Sysco NYSE: SYY reported what Chair and CEO Kevin Hourican described as “strong results” for the company’s third quarter of fiscal 2026, citing improving case volume trends, strengthening gross margin performance, and “disciplined operational execution” despite what management characterized as a choppy macro backdrop for restaurants.
The company delivered adjusted earnings per share of $0.94 in the quarter, which Hourican said was “in line with our expectations” and included a previously discussed $63 million headwind from lapping lower incentive compensation in the prior year, representing about a $0.10 per-share impact. Sysco also reiterated its expectation that full-year adjusted EPS will come in at the high end of its $4.50 to $4.60 guidance range.
Quarterly performance: volume acceleration and margin expansion
Hourican said Sysco posted nearly $21 billion in total revenue, up 4.7% year over year, reflecting “positive and accelerating case growth across our local, specialty, national, and international business units.” He highlighted U.S. local volume growth of 3.3%, a 210-basis-point improvement versus the prior quarter and “our strongest quarter local volume growth in three years.”
Hourican said the company is outperforming a weak restaurant traffic environment through actions “within our direct control.” Citing Black Box data, he said restaurant traffic was down approximately 1.9% in the quarter. He attributed Sysco’s relative performance to improved sales colleague retention and productivity, along with sales training and enablement tools such as AI360. Hourican also noted the company’s “fourth consecutive quarter of improvement in new customer win rates.”
Interim CFO Brandon Sewell said gross profit rose 6.5% year over year, and gross margin expanded 31 basis points to 18.6%. He attributed margin gains to strategic sourcing initiatives, favorable mix from stronger local volume, sequential improvement in Sysco Brand penetration driven by customer mix, progress in value-tier offerings, and cost inflation management. Sewell said inflation rates were approximately 2.8% for the enterprise and about 0.5% for the company’s U.S. broadline business, moderating slightly sequentially.
Adjusted operating expenses were $3.0 billion, or 14.8% of sales, up 51 basis points year over year, which Sewell said reflected the $63 million incentive compensation lap and planned investments such as sales headcount in higher-growth areas along with fleet and building expansions. He added that the incentive compensation lap negatively impacted adjusted operating expense growth by about 240 basis points and adjusted EPS growth by about 1,100 basis points year over year.
Segment commentary: local strength, national restaurant softness, international momentum
In Sysco’s U.S. Foodservice (USFS) segment, Hourican emphasized local momentum and said the company expects “at least 2.5%” local volume growth in the fourth quarter. Sewell said total U.S. foodservice volumes increased 2.3% in the quarter, while local volume increased 3.3%—the strongest rate of local performance since the first quarter of 2023.
On national contracts, Hourican said national case volume increased 1.4% in the quarter, supported by healthcare, travel and hospitality, and foodservice management. However, he said softness in the national restaurant segment weighed on results, adding that declining restaurant traffic has “disproportionately affected” national chain customers. Looking to the fourth quarter, Hourican said Sysco expects national case volume growth to improve versus the third quarter, driven by continued strength in non-restaurant lines and onboarding net new national restaurant wins.
International results were a bright spot. Hourican said international local case growth was 3.8% in the quarter, driven by expanded supply chain capacity, increased Sysco Brand and merchandise availability, increased sales headcount, and easier-to-use technology. He said the segment delivered adjusted operating income growth of nearly 13%, marking the “tenth consecutive quarter of double-digit operating income growth.” Sewell added that international posted sales growth of 12.4%, gross profit growth of 14.6%, and adjusted operating income growth of 12.5%.
Restaurant Depot acquisition: strategy, financial profile, and investor concerns
Hourican devoted a significant portion of the call to Sysco’s planned acquisition of Jetro Restaurant Depot, calling it “a bold new chapter of profitable growth” and framing the combination as a way to expand Sysco’s reach in a large cash-and-carry channel that he estimated at a $60 billion to $70 billion total addressable market. Hourican argued that cash and carry is resilient, noting that during economic downturns the channel has taken share as restaurant operators seek savings.
He said Restaurant Depot serves smaller, value-seeking customers who prefer one-stop shopping and paying by cash or credit card, while Sysco’s core customer base tends to seek delivery and high-touch service from sales consultants. Hourican said the “minimal overlap” between the customer types creates separation between channels, while the combination would allow Sysco to serve more restaurant operators and purchasing occasions, including “need-it-now” situations between delivery days through concepts like click-and-collect or same-day delivery from Restaurant Depot locations.
