Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
This discussion should be read in conjunction with our consolidated financial statements as of
July 2, 2016
, and the fiscal year then ended, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, both contained in our Annual Report on Form 10-K for the fiscal year ended
July 2, 2016
, as well as the consolidated financial statements (unaudited) and notes to the consolidated financial statements (unaudited) contained in this report and a Current Report on Form 8-K filed on February 6, 2017, which includes recast sections from our Annual Report on Form 10-K for the fiscal year ended
July 2, 2016
.
Sysco’s results of operations are impacted by restructuring costs consisting of (1) severance charges, (2) professional fees related to our three-year strategic plan, (3) restructuring expenses within our Brakes Group operations, and (4) expenses associated with our revised business technology strategy announced in fiscal 2016, as a result of which we recorded accelerated depreciation on our existing system and incurred costs to convert to a modernized version of our established platform. Our results of operations are also impacted by the following acquisition-related items: (1) intangible amortization expense, (2) transaction costs, and (3) integration costs. All acquisition-related costs in fiscal 2017 that have been excluded relate to the Brakes Group acquisition (the Acquisition). Fiscal 2016 acquisition-related costs, however, include (i) termination costs in connection with the merger that had been proposed with US Foods, Inc. (US Foods) and (ii) financing costs related to the senior notes that were issued in fiscal 2015 to fund the proposed US Foods merger. These senior notes were redeemed in the first quarter of fiscal 2016, triggering a redemption loss of $86.5 million, and we incurred interest on these notes through the redemption date. The Brakes Acquisition also resulted in non-recurring tax expense in fiscal 2017, primarily from non-deductible transaction costs. These fiscal 2017 and fiscal 2016 items are collectively referred to as "Certain Items."
Although Sysco has a history of growth through acquisitions, the Brakes Group is significantly larger than the companies historically acquired by Sysco, with a proportionately greater impact on Sysco’s consolidated financial statements. Accordingly, Sysco is excluding from its non-GAAP financial measures for the relevant period solely those acquisition costs specific to the Acquisition. We believe this approach significantly enhances the comparability of Sysco’s results for the first quarter of fiscal 2017 to the same period in fiscal 2016. Also, given the significance of the Acquisition, management believes that presenting Sysco’s financial measures, excluding the Brakes Group operating results (including for this purpose Brakes Group financing costs, which are not included in the Brakes Group GAAP operating results and are also not Certain Items), enhances comparability of the period over period financial performance of Sysco’s legacy business and allows investors to more effectively measure Sysco’s progress against the financial goals under Sysco’s three-year strategic plan.
More information on the rationale for the use of these measures and reconciliations to GAAP numbers can be found under “Non-GAAP Reconciliations.”
Overview
Sysco distributes food and related products to restaurants, healthcare and educational facilities, lodging establishments and other foodservice customers. Our primary operations are located in North America and Europe. The company has aggregated certain of its operating segments into
three
reportable segments. "Other" financial information is attributable to the company's other operating segments that do not meet the quantitative disclosure thresholds.
|
|
•
|
U.S. Foodservice Operations - primarily includes U.S. Broadline, custom-cut meat companies, FreshPoint (our specialty produce companies) and European Imports (a specialty import company);
|
|
|
•
|
International Foodservice Operations - primarily includes broadline operations in Canada and Europe (including the Brakes Group, which was acquired in fiscal 2017), Bahamas, Mexico, Costa Rica and Panama, as well as a company that distributes to international customers;
|
|
|
•
|
SYGMA - our customized distribution subsidiary; and
|
|
|
•
|
Other - primarily our hotel supply operations and our Sysco Ventures platform, which includes our suite of technology solutions that help support the business needs of our customers.
|
Broadline operating companies distribute a full line of food products and a wide variety of non-food products to both traditional and chain restaurant customers, hospitals, schools, hotels, industrial caterers and other venues where foodservice products are served. SYGMA operating companies distribute a full line of food products and a wide variety of non-food products to certain chain restaurant customer locations.
Sysco's segments have changed in fiscal
2017
, as discussed in
Note 12
,
"Business Segment Information"
. Any segment results presented for the second quarter and first
26
weeks of fiscal
2016
have been reclassified to conform to the fiscal
2017
presentation.
Acquisition of the Brakes Group
On July 5, 2016, Sysco consummated its acquisition of Cucina Lux Investments Limited (a private company limited by shares organized under the laws of England and Wales), a holding company of the Brakes Group, pursuant to an agreement for the sale and purchase of securities in the capital of the Brakes Group, dated as of February 19, 2016 (the Purchase Agreement), by and among Sysco, entities affiliated with Bain Capital Investors, LLC, and members of management of the Brakes Group. Following the closing of the Acquisition, the Brakes Group became a wholly-owned subsidiary of Sysco.
The Brakes Group is a leading European foodservice business by revenue, supplying fresh, refrigerated and frozen food products, as well as non-food products and supplies, to more than 50,000 foodservice customers. The Brakes Group has leading market positions in the U.K., France, and Sweden, in addition to a presence in Ireland, Belgium, Spain, and Luxembourg. The Acquisition significantly strengthens Sysco's position as the world's leading foodservice distributor and offers attractive opportunities for organic growth and future expansion in European markets.
Highlights
Sysco's results for the second quarter and first
26
weeks of fiscal
2017
reflect disciplined case growth and sound margin and expense management. Sales increased primarily due to the Brakes Acquisition, partially offset by deflation. While the Brakes Group contributed favorably to our results, excluding Brakes, we grew our gross profit at a faster rate than operating expenses due to (1) our profitable local case growth, (2) our revenue management and category management activities, and (3) our improved expense management resulting from administrative cost reductions and productivity initiatives, as well as process enhancements, which improved our supply chain performance. Our net earnings and earnings per share, both including and excluding Certain Items, increased for the second quarter and first
26
weeks of fiscal
2017
, as compared to the corresponding periods in fiscal
2016
,
primarily due to these factors. A decrease in outstanding shares resulting from our share repurchases also favorably impacted our per-share amounts.
Comparisons of results from the second quarter of fiscal
2017
to the second quarter of fiscal
2016
:
|
|
◦
|
increased
10.7%
, or $
1.3 billion
, to
$13.5 billion
;
|
|
|
◦
|
adjusted sales, excluding Brakes, decreased
0.2%
, or
$25.3 million
, to
$12.1 billion
;
|
|
|
◦
|
increased
13.8%
, or $
59.8 million
, to $
492.4 million
;
|
|
|
◦
|
adjusted operating income increased
27.7%
, or $
121.0 million
, to $
557.9 million
;
|
|
|
◦
|
adjusted operating income, excluding Brakes, increased
12.6%
, or
$55.0 million
, to
$491.9 million
;
|
|
|
◦
|
increased
1.0%
, or $
2.8 million
, to
$275.2 million
;
|
|
|
◦
|
adjusted net earnings increased
15.8%
, or
$43.4 million
, to
$318.8 million
;
|
|
|
◦
|
adjusted net earnings, excluding Brakes increased,
2.5%
, or
$7.0 million
, to
$282.3 million
;
|
|
|
•
|
Basic earnings per share:
|
|
|
◦
|
increased
4.2%
, or
$0.02
, to
$0.50
per share;
|
|
|
•
|
Diluted earnings per share:
|
|
|
◦
|
increased
4.2%
, or
$0.02
, to
$0.50
per share;
|
|
|
◦
|
adjusted diluted earnings per share increased
20.8%
, or
$0.10
, to
$0.58
per share; and
|
|
|
◦
|
adjusted diluted earnings per share, excluding Brakes, increased
7.0%
, or
$0.03
, to
$0.51
per share.
|
Comparisons of results from the first
26
weeks of fiscal
2017
to the first
26
weeks of fiscal
2016
:
|
|
◦
|
increased
11.0%
, or $
2.7 billion
, to
$27.4 billion
;
|
|
|
◦
|
adjusted sales, excluding Brakes, increased
0.4%
, or
$97.3 million
, to
$24.8 billion
;
|
|
|
◦
|
increased
14.4%
, or $
133.2 million
, to $
1.1 billion
;
|
|
|
◦
|
adjusted operating income increased
25.6%
, or $
241.4 million
, to $
1.2 billion
;
|
|
|
◦
|
adjusted operating income, excluding Brakes, increased
14.1%
, or
$132.6 million
, to
$1.1 billion
;
|
|
|
◦
|
increased
15.9%
, or $
82.2 million
, to
$599.1 million
;
|
|
|
◦
|
adjusted net earnings increased
18.4%
, or
$107.8 million
, to
$694.9 million
;
|
|
|
◦
|
adjusted net earnings, excluding Brakes, increased
8.0%
, or
$46.8 million
, to
$633.9 million
;
|
|
|
•
|
Basic earnings per share:
|
|
|
◦
|
increased
22.5%
, or
$0.20
, to
$1.09
per share;
|
|
|
•
|
Diluted earnings per share:
|
|
|
◦
|
increased
22.7%
, or
$0.20
, to
$1.08
per share;
|
|
|
◦
|
adjusted diluted earnings per share increased
25.0%
, or
$0.25
, to
$1.25
per share; and
|
|
|
◦
|
adjusted diluted earnings per share, excluding Brakes, increased
14.0%
, or
$0.14
, to
$1.14
per share.
|
See “Non-GAAP Reconciliations” for an explanation of these non-GAAP financial measures.
Trends and Strategy
Our Annual Report on Form 10-K for the fiscal year ended
July 2, 2016
, contains a discussion of trends impacting our industry and Sysco and strategy. Our discussion herein provides updates to that discussion.
Trends
During the past few months, we have experienced a business environment characterized by uneven economic growth, significant political change and increasing uncertainty for consumers. All of these factors are providing both opportunities and challenges for Sysco and our customers. There are some favorable indicators with regard to long-term consumer demand, such as steadying unemployment levels, modest U.S. gross domestic product growth of 1.9% for the quarter, increased consumer confidence and strong financial markets. Countervailing these indicators is the restaurant industry, representing approximately 60% of the foodservice market, which has not strengthened to the level of growth it has experienced in recent quarters. Restaurant traffic continues to show year-over-year declines. Recent data from an industry source, NPD, shows declining restaurant traffic of 0.5% for the quarter.
Impacting sales and gross profit, we experienced deflation at a rate of
1.9%
and
2.2%
for the second quarter and first
26
weeks of fiscal
2017
, respectively, primarily in the meat, dairy and produce categories. We expect this deflation trend to continue at least through the end of the fiscal year. Our deflation rate is a year-over-year measurement and, therefore, does not include the impact of the Brakes Group operations. We have benefited from lower fuel costs; however, we expect this cost to be comparable with the prior year for the remainder of fiscal
2017
. We are optimistic about continuing our earnings growth; however, Sysco's third quarter is historically our lowest volume quarter, and we may experience challenging year over year comparisons due to industry softness, more robust than usual results that occurred in the third quarter of fiscal 2016 due to a mild winter and seasonality within the Brakes Group.
The Brakes Group contributed approximately $0.06 and $0.09 per share to our consolidated earnings per share for the second quarter and first
26
weeks of fiscal
2017
, respectively. On an adjusted basis, our Brakes Group operations contributed approximately $0.07 and $0.11 per share to our consolidated earnings per share for the second quarter and first
26
weeks of fiscal
2017
, respectively. The Brakes Group's business experiences some seasonality, with stronger performance in the first half of our fiscal year. As a result, we do not expect the same accretion each quarter. We expect the Brakes Group to be modestly dilutive in the third quarter of fiscal 2017 and modestly accretive in the fourth quarter of fiscal 2017. We continue to believe this acquisition will be modestly accretive to earnings per share by high single-digits to low double-digits on a cents-per-share basis through the end of fiscal 2017 on a GAAP basis and high-single digits excluding Certain Items applicable to the Brakes Group, with acceleration in fiscal 2018 and beyond. These Certain Items primarily include intangible amortization related to the Brakes Acquisition. Based on our preliminary purchase price allocation, this intangible amortization is estimated to be $19 million per quarter in fiscal 2017. See “Non-GAAP Reconciliations” for an explanation of these non-GAAP financial measures.
Strategy
In fiscal 2016, we set three-year financial targets consisting of: (1) improving adjusted operating income by at least $500 million, (2) growing earnings per share faster than operating income, and (3) achieving 15% in adjusted return on invested capital for existing businesses. The key levers to achieve these targets include an emphasis on accelerating locally managed customer case growth, improving margins, leveraging supply chain costs and reducing administrative costs. We are half way through the three-year period under our strategic plan, and have exceeded our initial expectations with respect to our operating income improvement goal. Over this 18 month period, we have grown our operating income by $754 million and our adjusted operating income by $350 million, which drove the gap between our gross profit dollar growth and expense dollar growth to a level that was higher than we originally estimated. Our operating income goal was established on an adjusted basis given Certain Item charges that were applicable in fiscal 2015, which were primarily due to termination costs in connection with the merger that had been proposed with US Foods and financing costs related to the senior notes that were issued in fiscal 2015 to fund the proposed US Foods merger. We expect to continue to drive leverage between gross profit growth and expense growth, including our ability to manage sales, general administrative costs and supply chain costs.
