Sysco Aktie

Hi, everyone. I'm Lauren Silberman, the equity research analyst covering restaurants and food distributors at Deutsche Bank. Sorry, I can't be there in person today, but very happy to introduce Sysco live from Paris.

With us, we have CEO, Kevin Hourican; and Interim CFO, Brandon Sewell. So I will turn it over to Kevin and Brandon to start their presentation. Thanks so much.

Great. Lauren, thank you for the introduction, and congratulations to Lauren for upcoming wedding. It's why she can't be with us here in person today, and we appreciate your hosting Lauren and look forward to being here again next year, and thank you for having us here at this year's 2026 Deutsche Bank Conference.

Let's go ahead and jump in with what we want to be able to talk to you about today. Today, we think we provide a little bit of a hybrid update on core Sysco, our performance, a little bit about who we are for those that don't know us as well. And we are going to talk about our JRD Jetro Restaurant Depot transaction.

So good afternoon, and good morning to those that are joining us. from the United States. Along with me is Brandon Sewell, our Interim CFO. Brandon will join me in covering the content. I've got about 10 minutes. Brandon is going to come up for 10 minutes, and then I'm going to come back up to wrap up our time together. So let's go ahead and jump in.

My first few slides, I'm going to go through rather quickly. Some of it is this background information to afford us more time to go deeper on the things that are net new for today. So you know Sysco, we're the #1 food service distributor in the countries that we operate in around the world. We're #1 in Broadline. We are #1 in what we call specialty, which is Produce, Protein, Italian products, Asian products and a business in the U.S., we call European imports. We are #1 in each of those businesses.

Specialty alone is a $10 billion business for Sysco, bigger than some of our competitors in the Broadline space. And we believe Specialty is a $10 billion growth opportunity for our company. We operate a large and growing international portfolio that is increasingly profitable that I'll chat about in a minute. And we are #1 in all of the categories that we operate in on that bottom wheel except for one, health care.

We're #2 in health care, and our health care business is growing nicely, but we're #1 in travel and hospitality. We're #1 in education. We're #1 in the food service management sector and obviously #1 in restaurants.

So let's talk about that international portfolio. Sysco has got #1 market share in 8 of the 10 countries that we operate in around the world. And for the 2 that we don't, we are making meaningful progress growing our business profitably, and there's a pathway to being #1 over time. We've grown that share, as I just said, most importantly, with a profitability focus, our 10th consecutive quarter of double-digit profit growth. And how we are winning internationally is by deploying what we call the Sysco Play. So a modern website supported by boots on the ground sales colleagues with a modern and efficient supply chain and the broadest assortment of what we call Broadline goods, which is a full assortment.

Interestingly, that's not the case in all countries that we operate in. France, the country we're in right now, as an example only, is dominated by single category players. So we're introducing and bringing the Broadline concept that has worked so successfully in the United States to some of the countries that we're operating in, and we're seeing restaurant operators meaningfully respond to that full breadth offering to get one delivery of everything that they need.

Sysco is #1 in an attractive and growing industry, a $370 billion total addressable market in just the United States and this is one of our favorite charts. The green line is our share of wallet from the food away-from-home industry over time. The blue line is grocery. It is a durable, consistent trend that food away from home takes share of stomach, takes share of wallet over time, and this is a trend that has persisted for decades.

And Europe is about 10 years behind the United States on this curve, but following the exact same pattern. This is a growth industry. This is a growth space. And Sysco is able to take share in this space, which we've done for each of the past 6 years. We call it bigger pie, bigger slice of that pie, which puts to the chart that is here.

We've grown our sales in 54 out of the past 57 years. We think even more importantly or impressively, we've grown our dividend for 56 consecutive years, and that's something we're deeply committed to even while we're going through the Jetro Restaurant Depot debt reduction period through delevering. The fact that we've been able to grow our dividend for 56 years is driven by the consistency of our performance over time with growth engines to fuel our future success. $10 billion of growth in Specialty, $10 billion-plus growth opportunity in international and of course, a net new channel, Cash & Carry that we are prepared to talk with you about today.

We can grow each of these businesses profitably, taking share from the industry overall in an industry, as I said a moment ago, that's growing.

Let's take a step back. Let's talk about our local business. You've heard me talk on this stage before about our local business in a period of recovery and improvement. We're meaningfully pleased with the progress that we are making in local. We are not declaring victory in local. We are communicating we are making meaningful progress that you can see on the trend of the black line that is on this page.

In the most recent quarter, our Q3, we improved our performance in local by 210 basis points, which was stronger than the overall market. Our rate of improvement from quarter-to-quarter was meaningfully stronger than the overall market and our named peers. We talked about that Q4, the quarter that we are in, that we will deliver at least 2.5% volume growth in Q4.

Let me first call your eyes to the dotted black line, which is traffic to restaurants that comes from a third-party source. This is publicly available information. Black box is the name of the source. Traffic quarter-to-date in Q4 is down 2%, which is roughly equal to what it was in Q3. So essentially flat. We are communicating today that quarter-to-date through where we are right now, we are on track to deliver our 2.5% volume growth. This is something that Brandon will talk more about.

And when we deliver that 2.5% volume growth for Q4, you can see on the right-hand side of the page, that will be a 120 basis point improvement on a 2-year stack basis. It will be better than the rate of improvement quarter-over-quarter in the overall industry, which will show that we are taking share in local.

This improvement is coming from the stability of improved retention of our sales colleagues at Sysco. The increased selling productivity that is coming from that colleague improvement and selling tools that we have deployed like AI 360, which you're going to hear me talk about in just a moment.

Leadership at Sysco, we define as performing for today while transforming for tomorrow. Our best leaders are able to do both in equal measure to deliver on today's P&L and transform the company for decades of future to come. We have an opportunity today to talk about 2 things that are in the transformation bucket.

The first is on the left-hand side of the page, leveraging technology and deploying modern tools through technology to improve the efficiency of the company, and this is net new material that we've not covered with investors before. And on the right-hand side of the page is a very bold new chapter for our company, which is the [ amplification ] of Jetro Restaurant Depot into our family of businesses to serve customers even better than we do today.

So let's jump in. We won't have time today to go into the depths of this given our limited time. We'll talk more about this opportunity in our Q4 earnings call. We will contextually make this real from a P&L perspective in our fiscal 2027 guidance. What I want you to know today on today's call is we are meaningfully leaning in as are many companies across industries around the world on leveraging tech to do our work better, faster, cheaper. It needs to be all 3. The work itself can be done better, higher quality. It can be done much more quickly than it's being done today. And because of those 2 things at the same time, obviously, we can do that work more efficiently, aka cheaper.

We have bucketed the work into 3 tracks: a sales track, a supply chain track and a back-office track, and we have 6 major work efforts that fall within those 3 buckets. I'm co-leading this effort from my seat. It needs to start at the top. The CEO needs to set the stage of what good looks like in this effort. And Navin Advani, our interim CIDO, is leaning in across these 6 tracks to help us deliver as a company a faster, better, cheaper way of doing our work.

We've launched the first one, which is revenue growth to improving sales productivity, which is AI 360. In the palm of our sales colleagues hand in their smartphone is an agentic selling agent that powers them up to know what to focus on, on the visit they are on that day. Our average FC has 50-plus customers. They're visiting lots of customers per week. And this tool keeps them focused on what to sell, what to focus on. We can track close rate by colleague. We can track sales incrementality by opportunity, by colleague by day. And the power in leveraging that information to coach our colleagues for improved selling is extraordinary, and we are in the early innings of this effort.

We're going to take the same capability and apply it to our contract business, which is 50% of our business to improve how we bid on contract business, opening the aperture for us to be able to bid on more business than we currently do and learn over time the profit profile that's necessary to have a high win rate at a margin profile that meets our expectations. It's just an example.

I'll go to the middle, supply chain. Brandon has said to investors we've met with, technology improves meaningfully over time. And we believe we have an opportunity to improve customer-facing fill rates while simultaneously removing inventory from our working capital. It's easy to do one of those 2 things. It's hard to do both at the same time. We know by leaning in with tech partners that we'll talk more about in the future, we can do that work more efficiently, take working capital out of our system while simultaneously improving fill rates.

On the bottom, we have an opportunity to improve routing efficiency. We've launched a project to update worldwide our routing capabilities to a modern tech platform. It's a project that's in flight. We can infuse it with artificial intelligence to make the job of the router easier to put better routes out on the road every day, reducing miles, increases pieces shipped per mile delivered, which improves Sysco's profitability. And we know we can do that work with improved customer-facing ETA, which is the better part of the better, faster, cheaper.

Last but not least is the back office. We can attack the cost structure of the company from everything back end, from call centers to AR to AP to customer service to handling the thousands of questions that come to us every day from customers. We can do that work more efficiently, leveraging technology, the customer experience will improve, and we believe we can take millions out of our expense basis.

Our intention on our fiscal 2027 guidance call is to put this in dollar terms for you for the impact to our P&L. We've already announced the cost takeout number that is live already. This will be on top of that, and we'll put out a BHAG or Big Hairy Audacious Goal, for longer-term operating efficiency at that time as well.

What we're most excited about today, though, is the bringing of 2 great companies together. Sysco, the best in Broadline, Jetro Restaurant Depot, the best in the Cash & Carry business to do what is on this page. I won't have time today to do this full justice. But when I look at this chart, the left-hand side of the page is what the customer sees and will experience.

More customers will have more access to more value and savings opportunities by Sysco helping JRD bring their format to 125 net new locations. We at Sysco with the incorporation of Jetro Restaurant Depot will increase our local business by more than 1.5x, and that local business will grow faster than our total company.

In the middle of the P&L, you see the financial profile of this deal. By bringing Restaurant Depot into our overall company, our revenue will increase by 20%, profit EBITDA will grow by 45%. Our free cash flow will grow by 55%. It shows you the raw horsepower of the cash generation of Restaurant Depot and what we can do with that cash for the longer term. Operating margins will expand by 150 basis points.

On the right-hand side, you can see how the [ MAs ] flow through from a deal accretion perspective. What gets us the most excited is after we have gone through the period of focused delevering, what we can do as a company with $2 billion of incremental free cash flow from increasing our rate of dividend to increasing share buyback to investing in our company for growth and future M&A that won't require debt because of the powerful cash generation of the business.

Restaurant Depot, as I said, is the leader in the Cash & Carry space, a large, growing and very profitable channel, $16 billion of revenue, $2.1 billion of EBITDA and almost $2 billion of free cash flow. 167 locations today. When they open a new store, it's like a magnet for one mom-and-pop restaurants drawn in because on average, Restaurant Depot saves their customers roughly 15% to 20% versus the prices you pay if you're having delivery of those products to the customer.

The vast majority of their stores are in metro areas, bringing them very close to their targeted customers. They've grown their sales 28 out of 30 years, and they've grown their profit 30 consecutive years, and that includes COVID. I'll repeat that. They improved their profit during COVID. The why is this chart right here. The channel is attractive to the end consumer. You can see the CAGR, the compounded annual growth rate, of the Cash & Carry channel is 5%. Broadline grows, too, by the way. Broadline, the business that we are in today is a good business, growing on average 4%. Cash & Carry grows even faster in good times, and it grows even more quickly in economic downturns or recessions or any kind of a blip. And the why is that value prop.

When the going gets tough, when traffic is down to restaurants, they need ways to be able to save money. The best place to save money as a restaurant is to go to Restaurant Depot because the price you're going to pay is 15% to 20% cheaper than delivery, and they are meaningfully cheaper than their Cash & Carry competition. So during any blip, they tend to take share. That share tends to be sticky with them, and they keep it over time.

The JRD stores are purpose-built. They are no frills, warehouse clubs, think Costco for restaurants, a one-stop shop with everything that you need to outfit the kitchen for your restaurant at prices that are meaningfully better than if you were to have that product delivered. We are excited about being able to bring that capability to more communities. This chart just shows the durability of the performance of the business over time.

One of the most compelling aspects of this business is the leadership talent, leadership capability, Richard Kirschner, the CEO, the COOs that reports to Richard and Stanley Fleishman, their Chair, who will be joining our Board, disciplined 30-plus year tenures in this industry and their track record of success year over year over year, helping profitably grow the business. We can't wait to work with them and to help them bring this capability to more geographies, which we will talk about in a minute.

So I'm not going to get out of the way. We're going to bring it up. Brandon is going to talk about our financial profile, and then I'll come back to wrap it up.

So Brandon, over to you.

Great. Thanks, Kevin, and thank you to each of you for your interest in Sysco. I really want to talk about 2 things today. Number 1, I want to talk about our core business. While we know there's still opportunity, we're pleased with the progress that we've made, and we're on a great path. And then 2, I want to talk a little bit about Restaurant Depot in the near term and the long-term value that we think it can bring to our investors. So let's jump into it.

Let's talk about -- let's start by talking about today. Kevin just said we're on track for Q4 for our local volume sales growth. What that really means is it's an improvement on a 2-year stack of about 120 basis points versus Q3. So continued incremental opportunity.

Looking at the slide, our CAGR on sales is about 5% over the last 5 years. It's roughly double that on EPS. That means that we've had operating leverage in our margins. Our gross profit has grown faster than our operating expense. What that includes is that as we move into our -- it really includes our #1 market share, and it renders from that size and scale of our market share, industry-leading sales margins, free cash flow. And then we are the only company in our industry with an investment-grade balance sheet. That's something that's really important to us.

As we dive into each of our 2 segments, and it's fun to be here in the International segment today, we'll talk about that. We just talked about the local case volume, right? 210 basis points sequentially from Q2 to Q3 and another 120 basis points of our commitment that we're on track to achieve.

In our international space, we've been at 4%, a healthy volume growth for the last 2 quarters in Q3 and -- Q2 and Q3. The operating income in our international space is even higher than that. We're on our 10th consecutive quarter of double-digit operating income growth. You look at that, why is that the case? Well, we've been investing in international. We're investing in people. We're investing in our supply chain, and we're investing in our technology. And those things are beginning to come together, and we see meaningful opportunity for continued improvement in that space.

As you know, our operating income as a percent of sales is lower than that in the U.S. As those investments come to fruition, we see those 2 growing together. So we see continued opportunity over time for our international business. With our 2 segments coming together and creating that strong foundation, what that then leads to is opportunity for transformational M&A enters the picture of Restaurant Depot.

We studied Restaurant Depot for months, and we got to a point on June -- excuse me, on March 30, where we announced the acquisition. Post that, we've had the opportunity to meet with some of you, other analysts and investors. And really, those conversations have been enjoyable and they've revolved around 5 topics, and that's what you see on the screen.

Number 1, our plan to deleverage. Number 2, are the 13% EBITDA margins that we see really sustainable. Number 3, CapEx, what does it look like with Restaurant Depot? Number 4, what is the opportunity for growth from the store expansion? And then number 5, what we're calling our better together revenue synergies. We'll go through each of these one at a time, and let's start with the deleveraging plan.

The good news is we've already started preparing for deleveraging. We talked in Q3 about our current position. We're at 2.8x net leverage. On day 1, of announcement, we'll be at 4.5x net leverage. Over the next 24 months, we'll move from 4.5x to 3.5x net leverage. As we go through that process of 24 months, we'll give quarterly updates on where we're at.

There are 3 reasons as to why we are highly confident in being able to do that and meet that calendar of 3.5 turns within 24 months. Number 1, this is a major point in our modeling. The Board spent considerable time on this. We, as a management team spent considerable time on this. And I personally will be dedicated to helping us deleverage. It will be a #1 focus.

Number 2, we've built into the model what we're calling an investment-grade cushion. What we mean by that is during the 2008 financial crisis for a reference point, our business was down on top line 1.2%. For one of these 2 years of that 24 months, we would have to be down more than 6% in order to not meet that investment-grade cushion. If we don't need that, there will be opportunity to accelerate that deleveraging.

And last, Kevin talked about it a little bit. From a working capital perspective, there are 2 things. Number 1, we're looking at our processes. And number 2, we're using technology to accelerate our working capital and improve the efficiency there, primarily in the inventory space. In doing so, we can then apply that cash savings into a quicker deleveraging process. Beyond that 24 months, we can then return to our historical run rate of 2.75 turns.

And then in year 4, it gets exciting. we will have doubled our free cash flow by then, and we'll have the opportunity to then return to our shareholders that value through share repurchases, increased dividend and growth M&A without having to do financing.

This is a question that we received from some investors, and this is a new slide. We have talked about 13% EBITDA margins with Restaurant Depot. We are now showing 3 years. Those 13% EBITDA margins have been consistent over the last several years. You look at it and you say Sysco is at 5.2% EBITDA margin, how possibly could it be the case that Restaurant Depot is at 13%, considerably higher? Well, it starts with the store itself, the box. It's a very large box.

From an operational perspective, it creates massive efficiency. When you have a full truckload coming from a supplier and being unloaded by pallets, moved into the store and put up on the reserve rack and then move down to have the customer pick it, that is pretty much the labor model inside of a restaurant Depot. That full truck enables that efficiency.

Second, from a labor perspective, Restaurant Depot doesn't have salespeople who are earning commissions. They also have no transportation, meaning they don't have to buy trucks. There's no maintenance on trucks. There's no fuel. In addition, there's no driver and there's no selector. So when you take all of those costs out of that model and the customer themselves are doing the picking, the packing and the shipping and using their time to do so, it allows for those higher EBITDA margins of 13%. Are they sustainable? The definitive answer is yes. And they have been that way for multiple years.

The last thing I would tell you is when we looked at this business, it wasn't surprising to us that they were 13%. If you take our Broadline P&L and you divide it between large, medium and small customers, our smaller customers are in line with that 13%. We're confident in the EBITDA margins. As you go from the 5.2% for Sysco stand-alone today, post acquisition, that will move up to 6.7%, roughly 150 basis points of expansion on our EBITDA margins.

And then the third thing before I pass it back to Kevin is CapEx. We received questions on CapEx as a percent of sales. What does it look like with Restaurant Depot? Do you feel like you'll have to put more money into it post acquisition to make up for things that they didn't do.

This was a big talking point for us as we look across their portfolio. We did 2 things that give us confidence. Number 1 is we hired a third party to go in each and every single store. We asked them to look at 3 things at each store. Look at the parking lot, look at the roof and look at the chiller, right? The refrigeration equipment is actually quite expensive. From a CapEx perspective, those are the things we ask them to focus on.

In addition to that, we had our own employees go through each store, every single store and rate them and look at them and check them out. Through those 2 resources, we became very comfortable that the CapEx as a percent of sales that they had been running was appropriate. There will not be a day post close where we have to put more CapEx than what they've been running in. So we feel very comfortable that the maintenance has been done appropriately.

Some of you have had the opportunity to go into a Restaurant Depot store. For those of you who have gone into them, you'll see that they are no frills. It is an industrial feel to the store. They have cement floors. The painting on the wall is always the most beautiful thing in the world, and that's okay. That is the business model. We feel comfortable with the CapEx and confident that we will -- that it is sustainable at less than 1% of sales.

With that, I'm now going to pass it back to Kevin to talk about the last 2 things that have been of interest with our investors.

Great. Brandon, thank you. Appreciate it. I appreciate all you're doing for Sysco as our interim CFO and for getting us back on track because they didn't run long and he was efficient. So thank you for that.

So delever plan, CapEx as a percent of sales, operating margin, these are 3 of the most common questions that we've been asked. There's been 2 more that we've been asked, and we're trying to address each of them one at a time. And our Board, by the way, it was actually 10 months of diligence that we did against understanding of each of these topics. So we would be confident and comfortable that this was a good use of our capital with a strong return for our investors.

Frankly, the thing that I was most concerned about before I got into the details was the white space opportunity. If the brand, as an example only, we're at saturation, the forward-facing compounded annual growth rate would be less attractive. It would be problematic. It would be a challenge. Definitively, definitively, we have an opportunity to open at least 125 net new locations. We hired a real estate firm to go bottoms up, starting with restaurant locations, heat map density of where restaurants are located, where Restaurant Depot is not, and we built it bottoms up independently.

We then did a side-by-side comparison with the Restaurant Depot leadership team and real estate team to say, do we have a strong match? The match was incredibly high, giving both Restaurant Depot, Richard Kirschner and I the confidence in the ability to open approximately 125 net new doors.

On average, Restaurant Depot has been opening 5 to 6 stores per year. We can continue that play for 25 more years or if we wanted to, at an appropriate time, we could speed that up if we chose to do so. The point is lots of runway. The map you see in the dots you see are existing locations. Example only, Arkansas is a state is not colored in because they're not there.

I have a warehouse in Little Rock, Arkansas. We can leverage that warehouse. Brandon talked about efficient inbound supply chain. I already have full truckloads of product going from a common supplier group to my warehouse. Let's stop at our warehouse, unload half the truck, continue on to the Restaurant Depot store, unload the rest of the truck. We never touch their product. It's the touching of the product that adds cost, adds damage, et cetera. That efficiency that they can do in their existing locations is harder for them to do in places like Knoxville, Des Moines, Spokane, Boise, Little Rock. We bring them to those communities. We win better together.

When a Restaurant Depot store opens up in a net new geography, they attract almost twice the business that we, Sysco do from a delivery perspective in a 30-minute circle around the store. And the why is the price points. And they tend not to take that business from Sysco because it's a different customer. The customer that chooses to buy from Sysco is looking for a white glove service, a sales rep who's in their kitchen every week, a delivery that's happening multiple times per week on a tri-temperature truck with a driver that they know. I said this morning, who they give the keys to, literally, who we unlock their kitchen, deliver their product in the middle of the night, lock up the door and leave. That trust and intimacy, that customer sticks with Sysco. It's the rest of the industry from a value-seeking customer perspective who JRD attracts.

Now let's talk north of the border. Not included in the deal mats is the opportunity to bring this concept to Canada, and we passionately believe there's a great opportunity to bring this concept to Canada. There is not a clear #1 player in Canada today. There's a lot of small regional family-owned Cash & Carry players and select retailers that dabble in the space, but no one has a 100,000 square foot box with an end-to-end assortment at prices that are 10% to 20 -- excuse me, 15% to 20% cheaper than delivery. We intend to run this play up north.

We Sysco have a DC in every province. We have the by far #1 market share in Broadline delivery in Canada. We can leverage that backbone to bring this incredible opportunity up north. Again, that's not in the deal model. So let's be really clear. What is in the deal model and what is not. We think this chart is constructive because the blue circles are what is in. The circles on the bottom are what's not yet in, and I'd love to talk to you about both.

Brandon and I have more than 100% confidence on the net $250 million cost synergy. And the why is it comes from procurement. It comes from third-party credit card interchange fees, $0 from SG&A reduction. We think this is important. We think it deserves repeating. $0 from headcount reduction. So we were able to stand up in front of Richard's team on a town hall meeting and say, no job elimination.

Risk comes down, interest and excitement level go up, retention of Restaurant Depot colleagues go up. In fact, we're going to invest meaningfully for retention of the top leadership of Restaurant Depot. The money comes from procurement of services, products and the like. And it is a number we've haircut to get to the net $250 million.

Also included in the deal model is the opening of approximately 5 to 6 stores per year. Should we choose to go faster, that would be upside. When we go to Canada, that is upside, but the opening of the 5 to 6 stores per year is in the deal model. So now we're clear on that. The things that are on the bottom, and we are calling these the better together revenue synergy opportunities are not. And these things are real.

Brandon actually said publicly in a previous setting, and I'll say it again, we believe these ideas are as big, if not bigger, from an EBIT contribution perspective than the number that's written on the page. And that's flowing through the profit profile of NewCo in that 6.5% profit margin rate. From left to right, I've got a chart for each one of these things, so I'll save time by skipping forward.

Let's go through example opportunities of customer profiles. These are examples. This is the first one, a hypothetical customer, but there are tens of thousands of them. It is a restaurant depot customer. They're shopping primarily at Restaurant Depot, but they're not buying from Restaurant Depot, their specialty cut produce or their custom cut proteins. It's a chef who's buying dry goods, frozen goods, pantry goods, and they're going to Specialty for the rest, a Specialty distributor for the rest.

We at Sysco are the #1 player in Specialty. We produce these products. We can bring them to Restaurant Depot store at our cost and be very cost effective and have the chef who's already in the Restaurant Depot store buying dry goods, frozen goods, pantry goods. They can now buy custom cut produce. They can buy portion cut steaks. Restaurant Depot today sells mostly full carcass. This is a revenue growth opportunity at the existing Restaurant Depot store. This is not a small opportunity.

In fact, when we did our first town hall meeting at JRD's headquarters, the first, second and third questions from their team were, can I get access to, can I get access to, can I get access to? Yes, yes and yes. And we'll do it at cost so that we can be very cost effective on the price the customer pays. These are premium products. These are chefs who want premium products. They will buy them and they're not currently available.

Let's do the flip. So that was JRD benefiting from Sysco's assortment. Now let's do the complete opposite. I actually think this is a bigger idea. Tens of thousands of customers fit this profile. This example is what we would call an LCC customer or a limited concept. They have 10 doors. Doing Cash & Carry as your primary is really hard if you have 10 doors. It's hard to go to the store, pick up the product and have to shuttle it all around. So they are a delivery primary customer.

But what happens is they run out of products from time to time or they are using a regional broad liner for a lower-priced Hispanic assortment as an example only. Each of these 2 examples are called out on the right-hand side of the page. So I think they get delivery Tuesdays and Thursday, Saturday morning, they run out of beef. They run out of salmon. They can call their sales rep -- we have 6,500 of them, and that sales rep can activate on this restaurant's behalf, getting them that product same day.

We Sysco doing that from a warehouse that's hours away. It's very expensive for us to do Click and Collect, for us to do Instacart shuttled to the restaurant, for us to have our sales rep go buy the Restaurant Depot store, pick up the product and bring it to the customer in a temperature-controlled food safety compliant manner is something we will do. We will do it. This is a meaningful opportunity. I call it the needed now customer use case scenario. They run out of something. They get 2 deliveries a week. They need the product now. We will solve that customer need.

Today, this customer is like scatter plotting out to the ether. They're going to Kroger. They're going to Walmart. They're going to Sams Club, they're going to Costco. Some of them are going to Jetro Restaurant Depot, -- let's be clear. But our building of a loyalty program, locking that customer in, giving them a buy more, save more opportunity. If you buy more from us in aggregate, we will reward you for it. This is a big idea. This happens all day, every day in our industry, and we will build a loyalty program to activate this.

The last of the customer examples is a preapproved from -- the Cheesecake Factory example, you may not know, we do the vast majority of their distribution. We've spoken to them as we have spoken to our other large national chain customers. You might not know Cheesecake Factory is a 100% from scratch kitchen. Everything they serve is made from scratch in the restaurant. So if they run out of ingredients, it's a huge problem because it's not just one entree, it actually could impact dozens of things on that 50-page menu. They actually called us when they heard about the announcement and said, can we leverage those stores for sending our crew out to the store to pick up what we need.

Today, what happens in not just this customer, but in other customers, they'll give someone a credit card, some cash. Can you run out and go get us some tomatoes because the next delivery is not for a day or 2. Think about this concept. We're a national chain customer, not small, runs out of something. They can send anyone from their business to RD, have a preapproved order guide of what's allowed to be bought. No tender needs to be shown at the store because it's going to be bought on account, the Sysco on account file or they can use their website, our app, place an order on behalf. All they have to do is send someone over to the store to pick it up. This idea is important.

The Chief Procurement Officer or sometimes Chief Logistics Officer, depending upon the company, is excited about the opportunity to improve what they call compliance, increasing their compliance spend. So this is hotels. This is food service management operators, think Aramark, Compass, Sodexo. It is large national chains. Our ability to lock in that spend for delivery, which we already do. And when something is out of stock to be able to lock them in on this spend is meaningful. It's meaningful for the customer because they do not get a rebate on a case that gets bought outside of the channel.

It's meaningful for the Chief Procurement Officer because they're getting an appropriate cost for what's being distributed. It's meaningful for us because it's incremental business. This chart essentially shows the life cycle of what that could look like. I start as a single unit mom-and-pop operator, and I'm going to Cash & Carry because they are the by far cheapest in town, and it is what I need to make my restaurants successful. I graduate up. I open another door, a second door, a third door, fourth door. By the time I hit my fifth door, I'm having a hard time with my inventory management.

How about I get a delivery from Sysco 1 day a week at all my locations for my dry goods, my frozen goods, and I'm going to still come to the store, maybe a couple of times a week for fresh product. We will matriculate customers up this longitudinal curve. And for the biggest of the big, this is attractive and for the smallest of the small. We will build a loyalty model founded in the data, which will be crystal clear and easy to understand.

If you buy more from total Sysco, you will win. You will save with us from a buy more, save more perspective. We've been asked the question, well, why is someone else not doing this? There's no one else who has a nationwide fulfillment network of DCs, and there's no one else who has a nationwide fulfillment network of stores. Fast forward into the future, we will have 300 micro fulfillment centers called Restaurant Depot that will serve people who walk in and serve people who will do delivery.

So I wrap up. This is our last slide in the deck. What gives us confidence? Our core U.S. Broadline business is on strong solid footing. We are not declaring victory. We are declaring we are making meaningful progress. We are confident in the direction of travel. We just today communicated Q4 is on track for the 2.5% volume growth in a market that's been flat from a traffic perspective. We are on track in our core business. This deal is likely to close in approximately 9 months.

The government has requested additional information from Sysco, which means in parlance of the legal folks, a second request, which we expected, which we communicated when we announced the deal that it would take approximately a year or close in our Q3. The government is going to take a look at the data. We have the data. We know what the data says, which is there's very little overlap between the 2 customer business profiles. And this deal is about saving restaurants money, bringing the low-cost leader format to more communities saving money.

And definitively, we will not be raising prices at restaurant depots stores. The government will see this when they look at their data, and we're confident the deal will get approved. So this deal doesn't close until roughly Q3. What happens between now and then is we deliver strong financial results in our core U.S. business, and we are in the deep planning stages for what to do, day 1 of deal close, month 1 of deal close, year 1 of deal close. Delevering being the primary priority, as Brandon said, any incremental dollar we produce from a cash flow perspective will be targeted towards delevering. We know we need to bring our debt down in a timely manner, which we're committed to doing.

But here's what excites us, and it's on the page. New company will grow faster, be more profitable and return more value to shareholders than stand-alone Sysco. We have a core business that will grow profitably, take share and produce strong returns. And we have a new entry to the Sysco family, a bold new chapter that we're very excited about.

Our ability to put that more hot water into the tub with the 13% operating profit from Restaurant Depot is compelling. And the things that we can do with the Better Together thesis that others can't are truly exciting.

So with that, we thank you for your time. We appreciate your interest in Sysco. We hope you all have a great rest of your day. Thank you very much.

Well, I say thank you, Kevin and Brandon. I appreciate you guys being in Paris.

Thank you, Lauren.

Thank you, Lauren.

Have a great day.

Appreciate it.

Welcome to Sysco's Third Quarter Fiscal Year 2026 Conference Call. As a reminder, today's call is being recorded. We will begin with opening remarks and introductions.

I would like to turn the call over to Kevin Kim, Vice President of Investor Relations. Please go ahead.

Good morning, everyone, and welcome to Sysco's Third Quarter Fiscal Year 2026 Earnings Call. On today's call, we have Kevin Hourican, our Chair and CEO; and Brandon Sewell, our Interim CFO.

Before we begin, please note that statements made during this presentation that state the company's or management's intentions, beliefs, expectations or predictions of the future are forward-looking statements within the meaning of the Private Securities Litigation Reform Act, and actual results could differ in a material manner. Additional information about factors that could cause results to differ from those in the forward-looking statements is contained in the company's SEC filings. This includes, but is not limited to, risk factors contained in our annual report on Form 10-K for the year ended June 28, 2025, subsequent SEC filings and in the news release issued earlier this morning. A copy of these materials can be found in the Investors section at sysco.com.

Non-GAAP financial measures are included in our comments today and in our presentation slides. The reconciliation of these non-GAAP measures to the corresponding GAAP measures is included at the end of the presentation slides and can be found in the Investors section of our website.

During the discussion today, unless otherwise stated, all results are compared to the same quarter in the prior year. [Operator Instructions]

At this time, I'd like to turn the call over to Kevin Hourican.

Good morning, everyone, and thank you for joining us today. I'm pleased to report that Sysco delivered strong results in the third quarter of fiscal 2026. Our results were enabled by improving case volume trends, strengthening gross margin performance and disciplined operational execution. We delivered our progress improvement in a continued choppy macro environment.

Given our positive momentum, we remain confident in our expectations for full year adjusted EPS to be at the high end of our annual guidance range of $4.50 to $4.60. Most notably, we delivered 3.3% local volume growth in our U.S. business, a 210 basis point improvement versus the prior quarter and our strongest quarter local volume growth in 3 years. We have clear momentum in our local business, and we have confidence that we will continue to post strong local results in Q4 and into fiscal 2027.

While our primary focus for today's call will be the underlying strength of our core business, we will also discuss the strategic rationale surrounding our entry into the cash-and-carry space with our recently announced planned acquisition of Jetro Restaurant Depot. After my remarks, Brandon will highlight our financial outcomes and share his thoughts on the financial merits of the Jetro Restaurant Depot transaction.

Before I begin, I would like to formally introduce our Interim Chief Financial Officer, Brandon Sewell. Although Brandon may be a new name to many listening to the call today, he has been an important senior leader within Sysco for the past 12 years. Most recently, Brandon served as CFO of Sysco's largest segment, our U.S. Foodservice business. Prior to the U.S. CFO role, Brandon held several senior leadership roles across the organization spanning global financial planning and analysis, merchandising and supply chain. He will work closely with our executive leadership team to ensure continuity and disciplined execution of Sysco's financial strategy as we conduct a full search for a permanent CFO across internal and external channels.

As I've shared with many of you over the recent weeks, Brandon is a very strong candidate for the permanent role. In the meantime, we are thankful and appreciative to have his expertise and leadership as a steadying hand and expert in our business. Brandon, thank you for your leadership.

Let's jump into our business results, starting on Slide #4. From a top line perspective, Sysco delivered nearly $21 billion of total revenue, a growth rate of 4.7% versus the prior year. These revenue results reflect positive and accelerating case growth across our local, specialty, national and international business units.

From a bottom line perspective, we delivered adjusted earnings per share of $0.94, which was in line with our expectations and inclusive of the previously discussed $63 million headwind related to lapping lower incentive compensation in the prior year, reflecting an approximate impact of $0.10 per share.

Our revenue growth was fueled by improving volume trends across our business, but most notably by our USFS local case volume. Overall foot traffic to restaurants remains challenged, and Sysco is improving our performance due to selling initiatives within our direct control.

Gross profit was up 6.5% year-over-year, and when excluding the $63 million in incentive compensation headwind, our operating income and operating income margin would have expanded on a year-over-year basis, while our adjusted EPS would have expanded to be in line with or slightly better than our long-term earnings growth algorithm. Looking at our underlying momentum in this way gives Brandon, our leadership team and me the confidence in the trajectory of our core business.

We are encouraged by our results overall as our teams delivered strong volume growth in a soft restaurant traffic environment. Per Black Box, traffic to restaurants was down approximately 1.9% in the quarter. Sysco's improved performance is being generated by increased sales colleague retention and increased colleague productivity.

Our sales colleagues delivered our fourth consecutive quarter of improvement in new customer win rates. We are able to take share and grow profitably even in a market with soft overall conditions due to our sales colleague training initiatives and sales enablement tools that are increasing colleague productivity.

Specifically, AI360 is improving new colleague onboarding, and it is helping colleagues of all tenures increase their selling effectiveness. When coupled with our customer growth programs like Sysco Your Way and Perks 2.0, Sysco was improving how we serve our customers.

Our progress in local volume can be clearly seen on Slide 8 in our presentation. Looking ahead in our fourth quarter, we expect to deliver at least 2.5% of local volume growth. To be clear, posting a volume growth of 2.5% in our fourth quarter would equate to a 120 basis point improvement versus Q3 on a 2-year stack basis, a clear continued acceleration in overall business outcomes. Importantly, we are now growing our local business faster than our overall business, which is very helpful to the overall operating margins of the company.

Turning the page to our national contract business. During our third quarter, our national business generated case volume growth of 1.4%. We delivered strong growth in our health care, travel and hospitality, and foodservice management businesses. The positive growth from these businesses was partially offset by softness in our national restaurant segment. The declining foot traffic to restaurants per Black Box has disproportionately affected our national chain restaurant customers and can be seen in our results as volume with these customers was down year-over-year. For the fourth quarter, we expect case volume growth for national contract customers to improve versus Q3, driven by continued strength in our nonrestaurant business and onboarding of net new customer wins in the national restaurant customer business.

Turning to our International segment. We are very pleased with the performance being delivered by our International team. The momentum in our International business was fueled by every International geography. To that end, local case growth in our International segment was up 3.8% in the quarter. This growth is being generated by expanded supply chain capacity, increased availability of Sysco Brand and merchandise, increased sales headcount and easier-to-use technology.

This strong demand, coupled with disciplined expense management, delivered adjusted operating income growth of nearly 13%. Impressively, this represents the tenth consecutive quarter of double-digit operating income growth and highlights the continued strength of Sysco International as a growth engine within the company.

Before turning the call over to Brandon, I want to highlight some of the key points tied to our previously announced agreement to acquire Jetro Restaurant Depot, the leading cash-and-carry foodservice supplier in the United States, as well as provide a brief update on the recent performance of that business.

The acquisition of Restaurant Depot is a bold new chapter of profitable growth for Sysco, one that creates a combined company that is expected to grow faster, be more profitable and return more value to shareholders than a stand-alone Sysco. Most importantly, we will increase our ability to help save restaurants money with a more efficient buying program and by expanding Restaurant Depot's low-cost leader format to 125-plus net new geographies over time. Our 2 companies are better together, and our end customers will benefit.

The cash-and-carry channel is large, growing and resilient, with an approximately $60 billion to $70 billion total addressable market. Restaurant Depot is the leader in the channel with a best-in-class format that serves smaller customers that are seeking value, freshness and convenience. Restaurants tend to choose which channel they prefer first, and they select a business partner within their channel. Customers seeking savings and the ability to pay with cash or a credit card find the Restaurant Depot one-stop shopping environment very compelling.

Sysco serves a larger customer that is seeking delivery and the support of an in-person sales colleague. These customers desire the convenience of delivery and the high-trust service that comes with our dedicated and well-trained sales force. Our sales consultants provide restaurant advice, culinary suggestions and even menu price optimization suggestions.

The minimal overlap between these 2 customer types creates clear separation between the 2 channels. With that said, our new company will be able to serve more restaurant operators, reach more purchasing occasions, and provide savings to more customers when we are a combined entity.

From a financial perspective, Sysco will gain access to a large, resilient and growing new channel customers that is entirely local.

I'd like to spend some time sharing initial examples of our 2 companies will be better together: increasing enterprise profitability and improving how we serve local customers. The first benefit is in purchasing efficiency. We will deliver $250 million of net cost synergies through the transaction. I want to be very clear that we do not intend to reduce headcount at either company as a result of the transaction. The cost synergies will come from buying products and services more cost effectively than we do today.

By combining our volumes, we can be more efficient for Sysco and for our supplier community. As a result, we will buy better. We are extremely confident in our ability to deliver against this cost reduction target.

The second benefit will be generated through revenue synergies across 2 companies. As I said in the deal announcement, revenue synergies beyond opening new stores are not included in the accretion targets of the deal model.

But first, let me address the new store opening opportunity. We have completed a thorough analysis of the geographic white space opportunity for new Restaurant Depot locations, and we are very confident in our ability to open 5 to 6 net new stores per year for the next 25 years. Or stated differently, we are extremely confident that the core U.S. market can easily accommodate 125 net new Restaurant Depot locations over time.

Many of these locations can be served directly by Restaurant Depot's effective and efficient supply chain, and select new store locations will be enabled by leveraging Sysco's vast inbound supply chain capabilities. By opening 125 net new Restaurant Depot locations, we will bring the low-cost leader format of restaurant supplies to more customers, saving tens of thousands of restaurants money, and we will create thousands of new jobs in the process. The opening of these 5 to 6 new stores per year is included in our modeled assumptions to support Restaurant Depot's core revenue growth.

Beyond opening new stores, I would like to highlight additional vectors of growth enabled by our combination. The upside from these concepts is not included in the accretion figures that we have shared with you. The first example is cross-selling each other's expansive product assortments. Restaurant Depot has a compelling opening price point product line that has been developed across decades. There are many Sysco delivery customers that would like to buy these products, and they would like to have them delivered on their existing Sysco order.

For instance, a customer could be buying premium protein and premium produce, but they are less particular on select frozen products. Offering these delivery customers a lower price tier of merchandise would equate to incremental cases on existing deliveries.

Those that know this industry well understand that the most profitable case is the incremental case added to an existing delivery. To avoid trade-down cannibalization, we can target customers with personalized offers and provide those offers to customers who are not buying from within a given product category.

Next up is an even bigger idea. Sysco's primary delivery customer receives approximately 2 deliveries per week. Running a restaurant is a dynamic business, and our customers often run out of products between their Sysco deliveries. Sysco today does not have a cost-effective solution to meet those spur-of-the-moment needs. And as a result, our customers are forced to take action on their own and oftentimes are buying items across a wide array of retail options. By partnering with Restaurant Depot, Sysco's sales colleagues will be better able to solve the needed now customer scenario. Concepts like click-and-collect or same-day delivery from Restaurant Depot locations will be a tool in our sales teams arsenal to meet these customers' needs. As we continue to open new stores, the Restaurant Depot store location will become an increasingly convenient asset to be leveraged.

One more example is how Sysco can help Restaurant Depot customers. As small customers find success in their business, they oftentimes open a second or a third location. By partnering with Sysco, Restaurant Depot can provide these growing customers seamless engagement across the 2 purchasing channels, delivery from Sysco when they want it and cost savings at the store when they have time to shop for themselves.

We will develop a loyalty program that rewards our customers, big and small, for the incremental purchases that they make across our multichannel format. Buy more, save more. It will be simple to understand and we will reward customers for purchasing growth regardless of channel.

By combining Sysco and Restaurant Depot, our business will be able to provide the type of service a customer is looking for when they need it, at a price point they desire to pay. Together, we will become a nationwide omnichannel food service provider that grows our business profitably.

This transaction meaningfully expands our penetration of the local customer segment, the most profitable segment in Foodservice. Restaurant Depot's business is 100% local. The acquisition is expected to increase Sysco's local revenue by 1.5x, increasing our enterprise margins.

Lastly, as I mentioned on the announcement call, cash-and-carry is a very resilient channel. During every economic downturn, cash-and-carry has taken share from the overall market. Why? Because restaurant operators seek to save money in those times, and Restaurant Depot is their 100% best way to save money while getting everything they need in a one-stop shopping environment. Gaining access to cash-and-carry increases Sysco's profitability and resilience.

Any transaction of this size does come with integration risks, risks that we will carefully manage through a talented Integration Management Office. Most importantly, Restaurant Depot will be run as a stand-alone segment within broader Sysco. It will continue to be run by Richard Kirschner, its longtime CEO, and Richard's existing and talented leadership team. They will make all key decisions on how the cash-and-carry business will be run. There will be limited technology integration as Restaurant Depot was a retail storage business. There's no need for us to rip and replace key enterprise software that successfully runs Restaurant Depot today.

From a culture perspective, our 2 companies are excited for how we can work together and engage on what I call pull, not push, growth opportunities. Sysco will help Restaurant Depot on topics where we can help, like opening new store locations, and Restaurant Depot will most certainly be able to help Sysco better serve that needed-now customer purchasing occasion.

As I said in my introduction, the new company will grow sales faster, be more profitable and will return more value to our shareholders than a standalone Sysco. As Brandon will explain in a few moments, the deal is immediately accretive and is in the top quartile of deals from a year 1 and year 2 earnings accretion perspective. In a moment, Brandon will explain our commitment to quickly reduce our debt level.

In summary, this transaction is good for our shareholders in the short, medium and longer-term time horizons. Looking ahead, we understand that investors want to learn about Restaurant Depot, including how Restaurant Depot is performing. We expect the deal to close by approximately Q3 of fiscal 2027. Between now and then, we will provide periodic updates on the performance of Restaurant Depot.

To that end, we have been advised by Restaurant Depot that in their most recently completed calendar quarter, their volume growth was approximately 4% and their operating margins were in line with expectations.

In closing, I want to reiterate that we are encouraged by the strong results of our core business. Our leadership team is committed to delivering at least 2.5% local case growth in the fourth quarter and adjusted EPS results at the high end of our annual guidance range. We will continue to deliver strong results as we prepare to create a bold new chapter of growth with Restaurant Depot as a part of the broader Sysco family.

With that, I'd now like to turn the call over to Brandon. Brandon, over to you.

Thank you, Kevin. I'm honored to be in this role and genuinely excited to get to work. Many of you know that I worked closely with Kevin and the IR team here for many years, and look forward to connecting with our analysts and shareholders going forward.

Importantly, our priorities have not changed. We are focused on executing our strategy, maintaining the financial discipline that has defined Sysco for years and continuing to deliver value for our shareholders. I'm proud of the operational momentum in our USFS segment where I was most recently CFO. I understand the importance of strong, consistent delivery of financial results, and going forward, I'm excited to add value to Sysco through the lead finance role.

We have substantially improved our local case performance over the past year and know how important this KPI is to our shareholders. We plan to maintain the positive momentum in our underlying business at Sysco. In addition, we expect to successfully execute the Restaurant Depot transaction, maintain a laser-like focus on cash optimization ahead of the anticipated closing date, and then rapidly and deliberately delever our balance sheet by at least 1 turn over the first 2 years post acquisition, as seen on Slide 19.

As part of our acquisition debt structure, we have built in $3 billion of term loans and $1 billion of upcoming debt maturities to ensure ample prepayable debt that will facilitate this deleveraging. This is our commitment, and we are confident in our ability to achieve it.

With that, let me turn to the quarter. Our Q3 results included sales growth of 4.7%, an accelerated rate of volume improvement, continued margin management and adjusted EPS that was in line with previously communicated expectations of $0.94. Importantly, our largest and most profitable USFS segment delivered a step-up in top line growth and, as previously communicated, grew adjusted operating income by 5.1%. Additionally, free cash flow grew 19% year-to-date.

We expect strong year-over-year growth for the full year, positioning us well in our cash optimization efforts. As Kevin highlighted, we're experiencing the benefits from structural improvements, especially as retention and productivity of our sales force continues to improve. With 1 quarter left to go, we plan to finish strong, and we remain confident in delivering our FY '26 guidance.

