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Sysco Q2 2017 Earnings Presentation
1.
Sysco 2Q17 Earnings
Results February 6, 2017
2.
© 2016 All
Rights Reserved. Sysco Corporation. P A G E 2 Forward-Looking Statements Statements made in this presentation or in our earnings call for the second quarter of fiscal 2017 that look forward in time or that express management’s beliefs, expectations or hopes are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the views of management at the time such statements are made and are subject to a number of risks, uncertainties, estimates, and assumptions that may cause actual results to differ materially from current expectations. These statements include our outlook for fiscal 2017 and our ability to deliver earnings growth, our plans and expectations related to our three-year financial objectives, including our adjusted operating income and net working capital targets, and the key levers for realizing these goals, expectations regarding the Brakes Group acquisition and related benefits, including its impact on future earnings per share, and expectations regarding deflation trends. The success of our plans and expectations regarding our operating performance, including expectations regarding our three-year financial objectives, are subject to the general risks associated with our business, including the risks of interruption of supplies due to lack of long-term contracts, severe weather, crop conditions, work stoppages, intense competition, technology disruptions, dependence on large regional and national customers, inflation risks, the impact of fuel prices, adverse publicity, and labor issues. Risks and uncertainties also include risks impacting the economy generally, including the risks that the current general economic conditions will deteriorate, or consumer confidence in the economy or consumer spending, particularly on food-away-from-home, may decline. Market conditions may not improve. If sales from our locally managed customers do not grow at the same rate as sales from regional and national customers, our gross margins may decline. Our ability to meet our long-term strategic objectives depends largely on the success of our various business initiatives, including efforts related to revenue management, expense management, our digital e-commerce strategy and any efforts related to restructuring or the reduction of administrative costs. There are various risks related to these efforts, 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 risk that the actual costs of any initiatives may be greater or less than currently expected; and the risk of adverse effects to our business, results of operations and liquidity if past and future undertakings, and the associated changes to our business, do not prove to be cost effective or do not result in the cost savings and other benefits at the levels that we anticipate. Our plans related to and the timing of any initiatives are subject to change at any time based on management’s subjective evaluation of our overall business needs. If we are unable to realize the anticipated benefits from our efforts, we could become cost disadvantaged in the marketplace, and our competitiveness and our profitability could decrease. Periods of high inflation, either overall or in certain product categories, can have a negative impact on us and our customers, as high food costs can reduce consumer spending in the food-away-from- home market, and may negatively impact our sales, gross profit, operating income and earnings, and periods of deflation can be difficult to manage effectively. Fluctuations in inflation and deflation, as well as fluctuations in the value of foreign currencies, are beyond our control and subject to broader market forces. Expanding into international markets presents unique challenges and risks, including compliance with local laws, regulations and customs and the impact of local political and economic conditions, including the impact of Brexit, and such expansion efforts, including our Brakes acquisition, may not be successful. Any business that we acquire, including the Brakes transaction, may not perform as expected, and we may not realize the anticipated benefits of our acquisitions. The Brakes Group acquisition will require a significant commitment of time and company resources, and realizing the anticipated benefits from the transaction may take longer than expected. Expectations regarding the financial statement impact of any acquisitions may change based on management’s subjective evaluation. For a discussion of additional factors impacting Sysco’s business, see the company’s Annual Report on Form 10-K for the year ended July 2, 2016, as filed with the Securities and Exchange Commission, and the company’s subsequent filings with the SEC. Sysco does not undertake to update its forward-looking statements, except as required by applicable law. S Y S C O 2 Q 1 7 E A R N I N G S R E S U L T S 0 2 . 0 6 . 1 7
3.
Bill DeLaney CEO
4.
© 2016 All
Rights Reserved. Sysco Corporation. P A G E 4 2nd Fiscal Quarter Results Quality quarter and solid first half of the year Disciplined volume growth Sound margin and expense management Contributions from Brakes Focus on improving customers’ experience and increasing productivity in all areasS Y S C O 2 Q 1 7 E A R N I N G S R E S U L T S 0 2 . 0 6 . 1 7
5.
© 2016 All
Rights Reserved. Sysco Corporation. P A G E 5 113.3 70.0 80.0 90.0 100.0 110.0 120.0 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 U.S. Consumer Confidence - Two Years Trend US Consumer Confidence (source: Conference Board) Industry & Economic Trends Remain Uneven 5.4% 5.3% 5.0% 5.0% 5.0% 5.0% 4.7% 4.9% 4.9% 4.9% 4.8% 4.6% 4.7% 0 100,000 200,000 300,000 400,000 500,000 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 U.S. Unemployment Rate Change in U.S. Non-Farm Payroll Unemployment Rate & Non-Farm Payroll 98.7 Average S Y S C O 2 Q 1 7 E A R N I N G S R E S U L T S 0 2 . 0 6 . 1 7 99.7 101.6 95 96 97 98 99 100 101 102 103 104 105 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 NRA Current Situation and Expectation Indices September 2009 - 2016 Current Situation Index Expectations Index 1.6% 2.3% 3.1% 3.1% 3.0% 2.7% 2.5% 2.3% 1.8% 1.7% 1.2% 1.6% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% Spend Traffic NPD: Total Restaurant Spend/Traffic % Change vs. Year Ago
6.
© 2016 All
Rights Reserved. Sysco Corporation. P A G E 6 Raising Three-Year Target To $600-$650 Million1 S Y S C O 2 Q 1 7 E A R N I N G S R E S U L T S 0 2 . 0 6 . 1 7 Progress at the halfway point New Target through FY18 1 See Non-GAAP reconciliations at the end of this presentation.
7.
Tom Bené President &
COO
8.
© 2016 All
Rights Reserved. Sysco Corporation. P A G E 8 Operating Performance Achieved By Continued Strong Execution On The Key Levers Of Our Three-Year Plan S Y S C O 2 Q 1 7 E A R N I N G S R E S U L T S 0 2 . 0 6 . 1 7 To Be Our Customers’ Most Valued and Trusted Business Partner LEVERAGE Supply Chain Costs REDUCE Administrative Costs People TechnologyEnablers: Corporate Social Responsibility Achieve Financial Objectives GROW Gross Profit Accelerate Local Case Growth Improve Margins
9.
© 2016 All
Rights Reserved. Sysco Corporation. P A G E 9 Product Innovation Cutting Edge Solutions Menu Planning Business Review E-Commerce + Mobile U.S. Foodservice Segment Is Focused On Delivering Disciplined Case Growth By Providing Value To Our Local Customers S Y S C O 2 Q 1 7 E A R N I N G S R E S U L T S 0 2 . 0 6 . 1 7 Disciplined Case Growth
10.
© 2016 All
Rights Reserved. Sysco Corporation. P A G E 1 0 Leveraging Core Processes Within Category Management And Revenue Management Continues To Enable Solid Gross Profit Growth S Y S C O 2 Q 1 7 E A R N I N G S R E S U L T S 0 2 . 0 6 . 1 7 Gross Profit Growth
11.
