Aaron Alt
Executive Vice President and Chief Financial Officer at Sysco
Thank you, Kevin. Good morning. Our key fourth quarter fiscal 2021 headlines are strong demand; increasing sales; a profitable quarter increasingly reminiscent of pre-COVID operations; and stronger cash flow than anticipated.
Our fiscal fourth quarter results provide excellent proof points that consumers continue to seek relief from food-at-home fatigue that the restaurant industry recovery is in full swing in the U.S., and that the international restaurant industry has the potential to come roaring back. During the fourth quarter, we did what we said we were going to do at Investor Day as we balanced five financial priorities, early and tactical investments in labor and inventory to be better prepared than anyone else in the industry for the chaotic industry recovery; thoughtful strategic investments in capabilities and technologies to advance our Recipe for Growth over the long-term; continued focus on our cost-out program to fund both the snap-back costs and our growth agenda; accelerated reduction of our debt levels; and increased return of capital to shareholders.
Today, I'm going to lead off with the income statement for the quarter, briefly discuss the cash flow and balance sheet, and then I will close with a positive update to our guidance for fiscal year 2022, which reflects the rapid acceleration of the recovery of our business and other factors. For full-year results, I will refer you to our press release and our 10-K.
As Kevin noted, fourth quarter sales were $16.1 billion, an increase of 82% from the same quarter in fiscal 2020 and a 4.3% increase from the same quarter in fiscal 2019. Please note that this year, our fiscal year had a 53rd week, which included 14 weeks in the fourth quarter as compared to only 13 weeks in the fourth quarter of each of fiscal 2020 and fiscal 2019. That additional week was worth just under $1.2 billion in sales. Sales in U.S. foodservice were up 88.4% versus the fourth quarter of fiscal 2020 and up 7.7% versus the same quarter in fiscal 2019. SYGMA was up 45.3% versus fiscal 2020 and up 20.9% versus the same quarter in fiscal 2019. For the quarter, local case volume within a subset of U.S. FS, our U.S. Broadline operations increased 74.3% while total case volume within U.S. Broadline operations increased 71.4%.
Given the interest in the recovery curve from COVID-19, today we are disclosing that our July fiscal 2022 sales were also quite strong. Sales were more than $4.9 billion, an increase of 44.3% from the same period in fiscal 2021 and a 7% increase over the same period in fiscal 2019. Kevin brought up the top of inflation. The headline is that inflation during the quarter was up 9.6% for total Sysco. Manufacturers passed inflation to us and we successfully passed it on to our customers across categories and customer types. Let me call it a couple of numbers and then we'll discuss our response to inflation further. Gross profit for the enterprise was $2.9 billion in the fourth quarter, increasing 86.2% versus the same quarter in fiscal 2020. Most of the increase in gross profit was driven by year-over-year increases in sales, the 53rd week in fiscal 2021 worth about $208 million and marginal rate improvement at our largest business U.S. FS.
Gross margin as a percentage of sales during the quarter actually increased 41 basis points versus the same period in fiscal 2020 and finished at a rate of 18.1%. The gross margin increase was driven by business mix with the higher margin in U.S. foodservice businesses growing alongside improvements in higher margin countries in our international segment. Importantly, the enterprise margin rate improvement was also driven by 17 basis points of margin rate improvement in our largest business.
Now, I'm sure you think I'm calling out the obvious when I say that in an inflationary environment, what counts at the end of the day is the health of our dollar gross profit that which we put in the bank. The good news for us is that in the U.S., as our sales have been rising in part due to inflation, our dollar profit per case has also been increasing. Notably in the U.S., our dollar profit per case is higher now than it was in fiscal year '19. You may ask why do we have confidence that we can protect gross profit dollars in the short term and rate over time. The answer is that Sysco has some advantages. We have significant scale in purchasing, which is an asset, and which our suppliers will be hearing more about as we leverage the power of buying as One Sysco. In addition, the majority of our customer contracts contain cost escalation clauses.
Finally, our merchandising transformation includes implementation of center-led pricing technology and other changes, which allow us to navigate through the inflationary environment. No one tactic should be viewed in isolation, but the combination of our efforts arms us to deal with what we expect to be continued inflation in categories like poultry, beef, paper and disposables. That said, you can expect that we will be careful and tactical as we keep our eye on the real prize, execution against our Recipe for Growth.
