Sysco Corporation (SYY) Earnings Call Transcript & Summary

Okay. Good morning, everyone. Kicking off our second day of our conference here. For those of you who don't know me and maybe on the line, you can't see, my name is Ed Kelly, the Staples Retail and Food Service Analyst at Wells Fargo. With us today, Sysco Corporation, which I don't think really needs much of an introduction as the leading U.S. food service company in the U.S. We have Kevin Hourican, CEO; and also Kenny Cheung, CFO. So with that, I think we should kick things off and Kevin, I don't know if you want to give some opening remarks, but I think that would be a great place to start.

Yes. Great. Well, first, I want to say thank you to Ed. Thank you to the Wells team for the invitation of the conference. We're privileged and honored to be able to be here, appreciate those in the room and the interest in Sysco and those that are joining on the webcast. Thank you for joining us this morning. I'll just kick off, Ed, just covered that who we are. We're the largest player from a food service distribution perspective in the globe. We're the largest at scale internationally. We are the backbone of the food-away-from-home industry. That's how we describe it from restaurants, big to small, from hospitals to health care to hotels, sports arenas and everything in between. If it's consumed outside of the home, we, Sysco are the largest player in that space. We believe this is an industry where scale meaningfully matters, and we are working aggressively at Sysco at increasing those scaled advantages from how we purchase goods to how we merchandise our inventory to how we distribute to our customers and the technology our customers use to do business with Sysco. So looking forward to our conversation this morning. Ed, back over to you.

Yes. Great. So maybe just starting on the guidance front. You recently reiterated guidance for 2024 -- '23, which is great. For -- or fiscal '24. You don't have a long-term algo currently. I think you typically would have at least a 3-year outlook from a company standpoint. Maybe just talk a little bit about the reiteration, but then also thoughts on how we should be thinking about the multiyear and when we could maybe get some incremental color around that?

Okay. Great. I'll kick off with just -- we are today going to reiterate our guidance for the year. That's the main punch line. I'll start, and then I'll turn it over to Kenny, he'll talk about the longer near term. Just if I could just want to kind of reemphasize some of the key points of the guidance that we do have out that we're reiterating today. I'll break it down to what we call the 3 big boulders within our industry. First is volume. We do expect for volume growth this year in our industry to be muted below what is the historical average. I think you're hearing that from restaurant names big to small, that traffic from a year-over-year perspective is more muted, and we have built that into our guide. We expect for inflation, that's boulder #2, which impacts our margin rates to also be muted. Back when we provided our guidance, we actually talked about the fact that the U.S. business is currently deflationary and it was deflationary at the end of our fiscal Q4 of last year and what we at Sysco are doing to manage that deflationary environment, we communicated that we expect the U.S. to be deflationary for roughly the first half of the year with returning to muted inflation in the second half. We articulated that we Sysco have a bit of a buffering effect because our international business is still inflationary due to unique considerations, mostly in Europe. Europe entered the inflation cycle later than the U.S. And also, there are some government rules and regulations that create scenarios that are unique to Europe that we expect will result in inflation in international for the full year. So when you put all that together, we're communicating a sales guidance of roughly mid-single digits, roughly $80 billion on the top line, which leads to our final of the 3 big boulders, which is operating expenses. We made significant progress last year from the midpoint of the year to the end of the year and significantly improving our operating expense as a percent of sales and our logistics cost per piece. First half of the year, our expenses were elevated prior year in 2023. And we really did a nice job quarter-over-quarter sequentially improving, and we anticipate that, that improvement will continue into fiscal 2024. We can see the progress that's being made in improving retention, improving productivity and bringing our cost to serve down. When you put all that together, it results in a guide of $4.20 to $4.40, which is a healthy year-over-year growth given the environmental conditions that we just talked about. And I'll turn it over to Kenny to comment on more long-term side of the equation. Kenny, over to you.

