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DATE
Tuesday, July 29, 2025 at 2 p.m. ET
CALL PARTICIPANTS
President and Chief Executive Officer — Kevin Hourican
Chief Financial Officer — Kenny Cheung
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TAKEAWAYS
Sales— $21.1 billion in reported sales for fiscal Q4 2025 (period ended June 28, 2025), representing 2.8% growth on a reported basis and 3.7% sales growth excluding the divested Mexico business.
Adjusted Operating Income— Adjusted operating income was $1.1 billion for fiscal Q4 2025, an increase of 1.1%, supported by strategic sourcing initiatives.
Adjusted EPS— $1.48 adjusted EPS for fiscal Q4 2025, marking 6.5% adjusted EPS growth.
Gross Profit— $4 billion in gross profit for fiscal Q4 2025, up 3.9%, with gross margin expanding by 19 basis points to 18.9%.
International Segment— Generated 3.6% top-line growth on a reported basis, or 8.3% growth excluding Mexico; local case growth was 4%; adjusted operating income rose 20.1%, achieving a seventh straight quarter of double-digit adjusted operating income growth for the International segment as of fiscal Q4 2025.
SYGMA Segment— Delivered 5.9% sales growth in fiscal Q4 2025, and achieved 8.3% top-line and 12.5% bottom-line growth for fiscal 2025.
U.S. Foodservice Volumes— Declined 0.3% in fiscal Q4 2025; local volume down 1.5%, with a 200 basis point improvement over fiscal Q3 2025; after adjusting for an exit from a FreshPoint business, local performance was -1%.
National Sales Volume— Increased 1.3% in fiscal Q4 2025, with gross profit within national sales growing almost three times faster than volume.
Operating Cash Flow— $2.5 billion; free cash flow was $1.8 billion, impacted by higher cash taxes, interest, and working capital timing.
Shareholder Returns— $1.3 billion in share repurchases and $1 billion in dividends distributed.
Profit Improvement Initiatives— $100 million cost savings program drove fiscal Q4 2025 margin gains and is expected to provide benefits into fiscal 2026.
Fiscal 2026 Guidance— Projected 3%-5% reported net sales growth ($84 billion to $85 billion) for fiscal 2026, 2% inflation assumption, and adjusted EPS growth outlook of 5%-7% excluding incentive compensation lapping effects.
CapEx Estimate— Approximately $700 million, with growth and maintenance split, and a focus on ROIC improvement.
Dividend Guidance— Expected 6% annual increase in dividend per share.
Net Debt Leverage Target— End-of-year net leverage anticipated within the 2.5 to 2.75 range, with current total liquidity about $3.8 billion as of fiscal Q4 2025.
Strategic Investments— Expansion of international supply chain capacity, new local sales hires in major metros, and further digitization of customer experience cited as growth drivers.
SUMMARY
Sysco(SYY -0.59%) posted sequential improvement in sales, gross profit, and operating income for fiscal Q4 2025 (period ended June 28, 2025), highlighting stronger momentum entering the new fiscal year. Management specified the stabilization of sales colleague retention as a central driver for improved customer retention and future case volume gains. Cost optimization, particularly via strategic sourcing and technology initiatives, delivered measurable gross margin expansion and was positioned to support profitable growth into fiscal 2026. Guided sales and EPS increases were underpinned by expected positive contributions from new international investments, engineered sales programs including Perks 2.0, and accelerated salesforce productivity. Profitability assumptions factored in the non-recurrence of fiscal 2025's customer losses and incentive compensation dynamics, with no forecasted adverse impact from ongoing price agility pilots.
Kenny Cheung stated, "We generated approximately $2.5 billion in operating cash flow and $1.8 billion in free cash flow."
Divestiture of the Mexico business is expected to reduce Q1 and Q2 top-line growth rates, prompting continued modeling updates through fiscal 2026.
Salesforce headcount is set to expand approximately 4%, emphasizing that increased tenure and reduction in colleague turnover are forecasted to deliver improved financial leverage over time.
The AI-empowered CRM ("AI 360") and the Perks 2.0 loyalty program are being deployed nationally as key enablers to increase sales efficiency and deepen customer relationships.
Management reaffirmed a strategic focus on both bolt-on M&A opportunities and international expansion, while maintaining prudent balance sheet discipline and capital allocation priorities.
INDUSTRY GLOSSARY
SYGMA: Sysco's dedicated broadline distribution segment serving chain restaurant customers.
USFS: U.S. Foodservice Operations, Sysco’s core domestic distribution business.
Case Volume: The aggregate count of foodservice distribution "cases" delivered, a standard industry measure for tracking underlying unit growth.
Perks 2.0: Sysco's selective, service-enhanced loyalty program targeting top-performing customers to increase share of wallet and retention.
AI 360: Internal label for Sysco's artificial intelligence-powered CRM sales enablement tool.
FreshPoint: Sysco’s specialty produce distribution division.
Gross Profit per Case: Financial measure indicating the amount of profit earned on each delivered case, signifying pricing and sourcing effectiveness.
ROIC: Return on Invested Capital; efficiency metric for capital allocation and asset productivity.
Full Conference Call Transcript
Kevin Hourican: We appreciate your joining our call this morning. Today, we will recap our fourth quarter performance, highlight our full year 2025 outcomes, provide an update on key initiatives that will drive our momentum in the new fiscal year, and finally, Kenny will share our view on our guidance for fiscal year 2026. Let's get started with a highlight of our fourth quarter financial outcomes. We are pleased to report that our fourth quarter adjusted results exceeded our expectations. Traffic to restaurants improved throughout the quarter, and Sysco-specific initiatives delivered improved financial outcomes. Top to bottom. The progress accelerated throughout the quarter and has continued into July for Sysco.
All considered, Q4 was a relatively steady quarter from the perspective of restaurant foot traffic. On a monthly basis, April traffic trends for the industry were down 1.5%, May was down 1%, and June was down approximately 0.9%. The quarter overall was down 1.1%, which represented 190 basis points of improvement versus Q3's traffic level of down three. It is good to see the industry stabilizing after a rocky start to the calendar year. I'll now pivot to Sysco's results for the quarter. As you can see on Slide four, we delivered sales results of $21.1 billion, up 2.8% on a reported basis, and up 3.7% to last year when excluding the divestiture of our Mexican business.
