Executive Vice President and Chief Financial Officer at Sysco
Thank you, Kevin. Good morning.
Here are our second quarter fiscal 2022 financial headlines. As seen on Slide 9, sales growth of 41.2% compared to last year, also up 10.5% versus fiscal 2019, leading to our highest Q2 sales ever. Good management of our product cost inflation, recording the highest gross profit in absolute dollar terms for any Q2 at Sysco. A doubling of adjusted operating income and a 62.9% increase in adjusted EBITDA compared to last year, notwithstanding a cost environment, which worsened during the quarter. Continued investment against our long-term Recipe for Growth, with $44 million of operating expense investments against our strategic investments, creating momentum with our commercial capabilities. Proactive action on the COVID generated labor and safety environments in which we are operating, with $73 million in transitory snap-back operating investments such as recruiting costs, hiring marketing, vaccination promotion, contract labor and sign-on and retention bonuses in the quarter. And while the magnitude was greater than we could foresee last quarter, we experienced productivity challenges and much higher overtime costs in the quarter, resulting from the pandemic-related workforce transition and our prioritization of customer service. With respect to our capital allocation, we refinanced elements of our long-term debt during the quarter, and we returned $657 million of cash to shareholders. With those headlines on the table, let's turn to some details on the financials for the quarter and some thoughts on our outlook.
Second quarter sales were $16.3 billion, an increase of 41.2% from fiscal 2021 and a 10.5% increase from fiscal 2019.
In the United States, sales in our largest segment, US Foodservice, showed excellent progress, up 45.1% versus fiscal 2021 and up 14% versus fiscal 2019, reflecting the pre-Thanksgiving and pre-Omicron resurgence in volumes and sales. Local case volume within the subset of US FS, our US Broadline operations, increased 17.6%, while total case volume within US Broadline operations increased 22.5%.
SYGMA sales were up 16.5% versus fiscal 2021 and up 15.3% versus fiscal 2019, even with the large customer rationalization we disclosed earlier, which we expect will be complete on a comparable basis following Q3.
International sales were up 43% versus fiscal 2021 and down approximately 3% versus fiscal 2019. Sales trends were accelerating nicely in our International segment before the onset of Omicron and restrictions in our key international markets, such as the UK, and we are watching post lockdown trends carefully. Foreign exchange rates had a positive impact of 0.3% on Sysco's sales results. We continue to monitor the impact on our customers and on our business as international restrictions are starting to ease, including in Ireland and the UK. Inflation continued to be a factor during the quarter at approximately 14.6% in our US Broadline business.
Gross profit for the enterprise was approximately $3 billion in the second quarter, increasing 37.8% versus the second quarter of fiscal 2021, and also exceeding gross profit in fiscal 2019 by 4%. The increase in gross profit was driven by year-over-year improvements in volume versus fiscal '21 and compared to the same quarter in both fiscal 2021 and fiscal 2019, increases in gross profit dollars per case across all four of our reporting segments as we successfully managed increased costs from our product suppliers while addressing some, but not all, of our increased operating costs. Gross margin rate was 17.7% during the quarter, with the margin rate math impacted by product inflation. Of course, it is gross profit dollars that count in an inflationary environment.
Turning back to the enterprise, adjusted operating expense came in at $2.4 billion, with a combination of planned and unexpected expense increases from the prior year, really driven by four things.
First, the increased variable costs associated with significantly increased volumes.
Second, as you can see on Slide 10, more than $73 million of one-time and short-term transitory expenses associated with the snap-back, which we expect to decline in the third quarter. While we have increased wages in select locations, those increases are not material and have the opportunity to be offset by productivity and cost-out improvements going forward.
Third, $44 million of purposeful operating expense investments against our Recipe for Growth initiatives, like personalization, digital sales tools and assortment capabilities, which remain on track to be elevated for the rest of the year.
And fourth, the productivity expense challenges Kevin referenced earlier, including ramp-up time associated with new higher productivity in our warehouses and trucks, elevated overtime and third-party labor support in the face of staff absences. I want to emphasize that the management team at Sysco has been aggressive in pursuing the root cause of the cost increases. While the transformation continues unabated, the team has also pushed hard to identify an action incremental profit opportunities and cost reduction initiatives, which should help the Company in the back half and beyond as the environment stabilizes.
Together the snap-back investments in the transformation costs totaled approximately $116 million of operating expenses this quarter, and negatively impacted our adjusted EPS by approximately $0.17.
All-in, we leveraged our adjusted operating expense structure and delivered expense as a percentage of sales of 14.7%, which is flat from fiscal 2019 and down 145 basis points from fiscal 2021. Our cost-out efforts are meaningfully benefiting our P&L, and we continue to assess and execute against new cost-out projects each quarter.
Finally, for the second quarter of fiscal 2022, adjusted operating income increased $262 million from last year to $496 million. This was primarily driven by a 45% improvement in US Foodservice and continued progress on profitability from International, partially offset by SYGMA. The second quarter SYGMA operating loss was driven by higher-than-expected labor costs, which will be offset in future quarters by specific actions already taken by the SYGMA management team.
Adjusted earnings per share increased to $0.40 to $0.57 for the second quarter compared to last year.
Now, let me share a couple of comments on cash flow and the balance sheet. Cash flow from operations was $377 million on a year-to-date basis, driven by our higher income and lower interest, offset by higher tax payments and a significant investment in working capital. Net CapEx was $175.9 million, somewhat lower than expected given increased lead-times on fleet and equipment. Adjusted free cash flow year-to-date was $201 million. At the end of the second quarter, we had $1.4 billion of cash and cash equivalents on hand.
As seen on Slide 15, our results this quarter also reflected incremental progress against our capital allocation priorities. This included the further strengthening of our balance sheet by successfully refinancing debt during the quarter at longer maturities and more attractive rates, lowering our adjusted interest expense costs going forward.
We also commenced our share repurchase program during the second quarter and repurchased approximately 5.7 million shares for a total of $416 million at an average share price of $72.30. This was in addition to paying our quarterly dividend of $0.47 per share in October. We remain committed to growing our dividend and, as previously communicated, plan to next address decisions around our dividend per share during our fiscal Q4. While our track record goes back decades, as you can see on Slide 16, over the last seven years, cumulatively, we have returned over $12 billion of cash to shareholders.
Let's turn now to the look forward. Our Recipe for Growth transformation plan is on track. However, Omicron had a noticeable impact on our December and Q2 results, continuing into January and now February. As a result, we are reaffirming our long-term guidance, that for fiscal 2024, Sysco will deliver adjusted EPS growth of at least 30% over our record 2019 EPS of $3.55. We are updating our view of the back half to reflect the realities of the disruption caused by Omicron and the labor environment. We expect to fall below our prior EPS guidance for fiscal year 2022. For the full year, we expect adjusted EPS of approximately $3.00 to $3.10. This translates to adjusted EPS in the back half of about $1.60 to $1.70.
In a typical pre-COVID fiscal year, adjusted EPS for our second half is generally weighted around 40% to Q3 and 60% in Q4 due to normal seasonality of our business. This year, we expect our second half profitability to be weighted even more to the fourth quarter. We expect a stronger Q4 this year relative to Q3 as a result of anticipated volume recovery, lower snap-back expenses, improved operating productivity and specific actions we are taking to offset Omicron. In offering this perspective, we are assuming no further COVID variant disruptions to our operating environment.
With that, let me turn the call back over to Kevin for closing remarks.