Sysco Corporation (NYSE:SYY) Q3 2022 Results Conference Call May 10, 2022 10:00 AM ET
Kevin Kim - Vice President of Investor Relations
Kevin Hourican - President & Chief Executive Officer
Aaron Alt - Chief Financial Officer
Neil Russell - SVP of Corporate Affairs and Chief Communications Officer
Conference Call Participants
Lauren Silberman - Credit Suisse
Alex Slagle - Jefferies
Julio Marquez - Guggenheim
Jake Bartlett - Truist Securities
Edward Kelly - Wells Fargo
Jeffrey Bernstein - Barclays
Kelly Bania - BMO Capital Markets
John Ivankoe - JPMorgan
Nicole Miller - Piper Sandler
Good morning, and welcome to Sysco's Third Quarter Fiscal 2022 Conference Call. As a reminder, today's call is being recorded. We will begin with opening remarks and introductions.
I would like to turn the call over to Kevin Kim, Vice President of Investor Relations. Please go ahead.
Good morning, everybody, and welcome to Sysco's third quarter fiscal '22 earnings call. On today's call, we have Kevin Hourican, our President and Chief Executive Officer; Aaron Alt, our CFO; and Neil Russell, our SVP of Corporate Affairs and Chief Communications Officer.
Before we begin, please note that statements made during this presentation, which state the Company's or management's intentions, beliefs, expectations or predictions of the future are forward-looking statements within the meaning of the Private Securities Litigation Reform Act, and actual results could differ in a material manner.
Additional information about factors that could cause results to differ from those in the forward-looking statements is contained in the Company's SEC filings. This includes, but is not limited to, risk factors contained in our annual report on Form 10-K for the year ended July 3, 2021, subsequent SEC filings and in the news release issued earlier this morning. A copy of these materials can be found in the Investors section at sysco.com.
Non-GAAP financial measures are included in our comments today and in our presentation slides. The reconciliation of these non-GAAP measures to the corresponding GAAP measures is included at the end of the presentation slides and can be found in the Investors section of our website. To ensure that we have sufficient time to answer all questions, we'd like to ask each participant to limit their time today to one question and one follow-up.
At this time, I'd like to turn the call over to Kevin Hourican.
Good morning, everyone. Thank you for joining our call. Our financial performance this quarter exceeded our internal expectations, driven by strong top line performance, accelerating market share gains, solid gross margin management and improvement in our operations expenses. Earlier today, we raised our full year guidance, and Aaron will walk you through the details in just a few moments.
Our strong performance for the quarter demonstrates our focus on the customer and the advancement of our Recipe for Growth strategy. Simply put, we are winning in the marketplace. The best measure of this success is the continued market share gains that we are delivering. Our performance versus the market accelerated in the quarter, and we solidly exceeded our fiscal 2022 goal of growing 1.2x the market.
I will highlight three topics during our call today: first, I will touch on our financial results; second, I'll discuss the state of the current operating environment; and finally, I will highlight progress from our Recipe for Growth transformation. I'll then turn it over to Aaron to discuss our financial results in more detail. So let's get started with our financial results displayed on Slide number 4.
Our third quarter results were fueled by strong top line performance across the U.S. and international segments and progress made in lowering operating expenses as a percentage of sales. As a result, our profit results were ahead of our internal expectations this quarter. While our operational expenses remain elevated versus our historical standards, we've begun making progress in improving our productivity. We will continue to make progress in the coming quarters.
Key headlines this quarter include: market share gains that significantly exceeded our 1.2x the market growth target; significant volume improvements with U.S. Broadline volume up approximately 19% versus the same period in fiscal year 2021; and our USFS business delivering volume growth versus 2019 in total. This also included another quarter of profitable growth coming from our International segment.
Our expense structure is improving. As I mentioned, we still have work to do in order to return to our standard of excellence but we have begun making progress. Importantly, our snapback investments were reduced by more than 50% versus the prior quarter. Our strong sales results and continued progress in improving operating expenses drove solid profit growth. We delivered adjusted earnings per share of $0.71 for the quarter.
We achieved these results while meaningfully advancing our Recipe for Growth strategy. This included successfully closing on the Coastal Companies transaction during the quarter, further expanding our industry-leading produce business that is high growth at attractive margins.
Topic two for today, an update on the current environment. The third quarter started with COVID-related disruptions from the Omicron variant. Recall that the negative impact from Omicron started in late November and the effects were felt through February. Sysco delivered a strong quarter of growth despite the headwind from Omicron. Two factors played to our favor: a strong market rebound in late February and into March and Sysco winning market share throughout the entire quarter.
Combined, these factors enabled both our U.S. and international businesses to deliver volumes greater than our internal forecast for the period. As I mentioned a moment ago, volume in our U.S. Foodservice operations exceeded pre-COVID-19 levels for the quarter. The positive momentum was strong across geographies as well as across different customer types. With that said, we expect additional momentum over time from improved international volume as the recovery in the food-away-from-home market strengthens internationally.
At Sysco, we have two business sectors that remain heavily impacted by COVID, business and industry, which includes customers such as office cafeterias and travel and hospitality, which is heavily impacted by conferences and large group catering events. We anticipate both segments making progress this summer and into the fall. For example, many major employers have begun returning to the office, and recent reports from airline and hotel CEOs have cited steadily improving bookings for this summer.
An advantage of Sysco is that we are fully diversified across the food-away-from-home business. While high cost of fuel is being felt by our customers, we have not experienced a reduction of consumer demand. The fact that we cover all restaurant types up and down the price point spectrum provides us some protection in an unpredictable economy.
Additionally, the pricing relationship between food-at-home and food-away-from-home is favorable to Sysco versus historical relationships, as you can see on Slide 6 in our presentation. With that said, we remain concerned about the long-term effect of elevated inflation, and we are taking strong actions to manage the situation.
We are actively working to improve cost of goods sold inbound to Sysco so that we can pass along value to our customers. We are aggressively pursuing Sysco brand penetration opportunities as we know that Sysco products save our customers money. We are also working aggressively with our customers to help them with their menu design and, therefore, helping these customers find alternatives to step around highly inflationary items in subcategories. We're also helping them to have confidence in their menu pricing strategies. This work helps us go earn trust and respect with our large customer base.
In regards to our supply chain, I'd like to report that conditions are improving. Applicant flow to open positions has increased, and our talent acquisition team has helped us make progress in improving our staffing health. As a result, we have been able to reduce associate overtime and improve our service levels to our customers over the past quarter. Our NPS or net promoter score results, this quarter improved and continue to lead versus the market. It is still a very dynamic environment, but the size and scale advantages of Sysco are enabling us to succeed in a turbulent environment.