© 2016 All
Rights Reserved. Sysco Corporation. P A G E 1 1 Solid Expense Management Led To A $0.02 Improvement In Cost Per Case1 S Y S C O 2 Q 1 7 E A R N I N G S R E S U L T S 0 2 . 0 6 . 1 7 t OPCO Productivity Standardize best practices in transportation and warehousing to improve quality, cost and safety t Fleet Excellence Right size fleet and optimize preventive maintenance and shop execution t Indirect Sourcing Strategically source $1B of indirect spend and increase purchasing compliance t Facilities Optimization Use best-in-class capacity planning to defer capital. Standardize maintenance, construction and real estate 1 See Non-GAAP reconciliations at the end of this presentation.
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Rights Reserved. Sysco Corporation. P A G E 1 2 International Foodservice Operations Performing Well 1 See Non-GAAP reconciliations at the end of this presentation. International Foodservice Operations1 Sales increased $1.3 billion Adjusted Operating Income improved $68 million Brakes U.K. – Progress in supply chain management France – Steady growth, solid topline and balanced approach to cost Sweden – Continues to be an area of strength Canada – Effectively managing deflation and soft market environment S Y S C O 2 Q 1 7 E A R N I N G S R E S U L T S 0 2 . 0 6 . 1 7
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Joel Grade CFO
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Rights Reserved. Sysco Corporation. P A G E 1 4 2Q17 Financial Highlights (Including Brakes) Adjusted1 Reported $MM, except per share data 2Q17 YOY % Change 2Q17 YOY % Change Sales $13,457 10.7% $13,457 10.7% Gross Profit $2,572 19.2% $2,572 19.2% Operating Expense $2,014 17.1% $2,079 20.6% Operating Income $558 27.7% $492 13.8% Net Earnings $319 15.8% $275 1.0% Diluted EPS $0.58 20.8% $0.50 4.2% 1 See Non-GAAP reconciliations at the end of this presentation. S Y S C O 2 Q 1 7 E A R N I N G S R E S U L T S 0 2 . 0 6 . 1 7
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Rights Reserved. Sysco Corporation. P A G E 1 5 YTD17 Financial Highlights (Including Brakes) Adjusted1 Reported $MM, except per share data YTD17 YOY % Change YTD17 YOY % Change Sales $27,426 11.0% $27,426 11.0% Gross Profit $5,264 19.8% $5,264 19.8% Operating Expense $4,079 18.2% $4,205 21.2% Operating Income $1,185 25.6% $1,059 14.4% Net Earnings $695 18.4% $599 15.9% Diluted EPS $1.25 25.0% $1.08 22.7% 1 See Non-GAAP reconciliations at the end of this presentation. S Y S C O 2 Q 1 7 E A R N I N G S R E S U L T S 0 2 . 0 6 . 1 7
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Rights Reserved. Sysco Corporation. P A G E 1 6 Strong Operating Performance Gross Profit growth continues to outpace OPEX growth Performance is driven by key initiatives and strong management of expenses 1 See Non-GAAP reconciliations at the end of this presentation. S Y S C O 2 Q 1 7 E A R N I N G S R E S U L T S 0 2 . 0 6 . 1 7 6.0% 6.1% 3.1% 3.0% 2.3% 3.4% 4.1% 4.7% 5.0% 2.9% 6.0% 6.8% 4.5% 2.2% 3.1% 1.8% 1.5% 1.7% 1.9% 0.4% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 Total Sysco Operating Leverage (excluding Brakes)1 GP growth OPEX growth
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Rights Reserved. Sysco Corporation. P A G E 1 7 Cash Flow & Balance Sheet1 Cash flow Cash from operations was $605 million, up approximately $136 million from last year Free Cash Flow: $331 million, up approximately $99 million from last year Net CAPEX: $274 million Balance sheet Net working capital days – improvement by approximately 2.5 days vs. FY15 Driven by improvements in all three phases: AP, AR and Inventory 1 See Non-GAAP reconciliations at the end of this presentation. S Y S C O 2 Q 1 7 E A R N I N G S R E S U L T S 0 2 . 0 6 . 1 7 $(600) $(400) $(200) $- $200 $400 $600 $800 $1,000 $1,200 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2013 2014 2015 2016 Q1 Q2 Q3 Q4 Quarterly Cash Flow Net cash provided by operating activities (GAAP) Free Cash Flow (Non-GAAP)
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Rights Reserved. Sysco Corporation. P A G E 1 8 Brakes Update and Summary Brakes1 Brakes accretion was approximately $0.07 for the second quarter; $0.11 for the first half of FY17 Expect Brakes to be modestly dilutive to EPS in the third quarter, and modestly accretive in the fourth quarter Quality quarter reflecting continued momentum from improved underlying business performance Disciplined approach to case growth Good GP growth Strong cost management S Y S C O 2 Q 1 7 E A R N I N G S R E S U L T S 0 2 . 0 6 . 1 7 Increased three-year plan operating income target to $600-$650M 1 See Non-GAAP reconciliations at the end of this presentation.
