Sysco Corporation (SYY) Earnings Call Transcript & Summary

All right. Good morning, everyone, and welcome to the Wells Fargo Consumer Conference. I'm Ed Kelly. I cover Staples Retail and Food Service at Wells Fargo. We hope you all have a productive and enjoyable few days out here in California. So kicking off the conference, which is kind of typical, I think, for us now is Sysco. We're very happy to have you here, and thanks for participating again. Sysco is the leading food service player in the U.S. and in international markets where it competes. Joining us from the company, are Chairman and CEO, Kevin Hourican as well as CFO, Kenny Cheung. Kevin Kim from Investor Relations is also in the audience here. But I think just to kick things off, Kevin, I think you wanted to just make a few comments, and then we're going to get into some Q&A. And if we have time at the end, we'll open it up for anyone in the audience.

Okay. Great. Good morning, everyone. I appreciate your joining in the room. Ed, thank you for hosting and to the Wells team for inviting us back. For those that joined virtually, we appreciate your interest and participation. So as Ed said, we're the #1 player in what we call the food away-from-home space. That's both domestically and internationally. We've produced $81 billion of top line revenue this past fiscal year that ended on June 30, 60% restaurants, 40%, what we call noncommercial, which is hospitals, education, government facilities, sporting venues, business industry and the like. The important point on the 40% is we call those less recession impacted. So those are very durable, consistent businesses that are all growing for Sysco and doing quite well. I know we'll talk a lot about restaurants today, but that 40% noncommercial is important. We're very disciplined operators. We lead the industry from an operating income margin percentage perspective and most profitable in our space. We have the highest return on invested capital in our space by a wide margin and we've raised our dividend for 56 consecutive years, which for many of you as investors, we know that that's important. Notably, my last point, we're pleased with our start to the year. We had an opportunity to be at a conference a couple of weeks ago where we communicated clearly that our international business continues to perform at an extremely high level. And the most notably and most important, our U.S. Broadline local business has inflected positive. And we're really pleased with the progress that we're making in that regard, and I'm sure we'll talk more about all of those things. So Ed, over to you, please.

Yes. Great. So maybe best to start sort of big picture. The industry backdrop has been, let's call it, less than ideal for some time now, but there seems to be some recent improvement. I mean you've kind of mentioned this, your peers have mentioned this, you sound more optimistic. So could you provide us with maybe your latest thoughts on the demand backdrop for the industry and how you think the rest of the year may play out here?

Yes, absolutely. And Kenny and I will tag team. Most of these questions will kind of riff off of each other. Starting with this macro backdrop, it's relatively strong, if not nominally better this summer into early fall relative to the prior periods. Just note to those that don't know this space as well, food-away-from-home consistently take share from the grocery channel. It happens year after year, every single year with the exception of the 2 years of COVID, food-away-from-home is strong. Restaurants, that 60% of our business that's restaurant. They're working very hard on value to their end consumer. I'm sure you read all about when McDonald's came out and talked about, they're not a customer for the record, I'm not making comments about them. I'm saying all restaurants from fine dining to QSR are working on their value perception. And they're doing that, frankly, is good for traffic to restaurants, which is good for food distributors. So we're pleased with the fact that restaurants are leaning in to focus on value, and we Sysco are prepared to help with things like Sysco brand, finding them alternative proteins that help them save money and the like. Specific to Sysco, as I mentioned a few moments ago, we're really pleased with our start to the year. Number 1 is international, which is 20% of our business, continues their tear, double-digit profit growth. We've said for 7 consecutive quarters and off to a great start continuing those really strong trends internationally. On the U.S. side, local business last year, fiscal 2025 did not meet our expectations, and we're really pleased with the progress that we're making that I said a moment ago, we've inflected positive in our U.S. Broadline local business. Specific to us, our Q1 of this fiscal year stronger than Q4, the quarter that just closed, July was stronger than June. August was stronger than July. We're 3 weeks into September and September stronger than August. So Ed, we're pleased, and yes, tone is more positive. We're pleased with the progress that we're making. And the vast majority of that progress is, as you call it Ed, self-help. It's not the overall macro. We're pleased that the overall macro is holding in, if not nominally better. The progress that we're making in local is internal because of the improvements in the health of our sales colleague population, which we'll talk about in a minute. And then our noncommercial business that 40% that I mentioned before, continues to perform and is doing very well. So we're optimistic about the year. We're positive on the year ahead. And Kenny, to you for anything additional you'd like to say?

