Kevin P. Hourican
President and Chief Executive Officer at Sysco
Thank you, Kevin. Good morning, everyone, and thank you for joining our call today. I would like to cover three topics during my section of our call: first, I'll provide a summary of our Q4 results and our full-year performance; second, I'll convey an update on our Recipe for Growth strategy; and lastly, I'll provide some commentary on the macro conditions which we have modeled for fiscal '24 and how Sysco intends to operate within that environment. Kenny will provide much more detailed components of guidance during his section.
So let's get started. We are pleased with the strong finish to the fiscal year. Sysco posted record top line and bottom line results during the fourth quarter. Top line results, as seen on slide 5, were up 4.1% compared to last year, delivering $19.7 billion in sales. The strong quarter generated a full year sales result of $76.3 billion, a record at Sysco. We grew annual sales by 12.5%, or $8.6 billion, on a constant currency basis. That sales growth is the equivalent of creating a net new Fortune 500 company within Sysco.
Turning to volumes. Q4 case volume grew 2.3% and local case volume grew 0.8% across our U.S. Foodservice business, successfully growing our market share and furthering our number one position in foodservice distribution. We are pleased with our share gains for the quarter and the year, which build on meaningful gains delivered within fiscal year '22. Importantly, these gains are profitable share gains. We are not growing for the sake of growing, as we have consistently pursued profitable sales growth vectors domestically and internationally.
Moving to gross profit. Our sales and merchandising teams delivered a strong quarter from a GP growth perspective. We grew gross margin rates and GP dollars per case, which is not easy to do in a disinflationary environment. Our teams are doing excellent work in strategic sourcing to reduce COGS and further penetrating Sysco brand cases with our customers. Advancing Sysco brand helps gross profit and leads to increased customer retention. Lastly, we are growing our higher-margin Specialty business, which strengthens our overall margin profile.
Next in the P&L is operating expense. I am most proud of the quarter from the perspective of the progress that we are making in reducing our expenses. We have been clear with investors that our first half of the year in fiscal '23 had elevated expenses. This was driven by two factors: investments in our business and a supply chain struggling with new-colleague productivity. In the second half of fiscal '23, we made major progress on our expense ratios and greatly accelerated productivity improvement within our supply chain. Retention of colleagues has improved, productivity of our colleagues has improved, and our supply chain initiatives are bearing fruit. All told, we delivered an operating leverage of 370 basis points in Q4, growing GP dollars meaningfully more than expenses.
Slide 7 highlights the sequential improvement with opex over the course of the last fiscal year. We began the year in our U.S. Foodservice segment with quarterly operating expense growing over 22% but ended the year with a growth rate of 0.5%. Our focused effort to deliver supply chain efficiencies and broad-based cost reductions drove the sequential improvement across the year. We expect to make further operating expense progress in 2024. We will be zealot-like focused on ensuring our supply chain is properly staffed, properly trained, and working safely and productively. We have the leadership expertise, supply chain tools, and supply chain infrastructure to lead the industry in this regard, which is one reason why Sysco operates at an EBIT margin over 1.5 times higher than our industry distributor average.
Record top line and record bottom line performance in Q4 is a direct result of our Recipe for Growth and our focus on excellence in execution in operations. The improvement from first half to second half within fiscal '23 was notable, enabling Sysco to grow EPS more than 23% for the full year. In addition to delivering a strong P&L in Q4, we achieved record free cash flow, and we returned approximately $1.5 billion back to shareholders during the year. We are pleased with the strong financial performance in the quarter despite rapid disinflation and slower overall industry market volume growth. We believe our success in spite of those conditions positions the business to be successful in 2024, which I will speak to more in a moment.
As is my custom, I would like to provide a brief summary of select Recipe for Growth elements of our strategy from our recent quarter. I will start within our supply chain initiative. Our work on strengthening Engineered Labor Standards across our supply chain is paying dividends. As I mentioned a moment ago, we made significant headway in improving our supply chain efficiency. We have recently strengthened our Work Method Standards training within transportation roles, enabling our colleagues to work safely and work more productively. Additionally, we have increased retention rates within our workforce through our improved training programs. The Driver Academy is national, and the impact of this program is a better trained workforce.
Now we would like to highlight the progress that we have made on the food sales and marketing side of our Recipe for Growth. Last month, we announced an agreement to purchase BIX Produce. BIX Produce is a leading produce specialty distributor based in Minnesota. The acquisition is expected to provide a strategic opportunity for FreshPoint to expand its geographic footprint in an area of the country where it does not currently have operations. BIX has a strong assortment offering, including fresh cut produce, grab-and-go sandwiches, and value-added production capabilities.
In addition to our good work in expanding specialty, we also upgraded our digital shopping platform during the quarter. Our SHOP digital platform is now available in Spanish, and we have deployed more than 100 new feature enhancements. Some of these enhancements include a new homepage, new category and cuisine pages, improved search and navigation, and lastly and new Deals for You page. These enhancements have driven an increase in product page visits, adding incremental volume through add-to-cart purchasing. There is no finish line in our digital improvement journey. We will continue to improve our digital tools over time, enabling us to reduce friction in the purchase experience and inspire our customers to buy more from Sysco.
