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    SYY
    Earnings call· Sep 2025(Q1 FY26)

    SYSCO CORP SYY

    Oct 28, 2025 Source

    Executive summary

    Sysco Q1 FY26 — Strong Local Business Inflection and Momentum

    Sysco delivered a strong Q1 FY26, exceeding financial plans with positive inflection in its U.S. Broadline local business and continued robust performance from its International segment. The company is building momentum through stabilized sales force retention and strategic initiatives like AI360 and Perks 2.0, which are driving improved customer penetration and new account growth. Management expressed confidence in delivering full-year guidance, anticipating continued sequential improvements in local volumes despite a less compelling macro backdrop.

    Highlights

    5

    • U.S. Broadline local business volume inflected positive, delivering 0.4% growth, outpacing industry traffic improvement by more than 2x.

    • International segment delivered outsized sales growth of 4.5% reported (7.9% ex-Mexico) and 13.1% adjusted operating income growth, marking the eighth consecutive quarter of double-digit profit growth.

    • Sales growth of 3.2% on a reported basis (3.8% excluding Mexico divestiture) and adjusted EPS growth of 5.5% exceeded financial plan.

    • Gross profit grew 3.9% with 13 basis points of gross margin expansion, reflecting effective management of product cost inflation.

    • Improved new-lost account spread by more than 220 basis points year-over-year, with existing customer penetration improving by 90 basis points from Q4 to Q1.

    Concerns

    4

    • FreshPoint business exit negatively impacted total USFS local performance by over 50 basis points in Q1.

    • National chain restaurants business is down year-over-year from a traffic and volume perspective.

    • Q1 adjusted operating expense increased 14 basis points to 14.2% of sales, driven by planned investments and lapping $10 million in incentive compensation from prior year.

    • Free cash flow in Q1 was negative $15 million, reflecting typical seasonality and CapEx timing.

    Guidance & targets

    14
    CategoryTargetConfidence
    Adjusted EPS
    $4.50 to $4.60
    high materiality
    High
    Reported Net Sales Growth
    approximately 3% to 5%
    high materiality
    High
    Inflation Rate
    approximately 2%
    medium materiality
    High
    Adjusted EPS Growth
    approximately 4% to 6%
    high materiality
    High
    USFS Local Volume Improvement
    at least 100 basis points sequentially
    high materiality
    High
    Dividends
    approximately $1 billion
    high materiality
    High
    Share Repurchase
    approximately $1 billion
    high materiality
    High
    Dividend Payout Increase
    6% year-over-year increase
    medium materiality
    High
    Net Leverage Ratio
    2.5 to 2.75x
    high materiality
    High
    Effective Tax Rate
    approximately 23.5% to 24%
    medium materiality
    High
    Adjusted Depreciation and Amortization
    approximately $850 million
    medium materiality
    High
    Interest Expense
    approximately $700 million
    medium materiality
    High
    Other Expense
    approximately $65 million
    medium materiality
    High
    Capital Expenditure (CapEx)
    approximately $700 million
    high materiality
    High

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    USFS Total Local Business
    Excluding the negative impact from an intentional business exit within FreshPoint, USFS total local business grew 0.3%.
    Impact from FreshPoint business exit: -50 basis points
    		—-0.2% case volume——
    U.S. Broadline Local Business
    Inflected positive in the quarter, 130 basis points stronger than Q4 results, significantly outpacing the 60 basis points improvement in restaurant traffic.
    		—0.4% volume growth——
    International
    Eighth consecutive quarter of double-digit profit growth, with P&L strength from every region. Customer mix shift to local driving outsized growth.
    Local case volume growth: approximately 5%
    		4.5% sales growth7.9% sales growth—13.1% adjusted operating income growth
    SYGMA
    Expect more moderate results for the remainder of the year, with FY26 growth driven by operating efficiencies.
    		4% sales growth——39% operating income growth

    Operational metrics

    29
    Sales growth
    3.2%
    Q1 FY26

    Sales growth was 3.8% excluding the divestiture of Mexico.

    Sales growth (ex-Mexico divestiture)
    3.8%
    Q1 FY26

    Sales growth on a reported basis was 3.2%.

    Adjusted EPS growth
    5.5%
    Q1 FY26

    Exceeded expectations.

    Gross profit growth
    3.9%
    Q1 FY26

    Reflects effective management of product cost inflation.

    Gross margin expansion
    13year-over-year
    Q1 FY26

    Reflects structural improvements expected to carry over.