Yes. Thanks, Kevin. A few things here. Number 1 is, as Kevin mentioned, after a really strong start to the year, 2.5 months into the year, and we feel even better, even stronger around our Q1 guidance and our full year guidance. We feel really great about the year. And the reason why, as Kevin talked about, is self-help. Ed, we're not expecting or modeling the market to meaningfully improve throughout the year. If anything, we model the market to be similar to the spot moment right now. Now if the market improves, that's good for us, and it's goodness overall. But right now, we're expecting to be similar to today in terms of the market environment. And again, as Kevin said, we're seeing some a slight improvement on foot traffic. The second thing I would say is, it's possible to Kevin's point, is around that 40%. So I think a lot of people will say, well, foot traffic, is that the proxy for your business? It is, but not completely because 60% are restaurants, 40% is nonrestaurant. I mean I'll give you some numbers as well. So last year, our education and government business grew roughly 15% year-on-year on sales. Our health care business grew roughly 7% and our travel and leisure business grew roughly 18%. So we are the #1 leader in the majority of the noncommercial sectors that we serve through. So this is a diversification of our portfolio, and it bodes well in any environment. And the last thing I'd say is the following, right. Kevin said it well, we're seeing our customer backdrop, the operators and consumers there is a value play. But let's not forget, there is still demand, if you will, around premium assortment, quality experience and that's where specialty comes in as well. So if you think about our company, we serve the best of both worlds on both sides of the spectrum. You have the value side, as Kevin said, you have scale. We buy the most, better selling, better buying Sysco brand, which is the value proposition with especially the quality of our ingredients. And then on the other side, you have specialties like if you take a giant step back, Sysco is well positioned to satisfy the needs of the ecosystem, right? We have the breadth of Broadline and we have the depth of specialty. So long story short, Ed, I would say we're very confident operating in today's environment, and we're confident in operating in any environment.

So maybe just digging in on the Sysco specific side, specifically it's really related to sort of state of the union at the company now. And I think if we look back, there has been some challenges in addition to the industry backdrop, but there do seem to be green shoots. And you do -- you are talking about some of the self-help that you're seeing. So maybe could you provide a little bit more color on the self-help angle, the initiatives that you're excited about. And as part of that, obviously, there's been a lot of focus on the sales force turnover, things seem to be improving there, the pricing tool, et cetera. Could you just maybe walk us through where you are with all this?

Yes. I appreciate the question very much. And maybe we separate the 2, I'll talk about our colleague health. Kenny, you can add on anything you want. And then we'll come back to the initiatives covering all that. And one question is a bit of a lengthy answer, but let me again just start just backdrop for us. We have, by far, our highest market share in our space, but more importantly, the highest profit percentage in our space. So we're pleased with the business we have in aggregate. The size of our business, more importantly, the profitability of our business, and we deserve to have the opportunity to grow consistently over time, and that is our remit, is to do exactly that. This past year, Ed, as you just referenced, we had elevated colleague turnover tied to a compensation change that we made in June of the prior -- a year ago, June, a step giant back from that -- giant step back from that, the new comp program is working. We're happy that we made the change. We've learned a lot about change management on deploying something like that to our large distributed colleague workforce that will be applied going forward to every initiative that we put forward. One thing that occurred last year that were tied to that comp changes, as I said on this stage last year, we were experiencing meaningfully elevated turnover. That was Q1 of last year, it peaked in September, carried through to Q3. Q4, the quarter that we just closed, we've completely stabilized our colleague retention. In the spot moment, year-to-date, our colleague retention is the highest it's ever been. We are all over this topic. Think about 3 things when I say colleague health. Number 1 is retaining the colleagues we have, and I just said, communicated publicly, retention is at the highest rate it's ever been. Number 2 is to improve the productivity across the entire sales workforce, and we have initiatives in place to be able to drive that outcome. And then Number 3 is to grow our workforce over time, and Kenny and I recently said, this year, we'll grow our sales force approximately 4%. And if you look at the last 2 years plus the year ahead, it will be approximately 1,000 colleagues that will be added to our workforce. So those are the 3 things, retain the colleagues we have, improve the productivity of the entire workforce, increase the headcount by approximately 4%. You put those together and it is colleague health. Ed, this past year, fiscal 2025, that was a headwind for us throughout the entire year. We have the opportunity in this year, the year we're in for that to be a tailwind. And why as we repeat the customer loss that went with colleague departure and if that's not clear, that's what the outcome is. When a colleague departs, they tend to take some customers with them. So we're not going to be repeating that headwind and the improvement to our business, the tailwind will come from the new hiring that we're doing and the initiatives that I'll talk about in a minute that will turbocharge the performance of our workforce. Kenny, anything you'd like to add?

