Good morning, everyone, and welcome to Sysco's First Quarter Fiscal Year 2026 Conference Call. As a reminder, today's call is being recorded. We will begin with opening remarks and introductions. With that, I would now like to turn the call over to Mr. Kevin Kim, Vice President of Investor Relations. Please go ahead, sir.

Good morning, everyone, and welcome to Sysco's First Quarter Fiscal Year 2026 Earnings Call. On today's call, we have Kevin Hourican, our Chair of the Board and CEO; and Kenny Cheung, 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 for the year ended June 28, 2025, 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 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.

Good morning, everyone. We appreciate you joining our call today. I'm pleased to report that Sysco delivered a strong financial quarter to start fiscal 2026 with solid performance on the top and bottom line. Most importantly, we have inflected positive in our U.S. Broadline local business, and we are building momentum in our local business across the board. During our call today, we will share insights into the progress that we are making and highlight key growth initiatives that are fueling our performance improvement. After my update on our business progress, Kenny will highlight our financial results, and he will communicate why we are confident that we will deliver our full-year financial guidance. In fiscal 2026, we plan to deliver profitable growth across USFS, International, and our SYGMA segments, even in a macro backdrop that is less than compelling. So let's get started with our financial results on Slide 4. In Q1, we exceeded our financial plan and delivered our second consecutive beat relative to consensus expectations. For the quarter, our strong performance was driven by volume improvement, coupled with expanded gross margins and solid expense control. Most importantly, in the quarter, our local volumes improved sequentially every month of the period. During the quarter, our rate of local volume improvement was more than 2x the overall industry traffic rate of improvement. The positive inflection versus industry traffic was the strongest in September, once again conveying the progress that we made throughout the quarter. Our Q1 results were driven by sales growth of 3.2% on a reported basis and up 3.8% to last year when excluding the divestiture of Mexico. Gross profit grew 3.9%, and adjusted EPS grew 5.5%. Our financial outcomes were anchored by another compelling performance from our International segment, excellent work by our merchandising teams on gross profit expansion, strong productivity improvement from our supply chain, and a sales organization that is increasing their stride and growing our local business. Momentum is building at Sysco across the board, and we are confident we will accelerate that momentum throughout 2026. Given the importance of our local street business, I would like to go a bit deeper on our performance as seen on Slide #8. The chart displays our meaningful sequential progress in U.S. local over the past 3 quarters. Our Sysco Broadline local business inflected positive in the quarter, delivering volume growth of 0.4%. The USBL performance was 130 basis points stronger than our Q4 results, which significantly outpaced the improvement in restaurant traffic during the quarter. Per Black Box, restaurant traffic in Q1 improved by 60 basis points. As a result, Sysco improved more than 2x the overall industry in the quarter. We are pleased that industry traffic improved, and it is even better to see Sysco improving at a faster clip. As I mentioned earlier, September was the strongest month of the quarter for Sysco and the strongest month of positive variance versus the industry. Importantly, Sysco has continued to make progress in October. Given the strong start to Q2, we anticipate that we will improve our total U.S. local by at least an additional 100 basis points in Q2 versus Q1, continuing our positive momentum. In Q1, our USFS total local business posted a negative 0.2% case volume result in the period. A friendly reminder that our U.S. Foodservice volume reporting includes an ongoing negative impact from an intentional business exit within our FreshPoint business, as previously communicated on our Q4 call. In Q1, the FreshPoint business exit negatively impacted our total local performance by over 50 basis points. When excluding this headwind from this quarter, our USFS total local business grew 0.3%. Turning from local to our International segment. We are extremely pleased with the performance being delivered by our International team. We delivered outsized sales growth of 4.5% on a reported basis and up 7.9% when excluding the divestiture of Mexico. International continues to deliver positive customer mix benefits, growing the local segment much faster than our total book of business. In fact, our International business posted local case volume growth of approximately 5% for the quarter. The customer mix shift to local helped drive adjusted operating income growth of 13.1%, representing the eighth consecutive quarter of double-digit profit growth. The P&L strength was delivered from every single region in our International portfolio. Sysco's International portfolio is delivering strong top and bottom line growth within every major market we operate. Sysco's International business is a strong standout in the overall food-away-from-home industry and will be a tailwind for Sysco for many years to come. It is equally important to note, as Kenny has said previously, over the past 3 years, we have doubled the profit margin rate of our International business, and we will continue to work to increase International profitability while simultaneously taking share and growing the top line. We call this performing for today while transforming for tomorrow. Sysco's International team is doing a great job of embodying that ethos. Before I segue into a brief update on our growth initiatives, I would like to do a quick shout-out to our entire supply chain organization. Year-to-date, in 2026, we have greatly improved our customer service levels, on time and in full. And we have improved our health and safety performance by reducing accidents in our warehouses and on the road. Additionally, our operators have reduced product shrink, and they have increased colleague productivity across the board. In my 6 years at Sysco, this is the strongest quarter our supply chain has delivered from a service and cost perspective. I thank our entire supply chain for the great job they are doing. I have full confidence that the strong results will continue throughout 2026. Doing so will help us win new business and increase the retention of the customers we serve today. I would like to now transition into a brief update on select growth initiatives that highlight the progress that we are making as a company. Let's start with our colleague population. In our first quarter, sales consultant retention improved meaningfully versus 2025 and versus our exit velocity of Q4. We have fully stabilized our sales colleague population, and we expect the overall productivity of our sales force to improve throughout 2026. As outlined in our recent proxy, our colleague engagement scores have strongly improved. Our colleagues are expressing positive sentiment in regards to overall engagement, team inclusion, and working in a rewarding and motivating culture with a compelling compensation program. These engagement drivers improved strongly year-over-year. We are bullish about our ability to continue our local progress momentum, given the stability of our sales force. Our sales organization is stable, and many talented industry sales professionals are becoming increasingly interested in working at Sysco. During our recent quarter, we introduced AI360, our AI-empowered sales tool, and we are very pleased with the initial impact on colleague receptivity. Approximately 90% of our SCs are actively using the tool on a daily, weekly basis. While it remains early days, our outcomes data suggests that there is a strong correlation between high colleague engagement with the tool and improved volume and selling performance by those same colleagues. The work our sales teams do every day is hard. Each sales consultant serves dozens of customers, and the day of an SC is very dynamic. Throughout an average day, SCs answer questions, provide consultative services to restaurants, solve problems for their customers, and they actively sell. AI360 helps balance these activities and improve overall customer service levels while simultaneously increasing time for selling activities. The customer could ask if there are gluten-free options for their menu. They could ask for advice on seasonally relevant proteins for their upcoming menu change, or they could ask for cost-saving ideas and suggestions, given the overall inflation in the food basket. Our best SCs are seasoned at answering these types of questions while proactively selling. AI360 helps all sales colleagues manage these conversations productively, reducing administrative barriers and increasing the amount of time that they can spend actively prospecting and selling. Another important initiative is our customer loyalty program, Perks 2.0. Perks targets our local street customers that buy the most, buy the most often, and deserve the absolute best from Sysco. Over the past quarter, we have enrolled all eligible customers into the new Perks program, introduced the benefits to our customers, and have greatly increased our colleague visit frequency to these accounts. We have improved supply chain service levels to Perks accounts, and our 24/7 help desk is resolving Perks questions the first time, 98% of the time. In Q1, we experienced an improvement in customer retention with Perks customers versus our broader book of business. Over time, we are very confident that Perks will be a differentiator for these customers. And as such, we will improve customer retention rates, and Perks will help us penetrate these customers with additional lines. In Q1, we can see the green shoots of a positive impact of these initiatives on our local business. During the quarter, we increased the number of new accounts opened versus the prior year, and we simultaneously decreased the number of lost accounts versus the prior year. That performance enabled an increased spread between new and lost of more than 220 basis points versus the prior year. The new-lost positive spread was an incremental improvement of 40 basis points versus Q4, with September being the strongest period of the quarter. Our improved retention of colleagues is also helping us drive increased penetration of lines with existing customers. From Q4 to Q1, our penetration with existing customers improved by 90 basis points. This can be directly attributed to the increased selling skills of our team and the assistance they are receiving from technology tools. As I wrap up my prepared remarks, I submit that we are very pleased with our Q1 results. We are building momentum across sales, merchandising, and operations. Our team is increasing their pace month-over-month, quarter-over-quarter. We expect this progress to accelerate even further throughout 2026. While the external market is important, the improvement we are delivering at Sysco is being driven by growth initiatives within our control. Sysco Your Way is 3 years live in the market and continues to drive success. Total Team Selling is now 2 years in market and continues to accelerate progress in market share. We expect our new initiatives of AI360, Perks 2.0, and Pricing Agility to build upon the success of Sysco Your Way and Total Team Selling, and therefore, fuel continued positive momentum in our local business. With that, I'd now like to turn the call over to Ken. Ken, over to you.