Topic three for today, I'll provide select highlights of our Recipe for Growth progress. Last quarter, I provided an update on two of our growth initiatives: Sysco Your Way and our Italian cuisine platform. These two initiatives continue to progress well, driving profitable growth for the Company. We expanded Sysco Your Way to additional neighborhoods in the quarter, and the recently added locations are performing consistent with the strong results from our pilot locations.
Today, I'd like to provide an update on two additional topics, our supply chain transformation and progress that we are making in consultative sales. As I mentioned, our supply chain health has improved over the past quarter as applicant flow to our open jobs has improved and we're beginning to make progress in operations productivity. Improving the efficiency of our supply chain is a top priority for our entire leadership team.
To ensure that we succeed at a higher level in the future, we are making substantial commitments to improve our associate experience within operations. A great example is our Driver Academy, which is now up and running in full swing. We've graduated our first class of drivers, and we have opened additional academy locations. We expect to be nationwide with this capability by the end of the calendar year. The Driver Academy will enable us to provide upward career path mobility for our warehouse associates and improve associate retention in this critical driver role.
Our graduates are able to increase their career earnings potential by upskilling and becoming certified drivers. At Sysco, we pay a leading and competitive driver wage, and we are making the certification process easier, removing the barriers and costs of becoming certified. This action will open the door for more of our associates to advance their careers. The Driver Academy is a win-win-win for our associates, for Sysco and for our customers.
Additionally, over the past quarter, we have converted our operations from an industry traditional five-day workweek to a full six-day delivery model. This might sound like a small endeavor but the reality is quite the opposite. We made the change to a full six-day model for the following reasons. The change is better for our associates. Why? We have converted our associates from a standard five-day schedule to a more work-life-friendly four-day workweek. This will improve associate retention over time. The six-day workweek increases the efficiency of our operations by further utilizing our physical assets, enabling us to better sweat the assets of our trucks and buildings.
The model increases our weekly throughput and also provides us more flex capacity on each and every day, enabling us to better handle fluctuations of demand. These changes to our supply chain will help make Sysco an even more preferred employer, and that will enable us to serve our customers.
As important as having an efficient and flexible supply chain, we are continuing to advance the capabilities of our industry-leading sales teams. Our sales associates have the highest customer satisfaction scores in the industry, and we want to increase that competitive advantage. We have worked hard over the past year to bring stronger digital tools to the selling process to enable the success of our sales teams.
I want to be very clear that these digital tools do not reduce the importance or quantity of our sales staff. These tools are intended to assist our sales teams with their consultative selling process. Our technology team has built a system that provides each sales rep with a next best action to be presented to our customers. For some customers, this may be a conversion from a national brand product to a Sysco brand item, saving them money.
For other customers, this may be the introduction of a promotional offer for a category perhaps they've not traditionally purchased from Sysco, like produce. For others still, the tool can identify items that our customer used to buy but are no longer placing in their shopping basket with Sysco.
Our sales consultants are then prompted with offers and suggestions to specifically enable success against those use cases. The goal of this work is to increase the productivity of the customer visit. This work positively impacted our performance versus the market in Q3, which was our strongest volume growth quarter versus the market for the year. Slide 7 in our presentation makes a clear case of our progress in becoming a growth company.
Lastly, our working commitments in corporate social responsibility, or CSR, were recently recognized by Sustainalytics and JUST Capital. This recognition is due in no small part to our recent announcement of a science-based climate goal that is aligned with SBTi. As the leader in our industry, we are proud to be the first and only U.S. foodservice distributor with a science-based climate goal.
Research from the World Economic Forum suggests that companies who make progress in these important areas drive improved CSR over time compared to their peers. To ensure that we walk the walk, our Board is prepared to incorporate ESG as a part of our executive compensation program beginning next year. The work we are doing is the right thing to do, and we strongly believe that it is also good for our business and our investors.
Turning to Slide 8. In summary for the quarter, Sysco is winning, leading the industry and accelerating growth. We are growing our business with new and existing customers. Our supply chain is performing better than the industry at large, and we are driving strategic initiatives to further increase that strength advantage.
Our continued transformation investments are enhancing our commercial selling capabilities and we are investing in our associates. The improved profitability in the quarter is encouraging, but there is more work to be done as our team is focused on our Recipe for Growth strategy and improving operations productivity.
I'll now turn it over to Aaron, who will provide additional financial details before we open it up for questions.
Thank you, Kevin, and good morning. We are upbeat on our business, and we have several notable headlines for our third quarter, as seen on Slide 10. Sales growth of almost 43% compared to the prior year, which is also up more than 15% versus 2019, reflecting resilient demand and sequential improvements month-over-month. We recorded more than $3 billion of gross profit, the highest gross profit in absolute dollar terms for any quarter at Sysco ever as we continued significant efforts to optimize our assortment in COGS while effectively managing our product cost inflation.
Our investments in snapback operating costs dropped in the quarter by more than half from $73 million in Q2 to $35 million in Q3. As promised, the impact of our workforce transition on productivity improved. Incremental training and overtime is estimated to have cost us approximately $30 million in the third quarter, down from approximately $40 million in the second quarter, and we expect further improvements as we head into Q4. As an aside, I would note that the actions we're taking around productivity are actually serving to accelerate our supply chain transformation as part of the Recipe for Growth.
We invested $48 million of operating expense against our strategic investments, creating momentum with our commercial capabilities. All in, adjusted operating income more than doubled and adjusted EBITDA increased almost 73% compared to last year. With those headlines on the table, I'm going to provide some details on the financials for the quarter and some thoughts on our outlook.
Third quarter sales were $16.9 billion, an increase of 42.9% for fiscal 2021 and a 15.3% increase from fiscal 2019. In the United States, sales in our largest segment, U.S. Foodservice were up dramatically by 43.6% versus fiscal 2021 and up 18.8% versus fiscal 2019. Local case volume within the U.S. Broadline operations, a subset of U.S. Foodservice, increased 14.1%, while total case volume within U.S. Broadline operations increased 18.8% compared to last year.
SYGMA sales were up 13.5% versus fiscal 2021 and up 16.8% versus fiscal 2019. International sales were up 64.5% versus fiscal 2021 and up approximately 3% versus fiscal 2019. Sales trends accelerated nicely in our International segment with lower Omicron cases and as government-related restrictions on our customers eased in the quarter. Foreign exchange rates had a negative impact of 0.7% on Sysco's sales results.