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Non-GAAP Reconciliations
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Rights Reserved. Sysco Corporation. P A G E 2 0 Operating Income Growth S Y S C O 2 Q 1 7 E A R N I N G S R E S U L T S 0 2 . 0 6 . 1 7 Operating Income Growth Sales $ 50,366,919 $ 48,680,752 $ 1,686,167 $ 27,425,922 $ 24,716,237 $ 2,709,685 Impact of Brakes - - - (2,612,423) - (2,612,423) Sales excluding the impact of Brakes (Non-GAAP) $ 50,366,919 $ 48,680,752 $ 1,686,167 $ 24,813,499 $ 24,716,237 $ 97,262 Gross profit $ 9,040,472 $ 8,551,516 $ 488,956 $ 5,263,782 $ 4,394,809 $ 868,973 Impact of Brakes - - - (696,184) - (696,184) Gross profit excluding the impact of Brakes (Non-GAAP) $ 9,040,472 $ 8,551,516 $ 488,956 $ 4,567,598 $ 4,394,809 $ 172,789 Gross margin 17.95% 17.57% 0.38% 19.19% 17.78% 1.41% Impact of Brakes - - - 0.79% 0.00% 0.79% Gross margin excluding the impact of Brakes (Non-GAAP) 17.95% 17.57% 0.38% 18.41% 17.78% 0.63% Operating expenses (GAAP) $ 7,189,972 $ 7,322,154 $ (132,182) $ 4,204,532 $ 3,468,752 $ 735,780 Impact of restructuring costs (1) (123,134) (7,801) (115,333) (78,374) (7,470) (70,904) Impact of acquisition-related costs (2) (35,614) (554,667) 519,052 (47,079) (9,816) (37,264) Operating expenses adjusted for certain items (Non-GAAP) $ 7,031,224 $ 6,759,686 $ 271,537 $ 4,079,079 $ 3,451,466 $ 627,613 Impact of Brakes - - - (632,156) - (632,156) Impact of Brakes restructuring costs (3) - - - 4,981 - 4,981 Impact of Brakes acquisition-related costs (2) - - - 39,790 - 39,790 Operating expenses adjusted for certain items and excluding the impact of Brakes (Non-GAAP) $ 7,031,224 $ 6,759,686 $ 271,537 $ 3,491,694 $ 3,451,466 $ 40,228 Operating income (GAAP) $ 1,850,500 $ 1,229,362 $ 621,138 $ 1,059,250 $ 926,057 $ 133,193 $ 754,331 Impact of restructuring costs (1) 123,134 7,801 115,333 78,374 7,470 70,904 186,237 Impact of acquisition-related costs (2) 35,614 554,667 (519,052) 47,079 9,816 37,264 (481,789) Operating income adjusted for certain items (Non-GAAP) $ 2,009,248 $ 1,791,830 $ 217,419 $ 1,184,703 $ 943,343 $ 241,360 $ 458,778 Impact of Brakes - - - (64,029) - (64,029) (64,029) Impact of Brakes restructuring costs (3) - - - (4,981) - (4,981) (4,981) Impact of Brakes acquisition-related costs (2) - - - (39,790) - (39,790) (39,790) Operating income adjusted for certain items and excluding the impact of Brakes (Non-GAAP) $ 2,009,248 $ 1,791,830 $ 217,419 $ 1,075,903 $ 943,343 $ 132,560 $ 349,979 26-Week Period Ended Dec 26, 2015 Period Change $ Cumulative 18-month Change $ (1) Includes $56 million in accelerated depreciation associated with our revised business technology strategy, $22 million related to severance charges and restructuring expenses within our Brakes operations in fiscal 2017. Includes professional fees on 3-year financial objectives, and costs to convert to legacy systems in conjunction with our revised business technology strategy in fiscal 2017 and fiscal 2016. (2) Fiscal 2017 includes $38 million related to intangible amortization expense from the Brakes acquisition, which is included in the results of Brakes and $9 million in transaction costs. Fiscal 2016 includes US Foods merger integration and termination costs. (3) Includes Brakes Acquisition restructuring charges. Year Ended 26-Week Period Ended Dec. 31, 2016 Period Change $June 27, 2015July 2, 2016
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Rights Reserved. Sysco Corporation. P A G E 2 1 Qualitative Reconciliation For The Raise To $600- $650M S Y S C O 2 Q 1 7 E A R N I N G S R E S U L T S 0 2 . 0 6 . 1 7 Adjusted Operating Income Target We expect to archive our adjusted operating income target by fiscal 2018. Due to the uncertainties within these projected amounts, we cannot provide a quantitative reconciliation of these non-GAAP measures to the most directly comparable GAAP measure without unreasonable effort. However, we expect to calculate these adjusted results in the same manner as the reconciliations provided for the historical periods that are presented herein.
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Rights Reserved. Sysco Corporation. P A G E 2 2 Segment Reporting Structure S Y S C O 2 Q 1 7 E A R N I N G S R E S U L T S 0 2 . 0 6 . 1 7 Sysco Corporation and its Consolidated Subsidiaries Non-GAAP Reconciliation (Unaudited) Impact of Certain Items (In Thousands, Except for Share and Per Share Data) U.S. Foodservice Operations Sales (GAAP) $ 9,085,565 $ 9,135,326 $ 18,566,681 $ 18,543,249 Gross Profit (GAAP) 1,823,023 1,759,390 3,736,138 3,593,744 Gross Margin (GAAP) 20.1% 19.3% 20.1% 19.4% Operating expenses (GAAP) $ 1,141,701 $ 1,134,174 $ 2,309,585 $ 2,281,859 Impact of restructuring costs (470) (561) (470) (1,433) Operating expenses adjusted for certain items (Non-GAAP) $ 1,141,231 $ 1,133,613 $ 2,309,115 $ 2,280,426 Operating income (GAAP) $ 681,321 $ 625,216 $ 1,426,552 $ 1,311,885 Impact of restructuring costs 470 561 470 1,433 Operating income adjusted for certain items (Non-GAAP) $ 681,791 $ 625,777 $ 1,427,022 $ 1,313,318 International Foodservice Operations Sales (GAAP) $ 2,625,949 $ 1,280,775 $ 5,354,310 $ 2,671,034 Gross Profit (GAAP) 576,215 221,198 1,174,621 466,660 Gross Margin (GAAP) 21.9% 17.3% 21.9% 17.5% Operating expenses (GAAP) $ 491,401 $ 178,986 $ 1,010,372 $ 372,528 Impact of restructuring costs (1) (5,590) (586) (10,271) (1,829) Impact of acquisition-related costs (2) (20,293) - (39,790) - Operating expenses adjusted for certain items (Non-GAAP) $ 465,518 $ 178,400 $ 960,312 $ 370,699 Operating income (GAAP) $ 84,814 $ 42,212 $ 164,249 $ 94,132 Impact of restructuring costs (1) 5,590 586 10,271 1,829 Impact of acquisition-related costs (2) 20,293 - 39,790 - Operating income adjusted for certain items (Non-GAAP) $ 110,697 $ 42,798 $ 214,309 $ 95,961 SYGMA Sales (GAAP) $ 1,520,182 $ 1,506,836 $ 3,024,874 $ 2,952,741 Gross Profit (GAAP) 113,431 111,790 228,407 222,110 Gross Margin (GAAP) 7.5% 7.4% 7.6% 7.5% Operating expenses (GAAP) $ 110,276 $ 106,131 $ 220,344 $ 211,328 Impact of restructuring costs - (77) - (82) Operating expenses adjusted for certain items (Non-GAAP) $ 110,276 $ 106,054 $ 220,344 $ 211,246 Operating income (GAAP) $ 3,155 $ 5,659 $ 8,062 $ 10,782 Impact of restructuring costs - 77 - 82 Operating income adjusted for certain items (Non-GAAP) $ 3,155 $ 5,736 $ 8,062 $ 10,864 13-Week Period Ended 26-Week Period Ended Dec. 26, 2015 Dec. 31, 2016 Dec. 26, 2015Dec. 31, 2016
