Sysco Corporation

Good morning and welcome to Cisco's fourth quarter fiscal 2019 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 Neal Russell, Vice President, Corporate Affairs. Please go ahead.

Neal Russell, Vice President, Corporate Affairs. Good morning, everyone, and welcome to Cisco's fourth quarter and fiscal year 2019 earnings call. Joining me in Houston today are Tom Binet, our Chairman, President, and Chief Executive Officer, and Joel Brade, our Chief Financial Officer. Before we begin, please note that statements made during 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, and actual results could differ in a material manner. Additional information about factors that could cause results to differ from those in the forward-looking statements is contained in the company's SEC filings. This includes, but is not limited to, risk factors contained in our annual report on Form 10-K for the year ended June 30, 2018, subsequent SEC filings, and in a news release issued earlier this morning. A copy of these materials can be found in the Investors section at cisco.com or via Cisco's IR app. Non-GAAP financial measures are included in our comments today and in our presentation slides. The reconciliation of these non-GAAP measures to the corresponding GAAP measures are included at the end of the presentation slides and can also be found in the investor section of our website. To ensure that we have sufficient time to answer all questions, we'd like to ask each participant to limit their time today to one question and one follow-up. At this time, I'd like to turn the call over to our Chairman, President, and Chief Executive Officer, Tom Binet.

Thanks, Neil, and good morning, everyone. Thank you all for joining us. This morning, we announced financial results, which reflect improved year-over-year performance for the fourth quarter and fiscal year 2019. For the full year, we made solid progress against our multi-year transformational initiatives, which we believe position us well to exceed our customers' expectations and deliver long-term growth. During the year, we had solid 8%, adjusted operating income growth, and adjusted earnings per share growth of 13%. Starting with Cisco's full year fiscal 2019 results, sales grew 2.4% to $60.1 billion, driven by steady growth of local customers and the acquisition of several smaller distributors in both the U.S. and Europe, which were partially offset by the transitioning of some national customers in both our Broadline and Sigma businesses. Gross profit for the year grew 2.9% to $11.4 billion, driven by a continued shift in our customer mix as we grew local cases at a faster pace than total case growth. Favorable product mix as we continue to drive growth in our Cisco brand portfolio, not only through the addition of innovative products, but also by bringing Cisco brand to additional geographies beyond the U.S. the continuation of our successful category management effort, as we are now starting to bring this successful process to our European business, and the ongoing management of inbound freight that is now stabilized, although not back to the pre-visceral 2018 levels. Finally, across the entire business, we saw a modest level of inflation for the year of about 1% to 2%. From an expense perspective, we saw solid overall expense management for the year, with adjusted operating expenses increasing only 1.4%, driven by benefits from our transformative initiatives and solid corporate expense management, all of which helped to offset the ongoing rising labor costs in both the transportation and warehouse areas. The gap between gross profit dollar growth and adjusted operating expense growth was 150 basis points for the full year, despite a challenging year-over-year comparison in the fourth quarter. For total Cisco, we delivered solid adjusted operating income growth of 8% to $2.7 billion. which helped to drive our adjusted earnings per share up 13% to $3.55. As we look at the results by business segment, let's start with the United States and the overall macroeconomic trends, which continue to be relatively positive. The underlying economic picture remains encouraging, with GDP at 2.1% for the second quarter of 2019 and continued low unemployment, which was just 3.7% in July. consumer confidence has decreased slightly but still remains solid. These factors are important macroeconomic indicators which describe the environment our customers are currently operating in and speaks to the relative health of our food-away-from-home market. As for restaurant industry trends, NAPTRAC and BlackBox show same-store sales relatively flat in June and consistent with what we previously discussed while traffic continues to be negative. Within U.S. food service operations for the year, sales for fiscal 2019 were $41.3 billion, an increase of 4.2% compared to the prior year. Inflation in U.S. broad line was 1.5%, and local case growth grew 3.1%, of which 2.2% was organic, while total case volume within U.S. broad line grew 2.7%, of which 2% was organic. Gross profit dollars increased 4.4%, and gross margin increased five basis points to 20%. Gross profit was positively impacted by strong Cisco brand sales, year-over-year favorability of inbound freight, and continued category management benefits. Regarding Cisco brand, using customer insights, we launched two new brands, including Cisco Earth+, a planet-friendly non-food solution for operators looking for a wide range of reliable and economically, environmentally responsible products. and Cisco Simply, a platform designed to enable our customers to accommodate the growing consumer demand for varied dietary and lifestyle choices. Our adjusted operating expenses for the year increased 4.4%, due mainly to increased costs in both the transportation and warehouse areas, partly as a result of the tight labor market. This, combined with seasonal hiring of driver and warehouse staff, have driven increased operational costs on a per-unit basis as volume has softened. Finally, adjusted operating income was $3.2 billion, an increase of 4.4% compared to the prior year. Now turning to our international food service operations results for the year, the macroeconomic environment for the geographies in which we serve remains relatively positive, while the food service industry data suggests modestly improved sales with flat to slightly higher volume growth. The Cisco results in this segment overall were mixed during fiscal 2019, with improved performance during the second half of the year. Overall for fiscal 2019, sales decreased 0.2%, gross profit decreased 1.8%, adjusted operating expenses decreased 3.7%, and adjusted operating income was $354.8 million, an increase of 10.7%. Top-line growth for the year across our international businesses was also mixed. Canada and most of Europe performed well, especially Ireland and Sweden, and we dealt with some operational challenges in France as our efforts to integrate our two businesses, Break France and Davigel, has impacted our ability to drive growth. From a cost perspective, we continue to make investments across much of Europe to position us for future business growth. We have also begun to leverage broader Cisco capabilities and processes to to deliver improved synergies across the European business. Additionally, our regionalization efforts in Canada continue to deliver results and also help to drive improved cost performance in this segment. In Latin America, our businesses are operating well with continued growth in sales, gross profit, and operating income in Costa Rica and Panama from both the broad line and cash and carry segments. The Bahamas and our international food group export business also continue to experience growth, but were partially offset by our business in Mexico, which in the fourth quarter began to show some progress from weaker performance earlier this year. Turning to SGMA, we continue to focus on improving overall profitability. As a result, we saw planned softness in the top line, while gross margin increased 30 basis points year over year. Adjusted operating expenses were down for the year, driven by a focus on removing unproductive miles and right-sizing underperforming locations. which helped to drive an adjusted operating income increase of 25% versus prior year. We feel very good about the continued progress we're making within SGMA and are confident in our ability to drive improved performance going forward. Now let me turn the call over to Joel Grady, who will talk with you about our fourth quarter performance, along with additional financial details for both the quarter and the year. I'll then come back to offer a perspective regarding our overall business performance for the year, some important updates as we look ahead. and some things we are excited about for the future.