Q3 2022 Sysco Corp Earnings Call
Good morning, and welcome to <unk> third quarter fiscal 2022 conference call.
Today's call is being recorded.
Begin with opening remarks, and introductions I would like to turn the call over to Kevin Kim Vice President of Investor Relations. Please go ahead.
Good morning, everybody and welcome to Cisco's third quarter fiscal 'twenty two earnings call on today's call, we have Kevin Hurricanes, our president and Chief Executive Officer, Eric <unk>, Our CFO and Neil Russell, Our SVP of corporate Affairs, and Chief Communications Officer.
Before we begin please note that statements made during this presentation, which state the companys or managements intentions beliefs expectations or predictions of future are forward looking statements within the meanings 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 July three 2021, 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 Sysco Dotcom.
non-GAAP financial measures are included in our comments today and in our presentation slides. The reconciliation of these non-GAAP measures to the corresponding GAAP measures is included at the end of the presentation slides and can be found in the investors section of our website.
To ensure we have sufficient time to answer all questions, we'd like to ask each participant to limit their time today to one question and one follow up at this time I would like to turn the call over to Kevin Hurricane.
Good morning, everyone. Thank you for joining our call.
Our financial performance this quarter exceeded our internal expectations driven by strong top line performance accelerating market share gains solid gross margin management and improvement in our operations expenses.
Earlier today, we raised our full year guidance and Aaron will walk you through the details in just a few moments.
Our strong performance for the quarter demonstrates our focus on the customer and the advancement of our recipe for growth strategy.
Simply put we are winning in the marketplace. The best measure of the success is the continued market share gains that we are delivering.
Our performance versus the market accelerated in the quarter and we solidly exceeded our fiscal 2022 goal of growing one two times the market.
I will highlight three topics during our call today first I will touch on our financial results.
I will discuss the state of the current operating environment.
Finally, I will highlight progress from a recipe for growth transformation.
I will then turn it over to Aaron to discuss our financial results in more detail.
So let's get started with our financial results displayed on slide number four.
Our third quarter results were fueled by strong top line performance across the U S and international segments and progress made in lowering operating expenses as a percentage of sales.
As a result, our profit results were ahead of our internal expectations this quarter.
While our operational expenses remain elevated versus our historical standards, we have begun making progress in improving our productivity. We will continue to make progress in the coming quarters.
Key headlines this quarter include market share gains that significantly exceeded our one two times the market growth target.
Significant volume improvements with U S broadline volume up approximately 19% versus the same period in fiscal year 2021.
Our U S FX business delivering volume growth versus 2019 in total.
This also included another quarter of profitable growth coming from our international segment.
Our expense structure is improving as I mentioned, we still have work to do in order to return to our standard of excellence, but we've begun making progress.
<unk>, our snapback investments were reduced by more than 50% versus the prior quarter.
Our strong sales results and continued progress in improving operating expenses drove solid profit growth we.
We delivered adjusted earnings per share of <unk> 71 for the quarter.
We achieved these results while meaningfully advancing our recipe for growth strategy.
This included successfully closing on the coastal companies transaction during the quarter further expanding our industry, leading produce business that has high growth at attractive margins.
Topic two for today, an update on the current environment.
The third quarter started with Covid related disruptions from the omicron variance.
Recall that the negative impact from Omicron started in late November and the effects were felt through February .
Cisco has delivered a strong quarter of growth despite the headwind from Ami <unk> from.
Two factors play to our favor.
Strong market rebounded in late February into March and Cisco, winning market share throughout the entire quarter.
Combined these factors enabled both our U S and international businesses to deliver volumes greater than our internal forecast for the period.
As I mentioned, a moment ago volume in our U S foodservice operations exceeded pre COVID-19 levels for the quarter.
The positive momentum was strong across geographies as well as across different customer types.
With that said, we expect additional momentum overtime from improved international volume as the recovery in the food away from home market strengthens internationally.
At Sysco, we have two business sectors that remained heavily impacted by Covid business, an industry, which includes customers such as office cafeterias and travel and hospitality, which is heavily impacted by conferences and large group catering events.
We anticipate both segments, making progress this summer and into the fall for example, many major employers have begun returning to the office and recent reports from airline and hotel CEO is excited steadily improving bookings for this summer.
An advantage of Cisco is that we're fully diversified across the food away from home business.
While high cost of fuel is being felt by our customers we have not experienced a reduction of consumer demand.
But back to the cover all restaurant types up and down the price point spectrum provides us some protection in an unpredictable economy.
Additionally, the pricing relationship between food at home and food away from home is favorable to Cisco versus historical relationships as you can see on slide six in our presentation.
With that said, we remain concerned about the long term effects of elevated inflation and we are taking strong actions to manage the situation.
We are actively working to improve cost of goods sold inbound to Cisco.
We can pass along value to our customers.
We are aggressively pursuing sysco brand penetration opportunities as we know that Cisco products save our customers money.
We're also working aggressively with our customers to help them with their menu design and therefore, helping these customers find alternatives to step around highly inflationary items in subcategories.
We're also helping them to have confidence in their menu pricing strategies.
This work helped Cisco earned trust and respect with our large customer base.
In regards to our supply chain I'd like to report the conditions are improving.
Applicant flow to open positions has increased and our talent acquisition team has helped us make progress in improving our staffing health.
As a result, we have been able to reduce associate over time and improve our service levels to our customers over the past quarter.
Our NPS or net promoter score results this quarter improved and continue to lead versus the market.
It is still a very dynamic environment, but the size and scale advantages of Cisco are enabling us to succeed in a turbulent environment.
Topic three for today I will provide select highlights of our recipe for growth progress.
Last quarter I provided an update on two of our growth initiatives Cisco your way into our Italian cuisine platform.
These two initiatives continued to progress well driving profitable growth for the company.
We expanded Cisco your way to additional neighborhoods in the quarter and the recently added locations are performing consistent with the strong results from our pilot locations.
Today I'd like to provide an update on two additional topics our supply.
<unk> transformation and progress that we're making and consultative sales.
As I mentioned, our supply chain health has improved over the past quarter as applicant flow towards open jobs has improved and we are beginning to make progress in operations productivity.
Improving the efficiency of our supply chain is a top priority for our entire leadership team.
To ensure that we succeed at a higher level in the future we are making a substantial commitment to improve our associate experience within operations.
A great example is our driver Academy, which is now up and running in full swing.
