Plan Targets at Least $400 Million in Annualized Operating Income Growth and
15% Return on Invested Capital1 by Fiscal 2018;
Key Drivers Include Local Case Growth, Supply Chain Leverage, Reduced Administrative Costs and Strong Free Cash Flow
NEW YORK, Sept. 15, 2015 (GLOBE NEWSWIRE) -- At its 2015 Investor Day, Sysco Corporation (NYSE:SYY) senior executives today presented a three-year strategic business plan designed to improve the customer experience, enhance associate engagement and deliver strong financial results to drive shareholder value over time.
"Sysco has a substantial market opportunity, a sound strategy, great people and a recent record of improving financial results," said Bill DeLaney, Sysco president and chief executive officer. "Over the past few months, our executive team has developed a robust three-year plan that targets at least $400 million in annualized operating income growth and a 15 percent return on invested capital by Fiscal 2018. This plan leverages a variety of new capabilities and initiatives developed over the past several years that together provide a strong foundation for ongoing value creation. We are confident that this plan is the right one for Sysco shareholders, customers and associates, and we look forward to delivering on these commitments."
Sysco expects to achieve its new operating income and return on invested capital targets by accelerating local case growth, improving gross margins, leveraging its end-to-end supply chain, reducing administrative costs and generating more than $1 billion in free cash flow per year2.
"Our primary focus remains on delivering a differentiated set of products and services to help our customers grow their businesses and, in turn, profitably grow our own business," DeLaney said. "By delivering this plan, we will advance our vision of becoming our customers' most valued and trusted business partner."
Joining DeLaney in presenting the Sysco plan to investors were Tom Bené, executive vice president and president of foodservice operations; Scott Charlton, executive vice president, supply chain; Joel Grade, executive vice president and chief financial officer; and Wayne Shurts, executive vice president and chief technology officer.
A webcast of today's presentations is available for replay at http://investors.sysco.com/Investors/default.aspx
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1 See Non-GAAP Reconciliations for an explanation of this non-GAAP measure.
2 See Non-GAAP Reconciliations for an explanation of this non-GAAP measure.
About Sysco
Sysco is the global leader in selling, marketing and distributing food products to restaurants, healthcare and educational facilities, lodging establishments and other customers who prepare meals away from home. Its family of products also includes equipment and supplies for the foodservice and hospitality industries. The company operates 196 distribution facilities serving approximately 425,000 customers. For Fiscal Year 2015 that ended June 27, 2015, the company generated sales of more than $48 billion. For more information, visit www.sysco.com or connect with Sysco on Facebook at www.facebook.com/SyscoCorporation or Twitter at https://twitter.com/Sysco. For important news regarding Sysco, visit the Investor Relations section of the company's Internet home page at www.sysco.com/investors, follow us at www.twitter.com/SyscoStock and download the new Sysco IR App, available on the iTunes App Store and the Google Play Market. In addition, investors should also continue to review our news releases and filings with the Securities and Exchange Commission. It is possible that the information we disclose through any of these channels of distribution could be deemed to be material information.