Sure. Thanks, Kevin. Good morning, everyone. Just one comment on guidance, right? So we are 3 months into the new fiscal year. 10 days away from closing out Q1 and we remain confident with the full year guidance. Obviously, there is still 9 months left. However, in our business, we have a lot of data. We're watching things very carefully, and we will deploy actions proactively and responsibly. So that's my comment around guidance. There's confidence around it. The second point I would make is around the algo. There is an appetite for us to disclose a multiyear algorithm, hopefully, in the spring time, where in Investor Day, we plan to have one. In terms of now for today, though, taking a step back, there are financial themes or profiles you can expect from our business going forward if you think about multiyear. First and foremost, grow top line win market share. That's the first theme. Second is operating leverage, growing GP, gross profit faster than expenses, growing bottom line faster than the top line. Number three, expand margin both on the rate side and the dollar side. Number four, continue generating robust free cash flow for our business. If you look at last year, the EBITDA conversion from the cash to conversion from EBITDA to OCF was 75%. And from -- FCF was 55%. We continue to generate that. And then last but not least, the last theme to expect from us on a multiyear is investment-grade balance sheet, continue with dividend aristocrat status as well, which we've maintained for the past 54 years.

Great. So if we think about current industry trends, I think there's been quite a bit of anxiety from an investor standpoint around slowing traffic at restaurants. You've obviously acknowledged below average growth in the fiscal '24 guidance. Can you maybe talk a little bit more about what you're seeing in the marketplace today?

Sure. Understand the concerns, and I'll just add the deflation question that keeps coming up on, can you, Sysco grow profit in a environment that is deflationary. So if it's okay, I'll just kind of address both of those points. What we can tell you today is the following that we're reiterating our guidance and we're off to a good start this year. We anticipated a slowing overall volume growth environment and the environmental conditions are consistent with what we expected. We're monitoring it very closely. As Kenny said, we have an enormous amount of data at Sysco from the largest chain restaurants QSR down to hundreds of thousands of mom-and-pop restaurants. And we have global data. So we can see trends. We're monitoring it very closely. Our commitment to our shareholders is that the market behaves differently than what we had forecasted, we'll take the necessary actions to manage expenses to deliver our bottom line. But off to a good start, reiterating our guide for the year from a volume perspective and how that impacts our P&L. On the second piece, which is deflation, I know there are concerns about whether or not we can grow profit in a deflationary environment. The 2 things that we communicate in that regard, as I mentioned a minute ago, we exited Q4 deflationary, and we had a very solid print in Q4. We were able to grow our bottom line faster than the top line in Q4 despite that deflationary environment for a couple of reasons. One, we're the largest purchaser of food in this industry by far, such that when the environmental conditions are creating deflation, we will get more than our fair share of that reduction in COGS. And then, we have a strategic pricing software that allows us to be extraordinarily thoughtful about the rate and the pace with which we pass those savings on to our customers. And we proved in a hyperinflation environment, we can expand GP, and we proved in our Q4 that even in a deflationary environment, we can expand GP. I guess the main point behind all that the way it was built into our guide for the year, and we're off to a good start.

Okay. Maybe let's dig in a little bit on that inflation, deflation debate. We've heard from you and your peers that the deflationary period should be somewhat shallow and temporary and talk today about this improvement in the back half. it's another issue that I think investors are concerned about that maybe it could be longer than that. So -- and maybe deeper. Can you just talk a little bit about your confidence in that expectation for this year?

Sure. It's a great question, and I understand the concern. Let me just acknowledge that period. We understand the concern, we acknowledge it as a legitimate question. What we can say is the following: we Sysco have a couple of things that help insulate or buffer individual categories and the 2 main points are this. Because we're international, we have a little bit of a tailwind internationally because of still persistent and significant inflation. Second point is in the U.S., no one category. Kenny talks about this a lot, over indexes at Sysco. So we have 12 categories at Sysco. And while one is hyperinflationary and other was deflationary. We have forecasted at the category level, what we expect the inflation and deflation to be. And the main driver here is what I call week 53. When are we lapping the hyperinflation from a year ago? And when do we get back to a more normal environment? Within proteins, just you asked for a little color on categories, the beef market has returned to inflationary, and that's meaningful. We sell a lot of protein at Sysco. Poultry is still a meaningful drag. Poultry is still double digits deflationary. I do not anticipate that will happen in that manner for an extended period of time. Actions will be taken by the supplier community to reduce production, which will then bring free market forces into effect, which will create an environment of what I'll call more normal inflation. Something Neil has said for years, is that a good rate of inflation in this industry is roughly 2% to 3%. That's the healthy range that we all like to be in. And fiscal '23, we were in the 15%, 18% range. Now we're dealing with a bit of a correction, and we expect to normalize back through that correction. But the main punchline for investors is, we can grow our bottom line profit. even in a deflationary environment, and we can't predict the future, but we anticipate that in the second half of this year, we'll be back into a muted inflationary environment. Kenny, anything to add?