Let's now turn to our international business. Restriction started to visibly ease in key jurisdictions towards the end of the quarter. For the fourth quarter, international sales were up 83.4% versus fiscal 2020, but down 14.6% versus fiscal 2019. Foreign exchange rates had a positive impact of 2.9% on Sysco's sales results. What we see in our largest international markets gives us additional signs of confidence for fiscal 2022. Local consumers are eager to get back to normal. And importantly with the playbook established and significant operational change behind us, we do not expect that the re-imposition of additional COVID restrictions would, if it happened, have a severe of an impact on our business as was the case during the past year. Just like our efforts in the U.S., the international operations have been sourcing inventory and hiring staff aggressively to move up the recovery curve.
Turning back to the enterprise, adjusted operating expense increased 44.5% to $2.3 billion with increases driven by the variable cost that accompanies significantly increased volumes, one-time and short-term expenses associated with the snap-back, and investments against our Recipe for Growth. Our expense performance reflects the great progress we have made against our $350 million cost-out savings goal as well as the need to invest in both the current demand recovery and the long-term issues that Kevin mentioned earlier. In fact, we exceeded our $350 million cost-out goal during the full year. As we have highlighted in prior calls, the majority of the savings are coming from SG&A, but there are some savings from cost of goods sold as our teams continue to improve our capabilities to better optimize supplier relationships.
Within our operating expenses, key examples of the cost savings efforts are regionalizing first our broadline operations and most recently, our specialty produce operations. Other examples of areas where we achieved good cost savings would be indirect sourcing, technology cost savings and sourcing of freight contract costs. As I called out in Q3, we are investing heavily against the business both in support of the snap-back and in support of the transformation. During the fourth quarter, we estimate that we spent more than $36 million against the snap-back including incremental investments against recruiting, training, retention and maintenance. We also estimate that we spent more than $50 million against our transformation initiatives such as our customer-centered growth, pricing, supply chain and technology strategic initiatives. Even with those significant investments, our adjusted operating expense as a percentage of sales improved to 14.3% from fiscal 2020 and moved to within 30 basis points of fiscal 2019's 14% as a percentage of sales for the fourth quarter. If we adjust out the purposeful snap-back and transformation investments we are making as temporary, we can better see the savings as our opex as a percentage of sales would have been 13.8% on an adjusted basis.
Here are couple of points of emphasis for you. Part of the future horizon's component of our Recipe for Growth is achieving cost-out to fund the growth. We are leading with the cost-out before we make the investments. The savings are structural. We are not counting variable expense changes. Our savings goals are owned by our entire executive leadership team. The savings are intended to increase over time. Recall that we raised our objective to $750 million with the incremental savings coming largely over the course of fiscal '23 through fiscal '24. Kevin and I must approve all new spend on our developing capabilities that offset the savings. Remember, it is these capabilities that are generating the market share gains of 1.2 times to 1.5 times through fiscal 2024. All in all, we view cost-out as a good news part of our long-term story.
Finally, for the fourth quarter, adjusted operating income increased $639 million to $605 million for the quarter. Our adjusted effective tax rate was 20.2%. Adjusted earnings per share increased $1 to $0.71 for the fourth quarter. The primary difference between our GAAP EPS and our adjusted EPS was the impact of our debt tender premium payment. As I noted at the start of my remarks, in the interest of time, I'm not going to cover the full-year results as part of my prepared remarks. The information is in our press release and we are happy to take questions, of course. We are pleased with the improvement each quarter as our business has recovered from the onset of COVID over the course of the last year or so. Let me just wrap up the income statement by observing that for the year, all in, we delivered $1.02 of GAAP EPS and $1.44 of adjusted EPS.
Now, a couple of comments on cash flow and the balance sheet. Cash flow from operations for the fourth quarter was $424 million. Net capex for the quarter was $180 million or 1.1% of sales, which was $79 million higher compared to the same quarter in the prior year. Free cash flow for the fourth quarter was $244 million, significantly above our anticipated free cash flow, even while we grew and maintained inventory at a level $400 million higher than Q4 fiscal '19. At the end of fiscal 2021, after our investments in the business, our significant reductions in debt and our dividend payments, we had $3 billion of cash and cash equivalents on hand. During the year, we generated positive cash flow from operations of $1.9 billion, offset by $412 million of net capital investment, resulting in positive free cash flow of $1.5 billion for the year.
