SYY CAGNY 2024 PRESENTATION (February 20, 2024)
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This document provides forward-looking statements and discusses Sysco's expectations for fiscal year 2024. Some of the key points include: - Sysco expects mid-single digit sales growth to $80 billion and 5-10% adjusted EPS growth to a range of $4.20 to $4.40 for fiscal year 2024. - Sysco believes its Recipe for Growth strategy and strategic priorities will enable it to consistently outperform the market. - The document outlines various risks and uncertainties that could cause actual results to differ from Sysco's expectations.
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SYY CAGNY 2024 PRESENTATION (February 20, 2024)
- 2. Forward-Looking Statements 2 Statements made in this presentation that look forward in time or that express management’s beliefs, expectations or hopes are forward-looking statements under the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the views of management at the time such statements are made and are subject to a number of risks, uncertainties, estimates, and assumptions that may cause actual results to differ materially from current expectations. These statements include statements concerning: the implications of the COVID-19 pandemic and any expectations we may have with respect thereto; our expectations regarding future improvements in productivity; our belief that improvements in our organizational capabilities will deliver compelling outcomes in future periods; our expectations regarding improvements in international volume; our expectations that our transformational agenda will drive long-term growth; our expectations regarding the continuation of an inflationary environment; our expectations regarding improvements in the efficiency of our supply chain; our expectations regarding the impact of our Recipe for Growth strategy and the pace of progress in implementing the initiatives under that strategy; our expectations regarding Sysco’s ability to outperform the market in future periods; our expectations that our strategic priorities will enable us to grow faster than the market; our expectations regarding our efforts to reduce overtime rates and the incremental investments in hiring; our expectations regarding the expansion of our driver academy and our belief that the academy will enable us to provide upward career path mobility for our warehouse colleagues and improve colleague retention; our expectations regarding the benefits of the six-day delivery and last mile distribution models; our plans to improve the capabilities of our sales team; our plans to refine our engineering labor standards; our expectations regarding the impact of our growth initiatives and their ability to enable Sysco to consistently outperform the market; our expectations to exceed our growth target by the end of fiscal 2024; our ability to deliver against our strategic priorities; economic trends in the United States and abroad; our belief that there is further opportunity for profit in the future; our future growth, including growth in sales and earnings per share; the pace of implementation of our business transformation initiatives; our expectations regarding our balanced approach to capital allocation and rewarding our shareholders; our plans to improve colleague retention, training and productivity; our belief that our Recipe for Growth transformation is creating capabilities that will help us profitably grow for the long term; our expectations regarding our long-term financial outlook; our expectations of the effects labor harmony will have on sales and case volume, as well as mitigation expenses; our expectations for customer acquisition in the local/street space; our expectations regarding the effectiveness of our Global Support Center expense control measures; and our expectations regarding the growth and resilience of our food away from home market. It is important to note that actual results could differ materially from those projected in such forward-looking statements based on numerous factors, including those outside of Sysco’s control. For more information concerning factors that could cause actual results to differ from those expressed or forecasted, see our Annual Report on Form 10-K for the year ended July 1, 2023, as filed with the SEC, and our subsequent filings with the SEC. We do not undertake to update our forward-looking statements, except as required by applicable law.