Yes. Yes. So the headline news is U.S. Broadline local case growth will be positive in Q1. By the way, we are already positive right now, USPL local case growth. And then USFS local, it will be positive for the year. Remember, we started lapping the specialty loss in Q3. So that will be a nice year-on-year boost from a growth standpoint. As you can tell, Kevin and I, we're really confident about our local case momentum. So let me share with you some of the green shoots, Ed, as you said, what are some of the proof points that we're seeing to ensure that this momentum is real, it's structural and will continue. The first piece is what Kevin said, right? One is the fact that, we're seeing the tenor, the retention levels or the stability of our SCs improving, and Kevin said it right, the highest it's ever been, right? And that's important because as they ride the life cycle of an SC, the biggest jump between -- in the tenor is actually between less than 1 year and 12 to 18 months. And you may remember, we started hiring meaningfully towards the back half of FY '24. So do the math. Right now, we're entering the sweet spot, where they're actually having a nice jump off point. Now this doesn't mean year 3 does a jump to year 4, or 4, 5. Yes, every single SC gains productivity, but that's below 1 year to 12 to 18 months is the biggest jump, right? It's a meaningful jump and we're seeing that right now. That's point number one. Number two, because of that, we are seeing the most net new adds on customer. Now obviously, it provides nice current moment revenue stream. But I love it because there's that, but there's also a tailwind from penetration later on. The customer doesn't give you all the cases on day 1, right? Run through the existing inventory, at the same time, learning your assortment as well. So that's a nice tailwind. And the third proof point is NLP, new loss penetration. This is a metric that Kevin and I and the entire team look at it on a daily basis. So Interesting fact here. If you look at the spread between new plus -- between new and loss, the exit rate for Q4, last quarter, the spread doubled versus the first 3 quarters of the fiscal year. And that widening in the gap between new and loss is continuing into this fiscal year. That's another proof point, Ed, in terms of why we think this is the start of the journey of sequential improvement. The last thing I would say is the 750 people that we've added and the 300 plus that we plan to add this year. Kevin and I were very, very mindful and disciplined on when and where we add. So we do a look back all the time, looking at geographies, regions and see the correlation between ads and stability and we're seeing a nice correlation there as well. So those are the 4 reasons why I would say that momentum is real, and we believe based on these 4 areas that we're looking at that will continue into the rest of the year and beyond.

Yes. So I wanted to follow up on that. As you think about this idea of a productivity curve of your sales force, and you can do the math on this, where you see higher turnover, you hire people that are not very productive to start, right? Your sales force productivity really drops. Your cases kind of dropped with that. But the reverse is kind of happening now, right? So you start to see that improvement. And then the other side of that, right, is that you -- when you lose some salespeople, you lose some accounts. They're probably pretty rich margin accounts, high private label accounts, but then you are adding accounts that take time to build. So there's another curve there. Both of those things seem like they are pretty positive for you in terms of what's ahead. Is there any potential offset to that. And the one thing that I do continue to ask questions about this is an idea of non-competes and the salespeople that maybe you lost a year ago coming off noncompetes now and some headwinds associated with that. So could you maybe just provide a bit more color about all of that?

