Sysco Corporation (NYSE:SYY) Q1 2016 Earnings Conference Call Transcript

Nov 02, 2015 • 10:00 am ET

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Sysco Corporation (NYSE:SYY) Q1 2016 Earnings Conference Call Transcript

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Presentation
Operator
operator

Good day and welcome to the Sysco's first quarter fiscal 2016 conference call. As a reminder, today's call is being recorded and we will begin today's call with opening remarks and introductions. I would now like to turn the conference over to Neil Russell, VP of IR. Please go ahead, sir.

Executive
Neil Russell

Thanks, Daniel, and good morning, everyone. Welcome to Sysco's first quarter fiscal 2016 earnings call. Joining me in Houston today are Bill DeLaney, our President and CEO; and Joel Grade, our CFO.

(Forward-Looking Cautionary Statements).

Non-GAAP financial measures are included in our comments today and in our presentation slides. The reconciliation of these non-GAAP measures to the applicable GAAP measures are included at the end of the presentation slides and can also be found in the Investors section of our website. All comments about earnings per share refer to diluted earnings per share unless otherwise noted.

To ensure that we have sufficient time to answer all questions, we would like to ask each participant to limit their time today to one question and one follow-up.

At this time, I would like to turn the call over to our President and CEO, Bill DeLaney.

Executive
William DeLaney

Thank you, Neil. Good morning, everyone, and thank you for joining us today. Sysco's first quarter financial results announced this morning reflect important early progress toward achieving the three-year financial targets we established for operating income and return on invested capital at our September Investor Day. The key leverage for realizing these targets are accelerating local case growth, improving gross margins, leveraging our supply chain costs and reducing administrative costs.

The quality of our overall business results for the quarter was very good, driven by strong volume growth with both our locally and corporate-managed customers and sound gross margin management. However, sales growth was minimal and earnings were essentially flat due in large part to the unfavorable impact of both food cost deflation and currency translation. These two factors have somewhat restrained our performance for a good portion of the calendar year and we expect that these headwinds will persist for the next few months.

Looking at broader economic and industry trends, we continue to see mixed data points with evidence of both underlying strength and optimism, but also pockets of concern. Consumer confidence recently rebounded to its yearly highs in September, but then fell back in October. Unemployment remains at low levels although non-farm employment levels have decreased steadily since May.

NPD data for the three-month period ending in August showed continued positive restaurant spend with traffic growth rebounding from the prior three-month period. The QSR segment continues to be the main driver of positive restaurant traffic while fine dining segment also returned to a positive growth rate. Overall, restaurant traffic appears to be slightly positive. While still favorable on an absolute level, recent NRA data for September showed a decline in restaurant performance and foodservice operator confidence to levels last seen in late 2014.

Turning to our first quarter results, I'm especially pleased with performance