Kevin Hourican
Chair of the Board and Chief Executive Officer at Sysco
Good morning, everyone, and thank you for joining us today. During our call this morning, I will provide an update on general marketplace conditions, highlight Sysco's specific performance results, provide some color on select priority initiatives and reconfirm Sysco's previously issued full-year guidance.
Let's get started with a brief update on the overall food-away-from-home marketplace. Foot traffic to restaurants was down 3.6% for the first quarter, a roughly 100 basis point erosion from the fourth quarter. With that said, traffic trends improved throughout the quarter, with July down 5%, August down 4% and September down 3%. The traffic data just referenced includes the impact from significant hurricanes that occurred in the beginning and ending of the quarter. We are cautiously optimistic that recent actions by the Federal Reserve, lower general gas prices and getting past the election will positively impact food-away-from-home traffic in the second half of our fiscal year.
Notably, the improvement in Q1 foot traffic data was evident across all restaurant types. To help matters, we see restaurant owners taking actions on menu pricing to improve their value proposition. This is a positive for the industry overall. Sysco can help restaurant operators achieve lower menu prices through our Sysco brand assortment and through value-added products that help save restaurants time and money. An example of this is our FreshPoint business that provides pre-cut products that help remove prep work from the kitchen.
Turning to the non-restaurant sectors, we are seeing strong performance across the board with particular strength coming from the business and industry sector as more companies are encouraging work from the office. As Kenny has said many times, these non-commercial sectors tend to be more resilient to overall economic conditions and we are seeing that in our current results.
Turning from macro-industry trends to Sysco's specific performance, we delivered the following results within our first quarter. Total revenue of $20.5 billion, a growth of 4.4%. The revenue growth was fueled by U.S. Foodservice volume growth of 2.7% plus moderate inflation. Our volume growth was generated by 5.5% national volume growth and 0.2% local volume growth. Adjusted operating income grew 2.2% for the period, supported by disciplined expense control. We delivered an adjusted earnings per share of $1.09, a growth of 1.9% to prior year. Most importantly, our first quarter results have Sysco on-track for our full-year guidance and we are reconfirming our full-year guidance on today's call. While we are pleased with many aspects of the quarter, we see opportunities for improvement within our performance. I'll start first with the strength points of the quarter.
I am particularly pleased with our International business segment. We grew our International top line 3% for the quarter and grew adjusted operating income, an impressive 12%. Our strong profit growth is being generated by expanding Sysco brand presence, operational improvements in the business and the introduction of higher-margin categories into select international geographies. Adding to this success is strong strategic sourcing programs that are now running globally in the expansion of our Sysco Your Way local sales program.
In addition to the success in International, our national sales business is performing at a very high level. We continue to onboard high-quality net new national business with strong margin profiles across restaurants and the non-commercial sectors. These new customer wins will continue our strong track-record of performance in the national business sector. As we have said many times, national sales customers help us leverage our fixed costs, increase our purchasing scale with suppliers and improve our delivery route density as these deliveries are interspersed with our local deliveries.
Our SYGMA segment had an extremely strong quarter, growing sales 7.3% and operating income 38.5%. It is great to see our SYGMA business return to sales and volume growth after resetting our customer base to a more appropriate business mix. We are confident that SYGMA will continue to deliver strong results over the remainder of the year.
Our specialty platform continues to win in the marketplace with our total team selling program picking up pace and momentum. We are introducing our Produce and Protein specialty businesses to more Sysco broadline customers, increasing our ability to serve customer needs, retain their business and grow our profit contribution. We expect total team selling to accelerate and help move Sysco towards our longer-term goal of a $20 billion specialty portfolio. As we discussed at our Investor Day in May, the growth comes from a simple equation. When a Sysco broadline customer buys from one Sysco specialty business, their total purchases are 3 times higher than if they buy from just broadline. Today, we have thousands of Sysco customers that only buy from our broadline business. We intend to change that over time and have made this work a top priority for our sales organization.
We will be adding our Edward Don business to the total team selling mix as we advance integration efforts. To that end, we are very pleased with the status of our Edward Don business. We have a compelling opportunity to introduce our equipment and supplies offering to Sysco customers, large and small. Over time, we believe we have international opportunities with this platform as well.
With those business wins in context, there are elements of our business that need to strengthen. I'd like to start with local case growth. As I stated in my introduction, our Local business was up 0.2% for the quarter. We are growing our Local business despite negative 3.6% foot traffic. However, we know we can take share and drive higher volume profitably. To reiterate what I mentioned in our last quarterly call, we have a focused plan to drive increased local case growth. I'd like to provide a brief update on our status of those efforts.
