Sysco Corporation

Please stand by, your program is about to begin. Welcome to Cisco's 4th 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. Sir, you may begin.

Good morning everyone and welcome to Cisco's 4th quarter fiscal year 2025 earnings call. On today's call we have Kevin Hurkin, our Chair of the Board and CEO, and Kenny Chung, our CFO. 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 10K for the year ended June 29, 2024, 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-GAP financial measures are included in our comments today and in our presentation slides. The reconciliation of these non-GAP measures to the corresponding GAP 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. 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 Harkin.

Good morning, everyone. We appreciate your joining our call this morning. Today, we will recap our fourth quarter performance, highlight our full year 2025 outcomes, provide an update on key initiatives that will drive our momentum in the new fiscal year, and finally, Kenny will share our view on our guidance for fiscal year 2026. Let's get started with a highlight of our fourth quarter financial outcomes. We are pleased to report that our fourth quarter adjusted results exceeded our expectations. Traffic to restaurants improved throughout the quarter, and Cisco-specific initiatives delivered improved financial outcomes, top to bottom. The progress accelerated throughout the quarter and has continued into July for Cisco. All considered, Q4 was a relatively steady quarter from the perspective of restaurant foot traffic. On a monthly basis, April traffic trends for the industry were down 1.5%, May was down 1%, and June was down approximately 0.9%. The quarter overall was down 1.1%, which represented approximately 190 basis points of improvement versus Q3's traffic level of down 3. It is good to see the industry stabilizing after a rocky start to the calendar year. I'll now pivot to Cisco's results for the quarter. As you can see on slide 4, we delivered sales results of $21.1 billion, up .8% on a reported basis, and up .7% to last year when excluding the divestiture of our Mexican business. We delivered adjusted operating income of $1.1 billion, up .1% to last year, and adjusted EPS growth of $1.48, up .5% relative to last year. Importantly, we made solid progress on our $100 million profit improvement target, with a strong contribution in Q4 from our strategic sourcing efforts. Our international segment posted another compelling quarter, with .6% top-line growth on a reported basis, and up .3% to last year when excluding the divestiture of Mexico. International posted strong local case growth of plus 4% in the quarter. Adjusted operating income increased 20.1%, representing the seventh consecutive quarter of double-digit profit growth. Strength was delivered from across all international geographies, with notable strong performances from Canada, Great Britain, Ireland, and Latin America. We expect a continuation of strong international financial performance in fiscal 2026. Within USFS, our national sales business delivered .3% volume growth for the quarter. On packing those results further, our non-commercial national business continues to perform at a very high level, with strength in food service management, education, and travel and leisure. Most importantly, gross profit within national sales grew almost three times faster than volume, due to the excellent efforts by the team to improve profitability of the national business. The strong profit improvement was delivered through customer optimization and the creation of win-win provisions in our contracts that motivate customers to partner with Cisco to optimize efficiency. Our Sigma segment delivered sales growth of .9% for the quarter, driven by strong customer wins versus prior year. For the year, Sigma grew top line .3% and bottom line 12.5%. It was a record year for our Sigma business, from top and bottom line perspective. It is important to note that the Sigma top line growth rates will begin to moderate in the coming year, as we begin to lap large customer wins earned in 2025. On the local side of our business, we delivered negative .5% case volume within our Food Service segment during the quarter. As shown on slide 8, this was a meaningful 200 basis point step up versus our Q3 outcomes. US Food Service volume reporting included impact from exiting a business within FreshPoint that did not meet our profit thresholds, which negatively impacted our total local performance by over 50 basis points. When excluding this intentional business exit, our USFS local business performed at a negative 1% rate. Again, a meaningful step up versus Q3 and a strong improvement relative to our full year results. More importantly, as I mentioned, we had a strong exit velocity in the quarter, with June performance being the highlight of the quarter. It is important to call out that the positive momentum has carried into July, as Cisco's specific initiatives to improve our local performance are taking root. I'll discuss these efforts in more detail in a moment. Now that we have reviewed our business results for the quarter, I'd like to discuss the key initiatives that are going to drive our performance and local case volume growth for fiscal 2026. Let's start with our international segment. We are very pleased with our international business and have strong confidence that the compelling top and bottom line results will continue into fiscal 2026. We are advancing selling initiatives like Cisco Your Way across the globe. Additionally, we have improved our customer and colleague facing technology in the international segment, making it easier