Sysco 2007 Annual Report Download - page 39

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
HIGHLIGHTS
Sales increased 7.4% in fiscal 2007 over the prior year. Accounting pronouncement EITF 04-13 (see below) negatively
impacted sales growth in fiscal 2007 by 0.7% and also affects the comparison of gross margins, operating expenses and
earnings as a percentage of sales between the periods. Gross margins as a percentage of sales were 19.3% for fiscal 2007
and fiscal 2006. Operating expenses as a percentage of sales for fiscal 2007 decreased from the prior year, reflecting
efficiencies in our operating activities. Decreases in pension and share-based compensation expenses and higher
gains related to the cash surrender value of corporate-owned life insurance policies were largely offset by increased
management incentive bonus accruals and investments in strategic business initiatives. Earnings before the cumulative
effect of accounting change increased 18.3% for fiscal 2007 over the prior year. Diluted earnings per share before the
cumulative effect of accounting change increased 18.5% for fiscal 2007 over the prior year.
OVERVIEW
SYSCO distributes food and related products to restaurants, healthcare and educational facilities, lodging establishments
and other foodservice customers. Our operations are located throughout the United States and Canada and include
broadline companies, specialty produce companies, custom-cut meat operations, hotel supply operations, SYGMA (our
chain restaurant distribution subsidiary) and a company that distributes to internationally located chain restaurants.
We estimate that we serve about 15% of an approximately $225 billion annual market that includes foodservice market
and hotel amenity, furniture and textile market both in the United States and Canada. According to industry sources, the
foodservice, or food-prepared-away-from-home, market represents approximately one-half of the total dollars spent on
food purchases made at the consumer level. This share grew from about 37% in 1972 to about 50% in 1998 and has not
changed materially since that time.
General economic conditions and consumer confidence can affect the frequency of purchases and amounts spent by
consumers for food-prepared-away-from-home and, in turn, can impact our sales. Historically, we have grown at a faster
rate than the overall industry and have grown our market share in this fragmented industry. We intend to continue
to expand our market share and grow earnings by focusing on sales growth, brand management, productivity gains,
sales force effectiveness and supply chain management.
Strategic Business Initiatives
In fiscal 2006, our executive team, with the approval of the Board of Directors, established a strategy team to examine
many aspects of our businesses with an emphasis on strategic focus areas which would help us achieve our long-term
vision of becoming the global leader of the efficient, multi-temperature food product value chain. During fiscal 2007, we
began to move from identifying strategic opportunities and developing a strategy process to implementing the initiatives
that came from that process. Near the end of the fiscal year, we announced new responsibilities for several executives
as we integrated the strategy teams and their initiatives into our business. A strategic management function will remain
in place to help put strategic business initiatives into action and continue to refine and develop corporate strategy.
The following areas generally comprise the initiatives that will serve as the foundation of our efforts to ensure a
sustainable future. Each area is staffed with SYSCO associates focused on the following:
•Sourcing and National Supply Chain focuses on lowering our cost of goods sold by leveraging SYSCO’s purchasing
power and procurement expertise and capitalizing on an end-to-end view of our supply chain. We expect our
National Supply Chain project to lower inventory, operating costs, working capital requirements and future facility
expansion needs at our operating companies while providing greater value to our suppliers and customers.
•Integrated Delivery focuses on standardized processes to optimize warehouse and delivery activities across the
corporation and manage energy consumption to achieve a more efficient delivery of products to our customers.
•Demand explores and implements initiatives to better understand and more profitably sell to and service SYSCO’s
customers, including better tools and techniques for selling.
•Organizational Capabilities works to align management reporting, information technology systems and performance
measures with the business initiatives.
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