Most importantly, in the last quarter, we introduced a new sales consultant compensation model. This was a needed change that went live on the 1st of July. We remixed our sales consultant compensation, reducing base pay by approximately $1.00 and adding $1.50 to earnings incentives. Net-net, every single Sysco sales colleague has the opportunity to make more money in this new program, but their pay will have a higher correlation to their performance. Notably, our top-performing colleagues are excited by this change and are indeed making more money as they continue to grow their book of business profitably. We are very confident that the new model is the right structure and possesses the right constructs to motivate all Sysco colleagues to actively engage our customers in selling and support activities. During our Q1, we experienced some short-term transitional issues as we work through the change management of the new program. We expect the positive impact of the comp change will be felt as we transition into the second half of this fiscal year.
Topic two regarding local sales is the status of our incremental sales headcount. We are very focused on upscaling our 2024 cohort of new colleagues to enable their success. Our 2024 hiring cohort continues to receive product training and selling skills training to help them advance their book of business. Our 2025 hiring cohorts will be metered across the year to balance the hiring with the pace and the health of the P&L. We will not go too fast or too slow. We will be firmly at the wheel of the hiring pace throughout the year, and we continue to have strong success in filling our job requisitions with high-quality candidates from competition and from the industry overall.
We're seeing initial progress with our U.S. Broadline, Local business results as our exit velocity for the quarter was stronger than our entry point. We have modeled our improvement trajectory for the remainder of the year and have confidence that our improvement will support our ability to deliver our full-year P&L. To that end, we have proof points with select geographies already hitting our growth expectations. These regions are ahead of the curve in regards to implementing change and are succeeding in running our go-to-market selling program. They give us the proof points and the confidence that the total Company can and will achieve the outcomes that we expect.
The last thing I'd like to discuss today regarding our business outcomes is our margin performance for the quarter. We delivered a gross profit margin of 18.3% for the quarter, 27 basis points below 2024. There are three primary causes of that year-on-year performance: A, customer mix; B, strategic sourcing timing; and C, Sysco brand penetration.
Starting with customer mix, our strong relative growth in national sales has a downward rotation on margin percentage. We expect the gap between national and local sales volume to compress as the year progresses, which will decrease this mix impact. Secondly, as it relates to our strategic sourcing efforts, we saw a lower contribution from vendor negotiations in the first quarter on a year-on-year basis. I want to be very clear that this is a timing-only topic that is unique to the first half of 2025. We have full confidence that our strategic sourcing efforts in 2025 will enable delivery of our margin targets for the full year. The strategic sourcing program will have a strong contribution year to go.
Lastly, our Sysco brand penetration is down nominally year-over-year. This is mostly due to customer mix shift with a small percentage impact from improved fill rates from national brand suppliers. Sysco brand remains a compelling strength point for the Company with approximately 50% of our cases sold to local street customers being a Sysco brand product. In total, we have full confidence that margin management will be a strength point for the full year and therefore, we have full confidence in reiterating our full-year profit guidance.
As I transition out of the business results, I have a few miscellaneous topics that I'd like to cover today. At an Investor Conference in September, we announced our intention to sell our share of our Mexico JV partnership. The business is not material to our top or bottom line. Exiting the Mexico market is a display of ROIC decision-making framework in action. By exiting Mexico, we are focusing our capital, technology investments and human capital leadership to higher-yield priorities across the globe. We will buy and sell assets as appropriate to maximize our business value creation.
To that end, we recently-acquired Campbell's Prime Meat, a specialty meat business within the U.K. The Scotland-based business is the number one specialty meat company in the region. By integrating Campbell's compelling product offerings and custom-cut capabilities with our Sysco Great Britain broadline business, we will enable total team selling in the geography. We will continue to look for high-quality assets that complement our business offerings.
As I wrap up my remarks this morning, I will summarize with the following. Sysco has delivered strong business outcomes in our International segment, our national sales business and our SYGMA segment. We expect that these businesses will continue their success in the year to go if not pick up further momentum. We have a strong plan in place to drive improvement in our Local business and we are beginning to see the initial progress with our broadline efforts with the exit velocity of our quarter being stronger than the entry point and we have confidence in our improvement actions due to the strong results being delivered by regions that are ahead of the change curve.
Margin management will be a strength point for the full year. We have a direct line-of-sight to the actions that will deliver our full-year margin performance. The combination of these factors gives me and Kenny the full confidence to reiterate our guidance for the full year. With three quarters to go in the year, we have our leadership team extremely focused on our top priorities. I thank all of those leaders and our entire 76,000-plus colleagues for their work focus. They are the best team in the industry and I'm proud to work with them every day, serving Sysco's 100,000-plus global customers. Our future is bright and I'm excited for what lies ahead.
I'll now turn it over to Kenny, who will provide a detailed review of Q1 performance and select fiscal year '25 guidance commentary. Kenny, over to you.