Sysco 3Q14
Earnings Results Sysco 3Q14 Earnings Results
May 5, 2014
Filed by Sysco Corporation
Commission File No. 001-06544
Pursuant to Rule 425
under the Securities Act of 1933
Subject Company: USF Holding Corp. |
2
Forward-Looking Statements
Statements made in this presentation or the accompanying earnings call that look forward in time or that
express managements 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 plans and expectations related to and the
benefits and expected timing of our business transformation initiatives, our plans and expectations
related to and the benefits of the proposed merger with US Foods, and our plans and expectations
related to acquisitions. These statements also include expectations regarding our operating performance
results, market conditions and trends, inflation, retirement-related expenses, our expense
management and Broadline cost per case performance, business transformation costs and expenses, free
cash flow and capital expenditures. The success of our business transformation initiatives and
expectations regarding our operating performance 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 may not increase and decreases in consumer spending, particularly on
food-away-from-home, may not reverse. Market conditions may not improve as anticipated. 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 continue to decline. Our ability to meet our long-term strategic objectives to grow
the profitability of our business depends largely on the success of our Business Transformation
Project. There are various risks related to the project, including the risk that the project and its various
components 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 the ERP system may be greater or less
than currently expected because we have encountered, and may continue to encounter, the need for
changes in design or revisions of the project calendar and budget, including the incurrence of
expenses at an earlier or later time than currently anticipated; the risk that our business and results
of operations may be adversely affected if we experience delays in deployment, operating problems,
cost overages or limitations on the extent of the business transformation during the ERP implementation
process; and the risk of adverse effects to our business, results of operations and liquidity if the
ERP system, and the associated process changes, do not prove to be cost effective or do not result in
the cost savings and other benefits at the levels that we anticipate. In fiscal 2013, we delayed the
deployment of certain components of our ERP system so that we could address certain areas of
improvement. We installed a major scheduled update to the ERP system and deployed the system to three
additional locations in the first 39 weeks of fiscal 2014, and have deployed the system to two
additional locations in April 2014. Planned deployments in the coming quarters are dependent upon the
success of the ERP system and the updates at the current locations. We may experience delays, cost
overages or operating problems when we deploy the system to additional locations. Our plans
related to and the timing of the implementation of the ERP system, as well as the cost transformation
and category management initiatives, are subject to change at any time based on managements
subjective evaluation of our overall business needs. We may fail to realize anticipated
benefits, particularly expected cost savings, from our cost transformation initiative. If we are unable to realize the
anticipated benefits from our cost cutting efforts, we could become cost disadvantaged in the
marketplace, and our competitiveness and our profitability could decrease. We may also fail to realize the full
anticipated benefits of our category management initiative, and may be unable to successfully execute
the initiative in our anticipated timeline. Capital expenditures may vary from those projected based
on changes in business plans and other factors, including risks related to the implementation of our
business transformation initiatives and our regional distribution centers, the timing and successful
completions of acquisitions, construction schedules and the possibility that other cash requirements
could result in delays or cancellations of capital spending. 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. 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, and such expansion efforts may not be successful.
Any business we acquire may not perform as expected, and we may not realize the anticipated
benefits of our acquisitions. The consummation of the merger with US Foods is subject to regulatory
approval and the satisfaction of certain conditions, and we cannot predict whether the necessary
conditions will be satisfied or waived and the requisite regulatory approvals received. Sysco and US
Foods may be required to take certain actions to obtain regulatory approval for the merger, including
the divestiture of assets, which could negatively impact the projected benefits of the merger.
Termination of the merger agreement with US Foods could require Sysco to make a termination payment of
$300 million, which could adversely impact Syscos stock price, liquidity and financial condition.
As a result of uncertainties surrounding the proposed merger, prospective suppliers and customers may
delay or decline to enter into agreements with us, and we may also lose current suppliers and
customers, and fail to retain key employees. The pending merger and our current pre-merger integration
planning efforts may divert our managements attention from day-to-day business operations
and the execution of our business transformation initiatives, which could result in performance shortfalls.
Integration of the businesses of Sysco and US Foods may be more difficult, costly or time consuming
than expected, and the merger may not result in any or all of the anticipated benefits, including cost
synergies. We may fail to retain some of US Foods vendors and customers after the proposed
merger. Consummation of the merger will require Sysco to incur significant additional indebtedness, which
could adversely impact our financial condition and may hinder our ability to obtain additional
financing and pursue other business and investment opportunities. For a discussion of additional factors
impacting Syscos business, see the Companys Annual Report on Form 10-K for the year
ended June 29, 2013, as filed with the Securities and Exchange Commission, and the Companys subsequent
filings with the SEC. Sysco does not undertake to update its forward-looking statements.
