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Sysco Corporation (NYSE:SYY)
Q1 2018 Earnings Conference Call
Feb. 5, 2018, 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 A. Russell -- Vice President of Investor Relations and Communications

Thanks, Megan, and good morning, everyone. Welcome to Sysco's second quarter, fiscal 2018 earnings call. Joining me in Houston today are Tom Bené, our President and Chief Executive 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 Reform Act, 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 Form 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 Investors section at sysco.com or via Sysco's IR app.

Non-GAAP financial measures are included in our comments today and in our presentation slides. The reconciliation of these non-GAAP measures to the corresponding GAAP measures are included at the end of the presentation slides and can also be found in the Investors section of our website.

To help 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 President and Chief Executive Officer, Tom Bené.

Thomas L. Bené -- President and Chief Executive Officer

Thank you, Neil, and good morning, everyone. Our second quarter results represent continued momentum in the business most notably in the topline fundamentals driven primarily by solid case growth. The quarterly results also include some circumstances that created gross profit and expense challenges as well as some tax-related impacts that Joel will describe in a few minutes. Nonetheless, our strategy of delivering disciplined, profitable growth remains our focus, and we are confident in our ability to deliver on our full-year fiscal 2018 financial targets.

Our results for the second quarter include sales increase of 7.1% to $14.4 billion, driven by U.S. Broadline local case growth of nearly 5%, gross profit growth of 5% and adjusted operating expense growth of 5.3%, which delivered an adjusted operating income increase of 3.9% to $579 million, and an adjusted EPS increase of 34% to $0.78. Further adjusting to remove the beneficial change in our statutory rate, adjust earnings per share grew 13.8% to $0.66. Joel will take you through the details in a few minutes.

We achieved these results in a favorable macroeconomic environment propelled by steady spending from businesses and households in the United States. Market conditions in the US for foodservice operators remained somewhat favorable as sales at restaurants continue to rise, offsetting somewhat lower traffic counts. Economic growth in the international markets in which we operate is mostly positive, including modest growth in the foodservice sector. However, significant food cost inflation in our UK business driven by a combination of old product cost increasing along with less favorable currency translation impacted both our volume growth and gross margins.

Transitioning to our quarterly results by business segment, beginning with US foodservice operations, sales grew 6.6% for the quarter. Gross profit grew 5.1%. Operating expenses grew 5.9%, and operating income grew 3.6% For the quarter, local case growth in our US Broadline business was very strong at 4.8% and has now grown for 15 consecutive quarters. Local case growth, excluding acquisitions, was also strong at 4%. Cases grew by nearly 2% with national customers driving overall case growth to a healthy 3.5%. The national customer case growth is the result of recently added new customers, and we will continue to look for opportunities to grow in this segment in a disciplined and profitable manner.

While we are pleased with the gross profit growth we delivered this quarter, we continue to face challenges from escalating inbound freight costs, which have provided headwinds to our gross profit dollar growth. The industry is facing driver availability challenges, which is leading to increased lane rates for many carriers. As a result, our cost to move products has increased, and we've had to utilize more spot loads to transport goods. We are actively working to mitigate these risks and continue to ensure that Sysco remains a preferred customer for the various carriers we work with.

From a product perspective, Sysco brand continues to grow with local customers making up almost 46% of cases purchased, which is up 37 basis points for the quarter versus the prior year. The consistent success we've seen is driven by a few factors, including the breadth of products that are offered across multiple categories and tiers along with continued progress from our brand revitalization work and new innovation concepts. Some examples of this work include products that offer our customers unique value through labor savings as well as on-trend products that fulfill specific customer needs. Our e-commerce ordering utilization continues to grow, and early indicators tell us Sysco customers who shop via digital platforms have higher penetration numbers versus customers who do not.

We are pleased to see increased utilization. However, we continue to believe that providing choice to our customers in how they want to interact with us is the right strategy to ensure the best possible customer experience.

Turning our attention to cost in our US Foodservice Operations, our expense growth for the quarter was roughly 6% driven by volume-based supply chain costs, start-up costs related to some new, national account business recently signed, continued investment in our selling organization and increased fuel prices. In supply chain, some of these costs are offset by improvements in productivity that are the result of reengineering the delivery process to be more efficient while also providing higher service levels.

In the selling organization, we are once again adding marketing associates in an effort to accelerate or local sales and are doing so through a targeting, insights-based approach where we have the greatest opportunities for growth. We continue to believe that our consultative approach to selling is a key driver for local case growth, and we believe these efforts will continue to enrich our customers experience of doing business with Sysco.

Moving on to International Foodservice Operations, we had mixed results for the quarter with sales growing 9.3%, gross profit growing 4.1%, adjusted operating expenses growing 11.9%, and adjust operating income declining 28.8% driven by the reporting change from a calendar year to a fiscal year, investments in our supply chain transformation, and new changes initiatives targeted to grow local customers all within our European business. Additionally, we had transition costs associated with the acquisitions of a large customer in Mexico.

Our business in Canada had a strong quarter with gross profit dollar growth of more than 4% and an operating leverage gap of nearly 2 points. This lead to strong operating income growth driven by an improving macroeconomic environment, increased restaurant traffic, and improved execution of our customer-centric strategy.

Our business results across Europe were mixed. Looking at overall product cost, the UK continued to experience acute inflation of about 6% during the second quarter driven by a combination of euro-zone sources and the relative impact of the pound sterling versus the euro. Also in the UK, we continue to invest in supply chain transformation to multi-temperature facilities and fleet, as well as new initiatives such as technology solutions that are being implemented to enrich the customer experience, which will ultimately lead to improved loyalty and local case growth.