- 3. KEVIN HOURICAN President & Chief Executive Officer
- 4. F o o d S u p p l y C h a i n F o o d S a l e s & M a r k e t i n g
- 5. FY2023 Total Sysco Sales $76.3B In Annual Sales ~725K Customer Locations 334 Distribution Centers 72K+ Colleagues Across the Globe IFG Operations 5 Sysco is the Backbone of the Food Away From Home Industry and Growing Share 8% Travel and Leisure 62% Restaurants 7% Healthcare 15% Other 8% Education and Government
- 6. Sysco has Consistently Grown Sales for 50+ Years 6 $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Fiscal Year Sales ($ bn) Overview • Sysco has grown sales 51 out of the last 54 years • Robust cross-selling opportunities with Broadline scale & specialty expansion • International segment continues to drive strong growth • Strong M&A track record • Future category growth opportunities remain high
- 7. Food Away From Home Continues to Gain Share 7 Source: The United States Census Bureau Advance Monthly Sales for Retail and Food Services 30% 35% 40% 45% 50% 55% 60% 65% 70% Percentage of Combined Monthly Sales (2000 - 2023) Grocery Stores Food Services and Drinking Places
- 8. Market Leader in the Highly Fragmented and Growing Foodservice Distribution Industry $161 B $197 B $224 B $268 B $231 B $300 B $354 B $360 B 2000 2005 2010 2015 2020 2021 2022 2023 Total Addressable Market Since 2000 8 Technomic U.S. Foodservice Industry Wallchart for Calendar Year, updated September 2023 17% $360B
- 9. Sysco is the Industry Leader with Breadth, Depth, Scale, and Reach Sysco is the Industry Leader with Breadth, Depth, Scale, and Reach Restaurants Recreation Lodging Catering & Events Sports & Entertainment Retail Travel & Leisure Healthcare & Senior Living Education Government 9
- 10. Our Recipe for Growth DIGITAL Enrich the customer experience through personalized digital tools that reduce friction in the purchase experience and introduce innovation to our customers PRODUCTS AND SOLUTIONS Customer focused marketing and merchandising solutions that inspire increased sales of our broad assortment of fair priced products and services SUPPLY CHAIN Efficiently and consistently serve customers with the products they need, when and how they need them, through a flexible delivery framework FUTURE HORIZON We are committed to responsible growth. We will cultivate new channels, segments and capabilities while being stewards of our company and our planet for the long-term. We will fund our journey through cost-out and efficiency improvements CUSTOMER TEAMS Our greatest strength is our people. People who are passionate about food and food service. Our diverse team delivers expertise and differentiated services designed to help our customers grow their business IDENTITY | Our Role Together we define the future of foodservice and supply chain MISSION | Our What Delivering success for our customers through industry-leading people, products and solutions PURPOSE | Our Why Connecting the World to Share Food and Care for One Another STRATEGY | How We Win - We will grow meaningfully faster than the market through our strategic priorities Sysco Is a Purpose-Driven Organization, Defining the Future of Our Industry 10
- 11. Sysco is a Global Leader in Food Distribution with 334 Distribution Centers Worldwide 192 DCs in the U.S/Territories, 105 in Europe, and 28 in Canada 334 DCs 142 DCs 70 DCs Competitor #1 Competitor #2 Sysco’s Leading Market Position: USA Canada UK Ireland Costa Rica Bahamas #1 11
- 12. Sysco Leads Where It Matters Broadline Food Distributor #1 LARGEST Sysco Brand #1 Specialty Fresh Produce SELLS THE MOST ONLY International Growth SELLS THE MOST Specialty Meat TECH: Shop Ordering Platform TOP RATED NPS Sales Associates LARGEST & HIGHEST RATED BY CUSTOMERS 12
- 13. Sysco is Winning with… Advantages National Customers Advantages Local Customers National Scale Fulfillment Strength Targeted Sales Expertise Industry Leading Sales Force Powerful Digital Tools Sysco Your Way & Sysco Perks! & Increased & Localized Product Assortment Improved Technology Integration 13
