Q1 2021 Sysco Corp Earnings Call

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Good morning, and welcome to <unk> first quarter fiscal 2021 conference call. As a reminder, today's call is being recorded we'll begin with opening remarks and introductions. After the speakers remarks, there will be a question and answer session. If you would like to ask a question. During this time should we pursue.

Our followed by the number one on your telephone keypad. If you would like to withdraw your question press the pound key I would now like to turn the call over to your Russell Vice President of Corporate Affairs. Please go ahead.

Good morning, everyone and welcome to Cisco's first quarter fiscal 2021 earnings call.

On today's call, we have Kevin Hurricane, our President and Chief Executive Officer, and Joe Friday, Our Chief Financial Officer.

Before we begin please note that statements made during this presentation, which state the companys or managements 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 27 2020.

Subsequent SEC filings and in the news release issued earlier this morning.

A copy of these materials can be found in the investors section at Cisco Dotcom Rvs Cisco's IR app.

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 are included at the end of the presentation slides and can also be found in the investors section of our website.

To ensure that we have sufficient time to answer all questions, we'd like to ask each participant to limit their time today to one question and one follow up.

And as an additional reminder, fiscal 2021 is a 53 week year for Cisco.

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

Thank you Neil and good morning, everyone. Thank you for joining our call I hope that you and your families are staying safe and healthy during these unprecedented times.

During this morning's call I will spend time discussing Cisco is management of the COVID-19 crisis, how we are strategically transforming the company to better serve our customers and grow the business and finally I will update everyone on the current state of our business environment.

Ill, then turn it over to Joel who will discuss Cisco is first quarter financial results.

Earlier. This morning, Sysco reported first quarter fiscal year 2021 results that included substantial free cash flow.

365 million of adjusted operating income despite a 23% sales decline.

We are pleased with these financial results in light of the significant constraints that are being placed upon our customers due to the COVID-19 pandemic.

Cisco is doing more than anyone in the foodservice distribution industry to ensure the success of the restaurants and customers that we serve.

The impact of these efforts can be seen in the success of customers that we serve relative to the broader industry.

Cisco customers are closing at a lower percentage and are generally outperforming the broader food away from home industry are.

Our leadership team is focused on managing the day to day business Supper.

Supporting our customers and delivering upon the largest business transformation in our company's history.

This is important as our transformation will enable Cisco to further differentiate from our competition and better serve our diverse customer segments.

Examples of Cisco's management of the crisis. During the first quarter include more than 8 billion of cash and available liquidity, which ensures we have financial flexibility in this difficult operating environment.

Cisco is leading the industry with the work that we're doing to help our restaurant customers succeed delivering holiday tool kits for restaurant tours.

Rating marketplace pop up shops, providing solutions to extend the outdoor dining season, and finally, our culinary experts are helping restaurants narrowed their menu to increase profitability in tailored their offerings for takeout and delivery effectiveness.

Since pictures are worth a thousand words I call your attention to page number five of our presentation.

The right hand side of the chart shows an example of what we mean when we say extend to the patio season.

This is one of many solutions that our sales consultants are presenting to our customers to help them extend their outdoor season.

The left hand side of the page is a visual of one of our latest foodie solutions, a holiday season, selling guide for our customers to leverage to maximize sales during during what will be a unique holiday season in 2020.

Importantly, we added $300 million in net new business in the first quarter, which totals more than $1.3 billion of new national business since the start of the pandemic.

In addition to these wins at the National level, we are winning new customers at the local level at an accelerated rate compared to prior year.

Due to an increased focus on prospecting new customers across our salesforce.

At Cisco, we have the sales force strength and supply chain capacity to continue winning new business at both the national and local level.

These customer wins will enable cisco to recover faster than the overall market as economic conditions improve.

This is evidenced by our current share gains in the overall marketplace.

Most importantly, we are leveraging the crisis to transform our company.

And I am proud of the work our associates have done to accelerate our strategic transformation.

Here at Cisco, we are successfully navigating through the biggest prices in our industry's history and we are substantially transforming our company for the future.

Our business transformation is on track.

We are continuing work on our bold transformation that improves how we serve our customers differentiate Cisco from our competitors and transforms the industry.

We are making substantial progress against the four crucial priorities we have shared with you previously.

We are accelerating efforts across our customer facing tools and technology.

Which includes improving our digital order entry platform Cisco shop, our CRM tool and implementing a centralized pricing tool through.

Through these technologies will improve the service to our customers.

By the end of the first quarter the percentage of orders being placed through Cisco shop increased to approximately 60%. This.

This substantial increase is a direct result of the improvements we are making to the shop platform comes.

Combined with the consultation that our sales force has been providing customers on how best to utilize the tools that we have built and soliciting that customer's feedback on what customers most wants to see in the Cisco shop platform.

This is a great example of how we leverage the power of our human and digital capital but.

Additionally, we are on track to begin piloting our new pricing software later this month, our sales transformation is centered around elevating our selling effectiveness with an improved more customer centric structure.

We will utilize data in analytics to help identify customer sales prospects and have a new sales leadership structure that will allocate our talented resources most effectively against those opportunities.

Later this fiscal year, we will be leveraging our new sales process to pilot, our first meaningfully improved customer engagement strategy.

This program will better address the needs of specific customer segments, which will enable us to grow share.

Regionalization within our US broad line business is also on track. It is a key enabler of our other us transformation initiatives and we are happy to say it is now complete.

Our new leadership team is fully in place and we are seeing early wins from this new structure as a result of the strength of the leadership team that was selected for these important roles.

Lastly, through our structural cost out efforts, we are making significant progress in becoming a more efficient company.

We are on track to deliver the $350 million structural savings we communicated in our most recent call as a reminder, the vast majority will flow through to the bottom line.

We are committed to returning value to our shareholders in funding our growth agenda and.

And we have a line of sight to additional savings starting in fiscal 22 and beyond.

I am pleased today to welcome Judy Centsone to Cisco as executive Vice President and Chief Commercial Officer.

She is an experienced and highly talented leader who consistently delivers results in drive is transformative change.

This newly created leadership role will bring marketing merchandising pricing strategy customer loyalty and E commerce together under one leader, creating a compelling opportunity for us to develop a commercial organization focused on profitably growing sales and inspiring customers to buy more from Cisco.

Judy started with the company in October.

Additionally, in August we announced our new international business leader, Tim or Ting, who will be joining the company soon Tim.

Tim is an experienced and highly talented European leader, who has spent his career in the food industry.

