Sysco Corporation Q1 FY2026 earnings call

Management Statement and Operational Highlights

• Strong Q1 Performance: Sysco delivered a strong financial quarter with sales growth of 3.2% reported and 3.8% excluding Mexico divestiture, gross profit growth of 3.9%, and adjusted EPS growth of 5.5%.
• U.S. Broadline Local Momentum: Local volumes improved sequentially every month in Q1, with a rate of improvement more than 2x the industry. Q2 is anticipated to see at least an additional 100 basis points improvement in total U.S. local versus Q1.
• International Success: International segment had strong sales and profit growth, with local case volume growth ~5% and adjusted operating income up 13.1% for the eighth consecutive quarter of double-digit profit growth.
• Growth Initiatives: Introduced AI360, an AI-empowered sales tool with ~90% of sales consultants actively using it. Launched Perks 2.0 loyalty program, enrolling all eligible customers and increasing colleague visit frequency. Stabilized sales colleague population and saw improved colleague engagement scores.
• Supply Chain Productivity: Year-to-date in 2026, customer service levels improved, health and safety performance was better, product shrink reduced, and colleague productivity increased, with the supply chain having its strongest quarter in 6 years from a service and cost perspective.

Segment Performance

• U.S. Broadline Local: In Q1, local volumes improved sequentially every month, with a rate of improvement more than 2x the overall industry traffic rate. Sales grew 3.2% reported and 3.8% excluding the divestiture of Mexico. Revenue contribution from this segment was driven by volume improvement, expanded gross margins, and solid expense control.
• U.S. Foodservice (USFS): Total local case volume was negative 0.2% in Q1, but excluding the FreshPoint business exit headwind, the USFS total local business grew 0.3%. The FreshPoint business exit negatively impacted total local performance by over 50 basis points in Q1.
• International: Delivered outsized sales growth of 4.5% reported and 7.9% excluding the divestiture of Mexico. Local case volume growth was approximately 5% for the quarter. Adjusted operating income grew 13.1%, representing the eighth consecutive quarter of double-digit profit growth. Revenue contribution from International was strong due to positive customer mix benefits and growth in every major market.
• SYGMA: Had 4% sales growth and 39% operating income growth in Q1. While expecting more moderate results for the remainder of the year, SYGMA growth for FY '26 will be driven by operating efficiencies.

Guidance

• FY 2026 Net Sales: Expected to be approximately 3%-5% growth to $84 billion to $85 billion, including ~2% inflation, volume growth, and M&A contributions.
• Adjusted EPS: Full year 2026 adjusted EPS expected to be $4.50-$4.60, representing 1%-3% growth, with an approximate $0.16 per share headwind from lapping lower incentive compensation in FY 2025. Excluding this headwind, adjusted EPS growth expected to be ~5%-7%.
• Q2 Outlook: Expect EPS growth of approximately 4%-6% for Q2, with positive total and local USFS volume performance. Anticipate USFS local volume improvement to be at least 100 basis points sequentially quarter-over-quarter in Q2 2026.
• Dividends and Share Repurchase: Planned ~$1 billion in dividends and ~$1 billion in share repurchases for FY 2026, with a 6% year-over-year increase in dividends per share.

Risks

• Macro Environment Uncertainty: The overall macro backdrop being less than compelling could impact business performance. Uncertainties in the external market may affect volume growth and profitability.
• Competition: In specialty segments, competition from numerous small entities could pose challenges. Sysco competes against many small companies in specialty categories where broadliners and smaller specialty entities may not have the same capabilities.

Question and Answer

Q: A question on the local sales force productivity. If you could talk more about what you're seeing there? And any metrics behind where we are on the curve.

A: Kevin Hourican discussed stabilized retention of sales colleagues, exceeding retention targets year-to-date, and growth initiatives like AI360 and Perks 2.0 helping improve productivity. Kenny Cheung added on the proof points of SCs becoming more productive, higher new customer onboarding, and 90 basis points improvement in penetration with existing customers.

Q: On the guidance for FY 2026, can you elaborate on the net sales growth and EPS expectations?

A: Kenny Cheung explained that net sales are expected to grow 3%-5% to $84-$85B, including ~2% inflation, volume growth, and M&A. Adjusted EPS is expected to be $4.50-$4.60, with an approximate $0.16 per share headwind from lapping lower incentive compensation, and excluding this headwind, growth of ~5%-7%.

Q: How do you view the risks associated with the macro environment on Sysco's performance?

A: Kevin Hourican stated that while macro environment is important, Sysco's growth initiatives are within control, such as stable sales force retention and effective supply chain productivity, which help mitigate external risks to some extent. Kenny Cheung added on the diversification of the business, including non-commercial segments and International, which enhance resiliency.