated depreciation |
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| Other long-term assets | |||||||||||
| Goodwill |
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| Intangibles, less amortization |
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| Deferred income taxes |
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| Operating lease right-of-use assets, net |
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| Other assets |
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| Total other long-term assets |
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| Total assets | $ |
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$ |
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| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
| Current liabilities | |||||||||||
| Notes payable | $ |
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$ |
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| Accounts payable |
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| Accrued expenses |
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| Accrued income taxes |
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| Current operating lease liabilities |
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| Current maturities of long-term debt |
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| Total current liabilities |
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| Long-term liabilities | |||||||||||
| Long-term debt |
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| Deferred income taxes |
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| Long-term operating lease liabilities |
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| Other long-term liabilities |
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| Total long-term liabilities |
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| Noncontrolling interest |
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| Shareholders’ equity | |||||||||||
| Preferred stock, par value $1 per share Authorized 1,500,000 shares, issued none |
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| Common stock, par value $1 per share Authorized 2,000,000,000 shares, issued 765,174,900 shares |
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| Paid-in capital |
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| Retained earnings |
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| Accumulated other comprehensive loss |
(
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(
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| Treasury stock at cost, 256,507,982 and 253,342,595 shares |
(
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(
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| Total shareholders’ equity |
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| Total liabilities and shareholders’ equity | $ |
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$ |
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Note: The July 3, 2021 balance sheet has been derived from the audited financial statements at that date.
See Notes to Consolidated Financial Statements
1
Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED RESULTS OF OPERATIONS (Unaudited)
(In thousands, except for share and per share data)
| 13-Week Period Ended | 39-Week Period Ended | ||||||||||||||||||||||
| Apr. 2, 2022 | Mar. 27, 2021 | Apr. 2, 2022 | Mar. 27, 2021 | ||||||||||||||||||||
| Sales | $ |
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$ |
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$ |
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$ |
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| Cost of sales |
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| Gross profit |
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| Operating expenses |
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| Operating income |
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| Interest expense |
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| Other income, net |
(
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(
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(
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(
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| Earnings before income taxes |
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| Income taxes |
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| Net earnings | $ |
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$ |
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$ |
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$ |
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| Net earnings: | |||||||||||||||||||||||
| Basic earnings per share | $ |
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$ |
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$ |
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$ |
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| Diluted earnings per share |
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| Average shares outstanding |
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| Diluted shares outstanding |
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See Notes to Consolidated Financial Statements
2
Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(In thousands)
| 13-Week Period Ended | 39-Week Period Ended | ||||||||||||||||||||||
| Apr. 2, 2022 | Mar. 27, 2021 | Apr. 2, 2022 | Mar. 27, 2021 | ||||||||||||||||||||
| Net earnings | $ |
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$ |
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$ |
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$ |
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| Other comprehensive (loss) income: | |||||||||||||||||||||||
| Foreign currency translation adjustment |
(
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(
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| Items presented net of tax: | |||||||||||||||||||||||
| Amortization of cash flow hedges |
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| Change in net investment hedges |
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| Change in cash flow hedges |
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| Amortization of prior service cost |
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| Amortization of actuarial gain |
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| Change in marketable securities |
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(
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(
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| Total other comprehensive (loss) income |
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(
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| Comprehensive income | $ |
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$ |
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$ |
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$ |
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See Notes to Consolidated Financial Statements
3
Sysco Corporation and its Consolidated Subsidiaries
CHANGES IN CONSOLIDATED SHAREHOLDERS’ EQUITY (Unaudited)
(In thousands, except for share data)
Quarter to Date
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Accumulated
Other Comprehensive Loss |
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| Common Stock |
Paid-in
Capital |
Retained
Earnings |
Treasury Stock | ||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amounts | Totals | |||||||||||||||||||||||||||||||||||||||||||
| Balance as of January 1, 2022 |
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$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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| Net earnings |
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| Foreign currency translation adjustment |
(
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(
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| Amortization of cash flow hedges, net of tax |
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| Change in cash flow hedges, net of tax |
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| Change in net investment hedges, net of tax |
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| Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax |
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| Change in marketable securities, net of tax |
(
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(
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| Dividends declared ($0.47 per common share) |
(
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(
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| Share-based compensation awards |
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(
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| Balance as of April 2, 2022 |
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$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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Accumulated
Other Comprehensive Loss |
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| Common Stock |
Paid-in
Capital |
Retained
Earnings |
Treasury Stock | ||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amounts | Totals | |||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 26, 2020 |
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$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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| Net earnings |
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| Foreign currency translation adjustment |
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| Amortization of cash flow hedges, net of tax |
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| Change in cash flow hedges, net of tax |
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| Change in net investment hedges, net of tax |
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| Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax |
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| Change in marketable securities, net of tax |
(
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(
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| Dividends declared ($0.45 per common share) |
(
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(
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| Share-based compensation awards |
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(
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| Balance as of March 27, 2021 |
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$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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4
Year to Date
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Accumulated
Other Comprehensive Loss |
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| Common Stock |
Paid-in
Capital |
Retained
Earnings |
Treasury Stock | ||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amounts | Totals | |||||||||||||||||||||||||||||||||||||||||||
| Balance as of July 3, 2021 |
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$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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| Net earnings |
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| Foreign currency translation adjustment |
(
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(
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| Amortization of cash flow hedges, net of tax |
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| Change in cash flow hedges, net of tax |
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| Change in net investment hedges, net of tax |
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| Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax |
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| Change in marketable securities, net of tax |
(
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(
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| Dividends declared ($1.41 per common share) |
(
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(
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| Treasury stock purchases |
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(
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(
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| Increase in ownership interest in subsidiaries |
(
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(
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| Share-based compensation awards |
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(
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| Balance as of April 2, 2022 |
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$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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Accumulated
Other Comprehensive Loss |
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| Common Stock |
Paid-in
Capital |
Retained
Earnings |
Treasury Stock | ||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amounts | Totals | |||||||||||||||||||||||||||||||||||||||||||
| Balance as of June 27, 2020 |
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$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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| Net earnings |
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| Foreign currency translation adjustment |
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| Amortization of cash flow hedges, net of tax |
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| Change in cash flow hedges, net of tax |
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| Change in net investment hedges, net of tax |
(
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(
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| Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax |
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| Change in marketable securities, net of tax |
(
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(
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(
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(
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| Dividends declared ($1.35 per common share) |
(
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(
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| Share-based compensation awards |
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(
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| Balance as of March 27, 2021 |
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$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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See Notes to Consolidated Financial Statements
5
Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED CASH FLOWS (Unaudited)
(In thousands)
| 39-Week Period Ended | |||||||||||
| Apr. 2, 2022 | Mar. 27, 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net earnings | $ |
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$ |
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| Adjustments to reconcile net earnings to cash provided by operating activities: | |||||||||||
| Share-based compensation expense |
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| Depreciation and amortization |
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| Operating lease asset amortization |
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| Amortization of debt issuance and other debt-related costs |
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| Deferred income taxes |
(
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(
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| Provision for losses on receivables |
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(
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| Loss on extinguishment of debt |
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| Loss on sale of business |
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| Other non-cash items |
(
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(
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| Additional changes in certain assets and liabilities, net of effect of businesses acquired: | |||||||||||
| Increase in receivables |
(
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(
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| Increase in inventories |
(
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(
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| Increase in prepaid expenses and other current assets |
(
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(
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| Increase in accounts payable |
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| Increase in accrued expenses |
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| Decrease in operating lease liabilities |
(
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(
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| (Decrease) increase in accrued income taxes |
(
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| (Increase) decrease in other assets |
(
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| (Decrease) increase in other long-term liabilities |
(
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| Net cash provided by operating activities |
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| Cash flows from investing activities: | |||||||||||
| Additions to plant and equipment |
(
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(
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| Proceeds from sales of plant and equipment |
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| Acquisition of businesses, net of cash acquired |
(
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| Purchase of marketable securities |
(
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(
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| Proceeds from sales of marketable securities |
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| Other investing activities |
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| Net cash used for investing activities |
(
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(
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| Cash flows from financing activities: | |||||||||||
| Bank and commercial paper borrowings, net |
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(
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| Other debt borrowings including senior notes |
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| Other debt repayments |
(
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(
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| Redemption premiums and repayments of senior notes |
(
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| Debt issuance costs |
(
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| Cash received from termination of interest rate swap agreements |
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| Proceeds from stock option exercises |
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| Stock repurchases |
(
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| Dividends paid |
(
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(
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| Other financing activities |
(
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(
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| Net cash used for financing activities |
(
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(
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| Effect of exchange rates on cash, cash equivalents and restricted cash |
(
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| Net decrease in cash, cash equivalents and restricted cash |
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(
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| Cash, cash equivalents and restricted cash at beginning of period |
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| Cash, cash equivalents and restricted cash at end of period | $ |
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$ |
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| Supplemental disclosures of cash flow information: | |||||||||||
| Cash paid during the period for: | |||||||||||
| Interest | $ |
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$ |
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| Income taxes, net of refunds |
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See Notes to Consolidated Financial Statements
6
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. 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:
| Apr. 2, 2022 | Mar. 27, 2021 | ||||||||||
| (In thousands) | |||||||||||
| Cash and cash equivalents | $ |
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$ |
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Restricted cash
(1)
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| Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows | $ |
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$ |
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(1)
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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.
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2.
NEW ACCOUNTING STANDARDS
Government Assistance
In November 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2021-10, “Government Assistance (Topic 832),” which requires business entities to make annual disclosures about transactions with a government that are accounted for by analogizing to a grant or contribution accounting model. For transactions in the scope of the new standard, business entities will need to provide information about the nature of the transaction, including significant terms and conditions, as well as the amounts and specific financial statement line items affected by the transaction. The new guidance is effective for all entities for annual reporting periods beginning after December 15, 2021; however, early adoption is permitted. The guidance may be applied either prospectively to all in-scope transactions that are reflected in the financial statements at the date of initial application and to new transactions that are entered into after the date of initial application, or retrospectively. The company is currently reviewing the provisions of the new standard.
7
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 $
4.5
billion and $
3.5
billion as of April 2, 2022 and July 3, 2021, respectively, with the increase reflective of the ongoing industry recovery and increasing customer sales following the COVID-19 pandemic.
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 April 2, 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 Apr. 2, 2022 | ||||||||||||||||||||||||||||||||
| US Foodservice Operations | International Foodservice Operations | SYGMA | Other | Total | ||||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||
| Principal Product Categories | ||||||||||||||||||||||||||||||||
| Fresh and frozen meats | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||
| Canned and dry products |
|
|
|
|
|
|||||||||||||||||||||||||||
| Frozen fruits, vegetables, bakery and other |
|
|
|
|
|
|||||||||||||||||||||||||||
| Poultry |
|
|
|
|
|
|||||||||||||||||||||||||||
| Dairy products |
|
|
|
|
|
|||||||||||||||||||||||||||
| Fresh produce |
|
|
|
|
|
|||||||||||||||||||||||||||
| Paper and disposables |
|
|
|
|
|
|||||||||||||||||||||||||||
| Seafood |
|
|
|
|
|
|||||||||||||||||||||||||||
| Beverage products |
|
|
|
|
|
|||||||||||||||||||||||||||
|
Other
(1)
|
|
|
|
|
|
|||||||||||||||||||||||||||
| Total Sales | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||
|
(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.
|
||||
8
| 13-Week Period Ended Mar. 27, 2021 | ||||||||||||||||||||||||||||||||
| US Foodservice Operations | International Foodservice Operations | SYGMA | Other | Total | ||||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||
| Principal Product Categories | ||||||||||||||||||||||||||||||||
| Fresh and frozen meats | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||
| Canned and dry products |
|
|
|
|
|
|||||||||||||||||||||||||||
| Frozen fruits, vegetables, bakery and other |
|
|
|
|
|
|||||||||||||||||||||||||||
| Poultry |
|
|
|
|
|
|||||||||||||||||||||||||||
| Dairy products |
|
|
|
|
|
|||||||||||||||||||||||||||
| Paper and disposables |
|
|
|
|
|
|||||||||||||||||||||||||||
| Fresh produce |
|
|
|
|
|
|||||||||||||||||||||||||||
| Seafood |
|
|
|
|
|
|||||||||||||||||||||||||||
| Beverage products |
|
|
|
|
|
|||||||||||||||||||||||||||
|
Other
(1)
|
|
|
|
|
|
|||||||||||||||||||||||||||
| Total Sales | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||
|
(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.
|
||||
| 39-Week Period Ended Apr. 2, 2022 | ||||||||||||||||||||||||||||||||
| US Foodservice Operations | International Foodservice Operations | SYGMA | Other | Total | ||||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||
| Principal Product Categories | ||||||||||||||||||||||||||||||||
| Fresh and frozen meats | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||
| Canned and dry products |
|
|
|
|
|
|||||||||||||||||||||||||||
| Frozen fruits, vegetables, bakery and other |
|
|
|
|
|
|||||||||||||||||||||||||||
| Poultry |
|
|
|
|
|
|||||||||||||||||||||||||||
| Dairy products |
|
|
|
|
|
|||||||||||||||||||||||||||
| Fresh produce |
|
|
|
|
|
|||||||||||||||||||||||||||
| Paper and disposables |
|
|
|
|
|
|||||||||||||||||||||||||||
| Seafood |
|
|
|
|
|
|||||||||||||||||||||||||||
| Beverage products |
|
|
|
|
|
|||||||||||||||||||||||||||
|
Other
(1)
|
|
|
|
|
|
|||||||||||||||||||||||||||
| Total Sales | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||
|
(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.
|
||||
9
| 39-Week Period Ended Mar. 27, 2021 | ||||||||||||||||||||||||||||||||
| US Foodservice Operations | International Foodservice Operations | SYGMA | Other | Total | ||||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||
| Principal Product Categories | ||||||||||||||||||||||||||||||||
| Fresh and frozen meats | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||
| Canned and dry products |
|
|
|
|
|
|||||||||||||||||||||||||||
| Frozen fruits, vegetables, bakery and other |
|
|
|
|
|
|||||||||||||||||||||||||||
| Poultry |
|
|
|
|
|
|||||||||||||||||||||||||||
| Dairy products |
|
|
|
|
|
|||||||||||||||||||||||||||
| Paper and disposables |
|
|
|
|
|
|||||||||||||||||||||||||||
| Fresh produce |
|
|
|
|
|
|||||||||||||||||||||||||||
| Seafood |
|
|
|
|
|
|||||||||||||||||||||||||||
| Beverage products |
|
|
|
|
|
|||||||||||||||||||||||||||
|
Other
(1)
|
|
|
|
|
|
|||||||||||||||||||||||||||
| Total Sales | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||
|
(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.
|
||||
4.
ACQUISITIONS
During the first 39 weeks of fiscal 2022, the company paid cash of $
1.3
billion for several acquisitions. 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 April 2, 2022, aggregate contingent consideration outstanding was $
89.5
million, of which $
87.0
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 is to strengthen Sysco’s business within the Italian foodservice sector.
10
| Preliminary Purchase Price Allocation | |||||
| (In millions) | |||||
| Accounts receivable, net | $ |
|
|||
| Inventories |
|
||||
| Plant and equipment |
|
||||
| Other assets |
|
||||
|
Goodwill and other intangibles
(1)
|
|
||||
| Total assets |
|
||||
| Accounts payable |
(
|
||||
| Accrued expenses |
(
|
||||
| Deferred tax liabilities |
(
|
||||
| Other liabilities |
(
|
||||
| Total consideration | $ |
|
|||
(1)
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 $
491.6
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 $
109.5
million with a weighted average life of
15
years. Amortization expense is being recognized on a straight-line basis and was $
14.7
million for the first 39 weeks of fiscal 2022.
The assets, liabilities and operating results of Greco are reflected in the company’s consolidated financial statements in accordance with Accounting Standard Codification Topic No. 805, Business Combinations, commencing from 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 valuation of acquired tangible and intangible assets and related tax attributes.
5.
FAIR VALUE MEASUREMENTS
11
The following tables present the company’s assets measured at fair value on a recurring basis as of April 2, 2022 and July 3, 2021:
| Assets Measured at Fair Value as of Apr. 2, 2022 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash equivalents | |||||||||||||||||||||||
| Cash and cash equivalents | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
Other assets
(1)
|
|
|
|
|
|||||||||||||||||||
| Total assets at fair value | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
(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 | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
Other assets
(1)
|
|
|
|
|
|||||||||||||||||||
| Total assets at fair value | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
(1)
Represents restricted cash balance recorded within other assets in the consolidated balance sheet.
12
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 39 weeks of fiscal 2022.
The following table presents the company’s available-for-sale marketable securities as of April 2, 2022 and July 3, 2021:
| Apr. 2, 2022 | |||||||||||||||||||||||||||||||||||
| Amortized Cost Basis | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Short-Term Marketable Securities | Long-Term Marketable Securities | ||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Fixed income securities: | |||||||||||||||||||||||||||||||||||
| Corporate bonds | $ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Government bonds |
|
|
(
|
|
|
|
|||||||||||||||||||||||||||||
| Total marketable securities | $ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Jul. 3, 2021 | |||||||||||||||||||||||||||||||||||
| Amortized Cost Basis | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Short-Term Marketable Securities | Long-Term Marketable Securities | ||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Fixed income securities: | |||||||||||||||||||||||||||||||||||
| Corporate bonds | $ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Government bonds |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total marketable securities | $ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
As of April 2, 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.
| Apr. 2, 2022 | |||||
| (In thousands) | |||||
| Due in one year or less | $ |
|
|||
| Due after one year through five years |
|
||||
| Due after five years through ten years |
|
||||
| Total | $ |
|
|||
There were
no
significant realized gains or losses in marketable securities in the first 39 weeks of fiscal 2022.
7.
DERIVATIVE FINANCIAL INSTRUMENTS
13
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. In the second quarter of fiscal 2022, Sysco settled some of its previously held interest rate swap contracts for proceeds of $
23.1
million, which had a notional value of $
500
million, due to the redemption of the entire $
500
million aggregate principal amount of Sysco’s outstanding
3.550
% Senior Notes due 2025 in December 2021.