We have graduated our first class of drivers and we have opened additional academy locations.
We expect to be nationwide with this capability by the end of the calendar year.
The driver Academy will enable us to provide upward career paths mobility for our warehouse associates and improve associate retention in this critical driver role.
Our graduates are able to increase their career earnings potential by upscaling and becoming certified drivers.
At Cisco.
A leading and competitive driver wage and we are making their certification process easier removing the barriers and costs becoming certified.
This action will open the door for more of our associates to advance their careers.
The driver Academy is a win win win for our associates for Sysco and for our customers.
Additionally over the past quarter, we have converted our operations from an industry to the traditional five day work week to week full six day delivery model.
This might sound like a small endeavor, but the reality is quite the opposite.
Made the change to a full <unk> model for the following reasons the.
The change is better for our associates.
We've converted our associates from your standard five day schedule to a more work life friendly four day work week. This will improve associate retention over time.
The six day work week increases the efficiency of our operations by further utilizing our physical assets, enabling us to better sweat the assets of our trucks in buildings.
Our model increases our weekly throughput and also provides us more flex capacity on each and every day, enabling us to better handle fluctuations of demand.
These changes to our supply chain will help make sysco and even more preferred employer and Beth will enable us to serve our customers.
As important as having an efficient and flexible supply chain, we are continuing to advance the capabilities of our industry leading sales teams.
Our sales associates at the highest customer satisfaction scores in the industry.
We want to increase that competitive advantage.
We have worked hard over the past year to bring stronger digital tools to the selling process to enable the success of our sales teams.
I want to be very clear that these digital tools do not reduce the importance or quantity of our sales staff.
These tools are intended to assist our sales teams with their consultative selling process.
Our technology team has built a system that provides each sales rep with a next best action to be presented to our customers for.
For some customers. This may be a conversion from a national brand product to our sysco brand items saving them money.
For other customers. This may be the introduction of a promotional offer for category, perhaps have not traditionally purchased from Cisco like produce.
Others still the tool can identify items that a customer used to buy but are no longer replacing in their shopping basket with Cisco.
Our sales consultants are then prompted with offers and suggestions through specifically enabled success against those use cases.
The goal of this work is to increase the productivity of the customer visit.
This work positively impacted our performance versus the market in Q3, which was our strongest volume growth quarter versus the market for the year.
Slide seven in our presentation makes it clear case of our progress in becoming a growth company.
Lastly, our working commitments and corporate social responsibility or CSR were recently recognized by sustained political and just capital.
This recognition is due in no small part to our recent announcement of our science based climate goal that is aligned with Spi.
As the leader in our industry, we are proud to be the first and only U S foodservice distributor with a science based clinical.
Research from the word World Economic Forum suggests that companies, who make progress in these important areas drive improved tsi over time compared to their peers.
To ensure that we walk the walk our board is prepared to incorporate ESG as a part of our executive compensation program beginning next year.
The work we are doing is the right thing to do and we strongly believe that it is also good for our business and our investors.
Turning to slide eight in summary for the quarter, Cisco was winning leading the industry and accelerating growth.
We are growing our business with new and existing customers our supply chain is performing better than the industry at large and we are driving strategic initiatives to further increase that strength advantage.
Our continued transformation investments are enhancing our commercial selling capabilities and we're investing in our associates.
The improved profitability in the quarter is encouraging.
But there is more work to be done as our teams focus on a recipe for growth strategy and improving operations productivity.
I'll now turn it over to Aaron who will provide additional financial details before we open it up for questions.
Thank you Kevin and good morning, we are upbeat on our business and we have several notable headlines for our third quarter as seen on slide 10.
Sales growth of almost 43% compared to the prior year, which is also up more than 15% versus 2019, reflecting resilient demand and sequential improvement month over month.
We recorded more than $3 billion of gross profit the highest gross profit in absolute dollar term as for any quarter at Cisco ever as we continued significant efforts to optimize our assortments in Cogs, while effectively managing our product cost inflation.
Our investments in snapback operating cost dropped in the quarter by more than half from $73 million in Q2 to $35 million in Q3.
As promised the impact of our workforce transition on productivity improved incremental training and overtime is estimated to have cost us approximately $30 million in the third quarter down from approximately $40 million in the second quarter.
And we expect further improvements as we head into Q4.
As an aside I would note that the actions we're taking around productivity are actually serving to accelerate our supply chain transformation as part of the recipe for growth.
We invested $48 million of operating expense against our strategic investments, creating momentum with our commercial capabilities.
All in adjusted operating income more than doubled and adjusted EBITDA increased almost 73% compared to last year.
With those headlines on the table I'm going to provide some details on the financials for the quarter and some thoughts on our outlook.
Third quarter sales were $16 9 billion, an increase of 42, 9% for fiscal 2021, and a 15, 3% increase from fiscal 2019.
In the United States sales in our largest segment U S. Foodservice were up dramatically by 43, 6% versus fiscal 2021 and up 18, 8% versus fiscal 2019.
Local case volume within the U S. Broadline operations, a subset of U S. Foodservice increased 14, 1%, while total case volume within U S. Broadline operations increased 18, 8% compared to last year.
Segment sales were up 13, 5% versus fiscal 2021, and up 16, 8% versus fiscal 2019.
International sales were up 64, 5% versus fiscal 2021 and up approximately 3% versus fiscal 2019 sales.
Sales trends accelerated nicely in our international segment with lower almost brand cases, and as government related restrictions on our customers use in the quarter.
Foreign exchange rates had a negative impact of <unk>, 7% on Cisco sales results.
Let me pause here to call out one point of progress for the year to date period.
We are really pleased with the profit contribution improvements coming from internationally.
Last nine months the business has delivered an adjusted operating income swing of $265 million year over year.
Inflation continued to be a factor during the quarter at approximately 16% of our U S Broadline business.
We have been able to actively manage the impact of product inflation and those efforts will continue.
Gross profit for the enterprise was above $3 billion from the third quarter, an increase of 42% versus fiscal 2021.
And an increase of nine 4% versus fiscal 2019.
The increase in gross profit was driven by year over year improvements in volume versus fiscal 2021, and compared to the same quarter in both fiscal 2021 and fiscal 2019 increases in GP dollars per case.
Across all segments as we successfully managed to increase cost from a product suppliers and acted to optimize our business processes and performance of.
Of note the enterprise and U S. Foodservice, both reached all time highs for Q3 gross profit dollars.