Our centralized pricing tool has given us the ability to be what we call right on price at the region, customer, and item level. During the first half of '23, we experienced rapid inflation and in the second half of '23 we experienced rapid disinflation and even deflation towards the end of Q4 within our core USBL business. Our merchants have been fighting to secure best possible cost and our pricing tool ensures that the real-time cost fluctuations are built into our pricing strategies. Managing pricing across hundreds of thousands of customers, tens of thousands of products, and approximately 7,500 sales reps has never been stronger. This is evidenced by our consistently strong performance in GP dollars growth and adjusted gross margin rate growth up 28 basis points year over year in the quarter. We want our sales reps focused on customer engagement, relationship building, consultative selling, and solving problems for our customers. Our pricing tool enables our SCs to spend more time on those value-added activities.
Lastly, Sysco Your Way is now live in over 400 neighborhoods across five countries, and our loyalty program, Perks, is active with over 12,000 customers. Both programs are continuing to deliver compelling top and bottom line growth. The past year has been a heavy lift as we work to get these programs off the ground. In 2024, we can focus on maximizing the impact of these compelling programs with less effort and investment required than in 2023.
In summary, our Recipe for Growth is working, enabling Sysco to profitably grow our business and differentiate versus others in our space. Most compelling is that food away from home is a growth sector as seen on slides 10 and 11. Sysco has been profitably growing faster than the overall market, delivering record top and bottom line results. We expect to continue to win market share profitably in the years to come and to do so in a fiscally responsible way.
I'd like to wrap up my time this morning with some comments about the operating environment we expect for fiscal '24 and Sysco's positioning within that environment. My main message is that scale matters in this industry and that strong operators are best positioned to succeed, regardless of the environmental conditions. Sysco is a very strong operator with meaningful scale advantages. With that said, in fiscal '24, we expect the market to grow at a lower rate than '23. We also expect the rate of inflation for the year to be below historical standards. In the second half of fiscal '23, we experienced the rapid disinflation followed by deflation within our core U.S. broadline business towards the end of the fourth quarter. We expect that deflation will continue within U.S. broadline for the first half of fiscal '24, followed by muted U.S. broadline product inflation in the second half.
We expect that our international segment will remain inflationary during the coming fiscal year, given unique marketplace conditions in those geographies. Net-net, for Sysco, we expect an inflation rate that is slightly positive throughout fiscal 2024 below our historical average. We believe the Q4 environment we just exited is largely reflective of the operating environment for the coming year. Importantly, we grew our top and bottom line within that quarter. We're being very prudent in fiscal '24 in managing our expenses given the volume and inflation components that I've just conveyed. Despite these conditions, Sysco is positioned to succeed, grow faster than the market, and deliver bottom line growth.
Our confidence is also based on our structural competitive advantages. First, our international business, which is approximately 18% of sales, continues to outperform, providing a natural hedge as international inflation rates remained elevated and are expected to stay higher than the U.S. Second, our purchasing scale is the largest in the industry, and our strategic sourcing efforts will enable Sysco to secure improved pricing in a deflationary environment. Third, Sysco has a diversified business with strong sales across 12 major product categories to help buffer the impact of inflation or deflation in any one category. Additionally, our strategic pricing software will enable Sysco to be extremely purposeful on how we manage the impact of disinflation and deflation. Lastly, further advancing Sysco brand penetration domestically and internationally is another lever to pull to deliver GP dollar growth when the environment is deflationary.
The exit velocity of fiscal '23 gives us confidence in delivering strong results in 2024. In summary, here is what we expect for '24: lower rates of overall market volume growth versus '23; continued market share gains and profitable growth at Sysco; deflation in the U.S. for at least the first half of the year and muted overall company-wide inflation for the full year; disciplined expense management, Kenny and I have directed an effort to reduce structural expenses by approximately $100 million; extremely disciplined return on invested capital, or ROIC focus; continued progress in advancing Sysco brand penetration and growth within specialty. In total, given all these interworking variables, we are modeling an adjusted EPS range of $4.20 to $4.40 for the full year. The midpoint of that guide would generate approximately 7% EPS growth versus fiscal '23.
Now in our third year of Recipe for Growth, we are positioned to press the accelerator on certain proven initiatives. For example, we can optimize our performance and launch Sysco Your Way neighborhoods, which takes less effort than starting up a neighborhood. Our digital tools are becoming more and more pervasive with our customers, and we can optimize the personalization of these interactions to increase yield through each transaction. We have always said that the Recipe for Growth is a wheel where each initiative fuels the next. Fiscal '24 is a year of optimizing what we have launched versus kicking off net new efforts. This will enable Sysco to be laser focused on what matters most, executing with excellence against launched programs. This also means we will be able to grow our business with less investment. This was always our plan within the Recipe for Growth, and it is coming to reality in fiscal '24.
In addition, our expanded geography of specialty businesses, like the recently announced BIX acquisition, will increase the impact of our higher-growth specialty segment. In fiscal '24, we are committed to both profitably growing our top line, meaningfully reducing opex, and generating a higher rate of return on key initiatives. Given the confidence that we have in our long range roadmap, we are happy to announce that we have reintroduced ROIC as a long-term compensation metric for our leadership team. In addition, we have increased the weighting of financial metrics within our short-term annual bonus program. As I have said many times before, the best companies in the world are growth companies, and we expect that Sysco will continue to profitably grow faster than the overall market. I am thrilled to have Kenny as my partner on these objectives. We are committed to maximizing every dollar invested in producing the greatest shareholder value.
I'll now turn it over to Kenny who will provide additional financial details. Kenny, over to you.
