Sales
The following tables set forth the percentage and dollar value increase or decrease in the major components impacting sales as compared to the corresponding prior year period in order to demonstrate the cause and magnitude of change.
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Increase (Decrease)
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13-Week Period
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(Dollars in millions)
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Cause of change
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Percentage
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Dollars
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Inflation
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2.8
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%
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$
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81.8
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Foreign currency
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1.4
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40.6
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Other (1)
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(29.9)
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(871.1)
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Total change in sales
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(25.7)
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%
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$
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(748.7)
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(1)The impact of volumes as a component of sales growth from international operations are included within “Other.” Volume in our foreign operations includes volume metrics that differ from country to country and cannot be aggregated on a consistent, comparable basis.
Sales for the first quarter of fiscal 2021 were 25.7% lower, as compared to the first quarter of fiscal 2020, primarily due to the significant decline in volume in our Europe and Canada operations as a result of some of our customers closing and many other customers operating at a substantially reduced volume in response to the COVID-19 pandemic. Our business in Europe has decreased significantly year-over-year, as governments have issued additional “stay-at-home” restrictions and restaurant traffic has decreased as a result. Restaurant sales in Canada have decreased as consumers are practicing isolation measures to protect health and safety. For our Latin American businesses, the impact of COVID-19 has been most prominent in Mexico, where sales decreased more rapidly.
Operating Income
Operating income decreased by $55.3 million for the first quarter of fiscal 2021, as compared to the first quarter of fiscal 2020, primarily due to the decline in business resulting from the reductions in our customers’ business in response to the COVID-19 pandemic and from ongoing restructuring and transformation projects in our European operations. Operating income, on an adjusted basis, decreased by $80.2 million, or 81.0%, for the first quarter of fiscal 2021, as compared to the first quarter of fiscal 2020. Foreign exchange rates did not have a meaningful impact on operating income during the current year.
Gross profit dollars decreased by 25.6% in the first quarter of fiscal 2021, as compared to the first quarter of fiscal 2020, primarily attributable to the decline in sales. Changes in foreign exchange rates positively affected gross profit by 1.9%, resulting in a 27.5% decrease in adjusted gross profit on a constant currency basis.
Operating expenses for the first quarter of fiscal 2021 decreased 18.1%, or $99.5 million, as compared to the first quarter of fiscal 2020, primarily due to a decrease in pay-related costs associated with permanent workforce reductions made in fiscal 2020 as a result of the COVID-19 pandemic. Additionally, reduced restructuring and integration charges in Europe and the reduction of reserves on pre-pandemic receivables contributed to the decrease. Operating expenses, on an adjusted basis, for the first quarter of fiscal 2021 decreased 14.7%, or $74.6 million, compared to the first quarter of fiscal 2020. Changes in foreign exchange rates used to translate our foreign operating expenses into U.S. dollars negatively affected operating expenses during the period by 2.4%, resulting in a 17.2% decrease in adjusted operating expenses on a constant currency basis.
Results of SYGMA and Other Segment
For SYGMA, sales were 5.3% higher in the first quarter of fiscal 2021, as compared to the first quarter of fiscal 2020, primarily from an increase in case volume due to newly acquired business and an increase in customer demand as quick service restaurants have been less impacted by the effects of the COVID-19 pandemic. Operating income increased by $4.1 million in the first quarter of fiscal 2021, as compared to the first quarter of fiscal 2020, as our increase in case volume exceeded the increase in expenses, resulting from our focus on business and routing optimization and improved gross margin performance.
For the operations that are grouped within Other, operating income decreased $10.1 million in the first quarter of fiscal 2021, as compared to the first quarter of fiscal 2020. Our hospitality business, Guest Worldwide, had a gross profit decrease of 50.3% in the first quarter of fiscal 2021. This business remains challenged, as the customers in the hospitality segment continue to see lower occupancy rates compared to historical levels. During the first quarter of fiscal 2021, we sold a non-core asset, Cake Corporation, as we chose to narrow our business focus.
Corporate Expenses
Corporate expenses in the first quarter of fiscal 2021 decreased $15.7 million, or 8.1%, as compared to the first quarter of fiscal 2020, primarily due to a reduction in pay-related costs associated with permanent headcount reductions made in the third and fourth quarters of fiscal 2020 in response to the COVID-19 pandemic. Lower charges for professional fees and other business transformation initiatives also contributed to the decrease. Corporate expenses, on an adjusted basis, increased $5.0 million, or 2.9% as compared to the first quarter of fiscal 2020.
Included in corporate expenses are Certain Items that totaled $12.0 million in the first quarter of fiscal 2021, as compared to $22.7 million in the first quarter of fiscal 2020. Certain Items impacting the first quarters of fiscal 2021 and fiscal 2020 were primarily expenses associated with our business technology transformation initiatives.
Interest Expense
Interest expense increased $63.4 million for the first quarter of fiscal 2021, as compared to the first quarter of fiscal 2020, primarily attributable to higher fixed debt volume, partially offset by lower floating interest rates.
Net Earnings
Net earnings decreased 52.2% in the first quarter of fiscal 2021, as compared to the first quarter of fiscal 2020, due primarily to the items noted above for operating income and interest expense, as well as items impacting our income taxes that are discussed in Note 11, “Income Taxes,” in the Notes to Consolidated Financial Statements in Item 1 of Part I.
Adjusted net earnings, excluding Certain Items, decreased 66.0% in the first quarter of fiscal 2021, primarily due to a significant decrease in sales volume, partially offset by a favorable tax expense compared to the prior year.