Forward-Looking Statements
Statements made in this press release or in our Investor Day 2015 presentations that look forward in time or that express management's beliefs, expectations or hopes are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the views of management at the time such statements are made and are subject to a number of risks, uncertainties, estimates, and assumptions that may cause actual results to differ materially from current expectations. These statements include our plans and expectations related to and the benefits and expected timing of our goals and initiatives to increase profitability, manage expenses and grow our business, and our outlook and expectations for fiscal 2016. The success of our initiatives and expectations regarding our operating performance are subject to the general risks associated with our business, including the risks of interruption of supplies due to lack of long-term contracts, severe weather, crop conditions, work stoppages, intense competition, technology disruptions, dependence on large regional and national customers, inflation risks, the impact of fuel prices, adverse publicity, and labor issues. Risks and uncertainties also include risks impacting the economy generally, including the risks that the current general economic conditions will deteriorate, or consumer confidence in the economy may not improve and decreases in consumer spending, particularly on food-away-from-home, may not reverse. Market conditions may not improve. If sales from our locally managed customers do not grow at the same rate as sales from regional and national customers, our gross margins may decline. Our ability to meet our long-term strategic objectives to grow the profitability of our business depends largely on the success of our various business initiatives. There are various risks related to these efforts, including the risk that these efforts may not provide the expected benefits in our anticipated time frame, if at all, and may prove costlier than expected; the risk that the actual costs of any initiatives may be greater or less than currently expected; and the risk of adverse effects to our business, results of operations and liquidity if past and future undertakings, and the associated changes to our business, do not prove to be cost effective or do not result in the cost savings and other benefits at the levels that we anticipate. Our plans related to and the timing of any initiatives are subject to change at any time based on management's subjective evaluation of our overall business needs. If we are unable to realize the anticipated benefits from our cost cutting efforts, we could become cost disadvantaged in the marketplace, and our competitiveness and our profitability could decrease. Capital expenditures may vary from those projected based on changes in business plans and other factors, including risks related to the implementation of various initiatives, the timing and successful completions of acquisitions, construction schedules and the possibility that other cash requirements could result in delays or cancellations of capital spending. Periods of high inflation, either overall or in certain product categories, can have a negative impact on us and our customers, as high food costs can reduce consumer spending in the food-away-from-home market, and may negatively impact our sales, gross profit, operating income and earnings. Expanding into international markets presents unique challenges and risks, including compliance with local laws, regulations and customs and the impact of local political and economic conditions, and such expansion efforts may not be successful. Any business that we acquire may not perform as expected, and we may not realize the anticipated benefits of our acquisitions. Expectations regarding the accounting treatment of any acquisitions may change based on management's subjective evaluation. Expectations regarding tax rates are subject to various factors beyond management's control. For a discussion of additional factors impacting Sysco's business, see the Company's Annual Report on Form 10-K for the year ended June 28, 2014, as filed with the Securities and Exchange Commission, and the Company's subsequent filings with the SEC, including the Company's Annual Report on Form 10-K that will be filed for the year ended June 27, 2015. Sysco does not undertake to update its forward-looking statements.
Non-GAAP Reconciliations
| Sysco Corporation and its Consolidated Subsidiaries | |
| Non-GAAP Reconciliation (Unaudited) | |
| Return on Invested Capital (ROIC) and Adjusted ROIC | |
| (In Thousands) | |
| We calculate ROIC as net earnings divided by (i) stockholder's equity, computed as the average of adjusted stockholders' equity at the beginning of the year and at the end of each fiscal quarter during the year; and (ii) long-term debt, computed as the average of the long-term debt at the beginning of the year and at the end of each fiscal quarter during the year. All components of our ROIC calculation are impacted by Certain Items. As a result, in the non-GAAP reconciliation below for fiscal 2015, adjusted total invested capital is computed as the sum of (i) adjusted stockholder's equity, computed as the average of adjusted stockholders' equity at the beginning of the year and at the end of each fiscal quarter during the year; and (ii) adjusted long-term debt, computed as the average of the adjusted long-term debt at the beginning of the year and at the end of each fiscal quarter during the year. Sysco considers adjusted ROIC to be a measure that provides useful information to management and investors in evaluating the efficiency and effectiveness of the company's long-term capital investments, and we have used ROIC as a performance criteria in our management incentive programs. It is possible that a different definition of ROIC may be used by other companies since it can be defined differently. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. In the table that follows, adjusted ROIC for fiscal 2015 is reconciled to a GAAP based calculation of ROIC. | |
