Title

Presentation

Sysco Corporation beats earnings expectations. Reported EPS is $0.99, expectations were $0.976.

Operator: Please standby, your meeting is about to begin. Good morning, everyone. Welcome to today’s fiscal second Quarter Fiscal Year twenty twenty six Earnings Conference Call. At this time, participants are in a listen only mode. We will begin with opening remarks and introductions. At this time, I would like to turn the call over to Mr. Kevin Kim, Vice President of Investor Relations. Please go ahead, sir.

Kevin Kim: Good morning, everyone, and welcome to Sysco’s second quarter fiscal year twenty twenty six earnings. On today’s call, we have Kevin Hourican, our Chair of the Board and CEO and Kenny Chung, our CFO. Before we begin, please note that statements made during this presentation that 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, which for the year ended 06/28/2025 to subsequent SEC filings and 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 also be found in the Investors section of our website. During the discussion today, unless otherwise stated, all results are compared to the same quarter in the prior year. To ensure we have sufficient time to answer all questions, I’d like to ask each participant to limit their time today to one question. If you have a follow-up question, please reenter the queue. At this time, I’d like to turn the call over to Kevin Hourican.

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Kevin Hourican: Good morning, everyone, and thank you for joining us today. I am pleased to report that Sysco delivered strong results in the 2Q 2026. Our results were enabled by improving case volume trends, strengthening gross margin performance and disciplined expense management. Given the strong start to the year, we now expect full year adjusted EPS to be at the high end of our previously provided annual guidance range of $4.50 to $4.60. We are delivering sequential improvement in our business, setting the stage for further momentum in the second half of the fiscal year. During our call today, we will share insights into the progress that we are making, provide color on each major business segment, we will discuss the external business environment and we will highlight progress on select growth initiatives.

After my remarks, Kenny will highlight our financial results; he will share why we are confident in our ability to deliver adjusted EPS at the high end of our guidance range. Let’s jump into our business results starting on Slide four. Our Q2 performance exceeded our previously communicated targets for U.S. Foodservice local volume and adjusted earnings per share. Sysco delivered nearly $21,000,000,000 of total revenue, a growth rate of 3% versus the prior year. Importantly, we delivered positive case growth in our local, specialty, national, and international business units. U.S. Foodservice local case volume was up 1.2% in the quarter, an improvement of 140 basis points versus Q1. This improvement in performance was approximately 40 basis points stronger than what we had guided on our last call.

The improvement in our performance can be seen on Slide eight. Sysco’s 140 basis points of local case growth improvement was delivered in an environment where traffic to restaurants, per Black Box, declined more than 200 basis points year over year and a similar decline quarter over quarter. We are strengthening our performance at Sysco in a softening macro backdrop. Our improvement gives us the conviction in our ability to gain share profitably in the current market conditions. We are pleased with the positive momentum in local volumes over each of the last three quarters in the U.S. As seen on Slide number eight. We are now solidly in positive volume growth territory and we expect continued positive momentum for the second half of the year.

More specifically, we expect reported local volume growth of at least positive 2.5% in both Q3 and Q4. To double click into that 2.5% back half growth, we expect at least 2.1% to come from organic local case growth representing a 100 basis points improvement versus Q2 with approximately 50 basis points additional contribution from M&A activity recently completed. Turning the page to our national contract business, during our second quarter, our National business generated volume growth of 0.4%. Unpacking this segment further, we saw strong growth in our Foodservice Management business, solid growth in Travel and Entertainment and positive and strengthening volume growth in our healthcare business. The positive growth from these business units was partially offset by softness in our national restaurant segment.

The declining foot traffic to restaurants per Black Box has negatively impacted our national chain restaurant customers as can be seen in our results, as volume with these customers was down year over year. For the remainder of fiscal year, we expect case volume growth for national contract customers in total to be greater than 2% due to the onboarding of net new customer wins in the national restaurant customer business and continued strength in our non-restaurant business. Having covered top line results, will now transition to the middle of our P&L and highlight our expanded gross margins year over year. Our buying and merchandising teams are doing a solid job of ensuring best price in our procurement efforts and partnering with our sales teams to highlight that value to our customers.

As I have mentioned on previous earnings calls, we are working extensively to increase the availability of products in what we call the value tier of a good, better, best product hierarchy. Sysco currently under-penetrates in the value tier, and there is an opportunity for improvement, especially in an environment where restaurants are seeking ways to save money. Historically, Sysco has had a strong position in the premium or better best segments of the business and our merchandising focus on the value tier is intended to supplement our existing assortment. Doing so will enable us to win net new lines from existing customers. The development of a stronger value assortment is actively underway and will progress constructively over the next calendar year.

