UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended December 31, 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) (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

507,604,019 shares of common stock were outstanding as of January 13, 2023.

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 2, 2022 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 Corp

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This discussion should be read in conjunction with our consolidated financial statements as of July 2, 2022, 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 2, 2022 (our fiscal 2022 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 2023 results were primarily attributable to sales growth that surpassed second quarter of fiscal 2022 levels by 13.9%. This double-digit sales growth resulted in operating income growth compared to the same period last year, driven by higher volumes, effective management of inflation and market share gains. Our gross profit growth this quarter outpaced operating expense, as we continued to make progress in improving our supply chain productivity. We continued to advance our Recipe For Growth strategy, with advancement in our digital tools, supply chain investments, and sales and merchandising initiatives, both domestically and internationally. Our second quarter net earnings also includes a pension liability transfer, which resulted in a non-cash charge of $315.4 million recorded within Other expense (income), net. See below for a comparison of our fiscal 2023 results to our fiscal 2022 results, both including and excluding Certain Items (as defined below).

Comparisons of results from the second quarter of fiscal 2023 to the second quarter of fiscal 2022 are presented below:

• Sales:

◦increased 13.9%, or $2.3 billion, to $18.6 billion;

• Operating income:

◦increased 44.0%, or $195.7 million, to $640.6 million;

◦adjusted operating income increased 37.6%, or $186.4 million, to $682.1 million;

• Net earnings:

◦decreased 15.7%, or $26.2 million, to $141.2 million;

◦adjusted net earnings increased 39.7%, or $116.0 million, to $407.9 million;

• Basic earnings per share:

◦decreased 15.2%, or $0.05, to $0.28 per share;

• Diluted earnings per share:

◦decreased 15.2%, or $0.05, to $0.28 per share;

◦adjusted diluted earnings per share increased 40.4%, or $0.23, to $0.80 in fiscal 2023;

• EBITDA:

◦decreased 22.6%, or $146.3 million, to $500.5 million; and

◦adjusted EBITDA increased 23.9%, or $160.6 million, to $831.3 million.

Comparisons of results from the first 26 weeks of fiscal 2023 to the first 26 weeks of fiscal 2022 are presented below:

• Sales:

◦increased 15.1%, or $4.9 billion, to $37.7 billion;

• Operating income:

◦increased 27.7%, or $298.4 million, to $1.4 billion;

◦adjusted operating income increased 23.0%, or $271.6 million, to $1.5 billion;

• Net earnings:

◦increased 11.2%, or $61.3 million, to $606.8 million;

◦adjusted net earnings increased 24.8%, or $178.7 million, to $900.5 million;

• Basic earnings per share:

◦increased 12.1%, or $0.13, to $1.20 per share;

• Diluted earnings per share:

◦increased 12.3%, or $0.13, to $1.19 per share; and

◦adjusted diluted earnings per share increased 25.7%, or $0.36, to $1.76 in fiscal 2023;

• EBITDA:

◦decreased 4.1%, or $59.8 million, to $1.4 billion; and

◦adjusted EBITDA increased 14.7%, or $224.7 million, to $1.7 billion.

The discussion of our results includes certain non-GAAP financial measures, including EBITDA and adjusted EBITDA, as we believe these metrics 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: (a) intangible amortization expense and (b) acquisition costs and due diligence costs related to our 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 fiscal 2023 were also impacted by adjustments to a product return allowance pertaining to COVID-related personal protection equipment inventory and a pension settlement charge that resulted from the purchase of a nonparticipating single premium group annuity contract that transferred defined benefit plan obligations to an insurer. Our results for fiscal 2022 were also impacted by debt extinguishment costs and an increase in reserves for uncertain tax positions.