Thank you, Kevin, and good morning, everyone. Our performance this quarter was strong, representing a continuation of the improved operational momentum we established last quarter. In Q1, results included sales growth of 3.2% and adjusted EPS growth of 5.5%, reflecting continued momentum across customer segments and geographies. This diverse customer and geographic mix is a competitive advantage for Sysco and a leading factor in why our company has grown annual sales in 54 of the past 57 years. Our strong performance highlights the powerful combination of Sysco's portfolio breadth and the ability to drive operational execution necessary to deliver compounding rates of improvement. Our Q1 beat and the momentum with volume growth and margin management gives us confidence to deliver our FY '26 guidance. Our adjusted EPS growth in Q1 included benefits from our disciplined strategic sourcing efforts leading in the delivery of 3.9% growth in gross profit, translating to 13 basis points of gross margin expansion year-over-year. The increase in both dollar and rates reflects structural improvements that we expect to carry over into upcoming quarters. Additionally, we continue to see returns from our investments in sales headcount and capacity expansion alongside benefits from ongoing efforts to optimize cost and prudent tax planning. This ultimately rendered outsized profit growth with adjusted EPS growth of 5.5%, coming in ahead of our expectations. This beat to consensus included higher sales and adjusted operating income, as well as net benefit from below-the-line items, of which the majority was driven by a lower effective tax rate. Results this quarter highlight the power of our organization's collective effort in delivering profitable growth, allowing us to weather volatility in the current macro backdrop. Furthermore, our stabilized retention rates, paired with important Sysco-specific initiatives, generated business momentum that accelerated throughout the quarter and are expected to add to compounding improvements over time. The success generated by our International segment is a great example of the power behind the Sysco playbook. The positive momentum over the past few years continued in Q1 with sales growth of 4.5%, gross profit growth of 6.7%, and adjusted operating income growth of 13.1%. Our strategy is driving results across all geographies, underscoring the significant operational advantages enabled by our size and scale. We also recently expanded our specialty capabilities with the successful acquisition of Fairfax Meadow in early October, one of the U.K.'s leading center-of-plate protein suppliers. This addition follows last year's acquisition of Campbell's Prime Meat and favorably positions our team in Great Britain to unlock incremental growth by leveraging center-of-plate and specialty capabilities through Total Team Selling in the North and South regions. We expect our positive momentum in International to continue this year as we leverage our investments to unlock future growth. Now let's discuss our performance and the financial drivers for the quarter, starting on Slide 12. For the first quarter, our enterprise sales grew 3.2% on an as-reported basis, driven by U.S. Foodservice, International and SYGMA. Excluding the impact of our divested Mexico business, sales grew 3.8%. The Total U.S. Foodservice volumes increased 0.1%, and local volume decreased 0.2% in the quarter. U.S. Broadline volumes increased 0.6%. These results were sequential improvements compared to Q4. For our USFS local business, this represents a sequential volume improvement of 120 basis points, outpacing the industry's traffic improvement for the quarter. It remains early in our fiscal second quarter, but I am encouraged to share that we are seeing continued year-over-year momentum in volume growth rates during the month of October. As Kevin highlighted, the benefits of our stabilized colleague population are fueling this performance alongside our newer sales professionals, making meaningful contributions as they leverage training and tools to work up the productivity curve. These factors directly contributed to an acceleration in new account growth for the quarter. In fact, this was the highest rate of new account growth over the past 12 months, helping drive continued improvement in new-lost spread. Again, another reason for our confidence in delivering our FY '26 guidance. These sequential volume improvements also benefit our USFS segment results. Stable gross profit performance also included continued investment in our USFS segment. The year-over-year trends are an improvement versus FY '25 results, and we expect to deliver improving financial results in 2026 and beyond. Before moving along, I want to discuss a minor but important upgrade to our case volume reporting. As shown on Slide 14, we are updating our reported case growth figure to now also include volumes related to our center-of-plate Buckhead, Newport meat and seafood specialty platform. Our reported results for this quarter and the prior year period includes the update. Historically, these volumes were measured in pounds sold and therefore not able to be reflected in our reported case growth figures. The change is relatively minor. And as you can see on the slide, it accounts for an approximate 0 to 10 basis points impact on average over the last 5 quarters. This change enhances our reporting to be more holistically reflective of our entire portfolio with the inclusion of an important growth engine. Important growth projects like Total Team Selling have the opportunity to shift cases from broadline into specialty channels, and this upgraded volume reporting will provide more external visibility to contributions from this program. The reporting matches the agility of One Sysco world-class service to our customer across our portfolio. Additionally, SYGMA results this quarter were outsized. This included 4% sales growth and 39% operating income growth. While