Sysco Corporation (SYY)

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Sysco (SYY)

Q1 2012 Earnings Call

November 07, 2011 10:00 am ET

Executives

Neil A. Russell - Vice President of Investor Relations

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

Robert C. Kreidler - Chief Financial Officer and Executive Vice President

Analysts

John Heinbockel - Guggenheim Securities, LLC, Research Division

Gregory R. Badishkanian - Citigroup Inc, Research Division

Robert Cummins - Shields & Company

Mark Wiltamuth - Morgan Stanley, Research Division

John W. Ivankoe - JP Morgan Chase & Co, Research Division

Ajay Jain - Hapoalim Securities USA, Inc., Research Division

Karen F. Short - BMO Capital Markets U.S.

Erin Swanson Lash - Morningstar Inc., Research Division

Meredith Adler - Barclays Capital, Research Division

Andrew P. Wolf - BB&T Capital Markets, Research Division

Edward J. Kelly - Crédit Suisse AG, Research Division

Presentation

Operator

Good day, everyone, and welcome to the Sysco Reports First Quarter Fiscal 2012 Earnings Conference Call. 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 Neil Russell, Vice President of Investor Relations.

Neil A. Russell

Thank you, operator, and good morning, everyone. Thank you for joining us for Sysco's First Quarter 2012 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 on the course of this presentation that state the company 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 2, 2011, and in the company's press release issued earlier this morning.

On the call today, if you've joined us via webcast, you will notice that we have -- that we are augmenting our comments with a slide presentation. You can download a copy of the presentation by going to the Investors section of sysco.com. This presentation was also filed with the SEC on Form 8-K this morning.

Non-GAAP financial measures are included in our comments today and in the presentation slides. The reconciliation of these non-GAAP measures to the applicable GAAP measures are included at the end of the presentation and can also be found in the Investors section of our website. In addition, all comments about earnings per share refer to diluted earnings per share unless otherwise noted.

Lastly, as many of you know, we recently rescheduled our Investor Day to May 17. We expect that the Investor Day will be held in New York City, but we'll provide an update on meeting location early next year.

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

William J. DeLaney

Thank you, Neil, and good morning, everyone. This morning, Sysco reported net earnings of $303 million for the first quarter of fiscal 2012 and earnings per share of $0.51. Sales increased 8.6% for the quarter, driven mainly by food cost inflation of 7.3%. This represents the sixth consecutive quarter of sequential increases in inflation.

Case volume for the quarter was positive, but the growth rate remains modest in this difficult macroeconomic environment. Operating income for the quarter was $509 million, our highest first quarter on record. We're encouraged with these results at a time when the industry's as competitive as it has ever been.

Our first quarter performance demonstrates our associates' commitment to focusing on our customers and managing costs. To get a clearer view of our underlying business performance, we believe it's helpful to exclude gross business transformation expenses and the impact of COLI. Looking at the results in this way, you'll see that while reported EPS was flat year-over-year, adjusted EPS grew 7.8% for the quarter, which is a result we are reasonably pleased with.

We continue to believe that the food service industry will experience modest volume growth over the medium term. With that said, current industry trends appear to be flat at best. Thus, the approximately 2% case volume growth that we generated during the quarter in our business is encouraging.

Looking forward, our focus remains on striking the right balance between volume growth, managing margins and controlling cost.

Turning to our multiyear Business Transformation Project for a moment, we are implementing this month a significant system enhancement at our Arkansas location. We will then assess performance, address any concerns and move forward to our second facility. Once we have achieved a successful implementation at the second facility, we will update our rollout schedule and long-range projections of the cost and benefits of the project. It is imperative that we remain disciplined in our approach as we move forward to ensure that the larger rollout of future waves will be successful.

Sysco is fortunate to have an outstanding leadership team. In that regard, last week, we announced changes in the responsibilities and the reporting structure for several of our senior executives. These changes reflect the strength and depth of the team and will enhance our ability to successfully execute our annual business plan, effectively implement our Business Transformation Project and accomplish our key strategic objectives. The changes include: Mike Green, Executive Vice President and Group President will assume responsibility for leading all Sysco operating companies. And Larry Pulliam, also Executive Vice President and Group President, will lead several key business support functions, including supply chain, information technology and business transformation, as well as contract sales and distribution services, which he currently has responsibility for. Both Mike and Larry will continue to report to me.

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