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Rights Reserved. Sysco Corporation. P A G E 2 3 Segment Reporting Structure S Y S C O 2 Q 1 7 E A R N I N G S R E S U L T S 0 2 . 0 6 . 1 7 Other Sales (GAAP) $ 225,572 $ 230,689 $ 480,057 $ 549,213 Gross Profit (GAAP) 60,096 56,379 128,380 115,252 Gross Margin (GAAP) 26.6% 24.4% 26.7% 21.0% Operating expenses (GAAP) $ 56,304 $ 49,999 $ 116,585 $ 98,102 Impact of restructuring costs - (52) - (63) Operating expenses adjusted for certain items (Non-GAAP) $ 56,304 $ 49,947 $ 116,585 $ 98,039 Operating income (GAAP) $ 3,793 $ 6,380 $ 11,794 $ 17,150 Impact of restructuring costs - 52 - 63 Operating income adjusted for certain items (Non-GAAP) $ 3,793 $ 6,432 $ 11,794 $ 17,213 Corporate Gross Profit (GAAP) $ (901) $ 8,472 $ (3,762) $ (2,891) Operating expenses (GAAP) $ 279,765 $ 254,941 $ 547,645 $ 504,935 Impact of restructuring costs (3) (34,029) (3,005) (67,633) (4,062) Impact of acquisition-related costs (4) (5,078) - (7,290) (9,816) Operating expenses adjusted for certain items (Non-GAAP) $ 240,658 $ 251,936 $ 472,722 $ 491,057 Operating income (GAAP) $ (280,666) $ (246,884) $ (551,407) $ (507,892) Impact of restructuring costs (3) 34,029 3,005 67,633 4,062 Impact of acquisition-related costs (4) 5,078 - 7,290 9,816 Operating income adjusted for certain items (Non-GAAP) $ (241,559) $ (243,879) $ (476,484) $ (494,014) Total Sysco Sales (GAAP) $ 13,457,268 $ 12,153,626 $ 27,425,922 $ 24,716,237 Gross Profit (GAAP) 2,571,863 2,157,229 5,263,782 4,394,875 Gross Margin (GAAP) 19.1% 17.7% 19.2% 17.8% Operating expenses (GAAP) $ 2,079,446 $ 1,724,231 $ 4,204,532 $ 3,468,752 Impact of restructuring costs (1) (3) (40,089) (4,281) (78,374) (7,470) Impact of acquisition-related costs (2) (4) (25,370) - (47,079) (9,816) Operating expenses adjusted for certain items (Non-GAAP) $ 2,013,987 $ 1,719,950 $ 4,079,079 $ 3,451,466 Operating income (GAAP) $ 492,417 $ 432,583 $ 1,059,250 $ 926,057 Impact of restructuring costs (1) (3) 40,089 4,281 78,374 7,470 Impact of acquisition-related costs (2) (4) 25,370 - 47,079 9,816 Operating income adjusted for certain items (Non-GAAP) $ 557,876 $ 436,864 $ 1,184,703 $ 943,343 (1) Fiscal 2017 includes Brakes Acquisition-related restructuring charges and other severance charges. (2) Fiscal 2017 Includes $19 million and $38 million for 13 and 26 weeks, respectively, related to intangible amortization expense from the Brakes acquisition, which is included in the results of the Brakes Group. (4) Fiscal 2017 Includes $7 million and $5 million for the 13 and 26 weeks periods, related to transaction costs from the Brakes acquisition. Fiscal 2016 includes US Foods merger termination costs. (3) Fiscal 2017 $28 million and $56 million for the 13 and 26 weeks, respectively, in accelerated depreciation associated with our revised business technology strategy. Also includes $13 million and $6 million for the 13 and 26 weeks, periods related to professional fees on 3-year financial objectives and costs to convert to legacy systems in conjunction with our revised business technology strategy.
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Rights Reserved. Sysco Corporation. P A G E 2 4 Cost Per Case S Y S C O 2 Q 1 7 E A R N I N G S R E S U L T S 0 2 . 0 6 . 1 7 Sysco Corporation and its Consolidated Subsidiaries Cost per Case 13-Week Period Change (Decrease) increase in cost per case $ (0.026) Impact of Certain Items (1) (0.002) (Decrease) increase in adjusted cost per case (Non-GAAP basis) $ (0.024) Impact of fuel prices (0.020) (Decrease) increase in adjusted cost per case (Non-GAAP basis) $ (0.004) Non-GAAP Reconciliation (Unaudited) Cost per case is an important metric management uses to measure our expense performance. This metric is calculated by taking the total operating expense of our U.S. Broadline companies, divided by the number of cases sold. Adjusted cost per case is calculated similarly; however, the operating expense component excludes charges from severance, which are the Certain Items applicable to these companies, divided by the number of cases sold. For both the thirteen and twenty six weeks of fiscal 2017 and 2016, the adjustment for Certain Items was not significant enough to produce a different value on an adjusted basis. Our corporate expenses are not included in the cost per cases metrics because the metric is a measure of efficiency in our operations. We seek to grow our sales and either minimize or reduce our costs on a per case basis. Our U.S. Broadline operations represent approximately 92% of the U.S. Foodservice Operations segment's sales and nearly 85% of its operating expenses. Our cost per case is also impacted by lower fuel prices year over year and is significantly lowering our cost per case results. Sysco considers adjusted cost per case to be a measure that provides useful information to management and investors about Sysco's expense management. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. In the table that follows, the change in adjusted cost per case is reconciled to cost per case for the thirteen and twenty six weeks of fiscal 2017 as compared to the thirteen and twenty six weeks of fiscal 2016. (1) The impact of Certain Items excludes severance charges that were applicable in both periods.
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Rights Reserved. Sysco Corporation. P A G E 2 5 Impact Of Certain Items Sysco Corporation and its Consolidated Subsidiaries Non-GAAP Reconciliation (Unaudited) Impact of Certain Items Sysco’s results of operations are impacted by restructuring costs consisting of (1) severance charges, (2) professional fees related to our three-year strategic plan, (3) restructuring expenses within our Brakes Group operations and (4) expenses associated with our revised business technology strategy announced in fiscal 2016, as a result of which we recorded accelerated depreciation on our existing system and incurred costs to convert to legacy systems. Our results of operations are also impacted by the following acquisition-related items: (1) intangible amortization expense (2) transaction costs and (3) integration costs. All acquisition-related costs in fiscal 2017 that have been excluded relate to the Brakes acquisition. Fiscal 2016 acquisition-related costs, however, include (i) termination costs in connection with the merger that had been proposed with US Foods, Inc. (US Foods) and (ii) financing costs related to the senior notes that were issued in fiscal 2015 to fund the proposed US Foods merger. These senior notes were redeemed in the first quarter of fiscal 2016, triggering a redemption loss of $86.5 million, and we incurred interest on these notes through the redemption date. The Brakes acquisition also resulted in non-recurring tax expense in fiscal 2017, primarily from non-deductible transaction costs. These fiscal 2017 and fiscal 2016 items are collectively referred to as "Certain Items.