Q3 benefited from continued tailwinds from our strategic sourcing initiatives, contributing to 6.5% gross profit growth and 31 basis points of gross margin expansion year-over-year. This performance also reflects favorable mix benefits, with stronger volume from local customers and sequentially improved mix from Sysco Brand penetration rates.

Specific to local volumes, our stabilized sales colleague retention and incremental productivity improvements helped drive sequential volume growth across local and national customers. Importantly, our supply chain continued to deliver productivity improvements and performed at an exceptional level, anchored by improved fill rates and order accuracy and improved safety performance. Additionally, warehouse productivity across our supply chain is nearing 2019 levels, and we expect further positive momentum going forward.

Turning to International. This segment remains a great example of the power of the Sysco playbook. The positive momentum over the past few years continued in Q3, with sales growth of 12.4%, including local case growth of 3.8%, gross profit growth of 14.6% and adjusted operating income growth of 12.5%. Our strategy is driving results with this quarter marking our tenth consecutive quarter of delivering double-digit improvements in adjusted operating income.

Now let's discuss our performance and the financial drivers for the quarter. Starting on Slide 13, for the third quarter, our enterprise sales grew 4.7%, driven by growth across all segments. Total U.S. Foodservice volumes increased 2.3%, while local volume increased 3.3% in the quarter. This marked our strongest rate of local case performance since Q1 of 2023.

Additionally, SYGMA results this quarter were solid, reflecting 2.5% sales growth and 5.9% operating income growth, reflecting increased strength in our supply chain operations.

Sysco produced $3.8 billion in gross profit, up 6.5%, gross margin expansion of 31 basis points to 18.6%, and improved gross profit per case performance. This notable margin expansion reflects the impact of our strategic sourcing efforts, sequential improvement in Sysco Brand, driven by customer mix, incremental progress in our value tier offerings and effective management of product cost inflation across our category baskets.

During the quarter, inflation rates for the enterprise were approximately 2.8%, and in USPL were approximately 0.5%. These rates moderated slightly on a sequential basis, which we believe will help with product affordability across the industry.

Overall, adjusted operating expenses were $3 billion for the quarter or 14.8% of sales, a 51 basis point increase from the prior year, reflecting the lapping of $63 million in incentive compensation from the third quarter of the prior year and planned investments in sales headcount in higher growth areas of the business [ with ] fleet and building expansions.

This is an important point. The incentive compensation lap negatively impacted adjusted operating expense growth by approximately 240 basis points, and adjusted EPS growth by approximately 1,100 basis points on a year-over-year basis. Corporate adjusted expenses were up 31.1% from the prior year, primarily driven by the previously disclosed incentive compensation from last year. Overall, adjusted operating income was $768 million for the quarter.

For the quarter, adjusted EBITDA of $970 million was up 0.1% versus the prior year.

Let's now turn to our balance sheet and cash flow. Our investment-grade balance sheet remains robust and reflects a healthy financial profile. We ended the quarter at 2.80x net debt leverage ratio.

Turning to our cash flow year-to-date, our free cash flow was $1.1 billion, up 19%, highlighting strong quality of earnings and reflecting both typical seasonality and timing of CapEx.

Before we turn to guidance, I would like to briefly recap the financial details of the planned Restaurant Depot acquisition. As Kevin highlighted, we recognize Restaurant Depot as a best-in-class financial asset and are very excited about the transaction.

In calendar year 2025, the business generated approximately $16 billion in revenue and $2 billion in EBITDA at a 13% margin, significantly above foodservice industry averages. This strong margin profile reflects the compelling concentration around Restaurant Depot's local customers, which show very little overlap with existing Sysco customers.

The company's CapEx is less than 1% of sales. which includes both maintenance and growth CapEx. As seen on Slide 10, unlevered free cash flow is approximately $1.9 billion, with high conversion due to its profile of having negative net working capital and limited CapEx. To put that in perspective, this is a business that generates substantial cash with very little reinvestment required to sustain it. That profile is rare, and it is exactly the kind of asset that strengthens the balance sheet over time.

On a pro forma basis, the combination increases Sysco's revenue by approximately 20%, adjusted EBITDA by approximately 45% and free cash flow by approximately 55%. The EBITDA margin of the combined company would expand by approximately 150 basis points, to 6.7%, inclusive of annualized net cost synergies, and meaningfully widen our gap versus our peers.

From an accretion standpoint, we expect mid to high single-digit EPS accretion in year 1 and low to mid-teens in year 2. We have confidence in line of sight into the $250 million in annualized net cost synergies, which achieved full ramp by year 3.

Additionally, the only revenue synergies modeled are from the expected annual store opening plan of 5 to 6 net new stores per year, which is in line with the company's historical growth.

By year 4, the combined business is expected to generate more than $2 billion in incremental annual free cash flow. This level of cash generation would fundamentally expand our future capital allocation flexibility, accelerate our balance sheet deleveraging, support dividend growth, enable share repurchases and create capacity for future M&A without requiring new debt.

The transaction is valued at $29.1 billion and will be funded through a combination of cash and approximately 91.5 million shares of Sysco stock. In preparation for this transaction, we are preserving cash levels by suspending share repurchase and remaining disciplined with capital expenditures. We will be prepared for the post-close period where we expect net leverage to be approximately 4.5 turns.

We're committed to rapid deleveraging, reducing net leverage to approximately 3.5 turns within the first 24 months. After that, we see a glide path over time to return to 2.75 turns net leverage.

Now let's turn back to expectations for the remainder of the year. We are pleased to reiterate our expectations for FY '26 adjusted EPS guidance. We continue to expect full year 2026 EPS to be at the high end of our prior range of $4.50 to $4.60. Keep in mind that this continues to include an approximate $100 million headwind from lapping lower incentive compensation in fiscal 2025, an impact of roughly $0.16 per share. Excluding the negative impact of the incentive compensation on 2026, our outlook for adjusted EPS growth in FY '26 will deliver at the high end of approximately 5% to 7%, which is in line with our long-term growth algorithm.

Notably, we are reiterating our guidance for adjusted EPS even after suspending our anticipated share repurchase plans of approximately $800 million for the remainder of the year. For added context, our approximate $800 million of share repurchase would be worth approximately $0.10 to adjusted EPS on an annualized basis.

Our guidance also includes continued expectations for net sales growth of approximately 3% to 5%, to approximately $84 billion to $85 billion, driven by inflation of approximately 2%, volume growth and contributions from M&A from earlier in the year.

Specific to volumes, we expect to deliver year-over-year local case growth of at least 2.5% in Q4. We have visibility to the financial contribution from Sysco-specific initiatives, and this positive momentum in local represents a step-up on a 2-year stacked basis compared to Q3 of approximately 120 basis points.

As it relates to corporate expenses, we've identified an action against $60 million of run rate cost savings through organization-wide spending optimization and efficiency activities. This is an incremental update. The savings will begin in Q4, with carryover benefits across 3 quarters of FY '27. This benefit to Q4 is already included in our guidance range and helps offset the impact of our previously disclosed lower share repurchase plans for the year.

We remain comfortable delivering adjusted EPS at the high end of our range. For Q4, our current view is for adjusted EPS to be approximately $1.51. This includes the carryover impact from the incentive compensation specific to Q4 of $11 million, as outlined on Slide 20.

We are proud of our strong track record of dividend growth and value our dividend aristocrat status. For FY '26, we remain on target for shareholder returns of approximately $1 billion in dividends planned for the year. On a per share basis, our payout in FY '26 equate to an approximate 6% increase year-over-year. Looking ahead to FY '27, our Board of Directors recently approved a $0.01 increase to our dividend, bringing our quarterly dividend on a go-forward basis to $0.55 per share.

Now turning to a few other modeling items. For Q4, we expect adjusted interest expense of approximately $175 million to $180 million, which ties to $690 million for the year; adjusted other expense of approximately $10 million, which ties to $55 million for the year; a tax rate of approximately 24%, which ties to 23% to 23.5% for the year; and adjusted depreciation and amortization of approximately $210 million, which ties to approximately $820 million for the year.

Looking ahead, we are confident in our position and remain focused on leveraging our strength as the industry leader to drive customer growth while continuing to create value for our shareholders. With that, I will turn the call back to Kevin for closing remarks.

Thank you, Brandon. Q3 was a quarter displaying momentum and progress at Sysco. We are confident that our progress will continue, and we plan to deliver local case growth of at least 2.5% in Q4, which reflects continued sequential momentum on a 2-year stack basis relative to Q3. We are excited for the progress that we are making and we are committed to strong execution in Q4 as we deliver on our outlook.

We're incredibly excited about the planned addition of Restaurant Depot to the Sysco family and look forward to sharing additional information over the course of the year. I would like to thank all Sysco colleagues for their dedication to our customers and for the strong progress that we are making as a team. I appreciate you all very much.

With that, operator, we're now ready for questions.

[Operator Instructions] We'll take our first question from Jeffrey Bernstein with Barclays.

Great. Kevin, the first question is just on the Restaurant Depot acquisition. It seems like investors appear cautious, contrary to your enthusiasm. It looks like maybe it's creating a near-term stock price overhang. So I'm wondering if you can just share what investor feedback you've gotten in terms of the primary drivers of that concern. I think you noted integration risk, but just wondering what else you've heard and whether you believe any of such is justified. I'd hate for a deal that doesn't close for 12 months to remain an overhang when it does seem like the underlying fundamentals appear to have actually reached a positive inflection. So any color you could share on that would be great, and then I had one follow-up.

Okay. Jeff, first, let me just say, congratulations to you on your retirement, 25 years of coverage in restaurant distribution is a long time, and we appreciate your diligence and your good questions. Let me start with your first question and then we'll come back to you for your follow-up.

What we've heard from investors are 2 things: Thing one, Restaurant Depot was an unknown entity being the fact that it was a privately held company. Its size, its profitability, its makeup, its durability of success is not something that investors have had visibility to. And then thing two, purchase price of $29.1 billion tied to an unknown entity surprised some folks.

What we've heard from investors over the past 3 weeks, as Brandon and I, and Kevin Kim, have done a roadshow, is the more they get to know the asset of Restaurant Depot, the more excited they are about the acquisition. In fact, our plan in the month of May, Kevin Kim will provide color and feedback to investors about this, is to invite investors to tour with us, including a management presentation, introducing some of the key leaders from Restaurant Depot.

What we are confident is that more investors learn about Restaurant Depot, the more they're going to like it. As I mentioned on our call, it is a very large total addressable market, cash-and-carry, a profitable market, one that is resilient during all economic conditions. And it gains Sysco access to that channel through the industry leader in that space.

They've grown their profits, Restaurant Depot, with 30 consecutive years. They've grown their revenue in 28 out of 30 years, and their business is 100% local. Increases Sysco's profit. It increases our rate of growth. It will increase our overall profitability. And the deal's day 1 accretive, year 1 accretive, year 2 accretive, and we believe strongly that it will increase our total shareholder return.

Today on the call, I provided some incremental color, and that is Restaurant Depot is off to a good start. And they're on a calendar year basis, so their Q1 calendar was a good quarter, 4% volume growth with profit in line with expectations. So we understand the concerns that have been raised relative to the debt. Brandon, maybe I'll toss to you to talk about our confidence in our ability to delever quickly.

Yes, absolutely. Thanks for the question, Jeff. So we have suspended our share repurchases in preparation for the acquisition. On day 1 of NewCo, we'll be at about 4.5 turns debt to EBITDA. And we have detailed plans to reduce that down to 3.5 turns in 24 months.

I will add too that we have cushion built in for a rainy day. That also means that when we execute our plan and don't need that cushion, there is opportunity to accelerate. We're fully confident, we have the commitment from the Board and the entire leadership team, to do so.

Jeff, back to you for your follow-up.

Great. The follow-up is just on the restaurant trends. The U.S. local garnering all the attention, 3.3%, a very nice acceleration on a 1-year basis. It seems like that's continuing the trend in recent quarters. On a 2-year basis, it was a modest deceleration. Wondering how you think about the underlying fundamental momentum, whether you place greater credibility on the 1 or 2-year? I know you mentioned the 2-year acceleration for the upcoming fiscal fourth quarter.

I only ask that because it does seem like, most recently, we've had some more cautious commentary from restaurants, the largest pizza player yesterday talked about consumer confidence at lows and inflation pressure in consumer spending and competition on the rise. It seems like more headwinds for the industry. So I'm wondering kind of your assessment of how you assess your underlying 2-year or 1-year trend, and whether you feel good about the outlook considering the more cautious industry perspective? And by the way, thank you very much for your congratulatory comments. Very much appreciate it.

Jeff, good questions. They both matter. One year, 2 year both matter. Let me just quickly reiterate some of the stats. From a traffic perspective, Q2 into Q3 improved by 90 basis points. Sysco's performance in that exact same quarter improved by 210 basis points. And those are both on a 1-year basis quarter-over-quarter. So our rate of improvement relative to the overall market was 120 basis points better than the overall market, which is confidence and proof that the progress that we're making is from actions within our control. We are confident that we can deliver increased performance and improvement in Q4, which is why today we reiterated 2.5% volume growth for our Q4, which, as was called out, is an acceleration on a 2-year stack basis of 120 basis points.

We don't need the macro to improve for Sysco to be able to deliver that outcome. And the reason is becoming from our sales colleague retention improvement, sales colleague productivity improvements. We've launched new selling tools, which are increasing our colleagues selling effectiveness, AI360 as an example. And our customer-facing programs like Sysco Your Way and Perks are continuing to resonate with our customers and perform.

The overall macro $4 gas, Jeff, where we're seeing that in our business the most is national chain restaurants. And as I said in my prepared remarks, we're seeing declines year-over-year in national chain restaurants. And those are some of the prints that you're hearing about in public quarterly earnings.

We're pleased with the performance in the local sector, specifically those mom-and-pop restaurants. There are a large number of customers not served by Sysco. And we can grow our business and grow our business profitably even in a macro that is choppy.

My last comment is our [ non-commercial ] business, within our contract sales, continues to perform at a high level. The foodservice management, health care, travel and hospitality and education specifically. We're seeing volume growth in those sectors and we expect for an increase in our national volumes in Q4, mostly driven from those sectors. We do not anticipate same-store sales improvement from our national chain restaurants, and we have some new customer wins are onboarding in Q4 that will provide a bit of a tailwind to our CMU or corporate contract volume.

Brandon, is there anything you'd want to add?

Yes. Just on a 2-year stack from Q2 to Q3, Sysco would have improved by about 60 basis points. And then Q3 into Q4, as we called out in the prepared remarks, it's about 120 basis points. So we see sequential improvement both on a 1-year and a 2-year stack.

Our next question comes from John Heinbockel with Guggenheim.

Kevin, 2 quick things. One, can you touch on the composition of net new account wins, right? Because that's probably growing a little faster -- local, growing a little faster than the 3.3%. And I'm curious, have the losses, the account losses, have they now completely normalized to where they were a couple of years ago? Or is that still an opportunity?

And then lastly, you touched on the new business in national. How aggressive are you attacking that given the strength now in local? And how choosy are you being when you think about the profitability of those accounts?

John, very good questions. As you know, we track new loss and penetration across all customer types. Those are the 3 metrics that matter. In the most recent quarter, we saw a continued acceleration in our new, that is multiples of multiples of consecutive quarters of acceleration of new. So we're continuing to see progress in new, mostly fueled and driven by increased sales consultant headcount or boots on the ground within sales.

We are seeing improvement in loss, consistent, steady improvement in loss. There's still room for improvement there. We have an internal goal of of a loss target that we are marching towards with continued improvement. We want to maintain our success in new and we want to continue to attack customer loss. And as our sales colleague retention improves, as our productivity of colleagues improves, as we're in front of our customers more frequently and more often in using tools like AI360 to sell better and serve better, we are confident that we can improve still the loss rate.

What we're really pleased about is penetration. We had our strongest penetration performance in Q3 in a long time, and that too is a direct factor of selling effectiveness. What AI360 does for our sales colleagues more than anything is the power of data and intelligence to know what we can be selling, what we should be selling and what should be on Sysco's truck. And it preauthorizes deals for that sales colleague to be able to offer to that customer to get cases that should be on our truck, on our truck. And as you well know, that is the most profitable case, is that incremental truck case to an existing stop being made to a customer.

So we're seeing really solid performance in pen, and obviously, it's the aggregate of new loss in pen that equals the 3.3% volume growth that we just delivered, and we're confident in our ability to continue to make progress as we head into 2027.

On the national side of the ledger, as you know, we're very disciplined in our pricing approach. We have a Pricing Council that Brandon I and our Head of National Sales, Greg Keller, lead together where we make very disciplined intentional choices. We do not relax our guardrails for profitability when we're targeting net new business. The wins that we are making are happening because of our nationwide scale, in many times, our international scale, our ability to help those concepts grow outside of the United States, and the technology that we have deployed to national customers to make it easier for them to do business.

So the wins that we have posted are because of our capabilities, not because of lowering margin profile.

Our next question comes from Alex Slagle with Jefferies.

I just wanted to ask for a little more color on the local volumes. If you could provide any updates on the cadence. I know last year, there was a big acceleration in March and April, and sort of a lot of noise just with external dynamics. Just maybe if we could get a sense for the trend into fiscal 4Q that kind of leads to that 2.5% local case outlook and your confidence there?

Okay. Alex, I'll start this question and then toss to Brandon for additional color that he would have. I think I've been pretty clear on Q3, so I don't think I'm going to belabor that point. Your incremental part of your question was on how's April and how are we starting out in Q4. So if I could, I'll address that.

April is an interesting month always because of the movement of Easter and it has an impact on the month on a week-over-week basis. With that said, April's performance was in line with our expectations. And therefore, we are on track to deliver against our at least 2.5% local volume growth in Q4, which as we've said a couple of times on this morning's call is an acceleration of 120 basis points on a 2-year stack basis. Brandon, what else would you like to say about Q4?

Yes. And the only thing I would say is, in Q3, 2 other things to call out is I always look at our geographies and we had consistent results across all of our geographies on AI360 as to what gives us confidence for that volume growth and the penetration to continue. I was on a recent ride-along with an SC and said, why do you use it? And he said, "It saves me time, makes me more money and identify products my customers are looking for."

We see the usage of AI360 increasing, both in amounts of times per day and number of SC. So the tool is working and it gives us confidence. And we saw that, to Kevin's point, in April.

Our next question will come from Sara Senatore with Bank of America.

A question about Restaurant Depot and then a quick clarification on the mix shift from local and national. So you mentioned $250 million in net cost synergies. I just wanted to make sure I understand what that net means. Is the goal to reinvest some of the costs into lower prices for customers? Presumably, maybe there's -- that's where some of the synergies come in on the revenue side. And then the $250 million is what you'll let flow through the bottom line? Or just trying to understand what sort of that net means and how it will be split between investors and customers.

Yes, I'll take this one, Sara. The $250 million net, but what we mean by net is we do have to invest in Restaurant Depot to make it a public company, things like SOX compliance, cybersecurity, et cetera. And that's really the net portion.

The other component -- the other components of $250 million of cost synergies are really mostly merchandising synergies. So it is taking the products that we buy today, comparing them across Restaurant Depot and across Sysco, and working with our suppliers to get increased merchandising benefits. So we've done that process through a clean room environment and a third party. We're highly confident in the number. The -- if you look in the deal model, it only ramps up to a full $250 million in year 3. So we're confident really on 2 fronts. One is the timing of it. We could execute it earlier in the process. And two, we have a significant cushion on the cost synergies. We significantly haircut it, and we're confident in that $250 million number.

And just to hit the nail on the head, the $250 million is what would drop to the bottom line. To the point that Brandon just made, when we over deliver against that purchasing target, we have an opportunity to share in that benefit with customers. We will share in that benefit with the customers in a very responsible, prudent way. But the $250 million can be put into the models as it relates to improved profitability of the combined NewCo.

And just how we bring value to customers is the following. We're going to open net new Restaurant Depot doors, I said net 125 new doors. As we do that as a combined entity, we're bringing the low-cost leader, the one-stop shop way in place that restaurants can save money to more communities. That will save tens of thousands of restaurants more money. The other way we're going to save customers' money is by bringing Restaurant Depot's industry-leading value tier assortment into the Sysco assortment on Sysco's delivery trucks, which can enable a customer to be able to buy those products on their existing Sysco delivery.

We've received a lot of questions about, well, isn't that cannibalization? I want to be really clear about this point. We have a very sophisticated personalization tool on our website and in AI360, and we will target those value tier products to those customers who are not buying that given category at all. So example, they're not buying frozen shrimp. We know the reason why is because our price point is too high with our Sysco Classic product, as an example only. And Restaurant Depot has a really terrific opening price point in frozen shrimp that we can gain access to in a cost-effective way. So that would be incremental business.

But the $250 million would drop to the bottom line. And Sara, you had a second question. So back to you for your follow-up.

Yes, and that's very helpful. I appreciate it. So to the extent there's upside to some of these savings, like you said, you could share them with customers, perhaps sharper on prices.

And then the follow-up was just on the national restaurants. I just want to clarify, so you said [ volumes ] were down. Is that sort of in line with the industry? Or was there any kind of market share or gain -- share loss or gain that was going on there? I know you're looking to bring in new customers. But just trying to understand, as I think through improvement in local, to what extent has that been offset on perhaps -- on perhaps share loss in national?

Yes. It's not from share loss in national. It's comp store sales to existing national customers, consistent with traffic declines that are being experienced in the industry. Our improvement in Q4 is the retention of the customers we currently have, plus we will have onboarding of net new wins that were signed -- these are contracts that were signed previously. National is a long lead sales cycle, these contracts take a long time to negotiate.

So we know the start ship dates or ship dates happening in April and May and in June, and that is all obviously included in our forecast, included in our guidance for Q4.

Our next question will come from Edward Kelly with Wells Fargo.

I wanted to just follow up on Restaurant Depot. Kevin, you talked about volumes up 4%. You get 1%, 1.5%, I guess, or so in new stores and some inflation. So I'm just curious, comps seem like they're probably up mid-3s. I want to confirm that.

And then there's been a negative building narrative out there around underinvestment in the business, capital and labor and then around sustainability of margins. Can you just speak to these concerns and how you got comfort around the overall sustainability of the margin of this business?

Two great questions. Just as it relates to R&D in this period between sign and close, there's limited disclosure of reporting that were enabled at this time to be able to communicate. What we have is direct advisement from RD, and this is the color that I can share, is volume and overall profitability. So volume up 4% and profitability on track for the quarter.

And those are 2 solid prints. 4% volume growth is a solid print, and it's coming with expected rates of profitability. So off to a good start in their Q1 and it's the type of color that we will provide throughout the rest of the year. And as the deal closes, obviously, we can get into much more metrics and in much more details on the composition of the P&L.

To the second part of your question, Ed, as it relates to some of the statements that have made or comments that are made about RD, I'd like to give investors the confidence that we have on the sustainability of the profitability of RD. Let's first start with CapEx. There's perhaps a perception that underinvestment has occurred. We have detailed studied that particular topic. And as Brandon has called out, we have capital that is deployed at Sysco that isn't necessary in the RD model. Trucks, trailers, one of our largest capital investments is in our fleet. Restaurant Depot does not have a fleet. So that type of investment that Sysco has is not relevant for them.

Specific to the stores themselves, we hired a third-party firm to do detailed assessments of literally every single location. Think about when you're selling your house and you get an inspection report. We have one of those reports for every single store. So we know exactly the conditions of the roofs, the parking lots. The most expensive part of the store is actually the chilling equipment for the freezers and the coolers.

And the stores are in good shape. Restaurant Depot is a frugal, disciplined company who invests appropriately for what purpose of their store is. And I want to be clear, their stores are no-frills shopping environments. And this is on purpose. Think about like when you walk into a Home Depot and what that store looks like. It's not a fancy store. It's a fit-for-purpose store.

So they don't invest in cosmetic things. They invest in price, they invest in the customer to have value be the lead story. And there is sufficient capital in the business to support the going-forward concern of the stores, and there's sufficient capital in the business, Brandon, as you called out, to open the 5 to 6 stores per year. There is more than ample capital being deployed.

I've been asked a bunch of questions, well, would you do optimization? Could you do tests? Could you look at more investments in stores to see the return? Of course, we can do those things, and we will. But those would only be upside to the forecast. We would only invest if it had a strong return. And what we know for factual statements and representations, 30 years of profit growth, that Restaurant Depot is the tale of the tape. It's the proof that's in the pudding. And they've grown their revenue 28 out of 30 years. And their durability and consistency of their performance is significant and very impressive. So we are confident in the CapEx as a percent of sales being appropriate.

The second question we've gotten a lot is the operating margins themselves, the 13%. I'll start and then, Brandon, I'm going to ask you to add your color on compare-and-contrast to our local business. It is durable. It has been produced and delivered year after year that 13% range.

And the why is the tremendous efficiency of their box. They're full truckload from suppliers straight to their store that is a warehouse. The product gets unloaded, put away in reserve rack, brought down to a customer pick location. And they have obviously colleagues at the register to help with checkout. The customer does the rest of the work.

The restaurant or owner does the rest of the work. They're doing the pick to pack the ship, the delivery to the restaurant, the unload. And because they are able to take all of that cost out of their system, they're able to hit price points that are 15% to 20% cheaper than delivery and able to do so at that rate of profitability. And they've been doing it consistently for years.

They're very good at procurement. They have an excellent buying program led by a very tenured and experienced team that will be joining Sysco as part of our going-forward team. And we're confident in the ability to contain and sustain that profit rate. Brandon, what would you say about the 13%?

Yes. These customers who are going to Restaurant Depot are value-seeking customers. There are no salespeople and there are no trucks, as Kevin called out.

The other piece of this is, in the Sysco view, our EBITDA is in the mid-single-digit range, but that includes large, medium and small customers. So if you look at Restaurant Depot, it is all small customers. And that small customer profile is in line with what we see within Sysco and our small customers. So it is in line with what our expectations would be. And we see that consistently as we look back to Kevin's earlier point in the Restaurant Depot profile.

So the third -- so we covered CapEx, we covered operating profit. The third, Ed, I think you may have mentioned, is staffing, labor and those orders, are they under-investing in the stores. We believe an appropriate level of payroll is being deployed in the stores. And that's also easily testable. If we just adding increased labor in select stores and there's an increase in the revenue flow-through, and that's a profitable investment, of course, those are the types of things that we would do.

What we know is Richard and his team run a great business. They run a terrific P&L. And they're very disciplined operators and they've been doing it for decades.

Our final question will come from John Ivankoe with JPMorgan.

So the question is on declining private label sales as a percentage of broadline in U.S. Foods year-over-year, if we can kind of isolate the cause of that. And I did want to kind of look at the bigger picture in terms of how you plan on looking at private label between Sysco, Restaurant Depot, Jetro, between the 2 of you, I count at least 5 different private label efforts or kind of brands -- [ web brands ] that kind of represent brands, if you will, between the 2. So can we come to market maybe as Costco was done or a Walmart has done, some other types of food retailers and really kind of consolidate or professionalize or even be known for your sub-brands specifically and do a lot of cross-marketing between the Restaurant Depot and Sysco businesses?

John, these are good questions. I'll start with the first and acknowledge the point that Sysco Brand cases down year-over-year. We have begun to see progress with Sysco Brand. The decline in mix to last year did improve from Q2 into Q3. The progress was most strong in the smallest of customers, the 1 to 2-door operators. And why I call that out is that's the customer type where our SC, sales consultant, has the most impact, that SC who's there every week talking about our product, talking about Sysco Brand.

During Q3 specifically, we launched Swap & Save a part of AI360. So now our SCs are equipped in the palm of their hand as they walk into that restaurant with suggestions to convert to Sysco Brand that do 3 things. it has to do 3 things for it to be prompted. It has to save big customer money. It has to help make the SCs more money. And also, of course, it makes Sysco more money. It has to hit all 3.

And when it hits all 3, our SCs are excited about it because they make more money and they know they're saving the customer money as well. So we just launched this capability. We call it Swap & Save. It is in our tool, AI360, that Brandon said, is getting increased usage and utilization week-over-week, month-over-month. And we're seeing it show up in progress improvement, and we expect in our Q4 to see an acceleration in our performance, especially in local with Sysco Brand.

So more to come, John, on that progress. It's steady as she goes. And as you know because I've talked about in prior calls, we have work to do on our assortment within Sysco Brand to improve our opening price point tier, and that's something that we will accelerate with Restaurant Depot.

So which is a good segue to your question about brand rationalization and what the future looks like. I do want to be clear, we have 4 billion-dollar private label brands. So these are not small businesses. Actually, there's 5 billion-dollar-plus brands that we have within Sysco assortment. We have Sysco Reliance, which is our opening price point. We have Sysco Classic, which is the middle tier. And Sysco Premium, which is, as it sounds, the higher-tier product. So good, better, best. We have those 3.

We have Select Others for things like produce and protein, but we don't need to cover that at this point. Your main question is like the core workhorse of the business. We have those 3 brands. Restaurant Depot has their own private label program. We'll talk to our customers first, like what do they need, what are they seeking, the type of label. We're not going to be in any hurry to add the Sysco name inside the Restaurant Depot box. We don't want to convey any message in that regard, other than the store is about saving the customer money. We will not be raising prices at Restaurant Depot's locations. I just want to be clear about that.

But John, where we know we will have benefit is many of our same manufacturers are producing these products. And as Brandon talked about, he worked in this industry at a supplier, we can give that supplier a longer production run of the same product. Even if the box switches out to a different label 70% through the run, that is an easy switch for that producer that manufacturer on our behalf to do because they don't have to clean the production line in between producing for A and B.

So we'll let the customer give us feedback on the actual labels on the box. What we know is that our private label teams can work collaboratively, we can fill assortment gaps on the opening price point side, specifically at Sysco. And there are some places in the Restaurant Depot store where they don't have private label at all today that we know Sysco can help them in that regard over time. Produce would be an example of that. So John, thank you for your question.

That concludes our question-and-answer session. I will now turn the call back over to Kevin Kim, Vice President of Investor Relations, for closing remarks.

Great. Thank you, everybody, for joining us today and your continued interest in Sysco. If you have any follow-up questions, please do not hesitate to reach out to the Investor Relations team here in Houston. Thank you very much. Bye.

This concludes today's program. Thank you for your participation, and you may disconnect at any time.

Welcome to Sysco's call to announce the definitive agreement to acquire Restaurant Depot. [Operator Instructions] With that, I would now like to turn the call over to Kevin Kim, Vice President of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us to discuss Sysco's proposed acquisition of Restaurant Depot. As a reminder, this call is being recorded, and a press release and slide presentation regarding today's news are available at the Investor Relations section of our website.

Before we begin with the presentation, we have a few housekeeping items. First, a copy of this presentation and today's press release can be found in the Investors section at sysco.com.

This presentation includes forward-looking statements about the company's or management's intentions, beliefs, expectations or predictions of the future. Many factors that could cause actual results to differ in a material manner are contained in the company's SEC filings, including in the risk factors in our annual report on Form 10-K and the news release issued earlier this morning.

This presentation includes non-GAAP financial measures. The reconciliation of these non-GAAP financial measures to the corresponding GAAP measures is included at the end of the presentation slides and can be found in the Investors section of our website.

Finally, this presentation is not an offer to buy securities. In connection with the proposed transaction, a registration statement on Form S-4 containing a prospectus will be filed with the SEC. To ensure we have sufficient time to answer all questions, I'd like to ask each participants to limit their time today to one question, if you have a follow-up . Please reenter the queue.

On today's call, we have Kevin Hourican, our Chair of the Board and CEO; and Brandon Sewell, our Interim CFO. With that, I'll turn the call over to Kevin Hourican.

Thank you, Kevin. Good morning, everyone. It's great to be here with you all. Today is an exciting day for our customers, our colleagues and our shareholders. This morning, we announced that we have entered into a definitive agreement to acquire Restaurant Depot, the leading Cash and Carry food service supplier for small restaurants and businesses.

We are excited to discuss this transformational opportunity, creating a combined company that is expected to grow faster, be more profitable and translate into more compelling returns for our shareholders than the stand-alone companies.

And we are excited to welcome all colleagues from the entire Restaurant Depot team to the Sysco family. Starting on Slides 5 and 6. On today's call, we'll provide an overview of the transaction, detail the compelling nature of Restaurant Depot's business model and explain how the 2 companies are better together.

We will also provide detail on Restaurant Depot's leadership team, track record of business and financial success in the Cash & Carry segment and explain how Restaurant Depot's capabilities and customers are complementary to Sysco's business model. The bottom line is that there is minimal overlap today between Sysco and Restaurant Depot's customers, and we believe that Sysco's robust nationwide supply chain can help bring Restaurant Depot's business model to hundreds of additional communities across the country over the next 2-plus decades.

The Cash & Carry channel and Restaurant Depot specifically serve a customer that is seeking low prices, buys in smaller quantities and needs their product immediately. This customer is very different from Sysco's broadline customers that desire service with higher touch points, order in larger quantities and prefer delivery to their business. Sysco's customers also desire face-to-face interaction with a qualified sales professional who helps the restaurant owner address operational challenges within their business.

Sysco provides white glove consultative service with a modern, easy-to-navigate website and delivery on a multi-temperature truck. Sysco's customers pay for these services through the price of the products that they buy. In contrast, Cash & Carry customers purchase their products at a discount as the customer is doing the picking, packing, shipping and unloading at the restaurant's location themselves.

By combining Sysco and Restaurant Depot, our business will be able to provide the type of service a customer is looking for when they desire it at the price point they are willing to pay. Together, we will become a nationwide omnichannel food service provider that grows our business profitably. Sysco and Restaurant Depot will also be able to capture supplier pricing efficiencies and share those savings with our customers, enabling profitable share growth for both businesses. Additionally, we will have access to each other's complementary product assortment.

Sysco provides a best-in-class assortment of better, best foodservice products, while Restaurant Depot provides value tier goods for restaurant operators that are looking to save money. Today, our conviction is that we are truly better together. We will leverage Sysco's nationwide supply chain. And by doing so, we will help Restaurant Depot serve additional customers like food trucks, small caterers and thousands of other small restaurant concepts.

The acquisition creates a powerful multichannel foodservice platform, strengthens our financial profile and unlock synergies while delivering more value, choice and convenience to customers nationwide. Most importantly, this transaction creates value for our customers, the communities we operate in and our employees and shareholders.

We expect this combination to significantly enhance Sysco's financial profile, increasing our revenue by approximately 20%, adjusted EBITDA by approximately 45% and free cash flow by approximately 55% on a pro forma basis. The combination also meaningfully increases the size of the company's local business, increasing it by 1.5x compared to Sysco's current local business volume.

We plan to deliver meaningful value creation with the transaction expected to be mid- to high single-digit accretive to earnings per share in the first year and low to mid-teens accretive in the second year following close. Sysco and Restaurant Depot both completed thoughtful diligence of the business combination.

We have engaged in conversations over the years and believe that now is the ideal time for the combination to occur. We are excited to bring together 2 industry leaders with customer-centric cultures and strong aligned beliefs on how to grow and nurture our businesses for many years to come.

Now let me take a few moments to tell you about Restaurant Depot and the highly attractive Cash & Carry channel on Slide 7. Restaurant Depot is a gem of an asset. The business was founded in New York 50 years ago by Natie Kirsh and is the leading U.S. wholesale cash and carry foodservice supplier with a large value-seeking customer base, driving industry-leading operating margins.

Restaurant Depot's winning cash-and-carry formula offers a clear differentiation in the savings, service and industrial pack size selection that they offer. Restaurant Depot's value proposition centers on providing small businesses with high-quality foodservice products at everyday low prices with a convenient self-serve shopping model purpose-built for restaurants.

A restaurant owner who chooses to shop at Restaurant Depot drives their own vehicle to the store, selects their products and brings those goods to the restaurant. In exchange, these restaurants save 15% to 20% on the purchase price versus what the cost would be to have those same products delivered.

Restaurant Depot stores are open 7 days a week and provide one-stop shopping for restaurants through their breadth and depth of assortment that is tailored to restaurant owners, savings, selection and service, 7 days a week. That is Restaurant Depot's model. Restaurant Depot operates 166 large-format warehouse locations across 35 states and serves a diversified customer base of more than 725,000 local customers.

Their stores are strategically located close to the communities they serve with 55% of U.S. independent restaurants being within a 30-minute drive of a Restaurant Depot store. They also own more than 80% of their physical locations near major metro markets that they purchased decades ago. As a result, Restaurant Depot has created a very compelling business and a company-owned real estate portfolio with large stores adjacent to major cities.

The combination of these variables results in a cost structure that enables low prices for their restaurant customers. Let's now talk a bit more about the customers who shop at Cash & Carry locations and specifically at Restaurant Depot. It's important to note that their entire business falls in with what our industry calls local. 100% local means that they serve a very profitable customer segment.

Cash & Carry is a large and growing business, and it is not a business segment that Sysco meaningfully participates in today. As the formats name suggests, these are owners that leverage cash or credit to buy and carry their goods back to their place of business. Restaurant Depot serves mostly smaller-sized mom-and-pop restaurants, customers that struggle to hit delivery minimums find the cash and carry channel particularly attractive.

As a result, there is minimal overlap between Restaurant Depot and Sysco's core customers. To give you some perspective on the Cash & Carry channel on Slide 8, it is a large, growing and attractive market with an estimated $60 billion to $70 billion total addressable market in the United States.

This is a distinct and separate channel from the broadline delivery channel that is well over $300 billion. Importantly, independent restaurant growth is outpacing fast casual chain growth, and the cash and carry channel has historically grown at the same rate or faster than the broadline delivery channel.

Given that Cash & Carry serves the value-seeking restaurant customer, Restaurant Depot performs well during an economic downturn. And during economically vibrant times, it grows even more. Now that's an attractive channel.

Turning to Slides 11 and 12. We have high conviction in Restaurant Depot's ability to continue to grow due to their highly productive footprint that is well positioned for unit expansion over the near and longer term. And one of the most compelling aspects of Restaurant Depot's business is its long-term track record of consistent and profitable growth.

Since 2004, the company has delivered a CAGR of 9% in revenue and 14% in adjusted EBITDA. Most importantly, Restaurant Depot has grown their adjusted EBITDA over the last 30 consecutive years, and that includes COVID, 30 years of consecutive profit growth. This point reinforces my message from a moment ago, their business is very resilient.

These exceptional growth rates over the past 2 decades reflect consistent and profitable growth. And while Restaurant Depot is more mature today, we expect strong top line growth to continue, along with industry-leading margins and robust cash generation, which will enable Sysco to invest in its business, delever and return value to our shareholders.

We are excited to welcome Restaurant Depot's talented team that will be joining the combined company. On a personal note, I've gotten to know Richard Kirschner, Restaurant Depot's CEO and their leadership team over the past 6 years that I have been in the industry. I'm very impressed with their capabilities, their character and their integrity.

The company is led by a group of highly experienced executives, as shown on Slide 13, with decades of industry experience across operations, procurement, finance and technology. At Sysco, we value the incredible business that Restaurant Depot has built, and we plan to preserve their culture and retain the talent that has contributed to their success.

The bottom line is that they are great business leaders and even better people, and I look forward to working with Richard and his team. Our goal is the same: profitably grow the 2 businesses by leveraging each other's strengths. Our Better Together thesis will be enabled by partnering together in product procurement, leveraging each other's product assortment range and Sysco assisting Restaurant Depot on select inbound logistics opportunities.

These activities will not require deep technology integration to accomplish their objectives. These efforts will also enable each of the 2 businesses to go to market exactly as they do today, led by their existing leadership team and serving the complementary and mostly nonoverlapping customers. The synergies that Brandon will discuss shortly are confidently attainable. We're excited about the opportunities ahead for both Sysco and Restaurant Depot. And together, we believe we create a powerful combination. The transaction unites 2 complementary industry leaders, delivering an end-to-end value proposition while serving all customer segments and purchase occasions.

We have great confidence in the strategic and financial merits of this combination, creating a truly preeminent multichannel foodservice distribution platform. And most importantly, we are pursuing this transaction from a position of strength. Sysco's core business stands on strong footing.

We are delivering against our fiscal 2026 targets and steadily improving our performance. Our USFS local business will deliver over 3% volume growth in our third quarter, stronger than we had previously communicated for the period. The business momentum that we are delivering is being generated by company-specific initiatives that are strengthening our core. Our sales professional retention has substantially improved. And as a result, customer retention has improved as well. Our sales consultant productivity is steadily improving through retention, training and selling tools that we have deployed. These activities will continue to gain momentum in the coming quarters, giving us confidence in the trajectory of the year and beyond.

The improvement in sales is being supported by a Sysco supply chain that is performing at an all-time high level from a customer service perspective. We view our supply chain as an enabler of sales and our supply chain has never been more strongly positioned to enable profitable sales growth.

Now is an excellent time for core Sysco to engage in this transformational opportunity. To that end, Sysco brings a national food service delivery network, a broad assortment of premium and specialty products and deep supplier relationships, supported by a nationwide distribution center footprint and a large base of delivery customers. At Sysco, we set the standard of what excellence looks like in providing white glove service and delivery of high-quality foodservice products to the food away-from-home industry. Together, this combination allows us to cover all purchase occasions by offering customers a broader range of purchasing options across both delivery and in-store channels, supported by expanded assortment, greater procurement scale and supply chain efficiency.

The customer will choose which fulfillment option they prefer. We also see meaningful opportunities to better serve value-seeking street customers, independent restaurants and local businesses and deliver more choice across product offerings. Together, we will unlock supply chain and procurement synergies as well as cost savings that benefit both businesses and our customers.

While synergies are important, we believe in the merits of this deal even without these synergies. The plan is for us to remain laser-focused on executing on the positive momentum for both Sysco and Restaurant Depot. As I mentioned earlier, Restaurant Depot operates 166 locations today. We are confident in the white space opportunity for Restaurant Depot location expansion as a key element of future revenue growth. In fact, we are confident that we can open an additional 125-plus net new locations in the coming decades, which will increase the affordability for customers.

That store expansion will help fuel strong growth for Restaurant Depot for years to come. We have a line of sight to the store locations and are confident that Sysco's vast supply chain can assist in the supporting of opening these new stores. Additionally, over time, we believe there is ample opportunity for international expansion of the Restaurant Depot store concept.

We will work constructively towards that objective in due course. Overall, we're excited about what lies ahead, knowing the strengths of each respective business. This deal creates a significant step-up across our financials on a pro forma basis. Furthermore, we see the potential to grow faster and more profitably when combined.

I'd now like to hand the call over to Brandon Sewell. But before I do, as many of you know, Brandon was appointed Sysco's Interim CFO earlier this month. And to give you some background, Brandon has over 20 years of finance experience, joined Sysco in 2014 and has held various management roles of increasing responsibility within our finance organization, most recently serving as Senior Vice President and CFO of Sysco's U.S. business, which represents over 80% of our business.

Prior to this position, he ran finance for our merchandising and supply chain organization, where he gained a deep level of expertise in our business. Previously, he was Global Head of FP&A. Brandon is a trusted partner, brings deep financial experience into the interim role and has a strong understanding of our business. Our entire leadership team looks forward to working with him closely. Brandon, it's great to have you on this call. Over to you.

Thanks, Kevin. As Kevin just mentioned, I've been part of the Sysco team for the past 12 years, and I'd like to start off by highlighting what we've built here and why we see Sysco and Restaurant Depot as being better together.

Both companies share a strong track record of high margins, cash generation and compelling cash conversion. This combination provides a significant opportunity around capital allocation that will increase our future possibilities, particularly in returning capital to our shareholders.

Sysco enters this transaction from a position of strength as seen on Slides 14 through 16. Importantly, we continue to see strong growth across channels and geographies, including accelerating momentum in our local and international foodservice businesses.

We will continue to apply the Sysco playbook domestically across our large USFS segment, including our $10 billion specialty business and Sigma. We expect this positive momentum to continue across our International segment with continued outsized profitable growth. Our planned acquisition of Restaurant Depot enables Sysco to enter this large, growing, high-margin and resilient channel, significantly increasing our ability to serve independent restaurants and small businesses.

I'd now like to provide an update on our recent performance and give you a preliminary view of our Q3 fiscal 2026 results that we'll further discuss on our next earnings call scheduled for April 28. This can be seen on Slide 17. As Kevin mentioned, we expect to deliver third quarter adjusted EPS of approximately $0.94 and USFS local case growth of at least 3% compared to the prior year.

That is over 50 basis points higher than we had previously guided to an at least 180 basis points of sequential improvement driven by organic improvements. This positive momentum reflects our fourth consecutive quarter of improving U.S. local case growth, a significant sequential improvement and an increase of more than 600 basis points versus a year ago.

These results reflect continued momentum at Sysco as we focus on delivering top line growth all the way through to operational excellence. This positive momentum gives us continued confidence in our ability to deliver our full year 2026 guidance of 3% to 5% sales growth and adjusted EPS growth at the high end of our guidance range of $4.50 to $4.60.

As seen on Slides 21 and 22, Restaurant Depot will notably add value to Sysco. In calendar year 2025, Restaurant Depot delivered approximately $16 billion in revenue and $2 billion in EBITDA, achieving a best-in-class EBITDA margin of 13%, significantly higher than industry average.

We expect our pro forma EBITDA margin to increase by approximately 150 basis points to 6.7% on a combined basis, significantly expanding Sysco's margin outperformance relative to its nearest peers and those operating in the club store channel.

Furthermore, Restaurant Depot is the strongest cash generator in foodservice. Their CapEx for the year was only $136 million, 7% of their EBITDA and net working capital is typically a source of cash flow for them. Like other successful club stores, they turn their inventory and collect accounts receivable faster than it takes them to pay their vendors and suppliers. This combination strengthens Sysco's financial profile with not only higher margins, but also stronger free cash flow generation and conversion.

In 2025, Restaurant Depot generated $1.9 billion in free cash flow and achieved a free cash flow conversion rate of more than 90%. We expect to maintain this positive momentum across both businesses and expect this transaction to add more than $2 billion of additional annual free cash flow in the long term, increasing Sysco's financial flexibility.

And as Kevin mentioned earlier, this transaction is expected to be mid- to high single-digit accretive to earnings per share in the first year and low to mid-teens accretive in the second year following close.

Turning to Slide 23. We expect the combination to generate approximately $250 million in annualized net cost synergies within 3 years of closing, unlocking meaningful benefits in purchasing with some cost synergies also in supply chain operations. These synergies will primarily come from greater scale in procurement and merchandising, including harmonization of SKUs and supplier funding.

We also plan to extract value from private label optimization through improved sourcing and manufacturing and supply chain efficiencies, such as harmonizing third-party logistics and leveraging vendor-managed freight. To provide some context, this is a low single-digit percentage of our annual cost of goods sold for our U.S. foodservice business and even smaller on a pro forma basis, giving us confidence in achieving these synergies.