Earnings Per Share
Basic earnings per share in the first quarter of fiscal 2021 were $0.43, a 51.1% decrease from the comparable prior year period amount of $0.88 per share. Diluted earnings per share in the first quarter of fiscal 2021 were $0.42, a 51.7% decrease from the comparable prior year period amount of $0.87 per share. Adjusted diluted earnings per share, excluding Certain Items, in the first quarter of fiscal 2021 were $0.34, a 65.3% decrease from the comparable prior year period amount of $0.98 per share. These results were primarily attributable to the factors discussed above related to net earnings in the first quarter of fiscal 2021.
Non-GAAP Reconciliations
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Sysco’s results of operations for fiscal 2021 and fiscal 2020 were impacted by restructuring and transformational project costs consisting of: (1) restructuring charges; (2) expenses associated with our various transformation initiatives; and (3) facility closure and severance charges. All acquisition-related costs in fiscal 2021 and fiscal 2020 that have been designated as Certain Items relate to the fiscal 2017 acquisition of Cucina Lux Investments Limited (the Brakes Acquisition). These include acquisition-related intangible amortization expense.
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Fiscal 2021 results of operations were also positively impacted by the reduction of bad debt expense previously recognized in fiscal 2020 due to the unexpected impact of the COVID-19 pandemic on the collectability of our pre-pandemic trade receivable balances. Many of Sysco’s customers, including those in the restaurant, hospitality and education segments, are operating at a substantially reduced volume due to governmental requirements for closures or other social-distancing measures and a portion of Sysco’s customers are closed. Some of these customers ceased paying their outstanding receivables, creating uncertainty as to their collectability. We experienced an increase in past due receivables and recognized additional bad debt charges in the third and fourth quarters of fiscal 2020; however, collections have improved in fiscal 2021. We have estimated uncollectible amounts based on the current collection experience and by applying write-off percentages based on historical loss experience, including loss experience during times of local and regional disasters. The COVID-19 pandemic is more widespread and longer in duration than historical disasters impacting our business, and it is possible that actual uncollectible amounts will differ and additional charges may be required; however, if collections continue to improve, it is also possible that additional reductions in our bad debt reserve could occur. While Sysco traditionally incurs bad debt expense, the magnitude of such expenses and benefits, that we have experienced is not indicative of our normal operations. Our adjusted results have not been normalized in a manner that would exclude the full impact of the COVID-19 pandemic on our business. As such, Sysco has not adjusted its results for lost sales, inventory write-offs or other costs associated with the COVID-19 pandemic not previously stated.
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The results of our foreign operations can be impacted due to changes in exchange rates applicable in converting local currencies to U.S. dollars. We measure our International Foodservice Operations results on a constant currency basis. Constant currency operating results are calculated by translating current-period local currency operating results with the currency exchange rates used to translate the financial statements in the comparable prior-year period to determine what the current-period U.S. dollar operating results would have been if the currency exchange rate had not changed from the comparable prior-year period. The constant currency impact on our adjusted International Foodservice Operations results are disclosed when the impact exceeds a defined threshold of greater than 1% on the growth metric. If the amount does not exceed this threshold, a disclosure will be made that the impact of the currency change was not significant.
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Management believes that adjusting its operating expenses, operating income, net earnings and diluted earnings per share to remove these Certain Items and presenting its International Foodservice Operations results on a constant currency basis, 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, facilitating comparisons on a year-over-year basis and (2) removes those items that are difficult to predict and are often unanticipated and that, as a result, are difficult to include in analysts’ financial models and our investors’ expectations with any degree of specificity.
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Although Sysco has a history of growth through acquisitions, the Brakes Group was 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 Brakes Acquisition. We believe this approach significantly enhances the comparability of Sysco’s results for fiscal 2021 and fiscal 2020.
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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 up to the total presented due to rounding. Adjusted diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding.
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13-Week Period Ended Sep. 26, 2020
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13-Week Period Ended Sep. 28, 2019
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Change in Dollars
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% Change
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(Dollars in thousands, except for per share data)
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Operating expenses (GAAP)
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$
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1,800,266
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$
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2,275,052
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$
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(474,786)
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(20.9)
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%
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Impact of restructuring and transformational project costs (1)
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(25,964)
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(56,722)
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30,758
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(54.2)
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Impact of acquisition-related costs (2)
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(17,755)
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(16,909)
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(846)
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5.0
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Impact of bad debt reserve adjustments (3)
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98,629