Outside of the UK business, France and Ireland are performing well. France is driving solid topline growth, while recently completely key IT milestones that will help us to integrate the [Dabajel] and Break France businesses. This is another important step to build on our position as a leading European foodservice provider. In Ireland, we are ahead of expectations in cost synergies from the merging of Breaks Ireland and Palace Foods. And, finally, in Sweden, we recently acquired a small produce company that has broadened the range of fresh fruit and vegetable products offered to our customers, and we are seeing positive trends as a result.

As for our business in Latin America, we continue to be excited about the growth opportunities in this region. In Costa Rica, we continue to see solid growth and have continued our expansion of cash-and-carry locations to complement our Broadline footprint. In Mexico, we are absorbing the cost of adding a new customer and are due to annualize that addition next quarter. We remain confident in the performance of Mexico and expect continued growth in the future.

Our Sigma segment continues to grow and performed well this quarter producing high, single-digit growth in sales and growth profit while expanding gross margins by 6 basis points. Operating income grew approximately 6%. We are focused on continuing to improve operational performance that will contribute to long-term, operating income growth.

And, lastly, our guest supply entity continues to be a great business model serving our hotel customers with various products and services, which help them to be successful. Although their overall results were slightly down for the quarter, we are confident in their ability to deliver growth in the fiscal year 2018 and remain excited about the long-term potential for this business.

In summary, we feel good about the fundamentals of our business and about the trajectory we're on for fiscal 2018 to close out our initial three-year plan. Despite the inbound freight and unique expense challenges we experienced in the second quarter, we continue to make progress on our customer and operational strategies to improve our customers' experience. One example of this is Sysco's redesigned website, sysco.com, which will be launching this week. This site will be enhanced to further enrich our customers' overall experience of partnering with Sysco and to provide all those looking to engage with Sysco a clear understanding of the company's differentiated position within the foodservice industry. Showcasing Sysco breadth of industry-leading, innovative solutions including products, services, and customer-face technology, the updated site will reinforce Sysco's brand and recent positioning at the heart of food and service.

With that now, I'll turn the call over to Joel Grade, our Chief Financial Officer.

Joel T. Grade -- Chief Financial Officer

Thank you, Tom. Good morning, everyone. As Tom mentioned earlier, we are pleased with the topline fundamental results for the second quarter. Our earnings growth reflects strong sales and case growth, partially offset by challenges from inbound freight, increased investment in our sales force, and national customer start-up costs in our US operations. In addition, our continued transformation investments and integration costs in Europe, as well as the reporting change from a calendar year to fiscal year, impacted our performance for the quarter.

This morning, I'll start with our quarterly results. For the quarter, sales grew 7.1%, gross profit grew 5%, while adjusted operating expense grew 5.3%, which resulted in adjusted operating income growth of 3.9% and adjusted earnings-per-share growth of 34.5% to $0.78 per share. As Tom mentioned, when further adjusting for the tax benefit, our adjusted earning per share grew 13.8% to $0.66. This further adjustment assumes a consistent statutory rate to the previous year and provides a better apples to apples comparison of performance on an EPS basis.

For the second quarter fiscal 2018, we saw foreign exchange benefit to sales of approximately 1%. Sysco experienced inflation across all of our segments in the second quarter. In our U.S. Broadline business, we experienced 3.3% inflation driven by a few categories, including meat, dairy, and produce. The pace of inflation increases in some of these categories was rapid, ultimately driving overall inflation. Within our international business, inflation was a combination of both product cost increasing along with currency translation in the UK.

During the quarter, we had gross profit growth of 5% driven by overall volume growth and improved Sysco brand penetration. As Tom mentioned earlier, the increased inbound freight expense is a headwind for gross profit dollars as both the product cost and associated inbound freight both reside in our gross profit line.

Adjusted operating expenses grew 5.3% for the quarter. The increase in expense is largely due to overall volume growth, new customer start-up costs, increased investments in our sales force, and increased fuel prices in our domestic business, as well as investments in our transformation and integration costs in our international business. As a result, we did not leverage operating expense growth to gross profit dollar growth in the way that we would have liked to. However, we expect to improve this trend in the third quarter and for the remainder of the fiscal year.

As it relates to taxes, our results for the second quarter were impacted by excess tax benefits from stock option exercise and additional tax credits. In addition, for the new tax reform legislation, we incurred a provision estimated charge of $115 million for our one time transition tax on unrepatriated foreign earnings, and we incurred provision estimated benefit of $15 related to the remeasurement of our crude income taxes and deferred tax assets and liabilities due to the change in our US tax rate.

Because we are halfway through our fiscal year, our US statutory tax rate is prorated to 28% retroactive to the beginning of our fiscal year. Our second quarter income tax expense includes the tax benefit of approximately $64 million related to applying the lower rate to year-to-date earnings. Our US statutory tax rate will change to 21% in fiscal year 2019.

Cash flow from operations was $933 million for the first half of fiscal 2018. Net CapEx for the first half of the year was $255 million or about 1% of sales, which was roughly flat to last year. Free cash flow for the first half of fiscal 2018 was $679 million, which is $313 million higher compared to the same period last year. The significant improvement in free cash flow is largely driven by cash taxes that were not paid in the second quarter due to flood relief associated with hurricane Harvey. We continue to expect strong cash flow for the full fiscal year 2018.

