UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

For the quarterly period ended January 1, 2022

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

507,447,464 shares of common stock were outstanding as of January 21, 2022.

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)

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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 second quarter of fiscal 2022 results were primarily attributable to sales growth that surpassed second quarter of fiscal 2019 levels by 10.5%. We experienced sequential volume improvements through the second quarter as compared to fiscal 2019 until December, when sales began to slow down as the Omicron variant began negatively impacting our customers. We believe 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. We continue to experience double-digit product inflation and incur incremental operating expenses associated with labor challenges driven by the current COVID environment, as well as the costs attributable to our snap back and transformation efforts. These have pressured our earnings growth. 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 second quarter of fiscal 2022 to the second quarter of fiscal 2021 are presented below:

• Sales:

◦increased 41.2%, or $4.8 billion, to $16.3 billion;

• Operating income:

◦increased 109.8%, or $232.8 million, to $444.9 million;

◦adjusted operating income increased 111.8%, or $261.6 million, to $495.7 million;

• Net earnings:

◦increased 148.8%, or $100.2 million, to $167.4 million;

◦adjusted net earnings increased 240.0%, or $206.1 million, to $291.9 million;

• Basic earnings per share:

◦increased 153.8%, or $0.20, to $0.33 per share;

• Diluted earnings per share:

◦increased 153.8%, or $0.20, to $0.33 per share;

◦adjusted diluted earnings per share increased 235.3%, or $0.40, to $0.57 in fiscal 2022;

• EBITDA:

◦increased 56.8%, or $234.5 million, to $646.9 million; and

◦adjusted EBITDA increased 62.9%, or $258.9 million, to $670.7 million.

Comparisons of results from the first 26 weeks of fiscal 2022 to the first 26 weeks of fiscal 2021 are presented below:

• Sales:

◦increased 40.5%, or $9.4 billion, to $32.8 billion;

• Operating income:

◦increased 70.4%, or $445.0 million, to $1.1 billion;

◦adjusted operating income increased 97.2%, or $582.0 million, to $1.2 billion;

• Net earnings:

◦increased 91.9%, or $261.3 million, to $0.5 billion;

◦adjusted net earnings increase 178.4%, or $462.6 million, to $721.9 million;

• Basic earnings per share:

◦increased 91.1%, or $0.51, to $1.07 per share;

• Diluted earnings per share:

◦increased 89.3%, or $0.50, to $1.06 per share; and

◦adjusted diluted earnings per share increased 174.5%, or $0.89, to $1.40 in fiscal 2022;

• EBITDA:

◦increased 47.1%, or $469.9 million, to $1.5 billion; and

◦adjusted EBITDA increased 62.7%, or $587.0 million, to $1.5 billion.

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; acquisition-related costs consisting of: (1) intangible amortization expense; (2) acquisition costs and due diligence costs related to our significant acquisitions; and 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. Our results for the first 26 weeks of fiscal 2022 were also impacted by debt extinguishment costs and the increase in reserves for uncertain tax positions. Our results for the first 26 weeks of fiscal 2021 were also impacted by a loss on the sale of a business.

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

The food-away-from-home sector continues to experience an overall recovery as compared to fiscal 2021. However, beginning on the weekend after Thanksgiving, the Omicron variant of COVID-19 negatively impacted our customers due to the reintroduction of significant restrictions on their businesses. Our business in Europe was impacted first, which affected our sales and volume performance, most notably in the United Kingdom and France. We have also experienced an impact in the majority of Canada, where restaurants began closing for on-premise dining towards the end of the second quarter of fiscal 2022. While such restrictions are slowly starting to ease in February, these types of restrictions impact our customers’ performance and ordering patterns. In the U.S., demand has declined due to changes in end-consumer behavior over concerns of vaccination breakthrough infections. We expect the top-line impact from the Omicron variant to continue into the third quarter of fiscal 2022. Despite the impact of the Omicron variant, Sysco gained market-share in the second quarter of fiscal 2022.

Sales and Gross Profit Trends

Our sales and gross profit performance can be influenced by multiple factors, including price, volume, inflation, customer mix and product mix. The most significant factor affecting performance in the second quarter of fiscal 2022 was volume growth, as we experienced strong results from both independent and chain customers, driven by a 17.6% improvement in local case volume and a 22.5% improvement in total case volume within our U.S. Broadline operations, in each instance as compared to the second quarter of fiscal 2021. Sysco continues to lead the industry in how we are supporting our customers during this challenging supply chain period, including no order minimums, when there has been industry-wide product shortages. This has enabled us to gain market share during the second quarter of fiscal 2022. We expect our volumes to continue their recovery to fiscal 2019 levels relatively quickly once the Omicron variant peaks are passed and government restrictions ease. However, we believe this impact of the Omicron variant and the subsequent recovery will delay our volumes reaching fiscal 2019 levels later than we originally forecast. This expectation assumes additional variants of concern do not arise. We are on track to exceed 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.