He will be responsible for driving profitable growth and operational excellence across our international geographies.

It is clear that we are strengthening our leadership team and increasing our organizational capabilities for the future.

I will now transition to the current business environment and the pace of our recovery.

From a top line sales perspective, the rate of sales for the quarter was consistent with our internal projections for business recovery.

We saw steady week over week improvement in sales at the beginning of the quarter and the leveling of the improvement as we exited the quarter.

Our road to full recovery will be nonlinear.

We remain vigilant in the current environment as new restrictions on our customers in the second quarter, our stalling the recovery at approximately a minus 20% compared to the prior year.

With potential for worsening results due to the additional cobot restrictions.

Where restrictions at east however, consumers are showing that they are ready to eat away from home. So.

Southern States and more rural geographies continue to meaningfully outperform national averages.

Restrictions on customers plus or minus will be the primary driver of the piece of our business recovery until vaccines or more broadly available.

Subsequent to the end of the first quarter select geographies are experiencing increased restrictions on restaurant operations we.

We expect these restrictions to impact second quarter sales results, particularly in Europe.

Ill note at Cisco, we are more prepared now than ever to handle business disruption.

From inventory management debt collections and operations efficiencies, we are better prepared for the potential impact of a second wave on our business.

As a reminder, despite the profound impact of Covance on the business climate during the first quarter Cisco produced positive adjusted operating income and very strong positive free cash flow for the first quarter.

Cisco is focused on supporting our customers throughout this fluid operating environment and our strategy is to continue to provide robust support to our customers to help them succeed.

We have hosted one hundreds of webinars with customers and our industry, leading salesforce has conducted tens of thousands of business reviews to help our customers succeed during this challenging environment.

Recent business consultations are focused on exceeding during the upcoming winter season.

We fully recognize that we must go further to ensure our customers success and there is no company doing more to help independent restaurants succeed than Cisco.

As a result, our customer closure rate is lower than the industry average.

The customers that have engaged with Cisco on these consultative services are outperforming the general market from a sales perspective, and we are winning overall market share during this challenging environment due to our focus on new customer prospecting.

I want to give you a heartfelt thanks to all of our Cisco Associates, who continue to help our customers grow and succeed in this challenging environment as essential workers I am proud of their dedication resolute focus on our customers during these challenging times.

Ill now turn it over to Joel who will discuss our first quarter results along with additional financial details Joe over to you.

Thank you Kevin good morning, everyone.

I want to start off by reminding everyone that fiscal year 2021 is a 53 week year for Cisco.

We will begin prepared remarks with first quarter results for Sysco and results by business segment.

Followed by an update on cash flow and capital spend for the quarter.

Our total Cisco results for the first quarter include a sales decrease of 23% to $11.8 billion.

Local case volume within us broadline operations decreased 21.6%.

While total case volume within us broadline operations decreased 25.8%.

Gross profit decreased 25% to $2.2 billion.

And gross margin decreased 39 basis points.

We had a relatively flat exit rates for gross margins in the quarter, which was driven by favorable margins in the paper and disposables category and specifically MPP.

There was an impact to our margin comparison, primarily driven by increased sales of PPD products with some margin favorability.

Margins within this category have now normalized as demand has begun to stabilize.

Adjusted operating expenses decreased 16% to $1.9 billion.

Expense management during the first quarter was strong due to the initiatives that we've executed thus far.

We remain on track to meet the $350 million of structural savings, we communicated in our fourth quarter earnings call.

And as a reminder, the vast majority of these savings will flow through to the bottom line.

While a portion of the cost savings will be reinvested into our growth agenda adjust.

Adjusted operating income decreased 51% to $365 million.

Our non-GAAP tax rate for the first quarter was 19.7%, which.

Which is lower than usual.

And was driven by the favorable impacts of equity compensation and other factors.

Adjusted earnings per share decreased to 65% to 34 cents for the quarter.

During the second half of fiscal Twentytwenty six.

Cisco recognized $323 million of excess bad debt expense.

Due primarily to the impact of the COVID-19 pandemic.

That amounts represented our best estimate of what we expected the charges to be at that period in time.

During the first quarter of fiscal 2021.

We experienced better than expected collections as both the resilience of our local customers has been stronger than expected and our teams have done tremendous work to improve processes around collections.

As a result, we recorded a net reduction of $77.8 million in our loans for dead debts in the first quarter of fiscal 2021.

Regarding an update on our customer segments.

During the quarter, we saw better than expected performance from local customers, specifically independent customers as they are growing at an accelerated rate compared to total customer growth.

Additionally, restaurants performed better than expected, including improved performance throughout the first quarter in the Sigma as were seeing continued resiliency in the industry.

Health care performed well throughout the first quarter, which was offset by continued weakness in our foodservice management and hospitality segments.

I will now transition to our quarterly results by business segment, starting with Us foodservice operations.

Sales for the first quarter were $7.9 billion, which was a decrease of 26% versus the prior year period.

Gross profit decreased 25% to $1.6 billion for the quarter.

And gross margin increased seven basis points to 20.2% fiscal.

Sysco brand sales for the first quarter increased 15 basis points to 38.8% of total use cases.

Which was driven by a customer mix shift in brand from attrition in certain categories.

With respect to local use cases.

Sysco brand sales decreased 106 basis points.

The 46.3%.

Our adjusted operating expenses decreased 19% to $1.1 billion.

And adjusted operating income decreased 37% to $503 million.

Within our international Foodservice operations segment.

Sales decreased 26%.

Gross profit decreased 26%.

And gross margin increased four basis points.

Adjusted operating expenses decreased 15%.

And adjusted operating income decreased 81% to $19 million.

Our European business performed well throughout the first quarter considering covance.

However, we continue to be cautious of new regulations, and changing restrictions throughout France, Ireland and the United Kingdom.

In Canada, the business performed within expectations for the quarter.

Within Latin America business was on track as local economy is slowly reopened throughout Mexico, Costa Rica and Panama.

Moving onto the Cygnus segment.

Sales increased 5% to $1.5 billion compared to prior year period.

As quick service and drive thru restaurants continue to thrive compared to other restaurant types and we are winning new business.

Gross profit increased 4% to $132 million for the quarter.

And gross margin declined by seven basis points.

Adjusted operating expenses increased 4% to $120 million.

And adjusted operating income increased 15% to $12 million.

In the other segments, our hospitality business guests worldwide room.

Remains challenged as the customers in that segment continued to see lower hospitality occupancy rates compared to normal levels.

Lastly, as you may recall during the quarter, we sold a non core assets cake.

