Joshua Long: Thank you.
Kevin Hourican: Thanks, Josh.
Operator: Thank you. We’ll take our next question from Jeffrey Bernstein with Barclays. Your line is now open.
Jeffrey Bernstein: Thank you very much. Two questions. One, just Kevin from a top line perspective, I know you mentioned maybe a slowing top line macro and closely monitoring the market. I know three months ago, there was more, I guess, enthusiasm. I think you had mentioned that exit velocity coming out of the June quarter gave you confidence in fiscal ’24. So it does seem like it’s kind of rocky month-to-month. I’m just wondering where maybe in the restaurant industry, which segments or perhaps chain versus local where you’re seeing this greater or less than average volatility? And I think you mentioned most recently that in October, there’s an uptick. I’m just wondering if that’s industry specific or more Sysco specific. And then I have one follow up.
Kevin Hourican: Okay, Jeff, thank you for the question. And I appreciate it. As we think about the quarter, volume for the quarter was mostly in line with what we had actually predicted for the year. If you look at our kind of prepared remarks back in August, lower overall volume growth year-over-year, deflation in the U.S. business for the quarter in both of those things occurred. As I think about the full year for fiscal 2024, the volume will be softer than in 2023 from a growth perspective. But we have Sysco room for improvement in local. And I cited several things today on our prepared remarks that are going to help us drive improvement in our local volume. The second is margin from a rate perspective, and I’ll toss to Kenny when I’m done here if there’s anything that he would like to add.
Can we grow profit during a period of deflation in the U.S. is a question that we were being asked back in August? Answer definitively, yes. We grew our bottom line double digits during a quarter where we had lower volume growth than is normal for our industry and deflation. And I think that’s a powerful proof point to the financial fundamentals of this company. In a period of deflation with lower volume growth, we posted a double digit increase in profit. As we look forward, we look further down the road, this industry will return to more normal levels of volume growth and will return to more normal levels of inflation. In the engine of productivity improvement, the engine of relentless focus on taking cost out of this business will enable really compelling long-term results.
And one of the proof points that I said on the call, our sector food away from home has taken market share from the grocery channel in 24 of 25 years. The only year it didn’t was 2020 and I think we all know the reasons why. So we’ve got confidence in the long term. And we have confidence in fiscal year 2024, which is why we reiterated the guide. October, as I said, is off to a good start. It is stronger than where we were in Q1. It’s too soon to tell if that’s a Sysco specific thing and/or an industry thing, because we don’t get the data on the overall market until after the months are over. But we’re pleased with the start to the quarter. And it’s coming across all restaurant types; national, down to local and it’s also happening across our other sectors as well.
So hopefully that’s a strong harbinger of things to come for the remainder of this year, time will tell. We’re very focused on what we can control, which is continuing the success in national and improving our performance within local for the things that I described today. Kenny, over to you for additional comments.
Kenny Cheung: Yes. Regarding the guidance as Kevin touched upon, we are confident in our guidance. Here at Sysco, we do adopt what I call the checkbook mentality where our business model allows us to pull levers to ensure we can manage against various market dynamics. As Kevin said, some are controllable and some are not such as the muted market growth and inflation which we were able to successfully navigate through in Q1. Just to put numbers on what Kevin mentioned, 36 bps improvement on GP and then 33 bps improvement on OI. Based on all the variables, risks and opportunities, we feel comfortable with the current guidance range.
Jeffrey Bernstein: Got it. And then my follow up is just on the inflation. It seems like specific to the U.S. it was down 0.4%. But I think you mentioned you’re now expecting that to reverse to modest inflation in the second quarter, which, like you said, a quarter ahead of schedule. I know there was a lot of people pushing back on that thesis. I’m just wondering, your visibility or your confidence in that return to modest inflation in the U.S., any color on specific commodities that would be driving that? I’m assuming beef is a big component of that, but any color on that return to modest inflation will be great? Thank you.
Kenny Cheung: Yes. So let me first just kind of reiterate our guide on inflation. So you are correct. We are seeing one quarter ahead where we expect to on the last guide in terms of inflation in the U.S. market. We were inflationary in total from enterprise standpoint. The second half right now we’re keeping what we said on the last call, which is consistently higher versus prior year elevated on positive inflation. In terms of your question around the kind of the product categories with commodities basket, here’s how I would think about it. At Sysco, we have a diverse set of commodities or product categories in which we sell to a broad set of customers. The good news is we do not over index on any categories from a volume standpoint.
No one categories more than 15% to 20%. Each commodity to your point connect differently. Beef right now is up double digit while other categories are in a different state. From a center plate standpoint, which makes up roughly 13% of our volume, we are seeing that trend up on the inflationary curve. If you think about it, take a step back, Sysco is always managing deflation and inflation because our commodities basket acts differently across the board. That is a reason why we have a natural hedge in the basket itself.
Kevin Hourican: This is Kevin. I think the only thing I’ll add is Kenny hit the points very clearly is that center plate is where the significant increases occurred. Beef already started that process earlier in the summer. Poultry while still deflationary is nowhere near the level of deflationary pressure that it was impacting the business a couple of quarters ago. And Jeff, we’ve got really good data. We’ve got global data. We have connections with top suppliers. Ergo why Kenny communicated that it’s about a quarter ahead of schedule the return to inflation and that it’s a net positive for the overall industry and company.
Jeffrey Bernstein: Thank you.
Kevin Hourican: Thanks, Jeff.
Operator: Thank you. We’ll take our next question from Kelly Bania with BMO Capital. Your line is now open.
Kelly Bania: Hi. Good morning. It’s Kelly Bania from BMO. Just wanted to dig in a little bit more if we can on the sales consultant investment, I believe you have about 7,500 today. But I was curious if you can talk a little bit more in color about the magnitude that you’re planning to invest there. The cost, is that already in the guidance and the ramp that you’ve assumed in terms of contribution from these new sales consultants?