I want to be very clear that these efforts are not intended to trade customers down from better to good. This is about filling voids in the Sysco product assortment, meeting the customer where they are, and growing our business profitably with existing customers. Sysco delivered solid expense control in the quarter, with supply chain productivity continuing to improve quarter over quarter and year over year. Warehouse and driver colleague retention improved in the quarter, driving improvement in productivity. We are delivering strong service to our customers and improving our supply chain cost performance. Turning to our International segment, we are extremely pleased with the performance being delivered by our International team. During the quarter, we delivered sales growth of 7.3% on a reported basis and up 9.9% when excluding the divestiture of Mexico.

Starting in Q3 2026, we will have fully lapped our Mexico business exit. The momentum in our international business was fueled by every international geography. To that end, local case growth in our international segment was up 4.5% in the period. This growth is being generated by expanded supply chain capacity, increased availability of Sysco branded merchandise, increased sales headcount and easier to use technology. The 4.5% local case growth coupled with disciplined expense management delivered adjusted operating income growth of nearly 26%. This represents the ninth consecutive quarter of double digit operating income growth and highlights the reality that Sysco International is a growth engine within the company. I am proud of the progress that we have made in international, and we are very bullish on our future in this segment.

Now like to transition into a brief update on select growth initiatives that are driving our positive U.S. local case growth. First off, I would like to provide an update on sales colleague retention and productivity. As was the case in Q1, our colleague retention rate in Q2 was at or above our historical high watermark. We have fully stabilized sales colleague retention and we are now focused on increasing selling productivity. Due to the higher than normal percentage of sales colleagues that are newer to role, we are focused on product and selling training. We have full confidence that these training efforts are improving selling effectiveness. In Q2, we can see the improvement through important internal sales metrics. We continue to onboard net new customers at a high level, and we have made meaningful progress in improving customer retention.

Spread between new customer onboarding and existing customer lost is measured in a new versus loss ratio. That ratio expanded solidly in the second quarter. To assist our colleagues, we have deployed tools to improve selling productivity, most notable is our AI360 CRM tool, which is now four months live in production. Engagement with AI360 remains very high, with 95% or more of our colleagues using the tool weekly. More importantly, we can track utilization and selling performance through AI360. Across all sales colleague tenures, those that are using the tool more often are outperforming those that use it less often. The math is very clear: if you use the tool, you sell more. Our goal in the second half of the year is to ensure all of our sales reps are actively engaging with the selling suggestions that come from AI360.

To that end, have new functionality being deployed to the tool on a regular basis. Coming soon will be something that we call swap and save suggestions for our sales consultants to introduce to customers. With the click of one button, the sales consultant will have access to prioritized suggestions of products that can save a customer money. These suggestions are cuisine specific to the restaurant and are generated by our internal data science team. The key is in the data, knowing which items are acceptable solutions and substitutions. We are able to identify which of the item substitutions will save the customer money, will help Sysco make more money, and importantly, make our sales reps more money too. The suggestions that will be prompted will be those that check each of these three boxes—a win-win-win.

AI360 will enable our sales teams to put more of these swap and save opportunities in front of our customers, more often. Lastly, I’d like to provide a quick update on Sysco Your Way and Perks loyalty program performance. Sysco Your Way neighborhoods continue to deliver mid single digit volume growth year over year despite being in the fourth year of existence. That durable growth success proves that the program resonates well with customers. We are growing our customer count and the lines purchased per existing customers within Sysco Your Way neighborhoods. The revamp of Sysco Perks is delivering results as we had anticipated. We are seeing improved customer retention year over year and we are seeing increased share of wallet with these important customers.

Our local business is now growing, as a result of improved colleague productivity and the sales driving programs that I just mentioned. We are confident we will continue to make progress and therefore we are confident in the projection that we will improve local volumes to at least 2.5% in the FY 2026. As I wrap up my prepared remarks, I would like to provide an update on two miscellaneous topics from the quarter. First is to communicate that we completed a small tuck-in acquisition at the end of the second quarter. Are pleased to welcome Ginsburg Foods, a premier broadline distributor in the Northeast to the Sysco family. This transaction increases our customer count in a high value region of the country and helps Sysco’s leverage its supply chain network more completely.

