Sysco Corporation

Welcome to Cisco's first quarter fiscal year 2023 conference call. As a reminder, today's call is being recorded. We will begin with opening remarks and introductions. I would like to turn the call over to Kevin Kim, Vice President of Investor Relations. Please go ahead.

Good morning, everyone, and welcome to Cisco's first quarter fiscal year 2023 earnings call. On today's call, we have Kevin Herkin, our President and Chief Executive Officer, Aaron Ault, our Chief Financial Officer, and Neil Russell, our SVP of Corporate Affairs and Chief Communications Officer. Before we begin, please note that statements made during this presentation which state the company's or management's intentions, beliefs, expectations, or predictions of the future are forward-looking statements within the meanings 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 July 2, 2022, subsequent SEC filings, and in the news release issued earlier this morning. A copy of these materials can be found in the Investors section of our website at cisco.com. 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 is included at the end of the presentation slides and can 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 themselves to one question today. If you have any follow-up questions, we ask that you re-enter into the queue. At this time, we'd like to turn the call over to Kevin Harkin.

Good morning, everyone, and thank you for joining our call. Our Q1 results reflected continued positive momentum in our business to start the fiscal year. Our share gains continued this quarter as we posted sales growth of more than 1.4 times the industry. We delivered double-digit growth in the top line and bottom line of our business. Beginning with the top line, we delivered sales growth of 16.2%, driven by a combination of effectively managing inflation and delivering case volume growth. Our U.S. food service volumes and local case volumes continued to grow this quarter. Turning to the bottom line, double-digit growth across operating income and net income resulted in adjusted earnings per share of 97 cents, which was in line with our expectations. The strong start to the year gives us confidence in reaffirming our four-year guidance. I will highlight two topics during our call today. First, I will put into context Cisco's sales and volume growth for the quarter by highlighting some of the drivers of our strength. Second, I will detail our progress within our supply chain and our efforts to improve service levels and operations cost efficiency. So let's get started with our unique position of strength in a growing industry, displayed on slide seven. Beginning with the food service industry, the total addressable market is approximately $350 billion. Cisco grew 17% and the rest of the market grew 12% in the quarter, a strong start to the fiscal year. Restaurants continued to be resilient and our travel hospitality plus our business and industry segments of our business posted year-on-year improvements. We see continued strength coming as tailwinds in the non-commercial sector should continue. We are closely monitoring macroeconomic conditions for signs of a business slowdown. At this time, we are not seeing recession concerns negatively impacting our business outcomes. With that said, we are prepared to take additional cost reduction actions if or when a recession does begin to impact our P&L. In the backdrop of what has been a strengthening overall market, Cisco continues to outperform. Our sales teams continue to win market share. with Q1 being one of our strongest quarters of net new customer wins. Our national sales team posted an outstanding quarter, winning substantial new business in the education, healthcare, and restaurant sectors. These wins are on top of the more than 2 billion of net new national sales wins delivered over the past two years. It is important to note that we are winning this business at strong profit profiles versus historical averages, and these are multi-year contracts. In addition to our success with national sales, our recipe for growth is delivering results for Cisco at the local level. Local case volume for the quarter grew 5.4% versus Q1 of 2022, successfully lapping a 26.7% increase from the prior year. Our strong start to the year in national and local sales has us gaining market share overall, as we grew more than 1.4 times the market for the period. As a result, we are on track to deliver our stated growth objective for the year. As seen on slide eight, our recipe for growth includes five pillars focused on building new capabilities that will further enable our leadership position in supply chain and food sales and marketing. As is customary for our quarterly updates, I would like to highlight a couple of our growth drivers. Today, I will highlight progress that we are making in the products and solutions pillar with our Cisco Your Way program, and I will also provide an update on Select Future Horizons work. Within our products and solutions growth pillar, we meaningfully advanced our Cisco Your Way program over the past quarter. As a reminder, Cisco Your Way is our service and delivery model for what we call restaurant-dense neighborhoods. Think a large number of restaurants in a few block radius. We provide these neighborhoods with a next level of service from Cisco. Examples of that service include a late in the evening order cutoff, daily delivery service, dedicated sales and delivery partner representation, and additional white glove culinary