Let me pause here and call out one point of progress for the year-to-date period. We are really pleased with the profit contribution and improvements coming from International. In the last nine months, the business has delivered an adjusted operating income swing of $265 million year-over-year.
Inflation continued to be a factor during the quarter at approximately 16% in our U.S. Broadline business. We have been able to actively manage the impact of product inflation and those efforts will continue. Gross profit for the enterprise was above $3 billion in the third quarter, an increase of 42% versus fiscal 2021, an increase of 9.4% versus fiscal 2019.
The increase in gross profit was driven by year-over-year improvements in volume versus fiscal 2021 and compared to the same quarter in both fiscal 2021 and fiscal 2019, increases in GP dollars per case across all segments as we successfully managed to increase costs from our product suppliers and acted to optimize our business processes and performance. Of note, the enterprise and U.S. Foodservice both reached all-time highs for Q3 gross profit dollars.
Gross margin rate was 17.8% or 18% on an adjusted basis during the quarter, with the adjusted margin rate moving upward as the was still impacted by inflation. Of course, it is gross profit dollars that counts in an inflationary environment, and gross profit per case increased in all four segments. We are focused on price relevancy, being right on price and are doing the right things to cover our costs while also supporting our customers.
Turning back to the enterprise. Adjusted operating expense for the quarter came in at $2.5 billion as we delivered progress on our multiyear cost-out program and improved snapback costs. As we touched on earlier and as you can see on Slide 15, operating costs this quarter were impacted by variable costs associated with significantly increased volumes, more than $35 million of onetime and short-term transitory expenses associated with the snapback, $48 million of purposeful investments to further accelerate our Recipe for Growth initiatives, and lastly, the still present but improving expense challenges associated with new hire productivity.
Despite the dynamic operating environment, we expect additional improvements for snapback costs and productivity expenses during the fourth quarter as we balance cost reduction initiatives with continued transformation investments. Together, the snapback investments and the productivity-related costs totaled approximately $65 million of operating expenses this quarter. That's important because the simple math would say that these transitory expenses had a downward impact to our adjusted EPS of approximately $0.10.
Further proving our point that there is further opportunity for profit improvement in the future for Sysco as Q3 adjusted EPS without these expenses would have already exceeded 2019 levels. All in, we leveraged our adjusted operating expense structure and delivered expense as a percentage of sales of 14.6%, which was flat through fiscal 2019 and an improvement of 119 basis points for the same quarter in fiscal 2021.
Finally, for the third quarter of fiscal 2022, adjusted operating income increased $319 million from last year to $575 million. This was primarily driven by a 43% improvement in U.S. Foodservice and continued progress on profitability from international. As Kevin called out, adjusted earnings per share increased an impressive $0.49 to $0.71 for the third quarter.
Now let's turn to a discussion of year-to-date cash flow. Cash flow from operations was $746 million on a year-to-date basis. Our company continues to transition from a period when sales, profit and working capital were all down during COVID to a period of high growth, growing profit and a focus on making the investments necessary to win the long game. A year ago at this time, we commented that we had a strategy and the balance sheet to invest in the business and support a Recipe for Growth, and that is exactly what we are doing.
Free cash flow year-to-date was $434 million. EBITDA as the primary source of cash is up $900 million year-over-year in the year-to-date period as our sales increased, but we've not yet quite recovered to fiscal '19 levels. The rising sales and profitability were enabled by tactical investments and higher inventory levels this year, both in absolute cases on hand as we lap the purposeful inventory declines from the management of the COVID period and in dollar value, given inflation.
And with our rapidly growing sales comes a higher balance in healthy accounts receivable, also a use of cash year-to-date, which our team continues to manage well, offset in part by higher accounts payable. In the year-to-date, we have also paid higher interest expense from COVID debt and refinancings, paid higher cash taxes, partly due to prior year refunds and deferrals and invested more in CapEx in support of the Recipe for Growth. This year is effectively a transition year from a free cash flow perspective, and we expect that future years will continue to reinforce the significant cash flow generated by Sysco as sales and profit grow and investments in working capital normalize.
Let me emphasize, we are playing to win the long game and are leveraging our balance sheet and cash flow in support of the long-term growth of Sysco. Along those same lines, recall that we began the year with high cash balances, and we end the quarter with almost $900 million of cash on hand. Year-to-date, we've used that cash to invest in the business, spending $312 million on CapEx and paid for acquisitions such as Coastal with cash on hand.
Our balance sheet is a key differentiator compared to our competition, and we are prepared -- we are better prepared than anyone else in the industry entering a rising interest rate environment. Why? Because we have strong cash generation, a strong investment-grade rating and a manageable debt profile, including some of the lowest rates ever achieved by Sysco in a 30-year tenure issued in December. We remain committed to maintaining a strong investment-grade rating and achieving a net debt-to-EBITDA target ratio of 2.5x to 2.75x.
As previously announced, we expect to further reduce indebtedness by paying off the $450 million of debt coming due in June. And reflecting the world in which we all live, we also now have further liquidity and risk protection if we need it. Last week, Sysco announced that we successfully increased our revolver capacity from $2 billion to $3 billion with improved terms.
Return of capital to shareholders is also part of our capital allocation framework. In May of 2021, our Board approved a 4% increase to our quarterly dividend, reflecting an $0.08 increase annually. And two weeks ago, Sysco's Board did it again, effectively announcing another $0.08 annual increase, reinforcing our status as a dividend aristocrat. What we want you to take away from this is that we are serious about all three parts of our capital allocation strategy. We are investing in the future growth of the business. We are maintaining a strong balance sheet, and we are returning surplus capital to shareholders.
On this last point, our track record goes back decades. But as you can see on Slide 18, over the last seven years, cumulatively, we've returned over $13 billion of cash to shareholders. We will remain disciplined with our balanced approach to capital allocation and rewarding our shareholders.
Now before I turn to our positive update to guidance, I should address one set of questions we've been getting upfront: the impact of the invasion of Ukraine on our business. As a reminder, Europe represents only about 10% of our net sales. Our European portfolio is geographically distant from Ukraine and focused on Ireland, the U.K., France and Sweden. In the past, our exposure to Russian products was minimal.
With respect to product inflation in Europe, while we are seeing costs rise more consistently with what we've seen in the U.S. in the last couple of quarters, we were prepared and have many of the same tools we developed in the U.S. to address the impact of product cost increases in Europe. Oil and the impact of rising gas prices have also been topics of interest. We benefit from having hedged 80% of our forecasted bulk fuel volume through fiscal 2023 in the U.S. and Europe.
