UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended April 1, 2023

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

506,682,318 shares of common stock were outstanding as of April 14, 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 Corpor

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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 results for the third quarter of fiscal 2023 were primarily driven by 11.7% sales growth compared to the third quarter of fiscal 2022. This double-digit sales growth was driven by volume growth, effective management of inflation, and continued share gains. Our gross profit growth this quarter outpaced operating expense, as we continued to improve our supply chain productivity. We continued to make progress on our Recipe for Growth strategy, with advancement in our digital tools, supply chain investments, and sales and merchandising initiatives, both domestically and internationally. Our net earnings for the first 39 weeks 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 third quarter of fiscal 2023 to the third quarter of fiscal 2022 are presented below:

• Sales:

◦increased 11.7%, or $2.0 billion, to $18.9 billion;

• Operating income:

◦increased 40.0%, or $198.4 million, to $694.2 million;

◦adjusted operating income increased 27.8%, or $160.1 million, to $735.5 million;

• Net earnings:

◦increased 41.6%, or $126.3 million, to $429.6 million;

◦adjusted net earnings increased 26.9%, or $97.6 million, to $460.5 million;

• Basic earnings per share:

◦increased 41.7%, or $0.25, to $0.85 per share;

• Diluted earnings per share:

◦increased 42.4%, or $0.25, to $0.84 per share;

◦adjusted diluted earnings per share increased 26.8%, or $0.19, to $0.90;

• EBITDA:

◦increased 25.8%, or $181.6 million, to $885.0 million; and

◦adjusted EBITDA increased 19.0%, or $144.0 million, to $899.7 million.

Comparisons of results from the first 39 weeks of fiscal 2023 to the first 39 weeks of fiscal 2022 are presented below:

• Sales:

◦increased 13.9%, or $6.9 billion, to $56.6 billion;

• Operating income:

◦increased 31.6%, or $496.8 million, to $2.1 billion;

◦adjusted operating income increased 24.6%, or $431.7 million, to $2.2 billion;

• Net earnings:

◦increased 22.1%, or $187.6 million, to $1.0 billion;

◦adjusted net earnings increased 25.5%, or $276.3 million, to $1.4 billion;

• Basic earnings per share:

◦increased 22.9%, or $0.38, to $2.04 per share;

• Diluted earnings per share:

◦increased 23.0%, or $0.38, to $2.03 per share; and

◦adjusted diluted earnings per share increased 26.5%, or $0.56, to $2.67;

• EBITDA:

◦increased 5.6%, or $121.9 million, to $2.3 billion; and

◦adjusted EBITDA increased 16.2%, or $368.6 million, to $2.6 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 a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory, losses on the extinguishment of long-term debt 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

Sysco continues to outperform the foodservice market due to the success of the Recipe for Growth strategy. The food-away-from-home sector is a healthy long-term market. Sysco is diversified and well positioned as the market leader in food service and remains on track to meet our stated goal of achieving growth at a rate of 1.35 times the U.S. foodservice industry in fiscal 2023. We delivered strong sales growth throughout the quarter, despite industry volumes decelerating to slight growth beginning in March.

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 third quarter of fiscal 2023 was volume growth, as we experienced a 6.1% improvement in U.S. Foodservice case volume and a 4.2% improvement in local case volume within our U.S. segment, in each instance as compared to the third 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 third quarter of fiscal 2023, and we expect to continue to grow profitably with both new and existing customers.

Product cost inflation has also been a driver of our sales and gross profit performance. We experienced inflation at a rate of 4.9% and 7.6% in the third quarter and first 39 weeks of fiscal 2023, respectively, at the total enterprise level, primarily driven by inflation in the dairy and frozen categories. The rate of inflation, as compared to the prior year, declined at an accelerated rate, and this trend is continuing into the fourth quarter of fiscal 2023. During the quarter, we were successful in managing our inflation, resulting in an increase in gross profit dollars. Gross margin increased 35 and 28 basis points in the third quarter and first 39 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 8.7% and 12.3% during the third quarter and first 39 weeks of fiscal 2023, respectively, as compared to the third quarter and first 39 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 $60 million. We continued to improve our supply chain efficiency, while investing in associate retention and best-in-class training, primarily for transportation and warehouse colleagues. Our Sysco Driver Academy 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 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 April 1, 2023. 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 April 1, 2023, 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 April 1, 2023, 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.

An investment in our securities involves various risks. You should consider carefully all of the risk factors described in Item 1A of our fiscal 2022 Form 10-K and our Form 10-Q for the three months ended December 31, 2022, as well as other information included and incorporated by reference in this report.

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 third quarter of fiscal 2023:

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable

On March 5, 2023, Sysco became aware of a cybersecurity event perpetrated by a threat actor believed to have begun on January 14, 2023. Immediately upon detection, Sysco initiated an investigation, with the assistance of cybersecurity and forensics professionals. The investigation determined that the threat actor extracted certain company data, including data relating to operation of the business, customers, employees and personal data. This data extraction has not impacted Sysco’s operational systems and related business functions, and its service to customers continued uninterrupted. Sysco also notified federal law enforcement. The investigation is ongoing, and Sysco has begun the process of preparing to comply with its obligations with respect to the extracted data.

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.