This discussion should be read in conjunction with our consolidated financial
statements as of
Highlights
Our first quarter of fiscal 2023 results reflected continued positive momentum in our business to start the fiscal year, delivering our highest ever quarterly sales at Sysco. We generated double-digit sales and earnings growth compared to the same period last year, driven by higher volumes, effective management of inflation and market share gains. We continued to advance our Recipe For Growth strategy, including within our International Foodservice Operations segment, while addressing operational improvement opportunities. See below for a comparison of our fiscal 2023 results to our fiscal 2022 results, both including and excluding Certain Items (as defined below).
Comparisons of results from the first quarter of fiscal 2023 to the first quarter of fiscal 2022 are presented below:
•Sales:
•increased 16.2%, or$2.7 billion , to$19.1 billion ; •Operating income: •increased 16.3%, or$102.7 million , to$734.3 million ; •adjusted operating income increased 12.4%, or$85.2 million , to$770.3 million ; •Net earnings: •increased 23.2%, or$87.6 million , to$465.6 million ; •adjusted net earnings increased 14.6%, or$62.7 million , to$492.6 million ; •Basic earnings per share: •increased 24.3%, or$0.18 , to$0.92 per share; •Diluted earnings per share: •increased 24.7%, or$0.18 , to$0.91 per share; •adjusted diluted earnings per share increased 16.9%, or$0.14 , to$0.97 in fiscal 2023; •EBITDA: •increased 10.5%, or$86.6 million , to$908.0 million ; and •adjusted EBITDA increased 7.5%, or$64.1 million , to$916.9 million .
The discussion of our results includes certain non-GAAP financial measures, including EBITDA and adjusted EBITDA, as we believe these metrics 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; acquisition-related costs consisting of: (a) intangible amortization expense and (b) acquisition costs and due diligence costs related to our acquisitions; and 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.
The fiscal 2023 and fiscal 2022 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
The food-away-from-home sector experienced growth in the first quarter of fiscal 2023. Restaurants continued to be resilient and our travel/hospitality and business/industry segments results posted year-over-year improvements. We are closely monitoring macro-economic conditions for signs of business slow down. At this time, we are not seeing recession concerns negatively impacting our business results. We have experienced a strong start to the year in both national and local sales, which has driven market share gains overall, as we grew more than 1.4 times the market for the period. We are on track to deliver our stated growth objective for the year, as we see continued growth opportunities, particularly in the non-commercial sector.
Sales and Gross Profit Trends
Our sales and gross profit performance are influenced by multiple factors,
including price, volume, inflation, customer mix and product mix. The most
significant factor affecting performance in the first quarter of fiscal 2023 was
volume growth, as we experienced strong results from both national and local
customers driven by a 5.4% improvement in local case volume and an 7.3%
improvement in total case volume within our
Product cost inflation has also been a driver of our sales and gross profit performance. We experienced inflation at a rate of 9.7% in the first quarter of fiscal 2023 at the total enterprise level, primarily driven by inflation in the dairy and frozen categories. We continue to be successful in managing our inflation, resulting in an increase in gross profit dollars. Gross margin increased 18 basis points in the first quarter of fiscal 2023, as compared to the same prior year period, primarily driven by higher volumes, the effective management of inflation and progress against our partnership growth management initiatives.
Operating Expense Trends
Total operating expenses increased 17.7% during the first quarter of fiscal
2023, as compared to the first quarter of fiscal 2022, driven by increased
volumes, cost inflation, continued operational cost pressures from the operating
environment and our planned investments to drive our transformation initiatives
under our Recipe For Growth strategy. This quarter included transformation
investments of
Pension Settlement Charge
As discussed in Note 15. "Subsequent Events," the Sysco Corporation Retirement
Plan (the Plan), entered into a commitment agreement to purchase a
nonparticipating single premium group annuity contract that will transfer
approximately
Mergers and Acquisitions
We continue to focus on mergers and acquisitions as a part of our growth strategy, where we plan to reinforce our existing businesses, while cultivating new channels, new segments and new capabilities. We have completed the following acquisitions thus far in fiscal 2023:
•In the first quarter of fiscal 2023, we acquired two small
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The results of these acquisitions were not material to the consolidated results of the company for the first quarter of fiscal 2023.
Strategy
Our purpose is "Connecting the World to Share Food and Care for One Another." Purpose driven companies are believed to perform better, and we believe our purpose will assist 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 personalization engine that is currently under construction and has proved to be beneficial to our pilot customers. Additionally, we are improving our merchandising and marketing solutions by developing improved strategies for specific cuisine segments, and we are developing a more nimble, accessible and productive supply chain that is better positioned to support customers in their business recovery. Our strategic initiatives to increase delivery frequency and enable omni-channel inventory fulfillment remain on track. From these actions as a part of our Recipe for Growth, the benefits of our developing capabilities is apparent in the new customers we are winning and in the progress we are making towards increasing 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 1.5 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. 1, 2022 Oct. 2, 2021 Sales 100.0 % 100.0 % Cost of sales 81.8 81.9 Gross profit 18.2 18.1 Operating expenses 14.4 14.2 Operating income 3.8 3.8 Interest expense 0.6 0.8 Other (income) expense, net 0.1 - Earnings before income taxes 3.1 3.1 Income taxes 0.7 0.8 Net earnings 2.4 % 2.3 % 23
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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 EndedOct. 1, 2022 Sales 16.2 % Cost of sales 16.0 Gross profit 17.4 Operating expenses 17.7 Operating income 16.3 Interest expense (3.2) Other (income) expense, net (1) (569.9) Earnings before income taxes 17.4 Income taxes 0.5 Net earnings 23.2 % Basic earnings per share 24.3 % Diluted earnings per share 24.7 Average shares outstanding (1.0) Diluted shares outstanding (1.0) (1) Other (income) expense, net was expense of$15.3 million and income of$3.3 million in the first quarter of fiscal 2023 and fiscal 2022, respectively.
The following tables represent our results by reportable segments:
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