As you know, at Investor Day, we articulated, our debt pay down plans. $2.3 billion of deleveraging already accomplished during the fiscal year through May 2021. Plans for an additional $1.5 billion will further debt reductions by the end of fiscal year '22. Because we have sized the headline on our Q4 tender offer to $1 billion, we are already tracking $150 million ahead of our debt repurchase commitments. Lastly, we returned almost $1 billion of capital to shareholders in fiscal year '21 in the form of our quarterly dividends. We were pleased to announce at Investor Day a $0.02 per share increase to our dividend, on which we made the first payment in July. This brings our dividend to $1.88 per share for the full calendar year 2022 and enhances our track record of increasing our dividends and our status as a Dividend Aristocrat. That concludes my prepared remarks on the quarter and year-end results.
Now, before closing, I would like to provide you with some updated guidance for fiscal year 2022. In May, I laid out our growth aspiration of growing at 1.2 times to 1.5 times the market. Also recall that we said, in fiscal year '22, we expected adjusted EPS of $3.23 to $3.43. We also called out that in fiscal year '24, we expect adjusted EPS of 30% more than our high point in fiscal year 2019, call it more than $4.65. Our projections and guidance were tied to the Technomic market projections as they existed at the time. Frankly, the speed of recovery of consumer demand has been nothing short of remarkable. We are seeing the positive impact broadly across our business. Sales are recovering more quickly than we or the market trend experts anticipated. That means that to hit our 1.2 times market growth in fiscal year 2022, we have to grow faster and we are. As a result, we are raising our sales expectations and now expect sales for the enterprise to exceed fiscal '19 sales by mid-single digits, adding roughly $2.5 billion to our top line guidance.
Every segment of our business other than our other segment and the FSM component of our U.S. FS business is now forecast to exceed fiscal '19 sales by the end of fiscal year '22. Inflation is more of a factor than we had anticipated for the first half of fiscal '22 and we expect it to continue into the first half of our new year, but our business is proving that it can pass along at least the increases necessary to preserve dollar per case profit. As a result, while margin rate may be weaker than originally expected in the first half of the fiscal year, we expect strong gross profit dollars growing with sales and are holding to our Investor Day guidance that gross margins will improve over fiscal '21 and move towards fiscal '19 levels for the full year.
Regarding the cost-out program, we are working it aggressively. We expect to invest most of the fiscal '22 savings into the snap-back, including the transitory incremental cost that Kevin discussed earlier and important transformational initiatives. From a tax perspective, we expect our overall effective rate to be approximately 24% in fiscal 2022, as we are not assuming changes to federal tax rates in this guidance. And based on the early strength of the recovery that Kevin mentioned during his remarks, as impacted by inflation and our continued progress against managing through the snap-back and investing for growth, we are increasing our guidance on adjusted EPS by $0.10 for fiscal year 2022 by moving the range up to $3.33 to $3.53.
Now, let's be clear, no one can forecast the unknown. The Delta variant is out there and our updated guidance does not bake in a shutdown case. We are providing this guidance based on what we can see in our business right now and we will follow with further updates, positive or negative, as the environment evolves around us, and we continue to execute against the transformation and the snap-back. In addition, with rising sales comes an increase in operating cash flow. We continue to maintain the balanced capital allocation strategy that we highlighted at Investor Day. First, investing in our business for long-term growth and increasing our industry-leading position. Capital expenditures during fiscal 2022 are expected to be approximately 1.3% of sales, reflecting the increased sales levels. We continue to look for further sources of smart, inorganic growth as we laid out at Investor Day.
Second, we plan to maintain a strong balance sheet and expect to hit our announced net debt to EBITDA target during fiscal year '22. And finally, recall that in May, we announced the conditions to the initiation of share repurchase, resulting from the new $5 billion share repurchase authorization. Here they are. The market recovery must be robust; that is happening. The investments in the business must be fully funded, including M&A. We expect to have more than adequate capital for our planned investments. Our debt reduction must continue and our investment grade rating must be preserved. As I discussed, we are ahead of schedule on reductions of debt and expect to hit our leverage target for the end of the year. Excess liquidity must exist to fund the repurchase program. It is early days, but with the accelerating recovery, we anticipate available cash to exceed our earlier forecast. Applying the criteria we announced in May, if business trends continue, then we will consider options to return more capital in fiscal '22. However, having said those words out loud, I want to be clear, our decision tree is based on our balanced capital allocation strategy.
In summary, our performance over the past year has been strong and the fundamentals of our business are solid as we look to the coming year. We are excited about the future as we kick off fiscal year 2022.
Operator, we are now ready for questions.