Gross margin rate was 17, 8% or 18% on an adjusted basis during the quarter whats the adjusted margin rate moving upward as the math was still impacted by inflation.
Of course, it is gross profit dollars that calix in an inflationary environment and gross profit per case increased in all four segments.
We are focused on price relevancy being right on price.
And are doing the right things to cover our costs, while also supporting our customers.
Turning back to the enterprise adjusted operating expense for the quarter came in at $2 $5 billion as we delivered progress on our multi year cost out program and improved staff at cost.
As we touched on earlier and as you can see on slide 15 operating costs. This quarter were impacted by variable costs associated with significantly increased volumes more than $35 million. One time that short term transitory expenses associated with the snapback.
$48 million of purposeful investments to further accelerate our recipe for growth initiatives, and lastly, but still present, but improving expense challenges associated with new hire productivity.
Despite the dynamic operating environment, we expect additional improvements snapback cost and productivity expenses during the fourth quarter as we balanced cost reduction initiatives with continued transformation investments.
Together, the snapback investments and the productivity related cost totaled approximately $65 million of operating expenses this quarter.
That's important because the simple math would say that these transitory expenses had a downward impact to our adjusted EPS of approximately <unk> <unk>.
Further proving our point that there is further opportunity for profit improvement in the future for Cisco as.
Q3, adjusted EPS without these expenses would have already exceeded 2019 levels.
All in we leveraged our adjusted operating expense structure and delivered expense as a percentage of sales of 14, 6%, which is flat to fiscal 2019, an improvement of 119 basis points from the same quarter in fiscal 2021.
Finally for the third quarter of fiscal 2022, adjusted operating income increased $319 million from last year to $575 million.
This was primarily driven by a 43% improvement in U S foodservice and continued progress on profitability from international.
As Kevin called out adjusted earnings per share increased an impressive 49.
271 for the third quarter.
Now, let's turn to a discussion of year to date cash flow <unk>.
Cash flow from operations was $746 million on a year to date basis.
Our company continues to transition from a period when sales profit and working capital were all down during COVID-19.
Period of high growth growing profits and a focus on making the investments necessary to win the long game.
A year ago at this time, we commented that we had a strategy and the balance sheet to invest in the business in support of the recipe for growth and that is exactly what we are doing.
Free cash flow year to date was $434 million.
EBITDA as the primary source of cash was up $900 million year over year and the year to date period as our sales increased but we've not yet quite recovered to fiscal <unk> levels.
Rising sales and profitability were enabled by tactical investments in higher inventory levels. This year, both in absolute cases on hand as.
As we lap the purposeful inventory declines from the managed the Covid period and in dollar value given inflation.
And with our rapidly growing sales comes a higher barrels and healthy accounts receivable also use of cash year to date.
Our team continues to manage well.
Offset in part by higher accounts payable.
In the year to date, we have also paid higher interest expense from Covid debt and refinancings payer paid higher cash taxes, partly due to prior year refunds of deferrals and invested more in capex in support of the recipe for growth.
This year is effectively a transition year from a free cash flow perspective, and we expect that future years will continue to reinforce the significant cash flow generated by Cisco as sales and profit growth and investments in working capital normalized let.
Let me emphasize we are playing to win the long game and are leveraging our balance sheet and cash flow and support our long term growth of Cisco.
Along those same lines recall that we began the year with high cash balances and we ended the quarter with almost $900 million of cash on hand.
Year to date, we've used that cash to invest in the business spending $312 million on capex and paying for acquisitions, such as coastal with cash on hand.
Our balance sheet is a key differentiator compared to our competition and we are prepared we are better prepared than anyone else in the industry entering a rising interest rate environment.
Why.
Because we have strong cash generation and a strong investment grade rating and a manageable debt profile, including some of the lowest rates ever achieved by Cisco on a 30 year tenure issued in December .
We remain committed to maintaining a strong investment grade rating and achieving a net debt to EBITDA target ratio of two five times to 275 times.
As previously announced we expect to further reduce indebtedness by paying off the $450 million of debt coming due in June .
And reflecting the world in which we all live we also now have further liquidity and risk protection, if we need it.
Last week, Cisco Cisco announced that we successfully increased our revolver capacity from $2 billion to $3 billion.
With improved terms.
Return of capital to shareholders is also part of our capital allocation framework.
In May of 2021, our board approved a 4% increase to our quarterly dividend, reflecting an 8% increase annually.
In two weeks ago Cisco's Board did it again.
Secondly, announcing another 8% annual increase reinforcing our status as a dividend aristocrat.
But we want you to take away from this is that we are serious about all three parts of our capital allocation strategy.
We are investing in the future growth of the business, we are maintaining a strong balance sheet and we are returning surplus capital to shareholders.
On this last point, our track record goes back decades, but as you can see on slide 18 over the last seven years cumulatively, we've returned over $13 billion of cash to shareholders.
We'll remain disciplined with our balanced approach to capital allocation and rewarding our shareholders.
Now before I turn to our positive update to guidance I should address one set of questions. We've been getting upfront the impact of the invasion of Ukraine on our business.
As a reminder, Europe represents only about 10% of our net sales.
Our European portfolio is geographically distant from Ukraine, and focused on Ireland, the U K, France and Sweden.
In the past our exposure to your Russian products was minimal.
With respect to product inflation in Europe , while we are seeing costs rise more consistently with what we've seen in the U S. In the last couple of quarters.
We were prepared and have many of the same tools, we developed in the U S to address the impact of product cost increases in Europe .
Oil and the impact of rising gas prices have also been topics of interest.
We benefit from having hedged 80% of our forecasted bulk fuel volume through fiscal 2023, and the U S and Europe .
Let's now turn to look forward, we are upbeat about our business we have witnessed the resiliency of our business as it has responded to the impact of three significant COVID-19 variance significant inflation the invasion of Ukraine, and now rising interest rates.
We've made great progress in Q3, and we anticipate further progress in Q4, which is why we are upbeat about our business.
We are raising our guidance for adjusted EPS in the second half by 2016.
To be from $1 76 to $1 86.
Having delivered 71 of adjusted EPS in Q3. This means that we expect Q4 to be in the range of $1 <unk> to $1 15.
On a full year basis fiscal equate to adjusted EPS of $3 16 to $3 26.
During our last earnings call, we highlighted that we expected a big Q4, and that's not changed with the results of our resilience Q3 results.
