Q2 2024 Sysco Corp Earnings Call

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Welcome to Cisco's second quarter fiscal year 2024 conference call.

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

We will begin with opening remarks and introductions I'd.

I'd now like to turn the call over to Kevin Kim Vice President of Investor Relations. Please go ahead.

Kevin Kim: Good morning, everyone and welcome to Sysco second quarter fiscal year 2024 earnings call on today's call, we have Kevin Hurricane, our President and Chief Executive Officer, Anthony Chung, Our Chief Financial Officer before we begin. Please note that statements made during this presentation.

Kevin Kim: To state, the companys or managements intentions beliefs expectations or predictions of the future are forward looking statements within the meanings of the private Securities Litigation Reform Act and actual results could differ in a material manner.

Additional information about factors that could cause results to differ from those in the forward looking statements is contained in the Companys 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 in the.

The news release issued earlier this morning, a copy of these materials can be found in the investors section at Sysco Dot com.

Kevin Kim: non-GAAP financial measures are included in our comments today and in our presentation slides. The reconciliation of these non-GAAP measures to the corresponding GAAP measures is included at the end of the presentation slides and can be found in the investors section of our web site. During the discussion today unless otherwise stated all results are.

Kevin Kim: Impaired 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. Additionally, we wanted to make that audience aware of Cisco's participation at the Cagny Investor Conference on February 20 <unk>.

Kevin Kim: And our Investor day on May 20, <unk> in New York, We hope you can join these events in person or virtually at this time I would like to turn the call over to Kevin Harkins.

Kevin Harkins: Thanks, Kevin and good morning, everyone. Thank you for joining our call today.

Kevin Harkins: I am very pleased with Cisco as performance for the quarter.

Kevin Harkins: Our company is the market leader in a growing industry, where size and scale matter.

Kevin Harkins: This past quarter, we demonstrated that important position of strength by delivering another quarter of double digit earnings per share growth.

Sysco delivered bottom line growth through a combination of volume growth disciplined margin management and expense control.

Kevin Harkins: Our positive momentum from the first half of our fiscal year is expected to continue into the second half and we remain confident in our full year growth expectations for sales and EPS.

Kevin Harkins: This includes 2024 adjusted EPS growth of 7% at the midpoint of our guidance range.

Kevin Harkins: Cisco has improved how we leverage our scale through the recipe for growth strategy, and we continue to deliver industry, leading profitability metrics as well as leverage our industry, leading strong balance sheet.

Kevin Harkins: Our confidence in the year has enabled us to increase our capital allocation to shareholders for the year.

Kevin Harkins: We are announcing today, an increase of our stock buyback target for fiscal year 2024.

Kevin Harkins: We now expect to buyback approximately $125 billion of our stock this year up from our previously communicated $750 million.

Kevin Harkins: With the increased stock buyback and our industry, leading dividend yield we will contribute more than $2 billion to $5 billion directly to our shareholders.

Kevin Harkins: Cisco is strong balance sheet and free cash flow enabled us to make these types of shareholder friendly decisions, while providing ample liquidity to fund the long term growth of our business.

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Kevin Harkins: We are as we say playing from a position of strength.

Kevin Harkins: So let's get started with a brief highlight of the quarter on slide number five <unk>.

Operator: Welcome to CISCA's second quarter fiscal year 2024 conference call. As a reminder, today's call is being recorded. We will begin with opening remarks and introductions. I would now like to turn the call over to Kevin Kim, Vice President of Investor Relations. Please go ahead.

Kevin Harkins: Beginning with the top line, we delivered sales growth of three 7% a sequential improvement from Q1.

Kevin Harkins: Driven by a combination of positive case volume growth and positive product cost inflation.

Kevin Harkins: Importantly, this included a sequential improvement in local case volume growth quarter over quarter and year over year.

Kevin Kim: Good morning, everyone, and welcome to Cisco's second quarter fiscal year 2024 earnings call. On today's call, we have Kevin Hurricane, our President and Chief Executive Officer, and Kenny Chung, our Chief Financial Officer. Before we begin, please note that statements made during this presentation that state the company's or management's intentions, beliefs, expectations, or predictions of the future are forward-looking statements within the meaning of the Private Securities Litigation Reform Act, and actual results could differ materially. Additional information about factors that could cause results to differ from those in the forward-looking statements is contained in the company's SEC filing. This includes, but is not limited to, risk factors contained in our annual report on Form 10-K for the year ended July 1st, 2023, subsequent SEC filings, and in the news release issued earlier this morning. A copy of these materials can be found in the Investor section at cisco.com.

Kevin Harkins: We will share more on that later.

Kevin Harkins: Turning to the bottom line, we posted over 11% growth in adjusted EPS generating strong operating leverage.

Kevin Harkins: This is the fifth consecutive quarter of positive operating leverage and the 11th consecutive quarter of double digit adjusted EPS growth.

Kevin Harkins: Andy will provide more details in his financial section.

Kevin Harkins: Today, we'd like to update you on two topics I highlighted as priorities on our Q1 earnings call local case volume and supply chain productivity.

Kevin Harkins: During the quarter, we sequentially increased our case volume performance growing our U S. Foodservice segment, three 4% and delivering local case volume growth of two 9%.

Kevin Harkins: We grew our market share profitably through our improvement efforts.

This growth comes with the industry, leading profit margin rates you can expect from Cisco.

Kevin Kim: Non-GAAP financial measures are included in our comments today and in our presentation slides. The reconciliation of these non-GAAP measures to the corresponding GAAP measures is included at the end of the presentation slides and can be found in the investor section of our website. 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. Additionally, we want to make the audience aware of Cisco's participation at the CAG Day Investor Conference on February 20th and our Investor Day on May 22nd in New York. We hope you can join these events in person or virtually. At this time, I'd like to turn the call over to Kevin Harkin.

The rate of volume growth does not include the benefit of Edward done, which closed in late November and we remain solidly on track to deliver our growth ambition versus the market. This year.

Importantly, the initiatives, we outlined to drive local case performance earlier this year began to bear fruit this past quarter.

Kevin Harkins: We are focused on improving sales execution.

Kevin Harkins: Our efforts are centered around properly serving our local customers and improving our local sales growth.

As a reminder of our local sales focus areas for fiscal 'twenty four.

Kevin Harkins: First.

Kevin Harkins: We started adding incremental sales head count in the second quarter and expect to continue hiring in the second half of fiscal year 'twenty four and in the coming years.

Thanks, Kevin, and good morning, everyone. Thank you for joining us on our call today. I'm very pleased with Cisco's performance for the quarter. Our company is the market leader in a growing industry where size and scale matter. This past quarter, we demonstrated that important position of strength by delivering another quarter of double-digit earnings per share growth. Cisco delivered bottom-line growth through a combination of volume growth, disciplined margin management, and expense control. Our positive momentum from the first half of our fiscal year is expected to continue into the second half, and we remain confident in our full-year growth expectations for sales and EPS. This includes 2024 adjusted EPS growth of 7% at the midpoint of our guidance rate.

Kevin Harkins: The incremental head count is targeted to optimize territory sizes and enhanced sales consultant effectiveness.

Demonstrating focused actions to deliver higher returns.

Kevin Harkins: The benefits from increasing our local sales force will accrue over time as new colleagues complete their training move up the productivity curve and settle into their territories as.

Kevin Harkins: As previously indicated we continue to expect to see the vast majority of the positive impact from our fiscal year 'twenty four hires impact fiscal year 'twenty five performance.

Second we recently refined our compensation model to further motivate our sales consultants on win win win behaviors for Cisco, our customers and our sales force.

We can already see the impact of the compensation change and we expect the impact of these recent changes to grow overtime.

Cisco has improved how we leverage our scale through the Recipe for Growth strategy, and we continue to deliver industry-leading profitability metrics, as well as leverage our industry-leading strong balance sheet. Our confidence in the year has enabled us to increase our capital allocation to shareholders for the year. We are announcing today an increase in our stock buyback target for fiscal year 2024. We now expect to buy back approximately $1.25 billion of our stock this year, up from our previously communicated $750 million.

Kevin Harkins: We will continue to optimize our compensation program over time to ensure we are properly rewarding and motivating our sales team.

Kevin Harkins: Third our focus on performance management continues with a hyper focus on customer visit frequency and sales consultant visit quality.

These efforts are improving outcomes of our sales visits and can be closely track and our CRM tool.

Kevin Harkins: Leveraging technology to maximize the effectiveness of each customer visit remains a top priority and I am pleased with the impact of our sales leadership team in the past quarter.

