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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 industry leading training programs are contributing to improved retention and productivity, and we expect to see this trend improve as the percentage of drivers and warehouse colleagues trained from within Sysco continues to grow. We believe the advancements we are making in our physical capabilities, and the investments we are making in improved training, will provide improved service levels to our customers and strengthen Sysco’s ability to profitably win market share.

Pension Settlement Charge

The Sysco Corporation Retirement Plan (the Plan) executed a commitment agreement to purchase a nonparticipating single premium group annuity contract that transferred $695.0 million of the Plan’s defined benefit pension obligations related to certain pension benefits. As a result of the transaction, we recognized a one-time, non-cash pre-tax pension settlement charge of $315.4 million in the second quarter of fiscal 2023. This charge has been treated as a Certain Item. The amount of on-going expense for the Plan has been remeasured for the remainder of the fiscal year. Pension expense is elevated over fiscal 2022 due to increased interest rates and lower asset returns; the majority of the increase is included within Other expense (income), net in the consolidated results of operations. We expect pension expense within this line item to increase by approximately $16 million for the last 13 weeks of fiscal 2023, as compared to the same time period in fiscal 2022.

Mergers and Acquisitions

We continue to focus on mergers and acquisitions as a part of our growth strategy, where we plan to reinforce our existing businesses while cultivating new channels, new segments and new capabilities. In the first and second quarters of fiscal 2023, we acquired a total of three small U.S.-based independent Italian food distributors as part of our plan to meaningfully scale our growing Italian platform.

The results of these acquisitions were not material to the consolidated results of the company for the third quarter of fiscal 2023.

Strategy

Our purpose is “Connecting the World to Share Food and Care for One Another.” Purpose driven companies are believed to perform better, and we believe our purpose will assist us to grow substantially faster than the foodservice distribution industry and deliver profitable growth through our “Recipe for Growth” transformation. This growth transformation is supported by strategic pillars that we believe will allow us to better serve our customers, including our digital, products and solutions, supply chain, customer teams, and future horizons strategies.

Our various business transformation initiatives remain on track, including promoting our specialty programs for produce, protein and Italian products and our customer growth initiatives. Our strategic initiative to enable omni-channel inventory fulfillment is operating in our first test region, and we have made progress in expanding to deliveries six days a week. From these actions as a part of our Recipe for Growth, the benefits of our developing capabilities are apparent in the new customers we are winning and in the progress we are making toward increasing market share. We expect that, as our Recipe for Growth matures, the impact on our top-line growth will continue to accelerate. We are committed to profitably growing 1.5 times the market by the end of fiscal 2024, the third year of our three-year strategic plan.

Results of Operations

The following table sets forth the components of our consolidated results of operations expressed as a percentage of sales for the periods indicated:

13-Week Period Ended39-Week Period Ended
Apr. 1, 2023Apr. 2, 2022Apr. 1, 2023Apr. 2, 2022
Sales100.0%100.0%100.0%100.0%
Cost of sales81.882.281.982.1
Gross profit18.217.818.117.9
Operating expenses14.514.914.414.7
Operating income3.72.93.73.2
Interest expense0.80.70.71.0
Other expense (income), net—(0.1)0.7—
Earnings before income taxes2.92.32.32.2
Income taxes0.60.50.50.5
Net earnings2.3%1.8%1.8%1.7%

The following table sets forth the change in the components of our consolidated results of operations expressed as a percentage increase or decrease over the comparable period in the prior year:

13-Week Period Ended39-Week Period Ended
Apr. 1, 2023Apr. 1, 2023
Sales11.7%13.9%
Cost of sales11.213.5
Gross profit13.915.7
Operating expenses8.712.3
Operating income40.031.6
Interest expense8.8(21.0)
Other expense (income), net (1) (2)(137.8)(1,365.5)
Earnings before income taxes43.720.1
Income taxes51.413.6
Net earnings41.6%22.1%
Basic earnings per share41.7%22.9%
Diluted earnings per share42.423.0
Average shares outstanding(0.1)(0.6)
Diluted shares outstanding(0.5)(0.8)
(1)Other expense (income), net was expense of $5.2 million and income of $13.8 million in the third quarter of fiscal 2023 and fiscal 2022, respectively.
(2)Other expense (income), net was expense of $350.6 million and income of $27.7 million in the first 39 weeks of fiscal 2023 and fiscal 2022, respectively.

The following tables represent our results by reportable segments:

13-Week Period Ended Apr. 1, 2023
U.S. Foodservice OperationsInternational Foodservice OperationsSYGMAOtherGlobal Support CenterConsolidated Totals
(In thousands)
Sales$13,257,519$3,344,121$1,972,058$301,978$—$18,875,676
Sales increase10.4%18.0%9.9%13.1%11.7%
Percentage of total70.2%17.7%10.4%1.7%100.0%
Operating income (loss)$855,766$48,352$25,439$11,836$(247,216)$694,177
Operating income (loss) increase (decrease)14.6%NMNMNM(4.5)%40.0%
Percentage of total segments90.9%5.1%2.7%1.3%100.0%
Operating income as a percentage of sales6.5%1.4%1.3%3.9%3.7%
13-Week Period Ended Apr. 2, 2022
U.S. Foodservice OperationsInternational Foodservice OperationsSYGMAOtherGlobal Support CenterConsolidated Totals
(In thousands)
Sales$12,006,163$2,834,089$1,794,837$267,050$—$16,902,139
Percentage of total71.0%16.8%10.6%1.6%100.0%
Operating income (loss)$746,467$7,760$4,362$(3,972)$(258,888)$495,729
Percentage of total segments98.9%1.0%0.6%(0.5)%100.0%
Operating income (loss) as a percentage of sales6.2%0.3%0.2%(1.5)%2.9%
39-Week Period Ended Apr. 1, 2023
U.S. Foodservice OperationsInternational Foodservice OperationsSYGMAOtherGlobal Support CenterConsolidated Totals
(In thousands)
Sales$39,937,055$9,910,267$5,839,051$910,086$—$56,596,459
Sales increase13.8%16.1%10.8%18.8%13.9%
Percentage of total70.6%17.5%10.3%1.6%100.0%
Operating income (loss)$2,540,555$192,945$37,715$33,255$(735,318)$2,069,152
Operating income (loss) increase14.4%249.7%NMNM4.8%31.6%
Percentage of total segments90.6%6.9%1.3%1.2%100.0%
Operating income as a percentage of sales6.4%1.9%0.6%3.7%3.7%
39-Week Period Ended Apr. 2, 2022
U.S. Foodservice OperationsInternational Foodservice OperationsSYGMAOtherGlobal Support CenterConsolidated Totals
(In thousands)
Sales$35,107,281$8,535,608$5,270,193$765,806$—$49,678,888
Percentage of total70.7%17.2%10.6%1.5%100.0%
Operating income (loss)$2,220,812$55,181$(4,814)$2,667$(701,526)$1,572,320
Percentage of total segments97.7%2.4%(0.2)%0.1%100.0%
Operating income (loss) as a percentage of sales6.3%0.6%(0.1)%0.3%3.2%

Based on information in Note 15, “Business Segment Information,” in the Notes to Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q, in the third quarter and first 39 weeks of fiscal 2023, U.S. Foodservice Operations and International Foodservice Operations collectively represented approximately 87.9% and 88.1% of Sysco’s overall sales and 96.0% and 97.5% of total segment operating income, respectively. This illustrates that these segments represent a substantial majority of our total segment results when compared to other reportable segments.