Our continued optimism for Q4 includes a continued market recovery continued market share gains continued pass through of inflation costs improved operating expenses as a percentage of sales from lower snapback and productivity related costs.
All is partially offset by continued investments in our transformation and working through the workforce transition.
Lastly, recall that Q4 of last year included one extra week, which will impact the comparability.
With that let me turn the call back to Kevin for closing remarks.
Thank you Aaron as we conclude I would like to provide a brief summary on slide 20.
This will already is the industry of the year from an EBITDA margin perspective.
You've heard me say this before but we're now taking that robust foundation as the market leader in creating a growth company or.
Our financial performance. This quarter reflects three key points first our volume grew 18, 8% in U S broadline compared to last year, and we significantly exceeded our market share target.
Second we improved operations expenses, reducing snapback costs by more than 50%, while continuing our transformation efforts and.
And third we generated strong profit performance, despite a dynamic operating environment.
Turning to slide 21. These recent results are also consistent with our long term plans, we are generating substantial top line momentum and accelerating market share gains are.
Our recipe for growth transformation is creating capabilities at Cisco that will help us profitably grow for the long term and further build on our competitive scale advantages.
Cisco strength of income statement and balance sheet have enabled us to continue advancing our strategy during a difficult operating environment.
While also rewarding our long term shareholders with disciplined dividend growth and share repurchases.
Lastly, we are committed to both our long term financial outlook, which includes significant sales and EPS growth and returning value to shareholders along the way.
There are bright days ahead for Cisco and I am both excited and proud to be a part of the journey.
As always I'd like to thank all of our Sysco associates for the dedication they displayed to our customers each and every day operator, you can now turn over the line for questions.
As a reminder, you asked a question you will need to press star one on your telephone to withdraw your question Brad Stepanski again, if he would like to ask a question Press Star then the number one on your telephone keypad.
By while we compile the Q&A roster.
Your first question comes from the line of Lauren Silberman with Credit Suisse. Your line is open you may ask your question.
Thank you so much and congrats on the quarter I first just wanted to ask about the market shares growing one point more than 1.2 times the market and about where you expect it to be when you laid out the strategy last year, where are you performing better than expected is it new customers, while chair or your customers outperforming our comp if you will any color around that.
Yes, good morning, Laura Thanks for the question.
This is Kevin just I'd say two things versus how is that happening and then I'd say from where the how is from two things our supply chain is performing stronger better than the industry and on a daily basis, we have customers coming to us.
Asking for Cisco to become their new preferred supplier. So that implies obviously, new customer acquisition, new customer growth. The second is the recipe for growth in our.
Our expectations for its capabilities to create market share capture with existing customers. We had planned for it there was a part of our budget for this year and the recipe for growth is delivering.
That is the penetration opportunity I mentioned on todays prepared remarks, the tools that our sales consultants are now able to leverage and use to improve the effectiveness of a visit to a customer we call. It. The next best action for that day's visit with that specific customer they've got cleared jobs to be done and the data and the tools that are now available to them.
Through our technology teams have driven significant performance. So the mathematically where it's coming from it's a combination of accelerating new customer capture we posted another very strong quarter of new customer wins, and increasing penetration with existing customers through our recipe for growth I think Aaron wants to make a comment as well. Thank you Lauren just one quick add which.
We're pleased with the relative contribution to the market share gains across the portfolio, which is coming not just in broad line, but also in our specialty business and in our international business.
Great. Thank you and then just one on the inflation pricing. It seems like you guys are having a lot of success pushing through inflation. What are you watching to see whether you might decide to delay pushing through this whole inflation youre seeing and it seems like the pricing tool that allow you to do that even more strategically.
Yes. Thank you for the question I think consumers are concerned about inflation and you can't read the paper and watch television and not understand the high cost of fuel is on People's minds were not seeing a slowdown in demand. That's the good news in a headline from today, we're not seeing an impact to our food away from home business I mentioned in my prepared.
Third remarks, we do cover the entire spectrum of food away from home across all price points industrial needs travel hospitality business industry, and obviously all restaurant forms and types. So we're a bit more diversified than others and I think that provides us some advantage and I called out on the prepared remarks food away from home pricing.
<unk> to food at home pricing, which I believe is on slide six in our presentation is actually advantageous to Cisco at this period of time you hit the nail on the head, though which is the pricing tool that we have we're better positioned to be able to be with Aaron said in his comments light on price.
What we mean by that is that we're not going to be too high and we're not going to be too low we are not going to use price as a strategic lever to win share that is what we believe a non sustainable strategy and not something that we're interested in doing we want to be right on price. So as inflation is occurring we're able to leverage the technology to ensure that we're passing through the inflation additive.
Appropriate level.
When we make improvements in our cost structure through cost of goods sold improvement we can share the savings with our customers again, leveraging that same technology. So what we say internally at Cisco and if there is no better time than the current hyperinflationary environment to have a strategic pricing tool and we're leveraging it to our advantage.
Thank you very much.
Thank you Laurence.
Your next question comes from the line of Alex Slagle with Jefferies. Your line is open.
Thanks, Good morning.
Question on the earnings guidance at the midpoint. It seems to suggest a return to the historical 40, 60 cadence between <unk> and <unk> versus the previous views. It that during Q would be below that so was there something about the timing of the transitory costs or productivity that shifted this mix into <unk> or is there an element of.
Conservatism baked into the implied <unk> deal.
Alex Good morning, It's Eric Great question, and you nailed it and Youre right. It is it does it does the guidance does presume the historical percentage and it's not a comment on Q4. So much as it is the resilience of the business to play displayed in Q3 as.
As we were reacting to Q2 as we were watching the early results in Q3 from the impact of <unk> and we made the best call. We could on Q3 in that context, but we were pleased that the business responded even more strongly than we had hoped we had called out from our Q4 guidance perspective a strong.
Q4, and so I don't want to leave you with the impression other than that we are assuming the continued market recovery in Q4, we're assuming continued market share gains and volume growth. We're assuming continued cost improvements at snap back costs will come down that productivity.
<unk> will continue and that will continue and that will continue to invest against the range.
It gets us against the transformation, rather and lastly, just a further math for you. It's not lost on us that if we were to hit the bottom of the range for Q4 that would be the second highest adjusted EPS quarter in Cisco history, and if we were to hit the top of the range for Q4 that will be the highest.
Yes.
Adjusted EPS quarter in Cisco history, and ahead of fiscal 19, and so we have a lot of work ahead of US this quarter were upbeat about the business. We're really pleased with the resiliency of what our entire business is showing and we are.