Let's now turn to look forward. We are upbeat about our business. We have witnessed the resiliency of our business as it has responded to the impact of three significant COVID-19 variants, significant inflation, the invasion of Ukraine and now, rising interest rates. We have made great progress in Q3, and we anticipate further progress in Q4, which is why we are upbeat about our business. We are raising our guidance for adjusted EPS in the second half by $0.16 to be from $1.76 to $1.86. Having delivered $0.71 of adjusted EPS in Q3, this means that we expect Q4 to be in the range of $1.05 to $1.15. On a full year basis, this will equate to adjusted EPS of $3.16 to $3.26.
During our last earnings call, we highlighted that we expected a big Q4, and that's not changed with the results of our resilient Q3 results. Our continued optimism for Q4 includes a continued market recovery, continued market share gains, continued pass-through of inflation costs, improved operating expenses as a percentage of sales from lower snapback and productivity-related costs, all as partially offset by continued investments in our transformation and working through the workforce transition. Lastly, recall that Q4 of last year included one extra week, which will impact profitability.
With that, let me turn the call back to Kevin for closing remarks.
Thank you, Aaron. As we conclude, I'd like to provide a brief summary on Slide 20. Sysco already is the industry leader from an EBITDA margin perspective. You've heard me say this before, but we are now taking that robust foundation as the market leader in creating a growth company.
Our financial performance this quarter reflects three key points: first, our volume grew 18.8% in U.S. Broadline compared to last year, and we significantly exceeded our market share target; second, we improved operations expenses, reducing snapback costs by more than 50% while continuing our transformation efforts; and third, we generated strong profit performance despite a dynamic operating environment.
Turning to Slide 21. These recent results are also consistent with our long-term plans. We are generating substantial top line momentum and accelerating market share gains. Our Recipe for Growth transformation is creating capabilities at Sysco that will help us profitably grow for the long term and further build on our competitive scale advantages. Sysco's strength of income statement and balance sheet have enabled us to continue advancing our strategy during a difficult operating environment while also rewarding our long-term shareholders with disciplined dividend growth and share repurchases.
Lastly, we are committed to both our long-term financial outlook, which includes significant sales and EPS growth and returning value to shareholders along the way. There are bright days ahead for Sysco, and I am both excited and proud to be a part of the journey. As always, I'd like to thank all of our Sysco associates for the dedication they display to our customers each and every day.
Operator, you can now turn over the line for questions.
[Operator Instructions] Your first question comes from the line of Lauren Silberman with Credit Suisse. Your line is open. You may ask your question.
Congrats on the quarter. I first just want to ask about the market share, so growing more than 1.2x the market and above where you expected to be when you laid out the strategy last year. Where are you performing better than expected? Is it new customers, wallet share? Are your customers outperforming, so out-comping, if you will? Any color around that?
Yes, thanks for the question. This is Kevin. Just I'd say two things. First is the how is it happening and then I'd say from where. The how is from two things. Our supply chain is performing stronger or better than the industry. And on a daily basis, we have customers coming to us asking for Sysco to become their new preferred supplier. So that implies, obviously, new customer acquisition, new customer growth.
The second is the Recipe for Growth and our expectations for its capabilities to create market share capture with the existing customers. We had planned for it. It was a part of our budget for this year, and the Recipe for Growth is delivering. And that is the penetration opportunity.
I mentioned on today's prepared remarks the tools that our sales consultants are now able to leverage and use to improve the effectiveness of a visit to a customer. We call it the next best action for that day's visit with that specific customer. They've got clear jobs to be done, and the data and the tools that are now available to them through our technology teams have driven significant performance.
So mathematically, where it's coming from, it's a combination of accelerating new customer capture. We posted another very strong quarter of new customer wins and increasing penetration with existing customers through our Recipe for Growth. I think Aaron wants to make a comment as well. Over to you.
Lauren, just one quick add, which is we're pleased with the relative contribution to the market share gains across the portfolio. It's coming not just in Broadline but also in our specialty business and in our International business.
Great. And then just one on the inflation pricing. It seems like you guys are having a lot of success pushing through inflation. What are you watching to see whether you might decide to delay pushing through the full inflation you're seeing? And it seems like that pricing tool would allow you to do that even more strategically.
Yes. Thank you, Lauren, for the question. I think consumers are concerned about inflation, and you can't read the paper and watch TV and not understand that high cost of fuel is on people's minds. We're not seeing a slowdown in demand. That's the good news and a headline from today. We're not seeing an impact to our food-away-from-home business.
I mentioned in my prepared remarks, we do cover the entire spectrum of food-away-from-home across all price points: industrial needs, travel, hospitality, business industry and obviously, all restaurant forms and types. So we're a bit more diversified than others and I think that provides us some advantage.
And I called out on the prepared remarks, food-away-from-home pricing relative to food-at-home pricing, which I believe is on Slide 6 in our presentation, is actually advantageous to Sysco at this period of time. You hit the nail on the head though, which is the pricing tool that we have, we're better positioned to be able to be, as Aaron said in his comments, right on price. What we mean by that is that we're not going to be too high and we're not going to be too low.
We're not going to use price as a strategic lever to win share. That is, what we believe, a non-sustainable strategy and not something that we're interested in doing. We want to be right on price. So as inflation is occurring, we're able to leverage the technology to ensure that we're passing through the inflation at an appropriate level.
And when we make improvements on our cost structure through cost of goods sold improvement, we can share in that savings with our customers, again leveraging that same technology. So what we say internally at Sysco is there's no better time than the current hyperinflationary environment to have a strategic pricing tool, and we're leveraging it to our advantage.
Your next question comes from the line of Alex Slagle with Jefferies. Your line is open.
Had a question on the earnings guidance. At the midpoint, it seems to suggest a return to the historical 40-60 cadence between the 3Q and 4Q versus the previous views that the 3Q would be below this. So was there something about the timing of the transitory costs or productivity that shifted this mix into 3Q? Or is there an element of conservatism baked into the implied 4Q view?
Alex, it's Aaron. Great question, and you nailed it. You're right, it does -- the guidance does presume the historical percentage. And it's not a comment on Q4 so much as it is the resilience that the business displayed in Q3. As we were reacting to Q2, as we were watching the early results in Q3 from the impact of Omicron, we made the best call we could on Q3 in that context, but we were pleased that the business responded even more strongly than we had hoped.
We had called out, from a Q4 guidance perspective, a strong Q4, and so I don't want to leave you with the impression. Other than that, we are assuming the continued market recovery in Q4. We're assuming continued market share gains and volume growth. We're assuming continued cost improvement that snapback costs will come down, that productivity improvements will continue. And that we'll continue to invest against the range -- against the transformation rather.