and marketing services. The constructs of the Cisco Your Way program were developed in partnership with our customers. And as a result, customers are responding favorably. The top and bottom line results from the program are exceeding our expectations. We are winning substantial new customers within these neighborhoods and existing customers are buying more product on a weekly basis. Over the past quarter, we ramped up our implementation efforts and we will continue to roll out the program to applicable neighborhoods in the coming quarters. We are also bringing the program to international cities with recent implementations in Toronto and Dublin. scale of cisco your way's impact on our overall results will grow each quarter as we add net new neighborhoods from our future horizons growth pillar we are pleased to announce that we have closed on two independent italian distributor acquisitions over the past quarter these acquisitions will give us access to premium italian products in areas that were previously geographic white spaces for cisco We have plans to meaningfully scale these businesses by bringing the Greco go-to-market Italian selling strategy to these geographies. We are very pleased with the status of our work to expand Cisco's Italian specialty platform nationally. In addition to these two examples highlighted today, we are advancing our recipe for growth within our international segment as well. Canada, our largest international business, is also making good progress with these initiatives. This year in Canada, we will be upgrading our digital platforms, implementing a modern pricing tool, enhancing our team-based selling capabilities, and launching Cisco your way. Canada is already a large and profitable market for Cisco that generated over 5 billion of sales last year while posting number one market share at 17%. The recipe for growth strategy will enable our Canadian business to further enhance our competitive advantages and better serve our customers. I'm very excited for the progress that we will be making in Canada to deliver profitable sales growth. These are just a few examples of the good work that is happening, and I look forward to keeping you posted on our domestic and international progress across the five pillars in future quarterly calls. Topic two for today. I'd like to discuss the state of our supply chain improvement and highlight the status of some important work. Our global supply chain work continues to progress. We are simultaneously building on our long-term strategic initiatives like Omnichannel while improving productivity levels and cost performance within our supply chain. Our strategic initiatives continue to move forward with six-day deliveries, improving the driver experience, implementing best-in-class associate training, and Omnichannel fulfillment, all advancing forward in the quarter. And we can see the early signs of progress that these initiatives are delivering. As they progress, They will enable profitable sales growth and improve our supply chain cost efficiency. Our supply chain is a strategic differentiator and the strategic work we are doing will widen that competitive moat in the coming quarters and years. Simply put, no one is doing more than Cisco to improve service levels to customers and to improve cost efficiencies within the food service supply chain. In addition to advancing our strategic initiatives, Our teams have remained relentlessly focused on improving productivity in the near term. We made progress over the past quarter in improving associate retention. Retention improvement will enable us to improve associate productivity and therefore lower our operating costs in future quarters. It is important to understand that Cisco's staffing levels remain healthy across our sites. We are staffed properly to support our current business and also to enable future profitable growth. Given our overall staffing health, we are meaningfully focused on associate retention and best-in-class training of our newer associates to improve productivity levels. We are also teaching our supervisors how to leverage our engineered labor standards to deliver performance-based coaching. As our staffing levels have improved in recent quarters, we have been able to spend more of our leadership time and communication muscle on training to our work methods and standards. And this is where the intersection between our future strategy and our current improvement efforts intersect. Our Driver Academy is graduating cohorts of trainees that are now hitting the streets. These drivers are already showing strong service, safety, and productivity standards. As importantly, we are tracking retention by training class, and we can see meaningfully higher retention rates of associates trained by Cisco versus hired from the external market. Over time, the percentage of associates trained from within Cisco will grow, and this ratio growth will improve retention and productivity. Cost of turnover is high in this industry, and improving associate retention is imperative. I am confident that our training academies will give Cisco a meaningful advantage in the industry. We believe the advancements we are making in our physical capabilities and the investments we are making in improved training will provide improved service levels to our customers and strengthen Cisco's ability to profitably win market share in the coming quarters and years. I'll now turn it over to Neil, who will provide an update on our sustainability efforts. Neil, over to you.