With the increased stock buyback and our industry-leading dividend yield, we will contribute more than $2.25 billion directly to our shareholders. Cisco's strong balance sheet and free cash flow enable us to make these types of shareholder-friendly decisions while providing ample liquidity to fund the long-term growth of our business. We are, as we say, playing from a position of strength.

Kevin Harkins: Lastly, total team selling continues to gain traction our.

Kevin Harkins: Our sales teams across broad line and specialty are working more collaboratively and we are leveraging our data to maximize the time allocation of our selling specialists and produce protein and ethnic cuisine segments like Italian.

So let's get started with a brief highlight of the quarter on slide number 5. Beginning with the top line, we delivered sales growth of 3.7%, a sequential improvement from Q1, driven by a combination of positive case volume growth and positive product cost inflation. Importantly, this included a sequential improvement in local case volume growth, quarter over quarter and year over year. We will share more on that later.

Kevin Harkins: All told these interconnected actions increased our local case performance from Q1 to Q2 by 300 basis points.

Kevin Harkins: Importantly, the exit velocity for the quarter was even stronger as our performance improved each month of the quarter.

Kevin Harkins: We are confident in our ability to continue to grow local sales, while maintaining the positive momentum we have displayed and national sales.

Kevin Harkins: Next I would like to provide an update on the progress we've been making within our supply chain.

Turning to the bottom line, we posted over 11% growth in adjusted EPS, generating strong operating leverage. This is the fifth consecutive quarter of positive operating leverage and the 11th consecutive quarter of double-digit adjusted EPS growth. Kenny will provide more details in his financial section.

Kevin Harkins: We continue to improve the performance of our supply chain by focusing on operational excellence.

Kevin Harkins: Chart nine displays our year over year operating profit improvement driven by positive operating leverage with gross profit is growing at a faster rate than operating expenses.

Kevin Harkins: Our supply chain employees continue to move up the productivity curve due to improved colleague training and significantly improved levels of retention, especially within the driver position.

Today, I would like to update you on two topics I highlighted as priorities on our Q1 earnings call, local case volume and supply chain productivity. During the quarter, we sequentially increased our case volume performance, growing our U.S. food service segment 3.4 percent and delivering local case volume growth of 2.9 percent. We grew our market share profitably through our improvement efforts. Notably, this growth comes with the industry-leading profit margin rates you can expect from Cisco. The rate of vine growth does not include the benefit of Edward Dunn, which closed in late November, and we remain solidly on track to deliver our growth ambition versus the market this year.

Kevin Harkins: With improved retention comes improved outputs across the supply chain lower.

Kevin Harkins: Slower hiring expenses lower training expenses improved productivity lower levels of product shrink improved safety metrics and improved service levels to our customers.

Kevin Harkins: Each of these elements positively impact our P&L and the improvement dropped straight to the bottom line.

Kevin Harkins: We are extremely focused on continuing to improve colleague retention and productivity within our supply chain.

Kevin Harkins: Lastly, we continue to improve the rigor and discipline that our colleagues staffing efforts. This includes better matching our hours worked to the volume of cases shipped and the difficult work of flexing down our staffing during lower volume periods. We.

Importantly, the initiatives we outlined to drive local case performance earlier this year began to bear fruit this past quarter. We are focused on improving sales execution. Our efforts are centered around properly serving our local customers and improving our local sales growth. A reminder of our local sales focus areas for fiscal 24. First,

Kevin Harkins: We will continue to refine our engineered labor standards that drive our staffing models and we will increase the agility with which we match our staffing to our volume.

Kevin Harkins: Our Q2 results display a continuation of quarter over quarter progress and productivity gains and we remain disciplined and focused on continuing that rate of improvement.

We started adding incremental sales headcount in the second quarter and expect to continue hiring in the second half of fiscal year 24 and in the coming year. The incremental headcount is targeted to optimize territory sizes and enhance sales consultant effectiveness. Demonstrating focused actions to deliver higher, The benefits from increasing our local sales force will accrue over time as new colleagues complete their training, move up the productivity curve, and settle into their territory. As previously indicated, we continue to expect the vast majority of the positive impact from our fiscal year 24 hires to impact fiscal year 25 performance. Second, we recently refined our compensation model to further motivate our sales consultants to pursue win-win-win behaviors for Cisco, our customers, and our sales force. We can already see the impact of the compensation change, and we expect the impact of these recent changes to grow over time.

Kevin Harkins: These efforts will benefit the P&L in fiscal 'twenty four it will carry into 2025 and beyond.

Kevin Harkins: We are bullish on our ability to continue to lower our cost to serve while simultaneously improving customer service levels.

Kevin Harkins: As I lift up from these two topics improving sales effectiveness and improving our supply chain productivity I would also like to communicate that we remain on track.

Kevin Harkins: With our recipe for growth business transformation by.

Kevin Harkins: Our digital efforts continue to advance our merchant teams continue to improve our product assortment, especially in sysco brand.

Kevin Harkins: We are excited about the integration with Edward Don and how we can profitably grow our equipment and supplies business. We remained very pleased with the performance of our Greco Italian platform.

Kevin Harkins: I am proud of our international business leaders for the compelling performance produced year to date from our international segment.

Kevin Harkins: At our Investor day in May we will dive deeper into each of our recipe for growth pillars.

We will continue to optimize our compensation program over time to ensure we are properly rewarding and motivating our sales team. Third, our focus on performance management continues with a hyper focus on customer visit frequency and sales consultant visit quality. These efforts are improving the outcomes of our sales visits and can be closely tracked in our CRM tool. Leveraging technology to maximize the effectiveness of each customer visit remains a top priority, and I am pleased with the impact of our sales leadership team in the past quarter. Lastly, total team selling continues to gain traction. Our sales teams across Broadline and Specialty are working more collaboratively, and we are leveraging our data to maximize the time allocation of our selling specialists in produce, protein, and ethnic cuisine segments like Italian. All told, these interconnected actions increased our local case performance from Q1 to Q2 by 300 points.

Foodservice distribution is a space where size and scale matters logistics scale cold storage scale in both warehousing and transportation technology scale, and salesforce expertise and scale.

Kevin Harkins: We believe that no one is better positioned than Cisco to leverage global scale advantages in order to better serve customers and profitably grow the business.

Kevin Harkins: I am very pleased that fiscal 'twenty four is off to a strong start as we are profitably growing our market share and continuing a track record of delivering compelling top and bottom line growth.

Kevin Harkins: For the remainder of fiscal 'twenty four we remain hyper focused on the execution elements I highlighted today as well as advancing our recipe for growth strategy. We are confident that these efforts will enable cisco to deliver our financial plan.

Kevin Harkins: I will now turn it over to Kenny who will provide a more detailed review of our financial performance Kenny over to you. Thank.

Thank you, Kevin and good morning, everyone I'm going to build upon kevins commentary with a couple of points first we have positive momentum as Q2 marked another milestone with record topline and bottom line performance.

Importantly, the exit velocity of the quarter was even stronger, as our performance improved each month of the quarter. We are confident in our ability to continue to grow local sales while maintaining the positive momentum we have displayed in national sales. Next, I would like to provide an update on the progress we've been making within our supply chain. We continue to improve the performance of our supply chain by focusing on operational excellence. Chart 9 displays our year-over-year operating profit improvement, driven by positive operating leverage, with gross profits growing at a faster rate than operating expenses. Our supply chain employees continue to move up the productivity curve due to improved colleague training and significantly improved levels of retention, especially within the driver position.

Kenny: Future results included sales and volume growth along with strong cost of goods solid performance, resulting in adjusted gross profit dollar growth and margin expansion.

Speaker Change: Positive operating leverage was also driven by gross profit growing at a faster rate than operating expenses, demonstrating our disciplined margin management, which rendered adjusted EPS growth of over 11%.

Speaker Change: <unk>.

Speaker Change: We are excited about our first half performance and confidence in a positive momentum for the remainder of the year.

Speaker Change: Therefore, we are increasing our share repurchases expectations from $750 million to $1 billion to $5 billion for FY 'twenty four versus the prior guidance. This will increase expected total shareholder returns, including dividends and share repurchases to approximately $2.

With improved retention comes improved outputs across the supply chain, lower hiring expenses, lower training expenses, improved productivity, lower levels of product shrink, improved safety metrics, and improved service levels to our customers. Each of these elements positively impacts our P&L, and the improvement drops straight to the bottom line. We are extremely focused on continuing to improve colleague retention and productivity within our supply chain. Lastly, we continue to improve the rigor and discipline in our colleague staffing efforts. This includes better matching our hours worked to the volume of cases shipped and the difficult work of flexing down our staffing during lower volume periods.

Speaker Change: Two 5 billion.