And lastly, just a further math point for you, it's not lost on us that if we were to hit the bottom of the range for Q4, that would be the second highest adjusted EPS quarter in Sysco history. And if we were to hit the top of the range for Q4, that will be the highest adjusted EPS quarter in Sysco history and ahead of fiscal '19. So we have a lot of work ahead of us this quarter. We're upbeat about the business. We're really pleased with the resiliency of what our entire business is showing, and we're looking forward to delivering good results for Q4.
Great. Just a follow-up question on the International business. If you could talk about the leadership transition there and tons of changes you envision taking place, if anything, in particular, you want to call out.
Yes, Alex, it's Kevin. I'll take that one. Thanks for the question. Just a quick commentary about International. We're pleased with International. $265 million of year-over-year profit swing is notable. We're making progress not just as an entire group but individually by country. We have a strong strategy in place. We have a strategy by country. And we have advanced capabilities in our international businesses that make those countries look and feel more like our U.S. Sysco business.
So modern website, bringing pricing capabilities, bringing Sysco brand to select countries, improving our selling process. These are the fundamental building blocks that is creating the opportunity in the countries with which we compete in to, again, look and feel more like Sysco U.S. We've got leading number 1 market share in three of the countries internationally that we compete within, and we're confident that we can continue to make progress internationally.
The change in leadership had absolutely nothing to do with business results, hard stop. It had absolutely nothing to do with strategic misalignment, completely aligned on the strategy of international where we're headed, where we're going. I'm very pleased with the performance results and I'm really pleased with the strategy. It was a personal matter, and we're not going to make comments publicly on a call about a personal matter.
Your next question comes from the line of John Heinbockel with Guggenheim. Your line is open.
It's actually Julio Marquez on behalf of John Heinbockel. A couple of quick questions here for you. First, I know you mentioned some of the both from existing new accounts. Any color you could provide on acceleration in U.S. market share? Is that more from existing or new accounts? And with existing accounts, is it more increased lines or cases per line?
Thank you for the question. I'm actually just going to bridge everyone back to kind of the thesis of Sysco and why we have such confidence in the long-term growth potential of the Company. And at our May 20, 2021 earnings day, we talked about three numbers, 16% market share. We talked about 30% share of wallet and we talked about 50% of doors covered by Sysco in the restaurant space. Good news is the first number has already moved up. We're at 17% share from the most recent calendar year. We anticipate that we'll continue to make progress in that regard.
And it's our Recipe for Growth strategy that will enable progress on the other two numbers, which drive the market share, which is increased penetration with existing customers and the continued pursuit of net new customers. And it's at both ends. And I'm not giving you a cop-out answer. I'm just being completely transparent and honest.
We are doing more new customer prospecting than in our past, and we are successfully moving new customers up the profitability curve over time. So when we onboard them, you win X percentage of their business, and then we do what we call sell around the room, which is we penetrate additional categories. So we're having a lot of success on winning new customers.
The fact that we remain the only foodservice distributor without an order minimum has helped us attract thousands of new customers. And then again, we penetrate further with those customers by selling around the room to move those customers up the profitability curve. And then the tools that I referenced on today's call that help our sales force are enabling us to win more cases and penetrate further with existing lines.
So it's a both end answer. One is not more important than the other. We believe that we can significantly increase the number of restaurants that we serve and we can penetrate further. And not to repeat another point I made on the call, but the reason we converted to the six-day full delivery model is to create more flex capacity and more throughput capacity on any individual given week, which will enable us to increase the number of customers that we serve profitably.
Appreciate the color there. And next one, just very quickly. What is your current expectation for product cost inflation over the next year? And if by any chance you do see it begin to moderate, how quickly do you expect you'd want that to flow through?
Thanks. Appreciate the question. It's fair to say that for Q4, the period in which we provided the guidance, we expect continued elevated inflation, although perhaps starting to come down as we approach the end of the year. We're not, today, going to provide guidance in any respect with respect to the future year. That will come during our Q4 earnings call in a couple of months.
The next question comes from the line of Jake Bartlett with Truist Securities. Your line is open.
My first one is just on the trajectory of the business. And it obviously was stronger than you initially expected when you gave guidance for the third quarter. But if you could talk about just your kind of maybe your exit rate in April, whether you're seeing continued improvement and potentially driven by pent-up demand. Any comments there would be helpful.
It's Kevin. Thanks for the question. Yes, the beginning of Q3 was tough, given Omicron, and I think we did a good job of explaining that on our last earnings call. This is what we were experiencing. The impact of Omicron was felt through the material part of February. March was strong. It really recovered quicker than what we had been modeling and expecting. And also, I just don't want to lose the point. We had our highest growth versus the market in that quarter than we've been able to produce thus far.
We're sequentially increasing our performance versus the market and also, the market performed nicely at the end of the last quarter. Here's my statement on April. We did not make a specific comment on the call tied to April, but we are seeing continued momentum in April. We're seeing strong demand across our business segments and across geographies, including international, and we're bullish on Q4 as evidenced by what Aaron communicated to you all today.
Great. That's very helpful. And then I had a question about -- you've talked about investing in the long term and playing the long game. And I'm just wondering, in light of concerns about an economic slowdown potentially coming up, in that context, if you saw a slowdown coming, if you can sort of -- to think that was going to happen, would you pump the brakes a little bit on some of these investments? Or do you plan to remain aggressive, perhaps maybe sacrificing margins in the near term for that kind of long-term point of view?
Jake, it's Kevin. It's a good question. I'll just start it and then I'll toss to Aaron for any comment. This is a question that I know is on people's minds, which is the impact of inflation on the end consumer and will they choose to go out to eat less often than they had been recently. And I would say two things.
One, we're seeing continued momentum in consumer demand across our business segments that we serve. So that's notable and important. If that were to moderate, my second point that I would bring you to is what I just said a few moments ago, we have "only" 17% share of a very large business. So even in a business that begins to perhaps moderate, that does not mean that Sysco needs to be moderating.
We can actually take increased share at a point in time when the market itself is perhaps not growing as robustly. And I'll just call you back to Slide 5 in our presentation materials. Food-away-from-home is increasingly popular for end consumers. If you look at it across the decades that are shown on this chart, it's pretty stark actually on how important food-away-from-home is.
There's obviously the large disruption that occurred in March of 2020 when people were told to go home and stay home, but it's fully recovered. Look at the intersection of the lines, food-away-from-home is now, once again, more than the purchases for food-at-home. And then on the chart right below it on Slide 6, pricing in the retail grocery environment is such that food-away-from-home is price favorable versus historical trends.