- 14. Sysco Brand Products Generate Over $19 Billion in Sales To put it in perspective… $7.4B sales FY2023 $13.1B sales FY2023 ~$5B ~$1B ~$500M And we have 11 brands >$500M $11.2B sales FY2023 $5.9B sales FY2023 Nearly Half of Local Cases Driven by Sysco Brand
- 15. Growing Dividend Investment Grade Credit Rating Consistent History of Share Repurchases Industry Leading Margins Sysco vs. Competition ESG Targets in Compensation Average Core Peers 15 Distribution Network
- 17. Kenny Cheung Chief Financial Officer
- 18. FY 2021 $51.3 $68.6 $76.3 $80.0 Net Sales (billions) $1.44 $3.25 $4.01 $4.20- $4.40 Adj. EPS1 FY 2022 1 8 18 1 See Non-GAAP reconciliations at the end of the presentation. 2 FY 2024 Guidance: Mid single digit sales growth to $80B; ~5%-10% Adj. EPS growth to $4.20-$4.40 FY 2023 Record Performance in FY23 and Confidence in FY24 FY 2024E2 FY 2021 FY 2022 FY 2023 FY 2024E2 16% CAGR 43%-45% CAGR Overview • 16% 3-YR sales CAGR from FY2021 to FY2024E • 43%-45% 3-YR adj. EPS CAGR from FY2021 to FY2024E • FY24 Guidance of mid single digit sales growth YoY to $80 billion and 5-10% adj. EPS growth YoY to $4.20-$4.40
- 19. Sysco Drives Positive Operating Leverage Through… 2.6% 3.6% 3.9% 4.1% Adj Operating Income1 % of Sales 1H 2023 1H 2024 1H 2021 1H 2022 Centralized Pricing Tool Sysco Brand Penetration Specialty Mix Increase Strategic Sourcing Cost Outs Supply Chain Improvements Retention Increases Productivity Improvements OPEX Reduction Drivers Gross Profit Improvement Drivers 1 See Non-GAAP reconciliations at the end of the presentation. 19
- 20. Superior Performance Relative to Peers >2.7x Sustained Cash Flow Generation FY2023 Free Cash Flow ($ in millions)1,2,3 Impressive Sales Flow Through to Earnings FY2023 Adj. EBITDA Margin1,3 Impressive Sales Flow Through to Gross Profits FY2023 Gross Margin1 ~1.3x 13.9% 18.3% 1 Calendarized to Jun-30 fiscal year end. 2 Calculated as cash flows from operating activities less purchases of plant & equipment plus proceeds from sales of plant & equipment 3 See Non-GAAP reconciliations at the end of the presentation Note: Core Peers reflect average of public company broadline peers Average Core Peers SYY 3.3% 5.0% $770 $2,116 Average Core Peers SYY Average Core Peers SYY Robust earnings power anchored by strong cash conversion rates 20 ~1.5x
- 21. Capital Structure and Investment Allocation Priorities 1 2 1 21 Invest for Growth Maintain a Strong Balance Sheet Invest for Growth Shareholder Return Maintain a Strong Balance Sheet 3 2
- 22. 2 22 CAPEX M&A Balanced Approach to Capital Allocation (FY2024 Est.) ~$800M ~$1.2B Share Buybacks Dividends ~$1.25B ~$1B Shareholder Return Invest for Growth
- 23. 7 new buildings to deliver new capacity in high-potential markets and cuisine segments Disciplined Investments to Support Growth 23
- 24. 24 Strong Track Record of Capital Return to Shareholders Consistent Dividend Growth “Dividend Aristocrat” Best in Class Capital Return Profile Cumulative capital return over last 5 years as a % of current market capitalization1,2,3,4 Robust Share Repurchase Program Cumulative cash returned from share repurchases1 | ($ bn) 1 From FY2019 to FY2023 2 Reflects common share dividends and share repurchases 3 Reflects market capitalization as of 7-Feb-2024 4 Calendarized to Jun-30 fiscal year end. Note: Core Peers reflect average of public company broadline peers Sysco is one of only four Consumer Staples companies in the S&P 500 that has both increased its dividend for 25+ years and accelerated its dividend growth by >35% in the last 5 years $1.0 $2.9 2019 2020 2021 2022 2023 1% 18% Avg. Core Peers Sysco $0.8 $4.5 Cumulative Dividends1 ($ bn) 2019 2020 2021 2022 2023
- 25. August 2021 February 2022 August 2023 November 2023 October 2021 $0.8 $1.3 Greco & Sons Revenues ($ bn) Acquisition FY2023 M&A Focused on Higher Margin Specialty Acquisitions Sysco M&A Focus Enhance Our Product Portfolio, Capabilities and Footprint 25 ~65%
- 26. Key Characteristics of Dividend Aristocrats • Part of the S&P 500 • Dividend growth for a minimum of 25 consecutive years • Consistent cash flows to weather economic fluctuations • Strong history of returning cash back to shareholders through dividends and share repurchases Sysco is a Dividend Aristocrat, Growing Dividends for 54 Years