Speaker Change: For FY 'twenty four.

This is in addition to our continued reinvestment into the business, including M&A such as the addition of fixed it at <unk> earlier this year.

Speaker Change: Capital allocation is a competitive advantage for Cisco as the strength of our balance sheet and free cash flow generation allows us to invest for growth and reward our shareholders at the same time.

Speaker Change: Now turning to a summary of our reported results for the quarter starting on slide 13.

Speaker Change: For the second quarter, our enterprise sales grew three 7% with U S. Foodservice growing three 2% international growing nine 6% and Sigma decreasing 1% driven by planned exit of customers that did not meet our disciplined profit thresholds. This planned exit along with <unk>.

We will continue to refine our engineered labor standards that drive our staffing models, and we will increase the agility with which we match our staffing to our volume. Our Q2 results display a continuation of quarter-over-quarter progress in productivity gains, and we remain disciplined and focused on continuing that rate of improvement. These efforts will benefit the P&L in fiscal 24 and will carry into 2025 and beyond.

Speaker Change: Strong supply chain productivity improvement helped to more than double our Sigma profits. This quarter. Another Prime example of our <unk> IC focus in action.

We are bullish on our ability to continue to lower our cost to serve while simultaneously improving customer service levels. As I lift up from these two topics, improving sales effectiveness and improving our supply chain productivity, I would also like to communicate that we remain on track with our recipe for growth business transformation. Our digital efforts continue to advance.

Speaker Change: Enterprises inflation was one 1%. Additionally, U S. Broadline inflation was slightly positive in our international segment was up six 6% all aligned with our expectations.

Speaker Change: Total U S foodservice volume increased three 4% and local volume was up two 9% a 300 bps sequential improvement from Q1.

Our merchant teams continue to improve our product assortment, especially in Cisco Brands. We are excited about the integration with Edward Dahn and how we can profitably grow our equipment and supplies business. We are still very pleased with the performance of our Greco-Italian platform.

Please note volume reporting includes slight benefits from the acquisition of fixed produce.

Volume reporting does not include our Edward Don or specialty meat business based on their unique product attributes.

And I am proud of our international business leaders for the compelling performance produced year to date from our international sector. At our Investor Day in May, we will dive deeper into each of our Recipe for Growth pillars. Food service distribution is a space where size and scale matter, logistics scale, cold storage scale in both warehousing and transportation, technology scale, and Salesforce expertise and scale.

Speaker Change: We produced $3 $5 billion and gross profit up four 9%.

Speaker Change: Adjusted gross margin improved to 18, 2% an increase of 21 bps.

Speaker Change: Our gross profit dollars and margin percentage improvement reflected our ability to effectively manage product cost fluctuation driven by incremental progress from our strategic sourcing efforts and disciplined pricing.

Speaker Change: Penetration rates of Sysco brand products increased 22 bps to 46, 9% in U S. Local and was essentially flat at 36, 8% in U S. Broadline.

We believe that no one is better positioned than Cisco to leverage global scale advantages in order to better serve customers and profitably grow the business. I am very pleased that fiscal 24 is off to a strong start as we are profitably growing our market share and continuing a track record of delivering compelling top and bottom line growth. For the remainder of Fiscal 24, we remain hyper-focused on the execution elements I highlighted today, as well as advancing our recipe for growth strategy. We are confident that these efforts will enable Cisco to deliver on its financial plan. I'll now turn it over to Kenny, who will provide a more detailed review of our financial performance. Kenny, it's over to you.

Speaker Change: Overall, adjusted operating expense were $2 8 billion for the quarter or 14, 4% of sales as we achieved another quarter of positive operating leverage for.

Speaker Change: The strong management of expenses during the quarter was due to the positive impact of the variable labor planning tools and supply chain efficiencies that Kevin mentioned and benefits from our previously announced $100 million.

Speaker Change: Cost up commitments, we are on track to achieve this commitment for FY 'twenty four and the planning process for delivering incremental cost for future periods has already begun.

Kenny: Thank you, Kevin. And good morning, everyone. I'm going to build upon Kevin's commentary with a couple of points. First, we have positive momentum as Q2 marks another milestone with record top-line and bottom-line performance. Future results include sales and volume growth along with strong cost of goods sold performance resulting in adjusted gross profit dollar growth and margin. Positive operating leverage was also driven by gross profit growing at a faster rate than operating expenses, demonstrating our disciplined margin management, which resulted in adjusted EPS growth of over 11%. Second, we are excited about our first-half performance and confident in our positive momentum for the remainder of the year. Therefore, we are increasing our share repurchase expectations from $750 million to $1.25 billion for FY24 versus the prior guidance.

Additionally, with the successful closure of our <unk> and <unk> acquisition, we are on pace to realize both top and bottom line synergies.

Speaker Change: Adjusted operating income growth of seven 6% in U S.

Speaker Change: Coupled with outsized profit contributions from our international and SYGMA segments contributed to bottom line performance.

Positive momentum continued in our international segment with adjusted operating income growing 31% during the quarter. Our international results are a continuation of the robust growth and positive momentum in this segment over the past three years.

Speaker Change: The recipe for growth playbook is yielding dividends in the U S and internationally.

Speaker Change: In total Q2, adjusted operating income was $745 million up nine 2% and adjusted EBITDA was $927 million.

Kenny: This will increase expected total shareholder returns, including dividends and share repurchases, to approximately $2.25 billion for FY24. This is in addition to our continued reinvestment in the business, including M&A, such as the addition of BICS and Edward Dawn earlier this year. Capital allocation is a competitive advantage for Cisco, as the strength of our balance sheets and free cash flow generation allows us to invest for growth and reward our shareholders.

Up 11, 6%.

Speaker Change: Turning to the balance sheet, which remains strong we ended the quarter at 275 times net debt leverage ratio.

This is in line with our target range of two five to 275 times net debt leverage ratio.

Our planned increase to the share repurchase program is already in action with an accelerated share repurchase program that was executed in early January.

Speaker Change: We ended the quarter with $11 2 billion and net debt that is wall ladder and over $3 $4 billion in total liquidity.

Kenny: Now turning to a summary of our recorded results for the quarter, starting on slide 13. For the second quarter, our enterprise sales grew 3.7%, with U.S. food service growing 3.2%, international growing 9.6%, and stigma decreasing 1%, driven by planned exits from customers that did not meet our Discipline Profit Threshold. This planned exit, along with strong supply chain productivity improvement, helps more than double our SGMA profits this quarter, another prime example of our ROIC focus and action. Enterprise inflation was 1.1%.

Approximately 96% of our debt is fixed with a floating component offset by our cash reserves are strong investment grade credit rating is a competitive advantage as evidenced by our teams successfully issuing approximately $1 billion of new debt in November.

Speaker Change: We are committed to our capital allocation strategy as seen on slide 19, which includes a balanced approach with three elements.

Speaker Change: First investing in the business for profitable and consistent growth.

Kenny: Additionally, U.S. broad line inflation was slightly positive, and our international segment was up 6.6%, all aligned with our expectations. Total U.S. food service volume increased 3.4%, and local volume was up 2.9%, a 300 Bps sequential improvement from Q1. Please note, volume reporting includes slight benefits from the acquisition of fixed produce. Our volume reporting does not include our Edward Dahn or specialty meat business based on their unique product attributes.

Speaker Change: Second maintaining our investment grade credit rating and third returning cash to shareholders through dividends and share repurchases.

Speaker Change: Turning to our first half cash flow, we generated $856 million in operating cash flow and $527 million and free cash flow growing 70% and 141% respectively.

This growth includes continued strong conversion rates from EBITDA to operating cash and free cash flow and we remain on track to grow free cash flow for full year FY 'twenty four.

Kenny: We produced $3.5 billion in gross profit, up 4.9%; adjusted gross margin improved to 18.2%, an increase of 21 bits. Gross profit dollar and margin percentage improvement reflected our ability to effectively manage product cost fluctuation driven by incremental progress from our strategic sourcing efforts and disciplined pricing. Penetration rates of Cisco brand products increased 22 bps to 46.9% in U.S. local, and was essentially flat at 36.8% in U.S. broadland

Our strong financial position enabled us to return $353 million to shareholders via share repurchases and dividends this quarter.

Speaker Change: Looking forward to fiscal year 2024 guidance, we are reiterating net sales growth of mid single digits to approximately $80 billion. Adjusted EPS is expected to grow to $4 20.

Speaker Change: The $4 40.

Speaker Change: This represents a 7% growth at the midpoint.

Speaker Change: Additionally, we expect positive operating leverage with gross profit growing at a faster rate that opex for the year.

