Q1 2024 Sysco Corp Earnings Call

Welcome to Cisco's first quarter fiscal year, 'twenty 'twenty four conference call.

As a reminder, today's call is being recorded.

We will begin with opening remarks and introductions I would like.

You, Kevin Kim Vice President of Investor Relations. Please go ahead.

Good morning, everyone and welcome to Cisco's first quarter fiscal year 2024 earnings call on today's call, we have Kevin Hurricane, our president and CEO and Kenny Chang our CFO before we begin. Please note that statements made during this presentation that state the company's or management's intentions beliefs expectations or predictions.

<unk> 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 July one 2023, subsequent SEC filings and the news release issued.

Earlier. This morning, a copy of these materials can be found in the investors section at Sysco Dot com.

non-GAAP financial measures are included in our comments today and 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 web site during.

During the discussion today, unless otherwise stated all results are compared to the same quarter in the prior year.

To ensure we have sufficient time to answer all questions, we'd like to ask each participant to limit their time today to one question and one follow up at this time I would like to turn the call over to Kevin Hurricane.

Thank you, Kevin and good morning, everyone.

Thank you for joining our call today.

Our prepared remarks will cover the following themes confidence in reiterating fiscal year 'twenty four guidance another record quarter of disciplined financial performance with a focus on profitable growth disciplined ROIC in.

And balanced capital allocation priorities.

These themes all confirmed Cisco stream as the market leader.

During our call today I plan to cover two topics first a summary of our Q1 results.

A spotlight on our recipe for growth strategy, and how we continue to build capabilities for profitable growth at Cisco.

So let's get started on slide number five our positive momentum from last year continued with top and bottom line growth in Q1 to kick off the new fiscal year.

Beginning with the top line, we delivered sales growth of two 6% driven by a combination of positive case volume growth and the effective management of product cost deflation in the U S.

Turning to the bottom line, we posted double digit growth in both adjusted operating income and adjusted EPS.

With an adjusted earnings per share of $1 seven.

We delivered this double digit bottom line growth in a slowing topline macro and deflationary cogs pressure within the U S.

Our ability to post strong results in Q1, considering those factors as a proof point that Cisco is positioned to be successful in fiscal 'twenty four.

We believe the breadth and quality of our product assortment across both broadline and specialty combined with the expertise of our commercial selling organization and the strength of our supply chain and balance sheet position Cisco to produce compelling results in the near term and even stronger results over the longer term.

Digging a bit deeper into the quarter, we grew volumes in our U S. Foodservice segment with Q1 total case volume growth of one 6%.

In local case volume essentially flat year over year.

We successfully grew share as the industry was roughly flat for the quarter.

Our national sales team posted an outstanding quarter.

<unk> substantial new business, and the health care restaurant and hospitality sectors.

As I have stated before we are winning these multiyear contracts with strong profit profiles versus historical averages.

Our success is a testament to the improvements we have made and how we serve large national customers.

Unknown Executive: First Quarter Fiscal Year, 2024 Conference Call. As a reminder, today's call is being recorded. We all begin with opening remarks and introductions. I would like to turn it over to Kevin Kim, Vice President of Investor Relations. Please go ahead.

We have made it easier for national customers to do business with Cisco by improving our technology integration with our customers' systems and by providing large customers with more dedicated and accountable support.

Additionally, our national and international fulfillment scale is very attractive to large concepts.

Kevin Kim: Good morning, everyone, and welcome to Cisco's first quarter fiscal year, 2024 earnings call.

Kevin Kim: On today's call, we have Kevin Kirkkin, our president and CEO and Kenny Cheung, our CFO. Before we begin, please note that statements made during this presentation that state the companies or management's intentions, beliefs, expectations of predictions of the future are forward-looking statements within the meaning of the private security litigation reform act, and actual results could differ in a material manner. Additional information about factors that cause results to differ from those in the forward-looking statements is contained in the company's SEC violence.

We are able to provide them with supply chain that can scale with them.

Wherever they operate.

We expect our national sales segment to continue to outpace the industry due to these capabilities.

Our local performance continues to outpace the overall industry building on our positive multi year trend.

The local market has slowed quarter over quarter, and Cisco is not reacting by leading with price to win share.

Instead, we are focused on profitable growth.

<unk>, serving our local customers and improving our local sales execution.

Kevin Kim: This includes but is not limited to risk factors contained in our annual report on form 10k for the year ended July 1st, 2023, subsequent SEC filings, and the news release issued earlier this morning. A copy of these materials can be found in the investor section at sysco.com. Non-gap financial measures are included in our comments today and our presentation slides. The reconciliation of these non-gap measures to the corresponding gap measures is included at the end of the presentation slides and can be found in the investor section of our website. During the discussion today, unless otherwise stated, all results are compared to the same quarter in the prior year.

Local volume as I said was essentially flat and that is something we intend to improve upon and our year to go periods. We.

We are taking the following actions to drive increased growth and local volumes.

First we will invest in incremental sales head count as we have grown our local business faster than the overall industry for each of the past three years, our territory sizes for the sales teams have increased as well.

We are actively hiring more sales resources, which will allow us to optimize territory sizes and enhance sales consultant effectiveness.

The benefits from increasing our local sales force will accrue over time as new colleagues complete training and settle into their territories.

Kevin Kim: 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.

We expect to see the majority of the positive impact from this action in fiscal year 'twenty five.

Kevin Kim: At this time, I'd like to turn the call over to Kevin Harkin. Thank you, Kevin.

Second we recently enhanced the compensation model for our sales consultants to incentivize our colleagues to focus on profitably growing there and cisco's business.

Kevin Hourican: In good morning, everyone. Thank you for joining our call today. Our prepared remarks will cover the following themes. Confidence in reiterating fiscal year 24 guidance. Another record quarter of disciplined financial performance with a focus on profitable growth, disciplined ROIC and balanced capital allocation priorities. These themes all confirm sysco strength as the market leader.

This change was implemented recently.

During our fiscal Q2, and the positive effects will be felt in future quarters of this fiscal years the.

The change to our compensation model better aligns the incentives of our sales team to the key priorities of Cisco.

Kevin Hourican: During our call today, I plan to cover two topics. First, a summary of our Q1 results. In second, a spotlight on our recipe for growth strategy and how we continue to build capabilities for profitable growth at sysco. So let's get started on slide number five. Our positive momentum from last year continued with top and bottom line growth in Q1 to kick off the new fiscal year. Beginning with the top line, we delivered sales growth of 2.6% driven by a combination of positive case volume growth and effective management of product cost deflation in the US.

Third we recently ramped up our focus on what we call visit frequency and visit quality expectations.

Through our robust CRM, we're able to track the activity and outcomes from our sales team.

Our sales leadership team is focused on colleague coaching to improve outcomes on both fronts.

Lastly, total team selling which was recently expanded coast to coast will improve cross selling opportunities.

Finding the relationship strength of our sales consultants with the product expertise of our specialty businesses.

All told we are confident we can increase local sales volume growth.

Kevin Hourican: Turning to the bottom line, we posted double digit growth in both adjusted operating income and adjusted EPS with an adjusted earnings for share of $1.07. We delivered this double digit bottom line growth in a slowing top line macro and deflationary COGS pressure within the US. Our ability to post strong results in Q1, considering those factors, is a proof point that Sysco is positioned to be successful in fiscal 24. We believe the breadth and quality of our product assortment across both Brawbline and specialty, combined with the expertise of our commercial selling organization, and the strength of our supply chain and balance sheet, positions Sysco to produce compelling results in the near term, and even stronger results over the longer term.

While maintaining momentum with strong margin management.

We will drive that improvement through healthy long term decisions and by remaining disciplined in our pricing decisions.

Next I would like to provide a brief summary of select recipe for growth enhancements from our recent quarter.

We recently implemented a global operating model for our leadership structure.

It is important to note that our international segment posted another strong performance in Q1.

Solidly growing topline and bottom line faster than the U S business.

The change to our global operating model will help further accelerate our progress internationally.

We will move faster and adopting best practices delivery of new capabilities, and leveraging new tools across Cisco's global footprint.

An example would be taking the Cisco youre away concept and bringing it to life globally.

Kevin Hourican: Digging a bit deeper into the quarter, we grew volumes in our US food service segment, with Q1 total case volume growth of 1.6%. And local case volume, essentially flat year over year, we successfully grew share as the industry was roughly flat for the quarter. Our national sales team posted an outstanding quarter, winning substantial new business in the healthcare, restaurant, and hospitality sectors. As I have stated before, we are winning these multi-year contracts with strong profit profiles versus historical averages.

To head this new operating model, we named Greg Bertrand our global Chief operating Officer.

In his expanded role Greg will be accountable for managing Cisco's global operations, driving profitable growth and local sales and operations.

I'm extremely confident in Greg's leader and I'm bullish on the impact that he will have on his expanded geographic territory.

We continue to make progress in improving the performance of our supply chain.

Chart 10 displays our year over year operating profit improvement driven by positive operating leverage with gross profits growing at a faster rate than operating expenses.

Kevin Hourican: Our success is a testament to the improvements we have made and how we serve large national customers. We have made it easier for national customers to do business with Sysco by improving our technology integration with our customers' systems, and by providing large customers with more dedicated and accountable support. Additionally, our national and international fulfillment scale is very attractive to large concepts. We are able to provide them with supply chain that can scale with them wherever they operate.

Our supply chain operation remains fully staffed and we continue to improve employee retention and we are building on productivity gains.

We recently implemented a new and improved labor scheduling tool that has increased our flexibility and matching our staffing to the variable work nature of our business.

As a result, we are becoming more flexible in how we manage our cost structure to match business volume seasonality.

The end result of that improvement is a lower cost structure.

Kevin Hourican: We expect our national sales segment to continue to outpace the industry due to these capabilities. Our local performance continues to outpace the overall industry, building on a positive multi-year trend. The local market has slowed quarter over quarter, and Sysco is not reacting by leading with price to win share. Instead, we are focused on profitable growth, properly serving our local customers, and improving our local sales execution. Local volume, as I said, was essentially flat, and that is something we intend to improve upon in our year-to-go periods.

In addition to our focus on improving current day supply chain performance, we are expanding our supply chain capacity to increase our ability to serve rapidly growing markets for.

For example, we recently celebrated the groundbreaking for a net new Cisco fold out site in Mesa, Arizona.

Each new fulfillment center at Cisco undergoes a vigorous ROIC review and a project prioritization test.

Each of the investments will increase our capacity and feed future Cisco growth an already successful high growth geographies.

Kevin Hourican: We are taking the following actions to drive increased growth in local volumes. First, we will invest in incremental sales headcount, as we have grown our local business faster than the overall industry for each of the past three years. Our territory sizes for the sales teams have increased as well. We are actively hiring more sales resources, which will allow us to optimize territory sizes and enhance sales consultant effectiveness. The benefits from increasing our local sales force will accrue over time, as new colleagues complete training and settle into their territories.

We are excited to have the first of these net new buildings in Allentown, Pennsylvania opening later this fiscal year <unk>.

The Allentown facility will enable us to better serve the highly dense northeast corridor and support the eventual expansion of our specialty platforms in that geography.

On October 11th we announced an exciting addition to the Cisco family through our planned acquisition of Edward down a leading distributor of foodservice equipment and supplies based out of Chicago.

Founded in 1921, and led by Steve done the business generates approximately $1 3 billion in annual revenue and services, a broad range of customers across the U S.