- 27. Over $17 Billion of Cash Expected to be Returned to Shareholders Through FY 2024 2 7 27 $0.7 B $3.3 B $5.9 B $7.6 B $9.4 B $11.1 B $12.0 B $13.5 B $15.0 B $17.2 B FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 (Expected) Cumulative Cash Returned to Shareholders Dividends Shares Repurchased Strong Cash Generation Drives Shareholder Returns
- 28. Neil Russell Chief Administrative Officer
- 29. FY2023 Total Sysco Sales $76.3B In Annual Sales ~725K Customer Locations 334 Distribution Centers 72K+ Colleagues Across the Globe We are Adding to Sysco’s Industry Leading Core Strengths 8% Travel and Leisure 62% Restaurants 7% Healthcare 15% Other 8% Education and Government Industry Leading Core + Accelerating Growth Capabilities
- 30. Sysco Has Multiple Vectors of Long-Term Profitable Growth… 30
- 31. • Philanthropy & Community Giving • Diversity, Equity & Inclusion • Health & Wellness PEOPLE PLANET • Sustainable Agriculture • Energy & Carbon • Waste Reduction PRODUCTS • Responsible Sourcing • Human Rights • Animal Welfare 31 …Including Through a Lens of Responsible Growth Compensation for All Leaders Includes ROIC and Responsible, Profitable Long-Term Growth
- 32. New director Kevin Hourican President and CEO, Sysco Ed Shirley Non-Executive Chairman of the Board Chairman of the Board, Sysco Daniel Brutto Sustainability Committee Chair Former President, UPS International and Senior Vice President, United Parcel Service Larry Glasscock Corporate Governance & Nominating Committee Chair Former Chairman of the Board of Directors, CEO and President of WellPoint Bradley Halverson Audit Committee Chair Former Group President, Financial Products and Corporate Services and CFO, Caterpillar John Hinshaw GMD COO, HSBC Group Management Services Sheila Talton Technology Committee Chair President and CEO of Gray Matter Analytics Alison Kenney Paul Compensation and Leadership Development Committee Chair Managing Director, Global Alliances of Google Jill Golder Former Senior Vice President and CFO, Cracker Barrel Old Country Store Ali Dibadj Chief Executive Officer, Janus Henderson Investors Francesca DeBiase Former EVP and Chief Global Supply Chain Officer, McDonald’s Accounting/Audit/Financial Reporting M&A/Integration Business Operations Marketing/Sales/Merchandising Distribution/Supply Chain Public Company Board Service Executive Leadership/Management Risk Oversight/Management Finance Strategy Development Foodservice Industry Experience Sustainability/ESG HR/Human Capital Management/Large Workforce Digital Technology/Cybersecurity International/Global Director Skills & Experiences Tenure Independent Nominee Tenure Board Refreshment & Oversight • Our Board recognizes the importance of consistent, deliberate Board refreshment and succession planning • 4 of our 10 independent director nominees have joined the Sysco Board since 2022 • The Board is extensively involved in overseeing Sysco’s enterprise risk management process 6 3 1 7-10 Years ≤6 Years 10+ Years 4 Years Average Tenure 32 SYY has a Strong, Diverse and Experienced Board
- 33. Leading the Industry with Size and Scale Advantages WHY SYSCO? Sysco:#1 Food Distributor Food Away from Home is a Growth Industry Growing Share Profitably and Consistently Industry Leading Profit Margins Strong Balance Sheet & Robust Free Cash Flow
- 36. Impact of Certain Items 3 6 The discussion of our results includes certain non-GAAP financial measures, including EBITDA and adjusted EBITDA, that we believe provide important perspective with respect to underlying business trends. Other than EBITDA and free cash flow, any non-GAAP financial measures will be denoted as adjusted measures to remove (1) restructuring charges; (2) expenses associated with our various transformation initiatives; (3) severance charges; and (4) acquisition-related costs consisting of: (a) intangible amortization expense and (b) acquisition costs and due diligence costs related to our acquisitions. Our results for fiscal 2023 were also