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, 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 April 2, 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 |
|
||||||||||||
| Hedging of foreign currency risk | ||||||||||||||
| Various (April 2022 to August 2022) | Swedish Krona |
|
||||||||||||
| Various (April 2022 to December 2022) | British Pound Sterling |
|
||||||||||||
| June 2023 | Euro |
|
||||||||||||
| Hedging of fuel risk | ||||||||||||||
| Various (April 2022 to July 2023) | Gallons |
|
||||||||||||
The location and the fair value of derivative instruments designated as hedges in the consolidated balance sheet as of April 2, 2022 and July 3, 2021 are as follows:
| Derivative Fair Value | |||||||||||||||||
| Balance Sheet location | Apr. 2, 2022 | Jul. 3, 2021 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Fair Value Hedges: | |||||||||||||||||
| Interest rate swaps | Other assets | $ |
|
$ |
|
||||||||||||
| Cash Flow Hedges: | |||||||||||||||||
| Fuel swaps | Other current assets | $ |
|
$ |
|
||||||||||||
| Foreign currency forwards | Other current assets |
|
|
||||||||||||||
| Fuel swaps | Other assets |
|
|
||||||||||||||
| Fuel swaps | Other current liabilities |
|
|
||||||||||||||
| Foreign currency forwards | Other current liabilities |
|
|
||||||||||||||
| Fuel swaps | Other long-term liabilities |
|
|
||||||||||||||
14
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 | 39-Week Period Ended | |||||||||||||||||||||||||
| Apr. 2, 2022 | Mar. 27, 2021 | Apr. 2, 2022 | Mar. 27, 2021 | |||||||||||||||||||||||
| (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 | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
| Gain or (loss) on fair value hedging relationships: | ||||||||||||||||||||||||||
| Interest rate swaps: | ||||||||||||||||||||||||||
| Hedged items | $ |
|
$ |
|
$ |
|
$ |
(
|
||||||||||||||||||
| Derivatives designated as hedging instruments |
(
|
(
|
(
|
(
|
||||||||||||||||||||||
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:
15
| 13-Week Period Ended | 39-Week Period Ended | |||||||||||||||||||||||||
| Apr. 2, 2022 | Mar. 27, 2021 | Apr. 2, 2022 | Mar. 27, 2021 | |||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||
| Interest expense | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
||||||||||||||||||
| Decrease in fair value of debt |
(
|
(
|
(
|
(
|
||||||||||||||||||||||
| Hedged items | $ |
|
$ |
|
$ |
|
$ |
(
|
||||||||||||||||||
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 April 2, 2022 and March 27, 2021, presented on a pretax basis, are as follows:
| 13-Week Period Ended Apr. 2, 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 | |||||||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||
| Derivatives in cash flow hedging relationships: | |||||||||||||||||
| Fuel swaps | $ |
|
Operating expense | $ |
|
||||||||||||
| Foreign currency contracts |
(
|
Cost of sales / Other income |
|
||||||||||||||
| Total | $ |
|
$ |
|
|||||||||||||
| Derivatives in net investment hedging relationships: | |||||||||||||||||
| Foreign denominated debt | $ |
|
N/A | $ |
|
||||||||||||
| Total | $ |
|
$ |
|
|||||||||||||
| 13-Week Period Ended Mar. 27, 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 | |||||||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||
| Derivatives in cash flow hedging relationships: | |||||||||||||||||
| Fuel swaps | $ |
|
Operating expense | $ |
(
|
||||||||||||
| Foreign currency contracts |
(
|
Cost of sales / Other income |
|
||||||||||||||
| Total | $ |
|
$ |
(
|
|||||||||||||
| Derivatives in net investment hedging relationships: | |||||||||||||||||
| Foreign denominated debt | $ |
|
N/A | $ |
|
||||||||||||
| Total | $ |
|
$ |
|
|||||||||||||
16
The location and effect of cash flow and net investment hedge accounting on the consolidated statements of comprehensive income for the 39-week periods ended April 2, 2022 and March 27, 2021, presented on a pretax basis, are as follows:
| 39-Week Period Ended Apr. 2, 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 | |||||||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||
| Derivatives in cash flow hedging relationships: | |||||||||||||||||
| Fuel swaps | $ |
|
Operating expense | $ |
|
||||||||||||
| Foreign currency contracts |
(
|
Cost of sales / Other income |
|
||||||||||||||
| Total | $ |
|
$ |
|
|||||||||||||
| Derivatives in net investment hedging relationships: | |||||||||||||||||
| Foreign denominated debt | $ |
|
N/A | $ |
|
||||||||||||
| Total | $ |
|
$ |
|
|||||||||||||
| 39-Week Period Ended Mar. 27, 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 | |||||||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||
| Derivatives in cash flow hedging relationships: | |||||||||||||||||
| Fuel swaps | $ |
(
|
Operating expense | $ |
(
|
||||||||||||
| Foreign currency contracts |
|
Cost of sales / Other income |
|
||||||||||||||
| Total | $ |
(
|
$ |
(
|
|||||||||||||
| Derivatives in net investment hedging relationships: | |||||||||||||||||
| Foreign currency contracts | $ |
|
N/A | $ |
|
||||||||||||
| Foreign denominated debt |
|
N/A |
|
||||||||||||||
| Total | $ |
|
$ |
|
|||||||||||||
The location and carrying amount of hedged liabilities in the consolidated balance sheet as of April 2, 2022 are as follows:
| Apr. 2, 2022 | |||||||||||
| Carrying Amount of Hedged Assets (Liabilities) | Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of Hedged Assets (Liabilities) | ||||||||||
| (In thousands) | |||||||||||
| Balance sheet location: | |||||||||||
| Long-term debt | $ |
(
|
$ |
(
|
|||||||
17
The location and carrying amount of hedged liabilities in the consolidated balance sheet as of July 3, 2021 are as follows:
| Jul. 3, 2021 | |||||||||||
| Carrying Amount of Hedged Assets (Liabilities) | Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of Hedged Assets (Liabilities) | ||||||||||
| (In thousands) | |||||||||||
| Balance sheet location: | |||||||||||
| Long-term debt | $ |
(
|
$ |
(
|
|||||||
8.
DEBT
As of April 2, 2022, the company had a $
2.0
billion long-term revolving credit facility ($
2.0
billion facility) that would have expired on June 28, 2024. As of April 2, 2022, there were
no
borrowings outstanding under this facility. This credit facility was amended in the first quarter of fiscal 2022, 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) adjusted the covenant requiring Sysco to maintain a certain ratio of consolidated EBITDA to consolidated interest expense.
On April 29, 2022, Sysco entered into a new long-term revolving credit facility to replace the $
2.0
billion facility. The new facility includes aggregate commitments of the lenders thereunder of $
3.0
billion, with an option to increase such commitments to $
4.0
billion. The new facility includes a covenant requiring Sysco to maintain a ratio of consolidated EBITDA to consolidated interest expense of
3.0
to
1.0
over four consecutive fiscal quarters. This ratio is lower than the previous covenant that was included in the $
2.0
billion facility. The new revolving credit facility expires on April 29, 2027.
Sysco has a U.S. commercial paper program allowing the company to issue short-term unsecured notes in an aggregate amount not to exceed $
2.0
billion. Any outstanding amounts are classified within long-term debt, as the program is supported by the long-term revolving credit facility. As of April 2, 2022, there were
no
commercial paper issuances outstanding under this program. During the first 39 weeks of fiscal 2022, there were
no
borrowing activities under our commercial paper programs, $
2.0
billion facility or short-term bank notes.
In December 2021, the company accessed favorable credit markets and undertook a refinancing of previously outstanding senior notes to increase its weighted-average maturity profile and lower its average interest rates on the company’s debt portfolio.
As part of the refinancing, on December 14, 2021, Sysco issued senior notes (the “Notes”) totaling $
1.25
billion. Details of the Notes are as follows:
| Maturity Date |
Par Value
(in millions) |
Coupon Rate |
Pricing
(percentage of par) |
||||||||||||||
| December 14, 2031 (the 2031 Notes) | $ |
|
|
% |
|
% | |||||||||||
| December 14, 2051 (the 2051 Notes) |
|
|
|
||||||||||||||
The Notes initially are fully and unconditionally guaranteed by Sysco’s direct and indirect wholly owned subsidiaries that guarantee Sysco’s other senior notes issued under the indenture governing the Notes or any of Sysco’s other indebtedness. Interest on the Notes will be paid semi-annually in arrears on June 14 and December 14, beginning June 14, 2022. At Sysco’s option, any or all of the Notes may be redeemed, in whole or in part, at any time prior to maturity. If Sysco elects to redeem (i) the 2031 Notes before the date that is
three months
prior to the maturity date, or (ii) the 2051 Notes before the date that is
six months
prior to the maturity date, Sysco will pay an amount equal to the greater of
100
% of the principal amount of the Notes to be redeemed or the sum of the present values of the remaining scheduled payments of principal and interest on the Notes to be redeemed that would be due if such senior notes matured on the applicable date described above. If Sysco elects to redeem a series of Notes on or after the applicable date described in the preceding sentence, Sysco will pay an amount equal to
100
% of the principal amount of the Notes to be redeemed. Sysco will pay accrued and unpaid interest on the Notes redeemed to the redemption date.
18
9.
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
| 13-Week Period Ended | 39-Week Period Ended | ||||||||||||||||||||||
| Apr. 2, 2022 | Mar. 27, 2021 | Apr. 2, 2022 | Mar. 27, 2021 | ||||||||||||||||||||
|
(In thousands, except for share
and per share data) |
(In thousands, except for share
and per share data) |
||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net earnings | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted-average basic shares outstanding |
|
|
|
|
|||||||||||||||||||
| Dilutive effect of share-based awards |
|
|
|
|
|||||||||||||||||||
| Weighted-average diluted shares outstanding |
|
|
|
|
|||||||||||||||||||
| Basic earnings per share | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Diluted earnings per share | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
10.
OTHER COMPREHENSIVE INCOME
19
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 Apr. 2, 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 | $ |
|
$ |
|
$ |
|
||||||||||||||||
| Amortization of actuarial loss, net | Other expense, net |
|
|
|
|||||||||||||||||||
| Total reclassification adjustments |
|
|
|
||||||||||||||||||||
| Foreign currency translation: | |||||||||||||||||||||||
| Foreign currency translation adjustment | N/A |
(
|
|
(
|
|||||||||||||||||||
| Marketable securities: | |||||||||||||||||||||||
|
Change in marketable securities
(1)
|
N/A |
(
|
(
|
(
|
|||||||||||||||||||
| Hedging instruments: | |||||||||||||||||||||||
| Other comprehensive income (loss) before reclassification adjustments: | |||||||||||||||||||||||
|
Change in cash flow hedge
|
Operating expenses
(2)
|
|
|
|
|||||||||||||||||||
| Change in net investment hedge | N/A |
|
|
|
|||||||||||||||||||
| Total other comprehensive income before reclassification adjustments |
|
|
|
||||||||||||||||||||
| Reclassification adjustments: | |||||||||||||||||||||||
| Amortization of cash flow hedges | Interest expense |
|
|
|
|||||||||||||||||||
| Total other comprehensive income (loss) | $ |
(
|
$ |
|
$ |
(
|
|||||||||||||||||
(1)
Realized gains or losses on marketa
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 third
quarter
of fiscal 2022.
(2)
Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.
20
| 13-Week Period Ended Mar. 27, 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 | $ |
|
$ |
|
$ |
|
||||||||||||||||
| Amortization of actuarial loss, net | Other expense, net |
|
|
|
|||||||||||||||||||
| Total reclassification adjustments |
|
|
|
||||||||||||||||||||
| Foreign currency translation: | |||||||||||||||||||||||
| Foreign currency translation adjustment | N/A |
|
|
|
|||||||||||||||||||
| Marketable securities: | |||||||||||||||||||||||
|
Change in marketable securities
(1)
|
N/A |
(
|
(
|
(
|
|||||||||||||||||||
| Hedging instruments: | |||||||||||||||||||||||
| Other comprehensive income (loss) before reclassification adjustments: | |||||||||||||||||||||||
| Change in cash flow hedge |
Operating expenses
(2)
|
|
|
|
|||||||||||||||||||
| Change in net investment hedges | N/A |
|
|
|
|||||||||||||||||||
| Total other comprehensive income before reclassification adjustments |
|
|
|
||||||||||||||||||||
| Reclassification adjustments: | |||||||||||||||||||||||
| Amortization of cash flow hedges | Interest expense |
|
|
|
|||||||||||||||||||
| Total other comprehensive income | $ |
|
$ |
|
$ |
|
|||||||||||||||||
(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
third
quarter of fiscal
2021
.
(2)
Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.
21
| 39-Week Period Ended Apr. 2, 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 | $ |
|
$ |
|
$ |
|
||||||||||||||||
| Amortization of actuarial loss, net | Other expense, net |
|
|
|
|||||||||||||||||||
| Total reclassification adjustments |
|
|
|
||||||||||||||||||||
| Foreign currency translation: | |||||||||||||||||||||||
| Other comprehensive income (loss) before reclassification adjustments: | |||||||||||||||||||||||
| Foreign currency translation adjustment | N/A |
(
|
|
(
|
|||||||||||||||||||
| Marketable securities: | |||||||||||||||||||||||
|
Change in marketable securities
(1)
|
N/A |
(
|
(
|
(
|
|||||||||||||||||||
| Hedging instruments: | |||||||||||||||||||||||
| Other comprehensive income (loss) before reclassification adjustments: | |||||||||||||||||||||||
| Change in cash flow hedges |
Operating expenses
(2)
|
|
|
|
|||||||||||||||||||
| Change in net investment hedges | N/A |
|
|
|
|||||||||||||||||||
| Total other comprehensive income before reclassification adjustments |
|
|
|
||||||||||||||||||||
| Reclassification adjustments: | |||||||||||||||||||||||
| Amortization of cash flow hedges | Interest expense |
|
|
|
|||||||||||||||||||
| Total other comprehensive income (loss) | $ |
(
|
$ |
|
$ |
(
|
|||||||||||||||||
(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
39
weeks of fiscal
2022
.
(2)
Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.
22
| 39-Week Period Ended Mar. 27, 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 | $ |
|
$ |
|
$ |
|
||||||||||||||||
| Amortization of actuarial loss, net | Other expense, net |
|
|
|
|||||||||||||||||||
| Total reclassification adjustments |
|
|
|
||||||||||||||||||||
| Foreign currency translation: | |||||||||||||||||||||||
| Foreign currency translation adjustment | N/A |
|
|
|
|||||||||||||||||||
| Marketable securities: | |||||||||||||||||||||||
|
Change in marketable securities
(1)
|
N/A |
(
|
(
|
(
|
|||||||||||||||||||
| Hedging instruments: | |||||||||||||||||||||||
| Other comprehensive income (loss) before reclassification adjustments: | |||||||||||||||||||||||
|
Change in cash flow hedge
(3)
|
Operating expenses
(2)
|
|
|
|
|||||||||||||||||||
| Change in net investment hedges | N/A |
(
|
(
|
(
|
|||||||||||||||||||
| Total other comprehensive income before reclassification adjustments |
(
|
(
|
(
|
||||||||||||||||||||
| Reclassification adjustments: | |||||||||||||||||||||||
| Amortization of cash flow hedges | Interest expense |
|
|
|
|||||||||||||||||||
| Total other comprehensive (loss) income | $ |
|
$ |
|
$ |
|
|||||||||||||||||
(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
39
weeks 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.
23
The following tables provide a summary of the changes in accumulated other comprehensive
(loss) income f
or the periods presented:
| 39-Week Period Ended Apr. 2, 2022 | |||||||||||||||||||||||||||||
|
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 Jul. 3, 2021 | $ |
(
|
$ |
(
|
$ |
(
|
$ |
|
$ |
(
|
|||||||||||||||||||
| Equity adjustment from foreign currency translation | — |
(
|
— | — |
(
|
||||||||||||||||||||||||
| Amortization of cash flow hedges | — | — |
|
— |
|
||||||||||||||||||||||||
| Change in net investment hedges | — | — |
|
— |
|
||||||||||||||||||||||||
| Change in cash flow hedge | — | — |
|
— |
|
||||||||||||||||||||||||
| Amortization of unrecognized prior service cost |
|
— | — | — |
|
||||||||||||||||||||||||
| Amortization of unrecognized net actuarial losses |
|
— | — | — |
|
||||||||||||||||||||||||
| Change in marketable securities | — | — | — |
(
|
(
|
||||||||||||||||||||||||
| Balance as of Apr. 2, 2022 | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||||||
| 39-Week Period Ended Mar. 27, 2021 | |||||||||||||||||||||||||||||
|
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 | $ |
(
|
$ |
(
|
$ |
(
|
$ |
|
$ |
(
|
|||||||||||||||||||
| Equity adjustment from foreign currency translation | — |
|
— | — |
|
||||||||||||||||||||||||
| Amortization of cash flow hedges | — | — |
|
— |
|
||||||||||||||||||||||||
| Change in net investment hedges | — | — |
(
|
— |
(
|
||||||||||||||||||||||||
| Change in cash flow hedge | — | — |
|
— |
|
||||||||||||||||||||||||
| Amortization of unrecognized prior service cost |
|
— | — | — |
|
||||||||||||||||||||||||
| Amortization of unrecognized net actuarial losses |
|
— | — | — |
|
||||||||||||||||||||||||
| Change in marketable securities | — | — | — |
(
|
(
|
||||||||||||||||||||||||
| Balance as of Mar. 27, 2021 | $ |
(
|
$ |
(
|
$ |
(
|
$ |
|
$ |
(
|
|||||||||||||||||||
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 39 weeks of fiscal 2022, options to purchase
1,224,150
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 39 weeks of fiscal 2022 was $
17.39
.
In the first 39 weeks of fiscal 2022, employees were granted
473,355
performance share units (PSUs). 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
24
vesting period. The weighted average grant-date fair value per PSU granted during the first 39 weeks of fiscal 2022 was $
76.75
. 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 39 weeks of fiscal 2022, employees were granted
736,709
restricted stock units. The weighted average grant-date fair value per restricted stock unit granted during the first 39 weeks of fiscal 2022 was $
80.24
.
Employee Stock Purchase Plan
Plan participants purchased
661,656
shares of common stock under the ESPP during the first 39 weeks of fiscal 2022. The weighted average fair value per employee stock purchase right issued pursuant to the ESPP was $
11.92
during the first 39 weeks of fiscal 2022. 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 $
90.7
million and $
65.7
million for the first 39 weeks of fiscal 2022 and fiscal 2021, respectively.
As of April 2, 2022, there was $
144.2
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
1.97
years.
12.
INCOME TAXES
Effective Tax Rate
The effective tax rates for the third quarter and first 39 weeks of fiscal 2022 were
21.31
% and
23.18
%, respectively. As compared to the company’s statutory tax rate, the
higher
effective tax rate for the third quarter and first 39 weeks of fiscal 2022 was favorably impacted by the excess tax benefits of equity-based compensation that totaled $
7.9
million and $
10.8
million, respectively, and the impact of non-taxable corporate-owned life insurance policies that totaled $
0.4
million and $
1.4
million, respectively. For the first 39 weeks of fiscal 2022, these were partially offset by the increase in our reserve for uncertain tax positions of $
12.0
million recognized in the first quarter of fiscal 2022. The effective tax rates for the third quarter and first 39 weeks of fiscal 2021 were
13.54
% and
15.72
%, respectively. As compared to the company’s statutory tax rate, the lower effective tax rate for the third quarter and first 39 weeks of fiscal 2021 was impacted by the favorable impact of excess tax benefits of equity-based compensation that totaled $
6.0
million and $
12.6
million, respectively. The first 39 weeks of fiscal 2021 were also favorably impacted by the $
7.6
million tax benefit attributable to the sale of the stock of Cake Corporation and the impact of changes in tax law in the U.K. of $
5.5
million, both of which occurred in the first quarter of fiscal 2021.
Uncertain Tax Positions
As of April 2, 2022, the gross amount of unrecognized tax benefit and related accrued interest was $
32.4
million and
$
5.4
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.
25
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.
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
three
reportable segments. “Other” financial information is attributable to our other operating segments that do not meet the quantitative disclosure thresholds.