Yes, just to provide some color. So in Q4, as Kevin mentioned, in the back half of Q4, U.S. did experience deflation, and we were able to grow EBITDA 4x faster than sales in Q4. We were able to grow GP dollar per case. We were also able to expand margins on the GP side by 28 bps. And on the OI side, 56 bps. That's one piece of it. As Kevin mentioned, on the commodity tables as well we have natural hedges in place. One thing as well is we also have in our assortment national brands and also Sysco brands, and they have different inflation profiles within the commodity basket. I think that's important to note. The last piece I would say is that on the P&L, we have quite a few levers in place to offset inflation in which we control. This is around strategic sourcing. This is around our centralized pricing. This is around driving private label Sysco brand penetration. [ OI, ] by the way, we expanded by 65 bps last quarter. This is around just more discipline in managing the entire GP. And by the way, we also have a lot of focus on cost below that line as well for an SG&A to protect the OI side. So as Kevin and I are going to talk about, is the checkbook mentality where you have debit somewhere, look for credit elsewhere.

And just a follow-up to that. I think what you see from your packaged good vendors in dry grocery is probably more important maybe than some of the commoditized stuff. What are you hearing from them related to the expectation for inflation?

Yes. I prefer not to talk about any specific supplier or any category, but dry grocery has been, I'll say, a healthy amount of inflation, and we have not experienced deflation in that space within our book of business.

Okay. Thinking about the independent local customer. So obviously, it's an important customer for the food service space, high-margin customer for you guys. Growth in the last quarter was a little bit lower than what it was for the company overall. I would imagine that you'd probably like to see better growth than that. Could you just maybe talk about the health of that customer and what you're doing to drive better sales growth there?

Sure. Driving growth in local is very important and a big priority at Sysco. First, I just want to acknowledge our national sales team, which is half of our business, is doing a phenomenally good job. So we are growing national in a meaningful way. We are meaningfully taking market share. We're expanding our profit rate within National at the same time that we are taking market share. So we are thrilled with our performance in Nationals, half the business. It helps leverage fixed costs. It helps increase route density and winning a National is a priority, and it's important. Point two, our success in National, in no way, shape or form negatively impacts our ability to grow in local. I just want to be really clear about that. There are different sales teams. We do not have space or throughput capacity challenges at Sysco. So winning an area A does not negatively impact winning an area B. So let's talk about winning in local. It is a priority. I'll highlight a couple of areas where we are doing well with local and then I'll communicate where we expect to make more progress in the forward-base view. We're winning in specialty in a meaningful way. So it's produce, that's protein, and that's Italian. We've doubled our Italian market share over the last 18 months. We recently concluded an acquisition called BIX Produce, which is based in the Minneapolis, Minnesota market to expand our FreshPoint presence, and we're really pleased with the market share growth that we are experiencing in specialty. Area two that we're pleased with is our strategic growth initiatives tied to Sysco Your Way and Perks. We've articulated to our investor base, both of those programs are driving double-digit top and bottom line growth, resonating meaningfully with our customers, and we're winning. And we can do better in local. We can grow profitably at a faster rate. I'll say, well, we're not going to do and then I'll say what we are going to do. We're not going to use price as the lever to try to win incremental business in local. We believe that, that is a race to the bottom. It's not healthy for the industry. It's not healthy for Sysco. I'd encourage you to look at Sysco's flow-through from the top line to the bottom line. There's a reason why we are the industry leader on an EBIT margin basis, there's a reason. We have the highest EBIT margin in the industry by a wide margin and it's for a reason. We won't use price as the primary lever. Why it's not sticky, Someone else can just come in and lower by $0.01 or $0.10 per case more and win it back. We're going to lead with service. We're going to lead with assortment. We're going to lead with selling skills and digital capabilities. Some areas we'd like to see improvement is visit frequency, visit quality, visit health at sales force visiting with customers is a relationships business. We've got to get our sales force consistently back in front of our customers on an ongoing and regular basis and we can measure that, and we're putting a lot of focus on that this year. We can make some tweaks to our compensation model, which I've talked about publicly before. We like our comp model. It's working in its method of retaining our sales force and motivating them. There are some modifications that we can make to that program, and we will be making them soon to put even more encouragement behind the sales force to go out and win business with new customers and existing customers and the beauty of that is the more they win, the more we win, and we're sharing in that incremental gross profit savings. And the last but not least is, better leveraging our digital tools and our selling skills as it relates to putting offers in front of our customers that can increase share of wallet. And I'll talk more about that in Investor Day. It's a pretty complicated topic. But so there are areas we can improve. We can win market share. We are growing our local business faster than the market overall, and we know we can accelerate that rate of progress.