impacted by adjustments to a product return allowance pertaining to COVID-related personal protection equipment inventory, a pension settlement charge that resulted from the purchase of a nonparticipating single premium group annuity contract that transferred defined benefit plan obligations to an insurer, and a litigation financing agreement. Our results for fiscal 2022 were also impacted by a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory, losses on the extinguishment of long-term debt and an increase in reserves for uncertain tax positions. Our results for fiscal 2021 were also impacted by losses on the sale of businesses. Management believes that adjusting its results to remove these Certain Items provides an important perspective with respect to our underlying business trends and results and provides meaningful supplemental information to both management and investors that (1) is indicative of the performance of the company’s underlying operations and (2) facilitates comparisons on a year-over-year basis. Sysco has a history of growth through acquisitions and excludes from its non-GAAP financial measures the impact of acquisition- related intangible amortization, acquisition costs and due-diligence costs for those acquisitions. We believe this approach significantly enhances the comparability of Sysco’s results for fiscal 2024, fiscal 2023, fiscal 2022, and fiscal 2021. 36
- 37. 3 7 37 Sysco Corporation and its Consolidated Subsidiaries Non-GAAP Reconciliation (Unaudited) Impact of Certain Items (Dollars in Thousands, Except for Share and Per Share Data) 52-Week Period Ended Jul. 1, 2023 52-Week Period Ended Jul. 2, 2022 53-Week Period Ended Jul. 3, 2021 Sales (GAAP) $ 76,324,675 $ 68,636,146 $ 51,297,843 Cost of sales (GAAP) $ 62,369,678 $ 56,315,622 $ 41,941,094 Impact of inventory valuation adjustment 2,571 (1) (73,224) (1) - Cost of sales adjusted for Certain Items (Non-GAAP) $ 62,372,249 $ 56,242,398 $ 41,941,094 Gross profit (GAAP) $ 13,954,997 $ 12,320,524 $ 9,356,749 Impact of inventory valuation adjustment (2,571) (1) 73,224 (1) - Gross profit adjusted for Certain Items (Non-GAAP) $ 13,952,426 $ 12,393,748 $ 9,356,749 Operating expenses (GAAP) $ 10,916,448 $ 9,974,024 $ 7,909,561 Impact of restructuring and transformational project costs (62,965) (2) (107,475) (2) (128,187) (6) Impact of acquisition-related costs (115,889) (3) (139,173) (3) (79,540) (7) Impact of bad debt reserve adjustments 4,425 (4) 27,999 (4) 184,813 (4) Operating expenses adjusted for Certain Items (Non-GAAP) $ 10,742,019 $ 9,755,375 $ 7,886,647 Operating income (GAAP) $ 3,038,549 $ 2,346,500 $ 1,447,188 Impact of inventory valuation adjustment (2,571) (1) 73,224 (1) - Impact of restructuring and transformational project costs 62,965 (2) 107,475 (2) 128,187 (6) Impact of acquisition-related costs 115,889 (3) 139,173 (3) 79,540 (7) Impact of bad debt reserve adjustments (4,425) (4) (27,999) (4) (184,813) (4) Operating income adjusted for Certain Items (Non-GAAP) $ 3,210,407 $ 2,638,373 $ 1,470,102 Interest expense (GAAP) $ 526,752 $ 623,643 $ 880,137 Impact of loss on extinguishment of debt - (115,603) (293,897) Interest expense adjusted for Certain Items (Non-GAAP) $ 526,752 $ 508,040 $ 586,240 Other expense (income) (GAAP) $ 226,442 $ (23,916) $ (17,677) Impact of other non-routine gains and losses (194,459) (5) - (10,460) (8) Other expense (income) adjusted for Certain Items (Non-GAAP) $ 31,983 $ (23,916) $ (28,137) Net earnings (GAAP) $ 1,770,124 $ 1,358,768 $ 524,209 Impact of inventory valuation adjustment (2,571) (1) 73,224 (1) - Impact of restructuring and transformational project costs 62,965 (2) 107,475 (2) 128,187 (6) Impact of acquisition-related costs 115,889 (3) 139,173 (3) 79,540 (7) Impact of bad debt reserve adjustments (4,425) (4) (27,999) (4) (184,813) (4) Impact of loss on extinguishment of debt - 115,603 293,897 Impact of other non-routine gains and losses 194,459 (5) - 10,460 (8) Tax impact of inventory valuation adjustment (9) 647 (18,902) - Tax impact of restructuring and transformational project costs (9) (15,847) (27,743) (32,416) Tax impact of acquisition-related costs (9) (29,166) (35,926) (19,675) Tax impact of bad debt reserve adjustments (9) 1,114 7,228 46,260 Tax impact of loss on extinguishment of debt (9) - (29,841) (79,323) Tax impact of other non-routine gains and losses (9) (48,941) - (2,692) Impact of adjustments to uncertain tax positions - 12,000 - Impact of foreign tax rate change - - (23,197) (10) Net earnings adjusted for Certain Items (Non-GAAP) $ 2,044,248 $ 1,673,060 $ 740,437