Beyond the cost opportunity, the combination also enhances service and convenience for customers. Together, we will serve small, independent restaurants and businesses better. By leveraging Sysco's expansive supply chain, Restaurant Depot's strong track record of new store openings can be supported through the strengths of our supply chain, bringing savings, service and selection to more customers and communities. We see a long runway to extend Restaurant Depot's strong track record of new store openings supported through the strength of Sysco's supply chain.

As outlined on Slide 24, we see clear potential to open more than 125 new warehouses over the next 2 decades and beyond in underserved markets across North America. We plan to bring Restaurant Depot's low-cost model to new locations and enhance value for small businesses through greater choice, convenience and more affordable food options.

On average, Restaurant Depot sells their products at about 20% discount to traditional foodservice distributors. However, because Restaurant Depot does not have the costs associated with distributor service, they maintain comparable levels of profit per case and a higher margin percentage.

To wrap up, I'd like to summarize the details of this transaction. The $29.1 billion transaction value includes $21.6 billion in cash and 91.5 million Sysco shares to Restaurant Depot at Sysco's closing share price of $81.80 as of March 27, 2026. This reflects a multiple of 13x Restaurant Depot's operating income as of December 2025, including the expected $250 million in annualized net cost synergies.

We will fund the cash portion of the transaction using cash on hand and proceeds from new debt financing, increasing Sysco's leverage to approximately 4.5x post closing. We plan to maintain a strong balance sheet and our current investment-grade credit rating. We will prioritize rapid deleveraging following the acquisition and intend to reduce net leverage by at least 1x our combined EBITDA in the 24 months post close.

As a result, we are pausing our share repurchase program and we'll look to focus on achieving the plans we've laid out for this transaction before engaging in any further large-scale M&A in order to achieve this objective. We remain committed to our long-term net leverage target of approximately 2.75x and intend to resume our share repurchase program after making significant progress towards achieving that long-term net leverage target. We will maintain our current dividend and prioritize our dividend aristocrat status. Upon closing, Restaurant Depot shareholders will own approximately 16% of shares in Sysco's common stock, with the Kirsh family owning approximately 12% of shares.

Leonard Green & Partners owning approximately 3% of shares and the remaining Restaurant Depot shareholders owning approximately 2% of shares. Restaurant Depot's majority shareholders are invested in the long-term value creation opportunity of the combined business and will be committed long-term shareholders of Sysco.

Underscoring their commitment, 2 of Restaurant Depot's current directors will join Sysco's Board of Directors. We expect the transaction to close by the third quarter of fiscal 2027, pending customary closing conditions, including receipt of regulatory approvals. Upon closing of the transaction, Restaurant Depot will operate as a stand-alone business segment.

They will maintain their strong structure, leadership team, pricing structure, culture and operating model. This means that Restaurant Depot will have the space and runway to continue to deliver its best-in-class performance. While Sysco continues to deliver our strategy with operational excellence and build on our business momentum, we will be very thoughtful and deliberate about continuing to let Restaurant Depot operate as they have while building bridges between our 2 organizations to realize ongoing benefits. With that, I'd like to turn it back to Kevin.

Thanks, Brandon. I'd like to recap the merits of this transaction and why we are so excited about today's announcement as seen on Slides 18 and 25. First, it unites 2 complementary foodservice industry leaders, reaching all customer types and purchase occasions.

Second, it expands Sysco's business penetration in the high-margin local business. This transaction increases Sysco's local revenue by 1.5x and increases the operating margin of the combined business while providing the new company with a more resilient business segment given its value format positioning.

Third, it enhances our financial profile with higher margins and stronger free cash flow while maintaining positive momentum across both businesses.

Fourth, it unlocks purchasing and supply chain-related synergies. And fifth, it brings Restaurant Depot's low-cost model to more locations, broadening access to a wider and more affordable product assortment. Lastly, we see incremental revenue synergies over time, and those compelling opportunities have not been included in our model.

Any revenue synergies beyond opening new stores would be upside to what we are communicating today. Altogether, we expect the total shareholder return of the combined business to be meaningfully higher than present day Sysco. Upon transaction closing, Restaurant Depot will be run as a separate business from Sysco and Restaurant Depot's CEO will remain Chief Executive Officer of the business, reporting to me.

Restaurant Depot's leadership team is expected to join Sysco and is committed to staying with us. In addition, Sir Bradley Fried, former Chair of the Board of Directors of the Bank of England and Stanley Fleishman, Executive Chairman and former CEO of Restaurant Depot, will join Sysco's Board of Directors as the companies move forward together.

I've gotten to know Sir Bradley Fried and Stanley Fleishman well over the years, and I am very confident that they will be very constructive members of the Board. Their expertise in cash and carry will be very beneficial as we navigate our next phase of growth.

We look forward to partnering with them and learning from each other across the 2 organizations as we bring the 2 leaders in foodservice together. In closing, we're buying a remarkable asset in a compelling channel that will allow us to deliver financial value. Restaurant Depot helps us serve local customers more fully and the business is a proven compounder that will continue to grow with investments under our ownership.

Together, we will create a preeminent multichannel foodservice distribution platform with expanded capabilities to serve customers across delivery and cash and carry channels. We have high confidence in the areas where we can collaborate to bring out the best of both companies.

The transaction strengthens our financial profile, stepping up our revenues, EBITDA and cash flow. It also delivers tangible synergies and creates meaningful opportunities to expand access to affordable food and restaurant supplies for more small businesses.

Most importantly, it positions Sysco for continued long-term growth while creating significant value for our customers, employees and our shareholders. I want to express how excited we are about the opportunities that this transaction creates.

Thank you all for joining us today. We look forward to discussing the transaction further as we continue the process. And with that, we'll open the line for questions.

[Operator Instructions] Our first question today comes from Edward Kelly with Wells Fargo.

Congratulations on the deal. Kevin, could you talk a little bit about the commitment of the leadership team of Restaurant Depot in terms of length of commitment? And then more specifically, a question I have around this business is what's the performance look like over the past year or 2, comps, EBITDA margins? And what's embedded in the accretion outlook in terms of that growth?

Thank you for the questions. I'll start first with the leadership team, as you said, and then Brandon will tag team with me on the financials part of your question. Sysco has done 50-plus acquisitions across the course of time, a dozen while I've been the CEO of Sysco. And the #1 key to success is the retention of top talent. And we know this. This is something that is paramountly important.

The leaders of Restaurant Depot are committed to joining our company and being with us for a long period of time, and we are working deeply with them on succession for each of their leaders. So we have high confidence in Richard. He will be with us joining our new company together and leading that business successfully. So we have tremendously high confidence in the ability to retain the key talent and support the long-term growth of the business. As it relates to how the business has performed, I'll just start with some of the things that I mentioned on the call. The Cash & Carry channel is very resistant -- resilient, excuse me. It grows during economic downturns, taking share from everyone else because customers are seeking value, looking for value. And during strong times, it grows even faster. So it's one of the best parts about this business.

They've grown their revenue 28 out of the last 30 years, and they've grown their profit 30 out of the last 30 years. I'll toss to Brandon for the specific comments on how we have modeled the pro forma going forward for the contribution from Restaurant Depot.

Yes. Thanks for the question. On the top line for the business from a performance perspective, they've operated similarly to how they have historically in the mid-single digits on top line. One of the things that I do like about this acquisition is nothing significant has to change on a go-forward basis. It's taking Restaurant Depot. It's taking the momentum we have on the Sysco side and combining them.

So no major changes there. I think the other question that you asked was about synergies. And this is one of the areas, I think when companies acquire that they go too high on. And in our case, we spent a significant amount of time on synergies. They're all cost synergies. There are no revenue synergies we have built into the model.

And so it's on the procurement side, on the private label volume side and then a little bit on supply chain. But from a synergy perspective, we feel like it's very conservative. It's a significantly less than 1% of the business I came from, which was the U.S. foodservice business. And we feel very confident that we'll be able to achieve them. Personally, it will be one of my major focus areas on a go-forward basis.

Our next question comes from Jeffrey Bernstein with Barclays.

Great. Two questions as well. The first one, Kevin, just wondering why you think now is the ideal time. I know you mentioned getting to know each other for the past 6 since you've been there. I'm just wondering what hurdles will finally overcome today. Definitely I would imagine there'd be some pushback for an entity your size levering up into an uncertain macro like this, especially when you're finally seeing traction with the core Sysco and the initiatives you've had in place.

So that's my first question was just why now. And the second question was just the long-term opportunity. It seems like you've now position yourself as a one-stop shop for restaurants. So maybe they -- a single unit would start with your cash and carry and then one day they build into being more of a core Sysco customer. Maybe it's like a feeder platform from one into the other. So it seems like it could be a tremendous opportunity to capture restaurants at all stage of their development. So any thoughts you could share in terms of those potential revenue synergies if that kind of feeder platform idea is the way you see it?

Jeff, I appreciate the questions. Let's start with the why now. So for any transaction to occur, there clearly needs to be a willing seller, needs to be a willing buyer. There needs to be an agreement on a fair price and for the opportunity to present compelling return for our shareholders.

Best part about this deal is we check all of those boxes, and that's why now. The family that has controlled the business for 50-plus years is ready to sell. This was not a competitive bid. They did not put the business out to auction. They came to Sysco because they view us as the best place to care for their family business for decades to come. They understand our capabilities. They see how our set of assets are complementary to their core business. And the point I made on my prepared remarks, the opportunity to take this incredible gem of a business to 125 net new physical locations around the country by helping leverage Sysco's inbound supply chain.

It's a great opportunity for the family to see their business be successful for decades to come. So that was a good time for them to sell. As it relates to us, we stand on strong footing at Sysco. As you just indicated, our business is healthy. It is improving quarter-over-quarter. Today, I provided some new incremental color in Q3, which we will have a call in approximately a month, we will communicate 3-plus percent local volume growth, which is 50 basis points better than what I told you all at CAGNY not that long ago.

Momentum, confidence, strong footing for the core Sysco business. That was a prerequisite for us to be prepared and ready to be able to move forward, and we're in that place solidly committing to our EPS for the full year at the high end of the range that we had previously communicated. It's a good time for Sysco. We are prepared and ready for this moment. So then you think about the strategic merits of the deal, long term. My job is to create shareholder value creation for the long term, and this is a great deal for our shareholders for the long term.

20% more revenue, 45% more EBITDA, 55% more free cash flow. Those are compelling stats, immediately accretive. Mid- to high single-digit year 1 accretive, low teens year 2 accretive. In year 3, we realized full synergy value. In year 4, we have $2 billion of incremental free cash flow that can be returned to our shareholders in a host of ways, increased dividend, more share buyback, invest in the business for growth and future M&A, frankly, that doesn't require debt because of the fact that the excess free cash flow is so robust and significant.

This is a great financial deal for Sysco and for our shareholders for the long term. And then last but not least is do these 2 companies fit better together, which is a perfect segue to your question about longer-term revenue synergies. I want to repeat the one point that I said in my prepared remarks, there are 0 revenue synergies built into our deal model with the exception of opening new stores, which is, as [ Ed ] asked about a second ago, frankly, just keeping going what they have been doing for decades. There will be revenue synergies.

We have products that are in each other's product catalog that the respective businesses will want. Examples, Restaurant Depot has a fantastic value tier assortment. And as I've shared with investors previously, that's not the strength of Sysco. There are delivery customers who buy premium protein, but they want to save money on other products.

We can add those types of items to Sysco's core assortment, growing our profitability within core Sysco Delivery. Vice versa, Sysco's specialty businesses producing great products that aren't available to Restaurant Depot today. We could deliver from Freshpoint as an example, 6 days a week, 7 days a week to a Restaurant Depot store, providing them with fresh-cut produce that is not currently in their assortment. We can add more sales to the existing store base by doing something like that. Just an example, cross-selling of each other's products. There are many examples, Jeff, of how we can be better together. And you just gave a good one.

A small customer starting at Restaurant Depot, they find that an attractive place as their business grows, they need more help. They don't have time to continue to go to the door. We can have a warm transfer from Restaurant Depot to Sysco. The opposite is true. Sometimes Sysco onboards a new customer, we think they're going to grow.

We think they're going to be big and they have a hard time hitting our delivery minimums. We can provide them with the option of going to Restaurant Depot to a loyalty club over time. The other is large customers, oftentimes, it's not infrequent, they'll run out of something. The average Sysco customer gets approximately 2 deliveries per week.

What if it's not a delivery day and your restaurant is busier that evening than you expected and you run out of something. Offering our customers the opportunity to have an emergency replenishment from a nearby store that could be hours closer to the restaurant than the Sysco warehouse that could be 2, 3, 4 hours away as an example only, or we deliver eggs and they're broken. It's an accident. It happens.

We deliver fragile product, and we need to do recovery. Recovery from a warehouse that's hours away is time-consuming and expensive. We could do rapid recovery from a local store. These are just examples. And the main point is $0.0 from revenue synergies are built into the deal model. The $250 million net cost synergies that Brandon talked about are from buying better together, lowering our purchase cost, leveraging our inbound supply chain contract rates for third-party logistics and other procurement type synergies.

We have tremendously high confidence that we can deliver against that net $250 million. In fact, we'll beat it. Thank you for the question, Jeff.

Our next question comes from John Heinbockel with Guggenheim.

Kevin, a couple of related questions. Where is the bulk of Restaurant Depot's growth coming from? New customers, wallet share? They do about $100 million AUV. What's your thought on capacity in the existing fleet? And then lastly, what's the gating factor on not growing faster? Obviously, you have the money. I would think you have the people. Is it simply quality real estate? Why not grow twice the 5 to 6 openings a year?

Yes, John, great questions. The growth at Restaurant Depot comes from a combination of same-store sales growth, which they do year after year, each and every year of same-store sales growth. Within that same-store sales growth, it's equal parts volume growth and as you know, traditional inflation of approximately 2% that occurs in our industry. So their same-store sales growth comes from a combination of volume and inflation.

And as you just indicated, they open approximately 5 to 6 net new doors per year. What we've modeled in the pro forma is a continuation of that run rate, and we provided a very specific point of color, which is that we see a direct line of sight to 125 net new locations, and we think we can do more than that. That's a number we have 100% confidence in.

So I like [ pretty ] math, that's 5-plus stores a year for 25 more years. That's compelling. That is a durable, consistent growth algorithm. To your point on can we go faster? There's not a need to. It produces tremendous positive free cash flow, the model that I just described. To the degree that we could go faster, maybe another door or 2 per year, we'll work in partnership with Richard and his team. They have a fantastic real estate program. They've never closed a store. Every single store is profitable. So John, going too fast, sometimes you can make mistakes on real estate site selection, and we want to be prudent and thoughtful. And if there's an opportunity to go quicker prudently, we will do so. Brandon, anything you'd like to add?

Yes. Just to reiterate, 30 out of 30 years of growth. I think one of the things that gets us very excited about that is just the predictability of it. In my time in the U.S. business, during COVID, we would have been so much better off if we had had the resiliency of this business because they serve value-seeking customers.

And then the other piece of it is as we grow, just to reiterate, doubling our free cash flow as you go to the medium term and beyond, just provides us so many possibilities for reinvesting more M&A, dividend growth and repurchasing our shares. So just excited about it.

Our next question comes from Lauren Silberman with Deutsche Bank.

Just a couple of follow-ups on the rationale of getting into Cash & Carry. Obviously, a different use case than foodservice. I guess what percentage of broadline customers also use cash and carry? And then given it sounds like it's primarily cost synergies, are you going to be sharing trucks and facilities? And what is Restaurant Depot's current private label penetration? Just trying to get a better understanding of the unlock.

Lauren, thank you for the questions. Let me start just why cash and carry as a channel is attractive to us, $60 billion to $70 billion total addressable market, resilient channel. As Brandon just said, during every economic downturn, it's a channel that takes share from the rest of food away from home because it's the low-cost leader and it's where people need to go when they need to save money.

The attractiveness of that channel, big, growing, consistent, resilient, and we had 0% share in that channel prior to this acquisition. So taking the #1 in the delivery space, bringing it together with the #1 in the separate but complementary cash and carry channel, we believe, is attractive. And it's for the reasons of your second part of your question, which is how we can help each other.

Number one is on the inbound logistics flow perspective. We buy a lot of products together. We buy a lot of transportation together. We can go to a common set of suppliers, leveraging our combined volume and realize improvement in our contracted price through that.

We know we have an opportunity to help each other on inbound flow of product. And now specific to your question about Sysco facilities, think about cities like Knoxville, Tennessee, Des Moines, Iowa, Spokane, Washington, Boise, Idaho. These are places where Restaurant Depot does not exist. These are places where Sysco has a big facility that's tri-temperature right now.

So think about the opportunity for us to help bring this industry-leading format to net new physical geographies is a compelling unlock in our ability to be able to help each other. As Brandon said, we're going to run these businesses independently.

They're going to be led by different leadership teams. They just need to keep running their play. but we know we have an opportunity to help each other through product assortment and logistics. Specifically to your private label, I'm not going to this morning quote the percentage.

We can do that at an upcoming Investor Day. Restaurant Depot's private label under-indexes versus Sysco, and we believe that's a big opportunity. We have a large team at Sysco that does private label product development, and we can share those talented people and those expertise capabilities to bring even more private label opportunities to the compelling Restaurant Depot box. Brandon, is there anything you want to add to that?

Yes. Just on the use case, Lauren, it's a growth channel, reiterating the 1.5x local, which is our most profitable customers. And there's not a huge overlap between the 2 customers. It's actually extremely small. And so we're in a different channel. On the cost synergies, I do like this deal still a lot without cost synergies. That is not the main reason we're doing it.

But with the cost -- even without -- and they don't fully ramp until year 3. So in year 1, the EPS accretion is mid- to high single digits, year 2, it's low to mid-teens. And then year 3 is our full ramp of cost synergies, so we continue to get value.

And then year 4 and beyond, the journey there is transitioning back towards our historical debt ratios and just having the increased freedom and capability around capital allocation.

Our next question comes from Danilo Gargiulo with Bernstein.

I just want to go back to the point of running the companies independently even on a pro forma basis. So I was wondering if you can maybe share more detail on the plan for private label, as you just said. So are you going to still distribute only the Sysco brands? Or are you planning to eventually also incorporate the Restaurant Depot brands into your distribution channel and vice versa, is there any plan for the Sysco brands to potentially penetrate into the Restaurant Depot facilities?

And then again, on running independently, I just want to confirm that having a paid membership is not and will not be in your plans for Restaurant Depot.

Let me do the second part. Absolutely no plans to change anything about Restaurant Depot's go-to-market approach. So it's a free membership. It is for businesses only. To be very clear, there are not average consumers walking into their warehouse store. The pack sizes are large, 50-pound bags of rice, 50-pound bags of sugar, drums of shortening, # 10 cans of peeled tomatoes and the like. It's a one-stop shop. It is the Costco for restaurants.

We all know Costco. They're the best run retailer in the world in my humble opinion. That is for consumers. This is the Costco of restaurants, one-stop shop. And Costco does carry some products that are sold by us, but think about their assortment of the #10 can, they'll have 1. Restaurant Depot will have 8. Sysco Delivery will have 20. I'm talking about unique SKUs in a specifics of subcategory. Just as an example, and that was a literal example that I just provided.

One-stop shop -- the job to be done is save restaurants money, on average, 15% to 20% cheaper than delivery. And it is a customer who's making the choice of which channel they prefer. If they want to save money, they have their own van, they're doing the driving over to the restaurant, they pick the back to ship, the delivery back to the restaurant, the unload of the van into the restaurant.

If they're a larger customer and their time is more precious to them and they're desiring an interaction with the human face-to-face sales consultant, Sysco better than anyone can deliver that product on a tri-temperature truck to their restaurant and put the goods away. We do that. We take it into their freezer, into the refrigerator, into their dry zone.

We're doing all that work on their behalf and our sales consultant is helping that restaurant with things like menu price optimization and other customers like you are buying the following and hey, guess what, there's this culinary trend happening in your trade area, and I don't see it on your menu, you might want to think about adding it. That's what our SCs do.

And I want to be very, very clear about something. We're going to add SC headcount. Nothing about acquiring Restaurant Depot takes anything away from the growth of core Sysco. We will add FCs consistently, over time. We'll continue to improve our technology. The customer chooses which channel they prefer.

Going back to Lauren's question about overlap, when there is overlap, it's because a unique situation has arisen that requires them to go to the alternative channel. They're a delivery-first customer, and we have broken eggs. They're a delivery-first customer, and they had too many salmon dishes sold on a Thursday night versus what they expected and they need to run out to a store. What is great about this combination is think about a buy more, save more loyalty program. When they do that, when they stay within the Sysco/Restaurant Depot family, we can reward them for that from a total growth perspective, and we will build that program. That's something we will do over time.

Zero value from that built into the deal model. Specifically to your brand question, we have a lot of work to do. This deal is going to take time for the government to review. We are confident that the government will approve this deal, but the government will do its process.

We will evaluate what things make sense from an assortment harmonization perspective, but it will be the merchant from each business choosing what they want to carry. Restaurant Depot has a strong merchandising team. They can see the catalog of products available from Sysco, and they can help determine what of those items might make sense.

For example, only Sysco's fresh produce business to a brand we call FreshPoint, that is private label for us, and that program doesn't exist at Restaurant Depot. Just an example, bidirectional. I don't think we will be selling premium Sysco product brand at Restaurant Depot, but the manufacturer of those products were Sysco can white label the box and put whatever label we want on the box. And our consumer, our end restaurant will give us the voice Danilo on how best to do that, and we'll be thoughtful and methodical about the approach. Brandon, anything you want to add?

Yes. Just to reiterate one of Kevin's points on the separate BU. This will be externally reported as a separate business unit of Restaurant Depot. So that will help you learn more about it, and you'll see some clarity there. The other thing I just want to reiterate is we won't charge for membership fees.

You just have to have a tax ID. This is not a family shopping experience. This is a club of restaurant tours. The last thing, Danilo, you had asked about private label. There's a small component of cost synergies around private label and volume.

I used to work at a food manufacturer. When you have higher volumes on a line and you run it, you can have savings and food manufacturers like that. It's actually a boon for them. So I just wanted to follow up on that piece. Thank you for the question.

Congrats on the announcement. As you think about the restaurant Depot business going forward, you talked about the white space opportunity in the real estate portfolio with a good chunk of it being owned. How much is the restaurant depot company-owned real estate worth today? And then as you think about your strategic priorities, it sounds like you're maintaining your current sales force growth. Would you expect to deprioritize really any current areas of focus as you look towards integration?

Yes. Good question. I'll start with the -- we're not going to quote the real estate value on today's call. What I can say are the following. We -- because I can call it, we now own 80% of the store locations. And the only places we don't own it is because the land developer that developed the property wasn't willing to sell.

The strategy is own the real estate. This is what's amazing. If you think about the Metro New York market, the locations, Masmith Queens, as an example only, you could not replicate that real estate. They bought it 50 years ago. Their cost basis is low. They own the real estate. Therefore, their cost to run the box is best-in-class, and they're able to, therefore, provide product to the booming Metro New York market restaurant scene at the lowest prices in town and do so at double-digit operating margin profitability. It's a gem of a business.

As we look to expand the 5, 6 stores per year, our plan will be to own the real estate. Sometimes you can't, and therefore, we will work with the developer in that regard. But the real estate portfolio is a significant asset and one that we will retain. As we -- the second part of the question for Mark was, help me, Mark. I'm sorry, the second part of your question?

Just in terms of as you think about your priorities going forward, would you expect that to deemphasize anything as you

A lot going on this morning. The sales force incremental headcount was just a commitment component. We don't want anyone to misinterpret what this means. There will be 2 separate businesses run by separate business teams, leveraging common synergistic capabilities, but the go-to-market approach stays intact. So Sysco's formula will be to add SE headcount over time to improve our website, to leverage things like our AI 360 tool to improve the selling productivity of our sales force. to grow that customer base through delivery. In the broadline space, we still have enormous opportunity to grow our business. Reminder, the big 3 in broadline have less than 40% total share of food away from home. We still have an enormous opportunity to grow our delivery business.

So our algorithm for core Sysco will not change. We are adding to that algorithm a higher revenue growth business, a higher margin rate business and a more resilient business. And that's why the Better Together financial thesis in our view, is so strong. As I mentioned, 3% volume growth for the Q3 that we report in approximately a month that is just another telltale indicator of the strength of our core Sysco business, the progress we're making and the confidence we have in our future. Brandon, anything to add?

Yes. Maybe just one thing. From an integration perspective, it's going to be a very light touch integration. we're going to keep running Sysco exactly as we have been and Restaurant Depot the same. In my business unit that I just came from as the CFO of U.S. Foodservice, we've improved over the last 18 to 24 months significantly on local, and we've taken share, and we are to a point where we have a lot of momentum.

And I like to see data backing up that momentum, and we see it. Our SE retention has improved year-over-year over-year and sequentially quarter-to-quarter, and we'll keep running that play. This acquisition doesn't change that in any way, shape or form.

Sorry for the 3-part answer. We normally don't do that, but I'm just going to come back to this integration point. Go back to Ed's first question, the #1 key to success of an acquisition is the retention of the key talent. Check. We are meaningfully focused on that. We have a compelling plan to retain the talent of Restaurant Depot. Thing number two as you mess up the culture. And the reason why these businesses will be run separately is to maintain the excellence of their respective cultures. Restaurant Depot's culture is about saving money. So the frugality, the discipline, the focus is every single thing possible to lower the cost structure to hit the lowest price point in the market and still do so at double-digit operating margins. It's a phenomenal business.

Sysco's culture is to provide white glove service to the larger independent restaurant, a face-to-face visit every week from their SE, consultative selling, helping them with restaurant operational improvement, providing them with better, best premium products that help them provide their end customer with a world-class meal.

They serve customers differently, but both cultures are about that servant leadership of helping restaurants be successful. So there's a lot of synergy between the 2 cultures, but their go-to-market approach is very different. So we will not integrate where integration does not make sense. We're not going to be doing large tech integration. We do not need to do tech integration to achieve procurement synergies. We do not need to do large tech integration on some of the inbound supply chain activities we've talked about today.

So the opportunity to maintain the distinct cultures is strong. The likelihood of a tech project making things go a ride is low, and we have a lot of mutual respect for each other's companies. I want to end with Richard Kirschner, CEO of the business for a decade, will retain all decision-making rights on how Restaurant Depot goes to market, pricing, assortment, staffing in the stores and real estate site selection.

He's a pro and his team are pros. We're here to help. And by the way, I lived in retail for 25 years and ran an $85 billion retailer before coming to Sysco. There are places where we know we can help each other. And those ideation sessions going back to Jeff's question earlier, are just beginning, and there's a lot of exciting ideas ahead for how we can help each other.

And our last question today comes from John Ivankoe with JPMorgan.

The question is really on the Restaurant Depot asset base. And certainly, I've been in many of them and some of them could look a little bit aged from the outside, and you can tell me if you agree with that, but also having opportunities to improve the merchandising and the technology within the store.

So I heard CapEx as a percentage of EBITDA is very low, but do you have an opportunity to perhaps significantly spend more in the near term to potentially get a lot more from customers in the medium term?

John, it's a very good question. Our Board asked lots of questions, very similar to what you just asked. And so I want to be really clear about this point. We've been on every roof. We've been in every parking lot. We've inspected every reefer unit, chiller unit, cooler door in every single one of their stores. We know exactly what we are getting. And it's a great asset base.

Their stores in aggregate are in good shape. There is not a big capital bill coming due, period. There is not a capital bill coming due to "bring the fleet up to standard". They're excellent stores. To your point, they're not fancy-looking stores. That's exactly the point of Restaurant Depot.

Every single thing about their box is save money. If the roof had a leak, patch it. If the roof leak, patch it. You don't have to replace it until you need to replace it, then you need to replace it. Those are the types of mottos that this business has. We don't do cosmetics things in the Restaurant Depot stores.

We do things to help lower the price, and that is what that restaurant owner seeks is that one-stop shop experience to be able to support them. As it relates to merch, I am certain, John, that there's opportunities to bidirectionally help each other from merchandising. Our Head of Merchandising, Brendon Garrett at Sysco, is excited to begin working with Clark and his merchandising team at Restaurant Depot. But I want to be clear, no one is going to tell the other team what to do.

It's more, here's the best of what I have. Are any of my products interesting to you. To Brandon's point, it's probably a manufacturer that can simply white label the box. And if that product can be produced at an appropriate cost bidirectionally, yes, we can cut those items in, and we believe that will provide revenue growth for both of the businesses.

Lastly, to your point on technology, the one thing we're not going to do is do tech for tech work. We're not going to go in and just change technology to change technology. Their ERP works, their HR system works, their POS system works. We don't need to provide them a routing system or a WMS because they're running stores.

But where we do have an opportunity to help each other, we will. So an example of that would be data, data sharing. We don't actually have to do tech integration in order to get common data in a common place where bidirectionally, we can access what the customers are buying in each of the 2 channels to develop that loyalty program that I talked about earlier. What it will be is pull. I use our Greco Italian platform.

We've owned Greco now for 5 years. We don't push any tech force needs to Greco. We say, here's our suite of capabilities. Are any of them attractive to you? Are any of them going to help you from a business return on investment perspective? And they shop from within the Sysco suite of technology tools.

We have a business case against those projects, and we deploy them the same thing will happen here. If there are examples of our technology that are useful and beneficial to profitably grow Restaurant Depot, we will deploy them on an ROI positive basis. So John, I appreciate the question.

At this time, we've reached our allotted time for questions. I'll now turn the call back over to our speakers for any additional or closing remarks.

Great. Thank you all, everybody. Please feel free to reach out to the Investor Relations team if you have any follow-up questions. We are around to support you all. Thank you.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Good afternoon. Welcome back from the break. It's now my pleasure to introduce Sysco Corporation. The leading global distributor of fresh food and related products to the food-away-from-home industry.

Sysco generated about $81 billion in sales in fiscal '25 and serves roughly 730,000 customer locations with a business that is well balanced across customers and geographies. Many of us know Sysco best from seeing their trucks outside our favorite local restaurants, which make up 60% of sales, while the other 40% is built around recession-resistant categories, including government, education, health care and large campuses and office complexes, where Sysco also enjoys leading share positions.

I'm excited to turn the conference over to Kevin Hourican, President, CEO and Chairman; and Kenny Cheung, CFO, to dive deeper into the story and discuss the company's specific initiatives that are driving structural improvements currently unlocking durable and compounding performance and supporting the company's commitment to a steady return of capital to shareholders.

Before turning it over to Kevin, please join me in thanking Sysco for sponsoring dinner tonight. Kevin, thanks again, and over to you.

Thank you, everyone. It's great to be back at CAGNY. We have the pleasure of being able to update you on our Sysco story, and it's also our pleasure to be able to host you all for dinner tonight. I really do hope you have a chance to come join us. Our Sysco chefs will be here in force delivering the best of Buckhead Meat, FreshPoint produce, our Italian cuisine business, our Asian foods business and even charcuterie from our European imports business. So hopefully, you'll have a chance to come join us. And Kenny and I, Kevin and Josh and Nelson will be roaming the room, and we're happy to continue the conversation with all of you tonight. So we look forward to that.

So let's jump in. Most of you in the room know Sysco, you know who we are. Our goal for today is to provide you an update on what we're working on, progress that we're making and where we're headed as a company. Before I start, you know us to be the largest in this space from a broadline distribution perspective, #1 market share and the most profitable in our space. We are also the #1 specialty foods distributor with multiple specialty brands doing more than $1 billion per year and a portfolio of specialty businesses that does over $10 billion per year.

We have #1 market share in restaurants, travel, hospitality, education and entertainment sectors of the food-away-from-home business. And we're #2 in health care with a growing and profitable health care business. As was just said a moment ago, everyone knows us for the restaurants that we serve, hundreds of thousands of them. 60% of our business, to be clear, is restaurant, but 40% of our business is what we call noncommercial, which is outside of that restaurant space.

It's important to note this business because it is more insulated from the ebbs and the flows of the economy. These are places like schools and hospitals that are more recession resilient. It's great to have those profitable and growing businesses a part of the Sysco portfolio. We are the largest player from a global foodservice distribution perspective in the food away-from-home space. I love this chart for several reasons. thing one, it shows you where we compete and where we operate. We have 10 businesses around the world or I should say, 10 countries around the world, where we have physical field operations. What does that mean?

Warehouses, trucks, sales colleagues on the ground calling on restaurants, knocking on doors. We do business in 80 additional countries around the world through an export business that we own. But for today, let's focus on the green countries or the 10 that we operate within. We are growing our market share in each and every one of the markets that we compete with around the world, taking market share in each and every one. Sysco's international footprint is a burgeoning strength, a growing importance within our company, and I will talk more about it in a moment.

But for now, I will say, nine consecutive quarters of double-digit profit growth in our international business. And you can see the total addressable market from each of the countries around the world that we own and operate businesses within. It is not a small TAM. This might be my favorite chart in the deck. It shows, of course, the impact of food-away-from-home over time. That's the green line going up. And the blue line going down is the grocery share of spend or some say share of wallet. It is a durable and consistent trend that food-away-from-home home win share from the grocery channel each and every year with the exception, of course, of COVID when we were told to go home, stay home and not leave their homes. That was a tough period. But outside of that period, food-away-from-home takes share every single year.

What is important to note back to the international comment, international is about 10 years behind the U.S., but following this exact same curve, which gives tailwind at our back tied to the industry. So why is this? Why is this happening? We talk about this at this conference.

Number one, time starved parents, people that have 3-day parts per day to be able to feed their family, feed their children and people are busy.

Number two, quality of food innovation. Chefs and professional chefs bring forward interesting, unique flavors, interesting and unique foods, and it is an experience to be able to go out to eat.

Number three, it was boosted through COVID, the to-go experience has meaningfully improved. The quality of the food, the quality of it as it transports back to your home, the ease of use with the digital app to be able to order ahead such that when you do get to the restaurant to pick it up, it's convenient, it's available and that high-quality professional meal being able to be eaten at your home, taking share from grocery each and every year, which is then what feeds this chart, our total addressable market. This is just the U.S. business, $377 billion. Look back to the left, it has grown substantially over the past 10 years.

And again, with the exception of COVID, it's grown every year. Sysco has taken share each of the last 6 years from within the TAM. We're now at approximately 18% market share in this very large, successful and growing U.S. business. It's important to note, oftentimes, we're pitched one company against another in our space. The big three in our industry together have less than 40% share of wallet in the food-away-from-home space.

As an investor, that's actually a very compelling thing. Each of the big 3 has an opportunity to meaningfully take share because we strongly believe in this industry, size and scale matter, purchasing scale, fulfillment scale, the ability to invest in technology, which we'll talk more about while we're here today. We just want for our share of that to grow faster than the overall market and most importantly, to grow profitably through our strategy, which we will chat about.

So let's talk about our growth. We consistently grow our sales. We consistently grow our dividend at Sysco. To be clear, we have grown our dividend for 56 consecutive years. You'll hear about that more from Kenny in a moment. And we have grown our sales 54 out of 57 years.

The '08, '09 financial crisis and COVID were the only periods in our 57 years of history that we did not grow our business. And we have a terrific opportunity to continue to grow. Our specialty platform, which is today $10 billion, has at least the opportunity to grow another $10 billion.

Our international business, growing our market share in each country we operate around the world to match our U.S. growth and our U.S. penetration is again a $10 billion-plus growth opportunity, and that's just in the countries that we're currently operating in around the world. And our broadline business will continue to grow as well. Yes, we have a much higher share of our total business in broadline. We can grow our broadline business faster than the overall market, and we can do so profitably

So let's talk a little bit about the how. How is the growth happening? How are we performing for today while also transforming for tomorrow. Let me start first and foremost with international, as I said a moment ago. Nine quarters consecutive of double-digit profit growth from our international business. In a second, I'll talk a little bit more detail on the how, but it's about expanding our fulfillment capacity, increasing the assortment of products that are made available, investing in improved technology and investing in incremental sales head count.

The combination of those things in international is driving durable consistent growth. I talked about the non-restaurant business of Sysco a moment ago. We call that our noncommercial segment. We're doing extremely well at Sysco in our noncommercial segment, growing at faster than restaurants, while simultaneously improving profitability. These are two partners in the food service management space and also to direct business with, again, hospitals and hotels and the like.

Our local business, and I'll double click in a second on local has inflected positive. We've meaningfully turned the corner. We've strengthened our progress in local. We're building momentum. We're getting our mojo back, if you will, in the sales organization on the street at Sysco, and I'll elaborate in a moment. Our growth is being fueled by improved colleague retention, improved colleague productivity, sales initiatives like Sysco, your way and total team selling that are really having a positive impact. All encapsulated with a support system in our supply chain and the technology that we use to run our business that's getting smarter, stronger and faster every day.

Momentum is building, progress is being made, and the confidence in our sales organization is meaningfully improved. And all of that comes to fruition on this chart. We were not satisfied or pleased with our local business performance this time last year, and I talked about that on stage at this very meeting last year. We've leaned in hard on things that needed to improve, things that we needed to strengthen and look at the progress that we're making as a company. The blue bars are our growth versus prior year by quarter.

The most recent quarter, we posted a plus 1.2% volume growth. That was 140 basis points better than the quarter directly adjacent. And that dotted black line was the performance of the overall market as measured by foot traffic to restaurants. So while traffic to restaurants decelerated by 200 basis points, we accelerated by 140 basis points with a meaningful step forward in our relative performance, and we are not done.

On our earnings call a couple of weeks ago, Kenny and I called her shot, and we said for the second half of this year, which we're in right now, our fiscal year. We are going to grow by at least an additional 100 basis points, which then therefore, will equal a 2.5-plus percent local volume growth in the second half of this year. And that is agnostic to what may or may not occur in the macro backdrop.

And why I say that is the improvement is from initiatives that are directly within our control. We are not assuming any improvement in the end macro market to be able to deliver this improvement and to be even more clear, approximately 50 basis points of the growth is from the tuck-in acquisition that we have already completed. We completed it back in December. So 100-plus basis points of incremental improvement in our core plus approximately 50 basis points of improvement through the M&A transaction puts to 2.5 points of volume growth in the second half, and that is a significant improvement from where we have been.

Confidence, momentum, selling on the street, to win new customers, retain the customers we have and penetrate more with those customers that we serve. In each of these quarters, our 2-year stack will improve versus the prior quarter.

So let's talk a little bit more about international, having segue out of our U.S. local business. We couldn't be more pleased with our international business. As I said, a second ago, nine quarters of double-digit profit growth. How and why is worth talking about. We've expanded our footprint of distribution centers to create a robust fulfillment network in Europe. By doing that, we've been able to significantly expand the unique product offering available to our customers including fresh produce, fresh proteins.

Broadening our assortment includes adding a Sysco brand product in each and every country around the world that we compete within, good, better, best pricing architecture within Sysco brand. We're deploying Cisco's suite of technology tools. So that's a modern warehouse management system, modern routing tools for our trucks, a CRM to help fuel the productivity and effectiveness of our sales force.

These are Sysco's core suite of tech applications and they're being deployed in every country around the world. We're leveraging our best practices as a company like Sysco -- your Way in Perks, which is our loyalty program for our best customers to drive engagement, to drive retention and drive sales.

Net-net, what is the outcome? Mid-single-digit volume growth, double-digit profit growth, doing it consistently and durably quarter after quarter. My favorite of these charts is the one on the right-hand side. When I joined the company, this is my seventh presentation at CAGNY. When I joined this company back in 2020, we were at -- it was actually even earlier than this chart.

Look at the profit improvement. We have doubled the profit rate improvement in our International segment in 3 short years. And what Kenny and I have said publicly and repeatedly, and there's absolutely no false ceiling to our profitability in international. We will get our international division to equal our company total. There's nothing that will prevent it from being achieved.

Let's talk about where we have opportunities for additional growth, additional progress, the additional opportunities for improvement. starts and ends with our sales consultant population. Our sales consultants, we have more new people working for us today than what would be our normal average. So why behind that is we've done a lot of hiring, and we had excess turnover over a year ago. So we've absorbed a lot of new people into the sales organization.

We're focused significantly on retaining those colleagues, motivating them through compensation and training, training and training to increase their effectiveness. We're also providing them selling tools so that they can be even more effective in how they sell through something we call AI360, which is in the palm of their hand, a selling tool that gives them prompted suggestions on what can be sold to that individual specific customer who they're visiting in that moment.

By giving them suggested prompted leads, their close rate goes up, their confidence in their selling goes up, they make more money, which is a self-reinforcing loop. And we are just getting started with AI360. I said on our earnings call back on our Q2 call, we have a gap in our product assortment. It's on the bottom left of the chart called value tier offering. We've typically been best-in-class at the better, best parts of product assortment, which are more premium products -- and we are missing products in the value tier section.

I want to be very clear because we've gotten questions from investors about this. This is not about lowering our selling prices on existing products. This is about bringing products into our assortment that we do not currently carry and they're not buying the category from Sysco. This is not trade down, this is not water dilution. This is incremental cases on our truck, and we can sell these products profitably. It's about getting the assortment on to our truck and selling it with conviction. It's a slower burn process because we need to identify the suppliers. We need to certify them to our human rights standards and the like, that this work is well underway. It will be constructively managed over the next approximately a year.

AI-based selling tools, we're bullish, but we're also focusing on our supply chain. Working with global leaders in material handling equipment to take some of the labor out of our facilities over time at an appropriate ROIC. M&A will continue to be an important part of our work over time. There are plenty of opportunities for us to inorganically grow our business, doing so fiscally responsibly.

And last but not least, we're really leaning into our merchandising division, and I'm going to talk about that more on my last slide. So I'd love to talk about where we are with merchandising. I go back to 2020, we were a fully decentralized organization. All of our decisions about product assortment, relationships with suppliers and the like were done out fully in the field.

And there were some good with that, a lot of good from that. But we left a lot on the table because of that fully decentralized model. The left-hand side of this chart talks about the things that we have strengthened since 2020 through development of a center-led strategy for merchandising. So think about like weight lifting, we've strengthened the left arm, the left-hand side of this chart.

The types of things that we do substantially better than we were doing back in 2020, negotiating the best possible cost with our key suppliers. We've taken hundreds of millions of dollars of cost out of our procurement straight through to our P&L. We have added best sellers to all sites.

Believe it or not, some of our best-selling SKUs weren't stocked in Key OpCos because it was a decision made at that local level times each OpCos. It was complex. 150,000 SKUs were available as a part of an assortment and managing to the effectiveness of the optimal assortment left money on the table. We've strengthened the optimal assortment.

Last but not least, we've secured vendor funding for growth programs. We lean in with the vendor supplier partners and say, we want to take your product nationwide as a new product launch or to really lean into a category and grow with that supplier. Back in the day, they would have to have sold that around the country. Now they have one desk, one voice, one decision maker. These things have meaningfully improved the company.

And the right-hand side of the page needs focus. By accident, I offer to you with humility, we've slightly reduced the effectiveness of our field merchandising organization. And this is a new topic for me to talk about with all of you. Here's the great news. We can get that strength back on the right-hand side of this page, and we're leaning in very hard to strengthen a local field merchandising function at Sysco. These people still exist. The jobs still exist. We did not reduce SG&A as a part of the past years. It's in the process of strengthening the center-led strategy, by accident, some lack of returning of authority the field has occurred.

I want to be clear about the bullets that are on the right-hand side of the page, and that will be done. The top bullet as we've said all along, they can carry whatever product they want to carry at their local level, and we've actually not reduced our effectiveness in that regard. Think seafood. In Florida, it's Grouper. In the Northeast, it's a different good fish on the West Coast, it's a different fish. They can carry whatever they want to meet the needs of those local customers, hard stop. We've not lost ground there.

Where we have by accident lost ground is the second and the third bucket and on the right-hand side of the page. We have a preferred supplier of frozen french fries coast to coast. I won't tell you who it is, but we have a preferred supplier. That preferred supplier has an issue in their plant. They therefore are not able to allocate to us the amount of inventory we expect. Power in knowing that and getting the local field team to now act upon that to go find alternative products so that they can stay in stock for our customers is the opportunity for improvement.

By strengthening that national relationship, we have lost a little bit of that ability at the local level to flex when they need product. And we can get this back and we're leaning in hard right now to do that. So again, we've got that preferred supplier, and they are going to be who we buy from, when they're in stock, but if they have an issue. Immediately, our entire field organization needs to move on a time, act, get product local, so we can support customer demand. And when the national product comes back in stock, you've got a reverse debt action because you want to be buying from the preferred supplier. Does that make sense?

We need to strengthen this muscle. We are doing it as we speak. Even more important, though, and the devils in the details is the bottom right bullet. There are unique times and unique places. We're buying from a local supplier who can meet the spec and need of the national supplier actually is the most fiscally appropriate and responsible thing to do. Think about right now, we're in the peninsula.

Let's say, the national suppliers in the Pacific Northwest. You got a rail car freight, the product all the way across the country. There are instances where it actually makes more sense to buy locally, and we are working with data technology AI to optimize this equation, and we buy from the right place all of the time. We at Sysco have an opportunity to do both of these things better than who we compete with. We strengthen the left, we need to get the strength back on the right. It's going to make a difference. It will make a difference in our ability to profitably grow our market share.

So I wrap up with the following chart. This is our confidence in our year to go, our confidence in our second half. We are committing to delivering local volume growth of at least 2.5%. We are well on our way to be able to do that.

And how are the things that are on the right, improved retention of our sales colleagues, which is improving our retention of our customers, increasing the productivity of those sales colleagues through technology and training, leveraging sales programs like Sysco. Your Way, Total Team Selling, Perks and AI360, when you bundle all of these things together, it results in our volume growth.

Confidence is increasing by the day. momentum is increasing on the street with our sales organizations. And if you know anything about salespeople, it becomes like a self-reinforcing flywheel, and we are confident in our ability to deliver what is on this page.

So with that, I'm going to wrap up. I'm going to bring my partner, Kenny Cheung, a terrific CFO on stage, who's going to talk to us in more detail about our financials. Kenny, over to you.

Thanks, Kevin. Hello, everyone. It is great to be here with all of you today. Thank you for your continued interest in the Sysco story. Kevin talked about a few exciting items.

Number one, our leadership position in attractive growing space. Number two, our strong track record of growth. and number three, how our competitive advantage positions Sysco to deliver on our outlook for accelerating momentum. So during my presentation, I'll take those 3 items and dimensionalize them and talk about how they fit into the income statement, the balance sheet, the cash flow and ROIC.