We delivered adjusted operating income of $1.1 billion, up 1.1% to last year and adjusted EPS growth of $1.48, up 6.5% relative to last year. Importantly, we made solid progress on our $100 million profit improvement target with a strong contribution in Q4 from our strategic sourcing efforts. Our International segment posted another compelling quarter, with 3.6% top-line growth on a reported basis and up 8.3% to last year when excluding the divestiture of Mexico. International posted strong local case growth of plus 4% in the quarter. Adjusted operating income increased 20.1%, representing the seventh consecutive quarter of double-digit profit growth. Strength was delivered from across all international geographies, notably strong performances from Canada, Great Britain, Ireland, and Latin America.
We expect a continuation of strong international financial performance in fiscal 2026. Within USFS, our national sales business delivered 1.3% volume growth for the quarter. Unpacking those results further, our non-commercial national business continues to perform at a very high level. With strength in foodservice management, education, and travel and leisure. Most importantly, gross profit within national sales grew almost three times faster than volume. Due to the excellent efforts by the team to improve the profitability of the national business. The strong profit improvement was delivered through customer optimization and the creation of win-win provisions in our contracts that motivate customers to partner with Sysco to optimize efficiency.
Our Sigma segment delivered sales growth of 5.9% for the quarter, driven by strong customer wins versus the prior year. For the year, Sigma grew top line 8.3% and bottom line 12.5%. It was a record year for our Sigma business from top and a bottom line perspective. It is important to note that the Sigma top line growth rates will begin to moderate in the coming year as we begin to lap large customer wins earned in 2025. On the local side of our business, we delivered negative 1.5% case volume within our U.S. Food segment during the quarter. As shown on Slide eight, this was a meaningful 200 basis point step up versus our Q3 outcomes. U.S.
Foodservice volume reporting included impacts from exiting a business within FreshPoint that did not meet our profit thresholds. Which negatively impacted our total local performance by over 50 basis points. When excluding this intentional business exit, our USFS local business performed at a negative 1% rate. Again, a meaningful step up versus Q3 and a strong improvement relative to our full year results. More importantly, as I mentioned, we had a strong exit velocity in the quarter, as Sysco-specific initiatives to improve our local performance are taking root. I'll discuss these efforts in more detail.
Now that we have reviewed our business results for the quarter, I'd like to discuss the key initiatives that are going to drive our performance and local case volume growth for fiscal 2026. Let's start with our international segment. Like Sysco Your Way across the globe, Additionally, have improved our customer and colleague-facing technology in the international segment, making it easier to do business with Sysco. We are adding incremental local sales resources in key international geographies, primarily metro areas like Toronto, Dublin, and London. To drive new customer wins and improve customer engagements. Lastly, our international supply chain capacity expansion efforts continue. With our newest facility, outside of London on track to open later this calendar year. National.
Our national sales business continues to perform well. Selling circuit. We expect Sysco's national sales growth in 2026 will be driven by our foodservice management sector, travel and leisure, and increases in our healthcare business. To further unlock growth, we are allocating our national sales resources to the highest potential segments of the business and are making technology investments to deepen our connectivity with our largest customers. Lastly, total team selling is beginning to gain traction amongst our largest customers, with an increasing percentage of national customers purchasing from at least one of our specialty platforms. Lastly, I'd like to discuss our improvement efforts and strategic growth drivers for our local business.
Let me start by saying that we are very confident that we will deliver profitable local volume growth in 2026 within every country we operate. Especially in The United States. We have addressed the key challenge of 2025 head-on and we have growth activation initiatives launching this summer. First off, I want to start by discussing our sales colleague population. We have fully stabilized our sales colleague retention and are now fully focused on improving sales colleague training, productivity, and effectiveness. The stabilized colleague retention is important. Because it will drive significantly improved customer retention in 2026. As we enter 2026, we will be lapping last year's excessive COLI turnover and will replace that condition with strong in-year retention.
A headwind in 2025 will be converted into a tailwind in 2026. We are seeing the beginning positive impact of this equation in our July results. That positive impact will grow throughout 2026. As I mentioned a moment ago, now that we have stabilized retention, through training and upscaling of our sales colleagues. As Kenny has said many times, this time horizon is important. As it is when the productivity of a sales consultant significantly improves. As each quarter progresses, an increased number of our sales consultants will eclipse their twelve to eighteen-month mark increasing their positive impact on Sysco's results. As sales colleague tenure improves, our results improve.
Lower turnover in 2026 means higher customer retention, and higher retention means more productive colleagues. These two factors will be powerful drivers of improved outcomes for Sysco in 2026. To complement the strength and productivity of our sales professionals, and further improve our business results, we are launching select growth initiatives this summer and fall. First up, is a rewiring of our Perks customer loyalty program. Perks will evolve from a marketing and rewards platform into a hard-hitting exceptional customer service program targeting our most important customers. The why is clear. These customers buy the most, buy the most often, and they deserve the absolute best from Sysco.
We have trained our operations, inventory, merchandising, and sales teams on the key tenets of Perks 2.0 and we are ready to launch this summer. The program will improve customer retention and will improve penetration of business with existing customers. Next up is an AI-empowered sales tool to help improve the productivity of our sales colleagues. As you know, we leverage a CRM platform to guide the work of our sales teams. Our technology teams have been hard at work to supercharge our CRM capabilities by leveraging AI, to help our sales consultants succeed. The enhanced capabilities will reside in the palm of the colleague's hand on their smartphone.
The features of the tool will help our team to drive increased levels of selling effectiveness, increased close rates on sales suggestions, and deliver higher rates of customer satisfaction. To say that we are excited about this capability would be an understatement. Our newer sales colleagues will benefit the most from the powerful capabilities of our AI-powered CRM. Last up is price agility. As we have previously communicated, we are piloting improvements to our pricing that improves sales colleague engagement with customers by providing the Salesforce the ability to be more agile in responding to pricing requests. Our sales reps will be enabled to make decisions in the moment leveraging the science of our pricing software.
