SYSCO CORPORATION This discussion should be read in conjunction with our consolidated financial
statements as of
Highlights
Our first quarter of fiscal 2022 results were strong due to substantial sales momentum surpassing first quarter of fiscal 2019 levels. Our results increased sequentially each month of the quarter, despite the presence of the Delta variant of COVID-19. Customers are responding positively to Sysco's relative supply chain strength, our new purpose platform and our improving capabilities driven by our Recipe for Growth strategy. Our financial results demonstrate our ability to gain market share in this business climate. See below for a comparison of our fiscal 2022 results to our fiscal 2021 results, both including and excluding Certain Items (as defined below).
Comparisons of results from the first quarter of fiscal 2022 to the first quarter of fiscal 2021 are presented below:
•Sales:
•increased 39.7%, or$4.7 billion , to$16.5 billion ; •Operating income: •increased 50.6%, or$212.1 million , to$631.7 million ; •adjusted operating income increased 87.9%, or$320.4 million , to$685.1 million ; •Net earnings: •increased 74.3%, or$161.1 million , to$378.0 million ; •adjusted net earnings increased 147.9%, or$256.5 million , to$429.9 million ; •Basic earnings per share: •increased 72.1%, or$0.31 , to$0.74 per share; •Diluted earnings per share: •increased 73.8%, or$0.31 , to$0.73 per share; •adjusted diluted earnings per share increased 144.1%, or$0.49 , to$0.83 in fiscal 2022; •EBITDA: •increased 40.2%, or$235.4 million , to$821.4 million ; and •adjusted EBITDA increased 62.5%, or$328.1 million , to$852.8 million .
The discussion of our results includes certain non-GAAP financial measures,
including EBITDA and adjusted EBITDA, that we believe provide important
perspective with respect to underlying business trends. Other than free cash
flow, any non-GAAP financial measures will be denoted as adjusted measures to
remove the impact of 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; and
acquisition-related costs consisting of: (1) intangible amortization expense and
(2) acquisition costs and due diligence costs related to our significant
acquisitions. Our results for fiscal 2022 are also impacted by the increase in
reserves for uncertain tax positions. Our results for the first quarter of
fiscal 2021 were also impacted by the reduction of bad debt expense previously
recognized in fiscal 2020 due to the impact of the COVID-19 pandemic on the
collectability of our pre-pandemic trade receivable balances, by a loss on the
sale of a business and by a net benefit from remeasuring net deferred tax assets
due to the changes in
The fiscal 2022 and fiscal 2021 items discussed above are collectively referred
to as "Certain Items." The results of our foreign operations can be impacted by
changes in exchange rates applicable to converting from local currencies to
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Trends
Economic and Industry Trends
Despite the presence of the Delta variant of COVID-19, Sysco's sales improved
sequentially through the first quarter of fiscal 2022 and have continued to grow
through
Sales and Gross Profit Trends
Our sales and gross profit performance can be influenced by multiple factors,
including price, volume, customer mix and product mix. The most significant
factor affecting performance in the first quarter of fiscal 2022 was volume
growth, as we are experiencing strong results from both independent and chain
customers, driven by a 23.8% improvement in local case volume and a 28.1%
improvement in total case volume within our
In terms of customer mix, the first quarter of fiscal 2022 represented another
period of strong net new business wins for Sysco, as we continued our strong
momentum and posted compelling wins at the national and local level in the
Although our gross margin decreased 79 points in the first quarter of fiscal
2022, as compared to the prior year period, largely due to the impact of
inflation on our sales, we believe we managed our profitability well in the
inflationary environment. We passed along this inflation to our customers, and
we are successfully growing gross profit dollars. In terms of the impact on
pricing, we experienced inflation at a rate of 12.8% combined for the
Operating Expense Trends
Total operating expenses increased 30.0% during the first quarter of fiscal
2022, as compared to the first quarter of fiscal 2021, driven by the variable
costs associated with significantly increased volumes, one-time and short-term
transitory expenses associated with the business recovery and transformation
investments towards our Recipe for Growth strategy. The largest contributor to
the increase was the higher associate-related expenses associated with elevated
overtime rates and intentional expenditures to improve our staffing in
preparation for additional growth and for increased throughput capacity. We have
continued to improve our staffing levels in the second quarter of fiscal 2022,
adding 1,000 new supply chain associates, consisting primarily of transportation
and warehouse staff. Additionally, we had an unfavorable comparison of bad debt
expense, as we recognized a
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Our operating results in the first quarter of fiscal 2022 included
Income Tax Trends
Our provision for income taxes primarily reflects a combination of income earned
and taxed in the various
Our effective tax rate has been influenced by discrete events, such as tax law changes and excess tax benefits attributable to equity compensation exercises as discussed in Note 11, "Income Taxes," in the Notes to Consolidated Financial Statements in Item 1 of Part I.