So let's start with the key piece of information. Yes, we are officially reiterating our guidance for FY '26 across sales and EPS. And let me remind everybody what that is. So sales growth top line, 3% to 5% adjusted EPS growth at the high end of our range of 1% to 3%, and we're going to normalize that for the management incentive carryover. It's roughly organically 5% to 7% growth, which is the 7% is the high end. The high end of 7% is at the middle point of our growth algorithm.

As seen on this slide in front of you, we achieved strong financial performance in each of the past 4 years. This is across top line and bottom line, and we are on track to have another record year in FY '26. Taking a step back, from 2022, our efforts have yielded CAGRs on the top line 5%, and on the bottom line, roughly 9%. Sysco has proven to be resilient and able to grow across various market conditions. One of the things I'm proud of is, along with our growth, we are seeing nice positive operating leverage as well, which is gross profit growing faster than operating expenses.

This attractive return profile includes #1 market share in a growing industry. Importantly, as Kevin and I always say, size and scale matters. And the reason why is because it renders five industry-leading dynamics, right? Number one, industry-leading sales. Number two, industry-leading margins. Number three, industry-leading free cash flow; number four, industry-leading ROIC and last certainly not least, the only IG-rated balance sheet within our industry.

These industry metrics are positioned of strength and helps demonstrate and illustrate a high quality of earnings within Sysco. As Kevin noted earlier, Sysco holds the position as the global market leader with a diverse portfolio of operations covering to span the food-away-from-home. Restaurants, as Kevin mentioned, represents roughly 60% of our total revenue mix and grew 4% CAGR in the past few years. We are encouraged by our momentum in this channel, especially within our local business. Local is a high-margin business, and we grew both in the U.S. and international this very past quarter.

Looking beyond restaurants, our other channels include travel and leisure, education and government business, which we are #1 player in those three sectors. And we also have a health care as well. Across these four sectors we grew roughly mid-single digits on a CAGR basis in the past few years. We are encouraged to see our growth being both margin and dollar accretive for our enterprise and we have multiyear contracts in place as well.

And why is that important? The reason why that's important is this is exposure to sticky business across other verticals within the food-away-from-home sectors. And we believe these are most generally recession-resilient sectors as well. During our last earnings call, we highlighted strong growth across FSM through service management, travel and leisure, healthier sectors despite a softening of the traffic of the macro environment. This is one of the reasons why the chart Kevin showed earlier, we have grown 54 of the past 57 years. More specifically, as you think about our results relative to the core industry peers, you can clearly see there is a meaningful spread.

Let's first talk about the income statement. I'll read along with you. If you look at the chart in front of you, starting from the left, from a GP standpoint, last year, we generated 18.4% gross margins. That's roughly 1.3x higher than the average core peer. As I said, size and scale matters.

Turning to operating margins. You can see on the page, 4.3% operating income margins last year. That is 1.4x higher than the average industry peers. Our superior profit is really driven by Sysco-specific levers across GP, for example, strategic sourcing, leveraging our size and scale, leveraging total team selling, higher -- selling a higher-margin specialty products and driving international growth, as Kevin showed, which comes with higher gross margin attachment rate.

But we're not stopping there. We also remain focused on the middle part of the P&L as well, such as operating expense levers with supply chain efficiencies across retention and productivity, structural cost out as well as optimization within our corporate expense bucket. These are meaningful structural advantages that shows up across our P&L, driving strong operating leverage.

On the IG balance sheet side, we are the entry leader in terms of cash conversion from EBITDA. Our EBITDA to operating cash flow conversion is roughly 60%. Our EBITDA conversion down to FCF, free cash flow is roughly 40%. As you can see on the right side of the page, Sysco generated a robust cash flow of approximately $1.8 billion last year. This is roughly 2x higher than the average core peer, which demonstrates strong quality of earnings.

Given our robust cash generation profile, we could do both. Invest in the business and reward our shareholders today, tomorrow, and for decades to come. Our track record of superior performance and visibility into our current momentum supports our confidence in our financial algorithm over the long term. I will dive into greater details on each of these elements, but let me level set the conversation first.

We continue to have confidence in our ability to deliver net sales growth of top line 4% to 6% adjusted EPS growth of 6% to 8% and when you combine our 3% dividend yield, it renders a TSR of 9% to 11% per year over the long term. For the next three slides, I will dissect the individual levers of these targets and provide several compelling proof points today and how this positions Sysco to lead from a position of strength for the long term.

Let's start with sales. Top line again, 4% to 6%. Let's do some double clicking. So 1.5% to 3.5% case volume growth across both national and local customers across the U.S. We also expect continued outsized growth from an international segment. On inflation, we are targeting 2% annually. This is the historical rates across the industry, and we have proven our ability to effectively manage through dynamic environments. Protecting and growing gross profit dollars and margins.

Our toolbox includes, one, strategic sourcing, two, pricing tools, and third, merchandising capabilities, as Kevin mentioned. Lastly, to round out the algo, as we think about M&A, we will not king and build. We will buy the right asset at the right price. We target roughly 50 basis points of contributions from M&A on average

Let's move on to the growth of the P&L. EPS guidance for the algo is 6% to 8%. These three drivers are GP, supply chain and corporate expense. So on the GP side, strategic sourcing efforts supporting our industry-leading gross margins as evidenced in our recent earnings call, growing gross margin dollars and margins. Over the past 4 years, '22 to '25, we expanded gross margins from 18.1% to 18.4% and gross margins grew each and every year. At this point is really important. If you think back, 2022, we had hyper inflation. 2023, we had this inflation.

In the first half of 2024, we had deflation. We, at Sysco, were able to successfully grow GP dollars and rate in each of these dynamic backdrop. We have been improving retention rates on the supply chain side as our employees climb up the productivity curve over the past few years. In supply chain, we've never been healthier in the past few years. And there's still more room to go. The good things about productivity and retention is the fact that it is a gift that keeps on giving.

There is a basket of benefits when this occurs. Example only, think about lower hiring costs, lower training costs, improved productivity, lower levels of product shrink, improved safety metrics, as example, and enhanced customer service, which, by the way, it's an early indicator of future growth. So supply chain, really, really healthy. As it relates to corporate expense, we leverage a variety of tools and strategies that allow us to target corporate expense as roughly 1% of sales.

We remain diligent with cost controls as appropriate with corporate expense down year-over-year for the past 3 years as a percent of sales. Again, these are structural savings that stick with the business. Example only, in my shop, we are investing in markets like Costa Rica for the shared service model, which allows us to have great talent and scale as well across our P&L.

Again, these savings are here to stay. One of the things as you think about SG&A is it's not just belt tightening, it's not just headcount, Kevin and myself are also exploring and looking at technology deployment, agentic tools, automation, which helps drive cost savings, facilitate elevated efficiencies and execution and overall optimizes the overall enterprise as well as both U.S. and international.

Each of these elements positively impacts our P&L and improvement drops straight through to the bottom line. These efforts create the foundation of our target total shareholder return of 9% to 11%, which factors in our stable growing dividend of roughly 2.5% yield currently.

Important with this approach to capital allocation is ROIC growth mindset. Kevin and I bring ROIC mindset day in and day out to everything we do across the enterprise.

So when you couple that with the IG balance sheet, it is a true differentiator within our industry as the combination proves to be very powerful and allow us to do four things. Number one, execute against our plan. Number two, invest in the long term. Number three, weather any instability or storm that may pass through. And number four, it's really important, reward all of you, our shareholders, really important.

Our approach is disciplined, yet flexible but they focus on key activities that support our long-term algorithm. ROIC, in our view, is not just about maximizing returns. It's also about strategically reallocating capital to higher performing assets, higher-performing business that renders a higher-performing return overall for the enterprise.

Sysco's financial leadership and strong ROIC is industry-leading. As you think about the consumer staples company, we are 400 basis points higher than the average of the consumer staples sector and 2x of our average core peers. Looking forward, our plan is very simple, is to maintain our best-in-class ROIC and layer in incremental growth on a compounding basis. Over time, you can expect dividends to grow at the same rate of our adjusted EPS. This supports our goal of delivering TSR of 9% to 11% per year. Annually, we target dividend of approximately $1 billion.

And annually, we target share repo of approximately $1 billion as well with room to flex up depending on M&A during the year. Disciplined growth investments are a key element supporting our ability to deliver against our long-term 9% to 11% TSR. We are a very cash-generative business and deployed approximately $10 million in the past few years.

Approximately 1/3 of the capital was focused on CapEx. This includes growth-oriented long-term assets. Example only 10 new facilities, seven in the U.S., three international. Investing for future growth is as important to our strategy as growing for today. And why is that? As the #1 player in our space, these investments in capacity expansion help ensure sustainable future growth by supporting our ability to unlock new and penetration opportunities.

Approximately 10% of the investment support profitable growth through M&A across our broadline specialty business. This picture is worth a thousand words. Since 2015, as seen on this slide, Sysco is on track to cumulatively returned approximately $21.5 million cash back to shareholders via dividends and share depot.

This is a meaningful number, it represents more than of our current market cap. This remains as an important piece of the Sysco investment thesis. Our commitment to this practice is evidenced by the fact that we have started a share repo of the $1 billion in Q3. On the dividend side, we are committed to the long-term growth of our dividends. We are proud to be part of the dividend Aristocrat Club, growing our payments for the past 56 years. Although the physician ultimately revised with the Board, the notion, the idea of continued dividend growth is fair and reasonable as it relates to our historical cadence of our April dividend raise.

Within our growth algo, we have spotlight the dividend payout ratio as a proxy of 40% to 50% of EPS. As such, I would naturally expect dividend to grow commensurate with EPS growth as we maintain our target payout ratio. Again, at Sysco, we can deliver today, build for tomorrow, all while unlocking value for shareholders.

Here's another view of Sysco versus consumer peers. So our superior performance, as I said earlier, really drives meaningful spreads versus the consumer staples peers. Let's start first from the left, I'll guide you drives along with you, and then we'll work our way to the right. If you look at the first chart on the page, from a revenue growth perspective, Sysco has generated approximately 9% CAGR growth over 5 years, and that is roughly 1.6x higher than the average consumer staples peer, reflecting industry-leading positions and sales generation capabilities.

Turning to the second chart, adjusted EPS growth of 17% CAGR over the 5 years, that is roughly 5x higher than the average consumer staples peer. Size and scale matters in our industry, and we have the strongest gross margin and operating margins across the industry. Our base is strong and robust, and we expect our structural advantages to continue to deliver long-term results across our P&L.

From the perspective of capital return, our near 2.5% dividend yield stands in good company along with our consumer staples peers. Our investors and our team value our dividend risk status, which is a unique element within our industry space. So considering the first three box, our PE multiple still remains below our historical range and below our consumer staples peers as well. So from our perspective, Sysco is a compelling investment opportunity.

But this is my last page, just to wrap things up. We like our position. I'll say differently, we love our position. We are the industry leader in an industry that is growing. We are driving momentum across the U.S. local business, and we have line of sight to continued runway for growth. We have a balanced and diversified portfolio across geographies, channels and product mixes, providing and yielding multiple vectors of growth. This supports our industry-leading margin profile and our ongoing focus on driving structural improvements to our business further supporting high faulty of earnings.

Our steady and consistent international business, which has now delivered nine straight double-digit growth really underscores the power of the Sysco playbook. Our balanced capital allocation and strong ROIC are supported by our robust media profile and our IG balance sheet. We have a really, really strong and consistent track record of dividend growth and share repo as well with this year, approximately $2 billion will be given back in terms of value to our shareholders. This is a compelling profile that allows Sysco to deliver at the spot and play the long game on the forward.

So therefore, we believe whether you are a value investor, an income investor, a growth investor, Sysco provides a really compelling opportunity. So I will end with where I started, which is we are excited about our performance. We are excited about our momentum. We are confident in our FY '26 guidance. We have the right leadership team in place that will focus on these initiatives and execute our plans. We are focused on consistent delivery of the results that will compound over time. This is a great time to be at Sysco. Our future is bright, and we are positioned to win. Thank you all today for your time. Appreciate it.

And we have time for one question. Why don't we take that?

Great. Let's go with Lauren over here at Deutsche Bank.

So nice to see you guys reiterating the 2.5% local case growth in the second half. During earnings, you talked about strength into January. I know there's noise from weather. So anything you can share about what you're seeing quarter-to-date and perhaps trends coming out of the winter storm.

Lot of weather last year in the winter. There's been a lot this year as well. But what I'd say to be constructive is the following. January was a very strong month for Sysco on a year-over-year basis, gives us meaningful confidence in our ability to hit the 2.5-plus percent volume.

First 2 weeks of February were rough. I think many people in this room are probably impacted by that. I have a daughter is a teacher in school that schools the entire week. I've got a daughter in law as a school teacher in another state, school is full.

So you understand the first 2 weeks of February were tough. What's important to note is last week, which was a clean from a year-over-year perspective, again, very strong. So if I do the bookings before and after last week Valentine's the second restaurant day of the year, Mother's Day is the first. It was a really good strong week for us, gives us confidence in the 2.5%.

Just one thing to add. Even with the weather, we're seeing continued quarter-over-quarter sequential improvement on local case growth. And that's the reason why based on what we're seeing, we're super confident with our 100 basis points of organic improvement on local case growth, coupled with the M&A of 50 basis points as well. So that gets to at least 2.25%. And at the same time, we're also seeing improvement in our national business as well, both local and national, both are improving. We expect both businesses to be within the algorithm of volume in the back half of the year.

Thanks so much, Sysco, and thank you again for dinner tonight and for the presentation.

Great. Thank you.

Thank you.

Good morning, everyone. Welcome to today's Sysco Second Quarter Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] We will begin with opening remarks and introductions.

At this time, I would like to turn the call over to Mr. Kevin Kim, Vice President of Investor Relations. Please go ahead, sir.

Good morning, everyone, and welcome to Sysco's Second Quarter Fiscal Year 2026 Earnings Call. On today's call, we have Kevin Hourican, our Chair of the Board and CEO; and Kenny Cheung, our CFO.

Before we begin, please note that statements made during this presentation that state the company's or management's intentions, beliefs, expectations or predictions of the future are forward-looking statements within the meaning of the Private Securities Litigation Reform Act and actual results could differ in a material manner. Additional information about factors that could cause results to differ from those in the forward-looking statements is contained in the company's SEC filings. This includes but is not limited to, risk factors contained in our annual report on Form 10-K for the year ended June 28, 2025, subsequent SEC filings and the news release issued earlier this morning. A copy of these materials can be found in the Investors section at sysco.com.

Non-GAAP financial measures are included in our comments today and in our presentation slides. The reconciliation of these non-GAAP measures to the corresponding GAAP measures is included at the end of the presentation slides and can also be found in the Investors section of our website. During the discussion today, unless otherwise stated, all results are compared to the same quarter in the prior year.

To ensure we have sufficient time to answer all questions, I'd like to ask each participant to limit their time today to one question. If you have a follow-up question, please reenter the queue.

At this time, I'd like to turn the call over to Kevin Hourican.

Good morning, everyone, and thank you for joining us today. I am pleased to report that Sysco delivered strong results in the second quarter of fiscal 2026. Our results were enabled by improving case volume trends, strengthening gross margin performance and disciplined expense management. Given the strong start to the year, we now expect full year adjusted EPS to be at the high end of our previously provided annual guidance range of $4.50 to $4.60. We are delivering sequential improvement in our business, setting the stage for further momentum in the second half of the fiscal year.

During our call today, we will share insights into the progress that we are making, provide color on each major business segment, we will discuss the external business environment, and we will highlight progress on select growth initiatives. After my remarks, Kenny will highlight our financial results and he will share why we are confident in our ability to deliver adjusted EPS at the high end of our guidance range.

Let's jump into our business results, starting on Slide 4. Our Q2 performance exceeded our previously communicated targets for USFS local volume and adjusted earnings per share. Sysco delivered nearly $21 billion of total revenue, a growth rate of 3% versus the prior year. Importantly, we delivered positive case growth in our local, specialty, national and international business units. USFS local case volume was up 1.2% in the quarter, an improvement of 140 basis points versus Q1. This improvement in performance was approximately 40 basis points stronger than what we had guided on our last call. The improvement in our performance can be seen on Slide 8.

Sysco's 140 basis points of local case growth improvement was delivered in an environment where traffic to restaurants, or Black Box declined more than 200 basis points year-over-year and a similar decline quarter-over-quarter. We are strengthening our performance at Sysco in a softening macro backdrop. Our improvement gives us the conviction in our ability to gain share profitably in the current market conditions.

We are pleased with the positive momentum in local volumes over each of the last 3 quarters in the U.S. as seen on Slide #8. We are now solidly in positive volume growth territory, and we expect continued positive momentum for the second half of the year. More specifically, we expect reported local volume growth of at least positive 2.5% in both Q3 and Q4. To double-click into that 2.5% back half growth, we expect at least 2.1% to come from organic local case growth, representing a 100 basis points improvement versus Q2 with approximately 50 basis points additional contribution from M&A activity recently completed.

Turning the page to our national contract business. During our second quarter, our national business generated volume growth of 0.4%. Unpacking this segment further, we saw strong growth in our foodservice management business, solid growth in travel and entertainment and positive and strengthening volume growth in our healthcare business. The positive growth from these business units was partially offset by softness in our national restaurant segment.

The declining foot traffic to restaurants per Black Box has negatively impacted our national chain restaurant customers as can be seen in our results as volume with these customers was down year-over-year. For the remainder of fiscal year, we expect case volume growth for national contract customers in total to be greater than 2% due to the onboarding of net new customer wins in the national restaurant customer business and continued strength in our nonrestaurant business.

Having covered top line results, I will now transition to the middle of our P&L and highlight our expanded gross margins year-over-year. Our buying and merchandising teams are doing a solid job of ensuring best price in our procurement efforts in partnering with our sales teams to highlight that value to our customers. As I have mentioned on previous earnings calls, we are working extensively to increase the availability of products in what we call the value tier of a good, better, best product hierarchy.

Sysco currently under penetrates in the value tier and there is an opportunity for improvement, especially in an environment where restaurants are seeking ways to save money. Historically, Sysco has had a strong position in the premium or better best segments of the business and our merchandising focus on the value tier is intended to supplement our existing assortment. Doing so will enable us to win net new lines from existing customers. The development of a stronger value assortment is actively underway and will progress constructively over the next calendar year.

I want to be very clear that these efforts are not intended to trade customers down from better to good. This is about filling voids in the Sysco product assortment, meeting the customer where they are in growing our business profitably with existing customers.

Sysco delivered solid expense control in the quarter with supply chain productivity continuing to improve quarter-over-quarter and year-over-year. Warehouse and driver colleague retention improved in the quarter, driving improvement in productivity. We are delivering strong service to our customers and improving our supply chain cost performance.

Turning to our International segment. We are extremely pleased with the performance being delivered by our international team. During the quarter, we delivered sales growth of 7.3% on a reported basis and up 9.9% when excluding the divestiture of Mexico. Starting in Q3 2026, we will have fully lapped our Mexico business exit. The momentum in our international business was fueled by every international geography.

To that end, local case growth in our International segment was up 4.5% in the period. This growth is being generated by expanded supply chain capacity, increased availability of Sysco branded merchandise, increased sales head count and easier-to-use technology. The 4.5% local case growth, coupled with disciplined expense management, delivered adjusted operating income growth of nearly 26%. This represents the ninth consecutive quarter of double-digit operating income growth and highlights the reality that Sysco International is a growth engine within the company. I am proud of the progress that we have made in International, and we are very bullish on our future in this segment.

I'd now like to transition into a brief update on select growth initiatives that are driving our positive U.S. local case growth. First off, I would like to provide an update on sales colleague retention and productivity. As was the case in Q1, our colleague retention rate in Q2 was at or above our historical high watermark. We have fully stabilized sales colleague retention, and we are now focused on increasing selling productivity. Due to the higher than normal percentage of sales colleagues that are newer to [indiscernible], we are focused on product and selling training. We have full confidence that these training efforts are improving selling effectiveness.

In Q2, we can see the improvement through important internal sales metrics. We continue to onboard net new customers at a high level, and we have made meaningful progress in improving customer retention. The spread between new customer onboarding and existing customer loss is measured in a new [indiscernible] loss ratio. That ratio expanded solidly in the second quarter.

To assist our colleagues, we have deployed tools to improve selling productivity. Most notable is our AI 360 CRM tool, which is now 4 months live in production. Engagement with AI 360 remains very high with 95% or more of our colleagues using the tool weekly. More importantly, we can track utilization and selling performance through AI 360. Across all sales colleague tenures, those that are using the tool more often are outperforming those that use it less often. The math is very clear. If you use the tool, you sell more.

Our goal in the second half of the year is to ensure all of our sales reps are actively engaging with the selling suggestions that come from AI 360. To that end, we have new functionality being deployed to the tool on a regular basis. Coming soon will be something that we call [ Swap and Safe ] suggestions for our sales consultants to introduce to customers. With the click of one button, the sales consultant will have access to prioritize suggestions of products that can save our customer money. These suggestions are cuisine specific to the restaurant and are generated by our internal data science team. The key is in the data, knowing which items are acceptable solutions and substitutions. We are able to identify which of the item substitutions will save the customer money. It'll help Sysco make more money and importantly, make our sales reps more money to. The suggestions that will be prompted will be those that check each of these 3 boxes: a win, win, win. AI 360 will enable our sales teams to put more of the [ Swap and Safe ] opportunities in front of our customers more often.

Lastly, I'd like to provide a quick update on Sysco Your Way and Perks loyalty program performance. Sysco Your Way neighborhoods continue to deliver mid-single-digit volume growth year-over-year, despite being in the fourth year of existence. That durable growth success proves that the program resonates well with customers. We are growing our customer count and the lines purchased per existing customers within Sysco Your Way neighborhoods.

The revamp of Sysco Perks is delivering results as we had anticipated. We are seeing improved customer retention year-over-year, and we are seeing increased share of wallet with these important customers. Our local business is now growing as a result of improved colleague productivity and the sales driving programs that I just mentioned. We are confident we will continue to make progress, and therefore, we are confident in the projection that we will improve local volumes to at least 2.5% in the second half of fiscal 2026.

As I wrap up my prepared remarks, I would like to provide an update on 2 miscellaneous topics from the quarter. First is to communicate that we completed a small tuck-in acquisition at the end of the second quarter. We are pleased to welcome Ginsberg's Foods, a premier broad line distributor in the Northeast to the Sysco family. This transaction increases our customer count in a high-value region of the country and help Sysco's leverage its supply chain network more completely. We are excited to create additional scale and growth potential in the geography as we welcome the Ginsberg colleagues and customers to Sysco. Over time, we are positioned to unlock additional top line growth and margin expansion opportunities as we introduced Sysco's buying programs and product assortment to the expanded customer set.

Lastly, I want to acknowledge the retirement transition of our Chief Operating Officer, Greg Bertrand. Greg began the Sysco journey in 1991 and quickly advanced through the ranks, serving as our global COO since September of 2023. Greg will be missed personally and professionally, and we thank him for his substantial contributions to Sysco across his 35-year career.

Over the next year, Greg will serve as a strategic adviser in a part-time capacity. Greg will focus his time and efforts on helping develop newer Sysco field leaders and will support me directly on select strategic initiatives like the Ginsberg acquisition that I just mentioned. We expect a smooth transition over the next year as we have a strong depth of experienced leadership talent in our field organization.

In closing, I want to reiterate that we are encouraged by our strengthening results and that we are confident in our business momentum as we head into the second half of the year. We expect improved productivity from our sales colleagues driven by strong retention and improved selling effectiveness by leveraging our selling tools and from leaning into select growth initiatives, all backstopped by a supply chain that is performing at exceptionally high levels of service. It is these factors that give me, Kenny and our leadership team the confidence that we will deliver 2.5% plus local case growth in the second half and adjusted EPS results at the high end of our guidance range.

With that, I'd now like to turn the call over to Kenny. Kenny, over to you.

Thank you, Kevin, and good morning, everyone. Our Q2 results were strong with sales growth of 3% and adjusted EPS growth of 6.5%. Our financial results this quarter also demonstrated high quality of earnings as free cash flow grew by 25% year-to-date. Our balanced portfolio of business and keen focus on operations enable us to deliver continued momentum versus last quarter with results coming in ahead of our previously communicated expectations despite the choppy macroeconomic environment.

We entered the fiscal year detailing how company-specific initiatives would help us deliver on our external commitments with a focus on the key inputs of retention and productivity across our sales and supply chain organization. During the quarter, these were material drivers that enabled us to deliver on our expectations for the first half of the year.

Looking ahead, our continued focus on go-to-market and operational excellence is expected to drive our second half results. As Kevin highlighted, we are creating structural improvements, and we are confident in raising our FY '26 guidance to the high end of the adjusted EPS range. Our adjusted EPS growth in Q2 included continued tailwinds from our strategic sourcing efforts, aiding in the delivery of 3.9% growth in gross profit and translating to 15 basis points of gross margin expansion year-over-year. The increase in dollar and rate reflects the carryover benefit from structural improvements that we expect to continue in our third quarter.

Our stabilized sales colleague retention rates, paired with ongoing productivity improvements drove sequential volume growth across our USFS local business. During the quarter, our supply chain continued to perform at a very high level as a result of productivity enhancements stemming from improved tenure and strengthen operational execution. This, in turn, helped to improve execution of the basics and are supporting improved fill rates and order accuracy while strengthening safety and enabling on-time deliveries. These efforts, alongside continued investments in both sales head count and capacity supported steady business momentum and enabled adjusted EPS growth of 6.5% in the quarter.

As Kevin noted, we also recently expanded our distribution capabilities in the population dense Northeast corridor in late December with the successful acquisition of Ginsberg's Foods, one of the nation's leading regional wholesale distribution companies. This is a compelling strategic and financial fit for Sysco that is accretive to our portfolio. We are excited about the opportunity to unlock incremental growth as we complement our unique specialty capabilities with the addition of this top-tier broadline organization. Looking ahead, we expect our positive momentum to continue as we drive growth across the region.

Turning to International. This segment remains a great case study in the power of the Sysco playbook. The positive momentum over the past few years continued in Q2 with sales growth of 7.3%, including local case growth of 4.5%, gross profit growth of 9.5% and adjusted operating income growth of 25.6%. Our strategy is driving results across all geographies underscoring the significant operational advantages enabled by our size and scale.

Now let's discuss our performance and the financial drivers for the quarter. Starting on Slide 12. For the second quarter, our enterprise sales grew 3% on an as-reported basis, driven by U.S. Foodservice, International and SYGMA. Excluding the impact of our divested Mexico business, sales grew 3.5%. Total U.S. Foodservice volume increased 0.8%, while local volume increased 1.2% in the quarter. These results were sequential improvements as compared to Q1. For our USFS local business, this represents a sequential volume improvement of 140 basis points, outpacing the industry's negative 230 basis points of sequential traffic decline for the quarter.

We are encouraged by the meaningful acceleration in our local volume performance even as the industry decelerated throughout the quarter. The continued momentum in our performance drove a widening gap of outperformance over the course of the quarter. Although it remains early in our fiscal third quarter, I am encouraged to share that we are seeing continued year-over-year momentum in volume growth rates during the month of January. As Kevin highlighted, the benefits from our stabilized colleague population are fueling our performance as [indiscernible] sales professionals continue to work up the productivity curve. This momentum is just getting started and serves to strengthen our confidence in delivering our FY 2026 guidance.

Additionally, SYGMA results this quarter were solid, reflecting 0.5% sales growth and 10.5% operating income growth, reflecting increased strength in our supply chain operations. For the remainder of the year, we expect more moderate results reflecting the follow-through on our efforts to drive continued operating efficiencies.

Sysco produced $3.8 billion in gross profit, up 3.9%; gross margin expansion of 15 basis points to 18.3%, an improved gross profit per case performance. This notable margin improvement reflects strategic sourcing efforts and effective management of product cost inflation across our baskets, which continue to moderate, including categories that were deflationary in Q2.

Inflation rates for the enterprise were approximately 2.9% and a USPL were approximately 1.4%. This rate moderated slightly on a sequential basis, which we believe will help the affordability across the industry. Importantly, just as we deliver in the first half, we continue to expect our disciplined actions to generate strong gross profit dollars per case in margins in this backdrop.

Overall, adjusted operating expenses were $3 billion for the quarter or 14.4% of sales, a 15 basis points increase from the prior year, reflecting planned investments in higher growth areas of the business with fleet building expansion and self headcount, along with the lapping of $16 million in incentive compensation for the second quarter of the prior year. The incentive compensation [indiscernible] negatively impacted adjusted operating expenses by approximately 60 basis points and adjusted EPS growth by approximately 270 basis points.

As I mentioned earlier, our operations expense this quarter included benefits from supply chain productivity enhancements stemming from improved tenor and strengthen operational execution. Corporate adjusted expenses were up 3.8% from the prior year, reflecting continued investments lapping incentive compensation from last year and other costs. Excluding the impact of incentive compensation from the prior year, corporate expenses were approximately flat year-over-year, reflecting cost savings and efficiencies effort over the past few years.

Overall, adjusted operating income grew to $807 million for the quarter, reflecting continued improvements in our local case volumes, along with strong growth in our International segment. For the quarter, adjusted EBITDA of $1 billion was up 3.3% versus the prior year.

Let's now turn to our corporate balance sheet and cash flow. Our investment-grade balance sheet remains robust and reflects a healthy financial profile. Our $2.9 billion in total liquidity remains well above our minimum threshold and offers flexibility and optionality. We ended the quarter at a 2.86x net debt leverage ratio.

Turning to our cash flow year-to-date. Our free cash flow was $413 million, up 25%, highlighting strong quality of earnings and reflecting both typical seasonality and timing of CapEx.

Now I'd like to share with you our expectations for FY '26. We are pleased today to announce a raise to our FY '26 adjusted EPS guidance. We now expect full year 2026 EPS to be at the high end of our prior range of $4.50 to $4.60. Keep in mind that this continues to include an approximate $100 million headwind from lapping lower incentive compensation in fiscal 2025, an impact of roughly negative $0.16 per share. Excluding the negative impact of the incentive compensation on 2026, our outlook for adjusted EPS growth in FY '26 will deliver at the high end of approximately 5% to 7%, which is in line with our long-term growth algorithm.

Now at the halfway point for the year, we remain confident in our Sysco specific initiatives delivering results in the second half of the year. Our teams expect a similar macro and industry traffic backdrop for the remainder of this fiscal year. Guidance also includes continued expectations for net sales growth of approximately 3% to 5% to approximately $84 billion to $85 billion driven by inflation of approximately 2%, volume growth and contribution from M&A.

Transitioning to our expectations for the second half. We have now fully lapped both the headwind from the intentional FreshPoint business exit in the U.S. and the year-over-year comparability impact related to the exit of our Mexico JV for International. Specific to volumes, we expect to deliver year-over-year local case growth of at least 2.5% in Q3 and Q4.

By segment, we continue to expect positive adjusted operating income growth across USFS, International and SYGMA segment for the rest of the year. More specifically, we expect USFS profitability to return to growth in Q3 and Q4, driven by volume growth and continued discipline around margin management, coupled with continued focus on ROIC.

To help with the phasing for adjusted EPS for Q3, we are comfortable with the current consensus estimate of $0.94. As outlined on Slide 18, this includes the carryover impact from the incentive compensation specific to Q3 is $63 million and Q4 is $11 million. Excluding the negative impact of the incentive compensation on 2026, our outlook for the second half adjusted EPS growth is in line with our long-term growth algorithm. We are proud of our strong track record of dividend growth and dividend aristocrat status.

For FY '26, we remain on target for shareholder returns through approximately $1 billion in dividends and approximately $1 billion in share repurchase plan for the year. As we've said before, this is all based on our current expectations and economic conditions that could flex based on M&A activity for the year. Specific to our share repurchase, we expect to resume repurchase activity starting in Q3. Specific to our dividend, our expected payout for FY '26 equates to 6% year-over-year increase on a per share basis.

In terms of leverage, we continue to target a net leverage ratio of 2.5x to 2.75x and maintain our investment-grade balance sheet. Specific to adjusted D&A, we now expect approximately $820 million for the year. This includes approximately $210 million in both Q3 and Q4. This updated outlook reflects the combined benefit from our ongoing efforts on driving returns on invested capital and marginally lower capital expenditures for the year. All other modeling items previously outlined on our Q1 call, including interest expense, other expense, tax rate and CapEx remains unchanged.

Looking ahead, we are confident in our position and remain focused on leveraging our strength as the industry leader to drive customer growth while continuing to create value for our shareholders.

With that, I'll turn the call back to Kevin for closing remarks.

Thank you, Kenny. Q2 was a quarter displaying momentum and progress at Sysco in a macro backdrop with soft traffic to restaurants. We are confident that our internal progress will continue, and we will plan to deliver local case growth of at least 2.5% in the second half. There is still much progress to be made and work to be done but we are pleased with the improvement we are delivering and the momentum that is building within the company.

Importantly, the improved U.S. local volume we are delivering will enable the stellar performance in our International division to shine through more clearly. We are excited for the progress that we are making, and we are committed to strong execution in the second half of the year to deliver these outcomes.

With that, operator, we now turn it over for questions.

Thank you, Mr. Hourican. [Operator Instructions] We'll go first today to Mark Carden of UBS.

So you put together the 140 basis point sequential local case growth improvement against a pretty tough restaurant backdrop industry-wide, sounds like a lot is coming together. Did you guys see much variation in local case growth on a monthly basis? And then is it safe to assume that January has accelerated even further given your momentum comment? And then finally, are you expecting to see much of a headwind related to the recent winter storms?

Mark, it's Kevin. Thanks for the question. I'll start with the factual component. The performance Sysco relative to the industry strengthened each month of Q2. So we got better relative to the industry for each of the months consecutively. We've seen that strength continue into January. I'll come back to January in just a moment.

As we step back and think about why, why is this performance happening? What are the drivers? Maybe I'll just go there for a few minutes. We have 3 new things, if you will, year-over-year. As I mentioned, the most important by far is SC retention, sales consultant retention, SC productivity up meaningfully year-over-year, both of those things, retention and productivity. We launched our AI 360 selling tool approximately 90 days ago. We're getting traction from that tool. We launched Perks 2.0, which is a revamp of our loyalty program. We say internally be the best for our best customers. We're seeing increased customer retention and improved penetration rates with those existing customers.

Each of these 3 things that I just said, have nothing to do with [indiscernible] traffic. They're 100% Sysco specific, and we're making tangible measurable progress. We can measure it by new rate customer wins versus loss rate of customer departures. The spread between that ratio widened in the quarter and then penetration, which is an incredibly important topic, which is sales to existing customers also is improving. And when you put that against a softening macro backdrop, it's clear silver evidence of the progress that we're making at Sysco.

Specific to Q3, the quarter we're now in. We had a strong January. January is out of the gate strong. To your point on weather this week, we saw favorability in weather in January versus prior year. We're going to give some of that back this week for obvious reasons given the huge wealth of the U.S. impacted. We don't talk about weather, if you will, on the forward. We'll find out at the end of the quarter if there was a positive or negative contribution from weather. But January is off to a strong start on the controllables that I just mentioned.

Kenny, anything you'd like to add?

Yes. Thanks, Kevin. Mark, 3 things for me. Just a double-click on the kind of the phasing of the month. So if you look at between October through December, the industry, i.e. for traffic softened. So the starting point in October was down 2%, and the ending point from a [ foot traffic ] standpoint was down over 3%. The good news is our inflection versus the market strengthened throughout the quarter, as Kevin said, with December being the strongest. So very strong exit rate. That's point number one.

Point number 2 is, from a Sysco standpoint, as it relates to local, as Kevin mentioned, we are encouraged to see that numerous geographies already hitting our growth expectations, driven by, as Kevin mentioned, the SC ads, improved retention, and that's turning over into Q3 which is why we are confident we can deliver at least another 100 basis points organically in Q3, coupled with the M&A, which is roughly 50 basis points. That [indiscernible] you up to roughly at least 2.5% growth for the back half of the year, Q3 and Q4.

The last thing I'd say, Mark, is I know there's a lot of eyes on foot traffic. But remember, Sysco has proven we can grow in any environment. If you think about our portfolio, 2/3 of our national footprint is actually nonrestaurants, and we're doing really well there. And then if you think about even the restaurant side, we are very diversified across QSRs all the way up to fine dining. And let's not forget, we also have an International segment, which serves as a strategic counterbalance, enhancing the resiliency and stability of our overall portfolio.

We'll go next now to Jeffrey Bernstein of Barclays.

Great. Just another question on the sales growth for the second half of fiscal '26 your U.S. local guide. You mentioned how you've been strengthening and a softening macro. I know you've repeated at least 2.5% growth in U.S. local in both the third quarter and the fourth quarter. But just looking back from a comparison standpoint, it does look like the compares are much easier. So is it correct to assume you're really assuming no change in trend from where you were running in the second quarter, but rather stability from current levels or perhaps we're underappreciating the "at least" that you mentioned?

And I'm just curious, do you share the broader industry's optimism for coming months? It seems like there's talk of easing compares for the industry, lower gas prices, increased tax refunds, newfound government stimulus especially with the benefit from increased value offers, which, Kevin, I know you've often encouraged. So just curious, again, your assumption for the back half of the year when you factor in the year-over-year compares and then your thoughts on the broader industry optimism that we're hearing a lot about for restaurants?

Jeff, thank you. Good question. A lot to unpack in your question. I think my most clear way of answering your question is we anticipate 2-year stack improvement in the second half versus the first half. You are right that Q3, in particular, has softer compares for the industry that's included in what we shared today, which means we're going to be stepping up throughout the second half or Q4, we're actually up against better numbers than Q3, and we're going to deliver, as Kenny said, at least 2.5% in Q4 as well. So the tier stack will improve in the second half of the year.

Let me jump to the last part of your question, which is, do I share some optimism for the industry? The answer is yes. I believe that restaurant operators, particularly independent restaurant operators, have leaned into the consumer need for value. They've been more nimble. They've adjusted menu prices. They've looked at things like portion sizes. They've looked at alternative proteins that can save the customer money and independents in the industry are doing better than national chains. Often, [indiscernible], the national chains are going to continue to succeed at a higher rate than independents. That's just not the case. Independents are outperforming national chains. And as you well know, that's very good for our business.

So we see national chains leaning now into the value tier themselves. They're -- the value menu, the protein bowl, there's a host of things that national chains are doing to improve their value perception with end consumers. And I do think it will make a difference, Jeff. I believe that restaurant operators are leaning into the need to provide value to customers which should help put traffic, which helps case volume.

We talk about local a lot on these calls. I did say on today's call, we anticipate an improvement in our national business. We were up [ 0.4 ] in National. We anticipate our national business in total, which includes nonrestaurants to be 2-plus percent in the second half of the year, which means our restaurant portion of that business will improve on the year to go.

We also have potential for the favorability in tax refund checks year-over-year. This time last year, consumer confidence was really low, be it because of tariffs, be it because of the stock market, be it because of any number of host of issues, we believe that the end consumer confidence is higher than a year ago as we look at the second half of this year, which could and should be a tailwind to the overall industry.

But the guidance that we've communicated today is about Sysco. It's about the efforts and the initiatives that we put forth. The 3 things I mentioned in Mark's question, [indiscernible] retention and productivity, AI 360, Perks 2.0. And on the year to go, we're leaning in hard to Sysco brand improvement, and we're leaning in hard to merchandising efforts to improve our value proposition to our customers. And it's those 5 things in aggregate, that give us the confidence to accelerate our organic performance by at least 100 basis points additional [ a year to go ].

Ken, anything to add?

Yes. Jeff, it's Kenny. So just to your specific question around the 2.5%. So let me give a bit more color. Just to make sure it's super clear to everybody. So for Q2 local case growth was up 1.2%. If you bifurcate between organic and Ginsberg, organic was 1.1%, and Ginsberg was only 10 bps because of the fact we did it at the tail end of the fiscal quarter. For the go forward in the back half, Q3 and Q4, you are right, Kevin, I said at least 2.5%. So the 1.1% that we saw in Q2 goes to at least 2.1% in Ginsberg goes to 50 bps in the back half. That's how you bridge the 1.2% to the at least 2.5% in the back half of the year.

We'll go next now to Lauren Silberman of Deutsche Bank.

Nice quarter. I have a follow-up and then a question. A follow-up on the local case growth side, how much of the growth is coming from new account wins relative to expanding penetration with your existing accounts? And then any additional color you can provide on the spread between new versus loss accounts this quarter? And then I wanted to ask you on the sales force side, how is the growth in the sales force tracking in fiscal '26? Are you seeing any change in the potential new hires and where you're seeing them come from?

Lauren, it's Kevin. I'll start, and then Kenny can talk about the sales colleague workforce. We've not unpacked the 140 basis points of improvement on contribution from the elements that you described. The good news is the improvement is coming from all of the elements that you described. So new customer win rate for Sysco in Q2 remains at all-time highs from an onboarding perspective. So we've sustained and maintained the success of onboarding net new customers, what improved nicely in Q2 versus prior year was our customer loss rate and that can be directly attributed back to our improved colleague retention. The improved collage retention is driving improved customer retention.

And the most notable thing that occurred in Q2 as the spread between new and lost widened in the quarter versus the prior quarter and also versus the prior year. That's the most notable of our improvements, but we also improved penetration. And I'm frankly most proud of the penetration improvement because it's in the backdrop of traffic to restaurants being down. So the fact that our cases per operator is going up quarter-over-quarter in an environment where traffic to restaurants is going down has proved positive on the productivity of our sales force that we're doing a better job doing what we call selling around the room and getting more cases on the Sysco [indiscernible].

So I know I didn't break the 140 basis points down into each of the 3 components, but we saw solid health improvement in all 3.

I'll toss to Kenny for comments on the sales colleague workforce. Kenny, over to you.

Lauren, just a couple of plus ups. So in terms of Kevin mentioning the growth came from all 3 sides [ NLNP, new loss in penetration ], super excited about this one. We had the highest growth of new and the lowest level of loss in the past 12 months. So you can tell it's from both sides of the house and to Kevin's point, penetration also improved as well and went up actually despite a negative backdrop because of the fact that on day one, you don't win all the cases on day one, so that's a nice tailwind for us on the forward.

In terms of the local sales head count professional, we're committed to growing our head count in 2026, and we will be disciplined on pacing to volume expectations and market conditions. Kevin and I, we are deliberate in terms of when and where we add [indiscernible] investing in high-growth markets to ensure awesome return on investment. Now remember, as Kevin mentioned, we now have tools in place, AI 360 and at the same time, improved our trading program to reduce lead time and optimize with various hiring mix in terms of experience, which could lead to more productivity. And this could have an impact on the [indiscernible] levels on the forward without impacting growth rates on the forward as well.

So to summarize, we like what we're seeing on the productivity side with the [indiscernible] and there's no more runway to be had. Therefore, we are very, very optimistic with the outlook of our growth in the back half of the year.

We go next now to Jake Bartlett of Truist Securities.

Mine was on the 2026 guidance and the increased EPS. And I just want to make sure I understand what's driving that, whether you expect to be at the higher end of the range, for instance, for sales? It feels like it may be simply just the D&A, the adjusted D&A being lower, that's driving the increase. But I just want to make sure I understood that.

And then I had a follow-up, and I know it's been asked in a number of ways. I just want to kind of ask one more way here. In the third quarter for local case growth, given the easy compares, given some of the near-term drivers, should we not expect the growth to be faster in the third quarter than the fourth? Seems like that would be the logical conclusion but just kind of want to make sure I understand maybe why not.

Jake, it's Kenny. So I'll start first. So the improvement, the increase of EPS is actually not driven of D&A. If you think about first quarter, we beat by $0.03. This quarter, we beat by $0.01. So we're having the $0.04 flow through given the [indiscernible] that we have in the rest of the fiscal year. As you think about -- I think your question behind the question is almost the confidence, if you will, in the back half of the year as you think about the guide. It's not D&A.

Let me talk about some of the levers we have in our P&L that contributes to the high end of the EPS range. Number one is from a top line perspective, we continue to see a lot of momentum in both case growth, as Kevin mentioned earlier. The [indiscernible] fees, the retention, tools like A360 -- every period, we're widening the new loss spread. That's really contributing to the fact that it's a lot of things within our control, right? We are not expecting the macro environment to be any better. If anything, we expect it to be same as today. All of the growth in the back half will come from self-help, things in our control. And that's the reason why we're confident on that side.

On the CMU side, national business side of the house, again, 2/3 of our business is nonrestaurants, that's going really well, really inflecting versus the marketplace. And for us, on the restaurant side, Kevin and I and the team are working closely together to ensure the pipeline is robust and the pipeline is robust. And we're seeing nice wins across the board that has [indiscernible] in the outer periods of this fiscal year.

The other benefit that we expect in the back half of the year is gross profit. As you think about gross profit, Jake, there is quite a few levers we have in our bag, right? One is the fact that local continue to grow [indiscernible]. That's a nice mix benefit. The second piece is the strategic sourcing efforts we've done in the past period has nice care of a benefit into this period. And the team isn't stopping. We have a whole list [indiscernible] and suppliers that we're partnering with to drive further accretion on the GP side.

Third is specialty. Specialty has momentum. As I mentioned on the prepared remarks, we have lapped the intention of FreshPoint exit. And on the back end of the year, we expect accretion on the specialty side. And then in terms of supply chain, all of this volume momentum, GP momentum is sitting on top of a healthy supply chain ecosystem as well, and we do expect further volume leverage on that piece. So that's the reason why across those 3 buckets, we're seeing nice progress and momentum, which contributes to the high end of the [indiscernible] to the EPS range.

Okay. Kenny, very clear. Thank you, Jake. The second part of your question was Q3 versus Q4. The best way for us to answer this is the Q4 2-year stack will be stronger than the Q3 track 2-year stack because of the easier comparison in Q3. That's the answer to your question.

Is there upside in Q3, I believe, is what you're really asking relative to the 2.5 plus. So let's just unpack what happened in Q3 last year, and I'll be honest that we can't predict the future from a weather perspective. So let's lean in. In January last year, we had the wildfires in California. In January last year, we had significantly abnormal behavior. And in the late February, March time frame, we had the tariff disruptions and the impact on consumer confidence in the stock market. Will these 3 things repeat themselves in Q3 of this year is not able for me to be predicted.

What we can say is January is off to a very strong start at Sysco and in the industry [indiscernible] traffic to restaurants improved in January versus Q2, quite notably. Given this week's weather, some of that favorability will be given back and who the heck knows what weather is going to be over the next 2-plus months, I can't predict that.