We are excited to create additional scale and growth potential in the geography as we welcome the Ginsburg colleagues and customers to Sysco. Over time, we are positioned to unlock additional top line growth and margin expansion opportunities as we introduce Sysco’s buying programs and product assortment to the expanded customer set. Lastly, I want to acknowledge the retirement transition of our Chief Operating Officer, Greg Bertrand. Greg began his Sysco journey in 1991 and quickly advanced through the ranks, serving as our global COO since September 2023. Greg will be missed personally and professionally, and we thank him for his substantial contributions to Sysco across his thirty-five year career. Over the next year, Greg will serve as a strategic advisor in a part-time capacity.

Greg will focus his time and efforts on helping develop newer Sysco field leaders and will support me directly on select strategic initiatives like the Ginsburg acquisition that I just mentioned. We expect a smooth transition over the next year as we have a strong depth of experienced leadership talent in our field organization. In closing, I want to reiterate that we are encouraged by our strengthening results and that we are confident in our business momentum as we head into the second half of the year. We expect improved productivity from our sales colleagues, driven by strong retention and improved selling effectiveness by leveraging our selling tools and from leaning into select growth initiatives, all backstopped by a supply chain that is performing at exceptionally high levels of service.

It is these factors that give me, Kenny, and our leadership team the confidence that we will deliver 2.5% plus local case growth in the second half and adjusted EPS results at the high end of our guidance range. With that, I’d now like to turn the call over to Kenny. Kenny, over to you.

Kenny Chung: Thank you, Kevin, and good morning, everyone. Our Q2 results were strong with sales growth of 3% and adjusted EPS growth of 6.5%. Our financial results this quarter also demonstrated high quality of earnings as free cash flow grew by 25% year to date. Our balanced portfolio of business and keen focus on operations enable us to deliver continued momentum versus last quarter with results coming in ahead of our previously communicated expectations despite the choppy macroeconomic environment. We entered the fiscal year detailing how company specific initiatives would help us deliver on our external commitments. With a focus on the key inputs of retention and productivity across our sales and supply chain organization. During the quarter, these were material drivers that enabled us to deliver on our expectations for the first half of the year.

Looking ahead, our continued focus on go-to-market and operational excellence is expected to drive our second half results. As Kevin highlighted, we are creating structural improvements, and we are confident in raising our FY 2026 guidance to the high end of the adjusted EPS range. Our adjusted EPS growth in Q2 included continued tailwinds from our strategic sourcing efforts aiding in the delivery of 3.9% growth in gross profit and translating to 15 basis points of gross margin expansion year over year. The increase in dollar and rate reflects the carryover benefit from structural improvements that we expect to continue in our third quarter. Our stabilized sales colleague retention rates paired with ongoing productivity improvements drove the local volume growth across our U.S. Foodservice local business.

During the quarter, our supply chain continued to perform at a very high level as a result of productivity enhancements stemming from improved tenure strengthened operational execution. This in turn helped to improve execution of the basics and are supporting improved fill rates and order accuracy while strengthening safety and enabling on-time deliveries. These efforts, alongside continued investments in both sales headcount and capacity, supported steady business momentum and enabled adjusted EPS growth of 6.5% in the quarter. As Kevin noted, we also recently expanded our distribution capabilities in the population-dense Northeast Corridor in late December with the successful acquisition of Ginsburg’s Food, one of the nation’s leading regional wholesale distribution companies.

This is a compelling strategic and financial fit for Sysco that is accretive to our portfolio. We are excited about the opportunity to unlock incremental growth as we complement our unique specialty capabilities with the addition of this top tier broadline organization. Looking ahead, we expect our positive momentum to continue as we drive growth across the region. Turning to international, this segment remains a great case study in the power of the playbook. The positive momentum over the past few years continued in Q2, with sales growth of 7.3%, including local case growth of 4.5%, gross profit growth of 9.5%, and adjusted operating income growth of 25.6%. Our strategy is driving results across all geographies, underscoring significant operational advantages enabled by our size and scale.

Now let’s discuss our performance and the financial drivers for the quarter starting on slide 12. The second quarter, our enterprise sales grew 3% on an as-reported basis driven by U.S. Foodservice, International and SYGMA. Excluding the impact of our divested Mexico business, sales grew 3.5%. Total U.S. Foodservice volume increased 0.8% while local volume increased 1.2% in the quarter. These results were sequential improvements as compared to Q1. For our U.S. Foodservice local business, this represents a sequential volume improvement of 140 basis points, outpacing the industry’s negative 230 basis points of sequential traffic decline for the quarter. We are encouraged by the meaningful acceleration in our local volume performance even as the industry decelerated throughout the quarter.