Kevin Hourican: We expect to see the majority of the positive impact from this action in fiscal year 25. Second, we recently enhanced the compensation model for our sales consultants to incentivize our colleagues to focus on profitably growing their and Sysco's business. This change was implemented recently during our fiscal Q2, and the positive effects will be felt in future quarters of this fiscal year. The change to our compensation model better aligns the incentives of our sales team to the key priorities of Sysco.

We believe the acquisition will be a great addition to the Cisco family further demonstrating our recipe for growth strategy, but focusing on building strategic specialty platforms that help us support restaurant and hospitality customers.

Every cisco customer needs restaurant equipment and supplies to manage their business.

<unk> compelling product offering and robust supply chain capabilities will improve how we serve those customers.

Kevin Hourican: Third, we recently ramped up our focus on what we call visit frequency and visit quality expectations. Through our robust CRM, we are able to track the activity and outcomes from our sales team. Our sales leadership team is focused on colleague coaching to improve outcomes on both fronts. Lastly, total team selling, which was recently expanded coast to coast, will improve cross-selling opportunities, combining the relationship strength of our sales consultants with the product expertise of our specialty businesses. All told, we are confident we can increase local sales volume growth while maintaining momentum with strong margin management. We will drive that improvement through healthy long-term decisions and by remaining disciplined in our pricing decisions.

After deal closing, Steve Dawn will continue to lead the business and we will partner together to profitably grow this segment.

Most compelling is the following.

Cisco sales to hundreds of thousands of customers, who are not currently buying restaurant equipment and supplies from either Don or from Cisco.

Post deal approval enclosure, we have a great opportunity to introduce the dawn assortment.

Systems customers and have a one plus one equals three equation through this accretive acquisition.

I look forward to working closely with Steve and his capable leadership team to bring that ambition to life for many years to come.

As I wrap up my remarks. This morning, I'll summarize with the following we grew our top and bottom line within the quarter and achieved positive operating leverage with gross profit dollars outpacing operating expenses the.

Kevin Hourican: Next, I would like to provide a brief summary of select recipe for growth enhancements from our recent quarter. We recently implemented a global operating model for our leadership structure. It is important to note that our international segment posted another strong performance in Q1, solidly growing top line and bottom line faster than the US business. The change to a global operating model will help further accelerate our progress internationally. We will move faster in adopting best practices, delivery of new capabilities, and leveraging new tools across Sysco's global footprint. An example would be taking the Sysco your way concept and bringing it to life globally.

The result was more than 10% growth in adjusted EPS.

This double digit growth is on top of a strong year in 2023.

We're being very prudent in how we manage the business in fiscal 'twenty four.

We are closely monitoring the macro environment for signals on customer traffic and the rate of expected inflation this year.

We are prepared to take actions to ensure we are successful in the operating conditions presented to our industry.

For the full year, we believe Cisco is positioned to succeed growing top line faster than the market and delivering robust bottom line growth we.

We have three more quarters to go and we are focused on delivering our plan.

Kevin Hourican: To head this new operating model, we named Greg Bertrand, our global chief operating officer. In his expanded role, Greg will be accountable for managing Sysco's global operations, driving profitable growth in local sales and operations. I'm extremely confident and Greg is the leader, and I'm bullish on the impact that he will have on his expanded geographic territory.

I'll now turn it over to Kenny who will provide a detailed review of Q1 performance and select fiscal year 'twenty four guidance commentary Kevin over to you.

Thank you, Kevin and good morning, everyone I'm going to build upon kevins commentary with a few additional points first we are reiterating our annual guidance for fiscal year 'twenty four we have momentum and we're off to a solid start for the year Q1 was the highest operating income.

Kevin Hourican: We continue to make progress in improving the performance of our supply chain. Shark 10 displays our year-over-year operating profit improvement, driven by a positive operating leverage, with growth profits growing at a faster rate than operating expenses. Our supply chain operation remains fully staffed, and we continue to improve employer retention, and we're building on productivity gains. We recently implemented a new and improved labor scheduling tool that has increased our flexibility in matching our staffing to the variable work nature of our business. As a result, we are becoming more flexible in how we manage our cost structure to match business volume seasonality. The end result of that improvement is a lower cost structure.

<unk> and Cisco's history, marking the sixth consecutive period, a record quarterly profits.

We effectively managed deflation in the U S.

Q1 results included sales and volume growth adjusted growth profit dollars and margin expansion and disciplined operating leverage all flowing down to adjusted EPS growth of over 10%.

<unk>.

Our recipe for growth strategy is delivering accretive margin value across the U S and international segments.

For example, we've continue to expand and enhance Cisco Youre way neighborhoods globally.

In addition, we successfully closed on our <unk> acquisition, a leading produce distributor and our recently announced plans to acquire <unk>, which will provide further penetration opportunities.

Kevin Hourican: In addition to our focus on improving current day supply chain performance, we are expanding our supply chain capacity to increase our ability to serve rapidly growing markets. For example, we recently celebrated the groundbreaking for a net new Cisco fold-out site in Mesa, Arizona. Each new fulfillment center at Cisco undergoes a vigorous ROIC review, and a project prioritization test. Best. Each of the investments will increase our capacity and feed future Sysco growth in already successful high growth geographies.

Our strong balance sheet enables options to add acquisitions at opportunistic times, while simultaneously returning cash back to shareholders.

Lastly, we are the market leader in a growing industry with leading profit margins, we have diversity across geographies, a broad customer mix and brands in particular, the depth of our Cisco product brand, which sets us apart from the competition and is a position of strength.

Kevin Hourican: We are excited to have the first of these net new buildings in Allentown, Pennsylvania, opening later this fiscal year. The Allentown facility will enable us to better serve the highly dense Northeast corridor and support the eventual expansion of our specialty platforms in that geography.

For example, we were hedged from a deflation in the U S at international inflation rates remain positive.

Another example of our strong positioning will be local case performance.

Kevin Hourican: On October 11th, we announced an exciting addition to the Sysco family to our planned acquisition of Edward Don, a leading distributor of food service equipment and supplies based out of Chicago. Founded in 1921 and led by Steve Don, the business generates approximately 1.3 billion in annual revenue and services a broad range of customers across the US. We believe the acquisition will be a great addition to the Sysco family.

While we were essentially flat in the U S. Canada local volumes were up over 6%, adding to our outsized international growth. These ingredients and fundamental building blocks are unlocking long term profitable growth and positioning sysco to win market share in a growing highly fragmented into.

History.

Now turning to a summary of our reported results for the quarter starting on slide 14.

Kevin Hourican: Further demonstrating our recipe for growth strategy, the focusing on building strategic specialty platforms that help us support restaurant and hospitality customers. Every Sysco customer needs restaurant equipment and supplies to manage their business. Don's compelling product offering and robust supply chain capabilities will improve how we serve those customers. After deal closing, Steve Don will continue to lead the business and we will partner together to profitably grow this segment.

For the first quarter, our enterprise sales grew two 6% with U S foodservice growing 0.9% international growing 12, 2% and Sigma decreasing one 4% as we recently exited business that did not meet our disciplined profit threshold.

<unk> planned exit helped double our Sigma profits this quarter. Another Prime example of ROIC.

And action.

Enterprise inflation was one 7% and positive throughout the quarter.

Kevin Hourican: Most compelling is to follow. Sysco sells to hundreds of thousands of customers who are not currently buying restaurant equipment and supplies from either Don or from Sysco.

U S broadline inflation was negative zero point.

Kevin Hourican: I always deal approval and closure. We have a great opportunity to introduce the one plus one equals three equations through this accretive acquisition. I look forward to working closely with Steve and his capable leadership team to bring that ambition to life for many years to come.

6% versus the prior year.

Adjusted gross margin improved to 18, 6% an increase of 36 steps compare to last year.

Kevin Hourican: As I wrap up my remarks this morning, I will summarize with the following. We grew our top and bottom line within the quarter and achieved positive operating leverage with gross profit dollars outpacing operating expenses. The result was more than 10 percent growth in adjusted EPS. This double digit growth is on top of a strong year in 2023. We are being very prudent in how we manage the business in fiscal 24. We are closely monitoring the macro environment for signals on customer traffic and the rate of expected inflation this year.

As mentioned earlier, our gross profit dollars and margin percentage improvement during the first quarter reflected our ability to effectively manage product cost fluctuations.

The improvement in gross profit was driven by incremental progress from our strategic sourcing efforts disciplined pricing as well as improved penetration rates from Sysco brand products, which increased six bps to 37, 2% in U S Broadline and 53 bps to 47, 5%.

And U S local results.

Kevin Hourican: We are prepared to take actions to ensure we are successful in the operating conditions presented to our industry. For the full year, we believe Sysco was positioned to succeed, going top line faster than the market in delivering robust bottom line growth. We have three more quarters to go and we are focused on delivering our plan.

Overall, adjusted operating expense were $2 $8 billion for the quarter or 14, 2% of sales.

The strong management of expenses during the quarter was due to the positive impact of that variable labor planning tool, Kevin mentioned and benefits from our previously announced $100 million of cost out commitments, which commenced at the start of the year for.

Kenny Cheung: Now turn it over to Kenny who will provide a detailed review of Q1 performance and select the school year 24 guidance commentary. Kenny, over to you. Thank you Kevin.

For example, we are expanding the use of shared services in Canada, which are expected to drive improved operational efficiencies.

Kenny Cheung: Good morning everyone. I am going to build upon Kevin's commentary with a few additional points. First, we are reiterating our annual guidance for fiscal year 24. We have momentum and we're off to a solid start for the year. Q1 was the highest operating income quarter in Sysco's history, marking the sixth consecutive period a record quarterly profit. We effectively manage deflation in the US. Q1 results included sales and volume growth, adjusted growth profit dollar and margin expansion, and discipline operating leverage, all flowing down to adjusted EPS growth of over 10%.

These actions items enable Cisco to reduce Q1 adjusted SG&A at the global support center by approximately 7% year over year.

All four operating segments continue to show increases in quarterly profitability, including substantial growth in the international and SYGMA segments.

As seen on slide 18, Q1, adjusted operating income up $854 million for the enterprise grew 10, 6% year over year delivering another record quarter.

For the quarter adjusted EBITDA was $1 billion up 11, 7%.

Kenny Cheung: Second, our recipe for growth strategy is delivering a creative margin value across the US and international segments. For example, we've continued to expand and enhance Sysco Your Way neighborhoods globally. In addition, we successfully closed on our big acquisition, a leading produce distributor, and are recently announced plans to acquire Edward Don, which will provide further penetration opportunities. Our strong balance sheet enables options to add acquisitions at opportunistic times, while simultaneously returning cash back the shareholders.

We continue to be encouraged by the progress of our international segment with adjusted operating income growing eight 7% for the first quarter. This is a continuation of the robust growth and positive momentum in this segment over the past three years.

On an enterprise basis, Cisco's quarterly performance and the current macro environment provide another proof point of the company's ability to grow topline and bottomline under any environment, while continuing to achieve positive operating leverage.

Kenny Cheung: Lastly, we are the market leader in a growing industry with leading profit margins. We have diversity across geographies, a broad customer mix and brands, in particular the depth of our Sysco product brand, which sets us apart from the competition and is a position of strength. For example, we were hedged from a deflation in the US at international inflation rates remained positive. Another example of our strong positioning would be local case performance.

I'm also particularly pleased with the health of our balance sheet. We ended the quarter at a two six times net debt leverage ratio. This is within our target of two five to 275 times a substantial improvement from five two times just over two years ago.

We ended the quarter with $10 3 billion and net debt and over $3 $1 billion in total liquidity.

Approximately 96% of our debt is fixed with the floating component offset by our cash reserves.

