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Sysco Corporation. (SYY -0.28%)
Q1 2018 Earnings Conference Call
Nov. 6, 2017, 10:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning, and welcome to Sysco's first quarter, fiscal 2018 conference call. As a reminder, today's call is being recorded. We will begin today's call with opening remarks and introductions. I would like to turn the call over to Neil Russell, Vice President of Investor Relations and Communications. Please, go ahead
Neil Russell -- Vice President, Investor Relations, and Communications
Thanks, Stephanie. Good morning, everyone, and welcome to Sysco's first quarter, fiscal 2018 earnings call. Joining me in Houston today are Bill Delaney, our Chief Executive Officer; Tom Bene, our President and Chief Operating Officer; and Joel Grade, our Chief Financial Officer. Before we begin, please note that statements made during this presentation that state the company's or management's intentions, beliefs, expectations or predictions of the future, are forward-looking statements, within the meaning of the Private Securities Litigation Reformat, and actual results could differ, in a material manner.
Additional information about factors that could cause results to differ from those in the forward-looking statements is contained in the company's SEC filings. This includes, but is not limited to, risk factors contained in our annual report on foreign 10-K, for the year ended July 1, 2017, subsequent SEC filings, and in the news release issued earlier this morning. A copy of these materials can be found in the investor's section, at sysco.com, or via Sysco's IR app. Non-gap financial measures are included in our comments today and in our presentation slides. The reconciliation of these non-gap measures, to the corresponding gap measures, are included at the end of the presentation slides, and can also be found in the investor's section of our website.
Additionally, due to the Brakes Group acquisition, that closed in July of 2016, we previously referenced financial performance results, both including and excluding the acquisition for our fiscal 2017. Beginning this quarter, and going forward, as we now have a full year's worth of financial results, we will be referencing financial results for Sysco in total. The one exception will be for operating income, as we still plan to give visibility on our original, three-year plan target, which did not include Brakes.
Additionally, we have scheduled our Investor Day, for December 7, in New York. We look forward to seeing you there. To ensure that we have sufficient time to answer all questions, we'd like to ask each participant to limit their time today to one question, and one follow up. At this time, I'd like to turn the call over to our Chief Executive Officer, Bill Delaney.
Bill Delaney -- Chief Executive Officer
Thank you, Neil, and good morning, everyone. I'm very pleased with our start to fiscal 2018, as reflected in the solid first quarter results Sysco reported, earlier this morning. For the quarter, sales increased 5%, to $14.7 billion. Adjusted operating income increased nearly 6%, to $662 million, and adjusted earnings per share increased 10%, to 74 cents. These results were achieved in the midst of several devastating natural disasters, during the latter part of the quarter, which adversely impacted our business, and that of our customers, in several key markets. We estimate that our operating income for the quarter would have been approximately $10 million higher, if not for the lost sales and reduced productivity, caused by hurricanes Harvey, Irma, and Maria.
Tom and Joel will provide additional perspective on the financial impact of these unprecedented events, later on in the call. Additionally, I'd like to take a moment to express our gratitude to all the first responders, volunteers, and charitable organizations, who worked tirelessly to support those in need. I'd also like to thank our dedicated associates, who sacrificed personally, to ensure delivery of product to those customers with critical needs, such as hospitals and shelters. Further, it has been incredibly gratifying for me to witness the tremendous outpouring of support, among thousands of our associates, for one another, through Sysco's Disaster Relief Foundation.
Moving now to the current economic and market environments in which we operate, we are hopeful that the recently reported and improved GDP trends in the United States could ultimately lead to demand lift for our domestic customer base. While it's difficult to totally isolate the impact of the extreme weather experienced in Texas and Florida in September, it appears that current market conditions in the United States for foodservice operators are modestly favorable. Larger check sizes at restaurants continue to offset somewhat lower traffic counts, while consumer sentiment remains at relatively high levels.
Conversely, economic growth in the European markets we operate in is more muted. In addition, significant foreign-exchange-drive food cost inflation in our UK business continues to pressure our pricing, which has impacted our volume growth, and gross margins. We are highly focused, and actively engaged in addressing these challenges in a manner that is beneficial both to our customers and to Sysco.
Turning to Sysco's current state, we continue to execute our customer-centric strategy, at a high level. The fundamentals of our business are strong, and we are well positioned to achieve disciplined, profitable, and sustainable growth, in the future. I'm confident that we will be able to continue to leverage quality sales growth in our domestic food service business, by continually improving the implementation of our commercial, supply chain, and cost reduction strategic initiatives. The prospects for our international businesses are also compelling, as we see significant potential, over the next few years, to penetrate the markets we currently serve, enhance operating best practices, and further expand our geographic footprint.
To summarize, we are off to a good start in fiscal 2018, and remain confident in our ability to deliver another strong year, and achieve our current, three-year plan financial targets. In closing, I would like to express my appreciation to all of our associates, for their ongoing efforts and contributions, as we strive to fully realize our vision for Sysco, to be our customers' most valued and trusted business partner. And, now, I'll turn the call over to Tom Bene, President, and Chief Operating Officer.
Tom Bene -- President, Chief Operating Officer
Thank you, Bill, and good morning, everyone. Sysco's financial results, announced this morning, reflect solid operating performance, and continued progress against several of our key, multiyear initiatives. While we did experience some temporary headwinds, including the impact of the hurricanes on some of our customers, rising inflation, and a challenging inbound freight environment, we remain on track to achieve a successful year, and ultimately, deliver on our three-year operating income target.
Looking at our first quarter results by business segment, beginning with US Food Service Operations, sales grew 3.9% for the quarter, gross profit grew 3.8%, and gross margins remained flat. Adjusting for the hurricanes, gross profit dollar growth would've been approximately 4.3%. The growth in gross profit dollars can be attributed to the continued focus on category management, including positive momentum from Sysco brand, and a balanced approach to pricing, with our ongoing revenue management efforts. For the quarter, local case growth in our US broadline business remains strong, at 2.8 percent, and has now grown for 14 consecutive quarters.
Adjusting for hurricanes, we believe that local case growth would've been over 3%. Our multi-unit customer segment declined, driving overall case growth to a modest 0.3%. As we've discussed, we have proactively managed our business, in a more disciplined, profitable manner, with multiunit customers. We have recently begun to add some new customers and should see multiunit growth begin to build in the second quarter, and continue, throughout the remainder of the year. While we do see consumers' preferences in restaurants continue to include new, unique, and customizable options, that are fresh and healthy, we also see relative strength in concepts that offer convenience, low cost for consumers, and familiarity.
These combined preferences benefit both our local and emerging multiunit customers, who provide value, in terms of quality, dining environment, and a reasonable price point. From a product perspective, we continue to invest in our Sysco brand, as part of a larger brand revitalization effort. Including a reinvigoration of our portfolio, that offers cleaner, fresher images, for our branded products. These changes, along with new innovation, have positively contributed to brand growth, up another 82 basis points, versus prior year.