In July, we are expanding our pilot to additional geographies. To learn more about the change management process required for a national rollout. As I wrap up my prepared remarks, we are pleased with our strong performance in Q4 and the progress that we are making in local volume. Most importantly, we are excited about the exit velocity of the quarter and that the momentum has carried into July. We are confident that improved sales consultant retention, increased sales consultant tenure, and the three growth programs I just covered will drive profitable and positive case growth for Sysco in fiscal 2026. We expect that positive local case growth will in turn support our financial targets.
With that, I'd now like to turn the call over to Kenny. Kenny, over to you.
Kenny Cheung: Thank you, Kevin, and good morning, everyone. I plan to start with high-level thoughts on our performance, detail our financials, and then introduce our full-year 2026 guidance. As we outlined before, business plans don't always materialize the exact way we draw them up on paper. This year was no different. However, our teams remain both nimble and focused as we leverage our leadership position within the industry successfully apply the Sysco playbook. The operational rigor of our organization provides us a high degree of confidence for delivering our 2026 guidance across the P&L and our capital allocation commitments.
To start, financial results this quarter included sales growth of 2.8% and adjusted EPS growth of 6.5%, representing strong year-over-year performance and noteworthy sequential improvement compared to the prior quarter. This sequential acceleration is visible across sales, including both national and local volume performance but also across gross margins, adjusted operating income, and adjusted EPS. This is an important proof point as we enter FY '26. Q4 adjusted EPS growth included benefits from our disciplined strategic sourcing efforts aiding in the delivery of 3.9% growth in gross profit translating to 19 basis points of gross margin expansion.
These results include an increase in both dollars and rates of performance and reflect structural improvements that we expect to carry into the next fiscal year. Our investments in sales headcount and capacity expansion continued this quarter, alongside benefits from ongoing efforts to optimize cost and prudent tax planning. This ultimately rendered outsized profit growth with adjusted EPS growth of 6.5% accounting for the strongest rate of growth for the year. During fiscal 2025, we remain committed to rewarding our shareholders by repurchasing $1.3 billion in shares and paying out $1 billion in dividends. Now let's discuss our performance and financial drivers for the quarter. Starting on Slide 12.
For the fourth quarter, our enterprise sales grew 2.8% on an as-reported basis, driven by U.S. Foodservice, International, and Sigma. Excluding the impact of our divested Mexico business, sales grew 3.7%. Volumes across the enterprise sequentially improved with total U.S. Foodservice volumes decreasing 0.3% and local volume decreasing 1.5% in the quarter. This represents a 200 basis points improvement in local case performance and 170 basis points improvement in total foodservice on a sequential basis quarter over quarter. The sequential improvement was consistent with the industry traffic for the quarter but importantly, our performance accelerated in the quarter with a strong June exit rate.
We are seeing stronger contributions from newer sales professionals as they work up the productivity curve and the benefits from the stabilization of colleague retention. These factors directly contributed to an acceleration in new account growth for the quarter. We expect an acceleration in sales productivity to continue in FY 2026. These sequential volume improvements also benefited our U.S. FS segment results. Top and bottom line results for the quarter represent a sequential improvement, and we expect our investment actions in 2025 to deliver financial tailwinds in 2026 and beyond. International segment results included continued top-line momentum and double-digit operating income growth.
This was across all markets, and marked our seventh consecutive quarter of double-digit operating income growth adding to our impressive multiyear track record. These results reflect ongoing success as we apply the Sysco playbook to generate local volume growth of 4% and broad-based operating income growth across the international portfolio. Sysco produced $4 billion in gross profit up 3.9% and gross margins of 18.9%. With improved gross profit per case performance. This notable margin improvement includes a mentality of continual improvement with cost savings driven by our strategic sourcing initiatives. Inflation rates and USBL were approximately 2.4%. International inflation was slightly higher for the quarter at 3.4%.
Overall, adjusted operating expenses were $2.9 billion for the quarter or 13.7% of sales, a 28 basis points increase from the prior year. The increase was driven by planned investments, in higher growth areas of the business with fleet, building expansion, and sales headcount. Corporate adjusted expenses were up 9.8% from the prior year driven by insurance, investments, and other costs, which were partially offset by accretive productivity cost out. For the full year, corporate adjusted expenses were down 6% reflecting solid progress on our existing cost savings program. Overall, adjusted operating income grew to $1.1 billion for the quarter reflecting continued strong growth in our international segment Sigma, and more stable results in our USFS segment.
Fourth quarter results also include a noncash goodwill impairment charge of $92 million related to our guests worldwide business. Our balance sheet remains robust and reflects a healthy financial profile. Flexibility and optionality from approximately $3.8 billion in total liquidity well above our minimum threshold. We ended the year at a 2.85 times net debt leverage ratio with plans to return to our target ratio at FY 2026. Turning to our cash flow. We generated approximately $2.5 billion in operating cash flow and $1.8 billion in free cash flow. Free cash flow compared to the prior year was impacted by higher cash taxes, interest, and working capital timing.
Now, I would like to share with you our expectations for FY 2026 as seen on Slide 22. During FY 2026, we expect reported net sales growth of approximately 3% to 5% approximately $84 billion to $85 billion. These assumptions include inflation of approximately 2% which we are seeing now, volume growth and contributions from M&A. of $4.5 to $4.6 representing growth of 1% to 3% which includes an approximate $100 million of headwind from lapping lower incentive compensation in FY '25. An impact of roughly $0.16 per share. With FY 2025 behind us, we wanted to provide full visibility to the carryover impact from incentive comp for the year and by quarter as outlined. On slide 23.
This impacts year-over-year comparability for expenses. Compensation structure rewards for business performance. As such, this carryover impact reflects challenges this past year in 2025. Importantly, our incentive comp structure is focused on core business drivers and aligned with the long-term interest of our shareholders. Excluding this impact, our outlook reflects adjusted EPS growth of approximately 5% to 7% with the midpoint in line with a long-term growth algorithm. To help with phasing for Q1, we expect to grow our adjusted EPS consistent with the annual growth rate of 1% to 3%, driven by part of carryover benefit strategic sourcing to gross margins and the impact from lapping incentive compensation.
Q1 and Q2 sales growth rates will be impacted by the divestiture of our Mexico JV in December 2024. We plan to provide additional modeling updates as the year progresses. This financial guidance assumes improvements to be driven by our Sysco-specific initiatives with industry foot traffic and macro environment similar to current conditions. It also includes carryover impact related to sourcing benefits from our $100 million cost savings program. As mentioned on prior calls, this muscle memory is built across the organization leveraging a stronger operating model that positions us to grow share profitably. We remain on target for shareholder returns through $1 billion in dividends and approximately $1 billion in share repurchases planned for FY 2026.