Now I'd like to transition to three business updates. First, regarding second-half expectations, we still expect to see a stronger second half of the year, including the international segments, as we align the Brakes group calendar year to our fiscal year. Second, regarding US tax reform, we currently estimate $200 to $300 million in annual savings from lower taxes as a result of the Tax Act. We will continue to evaluate our options with regard to how to best utilize these savings and will do so consistent with our capital allocation priorities. Finally, as a financial update, we expect our earnings per share for the second half of fiscal 2018 to be positively impacted by $0.09 to $0.13 as a result of tax reform changes related to the ongoing effective tax rate.

In summary, I remain confident that we are on track to achieve our three-year plan financial objects 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 expect to deliver solid local case growth and good gross profit dollar growth along with improved cost management.

Operator, we are now ready for Q&A.

Questions and Answers:

Operator

At this time, I would like to remind everyone in order to ask a question, please press * followed by 1 on your telephone keypad.

Your first question comes from the line of Kelly Bania with BMO Capital Markets. Your line is open.

Kelly Ann Bania -- BMO Capital Markets -- Analyst

Hi, good morning. I was hoping you could just help us kind of understand the components of the pressures on the margin, the inbound freight, the investments in sales force, and the start-up costs. Can you quantify those? And just particularly on the inbound freight costs, how are you thinking about passing those along if those continue, and what is the mechanism to pass those on on the local side and the multi-unit side?

Thomas L. Bené -- President and Chief Executive Officer

Good morning, Kelly. Let me take a cut at that and then give a Joel an opportunity as well. Let's start with the freight and the margin side. So, inbound freight, obviously, does impact our gross margins, and as I think everyone's fairly aware, there's been significant increases specifically in spot loads in the marketplace driven by carrier challenges with drivers primarily. A lot of it started with some of the recent storm activity in our first quarter or the third quarter in the US and has continued. And we continue to see that impacting our business.

We're able to pass on some of that, certainly, to our contract customers, and we are doing everything we can to try move that along as quickly as possible. But on our local customers, it's obviously a little more sensitive. We're having to deal with both product inflation and the cost of that inbound freight. And it's just a balancing act to how much of that you can move through at any point in time with those local customers. And so we continue to work on that we, I think, are doing as good a job as we can leveraging against some of those tools we've built in our past. That we've talked about regarding revenue management. But the fact remains that the rates that are increasing in some of those spot loads are dramatic, and we are struggling to be able to pass all of that along.

That's one of the primary drivers, obviously, of the margin impact. The other things that we can talk more about is some of that customer mix is impacting margin, and, obviously, the impact of inflation, while we're able to pass along some of that, on a percentage basis it's affecting the gross profit percentage.

And then on cost, you'd asked about cost. A couple of comments there. The investment in sales force, we are, in fact, adding additional marketing associates. We believe that we have gotten to a point where you've heard us talk about leveraging data and analytics to target those resources. We're at a place where we believe we now can add effectively. Even though we're getting some leverage with e-commerce, we feel like there are enough opportunities, and we know where those opportunities are that we're now adding marketing associates again. And we feel really good about that and really do believe that will help us continue to accelerate our local case growth. So, those are a couple of the headlines. Joel, I don't know if there's anything you want to add to that.

Joel T. Grade -- Chief Financial Officer

Yeah, I think the only other thing I'd add is we talked about some of the start-up costs. Again, we certainly have conceded to talk about our disciplined approach to growing our business, and we did, as Tom mentioned earlier, take on some additional multi-unit business and have incurred some start-up costs associated with that. And so I think the one thing I would take away from a lot of that stuff, certainly, some of the challenges of the inbound freight were certainly actively, again, trumping to do something with. And these other areas with some of the investments in the sales force as well as some of the start-up costs from some of these multi-unit customers certainly over time, obviously, we expect some benefit out of that to come through.

Kelly Ann Bania -- BMO Capital Markets -- Analyst

Okay, that's helpful. Then just another one on the local case growth, obviously, very strong, ahead of your target for the next couple of years. I think the strongest growth on local in several years over the past couple of years but I'm just curious if you feel like that was market share gains on the local side or you feel like that local customer, in general, is improving. I know it's hard to pinpoint, but what's your sense just from talking to your customers?

Thomas L. Bené -- President and Chief Executive Officer

I think, Kelly, it's a combination of both. I think we're certainly having success and gaining some share in certain markets, and I think as we've talked, we feel pretty good about that local or independent customer, that restaurant operator, in particular, their ability to continue to grow in the local marketplace. So, I think it's a combination of both.

Operator

Your next question comes from the line of Vincent Sinisi with Morgan. Your line is open.

Vincent J. Sinisi -- Morgan Stanley & Co. LLC -- Analyst

So, just to go back, I know the big question on folks' mind, of course, around just kind of the margins, and as you've mentioned in the past, in an inflationary environment, should we basically think of it as the dollar is going up, the percentage going down? But I guess more of my question is as we're getting into the second half of the year when you're starting to go against compares that are less increases from last year, any thoughts on how you see that in the back half of this year -- for folks would be helpful?