Regarding our supplier community, there were many examples during the recent storms, where our supplier partners were there to support us, and our customers, who were in need. And, I also want to share our thanks to all of those who supported us. Our digital ordering presence continues to grow and has now improved to approximately 40% of local cases ordered. This increased utilization is a result of our solid technology platform, including improved product images and content, enhanced system capabilities, and increased levels of training. Also, as we centralize our support model for multiunit accounts, with tools such as order guide management, both Sysco, and our customers, have begun to see the benefits of working together to drive efficiencies in the business.
Turning our attention to costs, our adjusted operating expense growth for the quarter was 3,2%. While there was some definite headwinds that drove our supply chain costs, we continued to see positive momentum from productivity initiatives and ongoing process improvements. We are now implementing the next evolution of tools, to help streamline hours, improve delivery, and drive warehouse efficiencies. From an administrative costs perspective, we continue to focus on managing these expenses, throughout the organization. Effectively managing overall cost structure remains a key priority for us, and we continue to focus on a variety of opportunities to deliver improvement.
A key pillar of Sysco's strategy for growth and value creation is the continuous assessment of new market opportunities. As many of you know, we recently acquired HFM Food Service, a Hawaii-based, broadline distributor, with approximately $290 million in annual sales. HFM has been providing quality service to Hawaii and Guam for over 50 years. We are excited to welcome them to the Sysco family. Acquiring HFM provides Sysco with direct access to the growing Hawaiian market, and is in clear alignment with our strategy for disciplined, profitable growth of the business. We will report this business in our US Food Service segment, going forward.
Moving to international food service operations, we had mixed results for the quarter, with sales growing 6%, gross profit growing 3%, and adjusted operating expenses increasing 5%, driven by investments in our European supply chain transformation, transition costs, associated with a new, large customer in Mexico, and currency translation in Canada. Overall adjusted operating income declined by 8% for the quarter. Our business in Canada is off to a great start this year. We are experiencing local case growth in most regions, especially in major markets. We are also thoughtfully sharing, and implementing strategic initiatives from our US business, such as revenue management, and other customer-centric solutions, including online ordering, to their business.
These capabilities, along with a more focused approach to local customers, have translated into accelerated local case growth. Additionally, we are effectively managing our cost structure, and improving supply chain efficiencies, to help maintain a healthy gap between gross profit growth, and expense growth, to drive our overall performance. Our European business is facing some economic headwinds, as customers are experiencing slower restaurant traffic, and an overall slowdown in food away from home, in the UK. Additionally, the UK continues to experience acute inflation, due to weakness in the pound sterling, which resulted in high food cost inflation, of about 9%, during the first quarter. While we expect these headwinds in the UK to continue throughout our fiscal year, we are actively managing the business to mitigate these impacts.
As for our business in Latin America, we are excited about the growth opportunities in this region, although there were some weaknesses, due to the recent earthquakes in Mexico City, and expenses related to the addition of a large customer in Mexico, that I mentioned earlier. In Costa Rica, we continue to see solid growth, as we continue expanding our cash and carry footprint. Additionally, subsequent to the close of our first quarter, we have completed the purchase of the remaining 50% of the mica business in Costa Rica. We will use cash to complete this transaction, and our debt levels will not be affected. We initially purchased 50% of the business in 2014, and we are very pleased with the performance thus far, as adjusted EBITDA has doubled in the past three years. We look forward to continued success with the mica team. Lastly, or Sigma segment continues to grow, and we are focused on implementing operational improvements, that will contribute to long-term operating income improvement.
In summary, we feel good about the fundamentals of our business, and about the trajectory that we're on for fiscal 2018, to close out our three-year plan. Despite the severe, weather-related challenges we faced in Q1, we continue to make progress in our customer and operational strategies, to improve our customers' experience, and I remain confident in our ability to deliver the high end of our adjusted operating income growth target, or $600 to $650 million. Now, I'd like to turn the call over to Joel Grade, our Chief Financial Officer.
Joel Grade -- Chief Financial Officer
Thank you, Tom, good morning everyone. As Bill and Tom mentioned earlier, we are pleased with the results for the first quarter. Our earnings growth reflects continued momentum for our business, including strong local case growth, and good gross profit dollar growth, and cost management. This morning, I'll start with our quarterly results, on a comparable 13-week basis. For the quarter, sales grew 4.9%, gross profit grew 3.8%. While adjusted operating expense grew 3.2%, which resulted in adjusted operating income growth of 5.6%, and adjusted earnings per share grew 10.4%, to 74 cents.
During the quarter, our results were impacted by both the impact of multiple hurricanes, and a lower tax rate that, when factored together, would have resulted in operating income growth of more than 7%, and earnings per share of 72 cents, which is in line with our planned expectations. For the first quarter of fiscal 2018, we saw inflation of 3.8 percent, in our US broadline business. The pace of inflation has been rapid, for a few categories, such as meat, poultry, and dairy. During the quarter, we had gross profit growth of 3.8%, driven by local case growth, and improved Sysco brand penetration. Adjusted operating expenses grew 3.2% for the quarter, driven by increased transportation expenses, and unusually lower bad debt expense, in the prior year.
In addition, our expenses include the impact of labor, and related costs during the storms, that we continued to pay, despite lower volumes in those affected areas. We continue to maintain a gap, between gross profit dollar growth, and adjusted operating expense growth. While the gap was not as strong as in prior quarters, we still feel good about the performance, and the ultimate translation into adjusted operating income leverage, and continued progress toward achieving our three-year plan objectives. A lot of the compression of that gap can be explained by the impact of hurricanes and inbound freights, which negatively impacted cost of goods.
In fact, adjusting for the impact of the hurricanes, the gap between gross profit dollars, and expenses, is approximately 1 point. As it relates to taxes. The expected tax rate in the first quarter was 32.7%, compared to 32.9%, in the prior year period. Cash flow from operations was $83 million, for the first 13 weeks of fiscal 2018. Net cap-x for the quarter was $135 million, or about 1% of sales, which was roughly flat to last year. Free cash flow for the first 13 weeks of fiscal 2018 was negative-$52 million. It's important to note that the first quarter often produces negative free cash flow, largely due to investments in working capital.
However, we continue to expect strong cash flow for the full fiscal year of 2018. Now, we transition to three business updates. First, regarding second-quarter expectations, we expect to see further softness in the international segment, followed by a modestly stronger second half of the year, as we align the Brakes Group calendar year to our fiscal year. Second, as we previously discussed, we will realize a one-time, net benefit in depreciation expense, related to technology changes. This benefit will be approximately $50 million, recognized evenly over four quarters. Third, regarding share repurchases, we've been aggressive in the market, as we've seen opportunities to repurchase shares, this quarter.
