Sysco 3Q15 Earnings Call Notes

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Weather wasn’t a major factor but it was a factor

“Overall, weather was not a major factor in our year-over-year comparisons for the quarter as we benefited from favorable comparisons in January and February, but were hampered by severe weather in the Northeast and Mideast in late February and most of March. This last point is important to note, because March provides a disproportionately large portion of our third quarter volume and was a relatively mild weather month last year. We experienced similar trends in April, but expect the year-over-year monthly impact of weather will dissipate as we move into May and June.”

US Foods merger news pending

“Regarding our pending merger with US Foods, the hearing related to the FTC’s motion for preliminary injunction begins tomorrow, May 5, and will last up to seven business days. If we receive a ruling in our favor, we will proceed to closing unless the decision is appealed. In the event of an unfavorable ruling, we would assess together with US Foods’ ownership whether to pursue the case further. We remain resolute in our belief that this transaction is pro-competitive, good for our customers and will accelerate Sysco’s business transformation.”

Food cost inflation declined

“Our sales growth rate was substantially lower than the 7% rate we saw during the first half of the fiscal year because of the rapid decline in food cost inflation and the impact of foreign exchange translation. Food cost inflation declined significantly from 6% in the second quarter to 3.7% in the third quarter.”

It’s a very competitive environment

“Obviously, as we’ve said for a while now, the market environment we are in, it’s difficult. It’s very competitive and it’s not unlike many other industries and we don’t expect that to change. So again, to kind of recap how we look at the world, we see modest medium to long-term growth in the industry. We expect to grow faster than that. To do that, we need to differentiate ourselves ongoingly with our customers and we need to take costs out of the system”

I didn’t whine about the weather this year

“I really didn’t talk a lot about the industry or the market because it’s hard to make that call right now. While I did talk about weather, I didn’t whine about weather this year. So I feel good about that. What we saw was this, and what I alluded to in my comments, we had – last year, if you go back and look at the weather, it was pretty harsh in December, January and the first three weeks in February and it was harsh in areas where typically you don’t see it: Charlotte, Dallas, Atlanta and other places. And so we had some favorable comparisons in late December, January and February. Unfortunately, January and February are not exactly big months for us.”

Softer than last year so far in March and April

“if you recall last year, there was a little bit of a cabin fever impact up north and I think people got out in March just because they needed to get out and then March was reasonably mild and so was April. And so, the camps and the clubs started to open up earlier. So we had good volume in March and April relative to the rest of the year last year and I think we’re seeing softer volume this year. What I’m trying to say to you is I think weather is impacting that. I just don’t know to what degree and I think I can make a better call on that after we see May and June here because we’ll be back to apples-to-apples.”

Restaurant operators still positive

“The sentiment of our restaurant operators is positive and it’s remained positive. So I think people are generally seeing – at least maintaining – they’re seeing good things and they’re hopeful that it’ll translate into better things. Probably the biggest positive out there right now, I would say, would be the lower fuel prices.”

start with asking what does the customer need

“with us, it always starts the way you posed the question, which is what’s important to the customer? What does the customer need? And we are doing a lot of work on the customer side through the marketing department, customer loyalty and issues to understand customer needs and then connecting that to the work that we are doing with our suppliers and category management and the data they provide us to better optimize our SKUs.”

This delay has probably hurt US Foods more than it’s hurt us

“I really can’t comment much on US Foods. I think it goes without saying that this process is taking longer than we would’ve liked. And it’s probably a little bit harder on them than it has been on us. So, early days, certainly they lost some sales people and I think their sales were hurt. I’m not close enough to it nor should I be in terms of what their margins are right now. And obviously, they pulled back here some on the integration planning over the last couple of months.’