Kenny Cheung: While we were essentially flat in the US, Canada local volumes were up over 6% adding to our outside international growth. These ingredients and fundamental building blocks are unlocking long-term, profitable growth in positioning Sysco to win market share in a growing, highly fragmented industry.

Our debt is well lathered without any maturities over $1 billion until FY 'twenty seven.

Our strong investment grade credit rating is a competitive advantage against the current macro backdrop.

The strength of our balance sheet and history of delivering consistent cash flows provides us with a robust options related to capital allocation.

Kenny Cheung: Turning to a summary of our reported results for the quarter, starting on slide 14. For the first quarter, our enterprise sales grew 2.6% with US food service growing 0.9%, international growing 12.2%, and Sigma decreasing 1.4%, as we recently exited business that did not meet our disciplined profit threshold. This plan exit helped double our Sigma profits this quarter, another prime example of ROIC in action. Interprice inflation was 1.7%, and positive throughout the quarter.

We will be excited to add another accretive acquisition upon the planned closing of Edward Don which is in addition to our acquisition of <unk> earlier in August as we continue to invest in the business.

Even with the substantial M&A actions, we remain committed to returning cash back to shareholders planning $750 million and share repurchases and approximately $1 billion in dividend payoffs for FY 'twenty four.

Depending on the volume of M&A activity for the remainder of the year, we could increase share repurchases further while remaining within our stated leverage target of two five to 275 times.

Kenny Cheung: US broadline inflation was negative 0.9%. In the last quarter of the year, we were able to increase the rate of growth in the last quarter, and increase the rate of growth in the last quarter. In the first quarter, we reflected our ability to effectively manage product cost fluctuations. The improvement in growth profit was driven by incremental progress from our strategic sourcing efforts, discipline pricing, as well as improved penetration rates from Sysco brand products, which increased 6.5% to 37.2% in US broadline, and 53% to 47.5% in US local results.

Turning now to free cash flow, we generated $87 million in operating cash flow and negative $73 million and free cash flow for the quarter.

Our first quarter is typically our lowest cash flow quarter of the year due to seasonality and this year was impacted by timing of working capital as well as our continued investment for growth related to capital expenditures we remain.

Confident that we will grow free cash flow year over year in FY 'twenty four.

This growth is expected to be driven by continued strong conversion rates from EBITDA to operating and free cash flow.

Our strong financial position enable us to return $353 million to shareholders. This quarter. This was done through a $100 million of share repurchases and $253 million of dividends.

Even with a softer overall marketplace growth. We believe we are positioned to grow both topline and bottom line results and FY 'twenty four looking.

Kenny Cheung: Overall, adjusted operating expense for $2.8 billion for the quarter or 14.2% of sales. The strong management of expenses during the quarter was due to the positive impact of the variable labor planning tool Kevin mentioned and benefits from our previously announced $100 million of cost out commitment which commence at the start of the year. For example, we are expanding the use of shared services in Canada which are expected to drive improved operational efficiencies.

Looking forward to fiscal year 2024 guidance, we are reiterating net sales growth of mid single digits to approximately $80 billion and adjusted EPS growth of 5% to 10% to $4 in 'twenty.

The $4 40.

We continue to expect slightly positive rates of industry volume growth and inflation.

Regarding inflation in U S. Broadline, we expect a step up to slightly positive inflation beginning in Q2 ahead of our prior expectations, which had a positive inflection point in Q3.

Kenny Cheung: These actions items enable Sysco to reduce Q1 adjusts that S-P-N-A at the Global Support Center by approximately 7% year over year. All four operating segments continue to show increases in quarterly profitability including substantial growth in the international and sigma segments. As seen on slide 18, Q1 adjusted operating income of $854 million for the enterprise through 10.6% year over year delivering another record quarter. For the quarter, adjusted EBITDA was $1 billion up 11.7%.

This slightly positive inflation rate is expected to continue into the second half of the fiscal year consistent with prior expectations.

For the year, we remain on target for enterprise inflation to be slightly positive.

Our planned top line also includes benefits from M&A activity consistent with previous disclosures for an average annual contribution of 50 to 100 basis points of growth.

Additionally, we expect positive operating leverage with gross profit growing at a faster rate than opex translating to bottom line growing faster than top line.

Kenny Cheung: We continue to be encouraged by the progress of our international segment with adjusted operating income growing 8.7% for the first quarter. This is a continuation of the robust growth and positive momentum in this segment over the past three years. On an enterprise basis, Sysco's quarterly performance in the current macro environment provides another proof point of the company's ability to grow top line and bottom line under any environment while continuing to achieve positive operating leverage.

Our Q1 operating margin improvement reflected this leverage as we applied our commercial and operational initiatives, which will also have the benefit of driving long term profitable growth.

We remain on target for an effective annual tax rate of approximately 24, 5% into.

Interest expense is expected to step up by approximately $15 million year over year up $20 million from prior guidance driven by higher debt associated with our planned acquisition of Don.

Kenny Cheung: I'm also particularly pleased with the health of a balance sheet. We ended the quarter at a 2.6 times net debt leverage ratio. This is within our target of 2.5 to 2.75 times, a substantial improvement from 5.2 times just over two years ago. We ended the quarter with $10.3 billion and net debt in over $3.1 billion in total liquidity. Approximately 96% of our debt is fixed with the floating component offsets by our cash reserves.

We plan to reward our shareholders with our industry, leading dividend yield and consistent share repurchase activity all while remaining within our leverage target of two five to 275 times for the year.

For the remainder of the year and over the long term, we expect to win market share profitably and continue to generate cash with strong conversion rates ultimately feeding our plans to grow and reward our shareholders with that I will turn the call back to Catherine for closing remarks.

Kenny Cheung: Our debt is well-lattered without any majorities over $1 billion until FY27. Our strong investment grade credit rating is a competitive advantage against the current macro backdrop. The strength of our balance sheet and history of delivering consistent cash flows provides us with robust options related to capital allocation. We will be excited to add another creative acquisition upon the plan closing of Edward Don, which is in addition to our acquisition of fixed earlier and August as we continue to invest in the business.

Thank you Kenny as we conclude I would like to provide a brief summary on slide number 23.

We are the market leader in a growing industry we.

We are the largest in a space where scale matters.

We're investing to create additional fulfillment capacity to support profitable growth to further leverage that scale advantage. We are investing in technology to support our customers and remove friction in the purchasing experience.

We are expanding our product range to become even more of a one stop solution for restaurants, and strengthening our selling process with improved training compensation in digital tools to improve the close rate of product introductions to our customers.

Kenny Cheung: Even with these substantial M&A actions, we remain committed to returning cash back to shareholders, planning $750 million in jewelry purchases, and approximately $1 billion in dividend payoffs for FY24. The pending on the volume of M&A activity for the remainder of the year, we could increase share repurchases further while remaining within our state-enlovers target of 2.5 to 2.75 times. Turning now to free cash flow, we generated $87 million in operating cash flow and negative $73 million in free cash flow for the quarter.

These efforts are combined with an increase in the size of our sales force in order to reduce territory size, enabling our sales team to provide more dedicated service to our customers.

All combined these capabilities are making it easier for foodservice operators to focus on what they do best serving great food for their customers.

Cisco has a strong record of generating consistent results in fact, Cisco has consistently grown annual sales over our more than 50 year history.

Kenny Cheung: Our first quarter is typically our lowest cash flow quarter of the year due to seasonality, and this year was impacted by timing of working capital, as well as our continued investment for growth related to capital expenditures. We remain confident that we will grow free cash flow year over year and FY24. This growth is expected to be driven by continued strong conversion rates from EBITDA to operating in free cash flow. Our strong financial position enables us to return $353 million the shareholders this quarter. This was done through $100 million of share repurchases and $253 million of dividends. Even with a softer overall marketplace growth, we believe we are positioned to grow both top line and bottom line results in FY24.

In addition to compelling top line growth Cisco as the industry leader from an adjusted operating profit margin perspective.

We have the strongest balance sheet and we are the only foodservice distributor with an investment grade credit rating.

Additionally, we remain the only distributor paying a strong dividend yield we plan to build on that position with stream for years to come.

As our recent proxy statement highlighted we increased the weighting of financial metrics and our annual incentive program and added return on invested capital as a measurement and our long term equity plan.

These changes are well received by our management team and we are very focused on delivering the guided results.

We are confident in the long term health and growth trends of the foodservice industry in total.

Our $350 billion total addressable market will continue to grow over time.

Kenny Cheung: Looking forward to fiscal year 2024 guidance. We are reiterating net sales growth of mid-singles digits to approximately $80 billion and adjusted EPS growth of 5 to 10% to $4.20 to $4.40. We continue to expect slightly positive rates of industry volume growth in inflation. Regarding inflation in U.S, broadline, we expect a step up to slightly positive inflation beginning in Q2 ahead of our prior expectations, which had a positive inflection point in Q3.

As food away from home is taking share from the grocery channel for 24 of the past 25 years scale.

Kenny Cheung: This slightly positive inflation rate is expected to continue into the second half of the fiscal year consistent with prior expectations. For the year, we remain on target for enterprise inflation to be slightly positive. Our plan top line also includes benefits from M&A activity consistent with previous disclosures for an average annual contribution of 50 to 100 basis points of growth. Additionally, we expect positive operating leverage with growth's profit growing at a faster rate than OPEX, translating the bottom line growing faster than top line.

Scale matters in this industry and Cisco is playing the long game to strengthen our scale advantages.

These factors, coupled with our dividend and share buyback programs will set investors up to be rewarded over time.

I am both excited and proud to be part of the journey. There was no other place that I'd rather be at Cisco right here right now.

As always I want to thank our 72000, plus Cisco colleagues for their commitment to our customers and our shareholders. Operator, you can now open the line for questions.

At this time, if you would like to ask a question. Please press star one on your Touchtone phone you may remove yourself from the queue at any time by pressing star to once again start.

And one if you would like to ask a question we will take our first question from Edward Kelly with Wells Fargo. Your line is open.

Hi, Good morning, guys. Thanks for all the color.

Kevin I wanted to ask you I mean, the biggest overhang for the space at this point.

It's probably around case volumes and industry case volumes and expectations could you maybe just dig in a little bit more around what youre seeing from the customer segments. I mean, you did talk about some slowing in the local side today.

Kenny Cheung: Our Q1 operating margin improvement reflected this leverage as we applied our commercial and operational initiatives, which will also have the benefit of driving long-term profitable growth. We remain on target for an effective annual tax rate of approximately 24.5%. Interest expense is expected to step up by approximately $50 million year over year of $20 million from prior guidance driven by higher debt associated with our planned acquisition of Don. We plan to reward our shareholders with our industry leading dividend yield and consistent sherry purchase activity, all while remaining within our leverage target of 2.5 to 2.75 times for the year. For the remainder of the year and over the long term, we expect to win market share proftably and continue to generate cash with strong conversion rates, ultimately feeding our plans to grow and reward our shareholders.

And then you're obviously, making adjustments.

This backdrop any adjustments that youre, making.

Is it possible that you could see some improvement in underlying case volume growth from from Q1.

Good morning, Ed I appreciate the question.

As it relates to the quarter that we disclosed overall Cisco grew our volume greater than the market. We took share in total and we took share in national for sure and at the local level.

The outperformance versus the market in aggregate at the local I would say as the quarter kind of played out the way we expected when we guided the year, we guided that volume would be more muted for fiscal 'twenty four we guided that there would be deflation in Q1 that came to reality as well. So in aggregate. We're pleased with the performance of our sales organization.