As we choose to narrow our business focus.

As such cake will no longer be in the other segments going forward.

Turning to cash flow and working capital.

For the first quarter cash flow from operations was $931 million.

Free cash flow was $862 million.

Which was substantially higher than the same period last year.

Historically, the first half of the fiscal year provides lower cash flow for Cisco.

However, this year, we saw a positive DSL and working capital environment, which included a benefit from accounts payable.

Any diminished use of cash in both accounts receivable and inventory.

We are pleased with the work we have done to improve the cash cycle throughout the past few quarters. This.

This includes work we have done to tighten up terms on new sales to customers as.

As well as through supplier term extensions.

Net capex for the first 13 weeks of fiscal Twentytwenty one.

It was $102.4 billion lower compared to the prior period.

As a result of our substantially reduced capital expenditures that were directed only to urgent projects and targeted strategic investments that you heard Kevin talked about earlier in his remarks.

I am pleased with the strong cash flow performance during the first quarter.

Looking ahead to free cash flow for the remainder of the fiscal year, we anticipate that free cash flow will initially decline for the next quarter or two due to the building of inventory and ongoing investments in the business that.

That will be offset by anticipated free cash flow generation in the fourth quarter.

Free cash flow for the full fiscal year is expected to end flat to slightly positive compared to the end of the first quarter.

Lastly, I am proud to say that Cisco remains financially strong from a balance sheet perspective.

As of November 32020.

We have more than $8 billion of cash and available liquidity.

Which ensures us the stability and flexibility to make decisions that are in the best interest of the company.

We continue to take definitive steps with the cash we have on our balance sheet.

We redeemed early $750 million of our outstanding senior notes in September.

And a pay down $1 billion on our revolving credit facilities since the start of the pandemic.

This leaves us with the remaining outstanding balance of $700 million or $1.3 billion and available borrowings on our $2 billion revolving credit facility.

Throughout the first quarter, we maintained our strong liquidity position and were able to fund the redemption of the senior notes with the free cash flow generated in the quarter.

With that said.

I want to remind everyone that Cisco went into this crisis in a position of strength.

Although it has been a tough operating environment, we have managed well through the crisis and have taken advantage of the opportunities the crisis presents to make bold transformational changes.

We have prioritized supporting our customers in this dynamic operating environment and.

And we believe our strategy will continue to drive future value and growth for our associates shareholders and customers and with that operator, we're now ready for Q and a.

Certainly at this time, if you would like to ask a question. Please press Star then the number one on your telephone keypad. Your first question comes from the line of Kelly Bania from BMO capital. Your line is open.

Hi, good morning, Thanks for taking our questions.

Joel and Kevin I was wondering if you could maybe just talk a little bit more about the.

The underlying assumptions in those free cash flow projections that you just talked about for fiscal 21.

Especially in light of way, maybe what you're seeing right now.

Yes.

Sure Kelly, if still I'll take that things for the question.

A couple of key points I think that are important to remember as we talk about the free cash flow guidance, specifically the modeling.

Number one we've continued to have positive improvement in our working capital trends and I think one of the things that we've done a really good job of adding that said, it's really across all different categories working capital Kelly.

The payable terms as we've talked about our collections on receivables in our overall cash cycle as has gotten better throughout this crisis does I think really important and so and the addition that we've done a really good job managing our inventories in terms of being able to have product availability, but also do so in a way that is.

Again, working capital efficiency. So we do anticipate many of those trends to continue but I'll make a point there.

As the year continues and as our business continues to build back and as we certainly do anticipate some of those trends continuing to improve and then obviously as we head into a fourth quarter, where we're certainly anticipating a sizable year over year improvement that's going to require working capital investment.

And in some cases are given a fairly substantial and as this business comes back and Thats one of the things we talked about earlier in the crisis as one of the areas were Cisco has a significant opportunity to do some things that I think others. In this industry are going to struggle with as that business comes back I will be able to make those investments, but that is certainly something that as you.

Think about the overall working capital trends that are reflected in the cash flow forecast going forward.

I think a couple other quick things I would point out.

It was one of the things that you do see in the first quarter. In addition to some of the working capital trends.

That happened that are not necessarily something will repeat through the year first quarter is when we typically pay our incentive payments from a cash perspective and that was was clearly something that we had less of this year than in previous years.

On the flip side of that we also have a higher interest payments throughout the course of this year that will be factored into our cash flow and then in Q2 one of the things. We also expect because in prior years you may recall that we have had.

Tax deferrals from floods that we've had in Houston, and we've had that for a number of years actually and that actually allowed us to begin to delay the payment of our taxes that was would normally have been due in the second quarter that was paid that in the second half year, we're not anticipating that this year and so there is going to be a cash tax.

Detriments to cash if you will as we head into the second quarter.

So those are a few of the puts and takes I'd call out Kelly I think generally speaking again, we're very pleased with the way we're managing the cash again, the sizable improvement from working capitals perspective, and again as we said anticipate the end of the year being flat to above where we ended up here in the first quarter.

And can you just help us think about just.

Next plans for the year.

Sure of course, so I would say with the following and as we've talked about we have cut back some of our capex through what we call. Those those specific end again kind of mission critical projects in a general sense, but what Weve also done is made targeted and strategic investments and we will.

Continue to do that I think some of the things that you've heard Kevin talked about in terms of the ways, we think about really and truly accelerating our growth those areas like investing in our shop platform investing in pricing tools investing in those areas that are.

Enhancing our sales organization in the way that we go to market.

Some of those really important pieces are areas, we were makings and we are continuing to make strategic investments and so Kelly I think you.

Yes, certainly obviously, our capex number as a percent of sales is is less than it has been and will continue to be a VAT as well. It will also be a contributor to some of the cash flow that we just talked about but nonetheless again, our priority of this company from the use of cash those continue to be those investments that are going to fund future.

Growth in this organization and certainly during this crisis, we've continued to make those investments, but clearly we'll end up the year at a lesser rate than we typically have you recall weve run.

Number that is somewhere between 1.2% to 1.3% of sales those total capex of as we'll certainly be well below that for the over the course of the total year.

Thank you.

Your next question comes from the line of Edward Kelly from Wells Fargo. Your line is open.

Hi, guys good morning.

Kevin I was hoping that you could provide a bit more color around that what you're seeing out there from a sales trend standpoint, you talked about I think stalling out in sort of like down around 20, but how does the U.S. and international look within that and then just thoughts around how you're thinking about the fall and winter in each of these regions right now.

Thank you for the question.