•
U.S. Foodservice Operations
– includes (a) the company’s U.S. Broadline operations, which distribute a full line of food products, including custom-cut meat, seafood, produce, specialty Italian, specialty imports and a wide variety of non-food products and (b) our U.S. Specialty operations, which include our FreshPoint fresh production distribution business, our Specialty Meats and Seafood Group specialty protein operations and a number of small specialty businesses that are not material to the operations of Sysco;
•
International Foodservice Operations
– includes operations in the Americas (primarily outside of the U.S. and Europe), 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 operations that distribute to international customers. Our European operations primarily consist of operations in the 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.
26
The following tables set forth certain financial information for Sysco’s reportable business segments:
| 13-Week Period Ended | 39-Week Period Ended | ||||||||||||||||||||||
| Apr. 2, 2022 | Mar. 27, 2021 | Apr. 2, 2022 | Mar. 27, 2021 | ||||||||||||||||||||
| Sales: | (In thousands) | (In thousands) | |||||||||||||||||||||
| U.S. Foodservice Operations | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| International Foodservice Operations |
|
|
|
|
|||||||||||||||||||
| SYGMA |
|
|
|
|
|||||||||||||||||||
| Other |
|
|
|
|
|||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| 13-Week Period Ended | 39-Week Period Ended | ||||||||||||||||||||||
| Apr. 2, 2022 | Mar. 27, 2021 | Apr. 2, 2022 | Mar. 27, 2021 | ||||||||||||||||||||
| Operating income (loss): | (In thousands) | (In thousands) | |||||||||||||||||||||
| U.S. Foodservice Operations | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| International Foodservice Operations |
|
(
|
|
(
|
|||||||||||||||||||
| SYGMA |
|
|
(
|
|
|||||||||||||||||||
| Other |
(
|
|
|
|
|||||||||||||||||||
| Total segments |
|
|
|
|
|||||||||||||||||||
| Global Support Center |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Total operating income |
|
|
|
|
|||||||||||||||||||
| Interest expense |
|
|
|
|
|||||||||||||||||||
| Other (income) expense, net |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Earnings before income taxes | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
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, 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, 2021 (our fiscal 2021 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 third quarter of fiscal 2022 results were strong, reflecting sequential sales growth improvements and accelerating market share gains. Our share gains in the U.S. and International segments continued to accelerate and demonstrated the impact of our Recipe for Growth strategy on our business. Additionally, our teams made significant improvements in operating expense leverage, with lower business recovery costs, good progress in our operations productivity performance efforts and continued re-investments to drive profitable growth. See below for a comparison of our fiscal 2022 results to our fiscal 2021 results, both including and excluding Certain Items (as defined below).
Comparisons of results from the third quarter of fiscal 2022 to the third quarter of fiscal 2021 are presented below:
•
Sales:
◦
increased 42.9%, or $5.1 billion, to $16.9 billion;
•
Operating income:
◦
increased 110.1%, or $259.8 million, to $495.7 million;
◦
adjusted operating income increased 124.6%, or $319.2 million, to $575.4 million;
•
Net earnings:
◦
increased 241.1%, or $214.4 million, to $303.3 million;
◦
adjusted net earnings increased 216.1%, or $248.1 million, to $362.9 million;
•
Basic earnings per share:
27
◦
increased 252.9%, or $0.43, to $0.60 per share;
•
Diluted earnings per share:
◦
increased 247.1%, or $0.42, to $0.59 per share;
◦
adjusted diluted earnings per share increased 222.7%, or $0.49, to $0.71 in fiscal 2022;
•
EBITDA:
◦
increased 65.2%, or $277.6 million, to $703.3 million; and
◦
adjusted EBITDA increased 72.8%, or $318.4 million, to $755.8 million.
Comparisons of results from the first 39 weeks of fiscal 2022 to the first 39 weeks of fiscal 2021 are presented below:
•
Sales:
◦
increased 41.3%, or $14.5 billion, to $49.7 billion;
•
Operating income:
◦
increased 81.2%, or $704.8 million, to $1.6 billion;
◦
adjusted operating income increased 105.4%, or $901.2 million, to $1.8 billion;
•
Net earnings:
◦
increased 127.5%, or $475.7 million, to $848.8 million;
◦
adjusted net earnings increased 189.9%, or $710.6 million, to $1.1 billion;
•
Basic earnings per share:
◦
increased 127.4%, or $0.93, to $1.66 per share;
•
Diluted earnings per share:
◦
increased 126.0%, or $0.92, to $1.65 per share; and
◦
adjusted diluted earnings per share increased 189.0%, or $1.38, to $2.11 in fiscal 2022;
•
EBITDA:
◦
increased 52.5%, or $747.5 million, to $2.2 billion; and
◦
adjusted EBITDA increased 65.9%, or $905.4 million, to $2.3 billion.
The discussion of our results includes certain non-GAAP financial measures, including EBITDA and adjusted EBITDA, that we believe 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; acquisition-related costs consisting of: (1) intangible amortization expense and (2) acquisition costs and due diligence costs related to our acquisitions; 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. Our results for the first 39 weeks of fiscal 2022 were also impacted by (1) a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory (2) debt extinguishment costs and (3) the increase in reserves for uncertain tax positions. Our results for the first 39 weeks of fiscal 2021 were also impacted by losses on the sale of businesses.
The fiscal 2022 and fiscal 2021 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
The food-away-from-home sector continues to experience an overall recovery as compared to fiscal 2021. Our third quarter began with disruptions from the Omicron variant of COVID-19, which negatively impacted consumer demand and our customers due to the reintroduction of significant restrictions on their businesses. These conditions persisted through February; however, we experienced a strong market rebound beginning in late February and during March, as the impact of this variant lessened and restrictions eased.
Sales and Gross Profit Trends
28
Our sales and gross profit performance can be influenced by multiple factors, including price, volume, inflation, customer mix and product mix. The most significant factor affecting performance in the third quarter of fiscal 2022 was volume growth, as we experienced strong results from both independent and chain customers, driven by a 14.1% improvement in local case volume and an 18.8% improvement in total case volume within our U.S. Broadline operations, in each instance as compared to the third quarter of fiscal 2021. This growth enabled us to gain market share during the third quarter of fiscal 2022. We have two customer business segments that remain impacted by the COVID-19 pandemic, namely “Business and Industry” (which includes, for example, office cafeterias) and “Travel and Hospitality.” We anticipate that both of these segments will make progress in their recovery in future quarters, which will contribute to our continued volume growth. We are on track to exceed our stated goal of achieving growth at a rate of 1.2 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.
Product cost inflation has also been a driver of our sales and gross profit performance. We experienced inflation at a rate of 15.8% and 14.4% in the third quarter and first 39 weeks of fiscal 2022, respectively, in our U.S. Broadline operations, primarily driven by inflation in the poultry, produce and dairy categories. We have been successful in managing our inflation, resulting in an increase in gross profit dollars. Gross margin decreased 12 and 45 basis points in the third quarter and the first 39 weeks of fiscal 2022, respectively, as compared to the same prior year periods, largely due to the impact of product cost inflation. We are concerned about the long-term effect of elevated inflation, and we are taking actions to address it. We are actively working to improve our cost of goods sold to Sysco, so that we can pass along value to our customers. We are also pursuing Sysco brand penetration, as we believe that Sysco products can save our customers money. Lastly, we are working with our customers to help them with their menu design and locate product alternatives to avoid highly inflationary items and sub-categories.
Operating Expense Trends
Total operating expenses increased 33.4% and 31.0% during the third quarter and first 39 weeks of fiscal 2022, respectively, as compared to the third quarter and first 39 weeks of fiscal 2021, driven by the variable costs associated with significantly increased volumes, our transformation initiatives under our Recipe for Growth strategy, investments in business recovery costs and expenses due to lower productivity resulting from high turnover in our teams. Our operating results in the third quarter and first 39 weeks of fiscal 2022 included $48 million and $116 million, respectively, 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 increasing market share, profitably, at the national and local level. We have made a purposeful response to the COVID-generated labor and safety environment in which we are operating, with $35 million and $165 million in business recovery operating investments such as recruiting costs, hiring marketing, vaccination promotion, contract labor and sign-on and retention bonuses during the third quarter and first 39 weeks of fiscal 2022, respectively. We continued to improve our staffing levels in the third quarter of fiscal 2022, primarily for transportation and warehouse staff. Incremental training and overtime costs were approximately $30 million in the third quarter of fiscal 2022, which is lower than the approximately $40 million for these same costs in the second quarter of fiscal 2022. These efforts, along with productivity improvements from prior quarters, are lowering our business recovery costs, and we expect these expenses to continue to decline in the fourth quarter of fiscal 2022. Even with those significant business recovery and transformation operating expense investments, offset by the continued benefit of our cost-savings efforts, we leveraged our adjusted operating expense structure.
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 12, “Income Taxes,” in the Notes to Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q.
Comparisons to Fiscal 2019
In assessing our financial performance through the business recovery, Sysco’s management compared our results in fiscal 2022 against our corresponding fiscal 2019 results.
Comparisons of results from the third quarter of fiscal 2022 to the third quarter of fiscal 2019 are presented below:
•
Sales:
29
◦
increased 15.3%, or $2.2 billion, as compared to fiscal 2019;
•
Operating income:
◦
decreased 6.4%, or $33.9 million, as compared to fiscal 2019;
◦
adjusted operating income decreased 7.2%, or $44.8 million, as compared to fiscal 2019;
•
EBITDA:
◦
decreased 0.9%, or $6.3 million, as compared to fiscal 2019;
◦
adjusted EBITDA decreased 2.7%, or $21.1 million, as compared to fiscal 2019;
•
Diluted earnings per share:
◦
decreased 30.6%, or $0.26, as compared to fiscal 2019; and
◦
adjusted diluted earnings per share decreased 10.1%, or $0.08, as compared to fiscal 2019.
Comparisons of results from the first 39 weeks of fiscal 2022 to the first 39 weeks of fiscal 2019 are presented below:
•
Sales:
◦
increased 11.3%, or $5.0 billion, as compared to fiscal 2019;
•
Operating income:
◦
decreased 2.3%, or $37.3 million, as compared to fiscal 2019;
◦
adjusted operating income decreased 8.3%, or $159.0 million, as compared to fiscal 2019;
•
EBITDA:
◦
increased 0.04%, or $0.9 million, as compared to fiscal 2019;
◦
adjusted EBITDA decreased 4.5%, or $107.3 million, as compared to fiscal 2019;
•
Diluted earnings per share:
◦
decreased 24.0%, or $0.52, as compared to fiscal 2019; and
◦
adjusted diluted earnings per share decreased 13.9%, or $0.34, as compared to fiscal 2019.
Key items impacting the comparability of Sysco’s results in the third quarter of fiscal 2022 to the third quarter of fiscal 2019 included the one-time and short-term expenses associated with the business recovery and the operating expense investments towards our Recipe for Growth strategy.
Mergers and Acquisitions
We continue to focus on mergers and acquisitions as a part of our growth strategy, where we plan to reinforce our existing businesses, while cultivating new channels, new segments and new capabilities. We have completed the following acquisitions thus far in fiscal 2022:
•
In the first quarter of fiscal 2022, we acquired Greco and Sons, a leading independent specialty Italian distributor in the United States.
•
In the first quarter of fiscal 2022, we acquired a specialty food distributor in the United Kingdom.
•
In the second quarter of fiscal 2022, we acquired Paragon Foodservice, a regional broadline fresh produce distributor in western Pennsylvania. The acquisition will operate as part of Sysco’s U.S. specialty produce business.
•
In the third quarter of fiscal 2022, we acquired The Coastal Companies, a leading fresh produce distributor and value-added processer on the East Coast.
Strategy
Our purpose is “Connecting the World to Share Food and Care for One Another,” which we believe will allow 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 U.S. 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, continue to expand, while the sales transformation is helping our sales teams continue to win new business. Additionally, we are continuing to improve the efficiency of our organization, such as regionalizing the leadership structure of our U.S. Broadline and specialty business, as we reduce our structural expenses to fund our capital investments. In the third quarter of fiscal 2022, we converted our U.S. broadline operations from an industry traditional five-day work week to a full six-day delivery model, which provides a better schedule for our associates, increases efficiency in our operations, increases weekly throughput without the need for additional
30
trucks or building expansions and increases our ability to deliver to our customers on time. From these actions as a part of our Recipe for Growth, we can see the benefits of our developing capabilities in the new customers we are winning and in the progress we are making towards increasing market share. We expect that, as our Recipe for Growth matures, the impact on our top-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 | 39-Week Period Ended | ||||||||||||||||||||||
| Apr. 2, 2022 | Mar. 27, 2021 | Apr. 2, 2022 | Mar. 27, 2021 | ||||||||||||||||||||
| Sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||
| Cost of sales | 82.2 | 82.0 | 82.1 | 81.7 | |||||||||||||||||||
| Gross profit | 17.8 | 18.0 | 17.9 | 18.3 | |||||||||||||||||||
| Operating expenses | 14.9 | 16.0 | 14.7 | 15.8 | |||||||||||||||||||
| Operating income | 2.9 | 2.0 | 3.2 | 2.5 | |||||||||||||||||||
| Interest expense | 0.7 | 1.2 | 1.0 | 1.2 | |||||||||||||||||||
| Other (income) expense, net | (0.1) | (0.1) | — | — | |||||||||||||||||||
| Earnings before income taxes | 2.3 | 0.9 | 2.2 | 1.3 | |||||||||||||||||||
| Income taxes | 0.5 | 0.1 | 0.5 | 0.2 | |||||||||||||||||||
| Net earnings | 1.8 | % | 0.8 | % | 1.7 | % | 1.1 | % | |||||||||||||||
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 | 39-Week Period Ended | ||||||||||
| Apr. 2, 2022 | Apr. 2, 2022 | ||||||||||
| Sales | 42.9 | % | 41.3 | % | |||||||
| Cost of sales | 43.2 | 42.1 | |||||||||
| Gross profit | 42.0 | 37.8 | |||||||||
| Operating expenses | 33.4 | 31.0 | |||||||||
| Operating income | 110.1 | 81.2 | |||||||||
| Interest expense | (14.9) | 12.8 | |||||||||
|
Other (income) expense, net
(1) (2)
|
8.4 | 95.9 | |||||||||
| Earnings before income taxes | 274.8 | 149.6 | |||||||||
| Income taxes | 490.0 | 268.0 | |||||||||
| Net earnings | 241.1 | % | 127.5 | % | |||||||
| Basic earnings per share | 252.9 | % | 127.4 | % | |||||||
| Diluted earnings per share | 247.1 | 126.0 | |||||||||
| Average shares outstanding | (0.5) | 0.1 | |||||||||
| Diluted shares outstanding | (0.5) | 0.3 | |||||||||
(1)
Other (income) expense, net was income of $13.8 million and income of $12.7 million in the third quarter of fiscal 2022 and fiscal 2021, respectively.
(2)
Other (income) expense, net was income of $27.7 million and income of $14.1 million in the first 39 weeks of fiscal 2022 and fiscal 2021, respectively.
31
The following tables represent our results by reportable segments:
| 13-Week Period Ended Apr. 2, 2022 | |||||||||||||||||||||||||||||||||||
| U.S. Foodservice Operations | International Foodservice Operations | SYGMA | Other | Global Support Center |
Consolidated
Totals |
||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Sales | $ | 12,006,163 | $ | 2,834,089 | $ | 1,794,837 | $ | 267,050 | $ | — | $ | 16,902,139 | |||||||||||||||||||||||
| Sales increase (decrease) | 43.6 | % | 64.5 | % | 13.5 | % | 66.4 | % | 42.9 | % | |||||||||||||||||||||||||
| Percentage of total | 71.0 | % | 16.8 | % | 10.6 | % | 1.5 | % | 99.9 | % | |||||||||||||||||||||||||
| Operating income (loss) | $ | 746,467 | $ | 7,760 | $ | 4,362 | $ | (3,972) | $ | (258,888) | $ | 495,729 | |||||||||||||||||||||||
| Operating income (loss) increase (decrease) | 36.8 | % | NM | (66.3) | % | NM | 25.1 | % | NM | ||||||||||||||||||||||||||
| Percentage of total segments | 98.9 | % | 1.0 | % | 0.6 | % | (0.5) | % | 100.0 | % | |||||||||||||||||||||||||
| Operating income (loss) as a percentage of sales | 6.2 | % | 0.3 | % | 0.2 | % | (1.5) | % | 2.9 | % | |||||||||||||||||||||||||
| 13-Week Period Ended Mar. 27, 2021 | |||||||||||||||||||||||||||||||||||
| U.S. Foodservice Operations | International Foodservice Operations | SYGMA | Other | Global Support Center |
Consolidated
Totals |
||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Sales | $ | 8,360,241 | $ | 1,723,126 | $ | 1,580,695 | $ | 160,527 | $ | — | $ | 11,824,589 | |||||||||||||||||||||||
| Percentage of total | 70.7 | % | 14.6 | % | 13.4 | % | 1.3 | % | 100.0 | % | |||||||||||||||||||||||||
| Operating income (loss) | $ | 545,502 | $ | (121,487) | $ | 12,937 | $ | 5,884 | $ | (206,919) | $ | 235,917 | |||||||||||||||||||||||
| Percentage of total segments | 123.2 | % | (27.4) | % | 2.9 | % | 1.3 | % | 100.0 | % | |||||||||||||||||||||||||
| Operating income as a percentage of sales | 6.5 | % | (7.1) | % | 0.8 | % | 3.7 | % | 2.0 | % | |||||||||||||||||||||||||
| 39-Week Period Ended Apr. 2, 2022 | |||||||||||||||||||||||||||||||||||
| U.S. Foodservice Operations | International Foodservice Operations | SYGMA | Other | Global Support Center |
Consolidated
Totals |
||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Sales | $ | 35,107,281 | $ | 8,535,608 | $ | 5,270,193 | $ | 765,806 | $ | — | $ | 49,678,888 | |||||||||||||||||||||||
| Sales increase (decrease) | 45.0 | % | 45.8 | % | 13.9 | % | 61.2 | % | 41.3 | % | |||||||||||||||||||||||||
| Percentage of total | 70.7 | % | 17.2 | % | 10.6 | % | 1.5 | % | 100.0 | % | |||||||||||||||||||||||||
| Operating income (loss) | $ | 2,220,812 | $ | 55,181 | $ | (4,814) | $ | 2,667 | $ | (701,526) | $ | 1,572,320 | |||||||||||||||||||||||
| Operating income increase (decrease) | 37.2 | % | 127.3 | % | (113.4) | % | (45.1) | % | 81.2 | % | |||||||||||||||||||||||||
| Percentage of total segments | 97.7 | % | 2.4 | % | (0.2) | % | 0.1 | % | 100.0 | % | |||||||||||||||||||||||||
| Operating income as a percentage of sales | 6.3 | % | 0.6 | % | (0.1) | % | 0.3 | % | 3.2 | % | |||||||||||||||||||||||||
| 39-Week Period Ended Mar. 27, 2021 | |||||||||||||||||||||||||||||||||||
| U.S. Foodservice Operations | International Foodservice Operations | SYGMA | Other | Global Support Center |
Consolidated
Totals |
||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Sales | $ | 24,205,917 | $ | 5,854,608 | $ | 4,625,244 | $ | 475,181 | $ | — | $ | 35,160,950 | |||||||||||||||||||||||
| Percentage of total | 68.8 | % | 16.7 | % | 13.2 | % | 1.3 | % | 100.0 | % | |||||||||||||||||||||||||
| Operating income (loss) | $ | 1,619,162 | $ | (201,973) | $ | 35,957 | $ | 4,861 | $ | (590,449) | $ | 867,558 | |||||||||||||||||||||||
| Percentage of total segments | 111.1 | % | (13.9) | % | 2.5 | % | 0.3 | % | 100.0 | % | |||||||||||||||||||||||||
| Operating income as a percentage of sales | 6.7 | % | (3.4) | % | 0.8 | % | 1.0 | % | 2.5 | % | |||||||||||||||||||||||||
32
Based on information in Note 14, “Business Segment Information,” in the Notes to Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q, in the third quarter and first 39 weeks of fiscal 2022, U.S. Foodservice Operations and International Foodservice Operations collectively represented approximately 87.8% and 87.8% of Sysco’s overall sales and 99.9% and 100.1% of total segment operating 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 Apr. 2, 2022 | 13-Week Period Ended Mar. 27, 2021 | Change in Dollars | % Change | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Sales | $ | 12,006,163 | $ | 8,360,241 | $ | 3,645,922 | 43.6 | % | |||||||||||||||
| Gross profit | 2,270,045 | 1,634,837 | 635,208 | 38.9 | |||||||||||||||||||
| Operating expenses | 1,523,578 | 1,089,335 | 434,243 | 39.9 | |||||||||||||||||||
| Operating income | $ | 746,467 | $ | 545,502 | $ | 200,965 | 36.8 | % | |||||||||||||||
| Gross profit | $ | 2,270,045 | $ | 1,634,837 | $ | 635,208 | 38.9 | % | |||||||||||||||
| Adjusted operating expenses (Non-GAAP) | 1,520,676 | 1,109,719 | 410,957 | 37.0 | |||||||||||||||||||
| Adjusted operating income (Non-GAAP) | $ | 749,369 | $ | 525,118 | $ | 224,251 | 42.7 | % | |||||||||||||||
| 39-Week Period Ended Apr. 2, 2022 | 39-Week Period Ended Mar. 27, 2021 | Change in Dollars | % Change | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Sales | $ | 35,107,281 | $ | 24,205,917 | $ | 10,901,364 | 45.0 | % | |||||||||||||||
| Gross profit | 6,594,477 | 4,793,866 | 1,800,611 | 37.6 | |||||||||||||||||||
| Operating expenses | 4,373,665 | 3,174,704 | 1,198,961 | 37.8 | |||||||||||||||||||
| Operating income | $ | 2,220,812 | $ | 1,619,162 | $ | 601,650 | 37.2 | % | |||||||||||||||
| Gross profit | $ | 6,594,477 | $ | 4,793,866 | $ | 1,800,611 | 37.6 | % | |||||||||||||||
| Adjusted operating expenses (Non-GAAP) | 4,364,629 | 3,293,919 | 1,070,710 | 32.5 | |||||||||||||||||||
| Adjusted operating income (Non-GAAP) | $ | 2,229,848 | $ | 1,499,947 | $ | 729,901 | 48.7 | % | |||||||||||||||
33
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:
| Increase (Decrease) | Increase (Decrease) | ||||||||||||||||||||||
| 13-Week Period | 39-Week Period | ||||||||||||||||||||||
| (Dollars in millions) | (Dollars in millions) | ||||||||||||||||||||||
| Cause of change | Percentage | Dollars | Percentage | Dollars | |||||||||||||||||||
| Case volume | 20.0 | % | $ | 1,668.1 | 23.0 | % | $ | 5,568.0 | |||||||||||||||
|
Inflation
(1)
|
16.7 | 1,392.0 | 15.3 | 3,692.1 | |||||||||||||||||||
|
Acquisitions
(2)
|
4.5 | 373.6 | 3.4 | 832.9 | |||||||||||||||||||
|
Other
(3)
|
2.4 | 212.2 | 3.3 | 808.4 | |||||||||||||||||||
| Total change in sales | 43.6 | % | $ | 3,645.9 | 45.0 | % | $ | 10,901.4 | |||||||||||||||
(1)
Represents product cost inflation for our U.S. Foodservice Operations, which includes product cost inflation of 15.8% and 14.4% for U.S. Broadline operations, respectively.