<unk> and the outcomes that were delivered I'd say major point of strength would be our national success as I covered in my prepared remarks, I want to be very clear about one thing the success, we're having with national in no way in any way is impacting our ability to win our growth in local theyre different sales teams, we don't have supply chain capacity constraints that are.

Kevin Hourican: With that, I will turn the call back to Kevin for closing remarks. Thank you Kenny.

Kevin Hourican: As we conclude, I'd like to provide a brief summary on slide number 23. We are the market leader in a growing industry. We are the largest in a space where scale matters. We're investing to create additional fulfillment capacity to support profitable growth to further leverage that scale advantage. We're investing in technology to support our customers and remove friction in the purchasing experience. We are expanding our product range to become even more of a one-stop solution for restaurants in strength in our selling process with improved training compensation in digital tools to improve the close rate of product interactivity.

We're getting in the way, we are winning a national because of the improvements that we've made in how we serve those large national customers with technology integration and dedicated and accountable sales teams I did communicate on the call. Today. We believe there is room to improve Ed in local I.

Communicated today several actions that we're taking to drive improved progress most notably the first thing I said, which is we will be adding head count. This year, we've grown local for each of the last three years faster than the overall industry and the result of that is our territory sizes have gotten a bit larger than we would like by adding head count that skilled and trained properly we can.

Can reduce the number of customers served by each assay, which will increase based time increased presence in that kitchen and increase the relationship strengths of our industry, leading sales reps. So that is a notable call out but.

Unknown Executive: [inaudible] We're going to give you a brief summary of what we're going to give you in the future. We're going to give you a brief summary of what we're going to give you in the future.

And besides today, that's more of a 2025 benefit because it takes time for those folks to get scaled up trained up and incorporated into the company. We recently modified our sales compensation that went live in this quarter Q2 October specifically and it'll take a little time for that opportunity to flow through and improved outcomes, but we are confident because we have piloted them.

Change that it will motivate our sales teams to grow their business and our business profitably, we're very focused on improving outcomes for the sales organization, we call it selling effectiveness, providing performance based coaching and education and training to that team and we're really pleased with all the team is selling which is the leverage of our specialty platforms. If I put all of that.

These things together.

Want to again emphasize one point, we're not going to lead with price, we will be very rational in our pricing decisions, leading with capabilities service and outcomes when I put it all together I think yes, we can see an uptick in volumes specifically in local and I would call out that in October we're off to a good start we're seeing some.

Progress and that progress is actually across all segments and across all restaurants types Q2 is off to a strong start.

I'll talk to Kenny handing over to you, yes, Thanks, Kevin Hey, Ed one thing to add is that in addition to the U S market I think it's important to understand that we are a profitable growth engine in international as well, which makes up roughly 20% of our sales during Q1, our Canadian business grew 6% in local in our European business grew at a similar rate.

<unk>.

From my perspective growing local is a big part of our long term vision for <unk> for growth.

Our global operating model that <unk> referenced earlier, we are demonstrating sustainable value to our customers through programs like Cisco go away, which is yielding dividends as well as our sysco brand penetration, which is also driving positive flow through our margins. So local and national growth is important but under the recipe for growth in <unk>, our focus is sustainable.

Unknown Attendee: [inaudible] Hi, morning guys. Thanks for all the good color.

<unk> growth.

Quick follow up Edward Don and Vic's look like based upon the sales numbers I don't know it could be 2% plus sort of like benefit too.

The volumes are not sure about price per case. So it's hard to say is that fair in both of those are in U S. Foodservice business is that right.

Edward Kelly: Kevin, I want to ask you, I mean, the biggest overhang, you know, for the space at this point, you know, is probably around case volumes and industry case volumes and expectations. Can you maybe just dig in a little bit more around what you're seeing from the customer segments? I mean, you did talk about some slowing in the local side today. And then you're obviously making adjustments given this backdrop and the adjustments that you're making.

Correct.

They are and they are also in the current guide right now.

Okay. Thank you.

Sure. Thank you.

Thank you we'll take our next question from Lauren Silberman with Deutsche Bank. Your line is open.

Thank you I wanted to follow up on the local case volume side and the investments the incremental head count can you talk about what youre seeing with new customer acquisition relative to wallet share gains and negative underlying restaurant traffic in terms of the composition of what Youre seeing and where do you see the most incremental opportunity.

Edward Kelly: Is it possible that you could see some improvement in an underlying case volume growth from Q1? Good morning, Ed. Appreciate the question. Just as it relates to the quarter that we disclosed, you know, overall, Sysco grew our volume greater than the market we took share in total. We took share in national for sure. And at the local level, we actually outperformed versus the market in aggregate, you know, at the local. I would say the quarter kind of played out the way we expected when we guided the year, we guided that volume would be more muted for fiscal 24.

It really timm group on the new customer acquisition side, while chair. Thank you.

Alright. Thank you for the question good morning, I'm really pleased with the progress that we're making on what we call cases per operator programs that Kenny mentioned in his comments a second ago like fiscal year away are doing extremely well and helping us advanced cases per operator that Cisco Perks program, which is a loyalty program for.

Edward Kelly: We guided that there'd be deflation in Q1 that came to reality as well. So in aggregate, we're pleased with the performance of our sales organization and the outcomes, you know, that were delivered. You know, I'd say a major point of strength would be our national success as I covered in my prepared remarks.

For our best customers, it's an invitation only club is having the desired effect of improved retention of our customers and increased penetration and then our opportunity to improve specialty, which we call total team selling where we're penetrating further with both produce and with protein is having a big impact and last one.

Kevin Hourican: I want to be very clear about one thing. The success we're having with national in no way in any way is impacting our ability to win or grow in local. There are different sales teams. We don't have supply chain capacity constraints that are getting in the way. We're winning a national because of the improvements that we've made on how we serve those large national customers with technology integration and dedicated and accountable sales teams.

<unk> personalization through our digital tools.

Getting better and smarter at understanding the cuisine focus on the customer and having our emails in our website and the topics at our customer excuse me sales reps bring to our customers be very focused.

Kevin Hourican: I did communicate on the call today. We believe there is room to improve Ed in local. I communicated today several actions that were taking to drive improved progress. Most notably, the first thing I said, which is we will be adding headcount this year. We've grown local for each of the last three years faster than the overall industry. And the result of that is our territory sizes have gotten a bit larger than we would like by adding headcount.

Those things are working Lorena. If you asked me the question, where do I see the opportunity for improvement year to go we can be stronger in acquiring net new customers and our new compensation program that we just rolled out will motivate and incent our sales reps to win net new business, that's profitable I want to be really clear about that we're not going to go chase smaller.

Profitable customers, we need to chase the right customers, but its boots on the ground out on the street prospecting new customers. We've had a lot of success over the last three years in winning net new and we can be stronger in the year ago than we were in Q1 on winning net new.

Kevin Hourican: That skills and training properly. We can reduce the number of customers served by each SE, which will increase base time, increase presence in that kitchen and increase the relationship strengths of our industry leading sales reps. So that is a notable call out.

Great. Thanks.

Kevin Hourican: But I emphasize today that's more of a 2025 benefit because it takes time for those folks to get skilled up trained up and incorporated into the company. We recently modified our sales compensation that went live in this quarter, Q2, October specifically. It'll take a little time for that opportunity to flow through and improve outcomes, but we are confident because we have piloted that change that it will motivate our sales teams to grow their business and our business properly.

Shifting on a similar topic.

Talked about the local case in investing in incremental head count how does this impact your efforts on productivity. This year and then more broadly if you could just provide any additional color on the process around productivity. Thank you.

Yes sure happy good question on the sales Rep side, it's really a math formula we've grown our local business we've grown our local cases over the last three years in territory size is the key metric there territory size because of the success. We've had has grown and we want to bring that territory size back down to what is an appropriate target ratio we've not disclosed.

Kevin Hourican: We're very focused on improving outcomes for the sales organization. We call it selling effectiveness, providing performance-based coaching and education and training to that team. And we're really pleased with total team selling, which is the leverage of our specialty platforms. If I put all those things together, I want to again emphasize one point we're not going to leave with price. We will be very rational in our pricing decisions, leading with capabilities, service, and outcomes.

Is that number and I'm not going to do that today, so that incremental head count.

Those people have to go through training they have to go through systems.

Knowledge, gaining inc location into our culture and what have you. It will take time for those folks to ramp up and that process has begun and it'll be a consistent effort as we grow the size of the sales force and our sales retention sales force retention has been strong we're really pleased with the retention of our sales force the productivity topic Arne is more about our <unk>.

Kevin Hourican: When I put it all together, I think yes, we can see an uptick in volumes, specifically in local. And I would call out that in October, we're off to a good start. We're seeing some progress. And that progress is actually across all segments and across all restaurant types. Q2 is off to a strong start.

Why chain and let me just talk about that for a minute I have not spoken about that yet. This morning. We grew our gross profit dollars more than we grew our expenses in Q1, and we're pleased by that we posted positive net operating leverage.

Kenny Cheung: I'll talk to Kenny over to you. Yeah, thanks Kevin. Hey, one thing to add is that in addition to the US market, I think it's important to understand that we have a profitable growth engine and international as well, which makes up roughly 20% of our sales. During Q1, our Canadian business grew 6% in local and our European business grew at a similar rate.

Really pleased with the work that Kenny has led on cortex, we brought through reduction in capex year over year, and Kenny can talk more about that in a moment on the cost per piece side, we continue to make progress year over year Q1 versus Q1 in our main U S business retention is up pieces per labor hours up pieces for transportation truck miles are up.

Kenny Cheung: You know, from from my perspective, growing local is a big part of a long term vision for recipe for growth. Under our global operating model, that Kevin's reference earlier, we are demonstrating sustainable value to our customers through programs like Sysco Year Away, which is yielding dividends, as well as Sysco penetration, which is also driving positive flow through our margins. So local and national growth is important, but under the rest of the growth umbrella, our focus is sustainable, profitable growth.

And we're pleased with the progress that we're making I also want to be clear. There is still more progress to be made who are not yet back to 2019 productivity levels and we will continue to be very focused on that and there is upside into forward facing periods and years as we continue to improve our productivity.

That is in our guidance, we expect to make any.

Increased progress and continued progress in those performance improvements are in our year to go guidance can you talk to you for any additional comments thanks, Kevin So.

Unknown Attendee: Quick follow up Edward gone and fix looks like based upon the sales numbers, I don't know, could be 2% plus sort of like benefit to the volumes, I'm not sure about price for case, so it's hard to say. Is that fair? And both of those are in US food service businesses, is that right? Correct, they are and they're also in the current guide right now. Okay, thank you. Thank you.

A few points for me first is in addition to the supply chain productivity, Kevin just mentioned.

Corporate initiatives, we outlined last call it $100 million.

And that is underway and that is going to be realized ratably across the four quarters. Because we started on day. One that's number one and if you look at the P&L from a corporate SG&A standpoint, we were down 7% year on year. That's point number one number two in terms of the the way to think about the pacing of the ads.

Lauren Silberman: We'll take our next question from Lauren Silverman with Deutsche Bank. Your line is open. Thank you. I wanted to follow up on the local case volume side and the investment incremental headcount. Can you talk about what you're seeing with new customer acquisition relative to wallet share gains and negative underlying restaurant traffic, just in terms of the composition of what local case growth. You're seeing and where do you see the most incremental opportunity? Is it really to improve on the new customer acquisition side while chair? Thank you.

I'll say, one thing, we will be disciplined and deliberate on when and how and where we add meaning we still expect to achieve positive operating leverage even with the about the headset, we're adding so GP growing faster than expenses and bottom line growing faster than top line.