we expect more moderate results for the remainder of the year, SYGMA growth for FY '26 will be driven by operating efficiencies. Sysco produced $3.9 billion in gross profit, up 3.9%; gross margin expansion of 13 basis points to 18.5% and improved gross profit per case performance. This notable margin improvement reflects effective management of product cost inflation and a mentality of continual improvement, with cost savings driven by our strategic sourcing initiatives. Inflation rates in USBL were approximately 2.6%. International inflation on a constant currency basis was slightly higher for the quarter at 4.5%. Overall, adjusted operating expenses were $3 billion for the quarter or 14.2% of sales, a 14 basis point increase from the prior year. The increase was driven by planned investments in higher growth areas of the business with fleet, building expansion, and sales headcount along with lapping $10 million in incentive compensation from the first quarter of the prior year, which negatively impacted adjusted operating expense growth by approximately 100 basis points and adjusted EPS growth by approximately 150 basis points. Corporate adjusted expenses were up 1% from the prior year, reflecting continued investments, lapping incentive compensation from last year and other costs. This was balanced with accretive productivity cost reductions and corporate efficiencies, including improved insurance costs. Overall, adjusted operating income grew to $898 million for the quarter, reflecting continued strong growth in our International and SYGMA segments. For the quarter, adjusted EBITDA of $1.1 billion was up 0.1% versus the prior year. Now let's turn to our balance sheet and cash flow. Our investment-grade balance sheet remains robust and reflects a healthy financial profile. Our $3.5 billion in total liquidity remains well above our minimum threshold and offers flexibility and optionality. We ended the quarter at a 2.9x net debt leverage ratio. Turning to our cash flow. We generated approximately $86 million in operating cash flow, up 62% on a year-over-year basis, reflecting working capital optimization. Our free cash flow in the quarter was a negative $15 million, reflecting typical seasonality and the timing of CapEx. Now I would like to share with you our expectation for FY '26 as seen on Slide 19. During FY '26, we remain on target with key guidance metrics. This includes reported net sales growth of approximately 3% to 5% and to approximately $84 billion to $85 billion. These assumptions include inflation of approximately 2%, which we are seeing now, volume growth, and contributions from M&A. We continue to expect full-year 2026 adjusted EPS of $4.50 to $4.60, representing growth of 1% to 3%, which includes an approximate $100 million headwind from lapping lower incentive compensation in fiscal 2025, an impact of roughly $0.16 per share. Similar to last year, we are providing full visibility to the carryover impact from incentive compensation for the year and by quarter as outlined on Slide 20. In Q1, this carryover impact included a $10 million headwind, which equates to approximately $0.02 per share to adjusted EPS. These headwinds impact year-over-year comparability for expenses in FY '26. That being said, we are pleased that our compensation system is a pay-for-performance program and that our structure is in place to properly motivate behavior and drive positive performance in the business and fiscal year 2026. Excluding the negative impact of the incentive compensation on 2026, our outlook for the adjusted EPS growth will deliver approximately 5% to 7%, with the midpoint in line with our long-term growth algorithm. To help with phasing for Q2, based on the current environment, we expect EPS growth of approximately 4% to 6%, with the midpoint in line with the current consensus EPS of approximately $0.98. This includes positive total and local USFS volume performance. As Kevin highlighted, we currently expect our USFS local volume improvement to improve at least 100 basis points sequentially quarter-over-quarter in Q2 of 2026. As previously disclosed, Q2 reported sales growth rates will also be impacted by the divestiture of our Mexico JV, which we fully lapped in December this year. This financial guidance assumes improvements to be driven by our Sysco-specific initiatives with industry foot traffic and macro environment similar to what we have seen over the past couple of quarters. We are proud of our strong track record of dividend growth and dividend aristocrat status. For FY '26, we remain on target for shareholders return through approximately $1 billion in dividends and approximately $1 billion in share repurchase planned for the year. This is all based on our current expectations and economic conditions and could flex based on M&A activity for the year. Specific to our dividend, our expected payout for FY '26 equates to a 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 to 2.75x and maintain our investment-grade balance sheet. Now turning to a few other modeling items. For FY '26, we expect a tax rate of approximately 23.5% to 24% and adjusted depreciation and amortization now to be approximately $850 million, reflecting a now relatively longer useful life for our fleet assets balanced against underlying D&A related to continued capacity expansion domestically this year as well as international markets over the coming years. Interest expense is expected to be approximately $700 million, while other expense is now expected to be approximately $65 million. CapEx is expected to be approximately $700 million, representing less than approximately 1% of sales. This includes growth and maintenance CapEx as we grow into our investments we've made over the past few years while also maintaining an eye towards driving ROIC by optimizing spend levels across the enterprise. 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, I will turn the call back to Kevin for closing remarks.

