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 1, 2023
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) | (I.R.S. Employer Identification Number) | ||||||||||
(Address of principal executive offices) (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.
☐
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. 1, 2023 | Jul. 2, 2022 | ||||||||||
| (unaudited) | |||||||||||
| ASSETS | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ |
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$ |
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Accounts receivable, less allowances of $
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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 | |||||||||||
| Accounts payable | $ |
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$ |
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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 | |||||||||||
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Preferred stock, par value $
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Common stock, par value $
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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,
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(
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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 2, 2022 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. 1, 2023 | Apr. 2, 2022 | Apr. 1, 2023 | Apr. 2, 2022 | ||||||||||||||||||||
| 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 expense (income), net
(1)
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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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(1)
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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. 1, 2023 | Apr. 2, 2022 | Apr. 1, 2023 | Apr. 2, 2022 | ||||||||||||||||||||
| Net earnings | $ |
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$ |
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$ |
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$ |
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| Other comprehensive income (loss): | |||||||||||||||||||||||
| Foreign currency translation adjustment |
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(
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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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(
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| Change in cash flow hedges |
(
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(
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| Reclassification adjustment for loss included in net income |
(
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| Amortization of prior service cost |
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| Amortization of actuarial loss |
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| Pension settlement charge |
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| Net actuarial loss arising in current year |
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(
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| Change in marketable securities |
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(
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(
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(
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| Total other comprehensive income (loss) |
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(
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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 December 31, 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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| Amortization of cash flow hedges, net of tax |
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| Change in cash flow hedges, net of tax |
(
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(
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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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Dividends declared ($
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(
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(
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| Treasury stock purchases |
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(
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(
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| Share-based compensation awards |
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(
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| Balance as of April 1, 2023 |
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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 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 ($
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(
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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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4
Year to Date
|
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 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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| 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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(
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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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| Pension settlement charge, net of tax |
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| Net actuarial loss arising in current year |
(
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(
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| Change in marketable securities, net of tax |
(
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(
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Dividends declared ($
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(
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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 1, 2023 |
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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 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 ($
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(
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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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See Notes to Consolidated Financial Statements
5
Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED CASH FLOWS (Unaudited)
(In thousands)
| 39-Week Period Ended | |||||||||||
| Apr. 1, 2023 | Apr. 2, 2022 | ||||||||||
| 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: | |||||||||||
| Pension settlement charge |
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| 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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| Loss on extinguishment of debt |
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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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| (Decrease) increase in accrued expenses |
(
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| Decrease in operating lease liabilities |
(
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(
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| Increase (decrease) in accrued income taxes |
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(
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| Decrease (increase) in other assets |
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(
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| Decrease in other long-term liabilities |
(
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(
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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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(
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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: | |||||||||||
| Other debt borrowings including senior notes |
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| Other debt repayments including senior notes |
(
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(
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| Redemption premiums and repayments for senior notes |
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(
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| Debt issuance costs |
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(
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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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(
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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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(
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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, 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, 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 2, 2022. Certain footnote disclosures included in annual financial statements prepared in accordance with generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to applicable rules and regulations for interim financial statements.
Supplemental Cash Flow Information
The following table sets forth the company’s reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the amounts shown in the consolidated statement of cash flows:
| Apr. 1, 2023 | Apr. 2, 2022 | ||||||||||
| (In thousands) | |||||||||||
| Cash and cash equivalents | $ |
|
$ |
|
|||||||
|
Restricted cash
(1)
|
|
|
|||||||||
| Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows | $ |
|
$ |
|
|||||||
|
(1)
|
Restricted cash primarily represents cash and cash equivalents of Sysco’s wholly owned captive insurance subsidiary, restricted for use to secure the insurer’s obligations for workers’ compensation, general liability and auto liability programs. Restricted cash is located within other assets in each consolidated balance sheet.
|
||||
The following table sets forth the company’s non-cash investing and financing activities:
| Apr. 1, 2023 | Apr. 2, 2022 | ||||||||||
| (In thousands) | |||||||||||
| Non-cash investing and financing activities: | |||||||||||
| Plant and equipment acquired through financing programs | $ |
|
$ |
|
|||||||
| Assets obtained in exchange for finance lease obligations |
|
|
|||||||||
2.
NEW ACCOUNTING STANDARDS
Liabilities – Supplier Financing Programs
In September 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2022-04, Liabilities—Supplier Finance Programs, Subtopic 405-50, that requires entities to disclose in the annual financial statements the key terms of supplier finance programs they use in connection with the purchase of goods and services, along with information about their obligations under these programs, including a roll forward of those obligations. Additionally, the guidance requires disclosure of the outstanding amount of the obligations as of the end of each interim period. The guidance does not affect the recognition, measurement, or financial statement presentation of supplier finance program obligations.
The guidance is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2022, which is the first quarter of fiscal 2024 for Sysco, except for the roll forward requirement, which is effective annually for fiscal years beginning after December 15, 2023, which is fiscal year 2025 for Sysco. Early adoption is permitted.
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 $
4.9
billion and $
4.6
billion as of April 1, 2023 and July 2, 2022, respectively.
Sysco has certain customer contracts in which upfront monies are paid to its customers. These payments have become industry practice and are not related to financing of the customer’s business. They are not associated with any distinct good or service to be received from the customer and, therefore, are treated as a reduction of transaction prices. All upfront payments are capitalized in other assets and amortized over the life of the contract or the expected life of the relationship with the customer. As of April 1, 2023, 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. 1, 2023 | ||||||||||||||||||||||||||||||||
| US Foodservice Operations | International Foodservice Operations | SYGMA | Other | Total | ||||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||
| Principal Product Categories | ||||||||||||||||||||||||||||||||
| Canned and dry products | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||
| Fresh and frozen meats |
|
|
|
|
|
|||||||||||||||||||||||||||
| Frozen fruits, vegetables, bakery and other |
|
|
|
|
|
|||||||||||||||||||||||||||
| Dairy products |
|
|
|
|
|
|||||||||||||||||||||||||||
| Poultry |
|
|
|
|
|
|||||||||||||||||||||||||||
| 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 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.
|
||||
| 39-Week Period Ended Apr. 1, 2023 | ||||||||||||||||||||||||||||||||
| US Foodservice Operations | International Foodservice Operations | SYGMA | Other | Total | ||||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||
| Principal Product Categories | ||||||||||||||||||||||||||||||||
| Canned and dry products | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||
| Fresh and frozen meats |
|
|
|
|
|
|||||||||||||||||||||||||||
| Frozen fruits, vegetables, bakery and other |
|
|
|
|
|
|||||||||||||||||||||||||||
| Dairy products |
|
|
|
|
|
|||||||||||||||||||||||||||
| Poultry |
|
|
|
|
|
|||||||||||||||||||||||||||
| 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 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.
|
||||
4.
ACQUISITIONS
During the first 39 weeks of fiscal 2023, the company paid cash of $
37.4
million 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 1, 2023, aggregate contingent consideration outstanding was $
57.2
million, of which $
53.7
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. 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 was to strengthen Sysco’s business within the Italian foodservice sector.
10
5.
FAIR VALUE MEASUREMENTS
Sysco’s policy is to invest in only high-quality investments. The fair value of the company’s cash deposits and money market funds included in cash equivalents are valued using inputs that are considered a Level 1 measurement. Other cash equivalents, such as time deposits and highly liquid instruments with original maturities of three months or less, are valued using inputs that are considered a Level 2 measurement.
The fair value of the company’s marketable securities are all measured using inputs that are considered a Level 2 measurement, as they rely on quoted prices in markets that are not actively traded or observable inputs over the full term of the asset. The location and the fair value of the company’s marketable securities in the consolidated balance sheet are disclosed in Note 6, “Marketable Securities.” The fair value of the company’s derivative instruments are all measured using inputs that are considered a Level 2 measurement, as they are not actively traded and are valued using pricing models that use observable market quotations. The location and the fair value of derivative assets and liabilities designated as hedges in the consolidated balance sheet are disclosed in Note 7, “Derivative Financial Instruments.”
The following tables present the company’s assets measured at fair value on a recurring basis as of April 1, 2023 and July 2, 2022:
| Assets Measured at Fair Value as of Apr. 1, 2023 | |||||||||||||||||||||||
| 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. 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. | ||||
11
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 12 months within prepaid expenses and other current assets and includes fixed income securities maturing in more than 12 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 2023.
The following table presents the company’s available-for-sale marketable securities as of April 1, 2023 and July 2, 2022:
| Apr. 1, 2023 | |||||||||||||||||||||||||||||||||||
| 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. 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 | $ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
As of April 1, 2023, 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. 1, 2023 | |||||
| (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 2023.
7.
DERIVATIVE FINANCIAL INSTRUMENTS
12
Hedging of interest rate risk
Sysco manages its debt portfolio with interest rate swaps from time to time to achieve an overall desired position of fixed and floating rates.
Hedging of foreign currency risk
The company uses euro-bond denominated debt to hedge the foreign currency exposure of our net investment in certain foreign operations. Additionally, Sysco’s operations in Europe have inventory purchases denominated in currencies other than their functional currency, such as the euro, U.S. dollar, British pound sterling, Polish zloty and Danish krone. These inventory purchases give rise to foreign currency exposure between the functional currency of each entity and these currencies. The company enters into foreign currency forward swap contracts to sell the applicable entity’s functional currency and buy currencies matching the inventory purchase, which operate as cash flow hedges of the company’s foreign currency-denominated inventory purchases.
Hedging of fuel price risk
Sysco uses fuel commodity swap contracts to hedge against the risk of the change in the price of diesel on anticipated future purchases. These swaps have been designated as cash flow hedges.
None of the company’s hedging instruments contain credit-risk-related contingent features.
Details of outstanding hedging instruments as of April 1, 2023 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 2023 to August 2023) | Swedish Krona |
|
||||||||||||
| Various (May 2023 to October 2023) | British Pound Sterling |
|
||||||||||||
| June 2023 | Euro |
|
||||||||||||
| Hedging of fuel risk | ||||||||||||||
| Various (April 2023 to June 2025) | Gallons |
|
||||||||||||
The location and the fair value of derivative instruments designated as hedges in the consolidated balance sheet as of April 1, 2023 and July 2, 2022 are as follows:
| Derivative Fair Value | |||||||||||||||||
| Balance Sheet location | Apr. 1, 2023 | Jul. 2, 2022 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Fair Value Hedges: | |||||||||||||||||
| Interest rate swaps | Other current liabilities | $ |
|
$ |
|
||||||||||||
| 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 |
|
|
||||||||||||||
13
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. 1, 2023 | Apr. 2, 2022 | Apr. 1, 2023 | Apr. 2, 2022 | |||||||||||||||||||||||
| (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:
| 13-Week Period Ended | 39-Week Period Ended | |||||||||||||||||||||||||
| Apr. 1, 2023 | Apr. 2, 2022 | Apr. 1, 2023 | Apr. 2, 2022 | |||||||||||||||||||||||
| (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 1, 2023 and April 2, 2022, presented on a pretax basis, are as follows:
14
| 13-Week Period Ended Apr. 1, 2023 | |||||||||||||||||
| 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 | $ |
|
||||||||||||
| 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 | $ |
|
||||||||||||
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 1, 2023 and April 2, 2022, presented on a pretax basis, are as follows:
15
| 39-Week Period Ended Apr. 1, 2023 | |||||||||||||||||
| 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 | $ |
|
||||||||||||
| 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 | $ |
|
||||||||||||
16
The location and carrying amount of hedged liabilities in the consolidated balance sheet as of April 1, 2023 are as follows:
| Apr. 1, 2023 | |||||||||||
| 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: | |||||||||||
| Current maturities of long-term debt | $ |
(
|
$ |
|
|||||||
The location and carrying amount of hedged liabilities in the consolidated balance sheet as of July 2, 2022 are as follows:
| Jul. 2, 2022 | |||||||||||
| Carrying Amount of Hedged Assets (Liabilities) | Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of Hedged Assets (Liabilities) | ||||||||||
| (In thousands) | |||||||||||
| Balance sheet location: | |||||||||||
| Current maturities of long-term debt | $ |
(
|
$ |
|
|||||||
8.
DEBT
Sysco has a long-term revolving credit facility that includes aggregate commitments of the lenders thereunder of $
3.0
billion, with an option to increase such commitments to $
4.0
billion. As of April 1, 2023, there were $
108.5
million in borrowings outstanding under this facility.
Sysco has a U.S commercial paper program allowing the company to issue short-term unsecured notes. On September 2, 2022, Sysco entered into an amended and restated commercial paper dealer agreement increasing the issuance allowance from an aggregate amount not to exceed $
2.0
billion to an aggregate amount not to exceed $
3.0
billion. Any outstanding amounts are classified within long-term debt, as the program is supported by the long-term revolving credit facility. As of April 1, 2023, there were
no
commercial paper issuances outstanding under this program.
The total carrying value of our debt was $
11.0
billion as of April 1, 2023 and $
10.6
billion as of July 2, 2022. The increase in the carrying value of our debt from the prior year was due to new financing leases in support of equipment and borrowings under our long-term revolving credit facility.
Information regarding the guarantors of our registered debt securities is contained in the section captioned
Guarantor Summarized Financial Information
in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 of Part I of this Form 10-Q.
9.
COMPANY-SPONSORED EMPLOYEE BENEFIT PLANS
Sysco has company-sponsored defined benefit and defined contribution retirement plans for its employees. Also, the company provides certain health care benefits to eligible retirees and their dependents.
On October 25, 2022, the Sysco Corporation Retirement Plan (the Plan) executed an agreement with Massachusetts Mutual Life Insurance Company (the Insurer). Under this agreement, the Plan purchased a nonparticipating single premium group annuity contract using Plan assets that transferred to the Insurer $
695.0
million of the Plan’s defined benefit pension obligations related to certain pension benefits. The contract covers approximately
10,000
Sysco participants and beneficiaries (the Transferred Participants) in the U.S. pension plan (the U.S. Retirement Plan). Under the group annuity contract, the Insurer made an unconditional and irrevocable commitment to pay the pension benefits of each Transferred Participant that were due on or after January 1, 2023. The transaction resulted in no changes to the amount of benefits payable to the Transferred Participants.
17
As a result of the transaction, the company recognized a one-time, non-cash pre-tax pension settlement charge of $
315.4
million in the second quarter of fiscal 2023 primarily related to the accelerated recognition of actuarial losses included within accumulated other comprehensive loss in the statement of changes in consolidated shareholders’ equity. The transaction also required the company to remeasure the benefit obligations and plan assets of the U.S. Retirement Plan. The remeasurement reflects the use of an updated discount rate and an expected rate of return on plan assets as of October 31, 2022, applying the practical expedient to remeasure plan assets and obligations as of the nearest calendar month-end date.
