2024 Barclays 17th Annual Global Consumer Staples Conference
- 1. Barclays 17th Annual Consumer Staples Conference 2024 September 4, 2024 | Boston, MA
- 2. Forward-Looking Statements Statements made in this presentation that look forward in time or that express management’s beliefs, expectations or hopes are forward-looking statements under the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the views of management at the time such statements are made and are subject to a number of risks, uncertainties, estimates, and assumptions that may cause actual results to differ materially from current expectations. These statements include statements concerning: our expectations regarding future improvements in productivity; our belief that improvements in our organizational capabilities will deliver compelling outcomes in future periods; our expectations regarding improvements in international volume; our expectations that our transformational agenda will drive long-term growth; our expectations regarding the continuation of an inflationary environment; our expectations regarding improvements in the efficiency of our supply chain; our expectations regarding the impact of our Recipe for Growth strategy and the pace of progress in implementing the initiatives under that strategy; our expectations regarding Sysco’s ability to outperform the market in future periods; our expectations that our strategic priorities will enable us to grow faster than the market; our expectations regarding our efforts to reduce overtime rates and the incremental investments in hiring; our expectations regarding the expansion of our Sysco Driver Academy and our belief that the academy will enable us to provide upward career path mobility for our warehouse colleagues and improve colleague retention; our expectations regarding the benefits of the six-day delivery and last mile distribution models; our plans to improve the capabilities of our sales team; our plans to refine our engineering labor standards; our expectations regarding the impact of our growth initiatives and their ability to enable Sysco to consistently outperform the market; our expectations to exceed our growth target by the end of fiscal 2025; our ability to deliver against our strategic priorities; economic trends in the United States and abroad; our belief that there is further opportunity for profit in the future; our future growth, including growth in sales and earnings per share; the pace of implementation of our business transformation initiatives; our expectations regarding our ability to execute our balanced approach to capital allocation and rewarding our shareholders; our plans to improve colleague retention, training and productivity; our belief that our Recipe for Growth transformation is creating capabilities that will help us profitably grow for the long term; our expectations regarding our long-term financial outlook; our expectations of the effects labor harmony will have on sales and case volume, as well as mitigation expenses; our expectations for customer acquisition in the local/street space; our expectations regarding the effectiveness of our Global Support Center expense control measures; and our expectations regarding the growth and resilience of our food away from home market. It is important to note that actual results could differ materially from those projected in such forward-looking statements based on numerous factors, including those outside of Sysco’s control. Therefore, you should not place undue reliance on any of the forward-looking statements contained herein. For more information concerning factors that could cause actual results to differ from those expressed or forecasted, see our Annual Report on Form 10-K for the year ended June 29, 2024, as filed with the SEC, and our subsequent filings with the SEC. We do not undertake to update our forward-looking statements, except as required by applicable law. 2
- 3. KEVIN HOURICAN CHAIR OF THE BOARD AND CHIEF EXECUTIVE OFFICER
- 4. Market Leader in the Highly Fragmented and Growing Foodservice Distribution Industry $161 B $197 B $224 B $268 B $231 B $300 B $353 B $360 B $370 B 2000 2005 2010 2015 2020 2021 2022 2023 2024 Total Addressable Market Since 2000 17% $370B Source: Technomic U.S. Foodservice Industry Wallchart for Calendar Year, updated May 2024 4
- 5. United States: #1 Position Canada: #1 Position 2019 2023 $360B TAM $22B TAM $1B TAM Costa Rica: #1 Position We Have Gained Share Domestically and Internationally Source: U.S. – Technomic (adjusted estimate); Canada – Restaurants Canada; GB, Ireland, Sweden, France, Costa Rica – Global Data; market share information compares calendar year 2019 to fiscal year 2023, excluding the United States. 1 Food excluding Beverages 16.3% 17.2% 2019 2023 24.0% 25.2% 2019 2023 15.4% 17.1% Ireland: #1 Position $4B TAM 2019 2023 14.9% 18.2% Great Britain: #1 Position $26B TAM 2019 2023 10.1% 12.7% Sweden: #2 Position $5B TAM 2019 2023 19.7% 20.3% France: #3 Position 2019 2023 7.0% 6.9% $23B1 TAM 5