So put all that together, we believe that we, Sysco, will continue to grow. If the marketplace itself is a little softer, we have the opportunity to take share, grow share. Specific to your question about investments and would we pump the brakes, I'll toss to Aaron.
Thanks. Look, I guess my reaction is this, we're wired for success in the long term at Sysco and whether it's the customer strategy and the opportunity that Kevin called out or the balance sheet and the resources we have to help us through any bump on the road, I want to emphasize we're investing for the long game. While we talk in this call relative to the quarter, relative to the year, really, we're talking about growth over the longer term, the 3-, the 5-, the 10-year period.
And it kind of goes back to doing what we said we were going to do. If you go back to the Investor Day comments from, I guess, a year ago now, indeed, if you go back to our earnings calls for the last 18 months, what we said was we were going to invest in the snapback, right? We were going to do that because we wanted to be ahead of the curve. We wanted to be the Company that the foodservice operators were coming to the restaurants because we were the best partner. So we've been investing in inventory down this path.
We've been investing in technology down this path. We've been investing in our fleet, and we've been investing in our distribution nodes. And none of that has changed because of the ebbs and flows. And indeed, that's where we continue to be focused as we carry forward because we are holding ourselves accountable and Kevin is holding all of us accountable to the Recipe for Growth and the recipe for profitable growth that comes with it.
Your next question comes from the line of Edward Kelly with Wells Fargo. Your line is open.
I wanted to ask you about gross profit. Results are super impressive this quarter, especially within the U.S. business. Per-case profit and percent margin both up sequentially. But can you talk about how much of this is driven by inflation? How much of this is internally driven? And I think your fuel surcharge goes through gross profit, so maybe that's playing a role. I'm just -- hopefully, you could maybe sort of unpack this sequential improvement versus what we saw last quarter.
Sure. Happy to comment on it. We were really pleased in the quarter on a couple of respects. The first is to have delivered record gross profit, both in absolute dollars for the enterprise but then also GP dollars per case across all four segments, really speaks to the hard work that the teams are doing to ensure that we are both recognizing the increase in costs that we are getting and then pulling the necessary levers in collaboration with our customers to pass those costs through.
Now obviously, I get a lot of questions around gross margin rate as well. And I could tell you that while we were pleased with the sequential improvement in rate, the decline from the historical period is entirely due to the simple math tied to the inflation. And we'll continue to monitor both dollars per case and GM rate as we carry forward. But here's the good news about Sysco as we carry forward, which is we continue to have opportunities to optimize our gross profit, right?
We continue to work with the customers on passing through things like fuel cost. You're right, that's there. But as we think about the strength of the Sysco brand portfolio, where we have further opportunity there, as we think about how we better leverage the scale that is Sysco relative to our purchasing opportunities, we have good news yet to unlock within Sysco unrelated to the external environment that we're going to continue to pursue as we carry forward. Kevin, I'll toss to you. Anything to add?
Yes, I'll just add one thing. Just something like a fuel surcharge, that's not a profit accretion for our company. That's just the cost offset, which I know you know. But the effort that Judy Sansone, our Chief Commercial Officer, is driving, we have a major, major strategic sourcing effort underway at Sysco, which helps us improve our cost of goods sold inbound to us. We're very pleased with the work that Judy is doing and the team that she leads is delivering good outcomes.
It's hard to actually delineate specifically for you on this call the portion of our goodness, as Aaron says, tied to that versus inflation, and that's just the level of detail that we're not going to go into. But we have a major strategic sourcing effort underway. It is improving our COGS, and, therefore, obviously showing up in our positive GP performance.
Okay. And then just a follow-up. I wanted to ask you about fill rates, inventory availability, where you stand with your workforce, where you want to be. We've been hearing some issues around like maintenance on equipment, but product like part shortages, that type of stuff. How are you dealing with fill rates and how does that compare to the industry?
Fill rates from Sysco outbound to our customers improved in the most recent quarter, and it's visible and measurable through both our internal data and also the net promoter scores that we track on a real-time basis, us versus competition. So we are outperforming the market in average. We improved in the quarter. It's coming from two actions. Our suppliers are beginning to improve. It's still meaningfully down versus historical standards, supplier inbound fill rate to Sysco, but it is beginning to improve.
And Ed, we're doing an even better job at managing what we call subs and outs, substitutions and out-of-stocks. Our website improving to communicate more upfront to our customers options they have when an item is out of stock. And our sales reps and our merchandising teams are doing very good work to partner with customers in an environment where a specific item is out of stock. There's plenty of food. There's plenty of food available. It's about individual items being out of stock at moments in time, and Sysco working proactively with our customers to be able to serve their needs with something that meets the needs of their menu.
So, we're doing a better job in this most recent quarter at that, and we expect continued improvement into Q4 and into our fiscal 2023. As it relates to the overall environmental conditions, our staffing health has improved. It continues to steadily improve. We're not out of the woods. We still have work to do but we're making progress. And then your point about things like maintenance of equipment, yes, shortages are impacting all forms of supply chains, not just food. So access to parts is a challenge and access to new equipment is a challenge.
Interestingly, we're doing better work in that regard to centralize that activity at Sysco, to have a better control over parts inventory and purchasing of equipment. And I would emphasize one important point there. Our size and scale can enable us to have preferred advantage with manufacturers who are on limited allocation, and we'll be at the front of the line for equipment. In fact, Aaron and I have preapproved and preordered equipment to support the Recipe for Growth.
Your next question comes from the line of Jeffrey Bernstein with Barclays. Your line is open.
Two questions. The first one, just following up on the international commentary. I know you mentioned that you're somewhat distanced from the Ukraine headwinds with your key markets. And then I know you mentioned separately something about April, that you were seeing strong demand across all geographies, which just trying to get a better sense whether maybe we're misunderstanding the headwinds we're hearing about in the international markets, or whether or not your strong performance is driven more by the delayed recovery that went on in international markets, and therefore, that's more than offsetting maybe a slowdown that might be going on underneath. Just trying to get a sense to whether you're seeing any signs of a slowdown or change in behavior from a European or international consumer perspective.
Yes, Jeff, thank you for the question. It's Kevin. I'll just -- two points here. We're not exposed from a sales perspective was Aaron's main point to what's happening in Eastern Europe because we're not domiciled there, right? We don't have actual business in those countries. So unlike other companies that are international, we're not exposed in that regard. We had purchased product previously from Russia, and we're no longer purchasing product from Russia, and we've been able to move to alternative sources of supply, mostly in seafood. And that was the work we needed to do was to get alternative product from alternative countries to be able to support the needs of our customers.
