Sysco 4Q16 Earnings Call Notes

Sysco (SYY) William DeLaney on Q4 2016 Results

Sentiment for meals away from home seems to be trending downward

” These results were achieved in a market environment that is experiencing uneven trends and appears to have softened somewhere off-late, while consumer confidence in unemployment data points remain relatively favorable compared to a few years ago. The current sentiment for customer spending and meals away from home seems to be trending slightly downward.”

That said, restaurant operator expectations remain favorable

“Turning to specific restaurant industry data, overall sales trends weakened as reflected in current NPD and KNAPP-TRACK Traffic and spend data. That said, according to National Restaurant Association, restaurant operator expectations remain somewhat favorable.”

Merger agreement with US Foods terminated in late June

” our merger agreement with US Foods was terminated in late June, we regrouped as a management team very quickly, in July we put together the framework of a three-year plan and shared that with the investor group in September, along the way with our Board.”

Not sure what’s driving it but it just feels softer

“You know, we read a lot and try to learn as much as we can from folks that follow all the components of the industry. I just think it’s a little bit of a malaise. I just think it’s — you know, you’re going to have these cycles and sub-cycles in any point in time, and some of it, we’ve been going up against some stronger numbers a year ago, so there’s some math in it. But it just feels a little bit softer out there. I think people are being a little more cautious with their spend. Maybe the election, maybe — I’m not sure. So I guess I wouldn’t want to just conjecture here, but I don’t think it’s the Olympics, I don’t think it’s any one thing in particular. I just think it’s a little softer and it seems to be showing up in multiple places, so I don’t think it’s a certain type of customer per se or anything like that. I just think it’s one of these sub-cycles we’re going to go through and time will tell whether it’s a three- to six-month deal or longer.”

Don’t think the softening is necessarily related to over-storing

“You know, Mark, I think when you go back to 2009, 2010, clearly there was oversupply and overcapacity, and I think there’s been a pretty good correction since that time. I believe we’ve seen some modest reduction in restaurants — number of restaurants here over the last year or so. But nothing to the degree we saw for or five years ago. There may be a little bit of a modest correction, but I don’t think that’s an overriding issue, I think it’s somewhat self-correcting.”

Joel Grade

Deflationary trend likely to continue

“Now I’d like to close with some commentary on the outlook for fiscal 2017. The deflationary trend has been persistent over the last four quarters and will likely continue through the remainder of the calendar year, creating modest sales and gross profit headwind for the first half year. The restaurant environment appears to be softening and as a result, we anticipate modest case volume growth for the next quarter or two. Capital expenditures during 2017 are expected to be approximately 1% of sales, including Brakes.”

Thomas Bené

Just seeing some softening in terms of the slope of growth

Well, it’s not just what we’re seeing — I think it’s what we’re hearing from other folks that are speaking to their results, both in the operator side and some of our peers in the industry. So I think it’s just a little bit softer. I think the good news here: People are still relatively optimistic, both the consumer confidence in general and the restaurant operators. When you look at those indices and compare them over the last couple of years, generally, the outlook is favorable, but we’re just seeing some softening in terms of the slope of the growth, and specifically, we’re seeing it in traffic continuing to be flat, and check size up in some segments, flat in other segments. So it’s no one place, it’s a relative comment. We’re still seeing growth but it’s just not the same trajectory that we saw a couple quarters ago.