Speaker Change: We continue to expect slightly positive rates up industry volume growth and inflation.

Kenny: Overall, adjusted operating expenses were $2.8 billion for the quarter, or 14.4% of sales, as we achieved another quarter of positive operating leverage. The strong management of expenses during the quarter was due to the positive impact of the variable labor planning tool and supply chain efficiencies that Kevin mentioned, as well as benefits from our previously announced $100 million of cost outcomes. We are on track to achieve this commitment for FY24, and the planning process for delivering incremental costs for future periods has already begun. Additionally, with the successful closure of our BICS and Edward Don acquisition, we are on pace to realize both top and bottom line synergies. Adjusted operating income growth of 7.6% in USFS, coupled with outsized profit contributions from our international and stigma segments, contributed to bottom-line performance. Positive momentum continued in our international segment, with adjusted operating income growing 30.1% during the quarter.

Speaker Change: This includes fiscal as U S broadline remaining inflationary in the second half of the fiscal year.

Speaker Change: 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.

Speaker Change: We will continue to opportunistically evaluate accretive acquisitions, but the remainder of FY 'twenty four we will focus on integration efforts capturing synergies for accretive acquisitions like dawn of returning excess cash back to shareholders through share repurchases and dividends.

Speaker Change: For the second half and over the long term, we expect to win market share profitably and consistently our efforts will also focus on strong cash generation with conversion rates ultimately feeding our plans to grow and reward our shareholders. Thank you for your time today with that operator, we are now ready for questions.

Speaker Change: At this time, if you would like to ask a question. Please press star one on your telephone keypad.

Kenny: Our international results are a continuation of the robust growth and positive momentum in this segment over the past three years. The Recipe for Growth Playbook is yielding dividends in the U.S. and internationally. In total, Q2 adjusted operating income was $745 million, up 9.2%, and adjusted EBITDA was $927 million, up 11.6%.

Speaker Change: You may remove yourself from the queue at any time by pressing star one.

Speaker Change: Once again that is star one to ask a question, we'll pause for a moment to allow questions to queue.

Speaker Change: Our first question comes from Jeff Bernstein with Barclays. Please go ahead.

Jeffrey A. Bernstein: Great. Thank you very much I had one question and then one follow up question on the.

Jeffrey A. Bernstein: The U S local case volume.

Jeffrey A. Bernstein: Two 9%.

Kenny: Turning to the balance sheet, which remains strong, we ended the quarter at 2.75 times net debt leverage ratio. This is in line with our target range of 2.5 to 2.75 times net debt leverage ratio. Our planned increase to the share repurchase program is already in action with an accelerated share repurchase program that was executed in early January. We ended the quarter with $11.2 billion in net debt that is wall-laddered and over $3.4 billion in total liquidity.

Jeffrey A. Bernstein: Return to growth on a one year basis like you said a sequential acceleration on a two year basis.

Just wondering if you could talk about your level of confidence in.

Jeffrey A. Bernstein: Sustaining that accelerating growth maybe prioritize the most important drivers of that momentum.

I think you mentioned that momentum actually built each month of the fiscal second quarter and therefore, a strong exit rate. So I'm. Just wondering if you can provide some context, especially as some are talking about maybe a slowdown.

Jeffrey A. Bernstein: Has been seen across much of the industry in January any thoughts there would be great. Thank you.

Kenny: Approximately 96% of our debt is fixed, with the floating component offset by our cash reserve. Our strong investment grade credit rating is a competitive advantage, as evidenced by our team successfully issuing approximately $1 billion of new debt in November. We are committed to our capital allocation strategy, as seen on slide 19, which includes a balanced approach with three elements. First, investing in the business for profitable and consistent growth. Second, maintaining our investment grade credit rating and, third, returning cash to shareholders through dividends and share repayments. Starting with our first half cash flow, we generated $856 million in operating cash flow and $527 million in free cash flow, growing 70% and 141%, respectively. This growth includes continued strong conversion rates from EBITDA to operating cash and free cash flow, and we remain on track to grow free cash flow for full year FY24. Our strong financial position enabled us to return $353 million to shareholders via share repurchases and dividends this quarter.

Jeffrey A. Bernstein: Good morning, Jeff. Thank you for the question. This is Kevin we're confident in our ability to continue to improve and local sales as you just said the $2 nine as an average weighted average obviously across the three months and sequentially the quarter improved each and every one of those months. So we are confident in our ability to continue to make progress.

Jeffrey A. Bernstein: And local case volume growth and at the historic profitability metrics that Cisco industry, leading will continue to produce so it's profitable local case growth. The biggest drivers I would say the performance management on the sales consultant side is the most immediate lever the compensation change would be the second most impactful measure.

Jeffrey A. Bernstein: And total team selling followed up by the increased head count would be the third and the fourth of the four things I said on the call if I rank them from an impact perspective as it relates to the second half of your question on January there has been a slowdown in January I would describe it more as a blip a bump in the road. If you will theres a couple of factors.

Jeffrey A. Bernstein: Driving the January weak one of January had a calendar <unk> tied to a holiday and where it fell historically cold weather I hate the W. Word I never use the W word, but there was some extraordinary weather in January which made it awfully difficult to make deliveries to customers and large swaths of the United States, that's backed up by the credit card data.

Jeffrey A. Bernstein: From the major banks that consumption that food away from home was down in January Jeff Im not overly concerned about that.

Kenny: Looking forward to fiscal year 2024 guidance, we are reiterating net sales growth in the single digits to approximately $80 billion. Adjusted EPS is expected to grow to $4.20 to $4.40. This represents 7% growth at the midpoint. Additionally, we expect positive operating leverage with gross profit growing at a faster rate than OPEX for the year. We continue to expect slightly positive rates of industry volume growth and inflation, with Cisco's U.S. Broadline remaining inflationary in the second half of the fiscal year.

Jeffrey A. Bernstein: It's the lowest volume month of the year, but theres going to be a blip or a bump you'd want it to be in that month. So it was March so goes the quarter and we've got levers we can pull on the year to go and our task to Kenny for any additional comment in that regard.

Kenny: Hey, Jeff Good morning on January I agree with Kevin.

Kenny: We're seeing right now while volume has been slightly impacted we have the ability to flex labor.

Kenny: Mitigate the impact of lower volume with our labor planning tool that we've talked about and that is in conjunction with the disciplined engineering labor standards that we've implemented.

Never weather also impacted over over time productivity customer returns delivery costs, which we will mitigate throughout the fiscal year with levers in our P&L and therefore, the full year guidance remains intact in terms of you know Kevin talked a bit about local in the U S. One comment is the local international as we know international is roughly 20%.

Kenny: Our plan's 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. We will continue to opportunistically evaluate accretive acquisitions. But the remainder of FY24 will focus on integration efforts, capturing synergies for creative acquisitions like Don, and returning excess cash back to shareholders through share repurchases and dividends. In the second half, and over the long term, we expect to win market share profitably and consistently. Our efforts will also focus on strong cash generation with conversion rates, ultimately feeding our plans to grow and reward our shareholders. Thank you for your time today.

Kenny: Of our business and we've replicated some of the RFP recipe for growth playbook, there and we are seeing nice growth from our Canadian business and our European business, which is both up roughly 8% and it's really driven by new customers penetration and customer retention. So we are excited and we continue to invest and capture growth.

Kenny: With pace and discipline.

Speaker Change: Got it and just.

Speaker Change: My follow up on the fiscal 'twenty for guidance I don't know from a very high level you reiterated the mid single digit top line and the 5% to 10% EPS growth I think you called out 7% at the midpoint.

Operator: With that, operator, we are now ready for questions. At this time, if you would like to ask a question, please press star 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2.

I'm wondering if you could share anything that might have surprised you on the positive or negative side in the first half of the year.

Speaker Change: Especially because I think you said.

Speaker Change: 7% at the midpoint, you've also talked about the <unk>.

Operator: Once again, that is star number one to ask a question. We will pause for a moment to allow questions to queue. Our first question comes from Jeff Bernstein with Barclays. Please go ahead. Great, thank you very much.

Speaker Change: First half of the year double digit 11 consecutive quarters of double digit EPS growth, so what potential incremental challenges that you're seeing in the second half, especially as you get an incremental $500 million bump in share repurchase to come. So I was wondering your thoughts on the back half of the year EPS growth relative to the recent momentum you've had thank you.

Jeffrey A. Bernstein: I had one question and then one follow-up. The question was on the U.S. local case volume. 2.9%, a nice return to growth on a one-year basis and, like you said, a sequential acceleration or a two-year basis. Just wondering if you could talk about your level of confidence and sustaining that accelerating growth and identify the most important drivers of that momentum. I think you mentioned that momentum actually built each month of the fiscal second quarter and therefore a strong exit rate. So I'm just wondering if you could provide some context.