- 6. Local Case Growth Volume Merchandising Leverage Margin Management Supply Chain Efficiency and Cost Operating Expenses Improving Our Core Business Performance 6
- 7. Sales Consultant Hiring & Compensation Model USBL Local Sales Headcount ~6,000 ~7,200 to ~7,500 FY24 FY27E +1,200 to +1,500 FTEs Mix Shift from Base to Bonus Reduced Territory Sizes Sales Consultants Pay Focused Upon: • New Customer Opening • Sysco Brand Penetration • Independent Case Growth Visit Quality and Frequency 7
- 8. FUTURE HORIZONS M&A Specialty Acceleration International & IFG growth Structural Cost Out DIGITAL NPS Improvement Personalization Engine & Website Improvement Pricing Automation PRODUCTS AND SOLUTIONS Italian & Asian Expansion Sysco Brand Acceleration Strategic Sourcing CUSTOMER TEAMS 400 to 500 incremental sales professionals per year Sysco Your Way Sysco Perks! Total Team Selling SUPPLY CHAIN Improved Productivity & Fill Rates 10 NEW Global Distribution Projects Omni-channel Upgraded Routing Our Recipe For Growth STRATEGY | How We Win We will grow, profitably, faster than the overall market
- 9. Sysco will Deliver Strong Financial Results in the Backdrop of a Resilient Industry Why Sysco? Sysco is Gaining Market Share with Industry Leading Profitability Metrics Food Away from Home is a Stable and Growing Sector Achievable Financial Targets A Highly Skilled and Purpose-Driven Leadership Team Focused on Long-Term Value Creation Strong Balance Sheet and Robust Free Cash Flow 9
- 10. KENNY CHEUNG EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
- 11. Net Sales ($B) $60 $79 Achievements – Advancing Our #1 Position ~6% CAGR Note: Years represent Sysco financial years Operating Cash Flow ($B) FY19 FY24 $2.4 $3.0 FY19 FY24 ~5% CAGR Attractive Return Profile #1 Market Share + Industry Leading • Gross Margins • EBITDA Margins • Free Cash Flow • ROIC • Investment Grade Balance Sheet 11
- 12. Framing Our Algorithm for Growth • Leverage competitive advantages to drive volume growth in our core business • Continue to focus on value- enhancing bolt-on M&A Sustainable Growth Balanced Capital Return • Balanced capital allocation between investing, capital return, and investment grade balance sheet • Continue track record of capital return via repurchases and growing dividend Operational Excellence • Optimize gross profit dollars • Realize positive operating leverage • Continued focus on cost-out program globally = Compelling Total Shareholder Return Focusing on the Core Merchandising Capabilities Recipe For Growth Supply Chain Efficiency 12
- 13. Sales Growth Total Shareholder Return2 Adj. EPS Growth1,3 4 – 6% 6 – 8% 6 – 8% Adj. Operating Income Growth3 9 – 11% Algorithm for growth is based on 3-Year plan. 1 Includes impact of global minimum tax headwinds to EPS growth in FY25. 2 Assumes no change in P/E multiple in order to isolate impact of adjusted EPS growth and dividend yield. 3 See Non-GAAP reconciliations at the end of the presentation. Sysco’s Financial Growth Algorithm 13
- 14. ROIC in Action Industry Leading Margins Industry Leading Balance Sheet 11.9% 16.8% Median S&P 500 Consumer Staples SYY 1 For peers, ROIC calculation reflects Adj Net Income divided by Average Invested Capital for trailing 5 quarters (Jun-24 ending), adjusted for excess cash. For Sysco, ROIC calculation reflects Adj Net Income divided by Average Invested Capital for trailing 5 quarters (Jun-24 ending), adjusted for excess cash (above $500mm) and M&A. See Non-GAAP reconciliations at the end of the presentation. ROIC Driven By: Industry Leading Cash Conversion Industry Leading Scale with Capital Deployment 14 ROIC1
- 15. 1 In arriving at Adjusted EBITDA, Sysco does not adjust out interest income or non-cash stock compensation expense. Our definition of Net Debt includes our debt minus cash and cash equivalents. 2 See Non-GAAP reconciliations at the end of the presentation. Consistent & Disciplined Capex Invest for Growth: Capex Investments ~1% of Annual Sales 1 2 Driven by Profit & Debt Paydown Strong Balance Sheet: Commitment to IG with Leverage Target of 2.5 – 2.75x1,2 3 Over $7B Returned Since FY 2020 Return Cash: Balanced Shareholder Return with Growing Dividend Underpinned by Balanced Capital Allocation 15 $1.7 B $2.6 B $4.1 B $5.6 B $7.8 B FY2020 FY2021 FY2022 FY2023 FY2024 Cumulative Cash Returned to Shareholders 3.5 2.7 FY2020 FY2024 Net Debt to Adjusted EBITDA1,2 1.4% 0.9% 0.9% 1.0% 1.1% FY2020 FY2021 FY2022 FY2023 FY2024 CapEx as a Percent of Sales