Comparisons to Fiscal 2019
In assessing our financial performance through the business recovery, Sysco's management compared our results in the first quarter of fiscal 2022 against the first quarter of fiscal 2019. These results include:
•Sales:
•increased 8.2%, or$1.2 billion , as compared to fiscal 2019; •Operating income: •increased 0.6%, or$3.5 million , as compared to fiscal 2019; •adjusted operating income decreased 1.0%, or$6.6 million , as compared to fiscal 2019; •EBITDA: •increased 0.8%, or$6.8 million , as compared to fiscal 2019; •adjusted EBITDA decreased 0.6%, or$4.8 million , as compared to fiscal 2019; •Diluted earnings per share: •decreased 9.9%, or$0.08 , as compared to fiscal 2019; and •adjusted diluted earnings per share decreased 8.8%, or$0.08 , as compared to fiscal 2019.
Key items impacting the comparability of Sysco's results in the first quarter of
fiscal 2022 to the first quarter of fiscal 2019 included the one-time and
short-term transitory expenses associated with the business recovery and the
operating expense investments towards our Recipe for Growth strategy.
Additionally, in the first quarter of fiscal 2022, Sysco incurred
Mergers and Acquisitions
We continue to focus on mergers and acquisitions as a part of our growth strategy, where we plan to cultivate new channels, new segments and new capabilities. We have completed the following acquisitions thus far in fiscal 2022.
•In the first quarter of 2022, we acquired
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Strategy
Our purpose is "Connecting the World to Share Food and Care for One Another," which we believe will allow us to grow substantially faster than the foodservice distribution industry and deliver profitable growth through our "Recipe for Growth" transformation. This growth transformation is supported by strategic pillars that we believe will allow us to better serve our customers, including our digital, products and solutions, supply chain, customer teams, and future horizons strategies.
Our various business transformation initiatives remain on track, such as the centralized pricing tool project, which is substantially complete for local customers, and which enables Sysco to strategically manage the high levels of inflation that we are currently experiencing. Other initiatives, such as our personalization engine, continue to expand, while the sales transformation is helping our sales teams continue to win new business. Additionally, we are continuing to improve the efficiency of our organization, such as regionalizing the leadership structure of our specialty business, as we reduce our structural expenses to fund our capital investments. We are in the early stages of our Recipe for Growth, but we can already see the benefits of our developing capabilities in the new customers we are winning and in the progress we are making towards gaining market share. We expect that, as our Recipe for Growth matures, the impact on our top line growth will continue to accelerate. We are committed to profitably growing 1.2 times the market for fiscal 2022 and 1.5 times the market by the end of fiscal 2024, the third year of our three-year strategic plan.
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
Oct. 2, 2021 Sep. 26, 2020
Sales 100.0 % 100.0 %
Cost of sales 81.9 81.2
Gross profit 18.1 18.8
Operating expenses 14.2 15.3
Operating income 3.8 3.5
Interest expense 0.8 1.2
Other (income) expense, net - 0.1
Earnings before income taxes 3.1 2.2
Income taxes 0.8 0.4
Net earnings 2.3 % 1.8 %
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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
Oct. 2, 2021
Sales 39.7 %
Cost of sales 41.1
Gross profit 33.9
Operating expenses 30.0
Operating income 50.6
Interest expense 12.6
Other (income) expense, net (1) (2) 123.0
Earnings before income taxes (95.8)
Income taxes 207.6
Net earnings 74.3 %
Basic earnings per share 72.1 %
Diluted earnings per share 73.8
Average shares outstanding 0.7
Diluted shares outstanding 1.0
(1)Other (income) expense, net was income of
The following tables represent our results by reportable segments:
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