UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

For the quarterly period ended October 2, 2021

OR

Commission File Number 1-6544

Sysco Corporation

(Exact name of registrant as specified in its charter)

1390 Enclave Parkway, Houston, Texas 77077-2099

(Address of principal executive offices and zip code)

Registrant’s Telephone Number, Including Area Code:

(281) 584-1390

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

512,656,343 shares of common stock were outstanding as of October 22, 2021.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In thousands, except for share data)

Note: The July 3, 2021 balance sheet has been derived from the audited financial statements at that date.

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED RESULTS OF OPERATIONS (Unaudited)

(In thousands, except for share and per share data)

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(In thousands)

Showing the first 8K of 87K characters. Open the full section

This discussion should be read in conjunction with our consolidated financial statements as of July 3, 2021, and for the fiscal year then ended, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, both contained in our Annual Report on Form 10-K for the fiscal year ended July 3, 2021 (our fiscal 2021 Form 10-K), as well as the consolidated financial statements (unaudited) and notes to the consolidated financial statements (unaudited) contained in this report.

Highlights

Our first quarter of fiscal 2022 results were strong due to substantial sales momentum surpassing first quarter of fiscal 2019 levels. Our results increased sequentially each month of the quarter, despite the presence of the Delta variant of COVID-19. Customers are responding positively to Sysco’s relative supply chain strength, our new purpose platform and our improving capabilities driven by our Recipe for Growth strategy. Our financial results demonstrate our ability to gain market share in this business climate. See below for a comparison of our fiscal 2022 results to our fiscal 2021 results, both including and excluding Certain Items (as defined below).

Comparisons of results from the first quarter of fiscal 2022 to the first quarter of fiscal 2021 are presented below:

• Sales:

◦increased 39.7%, or $4.7 billion, to $16.5 billion;

• Operating income:

◦increased 50.6%, or $212.1 million, to $631.7 million;

◦adjusted operating income increased 87.9%, or $320.4 million, to $685.1 million;

• Net earnings:

◦increased 74.3%, or $161.1 million, to $378.0 million;

◦adjusted net earnings increased 147.9%, or $256.5 million, to $429.9 million;

• Basic earnings per share:

◦increased 72.1%, or $0.31, to $0.74 per share;

• Diluted earnings per share:

◦increased 73.8%, or $0.31, to $0.73 per share;

◦adjusted diluted earnings per share increased 144.1%, or $0.49, to $0.83 in fiscal 2022;

• EBITDA:

◦increased 40.2%, or $235.4 million, to $821.4 million; and

◦adjusted EBITDA increased 62.5%, or $328.1 million, to $852.8 million.

The discussion of our results includes certain non-GAAP financial measures, including EBITDA and adjusted EBITDA, that we believe provide important perspective with respect to underlying business trends. Other than free cash flow, any non-GAAP financial measures will be denoted as adjusted measures to remove the impact of restructuring and transformational project costs consisting of: (1) restructuring charges, (2) expenses associated with our various transformation initiatives and (3) facility closure and severance charges; and acquisition-related costs consisting of: (1) intangible amortization expense and (2) acquisition costs and due diligence costs related to our significant acquisitions. Our results for fiscal 2022 are also impacted by the increase in reserves for uncertain tax positions. Our results for the first quarter of fiscal 2021 were also impacted by the reduction of bad debt expense previously recognized in fiscal 2020 due to the impact of the COVID-19 pandemic on the collectability of our pre-pandemic trade receivable balances, by a loss on the sale of a business and by a net benefit from remeasuring net deferred tax assets due to the changes in U.K. tax rates.

The fiscal 2022 and fiscal 2021 items discussed above are collectively referred to as “Certain Items.” The results of our foreign operations can be impacted by changes in exchange rates applicable to converting from local currencies to U.S. dollars. We measure our total Sysco and our International Foodservice Operations results on a constant currency basis.

Trends

Economic and Industry Trends

Despite the presence of the Delta variant of COVID-19, Sysco’s sales improved sequentially through the first quarter of fiscal 2022 and have continued to grow through October 2022, showing our ability to gain market-share in this environment. There was a high volume of cases shipped within the restaurant sector during the first quarter of fiscal 2022, and additional growth is still expected to come in certain segments such as hospitality, business and industry and foodservice management. International travel restrictions are beginning to ease, which we expect will benefit our hospitality sector in specific regions of our business. Our International Foodservice Operations segment improved sequentially throughout the first quarter of fiscal 2022, as restrictions continued to ease across our international regions. The relative performance in the international sector still lags the U.S. sector; however, we believe that the international foodservice markets will experience further recovery as the global effects of the COVID-19 pandemic subside.