The continued momentum in our performance drove a widening gap of outperformance over the course of the quarter. Although remains early in our fiscal third quarter, I am encouraged to share that we are seeing continued year over year momentum volume growth rates during the month of January. As Kevin highlighted, the benefits from our stabilized colleague population are fueling our performance as newer sales professionals continue to work up productivity curve. This momentum is just getting started and serves to strengthen our confidence in delivering our FY 2026 guidance. Additionally, SYGMA results this quarter were solid, reflecting 0.5% sales growth and 10.5% operating income growth, reflecting increased strength in our supply chain operations.

For the remainder of the year, we expect more moderate results reflecting the follow-through on our efforts to drive continued operating efficiencies. Sysco produced $3,800,000,000 in gross profit, up 3.9%, gross margins expansion of 15 basis points to 18.3%, and improved gross profit per case performance. This notable margin improvement reflects strategic sourcing efforts and effective management of product cost inflation across our baskets, which continue to moderate. Including categories were deflationary in Q2. Inflation rates for the enterprise were approximately 2.9% and the U.S. Broadline were approximately 1.4%. This rate moderated slightly on a sequential basis which we believe will help the affordability across the industry. Importantly, we just as we deliver in the first half, we continue to expect our disciplined actions to generate strong gross profit dollars per case and margins in this backdrop.

Overall, adjusted operating expenses were $3,000,000,000 for the quarter, or 14.4% of sales, a 15 basis points increase from the prior year, reflecting planned investments in higher growth areas of the business with fleet, building expansion and sales headcount along with the lapping of $60,000,000 in incentive compensation in the second quarter of the prior year. The incentive compensation last negatively impacted adjusted operating expenses by approximately 60 basis points and adjusted EPS growth by approximately 270 basis points. As I mentioned earlier, our operations expense this quarter included benefits from supply chain productivity enhancements stemming from improved tenure and strengthened operational execution. Corporate adjusted expenses were up 3.8% from the prior year, reflecting continued investments, lapping in certain compensation from last year and other costs.

Excluding the impact of incentive compensation from the prior year, corporate expenses were approximately flat year over year, reflecting cost savings and efficiencies effort over the past few years. Overall, adjusted operating income grew to $870,000,000 for the quarter, reflecting continued improvements in our local case volumes along with strong growth in our international segment. For the quarter, adjusted EBITDA of $1,000,000,000 was up 3.3% versus the prior year. Let’s now turn to our corporate balance sheet and cash flow. Our investment grade balance sheet remains robust and reflects a healthy financial profile. Our $2,900,000,000 in total liquidity remains well above our minimum threshold and offers flexibility and optionality. We ended the quarter at a 2.86 times net debt leverage ratio.

Turning to our cash flow year to date, our free cash flow was $413,000,000, up 25%, highlighting strong quality of earnings and reflecting both typical seasonality and timing of CapEx. Now I would like to share with you our expectations for FY ’26. We are pleased today to announce a raise to our FY 2026 adjusted EPS guidance. We now expect full year 2026 EPS to be at the high end of our prior range of $4.50 to $4.60. Keep in mind that this continues to include an approximate $100,000,000 headwind from lapping lower incentive compensation in fiscal 2025, an impact of roughly negative 16 cents per share. Excluding the negative impact of the incentive compensation on 2026, our outlook for adjusted EPS growth in FY 2026 will deliver at the high end of approximately 5% to 7%, which is in line with our long-term growth algorithm.

Now at the halfway point for the year, remain confident in our Sysco specific initiatives delivering results in the second half of the year. Our teams expect a similar macro and industry traffic backdrop for the remainder of this fiscal year. Guidance also includes continued expectations for net sales growth of approximately 3% to 5% to approximately $84,000,000,000 to $85,000,000,000 driven by inflation of approximately 2%, volume growth and contributions from M&A. Transitioning to our expectations for the second half, we have now fully lapped both the headwind from the intentional FreshPoint business exit in the U.S. and the year over year comparability impact related to the exit of our Mexico JV for international. Specific to volumes, we expect to deliver year over year local case growth of at least 2.5% in Q3 and Q4.

