Sysco Corporation 2026 Q4 Earnings Call

Please go ahead. Good morning, everyone.

Welcome to Sysco's fourth quarter fiscal year 2026 earnings call. On today's call, we have Kevin Hourican, our Chair of the Board and CEO, and Brandon Sewell, our Interim CFO. 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 June 28th, 2025, subsequent SEC filings, and in the news release issued earlier this morning.

A copy of these materials can be found in the investor section at sysco.com. 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 is included at the end of the presentation slides and can also be found in the investor section of our website. During the discussion today, unless otherwise stated, all results are compared to the same quarter in the prior year. To ensure we have sufficient time to answer all questions, we'd like to ask each participant to limit their time today to one question. If you have a follow-up question, we ask that you re-enter the queue. At this time, I'd like to turn the call over to Kevin Hourican.

Good morning, everyone. Thank you for joining us today. I am pleased to report that Sysco delivered strong results in the fourth quarter of fiscal 2026, exceeding our expectations on the top and bottom line. Our results for the quarter beat our prior guidance for adjusted EPS and USFS volumes. The outperformance included healthy case volume growth from both local and national customers in our USFS segment and continued strong volume growth in our international segment. Our strengthening top-line trends, combined with solid supply chain productivity gains, helped drive year-over-year profit growth across each of our four business segments. Additionally, as we mentioned last quarter, we have launched meaningful efficiency improvement efforts powered by AI technology modernization that helped enable solid growth across operating income, EPS, and EBITDA. We will speak more about these efficiency improvement efforts as we provide visibility today into our 2027 fiscal guidance.

Most notable in our Q4 performance is that our business momentum accelerated on a two-year stack basis. As a result, we are confident to guide fiscal 2027 to 9%-11% adjusted EPS growth. Let's jump into our business results starting on slide four. From a top-line perspective, Sysco delivered over $22 billion of total revenue, a growth rate of 4.7%. These revenue results reflect positive case growth across our local, national, and international business units. From a bottom-line perspective, we delivered adjusted earnings per share of $1.53, which was ahead of our previously communicated expectations. The quarter enabled Sysco to deliver $4.61 for the full year, above our full-year guidance range. The beat performance for the year is a sign of the momentum in the business that we expect will carry into 2027.

As seen on slides seven and eight, we have clear positive momentum in our local business, where USFS local volumes for the quarter grew 2.6%, improving 130 basis points sequentially on a two-year stacked basis. Each month of the quarter was stronger than the prior, with June being the strongest month of the period on a one- and two-year basis. In our USFS segment, we grew local cases 0.5% in the first half of the year, and we grew local cases 2.9% in the second half of the year. The meaningful performance step-up was driven by improved colleague retention, improved colleague productivity, and targeted growth initiatives. Sysco Your Way and Perks 2.0, for example, delivered solid revenue growth. Most notably, our AI 360 selling tool increases sales colleague confidence, productivity, and job satisfaction.

The result is that we continued to post compelling new customer win rates, along with improved customer loss rates in the quarter, while posting solid improvement in penetration with existing customers. In fact, our penetration performance in the quarter was stronger than the overall industry, proving that the AI selling tools are positively impacting colleague productivity and selling effectiveness. All told, Sysco grew our independent customer business faster than the overall industry as we exited the fiscal year. The sequential improvement we delivered in fiscal 2026 gives us strong confidence in our local business growth targets for fiscal 2027. Another proof point of our progress is evident in our Sysco Brand performance. In Q4, we delivered positive Sysco Brand mix in our local business with an increase of 30 basis points versus last year to 46.4%, driven by a focused plan of action.

