Kevin Hourican
President and Chief Executive Officer at Sysco
Thank you, Neil. Good morning, everyone, and thank you for joining our call. This morning, I'll discuss Sysco's steadily improving financial results. I'll provide an update on our business transformation. And finally, I'll provide some color on the current state of our business environment. I'll then turn it over to Aaron who will discuss the details of Sysco's first quarter financial results. Let's get started with our financial results displayed on slide four. Earlier this morning, Sysco reported first quarter fiscal 2022 results that were fueled by substantial top line momentum that continues to exceed our expectations. Our top line results sequentially increased each month of the quarter despite the presence of the Delta variant and have continued to improve into October. Our sequential improvement in sales and volume is a clear statement of our supply chain strength and our ability to win meaningful market share in this climate. We are pleased with the top line results, and our flow-through to the bottom line exceeded our expectations for the quarter. This strong start gives us confidence in reaffirming our guidance for the full year. Key headlines for the quarter include a growing top line that improved sequentially throughout the quarter and continued growth through October, as seen on the right side of slide four.
Q1 represented another period of strong net new business wins for Sysco at both the national and local level. These customer wins will fuel our success in quarters and years to come. Customers are responding to Sysco's relative supply chain strength, our new purpose platform and our improving capabilities driven by our Recipe for Growth strategy. All told, we delivered sales growth of 8.2% versus 2019. We outperformed our fiscal 2022 growth goal of 1.2 times the market in the first quarter, delivering the strongest growth versus the market in the last 5-plus years. We believe additional growth is still in front of us at Sysco as our volume is yet to fully recover in certain segments, such as hospitality, business and industry, foodservice management and international. As these segments recover, additional momentum will be added to our business. We are preparing now for select segments to further recover in early 2022 by strategically placing inventory and bolstering our staffing levels. For example, we anticipate that our business and industry segment will see upward momentum in January as select customers plan to reopen their offices at that time. International travel restrictions are beginning to ease, which should benefit our hospitality sector in specific regions of our business. Our operational expenses for the quarter increased due to higher volumes, elevated overtime rates and in intentional expenditures that were targeted to improve our staffing health.
We invested in incremental marketing to advertise open positions. We provided new associates with sign-on bonuses and provided referral and retention bonuses to existing staff. We anticipate that these expenses will continue in our second quarter and that we can make progress in reducing the level of investment in the second half of our fiscal year. Our profit flow-through from the top to the bottom line should improve as a result in the second half. Gross margin for the quarter was impacted by a high rate of inflation, which increased to approximately 13%. We expect inflation to continue at a similar rate through the second quarter before beginning to taper later in the fiscal year. Given current trends in the industry, we expect the tapering will begin further into the fiscal year than we had initially modeled. Our international business continues to show strong improvement. We have improved from posting a loss in Q3 of 2021 to breaking even in Q4 to making more than $60 million of adjusted profit in our Q1 of fiscal 2022. It is important to note that our international business is skewed to large contract customers that are still heavily impacted by COVID. For example, we over-indexed in Europe in the business, industry and travel segments that remain constrained versus 2019 levels.
As such, the relative sales performance in the international sector still lags that of the U.S. segment. However, it also conveys that we have additional recovery still in front of us internationally. Our Recipe for Growth strategy will enable our international business segment to improve how we serve local customers over time. And we anticipate a shift in our customer mix to the more profitable local sector as we progress on our three-year strategic plan. In summary, we delivered very strong top line results, increased profit per case shipped and experienced elevated operating expenses that increased our cost to serve. The combination of these results delivered a strong adjusted operating income for the quarter of $685 million and adjusted earnings per share of $0.83. Both results exceeded our expectations for the quarter and position Sysco to deliver our full year guidance. Aaron will provide more details on our financials shortly, but we are pleased to be off to a strong start in the new fiscal year. Topic 2, let's turn to our business transformation, which is highlighted on slide five. As important as our strong quarterly financial results, our business transformation remains on track, and I will highlight a few examples of our progress this morning. Our pricing project implementation is now substantially complete.
The centralized pricing tool enables Sysco to strategically manage the high levels of inflation we are currently experiencing with disciplined and strategic control. We can determine, at the customer item level, exactly what level of inflation to pass through. We can optimize the pass-through to balance profitability and sales growth. There is no better time than the present to have this powerful capability. Longer term, the pricing tool will enable us to accelerate sales growth profitably as we optimize pricing to increase share of wallet and increase pricing trust with our customers. Our work on the personalization engine continues to advance. This innovative industry-leading program will enable Sysco to further penetrate lines and cases with existing customers and will improve our sales consultants' ability to win new accounts. We will supplement personalization with increased service levels for top customers through an innovative loyalty program that we will discuss more in future quarterly calls. Our sales transformation is proving to be very successful as our sales teams continue to win new business at record levels. As I mentioned in my financial narrative, our local and national sales teams delivered strong wins in the quarter that will help fuel our future growth profitably. Lastly, we are continuing to improve the efficiency of our organization as we further reduce our structural expenses to fund our strategic initiatives. Over the past few quarters, we regionalized the leadership structure of our specialty businesses, FreshPoint and SSMG, and we followed the playbook of our U.S. Broadline regionalization and have now implemented the more agile and efficient model for our two main specialty businesses.