Due to our favorable business performance and confidence in the execution of our plans, we are increasing our adjusted operating income growth target to approximately $600 to $650 million by the end of fiscal 2018. We believe the majority of the increase in adjusted operating income growth, as compared to our original target, will occur in fiscal 2018. Because our original targets were set without the contemplation of the Brakes Acquisition, our Brakes Group operations are not included in our operating improvement goal.
See “Non-GAAP Reconciliations” for an explanation of these non-GAAP financial measures.
Results
of Operations
The following table sets forth the components of our consolidated results of operations expressed as a percentage of sales for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13-Week Period Ended
|
|
26-Week Period Ended
|
|
Dec. 31, 2016
|
|
Dec. 26, 2015
|
|
Dec. 31, 2016
|
|
Dec. 26, 2015
|
Sales
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Cost of sales
|
80.9
|
|
|
82.3
|
|
|
80.8
|
|
|
82.2
|
|
Gross profit
|
19.1
|
|
|
17.7
|
|
|
19.2
|
|
|
17.8
|
|
Operating expenses
|
15.5
|
|
|
14.2
|
|
|
15.3
|
|
|
14.0
|
|
Operating income
|
3.7
|
|
|
3.6
|
|
|
3.9
|
|
|
3.7
|
|
Interest expense
|
0.5
|
|
|
0.4
|
|
|
0.5
|
|
|
0.7
|
|
Other expense (income), net
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
|
(0.1
|
)
|
Earnings before income taxes
|
3.1
|
|
|
3.2
|
|
|
3.4
|
|
|
3.1
|
|
Income taxes
|
1.1
|
|
|
1.0
|
|
|
1.2
|
|
|
1.0
|
|
Net earnings
|
2.0
|
%
|
|
2.2
|
%
|
|
2.2
|
%
|
|
2.1
|
%
|
The following table sets forth the change in the components of our consolidated results of operations expressed as a percentage increase or decrease over the comparable period in the prior year:
|
|
|
|
|
|
|
|
|
13-Week Period Ended
|
|
26-Week Period Ended
|
|
Sales
|
10.7
|
%
|
|
11.0
|
%
|
|
Cost of sales
|
8.9
|
|
|
9.1
|
|
|
Gross profit
|
19.2
|
|
|
19.8
|
|
|
Operating expenses
|
20.6
|
|
|
21.2
|
|
|
Operating income
|
13.8
|
|
|
14.4
|
|
|
Interest expense
|
52.9
|
|
|
(16.2
|
)
|
|
Other expense (income), net
|
(70.1
|
)
|
(1)
|
(58.5
|
)
|
(2)
|
Earnings before income taxes
|
7.5
|
|
|
19.1
|
|
|
Income taxes
|
22.1
|
|
|
25.5
|
|
|
Net earnings
|
1.0
|
%
|
|
15.9
|
%
|
|
Basic earnings per share
|
4.2
|
%
|
|
22.5
|
%
|
|
Diluted earnings per share
|
4.2
|
|
|
22.7
|
|
|
Average shares outstanding
|
(3.8
|
)
|
|
(5.4
|
)
|
|
Diluted shares outstanding
|
(3.7
|
)
|
|
(5.2
|
)
|
|
(1)
Other expense (income), net was income of $
2.3 million
in the second quarter of fiscal
2017
and income of $
7.8 million
in the second quarter of fiscal
2016
.
(2)
Other expense (income), net was income of $
9.5 million
in the first
26
weeks of fiscal
2017
and income of $
23.0 million
in the first
26
weeks of fiscal
2016
.
The following represents our results by reportable segments, which also demonstrates the impact of Brakes results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13-Week Period Ended Dec. 31, 2016
|
|
U.S. Foodservice Operations
|
|
International Foodservice Operations
|
|
Brakes
|
|
International Foodservice Operations Excluding Brakes
(Non-GAAP)
|
|
SYGMA
|
|
Other
|
|
Corporate
|
|
Consolidated
Totals
|
|
(In thousands)
|
Sales
|
$
|
9,085,565
|
|
|
$
|
2,625,949
|
|
|
$
|
1,328,900
|
|
|
$
|
1,297,048
|
|
|
$
|
1,520,182
|
|
|
$
|
225,572
|
|
|
$
|
—
|
|
|
$
|
13,457,268
|
|
Sales increase (decrease)
|
(0.5
|
)%
|
|
105.0
|
%
|
|
NM
|
|
|
1.3
|
%
|
|
0.9
|
%
|
|
(2.2
|
)%
|
|
|
|
10.7
|
%
|
Percentage of total
|
67.5
|
%
|
|
19.5
|
%
|
|
9.9
|
%
|
|
9.6
|
%
|
|
11.3
|
%
|
|
1.7
|
%
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
$
|
681,321
|
|
|
$
|
84,814
|
|
|
$
|
43,820
|
|
|
$
|
40,994
|
|
|
$
|
3,155
|
|
|
$
|
3,793
|
|
|
$
|
(280,666
|
)
|
|
$
|
492,417
|
|
Operating income increase (decrease)
|
9.0
|
%
|
|
100.9
|
%
|
|
NM
|
|
|
(2.9
|
)%
|
|
(44.2
|
)%
|
|
(40.5
|
)%
|
|
|
|
13.8
|
%
|
Percentage of total
|
88.1
|
%
|
|
11.0
|
%
|
|
5.7
|
%
|
|
5.3
|
%
|
|
0.4
|
%
|
|
0.5
|
%
|
|
|
|
100.0
|
%
|
Operating income as a percentage of sales
|
7.5
|
%
|
|
3.2
|
%
|
|
3.3
|
%
|
|
3.2
|
%
|
|
0.2
|
%
|
|
1.7
|
%
|
|
|
|
3.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13-Week Period Ended Dec. 26, 2015
|
|
U.S. Foodservice Operations
|
|
International Foodservice Operations
|
|
SYGMA
|
|
Other
|
|
Corporate
|
|
Consolidated
Totals
|
|
(In thousands)
|
Sales
|
$
|
9,135,326
|
|
|
$
|
1,280,775
|
|
|
$
|
1,506,836
|
|
|
$
|
230,689
|
|
|
$
|
—
|
|
|
$
|
12,153,626
|
|
Percentage of total
|
75.2
|
%
|
|
10.5
|
%
|
|
12.4
|
%
|
|
1.9
|
%
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
$
|
625,216
|
|
|
$
|
42,212
|
|
|
$
|
5,659
|
|
|
$
|
6,380
|
|
|
$
|
(246,884
|
)
|
|
$
|
432,583
|
|
Percentage of total
|
92.0
|
%
|
|
6.2
|
%
|
|
0.8
|
%
|
|
0.9
|
%
|
|
|
|
100.0
|
%
|
Operating income as a percentage of sales
|
6.8
|
%
|
|
3.3
|
%
|
|
0.4
|
%
|
|
2.8
|
%
|
|
|
|
3.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26-Week Period Ended Dec. 31, 2016
|
|
U.S. Foodservice Operations
|
|
International Foodservice Operations
|
|
Brakes
|
|
International Foodservice Operations Excluding Brakes
(Non-GAAP)
|
|
SYGMA
|
|
Other
|
|
Corporate
|
|
Consolidated
Totals
|
|
(In thousands)
|
Sales
|
$
|
18,566,681
|
|
|
$
|
5,354,310
|
|
|
$
|
2,612,423
|
|
|
$
|
2,741,887
|
|
|
$
|
3,024,874
|
|
|
$
|
480,057
|
|
|
$
|
—
|
|
|
$
|
27,425,922
|
|
Sales increase (decrease)
|
0.1
|
%
|
|
100.5
|
%
|
|
NM
|
|
|
2.7
|
%
|
|
2.4
|
%
|
|
(12.6
|
)%
|
|
|
|
11.0
|
%
|
Percentage of total
|
67.7
|
%
|
|
19.5
|
%
|
|
9.5
|
%
|
|
10.0
|
%
|
|
11.0
|
%
|
|
1.7
|
%
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
$
|
1,426,552
|
|
|
$
|
164,249
|
|
|
$
|
64,029
|
|
|
$
|
100,220
|
|
|
$
|
8,062
|
|
|
$
|
11,794
|
|
|
$
|
(551,407
|
)
|
|
$
|
1,059,250
|
|
Operating income increase (decrease)
|
8.7
|
%
|
|
74.5
|
%
|
|
NM
|
|
|
6.5
|
%
|
|
(25.2
|
)%
|
|
(31.2
|
)%
|
|
|
|
14.4
|
%
|
Percentage of total
|
88.6
|
%
|
|
10.2
|
%
|
|
4.0
|
%
|
|
6.2
|
%
|
|
0.5
|
%
|
|
0.7
|
%
|
|
|
|
100.0
|
%
|
Operating income as a percentage of sales
|
7.7
|
%
|
|
3.1
|
%
|
|
2.5
|
%
|
|
3.7
|
%
|
|
0.3
|
%
|
|
2.5
|
%
|
|
|
|
3.9
|
%
|
NM represent that the percentage change is not meaningful.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26-Week Period Ended Dec. 26, 2015
|
|
U.S. Foodservice Operations
|
|
International Foodservice Operations
|
|
SYGMA
|
|
Other
|
|
Corporate
|
|
Consolidated
Totals
|
|
(In thousands)
|
Sales
|
$
|
18,543,249
|
|
|
$
|
2,671,034
|
|
|
$
|
2,952,741
|
|
|
$
|
549,213
|
|
|
$
|
—
|
|
|
$
|
24,716,237
|
|
Percentage of total
|
75.1
|
%
|
|
10.8
|
%
|
|
11.9
|
%
|
|
2.2
|
%
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
$
|
1,311,885
|
|
|
$
|
94,132
|
|
|
$
|
10,782
|
|
|
$
|
17,150
|
|
|
$
|
(507,892
|
)
|
|
$
|
926,057
|
|
Percentage of total
|
91.5
|
%
|
|
6.6
|
%
|
|
0.8
|
%
|
|
1.2
|
%
|
|
|
|
100.0
|
%
|
Operating income as a percentage of sales
|
7.1
|
%
|
|
3.5
|
%
|
|
0.4
|
%
|
|
3.1
|
%
|
|
|
|
3.7
|
%
|
See “Non-GAAP Reconciliations” for an explanation of these non-GAAP financial measures.
As illustrated in the table above, in the second quarter and first
26
weeks of fiscal
2017
, U.S. Foodservice Operations and International Foodservice Operations collectively represented approximately 87.0% and 87.2% of Sysco’s overall sales and 99.1% and 98.8% of the aggregated operating income of Sysco’s segments, respectively, which excludes corporate expenses.
Results of U.S. Foodservice Operations
The following table sets forth a summary of the components of operating income and adjusted operating income expressed as a percentage increase or decrease over the comparable period in the prior year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13-Week Period Ended Dec. 31, 2016
|
|
13-Week Period Ended Dec. 26, 2015
|
|
13-Week Period Ended Change in Dollars
|
|
13-Week Period % Change
|
|
(In thousands)
|
Sales
|
$
|
9,085,565
|
|
|
$
|
9,135,326
|
|
|
$
|
(49,761
|
)
|
|
(0.5
|
)%
|
Gross profit
|
1,823,023
|
|
|
1,759,390
|
|
|
63,633
|
|
|
3.6
|
|
Operating expenses
|
1,141,701
|
|
|
1,134,174
|
|
|
7,527
|
|
|
0.7
|
|
Operating income
|
$
|
681,322
|
|
|
$
|
625,216
|
|
|
$
|
56,106
|
|
|
9.0
|
%
|
|
|
|
|
|
|
|
|
Gross profit
|
$
|
1,823,023
|
|
|
$
|
1,759,390
|
|
|
$
|
63,633
|
|
|
3.6
|
%
|
Adjusted operating expenses (Non-GAAP)
|
1,141,231
|
|
|
1,133,613
|
|
|
7,618
|
|
|
0.7
|
|
Adjusted operating income (Non-GAAP)
|
$
|
681,792
|
|
|
$
|
625,777
|
|
|
$
|
56,015
|
|
|
9.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26-Week Period Ended Dec. 31, 2016
|
|
26-Week Period Ended Dec. 26, 2015
|
|
26-Week Period Ended Change in Dollars
|
|
26-Week Period % Change
|
|
(In thousands)
|
Sales
|
$
|
18,566,681
|
|
|
$
|
18,543,249
|
|
|
$
|
23,432
|
|
|
0.1
|
%
|
Gross profit
|
3,736,138
|
|
|
3,593,744
|
|
|
142,394
|
|
|
4.0
|
|
Operating expenses
|
2,309,585
|
|
|
2,281,859
|
|
|
27,726
|
|
|
1.2
|
|
Operating income
|
$
|
1,426,553
|
|
|
$
|
1,311,885
|
|
|
$
|
114,668
|
|
|
8.7
|
%
|
|
|
|
|
|
|
|
|
Gross profit
|
$
|
3,736,138
|
|
|
$
|
3,593,744
|
|
|
$
|
142,394
|
|
|
4.0
|
%
|
Adjusted operating expenses (Non-GAAP)
|
2,309,115
|
|
|
2,280,426
|
|
|
28,689
|
|
|
1.3
|
|
Adjusted operating income (Non-GAAP)
|
$
|
1,427,023
|
|
|
$
|
1,313,318
|
|
|
$
|
113,705
|
|
|
8.7
|
%
|
Sales
The following table sets forth the percentage and dollar value increase or decrease in sales over the comparable prior year period in order to demonstrate the cause and magnitude of change.
