Sysco Corporation

Please stand by. We're about to begin. Welcome to Cisco's fourth 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 like to turn the call over to Kevin Kemp, Vice President of Investor Relations. Please go ahead.

Good morning, everyone, and welcome to Cisco's fourth quarter fiscal year 2024 earnings call. On today's call, we have Kevin Hurkin, our Chair of the Board 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 meaning of the Private Security 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. At this time, I'd like to turn the call over to Kevin Harkin.

Good morning, everyone, and thank you for joining us today. During our call this morning, we will cover the following key topics. Food away from home volume trends, including foot traffic to restaurants, Cisco's performance for the quarter and the year relative to the overall market, and status updates on key topics of interest. including inflation, local case growth, supply chain productivity, and finally, Kenny will cover the financial details of our Q4 2024, as well as provide our fiscal 2025 guidance. Let's get started with key highlights of the business on slide number five. I'm pleased to report that Cisco delivered $79 billion of top-line revenue for the year, a growth of 3.3% versus fiscal 2023. The revenue growth was driven by USFS volume growth of 3.1% and USFS inflation of 0.5%. Cisco profitably took market share in fiscal 2024. I will speak more to this in a moment. Importantly, we delivered adjusted earnings per share of $1.39 for the quarter and $4.31 for the year. The full year performance was one penny higher than the midpoint of the guidance that we provided at the beginning of fiscal 2024. Kenny calls this our say-do ratio, and I'm pleased that we delivered above the midpoint of our initial guide for the year, despite the softer economic environment in the second half of the fiscal year. During our Q4, our team once again displayed agility and accountability enabling a strong financial performance despite negative year-over-year foot traffic to restaurants. As I said in my intro, I would like to start by providing an update on the health of the food away from home industry. Traffic to restaurants was down approximately 3% year-over-year for the quarter. This is consistent with what you have heard from many restaurant names over the past couple of days and weeks. Cisco was successfully able to grow our volume 3.5% for the quarter, despite the declining year-over-year foot traffic. We did this by taking market share versus the overall market. In fact, for the full year, we grew our business more than 1.75 times the market. That performance was above our stated goal for the year of 1.5 times market growth. Cisco's performance versus the market is calibrated via multiple external sources in the performances versus the total industry overall. The strong 1.75 times growth was a result of several important factors as seen on slide six and seven. The largest distributors in the industry are taking share versus the overall food service market. Cisco specifically is winning with our specialty platforms, including Fresh Point and our specialty meat businesses, as well as our recent acquisitions like Greco and Edward Dunn. The combination of our industry leading broad line business with our expanding specialty portfolio is winning in the marketplace. Lastly, our national sales business is winning versus the total market with notable wins in the food service management space and hospitality. We are pleased with our overall performance versus the total market. And with that said, we are not satisfied with our growth in the important local segments. As we covered at our investor day, we are confident that we can improve our local case performance in fiscal 2025. I'll speak more to those plans in a moment. For the fourth quarter, Cisco delivered the following performance. Continued and compelling profitable case growth within national accounts. Local case growth of positive 0.7% to last year. Importantly, our local cases in international grew 5% for the period. Sigma cases grew 5% from Q3 to Q4, with a June exit velocity of positive year-over-year growth. This is a reversal of recent negative volume trends within Sigma, as we have lapped week 52 of a customer exit, and we have signed new profitable business that had start ship dates during our fourth quarter. We expect Sigma to be a volume and profit growth business in fiscal 2025. Cisco has a well-balanced business with strong market share in the non-restaurant space. Many of the non-restaurant sectors, like healthcare and food service management, are less impacted by consumer confidence and restaurant foot traffic. At times like these, our well-balanced business portfolio is a strong asset for Cisco, including our international segment. Our gross profit rate for the quarter was strong, with GP growing 4.2% year-over-year and GP per case growing 1.3% first prior year. Our merchant team continues to do an excellent job with strategic sourcing and product innovation. Overall expense management continues to improve year over year, with operating expenses increasing slower than our top line. Most notably, our corporate expenses were down 10% for the quarter on a year over year basis. The corporate expense reduction was a result of the efficiency work that we deployed in Q3 of this year. Benefits from those expense reductions will continue into 2025, and Kenny will speak to that in more detail. All told, these factors resulted in a 6.4% increase in our operating income year over year, enabling us to exceed the midpoint of our full year adjusted EPS guidance. Now that I have highlighted our financial performance for the quarter, I would like to continue the theme of our investor day and provide you a bit more color on two of the biggest levers within our P&L, local volume growth and supply chain productivity improvement. Let's get started with volume growth. Specifically, I'll highlight progress we are making on the actions to deliver increased profitable local case volume in fiscal 2025 on slide number nine. First, let me start with hiring status. In full year fiscal 2024, we successfully hired 450 net incremental sales professionals. The colleague hiring ramped throughout the year with many of them being hired in the second half. The new colleague cohorts hired in 2024 will begin positively impacting our P&L throughout fiscal 2025 as they grow their new territories and become more knowledgeable about our product offerings. As we mentioned on our investor day, We