As shown on slide six, during our first quarter, we successfully closed on the Greco and Sons transaction, which we expect to deliver over $1 billion in incremental sales to Sysco in fiscal 2022, ahead of our deal model expectations. More importantly, we plan to leverage the Greco business model to build a nationwide Italian platform that is the best in the industry, which will further deliver incremental sales beyond the $1 billion just mentioned. In addition to closing the Greco transaction, we acquired a produce distributor in October that will operate as a part of our FreshPoint business segment and will improve our ability to provide fresh produce and value-added fresh-cut capabilities to the Pennsylvania and Ohio markets. You may not realize that Sysco is the largest specialty produce distributor in the United States vis-a-vis our FreshPoint platform. Our produce business has a high-growth CAGR and attractive margins. Growing in the specialty sector is a priority for Sysco, enabling us to gain more share of wallet from customers by combining our Broadline capabilities with the premium service levels, selling skills and product assortment availability of specialty.
Our Recipe for Growth is still in the very early innings, but we can see the benefits of our developing capabilities and the new customers we are winning and the progress that we are making in market share gains. Importantly, our first quarter results exceeded our 1.2 times market share growth target for fiscal 2022. More importantly, as the Recipe for Growth matures, the impact on our top line growth will accelerate. As such, we remain committed to growing profitably 1.5 times the market as we exit our fiscal 2024. Topic three for today is an update on the state of the business. During our last earnings call, I highlighted the critical importance of staffing health due to the supply chain challenges that are well documented across all industries. As covered on bullets on slide seven, we have made progress throughout this quarter in improving our staffing levels. Our leadership team, top to bottom, has been extraordinarily focused on improving our staffing health. A good example of our efforts is the execution of our first-ever nationwide hiring event in the second week of October. We leveraged extensive digital marketing and a streamlined hiring process to net more than 1,000 new supply chain associates to bolster our troops. When coupled with our year-to-date hiring success, we are making solid progress on increasing our throughput capacity. Additionally, during the quarter, we opened our first Driver Academy, our first academy classes in session, as we say at Sysco, and we are training our next generation of Sysco drivers. We are bullish on expanding this program across the country in the coming year, and we are confident it will make a meaningful difference in generating a solid driver pipeline. From a product availability perspective, although our fill rates still lag our historical standards, we were able to deliver a higher fill rate to customers than the industry average.
We have strong relationships with our key suppliers and a merchant team that is extremely focused on finding and sourcing product substitutions. I have personally engaged with top suppliers to ensure a solid partnership with Sysco, and I am cautiously optimistic that our suppliers' performance will improve through the remainder of the year and into our fiscal 2023. Supplier improvement will be a key to improving customer fill rate and customer satisfaction. Lastly, you may have seen the recent announcement regarding the Department of Labor's Occupational Safety and Health Administration's requirements for employers with 100 or more employees. I am pleased to inform you that Sysco began a weekly COVID testing regimen in September, and as such, we are already compliant with the majority of the OSHA's stated guidelines. The safety of our associates and our customers is our #1 priority, and we remain steadfast in protecting our team. In summary, Sysco continues to lead the industry in how we are supporting our customers during this challenging supply chain environment. Our Net Promoter Scores are outperforming the Broadline distribution industry, and our ability to serve customers remains best-in-class. We remain the only national distributor without system-wide minimum orders, and we will endeavor to increase the flexibility and service that we provide our customers in the coming quarters and years.
The impact of our relative supply chain success can be seen in our results. We sequentially increased sales throughout the quarter and expanded our market share capture. We now have more than 10 consecutive months of gaining market share, and we are on track to deliver our stated goal for the year, growing 1.2 times the industry. And our Recipe for Growth strategy will enable us to accelerate, over the next three years, and grow at 1.5 times the industry by the end of our fiscal year 2024. I want to thank all of our associates for their tremendous hard work over the past quarter as Sysco experienced unprecedented growth and supply chain challenges. We are winning in the marketplace, and that would not have been possible without the dedication of our sales, logistics and merchandising teams. I'm honored to serve these associates and work by their side.
I'll now turn it over to Aaron who will provide additional details on our financial results for the quarter before we open it up for questions. Aaron, over to you.