We've maintained our approach in purchasing shares opportunistically, but we do not expect that pace to continue for the balance of the fiscal year. Finally, a new accounting standard became applicable in fiscal 2018, that requires excess tax benefits, or detriments from stock compensation to be recognized with any income statement in the income tax line. For the first quarter of fiscal 2018, we recognized a benefit of $16 million, as a reduction of income tax expense, largely from stock option exercises that occurred in the first quarter. These tax benefits are difficult to predict and depend on factors such as our stock price, and option exercise activity. Absent these tax benefits, we continue to expect our effective tax rate to be between 35 and 36%.
In summary, we had a solid quarter, that reflected the continued momentum in our business. I remain confident that we are on track to achieve our three-year plan financial objectives, including the high end of the $600 to $650 million range of improved adjusted operating income, comparing fiscal 2018 to fiscal 2015, excluding Brakes. The fundamentals of our business remain strong. As we continue to deliver strong local case growth, and good gross profit dollar growth, and cost management. We are committed to serving our customers and delivering a high level of execution, in all areas of our business. I'll now turn it back over to Bill before we go to Q&A.
Bill Delaney -- Chief Executive Officer
Thanks, Joel. As you know, I will be stepping down as Sysco's CEO at the end of the calendar year, so this is my final earnings call. I'm the sixth CEO in Sysco's 47-year history as a public company, and serving in that capacity over the past nine years has been an honor. In addition, I have been truly privileged to work alongside hundreds of committed and highly capable associates, throughout my nearly 30-year career. Today, I would like to especially thank all of our associates, who have supported me throughout my tenure as CEO. We faced many challenges together. Most importantly, we have, together, as one Sysco, driven significant and much-needed transformational change, expanded our international and domestic footprint, increased revenues by nearly $20 billion, and doubled Sysco's market capitalization.
The great news is that there remains a lot of opportunity ahead, and really good work to do. Tom Bene is absolutely the right person, together with our leadership team, to take Sysco to the next level. And, I'm confident you will be well served by his leadership, going forward. In closing, I just would like to note that I have been actively involved in Sysco's Investor Relations program during much of my career, including my early years in various treasury functions, and of course, the past 11 years, as CFO and now CEO. To those of you whom I've crossed paths with over the years, thank you for your interest in Sysco, and for the respect, you provided me, both in good and challenging times. I wish you all the very best. Operator, we're now ready for Q&A.
Questions and Answers:
Operator
At this time, if you would like to ask a question, please press star, followed by the number 1, on your telephone keypad. Your first question comes from the line of John Heinbockel, with Guggenheim Securities. Your line is open. John Heinbockel, your line is open.
John Heinbockel -- Guggenheim Securities LLC -- Analyst
Can you hear me? Can you hear me, guys? Okay. So, I was gonna say, in light of the 4% inflation rate in the US, flat gross margin was actually a fairly decent outcome. So, maybe talk about where we sit, with the evolution of revenue management, and kinda what you're doing at the margin here, on price elasticity?
Thomas L. Bené -- President, Chief Operating Officer
So, John, good morning, it's Tom. What I would say is that we've talked a lot over the last couple years, about all of the tools that we've been building in the revenue management area. And, that we felt good, that they were gonna help us both in inflationary and deflationary times. And, I would just reiterate, is that a lot of those tools -- because, what we are seeing in some of these categories is fairly heavy inflation, in a couple of the ones that Joel highlighted -- meat, poultry, dairy. And so, what they really allow us to do is, effectively, pass on the pricing where we can, but do it in a balanced way, such that our customers aren't feeling significant impacts, over the short-term, as well.
So, it's really a matter of, week by week, providing our salespeople the right information, insight, and guidance, on how to, basically, price to be competitive in the marketplace.
John Heinbockel -- Guggenheim Securities LLC -- Analyst
Okay, and then, maybe, as a follow-up. When you look at what needs to be done at Breaks, right, and I know you've obviously made some management changes, there. If you think about the two or three things that Sysco can bring to Brakes, in terms of best practice sharing, what are they, and what is the margin opportunity at Brakes today, when you look at the delta, versus where you guys sit in the US?
Thomas L. Bene -- President, Chief Operating Officer
So, I assume, let's start with margin. When you talk about margin, you're probably talking about gross margin, and generally speaking, the gross margin in Europe tends to be higher than what it is in the US. But, their cost structures tend to be a little higher, as well, which ultimately affects the operating margin. A lot of the activity that we started to share, they have their own kind of category margin approach and program. But, we're starting to share more information between the European team and the US team, around how we might think about that process, going forward. So, there could be some benefits regarding the product costs. But, I'd say the bigger areas are, probably, around how we leverage some of the solutions we've built around the sales model, here. We've talked over the last couple of years, about the solutions that we've built out, whether it be things like business review, or the revenue management capability, or even how we think about building out the branded portfolio, our Sysco brand.
And, those all remain, I think, opportunities for us to help leverage some of that learning we've had in the US, and share those best practices in Europe. And, we've started that process already, with that team.
Joel T. Grade -- Chief Financial Officer
And, Tom, if I could just add one other thing to that -- this is Joel. I think the supply chain piece is probably the other part that I would just add to that. I think a lot of these -- just some of the investments that we've talked about that we continue to make, are around continuing to enhance their transformational work on the supply chain side, as well as, again, to kind of chiefly around putting some of those best practices in place. So, I think, just to add one other thing to Tom's point, I think I would -- the other part I would single out as an opportunity for us.
John Heinbockel -- Guggenheim Securities LLC -- Analyst
Okay, thank you. And then, Bill, congratulations on your retirement.
Bill J. DeLaney -- Chief Executive Officer
Thank you, John.
Operator
Your next question comes from the line of Edward Kelley, with Wells Fargo. Your line is open.
Edward J. Kelly -- Wells Fargo Securities LLC -- Analyst
Yeah, hi, good morning, guys. And, Bill, good luck in the future, as well. So, I just wanted to start on SG&A, particularly within the food service side of the business. It was certainly higher than what we were expecting, up 3.2%, on basically 30 basis points of case growth. Can you just provide more color on the impacts, here? How much did the hurricane actually hurt that line item? The bad debt expense, that you mentioned, on the comparison side, what did that mean? And then, can you talk about diesel costs and the impact that that had in the quarter, as well?
Joel T. Grade -- Chief Financial Officer
Yeah, sure, this is Joel, I'm gonna start. I think a couple parts of that. Number one, there was some impact on our cost per case, as it relates to getting what I'll just call overall productivity, in other words. And, there certainly is, as part of that, there are admin costs, that we continue to pay, where we're not shipping case volumes in those areas, so that would have a negative impact on that leverage. From a bad debt perspective, a lot of that's related to some actually positive bad debt results we had in the prior year, that were, I would say, significant, relative to what would be normal for us. So, when that comparison hits, it actually elevates what would be a growth in our admin costs for this year on that side of it.