|
|
|
|
|
|
|
|
|
Increase (Decrease)
|
|
13-Week Period
|
|
(Dollars in millions)
|
Cause of change
|
Percentage
|
|
Dollars
|
Case volume
|
—
|
%
|
|
$
|
(1.0
|
)
|
Deflation
|
(2.0
|
)
|
|
(184.0
|
)
|
Acquisitions
|
0.4
|
|
|
33.0
|
|
Other
(1)
|
1.1
|
|
|
102.2
|
|
Total sales decrease
|
(0.5
|
)%
|
|
$
|
(49.8
|
)
|
|
|
|
|
|
|
|
|
|
Increase (Decrease)
|
|
26-Week Period
|
|
(Dollars in millions)
|
Cause of change
|
Percentage
|
|
Dollars
|
Case volume
|
0.9
|
%
|
|
$
|
164.0
|
|
Deflation
|
(2.1
|
)
|
|
(385.0
|
)
|
Acquisitions
|
0.4
|
|
|
68.0
|
|
Other
(1)
|
0.9
|
|
|
176.4
|
|
Total sales increase
|
0.1
|
%
|
|
$
|
23.4
|
|
(1)
Case volume excludes the volume impact from our custom-cut meat companies that do not measure volume in cases. Any impact in volumes from these operations are included within "Other".
Sales for the second quarter of fiscal
2017
were
0.5%
lower than the second quarter of fiscal
2016
. The largest driver of the decrease was the impact of product cost deflation in our U.S. Broadline operations for the second quarter of fiscal
2017
. Case volume from our U.S. Broadline operations decreased 0.1% in the second quarter of fiscal
2017
compared to the second quarter of fiscal
2016
, and included a 2.0% decline in corporate-managed customer case volume; however, this was largely offset by an increase of 1.6% in locally managed customer case volume. As we strive to deliver disciplined growth as a part of our three-year strategic plan, we continue to focus on local case growth with innovative product offerings, value added services and improved e-commerce capabilities, which have enabled our growth with locally managed customers for 11 straight quarters. Sales for the first
26
weeks of fiscal
2017
were
0.1%
higher than the first
26
weeks of fiscal
2016
. The largest driver of the increase was case volume growth from our U.S. Broadline operations, which improved 0.9% in the first
26
weeks of fiscal
2017
compared to the first
26
weeks of fiscal
2016
, and included a 1.7% improvement in locally managed customer case volume. Partially offsetting this growth was the impact of product cost deflation in our U.S. Broadline operations for the first
26
weeks of fiscal
2017
.
Operating income increased 9.0% on a reported and adjusted basis for the second quarter of fiscal 2017, as compared to the second quarter of fiscal 2016. Operating income increased 8.7% on a reported and adjusted basis for the first 26 weeks of fiscal 2017, as compared to fiscal 2016. These increases reflect gross profit growth that exceeded our operating expense growth.
Gross profit dollars increased
3.6%
and
4.0%
in the second quarter and first
26
weeks of fiscal
2017
, respectively, as compared to the second quarter and first
26
weeks of fiscal
2016
. Gross margin, which is gross profit as a percentage of sales, was
20.1%
in both the second quarter and first
26
weeks of fiscal
2017
, an improvement of 80 and 70 basis points from the gross margin of
19.3%
and
19.4%
in the second quarter and first
26
weeks of fiscal
2016
, respectively. These results reflect (1) local case growth that grew at a pace greater than our multi-unit business, (2) our ongoing category management efforts, including continued focus on Sysco Brand and new product innovation, (3) revenue management tools that are focused on delivering a more proactive and disciplined approach to pricing and (4) effective management of deflation. Our Sysco brand sales to local customers increased by approximately 80 and 56 basis points for the second quarter and first
26
weeks of fiscal 2016, respectively. The change in product costs, an internal measure of inflation or deflation, for the second quarter and first
26
weeks of fiscal
2017
for our U.S. Broadline operations was deflation of
1.8%
and
1.9%
, respectively. Deflation in the second quarter and first
26
weeks of fiscal
2017
has occurred primarily in the meat, dairy and produce categories.
Operating expenses for the second quarter of fiscal
2017
increased
0.7%
, or
$7.5 million
, compared to the second quarter of fiscal
2016
. Operating expenses for the first
26
weeks of fiscal
2017
increased
1.2%
, or
$27.7 million
, compared to the first
26
weeks of fiscal
2016
. The increases in operating expenses for both periods resulted primarily from expenses attributable to higher case volumes, including pay-related expenses, partially offset by reduced fuel costs. We have limited our expense growth in both the areas of (1) sales and general administrative expense (by focusing on administrative expense reduction) and (2) supply chain (from our productivity initiatives and continuing process improvements).
In the first 26 weeks of fiscal 2017, the U.S. Broadline operations represented approximately 92% of the U.S. Foodservice Operations segment's sales and nearly 85% of its operating expenses. We seek to grow our sales and reduce our costs on a per-case basis. Our cost per case and adjusted cost per case decreased
$0.03
and
$0.02
, respectively, in the second quarter of fiscal
2017
, as compared to the second quarter of fiscal
2016
. This included a $0.02 benefit attributable to lower fuel prices. Our cost per case and adjusted cost per case decreased
$0.04
and
$0.03
, respectively, in the first
26
weeks of fiscal
2017
, as compared to the first
26
weeks of fiscal
2016
. This included a $0.03 benefit attributable to lower fuel prices. Keeping our cost per case growth rate flat, after considering the reductions from fuel price, reflects our progress in productivity improvements and cost reductions in our sales, general administrative and supply chain areas. More information on the rationale for our use of adjusted cost per case and reconciliations can be found under "Non-GAAP Reconciliations and Adjusted Cost per Case."
Results of International Foodservice Operations
The following table sets forth a summary of the components of operating income and adjusted operating income expressed as a percentage increase or decrease over the comparable period in the prior year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13-Week Period Ended Dec. 31, 2016
|
|
13-Week Period Ended Dec. 26, 2015
|
|
13-Week Period Ended Change in Dollars
|
|
13-Week Period % Change
|
|
(In thousands)
|
Sales
|
$
|
2,625,950
|
|
|
$
|
1,280,775
|
|
|
$
|
1,345,175
|
|
|
105.0
|
%
|
Gross profit
|
576,215
|
|
|
221,198
|
|
|
355,017
|
|
|
160.5
|
|
Operating expenses
|
491,401
|
|
|
178,986
|
|
|
312,415
|
|
|
174.5
|
|
Operating income
|
$
|
84,814
|
|
|
$
|
42,212
|
|
|
$
|
42,602
|
|
|
100.9
|
%
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
$
|
576,215
|
|
|
$
|
221,198
|
|
|
$
|
355,017
|
|
|
160.5
|
%
|
Adjusted operating expenses (Non-GAAP)
|
465,518
|
|
|
178,400
|
|
|
287,118
|
|
|
160.9
|
|
Adjusted operating income (Non-GAAP)
|
$
|
110,697
|
|
|
$
|
42,798
|
|
|
$
|
67,899
|
|
|
158.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26-Week Period Ended Dec. 31, 2016
|
|
26-Week Period Ended Dec. 26, 2015
|
|
26-Week Period Ended Change in Dollars
|
|
26-Week Period % Change
|
|
(In thousands)
|
Sales
|
$
|
5,354,311
|
|
|
$
|
2,671,034
|
|
|
$
|
2,683,277
|
|
|
100.5
|
%
|
Gross profit
|
1,174,621
|
|
|
466,660
|
|
|
707,961
|
|
|
151.7
|
|
Operating expenses
|
1,010,372
|
|
|
372,528
|
|
|
637,844
|
|
|
171.2
|
|
Operating income
|
$
|
164,249
|
|
|
$
|
94,132
|
|
|
$
|
70,117
|
|
|
74.5
|
%
|
|
|
|
|
|
|
|
|
Gross profit
|
$
|
1,174,621
|
|
|
$
|
466,660
|
|
|
$
|
707,961
|
|
|
151.7
|
%
|
Adjusted operating expenses (Non-GAAP)
|
960,312
|
|
|
370,699
|
|
|
589,613
|
|
|
159.1
|
|
Adjusted operating income (Non-GAAP)
|
$
|
214,309
|
|
|
$
|
95,961
|
|
|
$
|
118,348
|
|
|
123.3
|
%
|
Sales
The following table sets forth the percentage and dollar value increase or decrease in sales over the comparable prior year period in order to demonstrate the cause and magnitude of change.
|
|
|
|
|
|
|
|
|
Increase (Decrease)
|
|
13-Week Period
|
|
(Dollars in millions)
|
Cause of change
|
Percentage
|
|
Dollars
|
Case volume
|
(2.3
|
)%
|
|
$
|
(29.3
|
)
|
Acquisitions
(1)
|
105.7
|
|
|
1,375.3
|
|
Foreign currency
|
—
|
|
|
(4.5
|
)
|
Other
|
2.0
|
|
|
3.7
|
|
Total sales increase
|
105.0
|
%
|
|
$
|
1,345.2
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease)
|
|
26-Week Period
|
|
(Dollars in millions)
|
Cause of change
|
Percentage
|
|
Dollars
|
Case volume
|
(1.3
|
)%
|
|
$
|
(35.8
|
)
|
Acquisitions
(1)
|
100.1
|
|
|
2,715.5
|
|
Foreign currency
|
—
|
|
|
—
|
|
Other
|
1.7
|
|
|
3.5
|
|
Total sales increase
|
100.5
|
%
|
|
$
|
2,683.2
|
|
(1)
The impact of the acquisition of the Brakes Group is included within this line only.
Sales for the second quarter and first
26
weeks of fiscal
2017
were
$1.3 billion
and
$2.7 billion
higher than the second quarter and first
26
weeks of fiscal
2016
, respectively, primarily due to the Brakes Group, which added
$1.3 billion
and
$2.6 billion
, respectively. Our sales in Mexico have increased due to consolidating our joint venture's results in fiscal 2017 which were not consolidated in second quarter and first
26
weeks of fiscal
2016
. These increases have been partially offset by a modest decrease in our sales in Canada due to deflation and a soft market environment, primarily in Alberta as a result of the energy market decline in this region.
Operating income increased by
$42.6 million
and
$70.1 million
, or
100.9%
and
74.5%
, for the second quarter and first
26
weeks of fiscal
2017
, respectively, as compared to the second quarter and first
26
weeks of fiscal
2016
. The Brakes Group performed reasonably well in the United Kingdom amidst a challenging environment and is making progress in managing its supply chain to be more efficient, which we expect to ultimately improve service and reduce costs. Growth in France has been steady, driven by a combination of sales growth and a balanced approach to cost, and Sweden continues to perform favorably. Excluding the Brakes Group, non-GAAP operating income increased
4.4%
and
9.9%
for the second quarter and first
26
weeks of fiscal
2017
, respectively, as compared to the second quarter and first
26
weeks of fiscal
2016
, primarily from managing costs effectively in Canada within a deflationary and soft market environment. Our joint ventures in Costa Rica and Mexico also experienced improved operating income performance.
Gross profit dollars increased by
$355.0 million
and
$708.0 million
in the second quarter and first
26
weeks of fiscal
2017
, respectively, as compared to the second quarter and first
26
weeks of fiscal
2016
, primarily attributable to the Brakes Group, which added $353.1 million and $696.2 million in the second quarter and first
26
weeks of fiscal
2017
.
Operating expenses for the second quarter and first
26
weeks of fiscal
2017
increased
$312.4 million
and
$637.8 million
, respectively, compared to the second quarter and first
26
weeks of fiscal
2016
, with $309.3 million and $632.2 million added from the Brakes Group. Certain Items applicable to this segment include acquisition-related costs for the Acquisition and restructuring costs within our Canadian operations and the Brakes Group. Operating expenses for the second quarter and first
26
weeks of fiscal
2017
increased
$312.4 million
and
$637.8 million
, respectively, as compared to the second quarter and first
26
weeks of fiscal
2016
. Adjusted operating expenses for the second quarter and first
26
weeks of fiscal
2017
increased
$287.1 million
and
$589.6 million
, respectively, as compared to the second quarter and first
26
weeks of fiscal
2016
.