By segment, we continue to expect positive adjusted operating income growth across U.S. Foodservice, international and SYGMA segment for the rest of the year. More specifically, we expect U.S. Foodservice profitability to return to growth in Q3 and Q4 driven by volume growth and continued discipline around margin management coupled with continued focus on ROIC. To help with the phasing for adjusted EPS, Q3, we are comfortable with the current consensus estimate of 94 cents. As outlined on slide 18, this includes the carryover impact from the incentive compensation specific to Q3 is $63,000,000 and Q4 is $11,000,000. Excluding the negative impact of the incentive compensation on 2026, our outlook for the second half adjusted EPS growth is in line with our long-term growth algorithm.

We are proud of our strong track record of dividend growth and dividend aristocrat status. For FY ’26, we remain on target for shareholder returns through approximately $1,000,000,000 in dividends and approximately $1,000,000,000 share repurchase plan for the year. As we’ve said before, this is all based on our current expectations and economic conditions that could flex based on M&A activity for the year. Specific to our share repurchase, we expect to resume repurchase activity starting in Q3. Specific to our dividend, our expected payout for FY 2026 equates to 6% year over year increase on a per share basis. In terms of leverage, we continue to target a net leverage ratio of 2.5 times to 2.75 times and maintain our investment grade balance sheet.

Specific to our adjusted D&A, we now expect approximately $820,000,000 for the year. This includes approximately $210,000,000 in both Q3 and Q4. This updated outlook reflects the combined benefit from our ongoing efforts on driving returns on invested capital and marginally lower capital expenditures for the year. All other modeling items previously outlined on our Q1 call, including interest expense, other expense, tax rate and CapEx remains unchanged. Looking ahead, we are confident in our position and remain focused on leveraging our strength as the industry leader to drive customer growth while continuing to create value for our shareholders. With that, turn the call back to Kevin for closing remarks.

Kevin Hourican: Thank you, Kenny. Q2 was a quarter displaying momentum and progress at Sysco in a macro backdrop with soft traffic to restaurants. We are confident that our internal progress will continue and we will plan to deliver local case growth of at least 2.5% in the second half. There is still much progress to be made and work to be done, but we are pleased with the improvement we are delivering and the momentum that is building within the company. Importantly, the improved U.S. local volume we are delivering will enable the stellar performance in our international division to shine through more clearly. We are excited for the progress that we are making, and we are committed to strong execution in the second half of the year to deliver these outcomes. With that operator, we now turn it over for questions.

Operator: Thank you. We go first today to Mark Carden of UBS. Please go ahead.

Mark Carden: Good morning. Thanks so much for taking our question. So you’ve put together the 140 basis point sequential local case growth improvement against pre tough restaurant backdrop industry wide. Sounds like a lot’s coming together. Did you guys see much variation in local case growth on a monthly basis? And then is it safe to assume that January has accelerated even further given your momentum comment? And then finally, are you expecting to see much of a headwind related to the recent winter storms?

Kevin Hourican: Good morning, Mark. It’s Kevin. Thanks for the question. I’ll start with the factual component: The performance of Sysco relative to the industry strengthened each month of Q2. So we got better relative to the industry for each of the months consecutively. We’ve seen that strength continue into January. As we step back and think about why is this performance happening? What are the drivers? We have three new things year over year. As I mentioned, the most important by far is SC retention (sales consultant retention). SC productivity is up meaningfully year over year. We launched our AI360 selling tool approximately ninety days ago. We’re getting traction from that tool. We launched Perks 2.0, which is a revamp of our loyalty program.

We are seeing increased customer retention and improved penetration rates with those existing customers. These three things have nothing to do with restaurant traffic. They’re 100% Sysco specific and we’re making tangible progress. Specific to Q3, we had a strong January. To your point on whether we saw favorability in weather in January versus prior year, we’re gonna give some of that back this week given the huge swath of the U.S. impacted. We’ll find out at the end of the quarter if there was a positive or negative contribution from weather. January is off to a strong start on the controllables. Kenny?

Kenny Chung: Hey, Mark. Three things for me. Just a double click on the phasing: between October through December, foot traffic softened from down 2% to over 3%. The good news is our inflection versus the market strengthened throughout the quarter, with December being the strongest. Point number two: we are encouraged to see numerous geographies already hitting our growth expectations. Point three: remember Sysco has proven we can grow in any environment. Two-thirds of our national footprint is non-restaurants, and we have an international segment which serves as a strategic counterbalance.

Operator: Thank you. We’ll go next now to Jeffrey Bernstein of Barclays.