If there is year-over-year favorability from weather in Q3, I said if, we'll be able to talk about that on the Q3 call. We'll be transparent about that. We'll unpack it, and we'll be able to represent the contribution from them. Will we or will we not see, back to Jeff at Barclays question, favorability from a consumer confidence perspective and higher tax refund checks and restaurants leaning into lower menu prices through value meal deals? We'll see. If those things occur, that's why we said 2.5% plus. We're confident in our ability to deliver 100 basis points of organic improvement in local through activities that are inherent within Sysco. And the macro will determine what the macro will be, and we'll be able to talk about that on our Q3 call.

We'll go next now to John Heinbockel of Guggenheim.

Kevin, a couple of things. Local drop size, is that still -- it improved, I know, but is that still modestly in negative territory, one? Two, when I think about the loss ratio, I think you're still a couple of hundred basis points above the best performance you've had in the last several years. Is that fair? And then can you touch on SC capacity? I'm not talking about the new SCs, I'm talking about guys that are more seasoned. How much capacity is there from where they are today? And I guess AI helps that to some degree?

John, good questions, all 3. I'll be concise in my response. Yes, penetration with existing customers is modestly down year-over-year but improved versus Q2. We are making solid progress and more progress to be made year to go, and that's mostly driven through traffic is what's causing the cases per operator customers slightly down. Our loss ratio, yes, is still up versus, I'll call it, our historical best level, and we are tremendously focused on that topic. Our supply chain is focused on improving on-time deliveries, improving fill rates, customers don't like substitutions.

And when you have to do a substitution, they get irritated by that and they seek a backup supplier. So massive focus on supply chain and merchandising excellence in execution to improve on-time rates, to improve fill rates to drive reduction in customer loss. We're really pleased with the progress that we're making. Kenny highlighted that, significant progress in Q2 on loss with more work still to be done, which is why we're saying we're going to improve by another 100 basis points in the second half. The momentum that's coming from those good efforts, coupled with improved sales consultant retention will result in an improvement in our loss rate in the going forward.

The last question of your 3, which is SC capacity, all of our SCs from most tenured to brand-new have capacity because of the primary reason that you just described. A lot of planning and preparation work used to have to be done analog, at a laptop, they visit a large number of customers every week. The amount of planning that has to go into visits is greatly reduced which increases their ability to spend more time out on the street in front of customers with de facto therefore, increases capacity. We're not going to use that to reduce headcount. We're going to use that to drive increased sales consultant productivity, and it's something that we're bullish about for the going forward.

John, just one thing to add. We bucketize our SCs by tenure, and we're seeing retention improvement in every sales bucket, right? So this speaks to the stabilization of the broader sales team, not just our new hires. I think that's a really important point. As you know, more tenured SCs across all levels, [indiscernible] the higher productivity. And that [indiscernible] Sysco for decades, right? So as Kevin said, they use AI 360 as example. They get more productive as well. So again, the new account that we saw in Q2 wasn't growth. That wasn't just in new SCs. It was across the board, across our sales base.

We'll go next now to Alex Slagle of Jefferies.

Question on the Sysco brand mix. I know that's still trending down year-over-year, and you talked about some of the work on expanding the value there. If you could kind of dig into that a little and what the past looks like to see that flip more positively and just how important that is to driving the tailwinds towards your earnings [indiscernible] in the future?

Alex, good question. We saw a nominal improvement in Sysco Brand Q1 versus Q2, still down to prior year, but we're beginning to make progress on Sysco brand. We'll make meaningfully more progress in the second half of fiscal 2026 on Sysco brand penetration. It comes from 3 things: merchandising, having the right items; pricing architecture, having the right price; and from sales force focus. Of the 3, one of them takes longer than the other 2. So let me just unpack each of these 3 things.

So merchandising having the right items is what you were just alluding to, which is the value tier. In my prepared remarks, I talked about Sysco historically has focused on the better, best portion of the consumer product purchases. Sysco product is a premium product. The specs of our product, the quality of our suppliers the integrity behind what's in the box. We can stand behind those items. They are as good, if not oftentimes better than national brand equivalent. And we've built this company off of that, selling better, best products. And we will continue to be great in those products.

And given food cost inflation over the past 3 years, end consumers are looking for lower menu prices and therefore, restaurants are looking to lower their food costs. And we have some voids in our value tier. We call it Sysco Reliance. That's the segment that is our value tier. We under-index in Sysco Reliance, and we actually have some gaps and voids in our assortment.

As you know, that work takes time. We have to find suppliers who meet our needs. So we have to audit their facilities. We have to get the items cut into our facilities. That's why in my prepared remarks, I said that work will happen constructively over this calendar year of 2026 with kind of incremental progress being made over time. Merchandising is important to driving Sysco brand, and we are deeply focused on excellence in that space.

[indiscernible] can happen quicker, which is price architecture, leveraging our technology to ensure that Sysco brand always is a value for the end customer. Sounds easy, does hard. The national brand suppliers are changing their prices on the regular. We need to make sure that Sysco brand prices are moving in harmony with national brand, so that all times, 24/7, especially in the digital environment, customers see value in Sysco brand. That's pick and shovel work, that's devil is in the details work. We're using AI tools to get better at the item matching process to ensure that Sysco brand has inherent value to the customer. The team is doing great work in that regard.

Last but not least, when this one can happen quicker, is sales force focus. Forever in a day, Sysco sales reps have been great at putting key items in front of customers. We say why we love this item. We train them at a monthly meeting. They taste the product. They go out and introduce that product to all of their customers, again, through the spirit of why we love this item, getting back to excellence and execution within our sales team with meaningful focus on presenting on every customer visit at least one Sysco brand product that we want them to consider.

Historically, they were called conversions. We're now calling them [ Swap and Safe ] because we're putting the [indiscernible] in for the customer. What's in it for them? We're providing the customer value. We're showing them how much money we can save them. We're doing a tasting with the customer to show them the product quality is equal to or better than what they're buying today, getting more intentional in our time allocation on that work is something we're deeply committed to. In fact, we had all of our sales reps leadership in the company last week at a sales meeting where we were skilling them up on this work focus and Alex, that's what gives me the confidence that we will be in the second half positive year-over-year in Sysco brand in the second half as we think about that from an exit velocity. So we're minus what we are today. By the time we get through the end of this second half, we'll be in positive penetration year-over-year.

Ken, anything you want to add?

Yes. I just [indiscernible] Alex. Just one thing to add is, keep in mind, the Sysco brand is over $20 billion of top line. And as Kevin says, we do expect penetration rates to continue to stabilize and improve towards the back half of the fiscal year, especially as we grow a local business, right? As you know, Alex, local business has roughly a 50% penetration with Sysco brand.

I think the last one I would say is that, I think it's important to call out that as you think about profitability and GP gross profit, we leverage [indiscernible], not just for Sysco brand, but also non-Sysco brand. That is the reason why this quarter on the forward, we do expect GP margin expansion from a rate and dollar standpoint.

We'll go next now to John Ivankoe of JPMorgan.

This is related [ 2-parter ]. And if I'm assuming this correctly, Sysco would be a very big prize for various AI service technology providers and also those involved in the automation business. Certainly, I understand AI 360, but that's just one part of a broader business. So I wanted to see what kind of conversations and opportunities might be rising in your conversation with various providers, specifically around warehouse distribution, maybe further optimization on a SKU perspective is kind of the first part?

And then secondly, as you kind of think about the Sysco of the future from an automation perspective, if we're any closer to perhaps piloting or even implementing various solutions that might be Sysco specific at scale?

John, thank you. Appreciate the question. Let me do automation first, I'll do AI second, toss to Kenny for any forward-facing comments that he'd like to make about our future relative to these 2 things. Material handling automation is what John is asking about in our warehouses, as he knows, and many of you know, our facilities today are mostly analog, mostly manual, whereas Amazon pick back and ship facility is highly automated with [indiscernible] orders and [indiscernible] and the like. Our products are big, bulky, heavy, and we don't have a ton of people working in our warehouses, which has limited ROI on large engineering projects in our warehouses.

With that said, with labor costs rising over time with labor availability becoming more challenged over time, I think about 10 years from now, think about our work is done in the evening hours in very cold temperatures in our buildings, we know that physical automation is something that we need to be investing in, and we are.

In fact, John, just yesterday, we had a presentation from top engineering firms from around the world on engineering solutions that can help Sysco be more efficient within our supply chain. Most likely, John, where that will show up is in our next net new facility and/or next building expansion. And given our strong balance sheet and the growth of our business, we have those opportunities on a regular basis. So we're meaningfully invested in that space from a time allocation, intellectual curiosity and Kenny will always help us bring a strong ROI behind the decisions that we make in that space from a material handling.

To AI, how we're using agentic tools to be more efficient? We call it better, faster, cheaper. How do we leverage these tools? And to your point, we've met with everybody. We've met with all the service providers. We've met with the tech companies, we've met with the consulting firms, how can we leverage these types of capabilities, agentic tools to reduce the administrative burden on work we do, to reduce costs get to work done faster and frankly, do it better. We are meaningfully focused.

AI 360 is just an example, the tip of the spear, if you will, on the sales side of increasing productivity, but we're looking at this in every single function, HR, within merchandising, within Kenny's back office, finance, it impacts every part of our company.

I'll toss to Kenny for anything he'd like to say about that. Kenny, over to you.

John, so if I take a step back, as you know, Kevin and I, we've been extremely focused on just looking at automation, productivity and cost out, mostly on the cost outside in the past few years. And we have a healthy pipeline. It's a muscle we built and know how to flex on the forward. Usually, we look at the organization, look at productivity, supply chain, [indiscernible], third party, as Kevin says, we're actually adding on and looking at leveraging technology, automation, agentic tools to allow our teams to do more with the same or less.

I can tell you personally in my shop, the finance shop, we've leveraged technology to manage our working capital, transactional [indiscernible] productivity, and it's going really, really well. So overall, we are pleased, but more to come.

And ladies and gentlemen, we have time for one more question today. We'll take that now from Danilo Gargiulo of Bernstein.

And first of all, congratulations again on a very strong local case [indiscernible] quarter, especially in the U.S. Foodservice. Kenny, I want to go back into the kind of the margin expansion opportunity. And I was wondering if you, first of all, can shed more light on why the gross margin improved by 1 basis point in the U.S. Foodservice with such a strong top line growth of 2.4%, especially when the mix seems to be more local weighted this year? And then more importantly, how much do you expect the gross margin to inflect as you're accelerating local case growth in the second half of the year? .

Yes. So you mentioned the USFS business and kind of the growth -- kind of the margin story. So I'll answer it as the whole USFS [indiscernible] margin in there as well. So we feel positive with the momentum that we have in USFS. As I -- as you probably called it out, right, despite the negative backdrop, we were able to grow top line of volume by 1% and achieved GP expansion, both on the rate and dollar standpoint.

What drove the GP expansion was a few folds, right? One, obviously, local case growth growing faster than national that has a mix benefit. Number two, the good work we've done as a company of strategic sourcing for prior periods, which is carrying over into this period. And we're not stopping. We continue to look at new ways, partner with suppliers on better unit economics that actually supports the ecosystem, providing more affordable prices to our customers. That's point number two.

Specialty has momentum. As we talked about in the prepared remarks, we've lapped the intentional FreshPoint exit and specialty will be accretive on the forward as well. And then you can't forget international does have a higher GP attachment rate for international as well. So in international growth, top line by 7%. [indiscernible] on the GP side as well. So those are the 4 reasons why GP margin expanded, and we can expect that trend to continue in the back half of the year.

Kind of just to finish out the thought though, for USFS, we do expect USFS [indiscernible] to be positive growth starting Q3. And the reason why it's what I mentioned, top line growth on both local [indiscernible] the momentum about local [indiscernible], both of those business will be within the [indiscernible] from a volume standpoint in the back half of the year and then get the GP 4 things I mentioned. And then all of that is on top of the healthy supply chain ecosystem that we've established earlier part of this year. So that just scaled nicely from a fixed cost standpoint. And that's the reason why we are very confident that we will be positive OI growth in the back half of the year.

Thank you very much. And ladies and gentlemen, that will bring us to the conclusion of today's Sysco second quarter fiscal year 2026 earnings call. We'd like to thank you all so much for joining us today and wish you all a great remainder of your day. Goodbye.

Hello and welcome to Sysco's First Quarter Fiscal Year 2026 Conference Call. As a reminder, today's call is being recorded. We will begin with opening remarks and introductions. With that, I would now like to turn the call over to Mr. Kevin Kim, Vice President of Investor Relations. Please go ahead, sir.

Good morning, everyone, and welcome to Sysco's First Quarter Fiscal Year 2026 Earnings Call. On today's call, we have Kevin Hourican, our Chair of the Board and CEO; and Kenny Cheung, our CFO. .

Before we begin, please note that statements made during this presentation that state the company's or management's intentions, beliefs, expectations or predictions of the future are forward-looking statements within the meaning of the Private Securities Litigation Reform Act and actual results could differ in a material manner. Additional information about factors that could cause results to differ from those in the forward-looking statements is contained in the company's SEC filings. This includes, but not limited to, risk factors contained in our annual report on Form 10-K for the year ended June 28, 2025, subsequent SEC filings and in the news release issued earlier this morning. A copy of these materials can be found in the Investors section at sysco.com. Non-GAAP financial measures are included in our comments today and in our presentation slides.

The reconciliation of these non-GAAP measures to the corresponding GAAP measures is included at the end of the presentation slides that can also be found in the Investors section of our website. During the discussion today, unless otherwise stated, all results are compared to the same quarter in the prior year. To ensure we have sufficient time to answer all questions, we'd like to ask each participant to limit their time today to 1 question. If you have a follow-up, please, we ask that you reenter the queue.

At this time, I'd like to turn the call over to Kevin Hourican.

Good morning, everyone. We appreciate you joining our call today. I'm pleased to report that Sysco delivered a strong financial quarter to start fiscal 2026 with solid performance on the top and bottom line. Most importantly, we have inflected positive in our U.S. Broadline local business, and we are building momentum in our local business across the board.

During our call today, we will share insights into the progress that we are making and highlight key growth initiatives that are fueling our performance improvement. After my update on our business progress, Kenny will highlight our financial results, and he will communicate why we are confident that we will deliver our full year financial guidance. In fiscal 2026, we plan to deliver profitable growth across USFS, International and our SYGMA segments, even in a macro backdrop that is less than compelling. So let's get started with our financial results on Slide 4. In Q1, we exceeded our financial plan and delivered our second consecutive beat relative to consensus expectations. For the quarter, our strong performance was driven by volume improvement, coupled with expanded gross margins and solid expense control. Most importantly, in the quarter, our local volumes improved sequentially every month of the period.

During the quarter, our rate of local volume improvement was more than 2x the overall industry traffic rate of improvement. The positive inflection versus industry traffic was the strongest in September, Once again conveying the progress that we made throughout the quarter. Our Q1 results were driven by sales growth of 3.2% on a reported basis and up 3.8% to last year when excluding the divestiture of Mexico. Gross profit grew 3.9% and adjusted EPS grew 5.5%. Our financial outcomes were anchored by another compelling performance from our International segment, excellent work by our merchandising teams on gross profit expansion, strong productivity improvement from our supply chain and a sales organization that is increasing their stride in growing our local business. Momentum is building at Sysco across the board, and we are confident we will accelerate that momentum throughout 2026.

Given the importance of our local street business, I would like to go a bit deeper on our performance as main on Slide #8. The chart displays our meaningful sequential progress in U.S. local over the past 3 quarters. Our Sysco Broadline local business inflected positive in the quarter, delivering volume growth of 0.4%. The U.S. BO performance was 130 basis points stronger than our Q4 results which significantly outpaced the improvement in restaurant traffic during the quarter. Per Black Box restaurant traffic in Q1 improved by 60 basis points. As a result, Sysco improved more than 2x the overall injury in the quarter. We are pleased that industry traffic improved, and it is even better to see Sysco improving at a faster clip. As I mentioned earlier, September was the strongest month of the quarter for Sysco and the strongest month of positive variance versus the industry. Importantly, Sysco has continued to make progress in October.

Given the strong start to Q2, we anticipate that we will improve our total U.S. local by at least an additional 100 basis points in Q2 versus Q1, continuing our positive momentum. In Q1, our USFS total local business posted a negative 0.2% case volume result in the period. A friendly reminder that our U.S. foodservice volume reporting includes an ongoing negative impact from an intentional business exit within our FreshPoint business, as previously communicated on our Q4 call. In Q1, the FreshPoint business negatively impacted our total local performance by over 50 basis points. When excluding this headwind from this quarter, our USFS total local business grew 0.3%.

Turning from local to our international segment. We are extremely pleased with the performance being delivered by our international team. We delivered outsized sales growth of 4.5% on a reported basis and up 7.9% when excluding the divestiture of Mexico. International continues to deliver positive customer mix benefits, growing the local segment much faster than our total book of business. In fact, our international business posted local case volume growth of approximately 5% for the quarter. The customer mix shift to local helped drive adjusted operating income growth of 13.1% and representing the eighth consecutive quarter of double-digit profit growth. The P&L strength was delivered from every single region and our international portfolio. Sysco's international portfolio is delivering strong top and bottom line growth within every major market we operate. Sysco's international business is a strong stand out in the overall food away-from-home industry, and will be a tailwind for Sysco for many years to come.

It is equally important to note, as Kenny has said previously, over the past 3 years, we have doubled the profit margin rate of our international business and we will continue to work to increase international profitability while simultaneously taking share and growing the top line. We call this performing for today while transforming for tomorrow. Sysco's international team is doing a great job of embodying that ethos. Before I segue into a brief update on our growth initiatives, I would like to do a quick shout out to our entire supply chain organization. Year-to-date, in 2026, we have greatly improved our customer service levels, on time and in full. And we have improved our health and safety performance by reducing accidents in our warehouses and on the road. Additionally, our operators have reduced product strength and they have increased colleague productivity across the board. In my 6 years at Sysco, this is the strongest quarter our supply chain has delivered from a service and cost perspective. I think our entire supply chain for the great job they are doing.

I have full confidence that the strong results will continue throughout 2026. Doing so will help us win new business and increase the retention of the customers we serve today. I would like to now transition into a brief update on select growth initiatives that highlight the progress that we are making as a company. Let's start with our colleague population. In our first quarter, sales consultant retention improved meaningfully versus 2025 and versus our exit velocity of Q4. We have fully stabilized our sales colleague population, and we expect the overall productivity of our sales force to improve throughout 2026. As outlined in our recent proxy, our colleague engagement scores have strongly improved. Our colleagues are expressing positive sentiment in regards to overall engagement, team inclusion and working in a rewarding and motivating culture with a compelling compensation program. These engagement drivers improved strongly year-over-year. We are bullish about our ability to continue our local progress momentum given the stability of our sales force.

Our sales organization is stable,and many talented industry sales professionals are becoming increasingly interested in working at Sysco. During our recent quarter, we introduced AI 360, our AI-empowered sales tool, and we are very pleased with the initial impact in colleague receptivity. Approximately 90% of our SEs are actively using the tool on a daily, weekly basis. While it remains early days, our outcomes data suggests that there is a strong correlation between high colleague engagement with the tool and improved volume and selling performance by those same colleagues. The work our sales teams do every day is hard. Each sales consultants serve dozens of customers, and the day of an SE is very dynamic. Throughout an average day, SEs answer questions, provide consultative services to restaurants, solve problems for their customers and they actively sell. AI 360 helps balance these activities and improve overall customer service levels while simultaneously increasing time for selling activities. The customer could ask if there are good and free options for their menu. They could ask for advice on seasonally relevant proteins for their upcoming menu change or they could ask for cost savings ideas and suggestions given the overall inflation in the food basket.

Our best SEs are seasoned at answering these types of questions while proactively selling. AI360 helps all sales colleagues manage these conversations productively reducing administrative barriers and increasing the amount of time that they can spend actively prospecting and selling. Another important initiative is our customer loyalty program, Perks 2.0. Perks targets our local street customers that buy the most, by the most often and deserve the absolute best from Sysco. Over the past quarter, we have enrolled all eligible customers into the new Perks program. introduced the benefits to our customers and have greatly increased our colleague visit frequency to these accounts. We have improved supply chain service levels to purchase accounts and our 24/7 help desk is resolving Perk's questions the first time 98% of the time. In Q1, we experienced an improvement in customer retention with Perks customers versus our broader book of business.

Over time, we are very confident that Perks will be a differentiator for these customers. And as such, we will improve customer retention rates and perks will help us penetrate these customers with additional lines. In Q1, we can see the green shoots of positive impact of these initiatives on our local business. During the quarter, we increased the number of new accounts opened versus prior year and we simultaneously decreased the number of lost accounts versus prior year. That performance enabled an increased spread between new and lost of more than 220 basis points versus the prior year. The new loss positive spread was an incremental improvement of 40 basis points versus Q4 with September being the strongest period of the quarter. Our improved retention colleagues is also helping us drive increased penetration of lines with existing customers. From Q4 to Q1, our penetration with existing customers improved by 90 basis points. This can be directly attributed to the increased selling skills of our team and the assistance they are receiving from technology tools.

As I wrap up my prepared remarks, I submit we are very pleased with our Q1 results. We are building momentum across sales, merchandising and operations. Our team is increasing their pace month-over-month, quarter-over-quarter. We expect this progress to accelerate even further throughout 2026. While the external market is important, the improvement we are delivering at Sysco is being driven by growth initiatives within our control. Sysco Your Way is 3 years live in the market and continues to drive success. Total team selling is now 2 years in market and is continuing to accelerate progress in market share. We expect our new initiatives of AI360, Perks 2.0 and pricing agility to build upon the success of Sysco Your Way in total team selling and therefore, fuel continued positive momentum in our local business.

With that, I'd now like to turn the call over to Ken. Ken, over to you.

Thank you, Kevin, and good morning, everyone. Our performance this quarter was strong, representing a continuation of the improved operational momentum we established last quarter. In Q1, results included sales growth of 3.2% and adjusted EPS growth of 5.5%, reflecting continued momentum across customer segments and geographies. This diverse customer and geographic mix is a competitive advantage for Sysco in a leading factor in why our company has grown annual sales in 54 of the past 57 years. Our strong performance highlights the powerful combination of Sysco's portfolio breadth and the ability to drive operational execution necessary to deliver compounding rates of improvement. Our Q1 beat and the momentum with volume growth and margin management gives us confidence to deliver our FY '26 guidance. Our adjusted EPS growth in Q1 included benefits from our disciplined strategic sourcing efforts leading in the delivery of 3.9% growth in gross profit, translating to 13 basis points of gross margin expansion year-over-year. The increase in both dollar and rates reflects structural improvements that we expect to carry over into upcoming quarters. .

Additionally, we continue to see returns from our investments in sales head count and capacity expansion alongside benefits from ongoing efforts to optimize cost and prudent tax planning. This ultimately rendered outsized profit growth with adjusted EPS growth of 5.5%, coming in ahead of our expectations. This beat to consensus included higher sales and adjusted operating income as well as net benefit from below-the-line items, of which the majority was driven by a lower effective tax rate. Results this quarter highlights the power of our organization's collective effort to delivering profitable growth, allowing us to weather volatility in the current macro backdrop. Furthermore, our stabilized retention rates, paired with important Sysco-specific initiatives, generated business momentum that accelerated throughout the quarter and are expected to add to compounding improvements over time. The success generated by our International segment is a great example of the power behind the Sysco playbook.

The positive momentum over the past few years continued in Q1 with sales growth of 4.5%, gross profit growth of 6.7% and adjusted operating income growth of 13.1%. The our strategy and driving results across all geographies, underscoring the significant operational advantages enabled by our size and scale. We also recently expanded our specialty capabilities with the successful acquisition of Fairfax Meadow in early October, one of the U.K.'s leading center of plate protein suppliers. This addition follows last year acquisition of Campbell's Prime meat and favorably positions our team in Great Britain to unlock incremental growth by leveraging center of plate and specialty capabilities through total team selling in the North and South regions. We expect our positive momentum in international to continue this year as we leverage our investments to unlock future growth.

Now let's discuss our performance and the financial drivers for the quarter, starting on Slide 12. For the first quarter, our enterprise sales grew 3.2% on on an as-reported basis, driven by U.S. foodservice, International and SYGMA. Excluding the impact of our divested Mexico business, sales grew 3.8%. The Total U.S. food service volumes increased 0.1% and local volume decreased 0.2% in the quarter. U.S. Broadline volumes increased 0.6%. These results were sequential improvements as compared to Q4. For our U.S. FS local business, this represents a sequential volume improvement of 120 basis points, outpacing the industry's 60 basis points traffic improvement for the quarter. It remains early in our fiscal second quarter, but I am encouraged to share that we are seeing continued year-over-year momentum in volume growth rates during the month of October.

As Kevin highlighted, the benefits of our stabilized colleague population are fueling this performance alongside our newest sales professional, making meaningful contributions as they leverage training and tools to work up the productivity curve. These factors are roughly contributed to an acceleration in new account growth for the quarter. In fact, this was the highest rate of new account growth over the past 12 months. helping drive continued improvement in new loss spread. Again, another reason for our confidence in delivering our FY '26 guidance. These sequential volume improvements also benefit our U.S. FS segment results. Stable gross profit performance also included continued investment in our U.S. FS segment. The year-over-year trends are an improvement versus FY '25 results, and we expect to deliver improving financial results and 2026 and beyond. Before moving along, I want to discuss a minor but important upgrade to our case volume reporting.

As shown on Slide 14, we are updating our reported case growth figure to now also include volumes related to our center of play Buckhead, Newport meat and seafood specialty platform. Our reported results for this quarter and the prior year period includes the update. Historically, these volumes were measured in pounds sold and therefore, not able to be reflected in our reported case growth figures. The change is relatively minor. And as you can see on the slide, it accounts for an approximate 0 to 10 basis points impact on average over the last 5 quarters. This change enhances our reporting to be more holistically reflective of our entire portfolio with the inclusion of this important growth engine. Important growth projects like total team selling have the opportunity to ship cases from Broadline into specialty channel and this upgraded volume reporting will provide more external visibility to contributions from this program.

The reporting it matches the agility of one Sysco world-class service to a customer across our portfolio. Additionally, SYGMA results this quarter were outsized. This included 4% sales growth and 39% operating income growth. While we expect more moderate results for the remainder of the year, segment growth for FY '26 will be driven by operating efficiencies. Sysco produced $3.9 million in gross profit, up 3.9% and gross margin expansion of 13 basis points to 18.5% and improved gross profit per case performance. This notable margin improvement reflects effective management of product cost inflation and a mentality of continual improvement with cost savings driven by our strategic sourcing initiatives. Inflation rates in USPL were approximately 2.6%. International inflation on a constant currency basis was slightly higher for the quarter at 4.5%. We Overall, adjusted operating expense were $3 billion for the quarter or 14.2% of sales, a 14 basis point increase from the prior year. The increase was driven by planned investments in higher growth areas of the business with fleet, building expansion and self head count along with lapping $10 million in incentive compensation from the first quarter of the prior year, which negatively impacted adjusted operating expense growth by approximately 100 basis points and adjusted EPS growth by approximately 150 basis points.

Corporate adjusted expenses were up 1% from the prior year, reflecting continued investments, lapping incentive compensation from last year and other costs. This was balanced with accretive productivity cost out and corporate efficiencies, including improved insurance costs. Overall, adjusted operating income grew to $898 million for the quarter, reflecting continued strong growth in our International and SYGMA segments. For the quarter, adjusted EBITDA of $1.1 billion was up 0.1% versus the prior year. Now let's turn to our balance sheet and cash flow. Our investment-grade balance sheet remains robust and reflects a healthy financial profile. Our $3.5 billion in total liquidity remains well above our minimum threshold and offers flexibility and optionality. We ended the quarter at a 2.9x net debt leverage ratio. Turning to our cash flow. We generated approximately $86 million in operating cash flow, up 62% on a year-over-year basis, reflecting working capital optimization. Our free cash flow in the quarter was a negative $15 million, reflecting typical seasonality and the timing of CapEx.

Now I would like to share with you our expectation for FY '26 as seen on Slide 19. During FY '26, we remain on target with key guidance metrics. This includes reported net sales growth of approximately 3% to 5% to approximately $84 billion to $85 billion. These assumptions include inflation of approximately 2%, which we are seeing now, volume growth and contributions from M&A. We continue to expect full year 2026 adjusted EPS of [ $4.50 to $4.60 ], representing growth of 1% to 3%, which includes an approximate $100 million headwind from lapping lower incentive compensation in fiscal 2025, an impact of roughly $0.16 per share. Similar to last year, we are providing full visibility to the carryover impact from incentive compensation for the year and by quarter as outlined on Slide 20. In Q1, this carryover impact included a $10 million headwind, which equates to approximately $0.02 per share to adjusted EPS. These headwinds impact year-over-year comparability for expenses in FY '26.

That being said, we are pleased that our compensation system is a pay-for-performance program and that our structure is in place will properly motivate behavior and drive positive performance in the business and fiscal year 2026. Excluding the negative impact of the incentive compensation on 2026 our outlook for the adjusted EPS growth will deliver approximately 5% to 7%, with the midpoint in line with our long-term growth algorithm. To help with phasing for Q2, based on the current environment, we expect EPS growth of approximately 4% to 6%, with the midpoint in line with the current consensus EPS of approximately $0.98. This includes positive total and local U.S. FS volume performance. As Kevin highlighted, we currently expect our U.S. FS local volume improvement to improve at least 100 basis points sequentially quarter-over-quarter in Q2 of 2026. As previously disclosed, Q2 reported sales growth rates will also be impacted by the divestiture of Romesco JV, which we fully lapped in December this year. This financial guidance assumes improvements to be driven by our Sysco specific initiatives with industry foot traffic and macro environment similar to what we have seen over the past couple of quarters.

We are proud of our strong track record of dividend growth and dividend aristocrat status. For FY '26, we remain on target for shareholders' return to approximately $1 billion in dividends and approximately $1 billion in share repurchase plan for the year. This is all based on our current expectations and economic conditions [indiscernible] based on M&A activity for the year. Specific to our dividend, our expected payout for FY '26 equates to a 6% year-over-year increase on a per share basis. In terms of leverage, we continue to target a net leverage ratio of 2.5 to 2.75x and maintain our investment-grade balance sheet. Now turning to a few other modeling items. For FY '26, we expect a tax rate of approximately 23.5% to 24% and adjusted depreciation and amortization now to be approximately $850 million, reflecting a now relatively longer useful life of our fleet assets balanced against underlying D&A related to continued capacity expansion domestically this year as well as international markets over the coming years. Interest expense is expected to be approximately $700 million, while other expense is now expected to be approximately $65 million. is expected to be approximately $700 million, representing less than approximately 1% of sales. This includes growth in maintenance CapEx as we grow into our investments we've made over the past few years while also maintaining an eye towards driving ROIC by optimizing spend levels across the enterprise. Looking ahead, we are confident in our position and remain focused on leveraging our strength as the industry leader to drive customer growth while continuing to create value for our shareholders.

With that, I will turn the call back to Kevin for closing remarks.

Thank you, Kenny. We are pleased with the strong performance we delivered in Q1 and more importantly, the significant progress we are making as a company across sales, merchandising and operations. We posted a strong exit velocity in the quarter, and that momentum has continued into October. Our leadership team places tremendous focus on improving our local business. strengthening our gross profit through strategic sourcing and tightly managing our expenses through strong supply chain productivity improvement. The team stepped up and delivered a beat across all 3 areas. The strong performance from sales merchandising and operations enabled a compelling adjusted EPS growth year-over-year. I'm proud of the team for their performance and the momentum that we are building. As we look toward the remainder of 2026, we expect to build upon the Q1 momentum and deliver against our targets. Our top line results will further strengthen based upon sequential improvement in our local business throughout 2026.

We have a diversified business with #1 market share in the noncommercial sectors of food-away-from-home-Noncommercial continues to grow year-over-year, and this segment is much more resilient in a challenging economic cycle. Our strong international segment performance gives us another form of diversification. Food-away-from-home is a good business. It takes share from the grocery channel every year. And as I've said before, the pie is getting bigger and Sysco intends to take a bigger slice of that expanding pie. We are confident shareholders are positioned to benefit from our industry-leading dividend, compelling ROIC, intentional share buybacks and improving financial results. Our performance in Q1 displayed strong progress in the early innings of improving our local business. The momentum will continue throughout 2026. I'm thankful for our leadership team and our entire 75,000 colleague population for the strong efforts to start the year. The collective team's hard work is poised to have positive impact in 2026.

With that, operator, we're now ready for questions.

[Operator Instructions]

We'll go first this morning to Alex Slagle of Jefferies.

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. I guess specifically, percentage of new hires that are now over that 12- or 18-month hurdle when productivity really inflects and I know leveraging new tools is a piece of this, but how this tenure and retention really correlates to the local case growth step-up that you saw in September and October because I know the industry was a little more sluggish during that period.

Alex, thanks for the question. This is Kevin. Just to start with some of the key stats and facts. Plus 130 basis points of progress in Q1, a rate of improvement, 2x the overall traffic improvement to the market positive inflection in local, really important to communicate what we shared on our prepared remarks, October stronger than Q1, which Kenny then reiterated in his prepared remarks, we anticipate to make at least an additional hundred basis points of progress in Q2 versus Q1 because we're building momentum. That is the main point of our call today is building momentum. It starts and ends, Alex, with your question, which is stabilized retention. We are exceeding our retention target year-to-date for our sales colleagues, which is enabling us to have less churn of our sales force coverage to our customer population. .

We're absolutely working hard on improving overall productivity of our sales consultant population, and we're pleased with the progress that we're making in that regard with more progress still to be made year to go as you just indicated because of the percentage of folks that work for us that are new versus what would be historical. We will continue to make progress in productivity. Key growth initiatives are helping in that regard, but I want to be fundamentally clear, it's the stability of the workforce that is creating the biggest force of positive momentum. With that, growth initiatives like Sysco Your Way and total team selling are continuing to produce. We have pursued 2.0 and AI360 that are helping us build momentum most notably, as I said, Q2, an additional minimum of 100 basis points of progress that we will make. Kenny, anything else you'd like to share?

Yes. Alex, this is Kenny. I agree with Kevin. I'll add a few more points here. The bumper sticker is we are extremely confident in our momentum and our local case growth. As I said earlier, 100 basis points sequential improvement quarter-over-quarter in terms of volume. And so the question would be, why are you so confident? There's a few proof points from our side. to what you just said. Our product -- our SDs are becoming more productive as they climb up the productivity curve. And that's the reason why this quarter, you saw the highest increase of new customer onboarding, which is driving that you lost spread that Kevin spoke about earlier. Number 2 is, and as you know, there's a benefit as well. Obviously, when you sign up a new customer, they help with a new loss, but they also drive penetration. And this quarter, we saw that pickup for us, 90 basis points improvement quarter-over-quarter. So that helps a lot as well. Then last but not least, right, the retention playbook that Kevin mentioned earlier, we're seeing that in our 12 to 18 months kind of our new ASCs, but we're also seeing that with our experienced SEs. So you have the entire portfolio of SEs climbing up the curve, which drives overall productivity.

I just had a follow-up [indiscernible] on a really strong quarter and the outlook for the second quarter looks pretty strong. So is there additional conservatism in the back half guide on earnings, you're up 5%, 6% or so in the first half. So I just wanted to clarify?

Yes. Yes. So I guess the question we had, the question is how confident are you in your guidance? And how should we think about the rest of the year? So from our vantage point, we are really confident in our guide as we're coming off of a quarter beat. This is 2 quarters in a row that we beat. And just to clarify, the $0.03 beat this quarter, $0.01 of it was driven by higher expected sales slowing down to OI and the other $0.02 was driven by prudent tax planning below the line. So that's, again, it's a nice beat all around the P&L. In terms of our confidence in the guide, Alex, we are extremely confident, and there's 3 reasons why. Number 1 is momentum, right? We continue to see, as Kevin said, September being the strongest month for us, and we're seeing the climb up the productivity curve. In our national business, we're also seeing momentum there as well. We're seeing nice recent wins, really strong retention as well, and we have really solid start ship dates coming up, and we expect national to pick up starting with Q2.

And we are taking share, and we are taking share profitably. The second piece why we're confident is -- most of the growth that we expect this year is really driven by initiatives within our control. We expect the macro environment to be similar to the past couple of quarters. So again, this includes the commercial productivity, the supply chain productivity that Kevin mentioned earlier. So again, we feel very, very good about the robustness of our P&L and then last but not least, just the whole -- just the fact that we have a strong IT balance sheet and a very diversified portfolio that bodes well in any environment.

We'll go next now to Edward Kelly of Wells Fargo.

I wanted to follow up on really on case volumes, I guess. As we think about total case volumes, the improvement there was more modest than what we saw in local. Can you maybe just speak to what you're seeing on the total case volume side excluding the local, maybe what you're seeing by customer type. And then as we think about things moving forward in the guidance, I'm curious, you highlighted local volumes being better by about 100 basis points or so in Q2. Is that what you saw in September and October? And Kenny, I thought I heard you say something about national account may be picking up. I'm curious as to how you think about that total local spread moving forward as well, that should be somewhat similar or if local picks up with -- sorry, total picks up again.

Thank you for the questions. This is Kevin. So I'll start. And yes, I will pick up on some of what Kenny mentioned relative to our national sales business. As it relates to your question about September and October, I'm not going to provide additional by month commentary for Q1 other than to say the following. Every single month in Q1 was better than the prior month. And June was -- excuse me, July was better than June. So it's each month sequentially better. exit velocity continuing into October. October being stronger than September. And as Alex mentioned a moment ago, the overall market is not stronger in October versus September, which again shows that the improvement we're making is because of initiatives within our control. September for the overall market was not stronger than August, but September for Sysco was stronger than August. So it's a point of confidence on the progress that we're making is within our control, being driven by the stability of our workforce being driven by key initiatives.

And as I just said a second ago, October stronger than September and the confidence in our ability to say that Q2 will be at least 100 basis points better as directly fueled by what we're seeing in our performance outcomes quarter-to-date in Q2. as it relates to national sales, just a little bit more color on what Kenny said. We're confident we will improve our volume in national sales year to go for the following reasons: number one, we have an incredibly high customer retention rate in national sales, greater than 98-plus percent. We have an incredibly strong national sales customer retention. Number two, noncommercial within national sales continues to perform really well. So that's food service management, travel and hospitality. Our government business, all falling within noncommercial continues to do well. The business is under pressure with the national initiative, surprise to anyone on this call are large national chain restaurants. That business is down on a year-over-year basis from a traffic perspective and it's down year-over-year from a volume perspective. We're growing our national in total because of strength that we're producing in delivering within noncommercial.

To be clear, as it relates to the P&L, national restaurants would be the least profitable portion of the business. And therefore, as you're somewhat communicating in your question, it tilts to growth in local being higher from a contribution perspective is a net positive in the P&L. As we think about the rest of the year from a national sales perspective, Kenny mentioned this a moment ago, I'm just going to reiterate it. We have strong wins already signed that have start ship dates in the year-to-go period, and we include the strong retention of existing customers, plus the start ship dates that are coming in the year ago, our volumes will pick up in national for the full year. If you think about the year in aggregate, and I believe we have national and local growing similarly for the full year. And over the longer course of time, we would anticipate local growing faster than national, but for fiscal 2026 growing roughly in parity. Last comment for me on national. We are definitively taking share in total in national segment, which includes noncommercial.

By throwing international as a part of the answer to this question as well, similar pattern happening in our global business. I mentioned in my prepared remarks, our local business. In international, up 5% from a volume perspective and that growth is happening in every single geography internationally. We're doing extremely well in local, taking share in local in every national geography. In the national segment within international is similar to what we're seeing in the U.S. where national restaurants in the global setting are slightly down, but we are very pleased with the profit growth that we're delivering in large part because that growth in local internationally.

Kenny, is there anything else you'd like to say?

Yes. No, I agree with Kevin. Just 1 thing to add is, just to clarify, Sysco, we improved every month from a growth rate standpoint and local throughout the quarter. And we inflected versus the market, the greatest actually in September, and that has continued based on the first few weeks of October. And just to recap the phasing for the year in terms of local first quarter was U.S. as 0.2%. We expect to step up sequentially by at least 100 basis points in Q2. And given the momentum that we have and the initiatives that are within our control, we'd expect that step up even further in the back half of the year for the full year to be positive.

We'll go next to John Heinbockel of Guggenheim.

Kevin, 2 questions. So if you adjust for FreshPoint, right, it looks like Q2 is probably up, I don't know, [ 1.3, 1.4, 1.5 ], somewhere in that ballpark. And I know the ambition is to get to close to [ 4 ], right, where you're growing your sales force -- maybe you talk about the ability to get there if the macro backdrop stays this week. I don't know how close you can get to that, if there's anything else to tweak to make up for that. So that's question one. And then two, penetration up 90 bps. What's happening with drop size? Has that now inflected positively? And I would think if it has, that's going to have a positive impact on profitability in the U.S. soon if -- or pretty soon, I would think.

Thank you for the question. Just to go back to, crystal clear on the at least 100 basis points of improvement, that's versus USFS. So the starting place is negative [ $0.2 million ]. We will improve USFS total local volume by at least 100 basis points. in Q2. That is what we're communicating today. And we're building momentum each month better than the prior month. We do not believe that external environment improving is required to continue to perform and to continue to improve because of the stability of our workforce the lapping of lost customers a year ago and the increased impact of our initiatives that we launched throughout Q1. So that's the clarity on U.S. FS volume. As it relates to penetration, improvement driving drop side this improvement on a year-over-year basis, we increased penetration with existing customers, absolutely that had a positive pull-through to drop size.

And as I said in my prepared remarks, I've been here for 6 years now. It was the, by far, strongest quarter we had from the supply chain productivity perspective and service outcomes perspective. We measure service outcomes as a measure of on-time and in full. In addition, cost per piece shipped. We had a very strong quarter in our supply chain, fueled by 2 things. Kenny and I talk about this all the time. Retention improvement in our supply chain has been notable and significant and that started more than 12 months ago. this time a year ago, I was talking about a stable workforce in our supply chain. We are now seeing the benefit of that stability of retention in our supply chain, our drivers are more productive. Our selectors are more productive, working more safely. They're having fewer accidents out on the road. Shrink results are improved year-over-year. And when you put all that together, cost per piece improved versus our plan, and we had a beat in supply chain cost per piece versus our own plan the quarter. And job size is a part of that, John. It is a part of it. The more notable part is the improvement in retention and the improvement in productivity from our supply chain workforce. Ken, anything to add?

Yes, just want to clarify, you mentioned the 4% growth or volume on local. That is in perpetuity, right? Assuming if you grow your sales force by 4%, in perpetuity, your volume increased by 4% as well. For this year, we're not expecting that level given the fact that we -- we have a new cohort coming in, it takes 12 to 18 months for them to get to speed. So that is not -- it's a lower number than 4%, but it is positive for the year.

We'll go next now to Jake Bartlett with Truist Securities.

Great. Mine was on the composition of the sales growth guidance that you reiterated. And specifically on the food cost and inflation, I think you said that you expect -- continue to expect 2%. It was much more it was I think 3.4% in the first quarter. So one is, I want to make sure we're talking about the same thing, initially. Last quarter, you had said that you were at 2% as of the time of the quarter, but you reported the 3.4%. So trying to just make sure I understand what the trends are in the product cost inflation and making sure I understand kind of your guidance of 2% relative to the 3.4% currently.

Yes, Jake, we understand and appreciate the question. We've guided the full year at approximately 2% from an inflation perspective. You're right to point out that the total inflation rate in Q1 was a bit higher than that, mostly from international, which Kenny can provide some additional color in a second. In the spot moment, in the month that we're in, the rate of inflation in the domestic U.S. business has come down from the number that you reported back to that approximately 2% rate. because we're starting to see some deflation in select categories. So poultry on a year-over-year basis. the deflation of dairy on a year-over-year basis because we're lapping avian flu from a year ago is now deflationary, and produce has been deflationary for going on 12 months now. The beef market continues to be inflationary at the high single-digit rates, but also slightly down from where it was, which was higher previously.

So Kenny says this all the time. We have 13 attribute groups the inflation number that we quote is the aggregate of all of them. Our full year peg is approximately 2%. It came in a little bit hotter than that in Q1. We're seeing it reduce to that targeted 2% rate in the quarter that we are currently in. And we're confident we can grow our business profitably and deliver our operating income and EPS growth in spite of whatever the inflation or deflation is over time, we've proven that over the past 6 years in an inflation cycle, we can expand GP and even in a deflation cycle we can expand GP. Ken, is there anything you'd like to add?

Yes. Yes. Jake, we're currently operating what I would call a normalized inflationary environment. In Q1, USPL inflation was roughly 2.6%. And to Kevin's point, international was roughly 4.5%. That's really driven by 2 markets, Canada, which is tariff related as well as GB, which is 7% wage inflation madate by the government. The real takeaway is that even with this environment, we're seeing total GP up 4% and expansion of GP margins by 13 basis points for our company. As Kevin said, we have a diverse set of product categories. We don't over index on 1 or 2 of them. And long story short, we are operating in this environment that our assets around 3%, and that bodes well for the overall industry. And the last one I can mention is the center of the plate, we do expect center of the plate to moderate towards the back half of the year as well.

We'll go next now to Jeffrey Bernstein with Barclays.

Great. Just curious on the broader restaurant industry. You mentioned easing trends to close the quarter. I think you said, and we've seen industry data that showed September was weaker than August. I think you mentioned that October was weaker than September. Yet Sysco going in the opposite direction, which is encouraging. Just wondering if there's any particular drivers of the industry weakness that you've seen, whether by segment or geography or income levels or ethnicity, it seemed like we're moving in the right direction until a couple of months ago. So just wondering the drivers that you've seen that have led to the slowdown? And then I had one follow-up question.

Okay. Thank you, Jeff. I'll start. And this data is publicly available. So I'll just reference the black box data. Q1 was better than Q4, positive 60 basis points of traffic. So in aggregate, Q1 was better than Q4. It is appropriate to point out that September was softer than Q1 in its entirety, and that has continued into October. It's QSR and larger national change that are underperforming relative to the overall book of business independence and this is a good thing for foodservice distributor independents are performing better, whether or not that is a secular trend and if that's something that's going to be long -- continued into the future, it remains to be seen. But at the present moment, independents performing better restaurants, independents performing better than large national gains and particularly better than QSR. And you understand our profitability, you understand that, that trend is actually a positive for Sysco.