As it relates to is Western Europe feeling the impact of the war, Ukraine is the bread basket of Europe. Sunflower oils and grains are produced there. You can get product -- we, Sysco, are able to get product. What it's had is an impact on inflation in those countries. Interestingly, those countries were behind the U.S. from an inflation perspective. So what's happening in Europe right now is an increase in inflation, but frankly, it's just catching up to the inflation that was already visible in the United States.
And we're managing it well. We're managing the pass-through of that inflation, Jeff, well in our International segment. So that kind of bundles in macroeconomic environment, what's happening, what's happening is inflation increasing in Europe, point two, though, is this consumer demand. We are not seeing a decrease in consumer demand in our international geographies.
And I'd just remind everyone, and I think Aaron did a good job in his prepared remarks of reminding everyone, international was hit earlier. It was hit harder and international has been slower to recover. So we see our international business as a tailwind in Q4 and into fiscal '23 because there's still much more recovery in front of us, international, relative to the U.S. business. So continued progress in international month-over-month, quarter-over-quarter, and we see anticipated additional recovery happening in international.
Understood. And then just the follow-up. You guys mentioned the six-day workweek and the no minimum deliveries. Clearly, points of differentiation for yourself versus some of your larger competitors. Was wondering, how do you measure the impact of that? Or is that possible? I mean, seemingly, customers have to be quite pleased with both of those things. I'm just wondering how do you gauge the success you're having from that relative to, again, peers that perhaps don't offer either?
Yes. Great question, and they're two very different things. The no order minimum can be measured through net promoter score satisfaction of our customers with Sysco and our ability to acquire and win net new customers. And I tried to mention a moment ago, and the only downside of that would be is if we're not moving customers up the profitability ladder over time by selling around the room, we would address that.
And I mentioned, I'll repeat it. We're doing a very good job of selling around the room and increasing the net profitability of acquired customers by increasing penetration after we've acquired them. So we're really pleased with the no order minimum policy. We think having an order minimum is not a great customer policy. We need to be there for our customers when they need us, how they need us, and we don't anticipate making structural changes in that regard.
The six-day workweek makes us more efficient. That's not an increase in cost to Sysco. That's actually increasing Sysco's cost efficiency by leveraging our physical assets to a greater degree. A truck going out of six days is a good thing, not a bad thing. So it leverages our capability. And what it also provides is, as I mentioned, increased flexibility for any individual, singular day, and we can continue to go out and win net new business because of the incremental capacity that we have provided.
The big transition was for our workforce. And as I mentioned, we've converted that incredibly important population of ours to a four-day workweek. And what's really important is when we need them then to work overtime, they're working a fifth day voluntarily, which is much easier for someone to do than when they're asked to come in on a sixth day. It's just better for their life. Though their scheduled normal workweek is four days and when we need them for overtime, they work fifth.
And obviously, there's overlapping schedules between Team A, Team B, et cetera, et cetera, to fill out the full six-day workweek. So our customers are going to see more consistent on-time deliveries. We've increased our flexibility. We've increased our capacity and we can do it more cost effectively. Those are the reasons why we did it. But it's a change that's challenging to do, and we've got it in the rearview mirror.
Maybe just one add from a financial perspective to Kevin's point about sweating our assets and increasing our capacity, it's a marvelous thing to be able to add that additional day and to be able to address the need for additional trucks as we grow by not having to buy additional trucks because we're further sweating our assets. And similar to that point, from a use of cash perspective, the incremental capacity across our network that it creates for us to grow without having to invest in additional distribution nodes or other trucks on top of that is also an excellent return on that investment.
I'm all in for the four-day workweek.
That's funny, Jeff.
Your next question comes from the line of Kelly Bania with BMO Capital Markets. Your line is open.
I just wanted to go back to the comment about case volumes and surpassing the fiscal '19 levels this quarter, which is a great milestone. But just curious if you could give the specific numbers where Sysco's volume is, and forgive me if I missed that. But also where you estimate the industry is on the same metric. And then also, can you dig in a little bit deeper on customer types between restaurants, hospitality, education, how those volumes compare to fiscal '19 levels?
It's Aaron. I'll take a stab and then invite anything if Kevin wants to add. Look, we were pleased that our U.S. Foodservice business versus fiscal '19, in aggregate, exceeded fiscal '19 levels. And this is the first quarter that we've been able to say that post COVID. The rest of the enterprise has not yet gotten to that level, and we are hopeful as we carry forward without committing to by quarter at this point when that will be, that given the upbeat nature of our view of the business, that we'll have good news coming in the not-too-distant future in that respect as well.
Now you might ask, well, where is that coming from? I refer back to Kevin's early remarks as well around where we still have opportunity, business and industry, corporate headquarters, which is a significant part of our business, those are still not open, right? And so you can conclude from that, that there's opportunity to yet get back to historical levels. Travel is moving in the right direction but there's opportunity to get back to historical levels.
And indeed, I believe we also called out International where the good news is there's opportunity for Sysco as we carry forward to help drive the growth as we push ahead. We've not broken down the industries beyond that. And perhaps with your -- jumping to your aggregate point of how are we doing versus the competitor set or where might they be? We focus on what we're doing and our -- we were pleased to see that we were exceeding our own objective of being more than 1.2x market growth and that's really the headline for us. Kevin, anything you'd add?
Yes, just to put a bow around that last part, and since I said earlier, we're not using price as the lever to win new business. The fact that we're growing our business by more than 1.2x the market, Kelly, implies the volume is equivalent to that. There's a strong correlation between the volume trend and the sales trend, us versus others. So that's my best color in that regard. The only thing additional beyond that is we're winning big in specialty. Our produce business, our specialty meat business, we are doing very well.
And I call your attention to the higher margin rates from those businesses. So specialty is a growth focus for Sysco. We're winning in Broadline. We're taking market share in Broadline and we are accelerating our momentum in specialty. And the fact that we closed on the Coastal Companies acquisition in the last quarter is a harbinger of good things to come even further in the high-growth, higher-margin produce business because that will pay dividend from a growth perspective for many years to come.
Helpful. And then if I can just add one quick one in, just a follow-up. In terms of the supply chain and the benefits that you are maybe accruing there in terms of market share, given some competitor challenges on that front, do you expect that to continue? Do you see these supply chain-driven market share gains as sustainable? Or do you see those competitors working to build back their supply chains?