“ Management believes that adjusting its operating expenses, operating income, operating margin as a percentage of sales, interest expense, net earnings and diluted earnings per share to remove these Certain Items 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 facilitates comparisons on a year-over-year basis and (2) removes those items that are difficult to predict and are often unanticipated, and which as a result, are difficult to include in analysts' financial models and our investors' expectations with any degree of specificity. Although Sysco has a history of growth through acquisitions, the Brakes Group is significantly larger than the companies historically acquired by Sysco, with a proportionately greater impact on Sysco’s consolidated financial statements. Accordingly, Sysco is excluding from its non-GAAP financial measures for the relevant period solely those acquisition costs specific to the Acquisition. We believe this approach significantly enhances the comparability of Sysco’s results for the second quarter and first 26 weeks of fiscal 2017 to the same period in fiscal 2016. Also, given the significance of the Acquisition, management believes that presenting Sysco’s financial measures, excluding the Brakes Group operating results (including for this purpose Brakes financing costs, which are not included in the Brakes Group GAAP operating results and are also not Certain Items), enhances comparability of the period over period financial performance of Sysco’s legacy business and allows investors to more effectively measure Sysco’s progress against the financial goals under Sysco’s three year strategic plan. Set forth below is a reconciliation of sales, operating expenses, operating income, interest expense, 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 to the total presented due to rounding. Adjusted diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding. S Y S C O 2 Q 1 7 E A R N I N G S R E S U L T S 0 2 . 0 6 . 1 7
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Rights Reserved. Sysco Corporation. P A G E 2 6 Impact Of Certain Items – 2Q17 S Y S C O 2 Q 1 7 E A R N I N G S R E S U L T S 0 2 . 0 6 . 1 7 Sysco Corporation and its Consolidated Subsidiaries Non-GAAP Reconciliation (Unaudited) Impact of Certain Items and Brakes (In Thousands, Except for Share and Per Share Data) 13-Week Period % Change Sales $ 13,457,268 $ 12,153,626 $ 1,303,642 10.7% Impact of Brakes (1,328,900) - (1,328,900) NM Sales excluding the impact of Brakes (Non-GAAP) $ 12,128,368 $ 12,153,626 $ (25,258) -0.2% Gross profit $ 2,571,863 $ 2,156,814 $ 415,049 19.2% Impact of Brakes (353,133) - (353,133) NM Gross profit excluding the impact of Brakes (Non-GAAP) $ 2,218,730 $ 2,156,814 $ 61,916 2.9% Gross margin 19.11% 17.75% 1.37% 7.69% Impact of Brakes 0.82% 0.00% 0.82% NM Gross margin excluding the impact of Brakes (Non-GAAP) 18.29% 17.75% 0.55% 3.08% Operating expenses (GAAP) $ 2,079,446 $ 1,724,231 $ 355,215 20.6% Impact of restructuring costs (1) (40,089) (4,281) (35,808) NM Impact of acquisition-related costs (2) (25,370) - (25,370) NM Operating expenses adjusted for certain items (Non-GAAP) $ 2,013,987 $ 1,719,950 $ 294,037 17.1% Impact of Brakes (309,313) - (309,313) NM Impact of Brakes restructuring costs (3) 1,907 - 1,907 NM Impact of Brakes acquisition-related costs (2) 20,292 - 20,292 NM Operating expenses adjusted for certain items and excluding the impact of Brakes (Non-GAAP) $ 1,726,873 $ 1,719,950 $ 6,923 0.4% Operating income (GAAP) $ 492,417 $ 432,583 $ 59,834 13.8% Impact of restructuring costs (1) 40,089 4,281 35,808 NM Impact of acquisition-related costs (2) 25,370 - 25,370 NM Operating income adjusted for certain items (Non-GAAP) $ 557,876 $ 436,864 $ 121,012 27.7% Impact of Brakes (43,820) - (43,820) NM Impact of Brakes restructuring costs (3) (1,907) - (1,907) NM Impact of Brakes acquisition-related costs (2) (20,292) - (20,292) NM Operating income adjusted for certain items and excluding the impact of Brakes (Non-GAAP) $ 491,857 $ 436,864 $ 54,993 12.6% 13-Week Period Change in Dollars 13-Week Period Ended Dec. 31, 2016 13-Week Period Ended Dec 26, 2015
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Rights Reserved. Sysco Corporation. P A G E 2 7 Impact Of Certain Items – 2Q17 (Continued) S Y S C O 2 Q 1 7 E A R N I N G S R E S U L T S 0 2 . 0 6 . 1 7 Operating margin (GAAP) 3.66% 3.56% 0.10% 2.8% Operating margin excluding Certain Items (Non-GAAP) 4.15% 3.59% 0.55% 15.3% Operating margin excluding Certain Items and Brakes (Non-GAAP) 4.06% 3.59% 0.46% 12.8% Interest expense (GAAP) $ 72,231 $ 47,235 $ 24,996 52.9% Net earnings (GAAP) $ 275,167 $ 272,399 $ 2,768 1.0% Impact of restructuring cost (1) 40,089 4,281 35,808 NM Impact of acquisition-related costs (2) 25,370 - 25,370 NM Tax impact of restructuring cost (5) (15,111) (1,315) (13,796) NM Tax impact of acquisition-related costs (5) (6,726) - (6,726) NM Net earnings adjusted for certain items (Non-GAAP) $ 318,789 $ 275,365 $ 43,424 15.8% Impact of Brakes (31,876) - (31,876) NM Impact of Brakes restructuring costs (3) (1,441) - (1,441) NM Impact of Brakes acquisition-related costs (2) (15,533) - (15,533) NM Impact of interest expense on debt issued for the Brakes acquisition (6) 19,947 - 19,947 NM Tax impact of interest expense on debt issued for the Brakes acquisition (5) (7,540) - (7,540) NM Net earnings adjusted for certain items and excluding the impact of Brakes (Non-GAAP) $ 282,346 $ 275,365 $ 6,981 2.5% Diluted earnings per share (GAAP) $ 0.50 $ 0.48 $ 0.02 4.2% Impact of restructuring costs (1) 0.07 0.01 0.06 NM Impact of acquisition-related costs (2) 0.05 - 0.05 NM Tax impact of restructuring cost (5) (0.03) - (0.03) NM Tax impact of acquisition-related costs (5) (0.01) - (0.01) NM Diluted EPS adjusted for certain items(Non-GAAP) (4) $ 0.58 $ 0.48 $ 0.10 20.8% Impact of Brakes (0.06) - (0.06) NM Impact of Brakes restructuring costs (3) (0.00) - (0.00) NM Impact of Brakes acquisition-related costs (2) (0.03) - (0.03) NM Impact of interest expense on debt issued for the Brakes acquisition (6) 0.04 - 0.04 NM Tax impact of interest expense on debt issued for the Brakes acquisition (5) (0.01) - (0.01) NM Diluted EPS adjusted for certain items and excluding the impact of Brakes (Non-GAAP) (4) $ 0.51 $ 0.48 $ 0.03 7.0% Diluted shares outstanding 550,372,067 571,452,124 NM represents that the percentage change is not meaningful. (5) 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. (6) Sysco Corporation issued debt to fund the Acquisition. The interest expense arising from the debt issued is attributed to the incremental impact of Brakes operating results, even though it is not a direct obligation of the Brakes Group and is not considered a Certain Item. (1) Includes $28 million in accelerated depreciation associated with our revised business technology strategy and $12 million related to severance charges, professional fees on 3-year financial objectives, restructuring expenses within our Brakes operations and costs to convert to legacy systems in conjunction with our revised business technology strategy. (2) Fiscal 2017 includes $19 million related to intangible amortization expense from the Brakes acquisition, which is included in the results of Brakes and $6 million in transaction costs. Fiscal 2016 includes US Foods merger termination costs. (3) Includes Brakes Acquisition restructuring charges. (4) Individual components of diluted earnings per share may not add to the total presented due to rounding. Total diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding.