I think there are a couple of other pieces of that, again, certainly from a segment perspective. What I've talked about mostly relates to the US side, we certainly did have some higher levels of expense growth, in our international business. So much we talked about -- there's some start-up costs, for a new customer in Mexico, and some investment costs that we've put into the UK, again. All of that now is actually factored into our cost structure. Which would not have been something we've been used to seeing as much last year, because we'd always talked about x-breaks, obviously, this includes all that. And so, I would say those are really some of the primary callouts, and again, the hurricane, again, did have some productivity impact, there. Without a doubt. But, I think there's still a collection of a few things, we still feel good about our ability to manage cost minimums going forward.
Thomas L. Bene -- President, Chief Operating Officer
The other thing you mentioned was fuel. And so, we're at about a penny detriment on fuel, versus prior year. And, to build out the cost comments that Joel made, from an operating perspective, when you think about the way we run our business, and the impacts of some of the storms, we still are, basically, paying all of our associates, drivers, warehouse, etc., without any case activity, during those times. And so, that's what drove some of that incremental expense, from an operating perspective, as well.
Edward J. Kelly -- Wells Fargo Securities LLC -- Analyst
Okay, great. And then, just one follow up. Profit per case on US food service has been really strong the last -- well, it's been strong for a while. But, the last couple of quarters seem notably strong. Can you just talk about that acceleration and the momentum? And then, how does that change, over the next few quarters, as you have some new business coming in?
Thomas L. Bene -- President, Chief Operating Officer
So, Ed, I think you're talking about gross profit per case, yeah. So, and it's a really good question, given the inflationary environment we're experiencing. So, we continue to see our gross profit per case improve, even though, obviously we're not seeing margin expansion, during this time of inflation. So, we continue to feel good about that. It's a combination of things. That's the category management effort we've had going. We talked earlier about the increase in Sysco brand, another 82 basis point improvement with our local customers. Which is, again, as you think about the challenges on inflation we're seeing, our ability to give customers options, including Sysco brand, and help them maintain their costs, while also delivering improved margins for us is kind of a win-win in there.
And so, as we see our case volume increase, we would actually expect to see us continue to be able to manage that accordingly. And so, we do feel like you're going to see some improvements there, predominantly in this multiunit side, as we continue to go forward, throughout the year.
Edward J. Kelly -- Wells Fargo Securities LLC -- Analyst
Great, thank you.
Operator
Your next question comes from the line of Kelly Bania, with BMO Capital. Your line is open.
Kelly Ann Bania -- BMO Capital Markets (United States) -- Analyst
Good morning, thanks for taking my questions. Just wanted to elaborate a little further on the international comments. I think you mentioned some further softness expected in 2Q, but an improvement in the second half, did I hear that correctly, and can you elaborate on that?
Joel T. Grade -- Chief Financial Officer
Yeah, Kelly, I mean, I think, again, as I talked about, some of this is really related to what I'll call some timing elements, of the fact that the previous fiscal year with Breaks was on a calendar basis. And, just, essentially, moving that now, to where their fiscal year aligns with our fiscal year, does cause some changing of the way some things are recognized. And so, I think, from a timing perspective, again, that impact is gonna most notably, hit us in the second quarter, which again, used to be the final quarter of their calendar year. And, again, but certainly, we will expect some level of pickup in that, in the second half of our year.
Kelly Ann Bania -- BMO Capital Markets (United States) -- Analyst
Okay, and the other question I wanted to ask was just on the corporate, multiunit trends, you continue to expect those to improve, I think starting next quarter. Can you quantify the magnitude of that there, and is this a positive or a negative for gross margin, within the US food service?
William J. DeLaney -- Chief Executive Officer
So, I guess to look at it from a high level, Kelly, it's definitely -- the trend is gonna improve, OK? So, what's been going on, as we've talked, we've been very thoughtful about the way we approach the multi-unit segment of our business, and we have had, obviously, some situations over the last year, where we've not renewed some business or lost some business, there. So, what we now are getting ready to do is, lap some of that, as we go into Q2, and we have picked up a couple of new customers, as well. And so, the combination of those things will, in fact, improve the multiunit sales trends that we've been seeing for the last three to four quarters.
As far as gross margin, obviously, overall, that business is a lower margin than our local customers. As far as us sharing a specific number with you, it'd be really difficult for us to do that. But, you certainly will expect, as we get overall customer growth volume going, that there'll be some benefits to the gross profit dollar line, and it could have some impact on margin.
Kelly Ann Bania -- BMO Capital Markets (United States) -- Analyst
Thank you.
Operator
Your next question comes from the line of Vincent Sinisi, with Morgan Stanley. Your line is open.
Vincent J. Sinisi -- Morgan Stanley & Co. LLC -- Analyst
Hey, good morning guys. Thanks very much for taking my question, and Bill, of course, best of luck to you, in the next chapter, here.
Bill J. DeLaney -- Chief Executive Officer
Thank you, Vince.
Vincent J. Sinisi -- Morgan Stanley & Co. LLC -- Analyst
Absolutely. Just wanted to, I guess first, just going back to inflation. Just to kinda get your sense, versus what you guys were expecting, heading into the quarter. Obviously, 3.8% was a bit above probably most of our estimates, on the line, here. Just wanted to see, versus your internal expectations, and if any changes have happened since. And, I know you mentioned there's been some kind of changes, where you can promote some of your private label. Has that been a kind of a meaningful change, with the higher inflation?
Joel T. Grade -- Chief Financial Officer
Well, here, let me take the first part of your question, and I'll have Tom chime in on the other. I think -- it's Joel. I mean, I would say that the level that we've seen, here in Q1, I'd say it's fair to say it's higher than we anticipated. And, I guess I would say that the speed to which it actually happened in a few of the categories we called out was, I'd say, something that happened faster than we anticipated. But, I think, at the end of the day, certainly, as Tom pointed out, I think some of the things that we've done, in particular, Redman and Catman certainly provided us with the tools and resources, and certainly, provide our sales team with the opportunity to manage this fairly well. And, again, I certainly -- as somebody called our earlier, the fact that our US broadline, our US food service, excuse me, in second, was relatively flat from a margin perspective, I think is pretty strong, relative to where -- despite, again, as you pointed out, things that happened probably faster than we anticipated. You wanna add anything to that?
Thomas L. Bene -- President, Chief Operating Officer
Yeah, the only thing I wanna add, Vinnie is that, obviously, we continue to see some inflation, for at least the balance of the calendar year. There are some things, like produce, that we think might be impacted more, given the recent fires in California. So, there are gonna be some continued areas we're gonna have to deal with. And, again, as we talked in the first question, I think we feel good about the tools we've got in place to manage through this. But, as Joel said, these categories that move fairly quickly, and fairly aggressively, is where we run into the biggest challenge, and we'll just need a little time to maneuver around that and work through it. But, I think we're doing a pretty good job.