Funded Status
The following table presents the changes in benefit obligations and plan assets of the U.S. Retirement Plan affected by the interim remeasurements described above for the 39-week period ended April 1, 2023:
| U.S. Retirement Plan | |||||
| (In thousands) | |||||
| Change in benefit obligation: | |||||
|
Benefit obligation at July 2, 2022
|
$ |
|
|||
| Service cost |
|
||||
| Interest cost |
|
||||
| Actuarial gain, net |
(
|
||||
| Benefit payments |
(
|
||||
| Settlements |
(
|
||||
|
Benefit obligation at April 1, 2023
|
|
||||
| Change in plan assets: | |||||
|
Fair value of plan assets at July 2, 2022
|
|
||||
| Actual return on plan assets |
(
|
||||
| Benefit payments |
(
|
||||
| Settlements |
(
|
||||
|
Fair value of plan assets at April 1, 2023
|
|
||||
|
Funded status at April 1, 2023
|
$ |
(
|
|||
Components of Net Benefit Costs
The components of net company-sponsored benefit cost for the U.S. Retirement Plan for the third quarter and first 39 weeks of fiscal 2023 and fiscal 2022 are as follows:
| 13-Week Period Ended | 39-Week Period Ended | ||||||||||||||||||||||
| Apr. 1, 2023 | Apr. 2, 2022 | Apr. 1, 2023 | Apr. 2, 2022 | ||||||||||||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||||
| Service cost | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Interest cost |
|
|
|
|
|||||||||||||||||||
| Expected return on plan assets |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Amortization of prior service cost |
|
|
|
|
|||||||||||||||||||
| Amortization of actuarial loss |
|
|
|
|
|||||||||||||||||||
| Settlement loss recognized |
|
|
|
|
|||||||||||||||||||
| Net pension (benefits) costs | $ |
|
$ |
(
|
$ |
|
$ |
(
|
|||||||||||||||
The components of net company-sponsored benefit costs other than the service cost component are reported in Other expense (income), net within the consolidated results of operations.
Assumptions
The remeasurement of the benefit obligations and plan assets of the U.S. Retirement Plan that took place on October 31, 2022 reflects an updated discount rate and an updated expected rate of return on plan assets. The discount rate used to determine benefit obligations as of the remeasurement date was
6.07
%, as compared to the discount rate of
4.91
% that was used
18
10.
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. 1, 2023 | Apr. 2, 2022 | Apr. 1, 2023 | Apr. 2, 2022 | ||||||||||||||||||||
|
(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 | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
The number of securities that were not included in the diluted earnings per share calculation because the effect would have been anti-dilutive was approximately
2,264,000
and
1,105,000
for the third quarter of fiscal 2023 and fiscal 2022, respectively. The number of securities that were not included in the diluted earnings per share calculation because the effect would have been anti-dilutive was approximately
1,835,000
and
1,731,000
for the first 39 weeks of fiscal 2023 and fiscal 2022, respectively.
11.
OTHER COMPREHENSIVE INCOME
Comprehensive income is net earnings plus certain other items that are recorded directly to shareholders’ equity, such as foreign currency translation adjustment, changes in marketable securities, amounts related to certain hedging arrangements and amounts related to pension and other postretirement plans. Comprehensive income was $
473.5
million and $
240.6
million for the third quarter of fiscal 2023 and fiscal 2022, respectively. Comprehensive income was $
1.2
billion and $
698.5
million for the first 39 weeks of fiscal 2023 and fiscal 2022, respectively.
19
| 13-Week Period Ended Apr. 1, 2023 | |||||||||||||||||||||||
|
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 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 hedge
|
Operating expenses
(2)
|
(
|
(
|
(
|
|||||||||||||||||||
| Change in net investment hedge | N/A |
(
|
(
|
(
|
|||||||||||||||||||
| Total other comprehensive income (loss) 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 2023.
|
||||
|
(2)
|
Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.
|
||||
20
| 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 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
third
quarter of fiscal
2022
.
|
||||
|
(2)
|
Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.
|
||||
21
| 39-Week Period Ended Apr. 1, 2023 | |||||||||||||||||||||||
|
Location of
Expense (Income) Recognized in Net Earnings |
Before Tax
Amount |
Tax |
Net of Tax
Amount |
||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Pension and other postretirement benefit plans: | |||||||||||||||||||||||
| Other comprehensive income before reclassification adjustments: | |||||||||||||||||||||||
| Net actuarial loss, arising in the current year | Other expense, net | $ |
(
|
$ |
(
|
$ |
(
|
||||||||||||||||
| Settlements | Other expense, net |
|
|
|
|||||||||||||||||||
| Total other comprehensive income before reclassification adjustments |
|
|
|
||||||||||||||||||||
| 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 hedges |
Operating expenses
(2)
|
(
|
(
|
(
|
|||||||||||||||||||
| Change in net investment hedges | N/A |
(
|
(
|
(
|
|||||||||||||||||||
| Total other comprehensive income (loss) 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 first 39 weeks of fiscal 2023.
|
||||
|
(2)
|
Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges. | ||||
22
| 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: | |||||||||||||||||||||||
| 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. | ||||
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. 1, 2023 | |||||||||||||||||||||||||||||
|
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. 2, 2022 | $ |
(
|
$ |
(
|
$ |
|
$ |
(
|
$ |
(
|
|||||||||||||||||||
| Net actuarial loss arising in the current year |
(
|
— | — | — |
(
|
||||||||||||||||||||||||
| Settlements |
|
— | — | — |
|
||||||||||||||||||||||||
| 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. 1, 2023 | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||||||
| 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 | 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 | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||||||
12.
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 2023, options to purchase
916,673
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 2023 was $
24.58
.
24
In the first 39 weeks of fiscal 2023, employees were granted
441,153
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 vesting period. The weighted average grant-date fair value per PSU granted during the first 39 weeks of fiscal 2023 was $
85.31
. 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 2023, employees were granted
889,635
restricted stock units. The weighted average grant-date fair value per restricted stock unit granted during the first 39 weeks of fiscal 2023 was $
75.70
.
Employee Stock Purchase Plan
Plan participants purchased
792,411
shares of common stock under the ESPP during the first 39 weeks of fiscal 2023. The weighted average fair value per employee stock purchase right issued pursuant to the ESPP was $
11.15
during the first 39 weeks of fiscal 2023. The fair value of each stock purchase right is estimated as the difference between the stock price at the date of issuance and the employee purchase price.
All Share-Based Payment Arrangements
The total share-based compensation cost that has been recognized in results of operations was $
73.8
million and $
90.7
million for the first 39 weeks of fiscal 2023 and fiscal 2022, respectively.
As of April 1, 2023, there was $
149.4
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
2.05
years.
13.
INCOME TAXES
Effective Tax Rate
The effective tax rates for the third quarter and first 39 weeks of fiscal 2023 were
22.46
% and
21.92
%, respectively. The third quarter was favorably impacted by a cumulative effect of the change in the effective tax rate. The first 39 weeks of fiscal 2023 were favorably impacted by the benefit of the pension buyout and excess tax benefits of equity-based compensation.
The effective tax rates for the third quarter and first 39 weeks of fiscal 2022 were
21.31
% and
23.18
%, respectively. The 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 and the impact of non-taxable corporate-owned life insurance policies. For the first 39 weeks of fiscal 2022, these were partially offset by the increase in our reserve for uncertain tax positions recognized in the first quarter of fiscal 2022.
Uncertain Tax Positions
As of April 1, 2023, the gross amount of unrecognized tax benefit and related accrued interest was $
32.4
million and $
7.4
million, respectively. It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain unrecognized tax positions of the company will increase or decrease in the next 12 months. At this time, an estimate of the range of the reasonably possible change cannot be made.
During the third quarter of fiscal 2023, Sysco received a Statutory Notice of Deficiency from the Internal Revenue Service, mainly related to foreign tax credits generated in fiscal 2018 from repatriated earnings primarily from our Canadian operations. In the fourth quarter (April 18th) of fiscal 2023, the company filed suit in the U.S. Tax Court challenging the validity of certain tax regulations related to the one-time transition tax on unrepatriated foreign earnings, which was enacted as part of the Tax Cuts and Jobs Act of 2017 (TCJA). The lawsuit seeks to have the court invalidate these regulations, which would affirm the company’s position regarding its foreign tax credits. Sysco has previously recorded a benefit of $
131.0
million attributable to its interpretation of the TCJA and the Internal Revenue Code. If the company is ultimately unsuccessful in defending its position, it may be required to reverse all, or some portion, of the benefit previously recorded.
25
Other
The Inflation Reduction Act of 2022 (Inflation Reduction Act) was enacted on August 16, 2022. The Inflation Reduction Act imposes a new 15% corporate alternative minimum tax (CAMT) on “applicable corporations” for taxable years beginning after December 31, 2022. The CAMT is imposed to the extent the alternative minimum tax exceeds a corporation’s regular tax liability. A corporation that pays alternative minimum tax is eligible for a credit against income tax in future years.
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 United States (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.
14.
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.
15.
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
– primarily includes (a) our 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 produce distribution business, our Specialty Meats and Seafood Group specialty protein operations, our growing Italian Specialty platform anchored by Greco & Sons, our Asian specialty distribution company and a number of other small specialty businesses that are not material to our operations;
•
International Foodservice Operations
– includes operations outside of the U.S., which distribute a full line of food products and a wide variety of non-food products. The Americas primarily consists of operations in Canada, Bahamas, Mexico, Costa Rica and Panama, as well as our export operations that distribute to international customers. Our European operations primarily consist of operations in the United Kingdom (U.K.), France, Ireland and Sweden;
•
SYGMA
– our U.S. customized distribution operations serving quick-service chain restaurant customer locations; and
•
Other
– primarily our hotel supply operations, Guest Worldwide.
The accounting policies for the segments are the same as those disclosed by Sysco for its consolidated financial statements. Our Global Support Center generally includes all expenses of the corporate office and Sysco’s shared service operations. These also include all U.S. share-based compensation costs.
26
The following tables set forth certain financial information for Sysco’s reportable business segments:
| 13-Week Period Ended | 39-Week Period Ended | ||||||||||||||||||||||
| Apr. 1, 2023 | Apr. 2, 2022 | Apr. 1, 2023 | Apr. 2, 2022 | ||||||||||||||||||||
| Sales: | (In thousands) | (In thousands) | |||||||||||||||||||||
| U.S. Foodservice Operations | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| International Foodservice Operations |
|
|
|
|
|||||||||||||||||||
| SYGMA |
|
|
|
|
|||||||||||||||||||
| Other |
|
|
|
|
|||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| 13-Week Period Ended | 39-Week Period Ended | ||||||||||||||||||||||
| Apr. 1, 2023 | Apr. 2, 2022 | Apr. 1, 2023 | Apr. 2, 2022 | ||||||||||||||||||||
| 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 expense (income), net |
|
(
|
|
(
|
|||||||||||||||||||
| Earnings before income taxes | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
27
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 2, 2022, and for the fiscal year then ended, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, both contained in our Annual Report on Form 10-K for the fiscal year ended July 2, 2022 (our fiscal 2022 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 results for the third quarter of fiscal 2023 were primarily driven by 11.7% sales growth compared to the third quarter of fiscal 2022. This double-digit sales growth was driven by volume growth, effective management of inflation, and continued share gains. Our gross profit growth this quarter outpaced operating expense, as we continued to improve our supply chain productivity. We continued to make progress on our Recipe for Growth strategy, with advancement in our digital tools, supply chain investments, and sales and merchandising initiatives, both domestically and internationally. Our net earnings for the first 39 weeks also includes a pension liability transfer, which resulted in a non-cash charge of $315.4 million recorded within Other expense (income), net. See below for a comparison of our fiscal 2023 results to our fiscal 2022 results, both including and excluding Certain Items (as defined below).
Comparisons of results from the third quarter of fiscal 2023 to the third quarter of fiscal 2022 are presented below:
•
Sales:
◦
increased 11.7%, or $2.0 billion, to $18.9 billion;
•
Operating income:
◦
increased 40.0%, or $198.4 million, to $694.2 million;
◦
adjusted operating income increased 27.8%, or $160.1 million, to $735.5 million;
•
Net earnings:
◦
increased 41.6%, or $126.3 million, to $429.6 million;
◦
adjusted net earnings increased 26.9%, or $97.6 million, to $460.5 million;
•
Basic earnings per share:
◦
increased 41.7%, or $0.25, to $0.85 per share;
•
Diluted earnings per share:
◦
increased 42.4%, or $0.25, to $0.84 per share;
◦
adjusted diluted earnings per share increased 26.8%, or $0.19, to $0.90;
•
EBITDA:
◦
increased 25.8%, or $181.6 million, to $885.0 million; and
◦
adjusted EBITDA increased 19.0%, or $144.0 million, to $899.7 million.
Comparisons of results from the first 39 weeks of fiscal 2023 to the first 39 weeks of fiscal 2022 are presented below:
•
Sales:
◦
increased 13.9%, or $6.9 billion, to $56.6 billion;
•
Operating income:
◦
increased 31.6%, or $496.8 million, to $2.1 billion;
◦
adjusted operating income increased 24.6%, or $431.7 million, to $2.2 billion;
•
Net earnings:
◦
increased 22.1%, or $187.6 million, to $1.0 billion;
◦
adjusted net earnings increased 25.5%, or $276.3 million, to $1.4 billion;
•
Basic earnings per share:
◦
increased 22.9%, or $0.38, to $2.04 per share;
•
Diluted earnings per share:
◦
increased 23.0%, or $0.38, to $2.03 per share; and
◦
adjusted diluted earnings per share increased 26.5%, or $0.56, to $2.67;
•
EBITDA:
◦
increased 5.6%, or $121.9 million, to $2.3 billion; and
◦
adjusted EBITDA increased 16.2%, or $368.6 million, to $2.6 billion.
28
The discussion of our results includes certain non-GAAP financial measures, including EBITDA and adjusted EBITDA, as we believe these metrics provide important perspective with respect to underlying business trends. Other than free cash flow, any non-GAAP financial measures will be denoted as adjusted measures to remove the impact of restructuring and transformational project costs consisting of: (1) restructuring charges, (2) expenses associated with our various transformation initiatives and (3) facility closure and severance charges; acquisition-related costs consisting of: (a) intangible amortization expense and (b) 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 2023 were also impacted by adjustments to a product return allowance pertaining to COVID-related personal protection equipment inventory and a pension settlement charge that resulted from the purchase of a nonparticipating single premium group annuity contract that transferred defined benefit plan obligations to an insurer. Our results for fiscal 2022 were also impacted by a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory, losses on the extinguishment of long-term debt and an increase in reserves for uncertain tax positions.