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Rights Reserved. Sysco Corporation. P A G E 2 8 Impact Of Certain Items – YTD FY17 S Y S C O 2 Q 1 7 E A R N I N G S R E S U L T S 0 2 . 0 6 . 1 7 Sysco Corporation and its Consolidated Subsidiaries Non-GAAP Reconciliation (Unaudited) Impact of Certain Items and Brakes (In Thousands, Except for Share and Per Share Data) 26-Week Period % Change Sales $ 27,425,922 $ 24,716,237 $ 2,709,685 11.0% Impact of Brakes (2,612,423) - (2,612,423) NM Sales excluding the impact of Brakes (Non-GAAP) $ 24,813,499 $ 24,716,237 $ 97,262 0.4% Gross profit $ 5,263,782 $ 4,394,809 $ 868,973 19.8% Impact of Brakes (696,184) - (696,184) NM Gross profit excluding the impact of Brakes (Non-GAAP) $ 4,567,598 $ 4,394,809 $ 172,789 3.9% Gross margin 19.19% 17.78% 1.41% 7.94% Impact of Brakes 0.79% 0.00% 0.79% NM Gross margin excluding the impact of Brakes (Non-GAAP) 18.41% 17.78% 0.63% 3.52% Operating expenses (GAAP) $ 4,204,532 $ 3,468,752 $ 735,780 21.2% Impact of restructuring costs (1) (78,374) (7,470) (70,904) NM Impact of acquisition-related costs (2) (47,079) (9,816) (37,264) NM Operating expenses adjusted for certain items (Non-GAAP) $ 4,079,079 $ 3,451,466 $ 627,613 18.2% Impact of Brakes (632,156) - (632,156) NM Impact of Brakes restructuring costs (3) 4,981 - 4,981 NM Impact of Brakes acquisition-related costs (2) 39,790 - 39,790 NM Operating expenses adjusted for certain items and excluding the impact of Brakes (Non-GAAP) $ 3,491,694 $ 3,451,466 $ 40,228 1.2% Operating income (GAAP) $ 1,059,250 $ 926,057 $ 133,193 14.4% Impact of restructuring costs (1) 78,374 7,470 70,904 NM Impact of acquisition-related costs (2) 47,079 9,816 37,264 NM Operating income adjusted for certain items (Non-GAAP) $ 1,184,703 $ 943,343 $ 241,360 25.6% Impact of Brakes (64,029) - (64,029) NM Impact of Brakes restructuring costs (3) (4,981) - (4,981) NM Impact of Brakes acquisition-related costs (2) (39,790) - (39,790) NM Operating income adjusted for certain items and excluding the impact of Brakes (Non-GAAP) $ 1,075,903 $ 943,343 $ 132,560 14.1% 26-Week Period Ended Dec. 31, 2016 26-Week Period Ended Dec 26, 2015 26-Week Period Change in Dollars
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Rights Reserved. Sysco Corporation. P A G E 2 9 Impact Of Certain Items – YTD FY17 (Continued) S Y S C O 2 Q 1 7 E A R N I N G S R E S U L T S 0 2 . 0 6 . 1 7 Operating margin (GAAP) 3.86% 3.75% 0.12% 3.1% Operating margin excluding Certain Items (Non-GAAP) 4.32% 3.82% 0.50% 13.2% Operating margin excluding Certain Items and Brakes (Non-GAAP) 4.34% 3.82% 0.52% 13.6% Interest expense (GAAP) $ 145,854 $ 174,142 $ (28,288) -16.2% Impact of acquisition financing costs - (94,835) 94,835 NM Interest expense adjusted for certain items (Non-GAAP) $ 145,854 $ 79,307 $ 66,547 83.9% Net earnings (GAAP) $ 599,054 $ 516,819 $ 82,235 15.9% Impact of restructuring cost (1) 78,374 7,470 70,904 NM Impact of acquisition-related costs (2) 47,079 9,816 37,263 NM Impact of acquisition financing costs - 94,835 (94,835) NM Tax impact of restructuring cost (5) (19,072) (2,787) (16,285) NM Tax impact of acquisition-related costs (5) (10,528) (3,662) (6,866) NM Tax impact of acquisition financing costs (5) - (35,383) 35,383 NM Net earnings adjusted for certain items (Non-GAAP) $ 694,907 $ 587,108 $ 107,799 18.4% Impact of Brakes (50,728) - (50,728) NM Impact of Brakes restructuring costs (3) (3,887) - (3,887) NM Impact of Brakes acquisition-related costs (2) (31,047) - (31,047) NM Impact of interest expense on debt issued for the Brakes acquisition (6) 39,682 - 39,682 NM Tax impact of interest expense on debt issued for the Brakes acquisition (5) (15,000) - (15,000) NM Net earnings adjusted for certain items and excluding the impact of Brakes (Non-GAAP) $ 633,927 $ 587,108 $ 46,819 8.0% Diluted earnings per share (GAAP) $ 1.08 $ 0.88 $ 0.20 22.7% Impact of restructuring costs (1) 0.14 0.01 0.13 NM Impact of acquisition-related costs (2) 0.08 0.02 0.06 NM Impact of acquisition financing costs - 0.16 (0.16) NM Tax impact of restructuring cost (5) (0.03) - (0.03) NM Tax impact of acquisition-related costs (5) (0.02) (0.01) (0.01) NM Tax impact of acquisition financing costs (5) - (0.06) 0.06 NM Diluted EPS adjusted for certain items(Non-GAAP) (4) $ 1.25 $ 1.00 $ 0.25 25.0% Impact of Brakes (0.09) - (0.09) NM Impact of Brakes restructuring costs (3) (0.01) - (0.01) NM Impact of Brakes acquisition-related costs (2) (0.06) - (0.06) NM Impact of interest expense on debt issued for the Brakes acquisition (6) 0.07 - 0.07 NM Tax impact of interest expense on debt issued for the Brakes acquisition (5) (0.03) - (0.03) NM Diluted EPS adjusted for certain items and excluding the impact of Brakes (Non-GAAP) (4) $ 1.14 $ 1.00 $ 0.14 14.0% Diluted shares outstanding 555,663,073 586,121,013 NM represents that the percentage change is not meaningful. (5) 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. The adjustments also include $7 million in non-deductible transaction costs and $4 million in other one-time costs related to the Brakes acquisition. (6) Sysco Corporation issued debt to fund the Acquisition. The interest expense arising from the debt issued is attributed to the incremental impact of Brakes operating results, even though it is not a direct obligation of the Brakes Group and is not considered a Certain Item. (1) Includes $56 million in accelerated depreciation associated with our revised business technology strategy and $22 million related to severance charges, professional fees on 3-year financial objectives, restructuring expenses within our Brakes operations and costs to convert to legacy systems in conjunction with our revised business technology strategy. (2) Fiscal 2017 includes $38 million related to intangible amortization expense from the Brakes acquisition, which is included in the results of Brakes and $9 million in transaction costs. Fiscal 2016 includes US Foods merger termination costs. (3) Includes Brakes Acquisition restructuring charges. (4) Individual components of diluted earnings per share may not add to the total presented due to rounding. Total diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding.