Vincent J. Sinisi -- Morgan Stanley & Co. LLC -- Analyst
Okay, great, very helpful. And then, just a fast question on the international side, and I'm sure we'll get more color in December. But, just around Breaks, it seems like the UK is more of the macro issues there Would you say, though, that kind of the basis of the business now, with just over a year into the integration here, has been going relatively according to plan, and maybe just if there's any changes, in any of the regions, more just on a competitive front, or pretty much in line with your expectations.
Thomas L. Bene -- President, Chief Operating Officer
So, I would say it's relatively as we had expected, and on plan. Now, having said that, we are making investments over there, as we've talked. The transformation efforts in the UK continue. We're looking to make some other investments in some of the other parts of Europe, including France. And so, I think we continue to believe that it's a great business and one we see lots of potential out of. But, there are some things we need to get in place, and operating the way we want, to get that type of growth in the future. The only other thing we already talked about, with the UK in particular, and some of the macroeconomic challenges they have. The inflation there, driven by the currency issues, are significant. So, 9% inflation is a massive number, and we are seeing impacts from that, and we see that, unfortunately, continuing for some period of time, here.
So, I'd say that's the only other piece of this, that's different than what I would say we hoped or expected. Obviously, with Brexit happening, we knew there was going to be some impacts, but it's sustained at fairly high levels, for quite a while now.
Vincent J. Sinisi -- Morgan Stanley & Co. LLC -- Analyst
Okay, very helpful. Best of luck guys.
Joel T. Grade -- Chief Financial Officer
Thanks
Thomas L. Bene -- President, Chief Operating Officer
Thanks.
Operator
Your next question comes from the line of Karen Short, with Barclays, your line is open.
Ryan Gilligan -- Barclays Capital Inc -- Analyst
Hi, good morning. It's Ryan Gilligan, on for Karen, and thanks for taking the questions. Did you say what operating profit was, excluding Breaks? We're just trying to get to what the three-year incremental profit is now, and by rough math, it seems like you're up to $460 million. So, you would need to generate almost $200 million the rest of this year, to get to the high end. Does that sound right?
Joel T. Grade -- Chief Financial Officer
Yeah, so, this is Joel. I mean, we actually, if you wanted to take it dollars x Breaks, we added $52 million operating income dollars -- again, x Breaks. And so, that takes us to a total of $469 million, for now, the nine quarters of the three-year plan.
Ryan Gilligan -- Barclays Capital Inc -- Analyst
Got it, and would the $50 million VNA benefit contribute toward the plan, as well?
Joel T. Grade -- Chief Financial Officer
Yes. Yes, and that's gonna be spread evenly across the four quarters of the year.
Ryan Gilligan -- Barclays Capital Inc -- Analyst
Got it, and on tax reform. If it's passed, and corporate rates are lowered, what are your views on whether or not incremental profit dollars will drop to the bottom line, versus get competed away?
Joel T. Grade -- Chief Financial Officer
Well, yeah. First of all, to speculate on anything coming out of Washington right now's a little bit interesting. But, I think that -- look, we're a company where, obviously, a large percentage of our profits are in the United States, and just based on that fact, it certainly seems like a positive opportunity for us. I think, in terms of passing some of that along, I -- to be honest with you, I get asked this question, but I don't know that a lot of customers spend a whole lot of time thinking about the correlation of prices and tax reform, necessarily. So, I don't personally anticipate that being a significant issue, either way, as relates to this. But, certainly, again, overall, from our company's perspective, again, were that to happen, I think there's some positive opportunities for us.
Ryan Gilligan -- Barclays Capital Inc -- Analyst
That's helpful, thank you. And, congratulations, Bill.
Bill J. DeLaney -- Chief Executive Officer
Thank you, Ryan.
Operator
Your next question comes from the line of Chris Mandeville with Jefferies. Your line is open.
Christopher Mandeville -- Jefferies LLC -- Analyst
Hey, good morning. Just on the private label, or brand penetration itself. If you think about it, in the next three to five years, in both broadline and mobile, where do you think that ultimate penetration goal could go? And, maybe within that context, when you guys're having your conversations with your suppliers, how are those discussions going these days? Do you feel like maybe you're able to receive some greater concessions out of them if they're not necessarily providing innovative, or value-added products?
Thomas L. Bene -- President, Chief Operating Officer
Chris, from a Sysco brand perspective, as you know, we've continued to see this grow over the last couple of years, and our total business was up 62 basis points, and 82 basis points with our local customers. So, we continue to see opportunities there, and we get asked often, how high could it go? And, I don't think we really have a good view of that, and the reason I say that is, what we continue to focus on is, bringing very high-quality products to the market, at very competitive pricing. And, I think, as our customers continue to feel different impacts, whether that's the cost of labor, wage rate increases, or other challenges that might be on their business, product cost's always gonna be there, and we bring them alternative solutions with Sysco brand.
So, the other thing we've done, we've talked about, is we've been focused on bringing innovative solutions and products with Sysco brand, to the market. And, I think the combination of those things continues to be well-received by our customers, and that's why we see these increases. So, I know that doesn't answer you directly, but what I say is, we continue to invest here, we feel good about it. I talked about this brand revitalization effort. We've been doing a lot of work around refreshing the look and the feel of those brands, and making sure that they're on trend, whether that's with fresh, local products, or that's with the right types of products. Whether that be organic, or wholesome type products. So, we're doing a lot of work in that area, and it appears to be resonating nicely with our customers.
Christopher Mandeville -- Jefferies LLC -- Analyst
Alright, and the last one for me, very quickly. In terms of RIP, in the quarter, as you calculate it with and without Breaks, what were the numbers for those?
Joel T. Grade -- Chief Financial Officer
Yeah, the number, I think, in aggregate, was 12.3%, as an overall enterprise. Actually, Chris, off the top of my head, I don't have that number, without Breaks.
Christopher Mandeville -- Jefferies LLC -- Analyst
That's OK, we can follow up
Joel T. Grade -- Chief Financial Officer
I'll get back to you on that.
Operator
Your next question comes from the line of Marisa Sullivan, with Bank of America, Merrill Lynch. Your line is open.
Marisa C. Sullivan -- Bank of America Merrill Lynch -- Analyst
Morning, thanks for taking my question. I wanted to touch on the US broadline's business. And, when you exclude inflation and case guards, it looks like there were some other negative pricing impacts to US broadline sales growth? So, can you just give us a little bit more detail on this, and was it related to an inability to pass through all the inflation, or was it a decision by Sysco to get sharper on pricing, or was it a more competitive environment, just, more color there would be great.