Yes, Kelly, it's a very good question. I think over time, supply chains will stabilize and improve, and the contribution of benefit to Sysco will decrease over time as the market improves. But very importantly, at the exact same time, our Recipe for Growth is advancing and the capabilities that we're building will have a bigger, more meaningful impact. And I'd just call your attention to the guidance that we provided in May of last year.
We said we would accelerate our performance versus the market. This year's stated goal was 1.2x. We're doing much better than that. In the third year of our three-year plan, which was fiscal '24, we said we would grow at 1.5x and we are confident in our ability to do that. The contribution of where that market share capture comes from in our forward-facing years will be less weakness of others, it will be more strength from Sysco.
Your next question comes from the line of John Ivankoe with JPMorgan. Your line is open.
I wonder what kind of changes you might be sensing within the market as maybe even below what some of the headline numbers may suggest, consumers really expressing a desire to move into Sysco brands, and even beyond that, moving from having more of a scratch model in restaurants to more pre-prepared or value-added products that come into their back door that obviously reduce the demand for labor.
Certainly, I've seen some things in the marketplace of people bringing in pre-prepared products I wouldn't have necessarily expected. And I think there's some things kind of written in the news of, I guess, how significant of a trend that this actually may be for restaurants. So wanted you to comment on that and how you feel, if you do think that, that's going to be an acceleration and trend, how you think you'd be best advantaged to take advantage of it.
John, thank you for the question. This is Kevin. Just I think one of the points that sometimes people forget about Sysco is that we have the, by far, largest sales force in the industry. It is a vibrant, strong, capable group of people who are culinary experts. So these are chefs, these are ex-restaurant owners, they are culinary school grads, and they are absolutely pros. And we have the highest net satisfaction rate of the sales force versus the industry, and we do not intend to reduce the size of that sales force. We intend to increase their productivity through the digital tools I mentioned.
But this topic that you just brought up, which is what's happening with food trends is exactly what our sales force does. They call upon customers. They go to the restaurant. They spend time in the back room of the kitchen. They talk about food trends to educate customers on things that are happening. And yes, there is a movement towards, because of labor shortages in restaurants, more available product upstream preparation and the like, and no one is better prepared to be able to drive and leverage trends like that than Sysco.
Our cutting-edge solutions brand, which falls under Sysco brand, is doing just that. And we're bringing product to our customers oftentimes exclusive for a period of time to enable them to take work out of the kitchen but have incredibly high-quality taste and consistency on the plate. There's nobody better positioned than us to be able to leverage those types of trends and capabilities, including those kitchens, which I get asked about all the time, are ghost kitchens are bad for Sysco?
Not at all because guess what, ghost kitchens order food, and there's absolutely no reason why we can't over-index in our ability to serve those customers. Many ghost kitchens are actually a full-fledged kitchen for a restaurant, which actually is good for Sysco because it increases our drop size of the delivery to that door.
And if I can ask, I mean, there has been -- I mean, this is a decades-long trend towards the value-added products coming into restaurants. Do you sense a significant acceleration in the last 6 or 12 months as the labor market has become much more challenged for the operators themselves?
I wouldn't use the word significant. I would say acceleration because the product has to meet the desires of the consumer and the chef. I'd say acceleration, not a significant acceleration.
Your next question comes from the line of Nicole Miller with Piper Sandler. Your line is open.
This morning, you talked a lot about the benefits and strength and scale of the balance sheet and investments in a lot of areas but maybe not so much in technology. What can you tell us about next-generation investments in technology? And if you think about your process, maybe just from start to end, what are focus areas?
Yes, I'll start that. It's a great question. I gave a good example of technology deployment on today's call, which is the turbo-charging of the capability of the sales rep by teeing up on a silver platter for them the next best action for that day's visit that is using data, deep troves of purchasing data to provide a suggestion to the sales rep on something the customer will be interested in and then pre-approving for them an offer that is financially good for Sysco that would be beneficial for the customer. It's a game-changer.
Our sales reps are excellent at building strong relationships with customers and they are experts in food. But what we're now providing them is an N-of-1 personalization for each and every customer on something that we know will be desired by the customer and an offer that will be compelling, again, financially for us and also for that customer. So that's a great example. We're making meaningful progress on our website improvement, which is the ordering platform, our digital ordering platform, which I want to be clear is not just a desktop. It's a mobile version.
We have click-to-order through e-mails now where we can send an e-mail to a customer with an offer and/or with a suggested order. And with one click of one button, we will ship that product to them. They don't even have to go to an ordering platform. These are what we call removing points of friction, tools and capabilities, leveraging modern technology. We talked about pricing a lot. I don't need to repeat that. What we're working on now is supply chain improvement technology.
We want to make the work that our supply chain associates do easier to do. And by making that work easier to do, it will improve the satisfaction of our associates for the job, will help us drive improved associate retention, which will drive improved productivity for Sysco. So without getting into the specifics on today's call for both our warehouse associates and for our drivers, we're making meaningful investments in the technology that those associates interact with to make the job easier. And by making it easier, we make it a better job.
I would just add to that from a dollars perspective, the financial commitment to our transformation and the investment technology is significant. It's a key part of the plan we're executing this year and indeed, our long-term Recipe for Growth. And as Tom Peck, our technology leader, builds a world-class team in support of Sysco as an industry leader, that technology team is integrated into everything we're doing on the frontend and the backend, and that will also lead to good dividends for Sysco as we carry forward.
And just a quick last one. Understanding the temp expense, I think, you said was cut in half sequentially. I wanted to ask about if there was an underlying drag from training new employees that may not yet be efficient, and if so, how do we think about that, the 30, 60, 90 days until they are efficient and is there a potential gap up in performance coming?
Sure. Well, let me -- I want to clarify our remarks to make sure we're saying the same thing. We were pleased that our snapback costs which is retention, sign-on bonuses, COVID-related costs, recruiting, et cetera, that those were cut in half. We also made progress on product. On the incremental productivity expense, we experienced driven by the workforce transition, which I think is what you're referring to, and that went down from 40 last quarter to 30 this quarter.
And we're making good progress, and we continue to expect to make good progress as we carry forward. I don't think anyone can call it as to exactly when a workforce which is relatively new will hit the productivity mark, given the scale at which we're operating. But we are pleased with the results on the Workforce Academy that -- sorry, the Driver Academy that Kevin out earlier, the training we're doing within our distribution nodes, all of those things are going to lead to better productivity and, ultimately, a better customer experience.
Thank you. That's our last question. This concludes today's conference call. Thank you for participating. You may now disconnect.