Sysco Corporation (SYY)

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Sysco (SYY)

Q1 2013 Earnings Call

November 05, 2012 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

Ryan Gilligan

John Heinbockel - Guggenheim Securities, LLC, Research Division

Edward J. Kelly - Crédit Suisse AG, Research Division

Alvin C. Concepcion - Citigroup Inc, Research Division

Mark Wiltamuth - Morgan Stanley, Research Division

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

Ajay Jain - Cantor Fitzgerald & Co., Research Division

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

Meredith Adler - Barclays Capital, Research Division

Erin Swanson Lash - Morningstar Inc., Research Division

Presentation

Operator

Good morning, and welcome to Sysco's First Quarter Fiscal 2013 Conference Call. As a reminder, today's call is being recorded. We will begin today's call with opening remarks and introductions. I would like to turn the call over to Mr. Neil Russell, Vice President of Investor Relations. Please go ahead, sir.

Neil A. Russell

Thank you, operator, and good morning, everyone. Thank you for joining us for Sysco's First Quarter 2013 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 June 30, 2012 and in the company's press release issued earlier 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. All comments about earnings per share refer to diluted earnings per share unless otherwise noted. In addition, all references to case volume growth include total Broadline and SYGMA combined.

At this time, I'd like to 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 record sales of $11.1 billion for the first quarter and net earnings of $287 million. Earnings per share was $0.49 and adjusted earnings per share, representing our underlying business performance, was $0.58 or a 3.6% increase year-over-year. Sales grew 4.7% for the quarter, driven mainly by case volume growth of 2.9%, which contributed to the highest quarterly sales level in our history. While we believe restaurant spending trends may have softened somewhat as the quarter progressed, we are pleased with our overall volume growth during the quarter.

Acquisitions contributed 0.5% to sales growth during the first quarter, and we have completed or announced, thus far this fiscal year, the acquisition of companies with annual revenues totaling approximately $560 million, several of which expand our presence in geographic markets that we currently serve outside the United States. The acquisition environment is currently favorable, and we have a number of potential opportunities in the pipeline.

Product cost inflation moderated to 2.2% for the quarter, which is beneficial for both Sysco and our customers. While our growth in adjusted operating income was modest, we are encouraged by our expense management performance in most areas of the business. Specifically, we experienced lower cost per case in our selling and administrative areas as a result of enhanced business practices and effective leveraging of this quarter's volume growth. Conversely, higher fuel prices, labor shortages in some markets that we operate in and execution issues on our part led to higher year-over-year delivery cost per case. We are fully committed to both servicing our customers at a high level and improving productivity in all parts of our business as we move forward.

Turning to our business transformation efforts. We continue to make progress on deploying our new and enhanced technology platform. Just prior to last quarter's call, we converted our East Texas operating company to our new ERP system, our third location to go live. That conversion went very well, and we moved forward with our planned conversions at our operating companies in North Texas and West Texas last week. The early results in both locations are generally favorable, and we will continue to assess the performance of these 2 companies closely over the next several weeks. These 2 deployments represent a critical step in our technology implementation timeline for 2 reasons: One, it is the first incidence of multiple operating companies converting simultaneously; and two, the North Texas location is one of our largest operating companies and services a significant number of our corporate multi-unit customers.

We are pursuing a market-based approach for our rollout schedule. As a result, we expect to move forward with our next planned conversions in Texas and Louisiana in the coming quarters. As we prepare for these conversions, we are also evaluating the possibility of potentially accelerating our pace of deployment in fiscal 2014 and beyond.

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