Happy to go a little bit deeper there from a quarter perspective, we're reasonably pleased with the performance overall and I'd say met or slightly exceeded our expectations broadly across all regions of the globe and quite frankly Europe in Q1 was a strength of ours certainly versus Q4, but also.

Just in aggregate what I alluded to in our prepared remarks is obviously you've been reading about the increased restrictions in Europe, we've all been reading about it and it is going to impact our restaurant customers in Europe, it's a little bit too soon to tell is the honest answer I know you want more than that but it is late breaking and happening as we speak.

I would say that did not impact our October results October was reasonably consistent flattish to the exit velocity of Q1, which is a good thing November I would anticipate there to be softening of performance coming from Europe. The Rex tricks trends at this time are pretty significant I do want to call out some detailed nuances.

However on whats different in Q2 of our fiscal versus what was happening back in Q4 at the beginning of the pandemic restaurant operators in Europe in the countries that we are operating within can continue to takeout and delivery. It's on premise dining is what has been closed down that is very different than what was happening in Europe after that.

Beginning of the pandemic it was a hard shutdown in Europe back in March and April and you remember Europe didn't open back up until our July 4th year in the United States or Europe meaningfully entered the crisis earlier lockdowns were substantially more significant and lasted much longer.

It's a fluid situation Ed what we know at this time that this particular lockdown the goal of most of the government leaders is for it to be roughly one month. That's what they've explicitly stated we will see if that is in fact, the timeline, but the desire is a pretty hard background in November to reopen in December the desire for.

Holidays to have some form of normalcy and they're trying to really bend the curve. The second time here in November so two pieces of positive the duration should be quite a bit shorter we'll see if thats. The case and more importantly restaurant operators are capable of doing takeout and delivery, which many of them improving.

Good at doing now because we've been at this now for seven eight months as I pivot to the United States as unit and you know it state by state now that might change, but for now in the United States. It state by State I mentioned in our prepared remarks, our southern states and our rural geographies are performing quite well substantially better than the national average.

The major urban centers, California is a state are struggling and it's directly tied to the restrictions that are being placed on operators. The third piece, which comes up often altice lean into it here is pending cold weather and the impact that that will have on outdoor dining we've been working on that for months as I mentioned in my prepared.

Remarks, our sales consultants are growing customer by customer by customer, enabling an extension of that outdoor patio dining.

And helping our customers in locations like Chicago, which are now not able to do on Prem dining again maximize takeout maximize delivery I think the biggest takeaway here from my narrative is our customers are more prepared to keep their business up and running and vibrant during this second wave and we certainly are more.

Repaired from an inventory management perspective expense control perspective, and we're really leaning in to make sure that every customer has a website that is usable on a mobile phone at takeout and delivery are logical intuitive and if they don't have a delivery partner, we're connecting them with one so november to be determined.

Wish I could share more about what's going to happen in the future, but these restrictions are changing on a weekly basis and we're doing everything we can to maximize the support of our customers. During this difficult time.

Okay Thats helpful and maybe just one follow up on that public maybe for Joel but.

How do we think about the level of EBIT that you generate with sales down 20% and I ask this because it actually seems a little more complicated just looking at Q1 right because your gross margin performance was good yet it flat exit rate, which is certainly encouraging bye.

It sounds like.

Gross margin might not be flat.

Going forward, so I'm kind of curious as to how you think about that.

Then you've been cutting costs, which may be are still ramping and so any way you could help us around how to think about what the performance of the business with sprint with total sales down 20.

Yes, sure a couple of things out I'll start and Kevin can chime in if anyone wants the up clearly I mean, obviously on a positive note. We certainly had given the $365 billion of income we generated was on 23% down business and obviously, so so certainly our ability to be profitable at levels of business well below.

Well, where we had previously event obviously is very strong.

I think a couple puts and takes to think about that in general so from a margin perspective, a couple of points I would call out and one of the things that we talked about in the script was the fact that from a business mix perspective.

Our local and even more specifically independent restaurant customers, which is our highest margin business are those that are actually performing at a rate that is in excess of the rate that our overall business is performing and so when we often talk about the business the wins that we've had in the.

In the National account space and certainly obviously again those generate growth Grace gross profit dollars, which I'll take every day the leaks at a slightly lower margin rate, but again broadly speaking our independent business is performing well and better than our overall business, but that's a positive on the margin side. Another part of that to think about.

When you think about our margins the fact that our foodservice management hospitality customers, which are areas that are actually lower margin business.

Our actually struggling as we've talked about in a higher weights I think I think field from a customer mix perspective, theres. Some theres consistent parts of that but in terms of how we think about our overall margin you have from a product mix perspective, we talked about there was other some from paper disposables bid and it's really related to just.

The fact that we sold a lot of those products.

During the first quarter and were expecting demand to moderate some there, but overall from a margin perspective, I think our year over year rate to variance you know Ed we anticipate remaining relatively consistent so you should think about that over the next couple of quarters.

I'm an expense perspective, we've talked about the fact that we've we're well on track for this cost takeouts the $350 million that we've talked about for this year, we talked about the fact that the vast majority of that is going to our bottom line I would I would think about that as you know somewhere north of the 80% range.

That is actually going to the bottom line and reminder, that about two thirds of our cost structure is variable were Lou as the rest would be the other third would be fixed.

And so I think those are some of the things I would think about as we head into these next few quarters again I think you have this service. This work that we've done both from a margin perspective again, we've got people in our revenue scenario, our finance area. Our sales teams that are aggressively working to continue the work that we.

Don in the margin area, which has generally been good.

Again on track for cost take outs as we as we discussed and lots of great stuff, there and I think all those things and how I would think about the EBIT performance, which again continues to be positive even as our sales obviously are down.

Great. Thank you that's helpful.

Your next question comes from the line of John Heinbockel from Guggenheim. Your line is open.

Two things, let me start menu was one for Kevin can be.

The segment oriented sales effort.

What does that entail broadly speaking.

Product pricing service and when do you think that can move the needle.

During during Covance is that the is that an opportunity or is this sort of setting up for the recovery.

Yes, John Thank you for the question. It is exactly what you just articulated from a segment perspective, so im not on todays call actually going to declare which the segment is because we want to introduce it to our customers more broadly to the marketplace that we have chosen a specific customer segment and we have a dedicated focus.

His team that is working full time on how Cisco can better serve that customer profile and its across everything you said tailored assortment tailored pricing.

Promotional offers that are unique in bundled for that specific customer types that are time bound and then introduced to those customers through a specialized dedicated sales expert in that category. So it's our first.

