Sysco Corporation (NYSE:SYY) Q4 2019 Earnings Conference Call - Final Transcript

Aug 12, 2019 • 10:00 am ET


Sysco Corporation (NYSE:SYY) Q4 2019 Earnings Conference Call - Final Transcript


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Thomas L. Bene

effort as we are now starting to bring this successful process to our European business and the ongoing management of inbound freight, it is now stabilized although not back to the pre-fiscal 2018 levels.

Finally, across the entire business, we saw a modest level of inflation for the year of about 1% to 2%. From an expense perspective, we saw solid overall expense management for the year, with adjusted operating expenses increasing only 1.4%, driven by benefits from our transformative initiatives and solid corporate expense management, all of which helped to offset the ongoing rising labor costs in both the transportation and warehouse areas.

The gap between gross profit dollar growth and adjusted operating expense growth was 150 basis points for the full year, despite a challenging year-over-year comparison in the fourth quarter. For total Sysco, we delivered solid adjusted operating income growth of 8% to $2.7 billion, which helped to drive our adjusted earnings per share up 13% to $3.55.

As we look at the results by business segment, let's start with the United States and the overall macroeconomic trends, which continue to be relatively positive. The underlying economic picture remains encouraging with GDP at 2.1% for the second quarter of 2019, and continued low unemployment which was just 3.7% in July. Consumer confidence has decreased slightly, but still remains solid.

These factors are important macroeconomic indicators which describe the environment our customers are currently operating in and speaks to the relative health of our food away from home market. As for restaurant industry trends, Knapp-Track and Black Box showed same-store sales, relatively flat in June, and consistent with what we previously discussed, while traffic continues to be negative.

Within U.S. Foodservice Operations for the year, sales for fiscal 2019 were $41.3 billion, an increase of 4.2% compared to the prior year. Inflation in U.S. Broadline was 1.5% and local case growth grew 3.1% of which 2.2% was organic while total case volume within U.S. Broadline grew 2.7% of which 2% was organic.

Gross profit dollars increased 4.4% and gross margin increased 5 basis points to 20%. Gross profit was positively impacted by strong Sysco Brand sales, year-over-year favorability of inbound freight and continued category management benefits.

Regarding Sysco Brand, using customer insights, we launched two new brands, including Sysco Earth Plus, a planet friendly non-food solution for operators looking for a wide range of reliable and economically -- environmentally responsible products; and Sysco Simply, a platform designed to enable our customers to accommodate the growing consumer demand for very dietary and lifestyle choices.

Our adjusted operating expenses for the year increased 4.4%, due mainly to increased costs in both the transportation and warehouse areas partly as a result of the tight labor market. This combined with seasonal hiring of driver and warehouse staff have driven increased operational cost on a per unit basis as volume has softened. Finally, adjusted operating income was $3.2 billion, an increase of 4.4% compared to the prior year.

Now turning to our International