Additional Information for US Foods Stockholders In connection with the proposed transaction, Sysco currently intends to file a Registration Statement
on Form S-4 that will include a consent solicitation statement of US Foods. Sysco also plans to file
other relevant materials with the SEC. Stockholders of US Foods are urged to read the consent
solicitation statement/prospectus contained in the Registration Statement and other relevant materials
because these materials will contain important information about the proposed transaction. These
materials will be made available to the stockholders of US Foods at no expense to them. The consent
solicitation statement/prospectus, Registration Statement and other relevant materials, including any
documents incorporated by reference therein, may be obtained free of charge at the SEC's website at
www.sec.gov or for free from Sysco at www.sysco.com/investors or by emailing
investor_relations@corp.sysco.com. Such documents are not currently available. You may also read and copy any reports,
statements and other information filed by Sysco with the SEC at the SEC public reference room at 100 F
Street N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at (800) 732-0330 or visit
the SEC's website for further information on its public reference room.
This document shall not constitute an offer to sell or the solicitation of an offer to buy any
securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would
be unlawful prior to the registration or qualification under the securities laws of any such
jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of
Section 10 of the Securities Act of 1933, as amended. |
3Q14
Highlights 3Q14 Highlights
3
1
See Non-GAAP reconciliations at the end of this presentation.
Reported
Adjusted for Certain
Items Results
$ Millions, except
share data
3Q14
YOY %
Change
3Q14
YOY %
Change
Sales
$11,277
3.2%
$11,277
3.2%
Gross Profit
$1,995
2.7%
$1,995
2.7%
Operating
Expenses
$1,662
3.5%
$1,606
3.3%
Operating
Income
$333
(1.4%)
$388
0.3%
Net Earnings
$181
(10.2%)
$223
(5.0%)
Diluted EPS
$0.31
(8.8%)
$0.38
(5.0%)
1 |
Consumer Spending
Rebounded as Weather Improved Consumer Spending Rebounded as Weather Improved
4
Restaurant Spend
Restaurant Traffic
Restaurant Spend/Traffic
(1)
% Change vs. Year Ago
U.S. Retail Data
(2)
% Change vs. Year Ago
1) Source: NPD Crest
2) Source: U.S. Dept. of Commerce |
Business
Transformation Progress Business Transformation Progress
5
Technology
Product Costs
Operating Costs
Successfully converted
5 operating companies
this fiscal year
Significant progress in
System stability
Performance and
scalability
Functionality
Working to ensure
smoother transitions
for each successive
converting operating
company
On track to achieve
FY14 and FY15
objectives
All of pilot and wave
1, and the majority of
wave 2 categories,
launched in market by
end of FY14
representing:
$5-7B in annual
spend
Program effectiveness
enhanced by sharing
best practices and
greater
communication
Majority of route
optimization complete
by end of FY14
Where implemented,
planned miles
reduced 5%
Fleet
optimization
-
over
500 pieces retired;
1,000 more to come
Fleet and equipment
acquisition and
standardization
completed resulting in
substantially lower cost
to acquire assets
Increased focus on
operations labor
management |
6
We are focused on
Creating value for our customers;
Driving transformational change within our company; and
US Foods merger integration planning
Expect market conditions will improve modestly for the remainder
of calendar 2014 and that Syscos operating performance results will
show steady improvement
Strong execution is paramount to providing best-in-class customer
service and meeting our FY14 financial objectives
Key Takeaways
Key Takeaways |
Reported
Adjusted for Certain
Items Results
$ Millions, except
share data
3Q14
YOY %
Change
3Q14
YOY %
Change
Sales
$11,277
3.2%
$11,277
3.2%
Gross Profit
$1,995
2.7%
$1,995
2.7%
Operating
Expenses
$1,662
3.5%
$1,606
3.3%
Operating
Income
$333
(1.4%)
$388
0.3%
Net Earnings
$181
(10.2%)
$223
(5.0%)
Diluted EPS
$0.31
(8.8%)
$0.38
(5.0%)
3Q14 Highlights
3Q14 Highlights
7
1
See Non-GAAP reconciliations at the end of this presentation.