The fiscal 2023 and fiscal 2022 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
Sysco continues to outperform the foodservice market due to the success of the Recipe for Growth strategy. The food-away-from-home sector is a healthy long-term market. Sysco is diversified and well positioned as the market leader in food service and remains on track to meet our stated goal of achieving growth at a rate of 1.35 times the U.S. foodservice industry in fiscal 2023. We delivered strong sales growth throughout the quarter, despite industry volumes decelerating to slight growth beginning in March.
Sales and Gross Profit Trends
Our sales and gross profit performance are 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 2023 was volume growth, as we experienced a 6.1% improvement in U.S. Foodservice case volume and a 4.2% improvement in local case volume within our U.S. segment, in each instance as compared to the third quarter of fiscal 2022. This volume reflects our broadline and specialty businesses, except for our specialty meats business, which measures its volume in pounds. This growth enabled us to gain market share during the third quarter of fiscal 2023, and we expect to continue to grow profitably with both new and existing customers.
Product cost inflation has also been a driver of our sales and gross profit performance. We experienced inflation at a rate of 4.9% and 7.6% in the third quarter and first 39 weeks of fiscal 2023, respectively, at the total enterprise level, primarily driven by inflation in the dairy and frozen categories. The rate of inflation, as compared to the prior year, declined at an accelerated rate, and this trend is continuing into the fourth quarter of fiscal 2023. During the quarter, we were successful in managing our inflation, resulting in an increase in gross profit dollars. Gross margin increased 35 and 28 basis points in the third quarter and first 39 weeks of fiscal 2023, respectively, as compared to the same prior year periods, primarily driven by higher volumes, the effective management of inflation and progress with our partnership growth management initiatives.
Operating Expense Trends
Total operating expenses increased 8.7% and 12.3% during the third quarter and first 39 weeks of fiscal 2023, respectively, as compared to the third quarter and first 39 weeks of fiscal 2022, driven by increased volumes, cost inflation, continued operational cost pressures from the operating environment and our planned investments to drive our transformation initiatives under our Recipe for Growth strategy. This quarter included transformation investments of $60 million. We continued to improve our supply chain efficiency, while investing in associate retention and best-in-class training, primarily for transportation and warehouse colleagues. Our Sysco Driver Academy and industry leading training programs are contributing to improved retention and productivity, and we expect to see this trend improve as the percentage of drivers and warehouse colleagues trained from within Sysco continues to grow. We believe the advancements we are making in our physical capabilities, and the investments we are making in improved training, will provide improved service levels to our customers and strengthen Sysco’s ability to profitably win market share.
29
Pension Settlement Charge
The Sysco Corporation Retirement Plan (the Plan) executed a commitment agreement to purchase a nonparticipating single premium group annuity contract that transferred $695.0 million of the Plan’s defined benefit pension obligations related to certain pension benefits. As a result of the transaction, we recognized a one-time, non-cash pre-tax pension settlement charge of $315.4 million in the second quarter of fiscal 2023. This charge has been treated as a Certain Item. The amount of on-going expense for the Plan has been remeasured for the remainder of the fiscal year. Pension expense is elevated over fiscal 2022 due to increased interest rates and lower asset returns; the majority of the increase is included within Other expense (income), net in the consolidated results of operations. We expect pension expense within this line item to increase by approximately $16 million for the last 13 weeks of fiscal 2023, as compared to the same time period in fiscal 2022.
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. In the first and second quarters of fiscal 2023, we acquired a total of three small U.S.-based independent Italian food distributors as part of our plan to meaningfully scale our growing Italian platform.
The results of these acquisitions were not material to the consolidated results of the company for the third quarter of fiscal 2023.
Strategy
Our purpose is “Connecting the World to Share Food and Care for One Another.” Purpose driven companies are believed to perform better, and we believe our purpose will assist 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, including promoting our specialty programs for produce, protein and Italian products and our customer growth initiatives. Our strategic initiative to enable omni-channel inventory fulfillment is operating in our first test region, and we have made progress in expanding to deliveries six days a week. From these actions as a part of our Recipe for Growth, the benefits of our developing capabilities are apparent in the new customers we are winning and in the progress we are making toward 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 1.5 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. 1, 2023 | Apr. 2, 2022 | Apr. 1, 2023 | Apr. 2, 2022 | ||||||||||||||||||||
| Sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||
| Cost of sales | 81.8 | 82.2 | 81.9 | 82.1 | |||||||||||||||||||
| Gross profit | 18.2 | 17.8 | 18.1 | 17.9 | |||||||||||||||||||
| Operating expenses | 14.5 | 14.9 | 14.4 | 14.7 | |||||||||||||||||||
| Operating income | 3.7 | 2.9 | 3.7 | 3.2 | |||||||||||||||||||
| Interest expense | 0.8 | 0.7 | 0.7 | 1.0 | |||||||||||||||||||
| Other expense (income), net | — | (0.1) | 0.7 | — | |||||||||||||||||||
| Earnings before income taxes | 2.9 | 2.3 | 2.3 | 2.2 | |||||||||||||||||||
| Income taxes | 0.6 | 0.5 | 0.5 | 0.5 | |||||||||||||||||||
| Net earnings | 2.3 | % | 1.8 | % | 1.8 | % | 1.7 | % | |||||||||||||||
30
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. 1, 2023 | Apr. 1, 2023 | ||||||||||
| Sales | 11.7 | % | 13.9 | % | |||||||
| Cost of sales | 11.2 | 13.5 | |||||||||
| Gross profit | 13.9 | 15.7 | |||||||||
| Operating expenses | 8.7 | 12.3 | |||||||||
| Operating income | 40.0 | 31.6 | |||||||||
| Interest expense | 8.8 | (21.0) | |||||||||
|
Other expense (income), net
(1) (2)
|
(137.8) | (1,365.5) | |||||||||
| Earnings before income taxes | 43.7 | 20.1 | |||||||||
| Income taxes | 51.4 | 13.6 | |||||||||
| Net earnings | 41.6 | % | 22.1 | % | |||||||
| Basic earnings per share | 41.7 | % | 22.9 | % | |||||||
| Diluted earnings per share | 42.4 | 23.0 | |||||||||
| Average shares outstanding | (0.1) | (0.6) | |||||||||
| Diluted shares outstanding | (0.5) | (0.8) | |||||||||
|
(1)
|
Other expense (income), net was expense of $5.2 million and income of $13.8 million in the third quarter of fiscal 2023 and fiscal 2022, respectively.
|
||||
|
(2)
|
Other expense (income), net was expense of $350.6 million and income of $27.7 million in the first 39 weeks of fiscal 2023 and fiscal 2022, respectively.
|
||||
The following tables represent our results by reportable segments:
| 13-Week Period Ended Apr. 1, 2023 | |||||||||||||||||||||||||||||||||||
| U.S. Foodservice Operations | International Foodservice Operations | SYGMA | Other | Global Support Center |
Consolidated
Totals |
||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Sales | $ | 13,257,519 | $ | 3,344,121 | $ | 1,972,058 | $ | 301,978 | $ | — | $ | 18,875,676 | |||||||||||||||||||||||
| Sales increase | 10.4 | % | 18.0 | % | 9.9 | % | 13.1 | % | 11.7 | % | |||||||||||||||||||||||||
| Percentage of total | 70.2 | % | 17.7 | % | 10.4 | % | 1.7 | % | 100.0 | % | |||||||||||||||||||||||||
| Operating income (loss) | $ | 855,766 | $ | 48,352 | $ | 25,439 | $ | 11,836 | $ | (247,216) | $ | 694,177 | |||||||||||||||||||||||
| Operating income (loss) increase (decrease) | 14.6 | % | NM | NM | NM | (4.5) | % | 40.0 | % | ||||||||||||||||||||||||||
| Percentage of total segments | 90.9 | % | 5.1 | % | 2.7 | % | 1.3 | % | 100.0 | % | |||||||||||||||||||||||||
| Operating income as a percentage of sales | 6.5 | % | 1.4 | % | 1.3 | % | 3.9 | % | 3.7 | % | |||||||||||||||||||||||||
| 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 | |||||||||||||||||||||||
| Percentage of total | 71.0 | % | 16.8 | % | 10.6 | % | 1.6 | % | 100.0 | % | |||||||||||||||||||||||||
| Operating income (loss) | $ | 746,467 | $ | 7,760 | $ | 4,362 | $ | (3,972) | $ | (258,888) | $ | 495,729 | |||||||||||||||||||||||
| 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 | % | |||||||||||||||||||||||||
31
| 39-Week Period Ended Apr. 1, 2023 | |||||||||||||||||||||||||||||||||||
| U.S. Foodservice Operations | International Foodservice Operations | SYGMA | Other | Global Support Center |
Consolidated
Totals |
||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Sales | $ | 39,937,055 | $ | 9,910,267 | $ | 5,839,051 | $ | 910,086 | $ | — | $ | 56,596,459 | |||||||||||||||||||||||
| Sales increase | 13.8 | % | 16.1 | % | 10.8 | % | 18.8 | % | 13.9 | % | |||||||||||||||||||||||||
| Percentage of total | 70.6 | % | 17.5 | % | 10.3 | % | 1.6 | % | 100.0 | % | |||||||||||||||||||||||||
| Operating income (loss) | $ | 2,540,555 | $ | 192,945 | $ | 37,715 | $ | 33,255 | $ | (735,318) | $ | 2,069,152 | |||||||||||||||||||||||
| Operating income (loss) increase | 14.4 | % | 249.7 | % | NM | NM | 4.8 | % | 31.6 | % | |||||||||||||||||||||||||
| Percentage of total segments | 90.6 | % | 6.9 | % | 1.3 | % | 1.2 | % | 100.0 | % | |||||||||||||||||||||||||
| Operating income as a percentage of sales | 6.4 | % | 1.9 | % | 0.6 | % | 3.7 | % | 3.7 | % | |||||||||||||||||||||||||
| 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 | |||||||||||||||||||||||
| 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 | |||||||||||||||||||||||
| Percentage of total segments | 97.7 | % | 2.4 | % | (0.2) | % | 0.1 | % | 100.0 | % | |||||||||||||||||||||||||
| Operating income (loss) as a percentage of sales | 6.3 | % | 0.6 | % | (0.1) | % | 0.3 | % | 3.2 | % | |||||||||||||||||||||||||
Based on information in Note 15, “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 2023, U.S. Foodservice Operations and International Foodservice Operations collectively represented approximately 87.9% and 88.1% of Sysco’s overall sales and 96.0% and 97.5% 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:
32
| 13-Week Period Ended Apr. 1, 2023 | 13-Week Period Ended Apr. 2, 2022 | Change in Dollars | % Change | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Sales | $ | 13,257,519 | $ | 12,006,163 | $ | 1,251,356 | 10.4 | % | |||||||||||||||
| Gross profit | 2,545,859 | 2,270,045 | 275,814 | 12.2 | |||||||||||||||||||
| Operating expenses | 1,690,093 | 1,523,578 | 166,515 | 10.9 | |||||||||||||||||||
| Operating income | $ | 855,766 | $ | 746,467 | $ | 109,299 | 14.6 | % | |||||||||||||||
| Gross profit | $ | 2,545,859 | $ | 2,270,045 | $ | 275,814 | 12.2 | % | |||||||||||||||
| Adjusted operating expenses (Non-GAAP) | 1,678,390 | 1,520,676 | 157,714 | 10.4 | |||||||||||||||||||
| Adjusted operating income (Non-GAAP) | $ | 867,469 | $ | 749,369 | $ | 118,100 | 15.8 | % | |||||||||||||||
| 39-Week Period Ended Apr. 1, 2023 | 39-Week Period Ended Apr. 2, 2022 | Change in Dollars | % Change | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Sales | $ | 39,937,055 | $ | 35,107,281 | $ | 4,829,774 | 13.8 | % | |||||||||||||||
| Gross profit | 7,651,291 | 6,594,477 | 1,056,814 | 16.0 | |||||||||||||||||||
| Operating expenses | 5,110,736 | 4,373,665 | 737,071 | 16.9 | |||||||||||||||||||
| Operating income | $ | 2,540,555 | $ | 2,220,812 | $ | 319,743 | 14.4 | % | |||||||||||||||
| Gross profit | $ | 7,651,291 | $ | 6,594,477 | $ | 1,056,814 | 16.0 | % | |||||||||||||||
| Adjusted operating expenses (Non-GAAP) | 5,079,140 | 4,364,629 | 714,511 | 16.4 | |||||||||||||||||||
| Adjusted operating income (Non-GAAP) | $ | 2,572,151 | $ | 2,229,848 | $ | 342,303 | 15.4 | % | |||||||||||||||
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
(1)
|
5.9 | % | $ | 709.6 | 5.2 | % | $ | 1,833.7 | |||||||||||||||
| Inflation | 4.2 | 510.0 | 7.6 | 2,664.2 | |||||||||||||||||||
|
Other
(2)
|
0.3 | 31.8 | 1.0 | 331.9 | |||||||||||||||||||
| Total change in sales | 10.4 | % | $ | 1,251.4 | 13.8 | % | $ | 4,829.8 | |||||||||||||||
| (1) |
Case volumes increased 6.1% and 6.2% compared to the third quarter and first 39 weeks of fiscal 2022, respectively. This volume increase resulted in a 5.9% and 5.2% increase in the dollar value of sales compared to the third quarter and first 39 weeks of fiscal 2022, respectively.
|
||||
|
(2)
|
Case volume reflects our broadline and specialty businesses, with the exception of our specialty meats business, which measures its volume in pounds. Any impact in volumes from these specialty meats operations is included within “Other.”
|
||||
The sales growth in our U.S. Foodservice Operations was fueled by three factors: inflation, market growth, and strong market share gains. Case volumes from our U.S. Foodservice Operations increased 6.1% and 6.2% in the third quarter and first 39 weeks of fiscal 2023, respectively, as compared to the third quarter and first 39 weeks of fiscal 2022. This included a 4.2% and 4.4% increase in local customer case volume in the third quarter and first 39 weeks of fiscal 2023, respectively, as compared to the third quarter and first 39 weeks of fiscal 2022.