| With respect to our target adjusted ROIC of 15%, which we expect to achieve by FY18, we cannot provide a quantitative reconciliation to the most directly comparable GAAP measure without unreasonable effort due to uncertainty related to the timing of achieving such results. However, we would expect to calculate adjusted ROIC in the same manner that we calculated FY15 adjusted ROIC as described above and reflected in the table below. | |
| Fiscal 2015 | |
| Net earnings (GAAP) | $ 686,773 |
| Impact of Certain Items on net earnings | 413,393 |
| Adjusted net earnings (Non-GAAP) | $ 1,100,166 |
| Invested Capital (GAAP) | $ 10,985,527 |
| Adjustments to invested capital (1) | (2,565,346) |
| Adjusted Invested capital (GAAP) | $ 8,420,181 |
| Return on investment capital (GAAP) | 6.3% |
| Return on investment capital (Non-GAAP) | 13.1% |
| (1) Adjustments to invested capital includes the removal of excess cash obtained from debt incurred for the US Foods merger that had been proposed and the debt issuance costs and hedge settlement borrowings that would not have been borrowed absent this merger-related debt. Shareholder's equity adjustments include the impact of Certain Items from earnings and removal of foreign currency translation adjustments that arose in fiscal 2015. | |
| Sysco Corporation and its Consolidated Subsidiaries | |||
| Non-GAAP Reconciliation (Unaudited) | |||
| Free Cash Flow and Adjusted Free Cash Flow | |||
| (In Thousands) | |||
| Free cash flow represents net cash provided from operating activities less purchases of plant and equipment and includes proceeds from sales of plant and equipment. Adjusted free cash flow adjusts out the cash impact of our Certain Items representing primarily payments for integration planning, litigation and termination costs in connection with the merger that had been proposed with US Foods, interest payments on debt we had issued in connection with the proposed merger, and a payment for a contingency accrual that arose in fiscal 2014. Sysco considers free cash flow and adjusted free cash flow to be liquidity measures that provide useful information to management and investors about the amount of cash generated by the business after the purchases and sales of buildings, fleet, equipment and technology, which may potentially be used to pay for, among other things, strategic uses of cash including dividend payments, share repurchases and acquisitions. Adjusted free cash flow further provides the amount of cash generated excluding larger payments sometimes incurred with our Certain Items. However, free cash flow may not be available for discretionary expenditures, as it may be necessary that we use it to make mandatory debt service or other payments Free cash flow and adjusted free cash flow should not be used as a substitute in assessing the company's liquidity. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. In the table that follows, free cash flow and adjusted free cash flow for fiscal 2015 is reconciled to net cash provided by operating activities. | |||
| With respect to our expectation to generate more than $1 billion in free cash flow in each fiscal year through FY18, we cannot provide a quantitative reconciliation to the most directly comparable GAAP measure without unreasonable effort due to the uncertainty associated with the impacts of unforeseen future special items. However, for FY16, we expect our free cash flow to reflect adjustments for (1) cash payments associated with the termination of the merger that had been proposed with US Foods and related interest payments associated with the redemption of debt that had been issued in contemplation of the proposed merger and (2) the amount of plant and equipment, which the company projects to be in the range of $550-600 million. We would expect to calculate our free cash flow for each of the periods in the same manner that we calculated FY15 free cash flow as described above and reflected in the table below. | |||
|
52-Week Period Ended Jun. 29, 2013 |
52-Week Period Ended Jul. 28, 2014 |
52-Week Period Ended Jun. 27, 2015 |
|
| Net cash provided by operating activities (GAAP) | $ 1,511,594 | $ 1,492,815 | $ 1,555,484 |
| Additions to plant and equipment | (511,862) | (523,206) | (542,830) |
| Proceeds from sales of plant and equipment | 15,527 | 25,790 | 24,472 |
| Free Cash Flow (Non-GAAP) | $ 1,015,259 | $ 995,399 | $ 1,037,126 |
| Cash impact of Certain Items | 34,445 | 84,210 | 230,837 |
| Adjusted Free Cash Flow (Non-GAAP) | $ 1,049,704 | $ 1,079,609 | $ 1,267,963 |
| Adjustments represent the cash impact of Certain Items. Adjustments for fiscal 2013 primarily included payments related to these items an MEPP withdrawal, severance and an acquisition related payment. Adjustments for fiscal 2014 primarily included payments related to integration planning costs in connection with the merger that had been proposed with US Foods and an MEPP withdrawal. Adjustments for fiscal 2015 included $159.2 million related to integration planning, litigation costs and termination costs in connection with the merger that had been proposed with US Foods, interest payments of $49.8 million related to the debt that had been issued for the proposed merger and $17.2 million related to the payment of a contingency accrual that arose in fiscal 2014 that was considered a Certain Item in fiscal 2014 and $5.7 million for all remaining applicable Certain Items. These amounts will differ from the earnings impact of Certain Items; as the timing of payments for these items may occur in a different period from the period in which the Certain Item charges were recognized in the Statement of Consolidated Results of Operations. In fiscal 2013 and fiscal 2015, there were pension contributions of $70.0 million and $50.0 million. | |||