- 16. Market leader in foodservice with key strategic advantages and significant scale, benefitting from food away from home trends Resilient business model, balanced across end geographies, channels and product mixes Multiple vectors of growth in core volumes and through M&A across local, chain, specialty and international business Strong operational excellence and deliver industry leading margins and strong return on capital through disciplined approach Balanced growth and capital allocation strategy targeting compelling 9-11% total shareholder return 1 2 3 4 5 Track record of dividend growth and share repurchases while maintaining an investment grade balance sheet 6 Compelling Investment Opportunity 16
- 19. Impact of Certain Items The discussion of our results includes certain non-GAAP financial measures, including EBITDA and adjusted EBITDA, that we believe provide important perspective with respect to underlying business trends. Other than EBITDA and free cash flow, any non-GAAP financial measures will be denoted as adjusted measures to remove (1) restructuring charges; (2) expenses associated with our various transformation initiatives; (3) severance charges; and (4) acquisition-related costs consisting of: (a) intangible amortization expense and (b) acquisition costs and due diligence costs related to our acquisitions. The results of our operations can be impacted due to changes in exchange rates applicable in converting local currencies to U.S. dollars. We measure our results on a constant currency basis. Constant currency operating results are calculated by translating current-period local currency operating results with the currency exchange rates used to translate the financial statements in the comparable prior-year period to determine what the current-period U.S. dollar operating results would have been if the currency exchange rate had not changed from the comparable prior-year period. Management believes that adjusting its operating expenses, operating income, other (income) expense, net earnings and diluted earnings per share to remove these Certain Items and presenting its results on a constant currency basis provides an important perspective with respect to our underlying business trends and results. It provides meaningful supplemental information to both management and investors that (1) is indicative of the performance of the company’s underlying operations and (2) facilitates comparisons on a year-over-year basis. Sysco has a history of growth through acquisitions and excludes from its non-GAAP financial measures the impact of acquisition-related intangible amortization, acquisition costs and due-diligence costs for those acquisitions. We believe this approach significantly enhances the comparability of Sysco’s results. 19
- 20. Sysco Corporation and its Consolidated Subsidiaries Non-GAAP Reconciliation (Unaudited) Adjusted Return on Invested Capital (In Millions) 20 52-Week Period Ended Jun. 29, 2024 Net earnings (GAAP) 1,955 $ Impact of Certain Items on net earnings 212 Income and interest expense related to mergers and acquisitions (4) Adjusted net earnings (Non-GAAP) 2,163 $ Invested capital (GAAP) 13,621 Impact of Certain Items on invested capital 165 Foreign currency impact on equity accounts 15 Borrowings related to mergers and acquisitions (748) Excess cash adjustment (216) Adjusted invested capital (Non-GAAP) 12,837 $ Return on invested capital (GAAP) 14.4% Adjusted return on invested capital (Non-GAAP) 16.8% Although adjusted return on invested capital (ROIC) is considered a non-GAAP financial measure, Sysco management considers adjusted ROIC to be a measure that provides useful information to management and investors in evaluating the efficiency and effectiveness of the company’s long-term capital investments. We calculate adjusted ROIC as adjusted net earnings, which exclude our Certain Items and the impact of our fiscal 2024 acquisitions, divided by the sum of: (1) stockholders’ equity, computed as the average of adjusted stockholders’ equity at the beginning of the year and at the end of each fiscal quarter during the year; and (2) total debt, computed as the average of adjusted total debt at the beginning of the year and at the end of each fiscal quarter during the year. These equity and debt amounts are adjusted for the impact of our Certain Items, foreign currency changes on our equity accounts, our fiscal 2024 acquisitions and excess cash. Trends in ROIC can fluctuate over time as management balances long-term strategic initiatives with possible short-term impacts.