Great. So switching gears to the cost side. There's certainly has been tangible progress on the cost front in the back half of last year. Could you just talk a little bit more about the drivers of that? And then you think about the journey ahead in fiscal '24, the opportunity that you still have in that regard?

Sure, Kenny?

Sure. So thanks, Ed. I agree with you. We spent a lot of focus, and we're very proud of our progress we made last year. If you look at our, for example, our U.S. business last year, in Q1, first half of the year, we were definitely negative leverage, meaning expenses grew faster than GP as well as volume. That's really driven by the fact that we did have what I called netback costs, these are costs tied to the gray resignation, retention bonuses, stay bonuses, recruiting and the likes. We also had access over time tied to the tighten the labor market at that time. The good news is, these trends subsided over the course of the year, and towards the end of the year, they were zero. So it has normalized on a cost base. That coupled with supply chain, logistics productivity that we worked really hard on to drive that. And that's driven by quite a few things. There are tools in place, there's investments in technology, also retention. When you have a more tinder workforce on the selector side. On the driver side, you have greater output as well. A 3-year veteran is more productive than a first day on the job, right? So we are seeing that dividend payout right now as we speak. So you have the snapback and access over time going away, plus supply chain productivity, which is going to carry forward into this year. And we also have the $100 million that we talked about in the last earnings call. So the $100 million, good news is all of it had been executed, meaning from a phasing standpoint, it will be ratable over the 4 quarters. And we're not stopping. We are not stopping. We're continuing to have a robust pipeline for further productivity across our business. And the name of the game for us is driving operating leverage across the board.

I'll just add to these people ask like what are you talking about. What could drive incremental productivity. I'll just say one in operations and then one from a tech perspective. Operations, it's retention, retention, retention. Kenny talked about it. Driving improves retention, improves productivity, it improves safety. It reduces workers' comp injuries. It provides health like all across the P&L. We are meaningfully improving retention, and that will continue into this year. So we expect goodness to come from increased retention, driving lower cost per piece. The second is, we're using digital tools more effectively to take cost out. So while it's not a panacea, Generative AI, we believe, does have applicability at Sysco's business, think about first back-end things, call center. We get a lot of phone calls from customers, where is my truck, items out of stock. Are there substitutes that make sense for my business, digitizing those types of interactions. And we have a lot of interactions even with our own teams setting up new items. And there's some real breakthroughs happening in technology that we believe we can deploy specifically and tangibly. We're working with the best in tech on that right now. And that, too, can take cost out. But we're excited about. It's faster, it's more accurate, and it can take meaningful expense out of the business.

And Kenny, you mentioned multiyear GP dollars growing factually than OpEx dollars, you have some tailwinds in fiscal '24. It seems like from an OpEx standpoint, maybe, let's call it, OpEx per case maybe grows less than that, whatever long-term normalized rate would be. Does that opportunity extend beyond '24? And how do you think about your ability to contain OpEx per case in the business over a multiyear period?

I think there's twofold. Twofold is just pure productivity play, where there's productivity on the -- and then be clear here. When I talk about productivity, there's the supply chain, the logistics side of the house. But there's also the corporate functions as well, which I haven't touched upon yet. I'll give you a good example. So 2 months ago, we opened up a service center in Costa Rica and again, access to great talent for our business. At the same time, as we grow our business, it's going to scale even more effectively. So that's one piece of it. The other piece is just the whole notion of growing your expenses slower, they call it volume, GP growth, et cetera. By definition, if you do it that way, then you will get the scale leverage down to OpEx per case. So for us, that is something that we do watch very, very carefully pacing that piece of it. And the good news is, we have the agility and tools and data for us to react and act upon in our business to do so. So we'll be very, very agile.