Speaker Change: Okay. So let me unpack the question so what surprised me and what are some takeaways from the first half of the year.

Speaker Change: The biggest thing is Cisco has proven we can manage the business under various different environments. If you remember Q1 was slightly deflationary in the U S Q2 was slightly positive.

Speaker Change: In the U S and in both quarters in the first half we delivered operating margin expansion of roughly 26 bps and also GP margin dollar expansion and GP margin expansion of 28 bps. So again I think first half was a really good proof point that under any circumstance Cisco has the.

Jeffrey A. Bernstein: Especially as Summers is talking about maybe a slowdown that has been seen across much of the industry in January. Any thoughts? That would be great.

Kevin: Morning, Jeff. Thank you for the question. This is Kevin.

Speaker Change: At the levers on the P&L to drive positive and consistent growth and being able to drive quality of earnings and the cash flow side.

Kevin: We're confident in our ability to continue to improve in local sales. As you just said, the 2.9 is an average, weighted average, obviously, across the three months. And sequentially, the quarter improved each and every one of those months. So we are confident in our ability to continue to make progress in local case volume growth and at the historic profitability metrics that Cisco, industry leading, will continue to produce. So it's profitable local case growth. The biggest drivers, I'd say performance management on the sales consultant side is the most immediate lever. The compensation change would be the second most impactful measure.

So that's about more in the first half in terms of the full year guidance. Let me just provide a bit more color. So we do expect overall this year lower overall market volume growth versus 2023, However continue market share gains from our company a profitable growth at Cisco inflation as I mentioned on the last earnings call.

Speaker Change: Q2 came in slightly positive in line with our expectation in the back half. We are still remained consistent what we said on both the first earnings call that we had the end of last year and the previous 190 days ago, we expect that the back half to be slightly positive on inflation, we saw it two quarters ago, but I believe.

Kevin: And total team selling followed up by the increased SC headcount would be the third and fourth of the four things I said on the call if I ranked them from an impact perspective. As it relates to the second half of your question about January, there was a slowdown in January. I would describe it more as a blip, a bump in the road, if you will. There's a couple factors driving January. Week one of January had a calendar unfavorability tied to a holiday and where it fell, as well as historically cold weather. I hate the W word.

Speaker Change: Q2 slight positive on inflation provides us comfort around our original assumptions in terms of the on the expense side of the house disciplined expense management. Our team has already direct in an effort to reduce the structural expense by $100 million. We are on pace and we've begun building additional pipeline for future periods in terms of working your way.

Kevin: I never used the W word, but there was some extraordinary weather in January, which made it awfully difficult to make deliveries to customers in large swaths of the United States. That's backed up by credit card data from the major banks that shows that consumption of food away from home was down in January. Jeff, I'm not overly concerned about that. It's the lowest volume month of the year. But there's going to be a blip or a bump you'd want it to be in that month. So goes March. So goes the quarter, and we've got levers that we can pull on the year to go. And I'd toss it to Kenny for any additional comment in that regard. Hey, Jeff.

Speaker Change: On to the P&L on the tax rate side 24, 5% no change there is a slight step up on interest expense of roughly $20 million attached to the $500 million of additional share repurchase.

Speaker Change: If you net the two impacts together so Jeff I think your question is what is the accretion on EPS there is.

Speaker Change: Is there is a net accretion of roughly half a penny or so net of the interest expense increase coupled with the retirement of the shares. So that is the half a penny impact that you can expect for the fiscal year with that said with all the intra working variables. We are re iterating and Reconfirming, our full year guide of 424 440 within.

Kenny: Good morning. On January, I agree with Kevin, you know, with what we're seeing right now, while volume has been slightly impacted, we have the ability to flex labor and mitigate the impact of lower volume with our labor planning tool that we talked about, and that is in conjunction with the discipline engineering labor standards that we've implemented. However, weather also impacts overtime, productivity, customer returns, and delivery costs, which we will mitigate throughout the fiscal year with levers in our P&L. Therefore, the four-year guidance remains intact.

Speaker Change: The midpoint of 7% growth versus last year.

Speaker Change: Thank you.

Speaker Change: The next question comes from Mark Carden with UBS. Please go ahead.

Mark Carden: Good morning. Thanks, so much for taking the question. So I wanted to dig into your sales force additions to date I know you said, it's going to be a bit of a ramp but how has the initial progress going relative to your expectations and then how our competitor hires having either having much of an impact on your ability to really find announced icon.

Kenny: In terms of local, you know, Kevin talked a bit about local in the U.S., and one comment was about local international. You know, as we know, international is roughly 20% of our business. And, you know, we've replicated some of the RFP recipe for growth playbook there. And we are seeing nice growth from our Canadian business and our European business, which are both up roughly 8%. And it's really driven by new customers, penetration, and customer retention. So we are excited. And we continue to invest and capture growth with pacing. Got it.

Speaker Change: Salespeople. Thanks.

Good morning, Mark we're really pleased with the progress that we're making in those efforts began in Q2 I wanted to be clear about this so you are in the early innings and we haven't quoted publicly the exact number of people we're hiring but it's a significant number we are not having a challenge with hiring and filling.

Speaker Change: Our classes they are roster of classes that we filled and we put them through a very very robust industry, leading training program.

Jeffrey A. Bernstein: And just my follow-up on the fiscal 24 guidance. I know from a very high level that you reiterated the mid single-digit top line and the five to 10% EPS growth. I think you called out 7% at the midpoint. I'm wondering if you could share anything that might have surprised you on the positive or negative side in the first half of the year, especially because I think you said 7% at the midpoint. You've also talked about the first half of the year being double-digit and 11 consecutive quarters of double-digit EPS growth. So what potential incremental challenges are you seeing in the second half, especially as you've got an incremental $500 million bump in share purchase to come? So just wondering your thoughts on the back half of the year EPS growth relative to the recent momentum you've had. Thank you. Okay, so let me unpack the questions for you.

Speaker Change: As it relates to competitive forces and the impact on our ability to hire where not having challenges filling the positions Thats. My answer we don't just go to a competitor if you will that as a source of talent.

Speaker Change: We also go to restaurants now we go to culinary schools, we're looking for people that our food centric that are good at selling have a passion for this industry. We can train them on our tools, we can train them on our selling systems and process and we can train them to scale them up to be what they are which is the best in the industry and thats from our net promoter scores.

We're not having a difficult time filling our classes. We're really pleased with the first cohorts. We are on track to be able to hit the targeted hiring rate and as I said before.

Kenny: What surprised me and, you know, what are some takeaways from the first half of the year? I think, you know, the biggest thing is that Cisco has proven we can manage the business under various different environments. If you remember, Q1 was slightly deflationary in the U.S., Q2 was slightly positive for the U.S., and in both quarters of the first half, we delivered operating margin expansion of, you know, roughly 26 bps and also GP margin dollar expansion and GP margin expansion of 28 bps. So again, I think the first half was a really good proof point that, under any circumstance, Cisco has the levers on the

That positively impacts 2025 from a growth perspective, Mark back to you. If you have any follow up.

Great and then my follow up's going to be related to M&A you guys closed on Advair down about two months ago. How is that early integration gone relative to your expectations and then in December you guys announced a small acquisition with ready chef in Ireland, what was that one simply a situation where the economics were just to get to pass up or does it signal a shift in strategy.

Speaker Change: You guys might be more open to that.

Speaker Change: International bolt on rate and larger scale M&A there.

Yeah, Mark I. Appreciate the question, let me just start with Edward Don which is the significant transaction that we've done this fiscal year, we want to be really clear on the numbers that we quoted today. So one month of sales and profit are in the numbers that we described but from a volume perspective, because I know that's a question. Some may have we have not included Edward down volume in our case.

Speaker Change: Those figures at this time, so the growth in cases of three or four in total and $2 nine and local is pure Cisco not including Don I just wanted to be really clear about that as it relates to the early innings I was just up in Chicago last week.

Speaker Change: Had a great day receive Don and his leadership team and our leaders talking about the synergy capabilities between the two companies, we can purchase better together buying products at a better and more affordable cost.

Speaker Change: We can target joint customers more effectively so we have large national sales restaurant customers or hospitality customers of Cisco that arent currently customers of dawn and vice versa. Don has some really big customers that Cisco is not the foodservice distributors. So we can sell together in a joint proposition and then there is huge.

<unk> opportunity longer term to take that equipment in sales product category and avid shopper Bowl on Cisco's digital platforms deliverable on either a non truck, where perhaps someday to a local small mom and pop customer on a Cisco truck and we're really excited not just about the $1 3 billion and profitable topline we.