Let's call it national effort tied to really winning within a given specific customer type and which is different from the past because I know you have a lot of history with understanding Cisco is we have a dedicated full time team working on how do we maximize our ability to serve that specific customer type. So I think it will be a bit during and after coated during kovac.

I believe we have the opportunity to win more of the unique customers are doors in that segment. We believe we can increase our penetration with that segment, but I really do believe this is from a post Tobin perspective.

Tailwind that will help us for the long term and this is the first John of what will be many we're going to do this in many different sectors Mexican Italian Asian, and the like we'll do it across essentially all of the major sectors, but we've chosen one and important one to Cisco and we are going to be piloting. It. This fall we're going to learn a lot.

And then we will take the winning elements of that pilot and expanded nationwide and that's the power of Cisco, we can pile of things with dedicated experts and when we find the winning recipe when we find the winning formula we can expand that out in our new regionalization leadership structure, which you know a lot about is more prepared than in the past to be revenue absorb that site.

For the best practice and implemented in a more agile and timely manner.

And then maybe secondly, right you think about share gains.

And then thinking more local right. So you think about new customers to you and then you think about existing customers with higher share.

Those two buckets.

One of our.

Perform the other.

Do you think about your share gains and how will you know either of those compared to what you thought maybe a couple of months ago.

As you thought.

Or the share gains greater or lesser than than you envisioned in those areas.

Yes, Im asked often just our restaurant closure is going to have a permanent headwind on cisco's results and I have a different view on that first of all I think restaurants are resilient and the bankruptcy rate is showing to be less than what many had modeled which has a favorable item more importantly.

Cisco has a meaningful ability to grow even if the pie for slightly smaller in the future for John the two elements that you just said 30% share of wallet on average today for our independent customers, we have the opportunity to move that upward in a meaningful way through our transformation and the second is we serve less than half.

Of the available doors out there in the marketplace from an independent perspective, those two data points are substantial we have the opportunity to meaningfully increase the number of unique doors, we serve above the on average 50%. We have today and we have the ability to grow our share of wallet with existing yes, a straightforward question, which is in this current environment where.

Which has been the bigger lever winning new customers John has been a bigger lever in the current environment. We are doing more new customer prospecting than at any other point in time in our history. We've updated our sales compensation model to actually pay for that behavior for those outcomes and it's having an impact people do what they get paid to do and they're motivated by and so our salesforce.

Which is the largest in the industry has been scaled up and trained up on how to do new customer prospecting there to enroll play with their supervisors and they're going out boots on the street, knocking on doors, and we're winning new customers at the local level at an accelerated rate versus prior year. So currently it is from winning new customers I would say for the long term John the bigger.

Level lever will be the 30% share of wallet.

But both of them back a pretty powerful punch.

Thank you.

Your next question comes.

Comes from the line of Lauren Silver Amendment from Credit Suisse. Your line is open.

Thank you just a follow up in the last question.

Quantify the relative impact.

Gary you pass through acquisition.

Comp declines from the restaurant.

Hi.

While it's Eric Samson.

Thats right now.

Back to what you are saying okay.

Yes, we prefer today not to breakout that data one there is a lot of moving parts on the closure side are they closed temporarily are they close permanently.

Customers communicate their closing and then two weeks later than reopened we've gotten some select northern geography people are closing for the winter, but they're planning to reopen in the spring So theres a little moving.

Data there that we would prefer not to to convey what we can clearly articulate is we are winning share are winning share at the national level.

Through the $1.3 billion worth of National sales wins that we have posted since the beginning of Covidien net new 300 million since the last time, we spoke.

What we did not communicate on prior calls, which we are communicating today is we are winning share at the local level.

And I believe that that will actually accelerate overtime as our salesforce gets better at doing that type of work. The sales compensation model that I just spoke to is still new in driving behaviors, which I believe will continue.

As it relates to closures I would say it's in the single digits high single digits, whereas you've heard industry reports that were substantially higher than that.

Beyond that one data point, I'd, probably prefer not to get into more details.

Okay Thats very helpful. And then just on the gross margins you talked about the accelerated growth.

During the call.

Focus on salary some benefit from elevated PD better margin opportunity for sustainably higher gross margin coming out of this local customers.

At a higher percentage as well.

Now.

Now one of the strengths of Cisco is that we over index at the local level and I would believe that that strength will continue overtime as evidenced by the new selling model that we have the compensation change that I referenced then yes that would be a stated intention of Cisco is to increase the percentage of our total business overtime in the.

And local customer business, which comes at a much higher rate.

But that does not mean that we won't pursue national sales I think at times in the past people have tried to box us into is it a or b. It.

It can be a and b. So we're going to grow at the local level. We believe at a rate that will lead the industry and we have the supply chain flexibility and capacity to win business at the national level as well. So right now we're seeing some favorability in gross margin rate because of business mix will cover that very well it's point on the EPS.

In Q1, we had some time based favorability in that category, which has normalized because supply and demand have come into alignment.

In Q2, you would expect a more normal run rate of gross margin and we're not hiring it highlighting any specific concerns.

Yes, and I think I would just that I'm, sorry, I would just add really to two quick things to that even your question on the ability to add to that customer mix. If you will through the local even some of the work that we're investing in from a pricing perspective is also as some of that work that we do believe over the long term will these.

We will be significantly beneficial both from a margin percentage as well as a growth percentage and again all for that category. So certainly we do believe that the other part just to build on one thing Kevin said.

It certainly doesn't mean, we're not interested in growing in the national space I think at the end of the day always recall you I'd like percentages I leg margin dollars, even better and so I mean, I think the the all those customers do drive significant gross profit dollars into our business and so just a couple just to give small.

Builds on something Kevin said as it relates to your questions.

Really helpful. Thank you.

Thanks.

Your next question comes from the line of Alex Slagle from Jefferies. Your line is open.

Thanks. Good morning wondering if you could talk a little more about your success with new customer prospecting activity.

Accelerating digital platforms still seems like it's it's early innings and any more color on what the pipeline looks like and and margin profile, the new business wins.

Alex. Thank you for the question I'll start this is Kevin I haven't spoken about the digital activities yet on the call. So I'll go there first and I'll answer the margin profile, then I'll I'll end with kind of what's resonating with the customers that we're winning and why why Cisco and why are we winning are we're really pleased with our progress in the shop digital platform, we communicated on.

On today's call that we have approximately 66 zero percent our orders now being placed through shop that is a substantial increase from where we've been and it's not because we're forcing that too on our customers. That's a big difference we are seeing that increase because the tools becoming easier to use.