Yes. Very fair question and I'll start. The full acknowledgment is in that fiscal 2025 that equation was a headwind for us throughout the year. Kenny, said the math. We were doing a decent job throughout the year of opening new accounts. We did that all throughout the year. Our loss rate increased this past year. I need to say the math. I'll repeat it because it's really important. In Q4, the gap between new and loss doubled versus Q1 to Q3, and that is a representation publicly of the progress that we're making. And it's widened even further in our Q1. And then the second point you made is about penetration. When you lose a long-tenured account, you replace them with a brand new one. Kenny just said that you don't get all the business day 1. So that means penetration is down as well. So that was a headwind throughout this past year. We acknowledge it. The good news is the change that we made to the comp program was a quality necessary change. It was a good change. We lowered base pay to put more pay at risk, and we increased the earnings potential of every single sales colleague by putting more into the incentives. So think a $1 taken out of base, we put $1.50 into earnings bonus to motivate them. For the colleagues that work at Sysco now, they're motivated by this. We do an annual engagement survey, our colleague morale and our colleague engagement in the sales workforce significantly improved year-over-year. And we're having no problems at all hiring new folks in. As I think about the year ahead and I'll fully acknowledge the month 13, we're not concerned about it. The majority of the departure when a colleague who served an account for 10 years, the majority of the customer at risk loss happens almost immediately and think about it whether or not that colleague can call on that account from somewhere else, Kenny has been calling in a restaurant for 10 years. He departs. I'm brand new to the company. I get assigned. I don't know the assortment. I don't know the pricing. I don't know that account the way that I should. That's when customers tend to look around and take a look. And then they can be pretty sticky when they make those choices. So we're cognizant of the month 13, that when we put that part into all of the other parts, significantly improved retention at the end of this year, 1,000 incremental head count. A meaningful improvement in productivity of our workforce, which we'll talk about in a moment when I highlight some of our initiatives. It will be a net tailwind throughout the year. And we actually think it will grow, Kenny, throughout the year that gap between new and loss is going to widen each quarter. It's not a light switch. It will just kind of sequentially get better over time as the tenure of our workforce increases into initiatives and tools that we're deploying to help improve the productivity of our colleagues overall.

Yes. So maybe could you dig in a little bit there around some of the initiatives that you have that drive that growth. And as part of that, there's always been some concern around industry competition and pricing and your ability to grow that customer base in a pricing disciplined way.

