Sysco Earnings Call Nuggets: Competitive Environment, Demand & Price Elasticity
Ryan Gilligan – BMO Capital Markets: Good morning. This is actually Ryan Gilligan on for Karen. Can you guys talk about the competitive environment maybe by customer type? Is the weakness with independent customers do entirely to the environment or you’re losing some share there?
R. Chris Kreidler – EVP and CFO: I’d say the competitive environment overall is about the same as it’s been in the last two or three years. It certainly feels a little more acute right now just because of I think the pressure on a lot of our customers, but I don’t know that it’s any worse. It’s hard for me to really measure that I’d say to you. I think the competitive environment maybe a little more acute or a little tougher with the smaller restaurant operators that type of thing where they are particularly under pressure, but that’s more conjunction on my part than anything else, we don’t have great data on that.
Ryan Gilligan – BMO Capital Markets: Switching to the category management initiative. Can you guys talk about how your customers and marketing associates are reacting to it, at least in the pilot categories?
William J. DeLaney – President and CEO: Yeah we’ve spent several weeks and no months working internally whether our merchandising folks here and our operating companies we’ve had meetings at all levels including the Presidents and VPs of Sales and Merchandising. We’ve run this out through our sales meetings and that’s still going on. So, we haven’t launched yet, but we would hope to launch these categories here over the next few weeks as we said, but it’s been very well received. Obviously people are very interested to see where the pricing is going to come in and that type of thing. But we’ve done a nice job I think in communicating internally. We’re working well with our suppliers and again this is a different approach than what we’ve taken in the past with sourcing whereas we’re focusing on the assortment and are being broader and less redundant we’re looking to parting with our suppliers and customers to grow the business and take cost out at the same time. So, we’re optimistic. The one caution, I guess, would be this is something that we’ve never done before and really no one in this industry has done the way we are approaching it. So, we expect that there will be some challenges as we go forward but at this point our people are very excited about it.
Demand & Price Elasticity
John Heinbockel – Guggenheim Securities: So, couple of things; first, Bill, do you think when you look at the macro environment what if anything can you guys do to stimulate demand with your customers and be comfortable that the price elasticity if that’s what drives it is acceptable?
William J. DeLaney – President and CEO: Yeah, I think, John, what we have do is focus on the microenvironment. So, the macro we’ve talked for a while now you are very familiar with us and this industry. What I tried to layout in my prepared comments is we still think this industry is going to grow at modest levels 1%, 1.5%, 2% maybe, but there is going to be some piece and valleys in it. We are in a little bit of a trough right now, especially on the restaurant side. Last year, we saw more growth. First half of this year, we saw more growth. So, I think, the key is these strategic initiatives that we have been discussing and this is where we’re going places where we haven’t been before. So, it starts with the customer, John. We have excellent service levels out there in terms of how our MA’s provide support to their customers, our on-time deliveries, we’re in stock all that type of thing, we performed at a very high level. Now, from the customers’ perspective, probably the other guys have gotten better overtime so that gap isn’t as big, but in reality we’re compared to how we did last week. So, we need to continue to do well operationally from our basic service standpoint but we need to also differentiate ourselves more and more. So, it start with better understanding, what’s important to the customer and we’ve got some good work going on there with Bill Goetz and his marketing team. I think that will take us through some segment work. When you look at that 1% to 2% growth, probably most of that’s going to come in ethnic segments and we’re going to have to continue to strengthen our ability to focusing on those groups, focusing on certain geographies where we have a lot more upside from a market share standpoint, that type of thing. We believe category management over the long-term will be very good for our customers and for Sysco and again we are approaching that in a very balanced way both from a growth and from a cost savings standpoint. Sysco Ventures, while it is still very much in its development stage we are hoping to have a platform replace there soon where we can augment our product offerings with several services and technology-based business solutions that should create greater traction with our customers as well. So, again, when I talk about, we’ve got a proactive strategy for a new world, a new environment, those are three or four of the things that I’m trying to focus on.
John Heinbockel – Guggenheim Securities: What do you think you get most out of category management? Is that more a benefit in terms of purchasings and getting the assortment right geographically. What do you think are the one or two big wins there?
William J. DeLaney – President and CEO: I think in the short-term, there is certainly savings on the gross product costs saving side, but I think over the medium term, it will help us work with our customers and focus more on creating an assortment that is more relevant to their marketplace and will allow them to grow their business more effectively rather than have a lot of redundant SKUs, not just warehouses, but to some extent in their (pantry) as well. So, I think it start certainly with the cost savings, but it will only be successful – fully successful if we’re able to grow our business and support our customers’ growth at the same time…
John Heinbockel – Guggenheim Securities: Then lastly the $500 million you talked about that’s the gross benefit, correct?
William J. DeLaney – President and CEO: I’m not sure, what $500 million are you talking?
John Heinbockel – Guggenheim Securities: Because what I’m thinking about – as you push out the implementation of ERP, that you would think – that pushes out the cost of the program or no?
R. Chris Kreidler – EVP and CFO: The actual implementation costs, yes of course…
William J. DeLaney – President and CEO: Yeah sure. But what we’re focused on right now I would let Chris jump in here, but I mean what we’re focused on right now John is getting a really good handle on what’s the most effective way to go forward here over the next two to three years in terms of deployment and we’ll be assessing the annual costs as we do that. So, we’ve got to look at pace and we’ve got to look at annual cost at the same time.
R. Chris Kreidler – EVP and CFO: John was your question about $600 – approximately $600 million of annualized benefits we’ve referred to?
John Heinbockel – Guggenheim Securities: Yeah.
R. Chris Kreidler – EVP and CFO: Yeah, so first and foremost, both Bill and I have said that those are not impacted by the timing of our ERP rollout. Secondly, we actually don’t characterize those as gross costs to the extent that we have costs associated with the implementation we’re actually – we’ll be happy to cover those. But we expect those $600 million to be net.
John Heinbockel – Guggenheim Securities: Over and above implementation costs?
R. Chris Kreidler – EVP and CFO: That is correct, yes.
William J. DeLaney – President and CEO: John I’m not trying to confuse this but I…
R. Chris Kreidler – EVP and CFO: Well hang on John, I’m going to cut though off. There are separate categories 3 to $350 million of the actual operating or implementation expense — operating expense around ERP we’re going to have that and we’ll continue to give you annual guidance on that. The $600 million is a gross benefit, yes. We don’t net the two together if you want to do that feel free to do that. But the benefit that we look at is that $600 million which we would hope to be even more than that as we get further out we’ve only given three years of guidance. That will be with us forever and ever. The implementation cost will eventually go away.
William J. DeLaney – President and CEO: That’s what I was going to say, but Chris said it better.
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