Looking forward to delivering good results for Q4.
Great. Thank you just a follow up question on the international business. It if you could talk about the leadership transition there.
Tons of changes do you envision taking place if anything in particular, you want to call out.
Yeah, Alex it's Kevin I'll take that one thanks for the question just a quick commentary about international we're pleased with international $265 million of year over year profit swing is notable we're making progress not just as an entire group, but individually by country. We have a strong strategy in place we have a strategy.
<unk> by country, and we have advanced capabilities in our international businesses that make those countries look and feel more like our U S. Cisco business, So modern web sites, bringing pricing capabilities, bringing sysco brand.
<unk> select countries, improving our selling process. These are the fundamental building blocks that is creating the opportunity in the countries with which we compete in.
Again looking deal more like Cisco U S. We've got leading number one market share in three of the countries internationally that we compete within and we're confident that we can continue to make progress internationally.
Change in leadership had absolutely nothing to do with business results hard stop it had absolutely nothing to do with strategic misalignment.
<unk> aligned on the strategy of international where we're headed where we're going I am very pleased with the performance results and I'm really pleased with the strategy. It was a personal matter and we're not going to comment publicly on a call about a personal matter.
Got it thank you.
Thank you Alex.
Your next question comes from the line of John <unk> with Guggenheim. Your line is open.
Hey, guys. Thanks for the question is actually Julio Mark has on behalf of John Heimbach <unk>.
Couple of quick questions here for you first I know you mentioned.
Some of the out years studying both from existing and new accounts any color you can provide on acceleration U S market share is that more from existing and new accounts.
With existing accounts is a more increased lines or cases per watt.
Hey, Thank you for the question actually just going to bridge, everyone back to kind of the thesis of Cisco and why we have such confidence in the long term growth potential of the company and at our May 22021 earnings day, we talked about three numbers, 16% market share, we talked about 30% share of wallet and we talked about.
50% of doors covered by Cisco in the restaurant space. Good news is the first numbers has already moved up we're at 17% share from the most recent calendar year, we anticipate that we'll continue to make progress in that regard and it's our recipe for growth strategy that will enable progress on the other two numbers, which drive the market share which is <unk>.
Increased penetration with existing customers and the continued pursuit of net new customers and it's a both and then im not giving you a cop out answer I'm, just being completely transparent and honest.
We are doing more new customer prospecting than in our past and we are successfully moving new customers up the profitability curve over time. So when we onboard them you win X percentage of their business and then we do what we call sell around the room, which as we penetrate additional categories. So we're having a lot of success on winning new customers.
The fact that we remain the only foodservice distributor without an order minimum has helped us attract.
<unk> of new customers and then again, we penetrate further with those customers by selling around the room to move those customers up the profitability curve.
And then the tools that I referenced on today's call that help our sales force are enabling us to win more cases and penetrate further with existing lines.
So it's a both end answer one is not more important than the other we believe that we can significantly increase the number of restaurants that we serve and we can penetrate further and not to repeat another point I made on the call, but the reason we converted to the six days full delivery model is to create more flex capacity and more throughput capacity on.
Any individual given week, which will enable us to increase the number of customers that we serve profitably.
Appreciate the color there and Mexico, just very quickly what is your current expectation for product cost inflation over the next year.
And.
By any chance you do see it begin to moderate how quickly do you expect you'd want that to flow through.
Thanks I appreciate the question, it's fair to say that for Q.
Q for the period in which we provided the guidance. We expect continued elevated inflation, although perhaps starting to come down.
As we approach the end of the year, we're not today going to provide guidance in any respect with respect to the future year that will come during our Q4 earnings call in a couple of months.
Great. Thank you.
The next question comes from the line of Jake Bartlett with tourists.
Your line is open.
Great. Thanks for taking the question.
First one is just on the trajectory of the business, obviously was with stronger than you. Initially expected. When you gave guidance for the third quarter, but if you could talk about just your maybe your exit rate in April .
Whether you are seeing continued improvement potentially driven by pent up demand.
Any comments there would be helpful.
Jacobs Kevin Thanks for the question, yes at the beginning of Q3 was tough given omicron and I think we did a good job of explaining that on our last earnings call. Just what we were experiencing the impact of omicron was felt through the material part of February March was strong it really recovered quicker than what we had been modeling and expecting and <unk>.
Also I just don't want to lose the point, we had our highest growth versus the market in that quarter than we've been able to produce thus far were sequentially, increasing our performance versus the market and also the market performed nicely at the end of the last quarter. Here's My statement on April we did not make a specific comment on the call.
All tied to April but we are seeing continued momentum in April we're seeing strong demand across our business segments and across geographies, including international and were bullish on Q4 as evidenced by what <unk> communicated to you all today.
Great Great. That's very helpful. And then I had a question about you've talked about investing in the long term and playing the long game and I'm just wondering in light of concerns about it.
Economic slowdown potentially coming up.
In that context, if you saw a slowdown coming if you can start to think that what's going to happen. When you pump the brakes, a little bit on some of these investments or do you plan to remain aggressive perhaps maybe sacrificing your margins in the near term for that kind of long term point of view.
Jacobs, Kevin It's a good question I'll just start it and then I'll toss Darrin for any comment.
This is a question that I know is on People's minds, which is.
Act of inflation.
Consumer and will they choose to go out to eat less often.
They had been recently.
And I would say two things one we're seeing continued momentum and consumer demand across our business segments that we serve.
So thats notable and important if that were to moderate my second point that I would bring you to is what I. Just said a few months ago, we have airports only 17% share of a very large business. So even in a business.
Begins to perhaps moderate that does not mean that Cisco it needs to be moderating we can actually take increased share at a point in time when the market itself is perhaps not growing as robustly and I would just call you back to slide five.
Our presentation materials.
<unk> away from home is increasingly popular for end consumers. If you look at it across the decades that are shown on this chart.
It's pretty stark actually on how important food away from home is there is obviously the large disruption that occurred in March of 2020. When people were told to go home stay home, but it's fully recovered look at the intersection of the lines food away from home is now once again more than the purchases.
For food at home and then on the chart right below it on slide six pricing in the retail grocery environment is such that food away from home is price favorable versus historical trends, so put all that together.
We believe that we Cisco will continue to grow if the marketplace itself is a little softer we have the opportunity to take share grow share specific to your question about investments and would be pumped the brakes I will toss there.
