Sysco's Q1 2026 Earnings Call: Contradictions in Sales Retention, Market Share Growth, and Investment Timelines

Date of Call: October 28, 2025

Financials Results

• Revenue: Sales grew 3.2% on a reported basis in Q1 (up 3.8% excluding divested Mexico); company reiterates FY'26 net sales guidance of ~3%–5% to ~$84B–$85B.
• EPS: Adjusted EPS rose 5.5% YOY in Q1; FY'26 adjusted EPS guidance $4.50–$4.60 (up ~1%–3% YoY), excluding incentive-comp headwind EPS growth ~5%–7%; Q2 EPS growth expected ~4%–6% (midpoint ≈ $0.98).
• Gross Margin: Gross margin 18.5%, up 13 basis points YOY; gross profit $3.9B, up 3.9% YOY.
• Operating Margin: Adjusted operating income $898M for Q1 (adjusted operating expenses $3.0B or 14.2% of sales, +14 bps YOY); adjusted EBITDA $1.1B, up 0.1% YOY.

Guidance:

• FY'26 net sales: ~3%–5% growth to ~$84B–$85B.
• FY'26 adjusted EPS: $4.50–$4.60 (1%–3% growth); excluding incentive-comp headwind EPS growth ~5%–7%.
• Q2 EPS growth: ~4%–6% (midpoint ~ $0.98); USFS local volumes expected to improve at least +100 bps sequentially in Q2.
• Tax rate ~23.5%–24%; adj. D&A ≈ $850M; interest expense ≈ $700M; other expense ≈ $65M.
• CapEx ≈ $700M; dividends ≈ $1B and repurchases ≈ $1B planned; net leverage target 2.5x–2.75x.

Business Commentary:

• Strong Financial Performance and Local Sales Growth:
• Sysco exceeded its financial plan and delivered sales growth of 3.2% on a reported basis and up 3.8% excluding the divestiture of Mexico.
• Local volumes improved, with the Sysco Broadline local business delivering volume growth of 0.4%, outpacing industry traffic improvement by more than 2x.

• The growth was driven by initiatives focused on local business improvement, strategic sourcing, and sales force stabilization.

• International Segment Performance:

• Sysco's International segment showed sales growth of 4.5% on a reported basis and up 7.9% excluding the Mexico divestiture.
• This segment achieved local case volume growth of approximately 5% and adjusted operating income growth of 13.1%.

• The strong performance was attributed to positive customer mix benefits and successful strategic investments in international markets.

• Supply Chain and Operational Efficiencies:

• The company improved customer service levels and reduced accidents in warehouses, resulting in improved health and safety performance and reduced product shrink.
• Gross profit increased by 3.9%, with an expansion of gross margin by 13 basis points.

• The improvements were due to strategic sourcing initiatives and strong productivity gains in the supply chain.

• New Growth Initiatives:

• The introduction of AI360 and customer loyalty program Perks 2.0 contributed to increased sales consultant retention and new account growth.
• These initiatives helped improve customer retention and penetration with existing customers by 90 basis points.
• The focus on technology and targeted customer engagement was key in driving these positive outcomes.

Sentiment Analysis:

Overall Tone: Positive

• Management repeatedly characterized Q1 as a "strong financial quarter," noted a second consecutive beat, highlighted volume and gross-margin expansion (gross profit +3.9%, GM +13 bps to 18.5%), and said they are "confident" in delivering FY'26 guidance driven by momentum, sales-force stability, AI360 and Perks 2.0.

Q&A:

• Question from Alexander Slagle (Jefferies LLC): 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, the 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.
  Response: Core takeaway: Stabilized sales-colleague retention is the primary driver of rising productivity; new hires are climbing the 12–18 month productivity curve, AI360 and Perks boost selling effectiveness, and that combination produced the positive local case inflection and underpins the target of at least +100 bps sequential improvement in Q2.

• Question from Alexander Slagle (Jefferies LLC): And I just had a follow-up [indiscernible] a really strong quarter and the outlook for the second quarter looks pretty strong. So I mean 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?
  Response: Core takeaway: Management is highly confident in the guide—momentum, initiatives largely within Sysco's control, continued national wins, and a diversified, investment-grade balance sheet justify maintaining FY'26 guidance without further conservatism.

• Question from Edward Kelly (Wells Fargo Securities, LLC): 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 then Kenny, I thought I heard you say something about national account maybe 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.
  Response: Core takeaway: Every month in Q1 sequentially improved and October was stronger; local led gains, national growth will be driven by non‑commercial segments (FSM, government) while national restaurant chains remain pressured; for the full year local and national expected to grow roughly in parity with USFS local up at least +100 bps in Q2.