Jeffrey Bernstein: Great. Thank you very much. Another question on the sales growth for the FY 2026. You mentioned how you’ve been strengthening in a softening macro, and you’ve repeated at least 2.5% growth in U.S. local in both the third and fourth quarter. Looking back, it does look like the compares are much easier. Is it correct to assume you’re assuming no change in trend from where you were running in the second quarter? And then just curious, do you share the broader industry’s optimism for coming months? Seems like there’s talk of easing compares, lower gas prices, increased tax refunds, and newfound stimulus.

Kevin Hourican: Morning, Jeff. We anticipate two-year stack improvement in the second half versus the first half. You are right that Q3 in particular has softer compares; that’s included in what we shared. Do I share some optimism? The answer is yes. Independent restaurant operators have leaned into the consumer need for value. They’ve adjusted menu prices, looked at portion sizes and alternative proteins. Independents are outperforming national chains. National chains are now leaning into the value tier themselves with value menus and protein bowls. The guidance communicated today is about Sysco. It’s about the five things: SE retention and productivity, AI360, Perks 2.0, Sysco brand improvement, and merchandising efforts to improve our value proposition. That gives us the confidence to accelerate our organic performance by at least 100 basis points in the second half.

Kenny Chung: Hey, Jeff. For Q2, local case growth was up 1.2%. Bifurcating that, organic was 1.1% and Ginsburg was only 10 bps because we did it at the tail end of the quarter. In the back half, the 1.1% organic goes to at least 2.1%, and Ginsburg goes to 50 bps. That’s how you bridge the 1.2% to the at least 2.5% growth.

Operator: We’ll go next now to Lauren Silberman of Deutsche Bank. Please go ahead.

Lauren Silberman: Nice quarter. How much of the growth is coming from new account wins relative to expanding penetration with existing accounts? Any color on the spread between new versus lost accounts? And on the Salesforce side, how is the growth in Salesforce tracking in FY 2026?

Kevin Hourican: New customer win rate in Q2 remains at all-time highs. What improved nicely in Q2 was our customer loss rate. That can be directly attributed back to our improved colleague retention. The spread between new and lost widened in the quarter versus the prior quarter and prior year. We also improved penetration, which I’m frankly most proud of because traffic to restaurants was down.

Kenny Chung: Hey, Lauren. We had the highest growth of new and the lowest level of loss in the past twelve months. Regarding sales headcount, we are committed to growing in FY 2026 but will be disciplined on pacing to volume expectations. We are deliberate in when and where we add, investing in high-growth markets. We now have tools like AI360 and our training program to reduce lead time and optimize the hiring mix.

Operator: We go next now to Jake Bartlett of Truist Securities. Please go ahead.

Jake Bartlett: I want to make sure I understand what’s driving the increased EPS guidance. Is it simply the adjusted D&A being lowered? And then for local case growth in Q3, should we not expect growth to be faster than Q4 given the easy compares?

Kenny Chung: The increase of EPS is actually not driven by D&A. We beat in Q1 and Q2, having that flow through. It’s driven by top line momentum, SE retention, and AI360. On the national business side, two-thirds of our business is non-restaurants, which is inflecting versus the marketplace. For gross profit, we have several levers: local growing at a faster clip is a mixed benefit, strategic sourcing efforts are providing a carryover benefit, and Specialty has momentum as we lapped the FreshPoint exit.

Kevin Hourican: Jake, the second part: the Q4 two-year stack will be stronger than the Q3 stack. Let’s just unpack Q3 last year—I can’t predict weather. Last January we had wildfires in California and in late February we had tariff disruptions impacting consumer confidence. January this year is off to a very strong start. Foot traffic to restaurants improved in January versus Q2 quite notably. Given this week’s weather, some of that favorability will be given back. If there is favorability from weather in Q3, we’ll talk about that next call.

Operator: Go next now to John Heinbockel of Guggenheim. Please go ahead.

John Heinbockel: Hey, Kevin. Couple of things. Local drop size—is that still in negative territory? And regarding the loss ratio, I assume you are still above the best performance you’ve had historically?

Kevin Hourican: John, local drop size was down slightly, approximately 1% in the quarter. We are using technology for routing efficiency to help with that as we move forward. Regarding the loss ratio, yes, we have the expectation that we will get to a new all-time best in customer retention, new customer acquisition, and colleague retention.

Operator: Thank you. That does conclude the question-and-answer session. I would like to turn the conference back over to Mr. Kevin Hourican for any additional or closing remarks.

Kevin Hourican: Thank you, operator, and thanks to everyone who joined us. We are pleased with the results and remain confident in our ability to continue to drive positive growth. Thank you.

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