Thank you, Kenny. We are pleased with the strong performance we delivered in Q1 and, more importantly, the significant progress we are making as a company across sales, merchandising, and operations. We posted a strong exit velocity in the quarter, and that momentum has continued into October. Our leadership team placed tremendous focus on improving our local business, strengthening our gross profit through strategic sourcing, and tightly managing our expenses through strong supply chain productivity improvement. The team stepped up and delivered a beat across all three areas. The strong performance from sales, merchandising, and operations enabled compelling adjusted EPS growth year-over-year. I'm proud of the team for their performance and the momentum that we are building. As we look toward the remainder of 2026, we expect to build upon the Q1 momentum and deliver against our targets. Our top-line results will further strengthen based upon sequential improvement in our local business throughout 2026. We have a diversified business with number one market share in the non-commercial sectors of food-away-from-home. Non-commercial continues to grow year-over-year, and this segment is much more resilient in a challenging economic cycle. Our strong International segment performance gives us another form of diversification. Food-away-from-home is a good business. It takes share from the grocery channel every year. And as I've said before, the pie is getting bigger, and Sysco intends to take a bigger slice of that expanding pie. We are confident shareholders are positioned to benefit from our industry-leading dividend, compelling ROIC, intentional share buybacks, and improving financial results. Our performance in Q1 displays strong progress in the early innings of improving our local business. The momentum will continue throughout 2026. I'm thankful for our leadership team and our entire 75,000 colleague population for the strong efforts to start the year. The collective team's hard work is poised to have a positive impact in 2026. With that, operator, we're now ready for questions.