Thanks, Luke I guess my reaction is is this we're wired for success in the long term at Sysco and whether it's the customer strategy and the opportunity that Kevin called out or the balance sheet and the resources, we have to help us through any bump in the road I want to emphasize we're investing for the long game with while we talked on this call relative to the quarter.
<unk>.
<unk> to the year really we're talking about growth over the longer term the three of the five of the 10 year period.
And it kind of goes back to doing what we said we were going to do if you go back to the Investor day comments from I guess a year ago now Indeed, if you go back to our earnings calls for the last 18 months. What we said was we were going to invest in the snapback Alright, we were going to do that because we wanted to be ahead of the curve. We wanted to be the company that are.
The foodservice operators, we're coming to the restaurants, because we were the best partner. So we've been investing in inventory down. This path we've been investing in technology down. This path, we've been investing in our fleet and we've been investing in our distribution nodes and none of that has changed because of the ebbs and flows and indeed, that's where we continue.
To be focused as we carry forward because we are holding ourselves accountable and Kevin is holding all of us accountable to the recipe for growth and the recipe for profitable growth that comes with it.
Great. Thank you so much.
Thank you Jake.
Your next question comes from the line of Edward Kelly with Wells Fargo. Your line is open.
Hi, guys good morning.
Wanted to ask you about the about gross profit.
The results were super impressive.
This quarter, especially within the U S business.
Per case profit and percent margin both up sequentially.
But can you talk about how much of this is driven by inflation how much of this is internally driven.
And I think your fuel surcharge goes through gross profit.
That's playing a role.
Just.
Hopefully you could maybe sort of unpack this sequential improvement versus what we saw last quarter.
Sure happy to comment on it we were really pleased.
In the quarter.
A couple of respects. The first is to have delivered record gross profit both in absolute dollars for the enterprise, but then also GP dollars per case across all of our segments really speaks to the hard work that the teams are doing to ensure that we are both recognizing the increase in cost that we are getting and then pulling the necessary levers and collaborate.
And with our customers to pass those costs through.
Now, obviously I get a lot of questions around gross margin rate as well and I could tell you that while we were pleased with the sequential improvement in rate the decline from the historical periods is entirely due to the simple math tied to.
The inflation.
And we will continue to monitor both dollar $1 per case and GM rate.
As we carry forward, but here's the good news about Cisco as we carry forward, which is we continue to have opportunities to optimize.
Our gross profit rate.
Continue to work with our customers on past few things like fuel cost Youre right Thats, there, but as we think about the strength of our Sysco brand portfolio, where we have further opportunity there as we think about how we better leverage the scale that is cisco relative to our purchasing opportunities.
We have goodness, yet to unlock with in Cisco unrelated to the external environment that we're going to continue to pursue as we carry forward Kevin I'll toss to you anything to add yes, I'll just add one thing just something like a fuel surcharge that's not a profit accretion for our company that is the cost offset which I know you know, but the <unk>.
Judy <unk> Soni, our chief commercial officer is driving we have a major major strategic sourcing effort underway at Cisco, which helps us improve our cost of goods sold inbound to us. We're very pleased with the work that Judy is doing and the team that she leads is delivering good outcomes, it's hard to actually delineate specifically for you on this.
Call the portion of our goodness as Aaron said is tied to that versus inflation and thats just a level of detail that we're not going to go into but we have a major strategic sourcing effort underway. It is improving our cogs and therefore, obviously showing up in our positive GP performance.
Okay, and then just a follow up I wanted to ask you about fill rates.
Inventory availability, where you stand with your workforce, where you want to be.
<unk> been hearing some issues around like maintenance on equipment.
Products like <unk>.
Shortages that type of stuff.
How are you doing with fill rates and how does that compare to the industry.
Fill rates from Cisco outbound to our customers improved in the most recent quarter minutes visible and measurable through both our internal data and also the net promoter scores that we track on a real time basis us versus competition. So we are outperforming the market in average we improved in the quarter.
It's coming from two actions our suppliers are beginning to improve its still meaningfully down versus historical standards supplier inbound fill rate to Cisco, but it is beginning to improve and Ed we're doing an even better job at managing what we call subs announced substitution in out of stocks our website improving to communicate more upfront.
To our customers options they have when an item is out of stock.
And our sales reps and our merchandising teams are doing very good work to partner with customers in an environment, where a specific items out of stock that theres plenty of food, there's plenty of food available, it's about individual item as being out of stock at moments in time.
Cisco working proactively with our customers to be able to serve their needs with something that meets the needs of their menu. So we're doing a better job in this most recent quarter at that and we expect continued improvement into Q4 and into our fiscal 2023 as it relates to the overall environmental conditions are staffing health has improved it continues to steadily improve.
We're not out of the woods, we still have work to do but we're making progress and then your point about things like maintenance of equipment.
Shortages are impacting all forms of supply chains, not just food. So access to parts is a challenge and access to new equipment is a challenge.
Testing, we're doing better work in that regard to centralize that activity at Cisco to have a better control over parts inventory and purchasing of equipment and I would emphasize one important point there our size and scale can enable us to have preferred advantage with manufacturers who are on limited allocation and we will be at the front of the line for.
Our equipment in fact, Aaron and I are preapproved, and preordered equipment to support the recipe for growth.
Alright, thank you.
Thank you Ed.
Your next question comes from the line of Jeffrey Bernstein with Barclays. Your line is open.
Great. Thank you very much.
Two questions. The first one just following up on the international commentary.
I know you mentioned that you are somewhat distance from the.
Ukraine headwinds with your key markets.
And then I know you mentioned separately something about April that you were seeing strong demand.
Across all geographies, which just trying to get a better sense, whether maybe we're missing.
Misunderstanding the headwinds we're hearing about in these international markets.
Or whether or not your strong performance is driven more by the.
The delayed recovery that went on in international markets and therefore, that's more than offsetting maybe a slowdown that might be going on underneath just trying to get a sense for whether youre seeing any.
Signs of a slowdown or change in behavior from the European or international consumer perspective.
Jeff Thank you for the questions Kevin.
Two two points here.
We're not exposed from a sales perspective was Aaron's main point to what's happening in eastern Europe , because we're not domiciled there right. We don't have actual business in those countries. So unlike other companies that are international we're not exposed in that regard we had purchased product previously from Russia, and we're no longer purchasing product from Russia, and we've been able.