On synergies, Hourican said Sysco expects $250 million of net cost synergies and emphasized that the company does not intend to reduce headcount at either company as a result of the transaction. He said synergies are expected to come from purchasing products and services more cost effectively. Sewell later clarified that “net” reflects the need to invest in Restaurant Depot to operate as a public company (including items such as SOX compliance and cybersecurity), and that much of the synergy opportunity is tied to merchandising benefits through supplier negotiations. Hourican said the $250 million “would drop to the bottom line,” while adding that any overdelivery could create an opportunity to share benefits with customers “in a very responsible, prudent way.”
Hourican also described a long-term store expansion opportunity, saying Sysco is “very confident” it can open five to six net new Restaurant Depot stores per year for the next 25 years, or “125 net new” locations over time, with some locations supported by Sysco’s inbound supply chain.
Analysts pressed management on investor skepticism. Hourican said feedback centered on Restaurant Depot being a private, “unknown entity” to public market investors and the $29.1 billion purchase price. He said investor sentiment has improved as investors learn more about the asset, and Sysco plans to bring investors to a store in May with a management presentation and introductions to Restaurant Depot leaders.
Hourican also provided a brief performance update, saying Sysco had been advised that in Restaurant Depot’s most recently completed calendar quarter, volume growth was approximately 4% and operating margins were in line with expectations.
Deal economics, leverage plans, and updated outlook details
Sewell outlined key financial metrics Sysco shared for Restaurant Depot, saying that in calendar year 2025 the business generated approximately $16 billion of revenue and $2 billion in EBITDA at a 13% margin, with CapEx of less than 1% of sales. He said unlevered free cash flow was approximately $1.9 billion, aided by negative net working capital and limited CapEx.
On a pro forma basis, Sewell said the combination would increase Sysco’s revenue by approximately 20%, adjusted EBITDA by approximately 45%, and free cash flow by approximately 55%, with combined EBITDA margin expanding by about 150 basis points to 6.7% including annualized net cost synergies. Sewell said Sysco expects mid- to high-single-digit EPS accretion in year one and low- to mid-teens in year two, with cost synergies fully ramping by year three. The deal is valued at $29.1 billion and would be funded through a combination of cash and approximately 91.5 million Sysco shares.
To prepare for the transaction, Sewell said Sysco is preserving cash by suspending share repurchases and remaining disciplined with capital expenditures. He said leverage is expected to be about 4.5 turns net debt to EBITDA at close, with a plan to reduce to about 3.5 turns within 24 months and a longer-term “glide path” back to 2.75 turns. Sewell said the acquisition debt structure includes $3 billion of term loans and $1 billion of upcoming maturities to ensure ample pre-payable debt to facilitate deleveraging.
For fiscal 2026, Sewell reiterated expectations for net sales growth of approximately 3% to 5% to about $84 billion to $85 billion, driven by about 2% inflation, volume growth, and contributions from earlier-year M&A. He also said Sysco identified $60 million of run-rate cost savings through spending optimization and efficiency efforts, with savings beginning in the fourth quarter and carrying into fiscal 2027.
Sysco’s fourth-quarter adjusted EPS outlook is approximately $1.51, Sewell said, including an $11 million carryover impact related to incentive compensation. He also provided modeling items for the fourth quarter, including adjusted interest expense of about $175 million to $180 million, adjusted other expense of about $10 million, and a tax rate of approximately 24%.
On capital returns, Sewell said Sysco remains on track for approximately $1 billion in dividends for fiscal 2026, equating to an approximately 6% per-share increase year over year. He also said the board approved a $0.01 increase to the quarterly dividend to $0.55 per share on a go-forward basis for fiscal 2027.
In closing remarks, Hourican said Sysco expects to continue sequential momentum into the fourth quarter, reaffirming the company’s target of at least 2.5% local case growth and adjusted EPS at the high end of the annual range, while preparing for the planned Restaurant Depot acquisition, which Sysco expects to close around the third quarter of fiscal 2027.
About Sysco NYSE: SYY
Sysco Corporation NYSE: SYY is a global foodservice distribution company that supplies a broad range of food and related products to restaurants, healthcare and educational facilities, lodging establishments, and other foodservice customers. Its core business is the procurement, warehousing and delivery of fresh, frozen and dry food products, complemented by non-food items such as paper goods, kitchen equipment, cleaning supplies and tabletop products. Sysco serves customers through an extensive network of distribution centers and dedicated delivery fleets, positioning itself as a one-stop supplier for operators of all sizes.
Founded in 1969 and headquartered in Houston, Texas, Sysco has grown through both organic expansion and acquisitions.
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