33
Operating Income
The increase in operating income for the third quarter and first 39 weeks of fiscal 2023, as compared to the third quarter and first 39 weeks of fiscal 2022, 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 2023, as compared to the third quarter and first 39 weeks of fiscal 2022, was driven primarily by higher volumes, as well as continued progress with effective management of product cost inflation and our partnership growth management initiatives. The estimated change in product costs, an internal measure of inflation or deflation, increased in both the third quarter and first 39 weeks of fiscal 2023. For the third quarter and first 39 weeks of fiscal 2023, this change in product costs was primarily driven by inflation in the dairy and frozen food categories. Gross margin, which is gross profit as a percentage of sales, was 19.2% in each of the third quarter and first 39 weeks of fiscal 2023 for our U.S. Foodservice Operations, which was an increase of 29 basis points compared to gross margin of 18.9% in the third quarter of fiscal 2022, and an increase of 38 basis points compared to gross margin of 18.8% in the first 39 weeks of fiscal 2022.
The increase in operating expenses for the third quarter and first 39 weeks of fiscal 2023, as compared to the third quarter and first 39 weeks of fiscal 2022, was primarily driven by increased volumes, cost inflation, operational pressures from the operating environment and our planned investments to drive our transformation initiatives.
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. 1, 2023 | 13-Week Period Ended Apr. 2, 2022 | Change in Dollars | % Change | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Sales | $ | 3,344,121 | $ | 2,834,089 | $ | 510,032 | 18.0 | % | |||||||||||||||
| Gross profit | 642,778 | 570,241 | 72,537 | 12.7 | |||||||||||||||||||
| Operating expenses | 594,426 | 562,481 | 31,945 | 5.7 | |||||||||||||||||||
| Operating income | $ | 48,352 | $ | 7,760 | $ | 40,592 | 523.1 | % | |||||||||||||||
| Gross profit | $ | 642,778 | $ | 570,241 | $ | 72,537 | 12.7 | % | |||||||||||||||
| Adjusted operating expenses (Non-GAAP) | 575,728 | 535,617 | 40,111 | 7.5 | |||||||||||||||||||
| Adjusted operating income (Non-GAAP) | $ | 67,050 | $ | 34,624 | $ | 32,426 | 93.7 | % | |||||||||||||||
| Sales on a constant currency basis (Non-GAAP) | $ | 3,550,782 | $ | 2,834,089 | $ | 716,693 | 25.3 | % | |||||||||||||||
| Gross profit on a constant currency basis (Non-GAAP) | 683,023 | 570,241 | 112,782 | 19.8 | |||||||||||||||||||
| Adjusted operating expenses on a constant currency basis (Non-GAAP) | 612,798 | 535,617 | 77,181 | 14.4 | |||||||||||||||||||
| Adjusted operating income (Non-GAAP) | $ | 70,225 | $ | 34,624 | $ | 35,601 | 102.8 | % | |||||||||||||||
| 39-Week Period Ended Apr. 1, 2023 | 39-Week Period Ended Apr. 2, 2022 | Change in Dollars | % Change | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Sales | $ | 9,910,267 | $ | 8,535,608 | $ | 1,374,659 | 16.1 | % | |||||||||||||||
| Gross profit | 1,916,503 | 1,725,306 | 191,197 | 11.1 | |||||||||||||||||||
| Operating expenses | 1,723,558 | 1,670,125 | 53,433 | 3.2 | |||||||||||||||||||
| Operating income | $ | 192,945 | $ | 55,181 | $ | 137,764 | 249.7 | % | |||||||||||||||
| Gross profit | $ | 1,916,503 | $ | 1,725,306 | $ | 191,197 | 11.1 | % | |||||||||||||||
| Adjusted operating expenses (Non-GAAP) | 1,663,682 | 1,586,914 | 76,768 | 4.8 | |||||||||||||||||||
| Adjusted operating income (Non-GAAP) | $ | 252,821 | $ | 138,392 | $ | 114,429 | 82.7 | % | |||||||||||||||
| Sales on a constant currency basis (Non-GAAP) | $ | 10,758,433 | $ | 8,535,608 | $ | 2,222,825 | 26.0 | % | |||||||||||||||
| Gross profit on a constant currency basis (Non-GAAP) | 2,094,357 | 1,725,306 | 369,051 | 21.4 | |||||||||||||||||||
| Adjusted operating expenses on a constant currency basis (Non-GAAP) | 1,826,687 | 1,586,914 | 239,773 | 15.1 | |||||||||||||||||||
| Adjusted operating income on a constant currency basis (Non-GAAP) | $ | 267,670 | $ | 138,392 | $ | 129,278 | 93.4 | % | |||||||||||||||
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 | 14.9 | % | $ | 421.7 | 15.2 | % | $ | 1,293.4 | |||||||||||||||
| Foreign currency | (7.3) | (206.7) | (9.9) | (848.2) | |||||||||||||||||||
|
Other
(1)
|
10.4 | 295.0 | 10.8 | 929.5 | |||||||||||||||||||
| Total change in sales | 18.0 | % | $ | 510.0 | 16.1 | % | $ | 1,374.7 | |||||||||||||||
|
(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 2023 were higher, as compared to the third quarter and first 39 weeks of fiscal 2022, due to inflation, along with an improvement in volume, some of which was attributable to our Recipe for Growth initiatives. Partially offsetting these increases was the negative impact of foreign currency translation.
Operating Income
The increase in operating income for the third quarter and first 39 weeks of fiscal 2023, as compared to the third quarter and first 39 weeks of fiscal 2022, 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 2023, as compared to the third quarter and first 39 weeks of fiscal 2022, was attributable to the increase in sales volume and the management 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 2023, as compared to the third quarter and first 39 weeks of fiscal 2022, was primarily due to increased volume and inflation.
Results of SYGMA and Other Segment
For SYGMA, sales were 9.9% and 10.8% higher in the third quarter and first 39 weeks of fiscal 2023, respectively, as compared to the third quarter and first 39 weeks of fiscal 2022, primarily from inflation and fee increases to customers. Operating income increased by $21.1 million and $42.5 million in the third quarter and first 39 weeks of fiscal 2023, respectively, as compared to the third quarter and first 39 weeks of fiscal 2022, primarily due to fee increases to customers.
For the operations that are grouped within Other, operating income increased $15.8 million and $30.6 million in the third quarter and first 39 weeks of fiscal 2023, respectively, as compared to the third quarter and first 39 weeks of fiscal 2022, primarily due to the recovery of our hospitality business, Guest Worldwide. Volume for this business has improved as hospitality occupancy rates across the industry have grown from prior year levels.
Global Support Center Expenses
Our Global Support Center generally includes all expenses of the corporate office and Sysco’s shared service operations. These expenses in the third quarter of fiscal 2023 increased $15.0 million, or 6.6%, as compared to the third quarter of fiscal 2022, primarily due to expenses associated with business technology transformation initiatives and increases in self-insurance reserves.
These ex
penses in the first 39 weeks of fiscal 2023 increased $62.9 million, or 9.4%, as compared to the first 39 weeks of fiscal 2022, primarily due to increases in self-insurance reserves, fuel hedging program expenses and expenses associated with business technology transformation initiatives.
36
Included in Global Support Center expenses are Certain Items that totaled $10.9 million and $27.2 million in the third quarter and first 39 weeks of fiscal 2023, as compared to $49.9 million and $91.6 million in the third quarter and first 39 weeks of fiscal 2022, respectively. Certain Items impacting the third quarter and first 39 weeks of fiscal 2023 were primarily expenses associated with our business technology transformation initiatives. 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.
Interest Expense
Interest expense increased $10.9 million and decreased $104.0 million for the third quarter and first 39 weeks of fiscal 2023, respectively, as compared to the third quarter and first 39 weeks of fiscal 2022. The increase in the third quarter was primarily due to an increase in commercial paper borrowing activity compared to the third quarter of fiscal 2022. The decrease in the first 39 weeks of fiscal 2023 compared to the first 39 weeks of fiscal 2022 was primarily due to a $115.6 million charge taken for debt extinguished in fiscal 2022.
Other income and expense
Other expense increased $19.0 million and $378.3 million for the third quarter and first 39 weeks of fiscal 2023, respectively, as compared to the third quarter and first 39 weeks of fiscal 2022. The increase in the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022 was due to an increase in pension expenses, which were driven by increased interest rates and lower asset returns. The expense in the first 39 weeks of fiscal 2023 was primarily attributable to a pension settlement charge that resulted from the purchase of a nonparticipating single premium group annuity contract that transferred defined benefit plan obligations to an insurer, as well as higher on-going pension expense.
Net Earnings
Net earnings increased 41.6% and 22.1% in the third quarter and first 39 weeks of fiscal 2023, respectively, as compared to the third quarter and first 39 weeks of fiscal 2022, due primarily to the items noted above for operating income and other expense, as well as items impacting our income taxes that are discussed in Note 13, “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 26.9% and 25.5% in the third quarter and first 39 weeks of fiscal 2023, primarily due to an increase in sales volume.
Earnings Per Share
Basic earnings per share in the third quarter of fiscal 2023 were $0.85, a 41.7% increase from the comparable prior year amount of $0.60 per share. Diluted earnings per share in the third quarter of fiscal 2023 were $0.84, a 42.4% increase from the comparable prior year period amount of $0.59 per share. Adjusted diluted earnings per share, excluding Certain Items, in the third quarter of fiscal 2023 were $0.90, a 26.8% increase from the comparable prior year amount of $0.71 per share.
Basic earnings per share in the first 39 weeks of fiscal 2023 were $2.04, a 22.9% increase from the comparable prior year amount of $1.66 per share. Diluted earnings per share in the first 39 weeks of fiscal 2023 were $2.03, a 23.0% increase from the comparable prior year period amount of $1.65 per share. Adjusted diluted earnings per share, excluding Certain Items, in the first 39 weeks of fiscal 2023 were $2.67, a 26.5% increase from the comparable prior year amount of $2.11 per share.
37
Non-GAAP Reconciliations
|
Our discussion of our results includes certain non-GAAP financial measures, such as EBITDA and adjusted EBITDA, which we believe provide important perspective with respect to underlying business trends. Other than free cash flow and EBITDA, any non-GAAP financial measures will be denoted as adjusted measures to remove the impact of: (1) restructuring and transformational project costs consisting of: (a) restructuring charges, (b) expenses associated with our various transformation initiatives and (c) facility closure and severance charges; (2) acquisition-related costs consisting of: (a) intangible amortization expense and (b) acquisition costs and due diligence costs related to our acquisitions; and (3) the reduction of bad debt expense previously recognized in fiscal 2020 due to the impact of the COVID-19 pandemic on the collectability of our pre-pandemic trade receivable balances. Our results for fiscal 2023 were also impacted by adjustments to a product return allowance related to COVID-related personal protection equipment inventory and a pension settlement charge that resulted from the purchase of a nonparticipating single premium group annuity contract that transferred defined benefit plan obligations to an insurer. Our results for fiscal 2022 were also impacted by a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory, losses on the extinguishment of long-term debt and an increase in reserves for uncertain tax positions.