Let's lean in there just to start on competition. We respect our competition. There's quality operators. We have respect for who we compete with. It's not just the big names, it's also regional specialty players. As Kenny said, we're by far the largest specialty player in the industry. We have a $10 billion specialty business. The second biggest player is 1/3 of our size. So we respect our specialty competition. We respect our Broadline competition. But we're confident in our go-to-market approach. We're never going to lean in to be the cheapest in the industry to lower price in order to win share unprofitably. We describe all the time, we're going to grow share, and we insert the word every time profitably as the most disciplined operators in our industry and our highest operating margin percent in the industry is a proof point of that. And then we're confident we can gain share and do so in a disciplined way. The #1 thing by far, and I know we've hammered this point this morning is colleague health, retaining the colleagues we have, increasing the productivity of our colleague workforce at large and then adding to our headcount, which we said approximately 4%. That is the #1 most important. Everything else is, frankly, a distant secondary. It's that colleague health piece, and we're extremely confident in our colleague health being a tailwind for the year ahead. With that said, let's move on to some other initiatives. We're really enthusiastic about some new programs that we have deployed late summer. And here's the due difference. I've told you before, we didn't roll out the new comp program as well as we could, and we learned a lot. We have a population at our company called the DSM, which is our district sales manager, approximately 500 of them. They each have approximately 10 sales colleagues that they are responsible for. What we've learned is we got to get that population into the mix early to explain the why of an initiative, get them bought in, make it theirs that they are owners of it such that when we do roll it out, it's their team coming along in a compelling and positive way. We brought all of our DSMs. This is the first time in company history, a 56-year-old company, we brought all of our DSMs to Houston to talk about our key initiatives for 2025 and the roof blows off the building. There was so much energy at that meeting talking about these initiatives. So without further ado, let's jump in. So Perks 2.0, we've had a Perks loyalty program out for a couple of years. That program historically was a marketing program, a points earned could be redeemed for discounts type program. And those programs are fine. They're good. But they're not as good as a service elevated program. Think about your favorite hotel. We're sitting in a Bonvoy properly -- property. Think about your favorite airline. All of you travel a lot, you probably have a favorite hotel loyalty program. You probably have a favorite airline. And if you have choice, I can pretty much guarantee you're choosing the airline that you have most affinity to relative to their program. And it's not just because you're earning miles or points that you can do for redeem. The difference is because they treat you different. You can board earlier. If there's a problem, they're rescheduling you to the next flight in a timely manner when everyone else is on the phone trying to get through to a call center. I think you all understand the examples that I'm making. So at Sysco, we're converting perks into our best customers. I want to be very, very clear. These are independent mom-and-pop restaurant customers. This is not national chains because I got a question about that at the last meeting, mom-and-pops. 15-ish percent of our customers, there is an absolute pareto on the percentage of sales and the percentage of profit that they drive. We've not gone public with the percent and the percent of sales and profit, but 15% of sales -- 15% of the customers, much higher percentage of our sales and even higher percentage of our profit. So these customers, they matter massively. And we retooled our service offering for these customers. We launched it a month ago. Every function at Sysco, when one of these customers has a need and they say, jump, we say how high. So it's routing preferences day of week, time of day. It's if ever there's an inventory allocation problem, and these things happen in our space. Avian flu reduced the supply of eggs. We simply weren't getting the inbound quantity that we needed. These customers aren't getting shorted. If you're going to have to short someone, you're not shorting one of these customers. There's a damaged case on a delivery. We have fragile product. Guess what, we're going to do a hot shot out to that customer. No questions asked. There's no hoops to jump through. These are just examples. We're going to have a 24/7 hot desk call center that is equipped to answer the phone and solve the problem right in the spot moment. And the person who's going to use that call center is actually our sales colleague because oftentimes, as they're at these accounts, there's a challenge, whatever it may be. And our colleague has to jump through hoops to try to get that answer, and they take days to get an answer. We're going to get that answer right then and there. We launched this program nationwide. We had piloted it. The pilot results are compelling. The metrics of success would be significantly improved customer retention within these Perks customers and significantly improved penetration because when you're providing this level of service offering, they give you more of their business. So we're really bullish on Perks. It's early innings. The feedback we're getting from our customers is they notice, they see the difference. And in our industry, on time and in full, that's what matters more than anything. Sounds simple, does hard. We're going to deliver on time. We're going to deliver in full. And for these customers, we're going to do that each and every day. That's topic #1. Topic #2 is what we call AI360, which is an AI-empowered CRM. And for the long term, we are meaningfully, meaningfully bullish on this capability. It's literally in their smartphone in the palm of their hand. For years, we have had our colleagues do call plans for their week and think about a sales rep having 50-plus customers. That's a lot to keep track of, a lot to know about a customer. They plan out their week. We want our sales reps to be in every single account, every single week. With AI360, when they're in the car, in the parking lot of the restaurant, they can pull up their customer account, and it will prioritize for them the next best actions or the most important things to be done that day. Here's the case you can sell that you've not sold before. Here's a case you've lost to a competitor that you need to win back and here's a preapproved deal. That's where pricing comes in. Here's a preapproved deal to win it back. And here's the Sysco brand conversion. You can save that customer $11,000 if they convert from national brand to Sysco brand. That's prioritized next best action, specific to that restaurant, their cuisine, their economics, their trade area and the competition around. That sounds simple. That is really hard from a data perspective. We have all the data. We have a treasure trove of data. The unlock here, the power here is literally in the palm of their hand and a super user -- super easy-to-use user interface, prioritizing the focus of that business. This is just one use case, by the way. A second use case is they can talk into their phone and ask it any type of question, and this is the power of AI. They can ask it anything. Do I have gluten-free pizza crust in stock in Cleveland today? It will give them an answer instantaneously of the SKUs, the quantity on hand, national brand, private label, good, better, best. And if they want to click on it to learn more about how to sell it, they can click on it, it will actually give them a script on how to present that product or why we love that item. That's the breakthrough. Colleagues that are new, we've had more turnover than we desired this past year, don't have that innate selling knowledge, a 20-year vet, 30-year vet. The benefit from this tool, the real benefit is from the newer colleagues. And what excites us is if we can shorten the length of time between a new hire getting to productive through a capability like this, it's powerful. That's second use case, just an example. Third is a maps app. Within the app, and I'm only going to give 3 and then I'm going to toss to Kenny because I know I've taken a lot of time here. We have shopping centers that have 15 restaurants. We may serve 2. But our sales colleagues doesn't necessarily innately know is it a peer of mine calling on one of those restaurants? When is the last time we called on one of those restaurants? Is it a competitor's account? So we now have in that same tool, a maps app. They're in the shopping center. We're delivering to insert here. They can see on the map through pins, we have this data. We've sourced the data. When is the last time we called on that customer potential, who called on them, what was the conversation and it's increasing the likelihood of our colleague calling on new accounts. And we're seeing an increase in our new customer open rate tied to that. So AI360 is an unlock. To be clear, we're not reducing our headcount through this tool. We're not decreasing the importance of our sales colleagues through this tool. This is a relationships business. What this is doing is making that sales colleague more effective, more knowledgeable, more productive. And for the long term, we are very bullish on it. Kenny, what would you like to add?

