To Our Shareholders,
Sysco's financial and operational results for fiscal 2015 reflect a period of solid core business performance and excellent progress on several key initiatives that now provide a strong foundation for ongoing value creation. Our favorable operating performance was driven by local and corporate-managed sales growth, category management benefits and improving expense management.
For the full year, Sysco sales increased five percent to a record $49 billion, while adjusted operating income* and adjusted earnings per share* grew three percent and five percent, respectively. We generated $1 billion in free cash flow* in the fiscal year and importantly, we returned over $700 million in dividends to our shareholders while increasing the dividend for the 46th time in our 45-year history.
It is important to note that we achieved these results with minimal disruption from the US Foods merger planning and litigation processes that continued throughout the entire fiscal year.
Our improved operating performance for the year can be attributed to:
- Accelerating local case growth, which was achieved through a combination of promotions like our Test Drive promotions, email marketing campaigns and improved relationship management tools that help us earn even more of our customers’ business;
- Effectively implementing our category management process across a full range of products, resulting in competitive prices for our customers and procurement efficiencies for Sysco and our supplier partners;
- Improving penetration on the sale of our high-value, Sysco-branded products, especially with the customers that we serve in local markets where we provide the most value;
- Making significant progress in developing and increasing our offerings for Hispanic customers, the fastest-growing segment in the U.S. restaurant industry, by tripling our outreach efforts to 15 markets; and
- Implementing collaborative and mutually beneficial joint business-planning processes with a small but increasing number of corporate-managed accounts to leverage Sysco’s full capability, so that they can benefit from a range of products across the Sysco family of companies.
Volatility in food-cost inflation had a meaningful impact on our fiscal 2015 results. We experienced about five percent food-cost inflation during the first three quarters of 2015, and we managed it very well. However, food-cost inflation in the fourth quarter was essentially flat, which unfavorably affected sales and gross-profit growth.
While it’s impossible to predict the future of the economic environment in which we operate, we believe that Sysco remains well positioned to succeed. Whether the overall industry grows over the next few years at one percent real growthconsistent with the past few yearsor closer to the two percent in Technomic’s recently released five-year forecast, Sysco will continue to differentiate our product and service offerings in a manner that will allow us to both profitably grow our market share and provide an improved return on invested capital for our shareholders.
And, while pleased with our progress and accomplishments in fiscal 2015, we recognize that there is still much work to do if we are to fully realize our vision: to be our customers’ most valued and trusted business partner.
We continue to pursue our vision through a long-term business strategy with five key focus areas:
- PartnershipProfoundly enriching the experience of doing business with Sysco,
- ProductivityContinuously improving productivity in all areas of our business,
- ProductsEnhancing our offerings through a customer-centric innovation program,
- PeopleImplementing a company-wide talent management process, and
- ExpansionExploring, assessing and pursuing new businesses and markets.
With that strategy as our guide, we have begun to realize the benefits of several years of transformative change to our business through a portfolio of business initiatives that include category management, revenue management and gaining customer insights. We are now beginning to embed these initiatives in how we do business each and every day by putting the customer first and working cohesively as One Sysco.
Using the knowledge that we continue to acquire through our ongoing customer insights work, we are currently updating our three-year strategic business plan. Specifically, we see opportunities to further accelerate our case growth, especially with locally managed customers through more impactful product and service differentiation, together with enhanced sales and technology capabilities.
We believe we can build on our recent success in stabilizing gross margins through enhanced product innovation, growing our Sysco-brand sales and improving our pricing analytics and support. In addition, we see significant potential to improve our productivity and reduce costs throughout our supply chain organization and in the administrative areas of our business. We will also continue to invest in our business and improve our return on invested capital over the next three years.
In closing, we are encouraged with our recent momentum of demonstrable improvement in our business performance. This reflects that many of our foundational strategies and plans are taking hold. In turn, we thank you for your continued support for and confidence in Sysco, and we look forward to a successful Fiscal 2016 and beyond.
Chairman of the Board
Chief Executive Officer