|
||
| The results of our operations can be impacted due to changes in exchange rates applicable in converting local currencies to U.S. dollars. We measure our 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 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 2023 and fiscal 2022. | ||
| Set forth below is a reconciliation of sales, operating expenses, operating income, 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. 1, 2023 | 13-Week Period Ended Apr. 2, 2022 | Change in Dollars | % Change | ||||||||||||||||||||
| Sales (GAAP) | $ | 18,875,676 | $ | 16,902,139 | $ | 1,973,537 | 11.7 | % | |||||||||||||||
|
Impact of currency fluctuations
(1)
|
211,164 | — | 211,164 | 1.2 | |||||||||||||||||||
| Comparable sales using a constant currency basis (Non-GAAP) | $ | 19,086,840 | $ | 16,902,139 | $ | 2,184,701 | 12.9 | % | |||||||||||||||
| Cost of sales (GAAP) | $ | 15,444,316 | $ | 13,888,745 | $ | 1,555,571 | 11.2 | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(2)
|
— | (29,550) | 29,550 | 0.2 | |||||||||||||||||||
| Cost of sales adjusted for Certain Items (Non-GAAP) | $ | 15,444,316 | $ | 13,859,195 | $ | 1,585,121 | 11.4 | % | |||||||||||||||
| Gross profit (GAAP) | $ | 3,431,360 | $ | 3,013,394 | $ | 417,966 | 13.9 | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(2)
|
— | 29,550 | (29,550) | (1.1) | |||||||||||||||||||
| Comparable gross profit adjusted for Certain Items (Non-GAAP) | 3,431,360 | 3,042,944 | 388,416 | 12.8 | |||||||||||||||||||
|
Impact of currency fluctuations
(1)
|
41,794 | — | 41,794 | 1.3 | |||||||||||||||||||
| Comparable gross profit adjusted for Certain Items using a constant currency basis (Non-GAAP) | $ | 3,473,154 | $ | 3,042,944 | $ | 430,210 | 14.1 | % | |||||||||||||||
| Gross margin (GAAP) | 18.18 | % | 17.83 | % | 35 bps | ||||||||||||||||||
|
Impact of inventory valuation adjustment
(2)
|
— | 0.17 | -17 bps | ||||||||||||||||||||
| Comparable gross margin adjusted for Certain Items (Non-GAAP) | 18.18 | 18.00 | 18 bps | ||||||||||||||||||||
|
Impact of currency fluctuations
(1)
|
0.02 | — | 2 bps | ||||||||||||||||||||
| Comparable gross margin adjusted for Certain Items using a constant currency basis (Non-GAAP) | 18.20 | % | 18.00 | % | 20 bps | ||||||||||||||||||
| Operating expenses (GAAP) | $ | 2,737,183 | $ | 2,517,665 | $ | 219,518 | 8.7 | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(3)
|
(12,255) | (19,171) | 6,916 | 36.1 | |||||||||||||||||||
|
Impact of acquisition-related costs
(4)
|
(29,004) | (36,699) | 7,695 | 21.0 | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(5)
|
(90) | 5,717 | (5,807) | NM | |||||||||||||||||||
| Operating expenses adjusted for Certain Items (Non-GAAP) | 2,695,834 | 2,467,512 | 228,322 | 9.3 | |||||||||||||||||||
|
Impact of currency fluctuations
(1)
|
41,607 | — | 41,607 | 1.6 | |||||||||||||||||||
| Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP) | $ | 2,737,441 | $ | 2,467,512 | $ | 269,929 | 10.9 | % | |||||||||||||||
| Operating expense as a percentage of sales (GAAP) | 14.50 | % | 14.90 | % | -40 bps | ||||||||||||||||||
| Impact of certain item adjustments | (0.22) | (0.30) | 8 bps | ||||||||||||||||||||
| Adjusted operating expense as a percentage of sales (Non-GAAP) | 14.28 | % | 14.60 | % | -32 bps | ||||||||||||||||||
| Operating income (GAAP) | $ | 694,177 | $ | 495,729 | $ | 198,448 | 40.0 | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(2)
|
— | 29,550 | (29,550) | NM | |||||||||||||||||||
|
Impact of restructuring and transformational project costs
(3)
|
12,255 | 19,171 | (6,916) | (36.1) | |||||||||||||||||||
|
Impact of acquisition-related costs
(4)
|
29,004 | 36,699 | (7,695) | (21.0) | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(5)
|
90 | (5,717) | 5,807 | NM | |||||||||||||||||||
| Operating income adjusted for Certain Items (Non-GAAP) | 735,526 | 575,432 | 160,094 | 27.8 | |||||||||||||||||||
|
Impact of currency fluctuations
(1)
|
187 | — | 187 | 0.1 | |||||||||||||||||||
| Comparable operating income adjusted for Certain Items using a constant currency basis (Non-GAAP) | $ | 735,713 | $ | 575,432 | $ | 160,281 | 27.9 | % | |||||||||||||||
| Operating margin (GAAP) | 3.68 | % | 2.93 | % | 75 bps | ||||||||||||||||||
39
| 13-Week Period Ended Apr. 1, 2023 | 13-Week Period Ended Apr. 2, 2022 | Change in Dollars | % Change | ||||||||||||||||||||
| Operating margin adjusted for Certain Items (Non-GAAP) | 3.90 | % | 3.40 | % | 50 bps | ||||||||||||||||||
| Operating margin adjusted for Certain Items using a constant currency basis (Non-GAAP) | 3.85 | % | 3.40 | % | 45 bps | ||||||||||||||||||
| Other expense (income) (GAAP) | $ | 5,209 | $ | (13,777) | $ | 18,986 | NM | ||||||||||||||||
| Impact of other non-routine gains and losses | (448) | — | (448) | NM | |||||||||||||||||||
| Other expense (income) adjusted for Certain Items (Non-GAAP) | $ | 4,761 | $ | (13,777) | $ | 18,538 | NM | ||||||||||||||||
| Net earnings (GAAP) | $ | 429,604 | $ | 303,325 | $ | 126,279 | 41.6 | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(2)
|
— | 29,550 | (29,550) | NM | |||||||||||||||||||
|
Impact of restructuring and transformational project costs
(3)
|
12,255 | 19,171 | (6,916) | (36.1) | |||||||||||||||||||
|
Impact of acquisition-related costs
(4)
|
29,004 | 36,699 | (7,695) | (21.0) | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(5)
|
90 | (5,717) | 5,807 | NM | |||||||||||||||||||
| Impact of other non-routine gains and losses | 448 | — | 448 | NM | |||||||||||||||||||
|
Tax impact of inventory valuation adjustment
(6)
|
— | (7,449) | 7,449 | NM | |||||||||||||||||||
|
Tax impact of restructuring and transformational project costs
(6)
|
(3,190) | (5,579) | 2,389 | 42.8 | |||||||||||||||||||
|
Tax impact of acquisition-related costs
(6)
|
(7,550) | (8,537) | 987 | 11.6 | |||||||||||||||||||
|
Tax impact of bad debt reserves adjustments
(6)
|
(23) | 1,445 | (1,468) | NM | |||||||||||||||||||
|
Tax impact of other non-routine gains and losses
(6)
|
(117) | — | (117) | NM | |||||||||||||||||||
| Net earnings adjusted for Certain Items (Non-GAAP) | $ | 460,521 | $ | 362,908 | $ | 97,613 | 26.9 | % | |||||||||||||||
| Diluted earnings per share (GAAP) | $ | 0.84 | $ | 0.59 | $ | 0.25 | 42.4 | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(2)
|
— | 0.06 | (0.06) | NM | |||||||||||||||||||
|
Impact of restructuring and transformational project costs
(3)
|
0.02 | 0.04 | (0.02) | (50.0) | |||||||||||||||||||
|
Impact of acquisition-related costs
(4)
|
0.06 | 0.07 | (0.01) | (14.3) | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(5)
|
— | (0.01) | 0.01 | NM | |||||||||||||||||||
|
Tax impact of inventory valuation adjustment
(6)
|
— | (0.01) | 0.01 | NM | |||||||||||||||||||
|
Tax impact of restructuring and transformational project costs
(6)
|
(0.01) | (0.01) | — | — | |||||||||||||||||||
|
Tax impact of acquisition-related costs
(6)
|
(0.01) | (0.02) | 0.01 | 50.0 | |||||||||||||||||||
|
Diluted earnings per share adjusted for Certain Items (Non-GAAP)
(7)
|
$ | 0.90 | $ | 0.71 | $ | 0.19 | 26.8 | % | |||||||||||||||
40
|
(1)
|
Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on the current year results.
|
||||
|
(2)
|
Fiscal 2022 represents a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory. | ||||
|
(3)
|
Fiscal 2023 includes $2 million related to restructuring, severance, and facility closure charges and $10 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy. 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.
|
||||
|
(4)
|
Fiscal 2023 includes $27 million of intangible amortization expense and $2 million in acquisition and due diligence costs. Fiscal 2022 includes $27 million of intangible amortization expense and $10 million in acquisition and due diligence costs.
|
||||
|
(5)
|
Fiscal 2023 and fiscal 2022 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. | |||||
41
| 39-Week Period Ended Apr. 1, 2023 | 39-Week Period Ended Apr. 2, 2022 | Change in Dollars | % Change | ||||||||||||||||||||
| Sales (GAAP) | $ | 56,596,459 | $ | 49,678,888 | $ | 6,917,571 | 13.9 | % | |||||||||||||||
|
Impact of currency fluctuations
(1)
|
862,752 | — | 862,752 | 1.8 | |||||||||||||||||||
| Comparable sales using a constant currency basis (Non-GAAP) | $ | 57,459,211 | $ | 49,678,888 | $ | 7,780,323 | 15.7 | % | |||||||||||||||
| Cost of sales (GAAP) | $ | 46,326,628 | $ | 40,802,636 | $ | 5,523,992 | 13.5 | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(2)
|
2,571 | (29,550) | 32,121 | 0.1 | |||||||||||||||||||
| Cost of sales adjusted for Certain Items (Non-GAAP) | $ | 46,329,199 | $ | 40,773,086 | $ | 5,556,113 | 13.6 | % | |||||||||||||||
| Gross profit (GAAP) | $ | 10,269,831 | $ | 8,876,252 | $ | 1,393,579 | 15.7 | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(2)
|
(2,571) | 29,550 | (32,121) | (0.4) | |||||||||||||||||||
| Comparable gross profit adjusted for Certain Items (Non-GAAP) | 10,267,260 | 8,905,802 | 1,361,458 | 15.3 | |||||||||||||||||||
|
Impact of currency fluctuations
(1)
|
182,727 | — | 182,727 | 2.0 | |||||||||||||||||||
| Comparable gross profit adjusted for Certain Items using a constant currency basis (Non-GAAP) | $ | 10,449,987 | $ | 8,905,802 | $ | 1,544,185 | 17.3 | % | |||||||||||||||
| Gross margin (GAAP) | 18.15 | % | 17.87 | % | 28 bps | ||||||||||||||||||
|
Impact of inventory valuation adjustment
(2)
|
(0.01) | 0.06 | -7 bps | ||||||||||||||||||||
| Comparable gross margin adjusted for Certain Items (Non-GAAP) | 18.14 | 17.93 | 21 bps | ||||||||||||||||||||
|
Impact of currency fluctuations
(1)
|
0.05 | — | 5 bps | ||||||||||||||||||||
| Comparable gross margin adjusted for Certain Items using a constant currency basis (Non-GAAP) | 18.19 | % | 17.93 | % | 26 bps | ||||||||||||||||||
| Operating expenses (GAAP) | $ | 8,200,679 | $ | 7,303,932 | $ | 896,747 | 12.3 | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(3)
|
(38,288) | (70,058) | 31,770 | 45.3 | |||||||||||||||||||
|
Impact of acquisition-related costs
(4)
|
(87,419) | (103,449) | 16,030 | 15.5 | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(5)
|
4,425 | 19,216 | (14,791) | (77.0) | |||||||||||||||||||
| Operating expenses adjusted for Certain Items (Non-GAAP) | 8,079,397 | 7,149,641 | 929,756 | 13.0 | |||||||||||||||||||
|
Impact of currency fluctuations
(1)
|
179,277 | — | 179,277 | 2.5 | |||||||||||||||||||
| Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP) | $ | 8,258,674 | $ | 7,149,641 | $ | 1,109,033 | 15.5 | % | |||||||||||||||
| Operating expense as a percentage of sales (GAAP) | 14.49 | % | 14.70 | % | -21 bps | ||||||||||||||||||
| Impact of certain item adjustments | (0.21) | (0.31) | 10 bps | ||||||||||||||||||||
| Adjusted operating expense as a percentage of sales (Non-GAAP) | 14.28 | % | 14.39 | % | -11 bps | ||||||||||||||||||
| Operating income (GAAP) | $ | 2,069,152 | $ | 1,572,320 | $ | 496,832 | 31.6 | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(2)
|
(2,571) | 29,550 | (32,121) | NM | |||||||||||||||||||
|
Impact of restructuring and transformational project costs
(3)
|
38,288 | 70,058 | (31,770) | (45.3) | |||||||||||||||||||
|
Impact of acquisition-related costs
(4)
|
87,419 | 103,449 | (16,030) | (15.5) | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(5)
|
(4,425) | (19,216) | 14,791 | 77.0 | |||||||||||||||||||
| Operating income adjusted for Certain Items (Non-GAAP) | 2,187,863 | 1,756,161 | 431,702 | 24.6 | |||||||||||||||||||
|
Impact of currency fluctuations
(1)
|
3,449 | — | 3,449 | 0.2 | |||||||||||||||||||
| Comparable operating income adjusted for Certain Items using a constant currency basis (Non-GAAP) | $ | 2,191,312 | $ | 1,756,161 | $ | 435,151 | 24.8 | % | |||||||||||||||
42
| 39-Week Period Ended Apr. 1, 2023 | 39-Week Period Ended Apr. 2, 2022 | Change in Dollars | % Change | ||||||||||||||||||||
| Interest expense (GAAP) | $ | 391,123 | $ | 495,131 | $ | (104,008) | (21.0) | % | |||||||||||||||
| Impact of loss on extinguishment of debt | — | (115,603) | 115,603 | NM | |||||||||||||||||||
| Interest expense adjusted for Certain Items (Non-GAAP) | $ | 391,123 | $ | 379,528 | $ | 11,595 | 3.1 | % | |||||||||||||||
| Other expense (income) (GAAP) | $ | 350,614 | $ | (27,705) | $ | 378,319 | NM | ||||||||||||||||
|
Impact of other non-routine gains and losses
(6)
|
(315,326) | — | (315,326) | NM | |||||||||||||||||||
| Other expense (income) adjusted for Certain Items (Non-GAAP) | $ | 35,288 | $ | (27,705) | $ | 62,993 | NM | ||||||||||||||||
| Net earnings (GAAP) | $ | 1,036,388 | $ | 848,779 | $ | 187,609 | 22.1 | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(2)
|
(2,571) | 29,550 | (32,121) | NM | |||||||||||||||||||
|
Impact of restructuring and transformational project costs
(3)
|
38,288 | 70,058 | (31,770) | (45.3) | |||||||||||||||||||
|
Impact of acquisition-related costs
(4)
|
87,419 | 103,449 | (16,030) | (15.5) | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(5)
|
(4,425) | (19,216) | 14,791 | 77.0 | |||||||||||||||||||
| Impact of loss on extinguishment of debt | — | 115,603 | (115,603) | NM | |||||||||||||||||||
|
Impact of other non-routine gains and losses
(6)
|
315,326 | — | 315,326 | NM | |||||||||||||||||||
|
Tax impact of inventory valuation adjustment
(7)
|
648 | (7,449) | 8,097 | NM | |||||||||||||||||||
|
Tax impact of restructuring and transformational project costs
(7)
|
(9,649) | (17,661) | 8,012 | 45.4 | |||||||||||||||||||
|
Tax impact of acquisition-related costs
(7)
|
(22,031) | (26,079) | 4,048 | 15.5 | |||||||||||||||||||
|
Tax impact of bad debt reserves adjustments
(7)
|
1,115 | 4,844 | (3,729) | (77.0) | |||||||||||||||||||
|
Tax impact of loss on extinguishment of debt
(7)
|
— | (29,143) | 29,143 | NM | |||||||||||||||||||
|
Tax impact of other non-routine gains and losses
(7)
|
(79,466) | — | (79,466) | NM | |||||||||||||||||||
| Impact of adjustments to uncertain tax positions | — | 12,000 | (12,000) | NM | |||||||||||||||||||
| Net earnings adjusted for Certain Items (Non-GAAP) | $ | 1,361,042 | $ | 1,084,735 | $ | 276,307 | 25.5 | % | |||||||||||||||
| Diluted earnings per share (GAAP) | $ | 2.03 | $ | 1.65 | $ | 0.38 | 23.0 | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(2)
|
(0.01) | 0.06 | (0.07) | NM | |||||||||||||||||||
|
Impact of restructuring and transformational project costs
(3)
|
0.08 | 0.14 | (0.06) | (42.9) | |||||||||||||||||||
|
Impact of acquisition-related costs
(4)
|
0.17 | 0.20 | (0.03) | (15.0) | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(5)
|
(0.01) | (0.04) | 0.03 | 75.0 | |||||||||||||||||||
| Impact of loss on extinguishment of debt | — | 0.22 | (0.22) | NM | |||||||||||||||||||
|
Impact of other non-routine gains and losses
(6)
|
0.62 | — | 0.62 | NM | |||||||||||||||||||
|
Tax impact of inventory valuation adjustment
(7)
|
— | (0.01) | 0.01 | NM | |||||||||||||||||||
|
Tax impact of restructuring and transformational project costs
(7)
|
(0.02) | (0.03) | 0.01 | 33.3 | |||||||||||||||||||
|
Tax impact of acquisition-related costs
(7)
|
(0.04) | (0.05) | 0.01 | 20.0 | |||||||||||||||||||
|
Tax impact of bad debt reserves adjustments
(7)
|
— | 0.01 | (0.01) | NM | |||||||||||||||||||
|
Tax impact of loss on extinguishment of debt
(7)
|
— | (0.06) | 0.06 | NM | |||||||||||||||||||
|
Tax impact of other non-routine gains and losses
(7)
|
(0.16) | — | (0.16) | NM | |||||||||||||||||||
| Impact of adjustments to uncertain tax positions | — | 0.02 | (0.02) | NM | |||||||||||||||||||
|
Diluted earnings per share adjusted for Certain Items (Non-GAAP)
(8)
|
$ | 2.67 | $ | 2.11 | $ | 0.56 | 26.5 | % | |||||||||||||||
43
|
(1)
|
Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on the current year results.