And I'll say one last thing. It's leverage fixed cost, obviously, over time, can bring down the total cost per piece as fixed cost gets leveraged. And we are working on a warehouse of the future, if you will, leveraging robotics in a stronger way than we do today. For those of you that have been to a Sysco facility before, many are surprised at how manual it is. Mostly because of the product that we sell. We sell 50-pound bags of rice, big drums of oil. These are categories that are extremely difficult to toss on a conveyor belt to have a [indiscernible], put it down a ship line. By the time it arrives at the truck, it's busted open. So it's a pretty manual environment, both for our competitors and for us. Over time, we need to make it less manual. I believe the delivery operation will always be manual, human being will be the one bringing the food into the restaurant for lots of complex reasons. But within the warehouse, investing in robotics. We have a building in Arizona that's under construction that will have a next-gen level of robotics, too soon to tell what that impact can be. But that, too, over time, can bring down our cost to serve.

Sorry, just one thing to add. I think our strategy lends up very nicely as well. Think about specialty when we have team-based selling, you're putting an extra case on the car. So you really scaling the car. The truck is going there anyway. So by definition, our strategy is, it's going to enable more skill as well.

Just one last follow-up related to this topic. We have been hearing, I think, at the conference around some easing of labor inflation pressure. Are you seeing that in your business as well?

I'll just start with some Sysco-specific comments. We are fully staffed across our network, and it took a lot of work to get there. So we're extremely pleased with our level of staffing health. We are fully staffed. We were able to grow our business profitably with no constraints on labor availability. The way we run the tape for the last 3 years, extraordinary shortages of product for about a year, and we had extraordinary shortages of people, which was driving elevated costs. The good news is, we don't have product shortage -- product shortages challenges at this time. We do not have labor shortages at this time. So I'll say it's a healthier labor market from a perspective of the employer population at this time, which is a good thing.

Right. So switching gears, leverage is at your target level now. And maybe just talk about what that means for you as a company. Obviously, you're going to be buying back more stock this year. How do you weigh M&A versus stock buyback, when your valuation is at a level that it's lower than what has been historically? So maybe just talk a little bit about what that means for you?

Sure. So here at Sysco, our capital allocation strategy is consistent and balanced. We have a ton of optionality and flexibility, especially against the backdrop of the ample cash liquidity that we have. The priorities for our business are actually very straightforward. First and foremost, we will invest for growth and invest in our business. This includes technology, digital, automation, fleet, facilities, right, also includes M&A as well. On M&A, though, I think one thing that is a rubric of ours is, we don't buy businesses just to get bigger. We buy businesses to make that business bigger in our ecosystem. That's how we think about this. So that's where the lens of ROIC is critical where it has to accrete the return on the capital deployed. That's the first priority. The second piece is making sure we have intact our investment-grade balance sheet. The leverage ratio, you talked about 2.5x, 2.75x. We don't have intentions to lower that. So right now in Q4, we're at 2.5x. There is no intention to lower that further. So by definition, if you increase your EBITDA, you'll deploy more capital to either grow your business or just the last priority is return excess cash back to shareholders. So right now, if you look at the past 10 years, including 2014, we would have returned over $17 billion to shareholders, including dividends and share repurchases. This year, we are going to increase as of right now, by 50% on share repurchases, last year, $500 million, this was $750 million. That number will flex up or if the M&A activity is different to what we planned.

So I'll just add, Kenny. It was crystal clear. And by the way, he's an absolute pro at this work. He's an expert in this space, and I'm thrilled to have him as my partner, as CFO at Sysco. We're going to return $1 billion of value to our shareholders this year through dividend under the [ why Sysco ] investment thesis. We're the only one that pays the dividend in our space. So $1 billion of cash to our investors through the dividend, $750 million of stock buyback, and we have optionality. What was your question -- we have optionality. Our fortress balance sheet is a privilege. We are with line of sight, focused on some interesting M&A. We can't comment on M&A, unless there's an M&A to comment on, but there are some fertile interesting things. When asked, what does that mean, Kevin, we're really interested in specialty, adding to our footprint, adding to our capabilities, adding to our geography. Here's what's really exciting. There's meaningful white space on our geographic map where we do not have our full specialty presence. So FreshPoint as an example is not in the Northeast. It's not in the Pacific Northwest. One way or another, we're going to have FreshPoint in those geographies, either through acquisition or through greenfield. And both of them are essentially in ROIC lens on how to get from here to there. We have full intentions to take our Italian business coast-to-coast through the Greco acquisition. And again, that can be through some select M&A, if not through M&A, we have the ability to do greenfields and foldout. So one of the best parts of our job is that those decisions buttressed by an incredibly, incredibly strong free cash flow, strong balance sheet, and we'll be very judicious and prudent. In fact, we've added ROIC as one of our compensation metrics for our executives to ensure that these decisions are being made in the most optimal way.