1 |
Case Growth Drives
Sales Growth Case Growth Drives Sales Growth
(1)
(1)
Includes Broadline and SYGMA
3.0%
5.7%
4.1%
5.0%
4.1%
3.0%
3.2%
Jan/Feb Sales +1.7% YOY
Mar Sales +5.5% YOY
4Q13
1Q14
2Q14
3Q14
Case Growth
Organic
Acquisitions
4.3%
4Q13
1Q14
2Q14
3Q14
Sales Growth
Inflation
Case Growth/Mix
Fx
3.0%
8 |
Gross Margin
Pressure Moderated Gross Margin Pressure Moderated
9
($ in millions)
(32)
(19)
(28)
(60)
(68)
(60)
(9)
-110
-90
-70
-50
-30
-10
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
YOY Decline in Gross Margin (bps)
Low inflation
business;
in locally-managed
Strengthening trends
Margin management;
aided by:
margin erosion mainly
Deceleration in gross |
10
Initiatives Continue to Drive Lower Cost per Case
Initiatives Continue to Drive Lower Cost per Case
retirement-related expense due to prior year restructuring
Partially offset by lower sales organization costs, and a decrease in
Increased corporate expense
and
Increased delivery and warehouse costs, including weather impact;
Increased case volume, and new costs from acquired companies;
Operating expenses increased $57 million or 3.5% due to:
Benefits generated from our transformation initiatives helped to
lower Broadline
cost-per-case $0.03 in the quarter |
11
FY14 Retirement-Related Expenses Lower Than Expected
FY14 Retirement-Related Expenses Lower Than Expected
FY14 Guidance
Year-over-Year Variance
H (L)
(in millions)
Current
Prior
Pension & other
(121)
(121)
401(k) & other
45-55
61-71
Underlying retirement-related expense
(65-75)
(50-60)
Certain items
(20)
(20)
Total retirement-related expenses
(85-95)
(75-85)
Note: Totals may not foot due to rounding |
(in
millions) 3Q14
3Q13
YTD
FY14
YTD
FY13
Operating expense
$71
$83
$198
$242
Capital investment
$14
$4
$29
$14
Cash outlay
$61
$67
$161
$201
12
Business Transformation Project Costs
Business Transformation Project Costs
In FY14, Business Transformation:
Expense expected to be $275-300 million
Capital expected to be $30-40 million
Cash outlay expected to be $225-275 million |
Capital
Expenditures Capital Expenditures
13
($ millions)
$373
$111
3
rd
Quarter
Year-to-Date
$117
$387
In 3Q14:
Recent equipment and fleet optimization projects contributed to lower spend, and
ERP stabilization activities drove higher business transformation spend
FY 2014
FY 2013
Technology
Fleet
Facilities
FY 2014
FY 2013
Technology
Fleet
Facilities |
14
$ Millions
YTD
FY14
YTD
FY13
% Chg
Cash Flow from Operations
$848
$759
11.7%
Capital Expenditures, net
1
364
361
0.8%
Free Cash Flow
2
$484
$398
21.5%
Dividends Paid
$498
$482
3.3%
Free Cash Flow Continues to Improve
Free Cash Flow Continues to Improve
1)
Capital expenditures are net of proceeds from sales of plant and equipment 2) Free cash flow may not foot due to rounding |
15
Integration planning efforts underway; focused on
Day one readiness;
Value creation; and
Long-term organizational design
Merger benefits our customers and helps us become more efficient
in an evolving and competitive marketplace
Customers have many choices in this fiercely competitive marketplace
Continuing dialogue with the FTC
We expect the merger to close in the third calendar quarter of
2014
Update on Proposed Merger with US Foods
Update on Proposed Merger with US Foods |
|
Non-GAAP
Reconciliations |
18
3Q14 Non-GAAP Reconciliations
3Q14 Non-GAAP Reconciliations
Syscos results of operations are impacted by certain items which include
charges from restructuring our executive retirement plans, multiemployer pension charges,
severance charges, US Foods merger and integration planning costs, change in
estimate of self-insurance, charges from a contingency accrual, charges from facility
closures and amortization of US Foods financing costs. Management believes
that adjusting its operating expenses, operating income, interest expense, net earnings
and diluted earnings per share to remove these certain items provides an important
perspective with respect to our results and provides meaningful supplemental
information to both management and investors that removes these items which are
difficult to predict and are often unanticipated, and which, as a result are difficult to
include in analyst's financial models and our investors' expectations with any
degree of specificity. Sysco believes the adjusted totals facilitate comparison on a year-
over-year basis.