The more important point, though, is our performance relative to the market. While the overall traffic to market was softer in September versus the quarter, we experienced the complete opposite in September being our strongest period of the quarter, which Kenny then referenced as the spread, the positive inflection, the delta between us and the overall market widened and it widened even further in October, and we anticipate that will continue as the year progresses because of the initiatives that we launched we have an opportunity to take share, A reminder, despite our being the biggest in this space, we have 17% market share. We have a meaningful opportunity to profitably grow our business regardless of the overall macro positions. You said you had a follow-up, so I'll toss it to you for that.

Yes. Just on Slide 8, it seems like you guys made a -- draw a line in the sand saying at least 100 basis points of sequential improvement from the down 20 bps in the first quarter. Just wondering whether there's any -- I mean, it sounds like you're encouraged by October. But the industry is clearly volatile. I know some would say it looks aggressive especially when it's not fully in your control. I know you said there's a lot of self-help driven, but your confidence in the 100-plus basis points of the industry were to continue to slow as we've seen in September to October. Again, it seems like a big promise to make with still 2-plus months to go and the industry still...

We're confident in our ability to deliver the at least plus 100. We're 1/3 of the way through the quarter, October stronger than September despite what the market overall is doing. We have line of sight towards the ability to make progress in the year to go. for a host of reasons. The stability of our workforce initiatives. AI360 is not even 45 days old, and our colleagues are increasing their usage of it. They're asking questions, again, real-time answers. Do you have cauliflower pizza crust in-stock in Cleveland today. It gives them the exact item number, the quantity on hand. They can sell it right then and there. If they want selling tips how to introduce that product to the customer, they can get the answer to that too. Teach me how to sell this item on and on and on. And the AI tool gets smarter in each and every. We have thousands of colleagues using it on a daily basis. So the tools utility is increasing every day.

As an example, Perks 2.0, not live for more than 45 days. our customers are beginning to see the differentiation in the service that they're providing. I want to be really clear about one thing. Perks 2.0 doesn't cost Sysco, any more money. This is about prioritization of these customers over the average book of business that we have. Why? Because they're the most profitable and important customers that we have. their delivery window is going to be their preferred window. Our on-time rate to that window will be higher. Their fill rate on the products they order will be higher. If they have a damage case on their delivery, we're going to give them credit immediately versus having them have to wait a couple of days. These are thorns in the site and in the customer experience. So these initiatives are picking up progress. they're picking up their impact over time. And therefore, we are confident in our ability to deliver on the at least plus 100 in Q2.

Kenny, anything you'd like to add?

Yes. So agree with Kevin, we're confident for 2 reasons. One is, as you said, right, the majority of our initiatives that yields the 100 basis points improvement is within our control. This is the retention. And the other piece is, we're also encouraged by the fact that we continue to select geographies already hitting our growth expectations, driven by SE additions, improved retention, and that's carrying into Q2 as well. So we have proof points of actual data that certain markets are hitting that stride. The last thing I would add is that around traffic, foot traffic, it is a proxy, if you will, before our business. It's important. And we also have a big part of our business that are not tied to restaurants, right? 2/3 of our national portfolio are actually what we called recession-resilient, noncommercial categories. food service management, education, health care and the like. And even within restaurants, if you think about it, Jeff, right? We have QSR, the casual dining, the fine dining. So we're pretty well diversified, a restaurant, nonrestaurant standpoint, and we also have international, which serves as a strategic counterbalance, enhancing the resiliency and stability of our total overall business.

We'll go next now to Sara Senatore at Bank of America.

I just wanted to -- I guess 2 questions. The first is I wanted to take maybe the guidance question from a different perspective. Obviously, the top line is very encouraging. But I think, as you said, guidance for 2Q is sort of in line, and you didn't raise the full year. So maybe you could just talk a little bit about the extent to which some of the investments that you're making maybe start to moderate. And so you see a little bit more of that flow through. I don't know if it's later this year or if it's next year? And then I just have a quick follow-up.

Yes. Yes. Thanks, Sara, for the question. So your question is more around the investments than what we're seeing around the flow-through around it. So here at Sysco, we are playing the long game, right? We're investing in our business, and we're also seeing incremental return to your point from the investment we made in previous quarter and period. So for example, the 2 biggest investments we made as a company, number 1 is the sales force. We've hired 750 people plus in the past couple of years. As we mentioned earlier, we're seeing all of them find the productivity curve right now and trying new account growth penetration, and that's the reason why you're seeing an outsized growth versus the market in Q1. And we expect that to continue in Q2 and the outer quarters. So nice return on investments and the pacing is there. And we're doing it the right way as well. We're taking share profitably. That's really important, taking share profitably. And that's the reason why you're seeing both dollar expansion on the margin as well as the rate expansion on the margin. In terms of the other big investment that we have in our portfolio, it's the 10 new facilities that we're building around the world, 7 are in the U.S., we are international. I can tell you first hand, we have a strong pipeline, robust pipeline that can fill the capacity in the spot and as time progresses and it kind of goes hand in glove. SE becomes more productive. We're still filling the pipeline with accretive cases through our DC.

So overall, we feel very confident. For example, in USFS, as time progresses, we will continue to make strides on operating income, gross profit and volume and achieve leverage in the outer periods.

Great. And then just on the market share point, I know you talked about having relatively low market share, 17%. I know it's even lower in specialty. As we think about those share gains, should I just think sort of a reversal of what we saw last year, where Sysco obviously ceded some ground just some transition in the SE group. But -- or do you have like a kind of a target market share in mind as you think about whether it's again Broadlines where I think you're closer to the 30%. And versus specialty where it's kind of 9% or high single digits. So any kind of color on how you think about that market share.

Yes, Sara, it's Kevin. Great question. To be clear, again, been here 6 years, we've taken market share. We've grown market share each and every year for the past 6 years in total. In the past fiscal 2024 -- excuse me, fiscal 2025, we overindexed in national, clearly taking share in national, and we underperformed our own expectations in local. This year, we intend to take share in both national and local in total, as evidenced by the positive inflection and we're growing faster than traffic at the present period. in our local business and national, I already addressed earlier with my prepared remarks, so I won't repeat that. As it relates to where we'll outsized share gains come from, that was the second part of your question, you actually just quoted all the stats. It's going to come from the specialty. We have a very strong, significant and robust broad line business. we have an opportunity to meaningfully grow our specialty produce, our specialty meat, our equipment and supplies, our Asian Foods and our Italian foods businesses. .

And sometimes, that gets delivered on a broad line truck. So the cases may show up in broadline, sometimes that gets delivered on a specialty truck. The growth is about the following key things. having product available, Kenny talks all the time about these are unique items. These are bespoke items. These are custom cut items. These are the direct request of an end customer items. That's why they're called special. So it's about the product first we definitively have that product available when most raw miners don't. Number two, it's about having a sales colleague, who is an absolute expert in that category, be it produce or protein or any of the other businesses. We have dedicated specialists who know these categories. Part of that incremental head count investment that Kenny talked about is in that specialty business. The last within specialty is the service model. There are some restaurant customers who, for those specialty categories want very late in the evening cut off, and they want to deliver 6, 7 days a week because it's fresh product. They pay for that. We build that into the pricing of those products, which, therefore, have a higher gross margin.

And we can check all of those boxes. And we can check those boxes in geographies where Broadliners cannot, and we can check those boxes where most smaller specialty entities cannot. And to be crystal clear, that's who we're competing against in specialty. We're not competing against big names. We're competing against thousands of very small companies who have 1 vans, 2 vans in a specific geography. To be clear, we buy more local produce, local produce than any other company in the geographies we compete with and we're able to provide that product to our customers in a cost-effective manner. So we're going to meaningfully grow our specialty business. It's approximately a $10 billion business today. We said at our Investor Day, we see $10 billion of both coming from specialty over the next period of time. Sara, we haven't said what percent of market share that will drive in the next year. We'll save that for a future Investor Day. But we appreciate your question.

And ladies and gentlemen, we do have time for 1 more question this morning. We'll take that now from John Ivankoe of JPMorgan.

The question is on independent restaurants, specifically the difference in performance between existing account penetration and new account generation. Certainly some of the data that we see is that the industry is actually growing at a surprisingly high number of new units and many of those units are actually driven by independents. So firstly, if you see the same. And secondly, it does sound like a number of the tools that you have such as such as AI 360 and Perks, sound to be to drive market share at existing business, can you talk about some of the tools that the sales force now have to specifically generate new account penetration.

Excellent, John. Thank you for the question. Appreciate it. What we're pleased about in Q1 as we saw improvement from the new loss spread, and we also saw improvement from penetration we saw a 220 basis point improvement year-over-year in new loss spread and a 40 basis point improvement in that same metric Q4 into Q1. And the even more important point is that what happened with penetration, we increased our penetration with existing customers by 90 basis points from Q4 into Q1. And I do attribute that to 2 things. AI360 is increasing our sales colleagues ability to know what to be selling on that given visit on that given day. to solve problems in a timely manner and to provide suggestions on what could be sold. So it is absolutely a penetration, full direct focused selling effort. Perks is the exact same thing, Not interested per se in growing the number of Perks customers. We're interested in retaining those customers at a high rate and penetrating even further with those customers because as the other John always says, that's the most profitable case on the truck. So these tools are meaningfully focused on increasing penetration.

To the other part of your question, which is, okay, well, what about new? The largest opportunity for improvement there is the incremental head count investment that we've made. Kenny talked about it, 750-plus people over the past couple of years. Those folks need to build their book of business. We provide them a starter book of business. They need to go fill in that business over time. and the accounts that we seed them with come from existing sales reps. Another thing Kenny talks about is now that existing sales rep can grow their book of business by backfilling that customer that they have transitioned to a net new hire, equally important, John, by having significantly improved colleague retention year-over-year, we're going to have less account churn at Sysco. So think about last year, a colleague departed their book of business with multiple dozens of customers that needed to be reassigned to existing sales reps. That decreased our existing sales rep's ability to go out and prospect. We're now very stable in our turnover. In fact, more new people are interested in working at Sysco that in my 6 years here. that stability improvement increases the ability to be out prospecting.

Last but not least, AI360 also includes a tool to help with prospecting. It's essentially a maps app that provides our colleagues with visibility to accounts they should and can be targeting within their selling geography. giving them suggestions on what to sell. For the colleagues that are using that maps app, they were speaking to us specifically saying it's help them close more customers and help them do their prospecting work more effectively.

Kenny, you have anything to add to that?

Yes. We're really pleased with the progress we've made on AI360 and Perks, right? For example, AI360, we have a correlation usage and the results as well. So that's -- it's -- it's a bit early innings right now, but we're definitely seeing a correlation between usage and results. And the other thing I would say is the results is not just driving conversion on sales. It's also reducing shortening the lead time, if you will, to be full productive, right? So think of it as a tool that, yes, it can help you identify prospects and drive sales conversion, but it's also a tool that helps the SE learn along the way, a pocket teacher, if you will. So that's a lot of accretion for our P&L as well. So from our standpoint, I think it's going really well and here's an important part. We don't need AI360 or Perks to hit our numbers this year. That's accretion upside to what we currently have.

Thank you, gentlemen. Again, ladies and gentlemen, this will bring us to the conclusion of today's conference call. We'd like to thank you all so much for joining Sysco's First Quarter Fiscal Year 2026 call. Again, thanks so much for joining us and we wish you all a great day. Goodbye, everyone.

All right. Good morning, everyone, and welcome to the Wells Fargo Consumer Conference. I'm Ed Kelly. I cover Staples Retail and Food Service at Wells Fargo. We hope you all have a productive and enjoyable few days out here in California. So kicking off the conference, which is kind of typical, I think, for us now is Sysco. We're very happy to have you here, and thanks for participating again. Sysco is the leading food service player in the U.S. and in international markets where it competes.

Joining us from the company, are Chairman and CEO, Kevin Hourican as well as CFO, Kenny Cheung. Kevin Kim from Investor Relations is also in the audience here. But I think just to kick things off, Kevin, I think you wanted to just make a few comments, and then we're going to get into some Q&A. And if we have time at the end, we'll open it up for anyone in the audience.

Okay. Great. Good morning, everyone. I appreciate your joining in the room. Ed, thank you for hosting and to the Wells team for inviting us back. For those that joined virtually, we appreciate your interest and participation. So as Ed said, we're the #1 player in what we call the food away-from-home space. That's both domestically and internationally. We've produced $81 billion of top line revenue this past fiscal year that ended on June 30, 60% restaurants, 40%, what we call noncommercial, which is hospitals, education, government facilities, sporting venues, business industry and the like. The important point on the 40% is we call those less recession impacted. So those are very durable, consistent businesses that are all growing for Sysco and doing quite well. I know we'll talk a lot about restaurants today, but that 40% noncommercial is important.

We're very disciplined operators. We lead the industry from an operating income margin percentage perspective and most profitable in our space. We have the highest return on invested capital in our space by a wide margin and we've raised our dividend for 56 consecutive years, which for many of you as investors, we know that that's important. Notably, my last point, we're pleased with our start to the year. We had an opportunity to be at a conference a couple of weeks ago where we communicated clearly that our international business continues to perform at an extremely high level. And the most notably and most important, our U.S. Broadline local business has inflected positive. And we're really pleased with the progress that we're making in that regard, and I'm sure we'll talk more about all of those things. So Ed, over to you, please.

Yes. Great. So maybe best to start sort of big picture. The industry backdrop has been, let's call it, less than ideal for some time now, but there seems to be some recent improvement. I mean you've kind of mentioned this, your peers have mentioned this, you sound more optimistic. So could you provide us with maybe your latest thoughts on the demand backdrop for the industry and how you think the rest of the year may play out here?

Yes, absolutely. And Kenny and I will tag team. Most of these questions will kind of riff off of each other. Starting with this macro backdrop, it's relatively strong, if not nominally better this summer into early fall relative to the prior periods. Just note to those that don't know this space as well, food-away-from-home consistently take share from the grocery channel. It happens year after year, every single year with the exception of the 2 years of COVID, food-away-from-home is strong. Restaurants, that 60% of our business that's restaurant. They're working very hard on value to their end consumer. I'm sure you read all about when McDonald's came out and talked about, they're not a customer for the record, I'm not making comments about them. I'm saying all restaurants from fine dining to QSR are working on their value perception. And they're doing that, frankly, is good for traffic to restaurants, which is good for food distributors.

So we're pleased with the fact that restaurants are leaning in to focus on value, and we Sysco are prepared to help with things like Sysco brand, finding them alternative proteins that help them save money and the like. Specific to Sysco, as I mentioned a few moments ago, we're really pleased with our start to the year. Number 1 is international, which is 20% of our business, continues their tear, double-digit profit growth. We've said for 7 consecutive quarters and off to a great start continuing those really strong trends internationally. On the U.S. side, local business last year, fiscal 2025 did not meet our expectations, and we're really pleased with the progress that we're making that I said a moment ago, we've inflected positive in our U.S. Broadline local business.

Specific to us, our Q1 of this fiscal year stronger than Q4, the quarter that just closed, July was stronger than June. August was stronger than July. We're 3 weeks into September and September stronger than August. So Ed, we're pleased, and yes, tone is more positive. We're pleased with the progress that we're making. And the vast majority of that progress is, as you call it Ed, self-help. It's not the overall macro. We're pleased that the overall macro is holding in, if not nominally better. The progress that we're making in local is internal because of the improvements in the health of our sales colleague population, which we'll talk about in a minute. And then our noncommercial business that 40% that I mentioned before, continues to perform and is doing very well. So we're optimistic about the year. We're positive on the year ahead. And Kenny, to you for anything additional you'd like to say?

Yes. Thanks, Kevin. A few things here. Number 1 is, as Kevin mentioned, after a really strong start to the year, 2.5 months into the year, and we feel even better, even stronger around our Q1 guidance and our full year guidance. We feel really great about the year. And the reason why, as Kevin talked about, is self-help. Ed, we're not expecting or modeling the market to meaningfully improve throughout the year. If anything, we model the market to be similar to the spot moment right now. Now if the market improves, that's good for us, and it's goodness overall. But right now, we're expecting to be similar to today in terms of the market environment. And again, as Kevin said, we're seeing some a slight improvement on foot traffic.

The second thing I would say is, it's possible to Kevin's point, is around that 40%. So I think a lot of people will say, well, foot traffic, is that the proxy for your business? It is, but not completely because 60% are restaurants, 40% is nonrestaurant. I mean I'll give you some numbers as well. So last year, our education and government business grew roughly 15% year-on-year on sales. Our health care business grew roughly 7% and our travel and leisure business grew roughly 18%. So we are the #1 leader in the majority of the noncommercial sectors that we serve through.

So this is a diversification of our portfolio, and it bodes well in any environment. And the last thing I'd say is the following, right. Kevin said it well, we're seeing our customer backdrop, the operators and consumers there is a value play. But let's not forget, there is still demand, if you will, around premium assortment, quality experience and that's where specialty comes in as well. So if you think about our company, we serve the best of both worlds on both sides of the spectrum. You have the value side, as Kevin said, you have scale.

We buy the most, better selling, better buying Sysco brand, which is the value proposition with especially the quality of our ingredients. And then on the other side, you have specialties like if you take a giant step back, Sysco is well positioned to satisfy the needs of the ecosystem, right? We have the breadth of Broadline and we have the depth of specialty. So long story short, Ed, I would say we're very confident operating in today's environment, and we're confident in operating in any environment.

So maybe just digging in on the Sysco specific side, specifically it's really related to sort of state of the union at the company now. And I think if we look back, there has been some challenges in addition to the industry backdrop, but there do seem to be green shoots. And you do -- you are talking about some of the self-help that you're seeing. So maybe could you provide a little bit more color on the self-help angle, the initiatives that you're excited about. And as part of that, obviously, there's been a lot of focus on the sales force turnover, things seem to be improving there, the pricing tool, et cetera. Could you just maybe walk us through where you are with all this?

Yes. I appreciate the question very much. And maybe we separate the 2, I'll talk about our colleague health. Kenny, you can add on anything you want. And then we'll come back to the initiatives covering all that. And one question is a bit of a lengthy answer, but let me again just start just backdrop for us. We have, by far, our highest market share in our space, but more importantly, the highest profit percentage in our space. So we're pleased with the business we have in aggregate. The size of our business, more importantly, the profitability of our business, and we deserve to have the opportunity to grow consistently over time, and that is our remit, is to do exactly that. This past year, Ed, as you just referenced, we had elevated colleague turnover tied to a compensation change that we made in June of the prior -- a year ago, June, a step giant back from that -- giant step back from that, the new comp program is working. We're happy that we made the change.

We've learned a lot about change management on deploying something like that to our large distributed colleague workforce that will be applied going forward to every initiative that we put forward. One thing that occurred last year that were tied to that comp changes, as I said on this stage last year, we were experiencing meaningfully elevated turnover. That was Q1 of last year, it peaked in September, carried through to Q3. Q4, the quarter that we just closed, we've completely stabilized our colleague retention. In the spot moment, year-to-date, our colleague retention is the highest it's ever been. We are all over this topic.

Think about 3 things when I say colleague health. Number 1 is retaining the colleagues we have, and I just said, communicated publicly, retention is at the highest rate it's ever been. Number 2 is to improve the productivity across the entire sales workforce, and we have initiatives in place to be able to drive that outcome. And then Number 3 is to grow our workforce over time, and Kenny and I recently said, this year, we'll grow our sales force approximately 4%. And if you look at the last 2 years plus the year ahead, it will be approximately 1,000 colleagues that will be added to our workforce. So those are the 3 things, retain the colleagues we have, improve the productivity of the entire workforce, increase the headcount by approximately 4%. You put those together and it is colleague health.

Ed, this past year, fiscal 2025, that was a headwind for us throughout the entire year. We have the opportunity in this year, the year we're in for that to be a tailwind. And why as we repeat the customer loss that went with colleague departure and if that's not clear, that's what the outcome is. When a colleague departs, they tend to take some customers with them. So we're not going to be repeating that headwind and the improvement to our business, the tailwind will come from the new hiring that we're doing and the initiatives that I'll talk about in a minute that will turbocharge the performance of our workforce. Kenny, anything you'd like to add?

Yes. Yes. So the headline news is U.S. Broadline local case growth will be positive in Q1. By the way, we are already positive right now, USPL local case growth. And then USFS local, it will be positive for the year. Remember, we started lapping the specialty loss in Q3. So that will be a nice year-on-year boost from a growth standpoint. As you can tell, Kevin and I, we're really confident about our local case momentum. So let me share with you some of the green shoots, Ed, as you said, what are some of the proof points that we're seeing to ensure that this momentum is real, it's structural and will continue. The first piece is what Kevin said, right? One is the fact that, we're seeing the tenor, the retention levels or the stability of our SCs improving, and Kevin said it right, the highest it's ever been, right? And that's important because as they ride the life cycle of an SC, the biggest jump between -- in the tenor is actually between less than 1 year and 12 to 18 months. And you may remember, we started hiring meaningfully towards the back half of FY '24. So do the math.

Right now, we're entering the sweet spot, where they're actually having a nice jump off point. Now this doesn't mean year 3 does a jump to year 4, or 4, 5. Yes, every single SC gains productivity, but that's below 1 year to 12 to 18 months is the biggest jump, right? It's a meaningful jump and we're seeing that right now. That's point number one. Number two, because of that, we are seeing the most net new adds on customer. Now obviously, it provides nice current moment revenue stream. But I love it because there's that, but there's also a tailwind from penetration later on. The customer doesn't give you all the cases on day 1, right? Run through the existing inventory, at the same time, learning your assortment as well. So that's a nice tailwind.

And the third proof point is NLP, new loss penetration. This is a metric that Kevin and I and the entire team look at it on a daily basis. So Interesting fact here. If you look at the spread between new plus -- between new and loss, the exit rate for Q4, last quarter, the spread doubled versus the first 3 quarters of the fiscal year.

And that widening in the gap between new and loss is continuing into this fiscal year. That's another proof point, Ed, in terms of why we think this is the start of the journey of sequential improvement. The last thing I would say is the 750 people that we've added and the 300 plus that we plan to add this year. Kevin and I were very, very mindful and disciplined on when and where we add. So we do a look back all the time, looking at geographies, regions and see the correlation between ads and stability and we're seeing a nice correlation there as well. So those are the 4 reasons why I would say that momentum is real, and we believe based on these 4 areas that we're looking at that will continue into the rest of the year and beyond.

Yes. So I wanted to follow up on that. As you think about this idea of a productivity curve of your sales force, and you can do the math on this, where you see higher turnover, you hire people that are not very productive to start, right? Your sales force productivity really drops. Your cases kind of dropped with that. But the reverse is kind of happening now, right? So you start to see that improvement. And then the other side of that, right, is that you -- when you lose some salespeople, you lose some accounts.

They're probably pretty rich margin accounts, high private label accounts, but then you are adding accounts that take time to build. So there's another curve there. Both of those things seem like they are pretty positive for you in terms of what's ahead. Is there any potential offset to that. And the one thing that I do continue to ask questions about this is an idea of non-competes and the salespeople that maybe you lost a year ago coming off noncompetes now and some headwinds associated with that. So could you maybe just provide a bit more color about all of that?

Yes. Very fair question and I'll start. The full acknowledgment is in that fiscal 2025 that equation was a headwind for us throughout the year. Kenny, said the math. We were doing a decent job throughout the year of opening new accounts. We did that all throughout the year. Our loss rate increased this past year. I need to say the math. I'll repeat it because it's really important. In Q4, the gap between new and loss doubled versus Q1 to Q3, and that is a representation publicly of the progress that we're making. And it's widened even further in our Q1. And then the second point you made is about penetration. When you lose a long-tenured account, you replace them with a brand new one. Kenny just said that you don't get all the business day 1. So that means penetration is down as well. So that was a headwind throughout this past year. We acknowledge it.

The good news is the change that we made to the comp program was a quality necessary change. It was a good change. We lowered base pay to put more pay at risk, and we increased the earnings potential of every single sales colleague by putting more into the incentives. So think a $1 taken out of base, we put $1.50 into earnings bonus to motivate them. For the colleagues that work at Sysco now, they're motivated by this. We do an annual engagement survey, our colleague morale and our colleague engagement in the sales workforce significantly improved year-over-year. And we're having no problems at all hiring new folks in.

As I think about the year ahead and I'll fully acknowledge the month 13, we're not concerned about it. The majority of the departure when a colleague who served an account for 10 years, the majority of the customer at risk loss happens almost immediately and think about it whether or not that colleague can call on that account from somewhere else, Kenny has been calling in a restaurant for 10 years. He departs. I'm brand new to the company. I get assigned. I don't know the assortment. I don't know the pricing. I don't know that account the way that I should. That's when customers tend to look around and take a look. And then they can be pretty sticky when they make those choices.

So we're cognizant of the month 13, that when we put that part into all of the other parts, significantly improved retention at the end of this year, 1,000 incremental head count. A meaningful improvement in productivity of our workforce, which we'll talk about in a moment when I highlight some of our initiatives. It will be a net tailwind throughout the year. And we actually think it will grow, Kenny, throughout the year that gap between new and loss is going to widen each quarter. It's not a light switch. It will just kind of sequentially get better over time as the tenure of our workforce increases into initiatives and tools that we're deploying to help improve the productivity of our colleagues overall.

Yes. So maybe could you dig in a little bit there around some of the initiatives that you have that drive that growth. And as part of that, there's always been some concern around industry competition and pricing and your ability to grow that customer base in a pricing disciplined way.

Let's lean in there just to start on competition. We respect our competition. There's quality operators. We have respect for who we compete with. It's not just the big names, it's also regional specialty players. As Kenny said, we're by far the largest specialty player in the industry. We have a $10 billion specialty business. The second biggest player is 1/3 of our size. So we respect our specialty competition. We respect our Broadline competition. But we're confident in our go-to-market approach. We're never going to lean in to be the cheapest in the industry to lower price in order to win share unprofitably. We describe all the time, we're going to grow share, and we insert the word every time profitably as the most disciplined operators in our industry and our highest operating margin percent in the industry is a proof point of that. And then we're confident we can gain share and do so in a disciplined way.

The #1 thing by far, and I know we've hammered this point this morning is colleague health, retaining the colleagues we have, increasing the productivity of our colleague workforce at large and then adding to our headcount, which we said approximately 4%. That is the #1 most important. Everything else is, frankly, a distant secondary. It's that colleague health piece, and we're extremely confident in our colleague health being a tailwind for the year ahead.

With that said, let's move on to some other initiatives. We're really enthusiastic about some new programs that we have deployed late summer. And here's the due difference. I've told you before, we didn't roll out the new comp program as well as we could, and we learned a lot. We have a population at our company called the DSM, which is our district sales manager, approximately 500 of them. They each have approximately 10 sales colleagues that they are responsible for. What we've learned is we got to get that population into the mix early to explain the why of an initiative, get them bought in, make it theirs that they are owners of it such that when we do roll it out, it's their team coming along in a compelling and positive way. We brought all of our DSMs. This is the first time in company history, a 56-year-old company, we brought all of our DSMs to Houston to talk about our key initiatives for 2025 and the roof blows off the building. There was so much energy at that meeting talking about these initiatives.

So without further ado, let's jump in. So Perks 2.0, we've had a Perks loyalty program out for a couple of years. That program historically was a marketing program, a points earned could be redeemed for discounts type program. And those programs are fine. They're good. But they're not as good as a service elevated program. Think about your favorite hotel. We're sitting in a Bonvoy properly -- property. Think about your favorite airline. All of you travel a lot, you probably have a favorite hotel loyalty program. You probably have a favorite airline. And if you have choice, I can pretty much guarantee you're choosing the airline that you have most affinity to relative to their program. And it's not just because you're earning miles or points that you can do for redeem. The difference is because they treat you different. You can board earlier. If there's a problem, they're rescheduling you to the next flight in a timely manner when everyone else is on the phone trying to get through to a call center. I think you all understand the examples that I'm making.

So at Sysco, we're converting perks into our best customers. I want to be very, very clear. These are independent mom-and-pop restaurant customers. This is not national chains because I got a question about that at the last meeting, mom-and-pops. 15-ish percent of our customers, there is an absolute pareto on the percentage of sales and the percentage of profit that they drive. We've not gone public with the percent and the percent of sales and profit, but 15% of sales -- 15% of the customers, much higher percentage of our sales and even higher percentage of our profit. So these customers, they matter massively. And we retooled our service offering for these customers. We launched it a month ago.

Every function at Sysco, when one of these customers has a need and they say, jump, we say how high. So it's routing preferences day of week, time of day. It's if ever there's an inventory allocation problem, and these things happen in our space. Avian flu reduced the supply of eggs. We simply weren't getting the inbound quantity that we needed. These customers aren't getting shorted. If you're going to have to short someone, you're not shorting one of these customers. There's a damaged case on a delivery. We have fragile product. Guess what, we're going to do a hot shot out to that customer. No questions asked. There's no hoops to jump through. These are just examples.

We're going to have a 24/7 hot desk call center that is equipped to answer the phone and solve the problem right in the spot moment. And the person who's going to use that call center is actually our sales colleague because oftentimes, as they're at these accounts, there's a challenge, whatever it may be. And our colleague has to jump through hoops to try to get that answer, and they take days to get an answer. We're going to get that answer right then and there. We launched this program nationwide. We had piloted it. The pilot results are compelling. The metrics of success would be significantly improved customer retention within these Perks customers and significantly improved penetration because when you're providing this level of service offering, they give you more of their business. So we're really bullish on Perks.

It's early innings. The feedback we're getting from our customers is they notice, they see the difference. And in our industry, on time and in full, that's what matters more than anything. Sounds simple, does hard. We're going to deliver on time. We're going to deliver in full. And for these customers, we're going to do that each and every day. That's topic #1.

Topic #2 is what we call AI360, which is an AI-empowered CRM. And for the long term, we are meaningfully, meaningfully bullish on this capability. It's literally in their smartphone in the palm of their hand. For years, we have had our colleagues do call plans for their week and think about a sales rep having 50-plus customers. That's a lot to keep track of, a lot to know about a customer. They plan out their week. We want our sales reps to be in every single account, every single week. With AI360, when they're in the car, in the parking lot of the restaurant, they can pull up their customer account, and it will prioritize for them the next best actions or the most important things to be done that day.

Here's the case you can sell that you've not sold before. Here's a case you've lost to a competitor that you need to win back and here's a preapproved deal. That's where pricing comes in. Here's a preapproved deal to win it back. And here's the Sysco brand conversion. You can save that customer $11,000 if they convert from national brand to Sysco brand. That's prioritized next best action, specific to that restaurant, their cuisine, their economics, their trade area and the competition around. That sounds simple. That is really hard from a data perspective. We have all the data. We have a treasure trove of data. The unlock here, the power here is literally in the palm of their hand and a super user -- super easy-to-use user interface, prioritizing the focus of that business. This is just one use case, by the way.

A second use case is they can talk into their phone and ask it any type of question, and this is the power of AI. They can ask it anything. Do I have gluten-free pizza crust in stock in Cleveland today? It will give them an answer instantaneously of the SKUs, the quantity on hand, national brand, private label, good, better, best. And if they want to click on it to learn more about how to sell it, they can click on it, it will actually give them a script on how to present that product or why we love that item. That's the breakthrough.

Colleagues that are new, we've had more turnover than we desired this past year, don't have that innate selling knowledge, a 20-year vet, 30-year vet. The benefit from this tool, the real benefit is from the newer colleagues. And what excites us is if we can shorten the length of time between a new hire getting to productive through a capability like this, it's powerful. That's second use case, just an example.

Third is a maps app. Within the app, and I'm only going to give 3 and then I'm going to toss to Kenny because I know I've taken a lot of time here. We have shopping centers that have 15 restaurants. We may serve 2. But our sales colleagues doesn't necessarily innately know is it a peer of mine calling on one of those restaurants? When is the last time we called on one of those restaurants? Is it a competitor's account? So we now have in that same tool, a maps app. They're in the shopping center. We're delivering to insert here. They can see on the map through pins, we have this data. We've sourced the data.

When is the last time we called on that customer potential, who called on them, what was the conversation and it's increasing the likelihood of our colleague calling on new accounts. And we're seeing an increase in our new customer open rate tied to that. So AI360 is an unlock. To be clear, we're not reducing our headcount through this tool. We're not decreasing the importance of our sales colleagues through this tool. This is a relationships business. What this is doing is making that sales colleague more effective, more knowledgeable, more productive. And for the long term, we are very bullish on it. Kenny, what would you like to add?

Yes. Two things. One is it's important to understand that our listers' plan, the majority is driven by self-help. What Kevin just mentioned, these 2 things, I would call them icing on the cake, pun intended. These are meant to be accretive to what we have in the guide. So -- but we're not banking on any of this. As Kevin said, some of this is in pilot form right now, and it's very encouraging. You can tell by the excitement from Kevin that we're seeing really good correlation, for example, and it's early innings right now, but we look at actually usage versus growth from an SC -- earlier SC, and we see a correlation between the more you use, the more you're doing well. So again, this is the proof point that we're really excited about, right?

On the Perks side of the house, again, we're really excited about this. And I just want to clarify, this is not scraping Perks One. This is building on top of it, right? It's building on top of the fundamental foundation we've already done for the past couple of years and really enhancing. And my favorite part of this is it's a very cross functional collaboration. My team is involved, right, because now they have a hot line with the AP side, AR side, right? There's a preferred routing. And so it's a cross-functional. So it really showcase and demonstrate the power of One Sysco.

The driver will see in their handheld device that it's a per customer. The credit analyst on Kenny's team will see it's a per customer everywhere across the company, leaning in hard. Ed back to you.

So maybe just switching gears a little bit to international. Performance has been very impressive. It's a growing portion of your EBIT. It's a growing portion of your EBIT growth. Can you maybe just talk a bit more about the opportunity there and sort of what's ahead?

Sure. Kenny, why don't you start on this one?

Sure, I can start. The headline news is we are very pleased with our performance in international. The momentum is we saw that last year, and it's continuing into this fiscal year as well. Just kind of take a giant step back, international is roughly 20% of our portfolio is international. And if you think about the profile last year from a P&L standpoint, top line was roughly 5% sales growth. OI was roughly 20% growth. And in Q4 marked the seventh quarter of consecutive double-digit growth. So the question from you, Ed is what's driving it? And will it continue? The answer is yes and yes, right?

So if you think about the top line, historically, in some of our bigger markets, they were indexing towards call it, national accounts, right? Kevin and I is pushing them to go back and grow local case growth as well, and that's working. So the Sysco playbook is working on local case growth. Last year, they grew roughly 4.5% on local case, and that flows down nicely on the GP side as well as the OI side. That's one piece of it. The second piece is the GP work that they've done. So leveraging the playbook on strategic sourcing. And if you think about it, yes, there will be certain products that we buy in market, for market, but also we're also buying products now as a European hub as a European scale.

So think Europe, don't think just Canada, think North America, right? So these are things that we're actively working on to drive leverage on the GP side. And obviously, as you grow local case growth, your Sysco brand penetration goes up as well, given that there's a spread between national and local. And the last piece I would say is that on the supply chain, SG&A side, the team has done a real nice job on supply chain. Obviously, with volume helps on the cost per piece side, but they've done real nice work on piece for labor hour, et cetera. So all of that, coupled together with cost containment on SG&A gave us a nice 4x leverage from sales down to operating income. The good news is it's not just one market. It's not our biggest market, Canada and GB driving it. Every market, every region grew double digit for us and every region grew local case growth as well.

And then the other thing I would say is that one of the questions we get sometimes is the margin profile of international. And when I first joined the company 2.5 years ago, the margin was roughly 2% on OI. And today, we're over 4%. So there's nothing structural that would impede our ability to have the margin profile of international be similar as our U.S. business. And I'll finish with this point. Because of the confidence we have in the business from an M&A standpoint, it is -- as Kevin and I have a term, they're open for business, right? So they've proven with the most recent acquisition with Ready Chef in Ireland as well as Campbell's in GB that they've done a nice job growing those 2 businesses. So they're open for business. Nothing to announce here, but we have a robust pipeline. And last but not least, we have 3 buildings running live right now. And that will further expand our moat and further increase our, I would say, competitive position. They're in GB, Sweden and Ireland. So we are investing for growth as well.

Great. As we think about balance sheet, capital allocation, obviously, you had a good point from a leverage standpoint. You've been there for a while now. You pay a nice dividend, you buy back stock, you're acquisitive. Can you maybe talk a bit more about the priorities there, specifically also as it relates to M&A international versus U.S.? And then from a CapEx standpoint, how do we think about the longer-term outlook in CapEx in an industry that I think maybe potentially has a chance to automate, right? Sort of a way that you're thinking about all that?

Yes. So I can start and then toss to Kevin, for the supply chain automation side. So in terms of our capital allocation, one of the things that investors love about our company and I love about our company is the fact that we're disciplined and consistent around capital allocation. So we are, first and foremost, invest for growth, invest in our business. This includes, obviously, for our customers, leasehold improvements, fleet refreshes, maintenance CapEx, growth CapEx. And as to your question, historically, we ran about roughly 1% of sales as our CapEx. This coming year, we'll be a touch lower than the 1% because we invested quite a bit in the past few years, and we want to grow into our capital expenditures. So it's part of the ROIC mentality.

So think about the Tampa building that we've opened, right? Think about Allentown, Las Vegas, [ Red ], right? These are buildings that we built and now we have to make sure that the return is there as well.

So again, this year will be slightly under that 1%. And then in terms of the leverage ratio, we are comfortable operating second party -- comfortable operating within that 2.5 to 2.75x ratio for leverage. And we think this is a sweet spot where you can be investment grade and invest in business and we return to shareholders, right? And so maintaining IG is really important for us. And last but not least, returning back to shareholders. Last year, we returned over $2 billion, this year we'll return in the ballpark of $2 billion as well between dividends as well as share repo, and that can flex up and down depending on M&A.

In terms of automation, the way we think about this, and I'll turn it to Kevin very soon, is technology stack, automation, it is part of our DNA at Sysco as we think about not just from a go-to-market standpoint, back office go-to-market and the fact that we scale, we have so many literally pieces in our business. So when you shave a penny off or few pennies off because of routing or because of labor standards updates, it really matters, Ed. So for us, yes, we're thinking near term, midterm and long term. And we have a laddering approach for automation. But the real takeaway is that when we can drive a $0.01 or $0.02 or $0.03 out of shrink, for example, or maintenance, et cetera, it really scales across the enterprise. So we feel we're investing in this area, and we'll be very mindful of financial returns. So Kevin...

Yes. Just -- and I know we're approaching at time. So on the automation piece, Think about there's the warehouse activities and the delivery activities. The by far, more important activity is the delivery activity. It's the most expensive part of the transaction, it's customer impacting part of the transaction. We're investing meaningfully to modernize, upgrade and have world-class routing software. And as Kenny said, we can take 1%, 2%, 3% miles off the road. We drive millions of miles. It is meaningful to the P&L, taking pennies off of the 1 billion-plus pieces that we will ship in the year. So when I think about supply chain technology, routing, it's like the heartbeat or the POS of our business, point of sale of our business is routing.

Within the warehouse side, we have multiple in-flight projects at any given time, inspecting what's possible within our space. This is about labor cost reduction. More importantly, it's about labor availability 10 years from now, 15 years from now. I had the wonderful privilege ahead of recognizing a selector in our freezer 49 years with Sysco, has only worked in a freezer for 49 years. That's a unique person. And how many people are going to be willing to do that 10, 15, 20 years from now. So we are meaningfully focused on robotics within the warehouse. I think about it less though of a fully automated facility with a $300 million CapEx and a 20-year return, are there individual components of the work.

We have a selector building a pallet. We can have an AGV load the pallet onto the truck. We can have an AGV unload the truck pallet. We can have a person sitting remotely moving the replenishment activity from reserve rack to the primary pick. So we're working on all of those things. No big announcement to make today. We're going to be very methodical about the form of technology, the return on investment on that technology, and we have ample capital to be able to do those types of things.

Great. Well, with that, we are up against time. So I wanted to thank you again for participating in the conference. And I hope you all have an enjoyable event. Thank you.

Thank you.

Thank you all.

Good morning, everyone. My name is Jeff Bernstein, and I'm the restaurant and foodservice distribution analyst at Barclays. I'm pleased to introduce our next presenting company, Sysco Corporation. With us this morning, we have Kevin Hourican to my immediate right, President and CEO; Kenny Cheung, CFO, sitting right next to him; and in the audience, we have Kevin Kim, Head of IR; and Joshua Long, Senior Director of IR.

And obviously, we are thrilled to have Sysco and actually, I have Yum! here as well, and we've gotten those two in as consumer staples, but otherwise, our primary consumer discretionary conference is our Eat, Sleep, Play, Shop Conference, which includes many of our other restaurants and foodservice distributors. That's in our New York offices, once again the week post Thanksgiving. So December 2 through the 4 this year. We hope to see many of you there.

But now back to Sysco. By way of background, Sysco is the global leader in selling, marketing and distributing food products to restaurants and others. Globally, Sysco services 730,000 customer locations from 340 distribution facilities, generating $81 billion in sales this most recent year with 60% plus going to restaurants. But to share more detail, I will turn it over to Kevin and Kenny to walk through some of their bigger picture slides, and then we will do some Q&A with the remaining time.

But with that said, I want to turn it over first to Kevin Hourican.

Yes. Appreciate it. Okay. Good morning, everyone. It's a pleasure to be back with you all again. I have this obligatory slide. We all have seen it, so we move on from that. So great to be back in Boston, have an opportunity to talk about our business. My upfront 5 or 6 slides are some content that some of you have seen before, for some of you who might be new. I do have some new content at the end. So I'm going to move through these initial slides at pace. So I can get to that content and then turn it over to Kenny, who will walk us through the finance portion of the deck.

So without further ado, this is a page that talks about who we are at Sysco. As you know, we are the #1 player in the food away-from-home distribution space, both here in our domestic home as well as in most of our international countries that we operate within. We did $81 billion in top line in the most recent year, and we like to say that size and scale has its advantages that we will bring to the marketplace on an increasing rate over time.

We have #1 market share here in the United States as well as in multiple other countries, which I will get to in just a moment. We have a $9 billion specialty business, which is more than 3x the size of our second biggest or next biggest competitor within the specialty space. I will talk more about specialty in just a moment. We have a very diverse customer portfolio. Yes, we are all things restaurants. Roughly 2/3 of our business is restaurants, but 1/3 of our business is what we call recession-resistant categories like government, education, healthcare, foodservice and buildings like this as well as office complexes. We are #1 in essentially almost all of those businesses. We're #2 in the healthcare space.

So let's talk more about food away from home. This is arguably our favorite chart. We have another one that shows the $370 billion total addressable market in just the United States. Most importantly, though, the market itself grows each and every year. And the [ Y ] is the chart that is shown here. The up to the right line is the food away from home of market share, the down to the right line is dollars spent at grocery.

And this is a very persistent trend that has lasted for decades. Our consumers are time starved. And across all three dayparts, whether it's breakfast, lunch or dinner, more and more meals are chosen to be eaten out or ever presently brought to their home but purchased away from home. It is a strong trend, providing a good tailwind to our business, which, in addition to our ability to take share, which we have taken share each and every year for the past 5 years, results in a compelling CAGR.

As you can see, 11% CAGR since our inception. We've grown our top line 54 out of the past 57 years, the '08, '09 financial crisis was 1. And then the 2 years at the beginning of COVID were the second and the third year. We are the #1 player on what we call national. We are #1 in local, and we are #1 in our specialty space. And we have an opportunity to take more share profitably. That's the most important word, taking share profitably in each and every one of those business segments.

Now let's talk a little bit about our reporting segments. Our international business is doing incredibly well. We have a compelling opportunity to continue to grow our international business. We sized that as more than a $10 billion opportunity over time. We have a meaningful opportunity to grow our specialty business, which is produce and protein equipment and supplies and what we call the ethnic foods segment, which is mostly for us, Asian Foods and Italian Foods.

We have a $10 billion growth opportunity within specialty. And last but not least, we do have opportunities in M&A. Those are tuck-in opportunities, those are specialty acquisitions. And as we think longer term, we can think about international opportunities, all at industry-leading profitability ratios. We have the, by far, highest operating income percentage in our space, and we intend to continue to be the most disciplined operator in the business. We run a compelling business model across the world. As you can see, 80% of our business is domestic, 20% of our business is international, and we are growing international faster, both top line and bottom line than our domestic core business.

We've doubled the profitability percentage of our international business over the past 2 years alone, and there's no headroom, if you will, or glass ceiling for us to be able to not penetrate through when we think about the long-term profit growth potential of our international business.

Why are we succeeding in the international. We are running what we call the Sysco play in each and every country that we go to. That means modern warehouses fueled by modern technology, a boots on the ground local sales force that's selling a broad product range, I order tonight, I can deliver tomorrow from that broad product range. When we replicate that playbook with the addition of Sysco brand private label cases being put on the truck, we win market share, we win so profitably, and we grow to become #1 in the countries that we compete with and around the world.

As you can see, the circles are the total addressable market within each country. The green bar is our market share in 2019. The blue bar is our market share in the most recent year, and we have improved our market share in each and every country we compete within around the world and that will not slow down. In fact, we believe it will accelerate.

So I went through those charts at pace to get to the next two slides, I'm going to slow down and have an opportunity to talk about some net new information on these slides. The headline on the slide says what we want you to hear today and it's the takeaway from today. We are inflecting positive in local in the spot moment.

We are making meaningful progress in our local business. And if you leave this conference and remember only two things about the Sysco story. We have double-digit growth potential, and we're producing those results internationally, and we are meaningfully, meaningfully improving our local business right here right now. Today, we're encouraged by the progress that we are making within our local business. The bars on the chart show our Q3 into Q4, and you can see the 200 basis points of improvement that we have delivered. We are in our Q1 as we speak, and that momentum has continued.

If I could unpack that a little bit more. Our U.S. Broadline business has inflected positive. We are positive in our local business, and we expect to be positive in our U.S. Broadline business in Q1, and that is a net new data point being introduced today. Our USFS business, which is a bigger business, which includes both broadline and specialty is coming up a little bit slower behind that because you may recall on our most recent earnings call, I talked about in our FreshPoint produce business, we actually exited one of the business lines within FreshPoint and that's a little bit of a drag on the business right now. So USFS is improving at a similar rate and will take just a little bit longer to get to positive. We'll talk more about that on our earnings call on Q1.

So why are we succeeding and why are we now expecting to be positive in Q1 in our Broadline business? It starts and ends with our colleague population. We have absolutely stabilized our sales consultant workforce. Our retention is at all-time highs. We are confident in our ability to sustain that performance all through fiscal 2026. So the headwind that you know existed in our business last year, which was elevated turnover will not be repeated in 2026, hard stop.