Sales and Gross Profit Trends

Our sales and gross profit performance can be influenced by multiple factors, including price, volume, customer mix and product mix. The most significant factor affecting performance in the first quarter of fiscal 2022 was volume growth, as we are experiencing strong results from both independent and chain customers, driven by a 23.8% improvement in local case volume and a 28.1% improvement in total case volume within our U.S. Broadline operations, in each case as compared to the first quarter of fiscal 2021. Sysco continues to lead the industry in how we are supporting our customers during this challenging supply chain period. This has enabled us to gain market share during the first quarter of fiscal 2022. We expect additional recovery to occur, as our volume is yet to fully recover in certain segments, such as hospitality, business and industry, and foodservice management. We are on track to deliver our stated goal of achieving growth at a rate of 1.2 times the industry in fiscal 2022, and we believe that our Recipe for Growth strategy will enable us to accelerate over the next three years and grow at 1.5 times the pace of the industry by the end of fiscal 2024.

In terms of customer mix, the first quarter of fiscal 2022 represented another period of strong net new business wins for Sysco, as we continued our strong momentum and posted compelling wins at the national and local level in the U.S. In Europe, our business is skewed towards the business, industry and travel segments, which remain constrained due to the continuing effects of the COVID-19 pandemic. We expect that our Recipe for Growth strategy will enable our International Foodservice Operations segment to improve how we serve local customers over time and will create a better balance in our customer mix to the more profitable local sector over our current three-year plan.

Although our gross margin decreased 79 points in the first quarter of fiscal 2022, as compared to the prior year period, largely due to the impact of inflation on our sales, we believe we managed our profitability well in the inflationary environment. We passed along this inflation to our customers, and we are successfully growing gross profit dollars. In terms of the impact on pricing, we experienced inflation at a rate of 12.8% combined for the U.S. and Canada during the first quarter of fiscal 2022, primarily in the meat, poultry and canned and dry foods categories. While challenging to predict, we expect inflation to moderate by the fourth quarter of fiscal 2022. The gross margin dilution at the enterprise level was also driven by margin changes at our higher-margin businesses, with the larger U.S. Foodservice Operations segment business growing volume at lower-margin rates. Across our enterprise, each business segment experienced an increase in gross profit dollars per case, despite the decline in the gross margin rate.

Operating Expense Trends

Total operating expenses increased 30.0% during the first quarter of fiscal 2022, as compared to the first quarter of fiscal 2021, driven by the variable costs associated with significantly increased volumes, one-time and short-term transitory expenses associated with the business recovery and

Showing the first 8K of 114K characters. Open the full section

Our market risks consist of interest rate risk, foreign currency exchange rate risk, fuel price risk and investment risk. For a discussion on our exposure to market risk, see Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risks” in our fiscal 2021 Form 10-K. There have been no significant changes to our market risks since July 3, 2021.

Sysco’s management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of October 2, 2021. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding the required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Sysco’s disclosure controls and procedures have been designed to provide reasonable assurance of achieving their objectives. Based on the evaluation of our disclosure controls and procedures as of October 2, 2021, our chief executive officer and chief financial officer concluded that, as of such date, Sysco’s disclosure controls and procedures were effective at the reasonable assurance level.

There have been no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the fiscal quarter ended October 2, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

Environmental Matters

Item 103 of SEC Regulation S-K requires disclosure of certain environmental matters in which a governmental authority is a party to the proceedings and when such proceedings involve the potential for monetary sanctions that Sysco’s management reasonably believes will exceed a specified threshold. Pursuant to recent SEC amendments to this item, Sysco has chosen a reporting threshold for such proceedings of $1 million. Applying this threshold, there are no material environmental matters to disclose for this period.

From time to time, we may be party to legal proceedings that arise in the ordinary course of our business. We do not believe there are any pending legal proceedings that, individually or in the aggregate, will have a material adverse effect on the company’s financial condition, results of operations or cash flows.

There were no material changes from the risk factors disclosed in Item 1A of our fiscal 2021 Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Recent Sales of Unregistered Securities

None

Issuer Purchases of Equity Securities

As we made no share repurchases during the first quarter of fiscal 2022, the following table represents shares tendered during the period:

(1)The total number of shares purchased includes 0, 0 and 1,245 shares tendered by individuals in connection with stock option exercises in Month #1, Month #2 and Month #3, respectively.

(2)See the discussion in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Equity Transactions” for additional information regarding Sysco’s share repurchase program.

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable

None

The exhibits listed on the Exhibit Index below are filed as a part of this Quarterly Report on Form 10-Q.

EXHIBIT INDEX

Filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.