Results of U.S. Foodservice Operations

The following tables set forth a summary of the components of operating income expressed as a percentage increase or decrease over the comparable period in the prior year:

13-Week Period Ended Apr. 1, 202313-Week Period Ended Apr. 2, 2022Change in Dollars% Change
(Dollars in thousands)
Sales$13,257,519$12,006,163$1,251,35610.4%
Gross profit2,545,8592,270,045275,81412.2
Operating expenses1,690,0931,523,578166,51510.9
Operating income$855,766$746,467$109,29914.6%
Gross profit$2,545,859$2,270,045$275,81412.2%
Adjusted operating expenses (Non-GAAP)1,678,3901,520,676157,71410.4
Adjusted operating income (Non-GAAP)$867,469$749,369$118,10015.8%
39-Week Period Ended Apr. 1, 202339-Week Period Ended Apr. 2, 2022Change in Dollars% Change
(Dollars in thousands)
Sales$39,937,055$35,107,281$4,829,77413.8%
Gross profit7,651,2916,594,4771,056,81416.0
Operating expenses5,110,7364,373,665737,07116.9
Operating income$2,540,555$2,220,812$319,74314.4%
Gross profit$7,651,291$6,594,477$1,056,81416.0%
Adjusted operating expenses (Non-GAAP)5,079,1404,364,629714,51116.4
Adjusted operating income (Non-GAAP)$2,572,151$2,229,848$342,30315.4%

Sales

The following table sets forth the percentage and dollar value increase or decrease in the major factors impacting sales as compared to the corresponding prior year period in order to demonstrate the cause and magnitude of change:

Increase (Decrease)Increase (Decrease)
13-Week Period39-Week Period
(Dollars in millions)(Dollars in millions)
Cause of changePercentageDollarsPercentageDollars
Case volume (1)5.9%$709.65.2%$1,833.7
Inflation4.2510.07.62,664.2
Other (2)0.331.81.0331.9
Total change in sales10.4%$1,251.413.8%$4,829.8
(1)Case volumes increased 6.1% and 6.2% compared to the third quarter and first 39 weeks of fiscal 2022, respectively. This volume increase resulted in a 5.9% and 5.2% increase in the dollar value of sales compared to the third quarter and first 39 weeks of fiscal 2022, respectively.
(2)Case volume reflects our broadline and specialty businesses, with the exception of our specialty meats business, which measures its volume in pounds. Any impact in volumes from these specialty meats operations is included within “Other.”

The sales growth in our U.S. Foodservice Operations was fueled by three factors: inflation, market growth, and strong market share gains. Case volumes from our U.S. Foodservice Operations increased 6.1% and 6.2% in the third quarter and first 39 weeks of fiscal 2023, respectively, as compared to the third quarter and first 39 weeks of fiscal 2022. This included a 4.2% and 4.4% increase in local customer case volume in the third quarter and first 39 weeks of fiscal 2023, respectively, as compared to the third quarter and first 39 weeks of fiscal 2022.

Operating Income

The increase in operating income for the third quarter and first 39 weeks of fiscal 2023, as compared to the third quarter and first 39 weeks of fiscal 2022, was driven by gross profit dollar growth and partially offset by an increase in operating expenses.

Gross profit dollar growth in the third quarter and first 39 weeks of fiscal 2023, as compared to the third quarter and first 39 weeks of fiscal 2022, was driven primarily by higher volumes, as well as continued progress with effective management of product cost inflation and our partnership growth management initiatives. The estimated change in product costs, an internal measure of inflation or deflation, increased in both the third quarter and first 39 weeks of fiscal 2023. For the third quarter and first 39 weeks of fiscal 2023, this change in product costs was primarily driven by inflation in the dairy and frozen food categories. Gross margin, which is gross profit as a percentage of sales, was 19.2% in each of the third quarter and first 39 weeks of fiscal 2023 for our U.S. Foodservice Operations, which was an increase of 29 basis points compared to gross margin of 18.9% in the third quarter of fiscal 2022, and an increase of 38 basis points compared to gross margin of 18.8% in the first 39 weeks of fiscal 2022.

The increase in operating expenses for the third quarter and first 39 weeks of fiscal 2023, as compared to the third quarter and first 39 weeks of fiscal 2022, was primarily driven by increased volumes, cost inflation, operational pressures from the operating environment and our planned investments to drive our transformation initiatives.

Results of International Foodservice Operations

The following table sets forth a summary of the components of operating income and adjusted operating income expressed as a percentage increase or decrease over the comparable period in the prior year:

13-Week Period Ended Apr. 1, 202313-Week Period Ended Apr. 2, 2022Change in Dollars% Change
(Dollars in thousands)
Sales$3,344,121$2,834,089$510,03218.0%
Gross profit642,778570,24172,53712.7
Operating expenses594,426562,48131,9455.7
Operating income$48,352$7,760$40,592523.1%
Gross profit$642,778$570,241$72,53712.7%
Adjusted operating expenses (Non-GAAP)575,728535,61740,1117.5
Adjusted operating income (Non-GAAP)$67,050$34,624$32,42693.7%
Sales on a constant currency basis (Non-GAAP)$3,550,782$2,834,089$716,69325.3%
Gross profit on a constant currency basis (Non-GAAP)683,023570,241112,78219.8
Adjusted operating expenses on a constant currency basis (Non-GAAP)612,798535,61777,18114.4
Adjusted operating income (Non-GAAP)$70,225$34,624$35,601102.8%
39-Week Period Ended Apr. 1, 202339-Week Period Ended Apr. 2, 2022Change in Dollars% Change
(Dollars in thousands)
Sales$9,910,267$8,535,608$1,374,65916.1%
Gross profit1,916,5031,725,306191,19711.1
Operating expenses1,723,5581,670,12553,4333.2
Operating income$192,945$55,181$137,764249.7%
Gross profit$1,916,503$1,725,306$191,19711.1%
Adjusted operating expenses (Non-GAAP)1,663,6821,586,91476,7684.8
Adjusted operating income (Non-GAAP)$252,821$138,392$114,42982.7%
Sales on a constant currency basis (Non-GAAP)$10,758,433$8,535,608$2,222,82526.0%
Gross profit on a constant currency basis (Non-GAAP)2,094,3571,725,306369,05121.4
Adjusted operating expenses on a constant currency basis (Non-GAAP)1,826,6871,586,914239,77315.1
Adjusted operating income on a constant currency basis (Non-GAAP)$267,670$138,392$129,27893.4%

Sales

The following tables set forth the percentage and dollar value increase or decrease in the major components impacting sales as compared to the corresponding prior year period in order to demonstrate the cause and magnitude of change.

Increase (Decrease)Increase (Decrease)
13-Week Period39-Week Period
(Dollars in millions)(Dollars in millions)
Cause of changePercentageDollarsPercentageDollars
Inflation14.9%$421.715.2%$1,293.4
Foreign currency(7.3)(206.7)(9.9)(848.2)
Other (1)10.4295.010.8929.5
Total change in sales18.0%$510.016.1%$1,374.7
(1)The impact of volumes as a component of sales growth from international operations are included within “Other.” Volume in our foreign operations includes volume metrics that differ from country to country and cannot be aggregated on a consistent, comparable basis.

Sales for the third quarter and first 39 weeks of fiscal 2023 were higher, as compared to the third quarter and first 39 weeks of fiscal 2022, due to inflation, along with an improvement in volume, some of which was attributable to our Recipe for Growth initiatives. Partially offsetting these increases was the negative impact of foreign currency translation.

Operating Income

The increase in operating income for the third quarter and first 39 weeks of fiscal 2023, as compared to the third quarter and first 39 weeks of fiscal 2022, was due to the continuing increase in sales volumes, along with specific efforts to optimize our gross profit while addressing our increased operating expenses.

The increase in gross profit dollars in the third quarter and first 39 weeks of fiscal 2023, as compared to the third quarter and first 39 weeks of fiscal 2022, was attributable to the increase in sales volume and the management of inflation, along with specific efforts to optimize our gross profit dollars.

The increase in operating expenses for the third quarter and first 39 weeks of fiscal 2023, as compared to the third quarter and first 39 weeks of fiscal 2022, was primarily due to increased volume and inflation.

Results of SYGMA and Other Segment

For SYGMA, sales were 9.9% and 10.8% higher in the third quarter and first 39 weeks of fiscal 2023, respectively, as compared to the third quarter and first 39 weeks of fiscal 2022, primarily from inflation and fee increases to customers. Operating income increased by $21.1 million and $42.5 million in the third quarter and first 39 weeks of fiscal 2023, respectively, as compared to the third quarter and first 39 weeks of fiscal 2022, primarily due to fee increases to customers.

For the operations that are grouped within Other, operating income increased $15.8 million and $30.6 million in the third quarter and first 39 weeks of fiscal 2023, respectively, as compared to the third quarter and first 39 weeks of fiscal 2022, primarily due to the recovery of our hospitality business, Guest Worldwide. Volume for this business has improved as hospitality occupancy rates across the industry have grown from prior year levels.

Global Support Center Expenses

Our Global Support Center generally includes all expenses of the corporate office and Sysco’s shared service operations. These expenses in the third quarter of fiscal 2023 increased $15.0 million, or 6.6%, as compared to the third quarter of fiscal 2022, primarily due to expenses associated with business technology transformation initiatives and increases in self-insurance reserves. These expenses in the first 39 weeks of fiscal 2023 increased $62.9 million, or 9.4%, as compared to the first 39 weeks of fiscal 2022, primarily due to increases in self-insurance reserves, fuel hedging program expenses and expenses associated with business technology transformation initiatives.