Thomas L. Bené -- President and Chief Executive Officer

One, I think you got it right. Obviously, with inflation, dollars are going to go up generally, and the percentages are going to be pressured a bit. And we are seeing that. As an example, our gross profit per case has actually gone up in the second quarter. So, we feel good about that. Remember, though, this inbound freight thing is going to impact our gross profit line as well. So, gotta continue to keep that in mind. That's beyond the inflation. And I think as you think about it going forward, we're going to have some of those inbound freight challenges we believe will still be with us in the next couple of quarters. We're going to do everything we can to mitigate that and pass along where we can, but we know that's going to continue to be in there, and I think not knowing exactly how inflation's gonna play out and as you guys know and as we talk about a lot, even though it's an average number we talk about, there are certain categories that are moving a lot more than others. And produce is a great example of that. It's certainly impacted by some of the activity and the storm activity that's affected various parts of the US. So, long-winded way of saying I think modeling going forward, you should probably expect some continued pressure on the gross margin percentage, but we should be continuing to be able to grow our gross profit dollars at the rates we've talked about and our per case gross profit we anticipate to also be favorable.

Joel T. Grade -- Chief Financial Officer

Yeah, and I would just add I think when you look at some of the other components, our Sysco brand percentage continues to perform well. We continue to add benefit from category management. So, there's some puts and takes on this. Certainly, we're calling out some of the headwinds, some of the challenges, but we certainly have some good things happening as well. So, I think in general we actually feel good about that moving forward and certainly in the margin piece. When you factor out the impact of the freight and some of the inflation impact, again, I think overall our margins are actually in a decent place as well.

Vincent J. Sinisi -- Morgan Stanley & Co. LLC -- Analyst

Okay. All right, that's helpful, and then maybe just a quick follow up if you can give a little bit of an update just on the UK business. Obviously, we know that you've got inflation and some currency effects going on there, but just maybe more on kind of the fundamental investments that you guys have been making. I said we're making these now for the longer term, but just give us an update maybe how kind of far in you are. Is that something that we should expect to kind of wind down over the next couple of quarters? How should we think about that?

Thomas L. Bené -- President and Chief Executive Officer

Good question. So, the UK is probably of all those markets the most unique. Everything from the Brexit impacts that are still, obviously, not all that clear what the ultimate outcome of that's gonna be in the market. Because we source a lot of products for the UK out of other parts of Europe, that impact of Brexit, basically, but on the pound sterling versus the euro is certainly having an impact on our cost. Therefore, the inflation we're having to try to pass along in the marketplace is quite high, and so we've struggled to be able to in all cases move that completely through and remain competitive. I talked about the impacts both on our gross profit but also on our volume in that market, and some of that's driven by the competitiveness. And some of that's driven by the consumer not being as confident in that market as maybe they are certainly here in the US. And so I think we're gonna continue to see some of that on the margin line.

Regarding costs, when we acquired that business, they were on their journey of this [multi-temp] transformation. We are accelerating some of that across the UK and looking to get that in place, and so we still have, certainly, I'd say, another year or so of investments there that we have to make to get that up and running. And we feel good about it. We think it's the right thing for the long term, and it will certainly put us in a very solid position in the UK. But that investment's going to continue for a little while here.

Joel T. Grade -- Chief Financial Officer

Yeah, I just a couple things on that also. In addition to the multi-temp transformation, there are some things that we're doing even in terms of the way we go to market there that we're making some investments as well. And so, again, some of that's going to be ongoing. The one thing I'd remind you of though, and we've been calling this out over the last couple quarters, just to remind you, there was a calendarization impact that you saw this quarter that, again, we've certainly been foreshadowing here because as we switched the Brakes group from a calendar year to a fiscal year, again, all those things were true about some of the investments in here. But, again, just a reminder that some of the -- let's say -- somewhat acute performance that we saw this quarter certainly also in large part as related to some of the transformation of the calendar from a calendar year to our fiscal year and some of that impact's gonna be seen picked up in the second half of the year.

Operator

Your next question comes from the line of John Heinbockel with Guggenheim Securities. Your line is open.

John Heinbockel -- Guggenheim Securities LLC -- Analyst

A couple of things. Is inflation continuing to run here in this quarter kind of in that 3% range? And have you seen any change in pricing? You look at the pick up in local case growth. I assume that had very little to do with any change in pricing on your end. So, the price environment remains rational, or is that fair?

Thomas L. Bené -- President and Chief Executive Officer

Yes, so inflation, yeah, we expect it to continue kind of the same pace that is has been. And from a pricing standpoint, no, we didn't see really any major changes or impacts. And certainly, we aren't investing in price at this point. So, I don't believe that's an issue or will be one going forward other than the normal competitive environment we operate in.

John Heinbockel -- Guggenheim Securities LLC -- Analyst

And if I look in the US business, the margin pressure this quarter, do you think that was evenly split between inbound freight and impact of inflation? Right, so inbound freight maybe in that 10 to 15 basis point range, or is that not right?

Thomas L. Bené -- President and Chief Executive Officer

I don't know if we want to get that specific. Let me just remind you and everyone. We feel actually really good about the gross profit increase this quarter. We're up 5% in the US, and that's a really positive number even off the case growth numbers we shared. So, yeah, all those things are impacting that number including the addition of while our local was good, we also had an increase in the CMU business or that national account business. And those all impacted that gross margin number.

Joel T. Grade -- Chief Financial Officer

Yeah, I would say, John, just on a real high level, there's probably a little more impact of inflation than the other just, again, on kind of a high level.

John Heinbockel -- Guggenheim Securities LLC -- Analyst

All right, and then lastly, right, if you think about getting to $650 for the year, your target pre breaks, so US EBIT probably has to step up from where it is 300 to 400 basis points in terms of growth. What's the biggest thing that changes, and is it more on the SG&A line? I imagine It's more on that line than gross or is that not right?