    Adjusted operating income
    $898 million
    Q1 FY26

    Reflecting continued strong growth in International and SYGMA segments.

    Adjusted EBITDA
    $1.1 billionup 0.1% versus the prior year
    Q1 FY26

    For the quarter.

    Net debt leverage ratio
    2.9x
    Q1 FY26 end

    At the end of the quarter.

    Total liquidity
    $3.5 billion
    Q1 FY26 end

    Remains well above minimum threshold, offering flexibility and optionality.

    USFS total local volume sequential improvement
    120vs Q4
    Q1 FY26

    Outpacing the industry's 60 basis points traffic improvement.

    New-lost account spread improvement
    220versus prior year
    Q1 FY26

    Enabled by increased new accounts and decreased lost accounts.

    New-lost account spread improvement (sequential)
    40versus Q4
    Q1 FY26

    September was the strongest period of the quarter for this metric.

    Existing customer penetration improvement
    90From Q4 to Q1
    Q1 FY26

    Directly attributed to increased selling skills and technology tools.

    Sales consultant retention
    improved meaningfullyversus 2025 and Q4 exit velocity
    Q1 FY26

    Exceeding retention target year-to-date, leading to less churn and increased ability to prospect.

    AI360 active usage
    90%
    Q1 FY26

    Of sales consultants actively using the tool on a daily/weekly basis; strong correlation between engagement and improved performance.

    Perks 2.0 help desk resolution
    98%
    Q1 FY26

    Resolving Perks questions at first time.

    International profit margin rate
    doubled
    Past 3 years

    Will continue to work to increase profitability while taking share and growing top line.

    USBL inflation
    2.6%
    Q1 FY26

    Overall inflation rate in Q1 was higher due to International.

    International inflation (constant currency)
    4.5%
    Q1 FY26

    Driven by Canada (tariff-related) and Great Britain (7% wage inflation mandated by government).

    Adjusted operating expense
    $3 billion
    Q1 FY26

    For the quarter.

    Adjusted operating expense as % of sales
    14.2%14 basis point increase from the prior year
    Q1 FY26

    Increase driven by planned investments and lapping $10 million in incentive compensation from prior year.

    Incentive compensation headwind
    $10 million
    Q1 FY26

    Impacted adjusted operating expense growth by approximately 100 basis points and adjusted EPS growth by approximately 150 basis points.

    Corporate adjusted expenses growth
    1%from the prior year
    Q1 FY26

    Reflecting continued investments, lapping incentive compensation, and balanced with productivity and corporate efficiencies.

    EPS beat
    $0.03
    Q1 FY26

    Beat to consensus expectations.

    National sales customer retention rate
    greater than 98-plus percent
    Current

    Incredibly high customer retention rate.

    Sales force new hires
    750 people plus
    Past couple of years

    Investment in sales headcount.

    Specialty business size
    $10 billion
    Current

    Approximately.

    Specialty business growth opportunity
    $10 billion
    Next period of time

    Stated at Investor Day.

    Case volume reporting change impact
    0 to 10
    Average over last 5 quarters

    Change to include center-of-plate Buckhead, Newport meat, and seafood specialty platform volumes.

    Industry KPIs

    3
    MetricValueDetails
    Sg a rate14.2%% of sales
    Gross margin drivers18.5%%
    Category level comps and inflation deflationapproximately 2.6%%

    Product announcements

    2
    ProductTypeDetails
    AI360launch
    Perks 2.0launch

    Deals & partnerships

    1
    Fairfax Meadowone of the U.K.'s leading center-of-plate protein suppliers

    This acquisition follows the prior year's acquisition of Campbell's Prime Meat, expanding specialty capabilities in the UK.

    Capital programs

    1
    New Facilities Expansionunderway

    Benefit: Increased capacity

    10 new facilities are being built around the world, with 7 in the U.S. and 3 internationally. These facilities are expected to be filled by a strong pipeline of accretive cases as sales consultants become more productive.

    Risks & headwinds

    5
    FreshPoint business exitQ1 FY26

    negatively impacted our total local performance by over 50 basis points

    Mitigation: N/A - intentional business exit.

    National chain restaurants traffic/volume declineQ1 FY26

    down on a year-over-year basis

    Mitigation: Offset by strength in noncommercial national sales and local business growth; national sales has high customer retention (>98%).