Included in Global Support Center expenses are Certain Items that totaled $10.9 million and $27.2 million in the third quarter and first 39 weeks of fiscal 2023, as compared to $49.9 million and $91.6 million in the third quarter and first 39 weeks of fiscal 2022, respectively. Certain Items impacting the third quarter and first 39 weeks of fiscal 2023 were primarily expenses associated with our business technology transformation initiatives. Certain Items impacting the third quarter and first 39 weeks of fiscal 2022 were primarily expenses associated with our business technology transformation initiatives and expenses associated with acquisitions.

Interest Expense

Interest expense increased $10.9 million and decreased $104.0 million for the third quarter and first 39 weeks of fiscal 2023, respectively, as compared to the third quarter and first 39 weeks of fiscal 2022. The increase in the third quarter was primarily due to an increase in commercial paper borrowing activity compared to the third quarter of fiscal 2022. The decrease in the first 39 weeks of fiscal 2023 compared to the first 39 weeks of fiscal 2022 was primarily due to a $115.6 million charge taken for debt extinguished in fiscal 2022.

Other income and expense

Other expense increased $19.0 million and $378.3 million for the third quarter and first 39 weeks of fiscal 2023, respectively, as compared to the third quarter and first 39 weeks of fiscal 2022. The increase in the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022 was due to an increase in pension expenses, which were driven by increased interest rates and lower asset returns. The expense in the first 39 weeks of fiscal 2023 was primarily attributable to 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, as well as higher on-going pension expense.

Net Earnings

Net earnings increased 41.6% and 22.1% in the third quarter and first 39 weeks of fiscal 2023, respectively, as compared to the third quarter and first 39 weeks of fiscal 2022, due primarily to the items noted above for operating income and other expense, as well as items impacting our income taxes that are discussed in Note 13, “Income Taxes,” in the Notes to Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q. Adjusted net earnings, excluding Certain Items, increased 26.9% and 25.5% in the third quarter and first 39 weeks of fiscal 2023, primarily due to an increase in sales volume.

Earnings Per Share

Basic earnings per share in the third quarter of fiscal 2023 were $0.85, a 41.7% increase from the comparable prior year amount of $0.60 per share. Diluted earnings per share in the third quarter of fiscal 2023 were $0.84, a 42.4% increase from the comparable prior year period amount of $0.59 per share. Adjusted diluted earnings per share, excluding Certain Items, in the third quarter of fiscal 2023 were $0.90, a 26.8% increase from the comparable prior year amount of $0.71 per share.

Basic earnings per share in the first 39 weeks of fiscal 2023 were $2.04, a 22.9% increase from the comparable prior year amount of $1.66 per share. Diluted earnings per share in the first 39 weeks of fiscal 2023 were $2.03, a 23.0% increase from the comparable prior year period amount of $1.65 per share. Adjusted diluted earnings per share, excluding Certain Items, in the first 39 weeks of fiscal 2023 were $2.67, a 26.5% increase from the comparable prior year amount of $2.11 per share.