To move to alternative sources of supply mostly in seafood and that was the work we needed to do was to get alternative product from alternative countries to be able to support the needs of our customers as it relates to as western Europe feeling the impact.
The war.
Ukraine is the bread basket of Europe , sunflower oils and grains are produced there you can get product, we Cisco are able to get product, what it's had as an impact on inflation.
In those countries interestingly those countries were behind the U S from an inflation perspective, so what's happening in Europe right. Now is an increase in inflation, but frankly, it's just catching up to the inflation that was already visible in the United States and we're managing it well, we're managing the pass through of that inflation, Jeff well in our international.
Segment, so that kind of bundles in macroeconomic environment, what's happening what's happening as inflation, increasing in Europe too, though as consumer demand. We are not seeing a decrease in consumer demand in our international geographies and I'd, just remind everyone and I think Aaron did a good job in his prepared remarks reminding everyone.
International was hit earlier it was hit harder in international has been slower to recover so we see our international business as a tailwind in Q4 and into fiscal 'twenty, three because theres still much more recovery in front of us international relative to the U S business. So continued progress.
International month over month quarter over quarter, and we see anticipated additional recovery happening in international.
Understood and then just the follow up you guys mentioned, the six day work week and the no minimum deliveries.
Clearly points of differentiation for yourself versus some of your larger competitors I was wondering how do you measure the impact of that or is that possible I mean seemingly customers have to be quite pleased with.
Those things, but I'm just wondering how do you gauge the success you're having from that.
Relative to again periods that perhaps don't offer either.
Yes, great question and there are two very different things that no order minimum can be measured through net promoter score satisfaction of our customers with Cisco and our ability to acquire and win net new customers.
I tried to mentioned a moment ago and the only downside of that would be as if we're not moving customers up the profitability ladder over time by selling around the room, we would address that.
And I'll repeat it we're doing a very good job of selling around the room and.
Increasing the net profitability of acquired customers by increasing penetration. After we've acquired them. So we're really pleased with the new order minimum policy, we think having an order minimum is.
Not a great customer policy, we need to be there for our customers when they need us how they need us and we don't anticipate making structural changes in that regard. The six day work week makes us more efficient that's on an increase in cost of sysco, that's actually increasing cisco's cost efficiency by leveraging our physical assets to a greater degree.
A truck going out a six day is a good thing not a bad thing so it leverages our capability and what it also provides us as I mentioned increased flexibility for any individual singular day and we can continue to go out and win net new business because of the incremental capacity that we have provided the big transition was for our workforce and as I mentioned, we've converted that incur.
Important population of ours to a four day work week.
What's really important is when we need them then to work overtime. They are working a fifth day voluntarily.
Is much easier for someone to do than when they are asked to come in on a six day, it's just better for their life through their scheduled normal weakens four days and when we need them for overtime they work if and.
And obviously theres overlapping schedules between team ATB et cetera, et cetera to fill out the full six day work week. So our customers are going to see more consistent on time deliveries. We've increased our flexibility we've increased our capacity and we can do it more cost effectively those are the reasons why we did it but it is a change that's challenging to do and we've got it in the rearview mirror.
Maybe just one add from a financial perspective to kevins point about sweating, our assets and increasing our capacity.
<unk> thing to be able to.
Add that additional day and to be able to address the need for additional trucks as we grow by not having to buy additional trucks. Because we are further sweating, our assets and similar to that point from a use of cash perspective, the incremental capacity across our network that it creates for us to grow without having to invest an additional additional.
Houston nodes or other trucks on top of that is also an excellent return on that investment.
All in for the four day work week. Thank you.
Yes.
That's funny Jeff.
Next question comes from the line of Kelly Bania with BMO capital markets. Your line is open.
Hi, good morning, Thanks for fitting us in here.
Just wanted to go back to the comment about case volumes and surpassing the fiscal 19 level this quarter.
Which is a great milestone, but just curious if you could give the specific numbers were cisco's volume is and forgive me if I missed that.
But also where you estimate the industry is on the same metric and then also can you dig in a little bit deeper on customer types between restaurants hospitality education.
How those.
Volumes compared to fiscal 19 level.
Good morning, its Aaron I'll take a stab and then invite only.
I think Ken wants to add look we were pleased that our U S foodservice business versus fiscal 19.
In aggregate exceeded fiscal 19 levels and this was the first quarter that we've been able to say that post COVID-19. The rest of the enterprise has not yet gotten to that level and we are hopeful as we carry forward without committing too by quarter at this point when that will be that.
Given the upbeat nature of our view of the business that will have good news coming in the not too distant future in that respect as well now you might ask well where is that coming from I'd refer back to Kevin's earlier remarks, as well around where we still have opportunity.
<unk> is an industry corporate headquarters, which is a significant part of our business. Those are still not open right and so you can conclude from that that there is opportunity to yet get back to historical levels travel is moving in the right direction, but there's opportunities to get back to historical levels and indeed, I believe we also called out international where.
The good news is there is opportunity for Cisco as we carry forward to help drive the growth as we as we push ahead.
We have not broken down.
The industry's.
Industries beyond that and perhaps if you're jumping to your aggregate point of how are we doing versus the competitor set or where might they be we focus on what we're doing and are we were pleased to see that we were exceeding our own objective of being more than one two times market growth and that's really that's really the headline for us Kevin.
<unk>, yes.
Put a bow around that last part and since I said earlier, we're not using price as the lever to win new business. The fact that we're growing our business by more than one two times the market.
Kelly implies the volume is equivalent to that there is a strong correlation between the volume trend in the sales trend.
<unk> versus others.
My best color in that regard the only thing additional beyond that is we're winning big in specialty.
Our produce business, our specialty meat business, we are doing very well and I call your attention to the higher margin rates from those businesses. So specialty is a growth focus for Cisco we are winning in broadline, we're taking market share in broad line and we are accelerating our momentum in specialty and the fact that we closed on the coast.
Company's acquisition in the last quarter is a harbinger of good things to come even further in the high growth higher margin produce business because that will pay dividend from a growth perspective for many years to come.
Helpful. And then if I can just add one quick one and just just to follow up.
In terms of the supply chain and the benefits that you are maybe accruing there in terms of market share given some competitor challenges on that front do you expect that to continue do you see Cds supply chain driven market share gains are sustainable or do you see that as competitors working to build.
Back there their supply chain.
Yes.
Very good question I think over time supply chains will stabilize and improve and the contribution of benefit to Cisco will decrease over time as the market improves but very importantly at the exact same time, our recipe for growth is advancing and the capabilities that we're building will have a bigger more.