This is all based on our current expectation and economic conditions and could flex based on M&A activity for the year. Specific to our dividend, our expected payout for FY 2026 equates to a 6% year-over-year increase on a per-share basis highlighting our commitment to our standing as a dividend aristocrat. In terms of leverage, we expect to end the year within our stated target of 2.5 to 2.75 times net leverage ratio and maintain our investment-grade balance sheet. Now turning to a few other modeling items. For FY 2026, we expect a tax rate of approximately 23.5% to 24%, and adjusted depreciation and amortization of approximately $870 million.
Interest expense is now expected to be approximately $700 million, while other expenses are expected to be approximately $45 million. The elevated DNA levels will be driven by continued capacity expansion such as the expansion outside of London this coming year, as Kevin highlighted. CapEx is expected to be approximately $700 million representing less than 1% of sales. This includes growth and maintenance CapEx, and an eye towards optimizing spend levels across the enterprise as the organization further sharpens our collective efforts around driving ROIC.
We are looking ahead, we like our position and we remain focused on leveraging our position as the industry leader to support the growth of our customer while also continuing to unlock value for our shareholders. With that, I turn the call back to Kevin for closing remarks.
Kevin Hourican: Thank you, Kenny. We are pleased with the strong performance in Q4 and more importantly, the strong exit velocity of the quarter. Our leadership team placed tremendous focus on improving our local business. Strengthening our gross profit through strategic sourcing, and tightly managing our expenses through productivity improvements. The team stepped up and delivered a beat performance versus what we expected ninety days ago and I'm proud of their efforts. As we look toward 2026, we expect to build upon the Q4 momentum and deliver improved financial results for Sysco and our investors. Our top-line results will strengthen based on the sequential improvement of our local business throughout 2026. The improvement starts and ends with our colleague population.
We have stabilized colleague retention, As a result, our customer loss rate will improve greatly in '26 versus '25. Stabilizing colleague retention will also enable us to improve colleague productivity in 2026. We will measure our improvement through the continued expansion of our gap between new customer wins and reducing customer losses. The spread between new customer wins and customer losses improved greatly in our Q4, In fact, the gap between new and lost doubled in Q4, versus the year-to-date results in Q1 through Q3. We see the positive spread between new and loss, expanding further in 2026 through the growth initiatives that I covered on today's call.
Our future is bright at Sysco, we are excited for the year ahead. We head into this next fiscal year with positive momentum and we are well-positioned for continued improvements. We plan to leverage our competitive advantages as the industry leader. This includes strong diversification across our diverse customer types, our wide product assortment, and our geographic diversity as the only global player in the food away from home landscape. Food away from home is a good business, It takes share from the grocery channel every year, As I've said before, the pie is getting bigger, and Sysco intends to take a bigger slice of that expanding pie.
We are confident shareholders are positioned to benefit from our industry-leading dividend, compelling ROIC, intentional share buybacks, and improving financial results. Q4 displays the beginning of improving our local business and the momentum will accelerate throughout 2026. I am thankful for our leadership team and our entire 75,000 colleague population for the strong efforts in 2025. The team leaned into some stiff challenges in the macro and at Sysco specifically. The hard work of the past year is poised to have a positive impact in 2026. With that, operator, we're now ready for questions.
Operator: We'll take our first question from Jake Bartlett with Truist Securities. Please go ahead. Your line is open.
Jake Bartlett: Great. Thank you for taking the question. Mine was on the momentum in the local case growth and you saw it in the fourth quarter, an improvement from the third. That was roughly in line with, with what industry traffic trends were. You mentioned an improvement in June and July. The question is whether you're gaining share, within June and July. Are you seeing that acceleration, that shouldn't be that you expect to come with, the better, you know, with the Salesforce getting more productive? Just trying to gauge the inflection that you're seeing there, the impact that's having on your market share gains.
Kevin Hourican: Good morning, Jake. It's Kevin. Thanks for the question. Yes. So we're really pleased with Q4's progress versus Q3, but more importantly, that exit velocity. So it's in the data that we shared. June versus May was flat from an industry traffic perspective. Our performance in June was considerably better than May, which obviously conveys progress that we're making, and that progress has continued into July. It's important to note that drivers, yes, traffic improvement helped, and we're pleased that the industry overall is seeing some strength relative to the tough start to the year. It's the colleague retention piece that is the most notable.
We stabilized our colleague retention in Q4 and that will have meaningful positive impact as we enter 2026. We're not gonna be lapping those losses until we're in Q1. That's the point. So the strength of that the headwind of '25 being replaced by a tailwind in '26 will be evident as we enter our Q1. So we wouldn't have expected that positive impact to be in Q4 because these are losses that have already occurred and you carry that loss into your at month 13. So we've stabilized retention. That is an important key point. Contribution positive significantly increases. An important data point I put in my prepared remarks, I just wanna make sure it came through clearly.
The gap between new and lost in Q4 was double the gap that we experienced in queues one through Q3. And, again, that strength will be visible and evident in fiscal 2026 as that loss rate comes down significantly. When I add on top of that, the three growth initiatives that I referenced on today's call that launch this summer and into early fall we have significant confidence in our ability to deliver positive and profitable local case growth to take share, and that gives us the confidence in the guide that we put out there. It starts and ends with the colleague population stability, which we have achieved.
And the tools that we are providing to our colleagues that help them increase their productivity. I'll talk to toss to Kenny if he wants to add anything.
Kenny Cheung: Sure. I agree with Kevin. Three things from me. The first is, you know, we are encouraged by the fact that we continue to see geographies already hitting our growth expectations driven by SC additions and improved retention, as Kevin just mentioned, and that's carrying over into Q1 2026. That's point number one. Point number two is, you know, Kevin talked about this. The twelve to eighteen months is really important for us as the SE jumps on their productivity curve. And also seeing our retention playbook work across experience well. Right? So you have your year twos, goes to year three.