Non-GAAP Reconciliations

Our discussion of our results includes certain non-GAAP financial measures, such as EBITDA and adjusted EBITDA, which we believe provide important perspective with respect to underlying business trends. Other than free cash flow and EBITDA, any non-GAAP financial measures will be denoted as adjusted measures to remove the impact of: (1) restructuring and transformational project costs consisting of: (a) restructuring charges, (b) expenses associated with our various transformation initiatives and (c) facility closure and severance charges; (2) acquisition-related costs consisting of: (a) intangible amortization expense and (b) acquisition costs and due diligence costs related to our acquisitions; and (3) 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 related 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 results of our operations can be impacted due to changes in exchange rates applicable in converting local currencies to U.S. dollars. We measure our results on a constant currency basis. Constant currency operating results are calculated by translating current-period local currency operating results with the currency exchange rates used to translate the financial statements in the comparable prior-year period to determine what the current-period U.S. dollar operating results would have been if the currency exchange rate had not changed from the comparable prior-year period.
Management believes that adjusting its operating expenses, operating income, net earnings and diluted earnings per share to remove these Certain Items and presenting its results on a constant currency basis, provides an important perspective with respect to our underlying business trends and results and provides meaningful supplemental information to both management and investors that (1) is indicative of the performance of the company’s underlying operations and (2) facilitates comparisons on a year-over-year basis.
Sysco has a history of growth through acquisitions and excludes from its non-GAAP financial measures the impact of acquisition-related intangible amortization, acquisition costs and due-diligence costs for those acquisitions. We believe this approach significantly enhances the comparability of Sysco’s results for fiscal 2023 and fiscal 2022.
Set forth below is a reconciliation of sales, operating expenses, operating income, net earnings and diluted earnings per share to adjusted results for these measures for the periods presented. Individual components of diluted earnings per share may not add up to the total presented due to rounding. Adjusted diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding.
13-Week Period Ended Apr. 1, 202313-Week Period Ended Apr. 2, 2022Change in Dollars% Change
Sales (GAAP)$18,875,676$16,902,139$1,973,53711.7%
Impact of currency fluctuations (1)211,164—211,1641.2
Comparable sales using a constant currency basis (Non-GAAP)$19,086,840$16,902,139$2,184,70112.9%
Cost of sales (GAAP)$15,444,316$13,888,745$1,555,57111.2%
Impact of inventory valuation adjustment (2)—(29,550)29,5500.2
Cost of sales adjusted for Certain Items (Non-GAAP)$15,444,316$13,859,195$1,585,12111.4%
Gross profit (GAAP)$3,431,360$3,013,394$417,96613.9%
Impact of inventory valuation adjustment (2)—29,550(29,550)(1.1)
Comparable gross profit adjusted for Certain Items (Non-GAAP)3,431,3603,042,944388,41612.8
Impact of currency fluctuations (1)41,794—41,7941.3
Comparable gross profit adjusted for Certain Items using a constant currency basis (Non-GAAP)$3,473,154$3,042,944$430,21014.1%
Gross margin (GAAP)18.18%17.83%35 bps
Impact of inventory valuation adjustment (2)—0.17-17 bps
Comparable gross margin adjusted for Certain Items (Non-GAAP)18.1818.0018 bps
Impact of currency fluctuations (1)0.02—2 bps
Comparable gross margin adjusted for Certain Items using a constant currency basis (Non-GAAP)18.20%18.00%20 bps
Operating expenses (GAAP)$2,737,183$2,517,665$219,5188.7%
Impact of restructuring and transformational project costs (3)(12,255)(19,171)6,91636.1
Impact of acquisition-related costs (4)(29,004)(36,699)7,69521.0
Impact of bad debt reserve adjustments (5)(90)5,717(5,807)NM
Operating expenses adjusted for Certain Items (Non-GAAP)2,695,8342,467,512228,3229.3
Impact of currency fluctuations (1)41,607—41,6071.6
Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP)$2,737,441$2,467,512$269,92910.9%
Operating expense as a percentage of sales (GAAP)14.50%14.90%-40 bps
Impact of certain item adjustments(0.22)(0.30)8 bps
Adjusted operating expense as a percentage of sales (Non-GAAP)14.28%14.60%-32 bps
Operating income (GAAP)$694,177$495,729$198,44840.0%
Impact of inventory valuation adjustment (2)—29,550(29,550)NM
Impact of restructuring and transformational project costs (3)12,25519,171(6,916)(36.1)
Impact of acquisition-related costs (4)29,00436,699(7,695)(21.0)
Impact of bad debt reserve adjustments (5)90(5,717)5,807NM
Operating income adjusted for Certain Items (Non-GAAP)735,526575,432160,09427.8
Impact of currency fluctuations (1)187—1870.1
Comparable operating income adjusted for Certain Items using a constant currency basis (Non-GAAP)$735,713$575,432$160,28127.9%
Operating margin (GAAP)3.68%2.93%75 bps
13-Week Period Ended Apr. 1, 202313-Week Period Ended Apr. 2, 2022Change in Dollars% Change
Operating margin adjusted for Certain Items (Non-GAAP)3.90%3.40%50 bps
Operating margin adjusted for Certain Items using a constant currency basis (Non-GAAP)3.85%3.40%45 bps
Other expense (income) (GAAP)$5,209$(13,777)$18,986NM
Impact of other non-routine gains and losses(448)—(448)NM
Other expense (income) adjusted for Certain Items (Non-GAAP)$4,761$(13,777)$18,538NM
Net earnings (GAAP)$429,604$303,325$126,27941.6%
Impact of inventory valuation adjustment (2)—29,550(29,550)NM
Impact of restructuring and transformational project costs (3)12,25519,171(6,916)(36.1)
Impact of acquisition-related costs (4)29,00436,699(7,695)(21.0)
Impact of bad debt reserve adjustments (5)90(5,717)5,807NM
Impact of other non-routine gains and losses448—448NM
Tax impact of inventory valuation adjustment (6)—(7,449)7,449NM
Tax impact of restructuring and transformational project costs (6)(3,190)(5,579)2,38942.8
Tax impact of acquisition-related costs (6)(7,550)(8,537)98711.6
Tax impact of bad debt reserves adjustments (6)(23)1,445(1,468)NM
Tax impact of other non-routine gains and losses (6)(117)—(117)NM
Net earnings adjusted for Certain Items (Non-GAAP)$460,521$362,908$97,61326.9%
Diluted earnings per share (GAAP)$0.84$0.59$0.2542.4%
Impact of inventory valuation adjustment (2)—0.06(0.06)NM
Impact of restructuring and transformational project costs (3)0.020.04(0.02)(50.0)
Impact of acquisition-related costs (4)0.060.07(0.01)(14.3)
Impact of bad debt reserve adjustments (5)—(0.01)0.01NM
Tax impact of inventory valuation adjustment (6)—(0.01)0.01NM
Tax impact of restructuring and transformational project costs (6)(0.01)(0.01)——
Tax impact of acquisition-related costs (6)(0.01)(0.02)0.0150.0
Diluted earnings per share adjusted for Certain Items (Non-GAAP) (7)$0.90$0.71$0.1926.8%
(1)Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on the current year results.
(2)Fiscal 2022 represents a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory.
(3)Fiscal 2023 includes $2 million related to restructuring, severance, and facility closure charges and $10 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy. Fiscal 2022 includes $7 million related to restructuring, severance, and facility closure charges and $12 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy.
(4)Fiscal 2023 includes $27 million of intangible amortization expense and $2 million in acquisition and due diligence costs. Fiscal 2022 includes $27 million of intangible amortization expense and $10 million in acquisition and due diligence costs.
(5)Fiscal 2023 and fiscal 2022 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
(6)The tax impact of adjustments for Certain Items are calculated by multiplying the pretax impact of each Certain Item by the statutory rates in effect for each jurisdiction where the Certain Item was incurred.
(7)Individual components of diluted earnings per share may not add up to the total presented due to rounding. Total diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding.
NM represents that the percentage change is not meaningful.
39-Week Period Ended Apr. 1, 202339-Week Period Ended Apr. 2, 2022Change in Dollars% Change
Sales (GAAP)$56,596,459$49,678,888$6,917,57113.9%
Impact of currency fluctuations (1)862,752—862,7521.8
Comparable sales using a constant currency basis (Non-GAAP)$57,459,211$49,678,888$7,780,32315.7%
Cost of sales (GAAP)$46,326,628$40,802,636$5,523,99213.5%
Impact of inventory valuation adjustment (2)2,571(29,550)32,1210.1
Cost of sales adjusted for Certain Items (Non-GAAP)$46,329,199$40,773,086$5,556,11313.6%
Gross profit (GAAP)$10,269,831$8,876,252$1,393,57915.7%
Impact of inventory valuation adjustment (2)(2,571)29,550(32,121)(0.4)
Comparable gross profit adjusted for Certain Items (Non-GAAP)10,267,2608,905,8021,361,45815.3
Impact of currency fluctuations (1)182,727—182,7272.0
Comparable gross profit adjusted for Certain Items using a constant currency basis (Non-GAAP)$10,449,987$8,905,802$1,544,18517.3%
Gross margin (GAAP)18.15%17.87%28 bps
Impact of inventory valuation adjustment (2)(0.01)0.06-7 bps
Comparable gross margin adjusted for Certain Items (Non-GAAP)18.1417.9321 bps
Impact of currency fluctuations (1)0.05—5 bps
Comparable gross margin adjusted for Certain Items using a constant currency basis (Non-GAAP)18.19%17.93%26 bps
Operating expenses (GAAP)$8,200,679$7,303,932$896,74712.3%
Impact of restructuring and transformational project costs (3)(38,288)(70,058)31,77045.3
Impact of acquisition-related costs (4)(87,419)(103,449)16,03015.5
Impact of bad debt reserve adjustments (5)4,42519,216(14,791)(77.0)
Operating expenses adjusted for Certain Items (Non-GAAP)8,079,3977,149,641929,75613.0
Impact of currency fluctuations (1)179,277—179,2772.5
Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP)$8,258,674$7,149,641$1,109,03315.5%
Operating expense as a percentage of sales (GAAP)14.49%14.70%-21 bps
Impact of certain item adjustments(0.21)(0.31)10 bps
Adjusted operating expense as a percentage of sales (Non-GAAP)14.28%14.39%-11 bps
Operating income (GAAP)$2,069,152$1,572,320$496,83231.6%
Impact of inventory valuation adjustment (2)(2,571)29,550(32,121)NM
Impact of restructuring and transformational project costs (3)38,28870,058(31,770)(45.3)
Impact of acquisition-related costs (4)87,419103,449(16,030)(15.5)
Impact of bad debt reserve adjustments (5)(4,425)(19,216)14,79177.0
Operating income adjusted for Certain Items (Non-GAAP)2,187,8631,756,161431,70224.6
Impact of currency fluctuations (1)3,449—3,4490.2
Comparable operating income adjusted for Certain Items using a constant currency basis (Non-GAAP)$2,191,312$1,756,161$435,15124.8%
39-Week Period Ended Apr. 1, 202339-Week Period Ended Apr. 2, 2022Change in Dollars% Change
Interest expense (GAAP)$391,123$495,131$(104,008)(21.0)%
Impact of loss on extinguishment of debt—(115,603)115,603NM
Interest expense adjusted for Certain Items (Non-GAAP)$391,123$379,528$11,5953.1%
Other expense (income) (GAAP)$350,614$(27,705)$378,319NM
Impact of other non-routine gains and losses (6)(315,326)—(315,326)NM
Other expense (income) adjusted for Certain Items (Non-GAAP)$35,288$(27,705)$62,993NM
Net earnings (GAAP)$1,036,388$848,779$187,60922.1%
Impact of inventory valuation adjustment (2)(2,571)29,550(32,121)NM
Impact of restructuring and transformational project costs (3)38,28870,058(31,770)(45.3)
Impact of acquisition-related costs (4)87,419103,449(16,030)(15.5)
Impact of bad debt reserve adjustments (5)(4,425)(19,216)14,79177.0
Impact of loss on extinguishment of debt—115,603(115,603)NM
Impact of other non-routine gains and losses (6)315,326—315,326NM
Tax impact of inventory valuation adjustment (7)648(7,449)8,097NM
Tax impact of restructuring and transformational project costs (7)(9,649)(17,661)8,01245.4
Tax impact of acquisition-related costs (7)(22,031)(26,079)4,04815.5