Results of SYGMA and Other Segment
For SYGMA, sales were
0.9%
and
2.4%
higher in the second quarter and first
26
weeks of fiscal
2017
, respectively, as compared to the second quarter and first
26
weeks of fiscal
2016
, primarily from case growth. Case growth was primarily due to increased volume from existing customers, with additional new business also contributing to the growth in the first 26 weeks of fiscal 2017. Operating income decreased by $
2.5 million
and $
2.7 million
in the second quarter and first
26
weeks of fiscal
2017
, respectively, as compared to the second quarter and first
26
weeks of fiscal
2016
. SYGMA’s profitability has been negatively impacted by rising operating expenses; however, SYGMA continues to make progress against its key business initiatives.
For the operations that are grouped within Other, operating income decreased
40.5%
, or $
2.6 million
, and
31.2%
, or
$5.4 million
, in the second quarter and first
26
weeks of fiscal
2017
, respectively, as compared to the second quarter and first
26
weeks of fiscal
2016
. These decreases are largely the result of expenses for businesses in the early stage of operations in this segment, partially offset by higher earnings from our hotel lodging supply operations.
Corporate Expenses
Corporate expenses in the second quarter and first
26
weeks of fiscal
2017
increased
$33.8 million
, or
13.7%
, and
$43.5 million
, or
8.6%
, respectively, as compared to the second quarter and first
26
weeks of fiscal
2016
. The increase in both periods is primarily attributable to Certain Items. An additional factor impacting the second quarter of fiscal
2017
, was an increase in our estimates for our reserves for our self-insurance program, which covers portions of workers’ compensation, general and vehicle liability, due to wage increases and unfavorable claim developments. The increase in the second quarter of fiscal
2017
is partially offset by lower share-based compensation expense. We shifted the grants of our share-based compensation awards, traditionally issued in the second quarter, to the first quarter, which shifted expense to the first quarter of fiscal
2017
. This created a variance of $14.8 million as compared to the second quarter of fiscal
2016
.
Included in corporate expenses are Certain Items that totaled $39.1 million and $74.9 million in the second quarter and first
26
weeks of fiscal 2017, respectively, as compared to $3.0 million and $13.9 million in the second quarter and first
26
weeks of fiscal 2016. Certain Items impacting the second quarter and first
26
weeks of fiscal 2017 were primarily expenses associated with our revised business technology strategy announced in fiscal 2016, as a result of which we recorded accelerated depreciation on our existing system and incurred costs of $27.7 million and $55.9 million in the second quarter and first
26
weeks of fiscal 2017, respectively, to convert to a modernized version of our established platform. We incurred $10.5 million and $17.5 million in the second quarter and first
26
weeks of fiscal 2017, respectively, related to severance charges, professional fees on 3-year financial objectives, and project costs to convert to a modernized version of our established platform in conjunction with our revised business technology strategy. Certain Items for the first
26
weeks of fiscal 2016 primarily related to termination costs incurred during the first quarter of fiscal 2016 in connection with the merger that had been proposed with US Foods.
Interest Expense
Interest expense increased
$25.0 million
for the second quarter of fiscal
2017
, as compared to the second quarter of fiscal
2016
, due to higher relative debt levels in the second quarter of fiscal
2017
. Interest expense decreased
$28.3 million
for the first
26
weeks of fiscal
2017
, as compared to the first
26
weeks of fiscal
2016
, due to Certain Item interest costs specific to the first
26
weeks of fiscal
2016
, partially offset by higher relative debt levels in the first
26
weeks of fiscal
2017
. The first
26
weeks of fiscal
2016
included a loss of $86.5 million in connection with the redemption of the notes issued in fiscal 2015 to fund the merger that was proposed with US Foods. These items, along with interest expense incurred in fiscal 2016 through the date the senior notes were redeemed, are included in our Certain Items. Our interest expense increased
$25.0 million
and
$66.5 million
, excluding Certain Items, for the second quarter and first
26
weeks of fiscal
2017
, respectively, from the second quarter and first
26
weeks of fiscal
2016
due to higher debt balances from senior notes that were issued in fiscal
2016
and commercial paper borrowings issued in fiscal 2017.
Net Earnings
Net earnings increased
1.0%
and
15.9%
in the second quarter and first
26
weeks of fiscal
2017
, respectively, as compared to the second quarter and first
26
weeks of the prior year due primarily to the items noted above, as well as items impacting our income taxes that are discussed in
Note 10
,
"Income Taxes"
. Adjusted net earnings increased
15.8%
and
18.4%
in the second quarter and first
26
weeks of fiscal
2017
, respectively, primarily from gross profit growth, strong expense management and the results of the Brakes Group.
Earnings Per Share
Basic and diluted earnings per share in the second quarter of fiscal
2017
were both
$0.50
, a
4.2%
increase from the comparable prior period amounts of
$0.48
per share. Adjusted diluted earnings per share in the second quarter of fiscal
2017
were
$0.58
, a
20.8%
increase from the comparable prior period amount of
$0.48
per share. These results were primarily attributable to the factors discussed above related to net earnings in the second quarter of fiscal 2017.
Basic earnings per share in the first
26
weeks of fiscal
2017
were
$1.09
, a
22.5%
increase from the comparable prior period amount of
$0.89
per share. Diluted earnings per share in the first
26
weeks of fiscal
2017
were
$1.08
, a
22.7%
increase from the comparable prior period amount of
$0.88
per share. Adjusted diluted earnings per share in the first
26
weeks of fiscal
2017
were
$1.25
, a
25.0%
increase from the comparable prior period amount of
$1.00
per share. These results were primarily from the factors discussed above related to net earnings and a decrease in outstanding shares that resulted from our share repurchases in fiscal 2016 and in the first
26
weeks of fiscal 2017, which generated an approximate year over year impact of $0.02 per share benefit for the first
26
weeks of fiscal
2017
, net of interest expense associated with the debt issued to repurchase the shares.
Non-GAAP Reconciliations
Sysco’s results of operations are impacted by restructuring costs consisting of (1) severance charges, (2) professional fees related to our three-year strategic plan, (3) restructuring expenses within our Brakes Group operations, and (4) expenses associated with our revised business technology strategy announced in fiscal 2016, as a result of which we recorded accelerated depreciation on our existing system and incurred costs to convert to a modernized version of our established platform. Our results of operations are also impacted by the following acquisition-related items: (1) intangible amortization expense (2) transaction costs, and (3) integration costs. All acquisition-related costs in fiscal 2017 that have been excluded relate to the Brakes Acquisition. Fiscal 2016 acquisition-related costs, however, include (i) termination costs in connection with the merger that had been proposed with US Foods and (ii) financing costs related to the senior notes that were issued in fiscal 2015 to fund the proposed US Foods merger. These senior notes were redeemed in the first quarter of fiscal 2016, triggering a redemption loss of $86.5 million, and we incurred interest on these notes through the redemption date. The Brakes Acquisition also resulted in non-recurring tax expense in fiscal 2017, primarily from non-deductible transaction costs. These fiscal 2017 and fiscal 2016 items are collectively referred to as "Certain Items."
Management believes that adjusting its operating expenses, operating income, operating margin as a percentage of sales, interest expense, net earnings and diluted earnings per share 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 facilitates comparisons on a year-over-year basis and (2) removes those items that are difficult to predict and are often unanticipated, and which as a result, are difficult to include in analysts' financial models and our investors' expectations with any degree of specificity.
Although Sysco has a history of growth through acquisitions, the Brakes Group is significantly larger than the companies historically acquired by Sysco, with a proportionately greater impact on Sysco’s consolidated financial statements. Accordingly, Sysco is excluding from its non-GAAP financial measures for the relevant period solely those acquisition costs specific to the Acquisition. We believe this approach significantly enhances the comparability of Sysco’s results for the second quarter and first
26
weeks of fiscal
2017
to the same period in fiscal
2016
. Also, given the significance of the Acquisition, management believes that presenting Sysco’s financial measures, excluding the Brakes Group operating results (including, for this purpose, Brakes Group financing costs, which are not included in the Brakes Group GAAP operating results and are also not Certain Items), enhances comparability of the period over period financial performance of Sysco’s legacy business and allows investors to more effectively measure Sysco’s progress against the financial goals under Sysco’s three-year strategic plan.
Set forth below is a reconciliation of sales, operating expenses, operating income, interest expense, net earnings and diluted earnings per share to adjusted results for these measures for the periods presented. Individual components of diluted earnings per share may not add to the total presented due to rounding. Adjusted diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13-Week Period Ended Dec. 31, 2016
|
|
13-Week Period Ended Dec. 26, 2015
|
|
13-Week Period Change in Dollars
|
|
13-Week Period
% Change
(3)
|
|
(In thousands, except for share and per share data)
|
Sales
|
$
|
13,457,268
|
|
|
$
|
12,153,626
|
|
|
$
|
1,303,642
|
|
|
10.7
|
%
|
Impact of Brakes
|
(1,328,900
|
)
|
|
—
|
|
|
(1,328,900
|
)
|
|
NM
|
|
Sales excluding the impact of Brakes (Non-GAAP)
|
$
|
12,128,368
|
|
|
$
|
12,153,626
|
|
|
$
|
(25,258
|
)
|
|
(0.2
|
)%
|
|
|
|
|
|
|
|
|
Operating expenses (GAAP)
|
$
|
2,079,446
|
|
|
$
|
1,724,231
|
|
|
$
|
355,215
|
|
|
20.6
|
%
|
Impact of restructuring costs
(1)
|
(40,089
|
)
|
|
(4,281
|
)
|
|
(35,808
|
)
|
|
NM
|
|
Impact of acquisition-related costs
(2)
|
(25,370
|
)
|
|
—
|
|
|
(25,370
|
)
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses adjusted for certain items (Non-GAAP)
|
$
|
2,013,987
|
|
|
$
|
1,719,950
|
|
|
$
|
294,037
|
|
|
17.1
|
%
|
Impact of Brakes
|
$
|
(309,313
|
)
|
|
$
|
—
|
|
|
$
|
(309,313
|
)
|
|
NM
|
|
Impact of Brakes restructuring costs
(3)
|
1,907
|
|
|
—
|
|
|
1,907
|
|
|
NM
|
|
Impact of Brakes acquisition-related costs
(2)
|
20,292
|
|
|
—
|
|
|
20,292
|
|
|
NM
|
|