Product cost inflation has also been a driver of our sales and gross profit performance. We experienced inflation at a rate of 14.6% and 13.8% in the second quarter and first 26 weeks of fiscal 2022, respectively, in our U.S. Broadline operations, primarily in the meat and poultry categories. We have been successful in managing our inflation, resulting in an increase in gross profit dollars. Gross margin decreased 44 and

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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 January 1, 2022. 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 January 1, 2022, 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 January 1, 2022, 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.

Except as provided below, there were no material changes from the risk factors disclosed in Item 1A of our fiscal 2021 Form 10-K.

Changes in the method of determining London Interbank Offered Rate (LIBOR), or the replacement of LIBOR with an alternative reference rate, may adversely affect interest expense related to outstanding debt.

Amounts drawn under our revolving credit facility may bear interest rates in relation to LIBOR, depending on our selection of repayment options. In addition, certain of our outstanding interest rate swap agreements have a floating interest rate in relation to three-month LIBOR. On March 5, 2021, the Financial Conduct Authority in the U.K. announced that immediately after (a) December 31, 2021, in the case of all sterling, euro, Swiss franc, and Japanese yen settings, and the one week and two month U.S. dollar LIBOR settings, and (b) June 30, 2023, in the case of all other U.S. dollar LIBOR settings, such LIBOR settings will either cease to be provided by the administrator or will no longer be representative. Despite this deferral for certain U.S. dollar LIBOR tenors, the LIBOR administrator has advised that no new contracts using U.S. dollar LIBOR should be entered into after December 31, 2021. These actions indicate that the continuation of U.S. LIBOR on the current basis cannot be guaranteed after June 30, 2023. Moreover, it is possible that U.S. LIBOR for such tenors will be discontinued or modified prior to June 30, 2023. On July 29, 2021, the Alternative Reference Rates Committee, a steering committee consisting of large U.S. financial institutions convened by the Federal Reserve Board, formally recommended replacing U.S. dollar LIBOR with forward-looking Secured Overnight Financing Rate (SOFR) term rates. As a result of the discontinuation of the remaining U.S. dollar LIBOR tenors, we may need to renegotiate our credit facility and certain interest rate swap agreements, and we may not be able to do so with terms that are favorable to us.

In connection with the discontinuation of LIBOR, (a) we adhered to the ISDA 2020 IBOR Fallbacks Protocol and (b) on October 14, 2021, we entered into an amendment to our revolving credit facility that replaced (i) sterling LIBOR with the Sterling Overnight Index Average (SONIA) and (ii) euro LIBOR with the Euro Short Term Rate (ESTR).

Alternative reference rates, such as SOFR, SONIA, and ESTR, could be higher or more volatile than LIBOR, which could result in an increase in the cost of our indebtedness, impacting our financial condition and results of operations. The overall financing market may be disrupted as a result of the phase-out or replacement of LIBOR. Disruption in the financial market or the inability to renegotiate our credit facility or our interest rate swap agreements with favorable terms could have a material adverse effect on our business, financial position, and operating results. We continue to evaluate the potential impact of the replacement of the LIBOR benchmark interest rate; however, we are not able to predict the impact a transition to an alternative reference rate may have on our business, financial condition, and results of operations.

Economic and political instability and potential unfavorable changes in laws and regulations in international markets could adversely affect our results of operations and financial condition.

Our international operations subject us to certain risks, including economic and political instability and potential unfavorable changes in laws and regulations in international markets in which we operate. For example, in June 2016, the U.K. held a referendum in which voters approved Brexit. The U.K. exited the EU on January 31, 2020, with a transition period that ended on December 31, 2020. On December 24, 2020, the European Commission reached a trade agreement with the U.K. on the terms of its future cooperation with the EU. The trade agreement offers U.K. and EU companies preferential access to each other’s markets, ensuring imported goods will be free of tariffs and quotas (subject to rules of origin requirements). Uncertainty exists regarding the ultimate impact of this trade agreement, as well as the extent of possible financial, trade, regulatory and

legal implications of Brexit. Brexit also contributes to global political and economic uncertainty, which may cause, among other consequences, volatility in exchange rates and interest rates, and changes in regulations. These effects of Brexit, among others, could adversely affect our financial position, results of operations or cash flows. In addition, labor or other political disputes or general unrest can have a negative impact on our operations. For example, in fiscal 2020, the “yellow vest” protests in France against a fuel tax increase, pension reform and the French government negatively impacted our sales in France. Future labor disruptions or disputes could have a negative impact on our operations in the EU and other parts of the world.

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

Recent Sales of Unregistered Securities

None

Issuer Purchases of Equity Securities

We made the following share repurchases during the second quarter of fiscal 2022:

(1)The total number of shares purchased includes 7,059, 0 and 0 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

† Executive Compensation Arrangement pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K

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.