Tax impact of bad debt reserves adjustments (7)1,1154,844(3,729)(77.0)
Tax impact of loss on extinguishment of debt (7)—(29,143)29,143NM
Tax impact of other non-routine gains and losses (7)(79,466)—(79,466)NM
Impact of adjustments to uncertain tax positions—12,000(12,000)NM
Net earnings adjusted for Certain Items (Non-GAAP)$1,361,042$1,084,735$276,30725.5%
Diluted earnings per share (GAAP)$2.03$1.65$0.3823.0%
Impact of inventory valuation adjustment (2)(0.01)0.06(0.07)NM
Impact of restructuring and transformational project costs (3)0.080.14(0.06)(42.9)
Impact of acquisition-related costs (4)0.170.20(0.03)(15.0)
Impact of bad debt reserve adjustments (5)(0.01)(0.04)0.0375.0
Impact of loss on extinguishment of debt—0.22(0.22)NM
Impact of other non-routine gains and losses (6)0.62—0.62NM
Tax impact of inventory valuation adjustment (7)—(0.01)0.01NM
Tax impact of restructuring and transformational project costs (7)(0.02)(0.03)0.0133.3
Tax impact of acquisition-related costs (7)(0.04)(0.05)0.0120.0
Tax impact of bad debt reserves adjustments (7)—0.01(0.01)NM
Tax impact of loss on extinguishment of debt (7)—(0.06)0.06NM
Tax impact of other non-routine gains and losses (7)(0.16)—(0.16)NM
Impact of adjustments to uncertain tax positions—0.02(0.02)NM
Diluted earnings per share adjusted for Certain Items (Non-GAAP) (8)$2.67$2.11$0.5626.5%
(1)Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on the current year results.
(2)Fiscal 2023 represents an adjustment to a product return allowance, related to COVID-related personal protection equipment inventory. Fiscal 2022 represents a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory.
(3)Fiscal 2023 includes $12 million related to restructuring, severance, and facility closure charges and $26 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy. Fiscal 2022 includes $39 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy and $31 million related to various restructuring, severance, and facility closure charges.
(4)Fiscal 2023 includes $78 million of intangible amortization expense and $9 million in acquisition and due diligence costs. Fiscal 2022 includes $75 million of intangible amortization expense and $28 million in acquisition and due diligence costs.
(5)Fiscal 2023 and fiscal 2022 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
(6)Fiscal 2023 primarily represents a pension settlement charge of $315 million that resulted from the purchase of a nonparticipating single premium group annuity contract that transferred defined benefit plan obligations to an insurer.
(7)The tax impact of adjustments for Certain Items is calculated by multiplying the pretax impact of each Certain Item by the statutory rates in effect for each jurisdiction where the Certain Item was incurred.
(8)Individual components of diluted earnings per share may not add up to the total presented due to rounding. Total diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding.
NM represents that the percentage change is not meaningful.
13-Week Period Ended Apr. 1, 202313-Week Period Ended Apr. 2, 2022Change in Dollars%/bps Change
U.S. FOODSERVICE OPERATIONS
Operating expenses (GAAP)$1,690,093$1,523,578$166,51510.9%
Impact of restructuring and transformational project costs(159)2,543(2,702)NM
Impact of acquisition-related costs (1)(11,463)(10,505)(958)(9.1)
Impact of bad debt reserve adjustments (2)(81)5,060(5,141)NM
Operating expenses adjusted for Certain Items (Non-GAAP)$1,678,390$1,520,676$157,71410.4%
Operating income (GAAP)$855,766$746,467$109,29914.6%
Impact of restructuring and transformational project costs159(2,543)2,702NM
Impact of acquisition-related costs (1)11,46310,5059589.1
Impact of bad debt reserve adjustments (2)81(5,060)5,141NM
Operating income adjusted for Certain Items (Non-GAAP)$867,469$749,369$118,10015.8%
INTERNATIONAL FOODSERVICE OPERATIONS
Sales (GAAP)$3,344,121$2,834,089$510,03218.0%
Impact of currency fluctuations (3)206,661—206,6617.3
Comparable sales using a constant currency basis (Non-GAAP)$3,550,782$2,834,089$716,69325.3%
Gross profit (GAAP)$642,778$570,241$72,53712.7%
Impact of currency fluctuations (3)40,245—40,2457.1
Comparable gross profit using a constant currency basis (Non-GAAP)$683,023$570,241$112,78219.8%
Gross margin (GAAP)19.22%20.12%-90 bps
Impact of currency fluctuations (3)0.02—2 bps
Comparable gross margin using a constant currency basis (Non-GAAP)19.24%20.12%-88 bps
Operating expenses (GAAP)$594,426$562,481$31,9455.7%
Impact of restructuring and transformational project costs (4)(2,103)(9,379)7,27677.6
Impact of acquisition-related costs (5)(16,585)(18,142)1,5578.6
Impact of bad debt reserve adjustments (2)(10)657(667)NM
Operating expenses adjusted for Certain Items (Non-GAAP)575,728535,61740,1117.5
Impact of currency fluctuations (3)37,070—37,0706.9
Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP)$612,798$535,617$77,18114.4%
Operating income (GAAP)$48,352$7,760$40,592NM
Impact of restructuring and transformational project costs (4)2,1039,379(7,276)(77.6)
Impact of acquisition-related costs (5)16,58518,142(1,557)(8.6)
Impact of bad debt reserve adjustments (2)10(657)667NM
Operating income adjusted for Certain Items (Non-GAAP)67,05034,62432,42693.7
Impact of currency fluctuations (3)3,175—3,175NM
Comparable operating income adjusted for Certain Items using a constant currency basis (Non-GAAP)$70,225$34,624$35,601NM
SYGMA
Operating expenses (GAAP)$140,665$142,883$(2,218)(1.6)%
Operating income (GAAP)25,4394,36221,077NM
OTHER
Operating expenses (GAAP)$67,615$59,369$8,24613.9%
13-Week Period Ended Apr. 1, 202313-Week Period Ended Apr. 2, 2022Change in Dollars%/bps Change
Operating income (loss) (GAAP)$11,836$(3,972)$15,808NM
GLOBAL SUPPORT CENTER
Gross loss (GAAP)$(2,832)$(29,534)$26,70290.4%
Impact of inventory valuation adjustment (6)—29,550(29,550)NM
Comparable gross (loss) profit adjusted for Certain Items (Non-GAAP)$(2,832)$16$(2,848)NM
Operating expenses (GAAP)$244,384$229,354$15,0306.6%
Impact of restructuring and transformational project costs (7)(9,992)(12,335)2,34319.0
Impact of acquisition-related costs (8)(956)(8,052)7,09688.1
Operating expenses adjusted for Certain Items (Non-GAAP)$233,436$208,967$24,46911.7%
Operating loss (GAAP)$(247,216)$(258,888)$11,6724.5%
Impact of inventory valuation adjustment (6)—29,550(29,550)NM
Impact of restructuring and transformational project costs (7)9,99212,335(2,343)(19.0)
Impact of acquisition-related costs (8)9568,052(7,096)(88.1)
Operating loss adjusted for Certain Items (Non-GAAP)$(236,268)$(208,951)$(27,317)(13.1)%
(1)Fiscal 2023 and fiscal 2022 include intangible amortization expense and acquisition costs.
(2)Fiscal 2023 and fiscal 2022 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
(3)Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on current year results.
(4)Includes restructuring and facility closure costs primarily in Europe.
(5)Represents intangible amortization expense.
(6)Fiscal 2022 represents a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory.
(7)Includes various transformation initiative costs, primarily consisting of changes to our business technology strategy.
(8)Represents due diligence costs.
NM represents that the percentage change is not meaningful.
39-Week Period Ended Apr. 1, 202339-Week Period Ended Apr. 2, 2022Change in Dollars% Change
U.S. FOODSERVICE OPERATIONS
Operating expenses (GAAP)$5,110,736$4,373,665$737,07116.9%
Impact of restructuring and transformational project costs(203)(383)18047.0
Impact of acquisition-related costs (1)(35,563)(25,382)(10,181)(40.1)
Impact of bad debt reserve adjustments (2)4,17016,729(12,559)(75.1)
Operating expenses adjusted for Certain Items (Non-GAAP)$5,079,140$4,364,629$714,51116.4%
Operating income (GAAP)$2,540,555$2,220,812$319,74314.4%
Impact of restructuring and transformational project costs203383(180)(47.0)
Impact of acquisition-related costs (1)35,56325,38210,18140.1
Impact of bad debt reserve adjustments (2)(4,170)(16,729)12,55975.1
Operating income adjusted for Certain Items (Non-GAAP)$2,572,151$2,229,848$342,30315.4%
INTERNATIONAL FOODSERVICE OPERATIONS
Sales (GAAP)$9,910,267$8,535,608$1,374,65916.1%
Impact of currency fluctuations (3)848,166—848,1669.9
Comparable sales using a constant currency basis (Non-GAAP)$10,758,433$8,535,608$2,222,82526.0%
Gross profit (GAAP)$1,916,503$1,725,306$191,19711.1%
Impact of currency fluctuations (3)177,854—177,85410.3
Comparable gross profit using a constant currency basis (Non-GAAP)$2,094,357$1,725,306$369,05121.4%
Gross margin (GAAP)19.34%20.21%-87 bps
Impact of currency fluctuations (3)0.13—13 bps
Comparable gross margin using a constant currency basis (Non-GAAP)19.47%20.21%-74 bps
Operating expenses (GAAP)$1,723,558$1,670,125$53,4333.2%
Impact of restructuring and transformational project costs (4)(11,597)(30,426)18,82961.9
Impact of acquisition-related costs (5)(48,534)(55,273)6,73912.2
Impact of bad debt reserve adjustments (2)2552,488(2,233)(89.8)
Operating expenses adjusted for Certain Items (Non-GAAP)1,663,6821,586,91476,7684.8
Impact of currency fluctuations (3)163,005—163,00510.3
Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP)$1,826,687$1,586,914$239,77315.1%
Operating income (GAAP)$192,945$55,181$137,764NM
Impact of restructuring and transformational project costs (4)11,59730,426(18,829)(61.9)
Impact of acquisition-related costs (5)48,53455,273(6,739)(12.2)
Impact of bad debt reserve adjustments (2)(255)(2,488)2,23389.8
Operating income adjusted for Certain Items (Non-GAAP)252,821138,392114,42982.7
Impact of currency fluctuations (3)14,849—14,84910.7
Comparable operating income adjusted for Certain Items using a constant currency basis (Non-GAAP)$267,670$138,392$129,27893.4%
39-Week Period Ended Apr. 1, 202339-Week Period Ended Apr. 2, 2022Change in Dollars% Change
SYGMA
Sales (GAAP)$5,839,051$5,270,193$568,85810.8%
Gross profit (GAAP)470,458422,35448,10411.4
Gross margin (GAAP)8.06%8.01%5 bps
Operating expenses (GAAP)$432,743$427,168$5,5751.3%
Operating income (loss) (GAAP)37,715(4,814)42,529NM
OTHER
Operating expenses (GAAP)$204,345$166,560$37,78522.7%
Impact of bad debt reserve adjustments (2)—(1)1NM
Operating expenses adjusted for Certain Items (Non-GAAP)$204,345$166,559$37,78622.7%
Operating income (GAAP)$33,255$2,667$30,588NM
Impact of bad debt reserve adjustments (2)—1(1)NM
Operating income adjusted for Certain Items (Non-GAAP)$33,255$2,668$30,587NM
GLOBAL SUPPORT CENTER
Gross loss (GAAP)$(6,021)$(35,112)$29,09182.9%
Impact of inventory valuation adjustment (6)(2,571)29,550(32,121)NM
Comparable gross loss adjusted for Certain Items (Non-GAAP)$(8,592)$(5,562)$(3,030)(54.5)%
Operating expenses (GAAP)$729,297$666,414$62,8839.4%
Impact of restructuring and transformational project costs (7)(26,488)(39,249)12,76132.5
Impact of acquisition-related costs (8)(3,322)(22,794)19,47285.4
Operating expenses adjusted for Certain Items (Non-GAAP)$699,487$604,371$95,11615.7%
Operating loss (GAAP)$(735,318)$(701,526)$(33,792)(4.8)%
Impact of inventory valuation adjustment (6)(2,571)29,550(32,121)NM
Impact of restructuring and transformational project costs (7)26,48839,249(12,761)(32.5)
Impact of acquisition-related costs (8)3,32222,794(19,472)(85.4)
Operating loss adjusted for Certain Items (Non-GAAP)$(708,079)$(609,933)$(98,146)(16.1)%
(1)Fiscal 2023 and fiscal 2022 include intangible amortization expense and acquisition costs.
(2)Fiscal 2023 and fiscal 2022 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
(3)Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on current year results.
(4)Includes restructuring, severance and facility closure costs primarily in Europe.
(5)Represents intangible amortization expense.
(6)Fiscal 2023 represents an adjustment to a product return allowance, related to COVID-related personal protection equipment inventory. Fiscal 2022 represents a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory.
(7)Includes various transformation initiative costs, primarily consisting of changes to our business technology strategy.
(8)Represents due diligence costs.
NM represents that the percentage change is not meaningful.

