Press release·03/03/2025 19:36:43

Sysco’s Solid Performance Amid Challenging Conditions

Sysco Corporation, a leading global foodservice distribution company, has reported its financial results for the second quarter and first 26 weeks of fiscal year 2025. Despite facing a challenging macroeconomic environment, the company has demonstrated resilience and continued growth.

Sales Growth and Profitability Sysco’s sales grew by 4.5% in the second quarter and 4.4% in the first 26 weeks of fiscal 2025, compared to the same periods in the prior year. This growth was primarily driven by increased volume in the U.S. Foodservice Operations segment, as well as moderate inflation. The company’s gross profit also grew, increasing by 3.9% in the second quarter and 3.4% in the first 26 weeks, due to the effective management of product inflation and volume growth.

Operating income increased by 1.7% in the second quarter and 1.0% in the first 26 weeks of fiscal 2025, compared to the same periods in the prior year. Adjusted operating income, which excludes certain one-time items, grew by 5.1% in the second quarter and 3.5% in the first 26 weeks, reflecting the positive momentum in the company’s International Foodservice Operations segment.

Net earnings, however, decreased by 2.2% in the second quarter and 2.5% in the first 26 weeks of fiscal 2025, primarily due to increased restructuring and transformational project costs, as well as acquisition-related expenses. Excluding these one-time items, adjusted net earnings increased by 2.0% in the second quarter and 0.6% in the first 26 weeks.

Segment Performance Sysco’s reportable business segments include U.S. Foodservice Operations, International Foodservice Operations, SYGMA, and Other. The U.S. Foodservice Operations and International Foodservice Operations segments collectively represented approximately 88.2% and 88.4% of the company’s overall sales in the second quarter and first 26 weeks of fiscal 2025, respectively, and 97.6% and 97.5% of total segment operating income during the same periods.

The U.S. Foodservice Operations segment experienced a 4.1% increase in sales in the second quarter and a 4.4% increase in the first 26 weeks, driven by higher inflation and volume growth, including benefits from acquisitions. Operating income, however, decreased by 0.6% in the second quarter and 2.1% in the first 26 weeks, primarily due to an increase in operating expenses, partially offset by gross profit growth and volume increases.

The International Foodservice Operations segment saw a 3.6% increase in sales in the second quarter and a 3.3% increase in the first 26 weeks, driven by improvements in volume and higher inflation. Operating income for this segment increased by 14.5% in the second quarter and 11.4% in the first 26 weeks, primarily due to growth in local case volumes, success in the company’s strategic sourcing program, and positive contributions from recent mergers and acquisitions.

The SYGMA segment, which provides logistics and distribution services to chain restaurant customers, experienced a 10.6% increase in sales in the second quarter and a 9.0% increase in the first 26 weeks, primarily driven by the growth of new customers. Operating income for this segment increased by 11.8% in the second quarter and 23.3% in the first 26 weeks, due to the growth of new customers and improved profitability.

The Other segment, which includes the company’s hospitality business, saw a decrease in operating income of 50.0% in the second quarter and 40.0% in the first 26 weeks, compared to the same periods in the prior year.

Trends and Outlook Sysco is facing a challenging macroeconomic environment, with foot traffic to restaurants decreasing by approximately 2% in the second quarter of fiscal 2025, representing a moderate improvement compared to the 3.6% decrease in the first quarter. However, the company expects to see continued improvements in foot traffic trends in the second half of fiscal 2025 and believes the food-away-from-home sector is a healthy long-term growth market.

The company’s sales and gross profit performance are influenced by various factors, including price, volume, inflation, customer mix, and product mix. Sysco experienced a 1.4% and 2.1% improvement in U.S. Foodservice Operations case volume in the second quarter and first 26 weeks of fiscal 2025, respectively, compared to the same periods in the prior year. This volume growth was primarily attributable to national volume growth of 4.3% and 4.9% in the second quarter and first 26 weeks of fiscal 2025, respectively.

Sysco also experienced inflation at a rate of 2.1% in the second quarter of fiscal 2025, primarily driven by inflation in the dairy and poultry categories. The company was able to effectively manage this inflation, resulting in an increase in gross profit dollars, although gross margin decreased slightly due to a shift in customer mix and other factors.

Operating expenses increased by 4.4% and 4.0% during the second quarter and first 26 weeks of fiscal 2025, respectively, primarily due to an increase in volumes, higher pay-related expenses, and depreciation expense related to new facilities. Adjusted operating expenses, which exclude certain one-time items, increased by 3.5% and 3.3% during the same periods, representing a 13-basis point and 15-basis point improvement, respectively, due to supply chain and Global Support Center efficiencies and gains from sale-leaseback transactions.

Strategic Initiatives and Outlook Sysco’s purpose is “Connecting the World to Share Food and Care for One Another,” which the company believes will assist in growing substantially faster than the foodservice distribution industry and delivering profitable growth through its “Recipe for Growth” transformation. This transformation is supported by strategic pillars, including digital, products and solutions, supply chain, customer teams, and future horizons strategies, which the company believes will allow it to better serve its customers and differentiate itself from the competition.

The company’s business transformation initiatives are progressing, including the promotion of its specialty programs for produce, protein, and Italian products, as well as its customer growth initiatives. Sysco expects that as its Recipe for Growth matures, the impact on its top-line growth will deliver profitable and consistent growth.

Looking ahead, Sysco expects to grow both sales and net earnings in fiscal 2025, despite the current macroeconomic landscape. The company believes it is well-positioned as a market leader in the food-away-from-home sector, which it sees as a healthy long-term growth market.

Financial Position and Liquidity Sysco generated positive free cash flow of $331 million in the first 26 weeks of fiscal 2025, compared to $527 million in the same period of the prior year. The decrease in free cash flow is attributable to a decrease in cash provided by operating activities, partially offset by an increase in proceeds from sales of plant and equipment and a decrease in capital expenditures.

As of December 28, 2024, Sysco had $793 million in cash and cash equivalents, with approximately 92% held by its international subsidiaries. The company believes its cash flow from operations, the availability of liquidity under its commercial paper programs and revolving credit facility, and its ability to access capital markets will be sufficient to meet its anticipated cash requirements for more than the next 12 months, while maintaining sufficient liquidity for normal operating purposes.

Sysco’s debt activity, including issuances and repayments, is described in the report, and the company had a total of $10.5 billion in senior notes, debentures, and borrowings under its long-term revolving credit facility that were guaranteed by its wholly owned U.S. Broadline subsidiaries as of December 28, 2024.

Conclusion Sysco has demonstrated resilience and continued growth in the face of a challenging macroeconomic environment. The company’s sales and profitability have increased, driven by strong performance in its U.S. Foodservice Operations and International Foodservice Operations segments. Sysco’s strategic initiatives, including its “Recipe for Growth” transformation, are progressing, and the company remains optimistic about its long-term growth prospects in the food-away-from-home sector. While facing some near-term headwinds, Sysco’s solid financial position and liquidity provide a strong foundation for the company to navigate the current environment and capitalize on future opportunities.