Operating expenses adjusted for certain items and excluding the impact of Brakes (Non-GAAP)
|
$
|
1,726,873
|
|
|
$
|
1,719,950
|
|
|
$
|
6,923
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
Operating income (GAAP)
|
$
|
492,417
|
|
|
$
|
432,583
|
|
|
$
|
59,834
|
|
|
13.8
|
%
|
Impact of restructuring costs
(1)
|
40,089
|
|
|
4,281
|
|
|
35,808
|
|
|
NM
|
|
Impact of acquisition-related costs
(2)
|
25,370
|
|
|
—
|
|
|
25,370
|
|
|
NM
|
|
Operating income adjusted for certain items (Non-GAAP)
|
$
|
557,876
|
|
|
$
|
436,864
|
|
|
$
|
121,012
|
|
|
27.7
|
%
|
Impact of Brakes
|
$
|
(43,820
|
)
|
|
$
|
—
|
|
|
$
|
(43,820
|
)
|
|
NM
|
|
Impact of Brakes restructuring costs
(3)
|
(1,907
|
)
|
|
—
|
|
|
(1,907
|
)
|
|
NM
|
|
Impact of Brakes acquisition-related costs
(2)
|
(20,292
|
)
|
|
—
|
|
|
(20,292
|
)
|
|
NM
|
|
Operating income adjusted for certain items and excluding the impact of Brakes (Non-GAAP)
|
$
|
491,857
|
|
|
$
|
436,864
|
|
|
$
|
54,993
|
|
|
12.6
|
%
|
|
|
|
|
|
|
|
|
Operating margin (GAAP)
|
3.66
|
%
|
|
3.56
|
%
|
|
0.10
|
%
|
|
2.8
|
%
|
Operating margin (Non-GAAP)
|
4.15
|
%
|
|
3.59
|
%
|
|
0.56
|
%
|
|
15.5
|
%
|
Operating margin excluding Certain Items and Brakes (Non-GAAP)
|
4.06
|
%
|
|
3.59
|
%
|
|
0.47
|
%
|
|
13.2
|
%
|
|
|
|
|
|
|
|
|
Interest expense (GAAP)
|
$
|
72,231
|
|
|
$
|
47,235
|
|
|
$
|
24,996
|
|
|
52.9
|
%
|
Impact of acquisition financing costs
|
—
|
|
|
—
|
|
|
—
|
|
|
NM
|
|
Interest expense adjusted for certain items (Non-GAAP)
|
$
|
72,231
|
|
|
$
|
47,235
|
|
|
$
|
24,996
|
|
|
52.9
|
%
|
|
|
|
|
|
|
|
|
Net earnings (GAAP)
|
$
|
275,167
|
|
|
$
|
272,399
|
|
|
$
|
2,768
|
|
|
1.0
|
%
|
Impact of restructuring costs
(1)
|
40,089
|
|
|
4,281
|
|
|
35,808
|
|
|
NM
|
|
Impact of acquisition-related costs
(2)
|
25,370
|
|
|
—
|
|
|
25,370
|
|
|
NM
|
|
Tax impact of restructuring costs
(5)
|
(15,111
|
)
|
|
(1,315
|
)
|
|
(13,796
|
)
|
|
NM
|
|
Tax impact of acquisition-related costs
(5)
|
(6,726
|
)
|
|
—
|
|
|
(6,726
|
)
|
|
NM
|
|
Net earnings adjusted for certain items (Non-GAAP)
|
$
|
318,789
|
|
|
$
|
275,365
|
|
|
$
|
43,424
|
|
|
15.8
|
%
|
Impact of Brakes
|
$
|
(31,876
|
)
|
|
$
|
—
|
|
|
$
|
(31,876
|
)
|
|
NM
|
|
Impact of Brakes restructuring costs
(3)
|
(1,441
|
)
|
|
—
|
|
|
(1,441
|
)
|
|
NM
|
|
Impact of Brakes acquisition-related costs
(2)
|
(15,533
|
)
|
|
—
|
|
|
(15,533
|
)
|
|
NM
|
|
Impact of interest expense on debt issued for the Brakes acquisition
(6)
|
19,947
|
|
|
—
|
|
|
19,947
|
|
|
NM
|
|
Tax impact of interest expense on debt issued for the Brakes acquisition
(5)
|
(7,540
|
)
|
|
—
|
|
|
(7,540
|
)
|
|
NM
|
|
Net earnings adjusted for certain items and excluding the impact of Brakes (Non-GAAP)
|
$
|
282,346
|
|
|
$
|
275,365
|
|
|
$
|
6,981
|
|
|
2.5
|
%
|
|
|
|
|
|
|
|
|
Diluted earnings per share (GAAP)
|
$
|
0.50
|
|
|
$
|
0.48
|
|
|
$
|
0.02
|
|
|
4.2
|
%
|
Impact of restructuring costs
(1)
|
0.07
|
|
|
0.01
|
|
|
0.06
|
|
|
NM
|
|
Impact of acquisition-related costs
(2)
|
0.05
|
|
|
—
|
|
|
0.05
|
|
|
NM
|
|
Tax impact of restructuring costs
(5)
|
(0.03
|
)
|
|
—
|
|
|
(0.03
|
)
|
|
NM
|
|
Tax impact of acquisition-related costs
(5)
|
(0.01
|
)
|
|
—
|
|
|
(0.01
|
)
|
|
62.9
|
|
Diluted EPS adjusted for certain items (Non-GAAP)
(4)
|
$
|
0.58
|
|
|
$
|
0.48
|
|
|
$
|
0.10
|
|
|
20.8
|
%
|
Impact of Brakes
|
$
|
(0.06
|
)
|
|
$
|
—
|
|
|
$
|
(0.06
|
)
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of Brakes restructuring costs
(3)
|
—
|
|
|
—
|
|
|
—
|
|
|
NM
|
|
Impact of Brakes acquisition-related costs
(2)
|
(0.03
|
)
|
|
—
|
|
|
(0.03
|
)
|
|
NM
|
|
Impact of interest expense on debt issued for the Brakes acquisition
(6)
|
0.04
|
|
|
—
|
|
|
0.04
|
|
|
NM
|
|
Tax impact of interest expense on debt issued for the Brakes acquisition
(5)
|
(0.01
|
)
|
|
—
|
|
|
(0.01
|
)
|
|
NM
|
|
Net earnings adjusted for certain items and excluding the impact of Brakes (Non-GAAP)
(7)
|
$
|
0.51
|
|
|
$
|
0.48
|
|
|
$
|
0.03
|
|
|
7.0
|
%
|
Total Brakes accretion
|
$
|
0.07
|
|
|
$
|
—
|
|
|
$
|
0.07
|
|
|
NM
|
|
(1)
Includes $28 million in accelerated depreciation associated with our revised business technology strategy and $12 million related to severance charges, professional fees on 3-year financial objectives, restructuring expenses within our Brakes Group operations and costs to convert to legacy systems in conjunction with our revised business technology strategy.
(2)
Fiscal 2017 Includes $19 million related to intangible amortization expense from the Brakes Acquisition, which is included in the results of the Brakes Group and $6 million in transaction costs. Fiscal 2016 includes US Foods merger termination costs.
(3)
Includes Brakes Acquisition restructuring charges.
(4)
Individual components of diluted earnings per share may not add to the total presented due to rounding. Total diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding.
(5)
The tax impact of adjustments for Certain Items are 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.
(6)
Sysco Corporation issued debt to fund the Brakes Acquisition. The interest expense arising from the debt issued is attributed to the incremental impact of the Brakes Group operating results, even though it is not a direct obligation of the Brakes Group and is not considered a Certain Item.
NM represent that the percentage change is not meaningful.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26-Week Period Ended Dec. 31, 2016
|
|
26-Week Period Ended Dec. 26, 2015
|
|
26-Week Period Change in Dollars
|
|
26-Week Period
% Change
|
Sales
|
$
|
27,425,922
|
|
|
$
|
24,716,237
|
|
|
$
|
2,709,685
|
|
|
11.0
|
%
|
Impact of Brakes
|
(2,612,423
|
)
|
|
—
|
|
|
(2,612,423
|
)
|
|
NM
|
|
Sales excluding the impact of Brakes (Non-GAAP)
|
$
|
24,813,499
|
|
|
$
|
24,716,237
|
|
|
$
|
97,262
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
Operating expenses (GAAP)
|
$
|
4,204,532
|
|
|
$
|
3,468,752
|
|
|
$
|
735,780
|
|
|
21.2
|
%
|
Impact of restructuring costs
(1)
|
(78,374
|
)
|
|
(7,470
|
)
|
|
(70,904
|
)
|
|
NM
|
|
Impact of acquisition-related costs
(2)
|
(47,079
|
)
|
|
(9,816
|
)
|
|
(37,263
|
)
|
|
NM
|
|
Operating expenses adjusted for certain items (Non-GAAP)
|
$
|
4,079,079
|
|
|
$
|
3,451,466
|
|
|
$
|
627,613
|
|
|
18.2
|
%
|
Impact of Brakes
|
$
|
(632,156
|
)
|
|
$
|
—
|
|
|
$
|
(632,156
|
)
|
|
NM
|
|
Impact of Brakes restructuring costs
(3)
|
4,981
|
|
|
—
|
|
|
4,981
|
|
|
NM
|
|
Impact of Brakes acquisition-related costs
(2)
|
39,790
|
|
|
—
|
|
|
39,790
|
|
|
NM
|
|
Operating expenses adjusted for certain items and excluding the impact of Brakes (Non-GAAP)
|
$
|
3,491,694
|
|
|
$
|
3,451,466
|
|
|
$
|
40,228
|
|
|
1.2
|
%
|
|
|
|
|
|
|
|
|
Operating income (GAAP)
|
$
|
1,059,250
|
|
|
$
|
926,057
|
|
|
$
|
133,193
|
|
|
14.4
|
%
|
Impact of restructuring costs
(1)
|
78,374
|
|
|
7,470
|
|
|
70,904
|
|
|
NM
|
|
Impact of acquisition-related costs
(2)
|
47,079
|
|
|
9,816
|
|
|
37,263
|
|
|
NM
|
|
Operating income adjusted for certain items (Non-GAAP)
|
$
|
1,184,703
|
|
|
$
|
943,343
|
|
|
$
|
241,360
|
|
|
25.6
|
%
|
Impact of Brakes
|
$
|
(64,029
|
)
|
|
$
|
—
|
|
|
$
|
(64,029
|
)
|
|
NM
|
|
Impact of Brakes restructuring costs
(3)
|
(4,981
|
)
|
|
—
|
|
|
(4,981
|
)
|
|
NM
|
|
Impact of Brakes acquisition-related costs
(2)
|
(39,790
|
)
|
|
—
|
|
|
(39,790
|
)
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income adjusted for certain items and excluding the impact of Brakes (Non-GAAP)
|
$
|
1,075,903
|
|
|
$
|
943,343
|
|
|
$
|
132,560
|
|
|
14.1
|
%
|
|
|
|
|
|
|
|
|
Operating margin (GAAP)
|
3.86
|
%
|
|
3.75
|
%
|
|
0.11
|
%
|
|
2.9
|
%
|
Operating margin (Non-GAAP)
|
4.32
|
%
|
|
3.82
|
%
|
|
0.50
|
%
|
|
13.1
|
%
|
Operating margin excluding Certain Items and Brakes (Non-GAAP)
|
4.34
|
%
|
|
3.82
|
%
|
|
0.52
|
%
|
|
13.6
|
%
|
|
|
|
|
|
|
|
|
Interest expense (GAAP)
|
$
|
145,854
|
|
|
$
|
174,142
|
|
|
$
|
(28,288
|
)
|
|
(16.2
|
)%
|
Impact of acquisition financing costs
|
—
|
|
|
(94,835
|
)
|
|
94,835
|
|
|
NM
|
|
Interest expense adjusted for certain items (Non-GAAP)
|
$
|
145,854
|
|
|
$
|
79,307
|
|
|
$
|
66,547
|
|
|
83.9
|
%
|
|
|
|
|
|
|
|
|
Net earnings (GAAP)
|
599,054
|
|
|
516,819
|
|
|
82,235
|
|
|
15.9
|
%
|
Impact of restructuring costs
(1)
|
78,374
|
|
|
7,470
|
|
|
70,904
|
|
|
NM
|
|
Impact of acquisition-related costs
(2)
|
47,079
|
|
|
9,816
|
|
|
37,263
|
|
|
NM
|
|
Impact of acquisition financing costs
|
—
|
|
|
94,835
|
|
|
(94,835
|
)
|
|
NM
|
|
Tax impact of restructuring costs
(5)
|
(19,072
|
)
|
|
(2,787
|
)
|
|
(16,285
|
)
|
|
NM
|
|
Tax impact of acquisition-related costs
(5)
|
(10,528
|
)
|
|
(3,662
|
)
|
|
(6,866
|
)
|
|
NM
|
|
Tax impact of acquisition financing costs
(5)
|
—
|
|
|
(35,383
|
)
|
|
35,383
|
|
|
NM
|
|
Net earnings adjusted for certain items (Non-GAAP)
|
$
|
694,907
|
|
|
$
|
587,108
|
|
|
$
|
107,799
|
|
|
18.4
|
%
|
Impact of Brakes
|
$
|
(50,728
|
)
|
|
$
|
—
|
|
|
$
|
(50,728
|
)
|
|
NM
|
|
Impact of Brakes restructuring costs
(3)
|
(3,887
|
)
|
|
—
|
|
|
(3,887
|
)
|
|
NM
|
|
Impact of Brakes acquisition-related costs
(2)
|
(31,047
|
)
|
|
—
|
|
|
(31,047
|
)
|
|
NM
|
|
Impact of interest expense on debt issued for the Brakes acquisition
(6)
|
39,682
|
|
|
—
|
|
|
39,682
|
|
|
NM
|
|
Tax impact of interest expense on debt issued for the Brakes acquisition
(5)
|
(15,000
|
)
|
|
—
|
|
|
(15,000
|
)
|
|
NM
|
|
Net earnings adjusted for certain items and excluding the impact of Brakes (Non-GAAP)
|
$
|
633,927
|
|
|
$
|
587,108
|
|
|
$
|
46,819
|
|
|
8.0
|
%
|
|
|
|
|
|
|
|
|
Diluted earnings per share (GAAP)
|
$
|
1.08
|
|
|
$
|
0.88
|
|
|
$
|
0.20
|
|
|
22.7
|
%
|
Impact of restructuring costs
(1)
|
0.14
|
|
|
0.01
|
|
|
0.13
|
|
|
NM
|
|
Impact of acquisition-related costs
(2)
|
0.08
|
|
|
0.02
|
|
|
0.06
|
|
|
NM
|
|
Impact of acquisition financing costs
|
—
|
|
|
0.16
|
|
|
(0.16
|
)
|
|
NM
|
|
Tax impact of restructuring costs
(5)
|
(0.03
|
)
|
|
—
|
|
|
(0.03
|
)
|
|
NM
|
|
Tax impact of acquisition-related costs
(5)
|
(0.02
|
)
|
|
(0.01
|
)
|
|
(0.01
|
)
|
|
NM
|
|
Tax impact of acquisition financing costs
(5)
|
—
|
|
|
(0.06
|
)
|
|
0.06
|
|
|
NM
|
|
Diluted EPS adjusted for certain items (Non-GAAP)
(4)
|
$
|
1.25
|
|
|
$
|
1.00
|
|
|
$
|
0.25
|
|
|
25.0
|
%
|
Impact of Brakes
|
$
|
(0.09
|
)
|
|
$
|
—
|
|
|
$
|
(0.09
|
)
|
|
NM
|
|
Impact of Brakes restructuring costs
(3)
|
(0.01
|
)
|
|
—
|
|
|
(0.01
|
)
|
|
NM
|
|
Impact of Brakes acquisition-related costs
(2)
|
(0.06
|
)
|
|
—
|
|
|
(0.06
|
)
|
|
NM
|
|
Impact of interest expense on debt issued for the Brakes acquisition
(6)
|
0.07
|
|
|
—
|
|
|
0.07
|
|
|
NM
|
|
Tax impact of interest expense on debt issued for the Brakes acquisition
(5)
|
(0.03
|
)
|
|
—
|
|
|
(0.03
|
)
|
|
NM
|
|
Net earnings adjusted for certain items and excluding the impact of Brakes (Non-GAAP)
(4)
|
$
|
1.14
|
|
|
$
|
1.00
|
|
|
$
|
0.14
|
|
|
14.0
|
%
|
Total Brakes accretion
|
$
|
0.11
|
|
|
$
|
—
|
|
|
$
|
0.11
|
|
|
NM
|
|
(1)
Includes $56 million in accelerated depreciation associated with our revised business technology strategy and $22 million related to severance charges, professional fees on 3-year financial objectives, restructuring expenses within our Brakes Group operations and costs to convert to legacy systems in conjunction with our revised business technology strategy.