EBITDA and Adjusted EBITDA

EBITDA and adjusted EBITDA should not be used as a substitute for the most comparable GAAP measure in assessing Sysco’s overall financial performance for the periods presented. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Key Performance Indicators” contained in our fiscal 2022 Form 10-K for discussions regarding this non-GAAP performance metric. Set forth below is a reconciliation of actual net earnings to EBITDA and to adjusted EBITDA results for the periods presented (dollars in thousands):

13-Week Period Ended Apr. 1, 202313-Week Period Ended Apr. 2, 2022Change in Dollars% Change
Net earnings (GAAP)$429,604$303,325$126,27941.6%
Interest (GAAP)134,931124,01810,9138.8
Income taxes (GAAP)124,43382,16342,27051.4
Depreciation and amortization (GAAP)195,996193,8432,1531.1
EBITDA (Non-GAAP)$884,964$703,349$181,61525.8%
Certain Item adjustments:
Impact of inventory valuation adjustment (1)$—$29,550$(29,550)NM
Impact of restructuring and transformational project costs (2)11,89018,746(6,856)(36.6)
Impact of acquisition-related costs (3)2,3499,861(7,512)(76.2)
Impact of bad debt reserve adjustments (4)90(5,717)5,807101.6
Impact of other non-routine gains and losses448—448NM
EBITDA adjusted for Certain Items (Non-GAAP) (5)$899,741$755,789$143,95219.0%
(1)Fiscal 2022 represents a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory.
(2)Fiscal 2023 and fiscal 2022 include charges related to restructuring, severance, and facility closures, as well as various transformation initiative costs, primarily consisting of changes to our business technology strategy, excluding charges related to accelerated depreciation.
(3)Fiscal 2023 and fiscal 2022 include acquisition and due diligence costs.
(4)Fiscal 2023 and fiscal 2022 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
(5)In arriving at adjusted EBITDA, Sysco does not adjust out interest income of $7 million and $2 million or non-cash stock compensation expense of $21 million and $30 million in fiscal 2023 and fiscal 2022, respectively.
NM represents that the percentage change is not meaningful.
39-Week Period Ended Apr. 1, 202339-Week Period Ended Apr. 2, 2022Change in Dollars% Change
Net earnings (GAAP)$1,036,388$848,779$187,60922.1%
Interest (GAAP)391,123495,131(104,008)(21.0)
Income taxes (GAAP)291,027256,11534,91213.6
Depreciation and amortization (GAAP)574,945571,6063,3390.6
EBITDA (Non-GAAP)$2,293,483$2,171,631$121,8525.6%
Certain Item adjustments:
Impact of inventory valuation adjustment (1)$(2,571)$29,550$(32,121)(108.7)%
Impact of restructuring and transformational project costs (2)37,19269,093(31,901)(46.2)
Impact of acquisition-related costs (3)8,94428,260(19,316)(68.4)
Impact of bad debt reserve adjustments (4)(4,425)(19,216)14,79177.0
Impact of other non-routine gains and losses (5)315,326—315,326NM
EBITDA adjusted for Certain Items (Non-GAAP) (6)$2,647,949$2,279,318$368,63116.2%
(1)Fiscal 2023 represents an adjustment to a product return allowance, related to COVID-related personal protection equipment inventory. Fiscal 2022 represents a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory.
(2)Fiscal 2023 and fiscal 2022 include charges related to restructuring, severance, and facility closures, as well as various transformation initiative costs, primarily consisting of changes to our business technology strategy, excluding charges related to accelerated depreciation.
(3)Fiscal 2023 and fiscal 2022 include acquisition and due diligence costs.
(4)Fiscal 2023 and fiscal 2022 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
(5)Fiscal 2023 primarily represents a pension settlement charge of $315 million that resulted from the purchase of a nonparticipating single premium group annuity contract that transferred defined benefit plan obligations to an insurer.
(6)In arriving at adjusted EBITDA, Sysco does not adjust out interest income of $15 million and $5 million or non-cash stock compensation expense of $73 million and $91 million for fiscal 2023 and fiscal 2022, respectively.
NM represents that the percentage change is not meaningful.

Liquidity and Capital Resources

Highlights

We produced positive free cash flow in a period of higher capital expenditures and investments towards our Recipe for Growth strategy. In the table that follows, free cash flow for each period presented is reconciled to net cash provided by operating activities and comparisons of the significant cash flows from the first 39 weeks of fiscal 2023 to the first 39 weeks of fiscal 2022 are provided.

On September 2, 2022, we upsized our commercial paper program to $3.0 billion. The commercial paper program allows the company to issue short-term, senior unsecured notes. The notes are pari passu with the company’s other senior unsecured debt, including its senior notes and revolving credit facility. We intend to use any proceeds from the commercial paper program for general corporate purposes.

39-Week Period Ended Apr. 1, 202339-Week Period Ended Apr. 2, 2022
Source of cash (use of cash)(In thousands)
Net cash provided by operating activities (GAAP)$1,425,782$745,871
Additions to plant and equipment(474,456)(327,535)
Proceeds from sales of plant and equipment28,31315,946
Free Cash Flow (Non-GAAP) (1)$979,639$434,282
Acquisition of businesses, net of cash acquired$(37,384)$(1,281,835)
Debt borrowings (repayments), net92,9171,213,114
Redemption premiums and repayments for senior notes—(1,395,668)
Stock repurchases(377,800)(415,824)
Dividends paid(747,378)(719,865)
(1)Free cash flow should not be used as a substitute for the most comparable GAAP measure in assessing the company’s liquidity for the periods presented. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Key Performance Indicators” contained in our fiscal 2022 Form 10-K for discussions regarding this non-GAAP performance metric.