We'll go first this morning to Alex Slagle of Jefferies.

A question on the local sales force productivity. If you could talk more about what you're seeing there? And any metrics behind where we are on the curve. I guess specifically, the percentage of new hires that are now over that 12- or 18-month hurdle when productivity really inflects, and I know leveraging new tools is a piece of this, but how this tenure and retention really correlates to the local case growth step-up that you saw in September and October because I know the industry was a little more sluggish during that period.

Alex, thanks for the question. This is Kevin. Yes, I'll just start with some of the key stats and facts. Plus 130 basis points of progress in Q1, a rate of improvement, 2x the overall traffic improvement to the market, positive inflection in local, really important to communicate what we shared on our prepared remarks, October stronger than Q1, which Kenny then reiterated in his prepared remarks. We anticipate to make at least an additional 100 basis points of progress in Q2 versus Q1 because we're building momentum. That is the main point of our call today is building momentum. It starts and ends, Alex, with your question, which is stabilized retention. We are exceeding our retention target year-to-date for our sales colleagues, which is enabling us to have less churn of our sales force coverage to our customer population. We're absolutely working hard on improving overall productivity of our sales consultant population, and we're pleased with the progress that we're making in that regard with more progress still to be made year to go, as you just annotated because of the percentage of folks that work for us that are new versus what would be historical. We will continue to make progress in productivity. Key growth initiatives are helping in that regard, but I want to be fundamentally clear, it's the stability of the workforce that is creating the biggest force of positive momentum. With that, growth initiatives like Sysco Your Way and Total Team Selling are continuing to produce. We have Perks 2.0 and AI360 that are helping us build momentum. Most notably, as I said, Q2, an additional minimum of 100 basis points of progress that we will make. Kenny, anything else you'd like to share?

Yes, Alex, this is Kenny. I agree with Kevin and I'd like to add a few more points. We are very confident in our local case growth momentum. As I mentioned earlier, we saw a 100 basis point improvement quarter-over-quarter in terms of volume. You might wonder why we are so confident. There are several reasons for this. Our sales consultants are becoming more productive as they improve their skills. This quarter, we experienced the highest increase in new customer onboarding, which is contributing to the increased new-lost spread that Kevin discussed. Additionally, signing up new customers not only helps with the new/loss metric but also increases penetration, and we saw a 90 basis point improvement in that area this quarter. Finally, the retention strategies that Kevin referred to are benefiting not only our newer sales consultants but also our more experienced ones. Therefore, we have all our sales consultants improving, which enhances overall productivity.

And I just had a follow-up. You had a really strong quarter, and the outlook for the second quarter looks pretty strong. So, I mean is there additional conservatism in the back half guide on earnings? You're up 5%, 6% or so in the first half. So I just wanted to clarify?

We are very confident in our guidance as we have achieved two consecutive quarters of beating expectations. This quarter's $0.03 beat included $0.01 from higher expected sales impacting operating income and another $0.02 from careful tax planning. Our confidence stems from three main reasons. First, we have strong momentum, with September being our best month and improvement in productivity for both new and experienced sales consultants. We are also experiencing positive results in our national business, with recent wins and solid retention rates, anticipating further growth starting in Q2. Second, most of our anticipated growth this year is driven by initiatives that we can control, and we expect the macro environment to remain consistent with recent quarters. This includes enhancements in commercial and supply chain productivity. Lastly, we have a strong balance sheet and a diversified portfolio, which positions us well for various market conditions.

I wanted to follow up on case volumes. When we consider total case volumes, the improvement there was more modest than what we observed locally. Can you discuss what you're seeing regarding total case volumes, excluding the local aspect, specifically by customer type? Additionally, as we look ahead in the guidance, you mentioned that local volumes improved by about 100 basis points in Q2. Did you observe the same trend in September and October? Also, Kenny, I thought I heard you mention that national accounts might be improving. I'm interested in your thoughts on how the total local spread will develop moving forward, and whether it will remain similar or if local volumes will increase as total volumes pick up again.

