Sysco Corporation (SYY)

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Sysco (SYY)

Q4 2011 Earnings Call

August 15, 2011 10:00 am ET


William DeLaney - Chief Executive Officer, President, Director, Chairman of Employee Benefits Committee, Member of Finance Committee and Member of Executive Committee

Neil Russell - Vice President of Investor Relations

Robert Kreidler - Chief Financial Officer and Executive Vice President


John Heinbockel - Guggenheim Securities, LLC

Meredith Adler - Barclays Capital

Mark Wiltamuth - Morgan Stanley

Amod Gautam - JP Morgan Chase & Co

Gregory Badishkanian - Citigroup Inc

Andrew Wolf - BB&T Capital Markets



Good day, everyone, and welcome to the Sysco Announces Fourth Quarter and Fiscal Year 2011 Results Conference Call. As a reminder, today's call is being recorded. At this time, for opening remarks and introductions, I'd like to turn the call over to Mr. Neil Russell. Please go ahead, sir.

Neil Russell

Thank you, James, and good morning, everyone. Thank you for joining us for Sysco's Fourth Quarter and Fiscal Year 2011 Conference Call. On today's call, you will hear from Bill DeLaney, our President and Chief Executive 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 July 3, 2010, and in the company's press release issued earlier this morning.

As disclosed in our earnings release this morning, our operating results last year included an extra week of operations due to the timing of the last day of our fiscal year. As a result, the fourth quarter of fiscal 2011 included 13 weeks of operations compared to the fourth quarter last year, which included 14 weeks, and fiscal year 2011 included 52 weeks of operations compared to the prior year, which included 53 weeks.

On the call today, we will discuss year-over-year comparisons that include the impact of the extra week of operations. However, to provide financial results that are more comparable on a year-over-year basis, certain metrics will be provided which remove the estimated impact of the extra week. These adjusted metrics are non-GAAP financial measures. You can find the reconciliation of these non-GAAP measures to the applicable GAAP measures on the Investors section of our website at Also, all comments about earnings per share refer to diluted earnings per share unless otherwise noted.

Lastly, we ask that you reserve December 9 on your calendars for our Investor Day in New York. Additional information will be provided in the next couple of weeks. With that out of the way, I'll turn the call over to our President and Chief Executive Officer, Bill DeLaney.

William DeLaney

Thank you, Neil, and good morning, everyone. This morning, Sysco reported record sales for both our fourth quarter and fiscal year of $10.4 billion and $39.3 billion, respectively. EPS for the quarter was $0.57, which was flat on a GAAP basis compared to the prior year. However, excluding the impact of the prior year's extra week of operations, adjusted EPS grew by 7.5% for the quarter.

For the year, EPS was $1.96 compared to $1.99 last year. Similar to the quarter, adjusted EPS grew by 4.2% for the year after excluding the impact of the prior year extra week, the current year's $36 million multiemployer pension plan charge and the year-over-year effect of certain net tax benefits.

Focusing on the fourth quarter for a moment, volume growth was positive but remains at modest levels. At the same time, food cost inflation in our product mix remained high and, in fact, was higher than each of the previous 3 quarters this year and the prior year. Thus, due in large parts to these 2 factors, we grew our gross profit dollars but once again experienced a decline in gross profit as a percentage of sales.

Turning to the fiscal year, we grew our case volume and generated nearly $40 billion of sales in a market that most industry observers believe is currently flat, resulting in about half a point of share gain. We generated $1.9 billion of operating income, produced cash flow from operations of $1.1 billion and distributed nearly $600 million in dividends to our shareholders.

In addition, we invested significant capital in our ongoing business, improved our customer retention performance and improved productivity in our operations. We're also pleased with our progress to date in better integrating our specialty Meat and Broadline operations in a manner that more cohesively addresses our customers' needs.

Turning to our multiyear business transformation initiative for a moment. On our last call, we had just recently gone live at our pilot facility in Arkansas. We were pleased with the initial results of the go-live, but as we've moved into a more of a steady-state mode, we have identified some performance issues. We plan to take additional time to further assess the new system's performance and make sure it meets our expectations before the initial wave of operating companies go live. We are evaluating the financial impacts of the delay but expect the result will be extended time and costs to complete the project. We remain firmly committed to a successful business transformation implementation, but as we've said all along, we won't roll this out until we are confident the system will perform as intended. In just a moment, Chris will provide an update on the project's impact on fiscal 2011 and our expectations for fiscal 2012.

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