(2)
Includes the impact of our fiscal 2022 acquisitions.
(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.”
The primary driver of the sales increase in the third quarter and the first 39 weeks of fiscal 2022 was the significant improvement in case volume in our U.S. Broadline operations as a result of two factors: (a) the ongoing business recovery from the COVID-19 pandemic and (b) the impact of our Recipe for Growth initiatives. Case volumes from our U.S. Broadline operations increased 18.8% and 23.1% in the third quarter and first 39 weeks of fiscal 2022, respectively, as compared to the third quarter and first 39 weeks of fiscal 2021. This included a 14.1% and 18.5% improvement in local customer case growth in the third quarter and first 39 weeks of fiscal 2022, respectively, along with a 24.7% and 29.0% increase in national customer case volume in the third quarter and first 39 weeks of fiscal 2022, respectively. The increases in U.S. Broadline case volumes represent organic growth.
Operating Income
The increase in operating income for the third quarter and first 39 weeks of fiscal 2022, as compared to the third quarter and first 39 weeks of fiscal 2021, was driven by gross profit dollar growth and partially offset by an increase in operating expenses.
Gross profit dollar growth in the third quarter and first 39 weeks of fiscal 2022, as compared to the third quarter and first 39 weeks of fiscal 2021, was driven primarily by the improvement in local cases stemming from (a) the ongoing business recovery from the COVID-19 pandemic, (b) the impact of our Recipe for Growth initiative, (c) management of higher inflation and (d) optimization of our business processes and performance. The estimated change in product costs, an internal measure of inflation or deflation, for the third quarter and first 39 weeks of fiscal 2022 for our U.S. Broadline operations was inflation of 15.8% and 14.4%, respectively. For the third quarter of fiscal 2022, this change in product costs was primarily driven by inflation in the poultry, produce and dairy categories. Gross margin, which is gross profit as a percentage of sales, was 18.91% and 18.78% in the third quarter and first 39 weeks of fiscal 2022, respectively, which was a decrease of 64 basis points compared to gross margin of 19.55% in the third quarter of fiscal 2021, and a decrease of 102 basis points compared to gross margin of 19.80% in the first 39 weeks of fiscal 2021, primarily attributable to inflationary pressure.
The increase in operating expenses for the third quarter and first 39 weeks of fiscal 2022, as compared to the third quarter and first 39 weeks of fiscal 2021, was primarily driven by variable costs associated with increased volumes and largely from short-term expenses associated with the ongoing business recovery, including increases in costs for associates, which included recruiting costs, overtime costs, hiring marketing, vaccination promotion, contract labor and sign-on and retention bonuses. These business recovery costs were lower in the third quarter than the second quarter of fiscal 2022 due to improved staffing levels and productivity increases. We have also experienced an increase in operating expenses due to investments for our Recipe for Growth strategy in the first 39 weeks of fiscal 2022. Additionally, we experienced a $108.4 million unfavorable comparison of bad debt expense in the first 39 weeks of fiscal 2022, as compared to the first 39 weeks of fiscal 2021, which included a net bad debt benefit due to the significant reduction of reserves on pre-pandemic receivables that were collected in fiscal 2021. Excluding the impact of these pre-pandemic receivables, our year-over-year change in bad debt expense was not significant.
34
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 Apr. 2, 2022 | 13-Week Period Ended Mar. 27, 2021 | Change in Dollars | % Change | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Sales | $ | 2,834,089 | $ | 1,723,126 | $ | 1,110,963 | 64.5 | % | |||||||||||||||
| Gross profit | 570,241 | 325,200 | 245,041 | 75.4 | |||||||||||||||||||
| Operating expenses | 562,481 | 446,687 | 115,794 | 25.9 | |||||||||||||||||||
| Operating income (loss) | $ | 7,760 | $ | (121,487) | $ | 129,247 | 106.4 | % | |||||||||||||||
| Gross profit | $ | 570,241 | $ | 325,200 | $ | 245,041 | 75.4 | % | |||||||||||||||
| Adjusted operating expenses (Non-GAAP) | 535,617 | 417,575 | 118,042 | 28.3 | |||||||||||||||||||
| Adjusted operating income (loss) (Non-GAAP) | $ | 34,624 | $ | (92,375) | $ | 126,999 | 137.5 | % | |||||||||||||||
| Sales on a constant currency basis (Non-GAAP) | $ | 2,917,767 | $ | 1,723,126 | $ | 1,194,641 | 69.3 | % | |||||||||||||||
| Gross profit on a constant currency basis (Non-GAAP) | 590,595 | 325,200 | 265,395 | 81.6 | |||||||||||||||||||
| Adjusted operating expenses on a constant currency basis (Non-GAAP) | 555,721 | 417,575 | 138,146 | 33.1 | |||||||||||||||||||
| Adjusted operating income (loss) (Non-GAAP) | $ | 34,874 | $ | (92,375) | $ | 127,249 | 137.8 | % | |||||||||||||||
| 39-Week Period Ended Apr. 2, 2022 | 39-Week Period Ended Mar. 27, 2021 | Change in Dollars | % Change | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Sales | $ | 8,535,608 | $ | 5,854,608 | $ | 2,681,000 | 45.8 | % | |||||||||||||||
| Gross profit | 1,725,306 | 1,149,438 | 575,868 | 50.1 | |||||||||||||||||||
| Operating expenses | 1,670,125 | 1,351,411 | 318,714 | 23.6 | |||||||||||||||||||
| Operating (loss) income | $ | 55,181 | $ | (201,973) | $ | 257,154 | 127.3 | % | |||||||||||||||
| Gross profit | $ | 1,725,306 | $ | 1,149,438 | $ | 575,868 | 50.1 | % | |||||||||||||||
| Adjusted operating expenses (Non-GAAP) | 1,586,914 | 1,278,247 | 308,667 | 24.1 | |||||||||||||||||||
| Adjusted operating (loss) income (Non-GAAP) | $ | 138,392 | $ | (128,809) | $ | 267,201 | 207.4 | % | |||||||||||||||
| Sales on a constant currency basis (Non-GAAP) | $ | 8,463,829 | $ | 5,854,608 | $ | 2,609,221 | 44.6 | % | |||||||||||||||
| Gross profit on a constant currency basis (Non-GAAP) | 1,718,893 | 1,149,438 | 569,455 | 49.5 | |||||||||||||||||||
| Adjusted operating expenses on a constant currency basis (Non-GAAP) | 1,582,750 | 1,278,247 | 304,503 | 23.8 | |||||||||||||||||||
| Adjusted operating (loss) income on a constant currency basis (Non-GAAP) | $ | 136,143 | $ | (128,809) | $ | 264,952 | 205.7 | % | |||||||||||||||
35
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 | 39-Week Period | ||||||||||||||||||||||
| (Dollars in millions) | (Dollars in millions) | ||||||||||||||||||||||
| Cause of change | Percentage | Dollars | Percentage | Dollars | |||||||||||||||||||
| Inflation | 7.9 | % | $ | 136.1 | 7.5 | % | $ | 440.0 | |||||||||||||||
| Foreign currency | (4.9) | (83.8) | 1.3 | 74.0 | |||||||||||||||||||
|
Other
(1)
|
61.5 | 1,058.7 | 37.0 | 2,167.0 | |||||||||||||||||||
| Total change in sales | 64.5 | % | $ | 1,111.0 | 45.8 | % | $ | 2,681.0 | |||||||||||||||
(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 third quarter and first 39 weeks of fiscal 2022 were higher, as compared to the third quarter and first 39 weeks of fiscal 2021, primarily due to the significant improvement in volume. Volume trends accelerated primarily due to fewer cases of the Omicron variant of COVID-19 and the easing of government-imposed restrictions. The impact of our Recipe for Growth initiatives also contributed to volume growth.
Operating Income
The increase in operating income for the third quarter and first 39 weeks of fiscal 2022, as compared to the third quarter and first 39 weeks of fiscal 2021, was due to the continuing increase in 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 third quarter and first 39 weeks of fiscal 2022, as compared to the third quarter and first 39 weeks of fiscal 2021, was attributable to the increase in sales volume and the pass through of inflation, along with specific efforts to optimize our gross profit dollars.
The increase in operating expenses for the third quarter and first 39 weeks of fiscal 2022, as compared to the third quarter and first 39 weeks of fiscal 2021, was primarily due to an increase in costs for associates including overtime and hiring associates to manage the ongoing business recovery. Additionally, we had an unfavorable comparison of bad debt expense, as fiscal 2021 included a reduction of reserves on pre-pandemic receivables Excluding the impact of these pre-pandemic receivables, our year-over-year change in bad debt expense was not significant.
Results of SYGMA and Other Segment
For SYGMA, sales were 13.5% and 13.9% higher in the third quarter and first 39 weeks of fiscal 2022, respectively, as compared to the third quarter and first 39 weeks of fiscal 2021, primarily from inflation and fee increases, partially offset by a decrease in volume due to the planned exit of a large regional customer, as announced during fiscal 2021. Operating income decreased by $8.6 million and $40.8 million in the third quarter and first 39 weeks of fiscal 2022, respectively, as compared to the third quarter and first 39 weeks of fiscal 2021, as our increased investments in business recovery staffing drove an increase in operating expenses. SYGMA operated at a profit in the third quarter, primarily from fee increases to customers, but operated at a loss for the first 39 weeks of fiscal 2022, primarily due to higher than expected transportation costs.
For the operations that are grouped within Other, operating income decreased $9.9 million and $2.2 million in the third quarter and first 39 weeks of fiscal 2022, respectively, as compared to the third quarter and first 39 weeks of fiscal 2021, operating at a loss in the third quarter, but reflecting a profit for the first 39 weeks of fiscal 2022. Volume for this business has improved as hospitality occupancy rates have grown from prior year levels, and the loss for the third quarter is attributable to one-time costs related to the ongoing business recovery.
36
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 third quarter of fiscal 2022 increased $31.2 million, or 15.7%, as compared to the third quarter of fiscal 2021, primarily due to investments for our Recipe for Growth strategy and higher associate-related expenses. These expenses in the first 39 weeks of fiscal 2022 increased $86.7 million, or 15.0%, as compared to the first 39 weeks of fiscal 2021, primarily due to acquisition and due diligence costs, investments for our Recipe for Growth strategy, higher associate-related expenses and an increase in self-insurance reserves.
Included in Global Support Center expenses are Certain Items that totaled $49.9 million and $91.6 million in the third quarter and first 39 weeks of fiscal 2022, as compared to $15.0 million and $39.0 million in the third quarter and first 39 weeks of fiscal 2021, respectively. Certain Items impacting the third quarter and first 39 weeks of fiscal 2022 were primarily expenses associated with our business technology transformation initiatives and expenses associated with acquisitions. Certain Items impacting the third quarter and first 39 weeks of fiscal 2021 were primarily expenses associated with our business technology transformation initiatives.
Interest Expense
Interest expense decreased $21.8 million and increased $56.1 million for the third quarter and first 39 weeks of fiscal 2022, respectively, as compared to the third quarter and first 39 weeks of fiscal 2021, primarily attributable to a loss on extinguishment of debt of $115.6 million for the redemption of $1.25 billion in combined aggregate principal amount of our senior notes in the second quarter of fiscal 2022, partially offset by lower debt volume.
Net Earnings
Net earnings increased 241.1% and 127.5% in the third quarter and first 39 weeks of fiscal 2022, respectively, as compared to the third quarter and first 39 weeks of fiscal 2021, 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 12, “Income Taxes,” in the Notes to Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q. Adjusted net earnings, excluding Certain Items, increased 216.1% and 189.9% in the third quarter and first 39 weeks of fiscal 2022, respectively, primarily due to a significant 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 third quarter of fiscal 2022 were $0.60, a 252.9% increase from the comparable prior year amount of $0.17 per share. Diluted earnings per share in the third quarter of fiscal 2022 were $0.59, a 247.1% increase from the comparable prior year period amount of $0.17 per share. Adjusted diluted earnings per share, excluding Certain Items, in the third quarter of fiscal 2022 were $0.71, a 222.7% increase from the comparable prior year amount of $0.22 per share.
Basic earnings per share in the first 39 weeks of fiscal 2022 were $1.66, a 127.4% increase from the comparable prior year amount of $0.73 per share. Diluted earnings per share in the first 39 weeks of fiscal 2022 were $1.65, an 126.0% increase from the comparable prior year period amount of 0.73 per share. Adjusted diluted earnings per share, excluding Certain Items, in the first 39 weeks of fiscal 2022 were $2.11, a 189.0% increase from the comparable prior year amount of $0.73 per share.