The company uses these non-GAAP measures when evaluating its financial results
as well as for internal planning and forecasting purposes. These financial
measures should not be used as a substitute in assessing the companys results
of operations for the periods presented. An analysis of any non-GAAP financial
measure should be used in conjunction with results presented in accordance with
GAAP. As a result, in the tables that follow, each period presented is adjusted to
remove the certain items noted above. |
19
3Q14 Non-GAAP Reconciliation
3Q14 Non-GAAP Reconciliation
13-Week
Period Ended
Mar. 29, 2014
13-Week
Period Ended
Mar. 30, 2013
13-Week
Period Change
in Dollars
13-Week
Period
% Change
Operating expenses (GAAP)
$
1,662,116
$
1,605,280
$
56,836
3.5
%
Impact of restructuring executive retirement plans
(773)
(5,444)
4,671
-85.8
Impact of MEPP charges
-
(40,744)
40,744
-100.0
Impact of severance charges
(1,512)
(3,595)
2,083
-57.9
Impact of US Foods merger and integration planning costs
(32,416)
-
(32,416)
NM
Impact of contingency accrual
(20,000)
-
(20,000)
NM
Impact of facility closure charges
(1,022)
(285)
(737)
258.6
Operating expenses adjusted for certain items (Non-GAAP)
$
1,606,393
$
1,555,212
$
51,181
3.3%
Operating Income (GAAP)
$
332,625
$
337,202
$
(4,577)
-1.4
%
Impact of restructuring executive retirement plans
773
5,444
(4,671)
-85.8
Impact of MEPP charges
-
40,744
(40,744)
-100.0
Impact of severance charges
1,512
3,595
(2,083)
-57.9
Impact of US Foods merger and integration planning costs
32,416
-
32,416
NM
Impact of contingency accrual
20,000
-
20,000
NM
Impact of facility closure charges
1,022
285
737
258.6
Operating income adjusted for certain items (Non-GAAP)
$
388,348
$
387,270
$
1,078
0.3
%
Interest Expense (GAAP)
$
32,224
$
34,215
$
(1,991)
-5.8
%
Impact of US Foods financing costs
(2,925)
-
(2,925)
NM
Interest Expense (GAAP)
$
29,299
$
34,215
$
(4,916)
-14.4%
Net earnings (GAAP)
$
180,937
$
201,417
$
(20,480)
-10.2
%
Impact of restructuring executive retirement plans (net of tax)
471
3,579
(3,108)
-86.8
Impact of MEPP charges (net of tax)
-
26,784
(26,784)
-100.0
Impact of severance charges (net of tax)
922
2,363
(1,441)
-61.0
Impact of US Foods merger and integration planning costs (net of
tax)
19,769
-
19,769
NM
Impact of contingency accrual (net of tax)
18,049
-
18,049
NM
Impact of facility closure charges (net of tax)
623
187
436
233.2
Impact of US Foods financing costs (net of tax)
1,784
-
1,784
NM
Net earnings adjusted for certain items (Non-GAAP) (1)
$
222,555
$
234,330
$
(11,775)
-5.0%
Diluted earnings per share (GAAP)
$
0.31
$
0.34
$
(0.03)
-8.8
%
Impact of restructuring executive retirement plans
-
0.01
(0.01)
-100.0
Impact of MEPP charges
-
0.05
(0.05)
-100.0
Impact of US Foods merger and integration planning costs
0.03
-
0.03
NM
Impact of contingency accrual
0.03
-
0.03
NM
Impact of facility closure charges
-
-
-
NM
Impact of US Foods financing costs
-
-
-
NM
Diluted EPS adjusted for certain items (Non-GAAP) (2)
$
0.38
$
0.40
$
(0.02)
-5.0%
Diluted shares outstanding
590,470,283
592,903,799
(1)
Tax impact of adjustments for executive retirement plans restructuring, MEPP charge, severance
charges, US Foods merger and integration planning costs, charges from a contingency accrual, charges from facility
closures and amortization of US Foods financing costs was $32,029 and $17,155 for the
13-week periods ended March 29, 2014 and March 30, 2013, respectively. Amounts are calculated by multiplying the operating
income impact of each item by each quarter's effective tax rate with the exception of the
impact of the charges from a contingency accrual, which has an estimated non-deductible portion.
(2)
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 for certain
items and adjusted net
earnings -
underlying business, both divided by diluted shares outstanding.