Thomas L. Bené -- President and Chief Executive Officer

Yeah, it's on the SG&A line, clearly. You saw the numbers. Again, we feel really good about where we're at from a top line and a gross profit perspective, and we had some cost challenges that we're dealing with, but, yeah.

Operator

Your next question comes from the line of Andrew Wolf with Loop Capital Markets. Your line is open.

Andrew Wolf -- Loop Capital Markets -- Analyst

I just wanted to start with the inbound freight. Is that a structural thing? Or let me put it this way. Is that something you can fix structurally by increasing contracting or hauling it yourself? Or is that just something that's sort of you're stuck with and just gonna have to sort of pass through as the market allows?

Thomas L. Bené -- President and Chief Executive Officer

I think we're doing everything we can to try to mitigate the impact. I think the part's less controllable is as the overall shortage of drivers is there, the carriers are choosing what products they're gonna haul and who's gonna pay them the best rate to haul those products. From a service standpoint for us -- and I think you all know -- this is an industry. We've got to have our products available for our customers, and they've got to be there when they need them. So, we've got to make sure we've got them in our facilities. So, the big impact to us has been having to pay higher rates to get the products here so we can make sure we're servicing our customers. And we're always trying to balance that, but getting the products in the facility to be on hand for our customers is job one for us. So, long-winded way of saying I think you should expect that we're doing everything we can, but we're going to continue to see some challenges here as we try to impact that. It's not like we're gonna pick up a lot more loads ourselves because we're not going to necessarily add the fleet to do that or move our outbound organization to handle inbound. So, it really is something we've got to manage through our carrier partners.

Andrew Wolf -- Loop Capital Markets -- Analyst

Thank you. And just related to that, as a follow-up, do you have any sense that this is related at all to some of the things we've seen on the retail side of the food where Walmart and Kroger were getting shorted or they weren't happy with their logistics and started penalizing some of the vendors? Is this at all related to that where maybe some of the resources in the trucking world are going to make sure that's handled, or do you have any feel for that?

Thomas L. Bené -- President and Chief Executive Officer

It'd be hard for us to comment on whether that's driving it. I think we know what started a lot of this was the storm activity, and we know then carriers were either being diverted to carry and handle other products that those areas of the country needed. There's been some rail issues as, I think, have been well documented that also put some additional pressure on the trucking industry. So, there are probably lots of things, but I don't know if we can comment or know anything specific to the points you made.

Andrew Wolf -- Loop Capital Markets -- Analyst

Thank you, and sort of a housekeeping then I'll cede. This is for Joel. On the $200 to $300 million range from tax reform that it seems like you expect, it seems like a fairly wide range. Is that because you and your tax folks are still kind of figuring it out, or is it more some of the discretionary things you can do with CapEx another thing?

Joel T. Grade -- Chief Financial Officer

Yeah, I would say probably a little bit of both, and, obviously, this thing is somewhat complicated. There's certainly a lot of things we're looking to do to optimize this, which would certainly impact the dollars. Suffice to say, it's certainly with the significance of our profits in the US. It's certainly going to be a positive opportunity for us.

Operator

Your next question comes from the line of Marisa Sullivan with Bank of America. Your line is open.

Marisa C. Sullivan -- Bank of America Merrill Lynch -- Analyst

I just wanted to touch back on the expense outlook for the second half. You called out a number of factors that impacted your second quarter: customer service costs, fuel costs, increased investments in international. How much of those do you expect to persist into the back half of the year? And which of those would actually alleviate and help you to get that better back half performance?

Thomas L. Bené -- President and Chief Executive Officer

I think certainly the start-up costs, we anticipate those, obviously, going away or being much less in the third quarter and beyond. The investment in the selling organization, obviously, we're gonna have that with us for a while, but we look at that also as them providing growth on the top line so that the investment there we think gets covered pretty quickly with some of the other topline benefits. And then as it relates to a couple of the other things, the calendar move was a one-time thing, and the European business, the calendar year to fiscal year. So, those are the primary things. We talked about fuel -- the fuel rate. That will probably continue here for at least another quarter or so, but those are the primary ones I'd say.

Joel T. Grade -- Chief Financial Officer

Yeah, I think some of the other investments we talked about in Europe also, I mean, those are continuing to be ongoing. But, obviously, Marisa, there's certainly things we're doing -- we're working on -- that also ultimately those aren't simply the only categories of things that we're dealing with that we're focused on here. And so, again, we've said it a couple times, we certainly feel good about the remainder of this year, and as we head into the second half of the year, I think I certainly anticipate some of that cost pressure to mitigate some.

Marisa C. Sullivan -- Bank of America Merrill Lynch -- Analyst

Got it. And then just quickly to follow up on that, for the MA sales force expansion, do you expect that to continue in the second half, or was that more just the one time step up in 2Q? And then was the sales force investment, was that mainly just in the MAs that you're hiring, or are you also seeing any wage pressures on that part of your business?

Thomas L. Bené -- President and Chief Executive Officer

Great question. So, think about it as we've added the resources now. So, it's somewhat of a onetime or an acceleration. And now that they're here, obviously, the cost will continue, but we don't look to continue to accelerate that beyond necessarily those numbers, at least at any significant pace. And from a wage pressure standpoint, we really aren't seeing anything new or different for our business.

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

Just circling back on the previous question, what was your productivity for the US marketing associates during the quarter, and has it kind of capped out here? And should we expect it to decline slightly as you guys step up investments in the selling organization?