Speaker Change: Dan we're very excited about how we can grow that business meaningfully for years to come and I know, Steve and his team are equally as excited as it relates to the ready chef in Ireland, just keeping context much smaller countries. So.

Speaker Change: The size of that acquisition is actually compelling for the country that is and what it was was a fresh point like entity. So as to be Crystal clear in Ireland. We did not have any fresh cut the spoke produce business and purchasing ready chef gives us what I will call from our U S perspective that fresh point capability.

Speaker Change: We're running this Cisco play that's the headline it's not a change in strategy. Our strategy is in each of the major countries that we compete within we will run the Cisco place, which is to be the leader in broad line into bolt on specialty capabilities over time. So we can sell around the room for the customers that we serve and do so profitably. So we're excited about.

Speaker Change: That acquisition in Ireland, our leadership team in Ireland is top notch and I am very confident in their ability to profitably grow the business better serve customers and increased penetration with existing customers within Ireland.

Makes sense. Thanks, so much good luck guys. Thank you.

The next question comes from John <unk> with Guggenheim Securities.

John: So Kevin can you talk about.

The visit frequency and quality of visit right. Those two how you think about kpis on each of those.

John: And when you think about.

John: How that will move the sales needle.

John: What are you looking youre looking for a certain amount of year over year growth in frequency.

John: Do you quantify quality.

John: John Great question and for the quarter that we just completed this is the biggest reason for our improvement from what was flat in Q1 to up to nine in Q2 is from what I call performance management.

Which is visit frequency visit quality the comp change clearly helped but it was early innings and that will have a bigger impact in year to go and then the incremental SCS will impact 2025, we have not gone public with the numbers the targets John but we have a very specific target of the number of visits that need to happen per week per seat and we can track it.

John: We track it through the CRM and we were not where we needed to meet Covid had a disruption and a lot of things in life and one of them was SCS, we're doing more of that work from a home office than we would've liked.

John: We kind of rip the band aid off and made it really clear on what our expectations are of visit frequency. That's the wheel side of the job will get out there pounding the street be in front of our customers. This is a relationships business where being in front of the customer every week matters and we have moved the needle meaningfully in the last quarter on the number of <unk>.

Speaker Change: As its being completed per week for our SCS the point too, though that you brought up is that's only worthwhile if its a quality visit so how do we measure quality, we have visits for the purpose and in our CRM tool. It will prompt our SCS with jobs to be done that date introduced the sysco brand case when back in case that was lost over the last X.

Speaker Change: Period of time seller category, you've not sold before those are just three examples of jobs to be done the CRM data rich understands what's being purchased what should be purchased and it essentially prompts csc's with things to sell and then how do I measure quality measure quality by close rate against those jobs to be done and we can track it we have.

The scorecard that ranks every one of our salespeople from top to bottom and then we do performance managing against the quality side of the visit recognize the top performers coach the movable middle and hold accountable those that arent getting the job done and everything in between.

John back to you for any follow up.

The follow up would be right.

Speaker Change: <unk> talked about growing GP dollars above SG&A. So if you take the U S right. The the Delta was 200 basis points. This quarter I mean, whats your thought as to the right general level and lately. It was gross margin driven right gross profit driven as opposed to SG&A, we now shifted back.

Speaker Change: Right to an environment, where it's more SG&A driven than gross profit.

Speaker Change: So here's the here's my how we think about it.

All right.

Gross profit line and the operating income line. If you look at Q2, you can see that our topline growth was 4%.

Speaker Change: Just do the math.

Cost of goods, if you will between sales and gross profit was up 3%. So you had a nice leverage driven by strategic sourcing our partnership with suppliers driven by mix of business growth in specialty local local brand Cisco penetration and as a result, GP actually grew 5% so.

Speaker Change: We had a nice leverage between sales and GP now to Europe on the SG&A, we're working extremely hard driving productivity out of the good news is is the $100 million of cost out that we talked about being in a year that is being seen through the P&L and we're working through our pipeline thats going to render success for us in the out of period and in U.

Can see GP growing call it 5% and then net earnings growing close to double digit op versus prior year, So youre getting a leverage John on both the cost of good line and the Opex line and we have initiatives to.

Both sides of the house.

Speaker Change: Thank you.

Speaker Change: Thanks, John.

Speaker Change: The next question comes from Edward Kelly with Wells Fargo.

Kelly Ann Bania: Hi, guys good morning nice quarter.

Kelly Ann Bania: Wanted to just follow up on the case volume growth.

Kelly Ann Bania: The Q2 result was clearly at an inflection around whats.

Kelly Ann Bania: In a late in the last quarter and last couple of quarters.

Kelly Ann Bania: Can you maybe just help us understand how we should be thinking about the back half of the year from here. So you talked about in January off to a slower start I don't think industry growth is all that spectacular.

Kelly Ann Bania: At the moment I'm, just trying to make sure that we're in the right place from an expectation standpoint, just given how strong Q2 wise and then just a clarification on <unk> I know, it's not in the case volume numbers currently does that mean, it will not be going forward as well.

Yeah. Good question. Thank you, we're confident in our ability to profitably grow the local business and not regress back to the mean on where we were in Q1. That's one of the main messages from today's call. We've built momentum local performance very strong exit velocity was strong.

Kelly Ann Bania: Finally, the industry is at a speed bump I talked about the W word, which I hate talking about.

Kelly Ann Bania: There's also a two year stack thing going on in January where.

Because it is very very strong growth a year ago tied to the prior year being omicron Theres, a two year stack phenomenon on January that normalizes itself by mid February.

Kelly Ann Bania: Which will get through and as you know March is the most important months, we're not going to quote a number on today's call vis vis what you should expect from local case volume growth other than what we are seeing and what we predict is built into the guidance for the year and we're confident in our ability to deliver the midpoint of the guidance that we put out to date can you talk to you for any additional comments yes.

Local growth as Kevin said, our assumptions are baked into the guidance.

Kelly Ann Bania: We are always focused on profitable growth, that's really important for our company and you can see that's reason why that the cash conversion and operating leverage was so strong in Q2 in terms of AD redon. So in our volume number just to clarify <unk> is in our volume number year over year, it's immaterial.

Kelly Ann Bania: From a <unk> side. It is on our total sales number is not in the volume number.

Kelly Ann Bania: Given the different product attributes.

Kelly Ann Bania: Right.

Kelly Ann Bania: That's going to be the case going forward and just curious as to why and where <unk> is not included in volume.

Let me just this is Kevin we don't include SMG in our volume because the business is measured through pounds.

Kevin: Just getting to a common denominator is difficult the way dawn measures their businesses today not the same as how we measure the business cases versus pallets versus <unk> and we want to make sure that we get that right before we included in.

Our metrics and that's something that we're working on as a part of our integration planning.

Speaker Change: Great. Thank you.

Speaker Change: Thank you and have a good day.

Speaker Change: Okay.

Speaker Change: Next question comes from Joshua long with Stephens.

Joshua C. Long: Great. Thanks for taking the question was curious if you could further contextualize the strength of the local case growth in terms of the opportunity to further penetrate kind of existing consumers and then also execute against the new customer wins, which I know has been.

Joshua C. Long: Target and our goal over the last couple of calls that we've talked about.

Speaker Change: Yes, Josh on the existing customers all bridge back I didn't talk a lot today on the prepared remarks about our S&P for growth I was trying to really keep it narrow and focused on drive local case performance through selling effectiveness and supply chain. We're really pleased with our recipe for growth strategy and the impact of our growth programs on our business.

Speaker Change: I point, you to Cisco, Uruguay, and perks as two very very important programs that are increasing penetration with existing customers.

Speaker Change: They're continuing to do well at our Investor day in May we're going to talk about the longer term plans for those two growth programs and then the third is our total team selling effort, which is we over index in broad line, we have meaningful share and broadline and our share is below industry average and specialty Thats why we are as focused on produce and protein and the.

Speaker Change: <unk> as we are we're moving the needle with existing customers on total team selling as I've mentioned before what that program is as each account is a sales consultant to generalists, who has the relationship manager who is there every week, but theyre not going to be an expert in specialty cut spoke protein theyre not going to be an expert in specialty.

Speaker Change: Organic produce as an example, and we're doing a better job of identifying which customers have the propensity to buy those categories linking up that specialist with the sales consultant generous general list and doing a joint visit and then compensating them in such a way that they win together when those cases are added to a Cisco truck.

Regardless, if thats, a fresh point truck or Cisco Broadline truck.

