Sysco Management Discusses Q4 2012 Results - Earnings Call Transcript

Sysco (SYY)

Q4 2012 Earnings Call

August 13, 2012 10:00 am ET


Neil A. Russell - Vice President of Investor Relations

William J. DeLaney - Chief Executive Officer, President, Director, Chairman of Employee Benefits Committee, Member of Finance Committee and Member of Executive Committee

Robert C. Kreidler - Chief Financial Officer and Executive Vice President


Steven Forbes - Guggenheim Securities, LLC, Research Division

Alvin C. Concepcion - Citigroup Inc, Research Division

Edward J. Kelly - Crédit Suisse AG, Research Division

Andrew P. Wolf - BB&T Capital Markets, Research Division

Michael Kelter - Goldman Sachs Group Inc., Research Division

Mark Wiltamuth - Morgan Stanley, Research Division

Ajay Jain - Cantor Fitzgerald & Co., Research Division

John W. Ivankoe - JP Morgan Chase & Co, Research Division

Meredith Adler - Barclays Capital, Research Division



Good day, everyone, and welcome to the Sysco Fourth Quarter and Fiscal Year 2012 Conference Call. As a reminder, today's call is being recorded. We will begin today's call with opening remarks and introductions. I would now like to turn the call over to Neil Russell, Vice President and -- of Investor Relations.

Neil A. Russell

Thank you, Danielle, and good morning, everyone. Thank you for joining us for Sysco's Fourth Quarter and Fiscal Year 2012 Conference Call. On today's call, you will hear from Bill DeLaney, our President and Chief Executive Officer; and Chris Kreidler, our Chief Financial Officer.

Before we begin, please note that statements made in the course of this presentation that state the company's or management's intention, beliefs, expectations or predictions of the future are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could differ in a material manner. Additional information concerning factors that could cause actual results to differ in a material manner from those in the forward-looking statements is contained in the company's SEC filings including, but not limited to, risk factors contained in the company's annual report on Form 10-K for the year ended July 2, 2011, and in the company's press release issued earlier this morning.

On the call today, if you've joined us via webcast, you'll notice that we are supplementing our comments with a slide presentation. You can download a copy of the presentation by going to the Investors section of

Non-GAAP financial measures are included in our comments today and in the presentation slides. The reconciliation of these non-GAAP measures to the applicable GAAP measures are included at the end of the presentation 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. In addition, all references to case volumes include total Broadline and SYGMA combined.

Lastly, I encourage you to download our new Investor Relations app from either the Apple iTunes store or for Android at Google's Marketplace store. Just search for Sysco IR app to have easy access on the go to all of our filings and important investor material.

At this time, I'd like to turn the call over to our President and Chief Executive Officer, Bill DeLaney.

William J. DeLaney

Thank you, Neil, and good morning, everyone. This morning, Sysco reported sales and net earnings for the fiscal year of $42.4 billion and $1.1 billion, respectively. Earnings per share was $1.90. Excluding certain items, adjusted earnings per share for our underlying business was $2.13, representing a 4.4% increase year-over-year. Sales grew 7.8% for the year as case volume growth of 3% and product cost inflation of 5.5% contributed to the highest annual sales level in our history.

Earnings growth was not as strong as pricing pressures resulted in only modest gross profit dollar gains. However, we did experience improved expense management in the fourth quarter and expect to continue that trend in the new fiscal year.

Cash flow from operations approximated $1.4 billion, a significant improvement over our performance in the prior year. On the capital investment front, we recently completed construction and began shipping from 3 new and more efficient distribution facilities, a 420,000-square-foot facility outside of Boston, a second 420,000-square-foot facility located between Austin and San Antonio and a 240,000-square-foot facility on Long Island. All 3 of these operating companies are located in large markets that provide tremendous growth opportunities for Sysco.

Looking forward, we remain totally committed to profitably growing our business in the $225 billion market that we serve today. While industry growth is expected to remain modest, we are highly focused on strengthening and expanding our customer relationships, as well as reducing the cost structure of our underlying business. To do so requires transformational change in all aspects of our business.

Successfully deploying a new and enhanced technology platform is a foundational component of such change, and we continue to progress on that front. Specifically, we recently converted our East Texas operating company to our new ERP system in late July, our third location to go live. We are pursuing a market-based approach for our rollout schedule, which we believe will enhance the conversion process in 2 key ways: First, we have more -- we will more effectively leverage our market leadership team; and second, the close geographic proximity of the operating companies will permit us to utilize all of our resources in a more flexible and efficient manner. As a result, our next 5 planned conversions will be facilities in Texas and Louisiana, all of which are expected to occur this fiscal year.

As conversions have occurred, we have become increasingly encouraged with the ramp-up in services provided and the quality of service at our Shared Business Services center, or SBS, here in Texas. SBS is staffed and effectively supporting our 3 converted companies with multiple centralized functions, including financial support, replenishment, national account pricing and a customer support call center.

We have also begun to make progress on our key business transformation cost reduction initiatives. These initiatives focus on improving productivity in our operations, selling and administrative areas, as well as lowering product costs. For example, each of our Broadline operating companies has already taken action in a variety of areas and begun to implement processes designed to enhance productivity in delivery and warehouse operations.

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