Thomas L. Bené -- President and Chief Executive Officer

Hey, Shane, so we don't necessarily talk about or share productivity metrics for our selling organization, but if your question is, are we feeling like they are continuing to be productive and grow in their productivity, the answer is yes. Obviously, the e-commerce work that we've been doing and the utilization continuing to grow is enabling that. In addition, the way we're resourcing and supporting them with this consultative model we also feel like is continuing to drive productivity. The opportunity we saw was in targeted areas where we were underdeveloped, and we felt like we had now enough insight and knowledge around where we could target those resources to drive incremental growth, specifically with our local customers. So, that's why you're seeing the investment we're making, but we feel really good about that organization and the progress we keep making and the leverage we're getting with them across the business.

Joel T. Grade -- Chief Financial Officer

And, Shane, the only other thing I would add is that one of the great advances we've made as an organization is the ability to actually roll out new sales associates once they get through their training with actually larger territories than we used to have with some of the tools, some of the things that we've talked about there. Even the newer people are more productive faster in the world we're in today. So, I think that's also a benefit.

Shane Higgins -- Deutsche Bank Securities, Inc. -- Analyst

And then just a question on the lower corporate tax rates, do you guys think that gives you an advantage versus some of the smaller, private distributors out there? I'm not sure if their taxes are similar to yours or if they're completely different. Thanks.

Joel T. Grade -- Chief Financial Officer

Sure. So, again, this is probably a little bit of me giving an opinion or speculating here, but I would say in many cases as we've gone down the acquisition trail, we certainly have some exposure to some of the smaller distributors that are in our industry. And I would just say this. In some -- not all -- but in some cases, certainly, part of their goals as a family owned business is to minimize their tax that they would pay. And so I would say that in general our ability, again, given the amount of profitability we have in the US and sort of, again, just the amount of tax that we pay relative to our overall profitability, I would say that we have a good opportunity over and above in some cases what they may have. Again, that's a very general statement, not necessarily implied at all, but I would certainly say that there is probably some opportunity there for us versus some of the particularly smaller family owned competitors.

Operator

Your next question comes from the line of John Ivankoe with JPMorgan. Your line is open.

John William Ivankoe -- JPMorgan Securities LLC -- Analyst

First just a question on international, I mean, we've talked about the calendar to fiscal calendar shift a couple of times. I'm sorry if I missed this Joel, but did you quantify in dollars or in basis points -- whatever you want to do -- how that hurt the second quarter and therefore how it may help the third?

Joel T. Grade -- Chief Financial Officer

We didn't, John. We have called it out for a couple quarters now that we're certainly looking to the fact that this quarter we see a negative impact to that. that would then be somewhat picked up over the last couple quarters, but we did not quantify that.

John William Ivankoe -- JPMorgan Securities LLC -- Analyst

Okay, but that amount was not adjusted out of operating income as one of the operating income adjustments for the international segments. Is that correct?

Joel T. Grade -- Chief Financial Officer

That is correct. Did not provide any of that, no.

John William Ivankoe -- JPMorgan Securities LLC -- Analyst

Thank you, just clarifying that. And then certainly it's interesting, and I think you touched on this a number of different places, but it is interesting that you're adding marketing associates at this point in the technological cycle. Obviously, you're putting some of the technology initiatives in the hands of the customer allows them to order easier and allows your salespeople to focus more on selling and consulting as opposed to order-taking. Is there maybe a point in your forecast -- I don't know if it's '19, '20, '21, whatever it is -- where you expect the sales force to become much more efficient, in other words utilizing technology themselves to the extent that they can cover bigger territories as you mentioned? Just want to get a sense when you can inflect to where we can actually start to leverage the salespeople as opposed to think in incremental cost, which I think was the case in the second quarter?

Thomas L. Bené -- President and Chief Executive Officer

So, John, let me try to take a shot at that. So, again, because this is what I said a couple minutes ago around how we're thinking about this, we actually feel really good about the productivity we're getting out of our existing selling organization. You gotta think about though is there's a difference between better managing the current customers and trying to acquire and drive our relative share in the marketplace through incremental business. And so I think you need to think about the two of those in conjunction, and the adding of salespeople really on a more targeted basis is all around trying to improve our position in certain markets where we believe we've got significant opportunities. And given our share position relatively in the industry, we've got plenty of room to grow, and we've talked about that. And so it's a combination of, yes, you should expect us to continue to get productive with our current selling organization with existing business. But as we look to take on new business, we do need resources in place, and those resources not only are the people but the training and the support that goes along with that. So, it is an investment but one we feel really good about and one we feel like will create a nice return for us.

Joel T. Grade -- Chief Financial Officer

Just to reiterate. Tom said that extremely well, and I think the one thing just to reinforce. You should not take away from this that for whatever the reason there's a productivity impact in a negative way of any of this stuff. We certainly look at this as an ability to continue to take share, again, in a targeted way. And so that to me is separate and distinct from the fact that we also have some continued increases in productivity through some of the tools we've talked about. They are not mutually exclusive here in terms of adding MAs and driving productivity.

John William Ivankoe -- JPMorgan Securities LLC -- Analyst

Okay, understood. And, certainly, in the press release I think selling expenses were called out, and so when you see that, you just assumed that we're just going through, I guess, an investment phase before we can start to get some of that full benefit. Maybe that's where a lot of the questions are arising from.

Joel T. Grade -- Chief Financial Officer

I think that's fair.

Operator

Your next question comes from the line of Chris Mandeville for Jefferies. Your line is open.