- 21. Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) EBITDA represents net earnings (loss) plus (i) interest expense, (ii) income tax expense and benefit, (iii) depreciation and (iv) amortization. The net earnings (loss) component of our EBITDA calculation is impacted by Certain Items that we do not consider representative of our underlying performance. As a result, in the non-GAAP reconciliations below for each period presented, adjusted EBITDA is computed as EBITDA plus the impact of Certain Items, excluding certain items related to interest expense, income taxes, depreciation and amortization. Sysco's management considers growth in this metric to be a measure of overall financial performance that provides useful information to management and investors about the profitability of the business, as it facilitates comparison of performance on a consistent basis from period to period by providing a measurement of recurring factors and trends affecting our business. Additionally, it is a commonly used component metric used to inform on capital structure decisions. Adjusted EBITDA should not be used as a substitute for the most comparable GAAP financial measure in assessing the company’s financial performance for the periods presented. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. In the tables that follow, adjusted EBITDA for each period presented is reconciled to net earnings. 21
- 22. Sysco Corporation and its Consolidated Subsidiaries Non-GAAP Reconciliation (Unaudited) Impact of Certain Items on Earnings Before Interest, Taxes, Depreciation and Amortization (FY24 vs. FY20) (In Millions) 22 52-Week Period Ended Jun. 30, 2024 52-Week Period Ended Jun. 27, 2020 Change in Dollars %/bps Change Net earnings (GAAP) $ 1,955 $ 215 $ 1,740 NM Interest (GAAP) 607 408 199 48.7% Income taxes (GAAP) 610 78 532 NM Depreciation and amortization (GAAP) 873 806 67 8.3% EBITDA (Non-GAAP) $ 4,045 $ 1,507 $ 2,538 NM Certain Item adjustments: Impact of restructuring and transformational project costs (1) 116 290 (174) -60.0% Impact of acquisition-related costs (2) 31 - 31 NM Impact of bad debt reserve adjustments (3) - 324 (324) NM Impact of goodwill impairment - 203 (203) NM Impact of other non-routine gains and losses (4) - 47 (47) NM EBITDA adjusted for Certain Items (Non-GAAP) (5) $ 4,192 $ 2,371 $ 1,821 76.8% (5) In arriving at adjusted EBITDA, Sysco does not exclude interest income of $38 million and $12 million or non-cash stock compensation expense of $104 million and $42 million in fiscal 2024 and fiscal 2020, respectively. NM represents that the percentage change is not meaningful. (1) Includes charges related to restructuring and severance, as well as various transformation initiative costs, primarily consisting of changes to our business technology strategy, excluding charges related to accelerated depreciation. (2) Fiscal 2024 includes acquisition and due diligence costs. (3) Fiscal 2020 represents excess bad debt charges recognized on the increase in past due receivables arising from the COVID-19 pandemic. (4) Fiscal 2020 represents the impairment of assets held for sale.
- 23. Sysco Corporation and its Consolidated Subsidiaries Non-GAAP Reconciliation (Unaudited) Net Debt to Adjusted EBIDTA (In Millions) 23 June 29, 2024 June 27, 2020 Current Maturities of long-term debt $ 469 $ 1,542 Long-term debt 11,513 12,902 Total Debt 11,982 14,444 Cash & Cash Equivalents (696) (6,059) Net Debt $ 11,286 $ 8,385 Adjusted EBITDA for the previous 12 months $ 4,192 $ 2,371 Net Debt/Adjusted EBITDA Ratio 2.7 3.5 Net Debt to Adjusted EBITDA is a non-GAAP financial measure frequently used by investors and credit rating agencies. Our Net Debt to Adjusted EBITDA ratio is calculated using a numerator of our debt minus cash and cash equivalents, divided by the sum of the most recent four quarters of Adjusted EBITDA. In the table that follows, we have provided the calculation of our debt and net debt as a ratio of Adjusted EBITDA.
- 24. Projected Adjusted EBITDA Guidance Adjusted EBITDA is a non-GAAP financial measure; however, we cannot predict with certainty the particular certain items that would be excluded from the calculation of this measure for future periods. Due to these uncertainties, we cannot provide a quantitative reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure without unreasonable effort. However, we expect to calculate adjusted EBITDA for future periods in the same manner as the reconciliations provided for the historical periods herein. 24
- 25. Net Debt to Adjusted EBITDA Leverage Ratio Targets 25 Form of calculation: Current maturities of long-term debt Long term debt Total Debt (GAAP) Less cash and cash equivalents Net Debt Net earnings (GAAP) Interest (GAAP) Income taxes (GAAP) Depreciation and amortization (GAAP) EBITDA (Non-GAAP) Certain Item adjustments: Impact of restructuring and transformational project costs Impact of acquisition-related intangible amortization EBITDA adjusted for Certain Items (Non-GAAP) Net Debt to Adjusted EBITDA Ratio We expect to achieve our net debt to adjusted EBITDA leverage ratio forecast in fiscal 2025. We cannot predict with certainty when we will achieve these results or whether the calculation of our EBITDA will be on an adjusted basis in future periods to exclude the effect of certain items. Due to these uncertainties, we cannot provide a quantitative reconciliation of these potentially non-GAAP measures to the most directly comparable GAAP measure without unreasonable effort. However, we expect to calculate these adjusted results, if applicable, in the same manner as the reconciliations provided for the historical periods that are presented herein.
- 26. Projected Adjusted EPS Guidance Adjusted earnings per share is a non-GAAP financial measure; however, we cannot predict with certainty certain items that would be included in the most directly comparable GAAP measure for the relevant future periods. Due to these uncertainties, we cannot provide a quantitative reconciliation of projected adjusted EPS to the most directly comparable GAAP financial measure without unreasonable effort. However, we expect to calculate adjusted earnings per share for future periods in the same manner as in prior historical periods. 26