Three to four, four to five years as well, and that helps on the overall sales pool, which actually drives our new customer accounts. This past quarter, we opened more new accounts than any other period this year. And, Jake, as you know, new accounts are tomorrow's penetration opportunities. And then last but not least, we're seeing our service levels. Go up as well. Bill rates are up. Time delivery is up as well, and this is the leading indicator for future business generation. Thank you.
Operator: Take our next question from Jeffrey Bernstein with Barclays. Please go ahead. Your line is open.
Jeffrey Bernstein: Great. Thank you very much. Just following on the top line trends. Encouraged to see the improvement in recent months. Just wondering to what you attribute in terms of the broader industry that gives you confidence in sustaining the momentum over the next twelve months, Sysco's expectations, Just wondering if you could share any color in terms of local case volume growth within the 3% to 5% sales. I think you mentioned positive you may believe your thoughts on M and A, whether for yourself or perhaps related to headlines that we've seen recently about consolidation among some of your larger peers. Just hoping to get a little bit more perspective on that. Thank you.
Kevin Hourican: Okay. Good morning, Jeff. I'll start with broad industries to traffic to restaurants down approximately 1% in the quarter, certainly better than Q3. We believe Q3 was a bit of an anomaly. That when the external news was quite negative, consumer confidence dropped. The conversations about tariffs and the impact on consumer confidence that was happening. In our Q3, calendar Q1, the industry took a pretty significant step back. It's We think the anomaly was actually the start to the year, and we're expecting the current conditions to continue for 2026. Read down slight traffic to the industry overall for this next fiscal year. And the growth that we will deliver will come from taking share.
We're confident in our ability to do that. As I mentioned a few moments ago, we're not going to repeat the customer loss rate that we experienced in 2025. We will be lapping those customer losses. We've been doing great with new customer wins over the past three quarters. I've shared that pretty openly. On earnings calls. So we will sustain new customer win rate. We will significantly improve our customer loss rate. And when we layer on top of that, the Perks 2.0 program I mentioned, which is going to significantly improve the service experience that our top customers will benefit from. That's gonna drive penetration improvement. That will drive improved customer retention as well.
The AI 360 capability, which is our name internally for the AI-empowered CRM, is going to be meaningfully helpful. I'll talk more about that. I'm sure as a part of this call, And we put all those things together. We are confident even in a flat to down overall macro. That we can grow local that we will grow it profitably, and that will occur in fiscal 2026. So, Kenny, I toss to you for, additional about the guide. Over to you.
Kenny Cheung: Sure. Absolutely. So, you know, in terms of foot traffic, you know, Kevin's right. You know, one thing to put things in perspective, foot traffic, while it's a good proxy as a whole for Sysco. If you think about our business, right, we have two-thirds of our business is restaurant. And one-third of our business is recession-related categories such as education, health care, travel, and the likes. And even within restaurants, our, like, our customer ranges from QSRs casual dining to fine dining. So and let's not forget that 20% of our business is international segment, which serves as a, in our view, a strategic counterbalance. Right? Enhances the resiliency stability of our overall business.
In terms of the guide itself, Jeff, on the three to 5%, let me unpack that a little bit for you. So top line, three to 5%, which is $84 billion to $85 billion. Remember, on a year-on-year standpoint, there is a lapping in here from the divestiture of Mexico. That is roughly 50 states points on a year-on-year standpoint. Right? So and then if you decouple between volume and inflation, inflation is roughly assumed at 2% inflation. And right now, Jeff, we are operating right around that ballpark right now. USBL quarter was 2.4%, and international was roughly 3.4%. The majority of the spread between US and international was FX driven.
So, again, long story short, 2%, it's where we're upping it right now, and it bodes well for the industry. On volume and M&A contributions, those two combined, you can you can probably model in two to 3% growth. And that's what you tie back to the three. To 5%.
Kevin Hourican: Okay. And then the third part of your question, which was the speculation on industry news. So we're not gonna speculate on M&A rumors in the industry for Sysco. We're focused on driving profitable growth within our strategic capabilities. What we are very pleased with is that Q4 was better than the entire year June was better than Q4. July, that momentum discontinued. As we progress into 2026, we've been lapping in accelerated or elevated loss rate last year that will not be repeated.
When we layer on top of that condition, the growth initiatives that I just referenced, we have strong confidence in our ability to take share profitably grow the business, and deliver upon the guidance that was just communicated by Kenny, and we're positioned, therefore, to have you know, compounding improvement to the overall financial health you know, of the company. So we have confidence in our ability to succeed in the marketplace. Thank you. Thanks, Jeff.
Operator: We'll take our next question from Alex Slagle with Jefferies. Please go ahead. Your line is open.
Alex Slagle: All right. Thanks. Good morning. Question on international, just given the recent strength in this business, do you expect the year-over-year gross momentum we've seen to moderate a bit as you lap this growth? Maybe you can just kind of call out some of the specific drivers that give you the visibility for that growth to continue, as we roll through the year?
Kevin Hourican: Yes. Good morning, Alex. This is Kevin. We expect the success in our international segment to continue. In 2026, not to moderate or slow down. The why is it's the health is coming from all geographies. It's coming in the top, the middle, and on the bottom of the P&L. And I'll just highlight a few of the examples. The success we're having on the top line, which is volume strength, in local, we're driving a four-plus percent case growth in local. We expect for that level of performance to continue. Into 2026. For the following reasons. We're adding sales resource headcount into the street sales side of the business, the local side of the business, in major metro.
So, Toronto has an opportunity to see increased headcount, boots on the ground, boots on the street, increasing our ability to serve local restaurant customers. We're doing that play in Dublin. We're doing that play in London. We are doing that play in Stockholm. When we do that, international, we're increasing our physical presence on the ground. And we are seeing market share capture coming from that. We've improved our website in each of those countries. We've improved our ability to have relevant pricing in each of those countries. In each of those three vectors, is driving volume capture. Examples like Sysco Your Way are enabling that success.
In the middle of the P&L, we've launched strategic sourcing in every country, and we're we did that first in The United States. We've carried that playbook to each international geography. Food is inherently purchased local. But that capability of strategic sourcing exists and that opportunity exists in every country. And we're expanding our profit margins. Because of that excellent work done by our merchandising and buying teams. And on the bottom line, deploying enterprise technology improved warehouse technology, improved routing technology, improved back-end software, to increase efficiency in businesses that were more manual than Sysco is used to and accustomed to has driven significant bottom-line growth seventh consecutive quarter of double-digit profit growth.