Christopher Mandeville -- Jefferies LLC -- Analyst

Joel, just excluding the calendar change to international and how that might affect Q3, should we be expecting the underlying business to have a better second half versus the first half?

Joel T. Grade -- Chief Financial Officer

The underlying business in international or just in general?

Christopher Mandeville -- Jefferies LLC -- Analyst

In general.

Joel T. Grade -- Chief Financial Officer

Yeah, so, yes. The answer is yes, and certainly, in part of the end of my script, I wanted to make sure I called that out. We do anticipate an improvement in the second half of our year over the first half of our year, and so I think, again, in a number of different areas, but I would certainly say the answer to that is yes. Again, we certainly try to call that out in my script.

Christopher Mandeville -- Jefferies LLC -- Analyst

Okay, and then just one on the modeling front for me. Assuming you guys are still looking at CapEx of one-three to one-four as a percentage of sales, that would imply a pretty sound acceleration in the back half of this year.

Joel T. Grade -- Chief Financial Officer

Yeah, that hasn't changed. We typically experience, actually, a heavier amount of CapEx in the second half of our fiscal than we do in the first half, and, again, our first half CapEx is very consistent with where we were in the last year. And so we do anticipate some level of acceleration in the second half.

Christopher Mandeville -- Jefferies LLC -- Analyst

Right. And just a follow up on that when it comes to D&A, is there any ability to help us guide with that line item since it's been moving around quite a bit?

Joel T. Grade -- Chief Financial Officer

Yeah, no, I mean, we haven't typically guided that. I don't think there's anything really unusual to go there. As you would model just our normal CapEx, I would think just keep a normal view of D&A, I think, is reasonable. There's nothing really exciting there.

Operator

Your next question comes from the line of Edward Kelly with Wells Fargo. Your line is open.

Edward J. Kelly -- Wells Fargo -- Analyst

Hey, Joel, can I just clarify just from a guidance perspective, you're still talking about the upper end of the $600 to $650 million excluding Brakes. What should we be thinking about for Brakes at this point? I think at one point you were expecting that business to be flat year-over-year. I don't know if that's still the case. As we piece all this together, what should we be thinking about from Brakes in this year as we try to get ourselves to total EBIT?

Joel T. Grade -- Chief Financial Officer

What I'll tell you is we're going to give you a little update on that probably in our Q3 call. I would say it's likely that we'll be slightly less than flat, although some of that is due to -- and the reason I'm hedging in terms of the timing of this -- there were some actual tax reforms that happened in the UK and in France as well that we're still working through to be able to quantify the impact-of that also factor into that number. And so, again, I would anticipate that there'd be somewhat less than we guided, but, again, I'd like to get a better number before I quantify that for you. And we will plan to do so.

Edward J. Kelly -- Wells Fargo -- Analyst

As we think about international as a whole, is it possible for international to be flat this year? And I ask that question because EBIT was down about $40 million in the first half, and I'm just wondering how big of a ramp we should be expecting in the back half of the year with this calendar change.

Joel T. Grade -- Chief Financial Officer

Again, I don't want to be nonresponsive to your question, but we just haven't guided that number. I would just suffice to say that, again, there will be some level of pickup in the second half of the year, but, again, we haven't guided specifically to what that looks like. And keep in mind as Tom talked about earlier, there's been some level of acceleration where we've seen opportunities that we anticipate a long-term benefit from to accelerate some of the investments we've made both in the multi-temp and in some of the go-to market as well.

Edward J. Kelly -- Wells Fargo -- Analyst

Just to follow up on the question of tax reform, as you go through the process and think about the possibility for reinvestment, can you maybe just talk about the process, what you're considering. You could probably make the argument that you've already made some reinvestment given what we've seen on the start-up side and the SG&A but just thoughts around how much of reform at the end of the day you think you're going to end up keeping versus putting back into the business and how you think about that.

Joel T. Grade -- Chief Financial Officer

Yeah, so I think the main takeaway I'd have from that, number one, one of the things I talked about in my prepared remarks is around making investments in our business that are in line with our capital allocation priorities. And the reason I said that, specifically, is that we've gotten a lot of different questions around will you invest in pricing? Will you do some of those things? And the answer to that is that's not part of what we're talking about here. When we talk about investing in our business, we're talking about opportunities -- again, part of our capital allocation priorities -- to continue to find ways to accelerate items, to invest in assets and technologies and people in ways that ultimately drive long-term value for this organization. So, I would look at it and think about it more that way, and, again, certainly what we're not thinking about is turning around and investing that ultimately in price. And, again, as you know, our capital allocation priorities, I think, are quite balanced between investing our business and providing value to shareholders. And I think that, again, our overall investment moving forward is going to be very consistent with that.

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

I had a question on just the currency impact. I'm guessing that currency should have helped this quarter as opposed to being a tailwind, and I don't think that's been the case for a while. So, now that you have clean comparisons for Brakes year-over-year, can you confirm what the currency impact was in Q2 on a consolidated basis or even just for international specifically? So, I'm just wondering if you have any color on the relative impact from currency on revenue expenses and the earnings impact overall?

Joel T. Grade -- Chief Financial Officer

On a topline basis, it was just a little bit over 1%. There was, obviously, impact on the gross profit, impact on the expense. For the most part, that washed out as you translate that down to our operating income line, but we did have some benefit on the top. Again, certainly, the little bit of relative strengthening in the sterling and the Canadian dollar relative to the US is really what's driven that recently. But at the end of the day, again, the overall impact on the operating line is not a lot, but on top, we did get a percent.