Sources and Uses of Cash

Sysco generates cash in the U.S and internationally. As of April 1, 2023, we had $757.9 million in cash and cash equivalents, approximately 75% of which was held by our international subsidiaries. Sysco’s strategic objectives are funded primarily by cash from operations and external borrowings. Traditionally, our operations have produced significant cash flow and, due to our strong financial position, we believe that we will continue to be able to effectively access capital markets, as needed. Cash is generally allocated to working capital requirements, investments compatible with our overall growth strategy (organic and inorganic), debt management, and shareholder return. Remaining cash balances are invested in high-quality, short-term instruments.

We believe our cash flow from operations, the availability of liquidity under our commercial paper program and our revolving credit facility, and our ability to access capital from financial markets will be sufficient to meet our anticipated cash requirements for more than the next 12 months, while maintaining sufficient liquidity for normal operating purposes.

Cash Flows

Operating Activities

We generated $1.4 billion in cash flows from operations in the first 39 weeks of fiscal 2023, compared to cash flows from operations of $745.9 million in the first 39 weeks of fiscal 2022. In the first 39 weeks of fiscal 2023, these amounts included year-over-year favorable comparisons on working capital of $300.2 million due to a favorable comparison on accounts receivable and inventory, partially offset by an unfavorable comparison on accounts payable. Accrued expenses also had an unfavorable comparison, primarily from accrued payroll in the first 39 weeks of fiscal 2023 in comparison to the first 39 weeks of fiscal 2022. Income taxes positively impacted cash flows from operations, as estimated payments made in the first 39 weeks of fiscal 2023 were lower than in fiscal 2022 due to overpayments in the prior year.

Investing Activities

Our capital expenditures in the first 39 weeks of fiscal 2023 consisted primarily of investments in buildings and building improvements, technology equipment, warehouse equipment, and fleet. Our capital expenditures in the first 39 weeks of fiscal 2023 were $146.9 million higher than in the first 39 weeks of fiscal 2022, as we made investments to advance our Recipe for Growth strategy.

During the first 39 weeks of fiscal 2023, we paid $37.4 million, net of cash acquired, for acquisitions compared to $1.3 billion in acquisitions made in the first 39 weeks of fiscal 2022.

Financing Activities

Equity Transactions

Proceeds from exercises of share-based compensation awards were $67.1 million in the first 39 weeks of fiscal 2023, as compared to $89.2 million in the first 39 weeks of fiscal 2022. The level of option exercises, and thus proceeds, will vary from period to period and is largely dependent on movements in our stock price and the time remaining before option grants expire.

In May 2021, our Board of Directors approved a share repurchase program to authorize the repurchase of up to $5.0 billion of the company’s common stock, which will remain available until fully utilized. We commenced our share repurchase program during the second quarter of fiscal 2022. We repurchased 4.6 million shares for $377.8 million during the first 39 weeks of fiscal 2023, and intend to repurchase $500 million in fiscal 2023. As of April 1, 2023, we had a remaining authorization of approximately $4.1 billion.

Dividends paid in the first 39 weeks of fiscal 2023 were $747.4 million, or $1.47 per share, as compared to $719.9 million, or $1.41 per share, in the first 39 weeks of fiscal 2022. In February 2023, we declared our regular quarterly dividend for the third quarter of fiscal 2023 of $0.49 per share, which was paid in April. In April 2023, we declared our regular quarterly dividend for the fourth quarter of fiscal 2023 of $0.50 per share, representing an increase of $0.01 per share. This dividend will be payable in July 2023.

Debt Activity and Borrowing Availability

Our debt activity, including issuances and repayments, if any, and our borrowing availability are described in Note 8, “Debt,” in the Notes to Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q. Our outstanding borrowings at April 1, 2023 are disclosed within that note.

Guarantor Summarized Financial Information

On January 19, 2011, the wholly owned U.S. Broadline subsidiaries of Sysco Corporation, which distribute a full line of food products and a wide variety of non-food products, at that time entered into full and unconditional guarantees of all outstanding senior notes and debentures of Sysco Corporation. All subsequent issuances of senior notes and debentures in the U.S. and borrowings under the company’s now $3.0 billion long-term revolving credit facility have also been guaranteed by these subsidiaries. As of April 1, 2023, Sysco had a total of $10.0 billion in senior notes, debentures and borrowings under the long-term revolving credit facility that were guaranteed by these subsidiary guarantors. Our remaining consolidated subsidiaries (non-guarantor subsidiaries) are not obligated under the senior notes indenture, debentures indenture or our long-term revolving credit facility. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” contained in our fiscal 2022 Form 10-K for additional information regarding the terms of the guarantees.

Basis of Preparation of the Summarized Financial Information

The summarized financial information of Sysco Corporation (issuer), and certain wholly owned U.S. Broadline subsidiaries (guarantors) (together, the obligor group) is presented on a combined basis with intercompany balances and transactions between entities in the obligor group eliminated. Investments in and equity in the earnings of our non-guarantor subsidiaries, which are not members of the obligor group, have been excluded from the summarized financial information. The obligor group’s amounts due to, amounts due from and transactions with non-guarantor subsidiaries have been presented in separate line items, if they are material to the obligor financials. The following tables include summarized financial information of the obligor group for the periods presented.

Combined Parent and Guarantor Subsidiaries Summarized Balance SheetApr. 1, 2023Jul. 2, 2022
(In thousands)
ASSETS
Receivables due from non-obligor subsidiaries$129,217$264,378
Current assets5,596,3345,658,972
Total current assets$5,725,551$5,923,350
Notes receivable from non-obligor subsidiaries$88,433$91,067
Other noncurrent assets4,052,0803,910,951
Total noncurrent assets$4,140,513$4,002,018
LIABILITIES
Payables due to non-obligor subsidiaries$59,808$62,441
Other current liabilities2,793,5762,765,756
Total current liabilities$2,853,384$2,828,197
Notes payable to non-obligor subsidiaries$178,392$315,753
Long-term debt9,709,0049,501,842
Other noncurrent liabilities1,246,0971,190,177
Total noncurrent liabilities$11,133,493$11,007,772
Combined Parent and Guarantor Subsidiaries Summarized Results of Operations39-Week Period Ended Apr. 1, 2023
(In thousands)
Sales$35,614,819
Gross profit6,442,097
Operating income1,791,173
Interest expense from non-obligor subsidiaries13,991
Net earnings792,757

Critical Accounting Policies and Estimates

Critical accounting policies and estimates are those that are most important to the portrayal of our financial position and results of operations. These policies require our most subjective or complex judgments, often employing the use of estimates about the effect of matters that are inherently uncertain. We have reviewed with the Audit Committee of the Board of Directors the development and selection of the critical accounting policies and estimates and this related disclosure. Our most critical accounting policies and estimates pertain to goodwill and intangible assets, income taxes, company-sponsored pension plans, allowance for doubtful accounts and inventory valuation, which are described in Item 7 of our fiscal 2022 Form 10-K and updated below.

Company-Sponsored Pension Plans

Amounts related to defined benefit plans recognized in the financial statements are determined on an actuarial basis. Two of the more critical assumptions in the actuarial calculations are the discount rate for determining the current value of plan benefits and the expected rate of return on plan assets. Our U.S. Retirement Plan is largely frozen and is only open to a small number of employees. Our Supplemental Executive Retirement Plan is frozen and is not open to any employees. None of these plans have a significant sensitivity to changes in discount rates specific to our results of operations, but such changes could impact our balance sheet due to a change in our funded status. Due to the low level of active employees in our retirement plans, our assumption for the rate of increase in future compensation is not a critical assumption.

In the second quarter of fiscal 2023, The Sysco Corporation Retirement Plan (the Plan), executed a commitment agreement to purchase a nonparticipating single premium group annuity contract that transferred $695.0 million of the Plan’s defined benefit pension obligations related to certain pension benefits. As a result of the transaction, we recognized a one-time, non-cash pre-tax pension settlement charge of $315.4 million in the second quarter of fiscal 2023.

As a result of this transaction occurring, the expected long-term rate of return used in the calculation of on-going company-sponsored benefit costs for the U.S. Retirement Plan for the remainder of fiscal 2023 was reassessed and updated to 6.00% in the second quarter of fiscal 2023, as compared to the expected long-term rate of return of 4.50% that was determined for fiscal 2023 in our fiscal 2022 Form 10-K. This update is primarily due to increases in interest rates, given that 70% of the Plan’s assets are invested in fixed income. The expectations of future returns are derived from a mathematical asset model that incorporates assumptions as to the various asset class returns, reflecting a combination of historical performance analysis and the forward-looking views of the financial markets regarding the yield on bonds, historical returns of the major stock markets and returns on alternative investments. The rate of return assumption is reviewed annually and revised as deemed appropriate.