More inspiring from what our customers would be buying we're providing a suggested order are providing them. Other customers. Like you are also buying the following things sysco brand penetration opportunities menu design options and suggestions click here. If you like this menu and everything you need will be on your next truck, it's a really powerful vehicle and our customers are responding.

Weve also scaled up our salesforce to embrace it and we believe as I said in my prepared remarks that this is the combination of the human capital that we have which is the largest sales force in the industry and as powerful digital tool. The digital improvements are not in competition with our local sales force, but at a very significant point, we do not view this as a means to reduce.

First our Salesforce presence, we view it as a means to get our salesforce more focused on consultative selling and less time being spent on manual things like hand, keying in order or changing pricing every Friday in a manual way.

We're automating pricing, we're automating order entry through the shop tool, which is really unleashing our salesforce to spend more time on value added activities. So we're really pleased with the progress thats happening in that space in a really short order we moved from an agile development methodology, we're deploying new code on in every two week basis really positive outcomes what.

Thats resulted in is more time spent on that new prospecting activity to answer your question on margin rate, we are winning the new customer rate equal to our historical averages both at the national level and the local level. That's the answer to that question on the lighter treating Cisco. It's a couple of things one as Joe said we.

Of the financial strength to be able to be in stock and have the inventory available to ship on time and ship in full and that is not actually happening in the industry at large it's why we're winning at the national level for sure we have enough customers coming to us expressing concerns about their ability to get what they need when they need it and they're confident that Cisco.

Can support them and Thats the biggest unleashed at the national level at the local level. Many of these customers are just doors, we've never not gone before and they don't actually or Didnt actually understand the breadth and depth of the capabilities of Cisco and then we desire to serve them some perceived that maybe there, which we small for cisco to be interested in them and that.

Well it is our supply chain is flexible that we can support both big customers and small and we can do so profitably. So thats a bundle around why they are choosing to do business with Cisco and again, we see that accelerating over time.

Helpful. Thank you.

Your next question comes from the line of Nicole Miller from Piper Sandler Your line's open.

Thank you so much and good morning, and thanks for the update Q.

Two quick questions.

The first one is on the local and independent commentary around performing better than overall system and and I'll admit I just don't remember that level.

Hal nowhere that that performance frankly, and so I was wondering when did that have it occur for the local as an independent.

Well, that's just a function of time or is it because of some closures and we'll have less competition is that the last one on Standalone frankly.

That's a good question Nicole thank yous to Kevin I'll break it down into two parts and we have not.

Publicly communicated the percentages with confidence and with accuracy. We can quote. These two points. The first is closure rate and it comes from Yelp. So comes from a third party source not internal data Cisco customers are closing at a lower rate than the national average of closure.

Is it a chicken and egg we'd like to believe it's because of the significant work that we're doing to help ensure their success with menu redesign for takeout, we've connected tens of thousands of customers through delivery carrier on and on and on to help them fight through and that is a fact based data point that our customers are closing at a lower rate than that.

National average 0.1 0.2, the second data point, we've said and I'll just be really clear on what it was those customers that we've succeeded with engaging with them on what we call our value added services, which would be takeout delivery menu redesign optimization of their web experience.

In restaurant cleanliness improvement to be able to make customers be safe feel safe excuse me with on Prem dining that's what I would bucket all of those things into the value added services.

Those customers that have engaged with us or we've engaged on those things are meaningfully outperforming those customers that have chosen to be more passive.

Net fact based and our objective during the second wave of coated is to touch every single one of our customers, but there were services because we know when we do that when we improve their website. When we have contact lists menus, perhaps you've been out recently I'll just do a quick one there I had the opportunity to grant on Saturday night, and there was a QR code on the middle of the table just take your phone.

Take a picture of the QR code brings up a contact US menu you can order your meal without even speaking to a waitress or whatre you can actually pay for your mobile phone you don't have to touch a credit card or payment device and you get up and leave and its outdoor dining or it's an on prem dining where that's allowed and it's clean it's safe, it's comfortable and we have to help.

Many many thousands of our customers with those experiences even small customers that have less sophistication in that regard. So for those that we've engaged and we're being very proactive about this they are meaningfully outperforming national average.

And actually Nicole if I could just address one part of your question on sort of.

As you think about this as we're not only servicing the restaurant industry. Remember this is what we're talking about here and it isn't it isn't really new it's just really the first quarter, we have decided to call. It out here specifically throughout as this crisis has evolved.

But the hospitality sector clearly is an area thats been challenged the area. The of Foodservice management sector is clearly been an area. That's been challengers parts education, obviously that have been that have been challenged in these ways and so are over indexing in this business area is something that's starting to come through and you combine that with the resilience of the.

The industry and the work we've done that Kevin has talked about as the reason from a mix perspective, you're seeing what you're seeing.

I appreciate the finer points on that thank you very much.

Second last question I couldn't agree more about that strengthens the restaurant industry and how it will come back. So I'm trying to think you know profit from what I'm seeing before during and now again, we're still I guess and.

Pandemic its restaurant consolidation not closure bankruptcy.

There's some of that consolidation.

Strategic buying somebody in putting portfolios together and so as we see that happening.

Dreamily curious about the impact of distribution, so whether or not they're public or private that more so you're putting a bunch of brands together like we see announcements even this week a big brand.

And I come back to you as a distributor clearly you could be getting more doors.

More stores more concepts as they do that but do they also place to get a better deal.

Yes, it's a good question and I'll I'll start with one of your premises, which is will there be a reduction in the number of doors and will the strong gets stronger I think thats a logical hypothesis. It's one that we've been communicating for a while what Neil said as well as what we know is food away from home fatigue.

Food at home fatigue, excuse me is real and people want to go out to eat we can see it we see it in the data as soon as restrictions or east the consumers back out and they're out out of their home and experiencing a dining experience. We can see it in the data in the United States because it's so varying what the restrictions are.

You state by state the states that have fewer restrictions are meaningfully outperforming that gives me optimism that as this pandemic begins to abate customers ready theyre willing they're able and they do it quickly theres not a meaningful latency between the restriction is improving in their ability to get out of their home in experiencing a good meal.

As it relates to the number of doors, yes, I would anticipate there will be fewer doors in the future in aggregate that is a good thing for Cisco, our drop size will improve which increases our efficiencies at both our order selectors and our warehouses and the drivers doing delivery. The most time consuming part of a delivery is actually to stop the opening of the truck putting.