Thank you for the questions. This is Kevin. I’ll start by addressing some of what Kenny mentioned regarding our national sales business. In response to your question about September and October, I won’t provide detailed month-by-month commentary for Q1, but I can say that every month in Q1 improved compared to the previous month. July was better than June, and we are seeing a consistent upward trend as we move into October, which is stronger than September. Although the overall market isn't showing improvement in October compared to September, our growth is a result of initiatives we can control. For the overall market, September didn't perform better than August, but Sysco's performance in September exceeded August. This gives us confidence in our progress, driven by a stable workforce and key initiatives. Additionally, October's performance outpaced September, and we are confident that Q2 will show at least a 100 basis points improvement, supported by our ongoing performance in Q2.

As it relates to national sales, just a little bit more color on what Kenny said. We're confident we will improve our volume in national sales year to go for the following reasons: number one, we have an incredibly high customer retention rate in national sales, greater than 98-plus percent. We have an incredibly strong national sales customer retention; number two, noncommercial within national sales continues to perform really well. So that's food service management, travel, and hospitality. Our government business, all falling within noncommercial continues to do well. The business that's under pressure within national, and this shouldn't be a surprise to anyone on this call, our large national chain restaurants. That business is down on a year-over-year basis from a traffic perspective, and it's down year-over-year from a volume perspective. We're growing our national in total because of strength that we're producing and delivering within non-commercial. To be clear, as it relates to the P&L, national restaurants will be the least profitable portion of the business. And therefore, as you're somewhat communicating in your question, a tilt to growth in local being higher from a contribution perspective is a net positive in the P&L. As we think about the rest of the year from a national sales perspective, Kenny mentioned this a moment ago, I'm just going to reiterate it. We have strong wins already signed that have start ship dates in the year-to-go period. And when we include the strong retention of existing customers, plus the start ship dates that are coming in the year to go, our volumes will pick up in national for the full year. If you think about the year in aggregate, and I believe it's we have national and local growing similarly for the full year. And over the longer course of time, we would anticipate local growing faster than national, but for fiscal 2026 growing roughly in parity. The last comment for me on national. We are definitively taking share in total in the national segment, which includes non-commercial. If I throw in International as a part of the answer to this question as well, a similar pattern is happening in our global business. I mentioned in my prepared remarks, our local business in International, up 5% from a volume perspective, and that growth is happening in every single geography internationally. We're doing extremely well in local, taking share in local in every international geography. And the national segment within International is similar to what we're seeing in the U.S., where national restaurants in the global setting are slightly down, but we are very pleased with the profit growth that we're delivering in large part because of that growth in local internationally. Kenny, is there anything else you'd like to say? Yes. No, I agree with Kevin. Just one thing to add, Ed, is just to clarify, Sysco, we improved every month from a growth rate standpoint in local throughout the quarter, and we inflected versus the market, the greatest actually in September, and that has continued based on the first few weeks of October. And just to recap the phasing for the year in terms of local, first quarter was USFS was down 0.2%. We expect to step up sequentially by at least 100 basis points in Q2. And given the momentum that we have and the initiatives that are within our control, we'd expect that step up even further in the back half of the year for the full year to be positive.

Kevin, I have two questions. If you exclude FreshPoint, it seems like Q2 is likely increasing by approximately 1.3% to 1.5%. I understand the goal is to approach 4%, especially as you expand your sales team. Could you discuss the possibility of reaching that target if the economic environment remains challenging? For my second question, penetration has risen by 90 basis points. What is the status of drop size? Has it started to improve? I believe if it has, it could lead to a positive impact on profitability in the U.S. soon, possibly quite soon.

Thank you for the question. To clarify, we anticipate at least a 100 basis points improvement in USFS, starting from a negative 0.2%. In Q2, we expect to see this total local volume improve by at least 100 basis points. We are gaining momentum each month compared to the previous one. We believe that we can continue to perform and improve without needing an external environment to get better, thanks to the stability of our workforce, the impact of lost customers from a year ago, and the effectiveness of our initiatives launched in Q1. Regarding penetration, we did see a year-over-year increase with our existing customers, contributing positively to drop size. I've been with the company for 6 years now, and this was by far our strongest quarter in terms of supply chain productivity and service outcomes. We assess service outcomes based on timely delivery and cost per piece shipped. Our supply chain had a strong quarter, driven by notable retention improvements that began over a year ago. We are now experiencing the benefits of that workforce stability, with increased productivity and safety among our drivers and selectors, along with fewer accidents. Our shrink results have also improved year-over-year. Overall, cost per piece has improved compared to our plans, and we exceeded our supply chain cost per piece forecast for the quarter. Drop size is a factor in this, but the more significant contributors are the retention improvements and productivity gains in our supply chain workforce. Kenny, do you have anything to add?