The fiscal 2023 and fiscal 2022 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 experienced growth in the second quarter of fiscal 2023. Restaurants continued to be resilient; however, industry sources had projected higher industry growth and such growth has been lower than projected. Even with slower growth, the food-away-from-home sector is positioned well to manage through a softer macro-economic environment and to experience future growth. We experienced a strong start to the year in national sales, which has driven market share gains overall, as we grew 1.35 times the market during the first half of the year.

Sales and Gross Profit Trends

Our sales and gross profit performance are 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 2023 was volume growth, as we experienced a 5.2% improvement in total case volume and a 3.2% improvement in local case volume within our U.S. Foodservice segment, in each instance as compared to the second quarter of fiscal 2022. This volume reflects our broadline and specialty businesses except for our specialty meats business which measures its volume in pounds. This growth enabled us to gain market share during the second quarter of fiscal 2023 and we expect to continue seeing momentum on our rate of sales growth for the full year.

Product cost inflation has also been a driver of our sales and gross profit performance. We experienced inflation at a rate of 8.3% and 9.0% in the second quarter and first 26 weeks of fiscal 2023, respectively, at the total enterprise level, primarily driven by inflation in the dairy, fresh produce and frozen food categories. We continue to be successful in managing our inflation, resulting in an increase in gross profit dollars. Gross margin increased 29 and 24 basis points in the second quarter and first 26 weeks of fiscal 2023, respectively, as compared to the same prior year periods, primarily driven by higher volumes, the effective management of inflation and progress with our partnership growth management initiatives.

Operating Expense Trends

Total operating expenses increased 10.7% and 14.1% during the second quarter and first 26 weeks of fiscal 2023, respectively, as compared to the second quarter and first 26 weeks of fiscal 2022, driven by increased volumes, cost inflation, continued operational cost pressures from the operating environment and our planned investments to drive our transformation initiatives under our Recipe For Growth strategy. This quarter included: transformation investments of $55 million; new-colleague related productivity costs of $22 million; and expenditures related to the labor dispute we resolved in the second quarter of fiscal 2023. We continued to invest in associate retention and best-in-class training, primarily for transportation and warehouse colleagues. Our Sysco Driver Academy is contribu

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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 2022 Form 10-K. There have been no significant changes to our market risks since July 2, 2022.

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 December 31, 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 December 31, 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 December 31, 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 2022 Form 10-K.

Unfavorable macroeconomic conditions, as well as unfavorable conditions in particular local markets, may adversely affect our results of operations and financial condition.

Our results of operations are susceptible to regional, national and international economic trends and uncertainties. Economic conditions can affect us in the following ways:

• Unfavorable conditions can depress sales and/or gross margins in a given market.

• Food cost and fuel cost inflation can lead to reductions in the frequency of dining out and the amount spent by consumers for food-away-from-home purchases, reducing demand for our products.

• Heightened uncertainty in the financial markets negatively affects consumer confidence and discretionary spending.

• The inability to consistently access credit markets could impair our ability to market and distribute food products, support our operations and meet our customers’ needs.

• Liquidity and the inability of our customers and suppliers to consistently access credit markets to obtain cash to support their operations can cause temporary interruptions in our ability to collect funds from our customers and obtain the products and supplies that we need in the quantities and at the prices that we request.

• Foreign exchange rate fluctuations can adversely impact our competitiveness and/or financial results.

The countries in which we operate, have experienced, and are experiencing, from time to time, deteriorating economic conditions and heightened uncertainty in financial markets, which have adversely impacted business and consumer confidence and spending and depressed capital investment and economic activity in the affected regions. Such conditions and high levels of uncertainty make it difficult to predict when, or if, a recession may occur. In fact, some commentators have suggested that the U.S. is already in a recession. A prolonged economic downturn or recession in the U.S. or global economies, and the impact on gross domestic product growth, corporate earnings, consumer confidence, employment rates, income levels and/or personal wealth, could have a material adverse effect on our results of operations and financial condition.

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

Recent Sales of Unregistered Securities

None

Issuer Purchases of Equity Securities

None

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.