Thomas L. Bene -- President, Chief Operating Officer
Hey, Marisa, I'm not sure exactly what you're referring to. I think we feel really good about the US broadline business, and we talked about it in context here, of our US foodservice operations segment. And, given, we talked about some of the impacts of the storms, on both volume and on gross profit dollars, and, obviously, the impacts on cost, as well. So, I think, when you think about everything that that business went through in this first quarter, we continue to feel very good about how we're managing it, including some pretty significant inflation, in the quarter. So, the fact that we're basically flat on our gross margin, given all those circumstances, we feel, actually, very good about that business.
Marisa C. Sullivan -- Bank of America Merrill Lynch -- Analyst
Okay, and are you at the point where you're getting any pushback on your ability to pass inflation onto customers, now that it's close to 4%?
Thomas L. Bene -- President, Chief Operating Officer
Again, I'd say, as we always talked, that's an average. So, category by category, sure, we run into some challenges from time to time, and that's where we leverage things like Sysco brand. And, generally, we share a lot of information with our customers. So, this isn't about just us moving our pricing. We share a lot of industry information with them, what's going on in the various categories. And, why the costs are going up from suppliers, the way they are. So, we're pretty transparent in that area, and we try to spend a fair amount of time educating our own people, so they can, obviously, educate our customers.
Joel T. Grade -- Chief Financial Officer
And, one other thing I'd say, Marisa, again, we had -- despite all those things, we still had a very strong local case stroke as well. So, when you combine some of that with, again, holding a flat margin during this time, I can overall, certainly, on a customer by customer basis, could there be some pushback? Sure. But, I think, overall, we've done a really good job, there.
Marisa C. Sullivan -- Bank of America Merrill Lynch -- Analyst
Got it, and just last thing, why don't you give us just a little bit more color on the sales performance in your non-restaurant customer, and how you're thinking about sales and margin opportunities within that segment?
Bill J. DeLaney -- Chief Executive Officer
Now, when you say non-restaurant customers, are you talking about other segments within -
Marisa C. Sullivan -- Bank of America Merrill Lynch -- Analyst
Well, it'd be like, hospitals, schools. Kinda the institutional customers.
Bill J. DeLaney -- Chief Executive Officer
We feel good about them. I think we continue -- we're fortunate that we've got this broad segment, that we operate in. Customer segments and our mix is such that while restaurants certainly represent a big chunk of it, there are lots of other customer segments. As we've talked in the past, we see growth in areas like the food service management. And also, in the retail food service. So, I think that the other segments continue to grow. Healthcare's always been a pretty good-sized segment for us, and we are performing well there, also. So, I think we feel great about the balance that exists across the segments, and I'd like to mention, other than making some decisions around certain multi-unit customers, we feel really good about where we are.
Marisa C. Sullivan -- Bank of America Merrill Lynch -- Analyst
Thanks so much, and best of luck, Bill.
Bill J. DeLaney -- Chief Executive Officer
Thank you.
Operator
Your next question comes from the line of Karen Holthouse, with Goldman Sachs. Your line is open.
Karen Holthouse -- Goldman Sachs & Co. -- Analyst
Hi, one quick housekeeping one. Could you give us a quick idea of what the blended interest rate on your debt was, this quarter?
Bill J. DeLaney -- Chief Executive Officer
Yeah, Karen, we'll have to get back to you on that.
Karen Holthouse -- Goldman Sachs & Co. -- Analyst
Okay, and then, looking at some of your commentary earlier about seeing strength in brands that are familiar, convenient, value. Is that really a comment on maybe some strength in fast food, relative to casual dining as a category, with what you're seeing in your customers?
Thomas L. Bene -- President, Chief Operating Officer
I think it's commentary, not necessarily on fast food, but on independent restaurants, and what we continue to believe is why they are positioned well to grow. And so, they're -- obviously, more flexible menus, more ease of creating the right environment for consumers. So, it has more to do with just acknowledging that there are lots of things still happening in that restaurant space, and these newer concepts, whether they're independent, or small, kinda multiunit chains, they are continuing to see growth, because they're bringing the kind of things that consumers are looking for to the market.
Karen Holthouse -- Goldman Sachs & Co. -- Analyst
And then, one other quick housekeeping. Are there any calendar shifts we should be thinking about, into the next quarter, with Christmas switching -- moving off of the weekend? And then, also, I think you lose New Year's Eve, compared to last year.
Joel T. Grade -- Chief Financial Officer
Yeah, Karen, I would say we wouldn't anticipate anything significant, there.
Karen Holthouse -- Goldman Sachs & Co. -- Analyst
Alright, thank you.
Operator
Your next question comes from the line of Andrew Woolf, with Booth Capital Markets. Your line is open.
Andrew Woolf -- Booth Capital Markets -- Analyst
Thanks, good morning. First, Bill congrats on your career, and best of luck with everything.
Bill J. DeLaney -- Chief Executive Officer
Thank you, I appreciate it.
Andrew Woolf -- Booth Capital Markets -- Analyst
So, I think, Tom, in your introductory comments, it sounded like x-hurricane, the US business accelerated a little on the case side and was a little better on the gross margin side. So, first, just to kind of check that, if you take the markets that were not impacted by the hurricanes, was the case growth, in fact -- the local case growth, over 3%?
Thomas L. Bene -- President, Chief Operating Officer
Yes, in many cases, it was.
Andrew Woolf -- Booth Capital Markets -- Analyst
Okay, but in total? I mean, I'm just trying to get some real -- because, obviously, estimates are one thing, and then there's other ways to sort of guess. I guess, another way I wanna ask it is, it's sorta related. So, how are these hurricane markets doing, post-hurricane? There's a lot of different theories, some are, people are pent up, and they wanna go out to eat, others are, is that they're close. People are moving. Are those markets normalizing, and are they running decently?
Thomas L. Bene -- President, Chief Operating Officer
Yeah, I would say, actually, it's a couple of key geographies, right? So, whether it's here in the southeast, where there are restaurants that are still closed, or in parts of Florida, like the Keys, where many things are still closed, much of the market is starting to get back to a normalized state. So, I would say yes, in general.
Andrew Woolf -- Booth Capital Markets -- Analyst
Okay, and related to that, the math, if you just took the math of what you said, it looked like the $10 million hurricane impact to the operating profits really came out of the case side, in the gross profits. But, it also sounded like, from what Joel, some of your commentary, it might've also been in the op-x side, which I also would've expected, you know. So, could you talk a little about that $10 million? Is it kind of a hard estimate, or how did you get to that?