Second point, the hiring that we have been doing, and I'll cover that on the next slide, is beginning to pay dividend, provide dividends as more and more of our colleagues are graduating from first year into second year in their productivity and their yield increases. Those two things together, not repeating the turnover challenge from a year ago, increasing productivity of our new hires. Together, that is what we're referring to as colleague health and colleague productivity, and it is the reason we have inflected positive in our Broadline business, and it is the reason we are absolutely confident in our ability to deliver against the guidance that Kenny will talk about when he is here at the podium.

Colleague Health. When we layer on top of colleague health compelling initiatives, which I'll cover in a moment, that is the icing on the cake that gives us the confidence to be able to win share and to be able to do so profitably. How do we know this to be true? We can see the widening of the gap between new customer wins and customer losses, providing the separation between new and lost that we need simultaneously while penetrating additional cases with existing customers.

We call that new, lost and pen within our industry. We have successfully widened the gap between new and lost and we're increasing the penetration with existing customers through compelling growth initiatives. And as I said, we're on track to be positive in local, in U.S. broadline in Q1.

So let's talk a little bit more about the actions that are giving us the confidence for the momentum that we are already delivering and the increased momentum we expect to be able to drive throughout fiscal 2026. Kenny talks about well-laddered investments across time horizons, long-term investments, midterm investments and right here in the now moment investments. The top left falls in a midterm type investment, increasing the -- our boots on the ground colleague workforce.

As you can see on the chart, we've been growing our sales workforce approximately 4% for the past couple of years. That will continue into 2026. Approximately 4% head count growth. 100% dedicated to Street, essentially 100% focused on winning net new business so we can profitably grow. We are on track with that investment. The colleagues that we hired over the past 2 years are hitting their individual productivity targets, and we're pleased with the return on that investment.

The top right is a longer-term horizon of investments. Kenny talks about 5- to 10-year out time horizons. And that's the building of net new physical supply chain capacity. Here in the United States, we have a new building within the past year in Allentown, PA. To be crystal clear, it's not about Allentown, it's about the population dense Northeast corridor and increasing our ability to store products needed by our customers to deliver on time and deliver in full.

Just a month ago, we opened our next brand-new building in Tampa, Florida to support the growing Florida market to be able to win share profitably. We've communicated publicly approximately 10 buildings across the world, have been approved over the past couple of years all coming to life now, which creates the capacity for a broader assortment to support it -- new business in both national and in local, and we are pleased with the performance of these large supply chain investments.

The bottom left is where we talk about specialty. I mentioned before, a $10 billion growth opportunity within our Specialty business. How do we apply that math? We have approximately 17% market share in total. In specialty, we have less than 10% share. Getting our business to our fair share of that business is a big opportunity, and we prove it with the how that is shown on the bottom left.

When one of our broadline customers adds a single specialty business like FreshPoint to their purchasing, we have a 3x increase in the revenue from that customer. If they buy from specialty meat, which is our bucket, and Newport business, on top of FreshPoint, it's a 6x yield. So we are getting smarter, more strategic and better at bringing together our sales organizations to provide more from Sysco to meet their needs and to make it worth the while of the customer to do exactly that. We are -- we call this total team selling, and we're extremely pleased with the performance outcomes.

On the bottom right, our growth initiatives that I talked about on our most recent earnings call. In the month of July, we rebooted our loyalty program, it is called Perks. It previously was more of a marketing program where you buy X, you get rewards of Y, and you can redeem them through purchases Z. That is good, it's valuable, but it is not as important as providing a hard-hitting service improvement experience for our absolute best customers.

And I want to be crystal clear, these are for mom-and-pop local independent restaurants. This is not for national chains. These are our most important, most profitable local customers. We are going to provide them a step change improved level of service. It will not cost Sysco more money. This is about prioritization. They will get the window that they desire, delivery window. We will be on time at a higher rate. Their fill rate will be higher than the book of business average. If ever there's a challenge or a problem, it will be resolved on the spot immediately. It sounds easy, does hard. Think about the hotel that is your loyalty program or the airline you prefer. You're not paying for your ticket at a lower rate. You're getting a better level of service from that airline that you prefer.

If you're one of their top customers, it's the same thing in our industry. It will make a difference. It will be measured through improved retention of these most important customers and increased penetration of cases sold to these top customers. We have piloted this program. It is having a compelling yield and we expanded it nationwide in July or I should have said rolled out Perks 2.0 nationwide in July.

Last but not least for me, so I can hand the microphone over to Kenny is AI 360. It is a selling tool in the palm of our colleagues' hand. It's literally their smartphone. It is our CRM turbocharged with AI to improve that sales colleague's ability to sell. And we see a great customer visit, you sell an item you haven't sold before, win back a loss case and switch from a national brand to Sysco brand for something that will save the customer money with a great quality flavor profile. Salesforce 360 powered through our AI is enabling us the opportunity to do that at a better rate in the palm of their hand, prioritize [indiscernible] .

As I'm in my truck ready to walk into a restaurant, it tells me what I can sell, how to sell it. And if I have any questions, I can talk into my phone, and I can get those questions answered on the spot. More on that later, but we rolled out this capability 2 weeks ago nationwide and the positive feedback from our colleagues has been outstanding.

So with that, I'm going to stop. But again, the takeaways. We're extremely pleased and proud of our international business, and we are inflecting positive in local and the momentum that we are building in local is significant, and we are pleased with the progress that we are making. So Kenny come on up. I'll turn it over to you.

All right. Thanks, Kevin. So hello, everyone. It is great to be back in Boston with all of you today. Thank you for your continued interest and support to the Sysco Corporation. We are excited, as you heard from Kevin, about the quarter-to-date momentum that we're seeing in our business and the compounding improvements we expect going forward.

So far, Kevin has talked about 3 exciting items. Number one, our leadership position in a growing attractive industry. Number two, our strong track record of delivering long-term success. And last but not least, the balance of initiatives that are driving near-term momentum while also setting our enterprise up for long-term success and growth. So today, during my presentation, I'll talk about how these items translates to our industry-leading financial performance across the P&L, the balance sheet and cash flow.

So let's start with the key piece of information. As Kevin shared, our local case volume has improved further versus Q4 results. This gives us confidence, and I'll say it again, confidence in reiterating our Q1 and our FY 2026 guidance as we're on track to deliver top line of 3% to 5% sales growth and EPS growth of 1% to 3%. Excluding the impact of incentive compensation, adjusted EPS growth would be 5% to 7% for FY 2026. As seen on the slide in front of you, we have achieved performance in each of the past 5 years. This is across both top line and bottom line. And we are positioned to deliver another record year in FY 2026.

So if we take a giant step back and look at the past few years, you can see that the CAGR of sales has been roughly 5% and the CAGR for EPS has been roughly 9%. And Sysco has proven to be a resilient company, able to grow across all various market conditions. This consistent performance also includes what we call positive operating leverage with gross profit growing faster than operating expenses.

This attractive return profile also includes our #1 market leading position. And as Kevin mentioned, size and scale matters in this industry as it's -- for Sysco, it renders five things: number one, leading sales -- industry-leading sales; two, margins; third, free cash flow; fourth, ROIC industry-leading; and last but not least, the only investment-grade balance sheet in the industry. These industry metrics are a position of strength and illustrates our strong quality of earnings.

As Kevin noted earlier, Sysco holds the position as the global market leader with a diverse portfolio of operations across the food away-from-home sector. Restaurants, as Kevin said, roughly 60% of our total revenue mix, and it grew 3% year-on-year in FY 2025. We're encouraged by the momentum of this channel, especially on the local case growth front, which is driven by self-help and growth initiatives. Looking beyond restaurants, as Kevin said, we are majority #1 in all the space that we play. We have travel and leisure, we have education, we have government. These areas are growing mid to high teens in the range.

Healthcare business doing well as well, growing high single-digit range. We are encouraged to see that our growth being both accretive on the dollar standpoint and margin standpoint, accretive to historical levels with a multiyear contract in place. So it's locked in stream for the next few years at least and every year it renews. The mix is strategic if you think about it. As Kevin said, these are what we call recession-resilient segments, and they are sticky business as well. This is one of the reasons why on the chart that Kevin highlighted earlier, we have grown sales in 54 of the past 57 years.

More specifically, as you think about our performance versus the average industry core peers, you can clearly see there is benefits and advantages across both the income statement and the balance sheet. Our competitive advantages, combined with operational rigor allows Sysco to have what I call meaningful spreads versus our average core peers.

So let's first start with the income statement. If you look at the left side of the chart, and I'll guide [indiscernible] eyes with you, left piece of the chart, from a GP standpoint, Sysco last year generated 18.4% gross margins, that is 1.3x higher than the average core peer, really driven by our power of size and scale.

Turning to adjusted operating margin line, we generated over 4% operating margin last year, and that is roughly 1.5x higher than the average core peer. And that's really driven by what I call Sysco-specific levers across gross profit such as strategic sourcing, leveraging total team selling to sell our specialty product, which has a higher margin attachment rate and also driving international growth, which also comes with a higher gross margin.

But we don't stop there. We're also focused on the middle part of the P&L as well around operating expense levers. And this includes supply chain efficiencies across retention and labor productivity, structural cost out and also optimization of our corporate GSC SG&A costs, which was down 6% year-on-year in FY '25. These are meaningful, permanent structural advantages that shows up across our P&L.

On the balance sheet side, we have industry-leading cash flow conversion. So as you think about EBITDA to operating cash flow, roughly 70% conversion, EBITDA to free cash flow, roughly 50% conversion. As you look at the chart in front of you, you can see that Sysco generates roughly $2 billion of free cash flow annually, and that is 2.5x higher than the average core peer. So as you think about the robust cash generation profile of our company, we have the luxury to invest in our business and reward our shareholders as well through share repurchase as well as the dividend, roughly current today, 3% yield, which is right between that 40% to 50% dividend payout ratio. And that's a key differentiator. We're the only ones that pay dividend in this industry.

So as you think about the backdrop of capital allocation, all of what I just mentioned earlier is underpinned by a balanced and discipline capital allocation as we leverage the ROIC mindset to ensure capital deployed across various asset classes, which are well laddered to Kevin's point, yields optimal return. First, we will invest for growth. We will invest in our business. We generally plan for CapEx to be roughly 1% of sales. This consists both of growth CapEx and maintenance CapEx.

For FY 2026, we will come in a touch below that 1% target as we plan to grow into our investments that we've made in the past few years and to ensure that we render returns on the invested capital portion of ROIC. Second, we remain committed on our investment-grade balance sheet, and we're comfortable operating within 2.5 to 2.75x net leverage ratio. Last but not least, excess cash. We are committed to rewarding our investors with a steady flow of share repurchase and dividends as we did in FY 2025.

So here's my last page. I won't read the slides, but I'll tell it to you in my own words. We like our position. In fact, we love our position. We are the industry leader that sits in the industry that's attractive and growing. We have a balanced and diversified portfolio across geographies, channels and product mixes. We have multiple and multiple vectors of growth across our core business as well as M&A via local chain, specialty and international, and we also have a solid pipeline of growth initiatives that will further drive our earnings trajectory.

Our industry-leading margins, balanced capital allocation as well as strong ROIC yield a TSR of 9% to 11% on the forward for our shareholders. We have a strong track record of providing dividend growth as well as share repurchases. So this allows us to have an investment-grade balance sheet and deliver value at the spot moment while playing the long game on the floor. So therefore, whether you are a value investor, a growth investor, an income investor, Sysco provides extremely compelling opportunity.

So I will end with where I started, which is we are excited about our quarter-to-date performance, and we are very confident in Q1 as well as the full year 2026 guidance. We have the right leadership team in place to execute against this plan. We are focused on consistent delivery results, which will compound over time. This is a great time to be at Sysco. Our future is bright, and we are positioned to win. Thank you for your support.

And with that, I'll turn it over to Jeff for some Q&A.

Great. Thank you very much. A very thorough presentation. With our remaining minutes here, there's obviously lots to dive into, but where you started and where you ended is probably an area that garners a lot of attention. So first question is just on the local case growth and the momentum you're seeing there. If you could just share more about the progress being made in this part of the business and your confidence in sustaining?

Yes, sure, Jeff. Appreciate the question. It's what we're most pleased to be able to talk about and report today is the progress that we're making. First, just context. The overall macro is getting nominally better. So from Q3 to Q4, macro traffic -- reminder, traffic to restaurants has been down for more than a year. So from Q3 to Q4, traffic improved. We've seen a continued improvement in foot traffic to restaurants overall.

But Jeff, what we're really pleased with is our business performance is improving at a faster rate than that overall environment, most specifically with small mom-and-pop independent operators. In fact, oftentimes, it gets written that big national chains are doing better than local. That is not accurate, we are seeing actually our local business doing better than big national chains. Now to be honest, and fair, a big part of that is we're able to take share within that local space, and we are taking share.

So we said today on main stage, we will be positive in our USBL local business in Q1, USFS, which includes our specialty businesses, we'll trail that a little bit because of the business exit that took place within FreshPoint, but we're pleased with our performance sans that business exit, and we're really pleased with the progress that we're making.

If I answer the question of why are you making the incremental progress that you're making? As I said on stage, it starts and ends with our colleague population. Retention is solid, productivity is improving, the new hires that we have completed over the past 2 years are kind of finding their rhythm and really growing into their job. And when we layer on top of the initiatives, I want to be clear. The initiatives I discussed today, Perks 2.0, AI 360, they're not in the improvement that I just talked about.

They literally just launched weeks ago and that would be icing on top of the cake. What we say internally to our team, we will make plan this year just because of the health of our colleague workforce, meaning that one topic is so important. It will help deliver our profitable growth. The initiatives that we're bullish on give us an opportunity to outperform, and we're really excited about what is to come at Sysco specifically within local.

Yes. Just to plus up on Kevin. We are very confident with our local performance. We will be positive for a total USFS for the year. As Kevin said, we will be positive for USBL for Q1. As I think about from my chair and from your chair as well, some of the proof points that we're seeing right now in terms of -- that yields us confidence. One is the cohorts are coming in right now. These are the highest that we've hired recently, 750 between 2024 and 2025. And then this year, we're hiring another 300 as you saw in Kevin's page.

And these cohorts are climbing up the curve, and they are exactly where we want them to be right now in terms of productivity. So really good progress there. And because of that, we are seeing -- and as you know this, we are seeing a new customer ramp up every single month. Our -- as Kevin mentioned, the spread between new and loss has widened. So in Q4, it doubled versus the first 3 quarters, and now we're seeing that increase again.

And that's the reason why every single month, we're adding net new customers to our portfolio. And I think you all know this, today's new customers is tomorrow's penetration. So we're seeing not only the spread between new and loss widened, we're also seeing penetration go up as well. And the third point I would say is that let's not forget about international. International is a growth engine for us and local business continues to do well. Last year, you may remember, we were mid-single digits for local case growth. And right now, we're in the same ZIP code as well. So good progress globally on local.

Great. My second question is on the fiscal '26 guidance, which for those not familiar, Sysco runs on a June 30 year-end. So we are in their first fiscal quarter, the final month, but we have 3 quarters to go. Just wondering if you could talk a little bit about your confidence in that guidance. And then maybe layering into it just because it's such a popular topic, the current state of the consumer and the local restaurant industry as a whole, kind of your thoughts on the health there.

Kenny, why don't you?

Sure. I can start and then I'll turn it over to Kevin. So there's a couple of reasons why we are extremely confident in our FY '26 guidance. One is I would group them as what I call self-help and momentum. As Kevin and I have said before, we believe our plan is achievable and realistic. That's point number one. And the plan is contingent upon self-help, things that we control as an enterprise. It is not contingent upon the world getting better, the market getting better, et cetera.

If anything, we plan for the world to be similar. Now if it gets better, that's great. But right now, our plan is based on self-help. And the second bucket is momentum, we're seeing momentum, as Kevin and I just spoke about, local case growth, but there's more to our business than just local case growth. Our national business is going really well, growing case -- taking share profitably. As you saw the recession-resilient segments doing really well, double-digit growth.

International business, 7 quarters of double-digit growth, doing really well as well. And let's not forget, last quarter, we saw gross profit expand both dollars and margins, and that is a gift that keeps on giving because nice carryover benefit in FY 2026. And let's not forget supply chain, we haven't spoke about that because things are going really well there. Retention is working really well, productivity is hitting all cylinders. And by the way, corporate SG&A, we plan to do really well there this year as well. So if you think about our business, yes, local volume has momentum, but the other parts of the P&L are actually harmonizing and driving great outcomes for our business as well.

So I'll just address the last half of Jeff's question. So consumer health, just overall macro, other things that are going on. Best way to describe the consumer again across the very, very broad type of business that we're in is they're holding in. Q4 for us was better than Q3. July was better than Q4. We're continuing the momentum to inflect positive. We just communicated today. We are positive in our USBL business. We expect to be positive in Q1 and that business was negative in Q4. So health improvement.

Now part of that, Jeff, what's hard for us is it's coming from self-help. We're taking share profitably. But the general consumer holding in there from a food away-from-home perspective. We also have 1/3 of our business that's not tied to the end consumer. We call it noncommercial, government, hospitals, education, Kenny covered it in his prepared remarks. We're winning share meaningfully in that space, and we're doing so profitably.

So we're feeling reasonably cautiously optimistic about the full year. We are not expecting for it to improve macro. We can grow by taking share profitably from the industry.

The second topic for me would be tariffs. I'll do this really fast. Some data that may be useful for you. Relative to other industries, tariffs will have a smaller impact on our overall P&L. Greater than 90% of the food that we buy is bought locally within each country in every country that we operate in around the world. Food is an inherently local supply chain.

For the 5% to 10% that's bought internationally, the majority of that, knock on wood today is exempt through USMCA because it's produce and potatoes and the like from Canada and from Mexico. And those are exempt from tariffs. Why? Because you can't grow the produce in the United States in the wintertime that we buy from Mexico and the government has been thus far, quite reasonable about that. So yes, we're talking to the government. We're reinforcing the need for a USMCA extension of that exemption.

As long as that holds, the impact to our cost of goods sold inbound is reasonably moderate, and we can push back on suppliers. So we will work hard to minimize that cost increase. If there is a cost increase that we can't minimize, it's a reasonably efficient marketplace that we compete in, which translates to, we'll be able to pass that cost increase on to our end consumer. We will work very hard, though, to prevent that from being needed, if necessary, we can pass it through. That's the general take on tariffs. So it's not material to our fiscal 2026 and it's being managed properly and being managed well.

Jeff, back to you for anything else.

In our final 30 seconds, if this is possible, just for our staple audience, converting from your fundamentals, which we've talked about to get to your EPS and total shareholder return. If you could just talk a little bit about capital allocation and specifically, your share repurchase and dividend assumptions for this fiscal year.

Sure, sure. I'll be brief on this one. So capital allocation priorities. First, invest for growth in our business, ROIC mentality. Second is to maintain our IG-rated balance sheet, operate within that 2.5 to 2.75x net leverage ratio. And then the third piece was your last question in terms of the assumption for share repo and dividends. That's our capital allocation strategy, share repo and dividend roughly $2 billion combined, $1 billion for dividends and approximately $1 billion for share repo under the current market conditions.

Understood. Well, we have exhausted our time, but I want to thank Sysco for joining us and specifically, Kevin and Kenny for joining me on stage. We do have a breakout session after this for those who have questions. And I know you have meetings throughout the day. But again, thank you, Sysco, very much for joining us.

Great. Thank you all. Appreciate it.

Welcome to Sysco's Fourth Quarter Fiscal Year 2025 Conference Call. As a reminder, today's call is being recorded. We will begin with opening remarks and introductions.

I would now like to turn the call over to Kevin Kim, Vice President of Investor Relations. Sir, you may begin.

Good morning, everyone, and welcome to Sysco's Fourth Quarter Fiscal Year 2025 Earnings Call.

On today's call, we have Kevin Hourican, our Chair of the Board and CEO; and Kenny Cheung, our CFO.

Before we begin, please note that statements made during this presentation that state the company's or management's intentions, beliefs, expectations or predictions of the future are forward-looking statements within the meaning of the Private Securities Litigation Reform Act, and actual results could differ in a material manner. Additional information about factors that could cause results to differ from those in the forward-looking statements is contained in the company's SEC filings. This includes, but is not limited to, risk factors contained in our annual report on Form 10-K for the year ended June 29, 2024, subsequent SEC filings and in the news release issued earlier this morning. A copy of these materials can be found in the Investors section at sysco.com.

Non-GAAP financial measures are included in our comments today and in our presentation slides. The reconciliation of these non-GAAP measures to the corresponding GAAP measures is included at the end of the presentation slides and can be found in the Investors section of our website.

During the discussion today, unless otherwise stated, all results are compared to the same quarter in the prior year. To ensure we have sufficient time to answer all questions, we'd like to ask each participant to limit their time today to 1 question. If you have a follow-up question, we ask that you reenter the queue.

At this time, I'd like to turn the call over to Kevin Hourican.

Good morning, everyone. We appreciate you joining our call this morning. Today, we will recap our fourth quarter performance, highlight our full year 2025 outcomes, provide an update on key initiatives that will drive our momentum in the new fiscal year. And finally, Kenny will share our view on our guidance for fiscal year 2026.

Let's get started with the highlight of our fourth quarter financial outcomes. We are pleased to report that our fourth quarter adjusted results exceeded our expectations. Traffic to restaurants improved throughout the quarter and Sysco specific initiatives delivered improved financial outcomes, top to bottom. The progress accelerated throughout the quarter and has continued into July for Sysco.

All considered, Q4 was a relatively steady quarter from the perspective of restaurant foot traffic. On a monthly basis, April traffic trends for the industry were down 1.5%, May was down 1%, and June was down approximately 0.9%. The quarter overall was down 1.1%, which represented approximately 190 basis points of improvement versus Q3's traffic level of down 3%. It is good to see the industry stabilizing after a rocky start to the calendar year.

I'll now pivot to Sysco's results for the quarter. As you can see on Slide 4, we delivered sales results of $21.1 billion, up 2.8% on a reported basis and up 3.7% to last year when excluding the divestiture of our Mexican business. We delivered adjusted operating income of $1.1 billion, up 1.1% to last year, adjusted EPS growth of $1.48, up 6.5% relative to last year. Importantly, we made solid progress on our $100 million profit improvement target with a strong contribution in Q4 from our strategic sourcing efforts.

Our International segment posted another compelling quarter with 3.6% top line growth on a reported basis and up 8.3% for last year when excluding the divestiture of Mexico. International posted strong local case growth of plus 4% in the quarter.

Adjusted operating income increased 20.1%, representing the seventh consecutive quarter of double-digit profit growth. Strength was delivered from across all international geographies with notable strong performances from Canada, Great Britain, Ireland and Latin America. We expect a continuation of strong international financial performance in fiscal 2026.

Within USFS, our national sales business delivered 1.3% volume growth for the quarter. Unpacking those results further, our noncommercial national business continues to perform at a very high level with strengthened food service management, education and travel nature. Most importantly, gross profit within national sales grew almost 3x faster than volume due to the excellent efforts by the team to improve profitability of the national business.

The strong profit improvement was delivered through customer optimization and the creation of win-win provisions in our contracts that motivate customers to partner with Sysco to optimize efficiency.

Our SYGMA segment delivered sales growth of 5.9% for the quarter, driven by strong customer wins versus prior year. For the year, SYGMA grew top line 8.3% and bottom line, 12.5%. It was a record year for our SYGMA business from a top and a bottom line perspective. It is important to note that the SYGMA top line growth rates will begin to moderate in the coming year as we begin to lap large customer wins earned in 2025.

On the local side of our business, we delivered negative 1.5% case volume within our U.S. Foodservice segment during the quarter. As shown on Slide 8, this was a meaningful 200 basis point step-up versus our Q3 outcomes. U.S. Foodservice volume reporting included impact from exiting a business within FreshPoint that did not meet our profit thresholds, which negatively impacted our total local performance by over 50 basis points. When excluding this intentional business exit, our USFS local business performed at a negative 1% rate, again, a meaningful step-up versus Q3 and a strong improvement relative to our full year results.

More importantly, as I mentioned, we had a strong exit velocity in the quarter, with June performance being the highlight of the quarter. It is important to call out that the positive momentum has carried into July as Sysco's specific initiatives to improve our local performance or taking root. I'll discuss these efforts in more detail in a moment.

Now that we have reviewed our business results for the quarter, I'd like to discuss the key initiatives that are going to drive our performance and local case volume growth for fiscal 2026. Let's start with our International segment. We are very pleased with our international business and have strong confidence that the compelling top and bottom line results will continue into fiscal 2026. We are advancing selling initiatives like Sysco Your Way across the globe. Additionally, we have improved our customer and colleague-facing technology in the international segment, making it easier to do business with Sysco. We are adding incremental local sales resources in key international geographies primarily metro areas like Toronto, Dublin and London, to drive new customer wins and improve customer engagement.

Lastly, our international supply chain capacity expansion efforts continue with our newest facility outside of London on track to open later this calendar year.

National. Our national sales business continues to perform well with exceptionally high customer retention rates and continued new wins on the selling circuit. We expect Sysco's national sales growth in 2026 will be driven by our food service management sector, travel and leisure, and increases in our healthcare business.

To further unlock growth, we are allocating our national sales resources to the highest potential segments of the business and are making technology investments to deepen our connectivity with our largest customers. Lastly, total team selling is beginning to gain traction amongst our largest customers with an increasing percentage of national customers purchasing from at least one of our specialty platforms.

Lastly, I'd like to discuss our improvement efforts and strategic growth drivers for our local business. Let me start by saying that we are very confident that we will deliver profitable local volume growth in 2026 within every country we operate, especially in the United States. We have addressed the key challenge of 2025 head on, and we have growth activation initiatives launching this summer.

First off, I want to start by discussing our sales calling population. We have fully stabilized our sales colleague retention and are now fully focused on improving sales calling training, productivity and effectiveness. The stabilized colleague retention is important because it will drive significantly improved customer retention in 2026.

As we enter 2026, we will be lapping last year's excessive colleague turnover and will replace that condition with strong in-year retention. A headwind in 2025 will be converted into a tailwind in 2026. We are seeing the beginning positive impact of this equation in our July results. That positive impact will grow throughout 2026. As I mentioned a moment ago, now that we have stabilized retention, our leadership focus turns to driving improved productivity of the sales force, through training and upscaling of our sales colleagues.

Additionally, our initial cohorts of sales consultant hires from calendar 2024 and are beginning to eclipse their 12- to 18-month anniversary with Sysco. As Kenny has said many times, this time horizon is important as it is when the productivity of a sales consultant significantly improves as each quarter progresses, an increased number of our sales consultants will eclipse their 12- to 18-month mark, increasing their positive impact on Sysco's results.

As sales colleague tenure improves, our results improve. Lower turnover in 2026 means higher customer retention and higher retention means more productive colleagues. These two factors will be powerful drivers of improved outcomes for Sysco in 2026.

To complement the strength and productivity of our sales professionals and further improve our business results, we are launching select growth initiatives this summer and fall. First up is a rewiring of our Perks customer loyalty program. Perks will evolve from a marketing and rewards platform into a hard-hitting exceptional customer service program targeting our most important customers. So why is clear. These customers buy the most by the most often, and they deserve the absolute best from Sysco.

We have trained our operations, inventory, merchandising and sales teams on the key tenets of Perks 2.0, and we are ready to launch this summer. The program will improve customer retention and will improve penetration of business with existing customers.

Next up is an AI-empowered sales tool to help improve the productivity of our sales colleagues. As you know, we leverage a CRM platform to guide the work of our sales teams. Our technology teams have been hard at work to supercharge our CRM capabilities by leveraging AI to help our sales consultants succeed. The enhanced capabilities will reside in the palm of the colleagues hand on their smartphone. The features of the tool will help our team to drive increased levels of selling effectiveness, increased close rates on sales suggestions and deliver higher rates of customer satisfaction. To say that we are excited about this capability would be an understatement. Our newer sales colleagues will benefit the most from the powerful capabilities of our AI-powered CRM.

Last up is price agility. As we have previously communicated, we are piloting improvements to our pricing architecture that improves sales colleague engagement with customers by providing the sales force the ability to be more agile in responding to pricing requests.

Our sales reps will be enabled to make decisions in a moment, leveraging the science of our pricing software. In July, we are expanding our pilot to additional geographies and to learn more about the change management process required for a national rollout.

As I wrap up my prepared remarks, we are pleased with our strong performance in Q4 and the progress that we are making in local volume. Most importantly, we are excited about the exit velocity of the quarter and that the momentum has carried into July. We are confident that improved sales consultant retention, increased sales consultant tenure and the three growth programs I just covered will drive profitable and positive case growth for Sysco in fiscal 2026. We expect that positive of case growth will, in turn, support our financial targets.

With that, I'd now like to turn the call over to Kenny. Kenny, over to you.

Thank you, Kevin, and good morning, everyone. I plan to start with high-level thoughts on our performance, detail our financials and then introduce our full year 2026 guidance.

As we outlined before, business plans don't always materialize the exact way you draw them up on paper. This year was no different. However, our teams remain both nimble and focused as we leverage our leadership position within the industry to successfully apply the Sysco playbook. The operational rigor of our organization provides us a high degree of confidence for delivering our 2026 guidance across the P&L and our capital allocation commitments.

To start, financial results this quarter included sales growth of 2.8% and adjusted EPS growth of 6.5% and representing strong year-over-year performance and noteworthy sequential improvements compared to the prior quarter. This sequential acceleration is visible across sales, including both national and local volume performance, but also across gross margins, adjusted operating income and adjusted EPS. This is an important proof point as we enter FY '26.

Q4 adjusted EPS growth included benefits from our disciplined strategic sourcing efforts, aiding in the delivery of 3.9% growth in gross profit translating to 19 basis points of gross margin expansion. These results include an increase in both dollars and rate of performance and reflect structural improvements that we expect to carry into the next fiscal year.

Our investments in sales headcount and capacity expansion continued this quarter alongside benefits from ongoing efforts to optimize cost and prudent tax planning. This ultimately rendered outsized profit growth with adjusted EPS growth of 6.5%, accounting for the strongest rate of growth for the year.

During fiscal 2025, we remain committed to rewarding our shareholders by repurchasing $1.3 billion in shares and paying out $1 billion in dividends.

Now let's discuss our performance and financial drivers for the quarter, starting on Slide 12. For the fourth quarter, our enterprise sales grew 2.8% on an as-reported basis, driven by U.S. Foodservice, International and SYGMA. Excluding the impact of our divested Mexico business, sales grew 3.7%. Volumes across the enterprise sequentially improve with total U.S. Foodservice volumes decreasing 0.3% and local volume decreasing 1.5% in the quarter. This represents a 200 basis points improvement and local case performance and 170 basis points improvement in total Foodservice on a sequential basis quarter-over-quarter.

The sequential improvement was consistent with the industry traffic for the quarter but importantly, our performance accelerated in the quarter with a strong June exit rate. We're seeing stronger contribution from newer sales professionals as they worked up the productivity curve and the benefits of the stabilization of retention -- to an acceleration in new account growth for the quarter. We expect an acceleration in sales productivity to continue in FY '26. These sequential volume improvements also benefited our USFS segment results. Top and bottom line results for the quarter represents a sequential improvement, and we expect our investment actions in 2025 to deliver financial tailwinds for 2026 and beyond.

International segment results included continued top line momentum and double-digit operating income growth. This was across all markets and marked our seventh consecutive quarter of double-digit operating income growth, adding to our impressive multiyear track record. These results reflect ongoing success as we apply the Sysco playbooks to generate local volume growth of 4% and broad-based operating income growth across our international portfolio.

Sysco produced $4 billion in gross profit, up 3.9% and gross margins of 18.9% with improved gross profit per case performance, this notable margin improvement includes a mentality of continued improvement with cost savings driven by our strategic sourcing initiatives. Inflation rates in USPL were approximately 2.4%. International inflation was slightly higher for the quarter at 3.4%.

Overall, adjusted operating expenses were $2.9 billion for the quarter or 13.7% of sales, a 28 basis points increase from the prior year. The increase was driven by planned investments in higher growth areas of the business with fleet, building expansion and sell headcount.

Corporate adjusted expenses were up 9.8% from the prior year, driven by insurance, investments and other costs, partially offset by accretive productivity cost out. For the full year, corporate adjusted expense were down 6%, reflecting solid progress on our existing cost savings program. Overall, adjusted operating income grew to $1.1 billion for the quarter, reflecting continued strong growth in our International segment, SYGMA and more stable results in our USFS segment.

For the quarter, adjusted EBITDA of $1.3 billion was up 1.8% versus the prior year. Fourth quarter results also include a noncash goodwill impairment charge of $92 million related to our guests worldwide business as reflected in our other segments.

Let's now turn to balance sheet and cash flow. Our balance sheet remains robust and reflects a healthy financial profile. This includes flexibility and optionality from approximately $3.8 billion in total liquidity, well above our minimum threshold. We ended the year at a 2.85x net debt leverage ratio with plans to return to our target ratio in FY '26.

Turning to our cash flow. We generated approximately $2.5 billion in operating cash flow and $1.8 billion in free cash flow. Free cash flow compared to the prior year was impacted by higher cash taxes, interest and working capital timing.

Now I would like to share with you our expectations for FY '26 as seen on Slide 22. During FY '26, we expect reported net sales growth of approximately 3% to 5% to approximately $84 billion to $85 billion. These assumptions include inflation of approximately 2%, which we are seeing now, volume growth and contributions from M&A. We expect full year 2026 adjusted EPS of $4.50 to $4.60 representing growth of 1% to 3%, which includes an approximate $100 million of headwind from lapping lower incentive compensation in FY '25, an impact of roughly $0.16 per share.

With FY '25 behind us, we wanted to provide full visibility to the carryover impact from incentive comp for the year and by quarter as outlined on Slide 23. This impacts year-over-year comparability for expenses. Our compensation structure rewards for business performance. As such, this carryover impact reflects challenges this past year in 2025. Importantly, our incentive comp structure is focused on core business drivers and aligned with the long-term interest of our shareholders. Excluding this impact, our outlook reflects adjusted EPS growth of approximately 5% to 7% with the midpoint in line with our long-term growth algorithm. To help with phasing for Q1, we expect to grow our adjusted EPS consistent with the annual growth rate of 1% to 3%, driven by part of carryover benefit from strategic sourcing to gross margins and the impact from lapping incentive compensation. Q1 and Q2 sales growth rates will be impacted by the divestiture of our Mexico JV in December 2024. We plan to provide additional modeling updates as the year progresses.

This financial guidance assumes improvements to be driven by our Sysco specific initiatives with industry foot traffic and macro environment similar to current conditions. It also includes care over impact related to sourcing benefits from our $100 million of cost savings program. As mentioned on prior calls, this muscle memory is built across the organization, leveraging a stronger operating model that positions us to grow share profitably.

We remain on target for shareholder returns through approximately $1 billion in dividends and approximately $1 billion in share repurchases planned for FY '26. This is all based on our current expectation and economic conditions and could flex based on M&A activity for the year. Specific to our dividend, our expected payout for FY '26 equates to a 6% year-over-year increase on a per share basis, highlighting our commitment to our standing as a dividend aristocrat.

In terms of leverage, we expect to end the year within our stated target of 2.5x to 2.75x net leverage ratio and maintain our investment-grade balance sheet.

Now turning to a few other modeling items. For FY '26, we expect a tax rate of approximately 23.5% to 24%, and adjusted depreciation and amortization of approximately $870 million. Interest expense is now expected to be approximately $700 million, while other expense is expected to be approximately $45 million. The elevated DNA levels will be driven by continued capacity expansion such as the expansion outside of London this coming year, as Kevin highlighted. CapEx is expected to be approximately $700 million representing less than 1% of sales. This includes growth and maintenance CapEx and an eye towards optimizing spend levels across the enterprise as the organization further sharpens our collective efforts around driving ROIC.

Looking ahead, we like our position, and we remain focused on leveraging our position as the industry leader to support the growth of our customer while also continuing to unlock value for our shareholders.

With that, I will turn the call back to Kevin for closing remarks.

Thank you, Kenny. We are pleased with the strong performance in Q4 and more importantly, the strong exit velocity of the quarter. Our leadership team played tremendous focus on improving our local business, strengthening our gross profit through strategic sourcing and tightly managing our expenses through productivity improvement. The team stepped up and delivered a beat performance versus what we expected 90 days ago, and I'm proud of their efforts.

As we look toward 2026, we expect to build upon the Q4 momentum and deliver improved financial results for Sysco and our investors. Our top line results will strengthen based on the sequential improvement of our local business throughout 2026. The improvement starts and ends with our colleague population. We have stabilized colleague retention. As a result, our customer loss rate will improve greatly in '26 versus '25. Stabilizing colleague retention will also will enable us to improve colleague productivity in 2026. We will measure our improvement through the continued expansion of our gap between new customer wins and reducing customer losses. The spread between new customer wins and customer losses improved directly in our Q4. In fact, the gap between new and losses doubled in Q4 versus the year-to-date results in Q1 through Q3. We see the positive spread between new and loss expanding further in 2026 through the growth initiatives that I covered on today's call.

Our future is bright at Sysco, and we are excited for the year ahead. We head into this next fiscal year with positive momentum, and we are well positioned for continued improvements. We plan to leverage our competitive advantages as the industry leader. This includes strong diversification across our diverse customer types, our wide product assortment and our geographic diversity as the only global player in the food away-from-home landscape.

Food away from home is a good business. It takes share from the grocery channel every year. As I've said before, the pie is getting bigger and Sysco intends to take a bigger slice of that expanding pie. We are confident shareholders are positioned to benefit from our industry-leading dividend, compelling ROIC, intentional share buybacks and improving financial results. Q4 displays the beginning of improving our local business and the momentum will accelerate throughout 2026.

I am thankful for our leadership team and our entire 75,000 colleague population for the strong efforts in 2025. The team leaned into some stiff challenges in the macro and at Sysco specifically. The hard work of the past year is poised to have a positive impact in 2026.

With that, operator, we're now ready for questions.

[Operator Instructions] We'll take our first question from Jake Bartlett with Truist Securities.

Mine was on the momentum in the local case growth, and you saw it in the fourth quarter, an improvement from the third. That was roughly in line with what industry traffic trends were? You mentioned an improvement in June and July.

The question is whether you're gaining share within June and July. Are you seeing that acceleration that should -- that you expect to come with the better -- with the sales force getting more productive? Just trying to gauge the inflection that you're seeing there, the impact that that's having on your market share gains.

Jake, it's Kevin. Thanks for the question. Yes, we're really pleased with Q4's progress versus Q3, but more importantly, that exit velocity. So -- it's in the data that we shared. June versus May was flat from an industry traffic perspective.

Our performance in June was considerably better than May, which obviously conveys progress that we're making, and that progress has continued into July. It's important to note the drivers, yes, traffic improvement helped, and we're pleased that the industry overall is seeing some strength relative to the tough start to the year. It's a colleague retention piece that is the most notable.

We stabilized our colleague retention in Q4 and that will have meaningful positive impact as we enter 2026 because the 2025 story is about customer loss that occurred tied to colleagues separation or colleague departure. And we're not going to be lapping those losses until we're in Q1. That's the point. So the strength of that the headwind of '25 being replaced by a tailwind in '26 will be evident as we enter our Q1. So we wouldn't have expected that positive impact to be in Q4 because these are losses that have already occurred, and you carry that loss into year at month 13. So we've stabilized retention. That is an important key point.

As Kenny said many times, the new hires from the past year to 1.5 years are hitting their month 12, month 13, month 14, where they're contribution positive significantly increases. An important data point I put in my prepared remarks, I just want to make sure it came through clearly. The gap between new and lost in Q4 was double the gap that we experienced in Q1 through Q3. And again, that strength will be visible and evident in fiscal 2026 as that loss rate comes down significantly.

And when I add on top of that, the three growth initiatives that I referenced on today's call that launched this summer and into early fall, we have significant confidence in our ability to deliver positive and profitable local case growth to take share, and that gives us the confidence in the guide that we put out there. It starts and ends with the colleague population stability, which we have achieved in the tools that we are providing to our colleagues that help them increase their productivity.

I'll talk to Kenny, if you want to add anything?

Sure. I agree with Kevin. 3 things for me. The first is we are encouraged by the fact that we continue to see select geographies already hitting our growth expectations, driven by SC additions and improved retention, as Kevin just mentioned, and that's carrying over into Q1 2026. That's point #1. Point #2 is Kevin talked about this. The 12 to 18 months is really important for us as the jump on our productivity curve. And we're also seeing our retention playbook work across experience SSDs as well, right?

So you have a year or 2, it goes your 3, 3 to 4, 4 to 5 years as well, and that helps on the overall sales pool, which actually drives our new customer count. This past quarter, we opened more new accounts in any other period this year. And Jake, as you know, new accounts are tomorrow's penetration opportunities.

And then last but not least, we're seeing our service levels go up as well. Fill rates are up, on-time delivery is up as well, and this is the leading indicator to our future business generation.

We'll take our next question from Jeffrey Bernstein with Barclays.

Just following on the top line trends. I'm encouraged to see the improvement in recent months. I'm just wondering what do you attribute in terms of the broader industry that gives you confidence in sustaining the momentum over the next 12 months?

And then just to clarify, within Sysco's expectations, again, not looking at the industry, but specific to your momentum. Just wondering if you could share any color in terms of local case volume growth within the 3% to 5% sales. I think you mentioned positive and maybe thoughts on M&A, whether for yourself or perhaps related to headlines that we've seen recently about consolidation among some of your larger peers. Just hoping to get a little bit more perspective on that.

Okay. Jeff, I'll start with broad industries. Foot traffic to restaurants down approximately 1% in the in the quarter, certainly better than Q3. We believe Q3 was a bit of an anomaly. That's when the external news was quite negative. Consumer confidence dropped conversations about tariffs and the impact on consumer confidence that was happening.

In our Q3 calendar Q1, the industry took a pretty significant step back. It's good to see in the most recent quarter, an improvement against that. We think the anomaly was actually the start to the year and what we just saw as an industry in our Q4 is more reflective of the operating environment.

And Kenny said it in his prepared remarks, we're expecting the current conditions to continue for 2026, read down slight traffic to the industry overall for this next fiscal year. And the growth that we will deliver will come from taking share. We're confident in our ability to do that as I mentioned a few moments ago, we're not going to repeat the customer loss rate that we experienced in 2025. We will be lapping those customer losses. We've been doing great with new customer wins over the past 3 quarters. I've shared that pretty openly our earnings call.

So we will sustain our new customer win rate, we will significantly improve our customer loss rate -- and when we layer on top of that, the Perks 2.0 program I mentioned, which is going to significantly improve the service experience that our top customers we'll benefit from. That's going to drive penetration improvement that will drive improved customer retention as well.

The AI 360 capability, which is our name internally for the AI-empowered CRM is going to be meaningfully helpful. I'll talk more about that, I'm sure, as a part of this call. And we put all those things together, we are confident even in a flat to down overall macro that we can grow local that we will grow it profitably, and that will occur in fiscal 2026. So Kenny, I tossed to you for additional comments about the guide. Over to you.

Sure. Absolutely. So in terms of foot traffic, Kevin is right. One thing to put things in perspective, though, what traffic well, it's a good proxy as a whole for Sysco. If you think about our business, right, we have 2/3 of our business restaurant and 1/3 of our business is recession replay in categories such as education, health care, travel and the like. And even within restaurants, our customer ranges from QSRs to casual dining to fine dining.

So -- and let's not forget that 20% of our business is international segment, which serves as a -- in our view, a strategic counterbalance, right? It enhances the resiliency and stability of our overall business.

In terms of the guidance on the 3% to 5%, let me unpack that a little bit for you. So top line, 3% to 5%, which is $84 billion to $85 billion. Remember, on a year-on-year standpoint, there is a lapping impact here from the divestiture of Mexico that is roughly 50 basis points on a year-on-year standpoint, right? So -- and then if you decouple between volume and inflation, inflation is roughly assumed at 2% inflation. And right now, Jeff, we are operating right around that ballpark right now. USPL this quarter was 2.4%, and international was roughly 3.4%. The majority of the spread between U.S. and international was FX driven.

So again, long story short, 2%, it's where we're upping right now, and it bodes well for the industry. On volume and M&A contributions, those 2 combined, you can probably model in 2% to 3% growth and that you tie back to the 3% to 5%.

Okay. And then the third part of your question, which was the speculation on industry news. We're not going to speculate on M&A rumors in the industry for Sysco We're focused on driving profitable growth within our strategic capabilities. What we are very pleased with is that Q4 was better than the entire year June was better than Q4. July that momentum has continued.

As we progress into 2026, we'll be lapping an accelerated or elevated loss rate last year that will not be repeated when we layer on top of that condition, the growth initiatives that I just referenced, we have strong confidence in our ability to take share, profitably grow the business and deliver upon the guidance that was just communicated by Kenny and we're positioned, therefore, to have compounding improvement to the overall financial health of the company. So we have confidence in our ability to succeed in the marketplace.

We'll take our next question from Alex Slagle with Jefferies.

All right. A question on international. Just given the recent strength in this business, do you expect the year-over-year growth momentum we've seen to moderate a bit as you lap this growth. Maybe you can just kind of call out some of the specific drivers that give you the visibility for that growth to continue as we roll through the year?

Alex, this is Kevin. We expect the success in our International segment to continue in 2026, not to moderate or slow down. The is the health is coming from all geographies coming in the top, the middle and on the bottom of the P&L, and I'll just highlight a few of the examples.

The success we're having on the top line, which is volume strength, especially in local, we're driving a 4-plus percent case growth in local. We expect for that level of performance to continue into 2026 for the following reasons. We're adding sales resource head count into the street sales side of the business, the local side of the business in major metros.

So Toronto has an opportunity to see increased head count, boots on the ground boots on the street, increasing our ability to serve local restaurant customers. We're doing that play and debt them, we're doing that play in London. We are doing that play in Stockholm. When we do that in international, we're increasing our physical presence on the ground, and we are seeing market share capture coming from that.

We've improved our website in each of those countries. We've improved our ability to have relevant pricing in each of those countries. And each of those three vectors is driving volume capture. Examples like Sysco Your Way are enabling that success. In the middle of the P&L, we've launched strategic sourcing in every country. And we did that first in the United States. We've carried that playbook to each international geography.

Food is inherently purchased local but that capability of strategic sourcing exists and that opportunity exists in every country and we're expanding our profit margins because of that excellent work done by our merchandising and buying teams. And on the bottom line, deploying enterprise technology, improved warehouse technology, improved routing technology, improved back-end software to increase efficiency in businesses that were more manual than Sysco is used to and accustomed to has driven significant bottom line growth, seventh consecutive quarter of double-digit profit growth. So we're really bullish on international, and this is just within the countries that we compete with in today. Our opportunities are bright in international, and we are very bullish on our long-term future internationally. Kenny, anything to add?