Pension accounting standards require the recognition of the funded status of our defined benefit plans in the statement of financial position, with a corresponding adjustment to accumulated other comprehensive income, net of tax. The amount reflected in accumulated other comprehensive loss related to the recognition of the funded status of our defined benefit plans as of April 1, 2023 was a charge, net of tax, of $823.8 million, as compared to a charge, net of tax, of $1.0 billion as of July 2, 2022. The decrease in the amount reflected in accumulated other comprehensive loss is due to a portion of it being recognized in earnings as a result of the settlement that took place in the second quarter of fiscal 2023.

Forward-Looking Statements

Certain statements made herein that look forward in time or express management’s expectations or beliefs with respect to the occurrence of future events are forward-looking statements under the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” “projected,” “continues,” “continuously,” variations of such terms, and similar terms and phrases denoting anticipated or expected occurrences or results. Examples of forward-looking statements include, but are not limited to, statements about:

  • the effect, impact, potential duration or other implications of the COVID-19 pandemic and any expectations we may have with respect thereto, including our ability to withstand and recover from the crisis;

  • our expectations of an improving market over the course of fiscal 2023;

  • our expectations regarding the ability of our supply chain and facilities to remain in place and operational;

  • our plans regarding our transformation initiatives and the expected effects from such initiatives, including the Sysco Driver Academy;

  • statements regarding uncollectible accounts, including that if collections continue to improve, additional reductions in bad debt expense could occur;

  • our expectations that our Recipe for Growth strategy will allow us to better serve our customers and differentiate Sysco from our competition;

  • our expectations regarding our fiscal 2023 sales and our rate of sales growth in fiscal 2023 and the three years of our long-range plan;

  • our expectations regarding the impact of inflation on sales, gross margin rates and gross profit dollars;

  • our expectations regarding gross margins in fiscal 2023;

  • our plans regarding cost savings, including our target for cost savings through fiscal 2024 and the impact of costs savings on the company;

  • our belief that our purpose will allow us to grow substantially faster than the foodservice distribution industry and deliver profitable growth through our Recipe for Growth transformation, and statements regarding our plans with respect to our strategic pillars that support this growth transformation;

  • our expectations regarding the use and investment of remaining cash generated from operations;

  • the expected long-term rate of return on plan assets of the U.S. Retirement Plan;

  • the sufficiency of our available liquidity to sustain our operations for multiple years;

  • estimates regarding the outcome of legal proceedings;

  • the impact of seasonal trends on our free cash flow;

  • estimates regarding our capital expenditures and the sources of financing for our capital expenditures;

  • our expectations regarding the impact of potential acquisitions and sales of assets on our liquidity, borrowing capacity, leverage ratios and capital availability;

  • our expectations regarding real sales growth in the U.S. foodservice market and trends in produce markets;

  • our expectations regarding the calculation of adjusted return on invested capital, adjusted operating income, adjusted net earnings and adjusted diluted earnings per share;

  • our expectations regarding the impact of future Certain Items on our projected future non-GAAP and GAAP results;

  • our expectations regarding our effective tax rate in fiscal 2023;

  • the sufficiency of our mechanisms for managing working capital and competitive pressures, and our beliefs regarding the impact of these mechanisms;

  • our ability to meet future cash requirements, including the ability to access financial markets effectively, including issuances of debt securities, and maintain sufficient liquidity;

  • our expectations regarding the payment of dividends, and the growth of our dividend, in the future;

  • our expectations regarding future activity under our share repurchase program;

  • future compliance with the covenants under our revolving credit facility;

  • our ability to effectively access the commercial paper market and long-term capital markets;

  • the expected maturity of $538.6 million of debt in the next 12 months;

  • our intention to repay our long-term debt with cash on hand, cash flow from operations, issuances of commercial paper, issuances of senior notes, or a combination thereof.

These statements are based on management’s current expectations and estimates; actual results may differ materially due in part to the risk factors set forth below, those within Part II, Item 1A of this document and those discussed in Item 1A of our fiscal 2022 Form 10-K:

  • the impact and effects of public health crises, pandemics and epidemics, such as the recent outbreak of COVID-19, and the adverse impact thereof on our business, financial condition and results of operations;

  • the risk that if sales from our locally managed customers do not grow at the same rate as sales from multi-unit customers, our gross margins may decline;

  • periods of significant or prolonged inflation or deflation and their impact on our product costs and profitability generally;

  • the risk that we are unlikely to be able to predict inflation over the long term, and lower inflation is likely to produce lower gross profit;

  • the risk that our efforts to modify truck routing, including our small truck initiative, in order to reduce outbound transportation costs may be unsuccessful;

  • the risk that we may not be able to accelerate and/or identify additional administrative cost savings in order to compensate for any gross profit or supply chain cost leverage challenges;

  • risks related to unfavorable conditions in the Americas and Europe and the impact on our results of operations and financial condition;

  • the risks related to our efforts to implement our transformation initiatives and meet our other long-term strategic objectives, including the risk that these efforts may not provide the expected benefits in our anticipated time frame, if at all, and may prove costlier than expected;

  • the impact of unexpected future changes to our business initiatives based on management’s subjective evaluation of our overall business needs;

  • the risk that the actual costs of any business initiatives may be greater or less than currently expected;

  • the risk that competition in our industry and the impact of GPOs may adversely impact our margins and our ability to retain customers and make it difficult for us to maintain our market share, growth rate and profitability;

  • the risk that our relationships with long-term customers may be materially diminished or terminated;

  • the risk that changes in consumer eating habits could materially and adversely affect our business, financial condition, or results of operations;

  • the risk that changes in applicable tax laws or regulations and the resolution of tax disputes could negatively affect our financial results;

  • the risk that we may not be able to fully compensate for increases in fuel costs, and forward purchase commitments intended to contain fuel costs could result in above market fuel costs;

  • the risk of interruption of supplies and increase in product costs as a result of conditions beyond our control;

  • the potential impact on our reputation and earnings of adverse publicity or lack of confidence in our products;

  • risks related to unfavorable changes to the mix of locally managed customers versus corporate-managed customers;

  • the risk that we may not realize anticipated benefits from our operating cost reduction efforts;

  • difficulties in successfully expanding into international markets and complimentary lines of business;

  • the potential impact of product liability claims;

  • the risk that we fail to comply with requirements imposed by applicable law or government regulations;

  • risks related to our ability to effectively finance and integrate acquired businesses;

  • risks related to our access to borrowed funds in order to grow and any default by us under our indebtedness that could have a material adverse impact on cash flow and liquidity;

  • our level of indebtedness and the terms of our indebtedness could adversely affect our business and liquidity position;

  • the risk that the implementation of various initiatives, the timing and successful completion of acquisitions, construction schedules and the possibility that other cash requirements could result in delays or cancellations of capital spending;

  • the risk that divestiture of one or more of our businesses may not provide the anticipated effects on our operations;

  • the risk that Brexit may adversely impact our operations in the U.K., including those of the Brakes Group, as well as our operations throughout the European Union (EU);

  • the risk that future labor disruptions or disputes could disrupt the integration of Brake France and Davigel into Sysco France and our operations in France and the EU generally;

  • the risk that factors beyond management’s control, including fluctuations in the stock market, as well as management’s future subjective evaluation of the company’s needs, would impact the timing of share repurchases;

  • due to our reliance on technology, any technology disruption or delay in implementing new technology could have a material negative impact on our business;

  • the risk that a cybersecurity incident and other technology disruptions could negatively impact our business and our relationships with customers;

  • the risk that changes in the method of determining LIBOR, or the replacement of LIBOR with an alternative reference rate, may adversely affect interest expense related to outstanding debt;

  • the potential requirement to pay material amounts under our multiemployer defined benefit pension plans;

  • our funding requirements for our company-sponsored qualified pension plan may increase should financial markets experience future declines;

  • labor issues, including the renegotiation of union contracts and shortage of qualified labor;

  • capital expenditures may vary based on changes in business plans and other factors, including risks related to the implementation of various initiatives, the timing and successful completion of acquisitions, construction schedules and the possibility that other cash requirements could result in delays or cancellations of capital spending;

  • the risk that the anti-takeover benefits provided by our preferred stock may not be viewed as beneficial to stockholders; and

  • the risk that the exclusive forum provisions in our amended and restated bylaws could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

For a more detailed discussion of factors that could cause actual results to differ from those contained in the forward-looking statements, see the risk factors discussion contained in Item 1A of our fiscal 2022 Form 10-K and in Item 1A of Part II of this Form 10-Q.

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