Speaker Change: And we're moving the needle with existing customers as measured by penetration and we're pleased with our performance in that regard, but the lifeblood we call. It the oxygen of the business is constantly bringing in new customers you need that oxygen debride and we're very focused on new we're very focused on making that a priority of the salesforce. It's embedded within our updated compensation model is a priority.

Speaker Change: If they win new business that is profitable and sufficiently large to make it worth our while to be going to those customers. There is a minimum threshold they get rewarded as the sales force networks harp prospecting is hard work.

Speaker Change: We need to make it a priority we need to manage it and I'm really pleased with the progress. That's been made this last quarter on increasing the portion of our business Thats New business won.

Speaker Change: Yes.

Speaker Change: Great. Thank you for that and then Kevin in your prepared comments, you mentioned that the overall improvement in supply chain. It seems like things are perhaps continuing to get back to normal year results highlight that could you talk about the overall health of the supply chain.

Broadly as an industry and kind of where some of the pushes and pulls are now that we're a little bit further removed from some of the disruptions that occurred over the last couple of years.

Kevin: Yes. Thank you for the follow up we're really pleased with our progress of improvement in supply chain retention is up overall market. As you just indicated fewer people are leaving their jobs. There are fewer jobs that are open. So therefore, just general staffing health in the industry is better and then specifically axis.

Kevin: So we're fully staffed it doesn't mean, we don't have a job opening in a specific site today, but in aggregate across our network. We are fully staffed that brings down as Kenny said, our hiring costs our training costs <unk>.

<unk> improves damages improve.

Kevin: Accidents on the road improve everything about the ecosystem improves when we have a more tenured population. We're really pleased with that the productivity levers that we have are moving up into the right. As a result of that oftentimes I get asked the question what inning are we in I think we're up to innings seven now on supply chain.

Recovering to pre Covid, which means we still have some gas in the tank and I want to be clear when we get to any nine the game's not over what happens in any nine is then we introduced new technology, we introduced productivity improvement programs et cetera, we can get beyond meaning better than 2019 levels of productivity.

Kevin: I'd say were in <unk>, seven we still have room to improve and we're focused on delivering.

Kevin: Yes, one point for me is as I mentioned earlier, we have the labor planning tool and were really matching being fairly agile here on the expense side matching labor with volume and make sure that with the backdrop of the Cisco work standards that I talked about earlier and my question on January <unk>.

Kevin: The driver Academy, our training programs, our engineering labor standards are keep getting better and stronger we improved processes through leveraging as Kevin that technology. The next wave of productivity improvements to better have discipline to the standard work that we're doing.

Kevin: Still room for improvement, but we are pleased with improvement we made a supply chain and thats factored into the 2004 guidance.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: The next question comes from Kendall Toscano with Bank of America.

Kendall Toscano: Hi, Thanks for taking my question.

Kendall Toscano: So I was wondering if some of you saw a pretty significant rebound in your local customer business in the second quarter, just kind of what the implications are on gross margin performance given that the local customers are a higher margin customer segment, and then I guess as you enter the back half of my follow up.

Kendall Toscano: How you would expect the local customer growth to look versus the total company.

Okay.

Speaker Change: Yes, so I can start so you are correct the local customer it does come with an attachment rate with the higher GP a dollars per case and there was a margin accretion as well as the local customer.

Speaker Change: We are seeing that flow through the P&L and that's one of the reasons why you're seeing a nice mix between here your leverage on GP as well as the leverage down to the EBITDA and net earnings with that said, though I think we shouldnt overall look the CMU success that we've had in our business. We are also seeing margin expansion. We are also seeing cost of goods leverage.

Speaker Change: Across the portfolio of our CMU business again, one may think of just restaurant, but it's not there's other specialty growth segment that we're winning in the marketplace. That's driving accretion on the margin side. When we talk about strategic sourcing. It is not just for local customer. It is the size and scale of Cisco and that benefit scale across both.

Speaker Change: Our local customers and CMU, we are renewing we are winning businesses at a higher margin clip at the current moment.

Speaker Change: Just a plus up to the last point that can be made I've tried to be very clear about this point over the last several quarters. Our success in national sales and we are clearly succeeding and national sales growing new customer wins and the profitability of that business is can lead to said, there's nothing about the growth in national that hinders our ability to grow.

We do not have supply chain capacity constraints, we do not have hiring constraints and what I said on the last call is we want to keep the place running and working and national and we want to make meaningful progress on local and we displayed that this past quarter with a 300 basis points improvement in our intention is to continue to make improvement in local.

Great. Thanks, guys.

Thank you Kendall Thanks Kendall.

Speaker Change: Okay.

The next question comes from John <unk> with J P. Morgan.

John: Hi. Thank you. The question is on inflation and I'm wondering what kind of indicators you are looking at to sustain inflation, yes, it's true that the back half of 'twenty four I mean, some PPI food for example metrics might suggest a little bit more deflation than what youre talking about.

John: Can you just kind of the first question and secondly, there's been at least some chatter some grocery stores actually sequentially lowering their pricing is their own commodity costs have been easing I mean have you seen anywhere in the marketplace in terms of your competitors, maybe not on the nationals, but on a local or regional.

John: Different operators that are lowering their price per case to their customers of something that that could potentially be influencing the market over time. Thank you.

John: Hey, John It's Kenny I'll start so on the topic of inflation are correct. We are informed by data, we actually have a treasure trove of data we partner directly with suppliers.

Our party.

Strategic partners institutions, and the likes and so we havent rich data set of our own as well given how much volume goes through our supply chain, each and every day across various segments and industries, So where all that modeling and right now number two we watch our basket very closely now I've talked about this in the past, but as you think about our commodity basket we have.

John: Paul Maine.

Commodities.

John: And we don't really over index on any one in particular gnomon commodities more than 15%. So each and every day, we're managing inflation and deflation rate. For example, you could have beef for example, which is drawing close to double digit but you can have another commodity that's in a different space. So Cisco has historically and today manage <unk>.

<unk> inflation day in and day out and the third point is as I mentioned earlier Q1 deflation in the U S Q2, slightly positive inflation on both quarters, we were able to effectively drive positive consistent and operating leverage to our P&L.

John: It's Kevin I'll just add.

Kevin: You asked about prices to the consumer and the local business in particular, it's a very efficient market John So as our Cogs come down yes. The way. It works is we then are able to pass through value to our customers. So I will make a retail store, we're publishing prices in a circular and putting signs on the shelf for us it's a dynamic business.

Kevin: The book gets priced weekly as do our competitors and as prices come down it's an efficient market and that gets passed through to customers as Kenny said, though we can maintain profitability ratios on the way up we can maintain profitability ratios on the way down that's the value of our pricing tool that we are leveraging extensively.

To make sure that we are where we need to be as it relates to just general confidence in the year ago inflation figures.

Kevin: Got a lot of data at Cisco, we have global data, we have access to <unk>.

Kevin: A large amount as Kenny said across the 12 plus categories. Some are moving up some are moving down the one that's going to be the biggest tailwind in the year ago was produce produce was substantially deflationary in Q2 because of wild the markets the year before due to major flooding in California produce is going to return to more normal like low levels of inflation, 1% to 2%.

<unk> versus down substantially in Q2, so thats one of the bigger drivers of giving confidence in the year to go and we said and muted inflation.

Kevin: But certainly muted inflation is up from where we were in the first half of the year.

Very helpful color. Thank you.

Speaker Change: Thanks, John.

Speaker Change: The next question comes from Alex Slagle with Jefferies.

Alexander Russell Slagle: Hey, Thanks, good morning, So lets see if you could provide any color on the broader growth rates and health of the various <unk>.

Alexander Russell Slagle: Categories, you participate in certain specialty categories that are growing, particularly well or a certain customer types.

Alexander Russell Slagle: And the industry is that the growth either tailed off our accelerated lately.

Alexander Russell Slagle: Alex It's Kevin I'll start and then if can has anything that he can jump in.

Alexander Russell Slagle: Let me let me first just talk about like where is the business growing where his success happening and then I'll flip back to the customer if it's okay. Amen actually answer it in reverse right now broad line is winning what I mean by that is distributors. So broad line distributors are winning people ask us all the time, Kevin how can it be true that you plus the other big thing, we're all saying youre taking share.

Alexander Russell Slagle: Answer is scale matters in this industry size and scale matter, our purchasing scale, our delivery scale, our technology scale and frankly, all three of the big three are growing faster than the market our growth for the quarter was plus three four and the overall market.

Alexander Russell Slagle: Was very nominal growth, so we meaningfully outgrew versus the market and my suspicion would be as well the other big players in this space or what does that mean it means that growth is coming from smaller.