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—
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98,629
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NM
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Operating expenses adjusted for Certain Items (Non-GAAP)
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$
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1,855,176
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$
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2,201,421
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$
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(346,245)
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(15.7)
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%
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Operating income (GAAP)
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$
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419,579
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|
$
|
668,318
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$
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(248,739)
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(37.2)
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%
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Impact of restructuring and transformational project costs (1)
|
25,964
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|
56,722
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|
(30,758)
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|
(54.2)
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Impact of acquisition-related costs (2)
|
17,755
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|
16,909
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|
846
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|
5.0
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Impact of bad debt reserve adjustments (3)
|
(98,629)
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—
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(98,629)
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NM
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Operating income adjusted for Certain Items (Non-GAAP)
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$
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364,669
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$
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741,949
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$
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(377,280)
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(50.8)
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%
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Other (income) expense (GAAP)
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$
|
14,124
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|
$
|
3,112
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|
$
|
11,012
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NM
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Impact of loss on sale of a business
|
(12,043)
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|
—
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|
(12,043)
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NM
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Other (income) expense (Non-GAAP)
|
$
|
2,081
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|
$
|
3,112
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|
$
|
(1,031)
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(33.1)
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%
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|
Net earnings (GAAP)
|
$
|
216,900
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|
|
$
|
453,781
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|
|
$
|
(236,881)
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|
(52.2)
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%
|
Impact of restructuring and transformational project costs (1)
|
25,964
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|
56,722
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|
(30,758)
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|
(54.2)
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|
Impact of acquisition-related costs (2)
|
17,755
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|
|
16,909
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|
|
846
|
|
|
5.0
|
|
Impact of bad debt reserve adjustments (3)
|
(98,629)
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|
|
—
|
|
|
(98,629)
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|
NM
|
Impact of loss on sale of a business
|
12,043
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|
|
—
|
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|
12,043
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|
NM
|
|
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|
|
Tax impact of restructuring and transformational project costs (4)
|
(5,920)
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|
|
(13,921)
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|
8,001
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|
|
(57.5)
|
|
Tax impact of acquisition-related costs (4)
|
(4,048)
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|
|
(4,149)
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|
101
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|
(2.4)
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|
Tax impact of bad debt reserve adjustments (4)
|
22,488
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|
|
—
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|
22,488
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|
|
NM
|
Tax impact of loss on sale of a business
|
(7,553)
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|
|
—
|
|
|
(7,553)
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|
NM
|
Impact of foreign tax rate change
|
(5,548)
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|
|
924
|
|
|
(6,472)
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|
|
NM
|
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|
Net earnings adjusted for Certain Items (Non-GAAP)
|
$
|
173,452
|
|
|
$
|
510,266
|
|
|
$
|
(336,814)
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|
(66.0)
|
%
|
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|
Diluted earnings per share (GAAP)
|
$
|
0.42
|
|
|
$
|
0.87
|
|
|
$
|
(0.45)
|
|
|
(51.7)
|
%
|
Impact of restructuring and transformational project costs (1)
|
0.05
|
|
|
0.11
|
|
|
(0.06)
|
|
|
(54.5)
|
|
Impact of acquisition-related costs (2)
|
0.03
|
|
|
0.03
|
|
|
—
|
|
|
NM
|
Impact of bad debt reserve adjustments (3)
|
(0.19)
|
|
|
—
|
|
|
(0.19)
|
|
|
NM
|
|
|
|
|
|
|
|
|
Impact of loss on sale of a business
|
0.02
|
|
|
—
|
|
|
0.02
|
|
|
NM
|
Tax impact of restructuring and transformational project costs (4)
|
(0.01)
|
|
|
(0.03)
|
|
|
0.02
|
|
|
(66.7)
|
|
Tax impact of acquisition-related costs (4)
|
(0.01)
|
|
|
(0.01)
|
|
|
—
|
|
|
NM
|
Tax impact of bad debt reserve adjustments (4)
|
0.04
|
|
|
—
|
|
|
0.04
|
|
|
NM
|