(2)
Fiscal 2017 includes $38 million related to intangible amortization expense from the Brakes Acquisition, which is included in the results of the Brakes Group and $9 million in transaction costs. Fiscal 2016 includes US Foods merger termination costs.
(3)
Includes the Brakes Acquisition restructuring charges.
(4)
Individual components of diluted earnings per share may not add to the total presented due to rounding. Total diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding.
(5)
The tax impact of adjustments for Certain Items are 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. The adjustments also include $7 million in non-deductible transaction costs and $4 million in other one-time costs related to the Brakes Acquisition.
(6)
Sysco Corporation issued debt to fund the Brakes Acquisition. The interest expense arising from the debt issued is attributed to the incremental impact of Brakes operating results, even though it is not a direct obligation of the Brakes Group and is not considered a Certain Item.
NM represent that the percentage change is not meaningful.
Set forth below is a reconciliation by segment of actual operating expenses and operating income to adjusted results for these measures for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13-Week Period Ended Dec. 31, 2016
|
|
13-Week Period Ended Dec. 26, 2015
|
|
13-Week Period Ended Change in Dollars
|
|
13-Week Period % Change
|
U.S. FOODSERVICE OPERATIONS
|
|
|
|
|
|
|
|
Sales (GAAP)
|
$
|
9,085,565
|
|
|
$
|
9,135,326
|
|
|
$
|
(49,761
|
)
|
|
(0.5
|
)%
|
Gross Profit (GAAP)
|
1,823,023
|
|
|
1,759,390
|
|
|
63,633
|
|
|
3.6
|
|
Gross Margin (GAAP)
|
20.1
|
%
|
|
19.3
|
%
|
|
0.7
|
%
|
|
3.5
|
%
|
|
|
|
|
|
|
|
|
Operating expenses (GAAP)
|
$
|
1,141,701
|
|
|
$
|
1,134,174
|
|
|
$
|
7,527
|
|
|
0.7
|
%
|
Impact of restructuring costs
|
(470
|
)
|
|
(561
|
)
|
|
91
|
|
|
NM
|
|
Operating expenses adjusted for certain items (Non-GAAP)
|
$
|
1,141,231
|
|
|
$
|
1,133,613
|
|
|
$
|
7,618
|
|
|
0.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (GAAP)
|
$
|
681,321
|
|
|
$
|
625,216
|
|
|
$
|
56,105
|
|
|
9.0
|
%
|
Impact of restructuring costs
|
470
|
|
|
561
|
|
|
(91
|
)
|
|
NM
|
|
Operating income adjusted for certain items (Non-GAAP)
|
$
|
681,791
|
|
|
$
|
625,777
|
|
|
$
|
56,014
|
|
|
9.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
INTERNATIONAL FOODSERVICE OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
Sales (GAAP)
|
$
|
2,625,949
|
|
|
$
|
1,280,775
|
|
|
$
|
1,345,174
|
|
|
NM
|
|
Gross Profit (GAAP)
|
576,215
|
|
|
221,198
|
|
|
355,017
|
|
|
NM
|
|
Gross Margin (GAAP)
|
21.9
|
%
|
|
17.3
|
%
|
|
4.6
|
%
|
|
26.6
|
%
|
|
|
|
|
|
|
|
|
Operating expenses (GAAP)
|
$
|
491,401
|
|
|
$
|
178,986
|
|
|
$
|
312,415
|
|
|
NM
|
|
Impact of restructuring costs
(1)
|
(5,590
|
)
|
|
(586
|
)
|
|
(5,004
|
)
|
|
NM
|
|
Impact of acquisition-related costs
(2)
|
(20,293
|
)
|
|
—
|
|
|
(20,293
|
)
|
|
NM
|
|
Operating expenses adjusted for certain items (Non-GAAP)
|
$
|
465,518
|
|
|
$
|
178,400
|
|
|
$
|
287,118
|
|
|
NM
|
|
Impact of Brakes
|
(309,313
|
)
|
|
—
|
|
|
(309,313
|
)
|
|
NM
|
|
Impact of Brakes restructuring costs
|
1,907
|
|
|
—
|
|
|
1,907
|
|
|
NM
|
|
Impact of Brakes acquisition-related costs
|
20,292
|
|
|
—
|
|
|
20,292
|
|
|
NM
|
|
Operating expenses adjusted for certain items and excluding the impact of Brakes (Non-GAAP)
|
$
|
178,404
|
|
|
$
|
178,400
|
|
|
$
|
4
|
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (GAAP)
|
$
|
84,814
|
|
|
$
|
42,212
|
|
|
$
|
42,602
|
|
|
NM
|
|
Impact of restructuring costs
(1)
|
5,590
|
|
|
586
|
|
|
5,004
|
|
|
NM
|
|
Impact of acquisition related costs
(2)
|
20,293
|
|
|
—
|
|
|
20,293
|
|
|
NM
|
|
Operating income adjusted for certain items (Non-GAAP)
|
$
|
110,697
|
|
|
$
|
42,798
|
|
|
$
|
67,899
|
|
|
NM
|
|
Impact of Brakes
|
(43,820
|
)
|
|
—
|
|
|
(43,820
|
)
|
|
NM
|
|
Impact of Brakes restructuring costs
|
(1,907
|
)
|
|
—
|
|
|
(1,907
|
)
|
|
NM
|
|
Impact of Brakes acquisition-related costs
|
(20,292
|
)
|
|
—
|
|
|
(20,292
|
)
|
|
NM
|
|
Operating income adjusted for certain items and excluding the impact of Brakes (Non-GAAP)
|
$
|
44,678
|
|
|
$
|
42,798
|
|
|
$
|
1,880
|
|
|
4.4
|
%
|
(1)
Fiscal 2017 includes acquisition-related costs, restructuring charges and other severance charges.
(2)
Fiscal 2017 includes $19 million related to intangible amortization expense from the Brakes Acquisition, which is included in the results of the Brakes Group.
NM represent that the percentage change is not meaningful.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. FOODSERVICE OPERATIONS
|
26-Week Period Ended Dec. 31, 2016
|
|
26-Week Period Ended Dec. 26, 2015
|
|
26-Week Period Change in Dollars
|
|
26-Week Period
% Change
|
Sales (GAAP)
|
$
|
18,566,681
|
|
|
$
|
18,543,249
|
|
|
$
|
23,432
|
|
|
0.1
|
%
|
Gross Profit (GAAP)
|
3,736,138
|
|
|
3,593,744
|
|
|
142,394
|
|
|
4.0
|
|
Gross Margin (GAAP)
|
20.1
|
%
|
|
19.4
|
%
|
|
0.7
|
%
|
|
3.5
|
|
|
|
|
|
|
|
|
|
Operating expenses (GAAP)
|
$
|
2,309,585
|
|
|
$
|
2,281,859
|
|
|
$
|
27,726
|
|
|
1.2
|
%
|
Impact of restructuring costs
|
(470
|
)
|
|
(1,433
|
)
|
|
963
|
|
|
NM
|
|
Operating expenses adjusted for certain items (Non-GAAP)
|
$
|
2,309,115
|
|
|
$
|
2,280,426
|
|
|
$
|
28,689
|
|
|
1.3
|
%
|
|
|
|
|
|
|
|
|
Operating income (GAAP)
|
$
|
1,426,552
|
|
|
$
|
1,311,885
|
|
|
$
|
114,667
|
|
|
8.7
|
%
|
Impact of restructuring costs
|
470
|
|
|
1,433
|
|
|
(963
|
)
|
|
NM
|
|
Operating income adjusted for certain items (Non-GAAP)
|
$
|
1,427,022
|
|
|
$
|
1,313,318
|
|
|
$
|
113,704
|
|
|
8.7
|
%
|
|
|
|
|
|
|
|
|
INTERNATIONAL FOODSERVICE OPERATIONS
|
|
|
|
|
|
|
|
Sales (GAAP)
|
$
|
5,354,310
|
|
|
$
|
2,671,034
|
|
|
$
|
2,683,276
|
|
|
NM
|
|
Gross Profit (GAAP)
|
1,174,621
|
|
|
466,660
|
|
|
707,961
|
|
|
NM
|
|
Gross Margin (GAAP)
|
21.9
|
%
|
|
17.5
|
%
|
|
4.4
|
%
|
|
25.1
|
%
|
|
|
|
|
|
|
|
|
Operating expenses (GAAP)
|
$
|
1,010,372
|
|
|
$
|
372,528
|
|
|
$
|
637,844
|
|
|
NM
|
|
Impact of restructuring costs
(1)
|
(10,271
|
)
|
|
(1,829
|
)
|
|
(8,442
|
)
|
|
NM
|
|
Impact of acquisition-related costs
(2)
|
(39,790
|
)
|
|
—
|
|
|
(39,790
|
)
|
|
NM
|
|
Operating expenses adjusted for certain items (Non-GAAP)
|
$
|
960,312
|
|
|
$
|
370,699
|
|
|
$
|
589,613
|
|
|
NM
|
|
Impact of Brakes
|
$
|
(632,156
|
)
|
|
$
|
—
|
|
|
$
|
(632,156
|
)
|
|
NM
|
|
Impact of Brakes restructuring costs
|
4,981
|
|
|
—
|
|
|
4,981
|
|
|
NM
|
|
Impact of Brakes acquisition-related costs
|
39,790
|
|
|
—
|
|
|
39,790
|
|
|
NM
|
|
Operating expenses adjusted for certain items and excluding the impact of Brakes (Non-GAAP)
|
$
|
372,927
|
|
|
$
|
370,699
|
|
|
$
|
2,228
|
|
|
0.6
|
%
|
|
|
|
|
|
|
|
|
Operating income (GAAP)
|
$
|
164,249
|
|
|
$
|
94,132
|
|
|
$
|
70,117
|
|
|
74.49
|
%
|
Impact of restructuring costs
(1)
|
10,271
|
|
|
1,829
|
|
|
8,442
|
|
|
NM
|
|
Impact of acquisition related costs
(2)
|
39,790
|
|
|
—
|
|
|
39,790
|
|
|
NM
|
|
Operating income adjusted for certain items (Non-GAAP)
|
$
|
214,309
|
|
|
$
|
95,961
|
|
|
$
|
118,348
|
|
|
NM
|
|
Impact of Brakes
|
$
|
(64,029
|
)
|
|
$
|
—
|
|
|
$
|
(64,029
|
)
|
|
NM
|
|
Impact of Brakes restructuring costs
|
(4,981
|
)
|
|
—
|
|
|
(4,981
|
)
|
|
NM
|
|
Impact of Brakes acquisition-related costs
|
(39,790
|
)
|
|
—
|
|
|
(39,790
|
)
|
|
NM
|
|
Operating income adjusted for certain items and excluding the impact of Brakes (Non-GAAP)
|
$
|
105,509
|
|
|
$
|
95,961
|
|
|
$
|
9,548
|
|
|
9.9
|
%
|
(1)
Fiscal 2017 includes acquisition-related costs, restructuring charges and other severance charges.
(2)
Fiscal 2017 includes $38 million related to intangible amortization expense from the Brakes Acquisition, which is included in the results of the Brakes Group.
NM represent that the percentage change is not meaningful.