|
||||
|
(2)
|
Fiscal 2023 represents an adjustment to a product return allowance, related to COVID-related personal protection equipment inventory. Fiscal 2022 represents a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory. | ||||
|
(3)
|
Fiscal 2023 includes $12 million related to restructuring, severance, and facility closure charges and $26 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy. 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 various restructuring, severance, and facility closure charges.
|
||||
|
(4)
|
Fiscal 2023 includes $78 million of intangible amortization expense and $9 million in acquisition and due diligence costs. Fiscal 2022 includes $75 million of intangible amortization expense and $28 million in acquisition and due diligence costs.
|
||||
|
(5)
|
Fiscal 2023 and fiscal 2022 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
|
||||
|
(6)
|
Fiscal 2023 primarily represents a pension settlement charge of $315 million that resulted from the purchase of a nonparticipating single premium group annuity contract that transferred defined benefit plan obligations to an insurer.
|
||||
|
(7)
|
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.
|
||||
|
(8)
|
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. | |||||
44
| 13-Week Period Ended Apr. 1, 2023 | 13-Week Period Ended Apr. 2, 2022 | Change in Dollars | %/bps Change | ||||||||||||||||||||
| U.S. FOODSERVICE OPERATIONS | |||||||||||||||||||||||
| Operating expenses (GAAP) | $ | 1,690,093 | $ | 1,523,578 | $ | 166,515 | 10.9 | % | |||||||||||||||
| Impact of restructuring and transformational project costs | (159) | 2,543 | (2,702) | NM | |||||||||||||||||||
|
Impact of acquisition-related costs
(1)
|
(11,463) | (10,505) | (958) | (9.1) | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
(81) | 5,060 | (5,141) | NM | |||||||||||||||||||
| Operating expenses adjusted for Certain Items (Non-GAAP) | $ | 1,678,390 | $ | 1,520,676 | $ | 157,714 | 10.4 | % | |||||||||||||||
| Operating income (GAAP) | $ | 855,766 | $ | 746,467 | $ | 109,299 | 14.6 | % | |||||||||||||||
| Impact of restructuring and transformational project costs | 159 | (2,543) | 2,702 | NM | |||||||||||||||||||
|
Impact of acquisition-related costs
(1)
|
11,463 | 10,505 | 958 | 9.1 | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
81 | (5,060) | 5,141 | NM | |||||||||||||||||||
| Operating income adjusted for Certain Items (Non-GAAP) | $ | 867,469 | $ | 749,369 | $ | 118,100 | 15.8 | % | |||||||||||||||
| INTERNATIONAL FOODSERVICE OPERATIONS | |||||||||||||||||||||||
| Sales (GAAP) | $ | 3,344,121 | $ | 2,834,089 | $ | 510,032 | 18.0 | % | |||||||||||||||
|
Impact of currency fluctuations
(3)
|
206,661 | — | 206,661 | 7.3 | |||||||||||||||||||
| Comparable sales using a constant currency basis (Non-GAAP) | $ | 3,550,782 | $ | 2,834,089 | $ | 716,693 | 25.3 | % | |||||||||||||||
| Gross profit (GAAP) | $ | 642,778 | $ | 570,241 | $ | 72,537 | 12.7 | % | |||||||||||||||
|
Impact of currency fluctuations
(3)
|
40,245 | — | 40,245 | 7.1 | |||||||||||||||||||
| Comparable gross profit using a constant currency basis (Non-GAAP) | $ | 683,023 | $ | 570,241 | $ | 112,782 | 19.8 | % | |||||||||||||||
| Gross margin (GAAP) | 19.22 | % | 20.12 | % | -90 bps | ||||||||||||||||||
|
Impact of currency fluctuations
(3)
|
0.02 | — | 2 bps | ||||||||||||||||||||
| Comparable gross margin using a constant currency basis (Non-GAAP) | 19.24 | % | 20.12 | % | -88 bps | ||||||||||||||||||
| Operating expenses (GAAP) | $ | 594,426 | $ | 562,481 | $ | 31,945 | 5.7 | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(4)
|
(2,103) | (9,379) | 7,276 | 77.6 | |||||||||||||||||||
|
Impact of acquisition-related costs
(5)
|
(16,585) | (18,142) | 1,557 | 8.6 | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
(10) | 657 | (667) | NM | |||||||||||||||||||
| Operating expenses adjusted for Certain Items (Non-GAAP) | 575,728 | 535,617 | 40,111 | 7.5 | |||||||||||||||||||
|
Impact of currency fluctuations
(3)
|
37,070 | — | 37,070 | 6.9 | |||||||||||||||||||
| Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP) | $ | 612,798 | $ | 535,617 | $ | 77,181 | 14.4 | % | |||||||||||||||
| Operating income (GAAP) | $ | 48,352 | $ | 7,760 | $ | 40,592 | NM | ||||||||||||||||
|
Impact of restructuring and transformational project costs
(4)
|
2,103 | 9,379 | (7,276) | (77.6) | |||||||||||||||||||
|
Impact of acquisition-related costs
(5)
|
16,585 | 18,142 | (1,557) | (8.6) | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
10 | (657) | 667 | NM | |||||||||||||||||||
| Operating income adjusted for Certain Items (Non-GAAP) | 67,050 | 34,624 | 32,426 | 93.7 | |||||||||||||||||||
|
Impact of currency fluctuations
(3)
|
3,175 | — | 3,175 | NM | |||||||||||||||||||
| Comparable operating income adjusted for Certain Items using a constant currency basis (Non-GAAP) | $ | 70,225 | $ | 34,624 | $ | 35,601 | NM | ||||||||||||||||
| SYGMA | |||||||||||||||||||||||
| Operating expenses (GAAP) | $ | 140,665 | $ | 142,883 | $ | (2,218) | (1.6) | % | |||||||||||||||
| Operating income (GAAP) | 25,439 | 4,362 | 21,077 | NM | |||||||||||||||||||
| OTHER | |||||||||||||||||||||||
| Operating expenses (GAAP) | $ | 67,615 | $ | 59,369 | $ | 8,246 | 13.9 | % | |||||||||||||||
45
| 13-Week Period Ended Apr. 1, 2023 | 13-Week Period Ended Apr. 2, 2022 | Change in Dollars | %/bps Change | ||||||||||||||||||||
| Operating income (loss) (GAAP) | $ | 11,836 | $ | (3,972) | $ | 15,808 | NM | ||||||||||||||||
| GLOBAL SUPPORT CENTER | |||||||||||||||||||||||
| Gross loss (GAAP) | $ | (2,832) | $ | (29,534) | $ | 26,702 | 90.4 | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(6)
|
— | 29,550 | (29,550) | NM | |||||||||||||||||||
| Comparable gross (loss) profit adjusted for Certain Items (Non-GAAP) | $ | (2,832) | $ | 16 | $ | (2,848) | NM | ||||||||||||||||
| Operating expenses (GAAP) | $ | 244,384 | $ | 229,354 | $ | 15,030 | 6.6 | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(7)
|
(9,992) | (12,335) | 2,343 | 19.0 | |||||||||||||||||||
|
Impact of acquisition-related costs
(8)
|
(956) | (8,052) | 7,096 | 88.1 | |||||||||||||||||||
| Operating expenses adjusted for Certain Items (Non-GAAP) | $ | 233,436 | $ | 208,967 | $ | 24,469 | 11.7 | % | |||||||||||||||
| Operating loss (GAAP) | $ | (247,216) | $ | (258,888) | $ | 11,672 | 4.5 | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(6)
|
— | 29,550 | (29,550) | NM | |||||||||||||||||||
|
Impact of restructuring and transformational project costs
(7)
|
9,992 | 12,335 | (2,343) | (19.0) | |||||||||||||||||||
|
Impact of acquisition-related costs
(8)
|
956 | 8,052 | (7,096) | (88.1) | |||||||||||||||||||
| Operating loss adjusted for Certain Items (Non-GAAP) | $ | (236,268) | $ | (208,951) | $ | (27,317) | (13.1) | % | |||||||||||||||
|
(1)
|
Fiscal 2023 and fiscal 2022 include intangible amortization expense and acquisition costs. | ||||
|
(2)
|
Fiscal 2023 and fiscal 2022 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020. | ||||
|
(3)
|
Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on current year results. | ||||
|
(4)
|
Includes restructuring and facility closure costs primarily in Europe. | ||||
|
(5)
|
Represents intangible amortization expense.
|
||||
|
(6)
|
Fiscal 2022 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. | |||||
46
| 39-Week Period Ended Apr. 1, 2023 | 39-Week Period Ended Apr. 2, 2022 | Change in Dollars | % Change | ||||||||||||||||||||
| U.S. FOODSERVICE OPERATIONS | |||||||||||||||||||||||
| Operating expenses (GAAP) | $ | 5,110,736 | $ | 4,373,665 | $ | 737,071 | 16.9 | % | |||||||||||||||
| Impact of restructuring and transformational project costs | (203) | (383) | 180 | 47.0 | |||||||||||||||||||
|
Impact of acquisition-related costs
(1)
|
(35,563) | (25,382) | (10,181) | (40.1) | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
4,170 | 16,729 | (12,559) | (75.1) | |||||||||||||||||||
| Operating expenses adjusted for Certain Items (Non-GAAP) | $ | 5,079,140 | $ | 4,364,629 | $ | 714,511 | 16.4 | % | |||||||||||||||
| Operating income (GAAP) | $ | 2,540,555 | $ | 2,220,812 | $ | 319,743 | 14.4 | % | |||||||||||||||
| Impact of restructuring and transformational project costs | 203 | 383 | (180) | (47.0) | |||||||||||||||||||
|
Impact of acquisition-related costs
(1)
|
35,563 | 25,382 | 10,181 | 40.1 | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
(4,170) | (16,729) | 12,559 | 75.1 | |||||||||||||||||||
| Operating income adjusted for Certain Items (Non-GAAP) | $ | 2,572,151 | $ | 2,229,848 | $ | 342,303 | 15.4 | % | |||||||||||||||
| INTERNATIONAL FOODSERVICE OPERATIONS | |||||||||||||||||||||||
| Sales (GAAP) | $ | 9,910,267 | $ | 8,535,608 | $ | 1,374,659 | 16.1 | % | |||||||||||||||
|
Impact of currency fluctuations
(3)
|
848,166 | — | 848,166 | 9.9 | |||||||||||||||||||
| Comparable sales using a constant currency basis (Non-GAAP) | $ | 10,758,433 | $ | 8,535,608 | $ | 2,222,825 | 26.0 | % | |||||||||||||||
| Gross profit (GAAP) | $ | 1,916,503 | $ | 1,725,306 | $ | 191,197 | 11.1 | % | |||||||||||||||
|
Impact of currency fluctuations
(3)
|
177,854 | — | 177,854 | 10.3 | |||||||||||||||||||
| Comparable gross profit using a constant currency basis (Non-GAAP) | $ | 2,094,357 | $ | 1,725,306 | $ | 369,051 | 21.4 | % | |||||||||||||||
| Gross margin (GAAP) | 19.34 | % | 20.21 | % | -87 bps | ||||||||||||||||||
|
Impact of currency fluctuations
(3)
|
0.13 | — | 13 bps | ||||||||||||||||||||
| Comparable gross margin using a constant currency basis (Non-GAAP) | 19.47 | % | 20.21 | % | -74 bps | ||||||||||||||||||
| Operating expenses (GAAP) | $ | 1,723,558 | $ | 1,670,125 | $ | 53,433 | 3.2 | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(4)
|
(11,597) | (30,426) | 18,829 | 61.9 | |||||||||||||||||||
|
Impact of acquisition-related costs
(5)
|
(48,534) | (55,273) | 6,739 | 12.2 | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
255 | 2,488 | (2,233) | (89.8) | |||||||||||||||||||
| Operating expenses adjusted for Certain Items (Non-GAAP) | 1,663,682 | 1,586,914 | 76,768 | 4.8 | |||||||||||||||||||
|
Impact of currency fluctuations
(3)
|
163,005 | — | 163,005 | 10.3 | |||||||||||||||||||
| Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP) | $ | 1,826,687 | $ | 1,586,914 | $ | 239,773 | 15.1 | % | |||||||||||||||
| Operating income (GAAP) | $ | 192,945 | $ | 55,181 | $ | 137,764 | NM | ||||||||||||||||
|
Impact of restructuring and transformational project costs
(4)
|
11,597 | 30,426 | (18,829) | (61.9) | |||||||||||||||||||
|
Impact of acquisition-related costs
(5)
|
48,534 | 55,273 | (6,739) | (12.2) | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
(255) | (2,488) | 2,233 | 89.8 | |||||||||||||||||||
| Operating income adjusted for Certain Items (Non-GAAP) | 252,821 | 138,392 | 114,429 | 82.7 | |||||||||||||||||||
|
Impact of currency fluctuations
(3)
|
14,849 | — | 14,849 | 10.7 | |||||||||||||||||||
| Comparable operating income adjusted for Certain Items using a constant currency basis (Non-GAAP) | $ | 267,670 | $ | 138,392 | $ | 129,278 | 93.4 | % | |||||||||||||||
47
| 39-Week Period Ended Apr. 1, 2023 | 39-Week Period Ended Apr. 2, 2022 | Change in Dollars | % Change | ||||||||||||||||||||
| SYGMA | |||||||||||||||||||||||
| Sales (GAAP) | $ | 5,839,051 | $ | 5,270,193 | $ | 568,858 | 10.8 | % | |||||||||||||||
| Gross profit (GAAP) | 470,458 | 422,354 | 48,104 | 11.4 | |||||||||||||||||||
| Gross margin (GAAP) | 8.06 | % | 8.01 | % | 5 bps | ||||||||||||||||||
| Operating expenses (GAAP) | $ | 432,743 | $ | 427,168 | $ | 5,575 | 1.3 | % | |||||||||||||||
| Operating income (loss) (GAAP) | 37,715 | (4,814) | 42,529 | NM | |||||||||||||||||||
| OTHER | |||||||||||||||||||||||
| Operating expenses (GAAP) | $ | 204,345 | $ | 166,560 | $ | 37,785 | 22.7 | % | |||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
— | (1) | 1 | NM | |||||||||||||||||||
| Operating expenses adjusted for Certain Items (Non-GAAP) | $ | 204,345 | $ | 166,559 | $ | 37,786 | 22.7 | % | |||||||||||||||
| Operating income (GAAP) | $ | 33,255 | $ | 2,667 | $ | 30,588 | NM | ||||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
— | 1 | (1) | NM | |||||||||||||||||||
| Operating income adjusted for Certain Items (Non-GAAP) | $ | 33,255 | $ | 2,668 | $ | 30,587 | NM | ||||||||||||||||
| GLOBAL SUPPORT CENTER | |||||||||||||||||||||||
| Gross loss (GAAP) | $ | (6,021) | $ | (35,112) | $ | 29,091 | 82.9 | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(6)
|
(2,571) | 29,550 | (32,121) | NM | |||||||||||||||||||
| Comparable gross loss adjusted for Certain Items (Non-GAAP) | $ | (8,592) | $ | (5,562) | $ | (3,030) | (54.5) | % | |||||||||||||||
| Operating expenses (GAAP) | $ | 729,297 | $ | 666,414 | $ | 62,883 | 9.4 | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(7)
|
(26,488) | (39,249) | 12,761 | 32.5 | |||||||||||||||||||
|
Impact of acquisition-related costs
(8)
|
(3,322) | (22,794) | 19,472 | 85.4 | |||||||||||||||||||
| Operating expenses adjusted for Certain Items (Non-GAAP) | $ | 699,487 | $ | 604,371 | $ | 95,116 | 15.7 | % | |||||||||||||||
| Operating loss (GAAP) | $ | (735,318) | $ | (701,526) | $ | (33,792) | (4.8) | % | |||||||||||||||
|
Impact of inventory valuation adjustment
(6)
|
(2,571) | 29,550 | (32,121) | NM | |||||||||||||||||||
|
Impact of restructuring and transformational project costs
(7)
|
26,488 | 39,249 | (12,761) | (32.5) | |||||||||||||||||||
|
Impact of acquisition-related costs
(8)
|
3,322 | 22,794 | (19,472) | (85.4) | |||||||||||||||||||
| Operating loss adjusted for Certain Items (Non-GAAP) | $ | (708,079) | $ | (609,933) | $ | (98,146) | (16.1) | % | |||||||||||||||
|
(1)
|
Fiscal 2023 and fiscal 2022 include intangible amortization expense and acquisition costs. | ||||
|
(2)
|
Fiscal 2023 and fiscal 2022 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
|
||||
|
(3)
|
Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on current year results.