Tax impact loss on sale of a business
|
(0.01)
|
|
|
—
|
|
|
(0.01)
|
|
|
NM
|
|
|
|
|
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|
|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax impact of foreign tax rate change
|
(0.01)
|
|
|
—
|
|
|
(0.01)
|
|
|
NM
|
Diluted EPS adjusted for Certain Items (Non-GAAP) (5)
|
$
|
0.34
|
|
|
$
|
0.98
|
|
|
$
|
(0.64)
|
|
|
(65.3)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Fiscal 2021 includes $13 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy, and $13 million primarily consisting of restructuring charges. Fiscal 2020 includes $30 million related to restructuring, facility closure and severance charges and $27 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy.
|
(2)
|
Fiscal 2021 and fiscal 2020 include $18 million and $17 million, respectively, related to intangible amortization expense from the Brakes Acquisition, which is included in the results of International Foodservice.
|
(3)
|
Represents the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
|
(4)
|
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.
|
(5)
|
Individual components of diluted earnings per share may not add up to the total presented due to rounding. Total diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding.
|
|
NM represents 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 applicable segments and corporate for the periods presented (dollars in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13-Week Period Ended Sep. 26, 2020
|
|
13-Week Period Ended Sep. 28, 2019
|
|
Change in Dollars
|
|
% Change
|
U.S. FOODSERVICE OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
Operating expenses (GAAP)
|
$
|
1,011,298
|
|
|
$
|
1,351,268
|
|
|
$
|
(339,970)
|
|
|
(25.2)
|
%
|
Impact of restructuring and transformational project costs (1)
|
(940)
|
|
|
(4,126)
|
|
|
3,186
|
|
|
(77.2)
|
|
Impact of bad debt reserve adjustments (2)
|
86,317
|
|
|
—
|
|
|
86,317
|
|
|
NM
|
|
|
|
|
|
|
|
|
Operating expenses adjusted for Certain Items (Non-GAAP)
|
$
|
1,096,675
|
|
|
$
|
1,347,142
|
|
|
$
|
(250,467)
|
|
|
(18.6)
|
%
|
|
|
|
|
|
|
|
|
Operating income (GAAP)
|
$
|
588,409
|
|
|
$
|
793,618
|
|
|
$
|
(205,209)
|
|
|
(25.9)
|
%
|
Impact of restructuring and transformational project costs (1)
|
940
|
|
|
4,126
|
|
|
(3,186)
|
|
|
(77.2)
|
|
Impact of bad debt reserve adjustments (2)
|
(86,317)
|
|
|
—
|
|
|
(86,317)
|
|
|
NM
|
|
|
|
|
|
|
|
|
Operating income adjusted for Certain Items (Non-GAAP)
|
$
|
503,032
|
|
|
$
|
797,744
|
|
|
$
|
(294,712)
|
|
|
(36.9)
|
%
|
|
|
|
|
|
|
|
|
INTERNATIONAL FOODSERVICE OPERATIONS
|
|
|
|
|
|
|
|
Sales (GAAP)
|
$
|
2,163,693
|
|
|
$
|
2,912,388
|
|
|
$
|
(748,695)
|
|
|
(25.7)
|
%
|
Impact of currency fluctuations (3)
|
(40,640)
|
|
|
—
|
|
|
(40,640)
|
|
|
1.4
|
|
Comparable sales using a constant currency basis (Non-GAAP)
|
$
|
2,123,053
|
|
|
$
|
2,912,388
|
|
|
$
|
(789,335)
|
|
|
(27.1)
|
%
|
|
|
|
|
|
|
|
|
Gross Profit (GAAP)
|
$
|
450,398
|
|
|
$
|
605,185
|
|
|
$
|
(154,787)
|
|
|
(25.6)
|
%
|
Impact of currency fluctuations (3)
|
(11,512)
|
|
|
—
|
|
|
(11,512)
|
|
|
1.9
|
|
Comparable gross profit using a constant currency basis (Non-GAAP)
|
$
|
438,886
|
|
|
$
|
605,185
|
|
|
$
|
(166,299)
|
|
|
(27.5)
|
%
|
|
|
|
|
|
|
|
|
Gross Margin (GAAP)
|
20.82
|
%
|
|
20.78
|
%
|
|
|
|
4 bps
|
Impact of currency fluctuations (3)
|
0.15
|
%
|
|
—
|
|
|
|
|
15 bps
|
Comparable gross margin using a constant currency basis (Non-GAAP)
|
20.67
|
%
|
|
20.78
|
%
|
|
|
|
-11 bps
|
|
|
|
|
|
|
|
|
Operating expenses (GAAP)
|
$
|
450,935
|
|
|
$
|
550,385
|
|
|
$
|
(99,450)
|
|
|
(18.1)
|
%
|
Impact of restructuring and transformational project costs (4)
|
(12,993)
|
|
|
(27,272)
|
|
|
14,279
|
|
|
(52.4)
|
|
Impact of acquisition-related costs (5)
|
(17,755)
|
|
|
(16,909)
|
|
|
(846)
|
|
|
5.0
|
|
Impact of bad debt reserve adjustments (2)
|
11,429
|
|
|
—
|
|
|
11,429
|
|
|
NM
|
Operating expenses adjusted for Certain Items (Non-GAAP)
|
431,616
|
|
|
506,204
|
|
|
(74,588)
|
|
|
(14.7)
|
|
Impact of currency fluctuations (3)
|
(12,329)
|
|
|
—
|
|
|
(12,329)
|
|
|
2.4
|
|
Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP)
|
$
|
419,287
|
|
|
$
|
506,204
|
|
|
$
|
(86,917)
|
|
|
(17.2)
|
%
|
|
|
|
|
|
|
|
|
Operating income (loss) (GAAP)
|
$
|
(537)
|
|
|
$
|
54,800
|
|
|
$
|
(55,337)
|
|
|
(101.0)
|
|
Impact of restructuring and transformational project costs (4)
|
12,993
|
|
|
27,272
|
|
|
(14,279)
|
|
|
(52.4)
|
|
Impact of acquisition-related costs (5)
|
17,755
|
|
|
16,909
|
|
|
846
|
|
|
5.0
|
|
Impact of bad debt reserve adjustments (2)
|
(11,429)
|
|
|
—
|
|
|
(11,429)
|
|
|
NM
|
Operating income adjusted for Certain Items (Non-GAAP) *
|
18,782
|
|
|
98,981
|
|
|
(80,199)
|
|
|
(81.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SYGMA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (GAAP)
|
$
|
119,849
|
|
|
$
|
118,348
|
|
|
$
|
1,501
|
|
|
1.3
|
%
|
Impact of restructuring and transformational project costs (1)
|
(13)
|
|
|
(2,585)
|
|
|
2,572
|
|
|
(99.5)
|
|
|
|
|
|
|
|
|
|
Operating expenses adjusted for Certain Items (Non-GAAP)
|
$
|
119,836
|
|
|
$
|
115,763
|
|
|
$
|
4,073
|
|
|
3.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (GAAP)
|
$
|
11,692
|
|
|
$
|
7,570
|
|
|
$
|
4,122
|
|
|
54.5
|
%
|
Impact of restructuring and transformational project costs (1)
|
13
|
|
|
2,585
|
|
|
(2,572)
|
|
|
(99.5)
|
|
|
|
|
|
|
|
|
|
Operating income adjusted for Certain Items (Non-GAAP)
|
$
|
11,705
|
|
|
$
|
10,155
|
|
|
$
|
1,550
|
|
|
15.3
|
%
|
|
|
|
|
|
|
|
|
OTHER
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (GAAP)
|
$
|
40,435
|
|
|
$
|
61,607
|
|
|
(21,172)
|
|
|
(34.4)
|
%
|
|
|
|
|
|
|
|
|
Impact of bad debt reserve adjustments (2)
|
883
|
|
|
—
|
|
|
883
|
|
|
NM
|
Operating expenses adjusted for Certain Items (Non-GAAP)
|
$
|
41,318
|
|
|
$
|
61,607
|
|
|
$
|
(20,289)
|
|
|
(32.9)
|
%
|
|
|
|
|
|
|
|
|
Operating (loss) income (GAAP)
|
$
|
(5)
|
|
|
$
|
10,137
|
|
|
(10,142)
|
|
|
(100.0)
|
%
|
|
|
|
|
|
|
|
|
Impact of bad debt reserve adjustments (2)
|
(883)
|
|
|
—
|
|
|
(883)
|
|
|
NM
|
Operating income adjusted for Certain Items (Non-GAAP)
|
$
|
(888)
|
|
|
$
|
10,137
|
|
|
$
|
(11,025)
|
|
|
(108.8)
|
%
|
|
|
|
|
|
|
|
|
CORPORATE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (GAAP)
|
$
|
177,749
|
|
|
$
|
193,444
|
|
|
$
|
(15,695)
|
|
|
(8.1)
|
%
|
Impact of restructuring and transformational project costs (6)
|
(12,018)
|
|
|
(22,739)
|
|
|
10,721
|
|
|
(47.1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses adjusted for Certain Items (Non-GAAP)
|
$
|
165,731
|
|
|
$
|
170,705
|
|
|
$
|
(4,974)
|
|
|
(2.9)
|
%
|
|
|
|
|
|
|
|
|
Operating income (GAAP)
|
$
|
(179,980)
|
|
|
$
|
(197,807)
|
|
|
$
|
17,827
|
|
|
(9.0)
|
%
|
Impact of restructuring and transformational project costs (6)
|
12,018
|
|
|
22,739
|
|
|
(10,721)
|
|
|
(47.1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income adjusted for Certain Items (Non-GAAP)
|
$
|
(167,962)
|
|
|
$
|
(175,068)
|
|
|
$
|
7,106
|
|
|
(4.1)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes charges related to restructuring and business transformation projects.