Lauren Silberman: Lauren, thank you for the question. Good morning. I'm really pleased with the progress that we're making on what we call cases for operator programs that Kenny mentioned in his comments a second ago, like fiscal year away are doing extremely well in helping us advance cases for operator. The fiscal perks program, which is a loyalty program for our best customers. It's an invitation only club is having the desired effect of improved retention of our customers and increased penetration.

Thank you.

Thanks Laurent.

Thank you we'll take our next question from Joshua Long with Stephens, Inc. Your line is now open.

Great. Thank you for taking my question, Kevin you talked about the supply chain.

Overall, becoming healthier continuation of trends we've seen in a lot of the great work that you and your teams are doing well wanted to see if you might be able to dig in a little bit more there in terms of obviously expanding capacity in the labor scheduling tools that you offered there are exciting and measuring the patient dividends going forward can you talk about the underlying labor environment, we didn't spend much time talking about it.

Lauren Silberman: And then our opportunity to improve specialty, which we call total team selling where we're penetrating further with both produce and with protein is having a big impact. And last but not least is personalization through our digital tools. We're getting better and smarter at understanding the cuisine focus of the customer and having our emails and our website and the topics that our customers, excuse me, sells rep spring to our customers be very focused, you know, for them.

In the prepared remarks, and I imagine that's because it's largely stabilized are largely improving as you start to think about just all of the culminating work that you've done over the last several quarters, but curious if you could provide kind of any.

Any additional thoughts there in terms of the overall labor environment, maybe it fits.

And kind of all the other.

And scaling up that you've done over the last couple of quarters.

Lauren Silberman: Those things are working. Lauren, if you asked me the question, you know, where do I see the opportunity for improvement year to go, we can be stronger in in acquiring net new customers. And our new compensation program that we just rolled out will motivate and instant our sales reps to win net new business. That's profitable. I want to be really clear about that. We're not going to go chase small unprofitable customers.

Josh. Thank you for your question, we feel good about our staffing levels across the enterprise globally and domestically, we're fully staffed as a network that doesn't mean that every single site. In every single job that we are fully staffed but in the network network wide. We are feeling good about our staffing we are fully staffed.

Lauren Silberman: We need to chase the right customers, but it's boots on the ground out on the street prospecting new customers. We've had a lot of success over the last three years in winning net new and we can be stronger in the year to go. Then we were in q1 on winning net new. Great. Thanks. Just shifting a similar topic. You talked about the local case and investing in incremental headcount. How does this impact your efforts on productivity this year?

The labor market I'd say is most of the return to kind of pre COVID-19.

Levels of.

Inbound applicant flow for our jobs and Thats a good thing retention is improving year over year and that's a good thing turnovers still elevated versus pre COVID-19 levels and Thats something were very focused on but year over year retention has improved and that's what's driving our improvements in pieces per labor hour productivity and it's what's driving.

Lauren Silberman: And then more broadly, if you could just provide any additional color on the progress around productivity. Thank you. Yeah, sure, happy, good question, Lauren. On the sales rep side, it's, it's really a math formula. We've grown our local business, we've grown our local cases over the last three years and territory size is the key metric there, territory size because of the success we've had has grown. And we want to bring that territory size back down to what is an appropriate target ratio.

Improvements in our transportation metrics as well that progress will continue as I mentioned Q2 through Q4. This year. We've got our team very focused there are four key drivers of our ops expense pieces per truck.

Our overall productivity pieces per labor hour shrink and safety those are the big four key metrics from an operations perspective, and if you interviewed any leader at Cisco They would be able to tell you. There is four and we have everyone meaningfully focused on making progress against each of them and thats. The good news is that there's progress to be made.

Lauren Silberman: We've not disclosed that number and I'm not going to do that today. So that incremental headcount. Again, those people have to go through training, they have to go through systems, you know, knowledge. You know, gaining inculcation into our culture and what have you, it'll take time for those folks to ramp up and that process has begun. It'll be a consistent effort as we grow the size of the sales force and our sales retention, sales force retention has been strong.

In each of their was critical for we're making sequential improvement week over week month over month quarter over quarter and there is still progress.

<unk> made the staffing tool that I mentioned, we will pay dividends for the long term its muscle being built this business is more flat ish versus retail, which is very choppy with monthly promotions and certainly the Christmas holiday season, we don't have that degree of seasonality, but we do actually have meaningful seasonality we have schools that are.

Lauren Silberman: We're really pleased with the retention of our sales force, the productivity topic going is more about our supply chain. Let me just talk about that for a minute. I've not spoken about that yet this morning. We grew our gross profit dollars more than we grew our expenses in Q1. And we're pleased by that. We posted positive net operating leverage. We're really pleased with the work that Kenny has led on Corpex. We wrote for reduction in Corpex year over year.

On and off we have northern hemisphere that as much busier in the summer than it is in the winter and then that flips where in places like Florida get really busy in the wintertime.

We are going to be more effective in our feature at managing our staffing levels to match those fluctuations in volume leveraging technology, leveraging disciplined staffing tools and that will help reduce our cost to serve over time, Josh back to you. If you have a follow up.

Lauren Silberman: And Kenny can talk more about that in a moment on the cost per piece side. We continue to make progress year over year Q1 versus Q1 in our main US business retention is up pieces per labor hours up pieces per transportation truck miles are up. And we're pleased with the progress that we're making. I also want to be clear, there's still more progress. We're not yet back to 2019 productivity levels. And we will continue to be very focused on that.

Great. Thank you I did it was also encouraged encouraged by the improving profit.

Profit profile that you've talked about versus historical periods.

All of the initiatives and work that you just outlined there go into being able to service those new accounts that you bring on more profitable, but curious if you could talk a little bit more about that at a high level in terms of just.

Lauren Silberman: And there's upside into forward facing periods and years as we continue to improve our productivity. And that is in our guides. We expect to make increased progress and continue progress. And those performance improvements are in our year-to-go guidance.

Other maybe systems tools procedures and behind the scenes that are helping to drive that.

Improving.

The profile as you go forward.

Kevin Hourican: Kenny, trust you for any additional comments. Thanks, Kevin. So a few points from me. First is in addition to the support of my chain productivity. Kevin just mentioned the corporate initiatives. We outlined last call the $100 million. That is under a way. And that is going to be realized radically across the four quarters because we started on day one. That's number one. And if you look at the PNL from a corporate SNA standpoint, we were down to another percent year on year.

Yes, I'll start on that question and then I'll toss that to Kenny if he has any questions.

Anything to add to that question, yes, we're very pleased with the progress that we're making on GP dollars per case I'll just go back to Lauren's question about that.

Opportunity, we have to win net new we're better now at prospecting those customers to go after it.

It is not just go out and win a customer you can win a small.

Customer and add a lot of expense to your network by bringing on a small account and then having them never matriculate up to a minimum profit threshold. It's a waste of time actually to send our sales reps out to those types of accounts. So our CRM is quite robust and we have a lot of market intelligence.

Kevin Hourican: That's point number one. Number two, in terms of the way to think about the pacing of the ads, I'll say one thing. We will be disciplining deliberate on when and how and where we add. Meaning we still expect to achieve positive operating leverage, even with the heads that we're adding. So GP growing faster than expenses and bottom line growing faster than top line. Thank you. Thanks, Lauren.

Unknown Executive: Thank you.

Opportunity by door on what that account can do and we're getting better and better at being able to target our sales reps to those high.

Propensity accounts and really focusing on winning them that's comment one come into the other things that are driving GP dollars per case are actually in the buying side of our business. Our strategic sourcing efforts are continuing to make progress as we bring down our cogs.

Joshua Long: We'll take our next question from Joshua Long with Steven's ink. Your line is now open. Great. Thank you for taking my question. Kevin, you talked about the supply chain overall becoming healthier. That's continuation of trends we've seen. A lot of the great work that you and your teams are doing. We wanted to see if you might be able to dig in a little bit more there in terms of obviously it's expanding capacity and the labor scheduling tools that you offered there are exciting and imagine the pace and dividends going forward. He talked about the underlying labor environment. We didn't spend much time talking about it in the prepared remarks.

And do so in a way that is stronger than the rest of the industry. It's a strength of ours <unk> III Sysco brand penetration, especially at the local level, we continue to advance penetration of Sysco brand and Thats a huge strength.

Cisco and then if you add the pieces that I talked about from a supply chain perspective on increasing the pieces per truck for the routes that we send out increasing the productivity of our team net net all together, that's what drives a gross profit growth greater than expense growth, which allowed double digit bottom line growth at Cisco Kenny over to you for any additional comments.

Joshua Long: And I imagine that's because it's largely stabilized or largely improving as you start to think about just all of the, you know, culminating work that you've done over the last several quarters, but curious if you could provide kind of any additional thoughts there in terms of the overall labor environment. And maybe at the, you know, the warehouse and kind of all the other, of scaling up that you've done over the last couple quarters.

Yes, just one point to two to add if you look at the gross profit line in the quarter I know it usually we talk about gross profit versus expenses, but I think it's worth pointing out that gross profit grew faster than sales, which is a proof point that will Kevin just mentioned, we are managing deflation in the quarter with.

Kevin Hourican: Josh, thank you for the question. We feel good about our staffing levels across the enterprise globally and domestically. We're fully staffed as a network that doesn't mean that every single site and every single job that we're fully staffed, but in the network network wide, we are feeling good about our staffing, we are fully staffed. In the labor market, I'd say, is mostly returned to kind of pre-COVID levels of, you know, inbound applicant flow for our jobs, and that's a good thing.

Discipline on the pricing tool side Sysco brand as Kevin mentioned and grew 53 bps on the local side for our business strategic sourcing initiatives and the continued growth of our specialty business as well on the corporate side as I mentioned $100 million.

Is locked in for the year and we're not stopping we're looking for more as we speak I know on the prepared remarks, we talked about Canada.

Kevin Hourican: Retention is improving your every year, and that's a good thing. Turnovers still elevated versus pre-COVID levels, and that's something we're very focused on, but year over year retention is improved, and that's what's driving our improvements in pieces per labor, our productivity, and it's what's driving improvements in our transportation metrics as well. That progress will continue, as I mentioned, you know, cues two through cues for this year. We've got our team, very focused.

I'm looking at my own function, we're looking at finding better ways to drive outcomes more with less so overall I would say we are on pace with our productivity target for the year and again looking for more.

Thank you.

Thanks, Josh.

Thank you we'll take our next question from Jeffrey Bernstein with Barclays. Your line is now open.

Kevin Hourican: There are four key drivers of our ops expense, pieces per truck, our overall productivity, pieces per labor hour, shrink, and safety. Those are the big four key metrics from an operations perspective, and if you interviewed any leader at Cisco, they would be able to tell you there was four, and we have everyone meaningfully focused on making progress against each of them. And that's the good news is that there's progress to be made in each of those critical four.

Thank you very much.

Two questions one just Kevin from a.

Topline perspective, I know you mentioned, maybe a slowing topline macro and closely monitoring the market.

I know three months ago that was more I guess enthusiasm I think you had mentioned that exit velocity coming out of the June quarter gave you confidence in fiscal 'twenty for us It does seem like it's.

Rocky month to month, I'm, just wondering where maybe in the restaurant industry, which segments, so perhaps chain versus local where youre seeing this greater or less than average volatility.

Kevin Hourican: We're making sequential improvement week over week. Month over month quarter over quarter, and there's still progress to be made. The staffing tool that I mentioned will pay dividends for the long term. It's muscle being built. This business is more flat-ish versus retail, which is very choppy with monthly promotions, and certainly the Christmas holiday season. We don't have that degree of seasonality, but we do actually have meaningful seasonality. We have schools that are on and off.