|
||||
|
(4)
|
Includes restructuring, severance and facility closure costs primarily in Europe.
|
||||
|
(5)
|
Represents intangible amortization expense.
|
||||
|
(6)
|
Fiscal 2023 represents an adjustment to a product return allowance, related to COVID-related personal protection equipment inventory. Fiscal 2022 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. | |||||
48
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 2022 Form 10-K for discussions regarding 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. 1, 2023 | 13-Week Period Ended Apr. 2, 2022 | Change in Dollars | % Change | ||||||||||||||||||||
| Net earnings (GAAP) | $ | 429,604 | $ | 303,325 | $ | 126,279 | 41.6 | % | |||||||||||||||
| Interest (GAAP) | 134,931 | 124,018 | 10,913 | 8.8 | |||||||||||||||||||
| Income taxes (GAAP) | 124,433 | 82,163 | 42,270 | 51.4 | |||||||||||||||||||
| Depreciation and amortization (GAAP) | 195,996 | 193,843 | 2,153 | 1.1 | |||||||||||||||||||
| EBITDA (Non-GAAP) | $ | 884,964 | $ | 703,349 | $ | 181,615 | 25.8 | % | |||||||||||||||
| Certain Item adjustments: | |||||||||||||||||||||||
|
Impact of inventory valuation adjustment
(1)
|
$ | — | $ | 29,550 | $ | (29,550) | NM | ||||||||||||||||
|
Impact of restructuring and transformational project costs
(2)
|
11,890 | 18,746 | (6,856) | (36.6) | |||||||||||||||||||
|
Impact of acquisition-related costs
(3)
|
2,349 | 9,861 | (7,512) | (76.2) | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(4)
|
90 | (5,717) | 5,807 | 101.6 | |||||||||||||||||||
| Impact of other non-routine gains and losses | 448 | — | 448 | NM | |||||||||||||||||||
|
EBITDA adjusted for Certain Items (Non-GAAP)
(5)
|
$ | 899,741 | $ | 755,789 | $ | 143,952 | 19.0 | % | |||||||||||||||
|
(1)
|
Fiscal 2022 represents a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory. | ||||
|
(2)
|
Fiscal 2023 and fiscal 2022 include charges related to restructuring, severance, and facility closures, as well as various transformation initiative costs, primarily consisting of changes to our business technology strategy, excluding charges related to accelerated depreciation.
|
||||
|
(3)
|
Fiscal 2023 and fiscal 2022 include acquisition and due diligence costs. | ||||
|
(4)
|
Fiscal 2023 and fiscal 2022 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 $7 million and $2 million or non-cash stock compensation expense of $21 million and $30 million in fiscal 2023 and fiscal 2022, respectively.
|
||||
| NM represents that the percentage change is not meaningful. | |||||
49
| 39-Week Period Ended Apr. 1, 2023 | 39-Week Period Ended Apr. 2, 2022 | Change in Dollars | % Change | ||||||||||||||||||||
| Net earnings (GAAP) | $ | 1,036,388 | $ | 848,779 | $ | 187,609 | 22.1 | % | |||||||||||||||
| Interest (GAAP) | 391,123 | 495,131 | (104,008) | (21.0) | |||||||||||||||||||
| Income taxes (GAAP) | 291,027 | 256,115 | 34,912 | 13.6 | |||||||||||||||||||
| Depreciation and amortization (GAAP) | 574,945 | 571,606 | 3,339 | 0.6 | |||||||||||||||||||
| EBITDA (Non-GAAP) | $ | 2,293,483 | $ | 2,171,631 | $ | 121,852 | 5.6 | % | |||||||||||||||
| Certain Item adjustments: | |||||||||||||||||||||||
|
Impact of inventory valuation adjustment
(1)
|
$ | (2,571) | $ | 29,550 | $ | (32,121) | (108.7) | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(2)
|
37,192 | 69,093 | (31,901) | (46.2) | |||||||||||||||||||
|
Impact of acquisition-related costs
(3)
|
8,944 | 28,260 | (19,316) | (68.4) | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(4)
|
(4,425) | (19,216) | 14,791 | 77.0 | |||||||||||||||||||
|
Impact of other non-routine gains and losses
(5)
|
315,326 | — | 315,326 | NM | |||||||||||||||||||
|
EBITDA adjusted for Certain Items (Non-GAAP)
(6)
|
$ | 2,647,949 | $ | 2,279,318 | $ | 368,631 | 16.2 | % | |||||||||||||||
|
(1)
|
Fiscal 2023 represents an adjustment to a product return allowance, related to COVID-related personal protection equipment inventory. Fiscal 2022 represents a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory. | ||||
|
(2)
|
Fiscal 2023 and fiscal 2022 include charges related to restructuring, severance, and facility closures, as well as various transformation initiative costs, primarily consisting of changes to our business technology strategy, excluding charges related to accelerated depreciation.
|
||||
|
(3)
|
Fiscal 2023 and fiscal 2022 include acquisition and due diligence costs. | ||||
|
(4)
|
Fiscal 2023 and fiscal 2022 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020. | ||||
|
(5)
|
Fiscal 2023 primarily represents a pension settlement charge of $315 million that resulted from the purchase of a nonparticipating single premium group annuity contract that transferred defined benefit plan obligations to an insurer.
|
||||
|
(6)
|
In arriving at adjusted EBITDA, Sysco does not adjust out interest income of $15 million and $5 million or non-cash stock compensation expense of $73 million and $91 million for fiscal 2023 and fiscal 2022, respectively. | ||||
| NM represents that the percentage change is not meaningful. | |||||
Liquidity and Capital Resources
Highlights
We produced positive free cash flow in a period of higher capital expenditures and investments towards our Recipe for Growth strategy. In the table that follows, free cash flow for each period presented is reconciled to net cash provided by operating activities and comparisons of the significant cash flows from the first 39 weeks of fiscal 2023 to the first 39 weeks of fiscal 2022 are provided.
On September 2, 2022, we upsized our commercial paper program to $3.0 billion. The commercial paper program allows the company to issue short-term, senior unsecured notes. The notes are
pari passu
with the company’s other senior unsecured debt, including its senior notes and revolving credit facility. We intend to use any proceeds from the commercial paper program for general corporate purposes.
50
| 39-Week Period Ended Apr. 1, 2023 | 39-Week Period Ended Apr. 2, 2022 | ||||||||||
| Source of cash (use of cash) | (In thousands) | ||||||||||
| Net cash provided by operating activities (GAAP) | $ | 1,425,782 | $ | 745,871 | |||||||
| Additions to plant and equipment | (474,456) | (327,535) | |||||||||
| Proceeds from sales of plant and equipment | 28,313 | 15,946 | |||||||||
|
Free Cash Flow (Non-GAAP)
(1)
|
$ | 979,639 | $ | 434,282 | |||||||
| Acquisition of businesses, net of cash acquired | $ | (37,384) | $ | (1,281,835) | |||||||
| Debt borrowings (repayments), net | 92,917 | 1,213,114 | |||||||||
| Redemption premiums and repayments for senior notes | — | (1,395,668) | |||||||||
| Stock repurchases | (377,800) | (415,824) | |||||||||
| Dividends paid | (747,378) | (719,865) | |||||||||
|
(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 2022 Form 10-K for discussions regarding this non-GAAP performance metric.
|
||||
Sources and Uses of Cash
Sysco generates cash in the U.S and internationally. As of April 1, 2023, we had $757.9 million in cash and cash equivalents, approximately 75% of which was held by our international subsidiaries. Sysco’s strategic objectives are funded primarily by cash from operations and external borrowings. Traditionally, our operations have produced significant cash flow and, due to our strong financial position, we believe that we will continue to be able to effectively access capital markets, as needed. Cash is generally allocated to working capital requirements, investments compatible with our overall growth strategy (organic and inorganic), debt management, and shareholder return. Remaining cash balances are invested in high-quality, short-term instruments.
We believe our cash flow from operations, the availability of liquidity under our commercial paper program and our revolving credit facility, and our ability to access capital from financial markets will be sufficient to meet our anticipated cash requirements for more than the next 12 months, while maintaining sufficient liquidity for normal operating purposes.
Cash Flows
Operating Activities
We generated $1.4 billion in cash flows from operations in the first 39 weeks of fiscal 2023, compared to cash flows from operations of $745.9 million in the first 39 weeks of fiscal 2022. In the first 39 weeks of fiscal 2023, these amounts included year-over-year favorable comparisons on working capital of $300.2 million due to a favorable comparison on accounts receivable and inventory, partially offset by an unfavorable comparison on accounts payable. Accrued expenses also had an unfavorable comparison, primarily from accrued payroll in the first 39 weeks of fiscal 2023 in comparison to the first 39 weeks of fiscal 2022. Income taxes positively impacted cash flows from operations, as estimated payments made in the first 39 weeks of fiscal 2023 were lower than in fiscal 2022 due to overpayments in the prior year.
Investing Activities
Our capital expenditures in the first 39 weeks of fiscal 2023 consisted primarily of investments in buildings and building improvements, technology equipment, warehouse equipment, and fleet. Our capital expenditures in the first 39 weeks of fiscal 2023 were $146.9 million higher than in the first 39 weeks of fiscal 2022, as we made investments to advance our Recipe for Growth strategy.
During the first 39 weeks of fiscal 2023, we paid $37.4 million, net of cash acquired, for acquisitions compared to $1.3 billion in acquisitions made in the first 39 weeks of fiscal 2022.
51
Financing Activities
Equity Transactions
Proceeds from exercises of share-based compensation awards were $67.1 million in the first 39 weeks of fiscal 2023, as compared to $89.2 million in the first 39 weeks of fiscal 2022. The level of option exercises, and thus proceeds, will vary from period to period and is largely dependent on movements in our stock price and the time remaining before option grants expire.
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 4.6 million shares for $377.8 million during the first 39 weeks of fiscal 2023, and intend to repurchase $500 million in fiscal 2023. As of April 1, 2023, we had a remaining authorization of approximately $4.1 billion.
Dividends paid in the first 39 weeks of fiscal 2023 were $747.4 million, or $1.47 per share, as compared to $719.9 million, or $1.41 per share, in the first 39 weeks of fiscal 2022. In February 2023, we declared our regular quarterly dividend for the third quarter of fiscal 2023 of $0.49 per share, which was paid in April. In April 2023, we declared our regular quarterly dividend for the fourth quarter of fiscal 2023 of $0.50 per share, representing an increase of $0.01 per share. This dividend will be payable in July 2023.
Debt Activity and Borrowing Availability
Our debt activity, including issuances and repayments, if any, and our borrowing availability are 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 1, 2023 are disclosed within that note.
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 1, 2023, Sysco had a total of $10.0 billion in senior notes, debentures and borrowings under the long-term revolving credit facility that were guaranteed by these subsidiary guarantors. Our remaining consolidated subsidiaries (non-guarantor subsidiaries) are not obligated under the senior notes indenture, debentures indenture or our long-term revolving credit facility. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” contained in our fiscal 2022 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.
