Sysco Corporation

Welcome to Cisco's second quarter fiscal year 2025 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 2025 earnings call. On today's call, we have Kevin Hurrican, 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 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 June 29, 2024, subsequent SEC filings 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 also 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 to one question. If you have a follow-up question, we ask that you re-enter the queue. At this time, I'd like to turn the call over to Kevin Herkins.

Good morning, everyone, and thank you for joining us today. Our financial results this quarter delivered improved performance and positive momentum with stronger top and bottom line year-over-year growth rates as it compared to our first quarter. Cisco is delivering value over the short term with disciplined P&L management and remains well-positioned to advance our business strategy while delivering upon our financial commitments presented at our recent Investor Day. Importantly, we expect the positive momentum from our Q1 into Q2 to accelerate in the second half of the year as we benefit from sales and operations improvement initiatives, investments in our business, and the potential for stronger foot traffic to restaurants as we begin to lap last year's negative 4% in late spring. Our leadership team is 100% focused upon executing with excellence, with a strong plan in place, to deliver our full-year 2025 guidance. Turning to Cisco's performance during the quarter on slide number five, I'm pleased to report that Cisco delivered over $20 billion of total revenue, a growth of 4.5% versus fiscal 2024, and a sequential improvement from Q1 growth rates. The revenue growth was driven by U.S. food service volume growth of 1.4% and moderate inflation of 2.1%. From a volume perspective, we generated 4.3% national volume growth, 3% volume growth in our international segment, and a decline of 0.9% in our USFS local case business. Our national sales business continues to perform at an exceptionally high level, with strong customer retention, and we continue to onboard high-quality net new national business. Our international segment posted very compelling results, with adjusted operating income of 26.5%. The strong profit growth was generated in part by local case growth of plus 4.7% year over year. We continue to advance the Cisco playbook in our international geographies, expanding our assortment, introducing Cisco branded products, and increasing boots on the street sales headcount to win new local business. I will discuss our international business in more detail in a few moments. In the USFS business, we are making solid progress on our top priorities across our multiple business units. Local case performance this quarter, excluding the impact of our Don business, was down 1.9 percent. It was a choppy quarter, with hurricane impacts at the beginning of the quarter and holiday shifts that negatively impacted the end of the quarter. The year-over-year comparison was also impacted by strong growth rates from the prior year. Specific to our local business, we are seeing progress in our internal measures of success, and we remain confident that our efforts will help deliver improvements in the second half of fiscal 2025. More on this in a few moments. Lastly, our top-line growth included strong contributions from Sigma, where sales were up 10.6%. Now that we have summarized Cisco's top-line performance, let's briefly discuss the external markets. Foot traffic to restaurants in the U.S. was down approximately 2% for the second quarter, which represents a moderate improvement from Q1. We expect to see continued improvement in traffic trends as we head into the second half of the year. Inflation for the industry has maintained at approximately 2%, which is within the normal range when we look at cost of goods sold inflation over the course of decades. From a bottom line perspective, Cisco delivered adjusted EPS of 93 cents, a growth rate of 4.5% versus prior year, consistent with our expectations. The EPS growth was driven in part by the aforementioned volume growth, discipline margin management, and an organization-wide focus around efficiency improvement. Margin management will remain a point of strength for the full year. As we stated on our Q1 call, we anticipate that our strategic sourcing efforts will pick up momentum as the year progresses. As a result, we expect a positive momentum in gross profit from Q1 to Q2 to step up in the second half of the year, as we have a direct line of sight to the actions that will deliver our full-year margin performance. On the expense side of the ledger, we anticipate continued improvements in our supply chain efficiency, driven by improving colleague retention statistics, and improved transportation route optimization. These routing efforts will reduce miles driven, lowering our cost, while simultaneously improving our ability to deliver on time and in full to our customers. A win-win. Now I'd like to provide a brief update on our main business units, starting with international, where we grew our top line 3.6% for the quarter, and we grew adjusted operating income by an impressive 26.5%. Our strong profit growth is being driven by continued operational improvements, increased procurement synergies, and a strong customer mix. Local case growth in our international segment is up 4.7% year over year. Adding to our international success is a strong strategic sourcing program that is expanding globally and the successful growth of our Cisco Euroway local sales program. Lastly, we are deploying