<unk> impact.
I would just call your attention to the guidance that we provided in May of last year. We said, we would accelerate our performance versus the market. This year. As stated goal was one two times, we're doing much better than that in the third year of our three year plan, which was fiscal 'twenty. Four we said we would grow at one five times and we are confident in our ability to do that the contribution of where that market share.
<unk> comes from in our forward facing years will be less weakness of others it'll be more strength from Cisco.
Thank you.
Thank you.
Your next question comes from the line of Sean <unk> with Jpmorgan. Your line is open hi.
Hi, Thank you I wonder what kind of changes you might be sensing within the market.
Maybe even below what some of the headline numbers may suggest of consumers really expressing a desire to moving to sysco brand and even beyond that.
Moving from having more of a scratch model in restaurants to more pre prepare to value added products that come in to their back door that obviously reduced the demand for labor certainly I've seen some things in the marketplace of people, bringing in pre prepared products I wouldn't have necessarily expected and I think there is.
Some things kind of written in the news.
I guess, how I guess, how significant of a trend that this actually may be for restaurants, I wanted you to comment on that end.
How you feel I mean, if you do think that that's going to be an acceleration in trend. How you think it would be best advantage to take advantage of it.
Yes, John Thank you for the question this is Kevin.
I think one of the points that sometimes people forget about Cisco is that we have the by far largest sales force in the industry. It.
It is a vibrant strong capable group of people who are culinary experts cities. Our chefs. These are ex restaurant owners that our culinary school grads.
Absolute pros pros and we have the highest net satisfaction rate of the sales force versus the industry and we do not intend to reduce the size of that sales force, we intend to increase their productivity through the digital tools I mentioned, but this topic that you just brought up which is what's happening with food trends is exactly what our sales force does they call upon customers. They go to the Rev.
Strong they spend time in the backroom of the kitchen, they talk about food trends to educate customers on things that are happening and yes. There is a movement towards because of labor shortages and restaurants more available product upstream preparation and the like and no. One is better prepared to be able to drive and leverage trends like that Francisco.
Our cutting edge solutions brand, which falls under Sysco brand is doing just that and we're bringing product to our customers oftentimes exclusive for a period of time to enable them to take work out of the kitchen, but have incredibly high quality taste and consistency on the plate.
There's nobody better positioned than us to be able to leverage those types of trends and capabilities, including ghost kitchens, which I get asked about all the time, our ghost kitchens are bad for Cisco not at all because guess what ghost kitchens order food and there is absolutely no reason why we can't over index in our ability to serve those customers. Many ghost kitchens are actually a full fledged kitchen for a restaurant, which actually is.
Good for Cisco, because it increases our drop size of the delivery to that door.
And if I can ask I mean, there has been I mean, this is a decades long trend towards the value added products coming into restaurants, I do sense, a significant acceleration in the last six or 12 months as the labor market has become much more challenge for the operators themselves.
I wouldn't use the word significant I would say acceleration because the product has to meet the taste desires.
Of the consumer and the chef I'd say acceleration not fixed significant acceleration.
Helpful. Thank you.
Your next question comes from the line of Nicole Miller with Piper Sandler Your line is open.
And good morning.
This morning, you talked a lot about the benefits and strength and scale of the balance sheet and investments in a lot of areas, but maybe not so much on technology. What can you tell us about next generation investments in technology, and if you think about your process.
Maybe just from start to and what our focus areas.
Yes, I'll start that.
A great question I gave you a good example of technology deployment on today's call, which is the the turbocharging of the capability of the sales rep by teeing up on a silver platter for them a next best action for that day's visit that is using data.
Deep troves of purchasing data to provide a suggestion to the sales rep on something that customer will be interested in and then pre approving for them an offer that is financially good for Cisco that would be beneficial for the customer. It's a game changer. Our sales reps are excellent building strong relationships with customers and they are experts in food, but will now provide.
Them as an N of one personalization for each and every customer on something that we know will be desired by the customer and an offer that will be compelling again financially for us and also for that customer such a great example, we're making meaningful progress on our web site improvement, which is the ordering platform, our digital ordering platform, which I'm going to be.
<unk> is not just a desktop to mobile version.
We have click to order through E. Mails, now, where we can send an E mail to a customer with an offer and or with a suggested order and with one click one button, we will ship that product to them. They don't even have to go to an ordering platform. These are what we call removing points of friction tools and capabilities leveraging modern technology, we talked about.
Pricing a lot I don't need to repeat that but we're working on now is supply chain improvement technology, we want to make the.
Work that our supply chain associates do easier to do and by making network easier to do it will improve the satisfaction of our associates for the job will help us drive improved associate retention, which will drive improved productivity for Cisco so without getting into the specifics on today's call for both our warehouse associates and for our.
Drivers, we're making meaningful investments in the technology that there was associates interact with to make the job easier and by making it easier we make it a better job.
I would just add to that from a dollars perspective, the financial commitment to our transformation and the investment technology is significant it's a key part of the plan. We're executing this year and indeed, our long term recipe for growth and as Tom Pack, our technology leader builds a world class team in support of Cisco as.
Industry leader that technology team is integrated into everything we're doing on the front end and the backend and that will also lead to.
Good dividends for Cisco as we carry forward.
And just a quick last one understanding the pump.
So I think you said was cut in half sequentially wanted to ask about if there was an underlying drag from training new employees that may not yet being efficient and if so how do we think about that.
60, 90 days until they are assertion and is there a potential gap up in performance coming.
Well I want to.
I will clarify our remarks to make sure. We're seeing the same thing we were pleased that our snapback costs, which is retention sign on bonuses COVID-19 related costs recruiting et cetera that those were cut in half, but we also made progress on product the incremental productivity expense, we were experience experiencing driven by the workforce.
<unk>, which I think is what you're referring to and that went down from 40% last quarter to 30, this quarter and we're making good progress and we continue to expect to make good progress as we carry forward.
I don't think anyone can call it as to exactly when.
Workforce, which is relatively new we will hit the productivity Mark given the scale at which we're operating but we are pleased with the results from the workforce Academy that sort of the driver Academy that.
Kevin called out earlier, the training, we're doing within our distribution nodes all of those things are going to lead to better productivity and ultimately a better customer experience.
Thanks for the clarification and thanks for that.
Thanks Nicole.
Thank you that's our last question. This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
[music].