And then I think you mentioned most recently in October there is a an uptick I'm just wondering if thats industry specific or more sysco specific and then I had one follow up.

Okay, Jeff. Thank you for the question.

I appreciate it.

You think about the quarter.

<unk> for the quarter was mostly in line with what we had actually predicted for the year. If you look at our kind of prepared remarks back in August lower overall volume growth year over year deflation in the U.

Kevin Hourican: We have Northern Hemisphere that is much busier in the summer than it is in the winter, and then that flips where places like Florida get really busy in the winter time. We are going to be more effective in our feature at managing our staffing levels to match those fluctuations in volume, leveraging technology, leveraging discipline, staffing tools, and that'll help reduce our cost to serve over time.

U S business for the quarter in both of those things occurred as I think about the full year for fiscal 2024, new volume will be softer than in 2023 from a growth perspective, but.

Kevin Hourican: Josh, back to you if you have a follow. Thank you. It was also encouraged by the improving profit profit profile that you've talked about versus historical periods. So imagine all of the initiatives and work that you just outlined there, go into being able to service those new accounts that you bring on more profitable.

But we have Cisco room for improvement in local and I cited several things today in our prepared remarks that are going to help us drive improvement in our local volume second is margin and from a rate perspective, and I'll toss to Kenny when I'm done here, if theres anything that he would like to add.

Kenny Cheung: But curious if you can talk a little bit more about that at a high level in terms of just other maybe systems tools, procedures behind the scenes that are helping to drive that improving profit profile as you go forward. I'll start on that question. I'll toss to Kenny if he has any questions. Excuse me, anything to add to that question. Yeah, we're very pleased with the progress that we're making on GP dollars per case.

Can we grow profit during a period of deflation in the U S was a question that we're being asked back in August answer definitively, Yes, we grew our bottom line double digits during a quarter, where we had lower volume growth than is normal for our industry and deflation and I think thats a powerful proof point to the financial fundamentals of this company.

In a period of deflation with lower volume growth, we posted a double digit increase in profit as we look forward. We look further down the road. This industry will return to more normal levels of volume growth that will return to more normal levels of inflation and the engine of productivity improvement the engine of relentless focus on <unk>.

Kenny Cheung: I'll just go back to Lauren's question about the opportunity we have to win that new. We're better now at prospecting those customers to go after. It's not just go out and win a customer. You can win a small customer and add a lot of expense to your network by bringing on a small account and then having them never matriculated up to a minimum profit threshold. It's a waste of time actually to send our sales reps out to those types of accounts.

<unk> cost out of this business will enable really compelling long term results and one of the proof points that I said on the call are sector food away from home has taken market share from the grocery channel in 24 of 25 years. The only year. It was 2020 and I think we all know the reasons why we've got confidence in the long term.

Kenny Cheung: So our CRM is quite robust and we have a lot of market intelligence on the opportunity by door on what that account can do. And we're getting better and better at being able to target our sales reps to those high propensity accounts and really focusing on winning them. That's comment one. Come into the other things that are driving GP dollars per case are actually in the buying side of our business. Our strategic sourcing efforts are continuing to make progress as we bring down our cogs.

And we have confidence in fiscal year, 2024, which is why we reiterated the guidance.

October as I said is off to a good start.

It is stronger than where we were in Q1, it's too soon to tell if thats a Cisco specific thing <unk> an industry thing because we don't get the data on the overall market until after the months are over but we're pleased with the start to the quarter and it's coming across all restaurant types national down to local and it's also happening across.

Kenny Cheung: Induced in a way that is stronger than the rest of the industry. It's a strength of ours. Topic three is Cisco brand penetration, especially at the local level. We continue to advance penetration of Cisco brand and that's a huge strength point for Cisco. And then if you add the pieces that I talked about from a supply chain perspective on increasing the pieces per truck for the routes that we send out increasing the productivity of our team net net all together. That's where it drives a gross profit growth greater than expense growth, which allowed double digit bottom line growth at Cisco.

<unk>, our other sectors as well so hopefully that's a strong.

Harbinger of things to come for the remainder of this year time will tell we're very focused on what we can control, which is continuing the success in national and improving our performance within local for the things that I described today Kenny over to you for additional comments regarding the guidance as Kevin touched upon we are confident in our guidance. Your Cisco, we do adopt like call. It a checkbook.

Kenny Cheung: Can you over do for any additional comment? Yeah, just one point to add. If you look at the gross profit line in the quarter, I know usually we talk about gross profit versus expenses, but I think it's worth pointing out that gross profit. It grew faster than sales, which is a proof point that what Kevin just mentioned, we are managing deflation in the quarter with this plan on the pricing tool side.

<unk>, where our business model allows us to pull levers to ensure we can manage against various market dynamics as Kevin said pharma controllable and some are not such as the muted market growth and inflation, which we were able to successfully navigate through in Q1, just to put numbers on what Kevin mentioned 36 bps improvement on GP.

Kenny Cheung: Cisco brand as Kevin mentioned, grew 53 bits on the local side for our business strategic sourcing initiatives in the continued growth of our specialty business as well. On the corporate side, as I mentioned, the hundred million dollars is is is lost into the year and we're not stopping. We are looking for more as we speak. I know on the prepare remarks we talked about Canada as I am looking at my own function. We're looking in funny better ways to drive outcomes more with less. So overall, I would say we are on pace with a productivity target for the year and again looking for more.

And then 33 bps improvement on <unk> based on all the variables risks and opportunities we feel comfortable with the current guidance range.

Unknown Executive: Thank you. Thanks, Josh.

Yes.

Got it and then my follow up is just on the inflation.

It seems like specific to the U S. It was down 0.4%, but.

Thank you mentioned Youre now expecting that to reverse to modest inflation in the second quarter, which.

You said.

A quarter ahead of schedule and I know there was a lot of people pushing back.

On that thesis so I'm, just wondering your visibility or your confidence in that return to modest inflation in the U S.

Any color on specific commodities that would be driving that I'm, assuming beef is a big component of that but any color on that returned to modest inflation would be great.

Jeffrey Bernstein: Thank you. We'll take our next question from Jeffrey Bernstein with Barclays. Your line is now open. Thank you very much. Two questions. One, just Kevin from a top line perspective. I know you mentioned maybe a slowing top line macro and closely monitoring the market. I know three months ago there was more I guess enthusiasm. I think you had mentioned that exit velocity coming out of the June quarter gave you confidence in fiscal 24 so it doesn't seem like it's kind of rocky month to month.

Thank you Jeff.

Yes, So let me first just kind of reiterate our guide on inflation. So you are correct. We are seeing one quarter ahead or we expect from the last guide in terms of inflation and the U S market. We were inflationary total from enterprise standpoint, the second half right. Now we are keeping what we said on our last call which is consistently.

Higher versus prior year elevated on positive inflation in terms of your question around the kind of the the product categories, where the commodities basket, Here's how I would think about it at Cisco we have diverse.

Jeffrey Bernstein: I'm just wondering where maybe in the restaurant industry which segments are perhaps chain versus local where you're seeing this greater or less than average volatility. And then I think you mentioned most recently that in October, there's an uptick. I'm just wondering if that's industry specific or more Cisco specific and then I had one follow up. Okay, Jeff. Thank you for the question and appreciate it. You know, as we think about the quarter volume for the quarter was mostly in line with what we had actually predicted for the year.

Set of commodities or product categories in which we sell to a broad set of customers. The good news is we do not over index on any category from a volume standpoint, no. One category has more than 15% to 20% each commodity to your point connect differently beef right now is up double digit while other.

Jeffrey Bernstein: If you look at our kind of prepared remarks back in August, you know, lower overall volume growth year over year. In the U.S, business, you know, for the quarter in both of those things, you know, occurred as I think about the full year for fiscal 2024 volume will be softer than in 2023 from a growth perspective. But we have Cisco room for improvement and local and I cited several things today and on our prepared remarks that are going to help us drive improvement in our local volume.

Other categories are in a different state from.

From a center in place standpoint, which makes up roughly 30% of our volume we are seeing that trend up on the inflationary curve.

If you think about I take a step back the Cisco has always managing deflation and inflation because I come up to our commodity Basket Act differently across the board that is the reason why we have a natural hedge in the basket itself.

Yes. This is Kevin I think the only thing I'd add as we kind of hit the points very clearly is that center of plate is where the significant increase has occurred beef already started that process.

Jeffrey Bernstein: The second is, you know, margin and from a rate perspective and I'll toss to Kenny when I'm done here if there's anything that he would like to add. You know, can we grow profit during a period of deflation in the U.S.? Because the question that we were being asked back in August answered definitively. Yes, we grew our bottom line double digits during a quarter where we had lower volume growth than is normal for our industry and deflation.

Earlier in the summer poultry, while still deflationary is nowhere near the level of deflationary pressure that it was impacting the business.

Couple of quarters ago, and Jeff We've got really good data, we've got global data.

<unk> connections with top suppliers.

Jeffrey Bernstein: And I think that's a powerful proof point to the financial fundamentals of this company in a period of deflation with lower volume growth. We posted a double digit increase in profit as we look forward. We look further down the road. This industry will return to more normal levels of volume growth. It will return to more normal levels of inflation in the engine of productivity improvement. The engine of relentless focus on taking cost out of this business will enable really compelling long term results.

Ergo why Kenny communicated that it's about a quarter ahead of schedule the return to inflation and that it's a net positive for the overall industry and company.

Thank you.

Thanks, Jeff.

Thank you we'll take our next question from Kelly Bania with BMO capital. Your line is now open.

Hi, Good morning, It's Kelly Bania from BMO.

Just wanted to dig in a little bit more if we can.

The sales consultant and Bachman I believe you have about 7500 today, but was curious if you can talk a little bit more color about the magnitude.

Jeffrey Bernstein: And one of the points that I said on the call our sector food away from home has taken market share from the grocery channel in 24 of 25 years. The only year it didn't was 2020 and I think we all know the reasons why so we've got confidence in the long term. And we have confidence in fiscal year 2024, which is why we reiterated the guide. October, as I said, is off to a good start is it is stronger than where we were in Q1.

But youre planning to robust there.

Cost is that already in the guidance.

And the ramp that you've assumed in terms of contribution from these new sales consultants.

Yes, Kelly. Thank you for the question you are correct on the total head count for our Salesforce as of today, we did not on today's call communicate the quantity of.

Jeffrey Bernstein: It's too soon to tell if that's a Cisco specific thing and or an industry thing because we don't get the data on the overall market until after the months are over. But we're pleased with the start to the quarter and it's coming across all restaurant types. National down to local and it's also happening across our other sectors as well. So hopefully it's a strong Harbinger thinks to come for the remainder of this year.

Head count adds.

It is a meaningful increase in our budget for this year, it's in our guide for the year. It ramps up over time. They all don't start on one day, so think of it.

A drumbeat that just gets louder each week.

We're having success in filling the job so it's not something we're struggling to do.

Jeffrey Bernstein: Time will tell we're very focused on what we can control, which is continuing the success and national in improving our performance within local for the things that I described today. Kenny, over to you for additional comments. Yeah, regarding the guidance that's because Kevin touched upon. You know, we are a confident in our guidance here at Cisco, we do adopt like called a checkbook mentality where our business model allows us to pull levers to ensure we can manage against various market dynamics.

And the reason I said sales professionals instead of just sales consultants is its not just sales consultant generalists, we're adding more protein specialists for adding more protein specialists, we're adding more Italian specialists and of course, we're adding sales consultants as well across the board. It will have an impact a very positive impact what I said in my prepared.