Joel T. Grade -- Chief Financial Officer
Well, so, look. I get it. It's high level, it's ballpark, it's directional. I think, again, reasonably accurate. We looked at it mostly along the lines of, as you said, from a volume and gross profit impact. Certainly, from a productivity impact. Again, as we described it earlier, it's interesting. Our costs, to some extent, didn't go up, if you wanna call it that, because we had -- we were paying people, again, whether it was drivers, whether it was administrative people, we're paying them, regardless of whether we were shipping cases or not. And so, I would say, in general, from a productivity standpoint, on a per-case basis, we actually had some impact there. So, again, Andy, it's not an exact science, but we certainly got what we thought was a pretty reasonable view of it. Where we quantified it mostly was on the gross profit piece of that. And, probably maybe a little conservative on our part, but we thought it was a reasonable deal, what happened.
Thomas L. Bene -- President, Chief Operating Officer
And, that was all based on case volume, right? We didn't project any impact on a rate basis, on gross profit per case, we just looked purely at cases. You asked about the 3%. We think that's a fairly conservative estimate, given what our run rates were in those markets.
Andrew Woolf -- Booth Capital Markets -- Analyst
Got it, thank you. And, just wanted to follow up on Breaks, so my last question is, just as you look -- Joel, you mentioned you're recognizing and harmonizing the fiscal years, and that obviously has some tweaks to it. But, is most of the slowing from just what's going on there, with the cost inflation and consumer fundamentals side, with what's going on in the UK? Or, how would you apportion it, between accounting reconciliations, and a little fundamental slowing, or some fundamental slowing?
Joel T. Grade -- Chief Financial Officer
I'll start, and Tom can chime in. I'd say, Andy, it's really sort of both. Again, I think what I would say to you is that some of the timing issue's going to become more accelerated in the second quarter, which is why we're calling that out, which, again, will then rebound to some extent, in the second half of the year. But, I would say, for this particular quarter, it was some of both.
Thomas L. Bene -- President, Chief Operating Officer
And, I don't have anything really incremental to add. I mentioned earlier some of the other impacts, as you mentioned, from inflation, and some of the macros in the UK.
Andrew Woolf -- Booth Capital Markets -- Analyst
Okay, thank you.
Operator
Your next question comes from the line of Will Kirk, with RBC Capital Markets. Your line is open.
William Kirk -- RBC Capital Markets LLC -- Analyst
Thank you, could you talk a little bit about the rationale for the recent deals off mainland US? You gave some details on HSM, but how do you think about this deal, and the completion of the Costa Rica stake, versus opportunities that would be kind of more in and around your core or existing infrastructure?
Thomas L. Bene -- President, Chief Operating Officer
Let me -- I'll talk about those two, and then I'll let Joel kind of embellish on kind of our broader strategy, there. Let's start with the mica, in Costa Rica. So, as I mentioned, that was a business that we went into a joint venture with, back in 2014, we feel great about the partnership that we've had with the folks at Mica, and, as I shared, the results have been very positive, over the last couple of years. So, we exercised our option to, basically, acquire that business completely, recently. And so, that's an example of where we started down a path with a partner and liked the way it progressed, them leveraging what they could from Sysco, and obviously, them doing a great job in their marketplace.
Separate that from HFM, which is just an outright acquisition, in a market within the US, that's been white space for us. Other than some export business into Hawaii, we don't really have much of a footprint. We had no footprint there, and we didn't really do a lot of business there, so it's a whitespace opportunity for us that we're very excited about. They're a terrific distributor, with businesses on a lot of the islands, and we're really excited about what we can do together, in Hawaii. As far as other types of acquisition, I'll let Joel talk a little bit about how we think about it, and where you might see us focusing.
Joel T. Grade -- Chief Financial Officer
Yeah, I think the way I would characterize it, I mean, it's a little bit coincidental, I would say, in terms of timing, that we had two acquisitions we announced that were both on islands, here. But, I think, in general, I would tell you that our overall strategy, around M&A, those are both very consistent with that. We're very -- continue to be very focused on opportunities within our own domestic and core markets, or areas that might supplement our existing businesses, as well as geographic expansion. And so, I would just say, again, the timing probably a little coincidental on those two things. But, our acquisition strategy has remained very consistent, and those two deals are very much a part of our overall strategy.
William Kirk -- RBC Capital Markets LLC -- Analyst
Thank you, that's it for me.
Joel T. Grade -- Chief Financial Officer
Thank you.
Operator
Your next question comes from the line of Shane Higgins, with Deutsche Bank. Your line is open.
Shane Higgins -- Deutsche Bank Securities, Inc. -- Analyst
Yeah, good morning. Just a question, and some clarification here, on how the local case volume trends were during the quarter, in the markets that weren't impacted by the hurricanes. Did those accelerate throughout the quarter?
Thomas L. Bene -- President, Chief Operating Officer
Shane, did they accelerate? Think about this, we break our USO into six markets. And so, as you guys know, different things drive the business in different markets. Not the least of which is overall population growth, economic impact. So, as we said earlier, we saw good growth outside of those other markets, generally speaking, in the US. And so, we feel pretty comfortable with the numbers we've shared, regarding the impact due to the hurricane, in primarily, what we call our south, and southeast markets.
Shane Higgins -- Deutsche Bank Securities, Inc. -- Analyst
Okay, thanks for that, and how are case volumes trending, 2Q, to date?
Thomas L. Bene -- President, Chief Operating Officer
We continue to feel very good about the growth we've had in both local and, as I mentioned, change in multiunit.
Shane Higgins -- Deutsche Bank Securities, Inc. -- Analyst
Okay, great, thanks. I just had a question on the -- you guys called out some challenging inbound freight environment. Could you just give a little bit of color on what changed there, during the quarter, and what you guys are doing to mitigate these headwinds?
Joel T. Grade -- Chief Financial Officer
Yeah, I would just -- I'll take that, it's Joel. I would just say, in general, the way to think about it is that there's some level of shortage of drivers of inbound freight, and that's something that was happening somewhat prior to the hurricane, and that got accelerated by the bad weather. So, lots more sheetrock being moved, and I would say, carriers are taking the opportunity to move more expensive loads, that doesn't always necessarily -- that pitches supply on our side. And so, that was something, again, at the end of the day, our product costs -- basically, the cost of our products, plus the cost of inbound freight. There's some increases there, from an inbound freight perspective.
And, certainly, that's something, as we move forward, continuing to find ways to mitigate -- it has continued somewhat here, and as we move into this quarter.
Shane Higgins -- Deutsche Bank Securities, Inc. -- Analyst
Okay, great, and then, congratulations, Bill. That's it for me, thanks
Bill J. DeLaney -- Chief Executive Officer
Thank you very much.
Operator
Your next question comes from the line of Ajay Jain, with Pivotal Research Group. Your line is open.
Ajay Jain -- Pivotal Research Group LLC -- Analyst
Yeah, hi, good morning. Bill, I also wanted to say congratulations, and wish you good luck in your retirement.
Bill J. DeLaney -- Chief Executive Officer
Thank you.