Yes. Two things. One is it's important to understand that our listers' plan, the majority is driven by self-help. What Kevin just mentioned, these 2 things, I would call them icing on the cake, pun intended. These are meant to be accretive to what we have in the guide. So -- but we're not banking on any of this. As Kevin said, some of this is in pilot form right now, and it's very encouraging. You can tell by the excitement from Kevin that we're seeing really good correlation, for example, and it's early innings right now, but we look at actually usage versus growth from an SC -- earlier SC, and we see a correlation between the more you use, the more you're doing well. So again, this is the proof point that we're really excited about, right? On the Perks side of the house, again, we're really excited about this. And I just want to clarify, this is not scraping Perks One. This is building on top of it, right? It's building on top of the fundamental foundation we've already done for the past couple of years and really enhancing. And my favorite part of this is it's a very cross functional collaboration. My team is involved, right, because now they have a hot line with the AP side, AR side, right? There's a preferred routing. And so it's a cross-functional. So it really showcase and demonstrate the power of One Sysco.

The driver will see in their handheld device that it's a per customer. The credit analyst on Kenny's team will see it's a per customer everywhere across the company, leaning in hard. Ed back to you.

So maybe just switching gears a little bit to international. Performance has been very impressive. It's a growing portion of your EBIT. It's a growing portion of your EBIT growth. Can you maybe just talk a bit more about the opportunity there and sort of what's ahead?

Sure. Kenny, why don't you start on this one?

Sure, I can start. The headline news is we are very pleased with our performance in international. The momentum is we saw that last year, and it's continuing into this fiscal year as well. Just kind of take a giant step back, international is roughly 20% of our portfolio is international. And if you think about the profile last year from a P&L standpoint, top line was roughly 5% sales growth. OI was roughly 20% growth. And in Q4 marked the seventh quarter of consecutive double-digit growth. So the question from you, Ed is what's driving it? And will it continue? The answer is yes and yes, right? So if you think about the top line, historically, in some of our bigger markets, they were indexing towards call it, national accounts, right? Kevin and I is pushing them to go back and grow local case growth as well, and that's working. So the Sysco playbook is working on local case growth. Last year, they grew roughly 4.5% on local case, and that flows down nicely on the GP side as well as the OI side. That's one piece of it. The second piece is the GP work that they've done. So leveraging the playbook on strategic sourcing. And if you think about it, yes, there will be certain products that we buy in market, for market, but also we're also buying products now as a European hub as a European scale. So think Europe, don't think just Canada, think North America, right? So these are things that we're actively working on to drive leverage on the GP side. And obviously, as you grow local case growth, your Sysco brand penetration goes up as well, given that there's a spread between national and local. And the last piece I would say is that on the supply chain, SG&A side, the team has done a real nice job on supply chain. Obviously, with volume helps on the cost per piece side, but they've done real nice work on piece for labor hour, et cetera. So all of that, coupled together with cost containment on SG&A gave us a nice 4x leverage from sales down to operating income. The good news is it's not just one market. It's not our biggest market, Canada and GB driving it. Every market, every region grew double digit for us and every region grew local case growth as well. And then the other thing I would say is that one of the questions we get sometimes is the margin profile of international. And when I first joined the company 2.5 years ago, the margin was roughly 2% on OI. And today, we're over 4%. So there's nothing structural that would impede our ability to have the margin profile of international be similar as our U.S. business. And I'll finish with this point. Because of the confidence we have in the business from an M&A standpoint, it is -- as Kevin and I have a term, they're open for business, right? So they've proven with the most recent acquisition with Ready Chef in Ireland as well as Campbell's in GB that they've done a nice job growing those 2 businesses. So they're open for business. Nothing to announce here, but we have a robust pipeline. And last but not least, we have 3 buildings running live right now. And that will further expand our moat and further increase our, I would say, competitive position. They're in GB, Sweden and Ireland. So we are investing for growth as well.

