Sysco outlines $84B–$85B sales target and 100 basis point local volume improvement for Q2 2026 as AI and Perks 2.0 drive momentum

Earnings Call Insights: Sysco Corporation (SYY) Q1 2026

MANAGEMENT VIEW

* Kevin Hourican, CEO & Chairman, reported, "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." He emphasized sequential local volume improvement, outperforming industry traffic, and highlighted the International segment's continued double-digit profit growth and market share gains.
* Hourican detailed that Sysco's AI360 sales tool, launched in the quarter, is now used by approximately 90% of sales consultants, contributing to improved productivity and customer engagement. The Perks 2.0 loyalty program, targeting top local customers, has been fully rolled out and is already showing improved retention and account penetration.
* Hourican stated, "In Q1, 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."
* Kenny Cheung, CFO & Executive VP, stated, "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."
* Cheung also highlighted the acquisition of Fairfax Meadow, a leading U.K. protein supplier, to expand Sysco’s specialty capabilities in Great Britain.

OUTLOOK

* Management reaffirmed fiscal 2026 guidance, which includes reported net sales growth of approximately 3% to 5% to approximately $84 billion to $85 billion and adjusted EPS of $4.50 to $4.60 for the full year.
* Cheung stated, "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."
* For Q2 2026, Cheung guided for EPS growth of approximately 4% to 6% and anticipated a sequential improvement in USFS local volume by at least 100 basis points over Q1.
* Hourican confirmed, "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."

FINANCIAL RESULTS

* Sysco reported Q1 sales growth of 3.2% and adjusted EPS growth of 5.5%. Gross profit increased 3.9%, with adjusted operating income rising to $898 million. Gross margin expanded by 13 basis points to 18.5%.
* International sales grew 4.5% on a reported basis, and 7.9% excluding the impact of the Mexico divestiture, with local case volume growth of approximately 5%.
* SYGMA delivered 4% sales growth and 39% operating income growth, though management expects more moderate results for the remainder of the year.
* Operating cash flow was approximately $86 million, up 62% year-over-year. Free cash flow for the quarter was negative $15 million, reflecting typical seasonality and CapEx timing.
* CapEx for FY 2026 is expected to be approximately $700 million, with a targeted net leverage ratio of 2.5 to 2.75x.

Q&A

* Alexander Slagle, Jefferies: Asked about sales force productivity and how tenure/retention correlates to local case growth. Hourican responded that stability in the sales workforce is the major driver of positive momentum, stating, "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." Cheung added, "We are extremely confident in our momentum in our local case growth."
* Slagle asked whether there is conservatism in the back half guidance. Hourican replied, "We are extremely confident, and there's 3 reasons why. Number one is momentum... number two is most of the growth that we expect this year is really driven by initiatives within our control."
* Edward Kelly, Wells Fargo: Inquired about total case volumes and national/local mix. Hourican explained, "Every single month in Q1 was better than the prior month... October being stronger than September." He noted high retention in national accounts and that local growth is more profitable for Sysco.
* John Heinbockel, Guggenheim: Asked about the potential for local volume to reach 4% growth. Hourican clarified that growth will be positive but below 4% this year due to the ramp of new hires.
* Jake Bartlett, Truist: Sought clarification on food cost inflation. Hourican responded that the full-year inflation target is approximately 2%, with Q1 slightly higher, mainly due to international markets.
* Jeffrey Bernstein, Barclays: Asked about industry weakness and Sysco's relative performance. Hourican noted, "Independents are performing better than large national chains and particularly better than QSR."
* Sara Senatore, BofA: Asked about investment flow-through and market share targets. Cheung emphasized continued investment in sales force and facilities, while Hourican indicated specialty business is a key area for outsized share gains.
* John Ivankoe, JPMorgan: Queried about tools for new account penetration among independents. Hourican highlighted AI360’s prospecting features and improved stability in colleague retention.

SENTIMENT ANALYSIS

* Analysts pressed for more detail and clarification on sustainability of local volume growth, sales force productivity, inflation, and guidance conservatism. The tone was neutral to slightly positive, with persistent questions on execution and confidence in guidance, but no overt skepticism.
* Management maintained a confident and assertive tone throughout, frequently emphasizing momentum and control over key initiatives. Phrases such as "We are extremely confident," and "The main point of our call today is building momentum" reflected strong conviction. During Q&A, responses were detailed, and management consistently highlighted internal drivers over external factors.
* Compared to the previous quarter, both management and analysts showed increased confidence, with management more openly assertive about momentum and progress in productivity and retention.

QUARTER-OVER-QUARTER COMPARISON

* Guidance for fiscal 2026 net sales growth (3%–5%, $84B–$85B) and adjusted EPS ($4.50–$4.60) was reiterated, with no major changes from the previous quarter.
* Management’s tone in Q1 2026 was more confident, attributing sequential volume and productivity gains to stability in the sales workforce and successful rollout of AI360 and Perks 2.0. The previous quarter focused on stabilizing retention and launching growth initiatives; this quarter, management emphasized measurable results and building momentum.
* Analysts’ focus shifted from stabilization and potential for improvement to probing the sustainability and scalability of current growth rates and guidance.
* Key metrics improved quarter-over-quarter: local volume growth flipped positive, International continued double-digit profit growth, and new account growth accelerated.

RISKS AND CONCERNS

* Hourican noted ongoing macroeconomic challenges but stated, "The improvement we are delivering at Sysco is being driven by growth initiatives within our control."
* Cheung referenced a $100 million headwind from lapping lower incentive compensation in fiscal 2025.
* The FreshPoint business exit continued to negatively impact reported local volume by over 50 basis points.
* Management acknowledged typical seasonal free cash flow pressure and ongoing investment requirements.
* Analysts raised concerns about industry traffic volatility, but management prioritized Sysco-specific initiatives as the primary growth driver.

FINAL TAKEAWAY

Sysco’s leadership emphasized strong early momentum in fiscal 2026, driven by positive inflection in U.S. Broadline local business, robust International performance, and the adoption of AI360 and Perks 2.0. Management reaffirmed full-year guidance, highlighting increased sales force stability, productivity gains, and customer retention improvement as key catalysts for continued growth and market share gains throughout the year.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/syy/earnings/transcripts]

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