|
(2)
|
Represents the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
|
(3)
|
Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on current year results.
|
(4)
|
Includes restructuring, severance and facility closure costs primarily in Europe.
|
(5)
|
Fiscal 2021 and fiscal 2020 include $18 million and $17 million, respectively, related to intangible amortization expense from the Brakes Acquisition.
|
|
|
(6)
|
Fiscal 2021 and fiscal 2020 include various transformation initiative costs, primarily consisting of changes to our business technology strategy.
|
|
|
*
|
Foreign exchange rates did not have a meaningful impact during the period; therefore, the constant currency adjustment is not disclosed.
|
|
NM represents that the percentage change is not meaningful.
|
Liquidity and Capital Resources
Highlights
Below are comparisons of the cash flows from the first quarter of fiscal 2021 to the first quarter of fiscal 2020:
•Cash flows from operations were $930.9 million in fiscal 2021, compared to $171.6 million in fiscal 2020;
•Net capital expenditures totaled $68.5 million in fiscal 2021, compared to $170.8 million in fiscal 2020;
•Free cash flow was $862.4 million in fiscal 2021, compared to free cash flow of $0.8 million in fiscal 2020 (see below under the heading “Free Cash Flow” for an explanation of this non-GAAP financial measure);
•There were $3.1 million of net bank borrowings in fiscal 2021, compared to $533.4 million of commercial paper issuances and net bank borrowings in fiscal 2020;
•Dividends paid were $228.7 million in fiscal 2021, compared to $200.0 million in fiscal 2020; and
•There were no treasury stock repurchases in fiscal 2021. Cash paid for treasury stock repurchases was $349.3 million in fiscal 2020.
We redeemed senior notes in the amount of $750.0 million in fiscal 2021 using cash flow from operations.
In response to the COVID-19 pandemic and its impact on our working capital, as well as the uncertainty regarding our ability to generate cash flow in the near term, we took steps to increase our liquidity in the second half of fiscal 2020 including the issuance of senior notes, borrowings under our long-term revolving credit facility and borrowings under our U.K. commercial paper program. As of September 26, 2020, there were $700.0 million and £600.0 million in borrowings outstanding under our long-term revolving credit facility and the U.K. commercial paper program, respectively. In the fourth quarter of fiscal 2020, we entered into an amendment to our long-term revolving credit facility, which requires us to suspend share repurchases and dividend increases through fiscal 2021. As of November 3, 2020, the company has approximately $7.5 billion in cash and available liquidity.
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;
•cash dividends;
•acquisitions compatible with our overall growth strategy;
•contributions to our various retirement plans;
•debt repayments; and
•share repurchases, which are currently suspended.
Any remaining cash generated from operations or excess borrowings are 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.
We continue to be in a strong financial position based on our balance sheet and operating cash flows; however, 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 actively working with customers to receive payments on receivables, optimizing inventory levels and maximizing payment terms with vendors, 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.
As of September 26, 2020, we had $6.0 billion in cash and cash equivalents, approximately 20% of which was held by our international subsidiaries and generated from our earnings of international operations. If the cash and cash equivalents attributable to our earnings were to be transferred among countries or repatriated to the U.S., such amounts may become subject to withholding and additional foreign tax obligations. Additionally, Sysco Corporation has provided intercompany loans to certain of its international subsidiaries, and when interest and principal payments are made, some of this cash will be transferred to the U.S.
Our wholly-owned captive insurance subsidiary (the Captive), must maintain a sufficient level of liquidity to fund future reserve payments. As of September 26, 2020, the Captive held $130.2 million of fixed income marketable securities and $24.4 million of restricted cash and restricted cash equivalents in a restricted investment portfolio in order to meet solvency requirements. We purchased $26.6 million in marketable securities in the first quarter of fiscal 2021 and received $12.2 million in proceeds from the sale of marketable securities in that period.
We believe the following sources will be sufficient to meet our anticipated cash requirements for more than 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.
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 $930.9 million in cash flows from operations in the first quarter of fiscal 2021, compared to cash flows of $171.6 million in the first quarter of fiscal 2020. These amounts include year-over-year favorable comparisons on working capital and accrued expenses, partially offset by lower operating results.