So, Alex, we're really bullish on international this is just within the countries that we compete within today. Our opportunities are bright. International, and we are very bullish on our long-term future. Internationally. Kenny, anything to add?
Kenny Cheung: Yeah. So, you know, Alex, as we think about the margin profile, of this business, there's nothing structural that impedes our ability to achieve the same profit levels in The US. There's a lot of upside here. You know, just think back a few years ago, the margin of the business was roughly 2%. Since then, we've doubled the margins to 4% now. So that train will continue. The last thing I would say is that it's a place that we will continue to invest for growth. That's part of our working capital strategy. And the future capital allocation strategy.
The two recent acquisitions ahead of our own deal model from both a commercial go-to-market standpoint as well as the cost energy standpoint. Great. Thank you.
Kevin Hourican: Thanks, Alex.
Operator: We'll take the next question from John Heinbockel with Guggenheim. Please go ahead. Your line is open.
John Heinbockel: Hey, so Kevin, I wanted to drill down right on the sort of the Salesforce local case growth relationship. So I assume with your commentary that local case growth is maybe this is a wrong assumption that it's positive today or it's crossed into positive territory. What's your current thinking on how you wanna grow the Salesforce? Right, versus that seven goal that you had originally? You know? And then what do you think what's the right number if it's if the effort is working? What's the right number that local case growth should grow at? Your mind?
Kevin Hourican: Hey. Good morning, John. Thanks for the question. I'll start with our expectations of Kali growth for fiscal 2026. We anticipate adding approximately 4% incremental sales professional headcount in fiscal 2026. As we look back on fiscal 2025, one of the reasons the headcount investments that we have already made are not showing up in the outcomes of the year just completed is the excess or excessive colleague turnover that we had, which resulted in an increased customer loss ratio, which was masking the incremental benefit that was coming from the new hires. It's incredibly important to note that we track every single new hire in a cohort or class that they join with.
We're able to model where should they be from a productivity perspective. In month three, month six, month nine, month 12. Every one of the hiring classes that we have done, those colleagues are hitting those productivity targets. Kenny has said many times, month 13 matters. It's when they break through to begin to be productive and eclipsing month 18 matters even more because there's a turbocharge. Increased headcount each and every quarter is hitting that incredibly pivotal twelve to eighteen-month period. We're not gonna be repeating the customer loss rate. Therefore, we will inflect to positive case growth in fiscal 2026 from local and profitable case growth to boot.
So Kenny, any additional comments you'd like to make about guidance for '26?
Kenny Cheung: Yeah. So as you think about the headcount, just putting, you know, in numbers context, So in 2024, we hired 450. In 2025, we hired 300. And then as Kevin said, 4% increased in 2026. If you add that altogether, the CAGR of the growth rate of sales account is roughly mid-single digits. On the forward, we do we do believe we will render a return from this investment. That's point number one. Number two, the know, we I think we talked about this analogy before. The faucet is turning on right now.
In on the four, from a long-term stability standpoint, we do expect headcount growth to be in line with volume growth, therefore, driving positive leverage on our P&L.
Kevin Hourican: Thanks. Thanks. Thanks, John.
Operator: We'll take our next question from Kelly Bania with BMO Capital. Please go ahead. Your line is open.
Kelly Bania: Hi, good morning. I was wondering if we could go back to the price agility initiative and what are the financial implications of that initiative? I believe it's intended to drive growth, but is there any sort of trade-off between margin and case growth? And you mentioned maybe the desire to learn more about the change to support a broader rollout. Wondering if you can elaborate on that. And is it is it in your plan for this fiscal year that does broadly roll out to more regions, or does this remain kind of a pilot and regional test?
Kevin Hourican: Yeah, Kelly. Good question. Thank you. It's Kevin. I'll start. So the stated financial objectives would be to improve volume, but to do so profitably. So maintaining margin percentage but driving increased volume through the pipe. That's the stated objective. The objective is not to lower margin rate to drive volume. We could do that centrally if that was something that we wanted to do. It's to give that sales colleague the opportunity to be responsive in the spot moment the needs of the customer. That sales colleague understands even better than a computer does the emotional items that a customer has within their menu, within their book of business. If that customer presents themselves with, hey.
I think I can do $2 better elsewhere, we need to give that colleague the opportunity to respond in the moment. The change management I'm referring to is the need for that colleague to then be able to do something we call sell around the room, which is I'm gonna give you that price that you just asked for, but I know you're buying produce from someone else. I have the best produce program in town. And can we talk about having my FreshPoint colleague join me next week when I visit you to get that product put onto the Sysco truck? That's the change management.
That's the selling skills development that is necessary as a part of giving more decision-making authority into the hands of that sales colleague. Kenny always makes the point. The compensation for that colleague will reward them if they do the right things, which is I'm gonna make an investment in price, I offset it elsewhere. It will punish them if they make an investment in price, and they don't succeed in offsetting that elsewhere. So, again, responsibly rolling this out. We don't wanna roll it out. Until the colleagues are prepared to be successful in that environment.
We do not, to answer your question, have meaningful growth tied to this program in fiscal 2026, aka if we move it nationwide, we don't have risks on delivering our numbers. This is a program we intend to roll out. We're gonna roll it out at the pace of the skills development of the organization. In contrast, the other two programs that I talked about on today's program are full speed ahead. Perks 2.0, as I mentioned in my prepared remarks, up until now, Perks has been a very successful program for us.
It's been think about it as a marketing points loyalty rewards type program and it is converting to the customers that are eligible to be in Perks which are our best customers receiving a step changed differentiated better level of service than the average customer. So about the hotel that you prefer. Think about the airline that you prefer. Yes. You get points from those, entities. But if you're in their top tier, what you're really getting is a substantially better service experience. Whatever that thing is that's important to you, you get the board first. You get to put your bag in the overhead. If there's a cancellation, they're taking care of you first.