to do business with Cisco. We are adding incremental local sales resources in key international geographies, primarily metro areas like Toronto, Dublin, and London, to drive new customer wins and improve customer engagement. Lastly, our international supply chain capacity expansion efforts continue, with our newest facility outside of London on track to open later this calendar year. National. Our national sales business continues to perform well, with exceptionally high customer retention rates and continued new wins on the selling circuit. We expect Cisco's national sales growth in 2026 will be driven by our food service management sector, travel leisure, and increases in our healthcare business. To further unlock growth, we are allocating our national sales resources to the highest potential segments of the business that are making technology investments to deepen our connectivity with our largest customers. Lastly, total team selling is beginning to gain traction amongst our largest customers, with an increasing percentage of national customers purchasing from at least one of our specialty platforms. Lastly, I'd like to discuss our improvement efforts and strategic growth drivers for our local business. Let me start by saying that we are very confident that we will deliver profitable local volume growth in 2026 within every country we operate, especially in the United States. We have addressed the key challenge of 2025 head on, and we have growth activation initiatives launching this summer. First off, I want to start by discussing our sales colleague population. We have fully stabilized our sales colleague retention and are now fully focused on improving sales colleague training, productivity, and effectiveness. The stabilized colleague retention is important because it will drive significantly improved customer retention in 2026. As we enter 2026, we will be lapping last year's excessive colleague turnover and will replace that condition with strong in-year retention. A headwind in 2025 will be converted into a tailwind in 2026. We are seeing the beginning positive impact of this equation in our July results. That positive impact will grow throughout 2026. As I mentioned a moment ago, now that we have stabilized retention, our leadership focus turns to driving improved productivity of the sales force through training and upscaling of our sales colleagues. Additionally, our initial cohorts of sales consultant hires from calendar 2024 are beginning to eclipse their 12 to 18 month anniversary with Cisco. As Kenny has said many times, this time horizon is important as it is when the productivity of a sales consultant significantly improves. As each quarter progresses, an increased number of our sales consultants will eclipse their 12 to 18 month increase. As sales colleague tenure improves, our results improve. Lower turnover in 2026 means higher customer retention and higher retention means more productive colleagues. These two factors will be powerful drivers of improved outcomes for Cisco in 2026. To complement the strength and productivity of our sales professionals and further improve our business results, we are launching select growth initiatives this summer and fall. First up is a rewiring of our PERCS customer loyalty program. PERCS will evolve from a marketing and rewards platform into a hard-hitting exceptional customer service program targeting our most important customers. The why is clear. These customers buy the most, buy the most often, and they deserve the absolute best from Cisco. We have trained our operations, inventory, merchandising, and sales teams on the key tenants of PERCS 2.0 and we are ready to launch this summer. The program will improve customer attention and will improve penetration of business with existing customers. Next up is an AI-empowered sales tool to help improve the productivity of our sales colleagues. As you know, we leverage a CRM platform to guide the work of our sales teams. Our technology teams have been hard at work to supercharge our CRM capabilities by leveraging AI to help our sales consultants succeed. The enhanced capabilities will reside in the palm of the colleague's hand on their smartphone. The features of the tool will help our team to drive increased levels of selling effectiveness, increase close rates on sales suggestions, and deliver higher rates of customer satisfaction. To say that we are excited about this capability would be an understatement. Our newer sales colleagues will benefit the most from the powerful capabilities of our AI-powered CRM. Last up is price agility. As we have previously communicated, we are piloting improvements to our pricing architecture that improves sales colleague engagement with customers by providing the sales force the ability to be more agile in responding to pricing requests. Our sales reps will be enabled to make decisions in the moment, leveraging the science of our pricing software. In July, we are expanding our pilot to additional geographies to learn more about the change management process required for a national rollout. As I wrap up my prepared remarks, we are pleased with our strong performance in Q4 and the progress that we are making in local volume. Most importantly, we are excited about the exit velocity of the quarter and that the momentum has carried into July. We are confident that improved sales consultant retention, increased sales consultant tenure, and the three growth programs I just covered will drive profitable and positive case growth for Cisco in fiscal 2026. We expect that positive local case growth will in turn support our financial targets. With that, I now like to turn the call over to Kenny. Kenny, over to you.