Alexander Russell Slagle: <unk> distributors and specialty distributors to for the Cisco specific thesis is our specialty business has meaningfully performing so we're waiting and broadline in total versus the 60 plus percent of the business. That's not done through the big three that is a very clear point that should be understood 60% of the business does not happen from the big three where the.

Alexander Russell Slagle: Big players are winning meaningfully and broadline versus that 60% and then within specialty Cisco's specialty is outperforming versus specialty. So that's kind of the thesis or the story of why we are outperforming versus the market as it relates to the customer side, we are seeing no discernible moves trade up trade.

Alexander Russell Slagle: Downgrade left trade right.

Alexander Russell Slagle: The best operators are winning people who have interesting concepts are interesting culinary trends.

Our winning but we're not seeing trade up or trade down sans. The January blip that I mentioned it was a robust food away from home market.

Alexander Russell Slagle: In Q2, and then specifically December was a robust one.

As consumers were frequenting food away from home establishments.

Speaker Change: Thank you.

Speaker Change: Thank you.

Speaker Change: The next question comes from Jake Bartlett with <unk> Securities.

Jake Bartlett: Great. Thank you and thank you for taking the question mine was on the chain business. The growth there has been strong in.

Jake Bartlett: <unk> massive case.

Jake Bartlett: Case growth among the chain business accelerated in the second quarter.

Jake Bartlett: Kind of what Youre doing to drive that acceleration and then if you could maybe provide an update on the relative profitability I know that the gap between independents and chains has narrowed if you can give us just maybe a better sense as to how much that's narrowed at this point.

Speaker Change: Okay, So I'll start and I'll toss to Kenny for any additional comments you may have.

Our CMU business, that's half of our business and we're winning meaningfully in that space and yes, we did accelerate in Q2 versus Q1, and we have confidence in our ability to continue to be very successful in CMU. When people hear <unk>. They think national restaurants, I want to be very clear that is just one portion of that business travel and hospitality is in that.

Speaker Change: Based healthcare is in that space education is in that space and we've had notable and meaningful wins in each of those non national restaurant sectors. In fact, our focus is in non national restaurant sectors. The low profit.

Speaker Change: A portion of <unk> is the national chain restaurant space, mostly in the <unk> space. That's the lowest profit business, we're really focused on within national sales, which customer types can we create a win win contract relationship with our customers, where we can help them achieve their objectives. We can do it at a cost to serve that meets their objectives.

Speaker Change: <unk> and they are willing and want to partner with Cisco on things that are profitable and helpful. For Cisco like for example, sysco brand penetration with local customers, we have more than 50% of our cases on that truck that are sysco brand and one of the reasons why the profit profile is lower than national is a lower penetration of Sysco brand. So we're looking for partners who want to.

Speaker Change: Grow together, who want to win together and our national sales team has been doing a really good job in that regard and we expect that momentum to continue any additional comments you'd like to make yes, I'll say a few things here. So if.

Speaker Change: Do you think the chain business right I'll say ROIC is the lens, how we how we look at our businesses including chain.

On the <unk> side as Kevin mentioned, we did accelerate and you are correct. Your math is correct, but we celebrated profitably. That's a really important point here many of the things that we're doing across technology strategic sourcing all of our initiatives just impact both the local and the CMU cycle. It is scaling and I know we'd say this on time.

Speaker Change: Scale and size really matters and industry. So that's really important sometimes we'll say this we will think of compensation plan type only local we have many many things that skills across both local and <unk> driving profitability for both sides of the house. That's my first point. The second point is again ROI it cuts both ways and Sigma which is mostly the bigger.

Customers.

Speaker Change: We're down on volume year on year, however, given supply chain efficiencies and productivity that we're driving and pruning the customer side of the house, we were able to double more than double the business on profit, 140% increase there. So that gives you a little bit of color on how we think about productivity and as well as some of the other side.

ROIC.

Great and I just had a quick follow up on the comments on the local business or in the independent side.

Speaker Change: You mentioned that.

Speaker Change: Industry was robust.

Speaker Change: Are you seeing generally positive traffic at your local customers I'm wondering whether just local traffic.

Speaker Change: <unk> has improved in this latest quarter versus prior quarters.

Speaker Change: Yes, independent traffic, especially in December was robust that's my most concise way of describing really healthy strong I'd say it was strong across food away from home by independents in particular are very strong in December.

Great I appreciate it thank you thank.

Speaker Change: Thank you. Thank you.

Speaker Change: The next question comes from Brian <unk> with Morgan Stanley.

Thanks, Good morning, guys.

You've discussed this but maybe I'll ask it a slightly different way.

Brian: On operating leverage you expect it for the full year do you expect a little bit less in the second half maybe as a consequence of ramping up hiring or are some of the cost out sort of an offset to that how do you think about that in the second half versus the first half.

Yes so.

Brian: <unk>.

Brian: You are correct in terms of.

Brian: The second half dynamic and let me explain what that means so in the first half of fiscal year 2023. If you recall, we had snapback and access over time in the first half of last year.

Brian: But also recall Ralph.

Brian: Back half of last year fiscal year 'twenty three those cost subsided it became zero towards the back half.

Also supply chain productivity.

Brian: Turnover retention labor standards all of those things that were <unk>.

Brian: Driving the value that we're seeing today that started really towards the back half of last year or so set differently. Brian we are lapping a more challenging comparison in from a comp standpoint with that said we are also investing in our business and in our stride. This operating leverage share for the for the full year.

Okay. Thanks that makes sense.

Brian: Maybe just on international I know Thats not.

Speaker Change: Not not us.

Big for you, but it is pretty material right.

Speaker Change: I think we've seen sort of some varying performance in international markets just based on like what some of the restaurant companies have said could you comment on how you see that in the second half also kind of how you see the inflationary trend over the next couple of quarters in that business.

Yes. This is Kevin I'll start Brian I. Appreciate the question on International I will talk about this what we're seeing in international Kenny can address the inflation part of the question at the end, yes. The headline here is we're very pleased with international performance Rewind tape I've been here four plus years now Covid had a very negative impact on international.

Speaker Change: <unk> the shutdowns were earlier they were deeper they were longer they're more punitive and it was a rough go especially in Europe. We're out of that now we are clear of that and we are very pleased with our performance international.

Kevin: International is a tailwind for Cisco from a growth perspective, and from a profitability improvements contribution perspective, I'll just call out three examples from a color commentary to give it some texture, Canada is doing incredibly well local performance in Canada greater than 6% case growth local performance, Canada greater than 6%.

Kevin: Growth and that's our largest international business why is that happening we're deploying the Cisco play and in even greater way, bringing advanced digital tools to the country, bringing the recipe for growth to the country and leveraging an extremely talented team north of the border. So Canada doing extremely well great Britain, our second largest.

Kevin: International countries, we've always had a very good robust and mature CMU business and we were underpenetrated in local we are meaningfully focused on winning local from a leadership perspective in country and we are revamping our supply chain and our systems capabilities in great Britain to be able to better serve local customer.

Kevin: In that country, and we're moving them up the profitability curve as a result of increasing penetration within our fourth and last one.

Kevin: Last but not least let me talk about France, France has been a problem child for my tenure at Cisco, mostly self inflicted I have been very transparent about that over time, and we have turned the corner and France upward onward and better.

Off to a really good start in the first half of the year in France, we have a strong leadership team in place in France, and they are really beginning to like I've said, a second ago run. This Cisco play we've deployed strategic sourcing AK PJM, which is our strategic sourcing capability, we're working on introducing sysco brand product.

Kevin: In France, and we're working to increase the product range available in each of those things is working and Francis contributing positively this year through our P&L in a way that is beneficial to the overall company. So those are just some color commentary points in itasca, Kenny for any comments on inflation, Yes, Hey, Brian. So if you think about the earlier in the year.

Kenny: The inflation for international was roughly over 10% and this very quarter that we just had was roughly six 5%. So we are seeing inflation subsiding or better throughout the quarter with that said, though we are excited given the one global operating model that we're operating in right now and that is driving dividends extends our size.

Kenny: Extend our scale leverages capabilities tools and best practices, So as Kevin talked about a lot of that playbook under the one umbrella for global operating model is really creating dividends. So yes, while inflation has pressured we are seeing the offsets through strategic sourcing local case growth technology play overall, one one global operating model so.

Speaker Change: So yes, we are still very optimistic and bullish about the international market as a growth engine for us as you can see in Q2, we were up 10% on top line and 30% operating income.

Speaker Change: Yeah.

Speaker Change: Okay.

This does conclude today's question and answer session and todays program.

Speaker Change: Thank you for your participation you may disconnect at any time.

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