Adjusted Cost per Case
Cost per case is an important metric management uses to measure our expense performance. This metric is calculated by dividing the total operating expense of our U.S. Broadline companies by the number of cases sold. Adjusted cost per case is
calculated similarly; however, the operating expense component excludes Certain Items applicable to these companies, prior to dividing by the number of cases sold. In the first 26 weeks of fiscal 2017, the U.S. Broadline operations represented approximately 92% of the U.S. Foodservice Operations segment's sales and nearly 85% of its operating expenses. We seek to grow our sales and reduce our costs on a per-case basis.
In the table that follows, the change in adjusted cost per case is reconciled to cost per case for the 13-week and 26-week periods in fiscal 2017.
|
|
|
|
|
|
|
|
|
|
13-Week Period Change
|
|
26-Week Period Change
|
Decrease in cost per case
|
$
|
(0.026
|
)
|
|
$
|
(0.036
|
)
|
Impact of Certain Items
(1)
|
(0.002
|
)
|
|
(0.003
|
)
|
Decrease in adjusted cost per case (Non-GAAP basis)
|
$
|
(0.024
|
)
|
|
$
|
(0.033
|
)
|
(1)
For all periods, the impact of Certain Items excludes charges for restructuring costs, primarily related to severance charges.
Three-Year Financial Targets
Sysco management considers adjusted ROIC to be a measure that provides useful information to management and investors in evaluating the efficiency and effectiveness of the company's long-term capital investments. In addition, we have targets and expectations that are based on adjusted results including an ROIC target of 15%, We cannot predict with certainty when we will achieve these results or whether the calculation of our ROIC in such future period will be on an adjusted basis due to the effect of certain items, which would be excluded from such calculation. Due to these uncertainties, to the extent our future calculation of ROIC is on an adjusted basis excluding certain items, we cannot provide a quantitative reconciliation of this non-GAAP measure to the most directly comparable GAAP measure without unreasonable effort. However, we would expect to calculate adjusted ROIC, if applicable, in the same manner as we have calculated this historically. All components of our adjusted ROIC calculation would be impacted by Certain Items. We calculate adjusted ROIC as adjusted net earnings divided by (i) stockholders’ equity, computed as the average of adjusted stockholders’ equity at the beginning of the year and at the end of each fiscal quarter during the year; and (ii) long-term debt, computed as the average of the long-term debt at the beginning of the year and at the end of each fiscal quarter during the year.
|
|
Form of calculation:
|
Net earnings (GAAP)
|
Impact of Certain Items on net earnings
|
Adjusted net earnings (Non-GAAP)
|
|
Invested Capital (GAAP)
|
Adjustments to invested capital
|
Adjusted Invested capital (GAAP)
|
|
Return on investment capital (GAAP)
|
Return on investment capital (Non-GAAP)
|
We are half way through the three-year period under our strategic plan and are measuring our operating income performance against our targets on an adjusted basis. The following reconciles operating income cumulative growth from an adjusted to a GAAP basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2, 2016
|
June 27, 2015
|
Period Change
$
|
26-Week
Period Ended
Dec. 31, 2016
|
26-Week
Period Ended
Dec 26, 2015
|
Period Change
$
|
Cumulative 18-month Change $
results
|
Sales
|
$
|
50,366,919
|
|
|
$
|
48,680,752
|
|
|
$
|
1,686,167
|
|
|
$
|
27,425,922
|
|
|
$
|
24,716,237
|
|
|
$
|
2,709,685
|
|
|
|
Impact of Brakes
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,612,423
|
)
|
|
—
|
|
|
(2,612,423
|
)
|
|
|
Sales excluding the impact of Brakes (Non-GAAP)
|
$
|
50,366,919
|
|
|
$
|
48,680,752
|
|
|
$
|
1,686,167
|
|
|
$
|
24,813,499
|
|
|
$
|
24,716,237
|
|
|
$
|
97,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
$
|
9,040,472
|
|
|
$
|
8,551,516
|
|
|
$
|
488,956
|
|
|
$
|
5,263,782
|
|
|
$
|
4,394,809
|
|
|
$
|
868,973
|
|
|
|
Impact of Brakes
|
—
|
|
|
—
|
|
|
—
|
|
|
(696,184
|
)
|
|
—
|
|
|
(696,184
|
)
|
|
|
Gross profit excluding the impact of Brakes (Non-GAAP)
|
$
|
9,040,472
|
|
|
$
|
8,551,516
|
|
|
$
|
488,956
|
|
|
$
|
4,567,598
|
|
|
$
|
4,394,809
|
|
|
$
|
172,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
17.95
|
%
|
|
17.57
|
%
|
|
0.38
|
%
|
|
19.19
|
%
|
|
17.78
|
%
|
|
1.41
|
%
|
|
|
Impact of Brakes
|
—
|
|
|
—
|
|
|
—
|
|
|
0.79
|
%
|
|
—
|
|
|
0.79
|
%
|
|
|
Gross margin excluding the impact of Brakes (Non-GAAP)
|
17.95
|
%
|
|
17.57
|
%
|
|
0.38
|
%
|
|
18.41
|
%
|
|
17.78
|
%
|
|
0.63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (GAAP)
|
$
|
7,189,972
|
|
|
$
|
7,322,154
|
|
|
$
|
(132,182
|
)
|
|
$
|
4,204,532
|
|
|
$
|
3,468,752
|
|
|
$
|
735,780
|
|
|
|
Impact of restructuring costs
(1)
|
(123,134
|
)
|
|
(7,801
|
)
|
|
(115,333
|
)
|
|
(78,374
|
)
|
|
(7,470
|
)
|
|
(70,904
|
)
|
|
|
Impact of acquisition-related costs
(2)
|
(35,614
|
)
|
|
(554,667
|
)
|
|
519,052
|
|
|
(47,079
|
)
|
|
(9,816
|
)
|
|
(37,264
|
)
|
|
|
Operating expenses adjusted for certain items (Non-GAAP)
|
$
|
7,031,224
|
|
|
$
|
6,759,686
|
|
|
$
|
271,537
|
|
|
$
|
4,079,079
|
|
|
$
|
3,451,466
|
|
|
$
|
627,613
|
|
|
|
Impact of Brakes
|
—
|
|
|
—
|
|
|
—
|
|
|
(632,156
|
)
|
|
—
|
|
|
(632,156
|
)
|
|
|
Impact of Brakes restructuring costs
(3)
|
—
|
|
|
—
|
|
|
—
|
|
|
4,981
|
|
|
—
|
|
|
4,981
|
|
|
|
Impact of Brakes acquisition-related costs
(2)
|
—
|
|
|
—
|
|
|
—
|
|
|
39,790
|
|
|
—
|
|
|
39,790
|
|
|
|
Operating expenses adjusted for certain items and excluding the impact of Brakes (Non-GAAP)
|
$
|
7,031,224
|
|
|
$
|
6,759,686
|
|
|
$
|
271,537
|
|
|
$
|
3,491,694
|
|
|
$
|
3,451,466
|
|
|
$
|
40,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (GAAP)
|
$
|
1,850,500
|
|
|
$
|
1,229,362
|
|
|
$
|
621,138
|
|
|
$
|
1,059,250
|
|
|
$
|
926,057
|
|
|
$
|
133,193
|
|
|
$
|
754,331
|
|
Impact of restructuring costs
(1)
|
123,134
|
|
|
7,801
|
|
|
115,333
|
|
|
78,374
|
|
|
7,470
|
|
|
70,904
|
|
|
186,237
|
|
Impact of acquisition-related costs
(2)
|
35,614
|
|
|
554,667
|
|
|
(519,052
|
)
|
|
47,079
|
|
|
9,816
|
|
|
37,264
|
|
|
(481,789
|
)
|
Operating income adjusted for certain items (Non-GAAP)
|
$
|
2,009,248
|
|
|
$
|
1,791,830
|
|
|
$
|
217,419
|
|
|
$
|
1,184,703
|
|
|
$
|
943,343
|
|
|
$
|
241,360
|
|
|
$
|
458,778
|
|
Impact of Brakes
|
—
|
|
|
—
|
|
|
—
|
|
|
(64,029
|
)
|
|
—
|
|
|
(64,029
|
)
|
|
(64,029
|
)
|
Impact of Brakes restructuring costs
(3)
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,981
|
)
|
|
—
|
|
|
(4,981
|
)
|
|
(4,981
|
)
|
Impact of Brakes acquisition-related costs
(2)
|
—
|
|
|
—
|
|
|
—
|
|
|
(39,790
|
)
|
|
—
|
|
|
(39,790
|
)
|
|
(39,790
|
)
|
Operating income adjusted for certain items and excluding the impact of Brakes (Non-GAAP)
|
$
|
2,009,248
|
|
|
$
|
1,791,830
|
|
|
$
|
217,419
|
|
|
$
|
1,075,903
|
|
|
$
|
943,343
|
|
|
$
|
132,560
|
|
|
$
|
349,979
|
|
(1)
Includes $56 million in accelerated depreciation associated with our revised business technology strategy and $22 million related to severance charges and restructuring expenses within our Brakes operations in fiscal 2017. Includes professional fees on 3-year financial objectives and costs to convert to legacy systems in conjunction with our revised business technology strategy in fiscal 2017 and fiscal 2016.
(2)
Fiscal 2017 includes $38 million related to intangible amortization expense from the Brakes Acquisition, which is included in the results of Brakes, and $9 million in transaction costs. Fiscal 2016 includes US Foods merger integration and termination costs.
(3)
Includes Brakes Acquisition restructuring charges.
Additional targets and expectations include our adjusted operating income target that we expect to achieve by fiscal 2018 and our expectations that the Brakes Acquisition will be accretive to earnings per share stated on an adjusted basis. Due to uncertainties in projecting Certain Items, we cannot provide a quantitative reconciliation of these non-GAAP measures to the most directly comparable GAAP measures without unreasonable effort. However, we would expect to calculate these adjusted results in the same manner as the reconciliations provided for the historical periods that are presented herein. The impact of future Certain Items could cause projected non-GAAP amounts to differ significantly from our GAAP results.
Liquidity and Capital Resources
Highlights
Comparisons of the cash flows from the first
26
weeks of fiscal
2017
to the first
26
weeks of fiscal
2016
:
|
|
•
|
Cash flows from operations were $
604.9 million
in 2017, compared to $
468.9 million
in 2016;
|
|
|
•
|
Capital expenditures totaled $
285.7 million
in 2017, compared to $
248.2 million
in 2016;
|
|
|
•
|
Free cash flow was
$330.9 million
in 2017, compared to
$231.5 million
in 2016 (see "Non-GAAP reconciliation" below under the heading “Free Cash Flow”);
|
|
|
•
|
Cash used for acquisition of businesses, net of cash received, was $
2.9 billion
in 2017, compared to $
98.2 million
in 2016;
|
|
|
•
|
Commercial paper and net bank borrowings were $
1.0 billion
in 2017, compared to
no
bank borrowings in 2016;
|
|
|
•
|
Dividends paid were $
343.4 million
in 2017, compared to $
348.4 million
in 2016; and
|
|
|
•
|
Cash paid for treasury stock repurchases was
$1.2 billion
in 2017, compared to
$1.5 billion
in 2016.
|
Sources and Uses of Cash
Sysco’s strategic objectives include continuous investment in our business; these investments are funded by a combination of cash from operations and access to capital from financial markets. Our operations historically have produced significant cash flow. Cash generated from operations is generally allocated to:
|
|
•
|
working capital requirements;
|
|
|
•
|
investments in facilities, systems, fleet, other equipment and technology;
|
|
|
•
|
return of capital to shareholders, including cash dividends and share repurchases;
|
|
|
•
|
acquisitions compatible with our overall growth strategy;
|
|
|
•
|
contributions to our various retirement plans; and
|
Any remaining cash generated from operations may be invested in high-quality, short-term instruments. As a part of our ongoing strategic analysis, we regularly evaluate business opportunities, including potential acquisitions and sales of assets and businesses, and our overall capital structure. Any transactions resulting from these evaluations may materially impact our liquidity, borrowing capacity, leverage ratios and capital availability.
Our liquidity and capital resources can be influenced by economic trends and conditions that impact our results of operations. We believe our mechanisms to manage working capital, such as credit monitoring, optimizing inventory levels and maximizing payment terms with vendors, and our mechanisms to manage the items impacting our gross profits have been sufficient to limit a significant unfavorable impact on our cash flows from operations. We believe these mechanisms will continue to prevent a significant unfavorable impact on our cash flows from operations. Seasonal trends also impact our cash flows from operations and free cash flow, as we use more cash earlier in the fiscal year and then see larger, sequential quarterly increases throughout the remainder of the year. As of
December 31, 2016
, we had $
847.3 million
in cash and cash equivalents, approximately
73.0%
of which was held by our international subsidiaries generated from our earnings of international operations. If these earnings were transferred among countries or repatriated to the U.S., such amounts may be subject to additional tax obligations; however, we do not currently anticipate the need to repatriate this cash.