On the ramp, but getting the products to the customer's door and as we can increase drop size, that's a meaningful benefit in aggregate. That's a positive thing for this company as it relates to negotiations with key partners that will keep that private with our key partners, but in aggregate I would say, reducing the number of doors overall to positive for this company.

Yes.

Part of my question sorry to interrupt.

There's a fee.

Dunkin right its going private it's going into our portfolio. So I don't know if you had duncan for now it's not about Dunkin', let's say, but they were standalone and once they get put into the portfolio with four other brands and this happens all day, along private to private public to private their.

Their portfolios are growing right. So does the doors don't close and Thats Hi, Claire.

Clarify consolidation I'm, saying, a standalone company getting put in their portfolio now a whole bunch of concepts and their pitching twice scale and part of that scale is beating up on the distributor does that happen or is it is it good for you because it's easier access all of that Brian.

I would say Cisco would be uniquely positioned to be successful in the environment that you're describing our breadth our depth our national scale, our ability to pivot to support a customer like that coast to coast is viewed favorably by them and long term I would say that's a positive for this company and I prefer not to get into your margin discussion vis-a-vis Nicole.

In addition, but I think you understand my answer and I'm being clear.

Yes, absolutely and I apologize for the interruption I don't think I ask the question right. The first time sell thank you.

No problem. Thank you for the question.

Thanks again.

Your next question comes from the line of John last from Morgan Stanley. Your line is open.

Thanks, and thanks, and good morning for press can I, just ask about the $350 million of cost savings that would that fully resident in this quarter like thats the quarter that at that I, just think about it or is that.

And we'll go through the quarters and what that does things and how we should think about that and I assume it's all contained within 21 that always it's not a run rate at the end to 21, but its $250 million in this fiscal year. Thanks sure I'll start with the last part of your question. Yes that is an amount that is contained and thats why 21, but I would I would also emphasize as we certainly have.

A a line of sight to cost that is.

Over and above that is that we would look at moving forward. So thats certainly an important points, but as it relates to that I mean, I would say that the zero the distribution of the cost.

It was relatively consistent across the across the quarters and I think there is some of it is ramping up.

As we go.

Throughout the year, but I would say generally speaking it since the beginning of this pandemic, you'll recall that we took some really really swift and decisive action both from a permanent and temporary a cost out perspective, and so some of the work we've done on structural cost that is leading into that $350 million is well underway as we added.

Into this year. So again I would tell you. It's again, it's still it's relatively well distributed you again as we talked about earlier on the call. The vast majority of that is going to go down to our bottom line, but some of it will also be reinvested as well.

And then if I could just ask on the M&A outlook I understand it's the tenuous time than it does a lot of buyers and sellers may not be on the same page, but how do you think about both domestically tuck in acquisitions is this the right time to start Reengaging I know now that we're off the bottom we have some visibility in sure about the European business in particular, since it's probably even greater that is great.

The runway there et cetera is this an opportunity to also take advantage of this period of time or is it too early yes.

Well I'd say a couple things first of all from an engagement perspective, both from I recall on the inbound and outbound calls perspective, we've had a fairly significant level of engagement as it relates to this clearly as this thing has evolved and clearly if it continues to drag on for longer. There's good is going to continue to be struggles within that and.

The stream. So there's been plenty of discussions I think I would just say you know that it's it has to make sense for us it has to make sense that in and when we think about you said, Mr buyers and sellers not necessarily on the same page I think thats still true in the sense that multiple expectations are so we are quite high and this idea that you know were I always joke inflicted.

Housing crisis back in a way to nine people work, we're kind of holding on to size how long they can try to sell their houses at a higher price and I and so I think theres theres some of that happening here in the in the M&A space up domestically and as it relates to Europe I think our certainly our first priority in Europe is to continue to.

Stabilized our existing business that doesn't mean, we don't.

And have discussions are eyes out for opportunities, but I would say that is not our primary focus in our business in Europe at this point.

This is Kevin as Q1, and we're going to do one build if I could and I've said before we wish.

Ill upon no one in this business, but another piece of this puzzle is the bias or do you just jump right over a competitor and go straight to their customer and when the business in which has a higher financial returns. So we're modeling all of those things and we've had some substantial wins this year, where we could perhaps bought a company with a more cost effective way was actually to go direct to the core.

Customer and when the business and I do not mean, we're buying it through rate were being market competitive wins that we haven't been at our historical average margin ratios, but they see the confidence in Cisco Joel Carpenter, well with inventory availability in our cash ability to fund growth. They see if it's real and were able to win business because.

That and what the opportunity is right in the company is right and the price is right and yes, there will be opportunities for acquisitions and joel's very active in that regard.

Thank you.

Your next question comes from the line of John I wouldn't go from JP Morgan. Your line is open hi.

Hi. Thank you you know there is a lot that was said and I think it was all very good color around the above average survivability of your independent restaurants that you sort of said that gets you know thats just reiterating what you've already said and they got me thinking about how you could potentially help some of these customers or potentially the new customers.

You survive and even thrive at an increased rate in the future. So as certain markets like Chicago as you cited you to enter into them.

Yeah, Edwin entered into reducing on premise dining and the potential elsewhere or effective capacity and in New York and other places are are going to be added back to 100% anytime soon.

In different periods, whether it's months or its quarters.

Osisko, considering consider extending its working capital facilities to restaurants me does your does it make sense or could it potentially be the case that you could enter into some short term working capital agreements with independent restaurants that can potentially you translate into medium and long term business for you and I did hear Joel and.

Prepared remarks that you said that terms are tighter for new customers.

Could you elaborate on that and whether that would be something that would be ongoing or it's a trend or where it could potentially go the other direction.

Hey, John it's Kevin I'm going to start at the higher level, and then I'm gonna toss to Joel's specifically to talk about the good work. His team is doing on our on our customer payable side. Your question is more about what more can Cisco due to ensure the success of our customers.

Trust site every day every meeting every employee of Cisco wakes up everyday thinking about that exact question and we have a whiteboard bigger than enough room that were sitting in with ideas.

We're not even close to done on all the things that we can do obviously can't talk yet about things that aren't public but know that we're turning over every rock to determine how best to help our customers I just want to ensure we have a ton of gas still in the tank on things that were doing that many many customers havent yet engaged on that example.

I gave earlier about a contact list menu with a mobile app version of a menu that easy to use directly linked to a delivery partner at a cost effective delivery rate. There is a lot there in a small percentage of independent restaurants are doing that let's call. It exceptionally are viewed as our parents.