Changes in working capital had a positive impact of $903.8 million on cash flow from operations period-over-period. There were favorable comparisons on accounts payable, inventories, and accounts receivable. Accounts payable has increased, primarily due to supplier term extensions. Both accounts receivable and inventory balances have increased during the first 13 weeks of fiscal 2021 as our business recovery continues. The favorable comparison in cash flows from accounts receivables is primarily due to faster than anticipated collections on our pre-pandemic accounts receivables and adhering to tighter terms on new sales to customers. In the first 13 weeks of fiscal 2021, we recorded a net credit to the provision for losses on receivables totaling $77.8 million, which reflects a benefit on the reduction of our allowance for pre-pandemic receivable balances, as collection rates have exceeded the company’s expectations. We continue to work with our customers to collect past due balances, including through the use of payment plans. We have also discontinued charging interest on past due balances.
The positive comparison on accrued expenses was primarily due to favorable comparisons of incentive payments related to each previous fiscal year, customer rebate accruals resulting from the increase in volume purchase incentives earned by our customers, and interest accruals that have increased due to our higher debt volume.
We continue to recognize the benefits provided in the provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in the first quarter of fiscal 2021, as we have deferred U.S. social security tax to future fiscal years, which has favorably impacted our cash flows from operations.
We expect our cash flows from operations for the remainder of the fiscal year, will initially decline for the next two quarters, due to the building of inventory and ongoing investments in the business. Our cash flows from operations are expected to end flat to slightly positive compared to the end of the first quarter of fiscal 2021.
Investing Activities
Our capital expenditures in the first quarter of fiscal 2021 primarily consisted of technology equipment, fleet, and warehouse equipment. Our capital expenditures in the first quarter of fiscal 2021 were lower by $100.2 million, as compared to the first quarter of fiscal 2020, primarily due to eliminating capital projects not urgently needed for our business and targeted investments in order to preserve our liquidity in response to the COVID-19 crisis.
During the first quarter of fiscal 2020, we paid $74.8 million, net of cash acquired, for acquisitions.
Free Cash Flow
Our free cash flow for the first 13 weeks of fiscal 2021 increased by $861.7 million, to $862.4 million, as compared to the first 13 weeks of fiscal 2020, principally as a result of an increase in cash flows from operations and year-over-year decreased capital expenditures. We expect our free cash flow for the remainder of the fiscal year, will initially decline for the next two quarters, due to normalized seasonality, the building of inventory and our ongoing investments in the business. Our free cash flow is expected to end flat to slightly positive compared to the prior year.
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. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Key Performance Indicators” contained in our fiscal 2020 Form 10-K for discussions around this non-GAAP performance metric. In the table that follows, free cash flow for each period presented is reconciled to net cash provided by operating activities.
|
|
|
|
|
|
|
|
|
|
|
|
|
13-Week Period Ended Sep. 26, 2020
|
|
13-Week Period Ended Sep. 28, 2019
|
|
(In thousands)
|
Net cash provided by operating activities (GAAP)
|
$
|
930,914
|
|
|
$
|
171,579
|
|
Additions to plant and equipment
|
(75,539)
|
|
|
(175,728)
|
|
Proceeds from sales of plant and equipment
|
7,064
|
|
|
4,902
|
|
Free Cash Flow (Non-GAAP)
|
$
|
862,439
|
|
|
$
|
753
|
|
Financing Activities
Equity Transactions
Proceeds from exercises of share-based compensation awards were $31.9 million in the first quarter of fiscal 2021, as compared to $85.3 million in the first quarter of fiscal 2020. 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 have routinely engaged in share repurchase programs to allow Sysco to continue offsetting dilution resulting from shares issued under the company’s benefit plans and to make opportunistic repurchases. In August 2019, our Board of Directors approved a repurchase program to authorize the repurchase of the company’s common stock not to exceed $2.5 billion through the end of fiscal 2021. During March 2020, however, we discontinued share repurchases under this program, and pursuant to the amendment to our long-term revolving credit facility, we do not anticipate making any repurchases for the remainder of fiscal 2021. As of September 26, 2020, we had a remaining authorization of approximately $2.1 billion.
Dividends paid in the first quarter of fiscal 2021 were $228.7 million, or $0.45 per share, as compared to $200.0 million, or $0.39 per share, in the first quarter of fiscal 2020. In July 2020, we declared our regular quarterly dividend for the first quarter of fiscal 2021 of $0.45 per share, which was paid in October 2020. Although we expect to continue making quarterly dividend payments, we do not expect to continue to grow our dividend in fiscal 2021.
Debt Activity and Borrowing Availability
Our debt activity, including issuances and repayments, and our borrowing availability is described in Note 7, “Debt,” in the Notes to Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q. Our outstanding borrowings at September 26, 2020, and repayment activity since the close of the first quarter of fiscal 2021, are disclosed within that note. Updated amounts through October 16, 2020, include:
•$700.0 million outstanding from the credit facility supporting our commercial paper program;
•No outstanding borrowings from our U.S. commercial paper program; and
•£600.0 million outstanding from our U.K. commercial paper programs.
During the first quarters of fiscal 2021 and fiscal 2020, our aggregate commercial paper issuances and short-term bank borrowings had weighted average interest rates of 0.52% and 2.31%, respectively.
In the next 12 months, our £600.0 million U.K. commercial paper program and $500.0 million of long-term debt will mature. We expect to fund these repayments with a combination of cash flow from operations and cash on hand.
The availability of financing in the form of debt is influenced by many factors, including our profitability, free cash flows, debt levels, credit ratings, debt covenants and economic and market conditions. For example, a significant downgrade in our credit ratings or adverse conditions in the capital markets may increase the cost of borrowing for us or limit our access to capital. To date, we have not experienced difficulty accessing the credit markets. As of November 3, 2020, the company had
approximately $7.5 billion in cash and available liquidity; and we believe this amount would be sufficient to sustain our operations for an extended period, including through an impact much worse than we are currently experiencing or expecting.