We have a little bit over 5 minutes to go. I don't know if there's any questions from the audience, but I just want to make sure that we ask. Okay. A follow-up to that related to capital investment. You've talked about potential for automation. We've actually heard a lot about this from some large-scale retailers at this point. Is there a potential for your capital investment to grow over time as it relates to leaning into that? Just maybe thoughts around how you see CapEx over time.

I'll start with what the projects are, and then Kenny, you can comment on the dollars in that regard. We've gone public with this. We actually have 7 physical buildings in the process of being constructed at this time, 4 of them in the United States, 1 in Canada, 1 in Northern Ireland, 1 in Sweden. Typically, what Sysco has called those are fold-outs, where we're over that building that we are in is starting to hit capacity and we have tremendous growth potential in the market. We can fold out. We have done that for 54 years and we have meaningful line of sight towards increasing our fulfillment capabilities. In that regard, that's more projects than we've had in our company's history at one time, and we've done it within our capital allocation framework. So we're excited about that. On the physical robotics side, it's too soon to tell. But again, ROIC would be applied for that. It's not a panacea. I designed, pick back and ship Internet fulfillment warehouses in prior lives where you were trying to take many hundreds of people out of the building. Our buildings are not like that. We don't have thousands of people working in our buildings. Why we need to work on robotics and then I'll toss to Kenny on the number side. We have people working at 2:00 in the morning in a minus 30-degree freezer, who wants to do that job for the next 20 years, and they're picking up 50-pound boxes of beef and putting them on pallets sorted by customer to do delivery. It's a really hard job. So why we're working on robotics is less about trying to bend the cost curve, it's more about, I think, 10, 15, 20 years from now. Are there going to be people that want to do that work. Back to the Why Sysco, there's nobody in a better position than Sysco to make those types of investments. And the people talk about the big 3 us versus the other 2 combined, the 3 of us have less than 40% market share. As an investor, you should be thinking about the 60% share that none of the 3 of us have and how much consolidation can take place in this industry over the next 20 years. And we believe Sysco will be at the front of that race. Kenny, back to you for any comments on that?

Sure. Sure. On CapEx, historically, CapEx has been roughly 1% of sales for our business. The way we think about capital investments is the following: just like our debt is well laddered. We think about capital investment to an exact way. There are certain things like locations and so forth, the payback is a little bit longer, but there's also certain things where you implement an enhancement on shop to drive conversion on the website. That's a lot quicker. So the entire time, we're balancing the return on invested capital. And at some point, you can keep it, flow through the bottom line or to redeploy again, right? So that's how we think about the return on capital and is well laddered across the spectrum of the next 1, 5, 10 years as well.

Great. Well, maybe just probably end up being our last question, but Kevin, there's been a lot of change at Sysco since you've arrived with the installation of recipe for growth. Nothing's ever seamless, obviously. Maybe a little bit of an update on sort of what's worked, what's been more challenging? And how -- if you think you take a step back, how does Sysco look today relative to where you want it to be?