37
Non-GAAP Reconciliations
|
Our discussion of our results includes certain non-GAAP financial measures, including EBITDA and adjusted EBITDA, that we believe 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; acquisition-related costs consisting of: (1) intangible amortization expense and (2) acquisition costs and due diligence costs related to our acquisitions; 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. Our results for fiscal 2022 were also impacted by: (1) a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory, (2) debt extinguishment costs and (3) the increase in reserves for uncertain tax positions. Our results for the first 39 weeks of fiscal 2021 were also impacted by losses on the sale of businesses.
|
||
| 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. | ||
| 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. | ||
| Sysco has a history of growth through acquisitions and excludes from its non-GAAP financial measures the impact of acquisition-related intangible amortization, acquisition costs and due-diligence costs for those acquisitions. We believe this approach significantly enhances the comparability of Sysco’s results for fiscal 2022 and fiscal 2021. | ||
| 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. | ||
38
| 13-Week Period Ended Apr. 2, 2022 | 13-Week Period Ended Mar. 27, 2021 | Change in Dollars | % Change | ||||||||||||||||||||
| Sales (GAAP) | $ | 16,902,139 | $ | 11,824,589 | $ | 5,077,550 | 42.9 | % | |||||||||||||||
|
Impact of currency fluctuations
(1)
|
83,760 | — | 83,760 | 0.7 | |||||||||||||||||||
| Comparable sales using a constant currency basis (Non-GAAP) | $ | 16,985,899 | $ | 11,824,589 | $ | 5,161,310 | 43.6 | % | |||||||||||||||
| Cost of sales (GAAP) | $ | 13,888,745 | $ | 9,701,921 | $ | 4,186,824 | 43.2 | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(2)
|
(29,550) | — | (29,550) | (0.3) | |||||||||||||||||||
| Cost of sales adjusted for Certain Items (Non-GAAP) | $ | 13,859,195 | $ | 9,701,921 | $ | 4,157,274 | 42.9 | % | |||||||||||||||
| Gross profit (GAAP) | $ | 3,013,394 | $ | 2,122,668 | $ | 890,726 | 42.0 | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(2)
|
29,550 | — | 29,550 | 1.4 | |||||||||||||||||||
| Comparable gross profit adjusted for Certain Items (Non-GAAP) | 3,042,944 | 2,122,668 | 920,276 | 43.4 | |||||||||||||||||||
|
Impact of currency fluctuations
(1)
|
20,426 | — | 20,426 | 0.9 | |||||||||||||||||||
| Comparable gross profit adjusted for Certain Items using a constant currency basis (Non-GAAP) | $ | 3,063,370 | $ | 2,122,668 | $ | 940,702 | 44.3 | % | |||||||||||||||
| Gross margin (GAAP) | 17.83 | % | 17.95 | % | -12 bps | ||||||||||||||||||
|
Impact of inventory valuation adjustment
(2)
|
0.17 | — | 17 bps | ||||||||||||||||||||
| Comparable Gross margin adjusted for Certain Items (Non-GAAP) | 18.00 | % | 17.95 | % | 5 bps | ||||||||||||||||||
|
Impact of currency fluctuations
(1)
|
0.03 | — | 3 bps | ||||||||||||||||||||
| Comparable gross margin adjusted for Certain Items using a constant currency basis (Non-GAAP) | 18.03 | % | 17.95 | % | 8 bps | ||||||||||||||||||
| Operating expenses (GAAP) | $ | 2,517,665 | $ | 1,886,751 | $ | 630,914 | 33.4 | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(3)
|
(19,171) | (34,953) | 15,782 | 45.2 | |||||||||||||||||||
|
Impact of acquisition-related costs
(4)
|
(36,699) | (18,834) | (17,865) | (94.9) | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(5)
|
5,717 | 33,473 | (27,756) | (82.9) | |||||||||||||||||||
| Operating expenses adjusted for Certain Items (Non-GAAP) | 2,467,512 | 1,866,437 | 601,075 | 32.2 | |||||||||||||||||||
|
Impact of currency fluctuations
(1)
|
21,006 | — | 21,006 | 1.1 | |||||||||||||||||||
| Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP) | $ | 2,488,518 | $ | 1,866,437 | $ | 622,081 | 33.3 | % | |||||||||||||||
| Operating income (GAAP) | $ | 495,729 | $ | 235,917 | $ | 259,812 | 110.1 | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(2)
|
29,550 | — | 29,550 | NM | |||||||||||||||||||
|
Impact of restructuring and transformational project costs
(3)
|
19,171 | 34,953 | (15,782) | (45.2) | |||||||||||||||||||
|
Impact of acquisition-related costs
(4)
|
36,699 | 18,834 | 17,865 | 94.9 | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(5)
|
(5,717) | (33,473) | 27,756 | 82.9 | |||||||||||||||||||
| Operating income adjusted for Certain Items (Non-GAAP) | 575,432 | 256,231 | 319,201 | 124.6 | |||||||||||||||||||
|
Impact of currency fluctuations
(1)
|
(581) | — | (581) | (0.2) | |||||||||||||||||||
| Comparable operating income adjusted for Certain Items using a constant currency basis (Non-GAAP) | $ | 574,851 | $ | 256,231 | $ | 318,620 | 124.4 | % | |||||||||||||||
| Other income (GAAP) | $ | (13,777) | $ | (12,708) | $ | (1,069) | (8.4) | % | |||||||||||||||
| Impact of loss on sale of business | — | (10,790) | 10,790 | NM | |||||||||||||||||||
| Other income adjusted for Certain Items (Non-GAAP) | $ | (13,777) | $ | (23,498) | $ | 9,721 | 41.4 | % | |||||||||||||||
| Net earnings (GAAP) | $ | 303,325 | $ | 88,927 | $ | 214,398 | 241.1 | % | |||||||||||||||
39
|
Impact of inventory valuation adjustment
(2)
|
29,550 | — | 29,550 | NM | |||||||||||||||||||
|
Impact of restructuring and transformational project costs
(3)
|
19,171 | 34,953 | (15,782) | (45.2) | |||||||||||||||||||
|
Impact of acquisition-related costs
(4)
|
36,699 | 18,834 | 17,865 | 94.9 | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(5)
|
(5,717) | (33,473) | 27,756 | 82.9 | |||||||||||||||||||
| Impact of loss on sale of business | — | 10,790 | (10,790) | NM | |||||||||||||||||||
|
Tax impact of inventory valuation adjustment
(6)
|
(7,449) | — | (7,449) | NM | |||||||||||||||||||
|
Tax impact of restructuring and transformational project costs
(6)
|
(5,579) | (10,300) | 4,721 | 45.8 | |||||||||||||||||||
|
Tax impact of acquisition-related costs
(6)
|
(8,537) | (5,573) | (2,964) | (53.2) | |||||||||||||||||||
|
Tax impact of bad debt reserves adjustments
(6)
|
1,445 | 10,354 | (8,909) | (86.0) | |||||||||||||||||||
|
Tax impact of loss on sale of business
(6)
|
— | 301 | (301) | NM | |||||||||||||||||||
| Net earnings adjusted for Certain Items (Non-GAAP) | $ | 362,908 | $ | 114,813 | $ | 248,095 | 216.1 | % | |||||||||||||||
| Diluted earnings per share (GAAP) | $ | 0.59 | $ | 0.17 | $ | 0.42 | 247.1 | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(2)
|
0.06 | — | 0.06 | NM | |||||||||||||||||||
|
Impact of restructuring and transformational project costs
(3)
|
0.04 | 0.07 | (0.03) | (42.9) | |||||||||||||||||||
|
Impact of acquisition-related costs
(4)
|
0.07 | 0.04 | 0.03 | 75.0 | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(5)
|
(0.01) | (0.07) | 0.06 | 85.7 | |||||||||||||||||||
| Impact of loss on sale of business | — | 0.02 | (0.02) | NM | |||||||||||||||||||
|
Tax impact of inventory valuation adjustment
(6)
|
(0.01) | — | (0.01) | NM | |||||||||||||||||||
|
Tax impact of restructuring and transformational project costs
(6)
|
(0.01) | (0.02) | 0.01 | 50.0 | |||||||||||||||||||
|
Tax impact of acquisition-related costs
(6)
|
(0.02) | (0.01) | (0.01) | (100.0) | |||||||||||||||||||
|
Tax impact of bad debt reserves adjustments
(6)
|
— | 0.02 | (0.02) | NM | |||||||||||||||||||
|
Diluted earnings per share adjusted for Certain Items (Non-GAAP)
(7)
|
$ | 0.71 | $ | 0.22 | $ | 0.49 | 222.7 | % | |||||||||||||||
|
(1)
|
Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on the current year results.
|
||||
|
(2)
|
Represents a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory. | ||||
|
(3)
|
Fiscal 2022 includes $7 million related to restructuring, severance, and facility closure charges and $12 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy. Fiscal 2021 includes $21 million related to restructuring charges and $14 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy.
|
||||
|
(4)
|
Fiscal 2022 includes $27 million of intangible amortization expense and $10 million in acquisition and due diligence costs. Fiscal 2021 represents intangible amortization expense.
|
||||
|
(5)
|
Fiscal 2022 and fiscal 2021 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020. | ||||
|
(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.
|
||||
|
(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. | |||||
40
| 13-Week Period Ended Apr. 2, 2022 | 13-Week Period Ended Mar. 30, 2019 | Change in Dollars | % Change | ||||||||||||||||||||
| Sales (GAAP) | $ | 16,902,139 | $ | 14,658,074 | $ | 2,244,065 | 15.3 | % | |||||||||||||||
| Cost of sales (GAAP) | $ | 13,888,745 | $ | 11,903,776 | $ | 1,984,969 | 16.7 | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(1)
|
(29,550) | — | (29,550) | (0.3) | |||||||||||||||||||
| Cost of sales adjusted for Certain Items (Non-GAAP) | $ | 13,859,195 | $ | 11,903,776 | $ | 1,955,419 | 16.4 | % | |||||||||||||||
| Gross profit (GAAP) | $ | 3,013,394 | $ | 2,754,298 | $ | 259,096 | 9.4 | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(1)
|
29,550 | — | 29,550 | 1.1 | |||||||||||||||||||
| Comparable gross profit adjusted for Certain Items (Non-GAAP) | $ | 3,042,944 | $ | 2,754,298 | $ | 288,646 | 10.5 | % | |||||||||||||||
| Gross margin (GAAP) | 17.83 | % | 18.79 | % | -96 bps | ||||||||||||||||||
|
Impact of inventory valuation adjustment
(1)
|
0.17 | — | 17 bps | ||||||||||||||||||||
| Comparable Gross margin adjusted for Certain Items (Non-GAAP) | 18.00 | % | 18.79 | % | -79 bps | ||||||||||||||||||
| Operating expenses (GAAP) | $ | 2,517,665 | $ | 2,224,713 | $ | 292,952 | 13.2 | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(2)
|
(19,171) | (72,207) | 53,036 | 73.4 | |||||||||||||||||||
|
Impact of acquisition-related costs
(3)
|
(36,699) | (18,398) | (18,301) | (99.5) | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(4)
|
5,717 | — | 5,717 | NM | |||||||||||||||||||
| Comparable operating expenses adjusted for Certain Items (Non-GAAP) | $ | 2,467,512 | $ | 2,134,108 | $ | 333,404 | 15.6 | % | |||||||||||||||
| Operating income (GAAP) | $ | 495,729 | $ | 529,585 | $ | (33,856) | (6.4) | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(1)
|
29,550 | — | 29,550 | NM | |||||||||||||||||||
|
Impact of restructuring and transformational project costs
(2)
|
19,171 | 72,207 | (53,036) | (73.4) | |||||||||||||||||||
|
Impact of acquisition-related costs
(3)
|
36,699 | 18,398 | 18,301 | 99.5 | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(4)
|
(5,717) | — | (5,717) | NM | |||||||||||||||||||
| Operating income adjusted for Certain Items (Non-GAAP) | $ | 575,432 | $ | 620,190 | $ | (44,758) | (7.2) | % | |||||||||||||||
| Net earnings (GAAP) | $ | 303,325 | $ | 440,083 | $ | (136,758) | (31.1) | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(1)
|
29,550 | — | 29,550 | NM | |||||||||||||||||||
|
Impact of restructuring and transformational project costs
(2)
|
19,171 | 72,207 | (53,036) | (73.4) | |||||||||||||||||||
|
Impact of acquisition-related costs
(3)
|
36,699 | 18,398 | 18,301 | 99.5 | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(4)
|
(5,717) | — | (5,717) | NM | |||||||||||||||||||
|
Tax impact of inventory valuation adjustment
(5)
|
(7,449) | — | (7,449) | NM | |||||||||||||||||||
|
Tax impact of restructuring and transformational project costs
(5)
|
(5,579) | (19,271) | 13,692 | 71.0 | |||||||||||||||||||
|
Tax impact of acquisition-related costs
(5)
|
(8,537) | (4,899) | (3,638) | (74.3) | |||||||||||||||||||
|
Tax impact of bad debt reserves adjustments
(5)
|
1,445 | — | 1,445 | NM | |||||||||||||||||||
| Impact of foreign tax credit benefit | — | (95,067) | 95,067 | NM | |||||||||||||||||||
| Impact of US transition tax | — | (269) | 269 | NM | |||||||||||||||||||
| Net earnings adjusted for Certain Items (Non-GAAP) | $ | 362,908 | $ | 411,182 | $ | (48,274) | (11.7) | % | |||||||||||||||
| Diluted earnings per share (GAAP) | $ | 0.59 | $ | 0.85 | $ | (0.26) | (30.6) | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(1)
|
0.06 | — | 0.06 | NM | |||||||||||||||||||
|
Impact of restructuring and transformational project costs
(2)
|
0.04 | 0.14 | (0.10) | (71.4) | |||||||||||||||||||
|
Impact of acquisition-related costs
(3)
|
0.07 | 0.04 | 0.03 | 75.0 | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(4)
|
(0.01) | — | (0.01) | NM | |||||||||||||||||||
41
|
Tax impact of inventory valuation adjustment
(5)
|
(0.01) | — | (0.01) | NM | |||||||||||||||||||
|
Tax impact of restructuring and transformational project costs
(5)
|
(0.01) | (0.04) | 0.03 | 75.0 | |||||||||||||||||||
|
Tax impact of acquisition-related costs
(5)
|
(0.02) | (0.01) | (0.01) | (100.0) | |||||||||||||||||||
| Impact of foreign tax credit benefit | — | (0.18) | 0.18 | NM | |||||||||||||||||||
|
Diluted earnings per share adjusted for Certain Items (Non-GAAP)
(6)
|
$ | 0.71 | $ | 0.79 | $ | (0.08) | (10.1) | % | |||||||||||||||
|
(1)
|
Represents a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory. | ||||
|
(2)
|
Fiscal 2022 includes $7 million related to restructuring, severance, and facility closure charges and $12 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy. Fiscal 2019 includes $35 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy and $37 million related to restructuring, facility closure and severance charges. | ||||
|
(3)
|
Fiscal 2022 includes $27 million of intangible amortization expense and $10 million in acquisition and due diligence costs. Fiscal 2019 includes intangible amortization expense. | ||||
|
(4)
|
Fiscal 2022 represents the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020. | ||||
|
(5)
|
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. | ||||
|
(6)
|
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. | |||||
42
| 39-Week Period Ended Apr. 2, 2022 | 39-Week Period Ended Mar. 27, 2021 | Change in Dollars | % Change | ||||||||||||||||||||
| Sales (GAAP) | $ | 49,678,888 | $ | 35,160,950 | $ | 14,517,938 | 41.3 | % | |||||||||||||||
|
Impact of currency fluctuations
(1)
|
(77,043) | — | (77,043) | (0.2) | |||||||||||||||||||
| Comparable sales using a constant currency basis (Non-GAAP) | $ | 49,601,845 | $ | 35,160,950 | $ | 14,440,895 | 41.1 | % | |||||||||||||||
| Cost of sales (GAAP) | $ | 40,802,636 | $ | 28,719,979 | $ | 12,082,657 | 42.1 | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(2)
|
(29,550) | — | (29,550) | (0.1) | |||||||||||||||||||
| Cost of sales adjusted for Certain Items (Non-GAAP) | $ | 40,773,086 | $ | 28,719,979 | $ | 12,053,107 | 42.0 | % | |||||||||||||||
| Gross profit (GAAP) | $ | 8,876,252 | $ | 6,440,971 | $ | 2,435,281 | 37.8 | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(2)
|
29,550 | — | 29,550 | 0.5 | |||||||||||||||||||
| Comparable gross profit adjusted for Certain Items (Non-GAAP) | 8,905,802 | 6,440,971 | 2,464,831 | 38.3 | % | ||||||||||||||||||
|
Impact of currency fluctuations
(1)
|
(8,125) | — | (8,125) | (0.2) | |||||||||||||||||||
| Comparable gross profit adjusted for Certain Items using a constant currency basis (Non-GAAP) | $ | 8,897,677 | $ | 6,440,971 | $ | 2,456,706 | 38.1 | % | |||||||||||||||
| Gross margin (GAAP) | 17.87 | % | 18.32 | % | -45 bps | ||||||||||||||||||
|
Impact of inventory valuation adjustment
(2)
|
0.06 | — | 6 bps | ||||||||||||||||||||
| Comparable Gross margin adjusted for Certain Items (Non-GAAP) | 17.93 | % | 18.32 | % | -39 bps | ||||||||||||||||||
|
Impact of currency fluctuations
(1)
|
0.01 | — | 1 bps | ||||||||||||||||||||
| Comparable gross margin adjusted for Certain Items using a constant currency basis (Non-GAAP) | 17.94 | % | 18.32 | % | -38 bps | ||||||||||||||||||
| Operating expenses (GAAP) | $ | 7,303,932 | $ | 5,573,413 | $ | 1,730,519 | 31.0 | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(3)
|
(70,058) | (95,078) | 25,020 | 26.3 | |||||||||||||||||||
|
Impact of acquisition-related costs
(4)
|
(103,449) | (54,714) | (48,735) | (89.1) | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(5)
|
19,216 | 162,372 | (143,156) | (88.2) | |||||||||||||||||||
| Operating expenses adjusted for Certain Items (Non-GAAP) | $ | 7,149,641 | $ | 5,585,993 | $ | 1,563,648 | 28.0 | % | |||||||||||||||
|
Impact of currency fluctuations
(1)
|
(4,177) | — | (4,177) | (0.1) | |||||||||||||||||||
| Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP) | $ | 7,145,464 | $ | 5,585,993 | $ | 1,559,471 | 27.9 | % | |||||||||||||||
| Operating income (GAAP) | $ | 1,572,320 | $ | 867,558 | $ | 704,762 | 81.2 | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(2)
|
29,550 | — | 29,550 | NM | |||||||||||||||||||
|
Impact of restructuring and transformational project costs
(3)
|
70,058 | 95,078 | (25,020) | (26.3) | |||||||||||||||||||
|
Impact of acquisition-related costs
(4)
|
103,449 | 54,714 | 48,735 | 89.1 | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(5)
|
(19,216) | (162,372) | 143,156 | 88.2 | |||||||||||||||||||
| Operating income adjusted for Certain Items (Non-GAAP) | $ | 1,756,161 | $ | 854,978 | $ | 901,183 | 105.4 | % | |||||||||||||||
|
Impact of currency fluctuations
(1)
|
(3,947) | — | (3,947) | (0.5) | |||||||||||||||||||
| Comparable operating income adjusted for Certain Items using a constant currency basis (Non-GAAP) | $ | 1,752,214 | $ | 854,978 | $ | 897,236 | 104.9 | % | |||||||||||||||
| Interest expense (GAAP) | $ | 495,131 | $ | 438,988 | $ | 56,143 | 12.8 | % | |||||||||||||||
| Impact of loss on extinguishment of debt | (115,603) | — | (115,603) | NM | |||||||||||||||||||
| Interest expense adjusted for Certain Items (Non-GAAP) | $ | 379,528 | $ | 438,988 | $ | (59,460) | (13.5) | % | |||||||||||||||
| Other income (GAAP) | $ | (27,705) | $ | (14,140) | $ | (13,565) | (95.9) | % | |||||||||||||||
43
| Impact of loss on sale of business | — | (22,834) | 22,834 | NM | |||||||||||||||||||
| Other income adjusted for Certain Items (Non-GAAP) | $ | (27,705) | $ | (36,974) | $ | 9,269 | 25.1 | % | |||||||||||||||
| Net earnings (GAAP) | $ | 848,779 | $ | 373,116 | $ | 475,663 | 127.5 | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(2)
|
29,550 | — | 29,550 | NM | |||||||||||||||||||
|
Impact of restructuring and transformational project costs
(3)
|
70,058 | 95,078 | (25,020) | (26.3) | |||||||||||||||||||
|
Impact of acquisition-related costs
(4)
|
103,449 | 54,714 | 48,735 | 89.1 | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(5)
|
(19,216) | (162,372) | 143,156 | 88.2 | |||||||||||||||||||
| Impact of loss on extinguishment of debt | 115,603 | — | 115,603 | NM | |||||||||||||||||||
| Impact of loss on sale of business | — | 22,834 | (22,834) | NM | |||||||||||||||||||
|
Tax impact of inventory valuation adjustment
(6)
|
(7,449) | — | (7,449) | NM | |||||||||||||||||||
|
Tax impact of restructuring and transformational project costs
(6)
|
(17,661) | (26,886) | 9,225 | 34.3 | |||||||||||||||||||
|
Tax impact of acquisition-related costs
(6)
|
(26,079) | (15,471) | (10,608) | (68.6) | |||||||||||||||||||
|
Tax impact of bad debt reserves adjustments
(6)
|
4,844 | 45,913 | (41,069) | (89.4) | |||||||||||||||||||
|
Tax impact of loss on extinguishment of debt
(6)
|
(29,143) | — | (29,143) | NM | |||||||||||||||||||
|
Tax impact of loss on sale of business
(6)
|
— | (7,251) | 7,251 | NM | |||||||||||||||||||
| Impact of adjustments to uncertain tax positions | 12,000 | — | 12,000 | NM | |||||||||||||||||||
| Impact of foreign tax rate change | — | (5,548) | 5,548 | NM | |||||||||||||||||||
| Net earnings adjusted for Certain Items (Non-GAAP) | $ | 1,084,735 | $ | 374,127 | $ | 710,608 | 189.9 | % | |||||||||||||||
| Diluted earnings per share (GAAP) | $ | 1.65 | $ | 0.73 | $ | 0.92 | 126.0 | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(2)
|
0.06 | — | 0.06 | NM | |||||||||||||||||||
|
Impact of restructuring and transformational project costs
(3)
|
0.14 | 0.19 | (0.05) | (26.3) | |||||||||||||||||||
|
Impact of acquisition-related costs
(4)
|
0.20 | 0.11 | 0.09 | 81.8 | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(5)
|
(0.04) | (0.32) | 0.28 | 87.5 | |||||||||||||||||||
| Impact of loss on extinguishment of debt | 0.22 | — | 0.22 | NM | |||||||||||||||||||
| Impact of loss on sale of business | — | 0.04 | (0.04) | NM | |||||||||||||||||||
|
Tax impact of inventory valuation adjustment
(6)
|
(0.01) | — | (0.01) | NM | |||||||||||||||||||
|
Tax impact of restructuring and transformational project costs
(6)
|
(0.03) | (0.05) | 0.02 | 40.0 | |||||||||||||||||||
|
Tax impact of acquisition-related costs
(6)
|
(0.05) | (0.03) | (0.02) | (66.7) | |||||||||||||||||||
|
Tax impact of bad debt reserves adjustments
(6)
|
0.01 | 0.09 | (0.08) | (88.9) | |||||||||||||||||||
|
Tax impact of loss on extinguishment of debt
(6)
|
(0.06) | — | (0.06) | NM | |||||||||||||||||||
|
Tax impact of loss on sale of business
(6)
|
— | (0.01) | 0.01 | NM | |||||||||||||||||||
| Impact of adjustments to uncertain tax positions | 0.02 | — | 0.02 | NM | |||||||||||||||||||
| Impact of foreign tax rate change | — | (0.01) | 0.01 | NM | |||||||||||||||||||
|
Diluted earnings per share adjusted for Certain Items (Non-GAAP)
(7)
|
$ | 2.11 | $ | 0.73 | $ | 1.38 | 189.0 | % | |||||||||||||||
44
|
(1)
|
Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on the current year results.