Guarantor Summarized Financial Information
On January 19, 2011, the wholly owned U.S. Broadline subsidiaries of Sysco Corporation, which distribute a full line of food products and a wide variety of non-food products, at that time entered into full and unconditional guarantees of all outstanding senior notes and debentures of Sysco Corporation. All subsequent issuances of senior notes and debentures in the U.S. and borrowings under the company’s $2.0 billion long-term revolving credit facility have also been guaranteed by these subsidiaries. As of September 26, 2020, Sysco had a total of $12.5 billion in senior notes, debentures and borrowings under the long-term revolving credit facility that were guaranteed by these subsidiary guarantors. Our remaining consolidated subsidiaries (non-guarantor subsidiaries) are not obligated under the senior notes indenture, debentures indenture or our long-term revolving credit facility.
All subsidiary guarantors are 100% owned by the parent company, all guarantees are full and unconditional, and all guarantees are joint and several. The guarantees rank equally and ratably in right of payment with all other existing and future unsecured and unsubordinated indebtedness of the respective guarantors. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” contained in our fiscal 2020 Form 10-K for additional information regarding the terms of the guarantees.
Basis of Preparation of the Summarized Financial Information
The following tables include summarized financial information of Sysco Corporation (issuer), and certain wholly owned U.S. Broadline subsidiaries (guarantors) (together, the obligor group). The summarized financial information of the obligor group is presented on a combined basis with intercompany balances and transactions between entities in the obligor group eliminated. Investments in and equity in the earnings of our non-guarantor subsidiaries, which are not members of the obligor group, have been excluded from the summarized financial information.
The obligor group’s amounts due to, amounts due from and transactions with non-guarantor subsidiaries have been presented in separate line items, if they are material to the obligor financials.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined Parent and Guarantor Subsidiaries Summarized Balance Sheet
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|
Sep. 26, 2020
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|
Jun. 27, 2020
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|
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(In thousands)
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ASSETS
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|
|
|
|
Receivables due from non-obligor subsidiaries
|
|
$
|
123,883
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|
|
$
|
133,195
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|
Current assets
|
|
8,241,522
|
|
|
8,644,084
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|
Total current assets
|
|
$
|
8,365,405
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|
|
$
|
8,777,279
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Notes receivable from non-obligor subsidiaries
|
|
$
|
83,275
|
|
|
$
|
671,500
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|
Other noncurrent assets
|
|
3,938,444
|
|
|
4,036,312
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|
Total noncurrent assets
|
|
$
|
4,021,719
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|
|
$
|
4,707,812
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|
|
|
|
|
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LIABILITIES
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|
|
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Payables due to non-obligor subsidiaries
|
|
$
|
46,973
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|
|
$
|
48,923
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Other current liabilities
|
|
2,013,761
|
|
|
2,200,422
|
|
Total current liabilities
|
|
$
|
2,060,734
|
|
|
$
|
2,249,345
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Notes payable to non-obligor subsidiaries
|
|
$
|
212,695
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|
|
$
|
233,158
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|
Long-term debt
|
|
11,994,280
|
|
|
12,478,453
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|
Other noncurrent liabilities
|
|
1,292,880
|
|
|
1,356,781
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|
Total noncurrent liabilities
|
|
$
|
13,499,855
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|
|
$
|
14,068,392
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined Parent and Guarantor Subsidiaries Summarized Results of Operations
|
|
13-Week Period Ended Sep. 26, 2020
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|
|
|
|
|
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(In thousands)
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|
|
|
|
|
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Sales
|
|
$
|
7,330,291
|
|
|
|
|
|
|
|
Gross profit
|
|
1,421,395
|
|
|
|
|
|
|
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Operating income
|
|
442,389
|
|
|
|
|
|
|
|
Interest expense from non-obligor subsidiaries
|
|
11,307
|
|
|
|
|
|
|
|
Net earnings
|
|
262,680
|
|
|
|
|
|
|
|
Contractual Obligations
Our fiscal 2020 Form 10-K contains a table that summarizes our obligations and commitments to make specified contractual future cash payments as of June 27, 2020. Other than as described in this Form 10-Q, there have been no material changes to our specified contractual obligations through September 26, 2020.
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. Our most critical accounting policies and estimates pertain to goodwill and intangible assets, allowance for doubtful accounts, income taxes, share-based compensation and the company-sponsored pension plans, which are described in Item 7 of our fiscal 2020 Form 10-K.