Yes. I just want to clarify that you mentioned the 4% growth in local volume. That assumes an ongoing 4% increase if you grow your sales force by that same percentage. However, for this year, we do not expect that level because we have a new cohort coming in, and it typically takes them 12 to 18 months to reach full productivity. Therefore, the expected growth will be lower than 4%, but it will still be positive for the year.

Great. I have a question about the sales growth guidance that you reiterated, specifically regarding food cost inflation. You mentioned that you expect it to continue at 2%, whereas it was actually 3.4% in the first quarter. I want to ensure we're on the same page about this. Last quarter, you indicated that you were at 2% at that time, but the report showed 3.4%. I’m trying to understand the trends in product cost inflation and how your guidance of 2% relates to the current 3.4%.

Yes, Jake, we understand and appreciate the question. We've guided the full year at approximately 2% from an inflation perspective. You're right to point out that the total inflation rate in Q1 was a bit higher than that, mostly from international, which Kenny can provide some additional color in a second. In the spot moment, in the month that we're in, the rate of inflation in the domestic U.S. business has come down from the number that you reported back to that approximately 2% rate because we're starting to see some deflation in select categories. So poultry on a year-over-year basis is deflationary, dairy on a year-over-year basis because we're lapping avian flu from a year ago is now deflationary, and produce has been deflationary for going on 12 months now. The beef market continues to be inflationary at the high single-digit rates, but also slightly down from where it was, which was higher previously. So Kenny says this all the time. We have 13 attribute groups. The inflation number that we quote is the aggregate of all of them. Our full-year peg is approximately 2%. It came in a little bit hotter than that in Q1. We're seeing it reduce to that targeted 2% rate in the quarter that we are currently in. And we're confident we can grow our business profitably and deliver our operating income and EPS growth. In spite of whatever the inflation or deflation is over time, we've proven that over the past 6 years in an inflation cycle, we can expand GP, and even in a deflation cycle, we can expand GP. Kenny, is there anything you'd like to add?

Yes. Yes. Jake, we're currently operating in what I would call a normalized inflationary environment. In Q1, USBL inflation was roughly 2.6%. And to Kevin's point, International was roughly 4.5%. That's really driven by two markets, Canada, which is tariff-related, as well as GB, which is 7% wage inflation mandated by the government. The real takeaway is that even with this environment, we're seeing total GP up 4% and expansion of GP margins by 13 basis points for our company. As Kevin said, we have a diverse set of product categories. We don't over-index on one or two of them. And long story short, we are operating in this environment that sits around 3%, and that bodes well for the overall industry. And the last one that Kevin mentioned is the center-of-the-plate; we do expect center-of-the-plate to moderate towards the back half of the year as well.

Great. Just curious on the broader restaurant industry. You mentioned easing trends to close the quarter. I think you said, and we've seen industry data that showed September was weaker than August. I think you mentioned that October was weaker than September, yet Sysco going in the opposite direction, which is encouraging. Just wondering if there's any particular drivers of the industry weakness that you've seen, whether by segment or geography or income levels or ethnicity, it seemed like we're moving in the right direction until a couple of months ago. So just wondering the drivers that you've seen that have led to that slowdown? And then I had one follow-up question.

Thank you, Jeff. I'll begin by noting that the data is publicly available, specifically the Black Box data. The first quarter showed improvement over the fourth quarter, with a positive 60 basis points in traffic, indicating that overall, Q1 performed better than Q4. However, it's worth mentioning that September was weaker than the entire first quarter, and this trend has persisted into October. Quick-service restaurants and larger national chains are lagging behind in comparison to the overall business, which is beneficial for foodservice distributors like us, as independent operators are doing better. Whether this trend is lasting or will continue into the future remains uncertain. Currently, though, independents are outperforming large national chains, especially quick-service restaurants, and this trend positively impacts Sysco's profitability. The key takeaway is our performance relative to the market. While overall market traffic softened in September compared to the quarter, we actually saw the opposite effect in September, making it our strongest month of the quarter. This was highlighted by Kenny, noting the widening gap, or positive inflection, between our performance and that of the overall market, which further increased in October. We expect this trend to continue as the year progresses due to the initiatives we've implemented. We have a chance to capture market share, and despite being the largest player in the industry with a 17% market share, we still have significant opportunities for profitable growth regardless of broader macroeconomic conditions. You mentioned you had a follow-up, so I'll turn it back to you for that.