plan to hire an additional net 450 sales professionals in fiscal 2025, with those new cohorts expected to positively impact our fiscal 2026 results. We are confident in our ability to hire and train these new colleagues. In fact, we are supplementing our industry-leading training program by hiring more sales trainers and sales administrative staff. One of our top priorities as a company is to ensure that these new colleagues get the training that they deserve and ramp up the productivity curve in an efficient manner. Our executive leadership team is taking personal ownership to ensure we track the new trainees, cohort by cohort, to ensure that they are maturing on schedule and that they are provided the support and resources they need to be successful. Our strong supplier community will be assisting in the ever-important product training that goes along with new colleague hiring. We greatly appreciate our supplier community for their support. On the first day of our new fiscal year, we introduced a new compensation program for our U.S. Broadline sales colleagues. We have remixed the base pay to incentive ratios within our compensation program. In the process of doing so, we have increased the earnings potential of our sales staff, and the incentives put in place motivate the specific behaviors that will help advance Cisco's P&L. The communication and change management of the new compensation program is well underway, and we are confident that this program will be good for our colleagues, our customers, and our P&L. Benefits of this new program will be felt as the year progresses, but I don't anticipate any major movement in Q1. Our total team selling program continues to advance, with our sales consultant generalists partnering better than ever with our produce and protein specialists. At our investor day in May, Greg Bertrand, our global COO, covered the compelling growth opportunity via our total team selling program. As he presented in May, a customer that buys from Cisco Broadline plus one of our specialty businesses spends three times more per week than a Broadline-only customer. Winning with specialty is a $10 billion plus opportunity for Cisco as we work to earn our fair share of the specialty market. Cisco Specialty is a compelling moat versus the overall industry, as it has taken more than 20 years for us to assemble our specialty assets. Integrating the systems, supply chains, colleague compensation programs, and the important go-to-market selling strategy between specialty and Broadline, this was a very large work effort. In the coming years, we will continue to expand our specialty capabilities, both domestically and internationally. through a combination of M&A and Greenfield activities. For example, we are adding our Asian foods business to our recently opened Allentown, Pennsylvania distribution center. This addition will greatly improve our ability to serve the large and growing Asian market in the Northeast. Lastly, our international business delivered compelling local case growth of 5% for the quarter. We are running the Cisco Play internationally with programs like Cisco Your Way and Perks, beginning to positively impact our outcomes. We are also bringing improved technology and Cisco brand products to these important geographies. All told, the strong local case growth enabled our international segment to deliver a compelling 13.1% profit growth in the quarter. We expect international continue to be a top and bottom line tailwind for Cisco in fiscal 2025. Now that we have covered our local case growth performance, Let's turn to the status and health of our supply chain. As I have said many times, the key to success in this business is being the distributor that can consistently ship on time and in full to our customers. Over the past quarter, we have continued to make progress in improving our service levels to our customers. We improved and advanced our on-time rates with a dedicated focus on routing excellence. I am proud of our operations team for the hard work and for the improvement that they are making in on-time delivery. You can see the impact on our MPS scores as satisfaction with delivery is up versus prior year. In addition to the good work with delivery service levels, our merchandising and inventory teams continue to work collaboratively to improve our first-time fill rate. Progress is being made on core in-stock items as well as improving our agility when a supply chain disruption occurs at one of our suppliers. We improved versus prior year in both aspects and will make additional progress in 2025. We have increased the importance of fill rates in our leadership performance evaluation metrics for 2025. Fill rates are a strength point for Cisco historically, and we are working to further advance that advantage through these efforts. As I've mentioned many times, the number one lever to improve our supply chain cost performance is to increase colleague retention. Retention rates improved sequentially quarter over quarter throughout the year, and they more than doubled compared to the prior year in the fourth quarter. The improved retention is showing up in improved safety metrics, reduced product shrink, and increased productivity of our colleagues. Many of these items like workers' comp and auto liability have a long tail, so the improvement we are driving now will reflect positively in our P&L in fiscal 25 and 26. The last topic to cover in our supply chain update is the progress that we are making to expand our throughput capacity. During our Q4, We opened our first DC foldout in more than 10 years in Allentown, Pennsylvania. This facility will help Cisco better serve the population-dense Northeast corridor by increasing service levels and lowering our costs to serve. As I wrap up my prepared remarks, I want to thank the entire Cisco team for a strong year. We grew our business more than 1.75 times the overall market at industry-leading profitability metrics, and we exceeded the midpoint of our EPS guide for the year. Importantly, we have continued to advance our business strategy, making progress in important areas like improved technology and customer programs like Cisco, YourWay, and Perks. Lastly, we are focused upon the most important things to ensure success for fiscal 2025 and beyond, and we are positioned well to deliver against the guidance that Kenny will share in a moment. So with that, I'll now turn the call over to Kenny who's going to highlight the fiscal details of the quarter and our year, as well as TFR guidance for fiscal 2025. Kenny, over to you.