    Incentive compensation headwindFY26

    approximate $100 million headwind for FY26; $10 million headwind in Q1 FY26 (approximately $0.02 per share)

    Mitigation: Pay-for-performance program in place to motivate behavior and drive positive performance.

    Macro backdropFY26

    N/A - qualitative

    Mitigation: Growth initiatives within Sysco's control, diversified business, strong International segment provide resilience.

    Industry traffic slowdownQ1 FY26 exit, Q2 FY26 start

    September was softer than Q1 in its entirety, and that has continued into October

    Mitigation: Sysco outperforming the market due to internal initiatives and workforce stability; diversified portfolio (noncommercial, International) provides resilience.

    What to watch in Q2 FY26

    5

    USFS Local Volume Improvement

    Q2 FY26
    Current-0.2% (Q1 FY26)
    TargetAt least 100 basis points sequential improvement (i.e., to >0.8%)

    Why it matters

    This is a key indicator of the success of internal initiatives and sales force stabilization, directly impacting overall growth and profitability.

    As Kevin highlighted, we currently expect our USFS local volume improvement to improve at least 100 basis points sequentially quarter-over-quarter in Q2 of 2026.

    Q&A highlights

    8

    How is sales force productivity improving, especially with new hires, and how does it correlate to the strong local case growth seen in September/October, given the sluggish industry?

    Management highlighted 130 bps progress in Q1 local volume, outpacing industry by 2x, with October stronger than September. This is driven by stabilized sales colleague retention, new hires climbing the productivity curve, and initiatives like Sysco Your Way, Total Team Selling, Perks 2.0, and AI360. They expect at least 100 bps sequential improvement in Q2.

    “The bumper sticker is we are extremely confident in our momentum in our local case growth. As I said earlier, 100 basis points sequential improvement quarter-over-quarter in terms of volume.”

    asked by Alexander Slagle · answered by Kevin Hourican / Kenny Cheung

    2 min read6 chapters

    Detailed Narrative

    01

    U.S. Local Business Momentum

    Sysco's U.S. Broadline local business inflected positive in Q1 FY26, achieving 0.4% volume growth, which was 130 basis points stronger than Q4 results and more than double the industry's 60 basis points traffic improvement. This momentum continued into October, with management expecting at least an additional 100 basis points sequential improvement in total U.S. local volume in Q2 FY26. The improvement is attributed to stabilized sales force retention and the impact of new growth initiatives.

    02

    International Segment Outperformance

    The International segment delivered exceptional results, with sales growth of 4.5% reported (7.9% excluding Mexico divestiture) and adjusted operating income growth of 13.1%. This marks the eighth consecutive quarter of double-digit profit growth, driven by a positive customer mix shift towards local business, which saw approximately 5% case volume growth. The segment's profit margin rate has doubled over the past three years, and it continues to be a significant tailwind for the company.

    03

    Sales Force Stability and Productivity

    Sales consultant retention improved meaningfully in Q1, leading to a fully stabilized sales colleague population. This stability, combined with new hires climbing the productivity curve, contributed to the highest rate of new account growth in 12 months and a 90 basis point improvement in penetration with existing customers from Q4 to Q1. Management is bullish on continued local progress due to this stable and increasingly productive sales force.

    04

    Impact of AI360 and Perks 2.0

    The newly introduced AI-empowered sales tool, AI360, is actively used by approximately 90% of sales consultants, showing a strong correlation between high engagement and improved volume/selling performance. The customer loyalty program, Perks 2.0, has enrolled all eligible local street customers, focusing on improved retention and deeper penetration by prioritizing service levels (e.g., preferred delivery windows, higher fill rates, immediate credit for damages) without additional cost to Sysco.

    05

    Supply Chain Efficiency

    The supply chain organization delivered its strongest quarter in six years from both service and cost perspectives. Customer service levels, on-time and in-full deliveries, and health and safety performance improved. Product shrink was reduced, and colleague productivity increased, driven by notable improvements in retention and stability within the supply chain workforce. These efficiencies contributed to a beat in supply chain cost per piece versus plan.

    06

    Macro Environment and Diversification

    While the overall restaurant industry saw softer traffic in September and October, particularly in QSR and large national chains, Sysco's performance outpaced the market. The company benefits from a diversified business, with strong performance in noncommercial sectors (foodservice management, travel, hospitality, government) which are more resilient. The International segment also provides diversification and strategic counterbalance, enhancing overall business stability.

    AI-generated summary of the company’s earnings call. Not investment advice.