Ajay Jain -- Pivotal Research Group LLC -- Analyst
Now that you've anniversaried Breaks, would it be possible to break out the actual currency impact, both in terms of revenues and operating profit? Maybe you already mentioned that earlier, and I might've missed it, but it would be nice to get a sense of the actual operating performance in international, after stripping out the currency impact. Especially for the markets that Breaks operates in. So, if you can comment on case trends for international, and also, the overall currency impact, that would be great. I'm assuming that you can track those things a lot more easily, now that you've cycled Breaks.
Joel T. Grade -- Chief Financial Officer
Yeah, so Ajay, sort of breaking it out specifically, again, we don't typically do that. Here's what color I would give you, though. And, actually, in general, the impact of foreign exchange, overall for us, has been relatively negligible for this quarter. So, there's -- some of the stuff we talked about, that Tom referred to, in terms of the weakness of the sterling, really has played itself out in the selling margins. Because there's a fairly sizable percentage of products in the UK, that are bought outside of the UK, which impacted the selling margins. But, if you actually look at the overall impact of foreign exchange, again, the US dollar's been somewhat weaker out there, the Canadian dollar, as well as the Euro. And, there has been some impact where the sterling has continued to weaken. But, overall, on the top line, and certainly, on our operating income line, there's been a relatively minimal impact, overall, in foreign exchange. More on the top, than overall.
But, again, not much of an operating income line, in the aggregate of everything.
Ajay Jain -- Pivotal Research Group LLC -- Analyst
Okay, so, going forward, should we infer that you're not going to be breaking out the currency impact, based on the year over year comparison?
Joel T. Grade -- Chief Financial Officer
Well, I guess what I'd say, in this particular case, since it was not significant, we didn't do it. If it's something really significant, we'll probably break it out.
Ajay Jain -- Pivotal Research Group LLC -- Analyst
Okay, and just one follow up. In terms of the US local case growth, you've had a pretty impressive run now, in terms of local case volume. So, over the past couple of years, since the start of your three-year growth plan, has there been any noticeable shift, in terms of where that volume is coming from? At this point, are you selling more cases to existing customers, or is the local case growth coming more from new business? I'm sure you'll probably say it's a little of both, but if you can comment, that would be great.
Thomas L. Bene -- President, Chief Operating Officer
Sure. And, it is, obviously, both. We track both penetration, which means more sales to existing customers, as well as new, lost business. And, I would say, in each of those areas, they've continued to grow. In food service, and generally, new business is very important, because there are a fair amount of customers each year, that cycle, for various reasons. And so, it's a pretty good balance, actually, of both, though. And, I'd say the thing for us, that we've really tried to focus on, is penetration, because we believe that the more products and services we can provide a customer, obviously, that also provides more what we'd call maybe stickiness, or loyalty, from those customers.
You heard me talk in the past about loyalty, and we continue to have a positive trend in our loyalty metrics, including about a 3-point improvement, in the first quarter. So, we feel good about what we're hearing from our customers, as far as what we're providing them.
Ajay Jain -- Pivotal Research Group LLC -- Analyst
Great, thank you.
Operator
Your next question comes from the line of John Ivankoe, with JP Morgan, your line is open.
John William Ivankoe -- JPMorgan Securities LLC -- Analyst
Hi. I think, at this point, my question is limited to some comments that Tom made, and I think his prepared remarks, around not just the move toward healthy, local, organic, in terms of consumer preferences, which is pretty easily understood. But, also, the comment around convenience, low cost, and familiarity. I interpreted that either in terms of traditional fast food, which is obviously done very well, over this cycle. But, it could also mean things that aren't necessarily restaurants, like maybe convenience stores, or maybe other types of foodservice operations, that are more hybrid, in terms of what they're approach is.
So, could you elaborate on that subsegment, and how big of an opportunity that is, relative to the business that you're currently serving?
Thomas L. Bene -- President, Chief Operating Officer
Sure. First of all, I think you articulated it, actually, pretty well, and so I think it was good to hear, that what we said was translated by you in the right way. I think there's some of this is certainly the retail segment that we've talked about. We do see it continuing to grow. But, the other segment that we all know is growing is this, I've come to think about it as prepared meals. And, this ability to get your -- whatever your favorite restaurant is, delivered to you now, versus either having to go there to dine in, or even go pick it up. And, we continue to see that movement happening, and there are lots of different folks getting into that space now. And, these prepared foods, that are both retail, but also, in many cases, food service outlets, that are handling that. And so, I think the more those folks continue to grow, that just provides more opportunities for our customers to grow, and for consumers to get access to things that they like and enjoy. And so, that, really, is what we were trying to refer to, there.
John William Ivankoe -- JPMorgan Securities LLC -- Analyst
Yeah, so that really sounds more independent restaurants and chains, or maybe that'll also include some smaller chains, in that segment. And, are you alluding to meal kits, as well? Or, is that a different segment than what you wanna be doing?
Thomas L. Bene -- President, Chief Operating Officer
Yes, to the first part of your question and comments, and sort of, meal kits? It's part of it, it's a very small segment. And, while I think it's still got some growth in it, as we've all seen, there's a lot of movement going on in that space, right now. I think what we're seeing though is, think about instead of someone like Blue Apron, where you're having to get something shipped to you, there are local outlets, that are accomplishing that same type of solution for customers, or for consumers, on a local level. Whether that be an independent, or a chain, who are providing that same type of service.
John William Ivankoe -- JPMorgan Securities LLC -- Analyst
Thank you.
Thomas L. Bene -- President, Chief Operating Officer
Yeah.
Operator
This concludes today's conference call. You may now disconnect.
Duration: 64 minutes
Call participants:
Neil A. Russell -- Vice President, Investor Relations, and Communications
Bill J. DeLaney -- Chief Executive Officer
Thomas L. Bene -- President, Chief Operating Officer
Joel T. Grade -- Chief Financial Officer
Kelly Ann Bania -- BMO Capital Markets (United States) -- Analyst
Ryan Gilligan -- Barclays Capital, Inc. -- Analyst
Marisa C. Sullivan -- Bank of America Merrill Lynch -- Analyst
Christopher Mandeville -- Jefferies LLC -- Analyst
John Heinbockel -- Guggenheim Securities LLC -- Analyst
Vincent J. Sinisi -- Morgan Stanley & Co. LLC -- Analyst
Edward J. Kelly -- Wells Fargo Securities LLC -- Analyst
Andrew Woolf -- Booth Capital Markets -- Analyst
Shane Higgins -- Deutsche Bank Securities, Inc. -- Analyst
William Kirk -- RBC Capital Markets LLC -- Analyst
Ajay Jain -- Pivotal Research Group LLC -- Analyst
Karen Holthouse -- Goldman Sachs & Co. -- Analyst
John William Ivankoe -- JPMorgan Securities LLC -- Analyst
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