Sysco (NYSE:SYY) executives highlighted improving volume trends, expanding gross margin and disciplined expense management during the company’s fiscal 2026 second-quarter earnings call, while noting that the broader restaurant environment remained soft. Management said results in the quarter exceeded the company’s previously communicated targets for U.S. Foodservice (USFS) Local volume and adjusted earnings per share (EPS), and the company now expects full-year adjusted EPS to land at the high end of its prior $4.50 to $4.60 guidance range.
Quarter results: revenue growth, better volumes, and margin expansion
Chair and CEO Kevin Hourican said Sysco delivered “strong results” in the quarter, supported by “improving case volume trends, strengthening gross margin performance, and disciplined expense management.” The company reported nearly $21 billion in total revenue, up 3% year over year, and noted positive case growth across its Local, Specialty, National, and International business units.
Gross profit totaled $3.8 billion, up 3.9%, while gross margin increased to 18.3%. Adjusted operating expenses were $3 billion, or 14.4% of sales, a 15-basis-point increase from the prior year. Cheung said the increase reflected planned investments (fleet, building expansion, and sales headcount) and the lapping of $16 million in incentive compensation from the year-ago quarter, which he said negatively impacted adjusted operating expenses by about 60 basis points and adjusted EPS growth by about 270 basis points.
U.S. Local volumes improve despite softer restaurant traffic
Management emphasized improving U.S. Local case performance even as restaurant traffic indicators weakened. Sysco reported USFS Local case volume up 1.2% in the quarter, a sequential improvement of 140 basis points versus Q1, and roughly 40 basis points above what the company guided previously. Hourican noted that the improvement occurred while restaurant traffic (referencing Black Box data) declined more than 200 basis points year over year and similarly declined quarter over quarter.
Looking ahead, Hourican said the company expects reported Local volume growth of at least 2.5% in both Q3 and Q4. He said the company expects at least 2.1% of that to come from organic Local case growth—representing a 100-basis-point improvement versus Q2—plus about 50 basis points from recently completed M&A activity. Cheung added that in Q2, organic Local case growth was 1.1%, with only about 10 basis points contributed by the Ginsberg’s acquisition due to timing at the end of the quarter.
In the Q&A, Hourican said Sysco’s performance relative to the industry strengthened each month of the quarter and that the company saw that strength continue into January, though he cautioned that weather can create volatility and said the company does not provide forward commentary on weather impacts.
National, SYGMA, and International performance
Sysco’s National contract business posted 0.4% volume growth in the quarter. Hourican said strength in foodservice management, travel and entertainment, and healthcare was partially offset by softness in the National restaurant segment, which management linked to declining restaurant foot traffic. For the remainder of fiscal 2026, Hourican said Sysco expects case volume growth for National contract customers to be greater than 2%, citing onboarding of net new wins in the National restaurant customer business and continued strength in non-restaurant business lines.
Cheung said SYGMA delivered 0.5% sales growth and 10.5% operating income growth, reflecting increased strength in supply chain operations. He added that Sysco expects SYGMA results to be more moderate for the remainder of the year as efficiency efforts continue.
International was a key highlight for management. Hourican said International delivered 7.3% sales growth on a reported basis and 9.9% excluding the divestiture of Mexico, with Local case growth up 4.5%. He said adjusted operating income in International grew nearly 26%, marking a ninth consecutive quarter of double-digit operating income growth. Cheung provided similar figures, citing 9.5% gross profit growth and 25.6% adjusted operating income growth for the segment, and said results reflected the “power of the Sysco playbook” across geographies.
Initiatives: sales retention, AI 360, loyalty programs, and Sysco Brand
Hourican said Sysco’s sales colleague retention in Q2 was at or above the company’s historical high-water mark, and the company is now focused on driving selling productivity through training. He said internal metrics showed improvement, including continued strong onboarding of net new customers and improved customer retention, reflected in an expanding “new versus loss ratio.”
Management also discussed early results from the company’s AI 360 CRM tool, which Hourican said had been live in production for four months. He said engagement remained high, with 95% or more of colleagues using the tool weekly, and that higher usage correlated with higher selling performance. Sysco plans to add “Swap and Save” functionality to provide sales consultants with prioritized substitution suggestions intended to save customers money while improving economics for Sysco and sales representatives.
Hourican said Sysco Your Way neighborhoods continued to deliver mid-single-digit volume growth year over year, despite being in their fourth year, and that a revamped Sysco Perks loyalty program is driving improved customer retention and increased share of wallet.
On Sysco Brand, Hourican said penetration remained down year over year but improved modestly sequentially. He said the company expects “meaningfully more progress” in the second half of fiscal 2026, supported by merchandising (including filling gaps in the value tier), pricing architecture, and sales force focus. Hourican said Sysco historically has been stronger in premium tiers and sees opportunity to expand in its value tier (Sysco Reliance) without “trading customers down.” He told analysts he expects Sysco Brand penetration to be positive year over year by the end of the second half, in terms of exit rate.
Acquisition and leadership transition; updated outlook and capital returns
Hourican and Cheung highlighted the completion of a “small tuck-in acquisition” of Ginsberg’s Foods, a broadline distributor in the Northeast, completed late in the quarter. Cheung said the acquisition is a “compelling strategic and financial fit” and “accretive,” while Hourican said it expands customer count in a high-value region and could unlock growth and margin opportunities over time.
Hourican also noted the retirement transition of Chief Operating Officer Greg Bertrand, who will serve as a part-time strategic advisor over the next year.
Cheung reiterated that Sysco expects fiscal 2026 adjusted EPS at the high end of the $4.50 to $4.60 range, while maintaining expectations for net sales growth of approximately 3% to 5% (about $84 billion to $85 billion), driven by inflation of about 2%, volume growth, and M&A contributions. He said guidance includes an approximately $100 million headwind from lapping lower incentive compensation in fiscal 2025 (roughly -$0.16 per share). For Q3, Cheung said the company is comfortable with the current consensus estimate of $0.94, and he provided incentive compensation phasing of $63 million in Q3 and $11 million in Q4.
On shareholder returns, Cheung said Sysco expects about $1 billion in dividends and about $1 billion in share repurchases during fiscal 2026, with repurchases expected to resume in Q3. He also said the expected dividend payout for fiscal 2026 equates to a 6% year-over-year increase on a per-share basis. Sysco ended the quarter with $2.9 billion of total liquidity and a 2.86x net debt leverage ratio, according to Cheung.
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.