|
||||
|
(2)
|
Represents a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory. | ||||
|
(3)
|
Fiscal 2022 includes $39 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy and $31 million related to restructuring charges, severance and facility closure charges. Fiscal 2021 includes $56 million related to restructuring, severance and facility closure charges, and $39 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy.
|
||||
|
(4)
|
Fiscal 2022 includes $75 million of intangible amortization expense and $28 million in acquisition and due diligence costs. Fiscal 2021 represents intangible amortization expense.
|
||||
|
(5)
|
Fiscal 2022 and fiscal 2021 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
|
||||
|
(6)
|
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.
|
||||
|
(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. | |||||
45
| 39-Week Period Ended Apr. 2, 2022 | 39-Week Period Ended Mar. 30, 2019 | Change in Dollars | % Change | ||||||||||||||||||||
| Sales (GAAP) | $ | 49,678,888 | $ | 44,639,060 | $ | 5,039,828 | 11.3 | % | |||||||||||||||
| Cost of sales (GAAP) | $ | 40,802,636 | $ | 36,209,265 | $ | 4,593,371 | 12.7 | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(1)
|
(29,550) | — | (29,550) | NM | |||||||||||||||||||
| Cost of sales adjusted for Certain Items (Non-GAAP) | $ | 40,773,086 | $ | 36,209,265 | $ | 4,563,821 | 12.6 | % | |||||||||||||||
| Gross profit (GAAP) | $ | 8,876,252 | $ | 8,429,795 | $ | 446,457 | 5.3 | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(1)
|
29,550 | — | 29,550 | NM | |||||||||||||||||||
| Comparable gross profit adjusted for Certain Items (Non-GAAP) | $ | 8,905,802 | $ | 8,429,795 | $ | 476,007 | 5.7 | % | |||||||||||||||
| Gross margin (GAAP) | 17.87 | % | 18.88 | % | -101 bps | ||||||||||||||||||
|
Impact of inventory valuation adjustment
(1)
|
0.06 | — | 6 bps | ||||||||||||||||||||
| Comparable Gross margin adjusted for Certain Items (Non-GAAP) | 17.93 | % | 18.88 | % | -95 bps | ||||||||||||||||||
| Operating expenses (GAAP) | $ | 7,303,932 | $ | 6,820,175 | $ | 483,757 | 7.1 | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(2)
|
(70,058) | (247,547) | 177,489 | 71.7 | |||||||||||||||||||
|
Impact of acquisition-related costs
(3)
|
(103,449) | (58,042) | (45,407) | (78.2) | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(4)
|
19,216 | — | 19,216 | NM | |||||||||||||||||||
| Comparable operating expenses adjusted for Certain Items (Non-GAAP) | $ | 7,149,641 | $ | 6,514,586 | $ | 635,055 | 9.7 | % | |||||||||||||||
| Operating income (GAAP) | $ | 1,572,320 | $ | 1,609,620 | $ | (37,300) | (2.3) | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(1)
|
29,550 | — | 29,550 | NM | |||||||||||||||||||
|
Impact of restructuring and transformational project costs
(2)
|
70,058 | 247,547 | (177,489) | (71.7) | |||||||||||||||||||
|
Impact of acquisition-related costs
(3)
|
103,449 | 58,042 | 45,407 | 78.2 | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(4)
|
(19,216) | — | (19,216) | NM | |||||||||||||||||||
| Operating income adjusted for Certain Items (Non-GAAP) | $ | 1,756,161 | $ | 1,915,209 | $ | (159,048) | (8.3) | % | |||||||||||||||
| Interest expense (GAAP) | $ | 495,131 | $ | 270,643 | $ | 224,488 | 82.9 | % | |||||||||||||||
| Impact of loss on extinguishment of debt | (115,603) | — | (115,603) | NM | |||||||||||||||||||
| Interest expense adjusted for Certain Items (Non-GAAP) | $ | 379,528 | $ | 270,643 | $ | 108,885 | 40.2 | % | |||||||||||||||
| Net earnings (GAAP) | $ | 848,779 | $ | 1,138,505 | $ | (289,726) | (25.4) | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(1)
|
29,550 | — | 29,550 | NM | |||||||||||||||||||
|
Impact of restructuring and transformational project costs
(2)
|
70,058 | 247,547 | (177,489) | (71.7) | |||||||||||||||||||
|
Impact of acquisition-related costs
(3)
|
103,449 | 58,042 | 45,407 | 78.2 | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(4)
|
(19,216) | — | (19,216) | NM | |||||||||||||||||||
| Impact of loss on extinguishment of debt | 115,603 | — | 115,603 | NM | |||||||||||||||||||
|
Tax impact of inventory valuation adjustment
(5)
|
(7,449) | — | (7,449) | NM | |||||||||||||||||||
|
Tax impact of restructuring and transformational project costs
(5)
|
(17,661) | (64,831) | 47,170 | 72.8 | |||||||||||||||||||
|
Tax impact of acquisition-related costs
(5)
|
(26,079) | (15,201) | (10,878) | (71.6) | |||||||||||||||||||
|
Tax impact of bad debt reserves adjustments
(5)
|
4,844 | — | 4,844 | NM | |||||||||||||||||||
|
Tax impact of loss on extinguishment of debt
(5)
|
(29,143) | — | (29,143) | NM | |||||||||||||||||||
| Impact of foreign tax credit benefit | — | (95,067) | 95,067 | NM | |||||||||||||||||||
46
| Impact of adjustments to uncertain tax positions | 12,000 | — | 12,000 | NM | |||||||||||||||||||
| Impact of US transition tax | — | 14,885 | (14,885) | NM | |||||||||||||||||||
| Net earnings adjusted for Certain Items (Non-GAAP) | $ | 1,084,735 | $ | 1,283,880 | $ | (199,145) | (15.5) | % | |||||||||||||||
| Diluted earnings per share (GAAP) | $ | 1.65 | $ | 2.17 | $ | (0.52) | (24.0) | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(1)
|
0.06 | — | 0.06 | NM | |||||||||||||||||||
|
Impact of restructuring and transformational project costs
(2)
|
0.14 | 0.47 | (0.33) | (70.2) | |||||||||||||||||||
|
Impact of acquisition-related costs
(3)
|
0.20 | 0.11 | 0.09 | 81.8 | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(4)
|
(0.04) | — | (0.04) | NM | |||||||||||||||||||
| Impact of loss on extinguishment of debt | 0.22 | — | 0.22 | NM | |||||||||||||||||||
|
Tax impact of inventory valuation adjustment
(5)
|
(0.01) | — | (0.01) | NM | |||||||||||||||||||
|
Tax impact of restructuring and transformational project costs
(5)
|
(0.03) | (0.12) | 0.09 | 75.0 | |||||||||||||||||||
|
Tax impact of acquisition-related costs
(5)
|
(0.05) | (0.03) | (0.02) | (66.7) | |||||||||||||||||||
|
Tax impact of bad debt reserves adjustments
(5)
|
0.01 | — | 0.01 | NM | |||||||||||||||||||
|
Tax impact of loss on extinguishment of debt
(5)
|
(0.06) | — | (0.06) | NM | |||||||||||||||||||
| Impact of foreign tax credit benefit | — | (0.18) | 0.18 | NM | |||||||||||||||||||
| Impact of adjustments to uncertain tax positions | 0.02 | — | 0.02 | NM | |||||||||||||||||||
| Impact of US transition tax | — | 0.03 | (0.03) | NM | |||||||||||||||||||
|
Diluted earnings per share adjusted for Certain Items (Non-GAAP)
(6)
|
$ | 2.11 | $ | 2.45 | $ | (0.34) | (13.9) | % | |||||||||||||||
|
(1)
|
Represents a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory. | ||||
|
(2)
|
Fiscal 2022 includes $39 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy and $31 million related to restructuring charges, severance and facility closure charges. Fiscal 2019 includes $114 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy, of which $17 million relates to accelerated depreciation related to software that is being replaced, and $133 million related to severance, restructuring and facility closure charges in Europe, Canada and at our Global Support Center, of which $58 million relates to our France restructuring as part of our integration of Brake France and Davigel into Sysco France. | ||||
|
(3)
|
Fiscal 2022 includes $75 million of intangible amortization expense and $28 million in acquisition and due diligence costs. Fiscal 2019 includes $57 million of intangible amortization expense and $1 million related to integration costs. | ||||
|
(4)
|
Fiscal 2022 represents the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020. | ||||
|
(5)
|
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. | ||||
|
(6)
|
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. | |||||
47
| 13-Week Period Ended Apr. 2, 2022 | 13-Week Period Ended Mar. 27, 2021 | Change in Dollars | %/bps Change | ||||||||||||||||||||
| U.S. FOODSERVICE OPERATIONS | |||||||||||||||||||||||
| Operating expenses (GAAP) | $ | 1,523,578 | $ | 1,089,335 | $ | 434,243 | 39.9 | % | |||||||||||||||
| Impact of restructuring and transformational project costs | 2,543 | (1,285) | 3,828 | 297.9 | |||||||||||||||||||
|
Impact of acquisition-related costs
(1)
|
(10,505) | — | (10,505) | NM | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
5,060 | 21,669 | (16,609) | (76.6) | |||||||||||||||||||
| Operating expenses adjusted for Certain Items (Non-GAAP) | $ | 1,520,676 | $ | 1,109,719 | $ | 410,957 | 37.0 | % | |||||||||||||||
| Operating income (GAAP) | $ | 746,467 | $ | 545,502 | $ | 200,965 | 36.8 | % | |||||||||||||||
| Impact of restructuring and transformational project costs | (2,543) | 1,285 | (3,828) | (297.9) | |||||||||||||||||||
|
Impact of acquisition-related costs
(1)
|
10,505 | — | 10,505 | NM | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
(5,060) | (21,669) | 16,609 | 76.6 | |||||||||||||||||||
| Operating income adjusted for Certain Items (Non-GAAP) | $ | 749,369 | $ | 525,118 | $ | 224,251 | 42.7 | % | |||||||||||||||
| INTERNATIONAL FOODSERVICE OPERATIONS | |||||||||||||||||||||||
| Sales (GAAP) | $ | 2,834,089 | $ | 1,723,126 | $ | 1,110,963 | 64.5 | % | |||||||||||||||
|
Impact of currency fluctuations
(3)
|
83,678 | — | 83,678 | 4.8 | |||||||||||||||||||
| Comparable sales using a constant currency basis (Non-GAAP) | $ | 2,917,767 | $ | 1,723,126 | $ | 1,194,641 | 69.3 | % | |||||||||||||||
| Gross profit (GAAP) | $ | 570,241 | $ | 325,200 | $ | 245,041 | 75.4 | % | |||||||||||||||
|
Impact of currency fluctuations
(3)
|
20,354 | — | 20,354 | 6.2 | |||||||||||||||||||
| Comparable gross profit using a constant currency basis (Non-GAAP) | $ | 590,595 | $ | 325,200 | $ | 265,395 | 81.6 | % | |||||||||||||||
| Gross margin (GAAP) | 20.12 | % | 18.87 | % | 125 bps | ||||||||||||||||||
|
Impact of currency fluctuations
(3)
|
0.12 | — | 12 bps | ||||||||||||||||||||
| Comparable gross margin using a constant currency basis (Non-GAAP) | 20.24 | % | 18.87 | % | 137 bps | ||||||||||||||||||
| Operating expenses (GAAP) | $ | 562,481 | $ | 446,687 | $ | 115,794 | 25.9 | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(4)
|
(9,379) | (18,635) | 9,256 | 49.7 | |||||||||||||||||||
|
Impact of acquisition-related costs
(5)
|
(18,142) | (18,834) | 692 | 3.7 | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
657 | 8,357 | (7,700) | (92.1) | |||||||||||||||||||
| Operating expenses adjusted for Certain Items (Non-GAAP) | 535,617 | 417,575 | 118,042 | 28.3 | |||||||||||||||||||
|
Impact of currency fluctuations
(3)
|
20,104 | — | 20,104 | 4.8 | |||||||||||||||||||
| Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP) | $ | 555,721 | $ | 417,575 | $ | 138,146 | 33.1 | % | |||||||||||||||
| Operating income (loss) (GAAP) | $ | 7,760 | $ | (121,487) | $ | 129,247 | 106.4 | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(4)
|
9,379 | 18,635 | (9,256) | (49.7) | |||||||||||||||||||
|
Impact of acquisition-related costs
(5)
|
18,142 | 18,834 | (692) | (3.7) | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
(657) | (8,357) | 7,700 | 92.1 | |||||||||||||||||||
| Operating income (loss) adjusted for Certain Items (Non-GAAP) | 34,624 | (92,375) | 126,999 | 137.5 | |||||||||||||||||||
|
Impact of currency fluctuations
(3)
|
250 | — | 250 | 0.3 | |||||||||||||||||||
| Comparable operating income (loss) adjusted for Certain Items using a constant currency basis (Non-GAAP) | $ | 34,874 | $ | (92,375) | $ | 127,249 | 137.8 | % | |||||||||||||||
| SYGMA | |||||||||||||||||||||||
| Operating expenses (GAAP) | $ | 142,883 | $ | 120,541 | $ | 22,342 | 18.5 | % | |||||||||||||||
| Operating income (GAAP) | 4,362 | 12,937 | (8,575) | (66.3) | |||||||||||||||||||
| OTHER | |||||||||||||||||||||||
| Operating expenses (GAAP) | $ | 59,369 | $ | 32,027 | $ | 27,342 | 85.4 | % | |||||||||||||||
48
|
Impact of bad debt reserve adjustments
(2)
|
— | 3,447 | (3,447) | NM | |||||||||||||||||||
| Operating expenses adjusted for Certain Items (Non-GAAP) | $ | 59,369 | $ | 35,474 | $ | 23,895 | 67.4 | % | |||||||||||||||
| Operating (loss) income (GAAP) | $ | (3,972) | $ | 5,884 | $ | (9,856) | (167.5) | % | |||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
— | (3,447) | 3,447 | NM | |||||||||||||||||||
| Operating (loss) income adjusted for Certain Items (Non-GAAP) | $ | (3,972) | $ | 2,437 | $ | (6,409) | (263.0) | % | |||||||||||||||
| GLOBAL SUPPORT CENTER | |||||||||||||||||||||||
| Gross loss (GAAP) | $ | (29,534) | $ | (8,758) | $ | (20,776) | (237.2) | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(6)
|
29,550 | — | 29,550 | 337.4 | |||||||||||||||||||
| Comparable gross profit (loss) adjusted for Certain Items (Non-GAAP) | $ | 16 | $ | (8,758) | $ | 8,774 | 100.2 | % | |||||||||||||||
| Operating expenses (GAAP) | $ | 229,354 | $ | 198,161 | $ | 31,193 | 15.7 | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(7)
|
(12,335) | (15,033) | 2,698 | 17.9 | |||||||||||||||||||
|
Impact of acquisition-related costs
(8)
|
(8,052) | — | (8,052) | NM | |||||||||||||||||||
| Operating expenses adjusted for Certain Items (Non-GAAP) | $ | 208,967 | $ | 183,128 | $ | 25,839 | 14.1 | % | |||||||||||||||
| Operating loss (GAAP) | $ | (258,888) | $ | (206,919) | $ | (51,969) | (25.1) | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(6)
|
29,550 | — | 29,550 | NM | |||||||||||||||||||
|
Impact of restructuring and transformational project costs
(7)
|
12,335 | 15,033 | (2,698) | (17.9) | |||||||||||||||||||
|
Impact of acquisition-related costs
(8)
|
8,052 | — | 8,052 | NM | |||||||||||||||||||
| Operating loss adjusted for Certain Items (Non-GAAP) | $ | (208,951) | $ | (191,886) | $ | (17,065) | (8.9) | % | |||||||||||||||
|
(1)
|
Fiscal 2022 includes intangible amortization expense and acquisition costs. | ||||
|
(2)
|
Fiscal 2022 and fiscal 2021 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)
|
Represents a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory. | ||||
|
(7)
|
Includes various transformation initiative costs, primarily consisting of changes to our business technology strategy. | ||||
|
(8)
|
Represents due diligence costs. | ||||
| NM represents that the percentage change is not meaningful. | |||||
49
| U.S. FOODSERVICE OPERATIONS | 39-Week Period Ended Apr. 2, 2022 | 39-Week Period Ended Mar. 27, 2021 | Change in Dollars | % Change | |||||||||||||||||||
| Operating expenses (GAAP) | $ | 4,373,665 | $ | 3,174,704 | $ | 1,198,961 | 37.8 | % | |||||||||||||||
| Impact of restructuring and transformational project costs | (383) | (4,010) | 3,627 | 90.4 | |||||||||||||||||||
|
Impact of acquisition-related costs
(1)
|
(25,382) | — | (25,382) | NM | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
16,729 | 123,225 | (106,496) | (86.4) | |||||||||||||||||||
| Operating expenses adjusted for Certain Items (Non-GAAP) | $ | 4,364,629 | $ | 3,293,919 | $ | 1,070,710 | 32.5 | % | |||||||||||||||
| Operating income (GAAP) | $ | 2,220,812 | $ | 1,619,162 | $ | 601,650 | 37.2 | % | |||||||||||||||
| Impact of restructuring and transformational project costs | 383 | 4,010 | (3,627) | (90.4) | |||||||||||||||||||
|
Impact of acquisition-related costs
(1)
|
25,382 | — | 25,382 | NM | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
(16,729) | (123,225) | 106,496 | 86.4 | |||||||||||||||||||
| Operating income adjusted for Certain Items (Non-GAAP) | $ | 2,229,848 | $ | 1,499,947 | $ | 729,901 | 48.7 | % | |||||||||||||||
| INTERNATIONAL FOODSERVICE OPERATIONS | |||||||||||||||||||||||
| Sales (GAAP) | $ | 8,535,608 | $ | 5,854,608 | $ | 2,681,000 | 45.8 | % | |||||||||||||||
|
Impact of currency fluctuations
(3)
|
(71,779) | — | (71,779) | (1.2) | |||||||||||||||||||
| Comparable sales using a constant currency basis (Non-GAAP) | $ | 8,463,829 | $ | 5,854,608 | $ | 2,609,221 | 44.6 | % | |||||||||||||||
| Gross profit (GAAP) | $ | 1,725,306 | $ | 1,149,438 | $ | 575,868 | 50.1 | % | |||||||||||||||
|
Impact of currency fluctuations
(3)
|
(6,413) | — | (6,413) | (0.6) | |||||||||||||||||||
| Comparable gross profit using a constant currency basis (Non-GAAP) | $ | 1,718,893 | $ | 1,149,438 | $ | 569,455 | 49.5 | % | |||||||||||||||
| Gross margin (GAAP) | 20.21 | % | 19.63 | % | 58 bps | ||||||||||||||||||
|
Impact of currency fluctuations
(3)
|