NM represents that the percentage change is not meaningful
-
more - |
20
3Q14 Non-GAAP Reconciliation
3Q14 Non-GAAP Reconciliation
39-Week
Period Ended
Mar. 29, 2014
39-Week
Period Ended
Mar. 30, 2013
39-Week
Period Change
in Dollars
39-Week
Period
% Change
Operating expenses (GAAP)
$
4,862,579
$
4,725,752
$
136,827
2.9
%
Impact of restructuring executive retirement plans
(2,323)
(17,608)
15,285
-86.8
Impact of MEPP charge
(1,451)
(43,201)
41,750
-96.6
Impact of severance charges
(5,109)
(15,341)
10,232
-66.7
Impact of US Foods merger and integration planning costs
(36,769)
-
(36,769)
NM
Impact of change in estimate of self insurance
(23,841)
-
(23,841)
NM
Impact of contingency accrual
(20,000)
-
(20,000)
NM
Impact of facility closure charges
(2,497)
(1,974)
(523)
26.5
Operating expenses adjusted for certain items (Non-GAAP)
$
4,770,589
$
4,647,628
$
122,961
2.6%
Operating Income (GAAP)
$
1,162,600
$
1,198,635
$
(36,035)
-3.0%
Impact of restructuring executive retirement plans
2,323
17,608
(15,285)
-86.8
Impact of MEPP charge
1,451
43,201
(41,750)
-96.6
Impact of severance charges
5,109
15,341
(10,232)
-66.7
Impact of US Foods merger and integration planning costs
36,769
-
36,769
NM
Impact of change in estimate of self insurance
23,841
-
23,841
NM
Impact of contingency accrual
20,000
-
20,000
NM
Impact of facility closure charges
2,497
1,974
523
26.5
Operating income adjusted for certain items (Non-GAAP)
$
1,254,590
$
1,276,759
$
(22,169)
-1.7%
Interest Expense (GAAP)
$
92,536
$
97,325
$
(4,789)
-4.9%
Impact of US Foods financing costs
(3,093)
-
(3,093)
NM
Interest Expense (GAAP)
$
89,443
$
97,325
$
(7,882)
-8.1%
Net earnings (GAAP)
$
677,362
$
709,384
$
(32,022)
-4.5%
Impact of restructuring executive retirement plans (net of tax)
1,464
11,264
(9,800)
-87.0
Impact of MEPP charge (net of tax)
914
27,635
(26,721)
-96.7
Impact of severance charges (net of tax)
3,219
9,813
(6,594)
-67.2
Impact of US Foods merger and integration planning costs (net of
tax)
23,166
-
23,166
NM
Impact of change in estimate of self insurance (net of tax)
15,021
-
15,021
NM
Impact of contingency accrual (net of tax)
18,150
-
18,150
NM
Impact of facility closure charges (net of tax)
1,573
1,263
310
24.5
Impact of US Foods financing costs (net of tax)
1,949
-
1,949
NM
Net earnings adjusted for certain items (Non-GAAP) (1)
$
742,818
$
759,359
$
(16,541)
-2.2%
Diluted earnings per share (GAAP)
$
1.15
$
1.20
$
(0.05)
-4.2%
Impact of restructuring executive retirement plans
-
0.02
(0.02)
-100.0
Impact of MEPP charge
-
0.05
(0.05)
-100.0
Impact of severance charges
0.01
0.02
(0.01)
-50.0
Impact of US Foods merger and integration planning costs
0.04
-
0.04
0.0
Impact of change in estimate of self insurance
0.03
-
0.03
NM
Impact of contingency accrual
0.03
-
0.03
NM
Impact of facility closure charges
-
-
-
NM
Impact of US Foods financing costs
-
-
-
NM
Diluted EPS adjusted for certain items (Non-GAAP) (2)
$
1.26
$
1.28
$
(0.02)
-1.6
%
Diluted shares outstanding
589,834,321
591,054,506
(1)
Tax impact of adjustments for executive retirement plans restructuring, MEPP charge, severance
charges, US Foods merger costs, change in estimate of self insurance, charges from a contingency
accrual, charges from
facility closures and amortization of US Foods financing costs was $44,627 and $28,149 for the
39-week periods ended March 29, 2014 and March 30, 2013, respectively. Amounts are calculated by multiplying the
operating income impact of each item by each 39-week period's effective tax rate with the
exception of the impact of the charges from a contingency accrual, which has an estimated non-deductible portion.
(2)
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 for certain
items and adjusted net
earnings -
underlying business, both divided by diluted shares outstanding.
NM represents that the percentage change is not meaningful
-
more - |
21
3Q14 Non-GAAP Reconciliation
3Q14 Non-GAAP Reconciliation
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. We do not mean to imply that free cash flow is necessarily
available
for
discretionary
expenditures,
however,
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 in assessing the companys 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.
39-Week
Period Ended
Mar. 29, 2014
39-Week
Period Ended Mar.
30, 2013
39-Week
Period Change
in Dollars
39-Week
Period
% Change
Net cash provided by operating activities (GAAP)
$
848,064
$
759,408
$
88,656
11.7
%
Additions to plant and equipment
(387,451)
(373,048)
(14,403)
-3.9
Proceeds from sales of plant and equipment
23,695
12,115
11,580
95.6
Free Cash Flow (Non-GAAP)
$
484,308
$
398,475
$
85,833
21.5
% |
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