<unk> is think about that more as a 2025 impact because it takes time for associates to learn the industry learn the company learn our tools and systems learned the selling process, we give them a small territory to start and then they ramp up that territory size over time. The main benefit though is actually the other individual we're able to free up more capacity.

Jeffrey Bernstein: As Kevin said, some are controllable and some are not such as the muted market growth and inflation, which we were able to successfully navigate through in Q1 to put numbers on what Kevin mentioned. 36 bits improvement on GP and then 33 bits improvement on OI based on all the variables risk and opportunities we feel comfortable with the current guidance. Range. Got it. And then my follow-up is just on the inflation. You know, it seems like specific to the US.

<unk> in time for an existing strong performer that fewer accounts to focus on and then they can actually grow their business as well by spending more time with our best customers. So we're bullish on it for the long term.

Jeffrey Bernstein: It was down 0.4%, but I think you mentioned you're now expecting that to reverse to modest inflation in the second quarter, which, like you said, a quarter ahead of schedule. I know there was a lot of people pushing back on that thesis. So I'm just wondering your visibility or your confidence in that return to modest inflation in the US. Any color on specific commodities that would be driving that I'm assuming beef is a big component of that, but any color on that return to modest inflation would be great.

Something we will do on an ongoing basis going forward, but it will be a step change upward in the forward facing periods versus the past couple of years.

Okay. That's helpful.

Scott just asked about.

The improving profit profiles for the national accounts.

And maybe just some color from your perspective on the driving force for that I'm just curious.

How much of that is Cisco dynamic commercials.

Jeffrey Bernstein: Thank you. Yep. Yeah, so let me first just kind of reiterate our our guide on inflation. So you are correct. We are seeing one quarter ahead or we expect the from the last guide in terms of inflation in the US market. We were inflationary, total from enterprise standpoint, the second half right now we are keeping what we said on the last call, which is consistently higher versus prior year elevated on positive inflation.

<unk> dynamic in terms of competition for the national accounts, the sax changing or the way that the contracts are being structured in a way that allow you to pass on costs over time or maybe just help us understand.

Why that is happening and on the magnitude of the profitability for these.

National contracts versus <unk>.

Jeffrey Bernstein: In terms of your question around the kind of the the product categories with commodities basket, here's how I would think about it. At Sysco, we have a diverse set of commodities or product categories in which we sell to a broad set of customers. The good news is we do not over index on any categories from a volume standpoint. No one categories more than 15 to 20%. Each commodity to your point can act differently.

Our historical profitability levels.

Yes, Kelly excellent question. Thank you I wanted to be really clear that we're winning meaningfully and national These are competitive bid rfps multiyear contracts, we're not seeing any reduction in the number of people participating in those competitive bids we're winning at an increased rate and we're not winning at an increased rate because we're buying that business. As you just said the profit profile of that busy.

<unk> is actually up versus historical norms why are we winning we're winning for the following reasons, we've improved our technological integration skills for large national customers. We can more deeply embed our capabilities in tech with that large customers tech to make it easier for them to do business with Sysco, what does that mean new items setup subs.

Jeffrey Bernstein: Beef right now is up double digit for other other categories are in a different state. From a center place standpoint, which makes up roughly 30% of our volume, we are seeing that trend up on the inflationary curve. If you think about it, take a step back. Sysco is always managing deflation and inflation because our commodities basket acts differently across the board. That is the reason why we have a natural hedge in the basket itself.

Institution management, new door openings, new customer Onboarding.

Improved greatly our ability to make it easier for that customer to do what they do which is focus on running their restaurants take the worry of supply chain of their table, we've gotten much better at that the second is we've increased the accountability and capability of our national sales teams. They have the right to make decisions. They are empowered to do.

Jeffrey Bernstein: Yes, this is Kevin. I think the only thing I can hit the points very clearly is that center place is where the significant increase has occurred. Beef already started that process earlier in the summer, poultry while still deflationary is nowhere near the level of deflationary pressure that it was impacting the business a couple of quarters ago. Jeff, we have a really good data. We have global data. We have connections with top suppliers. Ergo, why can he communicate that it is about a quarter ahead of schedule, the return to inflation, and that it is a net positive for the overall industry and company. Thank you. Thanks, Jeff.

So they are more dedicated to our large national customers and we funded that internally by taking out cost elsewhere. So our largest customers have more dedicated account and service and they have account reps that are more accountable and can make decisions in order to serve them that's topic to topic three because we're a global company.

One stop shop for a large national customer to be able to support their door expansion, both domestically and internationally and that is now better understood by our large customers that you would obviously know who they are where our attractive player and partner of theirs to make it easier for them to grow both domestically and.

Jeffrey Bernstein: Thank you. We will take our next question from Kelly Abinion with BMO Capital. Your line is now open. Hi, good morning. It's Kelly Bania from BMO. Just wanted to dig in a little bit more if we can on the sales consultant investment. I believe you have about 75 hundred today, but with curious if you can talk a little bit more in color about the magnitude that you're planning to invest there, the cost is not already in the guidance and the ramp that you've assumed in terms of contribution from these new sales consultants.

Wally I want to be really clear, though that this is not just about restaurants. This is about healthcare. This is about hospitality. This is about education, we have dedicated specific smes subject matter experts now into each one of those categories and while that might not be rocket science, that's reasonably new at Sysco, we've increased the skill set and capabilities with.

And each of those dedicated lanes that I just mentioned, if youre going to sell the healthcare count in India being an expert in the nutritional guidance.

Jeffrey Bernstein: Thank you for the question. You're correct on the total headcount for our sales force as of today. We did not on today's call communicate the quantity of headcount ads. It's a meaningful increase. It's in our budget for this year. It's in our guide for the year. It ramps up over time. They all don't start on one day, so think of it as, you know, a drum beat that just gets louder each week.

From the government to help that end customer received the reimbursement from the government that they deserve and need nurse practitioners that are dietary nutritionists and we are increasing the quantity of people that have those skills and we're having increased success on new customer acquisition as a result of that and again, we funded those head count through.

Cost to take out elsewhere in aggregate, it's working it's winning and we're really pleased with the performance of our national sales team Kenny any additional comment yes. So in general Kelly when we think about capital allocation when growth opportunities avail themselves, which exceeds our hurdle rate, we deploy capital to <unk>.

Jeffrey Bernstein: We're having success in filling the jobs, so it's not something we're struggling to do. And the reason I said sales professionals instead of just sales consultants is it's not just sales consultant generalists. We're adding more protein specialists. We're adding more produce specialists. We're selling sales consultants as well across the board. It will have an impact, a very positive impact. What I said in my prepare remarks is think about that more as a 2025 impact because it takes time for associates to learn the industry, learn the company, learn our tools and systems, learn the selling process.

Hence shareholder value through these opportunities this is capex versus M&A and this is.

As Ken mentioned natural self each sales contract go through a very rigorous process, where we make sure that the margins is there and it passes the IRR and the hurdle rates, we will not grow for the sake of growing this is all about profitable growth in our portfolio.

Jeffrey Bernstein: We give them a small territory to start and then they ramp up that territory size over time. The main benefit though is actually the other individual. We're able to free up more capacity and time for an existing strong performer to have fewer accounts to focus on, and then they can actually grow their business as well by spending more time with our best customers. So we're bullish on it for the long term.

It cuts both ways.

The first way if you look at my prepared remarks, Sigma was actually down on volume and because of productivity because of disciplined we're actually enabled us to double the profit for the portfolio and our business again, there is a lot of rigor and the approval process to one of your points of your question.

Kelly Bania: It's something we will do on an ongoing basis going forward, but it will be a step change upward in the forward-facing periods versus the past couple of years. Okay, that's helpful. Can I just ask about the improving profit profiles for the national accounts and maybe just some color from your perspective on the driving force for that. I'm just curious how much of that is a Cisco dynamic versus an industry dynamic in terms of competition for the national accounts of that changing or the way that the contracts are being structured in a way that allow you to pass on costs over time or maybe just help us understand why that is happening and the magnitude of the profitability for the national contracts versus their historical profitability levels.

Thank you.

Thanks Kelly.

Thank you we'll take our next question from John <unk> with Guggenheim Securities. Your line is now open.

Hey, Kevin I wanted to start with.

How do you think the expansion in the sales consultants triangulates with.

Cisco your way and in particular or is there an opportunity to do maybe maybe many Cisco your ways in less dense markets.

With this with the expansion of the sales force.

Yes, it's a good question, John and I would say it this way, we're being very strategic about where the head count adds are happening, it's not peanut butter spread across the country. It's high dense trade areas high growth trade areas, and where things like Sysco your way are happening in.

And that is where the head count growth will happen.

Select geographies with high customer density with high growth.

Our areas, where we will overinvest in the new head count additions and we expect high yields from that as it relates to Cisco year way, we have a real opportunity to continue to optimize our performance within those neighborhoods. We're now live in more than 450 neighborhoods worldwide.

Kelly Bania: Kelly, excellent question. Thank you. I want to be really clear that we're winning meaningfully in national. These are competitive bid RFPs multi your contracts. We're not seeing any reduction in the number of people participating in those competitive bids. We're winning at an increased rate. And we're not winning an increased rate because we're buying that business. As you just said, the profit profile of that business is actually up versus historical norms. Why are we winning?

We have a big opportunity to increase the number of doors. We served within those neighborhoods. There is still tremendous growth potential in those neighborhoods, where we don't serve every customer yet and then for the customers that we are currently serving we don't have produce and protein and Italian on every one of those customers truck deliveries and why wouldnt, They order produce and protein from Cisco when we're coming literally every day.

Kelly Bania: We're winning for the following reasons. We have improved our technological integration skills for large national customers. We can more deeply embed our capabilities in tech with that large customers tech to make it easier for them to do business for Cisco. What does that mean? New item setup, substitution management, new door openings, new customer onboarding. We have improved greatly our ability to make it easier for that customer to do what they do, which is focus on running their restaurants, take the worry of supply chain off their table.

And we have a sales rep. So we.

We are having so much success and this perhaps is where you may have been going with your question and select Cisco year way neighborhoods are actually having to split them apart and create two neighborhoods within a geography and some we've actually had to split into three neighborhoods and yes, there's head count dedication that will occur in that regard and some of the new head count that we're hiring this year.

Kelly Bania: We've gotten much better at that. The second is we've increased the accountability in capability of our national sales teams. They have the right to make decisions. They are empowered to do so. They are more dedicated to our large national customers. And we funded that internally by taking out cost elsewhere. So our largest customers have more dedicated account and service and they have account reps that are more accountable and can make decisions in order to serve them.

We will in fact be deployed to those neighborhoods.

Great and then one last thing can you remind us when you think about the national business right. So.

Your share of wallet is very high correct maybe speak to.

Is there any opportunity there and then secondly, I think your share of the National business right. Your overall shares what 17% I think youre national share is higher than that when you. When you think about the upside right to national share where can that go.

Kelly Bania: That's topic two. Topic three because we're a global company. We're one stop shop for a large national customer to be able to support their door expansion both domestically and internationally. And that's now better understood by large customers that you would obviously know who they are. We're a attractive player and partner of theirs to make it easier for them to grow both domestically and internationally. I want to be really clear though that this is not just about restaurants.

On the national side I'll start.

And with the answer to your question I'll toss to Ken if he has anything else that he would like to say our share count with an existing national customer is very high for many of them. It's a 100% the opportunity for profit improvement with those accounts are things like penetrate further with Sysco brand Sysco brand under penetrates with National brand customers.

