Sysco Corporation

Please stand by, your program is about to begin. If you need assistance during your conference today, please press star zero. Welcome to Cisco's second quarter fiscal year 2024 conference call. As a reminder, today's call is being recorded. We will begin with opening remarks and introductions. I would now 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 second quarter fiscal year 2024 earnings call. On today's call, we have Kevin Hurkin, our president and chief executive officer, and Kenny Chung, 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 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 1, 2023, subsequent SEC filings, and in the news release issued earlier this morning. A copy of these materials can be found in the Investor section 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. During the discussion today, unless otherwise stated, all results are compared to the same quarter in the prior year. To ensure 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. Additionally, we want to make the audience aware of Cisco's participation at the Cagney Investor Conference on February 20th and our Investor Day on May 22nd in New York. We hope you can join these events in person or virtually. At this time, I'd like to turn the call over to Kevin Harkin.

Thanks, Kevin, and good morning, everyone. Thank you for joining our call today. I am very pleased with Cisco's performance for the quarter. Our company is the market leader in a growing industry where size and scale matter. This past quarter, we demonstrated that important position of strength by delivering another quarter of double-digit earnings per share growth. Cisco delivered bottom-line growth through a combination of volume growth, disciplined margin management, and expense control. Our positive momentum from the first half of our fiscal year is expected to continue into the second half, and we remain confident in our four-year growth expectations for sales and EPS. This includes 2024 adjusted EPS growth of 7% at the midpoint of our guidance range. Cisco has improved how we leverage our scale through the recipe for growth strategy, and we continue to deliver industry-leading profitability metrics as well as leverage our industry-leading strong balance sheet. Our confidence in the year has enabled us to increase our capital allocation to shareholders for the year. We are announcing today an increase of our stock buyback target for fiscal year 2024. We now expect to buy back approximately $1.25 billion of our stock this year, up from our previously communicated $750 million. With the increased stock buyback, and our industry-leading dividend yield, we will contribute more than $2.25 billion directly to our shareholders. Cisco's strong balance sheet and free cash flow enable us to make these types of shareholder-friendly decisions while providing ample liquidity to fund the long-term growth of our business. We are, as we say, playing from a position of strength. So let's get started with a brief highlight of the quarter on slide number five. Beginning with the top line, we delivered sales growth of 3.7%, a sequential improvement from Q1, driven by a combination of positive case volume growth and positive product cost inflation. Importantly, this included a sequential improvement in local case volume growth, quarter over quarter and year over year. We will share more on that later. Turning to the bottom line, we posted over 11% growth in adjusted EPS, generating strong operating leverage. This is the fifth consecutive quarter of positive operating leverage and the 11th consecutive quarter of double-digit adjusted EPS growth. Kenny will provide more details in his financial section. Today, I would like to update you on two topics I highlighted as priorities on our Q1 earnings call, local case volume and supply chain productivity. During the quarter, we sequentially increased our case volume performance, growing our U.S. food service segment 3.4% and delivering local case volume growth of 2.9%. We grew our market share profitably through our improvement efforts. Notably, this growth comes with the industry-leading profit margin rates you can expect from Cisco. The rate of volume growth does not include the benefit of Edward Dunn, which closed in late November, and we remain solidly on track to deliver our growth ambition versus the market this year. Importantly, the initiatives we outlined to drive local case performance earlier this year began to bear fruit this past quarter. We are focused on improving sales execution. Our efforts are centered around properly serving our local customers and improving our local sales growth. A reminder of our local sales focus areas for fiscal 24. First, we started adding incremental sales headcount in the second quarter and expect to continue hiring in the second half of fiscal year 24 and in the coming years. The incremental headcount is targeted to optimize territory sizes and enhance sales consultant effectiveness, demonstrating focused actions to deliver higher returns. The benefits from increasing our local sales force will accrue over time as new colleagues complete their training, move up the productivity curve, and settle into their territories. As previously indicated, we continue to expect to see the vast majority of the positive impact from our fiscal year 24 hires impact fiscal year 25 performance. Second, we recently refined our compensation model to further motivate our sales consultants on win-win-win behaviors for Cisco, our customers, and our sales force. We can already see the impact of the compensation change and we expect the impact of these recent changes to grow over time. We will continue to optimize our compensation program over time to ensure we are properly rewarding and motivating our sales team. Third, our focus on performance management continues with a hyper focus on customer visit frequency, and sales consultant visit quality. These efforts are improving outcomes of our sales visits and can be closely tracked in our CRM tool. Leveraging technology to maximize the effectiveness of each customer visit remains a top priority, and I am pleased with the impact of our sales leadership team in the past quarter. Lastly, total team selling continues to gain traction. Our sales teams across broad line and specialty are working more collaboratively, and we are leveraging our data to maximize the time allocation of our selling specialists in produce, protein, and ethnic cuisine segments like Italian. All told, these interconnected actions increased our local case performance from Q1 to Q2 by 300 basis points. Importantly, the exit velocity of the quarter was even stronger. as our performance improved each month of the quarter. We are confident in our ability to continue to grow local sales while maintaining the positive momentum we have displayed in national sales. Next, I would like to provide an update on the progress we have been making within our supply chain. We continue to improve the performance of our supply chain by focusing on operational excellence. Chart 9 displays our year-over-year operating profit improvement driven by positive operating leverage, with gross profits growing at a faster rate than operating expenses. Our supply chain employees continue to move up the productivity curve due to improved colleague training and significantly improved levels of retention, especially within the driver position. With improved retention comes improved outputs across the supply chain. Lower hiring expenses, lower training expenses, improved productivity, lower levels of product shrink, improved safety metrics, and improved service levels to our customers. Each of these elements positively impact our P&L, and the improvement drops straight to the bottom line. We are extremely focused on continuing to improve colleague retention and productivity within our supply chain. Lastly, we continue to improve the rigor and discipline in our colleague staffing efforts. This includes better matching our hours worked to the volume of cases shipped and the difficult work of flexing down our staffing during lower volume periods. We will continue to refine our engineered labor standards that drive our staffing models, and we will increase the agility with which we match our staffing to our volume. Our Q2 results display a continuation of quarter-over-quarter progress in productivity gains, and we remain disciplined and focused on continuing that rate of improvement. These efforts will benefit the P&L in fiscal 24 and will carry into 2025 and beyond. We are bullish on our ability to continue to lower our cost to serve while simultaneously improving customer service levels. As I lift up from these two topics, improving sales effectiveness and improving our supply chain productivity, I would also like to communicate that we remain on track with our recipe for growth business transformation. Our digital efforts continue to advance. Our merchant teams continue to improve our product assortment, especially in Cisco Brand. We are excited about the integration with Edward Daan and how we can profitably grow our equipment and supplies business. We remain very pleased with the performance of our Greco-Italian platform, and I am proud of our international business leaders for the compelling performance produced year-to-date from our international segments. At our Investor Day in May, we will dive deeper into each of our recipe for growth pillars. Food service distribution is a space where size and scale matters. Logistics scale, cold storage scale in both warehousing and transportation, technology scale, and Salesforce expertise and scale. We believe that no one is better positioned than Cisco to leverage global scale advantages in order to better serve customers and profitably grow the business. I am very pleased that fiscal 24 is off to a strong start as we are profitably growing our market share and continuing a track record of delivering compelling top and bottom line growth. For the remainder of fiscal 24, we remain hyper-focused on the execution elements I highlighted today, as well as advancing our recipe for growth strategy. We are confident that these efforts will enable Cisco to deliver our financial plan. I'll now turn it over to Kenny who will provide a more detailed review of our financial performance.