You have to have every one of our partners do that work exceptionally and we can do that work to help them better than anyone else as it relates to working capital I'm proud of Joe's team as he said, we actually had a strong quarter from a receivables collection perspective, and he can walk you through both the.

What we're doing on our penal side and also what we're doing to help our customers Trulicity sure. Thanks, Kevin here a couple of key points here first of all when we talk about pre coated receivables John and the work that we did you heard us talk about lowering our bad debt reserve a lot of that had to do with the fact that we're we're continuing to make.

Collections significant collections over and above what we anticipated even on those pre coated receivables many of those aren't essentially payment plans with customers and so when you say, how we used our working capital to help our customers. That's really what we're talking about and so again, we're in a good place there with those customers that certainly helped them and again we've.

Collected over and above rate the other point I would make as it relates to you know talking about moving forward and helping customers.

Recall, maybe about a year ago, we've talked about the fact that we rolled out a new.

Centralized credit and collections processes, we had some bumps along the way, but you know Kevin over time of this the other day and it is it's.

It's like well thank goodness, we have that today because in what is giving US now is the ability to use again centrally managed technology and predictive analytics to essentially separate customers into different tiers to develop specific targeted strategies for each of them so for Q.

Customers, where we feel terms needs to be tighter we were actually again communicating between our centralized organization in our field organization in order to execute that for those though that actually we do have opportunities that we can help continue to do so we do that so theres no one size fits all but again the centralized man.

Measurements predictive analytics improved technologies has allowed us to actually have that do that work in a way that's been really effective through this process and I think we will continue to allow us to to do both and all the things that you said.

Very helpful color. Thank you.

Your final question comes from the line of Jeffrey Bernstein from Barclays. Your line is open.

Great. Thank you very much two questions just one on the new business side I think you mentioned right 1.3 billion annualized up from a billion previously I think you noted that it's primarily national but just wanted to confirm that but any color on whether it's quick service first casual dining.

And would you expect the new business dollars to continue to ramp from the $1.3 billion. I think you noted no capacity constraints.

Perhaps thats part of your theory around pushing that 30% wallet penetration. So just wondering maybe with that 30% could go ultimately, but I had one follow up.

Yeah sure on the 1.3 billion. It is national customer wins tried to be clear about that in my prepared remarks profit will be even more clear now so the 1.3 is national.

And you asked is there more gas and that takes the answer is yes, we have a pipeline of customer opportunities that is robust that we are pursuing its a combination of existing customers, where we could expand to the geographies that we serve with them and net new customers, it's mostly in QSR, but not QSR. We have we have few healthcare wins.

That are notable in there as well.

And we have the fulfillment capacity in the transportation capacity to continue to win in that regard it as I mentioned, we're not buying that business at that historically strong margin levels.

I have not quoted the local growth other than to say, we are winning market share at Cisco and so we're trying to parse it out that way because at the local level. There is a lot of noise with select restaurant closures with overall ticket per restaurant being down because of restrictions on their on prem dining, but I can say with confidence that we are winning.

More new local business than at any other point in Syscos history, its a significantly elevated rate versus prior years and the new compensation model profit plus the fact that we're focused on it from a as I mentioned gold play and sales leadership perspective, and I believe there is an accelerating opportunity in that.

Regard as well so at the national level, there are still many sales prospects available from an opportunities perspective.

At the local level, it's about our Salesforce, which is the largest in the industry ability to win new business and I'll talk to you for your follow up.

Yeah, and then well actually just to clarify what do you think that 30% wallet penetration can go to and it would seem like customers don't necessarily want to put all their eggs in one basket. So I guess customers are torn between giving more share to you versus being protected by having a diversified supplier base. So just wondering based on maybe some accounts that youve seen the has much larger got 30%, where you would say.

Say that goal would be for that 30% today.

Yes Minister save that question for our Investor days, because one of our key components of our long term strategy is how we will increase that share of wallet now going back to your John Heinbockel. His question you asked me for the current versus the long term, which levers the bigger lever for the long term increasing net 30% is the biggest lever and we are bullish on that our long term strategy, which will end.

Bail and talk about it in much more detail at Investor Day will explain how we will actually put some size of the prize math on the table at that point in time, where we can articulate for you each of the key components of our strategy what their work we have done that math, we just not gone public with the given the fact that Youve covidien is unpredictable and restaurant restrictions are unpredictable and.

How long it will take for us to get through this.

This pandemic is unpredictable so we.

We believe we can move that number meaningfully higher we have many customers independent customers, where that number is meaningfully higher it comes back to what are the reasons why to your point they don't choose to do more with US pricing is the number one reason why a customer chooses to do business with more than one distributor and transparency and lack of Troy.

Just in pricing is the double click into that topic, we will make meaningful progress on that customer pain point with the deployment of our national strategic pricing tool. We will increase transparency, we will increase trust by being right on price on the items that matter most and we believe that is a very significant lever.

To improve share wallet, which Joe mentioned briefly earlier.

Assortments is topic to increased availability of fresh in premium and we're making significant efforts to increase our availability and access and ability to deliver fresh best that fresh is something we talk about internally and our ability to be able to increase share of wallet by being better fresh investment protein and we're confident in our capabilities.

The third bucket would be supply chain services, and I'm going to save that one for our upcoming Investor day.

Got it and then just.

The other question was just on cost savings.

In on your ability to do more with less.

Highlighted higher adjusted operating income was quite strong despite sales down 20 plus percent. So I'm just wondering whether you would be how to quantify that reduce breakeven levels.

And then you mentioned, having a lot of set on additional savings beyond the $350 million.

I think you said starting next year. So I'm just wondering to what magnitude are we talking about something similar for 250 are now we're talking about smaller pieces in out years. Thank you.

Yeah, so I'm not going to I'm not going to answer that one again to kevins point that would be something we rollout further at an investor event.

Regarding the break even point I mean that certainly is something we've talked about in our.

As we exited the last fiscal year, our businesses down again in nearly the 30% range and if you'll recall we've talked about the fact that we actually exited that quarter, which again is our Q4 a positive from a operating income and cash flow perspective, so so clearly already our breakeven point.

It has moved to somewhere beyond 30% down and Thats certainly is significantly different than it had been even at the beginning of the crisis.

So.

Andy that's the color I'll give you on that.

Understood and start date for this investor day or is that kind of ending based on covance.

Yep spending.

Thank you.

Thank you everybody for joining the call today that concludes the first quarter 2021, Sysco Corporation earnings call.

You may now disconnect.

Okay.

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