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Rights Reserved. Sysco Corporation. P A G E 3 0 Operating Performance S Y S C O 2 Q 1 7 E A R N I N G S R E S U L T S 0 2 . 0 6 . 1 7 Sysco Corporation and its Consolidated Subsidiaries Non-GAAP Reconciliation (Unaudited) Total Sysco Operating Leverage (excluding Brakes) (In Thousands) Gross profit $ 2,571,863 $ 2,156,814 $ 415,049 19.2% Impact of Brakes (353,133) - (353,133) NM Gross profit excluding the impact of Brakes (Non- GAAP) $ 2,218,730 $ 2,156,814 $ 61,916 2.9% Operating expenses (GAAP) $ 2,079,446 $ 1,724,231 $ 355,215 20.6% Impact of certain items (65,460) (4,281) (61,179) NM Impact of Brakes t (287,114) - (287,114) NM Operating expenses adjusted for certain items and excluding the impact of Brakes (Non-GAAP) $ 1,726,873 $ 1,719,950 $ 6,923 0.4% Gross profit $ 2,691,919 $ 2,237,995 $ 453,924 20.3% Impact of Brakes (343,051) - (343,051) NM Gross profit excluding the impact of Brakes (Non- GAAP) $ 2,348,868 $ 2,237,995 $ 110,873 5.0% Operating expenses (GAAP) $ 2,125,086 $ 1,744,521 $ 380,565 21.8% Impact of certain items (1) (59,995) (13,005) (46,990) NM Impact of Brakes (2) (300,271) - (300,271) NM Operating expenses adjusted for certain items and excluding the impact of Brakes (Non-GAAP) $ 1,764,820 $ 1,731,516 $ 33,304 1.9% 13-Week Period Ended 13-Week Period Ended Dec. 31, 2016 Dec. 26, 2015 13-Week Period Change in Dollars 13-Week Period % Change 13-Week Period Change in Dollars 13-Week Period % Change 13-Week Period Ended 13-Week Period Ended Oct. 1, 2016 Sep. 26, 2015 (1) Includes accelerated depreciation associated with out revised business technology, severance charges, professional fees on the 3-year financial objectives, restructuring expenses within our Brakes operations and system conversion costs in conjunction with our revised business technology strategy. Fiscal 2016 includes US Foods merger termination costs. (2) Includes the impact of Brakes and the related intangible amortization and transaction costs.
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Rights Reserved. Sysco Corporation. P A G E 3 1 Operating Performance (Continued) S Y S C O 2 Q 1 7 E A R N I N G S R E S U L T S 0 2 . 0 6 . 1 7 Gross profit $ 2,502,838 $ 2,220,164 $ 282,674 12.7% Less 1 week fourth quarter gross profit (178,774) - (178,774) NM Comparable gross profit using a 13 week basis Non-GAAP) $ 2,324,064 $ 2,220,164 $ 103,900 4.7% Operating expenses (GAAP) $ 1,956,013 $ 2,099,169 $ (143,156) -6.8% Impact of certain items (3) (81,432) (388,250) 306,818 NM Less 1 week fourth quarter operating expense (133,899) - (133,899) NM Operating expenses adjusted for certain items (Non-GAAP) $ 1,740,682 $ 1,710,919 $ 29,763 1.7% Gross profit $ 2,142,825 $ 2,057,498 $ 85,327 4.1% Operating expenses (GAAP) $ 1,765,207 $ 1,730,190 $ 35,017 2.0% Impact of certain items (4) (60,029) (49,974) (10,055) 20.1% Operating expenses adjusted for certain items (Non-GAAP) $ 1,705,178 $ 1,680,216 $ 24,962 1.5% Gross profit $ 2,156,814 $ 2,085,137 $ 71,677 3.4% Operating expenses (GAAP) $ 1,724,231 $ 1,769,691 $ (45,460) -2.6% Impact of certain items (5) (4,281) (80,809) 76,528 NM Operating expenses adjusted for certain items (Non-GAAP) $ 1,719,950 $ 1,688,882 $ 31,068 1.8% 13-Week Period Ended 13-Week Period Ended 13-Week Period Change in Dollars 13-Week Period % ChangeJuly 2, 2016 June 27, 2015 13-Week Period Ended 13-Week Period Ended 13-Week Period Change in Dollars 13-Week Period % ChangeMar. 26, 2016 Mar. 28, 2015 13-Week Period Ended 13-Week Period Ended 13-Week Period Change in Dollars 13-Week Period % ChangeDec. 26, 2015 Dec. 27, 2014 (5) Includes restructuring costs (consisting of severance charges, facility closure charges and professional fees incurred related to our three-year financial objectives), merger and integration planning, and termination costs in connection with the merger that had been proposed with US Foods, Inc. (US Foods), and US Foods related financing costs. (4) Includes restructuring costs, acquisition costs, Brakes transaction costs, and acquisition financing costs related to US Foods and Brakes. (3) Includes restructuring costs, acquisition costs, acquisition financing costs related to US Foods and Brakes and loss on foreign currency remeasurement and hedging.