Great. As we think about balance sheet, capital allocation, obviously, you had a good point from a leverage standpoint. You've been there for a while now. You pay a nice dividend, you buy back stock, you're acquisitive. Can you maybe talk a bit more about the priorities there, specifically also as it relates to M&A international versus U.S.? And then from a CapEx standpoint, how do we think about the longer-term outlook in CapEx in an industry that I think maybe potentially has a chance to automate, right? Sort of a way that you're thinking about all that?

Yes. So I can start and then toss to Kevin, for the supply chain automation side. So in terms of our capital allocation, one of the things that investors love about our company and I love about our company is the fact that we're disciplined and consistent around capital allocation. So we are, first and foremost, invest for growth, invest in our business. This includes, obviously, for our customers, leasehold improvements, fleet refreshes, maintenance CapEx, growth CapEx. And as to your question, historically, we ran about roughly 1% of sales as our CapEx. This coming year, we'll be a touch lower than the 1% because we invested quite a bit in the past few years, and we want to grow into our capital expenditures. So it's part of the ROIC mentality. So think about the Tampa building that we've opened, right? Think about Allentown, Las Vegas, [ Red ], right? These are buildings that we built and now we have to make sure that the return is there as well. So again, this year will be slightly under that 1%. And then in terms of the leverage ratio, we are comfortable operating second party -- comfortable operating within that 2.5 to 2.75x ratio for leverage. And we think this is a sweet spot where you can be investment grade and invest in business and we return to shareholders, right? And so maintaining IG is really important for us. And last but not least, returning back to shareholders. Last year, we returned over $2 billion, this year we'll return in the ballpark of $2 billion as well between dividends as well as share repo, and that can flex up and down depending on M&A. In terms of automation, the way we think about this, and I'll turn it to Kevin very soon, is technology stack, automation, it is part of our DNA at Sysco as we think about not just from a go-to-market standpoint, back office go-to-market and the fact that we scale, we have so many literally pieces in our business. So when you shave a penny off or few pennies off because of routing or because of labor standards updates, it really matters, Ed. So for us, yes, we're thinking near term, midterm and long term. And we have a laddering approach for automation. But the real takeaway is that when we can drive a $0.01 or $0.02 or $0.03 out of shrink, for example, or maintenance, et cetera, it really scales across the enterprise. So we feel we're investing in this area, and we'll be very mindful of financial returns. So Kevin...

Yes. Just -- and I know we're approaching at time. So on the automation piece, Think about there's the warehouse activities and the delivery activities. The by far, more important activity is the delivery activity. It's the most expensive part of the transaction, it's customer impacting part of the transaction. We're investing meaningfully to modernize, upgrade and have world-class routing software. And as Kenny said, we can take 1%, 2%, 3% miles off the road. We drive millions of miles. It is meaningful to the P&L, taking pennies off of the 1 billion-plus pieces that we will ship in the year. So when I think about supply chain technology, routing, it's like the heartbeat or the POS of our business, point of sale of our business is routing. Within the warehouse side, we have multiple in-flight projects at any given time, inspecting what's possible within our space. This is about labor cost reduction. More importantly, it's about labor availability 10 years from now, 15 years from now. I had the wonderful privilege ahead of recognizing a selector in our freezer 49 years with Sysco, has only worked in a freezer for 49 years. That's a unique person. And how many people are going to be willing to do that 10, 15, 20 years from now. So we are meaningfully focused on robotics within the warehouse. I think about it less though of a fully automated facility with a $300 million CapEx and a 20-year return, are there individual components of the work. We have a selector building a pallet. We can have an AGV load the pallet onto the truck. We can have an AGV unload the truck pallet. We can have a person sitting remotely moving the replenishment activity from reserve rack to the primary pick. So we're working on all of those things. No big announcement to make today. We're going to be very methodical about the form of technology, the return on investment on that technology, and we have ample capital to be able to do those types of things.

Great. Well, with that, we are up against time. So I wanted to thank you again for participating in the conference. And I hope you all have an enjoyable event. Thank you.

Thank you.

Thank you all.