Sure. That's a great question. I appreciate it very much. I'll start with what's working and then there are always opportunities to be more effective, and I'll give a couple of highlights on what those are. What's working, our digital tools and the advancements of our digital tools absolutely working. I'll give a couple of proof points behind that. When I arrived 3.5 years ago, we had roughly 35% of our customers were placing their own orders on our digital tools, that number starts with an 8 now. So 80-plus percent of our customers' orders are coming through our digital tools. Why that's important? It is an empirical fact that those that place their own order, buy more from Sysco over time than those that picked up the phone and called the sales rep or the sales rep was placing the order on the customer's behalf within their kitchen. And the why is simple, these digital tools are incredibly effective in 2 ways. One, we provide them a suggested order. It's like being the laptop. It's literally their phone. They go into their phone, they open their app, right there is their suggested order. I mentioned earlier, we have treasure troves of data. We know what they buy, we know what they're running low on and we know what people like them are buying that they're not buying, and we can prompt all of those things through those digital tools. If they're consistently buying national brand insert item here, we can save them $1,000 a year by converting to Sysco brand. A dialogue box will pop up and the checkout experience. We can save you $1,000. With the click of one button, we just converted to Sysco brand. Kenny talked about in Q4, the success that we've had in Sysco brand penetration. Look back over the last 18 months on the consistent upward trend of Sysco brand penetration during an inflation period and during a deflation period. That's because of the digital tools. So it's working emphatically well. Our pricing software as a part of our digital experience is emphatically working. During 18-plus percent inflation, we expanded GP dollars per case and our gross margin percentage at the same time. That would not have happened if we were trying to do pricing through 7,000 sales reps. And now the opposite. When prices are coming down, we need to be extremely thoughtful and strategic about passing on that value. So that's working. Specialty is working. I mentioned we've more than doubled our Italian market share over the last 18 months. We're making meaningful progress in Produce, and we have line of sight towards substantial growth, and we'll talk about it at Investor Day within specialty. What's working. We have centralized important functions at Sysco. And I'm going to talk about what's not working side in just a second. When I arrived at the company, you may know this. Sysco is a very decentralized company, less than 4 years ago. We had 76 different operating companies. who did their own buying. They did their own inventory planning. They did their own strategy build. We had more than 10 websites. We had more than 15 apps. We had 76 different people who are buying frozen french fries when there's only 3 global suppliers in the world. So we've centralized all of those things. Now we have a central buying office. We have a central inventory planning office. We have obviously one digital team who is making the decisions, and we are a far more efficient company today than we were 4 years ago. And what has not centralized are the things that local matters. That relationship with the sales rep local, that will never be centralized. The assortment and what they are allowed or not allowed to carry is a local decision. Seafood is a very quintessentially local product offering. The food on the table in Florida is extraordinarily different from the seafood perspective in the Pacific Northwest. Those decisions will always be local at Sysco. So we describe it this way, we centralize those things where it makes sense to do so. And we've kept decentralized the listings where that makes sense, but we have a common strategy fueled by a common purpose and align go-to-market approach. But that has not been easy. You can imagine if you're an OpCo president who is here for 3 decades, when this change happened, you've moved my cheese. So we worked really hard on change management. We've worked really hard on getting alignment. Last week, we had our global leaders from all over the globe in Houston talking about what we call ways of working, which is a field in constant communication with what we call the GSC, which is the Global Support Center partnering together to better serve our customers and better serve our colleagues. And that the last 3 years have we gotten it perfect? No. And then we've had quite a few exogenous shocks thrown our way during that period of time, less product available because of supplier challenges, less people, new challenges. So I'd say the #1 thing we're working on is managing the pace of change. There are so many wonderful things that we can do at Sysco to improve. That's great from a long-term investment thesis. But you can overwhelm people if you do too much. So we're going to have more rigor on what we call an air traffic control function or a great gatekeeper function for sales and for operations so that we don't overwhelm them. And I think at times, mostly due to things that were happening to our industry, we probably had a little more on the plate than we would have liked. So we're going to be super focused on what matters most in what we call executing with excellence against those things, and that starts with delivering our budget, delivering against the guidance that we've out and we're committed to doing that.

Can I add one point. One, the other piece is international business. Our international business is actually growing very well. It's becoming a growth engine for our business. And there is an opportunity as we think about the global model, the scale to really include them as well so we can share best practices, go-to-market strategies together and operational efficiencies as well. So -- and also functionalizing certain functions, as Kevin mentioned. I believe international is doing great, but it's also a continued opportunity for us to build this One Sysco global operating model, and that will unlock benefits and drive efficiency for our enterprise as well as for our customers as well.

Yes. Okay. Great. That's a great point. Great. Well, we're out of time. So again, I wanted to thank Sysco for attending the conference again this year. It's always great to see you guys here.

Thank you for having us.

Thanks, Ed.

Great. Thank you, everyone.

Thank you, all.

Thank you, everyone. Appreciate it. Have a great day.