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Rights Reserved. Sysco Corporation. P A G E 3 2 Operating Performance (Continued) S Y S C O 2 Q 1 7 E A R N I N G S R E S U L T S 0 2 . 0 6 . 1 7 Gross profit $ 2,237,995 $ 2,188,717 $ 49,278 2.3% Operating expenses (GAAP) $ 1,744,521 $ 1,723,104 $ 21,417 1.2% Impact of certain items (6) (13,005) (43,435) 30,430 NM Operating expenses adjusted for certain items (Non-GAAP) $ 1,731,516 $ 1,679,669 $ 51,847 3.1% Gross profit $ 2,220,164 $ 2,155,856 $ 64,308 3.0% Operating expenses (GAAP) $ 2,099,169 $ 1,731,334 $ 367,835 21.2% Impact of certain items (7) (388,250) (56,841) (331,409) NM Operating expenses adjusted for certain items (Non-GAAP) $ 1,710,919 $ 1,674,493 $ 36,426 2.2% Gross profit $ 2,057,498 $ 1,994,741 $ 62,757 3.1% Operating expenses (GAAP) $ 1,730,190 $ 1,662,116 $ 68,074 4.1% Impact of certain items (8) (49,974) (54,950) 4,976 -9.1% Operating expenses adjusted for certain items (Non-GAAP) $ 1,680,216 $ 1,607,166 $ 73,050 4.5% 13-Week Period % ChangeSep. 26, 2015 Sep. 27, 2014 June 27, 2015 June 28, 2014 13-Week Period Ended 13-Week Period Ended 13-Week Period Change in Dollars (8) Includes multiemployer withdrawal charges (MEPP), severance charges, US Foods merger and integration planning costs, charges from facility closures and US Foods related financing costs. (7) Includes multiemployer withdrawal charges (MEPP), severance charges, integration planning, litigation and termination costs in connection with the merger that had been proposed with US Foods, Inc., charges from facility closures and US Foods related financing costs. (6) Includes severance charges, merger and integration planning, litigation costs and termination costs in connection with the merger that had been proposed with US Foods, Inc. (US Foods), facility closure charges and US Foods related financing costs. 13-Week Period Ended 13-Week Period Ended 13-Week Period Change in Dollars 13-Week Period % ChangeMar. 28, 2015 Mar. 29, 2014 13-Week Period Ended 13-Week Period Ended 13-Week Period Change in Dollars 13-Week Period % Change
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Rights Reserved. Sysco Corporation. P A G E 3 3 Operating Performance (Continued) S Y S C O 2 Q 1 7 E A R N I N G S R E S U L T S 0 2 . 0 6 . 1 7 Gross profit $ 2,085,137 $ 1,964,951 $ 120,186 6.1% Operating expenses (GAAP) $ 1,769,691 $ 1,613,174 $ 156,517 9.7% Impact of certain items (9) (80,809) (32,394) (48,415) NM Operating expenses adjusted for certain items (Non-GAAP) $ 1,688,882 $ 1,580,780 $ 108,102 6.8% Gross profit $ 2,188,717 $ 2,065,487 $ 123,230 6.0% Operating expenses (GAAP) $ 1,723,104 $ 1,587,289 $ 135,815 8.6% Impact of certain items (10) (43,435) (2,321) (41,114) NM Operating expenses adjusted for certain items (Non-GAAP) $ 1,679,669 $ 1,584,968 $ 94,701 6.0% (9) Includes multiemployer withdrawal charges (MEPP), severance charges, US Foods merger and integration planning costs, charges from facility closures, US Foods related financing costs and a change in estimate of self-insurance specific to fiscal 2014. Dec. 28, 2013 (10) Includes severance charges, US Foods merger and integration planning costs, charges from facility closures and amortization of US Foods related financing costs. 13-Week 13-Week 13-Week Period Change 13-Week PeriodSep. 27, 2014 Sep. 28, 2013 13-Week Period Ended 13-Week Period Ended 13-Week Period Change in Dollars 13-Week Period % ChangeDec. 27, 2014
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Rights Reserved. Sysco Corporation. P A G E 3 4 Free Cash Flow S Y S C O 2 Q 1 7 E A R N I N G S R E S U L T S 0 2 . 0 6 . 1 7 Sysco Corporation and its Consolidated Subsidiaries Non-GAAP Reconciliation (Unaudited) Free Cash Flow (In Thousands) Net cash provided by operating activities (GAAP) $ 248,674 $ 356,250 $ 604,924 Additions to plant and equipment (142,255) (143,437) (285,692) Proceeds from sales of plant and equipment 4,261 7,378 11,639 Free Cash Flow (Non-GAAP) $ 110,680 $ 220,191 $ 330,871 Net cash provided by operating activities (GAAP) $ (261,482) $ 730,363 $ 520,100 $ 944,161 $ 1,933,142 Additions to plant and equipment (121,243) (126,990) (112,650) (166,463) (527,346) Proceeds from sales of plant and equipment 1,506 9,321 1,796 10,888 23,511 Free Cash Flow (Non-GAAP) $ (381,219) $ 612,694 $ 409,246 $ 788,586 $ 1,429,307 Net cash provided by operating activities (GAAP) $ 62,618 $ 389,820 $ 408,061 $ 694,985 $ 1,555,484 Additions to plant and equipment (118,821) (179,247) (139,218) (105,544) (542,830) Proceeds from sales of plant and equipment 1,126 1,004 13,274 9,068 24,472 Free Cash Flow (Non-GAAP) $ (55,077) $ 211,577 $ 282,117 $ 598,509 $ 1,037,126 Net cash provided by operating activities (GAAP) $ 169,229 $ 288,935 $ 389,900 $ 644,751 $ 1,492,815 Additions to plant and equipment (135,749) (134,683) (117,019) (135,755) (523,206) Proceeds from sales of plant and equipment 10,573 12,907 215 2,095 25,790 Free Cash Flow (Non-GAAP) $ 44,053 $ 167,159 $ 273,096 $ 511,091 $ 995,399 Net cash provided by operating activities (GAAP) $ 213,201 $ 173,584 $ 372,623 $ 752,186 $ 1,511,594 Additions to plant and equipment (155,673) (105,903) (111,472) (138,814) (511,862) Proceeds from sales of plant and equipment 1,393 1,836 8,886 3,412 15,527 Free Cash Flow (Non-GAAP) $ 58,921 $ 69,517 $ 270,037 $ 616,784 $ 1,015,259 July 2, 2016 Oct. 1, 2016 Q1 FY16 Q2 FY16 Q3 FY16 Q4 FY16 53-Week Period Sep. 26, 2015 Dec. 26, 2015 Mar. 26, 2016 July 2, 2016 52-Week Period Sep. 27, 2014 Dec. 27, 2014 Mar. 28, 2015 June 27, 2015 June 27, 2015 Q1 FY15 Q2 FY15 Q3 FY15 Q4 FY15 52-Week Period Sep. 28, 2013 Dec. 28, 2013 Mar. 29, 2014 June 28, 2014 June 28, 2014 Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY14 52-Week Period June 29, 2013Sep. 29, 2012 Dec. 29, 2012 Mar. 30, 2013 June 29, 2013 Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY13 Q1 FY17 Free cash flow represents net cash provided from operating activities less purchases of plant and equipment and includes proceeds from sales of plant and equipment. Sysco considers free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after the purchases and sales of buildings, fleet, equipment and technology, which may potentially be used to pay for, among other things, strategic uses of cash including dividend payments, share repurchases and acquisitions. However, free cash flow may not be available for discretionary expenditures, as it may be necessary that we use it to make mandatory debt service or other payments. 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. In the table that follows, free cash flow for each period presented is reconciled to net cash provided by operating activities. Q2 FY17 Dec. 31, 2016 Period Ended Dec. 31, 2016 26-Week
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Rights Reserved. Sysco Corporation. P A G E 3 5 Adjusted Brakes Accretion S Y S C O 2 Q 1 7 E A R N I N G S R E S U L T S 0 2 . 0 6 . 1 7 Adjusted Brakes Accretion Target Diluted EPS adjusted for certain items(Non-GAAP) $ 0.58 $ 1.25 Impact of Brakes (0.06) (0.09) Impact of Brakes restructuring costs (0.00) (0.01) Impact of Brakes acquisition-related costs (0.03) (0.06) Impact of interest expense on debt issued for the Brakes acquisition 0.04 0.07 Tax impact of interest expense on debt issued for the Brakes acquisition (0.01) (0.03) Diluted EPS adjusted for certain items and excluding the impact of Brakes (Non-GAAP) $ 0.51 $ 1.14 Brakes Accretion (0.07) (0.11) 26-Week Period Ended Dec. 31, 2016 13-Week Period Ended Dec. 31, 2016 We expect our Brakes accretion target to be achieved by fiscal 2018. Due to the uncertainties within these projected amounts, we cannot provide a quantitative reconciliation of these non-GAAP measures to the most directly comparable GAAP measure without unreasonable effort. However, we expect to calculate these adjusted results in the same manner as the reconciliations provided for the historical periods that are presented herein.
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