That's example only from a different industry. In our industry, we know exactly what these key tenants are that matter to our customers. And these Perks customers are going to get a substantially elevated service program, and we don't need to test that. We're rolling that out nationwide. And we're rolling it out this summer. And it's gonna make a difference. Make a difference on our customer retention. It'll make a difference on our penetration. And we are confident because we have been testing this in a spot market that it will have an impact, and we have accounted for that. In our guidance, and we are confident in its ability to move the needle.
And the other program I launched today, excuse me, announced today, this AI CRM is a really big deal. As I said in my prepared remarks, to say we're excited about this, would be an understatement. In the palm of the hand of our colleague on their smartphone, They have all the tools that they need to better understand that customer to know what things could be offered to that customer preapproved from a pricing perspective.
If they wanna learn more about that product because they're not comfortable selling the item, they can quickly ask for input on how to sell that product in a free form know, AI-based language model that gives them really good suggestions on how to sell that product. So we will be rolling out AI 360 coast to coast in the places that we are piloting that tool, the response rate from our colleagues, both tenured and new, has been remarkable.
And as I said in my prepared remarks, where we are incredibly bullish is that newer lower tenured colleague who has a lot to learn about the product range we have, about the selling process that we have, This tool helps accelerate their skills development. And makes them in a more effective sales rep, which will increase overall productivity.
Kelly Bania: Thank you. That's very helpful. Kevin, just to follow-up with the Perks 2.0, can you size up what that looks like as it's as successful as you hope in fiscal 2026 and maybe in the years to come? What is the potential there? As you focus on that penetration?
Kevin Hourican: Yes. So for us, it's an enablement or enabler of delivering the guidance we just provided. So on today's call, I'm not gonna parse out its contribution, but it's meaningful. It is absolutely meaningful. Think about Pareto, percentage of your driving a disproportionate percentage of your sales and profit. That's exactly who these customers are. And the customer doesn't get to opt-in. We get to choose. We are specifically choosing. It's an invite-only into the program club, and our sales colleagues have the to actually motivate customers who are right on the cusp. Hey, with, you know, an extra thousand dollars a week, I can get you into this program. So we are bullish about this, Kelly.
We will share more, let's say it this way, at upcoming investor events about this program and the expected impact we intend for it to have.
Kenny Cheung: Hey, Kelly. I mean, this is Kenny. Just put a blow over on this one. The major driver of our growth year-on-year local case growth in 2026 will be the stability retention around our sales colleagues. And that's the reason why Kevin and I are so confident the growth number, because we're seeing that right now. Spot. Right? These three things that Kevin talked about, these are our added enablers that will help us as well to be to help for this year, but more importantly, for periods after to come.
Kelly Bania: Thank you.
Kevin Hourican: Thanks,
Operator: We'll take our next question from Edward Kelly with Wells Fargo. Please go ahead. Your line is open.
Edward Kelly: Hi, good morning everyone. Kevin, I wanted to ask you, just a brief follow-up on all this local stuff. So, you know, customer losses are improving. Is there any concern about, like, the Salesforce turnover that you've seen over the last year, those noncompetes rolling off, and potentially impact the momentum that's coming back into the business. And then, Kenny, just one for you. I'm curious as to how you're thinking about cost per case growth in The US. If you look at this past quarter, you know, it looks like dollars are up about 5% on flat cases. Right? So call it 5% cost per case growth. What's the driver of that?
And then how does that look in '26? Is there an opportunity to bring that lower next year? Thanks.
Kevin Hourican: Good morning, Ed. Thank you for the question. Understood completely your question about the sales rep who departed twelve months ago when they hit month 13 and they're you know, non-compete agreement expires, is there an echo or a ripple effect from the prior year? The facts are the vast majority of the customer lost customer departure occurs almost immediately. And the why is the following? You know, let's say Kenny's been calling on an account for ten years. Kenny departs. Well, Kenny is not able to call upon that customer. What happens is that we, Sysco, assign a new sales rep to that account. And then right then and there, that immediate moment is where the destruction occurs.
That customer then has to make a choice. Do I wanna work with the new colleague? Hey. Maybe I should look around. And the looking around is what causes an alternative distributor to tend to get into the account. So the vast majority of the loss happens immediately. There's the possible impact of the ripple thirteen months later. What we can see in our data, though, is that not repeating the initial loss is a far greater positive impact on the avoidance of that negative. Than the ripple. And, obviously, through the service improvement that we're making, Kenny mentioned this, our fill rates are improving. Our on-time delivery is improving.
Our sales colleagues' capabilities are improving through training, skill development, and the tools that I just mentioned. That we're confident that the ripple effect, the echo, is more than offset by the goodness of the programs that I just referenced and the stability of the Salesforce Sysco, and therefore, confidence in the guide question that you asked. Kenny, over to in the year ahead. And I'll toss to Kenny for the comments that he'd like to make about the cost.
Kenny Cheung: Yeah. Hey, Ed. Kenny. On the cost per case, I would like to bifurcate and talk about it from a cost a COGS standpoint and also a base cost standpoint because there they're a bit different here at Dynamics. So you're right. Volume was flattish around USFS. But with that, our GPU grew 4%. The good work that we've been doing around strategic sourcing, that's flowing to P&L, and that's the reason why you're seeing nice leverage between sale volume to sales and sales to GP, where the increased cost that you called out earlier really driven by two main things, mostly on the base cost side of the house SG and A. Number one is our investment in SCs.
These are what we call deliberate planned investments that are ROIC positive. The return will be rendered, you know, call it twelve to eighteen months on the road from day one. So that's point number one. As the local case grows within our business, that cost per piece will have a corresponding revenue tied to it. Therefore, you'll see leverage in the P&L. The second biggest piece of the cost increase is the planned and deliberate investment around capacity. You may remember we have 10 buildings going live right now around the world. Seven of them are sitting in The US. Think about Allentown. Think about Tampa, East Wisconsin, out to LA, Las Vegas. Right?
You can go on and on. And same dynamic. You have the cost of those buildings, mainly depreciation hitting the P&L. And then as time progresses with the initiatives kicking in, the conflict that Kevin and I have all local case growth, in particular, you will see that scale down to the P&L because that cost will be welcomed by volume. So overall, we do expect stronger leverage in the P&L on the forward.
Edward Kelly: Great. Thank you.
Kevin Hourican: Thanks, Ed.
Operator: Take our next question from John Ivankoe with JPMorgan. Please go ahead. Your line is open.
