Sysco Earnings: Margin Expansion and Local Volume Momentum Drive EPS Upside
- Hardik Shah
- 6 days ago
- 3 min read
TL;DR
Revenue Strength: Sales rose 3.0% year over year, with U.S. local case volumes turning positive.
Margin Trends: Gross margin expanded 15 basis points, driven by sourcing discipline and inflation management.
Forward Outlook: Management expects adjusted earnings per share at the high end of guidance with accelerating local growth in the second half.
Business Overview
Sysco Corporation is the world’s largest food-away-from-home distributor, serving restaurants, healthcare facilities, education, hospitality, and entertainment venues. The company operates more than 330 distribution centers across 10 countries and serves roughly 730,000 customer locations globally. Its business is primarily organized around U.S. Foodservice operations, International Foodservice operations, and specialty and contract channels, with a significant footprint in independent restaurants and non-restaurant foodservice customers .
Sysco Earnings
Revenue: Second-quarter fiscal year 2026 sales increased 3.0% year over year to $20.8 billion. Excluding the impact of the previously divested Mexico joint venture, comparable sales growth was 3.5%. U.S. Foodservice volume rose 0.8%, while U.S. local case volumes increased 1.2%, marking a return to positive growth .
Margins: Gross profit increased 3.9% to $3.8 billion, with gross margin expanding 15 basis points to 18.3%. Management attributed margin gains to effective sourcing and disciplined management of product cost inflation, which averaged approximately 2.9% at the enterprise level .
Profitability: Operating income declined 2.8% to $692 million on a GAAP basis, while adjusted operating income increased 3.1% to $807 million. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) rose 3.3% to $1.0 billion. Adjusted earnings per share (EPS) increased 6.5% to $0.99, compared with GAAP EPS of $0.81, which declined 1.2% year over year .
Key Drivers: Results reflected positive local case growth, gross margin expansion, and higher operating expenses tied to sales headcount investments and incentive compensation lapping from the prior year.
Forward Guidance
Sysco raised expectations for full-year fiscal 2026 adjusted EPS to the high end of its prior $4.50–$4.60 range. Kevin Hourican, Chair of the Board and Chief Executive Officer, stated:
“Given the progress we are making, we now expect our full year adjusted EPS to be at the high end of our previously provided guidance range.”
Risks & Opportunities:Management highlighted continued softness in industry restaurant traffic, foreign-exchange volatility, and inflation as key risks, while emphasizing internal initiatives, share gains, and productivity improvements as offsets .
Operational Performance
Sysco delivered its third consecutive quarter of sequentially improving U.S. local case growth despite industry-wide restaurant traffic declines. Management emphasized supply-chain productivity gains, improved warehouse and driver retention, and high service levels as contributors to improved execution .
Segment Snapshot:
U.S. Foodservice: Sales up 2.4%; local case volume up 1.2%.
International Foodservice: Sales up 7.3% reported and nearly 10% excluding Mexico; adjusted operating income increased more than 25%.
SYGMA: Modest sales growth with strong operating income improvement driven by efficiency initiatives .
Market Insights
Management noted that Sysco’s performance materially outpaced industry traffic trends, with restaurant foot traffic declining more than 200 basis points year over year while Sysco local volumes improved. The company continues to benefit from its diversified exposure across independent restaurants, healthcare, education, and other non-restaurant channels .
Consumer Behavior & Sentiment
Sysco highlighted increasing customer focus on value, particularly among independent restaurant operators. Management cited growing demand for lower-cost menu solutions and alternative proteins as customers respond to consumer price sensitivity .
Strategic Initiatives
Key initiatives include expanded investment in value-tier product assortments, deployment of the AI 360 customer-relationship-management (CRM) selling tool, and enhancements to the Sysco Perks loyalty program. According to management, more than 95% of sales consultants are actively using AI 360, with measurable productivity gains .
Capital Allocation
Sysco returned $518 million to shareholders through dividends in the first half of fiscal 2026 and reaffirmed its commitment to approximately $1 billion in dividends for the full year.
Management also plans to resume share repurchases in the second half.
The company ended the quarter with $2.9 billion in total liquidity and net debt-to-adjusted EBITDA of approximately 2.9x .
The Bottom Line
Sysco’s second-quarter results underscore accelerating local volume momentum, structurally improving margins, and disciplined execution in a challenging foodservice environment.
Key watch points for investors:
Sustained local case growth in the second half,
Continued international segment strength, and
Pace of productivity gains from sales and supply-chain initiatives.
With guidance raised to the high end of its range, Sysco enters the back half of fiscal 2026 with improving fundamentals and increasing confidence from management.
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