Kelly Bania: This is about health care. This is about hospitality. This is about education. We have dedicated specific SME subject matter experts now into each one of those categories. And while that might not be rocket science, that's reasonably new at Cisco. We've increased the skill set and capabilities within each of those dedicated lanes that I just mentioned. If you're going to sell the health care account, you need to be an expert in the nutritional guidance from the government to help that and customer receive the reimbursement from the government that they deserve.

Versus local customers, but we're making progress on that now we're lining up our chief merchant with the chief purchasing officer for those top customers and where can we win together where can we partner mover product over to Sysco brand share in some of those savings with that national brand customer. So that we win together other examples would be dropped.

Incentives how can we do things in a win win nature with those customers, where if we can be more efficient decision that they make we can share in some of the savings created from that efficiency improvement again, just back to why are we winning a national sales. If the contract is not win win its short lift we need to have contracts that are a win for us win for them.

Kelly Bania: You need nurse practitioners that are dietary nutritionists. And we are increasing the quantity of people that have those skills and we're having increased success on new customer acquisition as a result of that. And again, we funded those headcount through internal cost to take out elsewhere in aggregate. It's working. It's winning. We're really pleased with the performance of our national Philistine. Can any additional comment? Yes. So in general, Kelly, when we think about capital allocation, you know, when growth opportunities avail themselves, which exceeds our hurdle rate, we deploy capital to enhance drivel to value through these opportunities.

Structure of the contract that way and then these create sustainable long term partnerships reminder, these contracts are three to five years in nature and our retention rate for our national sales customers is extremely high in large part because we're doing an even better job of having that win win contract provision, where again, where we can be more efficient.

Kelly Bania: This is a catback. This is M&A. And this is, you know, it's kind of mentioned national sales. Each sales contract goes through a very rigorous process. We make sure that the margins is there in a capacity of the IRR and the hurdle rates. We will not grow to think of growing. This is all about profitable growth in a portfolio. ROIC cuts both ways. I just explained the first way. If you look at my prepared remarks, Sigma was actually down on volume.

We will share in some of those savings with that partner that helps them be more profitable it help cisco be more profitable as well with that rigorous disciplined ROIC lens that Kenny mentioned he mentioned it and Sigma we had a customer not to be named that wasn't willing to actually have a contract that was when when we walked away for more profitable because of it we're not growing for the sake of growing.

We're finding the right partners and national across restaurants health care education, and hospitality, we're focusing on how we serve them better and we're having a lot of success with that Kenny I'll talk to you for any additional comments you'd like to make you covered it well Kevin the only couple of things I'd say is that Youre right, Jeff the share of wallet can grow the most profitable.

Kelly Bania: And because of productivity, because of discipline, we were actually unable to double the profit for the portfolio in our business. Again, there is a lot of rigor in the approval process to what are your questions. Thank you. Thanks Kelly.

The extra case on the on the truck that's one piece and the other piece is as I mentioned earlier natural growth watching very carefully we're doing very well for us it's all about sustainable profitable growth.

Kelly Bania: Thank you. We'll take our next question from John Ivankoe with Guggenheim Securities. Your line is now open. Hey, Kevin, I wanted to start with, how do you think the expansion in the sales consultants triangulates with Sysco your way? And in particular, is there an opportunity to do maybe, maybe many Sysco your ways in less dense markets with the expansion of the sales force? Yeah, it's a good question, John. And I would say it this way, we're being very strategic about where the headcount ads are happening.

Okay. Thank you thank.

Thank you John.

And we will take our next question from Kendall Toscano with Bank of America. Your line is open.

Hi, Thanks for taking my question.

So one thing I just wanted to clarify with weather margin expansion for Sysco and fiscal 'twenty four it should be primarily driven by gross margin expansion or operating expense leverage and it looks like in the first quarter you saw pretty impressive gross margin expansion, while operating expenses were flat as a percent of sales, which is kind of the opposite of how the street with modeling.

Kelly Bania: It's not peanut butter spread across the country. It's high dense trade areas, high growth trade areas, and where things like Sysco your way are happening. And that is where the headcount growth will happen. We're, you know, select geographies with high customer density with high growth. Our areas where we will over invest in the new headcount additions, and we expect high yields from that. As it relates to Sysco your way, we have a real opportunity to continue to optimize our performance within those neighborhoods.

So just any help on how to think about that going forward for the year would be really helpful.

Yes.

Yes, so without going to actual numbers.

The way that I would model I think about this we should drive bottom line accretion through both on the GP side and the operating expense side and what does that mean, if you look at Q1 as I mentioned earlier Q1 gross profit growth rate was actually higher than sales, meaning the work that we've done around call. It.

Kelly Bania: We're now live in more than 450 neighborhoods worldwide. And we have a big opportunity to increase the number of doors we serve within those neighborhoods. There's still tremendous growth potential in those neighborhoods where we don't serve every customer yet. And then for the customers that we are currently serving, we don't have produce and protein and Italian on every one of those customers truck deliveries. And why wouldn't they order produce and protein from Sysco when we're coming literally every day and we have a sales rep.

The.

These strategic sourcing Sysco brand penetration a proper mix of our business that will drive accretion between your sales and Europe GP line in terms of operating expense at the below GP, you'll have two things working in painful for US one is the continuation of supply chain productivity as Kevin described earlier.

Kelly Bania: So we are having so much success in this perhaps is where you may have been going with your question and select Sysco your way neighborhoods are actually having to split them apart and create few neighborhoods with energy. And some we've actually had to split into three neighborhoods and yes, there's headcount dedication that will occur in that regard in some of the new headcount that we're hiring this year will in fact be deployed to those neighborhoods.

This is tied to your productivity. This is tied to a better retention for our employees, we try to better productivity yield on the warehouse side the delivery side and this also dovetails nicely into the productivity work that we've done on the corporate side, which is a $100 million Ira IRA.

I referenced earlier as I mentioned, we're not stopping there so to answer your question directly it is both the GP line and the operation expense line.

John Ivankoe: Right, and then one last thing, can you remind us you think about the national business, right? So your share of wallet is very high, correct? Maybe you know, speak to is there any opportunity there. And then secondly, I think your share of the national business, right? Your overall shares, what 17% I think your national share is hired in that when you when you think about the upside right to national share, where where can that go?

Yes, I just wanted to add one thing.

100% agree with what Kenny just said I think the rate of inflation in sales a year ago is causing a little bit of perhaps year over year compare challenges because when I look at the actual core drivers our transportation cost per piece year over year improved our warehouse cost per year year over year improved maintenance costs year over year improved shrink improved returns.

<unk> improved these are the drivers that actually impacts cost per piece in those metrics in our core U S business all of them improved year over year, and we're not yet back to 2019. There's actual continued additional progress that can be made that will be made we've built that into our guide for the year and we are very focused as a leadership team on continuing to make those improvements.

John Ivankoe: On the national side, I'll start with the answer to your question. I'll trust it can if he has anything else that that he would like to say he our share count with an existing national customers very high for many of them at 100%. The opportunity for profit improvement with those accounts are things like penetrate further with Cisco brand Cisco brand under penetrates with national brand customers versus local customers, but we're making progress on that.

Great that's really helpful. Thank you.

Thank you. Thank you.

Thank you we have reached our allotted time for questions I will now turn the program back over to our presenters for any additional or closing remarks.

John Ivankoe: Now, we're lining up our chief merchant with the chief purchasing officer for those top customers, and where can we win together, where can we partner, move a product over to Cisco brand share in some of those savings with that national brand customer so that we win together. Other examples would be drop size incentives. How can we do things in a win-win nature with those customers, where if we can be more efficient, the decision that they make we can share in some of the savings created from that efficiency improvement.

Great. Thank you all for joining US please feel free to reach out to the Investor Relations group. If you have any follow up calls thank you.

Okay.

This does conclude today's program. Thank you for your participation you may disconnect at any time.

Okay.

Sure.

[music].

John Ivankoe: Again, just back to why are we winning in national sales? If the contract's not win-win, it's short-lived. We need to have contracts that are win for us, win for them, structure the contract that way, and then these great sustainable long-term partnerships. Reminder these contracts are three to five years in nature and our retention rate for our national sales customers is extremely high in large parts because we're doing an even better job of having that win-win contract provision, where again, where we can be more efficient.

Yes.

John Ivankoe: We will share in some of those savings with that partner that helps them be more profitable. It helps Cisco be more profitable as well with that rigorous, disciplined ROIC lens that Kenny mentioned. He mentioned it in Sigma. We had a customer not to be named that wasn't willing to actually have a contract that was win-win. We walked away. We're more profitable because of it. We're not going for the sake of growing. We're finding the right partners in national across restaurants, healthcare, education, and hospitality. We're focusing on how we serve them better, and we're having a lot of success with that.

Okay.

Kenny Cheung: Kenny, you'll tell us to you for any additional comment you'd like to make. Yeah, you covered it well, Kevin. The only couple of things I'd say is that you're right, Jeff. The share of wallet can grow. The most profitable case is the extra case on the truck. That's one piece. And the other piece is that they mentioned earlier. National growth and walking very carefully would do it very well. But for us, it's all about sustainable, profitable growth.

Kendall Toscano: Okay, thank you. Thank you, Jess.

Kenny Cheung: And we'll take our next question from Kendall Toscano with Think of America. Your line is open. Hi, thanks for taking my question. So one thing I just wanted to clarify was whether margin expansion for Cisco and fiscal 24 should be primarily driven by gross margin expansion or operating expense leverage. It looks like in the first quarter, you saw pretty impressive gross margin expansion while operating expenses or flat as a person of sales, which was kind of the opposite of how the street was modeling it. So just any help on how to think about that going forward for the year would be really helpful. Thanks. Yeah.

Kenny Cheung: So without going to actual numbers, the way that I would model and think about this, we should drive a bottom line accretion through both on the GP side and the operating expense side. And what does that mean? If you looked at Q1, as I mentioned earlier, Q1's gross profit growth rate was actually higher than sales, meaning the work that we've done around, you know, call it the strategic sourcing, Cisco brand penetration, proper mix of our business, that would drive accretion between your sales and your GP line.

Kenny Cheung: In terms of operating expense at the low GP, you have two things working in the available for us. One is the continuation of supply chain productivity as Kevin described earlier. This is tied to productivity. This is tied to your better retention for our employees, which tries better productivity yield on the warehouse side and delivery side. And this also does tell nicely into the productivity work that we've done on the corporate side, which is a hundred million dollars I referenced earlier. As I mentioned, we're not stopping there. So to answer your question, directly, it is both the GP line and the operation expense line.

Kevin Hourican: Yeah, I just want to add one thing. A hundred percent agree with what Kenny just said. I think the rate of inflation in sales a year ago is causing a little bit of perhaps year-of-year compare challenges, because when I look at the actual core drivers, our transportation costs for piece year-of-year improved, our warehouse cost per year year-of-year improved, maintenance costs year-of-year improved, shrink improved, retention improved. These are the drivers that actually impact cost per piece, and those metrics in our core U.S, business, all of them improved year-of-year.

Kevin Hourican: And we're not yet back to 2019. There's actual continued additional progress that can be made, that will be made. We've built that into our guide for the year, and we are very focused as a leadership team on continuing to make those improvements. Great. That's really helpful. Thank you. Kendall, thank you. Thank you.

Unknown Executive: We have reached our lot of time for questions. I will now turn the program back over to our presenters for any additional or closing remarks. Great. Thank you all for joining us. Please feel free to reach out to the investor relations group if you have any follow-up calls. Thank you. This does conclude today's program. Thank you for your participation. You may disconnect at any time. [inaudible]