• Question from John Heinbockel (Guggenheim Securities, LLC): Kevin, two 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.
  Response: Core takeaway: Q2 USFS local will be at least +100 bps vs Q1 (Q1 USFS local -0.2%); penetration improvement (+90 bps) is lifting drop size and profitability, and supply‑chain retention/productivity improvements reduced cost per piece—supporting margin benefit even before broader sales-force scale yields full potential.

• Question from Jake Bartlett (Truist Securities, Inc.): Mine was on the composition of the sales growth guidance that you reiterated. And specifically on the food cost inflation, I think you said that you expect -- continue to expect 2%. It was much more, 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 that 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.
  Response: Core takeaway: Full‑year inflation guide ~2%; Q1 ran hotter largely due to international (Intl ~4.5% vs USBL ~2.6% in Q1); U.S. domestic inflation is trending down as certain categories (poultry, dairy, produce) deflate and center‑of‑plate expected to moderate in back half.

• Question from Jeffrey Bernstein (Barclays Bank PLC): 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 that slowdown? And then I had one follow-up question.
  Response: Core takeaway: Industry softness driven by QSR and large national chains while independents and non‑commercial channels are stronger; Sysco is outperforming the market due to company‑controlled initiatives (retention, AI360, Perks) and thus confident in delivering at least +100 bps sequential local improvement.

• Question from Sara Senatore (BofA Securities): I just wanted to -- I guess two 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. ... 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 as you have some transition in the SC 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 anything -- any kind of color on how you think about that market share.
  Response: Core takeaway: Investments (sales hires, DC capacity) are deliberate and already returning incremental benefit—sales hires are climbing productivity curve and new facilities have demand to fill; management expects continued profitable share gains, especially in specialty (large runway), but provided no specific near‑term market‑share target.

• Question from John Ivankoe (JPMorgan Chase & Co): The question is on independent restaurants and 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, tell us if you see the same? And secondly, it does sound like a number of the tools that you have such as such as AI360 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?
  Response: Core takeaway: Sysco is seeing both improved new‑account onboarding and better penetration—AI360 accelerates prospecting and on‑the‑job learning, Perks improves retention and deeper penetration; new hires will generate additional new accounts over a 12–18 month ramp, and AI360 shortens time‑to‑productivity.

Contradiction Point 1

Sales Colleague Retention and Stability

It involves statements regarding the stability of the sales force, which directly impacts operational efficiency and customer relationships, impacting revenue growth and investor confidence.

How does local sales force productivity relate to the increase in local case growth in September and October? - Alexander Slagle(Jefferies LLC)

2026Q1: Retention of sales colleagues is key, providing stability and enabling less churn. - Kevin Hourican(CEO)

How does Sysco address customer losses and sales force turnover? - Edward Joseph Kelly(Wells Fargo Securities, LLC)

2025Q4: We expect customer losses from sales force turnover occurring in fiscal 2025 will not repeat in 2026. - Kevin Hourican(CEO)

Contradiction Point 2

Industry Traffic and Market Share Growth

It involves differing expectations for industry traffic growth and Sysco's ability to grow market share, which are crucial for revenue projections and investor confidence.

Can you clarify the difference between local and total case volume improvements? What are your projections for Q2 local volume growth? - Edward Kelly(Wells Fargo Securities, LLC)

2026Q1: We expect to improve our total U.S. local by at least 100 basis points in Q2. - Kevin Hourican(CEO)

What factors are driving positive momentum in Sysco's local case growth, and how are broader industry trends sustaining this momentum? - Jeffrey Andrew Bernstein(Barclays Bank PLC)

2025Q4: We expect Industry traffic to be flat to down in fiscal 2026. - Kevin Hourican(CEO)

Contradiction Point 3

Investment Returns and Long-term Growth

It involves differing expectations regarding the timeline and impact of investments on Sysco's financial performance and long-term growth, which are key for investor expectations and strategic planning.

How are investments affecting guidance, and when will the benefits be realized—later this year or next year? - Sara Senatore(BofA Securities, Research Division)

2026Q1: Returning to our investments, we are pleased to highlight that these investments are delivering returns for us today. - Kenny Cheung(CFO)

How does Sysco view industry consolidation in foodservice distribution? - John William Ivankoe(JPMorgan Chase & Co)

2025Q4: We do anticipate the full return on these investments in fiscal 2026. - Kenny Cheung(CFO)