Ajay Jain -- Pivotal Research Group LLC -- Analyst

Okay, that's helpful. So, really no flow through to earnings you would say from currency?

Joel T. Grade -- Chief Financial Officer

Yeah, I would say a nominal amount but nothing that I consider really significant there.

Ajay Jain -- Pivotal Research Group LLC -- Analyst

I had one follow up on tax reform, and my question is two-fold. So, maybe it's a little early to talk about the consumer-related impact, but do you have any preliminary sense on whether there's been any kind of impact, like and discernable impact on restaurant spending in general in terms of what you're seeing and what you're expecting going forward? And then I was also interested in how your customers are reinvesting the tax benefit. I don't know if you've got a lot of direct visibility into that, but I'm also curious if you expect to see any benefit being plowed back into wage adjustments by your multi-unit or broad-line customers?

Joel T. Grade -- Chief Financial Officer

Well, why don't I start? And then I'll let Tom add his thoughts on as well. A couple comments there, I think broadly speaking anything that ultimately is positive for the consumer or positive for the overall economy we certainly would view as a positive for our industry. And so I'd certainly start with that. I think the question of have you seen the impact or what do we anticipate from a restaurant perspective, that's really gonna vary to some extent across restaurant types. Again, one of the things I mentioned a little bit earlier in terms of the smaller distributors, a lot of our local restaurants tend to be family owned businesses. So, again, this is really me just opining as much as anything else, but to some extent, more family run businesses tend to try to look at ways to minimize tax. So, I'm not necessarily sure on the local level that there's gonna be that -- again, in all cases, it'll be different -- but so much impact from that perspective in their ability to plow some of that back into the business -- on the multi-unit side, probably some extent more so. But, again, I would just go back to saying in general where there's a positive macroeconomic opportunity there, I think that certainly provides something we see positive benefit for our industry. And I don't know if there's anything else you want to add, Tom.

Thomas L. Bené -- President and Chief Executive Officer

Yeah, you guys have probably seen some of the restaurant data. Some of it was good for December. If you think about same-store sales, traffic continues to be a challenge in certain areas for sure, but same-store sales seem to be growing, and that's helpful. Also, if you look at the relative improvements throughout the end of last year, it was stronger, obviously, than the first part of the year. So, I think a lot of the indexes that are out there, a lot of the data that's being shared across the restaurant industry is somewhat positive during this quarter. And so we're hopeful that that continues. The consumer confidence that Joel was referring to and that we're all hearing about and reading about you hope translates into hopefully increased traffic but certainly increased sales in the restaurants.

Operator

Your next question comes from the line of Bob Summers with Macquarie Securities. Your line is open.

Bob Summers -- Macquarie Securities -- Analyst

I guess I want to leverage that question a little bit and maybe ask it in a different way, which is when you look at prior instances where the consumer has had tax relief, can you go back and look at a discernable change within restaurants and your business? I think it's widely speculated on the street that with sort of restaurant spending being near the top of the list that you'll be a beneficiary, but empirically I'm wondering if you have any data from the last 30 years or so.

Thomas L. Bené -- President and Chief Executive Officer

The data at the top there, we have not spent any time looking at that. It's probably something worthy of us in the industry looking at, but I can't honestly say we've got that data in front of us. But we tend to believe a lot of the things that we're all seeing and reading. And I think that that will continue. We know in this business consumer confidence, unemployment, all those things are positive drivers for foodservice and for restaurants in particular. And so we're hoping that all those things do, in fact, continue to provide some nice tailwinds for this industry.

Bob Summers -- Macquarie Securities -- Analyst

And then separately on the incremental hiring of salespeople, which I look at advantageously or as a positive, that seems a little different than maybe you've been talking about over the last, you know, pick a timeframe. One, am I interpreting that right, and then, two, I guess if it is different, what's driving the change?

Thomas L. Bené -- President and Chief Executive Officer

That's a great question, Bob, and I think you are interpreting it correctly in that over the last probably year and a half or so, I would say we were more stabilized with our selling organization. We were very focused on building out this consultative model. And so where we were maybe adding some in the past, it was more around the support resources versus the actual selling resources. We're now at a place both because we have the insight and data to tell us where we should be focusing, and we've, I'd say, optimized -- might be the right word -- that current selling organization. We felt like it was the right time to be able to start to add. So, we just feel like we're in a much better position from an insight and knowledge basis and know where we have the opportunities to go ahead and start making those additions.

Operator

There are no further questions at this time. This concludes today's conference call, and you may all disconnect. Have a great day.

Duration: 59 minutes

Call participants:

Neil A. Russell -- Vice President of Investor Relations and Communications

Thomas L. Bené -- President and Chief Executive Officer

Joel T. Grade -- Chief Financial Officer

Kelly Ann Bania -- BMO Capital Markets -- Analyst

Vincent J. Sinisi -- Morgan Stanley & Co. LLC -- Analyst

John Heinbockel -- Guggenheim Securities LLC -- Analyst

Andrew Wolf -- Loop Capital Markets -- Analyst

Marisa C. Sullivan -- Bank of America Merrill Lynch -- Analyst

Shane Higgins -- Deutsche Bank Securities, Inc. -- Analyst

John William Ivankoe -- JPMorgan Securities LLC -- Analyst

Christopher Mandeville -- Jefferies LLC -- Analyst

Edward J. Kelly -- Wells Fargo -- Analyst

Ajay Jain -- Pivotal Research Group LLC -- Analyst

Bob Summers -- Macquarie Securities -- Analyst

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