52
| Combined Parent and Guarantor Subsidiaries Summarized Balance Sheet | Apr. 1, 2023 | Jul. 2, 2022 | ||||||||||||
| (In thousands) | ||||||||||||||
| ASSETS | ||||||||||||||
| Receivables due from non-obligor subsidiaries | $ | 129,217 | $ | 264,378 | ||||||||||
| Current assets | 5,596,334 | 5,658,972 | ||||||||||||
| Total current assets | $ | 5,725,551 | $ | 5,923,350 | ||||||||||
| Notes receivable from non-obligor subsidiaries | $ | 88,433 | $ | 91,067 | ||||||||||
| Other noncurrent assets | 4,052,080 | 3,910,951 | ||||||||||||
| Total noncurrent assets | $ | 4,140,513 | $ | 4,002,018 | ||||||||||
| LIABILITIES | ||||||||||||||
| Payables due to non-obligor subsidiaries | $ | 59,808 | $ | 62,441 | ||||||||||
| Other current liabilities | 2,793,576 | 2,765,756 | ||||||||||||
| Total current liabilities | $ | 2,853,384 | $ | 2,828,197 | ||||||||||
| Notes payable to non-obligor subsidiaries | $ | 178,392 | $ | 315,753 | ||||||||||
| Long-term debt | 9,709,004 | 9,501,842 | ||||||||||||
| Other noncurrent liabilities | 1,246,097 | 1,190,177 | ||||||||||||
| Total noncurrent liabilities | $ | 11,133,493 | $ | 11,007,772 | ||||||||||
| Combined Parent and Guarantor Subsidiaries Summarized Results of Operations | 39-Week Period Ended Apr. 1, 2023 | |||||||
| (In thousands) | ||||||||
| Sales | $ | 35,614,819 | ||||||
| Gross profit | 6,442,097 | |||||||
| Operating income | 1,791,173 | |||||||
| Interest expense from non-obligor subsidiaries | 13,991 | |||||||
| Net earnings | 792,757 | |||||||
Critical Accounting Policies and Estimates
Critical accounting policies and estimates are those that are most important to the portrayal of our financial position and results of operations. These policies require our most subjective or complex judgments, often employing the use of estimates about the effect of matters that are inherently uncertain. We have reviewed with the Audit Committee of the Board of Directors the development and selection of the critical accounting policies and estimates and this related disclosure. Our most critical accounting policies and estimates pertain to goodwill and intangible assets, income taxes, company-sponsored pension plans, allowance for doubtful accounts and inventory valuation, which are described in Item 7 of our fiscal 2022 Form 10-K and updated below.
Company-Sponsored Pension Plans
Amounts related to defined benefit plans recognized in the financial statements are determined on an actuarial basis. Two of the more critical assumptions in the actuarial calculations are the discount rate for determining the current value of plan benefits and the expected rate of return on plan assets. Our U.S. Retirement Plan is largely frozen and is only open to a small number of employees. Our Supplemental Executive Retirement Plan is frozen and is not open to any employees. None of these plans have a significant sensitivity to changes in discount rates s
pecific to our results of operations, but such changes could impact our balance sheet due to a change in our funded status. Due to the low level of active employees in our retirement plans, our assumption for the rate of increase in future compensation is n
ot a critical assumption.
53
In the second quarter of fiscal 2023, The Sysco Corporation Retirement Plan (the Plan), executed a commitment agreement to purchase a nonparticipating single premium group annuity contract that transferred $695.0 million of the Plan’s defined benefit pension obligations related to certain pension benefits. As a result of the transaction, we recognized a one-time, non-cash pre-tax pension settlement charge of $315.4 million in the second quarter of fiscal 2023.
As a result of this transaction occurring, the expected long-term rate of return used in the calculation of on-going company-sponsored benefit costs for the U.S. Retirement Plan for the remainder of fiscal 2023 was reassessed and updated to 6.00% in the second quarter of fiscal 2023, as compared to the expected long-term rate of return of 4.50% that was determined for fiscal 2023 in our fiscal 2022 Form 10-K. This update is primarily due to increases in interest rates, given that 70% of the Plan’s assets are invested in fixed income. The expectations of future returns are derived from a mathematical asset model that incorporates assumptions as to the various asset class returns, reflecting a combination of historical performance analysis and the forward-looking views of the financial markets regarding the yield on bonds, historical returns of the major stock markets and returns on alternative investments. The rate of return assumption is reviewed annually and revised as deemed appropriate.
Pension accounting standards require the recognition of the funded status of our defined benefit plans in the statement of financial position, with a corresponding adjustment to accumulated other comprehensive income, net of tax. The amount reflected in accumulated other comprehensive loss related to the recognition of the funded status of our defined benefit plans as of April 1, 2023 was a charge, net of tax, of $823.8 million, as compared to a charge, net of tax, of $1.0 billion as of July 2, 2022. The decrease in the amount reflected in accumulated other comprehensive loss is due to a portion of it being recognized in earnings as a result of the settlement that took place in the second quarter of fiscal 2023.
Forward-Looking Statements
Certain statements made herein that look forward in time or express management’s expectations or beliefs with respect to the occurrence of future events are forward-looking statements under the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” “projected,” “continues,” “continuously,” variations of such terms, and similar terms and phrases denoting anticipated or expected occurrences or results. Examples of forward-looking statements include, but are not limited to, statements about:
•
the effect, impact, potential duration or other implications of the COVID-19 pandemic and any expectations we may have with respect thereto, including our ability to withstand and recover from the crisis;
•
our expectations of an improving market over the course of fiscal 2023;
•
our expectations regarding the ability of our supply chain and facilities to remain in place and operational;
•
our plans regarding our transformation initiatives and the expected effects from such initiatives, including the Sysco Driver Academy;
•
statements regarding uncollectible accounts, including that if collections continue to improve, additional reductions in bad debt expense could occur;
•
our expectations that our Recipe for Growth strategy will allow us to better serve our customers and differentiate Sysco from our competition;
•
our expectations regarding our fiscal 2023 sales and our rate of sales growth in fiscal 2023 and the three years of our long-range plan;
•
our expectations regarding the impact of inflation on sales, gross margin rates and gross profit dollars;
•
our expectations regarding gross margins in fiscal 2023;
•
our plans regarding cost savings, including our target for cost savings through fiscal 2024 and the impact of costs savings on the company;
54
•
our belief that our purpose will allow us to grow substantially faster than the foodservice distribution industry and deliver profitable growth through our Recipe for Growth transformation, and statements regarding our plans with respect to our strategic pillars that support this growth transformation;
•
our expectations regarding the use and investment of remaining cash generated from operations;
•
the expected long-term rate of return on plan assets of the U.S. Retirement Plan;
•
the sufficiency of our available liquidity to sustain our operations for multiple years;
•
estimates regarding the outcome of legal proceedings;
•
the impact of seasonal trends on our free cash flow;
•
estimates regarding our capital expenditures and the sources of financing for our capital expenditures;
•
our expectations regarding the impact of potential acquisitions and sales of assets on our liquidity, borrowing capacity, leverage ratios and capital availability;
•
our expectations regarding real sales growth in the U.S. foodservice market and trends in produce markets;
•
our expectations regarding the calculation of adjusted return on invested capital, adjusted operating income, adjusted net earnings and adjusted diluted earnings per share;
•
our expectations regarding the impact of future Certain Items on our projected future non-GAAP and GAAP results;
•
our expectations regarding our effective tax rate in fiscal 2023;
•
the sufficiency of our mechanisms for managing working capital and competitive pressures, and our beliefs regarding the impact of these mechanisms;
•
our ability to meet future cash requirements, including the ability to access financial markets effectively, including issuances of debt securities, and maintain sufficient liquidity;
•
our expectations regarding the payment of dividends, and the growth of our dividend, in the future;
•
our expectations regarding future activity under our share repurchase program;
•
future compliance with the covenants under our revolving credit facility;
•
our ability to effectively access the commercial paper market and long-term capital markets;
•
the expected maturity of $538.6 million of debt in the next 12 months;
•
our intention to repay our long-term debt with cash on hand, cash flow from operations, issuances of commercial paper, issuances of senior notes, or a combination thereof.
These statements are based on management’s current expectations and estimates; actual results may differ materially due in part to the risk factors set forth below, those within Part II, Item 1A of this document and those discussed in Item 1A of our fiscal 2022 Form 10-K:
•
the impact and effects of public health crises, pandemics and epidemics, such as the recent outbreak of COVID-19, and the adverse impact thereof on our business, financial condition and results of operations;
55
•
the risk that if sales from our locally managed customers do not grow at the same rate as sales from multi-unit customers, our gross margins may decline;
•
periods of significant or prolonged inflation or deflation and their impact on our product costs and profitability generally;
•
the risk that we are unlikely to be able to predict inflation over the long term, and lower inflation is likely to produce lower gross profit;
•
the risk that our efforts to modify truck routing, including our small truck initiative, in order to reduce outbound transportation costs may be unsuccessful;
•
the risk that we may not be able to accelerate and/or identify additional administrative cost savings in order to compensate for any gross profit or supply chain cost leverage challenges;
•
risks related to unfavorable conditions in the Americas and Europe and the impact on our results of operations and financial condition;
•
the risks related to our efforts to implement our transformation initiatives and meet our other long-term strategic objectives, including the risk that these efforts may not provide the expected benefits in our anticipated time frame, if at all, and may prove costlier than expected;
•
the impact of unexpected future changes to our business initiatives based on management’s subjective evaluation of our overall business needs;
•
the risk that the actual costs of any business initiatives may be greater or less than currently expected;
•
the risk that competition in our industry and the impact of GPOs may adversely impact our margins and our ability to retain customers and make it difficult for us to maintain our market share, growth rate and profitability;
•
the risk that our relationships with long-term customers may be materially diminished or terminated;
•
the risk that changes in consumer eating habits could materially and adversely affect our business, financial condition, or results of operations;
•
the risk that changes in applicable tax laws or regulations and the resolution of tax disputes could negatively affect our financial results;
•
the risk that we may not be able to fully compensate for increases in fuel costs, and forward purchase commitments intended to contain fuel costs could result in above market fuel costs;
•
the risk of interruption of supplies and increase in product costs as a result of conditions beyond our control;
•
the potential impact on our reputation and earnings of adverse publicity or lack of confidence in our products;
•
risks related to unfavorable changes to the mix of locally managed customers versus corporate-managed customers;
•
the risk that we may not realize anticipated benefits from our operating cost reduction efforts;
•
difficulties in successfully expanding into international markets and complimentary lines of business;
•
the potential impact of product liability claims;
56
•
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 Brexit may adversely impact our operations in the U.K., including those of the Brakes Group, as well as our operations throughout the European Union (EU);
•
the risk that future labor disruptions or disputes could disrupt the integration of Brake France and Davigel into Sysco France and our operations in France and the EU generally;
•
the risk that factors beyond management’s control, including fluctuations in the stock market, as well as management’s future subjective evaluation of the company’s needs, would impact the timing of share repurchases;
•
due to our reliance on technology, any technology disruption or delay in implementing new technology could have a material negative impact on our business;
•
the risk that a cybersecurity incident and other technology disruptions could negatively impact our business and our relationships with customers;
•
the risk that changes in the method of determining LIBOR, or the replacement of LIBOR with an alternative reference rate, may adversely affect interest expense related to outstanding debt;
•
the potential requirement to pay material amounts under our multiemployer defined benefit pension plans;
•
our funding requirements for our company-sponsored qualified pension plan may increase should financial markets experience future declines;
•
labor issues, including the renegotiation of union contracts and shortage of qualified labor;
•
capital expenditures may vary based on changes in business plans and other factors, including risks related to the implementation of various initiatives, the timing and successful completion of acquisitions, construction schedules and the possibility that other cash requirements could result in delays or cancellations of capital spending;
•
the risk that the anti-takeover benefits provided by our preferred stock may not be viewed as beneficial to stockholders; and
•
the risk that the exclusive forum provisions in our amended and restated bylaws could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
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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 2022 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 2022 Form 10-K. There have been no significant changes to our market risks since July 2, 2022.
Item 4.
Controls and Procedures
Sysco’s management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of April 1, 2023. 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 1, 2023, 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 1, 2023, 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
An investment in our securities involves various risks. You should consider carefully all of the risk factors described in Item 1A of our fiscal 2022 Form 10-K and our Form 10-Q for the three months ended December 31, 2022, as well as other information included and incorporated by reference in this report.
Item 2.
Unregistered Sales of Equity Securities and Use of
Proceeds
Recent Sales of Unregistered Securities
None
Issuer Purchases of Equity Securities
We made the following share repurchases during the third quarter of fiscal 2023:
| 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 1 - January 28 | — | $ | — | — | — | ||||||||||||||||||
| Month #2 | |||||||||||||||||||||||
| January 29 - February 25 | 540,019 | 77.11 | 540,019 | — | |||||||||||||||||||
| Month #3 | |||||||||||||||||||||||
| February 26 - April 1 | 912,993 | 74.93 | 912,993 | — | |||||||||||||||||||
| Totals | 1,453,012 | $ | 75.74 | 1,453,012 | — | ||||||||||||||||||
|
(1)
|
The total number of shares purchased includes no shares tendered by individuals in connection with stock option exercises in Month #1, Month #2 or Month #3.
|
||||
|
(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
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Item 5.
Other Information
On March 5, 2023, Sysco became aware of a cybersecurity event perpetrated by a threat actor believed to have begun on January 14, 2023. Immediately upon detection, Sysco initiated an investigation, with the assistance of cybersecurity and forensics professionals. The investigation determined that the threat actor extracted certain company data, including data relating to operation of the business, customers, employees and personal data. This data extraction has not impacted Sysco’s operational systems and related business functions, and its service to customers continued uninterrupted. Sysco also notified federal law enforcement. The investigation is ongoing, and Sysco has begun the process of preparing to comply with its obligations with respect to the extracted data.
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 | — | |||||||
| 10.1†# | — | |||||||
| 10.2†# | — | |||||||
| 22.1 | — | |||||||
| 31.1# | — | |||||||
| 31.2# | — | |||||||
| 32.1# | — | |||||||
| 32.2# | — | |||||||
| 101.SCH# | — | Inline XBRL Taxonomy Extension Schema Document | ||||||
| 101.CAL# | — | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||||||
| 101.DEF# | — | Inline XBRL Taxonomy Extension Definition Linkbase Document | ||||||
| 101.LAB# | — | Inline XBRL Taxonomy Extension Labels Linkbase Document | ||||||
| 101.PRE# | — | Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||||||
| 104 | — | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | ||||||
___________
† Executive Compensation Arrangement pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K
# Filed herewith
61
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 2, 2023 | By: | /s/ KEVIN P. HOURICAN | ||||||
| Kevin P. Hourican | ||||||||
| President and Chief Executive Officer | ||||||||
| Date: May 2, 2023 | By: | /s/ KENNY K. CHEUNG | ||||||
| Kenny K. Cheung | ||||||||
| Executive Vice President and | ||||||||
| Chief Financial Officer | ||||||||
| Date: May 2, 2023 | By: | /s/ SCOTT B. STONE | ||||||
| Scott B. Stone | ||||||||
| Vice President of Financial Reporting | ||||||||
| and Interim Chief Accounting Officer | ||||||||
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