Yes. So Alex, as we think about the margin profile of this business, there's nothing structural that impedes our ability to achieve the same profit levels in the U.S. There's a lot of upside here. Just think back a few years ago, the margin of the business is roughly 2%. Since then, we've doubled the margins to 4% now. So that trend will continue.

And the last thing I would say is that it's a place that we will continue to invest for growth as part of our working capital strategy. and the capital application strategy, the 2 recent acquisitions, ReadyTest and Campbell sitting in Ireland and GB, they're doing really well off their great start and ahead of our own deal model from both a commercial go-to-market standpoint as well as a cost synergy standpoint.

We'll take the next question from John Heinbockel with Guggenheim.

So Kevin, I wanted to drill down right on the sort of the sales force local case growth relationship. So I assume with your commentary that local case growth is -- maybe this is a wrong assumption, and it's positive today or it's crossed in deposit territory. What's your current thinking on how you want to grow the sales force right, versus that 7 goal that you had originally.

And what do you think -- what's the right number if the effort is working. What's the right number that local case growth should grow at in your mind?

John, thanks for the question. I'll start with our expectations of college growth for fiscal 2026. We anticipate adding approximately 4% incremental sales professional head count in fiscal 2026. As we look back on fiscal 2025, one of the reasons the headcount investments that we have already made are not showing up in the outcomes of the year just completed, is the excess or excessive colleague turnover that we had, which resulted in an increased customer loss ratio, which was masking the incremental benefit that was coming from the new hires.

It's incredibly important to note that we track every single new hire in a cohort or a class that they join with. We're able to model where should they be from a productivity perspective in month 3, on 6, month 9, month 12 every one of the hiring classes that we have done, those colleagues are hitting those productivity targets.

Kenny has said many times, month 13 matters. It's when they break through to begin to be productive and eclipsing month 18 matters even more because there's a turbocharge of their productivity between month 12 and month 18. For fiscal '26 it's very important to do the understanding of the math of increased head count each and every quarter is hitting that incredibly pivotal 12- to 18-month period, and we're not going to be repeating the customer loss rate.

Therefore, we will inflect to positive case growth in fiscal 2026 from local and profitable case growth to boot. So Kenny, any additional comments you'd like to make about guidance for '26?

Yes. So if you think about the head count, just put things in numbers context. So in 2024, we hired 450 and 2025, we hired 300. And then Kevin said, 4% increase in 2026. If you add that all together, the CAGR of the growth rate of sales headcount is roughly mid-single digits. On the forward, we do believe we will render a return from this investment. That's point #1.

Number two, I think we talked about an analogy before, the faucet is turning on right now. On the floor from a longer stability standpoint, we do expect headcount growth to be in line with volume growth, therefore, driving positive leverage in our P&L.

We'll take our next question from Kelly Bania with BMO Capital.

I was wondering if we could go back to the price agility initiative and what are the financial implications of that initiative? I believe it's intended to drive growth, but is there any sort of trade-off between margin and case growth? And -- you mentioned maybe the desire to learn more about the change management required to support a broader rollout. Wondering if you can elaborate on that.

And is it in your plan for this fiscal year that that does broadly roll out to more regions? Or does this remain kind of a pilot and regional test?

Yes, Kelly, good question. Thank you. It's Kevin. I'll start. So the stated financial objectives would be to improve volume, but to do so profitably. So maintaining margin percentage but driving increased volume through the pipe. That's the stated objective. The objective is not so lower margin rate to drive volume. We could do that centrally, if that was something that we wanted to do.

It's to give that sales colleagues the opportunity to be responsive in the spot moment to the needs of the customer. That sales colleague understands even better than a computer does the emotional items that a customer has within their menu within their book of business. And if that customer presents themselves with, hey, I think I can do $2 better elsewhere, we need to give that colleague the opportunity to respond in the moment. The change management I'm referring to is the need for that colleague to then be able to do something we call sell around the room, which is I'm going to give you that price that you just asked for, but I know you're buying produce from someone else. I have the best produce program in town. And can we talk about having my FreshPoint colleague join me next week when I visit you to get that product put on to the Sysco truck. That's the change management. That's the selling skills development that is necessary as a part of giving more decision-making authority into the hands of that sales colleague.

Kenny always makes the point. The compensation for that colleague will reward them if they do the right things, which is if I'm going to make an investment in price, I offset it elsewhere. It will punish them if they make an investment in price, and they don't succeed in offsetting that elsewhere. So again, responsibly rolling this out. We don't want to roll it out into the colleagues are prepared to be successful in that environment.

We do not, to answer your question, have meaningful growth tied to this program in fiscal 2026 if we didn't move it nationwide, we don't have risk on delivering our numbers. This is a program we intend to roll out, but we're going to roll it out at the pace of the skills development of the organization.

In contrast, the other two programs that I talked about on today's program are full speed ahead. Perks 2.0, as I mentioned on my prepared remarks, up until now, Perks has been a very successful program for us, but it's been -- think about it as a marketing points loyalty rewards type program, and it is converting to the customers that are eligible to be in perks, which are our best customers receiving a step change differentiated, better level of service than the average customer.

So think about the hotel that you prefer, think about the airline that you prefer, yes, you get points from those entities. But if you're in their top tier, what you're really getting is a substantially better service experience. Whatever that thing is it's important to you, you get the board first, you got to put your bag in the overhead. If there's a cancellation, they're taking care of you first. That's example only from a different industry.

In our industry, we know exactly what these key tenants are that matter to our customers. And these Perks customers are going to get a substantially elevated service program. And we don't need to test that. We're rolling that out nationwide and we're rolling it out this summer. And it's going to make a difference. It's going to make a difference in our customer retention. It will make a difference on our penetration. And we are confident because we have been testing this in a spot market that it will have an impact.

And we have accounted for that in our guidance, and we are confident in its ability to move the needle. And the other program I launched today -- excuse me, announced today, this AI CRM is a really big deal. As I said in my prepared remarks, to say we're excited about this would be an understatement.

In the palm of the hand of our colleague on their smartphone, they have all the tools that they need to better understand that customer to know what things could be offered to that customer, preapproved from a pricing perspective. If they want to learn more about that product because they're not comfortable selling the item, they can quickly ask for input on how to sell that product in a free form, AI-based language model that gives them really good suggestions on how to sell that product. So we will be rolling out AI 360 coast to coast in the places that we are piloting that tool, the response rate from our colleagues, both tenured and new has been remarkable.

And as I said in my prepared remarks, where we are incredibly bullish is that newer lower tenured colleague who has a lot to learn about the product range we have about the selling process that we have -- this tool helps accelerate their skills development and makes them a more effective sales rep which will increase overall productivity.

That's very helpful. Kevin, just to follow up with the Perks 2.0, can you size up what that looks like it's as successful as you hope in fiscal 2026 and maybe in the years to come, what is the potential there as you focus on that penetration?

Yes. So for us, it's an enabler of delivering the guidance that we just provided. So on today's call, I'm not going to parse out its contribution, but it's meaningful. It is absolutely meaningful. Think about Pareto, a percentage of your customer is driving a disproportionate percentage of your sales and profit, that's exactly who these customers are and the customer doesn't get to opt in.

We get to choose. We are specifically choosing. It's an invite-only into the program club and our sales colleagues have the opportunity to actually motivate customers who are right on the cusp, hey, with exta $1,000 a week, I can get you into this program. So -- we are bullish about this, Kelly. We will share more, let's say it this way, at upcoming investor events about this program and the expected impact we intend for it to have.

Kelly, I mean, this is Kenny us put a blower on this one. The major driver of our growth year-on-year in local case growth in 2026 will be the stability, the retention around our sales colleagues. And that's the reason why Kevin and I are so confident with the growth number because we're seeing that right now spot on, right? These three things that Kevin talked about, these are added neighbors that will help us as well to be -- to help this year, but more importantly for periods after to come.

We'll take our next question from Edward Kelly with Wells Fargo.

Kevin, I wanted to ask you just a brief follow-up on all this local stuff. So customer losses are improving. Is there any concern about like the sales force turnover that you've seen over the last year, those noncompetes rolling off and potentially impacting the momentum that's coming back into the business?

And then, Kenny, just one for you. I'm curious as to how you're thinking about cost per case growth in the U.S. If you look at this past quarter, it looks like dollars are up about 5% on flat cases, right? So call it 5% cost per case growth. What's the driver of that? And then how does that look in 2016? Is there an opportunity to bring that lower next year?

Thank you for the question. I understood completely your question about the sales rep who departed 12 months ago when they hit on 13 and your noncompete agreement expires, is there an echo or a ripple effect from prior year?

The facts are the vast majority of the customer lost customer departure occurs almost immediately. And the way is the following, let's say, Kenny has been calling on an account for 10 years. Kenny departs while he Kenny is not able to call upon that customer, what happens is that we, Sysco, assign a new sales rep to that account. And then right then in there, that immediate moment is where the disruption occurs that customer then has to make a choice.

Do I want to work with the new colleague, "Hey, maybe I should look around and the looking around is what causes an alternative distributor to tend to get into the account. So the vast majority of the loss happens immediately. There's the possible impact of the ripple 13 months later. What we can see in our data, though, is that not repeating the initial loss is a far greater positive impact on the avoidance of that negative than the ripple.

And obviously, through the service improvement that we're making, Kenny mentioned this, our fill rates are improving. Our on-time delivery is improving our sales colleagues capabilities are improving through training, skill development and the tools that I just mentioned. We're confident that the ripple effect, the echo is more than offset by the goodness of the programs that I just referenced and the stability of the sales force at Sysco and therefore, the confidence in the guide in the year ahead.

And I'll toss to Kenny for the comments that he'd like to make about the cost question that you asked. Kenny, over to you?

Yes, Ken. On the cost per case, I would like to bifurcate and talk about it from a COGS standpoint and also a base cost standpoint because they're a bit different here at Dynamics. So you're right. volume was flattish around USFS. But with that, our GP grew 4%. So the good work that we've been doing around strategic sourcing, that's flown through the P&L, and that's the reason why you're seeing nice leverage between sale -- volume to sales, sales to GP.

Where the increased cost that you called out earlier, usually driven by two main things, mostly on the base cost side of the house SG&A. Number 1 is our investment in SPs. These are, what I would call, deliberate planned investments, got our ROIC positive, and the return will be rendered, call it, all to 18 months on the road from day 1. So that's point #1.

As the local case grows within our business, that cost per piece will have a corresponding revenue tied to it. Therefore, you'll see leverage in the P&L. The second biggest piece of the cost increase is the plan and deliberate investment around capacity. You may remember, we have 10 buildings going live right now around the world, 7 of them are sitting in the U.S. Think about Allen Town, think about Tampa, East Wisconsin, LA, Las Vegas, right? I can go on and on and same dynamic.

You have the cost of those buildings, mainly depreciation hitting the P&L. And that as time progresses with the initiatives kicking in, the compass that Kevin and I have local case growth, in particular, you will see that scale down to the P&L because that cost will be welcomed by volume. So overall, we do expect a stronger leverage in the P&L on the forward.

We'll take our next question from John Ivankoe with JPMorgan.

Not just in foodservice distribution, but at least what I hear many industries broadly are considering consolidation at this point, whether it's AI investments through automation investments or maybe some concern or uncertainty related to tariffs, I mean, it does, again, seem that we're more prime for consolidation and deconsolidation across a lot of industries.

So the question that I would ask you is how does Sysco you kind of view that within food service distribution. Obviously, not making a specific comment, but just generally in terms of the opportunity to consolidate and how might the company and where might the company be able to take advantage of some opportunities to further drive efficiency and consolidation both globally, but more specifically and importantly, at least for me, within the U.S.

John, it's Kevin. Thank you for the question. Let me start with the AI impact on our business and the part of your question that's tied to that. And then secondarily, I'll talk about just more macro, bigger chessboard strategy.

On the AI side, we got to bifurcate it in the front of house, back of house or front-end selling back office management. AI absolutely is and will increasing our efficiency in the back office side of the business. Kenny manages that for the company. We've centralized that activity. We offshored that activity. Now we're automating that activity and AI can help turbocharge those efforts.

Our merchandising division answers a tremendous number of questions from both customers and from our own sales colleagues, like the amount of volume that flows through that pipe would stagger you. We can use AI to answer intelligently accurately, many, many, many of those questions, which can make us more efficient. So we think about the back end, attack the cost, attack the cost.

And we've done a good job of taking out structural costs at our company over the past years. Simultaneously, taking that cost out to invest for growth, see Tampa that we just grand opened last week and the other examples that Kenny gave around the world. So to be relentlessly like focused on taking structural cost out to invest in growth is the more macro strategy.

On the sales force side, this is where I will delineate. We don't view it as a reduction in the future selling occupation in any way, shape or form. This is a relationship-based business. And John, I know you know that. This is a relationship business. we want the technology to increase even further that sales colleagues relationship with that customer help do the administrative stuff.

Again, the number of questions that our colleagues answer about -- does this product have gluten, is this allergen free? What's the country of origin, will not be able to substitute this for something else? If we're out of stock. What substitutions would you recommend if this is out of stock. These are questions that are happening all throughout the day, every day, hundreds of questions they're facing every day.

To enable that sales colleague to answer those types of questions proactively, more efficiently reduces substantially their administrative burden and then guess what they get to do at that time. They get to sell. They get to look around the kitchen and see product that's not on the Sysco truck to talk about introducing our capabilities, introducing our specialty capabilities, go prospect net new customers because you have more time on your hand.

So we will grow our sales force, as we mentioned on this call, 4% approximately this coming year. And we believe AI is going to turbocharge that effectiveness. As it relates to your question about consolidation in the industry, here's what we would say. We know that size and scale matter in this industry, purchasing scale, supply chain scale, the trucking last mile delivery, as you've heard me say before, is the most expensive part of what we do. So therefore, being efficient in that manner is important. And we will continue to survey our landscape for M&A opportunities, tuck-ins, specialty purchases because we have tremendous white space existing still in specialty. I know you didn't ask about international, but we have compelling opportunities international.

And we will be very strategic and thoughtful about our approach in the U.S. And obviously, we can't comment, as I said earlier, about any other company's strategies and actions.

We'll take our next question from Mark Carden with UBS.

You guys called out improving industry traffic throughout the period, still not all the way back I'm curious, are you seeing any uptick in promotional activity or upfront to the distributor level?

And then related, are independent restaurants showing much in the way of incremental stress. Do you see any risk of closure ticking up there, the weathering it quite well.

Mark, thank you for the question. I'll start, toss to Kenny for any additional comments. Let me start with the restaurant operator first. We are seeing restaurants that have a strong value prop for their end customers succeeding. And that's across the board from fine dining the casual -- fast casual to QSR, those concepts that are providing a good value to their customer are succeeding.

And value could be quantity of food for price value could be a promotional program that they are doing value could be within their tier. They're perceived by the customer as providing more for the dollar than who they compete against. And those names that are having some struggles, and you know who they are, are out of tilt with their end consumer on that equation.

Our job in that equation is the following: we need to provide value to the restaurant operators across from fine dining to QSR, and that's our relentless focus on improving strategic sourcing to bring our cost down so we can share in that value creation with the end consumer so that they can be successful and profitable. And we're doing a good job on that.

In the quarter that we just ended, we had a very strong performance from a gross profit perspective, and we are able to invest in our customers from a price perspective when we have that equation. And as Kenny said, the goodness of what we delivered in Q4 is going to have rapid value positive into fiscal 2026. So those are our perspectives on the end restaurant consumer on what we -- Sysco are doing about it.

And Kenny, I'll talk to you if there's any additional comment that you'd like to make on Mark's question.

Yes. In terms of restaurant closures, from our standpoint, there's always churn in the marketplace. But one thing from our side is bad debt, right? When you think about bots, you think about bad debt. The majority of our bad debt is current bad debt as a percent of sales is less than 0.1%. We have automation tools in place and to manage that one. And no risk, no service to our company in terms of restaurant groups.

And we are not seeing specific to your question, pain in the local mom-and-pop restaurant sector to be higher than large customers. We're not seeing that.

And that does end the Q&A portion of today's call. I'll hand the program back to Kevin and Kenny for any additional or closing remarks.

Great. Thank you, everybody, for joining us. If you have any follow-up calls or questions, please feel free to reach out to the Investor Relations team here at Sysco. Have a great day. Thank you.

This does conclude today's program. Thank you for your participation, and you may now disconnect.

All right. Thank you, everyone, for joining. I'm Lauren Silberman, the equity research analyst at Deutsche Bank covering restaurants and food distributors. I am happy to be here today to introduce Sysco. We have Kevin Hourican, CEO; and Kenny Cheung, CFO. They'll start with some brief remarks and then have time for a few questions at the end.

So with that, I will turn it over to Kevin and Kenny.

Okay. Great. Good morning, everyone. Happy to be back at the Deutsche Bank Conference. We appreciate your joining us today as we talk about Sysco and our growth objectives, where we are as a company and the things that we are working on. Me and Kenny will be up here in just a moment, and then I'll come back one more time to do a quick wrap-up page at the end.

So for those that don't know us as well, we call this our one-page at a glance, if I could just cover some of the quick highlights on Sysco from a performance perspective. So we are the #1 player in the food distribution space. We'll do approximately $81 billion in top line revenue. Our turnover, as we call it here in Europe, with size and scale advantages from a procurement perspective, from a supply chain distribution perspective, we have the largest number of distributions in our space of tri-temperature facilities, tri-temperature trucks which puts us closest to the customer, which allows us to have the lowest cost to serve in the industry, which leads to the highest profit ratio from an operating margin perspective in the industry.

On the right-hand side of the page, you can see our diversified customer mix. Kenny makes the point often, yes, we're primarily restaurants, 2/3 restaurants. But the 1/3 that is not is a very recession-resilient sector. Think health care, think education, think government business. And, of course, there's a travel and entertainment and hospitality space that falls into that sector as well. But that portion of our business tends to be very consistent over time, and we're the #1 player in almost all of those customer segments and customer types.

My favorite slide about our industry is the following. The blue line is the grocery channel and the green line is what we call the food-away-from-home space. And we play in the food-away-from-home-space. And if that's not a trend line, I don't know what a trend line would be.

You can see that food-away-from-home takes share from the grocery channel each and every year, except for the wild dislocation, which is the day that we got the text worldwide that said, "Go home. Stay at home. Don't leave your home." That was about the only time when we didn't take share from the grocery channel.

Equally important, we're sitting here in Europe today. Europe is following this exact same pattern. This is a U.S. chart, but it's about 10 years behind, which actually means positive tailwind into the future from a growth perspective for our European business, and I'll come back to that in a moment.

The result of that prior page is that Sysco grows consistently over time. In fact, we've grown 53 out of our 56 years in company history. The only 3 years we did not were the '08, '09 financial crisis, which was significant, and then, obviously, COVID, which I've just mentioned a moment ago.

We've delivered 11% CAGR since the beginning of the company 56 years ago. And on the right of the chart, you can see where growth opportunities still lie in front of us. We have large opportunities to grow our international business. Within our domestic U.S. business, we run a large Specialty business. And Specialty, we refer to as produce, protein, cuisine-specific businesses like Italian and Asian. Our market share in those Specialty business is below our total broadline average, which gives us lots of room to run in the future.

Another one of my favorite charts. This is a U.S.-only chart. I'll do international global in just a moment. It is a large total addressable market, $370 billion, to be clear and specific. We at Sysco are in the #1 position and have 17% share. And why I like this chart the most is the pie itself gets bigger every year, and our slice of the pie has gotten bigger each and every year, both of which afford the opportunity for profitable sales growth.

Equally important to note is the big 3 in the space that we operate within commands less than 40% share, and that's pretty unique. If you look at a big 3 in most industries in most sectors, the top 3 players would be a higher percentage of that. And it is important to note, this is a business where size and scale matter, purchasing scale, fulfillment scale, technology scale. And we believe that, frankly, all 3 of the big 3 have the opportunity to accelerate growth over time.

But what makes Sysco unique from an investment perspective and from an industry player perspective is that we're the only global foodservice distributor in the food-away-from-home space from our name to peers perspective.

With #1 market share, I think you can probably still even see the chart from the back. We have #1 share in the U.S., Canada, U.K., Ireland, Costa Rica, Bahamas, in Great Britain, just to name a few.

The green bar on the chart is the market share in 2019. The blue bar on the chart is the market share in 2024. We have not yet gone public with 2025 share. You can see we've taken share in each and every country that we operate within across the globe.

We have the #1 position in the vast majority of the countries that we operate within across the globe by doing what we call running the Sysco play. And what we mean by that is a boots-on-the-ground street sales force, a modern technology stack that's a website, a pricing technology, a CRM that fuels the work of our sales colleagues, a modern supply chain with technology that advances our ability to fill on time, to deliver on time and to deliver in full and to have a robust, broad product assortment powered by private label products that we call Sysco Brand.

When we do all 5 of those things, we have proven definitively, regardless of the country, we win, we move ourselves into that #1 position, and we do so profitably. See my aforementioned point that our profit rate as a percent of sales is significantly higher than who we compete against.

So let's talk about where growth comes from here as we look forward into the future. The left-hand side of the chart we introduced in 2021, we call it our Recipe for Growth. It is a 5-part plan to improve the center of the wheel, which is our colleague and customer experience. We firmly believe that we improved the colleague and customer experience, they rewarded us with more business, and therefore we profitably grow.

What's interesting is the 5 parts of the wheel work together. That's why it's a wheel. They won't change, but what will evolve over time are the individual tactics within each of those 5. So an example only, when I arrived at the company 5.5 years ago within digital, our website was the main focus. Our website did not meet my expectations. We needed to make it easier to use, search engine results, product recommendations and the like needed to improve.

We're very pleased with the progress that we've made on our website, and we're now pivoting our work focus from a tech perspective into our CRM, so we can increase the yield and effectiveness of our sales force, and we'll talk more about that over time.

But for the remainder of my time I'm on stage before I turn it over to Kenny, I'm going to talk about the 2 things on the right, which is what we're doing to drive local growth and specifically to double-click into some additional growth vectors.

So I have 3 phases on local. One is short term, one is medium term and one is long term. We're not satisfied with our local performance. Our local is our most profitable sector. Think local as mom-and-pop restaurants. We are the largest player in that space. We are the most profitable in that space, but we need to turn that business into growth mode, and we have a plan to be able to do that.

So let's focus on this chart, which is the near term. It starts with key selling initiatives. We have a program called Sysco Your Way, which is in a restaurant-dense neighborhood delivering 6, 7 days a week with the late in the evening order cut-off. That program is working worldwide. We will continue our focus on expanding to new neighborhoods and penetrating further in the neighborhoods that we operate within.

I mentioned the growth businesses within specialty. Two of them are listed here. Greco is our Italian platform. We are bringing that platform to more states within the United States, and we're beginning the effort to bring that product category North of the border into Canada. And the second on the page on the bottom is our Asian Foods business. We are expanding that capability to more states within the U.S. and taking share properly.

Our supply chain is performing. That's the punch line. We are significantly improving our Net Promoter Score to our customers. That will result in increased customer retention and increased penetration with the customers that we serve.

Most importantly is the bullet next to it, which is we have significantly improved our sales force colleague retention, which has been a challenge year-to-date in fiscal 2025. We are back to extremely healthy from a supply chain -- excuse me, a sales consultant retention perspective, and that will become a tailwind as we turn into fiscal 2026.

An outcome measure from the things that I've said on the left-hand side of the chart is that we are winning more net new business in our local space than at any other point in time in the company's history, with the exception of the snapback period of COVID. We are winning new business at accelerated rates, and that will become a tailwind, again, as we look into 2026.

This is a bit of a busy chart, but if you break it down, it's actually 4 different things, which I'll quickly highlight each of them. The top left is sales colleague investment. Kenny and I have made a discerned choice to add headcount on to the street from a selling perspective, and that began at approximately this time last year, and we're building our headcount slowly over time. Those colleagues add to our ability to grow our sales profitably.

The top right is capacity expansion, and I've highlighted just a few examples of net new distribution centers, which increased our capacity to grow and serve our customers. On that chart is Allentown, Pennsylvania, which is intended to help pull volume away from our Metro New York facility, so Metro New York can focus on Downtown Manhattan and to pull volume out of our Philadelphia facility, so that our Philadelphia facility can focus on Downtown Philly. So Allentown, increasing the ability to serve the population-dense Northeast corridor.

We're opening a new facility in Tampa, Florida, It's a fast-growing market in the United States. Lots of people moving there. We have huge potential to profitably grow our business.

And then the 2 European examples that are shown here, the Irish flag is Belfast. We have a great business in the Republic of Ireland. We underserve Northern Ireland. We're essentially doing long-distance cross-docking through Belfast. We're opening a large modern facility this summer in Belfast to be able to profitably grow that business.

And then the Swedish flag is on the Southern tip of the country, new opportunity. We have a great facility in Stockholm. We need to better serve the Southern part of Sweden, and we will do so through that building. Each of those investments focused on, again, profitably growing the business.

Bottom left, Specialty. We've talked about growing with produce, growing the protein. And the chart shows that when our customers buy product from our broadline entity plus one Specialty business, they spend 3x more. If they spend on 2 of our Specialty businesses, think fresh produce and custom cut proteins, they actually spend 6x more. And we are doing very good work to increase the number of customers buying across channels, which then wraps up to the bottom right, which are selling initiatives.

I've already spoken about Sysco Your Way, two other programs that we are bullish on. Their positive ability to impact 2026 is our pricing agility work to increase the ability of our local field sales force to react in the spot moment to a customer need, leveraging a pricing technology that allows us to do so with profit discipline.

And we have a loyalty program called Sysco Perks. We are rebooting that program this summer to triple our focus on service experience for those best customers. Think how Marriott treats their best customers. Think of United Airlines, as an example, treats their best customers. It's taking our best customers, putting them from a service perspective on a shelf at a level far above everyone else. They reward you with loyalty over time as a result.

This is my last slide, and here are some longer-term growth opportunities for our business. First is Sysco Brand. It is a powerhouse within our company for our local business. It's more than 50% of the cases we sell to our customers. Our Sysco-branded private label products, we are far more profitable in Sysco Brand than we are with national brand products, growing at an 11% CAGR. And it's an $18 billion business just to itself.

Our international business, we're standing here today in France. We are growing our international business top and bottom line double digits, which is a faster rate of growth than our core domestic U.S. business. And we have many, many years of compelling growth in front of us internationally.

And the far right, I've already spoken about Specialty, so I won't belabor. You can see the Specialty banners across the bottom of the page. We have long-term M&A potential to go along with expanding that specialty reach and capability over time.

So with that, I'm going to turn it over to Kenny. He's going to come up, and I have one more chart that I will cover after Kenny's done. So Kenny, over to you.

Great. Thanks, Kevin. Good morning, and hello, everyone. It is great to be back, as Kevin said. So you just heard Kevin talk about three things. Number one, our leadership position in a growing and attractive industry, right? Number two, our strong track record for long-term success. And number three, our balance of initiatives are driving near-term momentum and long-term growth. So during my presentation, I will add additional color and insight on how these items translate to our financial performance, mainly around the P&L, the balance sheet, cash flow and ROIC.

Take a look at this page. Let's start with the key piece. Our local case growth volume has continued to improve sequentially versus Q3. We are on track versus our recently provided guidance which is, and let me remind you, for the full year, top line, 3% growth; adjusted EPS, at least 1% growth. With at least -- with 1 more month ago, we are confident in our guide.

As seen on this slide, we've achieved strong performance in each of the past 4 years. This is across both top line and bottom line. If you take a giant step back, since FY 2021, you can see that our efforts have yielded CAGRs of 12% on sales and roughly 32% CAGR on EPS.

Sysco has proven to be a resilient business and are able to grow across various market conditions. The consistent performance also includes strong operating leverage, where gross profit is growing faster than operating expenses, and our bottom line is growing faster than our top line. The attractive return profile, here you can see, includes the #1 market share position in a growing industry.

Importantly, size and scale matters, as Kevin just talked about. The size and scale renders the following: leading sales in the industry; leading margins; free cash flow; ROIC; and the fifth one is really important, especially now, the only IG balance sheet in the entire industry. These leading industry metrics are a position of strength and helps illustrate our strong quality of earnings.

I do like this chart a lot. It's one of my favorite slides. So if you take a look at the slide, our superior performance relative to our average industry peers can be clearly demonstrated across both the income statement and the balance sheet. Our competitive advantages, coupled with operational rigor really allows us to have that spread that you see on the page.

So let's first talk about the income statement. So if you look at the left part of the chart, you can see that gross margins last year was roughly 18.5%, and that is 1.3x higher than the average core peer, and that's really driven by our size and scale. If you move your eyes across the board, you can see on operating margins, it's roughly 4%, and that is 1.6x higher than the average core peer.

So what's driving it? Here at Sysco, we have levers across our P&L. On the GP side, you have items like strategic sourcing, utilizing total team selling to drive higher-margin specialty sales, while leveraging the broadline scale and driving international growth as well because that comes with a higher margin attachment rate.

But we also remain focused on operational expense levers as well, mainly in supply chain where we actually leverage the efficiencies across the improved retention as well as labor productivity, structural cost out as well as optimization within our corporate expenses. These are meaningful and structural advantages that shows up across the P&L.

Now let's talk about the balance sheet. We are industry-leading in terms of cash flow conversion from EBITDA. So EBITDA to OCF, operating cash flow, is roughly 70%, and EBITDA to free cash flow is roughly 50%.

On the right side of the page, you can see that our free cash flow annually is around $2 billion. That is almost 3x higher than the average core peer. And given the fact that we have robust cash generation, we have the luxury to do both, invest in our business and reward our shareholders via share repurchase and roughly 3% plus on dividend yield, which is a true differentiator in our space. More to come on that one.

ROIC. Couple IG balance sheet with ROIC, that's how Kevin and I approach day-to-day activity. ROIC is a true differentiator for us in this space as it allows us to execute against 4 things: deliver today; build for tomorrow; at the same time, weather any instability or storm that passes through; and then fourth, last but not least, reward our shareholders.

Our approach is disciplined, yet flexible with 3 key focus areas. Number one, leverage our size and scale as the industry leader. This includes growth and continued efforts with structural cost out to drive forward efficiencies.

Number two, ROIC for Kevin and I is not just all about maximize returns. It also includes strategically reallocating capital towards higher returning assets, business, activity all while optimizing working capital.

And third, executing on long-term M&A. We have a strong track record on delivering accretive M&A with a focus on enhancing our global product portfolio, specifically in our specialty space and growing end markets with leading share positions.

So to put a bow around this page, if you take a step back, our ROIC mindset and the ways of working is driving our total company to be roughly 400 bps higher than the average consumer staple sector and roughly 2x of our average core peer.

Looking forward, our plan is simple: drive value creation by maintaining the best-in-class ROIC and growth, which is layering in incremental growth each year, which compounds over time.

All of our efforts are supported by a balanced approach to capital allocation, which is consistent in discipline as we leverage our ROIC mindset to ensure capital deployed to yield optimal return on various asset classes.

First, we will invest in our business for growth. We are planning for CapEx to be approximately 1% of sales annually. This consists of both growth and maintenance CapEx, which will optimize over time. Second, we are maintaining our investment-grade balance sheet and operate within that 2.5 to 2.75x net leverage ratio. And lastly, we are committed to rewarding our shareholders via share repo and dividends.

Our robust cash flow generation and strong balance sheet affords us the financial tools and flexibility to make the right decision as we seek to grow our business today and over time in the long run. If you look at the page in front of you, approximately $3 billion in annual operating cash flow served as the source, the engine that powers our long-term capital allocation capabilities, whether it's invest in our business or return capital back to shareholders.

The durability of Sysco's balance sheet and liquidity profile are noteworthy and impressive and serve as a powerful tool for long-term value creation. This is particularly important especially against a dynamic backdrop in which we're seeing today.

Furthermore on the page, you can see that our liquidity position right now is roughly $4 billion, which offers a meaningful headroom with a cushion of more than 2x of our minimum liquidity threshold. This robust liquidity profile unlocks meaningful capabilities for Sysco from a perspective of supporting operational continuity, growth and resiliency across a variety of operating environments.

This is a great chart as well. Since 2015, the past 10 years, you can see that Sysco is on track to cumulatively return close to $20 billion back to shareholders through the end of FY '25. Now this is a meaningful number as to put in perspective, this is more than half of our current market cap. This remains an important piece of the Sysco investment thesis. Our commitment to this practice is evidenced by the $1.25 billion of share repo for this year, with $550 million in Q4, which is this quarter alone.

From a capital return perspective, we are also committed to long-term growth of our dividend. Most recently, we increased our quarterly dividend by 6%, and we remain a proud member of the Dividend Aristocrat Club. And we're on track to deliver our 56th year of increased growth in payouts.

As you think about our dividend outlook, we are supported by a 40% to 50% dividend payout ratio as it relates to adjusted EPS. So given the robust nature and cash generation profile that we have in our company, I would naturally expect our dividend to grow in line and commensurate with EPS growth over time as we maintain our payout ratio.

So in closing, we are confident. We have the right team and focus in place to execute against the last month of 2025. Again, we are confident with our guidance, and we're confident that we will continue to drive continued improvements in our financial performance.

This will build on our track record the past 4 years, as you saw it earlier, of double-digit growth on both top line and bottom line. We can deliver today and build for tomorrow. Our investments are well-laddered and supports the long-term view of our business, which includes a TSR for our shareholders of 9% to 11%.

This is a great time to be at Sysco. We like our position. Thank you for your support. With that, I'll pass it back to Kevin for closing remarks.

Okay. Great. Thank you, Kenny. Just one wrap-up slide, just why we believe Sysco is a very compelling investment. We kind of check boxes across the spectrum of things that are very interesting for an investor.

We're the #1 player in a large and growing sector. So the fundamental health of food-away-from-home is a strong sector. If you're concerned about the impact of consumer confidence and potential recession on the restaurant space, we have a large non-restaurant business.

If you're looking for a flight to safety, see the comments that Kenny made about the strength of our balance sheet, the robust dividend that we pay, the opportunity to buy back our stock, invest on our business and pay our dividend all at the same time.

To be pretty clear, we were the only profitable foodservice distributor that is a public name during the fiscal crisis that was COVID impact on food-away-from-home. Just to repeat that point, 2020, we were profitable as an entity, and we don't anticipate an economy looking anything like what we were dealing with back in 2020 when our business went down 65%. In fact, the last recession, I think our sales were down 1.2% in the year of the last recession.

This is a resilient business. Food is essential. And people say, "Well, going out to eat might not be." Given how time-starved consumers are, we actually view our sector as a very, very resilient sector.

So just last but not least on this chart is that strong track record of growing our dividend that Kenny just covered, industry-leading profitability, and we absolutely have the opportunity to accelerate our growth profitably as we look out over the next 1, 5, 10, 20-plus years given the growth vectors that I've chatted about earlier.

So with that, I'm going to turn it over to Lauren for questions. Lauren, over to you.

Thank you, guys. So I'm going to start on the local case growth side. Kenny, I believe you mentioned local case volume sequentially improving. Can you guys talk about what you've seen through April and May, how much you attribute some of the improvement to Sysco-specific initiatives relative to what we're seeing in the broader industry? And then just overall talk about your confidence in being able to continue to improve that local case growth performance.

Sure. Maybe I'll start with. I'm going to repeat what Kenny said. So the overall marketplace has improved Q4 versus Q3, and Sysco's specific performance has improved from Q4 versus Q3. We're not going to quote percentages in -- on that regard today. We'll do that on July 29 when we have our Q4 call.

But that rate of improvement both in the industry at Sysco gives us the confidence to say with confidence that will deliver upon our earnings guidance that Kenny just walked us through. So we're pleased to see the improvement in foot traffic to restaurants, and we're pleased to see the performance improvement at Sysco from a volume perspective in our most profitable sector.

As we think about both the ending of this year and, as importantly, the jump off to fiscal '26, I just want to emphasize a few things. What has to be true in order for us to have positive case growth in local? Number one is our sales force. It's stabilizing the retention of our sales force and improving the selling effectiveness of our sales force.

I just want to repeat what I said back at the podium. We have absolutely stabilized the retention of our colleagues. That problem is behind us. We are still working through the customer loss that occurred from prior colleague turnover. For those that don't live in our space, if a colleague leaves Sysco and goes to work for a competitor, they tend to bring some other customer business with them to that competitor.

So '25 was a tough year for us. We made a compensation change. Our turnover increased, and that produced a headwind for our business. As we pivot into 2026, that headwind has the opportunity to pivot to become a tailwind. So that's topic number one, we've improved the stability and retention of our colleague workforce.

Topic two. Tied to that is the hiring that we have been doing. Our new hires are moving up the productivity curve at a healthy clip. They are delivering the rate of profitable growth that we expect and need from them. So it's topic number one, sales force. Topic two, our specific initiatives. I mentioned several of them on the stage a few moments ago.

Sysco Your Way is an absolute winner worldwide, in every single geography that we have moved forward with that initiative. We will continue to expand to new neighborhoods. I mentioned on stage we are rebooting our Perks loyalty program to make it even more focused on our top customers, our best customers.

I mentioned United at the podium. United has a premier service program for their top customers. And you are absolutely treated differently if you're in that program than gen pop. That's exactly what we want our best customers to experience from Sysco, a higher rate of on time, a higher rate of fulfillment, preferred delivery service windows, at your call service from a sales consultant 24/7, et cetera, et cetera. These are things that will make a difference for our top customers. And price agility, as I mentioned, that's another core fundamental initiative for next year. So that's number two initiatives.

And number three is investments. I showed on the chart the new facilities that are coming live, the investments we're making in technology, specifically to improve the CRM, which fuels the work focus of our sales force. Those investments will pay dividend.

And last but not least is the longer-term growth initiatives, the expansion of our international business from a capabilities perspective. As I mentioned, in every country that we are running the Sysco play, we are moving into the #1 position from a market share perspective and improving the profit rate of international.

With that, Kenny, I'll toss to you for any additional comments you'd like to make.

Yes. I'll say a few things, and you can hear and sense the confidence in Kevin and my voice in terms of local and the progress made. And here's 2 additional color points.

One is ROIC. I talked a lot about that in my presentation, but that's the same way we think about from an SC, sales consultant's, deployment standpoint. So right now, because of the fact that we are very deliberate on when and where we deploy the SCs, we're actually seeing expectations on growth hitting our own expectations right now. And therefore, that gives us confidence that as the SCs climb the productivity ladder, as Kevin talked about, that will further yield greater accretion from a sales standpoint.

In terms of the productivity curve, remember, most of the SCs added on our books today right now, they came in towards the back half, the end of last fiscal year and also throughout this year as well. So many of them are actually entering the 12 to 18 months time frame.

Now the SCs' productivity curve isn't binary. It doesn't change overnight. It changes over time. But the biggest jump in productivity, i.e., revenue per SC, happens in that 12 to 18 months' frame. So a lot of them are actually entering that time frame, and we do expect to see a lift on that.

The second thing I would say is there's definitely indicators out there that we track closely to give us confidence. Retention is improving, as Kevin said, That is a big indicator. We have more net new customers than we ever did. And today's new customers are tomorrow's penetration.

And last but not least, our NPS scores right now are rising every period as well, and that is a good indicator given the fact that our service levels are at top notch right now.

Great. Going to shift over to international. So performance across the International segment has been consistently strong. Just talk about the drivers of the performance, how you're thinking about the long-term potential of the business and both top line as well as what you're seeing on the margin side.

Would you mind grabbing the remote quick?

Sure.

So we're very, very pleased with our international performance. I'm just going to go back to a slide while I'm talking. When I joined the company 5.5 years ago, frankly, first question, second question, third question from investors are, why are you in this international business? It's a drag on the profitability of the company. Is it a distraction for management. You should consider selling it. It's your predecessor that got you into this business. You should get out.

What I'm very pleased to report is now 5 years later, we get that question 0% of the time. The question we get from long-only European investors is how big could it be, what countries might be you'd be interested in.

And the why is the proof of the pudding behind us. We are growing our international business, top and bottom line at a faster rate than our core domestic U.S. business. We have years and years and years of runway still to go where our current country international business can grow meaningfully faster top and bottom line.

And the profitability improvement that's come from international is significant. Kenny shared with some investors this morning. It was a 2% EBIT as a percent of sales business. It is double that as we look at the wrapping up the year we're in with a strong track record of equaling our current total company profitability. So there are no structural issues in Europe that will prevent us to get to our targeted rate of profitability.

The one country on this map, that's why I wanted to come back to it, that we were the weakest in was actually the country that we are currently in, France. But what we're excited about with France specifically, if you look at the total addressable market, it's the second highest number on the page. It's a $23 billion total addressable market.

This is a foodie country, high GDP per capita. There's not a clear #1. There is not a Sysco in France. The business is meaningfully distributed across a large number of distributors, and there's not one large dominant broadline provider. There tends to be like a meat person and a dairy person and a dry goods person. And we have an opportunity in this country to be that player, to be the full solution.

And we are profitable in France, which I could not have said 4 or 5 years ago. This is a profitable country. It is well on its road to healthy, and we're bullish about our capabilities here and across Europe.

What excites me even more for the long term, and we're not making any form of announcement today, but you can see there's a bunch of countries that we're not in, even contiguous countries in Europe that we're not in. And see, my main point is we have proven that every country that we go into, if and when we run the Sysco play, we can deliver the rate of profit that we deserve, we can deliver the type of growth that we expect and we move into that #1 position over time. So the future is bright on international.

Kenny, anything to add?

Yes. Thanks, Kevin. Just a few things. As Kevin said, our margins were roughly 2% here, operating income margins a few years back. And last quarter, we were at 3.7%, right? So we had literally 6 quarters of straight of double-digit operating income growth for 6 straight quarters. That's point number one.

Even though, yes, Canada and U.K. are our biggest markets, the good news here is that the growth is broad-based. It's every market. Every market in Q3 grew close to double digit. That's really important for us.

The third piece is, and some of you may remember, we did a couple of recent M&A deals as well in Ireland and in GB around the specialty space, and those 2 are doing really well. Why is that? Because we're #1 in those spaces. And when we go to market, we have the beauty of total team selling, leveraging our broadline scale and our depth of specialty coming together to differentiate the Sysco product and assortment. So that's going really well as well.

And the last thing I would say is that there is no structural back to margins. There's nothing structural that would impede our ability to be roughly 5%, 6%, similar to our U.S. in terms of operating income.

Great. I'll build on that a little bit. On the M&A side, you mentioned countries that you're not in. It seems like international has now earned the right for acquisitions and just how you're thinking about M&A both in the U.S., what you look for in a target, balancing that with international. Then any other commentary that you want to make on just your broader capital allocation priorities and the balance there?

Yes. So maybe I can start with just capital allocation, I'll dive into M&A. So capital allocation, just to remind everybody, as I said, invest in our business, maintain our IG balance sheet, any excess cash reward are to shareholders.

One thing I would say is the following. Kevin and myself, we view ourselves as asset managers, right? And given the environment we're in right now, which is dynamic, we're being very mindful and disciplined in terms of looking at all parts of our cash flow statement, including, for example, CapEx.

Every year. We used to spend about -- we spent about $1 billion or so, rounding here, 1% of sales. And for us, given the environment we're in, we may be pacing that appropriately as well as the right thing to do as a business. Great companies do this. So right now, it doesn't mean we stop investing. We're just being very disciplined on where and how we invest.

And by the way, right now, we've invested with 10 new facilities, new SCs coming in. So we're also, at the same token, ensuring the return on investments is happening.

The third thing I would say is on M&A, we always say this, we don't buy companies to be bigger. We make those companies successful along with Sysco. And you're right, Lauren. Markets -- certain markets are -- they have the right to open for business right now in terms of M&A., and there are certain markets that are not right now, right?

And as Kevin talked about, France, for example, they're in the midst of a self-help transformation. It's going really well right now. I want to see a couple more wins there before I think about M&A. So again, we're very disciplined in terms of how and when, given the fact that there's a hurdle rate that has to be evident before we do so.

In terms of what we look for, usually, it's either a smaller broadliner or a specialty, which we can tuck in nicely or fold in nicely to our existing portfolio. Again, the best ROIC is leveraging the assets you already have.

Real quick examples in Europe from an M&A perspective. In Ireland, which is the most profitable international business, we have #1 in broadline by far, but we didn't have the specialty assets that we have in the United States. So we bought a fresh produce company, and we will now integrate it with our broadline entities so that we can serve both the custom cut, bespoke, unique needs of the premium produce customer as well as the broadline customer. And we've proven in the U.S. how successful that will be.

In GB, we're #1 in broadline. We didn't have the custom cut protein business, so hand-cut butchery and the like, dry aging, wet aging. So we just bought a premium protein custom cut shop, and we will take that capability, and we will integrate it with our Brakes Broadline business to be able to win specialty in addition to broadline. So pretty much in each and every country, we will fill out our capabilities over time.

Bank is open in certain countries. France, as Kenny said, it's doing a great job of its own self-help recovery. It will earn the right for investment at the appropriate time. And then longer term, again, nothing to report today. Longer term, there are countries that we are interested in. We have learned which countries are attractive, i.e., total addressable market, high earnings per capita.

Why is that important? Because you have more money to be able to spend when you go out to eat and not a clear dominant #1. If those 3 things are true, it is a very, very attractive marketplace for Sysco. And again, it gives us the confidence and our longer-term growth. And I won't keep bouncing the charts around, but that extraordinary free cash flow generation that Kenny referenced gives us the opportunity to make those types of investments over time.

We are pretty much out of time. Is there anything that you want to leave investors with?

Yes. From my standpoint, I mean, there's no better time to be at Sysco. That's what I leave it with, right? If you think about our balance sheet, think about our leverage ratio, think about just our robust liquidity profile, it's a company that has stability and has a growth profile attached to it as well. So again, it has a nice balance of that.

And I would also argue, it's one of the more diversified portfolio that you will see as well from a product assortment standpoint, from a market standpoint as well and from an industry standpoint, too, right, from health care to education, to restaurants and the like. So it's a great time to be as an investor.

And I'll be very concise, I promise. We are extremely confident in the long-term success of our company to expand our leading marketplace position. We're not satisfied with our local business, and we have a very clear plan to improve that business. We believe fiscal '26 is an opportunity to show the type of improvement in that business that we deserve and that our investors deserve, and we're extremely committed to do that.

Kevin, Kenny, thank you very much. Appreciate it.

Thanks, Lauren. Appreciate it. Thank you, everyone.

Thanks, all.