We believe the following sources will be sufficient to meet our anticipated cash requirements for the next twelve months, while maintaining sufficient liquidity for normal operating purposes:
|
|
•
|
our cash flows from operations;
|
|
|
•
|
the availability of additional capital under our existing commercial paper programs, supported by our revolving credit facility and bank line of credit; and
|
|
|
•
|
our ability to access capital from financial markets, including issuances of debt securities, either privately or under our shelf registration statement filed with the Securities and Exchange Commission (SEC).
|
Due to our strong financial position, we believe that we will continue to be able to effectively access the commercial paper market and long-term capital markets, if necessary.
Cash Flows
Operating Activities
We generated
$604.9 million
in cash flows from operations in the first
26
weeks of fiscal
2017
, compared to cash flows of
$468.9 million
in the first
26
weeks of fiscal
2016
. This increase of
$136.0 million
year-over-year was largely attributable to a favorable comparison on accrued expenses and improved working capital management. These were partially offset by increased tax payments. The cash impact of our Certain Items decreased $
210.4
million year-over-year. The cash impact of Certain Items will differ from the earnings impact of Certain Items, as the payments for these items may occur in a different period from the period in which the Certain Item charges were recognized in the Statement of Consolidated Results of Operations.
The positive comparison on accrued expenses was primarily due to
$312.5 million
in US Foods merger termination fees that were paid in the first
26
weeks of fiscal
2016
, partially offset by a
$58.4 million
decrease from incentive payments. Our annual incentive payments from the prior fiscal year are paid in the first quarter of each fiscal year, and our fiscal
2016
performance resulted in higher incentive payments as compared to our fiscal
2015
performance.
Changes in working capital, specifically accounts receivable, inventory and accounts payable, had a positive impact of
$58.8 million
on the period-over-period comparison of cash flow from operations. We made seasonal investments in net working capital in both periods; however, the amount required in the first
26
weeks of fiscal
2017
was less than in the first
26
weeks of fiscal
2016
partially due to improved working capital management. These improvements were partially offset by increased inventories that resulted from our second quarter of fiscal
2017
ending during a holiday period.
Our tax payments in the first
26
weeks of fiscal
2017
were higher than in the first
26
weeks of fiscal
2016
by
$426.5 million
. Sysco's fourth quarter fiscal 2016 U.S. estimated federal tax payment was deferred to the second quarter of fiscal 2017 due to a disaster area designation for companies located in the Houston area, the location of our corporate headquarters. Additionally, we experienced lower tax payments in the first
26
weeks of fiscal
2016
due to changes in tax elections allowing us to accelerate tax deductions from method changes and from the US Foods merger termination fees.
Investing Activities
Our capital expenditures in the first
26
weeks of fiscal
2017
primarily consisted of facility replacements and expansions, fleet, technology and warehouse equipment. Our capital expenditures in the first
26
weeks of fiscal
2017
are higher by
$37.5 million
as compared to the second quarter of fiscal
2016
.
During the first
26
weeks of fiscal
2017
, we paid cash of $
2.9 billion
for acquisitions made during fiscal
2017
, net of cash acquired primarily for the Acquisition.
Free Cash Flow
Free cash flow represents net cash provided from operating activities, less purchases of plant and equipment, plus proceeds from sales of plant and equipment. Sysco considers free cash flow to be a non-GAAP 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. Our free cash flow for the first
26
weeks of fiscal
2017
increased by
$99.4 million
, to
$330.9 million
, as compared to the first
26
weeks of fiscal
2016
. Our cash requirements for our Certain Items were
$210.4
million lower in the first
26
weeks of fiscal
2017
than in the first
26
weeks of fiscal
2016
, which increased free cash flow as a result. The Certain Items payments for the first
26
weeks of fiscal 2016 included US Foods merger termination fees discussed above. The increase was partially offset by increased additions to plant and equipment.
Free cash flow should not be used as a substitute for the most comparable GAAP 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 used in / provided by operating activities.
|
|
|
|
|
|
|
|
|
|
26-Week Period Ended Dec. 31, 2016
|
|
26-Week Period Ended Dec. 26, 2015
|
|
(In thousands)
|
Net cash provided by operating activities (GAAP)
|
$
|
604,924
|
|
|
$
|
468,881
|
|
Additions to plant and equipment
|
(285,692
|
)
|
|
(248,233
|
)
|
Proceeds from sales of plant and equipment
|
11,639
|
|
|
10,827
|
|
Free Cash Flow (Non-GAAP)
|
$
|
330,871
|
|
|
$
|
231,475
|
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Financing Activities
Equity Transactions
Proceeds from exercises of share-based compensation awards were $
113.9 million
in the first
26
weeks of fiscal
2017
, as compared to $
132.0 million
in the first
26
weeks of fiscal
2016
. The decrease in proceeds in the first
26
weeks of fiscal
2017
was due to a decrease in the number of options exercised in this period, as compared to the first
26
weeks of fiscal
2016
. The level of option exercises, and thus proceeds, will vary from period to period and is largely dependent on movements in our stock price and the time remaining before option grants expire.
We routinely engage in share repurchase programs. In June 2015, our Board of Directors approved a repurchase program to repurchase, from time to time in the open market, through an accelerated share repurchase program or through privately negotiated transactions, shares of the company's common stock in an amount not to exceed
$3.0 billion
during the two-year period ending July 1, 2017, in addition to amounts normally repurchased to offset benefit plan and stock option dilution. In addition, in August 2015, our Board of Directors approved the repurchase of up to
20,000,000
shares for an aggregate purchase price not to exceed
$800 million
. The authorization expires on August 21, 2017.
We purchased
22.7 million
shares during the first
26
weeks of fiscal 2017 for
$1.2 billion
, resulting in a remaining authorization under both programs of approximately
$689.9 million
. There were 32.3 million shares repurchased in the first
26
weeks of fiscal 2016 for
$1.5 billion
. We purchased
1.4 million
additional shares under these authorizations through January 20, 2017. The number of shares we repurchase during the remainder of fiscal 2017 will be dependent on many factors, including the level of future stock option exercises, as well as competing uses for available cash.
Dividends paid in the first
26
weeks of fiscal
2017
were $
343.4 million
, or
$0.62
per share, as compared to $
348.4 million
, or $
0.60
per share, in the first
26
weeks of fiscal
2016
. In November 2016, we declared our regular quarterly dividend for the second quarter of fiscal
2017
of $
0.33
per share, which was paid in January
2017
.
Debt Activity and Borrowing Availability
Our debt activity and borrowing availability is described in
Note 6
,
"Debt"
Our outstanding borrowings at
December 31, 2016
, and subsequently, are disclosed within that note. Updated amounts through January 20, 2017, include:
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•
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$1.1 billion
outstanding from our commercial paper program
|
|
|
•
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No amounts outstanding from the credit facility supporting the company’s U.S. commercial paper program.
|
During the first
26
weeks of fiscal
2017
and
2016
, our aggregate commercial paper issuances and short-term bank borrowings had weighted average interest rates of
0.71%
and
0.39%
, respectively.
Contractual Obligations
Our Annual Report on Form 10-K for the fiscal year ended
July 2, 2016
, contains a table that summarizes our obligations and commitments to make specified contractual future cash payments as of
July 2, 2016
. Since
July 2, 2016
, there have been no material changes to our specified contractual obligations.
Critical Accounting Policies and Estimates
Critical accounting policies and estimates are those that are most important to the portrayal of our financial position and results of operations. These policies require our most subjective or complex judgments, often employing the use of estimates about
the effect of matters that are inherently uncertain. We have reviewed with the Audit Committee of the Board of Directors the development and selection of the critical accounting policies and estimates and this related disclosure. Sysco’s most critical accounting policies and estimates include those that pertain to the company sponsored pension plans, income taxes, goodwill and intangible assets and share-based compensation, which are described in Item 7 of our Annual Report on Form 10-K for the fiscal year ended
July 2, 2016
.
Forward-Looking Statements
Certain statements made herein that look forward in time or express management’s expectations or beliefs with respect to the occurrence of future events are forward-looking statements under the Private Securities Litigation Reform Act of 1995. They include statements about:
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expectations regarding long-term consumer demand;
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•
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expectations regarding earnings per share growth and the factors impacting it, including the earnings per share impact of the Brakes Acquisition, and its estimated intangible amortization expense;
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•
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expectations regarding future fuel costs;
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•
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SYGMA’s progress against key business initiatives and three-year financial targets;
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•
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Sysco's ability to leverage gross profit and expense growth;
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•
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the ability of the Brakes Group to manage its supply chain, and the related anticipated benefits;
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•
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anticipated fuel needs for the remainder of fiscal 2017 and fiscal 2018;
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•
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the impact of general economic conditions on our business and our industry;
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•
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expectations and goals related to cost per case for our U.S. Broadline companies;
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•
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expectations regarding the allocation of cash generated from operations;
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•
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Sysco’s expectations regarding cash held by international subsidiaries;
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•
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the sufficiency of our mechanisms for managing working capital and competitive pressures, and our beliefs regarding the impact of these mechanisms;
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•
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Sysco’s ability to meet future cash requirements, including the ability to access debt markets effectively, and maintain sufficient liquidity;
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•
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Sysco’s ability to effectively access the commercial paper market and long-term capital markets;
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•
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our expectations regarding the impact of seasonal trends on cash flow from operations and free cash flow;
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•
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our strategy and expectations regarding share repurchases; and
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•
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expectations related to our forward diesel fuel commitments.
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These statements are based on management’s current expectations and estimates; actual results may differ materially due in part to the risk factors set forth below and those discussed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended
July 2, 2016
:
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•
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periods of significant or prolonged inflation or deflation and their impact on our product costs and profitability;
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•
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risks related to unfavorable conditions in the U.S. economy and local markets and the impact on our results of operations and financial condition;
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•
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the risks related to our efforts to meet our long-term strategic objectives, including the risk that these efforts may not provide the expected benefits in our anticipated time frame, if at all, and may prove costlier than expected; the risk that the actual costs of any initiatives may be greater or less than currently expected; and the risk of adverse effects to us if past and future undertakings and the associated changes to our business do not prove to be cost effective or do not result in the level of cost savings and other benefits that we anticipated;
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•
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the impact of unexpected future changes to our business initiatives based on management’s subjective evaluation of our overall business needs;
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•
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the risk that competition in our industry may adversely impact our margins and our ability to retain customers and make it difficult for us to maintain our market share, growth rate and profitability;
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•
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the risk that we may not be able to fully compensate for increases in fuel costs, and forward purchase commitments intended to contain fuel costs could result in above market fuel costs;
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•
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the risk of interruption of supplies and increase in product costs as a result of conditions beyond our control;
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•
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the potential impact on our reputation and earnings of adverse publicity or lack of confidence in our products;
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•
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risks related to unfavorable changes to the mix of locally managed customers versus corporate-managed customers;
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•
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the risk that we may not realize anticipated benefits from our operating cost reduction efforts;
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•
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difficulties in successfully expanding into international markets and complimentary lines of business;
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•
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the potential impact of product liability claims;
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•
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the risk that we fail to comply with requirements imposed by applicable law or government regulations;
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•
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risks related to our ability to effectively finance and integrate acquired businesses;
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•
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risks related to our access to borrowed funds in order to grow and any default by us under our indebtedness that could have a material adverse impact on cash flow and liquidity;
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•
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our level of indebtedness and the terms of our indebtedness could adversely affect our business and liquidity position;
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•
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the risk that the implementation of various initiatives, the timing and successful completion of acquisitions, construction schedules and the possibility that other cash requirements could result in delays or cancellations of capital spending;
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•
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the risk that the results of the referendum on June 23, 2016 in the United Kingdom to exit the European Union, commonly referred to as Brexit, may adversely impact our operations in the United Kingdom, including those of the Brakes Group;
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•
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the risk that factors beyond management’s control, including fluctuations in the stock market, as well as management’s future subjective evaluation of the company’s needs, would impact the timing of share repurchases;
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•
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due to our reliance on technology, any technology disruption or delay in implementing new technology could have a material negative impact on our business;
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•
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the risk that a cybersecurity incident and other technology disruptions could negatively impact our business and our relationships with customers;
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•
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the potential requirement to pay material amounts under our multiemployer defined benefit pension plans;
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•
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our funding requirements for our company-sponsored qualified pension plan may increase should financial markets experience future declines;
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•
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labor issues, including the renegotiation of union contracts and shortage of qualified labor; and
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•
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the risk that the anti-takeover benefits provided by our preferred stock may not be viewed as beneficial to stockholders.
|
For a more detailed discussion of factors that could cause actual results to differ from those contained in the forward-looking statements, see the risk factors discussion contained in Item 1A of our Annual Report on Form 10-K for the fiscal year ended
July 2, 2016
.