John Ivankoe: Hi, thank you. Not just in foodservice distribution, but at least from what I hear, industries broadly, are considering consolidation at this point, whether it's AI investments or automation investments or maybe some concern or uncertainty related to tariffs, I mean, does again, seem that we're more primed for consolidation and deconsolidation across a lot of industries. So the question that I would ask you is, you know, how does Sysco you kinda view that within food service distribution?
Obviously, not making a specific comment, but you know, just generally in terms of you know, the opportunity to consolidate and how might the company and where might the company be able to take advantage of some opportunities, you have to further drive efficiency and consolidation both globally, but more specifically and importantly, at least for me, within The US. Thank you.
Kevin Hourican: Good morning, John. It's Kevin. Thank you for the question. Let me start with AI impact on our business and the part of your question that tied to that. And then secondarily, I'll talk about just, you know, more macro you know, bigger chessboard strategy. On the AI side, you know, we gotta buy for it into front of house, back of house or front-end selling back-office management. AI absolutely is and will increase our efficiency in the back-office side of the business. Kenny manages that for the company. We've centralized that activity. We offshore that activity. Now we're automating that activity. And AI can help turbocharge those efforts.
Our merchandising division answers a tremendous number of questions from both customers and from our own Sales Colleagues, Like The Amount Of Volume That Flows Through That Pipe Would Stagger You. We Can Use AI To Answer Intelligently Accurately. Many, Many, Many Of Those Questions Which Can Make Us More Efficient. So We Think About The Back End, Attack The Cost, Attack The Cost, Attack The Cost, And, You Know, We've Done A Good Job Of Taking Out Structural Costs At Our Company Over The Past Years. Simultaneously Taking That Cost Out To Invest For Growth. See Tampa that we just grand opened last week and the other examples that Kenny gave around the world.
So to be relentlessly zealot-like focused on taking structural cost out to invest in growth is the more, you know, macro strategy. On the Salesforce side, this is where I will delineate. We don't view it as a reduction in the future selling occupation in any way, shape, or form. This is a relationship-based business. And, John, I know you know that. This is a relationships business. We want the technology to increase even further. That sales colleague's relationship with that customer. Help do the administrative stuff. Again, the number of questions that our colleagues answer about, does this product have gluten? Is this, you know, allergen-free? What's the country of origin?
Will I or will I not be able to substitute this for something else? If we're out of stock? What substitutions would you recommend if this is out of stock? These are questions that are happening all throughout the day, every day. Hundreds of questions they're facing every day. To enable that sales colleague, to answer those types of questions proactively, more efficiently, reduces substantially their administrative burden, and then guess what they get to do at that time. They get to sell.
Get to look around the kitchen and see product that's not on the Sysco truck to talk about introducing our capabilities, introducing our specialty capabilities, Go prospect net new customers because you have more time on your hands. So we will grow our Salesforce, as we mentioned on this call, 4% approximately this coming year. And we believe AI is going to turbocharge that effectiveness. As it relates to your question about consolidation in the industry, here's what we would say. We know that size and scale matter in this industry. Purchasing scale supply chain scale, the trucking, last-mile delivery, as you've heard me say before, is the most expensive part of what we do.
So, therefore, being efficient in that manner is important. And we will continue to survey our landscape for M&A opportunities. Tuck-ins, specialty purchases because we have tremendous white space existing still in specialty. I know you didn't ask about international, but we have compelling opportunities internationally. And we will be very strategic and thoughtful about our approach in The US. And, obviously, we can't comment, as I said earlier, about any other company's strategies and actions.
John Ivankoe: Thank you very much.
Kevin Hourican: Thanks, John.
Operator: We'll take our next question from Mark Carden with UBS. Please go ahead. Your line is open.
Mark Carden: Good morning. Thanks so much for taking the questions. You guys called out improving industry traffic throughout the period, still not all the way back. I'm curious, are you seeing any uptick in promotional activity or upfronts distributor level? And then related, are independent restaurants showing much in the way of incremental stress? Do you see any risk of closures sticking up there? Are they weathering it? Quite well? Thank you.
Kevin Hourican: Mark, thank you for the question. I'll start toss to Kenny for any additional comments. Let me start with the restaurant operator first. We are seeing restaurants that have a strong value prop for their end customers succeeding, and that's across the board from fine dining to casual, fast casual to QSR, Those concepts that are providing a good value to their customer are succeeding. And value could be quantity of food for price. Value could be a promotional program that they are doing. Value could be within their tier. They're perceived by the customer as providing more for the dollar than who they compete against.
And those names that are having some struggles and you know who they are, are out of tilt with their end consumer on that equation. Our job in that equation is the following. We need to provide value to the restaurant operators. Across from fine dining to QSR, and that's our relentless focus on improving strategic sourcing to bring our cost down so we can share in that value creation with the end consumer. So that they can be successful and profitable. And we're doing a good job on that.
In the quarter that we just ended, we had a very strong performance from a gross profit perspective, and we are able to invest in our customers from a price perspective when we have that equation. And as Kenny said, the goodness that what we delivered in Q4 is gonna have wrap value positive into fiscal 2026. So those are our perspectives on the end restaurant consumer on what we, you know, Sysco are doing about it. And, Kenny, I'll toss to you if there's any additional comment that you'd like to make on Mark's question.
Kenny Cheung: In terms of restaurant closures, you know, you know, from our standpoint, there's always churn in the marketplace. But one thing from our side is bad debt, right? When you think about quotes, think about bad debt. The majority of our bad debts current bad debt as a percent of sales is less than 0.1%. We have automation tools in place and to manage that one and no risk, no material risk to our company in terms of restaurant closures.
Kevin Hourican: And we are not seeing specific to your question pain in the local mom and pop restaurant sector to be higher than large customers. We're not seeing that.
Mark Carden: Thanks so much. Good luck, guys.
Kenny Cheung: Thank you, Mark. Thanks.
Operator: And that does end the Q and A portion of today's call. I will hand the program back to Kevin Kenny for any additional or closing remarks.
Kenny Cheung: Great. Thank you everybody for joining us. If you have any follow-up calls or questions, please feel free to reach out to the investor relations team here at Sysco a great day. Thank you.
Operator: This does conclude today's program. Thank you for your participation, and you may now disconnect.