0.10 | — | 10 bps | ||||||||||||||||||||
| Comparable gross margin using a constant currency basis (Non-GAAP) | 20.31 | % | 19.63 | % | 68 bps | ||||||||||||||||||
| Operating expenses (GAAP) | $ | 1,670,125 | $ | 1,351,411 | $ | 318,714 | 23.6 | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(4)
|
(30,426) | (52,033) | 21,607 | 41.5 | |||||||||||||||||||
|
Impact of acquisition-related costs
(5)
|
(55,273) | (54,714) | (559) | (1.0) | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
2,488 | 33,583 | (31,095) | (92.6) | |||||||||||||||||||
| Operating expenses adjusted for Certain Items (Non-GAAP) | 1,586,914 | 1,278,247 | 308,667 | 24.1 | |||||||||||||||||||
|
Impact of currency fluctuations
(3)
|
(4,164) | — | (4,164) | (0.3) | |||||||||||||||||||
| Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP) | $ | 1,582,750 | $ | 1,278,247 | $ | 304,503 | 23.8 | % | |||||||||||||||
| Operating income (loss) (GAAP) | $ | 55,181 | $ | (201,973) | $ | 257,154 | 127.3 | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(4)
|
30,426 | 52,033 | (21,607) | (41.5) | |||||||||||||||||||
|
Impact of acquisition-related costs
(5)
|
55,273 | 54,714 | 559 | 1.0 | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
(2,488) | (33,583) | 31,095 | 92.6 | |||||||||||||||||||
| Operating income (loss) adjusted for Certain Items (Non-GAAP) | 138,392 | (128,809) | 267,201 | 207.4 | |||||||||||||||||||
|
Impact of currency fluctuations
(3)
|
(2,249) | — | (2,249) | NM | |||||||||||||||||||
| Comparable operating income (loss) adjusted for Certain Items using a constant currency basis (Non-GAAP) | $ | 136,143 | $ | (128,809) | $ | 264,952 | 205.7 | % | |||||||||||||||
| SYGMA | |||||||||||||||||||||||
50
| Operating expenses (GAAP) | $ | 427,168 | $ | 358,361 | $ | 68,807 | 19.2 | % | |||||||||||||||
| Impact of restructuring and transformational project costs | — | (7) | 7 | NM | |||||||||||||||||||
| Operating expenses adjusted for Certain Items (Non-GAAP) | $ | 427,168 | $ | 358,354 | $ | 68,814 | 19.2 | % | |||||||||||||||
| Operating (loss) income (GAAP) | $ | (4,814) | $ | 35,957 | $ | (40,771) | (113.4) | % | |||||||||||||||
| Impact of restructuring and transformational project costs | — | 7 | (7) | NM | |||||||||||||||||||
| Operating (loss) income adjusted for Certain Items (Non-GAAP) | $ | (4,814) | $ | 35,964 | $ | (40,778) | (113.4) | % | |||||||||||||||
| OTHER | |||||||||||||||||||||||
| Operating expenses (GAAP) | $ | 166,560 | $ | 109,247 | $ | 57,313 | 52.5 | % | |||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
(1) | 5,564 | (5,565) | (100.0) | |||||||||||||||||||
| Operating expenses adjusted for Certain Items (Non-GAAP) | $ | 166,559 | $ | 114,811 | $ | 51,748 | 45.1 | % | |||||||||||||||
| Operating (loss) income (GAAP) | $ | 2,667 | $ | 4,861 | $ | (2,194) | (45.1) | % | |||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
1 | (5,564) | 5,565 | 100.0 | |||||||||||||||||||
| Operating (loss) income adjusted for Certain Items (Non-GAAP) | $ | 2,668 | $ | (703) | $ | 3,371 | NM | ||||||||||||||||
| GLOBAL SUPPORT CENTER | |||||||||||||||||||||||
| Gross loss (GAAP) | $ | (35,112) | $ | (10,759) | $ | (24,353) | (226.4) | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(6)
|
29,550 | — | 29,550 | NM | |||||||||||||||||||
| Comparable gross profit (loss) adjusted for Certain Items (Non-GAAP) | $ | (5,562) | $ | (10,759) | $ | 5,197 | 48.3 | % | |||||||||||||||
| Operating expenses (GAAP) | $ | 666,414 | $ | 579,690 | $ | 86,724 | 15.0 | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(7)
|
(39,249) | (39,028) | (221) | (0.6) | |||||||||||||||||||
|
Impact of acquisition-related costs
(8)
|
(22,794) | — | (22,794) | NM | |||||||||||||||||||
| Operating expenses adjusted for Certain Items (Non-GAAP) | $ | 604,371 | $ | 540,662 | $ | 63,709 | 11.8 | % | |||||||||||||||
| Operating loss (GAAP) | $ | (701,526) | $ | (590,449) | $ | (111,077) | (18.8) | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(6)
|
29,550 | — | 29,550 | NM | |||||||||||||||||||
|
Impact of restructuring and transformational project costs
(7)
|
39,249 | 39,028 | 221 | 0.6 | |||||||||||||||||||
|
Impact of acquisition-related costs
(8)
|
22,794 | — | 22,794 | NM | |||||||||||||||||||
| Operating loss adjusted for Certain Items (Non-GAAP) | $ | (609,933) | $ | (551,421) | $ | (58,512) | (10.6) | % | |||||||||||||||
|
(1)
|
Fiscal 2022 includes intangible amortization expense and acquisition costs. | ||||
|
(2)
|
Fiscal 2022 and fiscal 2021 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, severance and facility closure costs primarily in Europe.
|
||||
|
(5)
|
Represents intangible amortization expense.
|
||||
|
(6)
|
Represents a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory. | ||||
|
(7)
|
Includes various transformation initiative costs, primarily consisting of changes to our business technology strategy.
|
||||
|
(8)
|
Represents due diligence costs.
|
||||
| NM represents that the percentage change is not meaningful. | |||||
51
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 2021 Form 10-K for discussions around 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 Apr. 2, 2022 | 13-Week Period Ended Mar. 27, 2021 | Change in Dollars | % Change | ||||||||||||||||||||
| Net earnings (GAAP) | $ | 303,325 | $ | 88,927 | $ | 214,398 | 241.1 | % | |||||||||||||||
| Interest (GAAP) | 124,018 | 145,773 | (21,755) | (14.9) | |||||||||||||||||||
| Income taxes (GAAP) | 82,163 | 13,925 | 68,238 | NM | |||||||||||||||||||
| Depreciation and amortization (GAAP) | 193,843 | 177,139 | 16,704 | 9.4 | |||||||||||||||||||
| EBITDA (Non-GAAP) | $ | 703,349 | $ | 425,764 | $ | 277,585 | 65.2 | % | |||||||||||||||
| Certain Item adjustments: | |||||||||||||||||||||||
|
Impact of inventory valuation adjustment
(1)
|
$ | 29,550 | $ | — | $ | 29,550 | NM | ||||||||||||||||
|
Impact of restructuring and transformational project costs
(2)
|
18,746 | 34,301 | (15,555) | (45.3) | |||||||||||||||||||
|
Impact of acquisition-related costs
(3)
|
9,861 | — | 9,861 | NM | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(4)
|
(5,717) | (33,473) | 27,756 | 82.9 | |||||||||||||||||||
| Impact of loss on sale of business | — | 10,790 | (10,790) | NM | |||||||||||||||||||
|
EBITDA adjusted for Certain Items (Non-GAAP)
(5)
|
$ | 755,789 | $ | 437,382 | $ | 318,407 | 72.8 | % | |||||||||||||||
|
(1)
|
Represents a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory. | ||||
|
(2)
|
Fiscal 2022 and fiscal 2021 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.
|
||||
|
(3)
|
Fiscal 2022 includes acquisition and due diligence costs. | ||||
|
(4)
|
Fiscal 2022 and fiscal 2021 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020. | ||||
|
(5)
|
In arriving at adjusted EBITDA, Sysco does not adjust out interest income of $2 million and $5 million for fiscal 2022 and fiscal 2021, respectively, or non-cash stock compensation expense of $30 million and $19 million in fiscal 2022 and fiscal 2021, respectively. | ||||
| NM represents that the percentage change is not meaningful. | |||||
52
| 13-Week Period Ended Apr. 2, 2022 | 13-Week Period Ended Mar. 30, 2019 | Change in Dollars | % Change | ||||||||||||||||||||
| Net earnings (GAAP) | $ | 303,325 | $ | 440,083 | $ | (136,758) | (31.1) | % | |||||||||||||||
| Interest (GAAP) | 124,018 | 94,514 | 29,504 | 31.2 | |||||||||||||||||||
| Income taxes (GAAP) | 82,163 | (9,132) | 91,295 | NM | |||||||||||||||||||
| Depreciation and amortization (GAAP) | 193,843 | 184,183 | 9,660 | 5.2 | |||||||||||||||||||
| EBITDA (Non-GAAP) | $ | 703,349 | $ | 709,648 | $ | (6,299) | (0.9) | % | |||||||||||||||
| Certain Item adjustments: | |||||||||||||||||||||||
|
Impact of inventory valuation adjustment
(1)
|
$ | 29,550 | $ | — | $ | 29,550 | NM | ||||||||||||||||
|
Impact of restructuring and transformational project costs
(2)
|
18,746 | 67,266 | (48,520) | (72.1) | |||||||||||||||||||
|
Impact of acquisition-related costs
(3)
|
9,861 | 19 | 9,842 | NM | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(4)
|
(5,717) | — | (5,717) | NM | |||||||||||||||||||
|
EBITDA adjusted for Certain Items (Non-GAAP)
(5)
|
$ | 755,789 | $ | 776,933 | $ | (21,144) | (2.7) | % | |||||||||||||||
|
(1)
|
Represents a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory. | ||||
|
(2)
|
Fiscal 2022 and fiscal 2019 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.
|
||||
|
(3)
|
Fiscal 2022 includes acquisition and due diligence costs. Fiscal 2019 represents acquisition costs. | ||||
|
(4)
|
Fiscal 2022 represents the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020. | ||||
|
(5)
|
In arriving at adjusted EBITDA, Sysco does not adjust out interest income of $2 million and $5 million for fiscal 2022 and fiscal 2019, respectively, or non-cash stock compensation expense of $30 million and $24 million in fiscal 2022 and fiscal 2019, respectively. | ||||
| NM represents that the percentage change is not meaningful. | |||||
53
| 39-Week Period Ended Apr. 2, 2022 | 39-Week Period Ended Mar. 27, 2021 | Change in Dollars | % Change | ||||||||||||||||||||
| Net earnings (GAAP) | $ | 848,779 | $ | 373,116 | $ | 475,663 | 127.5 | % | |||||||||||||||
| Interest (GAAP) | 495,131 | 438,988 | 56,143 | 12.8 | |||||||||||||||||||
| Income taxes (GAAP) | 256,115 | 69,594 | 186,521 | 268.0 | |||||||||||||||||||
| Depreciation and amortization (GAAP) | 571,606 | 542,471 | 29,135 | 5.4 | |||||||||||||||||||
| EBITDA (Non-GAAP) | $ | 2,171,631 | $ | 1,424,169 | $ | 747,462 | 52.5 | % | |||||||||||||||
| Certain Item adjustments: | |||||||||||||||||||||||
|
Impact of inventory valuation adjustment
(1)
|
$ | 29,550 | $ | — | $ | 29,550 | NM | ||||||||||||||||
|
Impact of restructuring and transformational project costs
(2)
|
69,093 | 89,253 | (20,160) | (22.6) | |||||||||||||||||||
|
Impact of acquisition-related costs
(3)
|
28,260 | — | 28,260 | NM | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(4)
|
(19,216) | (162,372) | 143,156 | 88.2 | |||||||||||||||||||
| Impact of loss on sale of business | — | 22,834 | (22,834) | NM | |||||||||||||||||||
| EBITDA adjusted for Certain Items (Non-GAAP) (5) | $ | 2,279,318 | $ | 1,373,884 | $ | 905,434 | 65.9 | % | |||||||||||||||
|
(1)
|
Represents a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory. | ||||
|
(2)
|
Includes various transformation initiative costs, primarily consisting of changes to our business technology strategy, excluding charges related to accelerated depreciation. | ||||
|
(3)
|
Fiscal 2022 includes acquisition and due diligence costs. | ||||
|
(4)
|
Fiscal 2022 and fiscal 2021 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020. | ||||
|
(5)
|
In arriving at adjusted EBITDA, Sysco does not adjust out interest income of $5 million and $12 million or non-cash stock compensation expense of $91 million and $65 million for fiscal 2022 and fiscal 2021, respectively. | ||||
| NM represents that the percentage change is not meaningful. | |||||
54
| 39-Week Period Ended Apr. 2, 2022 | 39-Week Period Ended Mar. 30, 2019 | Change in Dollars | % Change | ||||||||||||||||||||
| Net earnings (GAAP) | $ | 848,779 | $ | 1,138,505 | $ | (289,726) | (25.4) | % | |||||||||||||||
| Interest (GAAP) | 495,131 | 270,643 | 224,488 | 82.9 | |||||||||||||||||||
| Income taxes (GAAP) | 256,115 | 185,023 | 71,092 | 38.4 | |||||||||||||||||||
| Depreciation and amortization (GAAP) | 571,606 | 576,596 | (4,990) | (0.9) | |||||||||||||||||||
| EBITDA (Non-GAAP) | $ | 2,171,631 | $ | 2,170,767 | $ | 864 | 0.04 | % | |||||||||||||||
| Certain Item adjustments: | |||||||||||||||||||||||
|
Impact of inventory valuation adjustment
(1)
|
$ | 29,550 | $ | — | $ | 29,550 | NM | ||||||||||||||||
|
Impact of restructuring and transformational project costs
(2)
|
69,093 | 215,051 | (145,958) | (67.9) | |||||||||||||||||||
|
Impact of acquisition-related costs
(3)
|
28,260 | 824 | 27,436 | NM | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(4)
|
(19,216) | — | (19,216) | NM | |||||||||||||||||||
|
EBITDA adjusted for Certain Items (Non-GAAP)
(5)
|
$ | 2,279,318 | $ | 2,386,642 | $ | (107,324) | (4.5) | % | |||||||||||||||
|
(1)
|
Represents a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory. | ||||
|
(2)
|
Fiscal 2022 and fiscal 2019 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. | ||||
|
(3)
|
Fiscal 2022 includes acquisition and due diligence costs. Fiscal 2019 represents acquisition costs. | ||||
|
(4)
|
Fiscal 2022 represents the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020. | ||||
|
(5)
|
In arriving at adjusted EBITDA, Sysco does not adjust out interest income of $5 million and $4 million or non-cash stock compensation expense of $91 million and $78 million for fiscal 2022 and fiscal 2019, respectively. | ||||
| NM represents that the percentage change is not meaningful. | |||||
55
Liquidity and Capital Resources
Highlights
As of April 2, 2022, we had $876.1 million in cash and cash equivalents. We produced positive free cash flow in a period of higher working capital investments, one-time and short-term costs related to the business recovery and investments towards our Recipe for Growth strategy. Our results for the first 39 weeks of fiscal 2022 also reflect incremental progress against our capital allocation priorities, as we were able to refinance debt at more attractive interest rates with later maturities in the second quarter. 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 39 weeks of fiscal 2022 to the first 39 weeks of fiscal 2021 are provided.
| 39-Week Period Ended Apr. 2, 2022 | 39-Week Period Ended Mar. 27, 2021 | ||||||||||
| (In thousands) | |||||||||||
| Net cash provided by operating activities (GAAP) | $ | 745,871 | $ | 1,479,784 | |||||||
| Additions to plant and equipment | (327,535) | (251,167) | |||||||||
| Proceeds from sales of plant and equipment | 15,946 | 19,308 | |||||||||
|
Free Cash Flow (Non-GAAP)
(1)
|
$ | 434,282 | $ | 1,247,925 | |||||||
| Acquisition of businesses, net of cash acquired | $ | (1,281,835) | $ | — | |||||||
| Debt borrowings (repayments), net | 1,213,114 | (1,897,688) | |||||||||
| Redemption premiums and repayments of senior notes | (1,395,668) | — | |||||||||
| Stock repurchases | (415,824) | — | |||||||||
| Dividends paid | (719,865) | (689,251) | |||||||||
|
(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 2021 Form 10-K for discussions around this non-GAAP performance metric.
|
||||
Sources and Uses of Cash
Sysco generates cash in the U.S and internationally. As of April 2, 2022, we had $876.1 million in cash and cash equivalents, approximately 38% 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 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.
56
Cash Flows
Operating Activities
We generated $745.9 million in cash flows from operations in the first 39 weeks of fiscal 2022, compared to cash flows from operating activities of $1.5 billion in the first 39 weeks of fiscal 2021. In the first 39 weeks of fiscal 2022, these amounts included year-over-year unfavorable comparisons on working capital due to investment in business recovery and accrued income taxes, partially offset by higher operating results and a favorable comparison on accrued expenses. In the first 39 weeks of fiscal 2021, these amounts included year-over-year favorable comparisons on working capital and accrued income taxes, partially offset by lower operating results.
Changes in working capital had a negative impact of $1.4 billion on cash flow from operations period-over-period. There were unfavorable comparisons primarily on receivables and inventories. The unfavorable comparison in cash flows from accounts receivables is primarily due to our customers beginning to purchase more in the first 39 weeks of fiscal 2022, coupled with significantly lower sales in the first 39 weeks of fiscal 2021 resulting from the COVID-19 pandemic. In the first 39 weeks of fiscal 2021, we recorded a net credit to the provision for losses on receivables totaling $137.7 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 39 weeks of fiscal 2022, we invested heavily in inventory, which has helped us ship product on time and in full during the ongoing business recovery from the COVID-19 pandemic.