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. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” “projected,” “continues,” “continuously,” variations of such terms, and similar terms and phrases denoting anticipated or expected occurrences or results. Examples of forward-looking statements include, but are not limited to, statements about:
•the effect, impact, potential duration or other implications of the COVID-19 pandemic and any expectations we may have with respect thereto, including our ability to withstand the crisis;
•expectations regarding the impact of cost-saving measures undertaken in response to the COVID-19 pandemic;
•expectations regarding our business and the economic recovery generally as the COVID-19 pandemic subsides, including beliefs regarding future customer activity;
•our expectations regarding the impact of the COVID-19 pandemic on our mix of earnings by jurisdiction;
•our belief that the tightening or loosening of restrictions on customers will continue to be the primary driver of the pace of business recovery until vaccines are available;
•our expectations regarding exit rate trends;
•our belief that our new customer additions will enable Sysco to recover faster than the market as economic conditions improve;
•our expectations regarding the ability of our supply chain and facilities to remain in place and operational;
•our plans regarding our transformation initiatives, including acceleration of our work across our customer-facing tools and technology, sales transformation and the regionalization of our operations in the U.S., and the expected effects from such initiatives;
•our belief that we will continue to experience risk in fiscal 2021 relating to uncollectible accounts, our expectations regarding the level of uncollectible accounts, and our expectations regarding the timing of our collection of the unreserved balance of accounts receivable held prior to the onset of the COVID-19 crisis;
•our belief that our actions undertaken to receive payments on receivables will help to partially affect the unfavorable impact of the COVID-19 pandemic;
•our belief that our available liquidity would be sufficient to sustain our operations for an extended period, including through an impact much worse than we are currently experiencing or expecting;
•our expectations regarding the benefits to us of the CARES Act;
•our intention not to seek assistance from the U.S. government outside of the CARES Act;
•estimates regarding the outcome of legal proceedings;
•the impact of seasonal trends on our free cash flow;
•our expectations regarding the use of remaining cash generated from operations;
•our intention to continue to manage our working capital aggressively, and our expectation that our improvements in working capital will normalize in the second quarter of fiscal 2021;
•estimates regarding our capital expenditures and the sources of financing for our capital expenditures;
•our expectations regarding the impact of potential acquisitions and sales of assets on our liquidity, borrowing capacity, leverage ratios and capital availability;
•our expectations regarding real sales growth in the U.S. foodservice market;
•our expectations regarding trends in produce markets;
•our expectations regarding the calculation of adjusted return on invested capital, adjusted operating income, adjusted net earnings and adjusted diluted earnings per share;
•our expectations regarding the impact of future Certain Items on our projected future non-GAAP and GAAP results;
•our expectations regarding our effective tax rate for the remainder of fiscal 2021;
•our expectations regarding the amount of the unrecognized tax benefit with respect to certain of the company’s unrecognized tax positions;
•our expectations regarding the recognition of compensation costs related to share-based compensation arrangements;
•the sufficiency of our mechanisms for managing working capital and competitive pressures, and our beliefs regarding the impact of these mechanisms;
•our ability to meet future cash requirements, including the ability to access financial markets effectively, including issuances of debt securities, and maintain sufficient liquidity;
•our expectations regarding the payment of dividends, and the growth of our dividend, in the future;
•our expectations regarding future activity under our share repurchase program;
•future compliance with the covenants under our revolving credit facility;
•our ability to effectively access the commercial paper market and long-term capital markets; and
•our intention to repay our long-term debt with cash on hand, cash flow from operations, issuances of commercial paper, issuances of senior notes, or a combination thereof.
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, those within Part II, Item 1A of this document and those discussed in Item 1A of our fiscal 2020 Form 10-K:
•the impact and effects of public health crises, pandemics and epidemics, such as the recent outbreak of COVID-19, and the adverse impact thereof on our business, financial condition and results of operations, including, but not limited to, our growth, product costs, supply chain, labor availability, logistical capabilities, customer demand for our products and industry demand generally, consumer spending, our liquidity, the price of our securities and trading markets with respect thereto, our ability to access capital markets, and the global economy and financial markets generally;
•the risk that if sales from our locally managed customers do not grow at the same rate as sales from regional and national customers, or if we are unable to continue to accelerate local case growth, our gross margins may decline;
•the risk that we are unlikely to be able to predict inflation over the long term, and lower inflation is likely to produce lower gross profit;
•periods of significant or prolonged inflation or deflation and their impact on our product costs and profitability generally;
•the risk that we may not be able to accelerate and/or identify additional administrative cost savings in order to compensate for any gross profit or supply chain cost leverage challenges;
•risks related to unfavorable conditions in North America and Europe and the impact on our results of operations and financial condition;
•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;
•the impact of unexpected future changes to our business initiatives based on management’s subjective evaluation of our overall business needs;
•the risk that the actual costs of any business initiatives may be greater or less than currently expected;
•the risk that competition in our industry and the impact of GPOs 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;
•the risk that our relationships with long-term customers may be materially diminished or terminated;
•the risk that changes in consumer eating habits could materially and adversely affect our business, financial condition, or results of operations;
•the risk that changes in applicable tax laws or regulations and the resolution of tax disputes could negatively affect our financial results;
•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;
•the risk of interruption of supplies and increase in product costs as a result of conditions beyond our control;
•the potential impact on our reputation and earnings of adverse publicity or lack of confidence in our products;
•risks related to unfavorable changes to the mix of locally managed customers versus corporate-managed customers;
•the risk that we may not realize anticipated benefits from our operating cost reduction efforts;
•difficulties in successfully expanding into international markets and complimentary lines of business;
•the potential impact of product liability claims;
•the risk that we fail to comply with requirements imposed by applicable law or government regulations;
•risks related to our ability to effectively finance and integrate acquired businesses;
•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;
•our level of indebtedness and the terms of our indebtedness could adversely affect our business and liquidity position;
•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;
•the risk that divestiture of one or more of our businesses may not provide the anticipated effects on our operations;
•the risk that the U.K.’s exit from the European Union (EU) on January 31, 2020, commonly referred to as Brexit, may adversely impact our operations in the U.K., including those of the Brakes Group;
•the risk that future labor disruptions or disputes could disrupt the integration of Brake France and Davigel into Sysco France and our operations in France and the EU generally;
•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;
•due to our reliance on technology, any technology disruption or delay in implementing new technology could have a material negative impact on our business;
•the risk that a cybersecurity incident and other technology disruptions could negatively impact our business and our relationships with customers;
•the potential requirement to pay material amounts under our multiemployer defined benefit pension plans;
•our funding requirements for our company-sponsored qualified pension plan may increase should financial markets experience future declines;
•labor issues, including the renegotiation of union contracts and shortage of qualified labor;
•capital expenditures may vary based on changes in business plans and other factors, including risks related to 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; and
•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 fiscal 2020 Form 10-K.