Kevin P. Hourican
President and Chief Executive Officer at Sysco
Thank you, Kevin; and good morning, everyone. Thank you for joining our call today. Our prepared remarks will cover the following themes: confidence in reiterating fiscal year '24 guidance, another record quarter of disciplined financial performance with a focus on profitable growth, disciplined ROIC and balanced capital allocation priorities. These themes all confirm Sysco's strength as the market leader.
During our call today, I plan to cover two topics. First, a summary of our Q1 results; and second, a spotlight on our Recipe for Growth strategy, and how we continue to build capabilities for profitable growth at Sysco.
So, let's get started on Slide number 5. Our positive momentum from last year continued with top and bottom line growth in Q1 to kick off the new fiscal year. Beginning with the topline, we delivered sales growth of 2.6% driven by a combination of positive case volume growth and effective management of product cost deflation in the US.
Turning to the bottom-line. We posted double-digit growth in both adjusted operating income and adjusted EPS, with an adjusted earnings per share of $1.07. We delivered this double-digit bottom-line growth in a slowing topline macro and deflationary COGS pressure within the US. Our ability to post strong results in Q1, considering those factors, is a proof point that Sysco is positioned to be successful in fiscal '24. We believe the breadth and quality of our product assortment across both broadline and specialty, combined with the expertise of our commercial selling organization and the strength of our supply chain and balance sheet position Sysco to produce compelling results in the near-term, and even stronger results over the longer term.
Digging a bit deeper into the quarter, we grew volumes in our US Foodservice segment, with Q1 total case volume growth of 1.6%, and local case volume essentially flat year-over-year. We successfully grew share as the industry was roughly flat for the quarter. Our national sales team posted an outstanding quarter, winning substantial new business in the healthcare, restaurant and hospitality sectors.
As I have stated before, we are winning these multi-year contracts with strong profit profiles versus historical averages. Our success is a testament to the improvements we have made and how we serve large national customers. We have made it easier for national customers to do business with Sysco, by improving our technology integration with our customers' systems, and by providing large customers with more dedicated and accountable support. Additionally, our national and international fulfillment scale is very attractive to large concepts. We were able to provide them with supply chain that can scale with them wherever they operate. We expect our national sales segment to continue to outpace the industry due to these capabilities.
Our local performance continues to outpace the overall industry, building on our positive multi-year trend. The local market has slowed quarter-over-quarter and Sysco is not reacting by leading with price to win share. Instead, we are focused on profitable growth, properly serving our local customers and improving our local sales execution. Local volume, as I said, was essentially flat. And that is something we intend to improve upon in our year-to-go periods. We are taking the following actions to drive increased growth in local volumes.
First, we will invest in incremental sales headcount as we have grown our local business faster than the overall industry for each of the past three years. Our territory sizes for the sales teams have increased as well. We are actively hiring more sales resources, which will allow us to optimize territory sizes and enhance sales consultant effectiveness. The benefits from increasing our local sales force will accrue over time as new colleagues complete training and settle into their territories. We expect to see the majority of the positive impact from this action in fiscal year '25.
Second, we recently enhanced the compensation model for our sales consultants to incentivize our colleagues to focus on profitably growing their and Sysco's business. This change was implemented recently, during our fiscal Q2, and the positive effects will be felt in future quarters of this fiscal year. The change to our compensation model better aligns the incentives of our sales team to the key priorities of Sysco.
Third, we recently ramped up our focus on what we call visit frequency and visit quality expectations. Through our robust CRM, we are able to track the activity and outcomes from our sales team. Our sales leadership team is focused on colleague coaching to improve outcomes on both fronts.
Lastly, Total Team Selling, which was recently expanded coast-to-coast will improve cross-selling opportunities, combining the relationship strength of our sales consultants with the product expertise of our specialty businesses. All told, we are confident we can increase local sales volume growth. While maintaining momentum with strong margin management, we will drive that improvement through healthy long-term decisions, and by remaining disciplined in our pricing decisions.