Income taxes negatively impacted cash flow from operations, as estimated payments were made in the third quarter of fiscal 2022. Tax payments in the first 39 weeks of fiscal 2022 were higher than in the first 39 weeks of fiscal 2021 due to higher earnings compared to the prior year.
Included in the change in accrued expenses was a positive comparison, primarily from favorable comparisons of incentive payment accruals, earnout liabilities related to our acquisitions in the first 39 weeks of fiscal 2022 and customer rebate payments resulting from an increase in volume purchase incentives earned by our customers, as sales volumes increased through the first 39 weeks of fiscal 2022.
Investing Activities
Our capital expenditures in the first 39 weeks of fiscal 2022 primarily consisted of investments in buildings and building improvements, technology equipment, warehouse equipment, and fleet. Our capital expenditures in the first 39 weeks of fiscal 2022 were $76.4 million higher than in the first 39 weeks of fiscal 2021, as we made investments to advance our Recipe for Growth strategy. Our capital expenditures have been lower than planned due to increased lead times on fleet and equipment.
During the first 39 weeks of fiscal 2022, we paid $1.3 billion, net of cash acquired, for acquisitions. There were no such acquisitions made in the first 39 weeks of fiscal 2021.
Financing Activities
Equity Transactions
Proceeds from exercises of share-based compensation awards were $89.2 million in the first 39 weeks of fiscal 2022, as compared to $112.2 million in the first 39 weeks of fiscal 2021. 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.
In May 2021, our Board of Directors approved a share repurchase program to authorize the repurchase of up to $5.0 billion of the company’s common stock, which will remain available until fully utilized. We commenced our share repurchase program during the second quarter of fiscal 2022. We repurchased 5.7 million shares for $415.8 million during the first 39 weeks of fiscal 2022. As of April 2, 2022, we had a remaining authorization of approximately $4.6 billion.
Dividends paid in the first 39 weeks of fiscal 2022 were $719.9 million, or $1.41 per share, as compared to $689.3 million, or $1.35 per share, in the third quarter of fiscal 2021. In February 2022, we declared our regular quarterly dividend for the third quarter of fiscal 2022 of $0.47 per share, which was paid in April. In April 2022, we declared our regular quarterly dividend for the fourth quarter of fiscal 2022 of $0.49 per share, representing an increase of $0.02 per share. We intend to maintain our quarterly dividend payout at this amount until the fourth quarter of fiscal 2023, when it will be reassessed.
57
Debt Activity and Borrowing Availability
Our debt activity, including issuances and repayments, if any, and our borrowing availability is described in Note 8, “Debt,” in the Notes to Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q. Our outstanding borrowings at April 2, 2022 are disclosed within that note, which also provides details regarding our issuance of $800 million in senior notes with an interest rate of 3.15% that mature on December 14, 2051. We achieved an all-time low in financing costs for a thirty-year tenor issuance by Sysco, in advance of an increase in global interest rates.
On April 29, 2022, Sysco entered into a new long-term revolving credit facility to replace the $2.0 billion facility. The new facility includes aggregate commitments of the lenders thereunder of $3.0 billion, with an option to increase such commitments to $4.0 billion. The new facility includes a covenant requiring Sysco to maintain a ratio of consolidated EBITDA to consolidated interest expense of 3.0 to 1.0 over four consecutive fiscal quarters. This ratio is lower than the previous covenant that was included in the $2.0 billion facility. The new revolving credit facility expires on April 29, 2027.
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 now $3.0 billion long-term revolving credit facility have also been guaranteed by these subsidiaries. As of April 2, 2022, Sysco had a total of $10.5 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 2021 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.
58
| Combined Parent and Guarantor Subsidiaries Summarized Balance Sheet | Apr. 2, 2022 | Jul. 3, 2021 | ||||||||||||
| (In thousands) | ||||||||||||||
| ASSETS | ||||||||||||||
| Receivables due from non-obligor subsidiaries | $ | 503,761 | $ | 171,718 | ||||||||||
| Current assets | 5,617,406 | 6,661,284 | ||||||||||||
| Total current assets | $ | 6,121,167 | $ | 6,833,002 | ||||||||||
| Notes receivable from non-obligor subsidiaries | $ | 85,520 | $ | 83,457 | ||||||||||
| Other noncurrent assets | 3,936,594 | 3,933,833 | ||||||||||||
| Total noncurrent assets | $ | 4,022,114 | $ | 4,017,290 | ||||||||||
| LIABILITIES | ||||||||||||||
| Payables due to non-obligor subsidiaries | $ | 54,625 | $ | 203,365 | ||||||||||
| Other current liabilities | 2,471,341 | 2,299,674 | ||||||||||||
| Total current liabilities | $ | 2,525,966 | $ | 2,503,039 | ||||||||||
| Notes payable to non-obligor subsidiaries | $ | 166,211 | $ | 269,709 | ||||||||||
| Long-term debt | 10,053,274 | 10,139,596 | ||||||||||||
| Other noncurrent liabilities | 1,253,153 | 1,209,598 | ||||||||||||
| Total noncurrent liabilities | $ | 11,472,638 | $ | 11,618,903 | ||||||||||
| Combined Parent and Guarantor Subsidiaries Summarized Results of Operations | 39-Week Period Ended Apr. 2, 2022 | |||||||
| (In thousands) | ||||||||
| Sales | $ | 31,739,026 | ||||||
| Gross profit | 5,677,552 | |||||||
| Operating income | 1,588,760 | |||||||
| Interest expense from non-obligor subsidiaries | 45,904 | |||||||
| Net earnings | 824,163 | |||||||
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, allowance for doubtful accounts, income taxes, share-based compensation and the company-sponsored pension plans, which are described in Item 7 of our fiscal 2021 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 the crisis;
59
•
our expectations regarding our business and the economic recovery generally as the COVID-19 pandemic subsides, including beliefs regarding future customer activity and the timing of the recovery;
•
our targeted growth rates compared to the industry for fiscal 2022 and fiscal 2024;
•
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;
•
our expectations regarding our business recovery operating expenses in the fourth quarter of fiscal 2022;
•
our expectations regarding improvements in our productivity;
•
our expectations regarding our operating expenses related to our investment for our Recipe for Growth;
•
our expectations regarding that our Business and Industry and Travel and Hospitality segments will make progress in their recovery in future quarters, which will continue to our continued volume growth;
•
our expectations regarding inflation;
•
our plans regarding mergers and acquisitions and our growth strategy;
•
our ability to grow substantially faster than the foodservice distribution industry and deliver profitable growth through our Recipe for Growth transformation;
•
our belief that our growth transformation will allow us to better serve our customers;
•
our expectations that as our Recipe for Growth matures, the impact on our top-line growth will continue to accelerate;
•
our expectations regarding labor costs;
•
our expectations regarding growth in customers and gains in market share;
•
estimates regarding the outcome of legal proceedings;
•
our expectations regarding the impact of potential acquisitions and sales of assets on our liquidity, borrowing capacity, leverage ratios and capital availability;
•
our belief in our strong financial position;
•
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 the amount 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;
•
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
•
our ability to effectively access the commercial paper market and long-term capital markets.
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 2021 Form 10-K:
•
the impact and effects of public health crises, pandemics and epidemics, such as the COVID-19 pandemic, 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;
•
the risk that if sales from our locally managed customers do not grow at the same rate as sales from regional and national customers, or if we are unable to continue to accelerate local case growth, our gross margins may decline;
60
•
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 on our product costs and profitability generally;
•
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 America and Europe and the impact on our results of operations and financial condition;
•
the risks related to our efforts to meet our 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 group purchasing organizations 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 complementary 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 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;
61
•
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 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.
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 2021 Form 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 2021 Form 10-K. There have been no significant changes to our market risks since July 3, 2021, except as noted below.
Fuel Price Risk
Due to the nature of our distribution business, we are exposed to potential volatility in fuel prices. The price and availability of diesel fuel fluctuates due to changes in production, seasonality, and other market factors that are generally outside of our control. Increased fuel costs may have a negative impact on our results of operations in three areas. First, the high cost of fuel can negatively impact consumer confidence and discretionary spending and, thus, reduce the frequency and amount spent by consumers for food-away-from-home purchases. Second, the high cost of fuel can increase the price we pay for product purchases, and we may not be able to pass these costs fully to our customers. Third, increased fuel costs impact the costs we incur to deliver product to our customers. Fuel costs related to outbound deliveries represented approximately 0.5% of sales during the first 39 weeks of fiscal 2022 and fiscal 2021.
Our activities to mitigate fuel costs include routing optimization with the goal of reducing miles driven, improving fleet utilization by adjusting idling time and maximum speeds and using fuel surcharges that primarily track with the change in market prices of fuel. We use diesel fuel swap contracts to fix the price of a portion of our projected monthly diesel fuel requirements, typically 80% to 90% of our projected bulk fuel purchases. As of April 2, 2022, we had diesel fuel swaps with a total notional amount of approximately 58 million gallons through July 2023. These swaps are expected to lock in the price of approximately 60% of our projected fuel purchase needs for the remainder of fiscal 2022. Additional swaps have been entered into for hedging activity in fiscal 2023. As of April 2, 2022, we had diesel fuel swaps with a total notional amount of approximately 46 million gallons specific to fiscal 2023, which target 80% of our bulk fuel forecasted purchases during this time period. Our remaining fuel purchase needs will occur at market rates, unless contracted for a fixed price or hedged at a later date.
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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 April 2, 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 April 2, 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 April 2, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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
Except as provided below, there were no material changes from the risk factors disclosed in Item 1A of our fiscal 2021 Form 10-K.
Conditions beyond our control can interrupt our supplies, increase our product costs and impair our ability to deliver products and services to our customers
.
We obtain substantially all of our foodservice and related products from third-party suppliers. Although our purchasing volume can provide benefits when dealing with suppliers, suppliers may not be able to provide the foodservice products and supplies that we need in the quantities and at the prices that we request due to conditions outside of their control. We are also subject to delays caused by interruptions in production and increases in product costs based on conditions outside of our control. These conditions include shortages of qualified labor for our suppliers, work slowdowns, work interruptions, strikes or other job actions by employees of suppliers, short-term weather conditions or more prolonged climate change, crop and other agricultural conditions, water shortages, transportation interruptions (such as shortages of ocean cargo containers), unavailability of fuel or increases in fuel costs, product recalls, competitive demands, civil insurrection or social unrest, terrorist attacks or international hostilities and natural disasters, epidemics, pandemics (such as the COVID-19 pandemic) or other human or animal disease outbreaks or other catastrophic events (including, but not limited to, foodborne illnesses). Many of these conditions outside of our control could also impair our ability to provide our products and services to our customers or increase the cost of doing so. Our current operating environment is constantly shifting in response to COVID-19, placing significant pressure on the food-away-from-home supply chain. Customer demand is currently outpacing available supply in certain categories. Certain suppliers are struggling to meet demand for our orders. Future supply shortages could have an adverse effect on the company’s financial condition and results of operations.
In addition, the global economy has been negatively impacted by the military conflict between Russia and Ukraine. Meanwhile, governments in the U.S., United Kingdom, and European Union have imposed export controls on certain products and financial and economic sanctions on certain industry sectors and parties in Russia. Although our business has not been materially impacted by the ongoing military conflict between Russia and Ukraine to date, it is impossible to predict the extent to which our operations, or those of our suppliers and customers, will be impacted in the short and long term, or the ways in which the conflict may impact our business. The extent and duration of the military action, sanctions and resulting market disruptions are impossible to predict, but could be substantial. Further escalation of geopolitical tensions related to the military conflict, including increased trade barriers or restrictions on global trade, could result in, among other things, cyberattacks, supply disruptions, lower consumer demand, and changes to foreign exchange rates and financial markets. Any or all of these factors could disrupt our business directly and could disrupt the business of our customers, which could have an adverse effect on our business and results of operations. Any such disruptions may also magnify the impact of other risks described in this Form 10-Q and our fiscal 2021 Form 10-K.
Further, increased frequency or duration of extreme weather conditions, whether due to global climate change or otherwise, could also impair production capabilities, disrupt our supply chain or adversely affect demand for our products. At any time, input costs could increase for a prolonged period for a large portion of the products that we sell. Additionally, we procure products from suppliers outside of the U.S., and we are subject to the risks associated with political or financial instability, military conflict, trade restrictions, tariffs, currency exchange rates, transport capacity and costs and other factors relating to foreign trade, including health and safety restrictions related to epidemics and pandemics (such as the COVID-19 pandemic), any or all of which could delay our receipt of products or increase our input costs.
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Our inability to obtain adequate supplies of foodservice and related products and/or to timely provide our products and services and fulfill our other obligations to our customers, whether as a result of any of the foregoing factors or otherwise could mean that we could not fulfill our obligations to customers, could have an adverse effect on our business, results of operations and financial condition, as our customers may turn to other distributors.
In addition, as a foodservice distributor, it is necessary for us to maintain an inventory of products. Declines in product pricing levels between the time we purchase a product from our suppliers and the time we sell the product to our customers could reduce our margin on that inventory, adversely affecting our results of operations.
Changes in the method of determining London Interbank Offered Rate (LIBOR), or the replacement of LIBOR with an alternative reference rate, may adversely affect interest expense related to outstanding debt.
Amounts drawn under our revolving credit facility may bear interest rates in relation to LIBOR, depending on our selection of repayment options. In addition, certain of our outstanding interest rate swap agreements have a floating interest rate in relation to three-month LIBOR. On March 5, 2021, the Financial Conduct Authority in the U.K. announced that immediately after (a) December 31, 2021, in the case of all sterling, euro, Swiss franc, and Japanese yen settings, and the one week and two month U.S. dollar LIBOR settings, and (b) June 30, 2023, in the case of all other U.S. dollar LIBOR settings, such LIBOR settings will either cease to be provided by the administrator or will no longer be representative. Despite this deferral for certain U.S. dollar LIBOR tenors, the LIBOR administrator has advised that no new contracts using U.S. dollar LIBOR should be entered into after December 31, 2021. These actions indicate that the continuation of U.S. LIBOR on the current basis cannot be guaranteed after June 30, 2023. Moreover, it is possible that U.S. LIBOR for such tenors will be discontinued or modified prior to June 30, 2023. On July 29, 2021, the Alternative Reference Rates Committee, a steering committee consisting of large U.S. financial institutions convened by the Federal Reserve Board, formally recommended replacing U.S. dollar LIBOR with forward-looking Secured Overnight Financing Rate (SOFR) term rates. As a result of the discontinuation of the remaining U.S. dollar LIBOR tenors, we may need to renegotiate our credit facility and certain interest rate swap agreements, and we may not be able to do so with terms that are favorable to us.
In connection with the discontinuation of LIBOR, (a) we adhered to the ISDA 2020 IBOR Fallbacks Protocol and (b) on October 14, 2021, we entered into an amendment to our revolving credit facility that replaced (i) sterling LIBOR with the Sterling Overnight Index Average (SONIA) and (ii) euro LIBOR with the Euro Short Term Rate (ESTR).
Alternative reference rates, such as SOFR, SONIA, and ESTR, could be higher or more volatile than LIBOR, which could result in an increase in the cost of our indebtedness, impacting our financial condition and results of operations. The overall financing market may be disrupted as a result of the phase-out or replacement of LIBOR. Disruption in the financial market or the inability to renegotiate our credit facility or our interest rate swap agreements with favorable terms could have a material adverse effect on our business, financial position, and operating results. We continue to evaluate the potential impact of the replacement of the LIBOR benchmark interest rate; however, we are not able to predict the impact a transition to an alternative reference rate may have on our business, financial condition, and results of operations.
Economic and political instability and potential unfavorable changes in laws and regulations in international markets could adversely affect our results of operations and financial condition.
Our international operations subject us to certain risks, including economic and political instability and potential unfavorable changes in laws and regulations in international markets in which we operate. For example, in June 2016, the U.K. held a referendum in which voters approved Brexit. The U.K. exited the EU on January 31, 2020, with a transition period that ended on December 31, 2020. On December 24, 2020, the European Commission reached a trade agreement with the U.K. on the terms of its future cooperation with the EU. The trade agreement offers U.K. and EU companies preferential access to each other’s markets, ensuring imported goods will be free of tariffs and quotas (subject to rules of origin requirements). Uncertainty exists regarding the ultimate impact of this trade agreement, as well as the extent of possible financial, trade, regulatory and legal implications of Brexit. Brexit also contributes to global political and economic uncertainty, which may cause, among other consequences, volatility in exchange rates and interest rates, and changes in regulations. These effects of Brexit, among others, could adversely affect our financial position, results of operations or cash flows. In addition, labor or other political disputes or general unrest can have a negative impact on our operations. For example, in fiscal 2020, the “yellow vest” protests in France against a fuel tax increase, pension reform and the French government negatively impacted our sales in France. Future labor disruptions or disputes could have a negative impact on our operations in the EU and other parts of the world.
Item 2.
Unregistered Sales of Equity Securities and Use of
Proceeds
Recent Sales of Unregistered Securities
None
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Issuer Purchases of Equity Securities
We made the following share repurchases during the third quarter of fiscal 2022:
| 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 | |||||||||||||||||||||||
| January 2 - January 29 | 1,297 | $ | 77.07 | 99,960 | — | ||||||||||||||||||
| Month #2 | |||||||||||||||||||||||
| January 30 - February 26 | 4,932 | 83.80 | 413,303 | — | |||||||||||||||||||
| Month #3 | |||||||||||||||||||||||
| February 27 - April 2 | — | — | — | — | |||||||||||||||||||
| Totals | 6,229 | $ | 82.40 | 513,263 | — | ||||||||||||||||||
(1)
The total number of shares purchased includes 1,297, 4,932 and 0 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.
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EXHIBIT INDEX
| 3.1 | — | |||||||
| 3.2 | — | |||||||
| 3.3 | — | |||||||
| 3.4 | — | |||||||
| 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) | ||||||
___________
# Filed herewith
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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: May 10, 2022 | By: | /s/ KEVIN P. HOURICAN | ||||||
| Kevin P. Hourican | ||||||||
| President and Chief Executive Officer | ||||||||
| Date: May 10, 2022 | By: | /s/ AARON E. ALT | ||||||
| Aaron E. Alt | ||||||||
| Executive Vice President and | ||||||||
| Chief Financial Officer | ||||||||
| Date: May 10, 2022 | By: | /s/ ANITA A. ZIELINSKI | ||||||
| Anita A. Zielinski | ||||||||
| Senior Vice President and | ||||||||
| Chief Accounting Officer | ||||||||
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TABLE OF CONTENTS
Part I Financial InformationprintItem 1. Financial StatementsprintItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 3. Quantitative and Qualitative Disclosures About Market RiskprintItem 4. Controls and ProceduresprintPart II Other InformationprintItem 1. Legal ProceedingsprintItem 1A. Risk FactorsprintItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsprintItem 3. Defaults Upon Senior SecuritiesprintItem 4. Mine Safety DisclosuresprintItem 5. Other InformationprintItem 6. Exhibitsprint