- 38. 3 8 38 Sysco Corporation and its Consolidated Subsidiaries Non-GAAP Reconciliation (Unaudited) Impact of Certain Items (Dollars in Thousands, Except for Share and Per Share Data) continued Diluted earnings per share (GAAP) $ 3.47 $ 2.64 $ 1.02 Impact of inventory valuation adjustment (0.01) (1) 0.14 (1) - Impact of restructuring and transformational project costs 0.12 (2) 0.21 (2) 0.25 (6) Impact of acquisition-related costs 0.23 (3) 0.27 (3) 0.15 (7) Impact of bad debt reserve adjustments (0.01) (4) (0.05) (4) (0.36) (4) Impact of loss on extinguishment of debt - 0.22 0.57 Impact of other non-routine gains and losses 0.38 (5) - 0.02 (8) Tax impact of inventory valuation adjustment (9) - (0.04) - Tax impact of restructuring and transformational project costs (9) (0.03) (0.05) (0.06) Tax impact of acquisition-related costs (9) (0.06) (0.07) (0.04) Tax impact of bad debt reserve adjustments (9) - 0.01 0.09 Tax impact of loss on extinguishment of debt (9) - (0.06) (0.15) Tax impact of other non-routine gains and losses (9) (0.10) - (0.01) Impact of adjustments to uncertain tax positions - 0.02 - Impact of foreign tax rate change - - (0.05) (10) Diluted earnings per share adjusted for Certain Items (Non-GAAP) (11) $ 4.01 $ 3.25 $ 1.44 Diluted shares outstanding 509,719,756 514,005,827 513,555,088 (10) Represents a net benefit from remeasuring Sysco’s accrued income taxes, deferred tax asset and deferred tax liabilities due to changes in tax rates in the United Kingdom. (11) Individual components of diluted earnings per share may not add up to the total presented due to rounding. Total diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding. (6) Fiscal 2021 includes $72 million related to restructuring charges and severance charges and $56 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy. (7) Fiscal 2021 represents $74 million of intangible amortization expense from the Brakes Acquisition, which is included in the results of International Foodservice, as well as $6 million of due diligence and integration costs related to Greco and Sons, which are included within Global Support Center expenses. (8) Fiscal 2021 includes $23 million of loss from the sale of businesses, $9 million of gains on sale of property, and other non-recurring gains and losses. (9) The tax impact of adjustments for Certain Items is calculated by multiplying the pretax impact of each Certain Item by the statutory rates in effect for each jurisdiction where the Certain Item was incurred. (3) Fiscal 2023 includes $105 million of intangible amortization expense and $10 million in acquisition and due diligence costs. Fiscal 2022 includes $106 million of intangible amortization expense and $33 million in acquisition and due diligence costs. (4) Represents the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020. (5) Fiscal 2023 primarily includes a pension settlement charge of $315 million that resulted from the purchase of a nonparticipating single premium group annuity contract that transferred defined benefit plan obligations to an insurer and $122 million in income from a litigation financing agreement. (1) Fiscal 2023 represents an adjustment to a product return allowance, related to COVID-related personal protection equipment inventory. Fiscal 2022 represents a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory. (2) Fiscal 2023 includes $20 million related to restructuring and severance charges and $43 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy. Fiscal 2022 includes $59 million related to restructuring and severance charges and $49 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy.
