Sysco Corporation (SYY)

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Sysco Corp. (SYY)

F1Q10 Earnings Call

November 2, 2009 10:00 am ET


Neil A. Russell – Vice President of Investor Relations

William J. DeLaney III – Chief Executive Officer

Kenneth F. Spitler – Vice Chairman, President and Chief Operating Officer

Chris Kreidler – Chief Financial Officer

Larry Pulliam


Ajay Jaim – Hapoalim Securities USA

Jason Whitmer – Cleveland Research Company

Meredith Adler – Barclays Capital

John Heinbockel – Goldman Sachs

Mark Wiltamuth – Morgan Stanley

Andrew Wolf – BB&T Capital Markets

John Ivankoe – JP Morgan

Greg Badishkanian – Citigroup

Robert Cummins – Shields & Company



Welcome to the Sysco Corporation First Quarter Fiscal 2010 Earnings. As a reminder, today's call is being recorded. At this time for opening remarks and introductions I would like to turn the call over to Mr. Neil Russell, Vice President Investor Relations.

Neil A. Russell

Thank you for joining us for Sysco's First Quarter 2010 conference call. On today's call you will hear from Bill DeLaney our Chief Executive Officer, Ken Spitler our Vice President, Chairman and Chief Financial Officer and Chris Kreidler our Chief Financial Officer.

Before we begin, please note that statements made in the course of this presentation that state the company's or management's intentions, beliefs, expectations or predictions of the future are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could differ in a material manner.

Additional information concerning factors that could cause actual results to differ in a material manner from those in the forward-looking statements is contained in the company's SEC filings, including but not limited to risk factors contained in the company's annual report on Form 10-K for the year ended June 27, 2009 and in the company's press release issued earlier this morning. Please understand that all comparisons given during the call refer to changes between the first quarter of fiscal 2010 and the first quarter of fiscal 2009, unless otherwise noted.

Also, all comments about earnings per share refer to diluted earnings per share, unless otherwise noted. Lastly, we've distributed invitations for our Investor Day which will be held on December 14 in New York. If you did not receive an invitation and would like to attend, please call my office for more information.

With that out of the way, I'll turn the call over to our Chief Executive Officer, Bill DeLaney.

William J. DeLaney III

Earlier this morning, Sysco reported net earnings of $326 million for the first fiscal quarter of the year. Sales continue to be under pressure declined by 8%, due to both lower volumes and the impact of food cost deflation. Despite these challenging conditions, we were able to improve our operating margins to 5.5% as a result of excellent cost control, as well as a benefit from COLI, both of which we will discuss in more detail in a few minutes.

At Sysco, we constantly strive for continuous improvement, by focusing on strengthening our customer relationships and improving productivity in all aspects of our business we've been able to compete effectively throughout this economic downturn. Most important, we believe we are well positioned for profitable growth when industry conditions begin to improve.

Regarding the economy, we are hopeful that some of the promising signs and sentiments that are beginning to materialize will soon result in increased consumer spending. That, together with the moderation of deflation, would be favorable developments for Sysco.

In the interim, we are encouraged by the fact that the rate of decline in our case volumes has stabilized in recent weeks. We will continue to closely monitor the macroeconomic outlook and will remain vigilant in our efforts to manage the business responsibly during this period of economic uncertainty.

Specifically, we remain committed to exceeding the expectations of our customers through our relentless commitment to product and service quality, investing in our business to improve productivity, enhance profitability and grow market share, and maintaining balance sheet strength through strong operating cash flow generation and sound asset management.

Before I turn the call over to Ken, I would like to recognize all of our associates and our management team for their outstanding contributions over the past year. I also want to welcome Chris Kreidler, our new CFO. Chris is an important addition to the team and brings with him extensive food industry and finance experience. You'll hear from Chris later in the call and you'll have an opportunity to get to know him better in the coming weeks and in particular at our Investor Day in December.

With that, Ken will now discuss our operating results for the quarter.

Kenneth F. Spitler

Once again, I am pleased with the operational results we achieved during the quarter. Our operating company's did a great job managing the business during the quarter. Operating expenses were down $132 million or 9.5% compared to the prior year, mainly due to the lower payroll expenses. Our headcount is down 5% year-over-year and 9% over two years as we improve productivity throughout the company.

Expense levels also reflect our pay-for-performance culture as incentive-based compensation continues to be down from the prior year. As a result, our operating margin improved 0.4 points to 5.5%. These results achieved in a tough environment reflect the broad range of capabilities and commitment of our operating companies.

Our sales during the quarter were impacted by deflation of 3.4%, which has majored as an estimated change in the cost of products we buy. We weathered similar levels of deflation in the early 2000s and we believe we will manage through these challenges again by continuing to find ways to operate more efficiently.

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