We are strengthening our Sysco Brand value tier assortment. During Q4, our value tier item sales growth was four times faster than our overall book of business. This is not cannibalizing our existing business. These are net new cases being sold to existing Sysco customers. These customers were previously buying these value tier products from other competing distributors and not from Sysco. Getting those cases onto a Sysco truck increases our profitability. In addition to the assortment work, we are working to optimize Sysco Brand's strategic pricing architecture, linking Sysco Brand pricing strategies with the ebbs and flows of national brand prices, similar to what you would experience at a retail store. While this was always our strategic intent, AI tools are helping us execute this strategy more consistently. Lastly, AI 360, as I mentioned earlier, is serving up Sysco Brand conversion opportunities to our sales colleagues.

Our system prompts our sales colleague to engage their customer if an opportunity exists to save a customer money through a brand conversion. Overall, we made significant progress in Sysco Brand, and we expect mix penetration to be positive in fiscal 2027. Sysco Brand will contribute positively to our overall profitability in 2027. Turning the page to our national contract business, during our fourth quarter, our national business delivered a step-up in performance and generated case volume growth of 2.6%. The positive result was driven by growth in our healthcare, travel and hospitality, and food service management businesses, partially offset by industry-wide softness in national restaurants. For fiscal 2027, we expect to deliver positive case volume growth for national contract customers, despite a macro foot traffic environment that remains challenged.

Foot traffic to restaurants remains down year-over-year. Sysco is growing our business, taking share, and delivering profitable growth year-over-year. We will remain focused throughout 2027 on growing our contract business in healthcare, travel and hospitality, and food service management, while optimizing our performance with large national chain restaurants. Moving to the middle of the P&L, gross profit was up 3.7%, reflecting our organization-wide focus on strategic sourcing and momentum with Sysco Brand penetration rates. Sysco's adjusted operating profit improved 4.1%, outpacing gross profit and reflecting contributions from continued productivity gains within our supply chain. Supply chain expenses grew at a slower rate than revenue and gross profits. Our warehouse and delivery operations achieved our productivity targets for the year, and we increased on-time delivery performance versus customer promise windows by 10 full points in the quarter.

Routing efficiency improvements have lowered our cost to serve and increased the service levels that we provide to our customers. I am thankful for the strong performance from our operations team. These hardworking colleagues and leaders are often the face of Sysco to many of our customers. This year marked our third consecutive year of delivering meaningful reduction in miles driven and improved pieces per mile. As we upgrade our routing software in fiscal 2027, we anticipate continued positive contributions to our P&L from routing efficiency while simultaneously improving the customer experience, especially for Perks customers. As we mentioned during our Q3 earnings call, we kicked off efficiency improvement efforts that benefited the fourth quarter and will carry into fiscal 2027. The efficiency projects helped Sysco exceed our adjusted earnings per share guidance for the quarter and the year, despite pausing our share repurchase program.

During our guidance section today, we will talk to additional efficiency improvement activities that we are pursuing and how they will contribute to the fiscal 2027 profitability. These efforts include AI-driven business transformation. Turning to our international segment, this quarter represents the 11th consecutive quarter of double-digit adjusted operating income growth and highlights the continued strength of Sysco's global footprint, a unique competitive advantage. Our international business delivered adjusted operating income growth of 15.7%, fueled by volume growth in every international geography, with local cases growing 4.5%. The continued local op performance is being generated by expanded supply chain capacity, increased availability of Sysco branded merchandise, increased sales headcount, and easier-to-use technology. Since 2022, our international team has delivered meaningful progress. We have more than doubled adjusted operating income margins from approximately 2% in 2022 to over 4% in fiscal year 2026.

There are no structural barriers that will prevent our international division from achieving the profitability profile of our U.S. business over time. Our international leadership team is performing for today while transforming the business for a stronger future. I am thankful for the leadership and performance being delivered by our international team. Now that I have provided a high-level summary of the quarter, I would like to share an update on the status of the Restaurant Depot acquisition. We are excited about the acquisition of Restaurant Depot and the bold new chapter of profitable growth it helps to unlock. A future that creates a combined company positioned to step up sales growth, be more profitable, and return more value to shareholders than a standalone Sysco.