enterprise technology that is improving efficiencies. In short, our international segment is running the Cisco playbook. It's working, and we expect the positive momentum with international to continue into the second half of the year. Our national sales business continues to deliver compelling top and bottom line results. For the quarter, national volume was up 4.3%, as our supply chain solutions domestically and internationally resonate with our largest customers. Cisco has the assortment breadth supply chain footprint, and technology solutions to be a one-stop shop for large customers. We make it easy to do business with Cisco with dedicated account teams that help enable customer growth, support their business expansion, and oftentimes support the customer's international expansion. The success we are having in national sales is flowing through from top to the bottom line as these customers help improve our route density, cover our fixed costs, increase our procurement synergies with key suppliers. We expect our national sales business to continue to deliver strong results due to high customer retention and continued new customer wins. Lastly, I'd like to provide an update on our local business. As I mentioned a few moments ago, we expect an improvement in our local performance in the second half of the year. We are making progress with our sales team hiring and training, and our sales compensation program is motivating the right behaviors. we see clear signs of progress on important drivers of the business. As an example, our new customer win rate has ramped up significantly over the last quarter. The increased new customer win rate is attributed to our new compensation program and the increased sales professional headcount we are onboarding. New customers typically start by providing a portion of their business to Cisco. And as we work to what we call sell around the room and penetrate additional product categories with these newer customers, the positive contribution from them will grow over time. The new customers we are winning today are going to be the strong, mature penetration customers of tomorrow. We expect our customer win rate progress to carry into our second half and into fiscal 2026. A second proof point is the progress that we are making with sales colleague headcount. Our sales consultant retention has substantially improved from Q1 to Q2. as the change management associated with our new compensation model has taken root and colleagues are experiencing the benefits of the new program. Additionally, we are making solid progress against our 2025 hiring goals with quality hires from the industry. Another proof point within our local segment is the improvement that we are making with our service proposition. Over the past quarter, we improved our service offering to our customers with increased customer-facing fill rates and improved on-time delivery performance. Our supply chain continues to make strong progress month over month, and that is evidenced by our Net Promoter Score, which improved solidly on a quarter-over-quarter and year-over-year basis. We expect continued improvement in service levels in our second half of fiscal 2025. Historically, NPS improvement has a strong correlation to business growth in future quarters. The sales and volume growth comes from increased customer retention and by winning new lines from existing customers. Lastly, we increased our distribution capacity over the past quarter with new and expanded facilities to support our business. I am most bullish on our Italian platform expansion. Over the past six months, we have entered new geographies with our GRECO Italian platform, and we will continue to expand to new geographies in the coming calendar year. The winning formula is clear. have the right Italian products at the right price, sold by colleagues that are full-time Italian cuisine experts. Our success has been replicated in each new Greco market we have entered. I expect compelling results from the Italian platform in the second half of fiscal 2025 and for years to come as we advance our Greco expansion efforts. We have substantial white space to be filled in the coming years. As I wrap up my comments this morning, I will summarize with the following. We made progress from Q1 to Q2 in top and bottom line results. We delivered upon our financial expectations for the quarter, and we have posted progress on important strategic initiatives. The progress on key initiatives like sales professional hiring and increasing our new customer win rate will fuel our improvement in the second half of fiscal 2025. When combined with the very compelling business performance we are already delivering from national sales business, our international segment, and our SGMA segment, we have the confidence to reiterate our four-year financial guidance. I am pleased with the progress that we are making in our supply chain from a service and cost perspective, in our merchandising ranks from a gross margin management perspective, and with our sales team from a skills development perspective. The combination of the progress across these three vectors will build over time. I want to personally thank Cisco's 76,000-plus colleagues and our entire leadership team for their continued focus in energy. We have the best team in the industry and I'm proud to work with them every day, serving Cisco's global customers. I also want to thank our supplier partners who have helped Cisco improve service levels to our customers over the past quarter. I'll now turn it over to Kenny, who will provide a detailed review of Q2 performance and select fiscal year 2025 guidance commentary.