- 39. 3 9 39 Sysco Corporation and its Consolidated Subsidiaries Non-GAAP Reconciliation (Unaudited) Impact of Certain Items (Dollars in Thousands) 26-Week Period Ended Dec. 30, 2023 26-Week Period Ended Dec. 31, 2022 26-Week Period Ended Jan. 1, 2022 26-Week Period Ended Dec. 26, 2020 Sales (GAAP) $ 38,908,396 $ 37,720,783 $ 32,776,749 $ 23,336,361 Cost of sales (GAAP) $ 31,746,991 $ 30,882,312 $ 26,913,891 $ 19,018,058 Impact of inventory valuation adjustment - 2,571 - - Cost of sales adjusted for Certain Items (Non-GAAP) $ 31,746,991 $ 30,884,883 $ 26,913,891 $ 19,018,058 Gross profit (GAAP) $ 7,161,405 $ 6,838,471 $ 5,862,858 $ 4,318,303 Impact of inventory valuation adjustment - (2,571) (1) - - Gross profit adjusted for Certain Items (Non-GAAP) $ 7,161,405 $ 6,835,900 $ 5,862,858 $ 4,318,303 Operating expenses (GAAP) $ 5,657,780 $ 5,460,847 $ 4,786,267 $ 3,686,662 Impact of restructuring and transformational project costs (33,175) (2) (26,034) (2) (47,980) (5) (60,124) (5) Impact of acquisition-related costs (62,379) (3) (58,415) (3) (69,658) (6) (35,880) (6) Impact of bad debt reserve adjustments - 4,515 (4) 13,499 (4) 128,899 (4) Operating expenses adjusted for Certain Items (Non-GAAP) $ 5,562,226 $ 5,380,913 $ 4,682,128 $ 3,719,557 Operating income (GAAP) $ 1,503,625 $ 1,377,624 $ 1,076,591 $ 631,641 Impact of inventory valuation adjustment - (2,571) (1) - - Impact of restructuring and transformational project costs 33,175 (2) 26,034 (2) 47,980 (5) 60,124 (5) Impact of acquisition-related costs 62,379 (3) 58,415 (3) 69,658 (6) 35,880 (6) Impact of bad debt reserve adjustments - (4,515) (4) (13,499) (4) (128,899) (4) Operating income adjusted for Certain Items (Non-GAAP) $ 1,599,179 $ 1,454,987 $ 1,180,730 $ 598,746 Operating margin (GAAP) 3.9% 3.7% 3.3% 2.7% Operating margin adjusted for Certain Items (Non-GAAP) 4.1% 3.9% 3.6% 2.6% (2) Fiscal 2024 includes $8 million related to restructuring and severance charges and $25 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy. Fiscal 2023 includes $10 million related to restructuring and severance charges and $16 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy. (1) Fiscal 2023 represents an adjustment to a product return allowance, related to COVID-related personal protection equipment inventory. (6) Fiscal 2022 includes $48 million of intangible amortization expense and $21 million in acquisition and due diligence costs. Fiscal 2021 represents intangible amortization expense. (3) Fiscal 2024 includes $57 million of intangible amortization expense and $5 million in acquisition and due diligence costs. Fiscal 2023 includes $52 million of intangible amortization expense and $6 million in acquisition and due diligence costs. (4) Represents the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020. (5) Fiscal 2022 includes $28 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy and $20 million related to restructuring and severance charges. Fiscal 2021 includes $33 million related to restructuring and severance charges, and $27 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy.