Next, I would like to provide a brief summary of select Recipe for Growth enhancements from our recent quarter. We recently implemented a global operating model for our leadership structure. It is important to note that our International segment posted another strong performance in Q1, solidly growing topline and bottom-line faster than the US business. The change to a global operating model will help further accelerate our progress internationally. We will move faster in adopting best practices, delivery of new capabilities and leveraging new tools across Sysco's global footprint.
An example would be taking the Sysco Your Way concept and bringing it to life globally. To head this new operating model, we named Greg Bertrand, our Global Chief Operating Officer. In his expanded role, Greg will be accountable for managing Sysco's global operations, driving profitable growth and local sales and operations. I'm extremely confident in Greg as leader and I'm bullish on the impact that he will have on his expanded geographic territory.
We continue to make progress in improving the performance of our supply chain. Chart 10 displays our year-over-year operating profit improvement driven by positive operating leverage with gross profits growing at a faster rate than operating expenses. Our supply chain operation remains fully staffed. And we continue to improve employee retention and we're building on productivity gains.
We recently implemented a new and improved labor scheduling tool that has increased our flexibility and matching our staffing to the variable work nature of our business. As a result, we are becoming more flexible in how we manage our cost structure to match business volume seasonality. The end result of that improvement is a lower cost structure.
In addition to our focus on improving current days supply chain performance, we are expanding our supply chain capacity to increase our ability to serve rapidly-growing markets. For example, we recently celebrated the ground-breaking for a net new Sysco foldout site in Mesa, Arizona. Each new fulfillment center at Sysco undergoes a vigorous ROIC review and a project prioritization test. Each of the investments will increase our capacity and feed future Sysco growth in already successful high-growth geographies. We are excited to have the first of these net new buildings in Allentown, Pennsylvania opening later this fiscal year. The Allentown facility will enable us to better serve the highly dense Northeast corridor and support the eventual expansion of our specialty platforms in that geography.
On October 11th, we announced an exciting addition to the Sysco family through our planned acquisition of Edward Don, a leading distributor of foodservice equipment and supplies based out of Chicago. Founded in 1921 and led by Steve Don, the business generates approximately $1.3 billion in annual revenue and services a broad range of customers across the US. We believe the acquisition will be a great addition to the Sysco family, further demonstrating our Recipe for Growth strategy by focusing on building strategic specialty platforms that help us support restaurant and hospitality customers. Every Sysco customer needs restaurant, equipment and supplies to manage their business. Don's compelling product offering and robust supply chain capabilities will improve how we serve those customers.
After deal closing, Steve Don will continue to lead the business and we will partner together to profitably grow the segment. Most compelling is the following. Sysco sells to hundreds of thousands of customers who are not currently buying restaurant equipment and supplies from either Don or from Sysco. Post-deal approval and closure, we have a great opportunity to introduce the Don assortment to Sysco's customers and have a one plus one equals three equation through this accretive acquisition. I look forward to working closely with Steve and his capable leadership team to bring that ambition to life for many years to come.
As I wrap up my remarks this morning, I will summarize with the following. We grew our top and bottom line within the quarter and achieved positive operating leverage, with gross profit dollars outpacing operating expenses. The result was more than 10% growth in adjusted EPS. This double-digit growth is on top of a strong year in 2023. We are being very prudent in how we manage the business in fiscal '24. We are closely monitoring the macroenvironment for signals on customer traffic in the rate of expected inflation this year. We are prepared to take actions to ensure we are successful in the operating conditions presented to our industry. For the full-year, we believe Sysco is positioned to succeed, growing topline faster than the market and delivering robust bottom-line growth. We have three more quarters to go, and we are focused on delivering our plan.
I'll now turn it over to Kenny, who will provide a detailed review of Q1 performance and select fiscal year '24 guidance commentary. Kenny, over to you.