- 40. Projected Adjusted EPS Guidance 4 0 Adjusted earnings per share is a non-GAAP financial measure; however, we cannot predict with certainty certain items that would be included in the most directly comparable GAAP measure for the relevant future periods. Due to these uncertainties, we cannot provide a quantitative reconciliation of projected adjusted EPS to the most directly comparable GAAP financial measure without unreasonable effort. However, we expect to calculate adjusted earnings per share for future periods in the same manner as we have historically. 40
- 41. 4 1 EBITDA represents net earnings (loss) plus (i) interest expense, (ii) income tax expense and benefit, (iii) depreciation and (iv) amortization. The net earnings (loss) component of our EBITDA calculation is impacted by Certain Items that we do not consider representative of our underlying performance. As a result, in the non-GAAP reconciliations below for each period presented, adjusted EBITDA is computed as EBITDA plus the impact of Certain Items, excluding certain items related to interest expense, income taxes, depreciation and amortization. Sysco's management considers growth in this metric to be a measure of overall financial performance that provides useful information to management and investors about the profitability of the business, as it facilitates comparison of performance on a consistent basis from period to period by providing a measurement of recurring factors and trends affecting our business. Additionally, it is a commonly used component metric used to inform on capital structure decisions. Adjusted EBITDA should not be used as a substitute for the most comparable GAAP financial measure in assessing the company’s financial performance for the periods presented. An analysis of any non- GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. In the table that follows, adjusted EBITDA for each period presented is reconciled to net earnings. 41 Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
- 42. 4 2 42 Sysco Corporation and its Consolidated Subsidiaries Non-GAAP Reconciliation (Unaudited) Impact of Certain Items on Earnings Before Interest, Taxes, Depreciation and Amortization (FY23 vs. FY22) (In Thousands) 52-Week Period Ended Jul. 1, 2023 52-Week Period Ended Jul. 2, 2022 Change in Dollars %/bps Change Net earnings (GAAP) $ 1,770,124 $ 1,358,768 $ 411,356 30.3% Interest (GAAP) 526,752 623,643 (96,891) -15.5% Income taxes (GAAP) 515,231 388,005 127,226 32.8% Depreciation and amortization (GAAP) 775,604 772,881 2,723 0.4% EBITDA (Non-GAAP) $ 3,587,711 $ 3,143,297 $ 444,414 14.1% Certain Item adjustments: Impact of inventory valuation adjustment (1) (2,571) 73,224 (75,795) NM Impact of restructuring and transformational project costs (2) 61,009 106,091 (45,082) -42.5% Impact of acquisition-related costs (3) 10,393 32,738 (22,345) -68.3% Impact of bad debt reserve adjustments (4) (4,425) (27,999) 23,574 84.2% Impact of non-routine gains and losses (5) 194,459 - 194,459 NM EBITDA adjusted for Certain Items (Non-GAAP) (6) $ 3,846,576 $ 3,327,351 $ 519,225 15.6% Sales (GAAP) $ 76,324,675 $ 68,636,146 Adjusted EBITDA Margin (Non-GAAP) 5.0% 4.8% (6) In arriving at adjusted EBITDA, Sysco does not adjust out interest income of $24 million and $7 million or non-cash stock compensation expense of $95 million and $122 million for fiscal 2023 and fiscal 2022, respectively. NM represents that the percentage change is not meaningful. (1) Fiscal 2023 represents an adjustment to a product return allowance, related to COVID-related personal protection equipment inventory. Fiscal 2022 represents a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory. (2) Fiscal 2023 and fiscal 2022 include charges related to restructuring and severance, as well as various transformation initiative costs, primarily consisting of changes to our business technology strategy, excluding charges related to accelerated depreciation. (3) Fiscal 2023 and fiscal 2022 include acquisition and due diligence costs. (4) Fiscal 2023 and fiscal 2022 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020. (5) Fiscal 2023 primarily includes a pension settlement charge of $315 million that resulted from the purchase of a nonparticipating single premium group annuity contract that transferred defined benefit plan obligations to an insurer and $122 million in income from a litigation financing agreement.
- 43. Sysco Corporation and its Consolidated Subsidiaries Non-GAAP Reconciliation (Unaudited) Free Cash Flow, YTD23 vs. YTD22 (In Thousands) 4 3 43 Free cash flow represents net cash provided from operating activities less purchases of plant and equipment and includes proceeds from sales of plant and equipment. Sysco considers free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after the purchases and sales of buildings, fleet, equipment and technology, which may potentially be used to pay for, among other things, strategic uses of cash including dividend payments, share repurchases and acquisitions. However, free cash flow may not be available for discretionary expenditures, as it may be necessary that we use it to make mandatory debt service or other payments. Free cash flow should not be used as a substitute for the most comparable GAAP financial measure in assessing the company’s liquidity for the periods presented. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. In the table that follows, free cash flow for each period presented is reconciled to net cash provided by operating activities. Net cash provided by operating activities (GAAP) $ 2,867,602 $ 1,791,286 $ 1,076,316 Additions to plant and equipment (793,325) (632,802) (160,523) Proceeds from sales of plant and equipment 42,147 24,144 18,003 Free Cash Flow (Non-GAAP) $ 2,116,424 $ 1,182,628 $ 933,796 52-Week Period Ended Jul. 1, 2023 52-Week Period Ended Jul. 2, 2022 Change in Dollars