On Slide 8, it looks like you have set a target of at least a 100 basis points improvement from the decline of 20 basis points in the first quarter. I'm curious if there's any additional insight on this. It sounds like you're feeling positive about October, but the industry is certainly unpredictable. Some might consider this an ambitious goal, especially given factors that are beyond your control. You've mentioned that much of this is based on your own efforts, but I wonder about your confidence in achieving more than a 100 basis point improvement, especially with the industry showing signs of slowing down from September to October. It seems like a significant commitment to make with over two months left in the year and the industry's decline.

We're confident in our ability to deliver the at least plus 100. We're a third of the way through the quarter, October stronger than September despite what the market overall is doing. We have line of sight towards the ability to make progress in the year to go for a host of reasons. The stability of our workforce, initiatives, AI360 is not even 45 days old, and our colleagues are increasing their usage of it. They're asking it questions, getting real-time answers. Do you have cauliflower pizza crust in-stock in Cleveland today? It gives them the exact item number, the quantity on hand. They can sell it right then and there. If they want selling tips on how to introduce that product to the customer, they can get the answer to that too. Teach me how to sell this item, on and on and on. The AI tool gets smarter in each and every at-bat; we have thousands of colleagues using it on a daily basis. So the tool's utility is increasing every day. Just as an example, Perks 2.0, not live for more than 45 days. Our customers are beginning to see the differentiation in the service that they're providing. I want to be really clear about one thing, Perks 2.0 doesn't cost Sysco any more money. This is about prioritization of these customers over the average book of business that we have. Why? Because they're the most profitable and important customers that we have. So their delivery window is going to be their preferred window. Our on-time rate to that window will be higher. Their fill rate on the products they order will be higher. If they have a damage case on their delivery, we're going to give them credit immediately versus having them have to wait a couple of days. These are thorns in the site in the customer experience. So these initiatives are picking up progress. they're picking up their impact over time. And therefore, we are confident in our ability to deliver on the at least plus 100 in Q2. Kenny, anything you'd like to add?

Yes, agree with Kevin. We're confident, Jeff, for two reasons. One is, as you said, right, the majority of our initiatives that yield the 100 basis points improvement is within our control. This is the SC retention. And the other piece is, we're also encouraged by the fact that we continue to see select geographies already hitting our growth expectations, driven by SC additions, improved retention, and that's carrying into Q2 as well. So we have proof points of actual data that certain markets are already hitting that stride. The last thing I would add is that around traffic. Foot traffic, it is a proxy, if you will, of our business, it's important. And we also have a big part of our business that are not tied to restaurants, right? Two-thirds of our national portfolio are actually what we called recession-resilient, non-commercial categories, FSM, food service management, education, health care, and the like. And even within restaurants, if you can think about it, Jeff, right? We have QSR, the casual dining, the fine dining. So we're pretty well diversified from a restaurant versus non-restaurant standpoint. And we also have International, which serves as a strategic counterbalance, enhancing the resiliency and stability of our total overall business.

I have two questions. First, I want to approach the guidance question from a different angle. The top line is very encouraging, but as you mentioned, the guidance for the second quarter is somewhat in line, and you haven't raised the full-year guidance. Could you elaborate on the extent to which some of the investments you're making might start to moderate? Do you expect to see more of that flow through later this year or next year? I also have a quick follow-up.

Yes. Yes. Thanks, Sara, for the question. So your question is more around the investments and what we're seeing around the flow-through around it. So here at Sysco, we are playing the long game, right? We're investing in our business, and we're also seeing incremental return to your point, from the investments we made in previous quarter and periods. So for example, the two biggest investments we made as a company, number one, is the sales force. We've hired 750 people plus in the past couple of years. As we mentioned earlier, we're seeing all of them climb the productivity curve right now and trying new account growth penetration. And that's the reason why you're seeing an outsized growth versus the market in Q1. And we expect that to continue in Q2 and the outer quarters. So nice return on investments, and the pacing is there. And we're doing it the right way as well. We're taking share profitably. That's really important, taking share profitably. And that's the reason why you're seeing both dollar expansion on the margin as well as the rate expansion on the margin.

In terms of the other big investment that we have in our portfolio, it's the 10 new facilities that we're building around the world; 7 are in the U.S., and 3 are in international. And I can tell you firsthand, we have a strong pipeline, robust pipeline that can fill the capacity in the spot, and as time progresses and it kind of goes hand in glove, as SC become more productive, you're still filling the pipeline with accretive cases through our DC. So overall, we feel very confident that, for example, in USFS, as time progresses, we will continue to make strides on operating income, gross profit, and volume and achieve leverage in the outer periods.

Great. Regarding market share, I understand you mentioned having a relatively low market share of 17%, which is even lower in the specialty sector. As we consider potential share gains, should we anticipate a reversal similar to last year when Sysco lost some ground during transitions in the supply chain group? Or do you have a specific target market share in mind for broadline, where you're closer to 30%, compared to specialty, which is around 9% or in the high single digits? Any insights on how you view that market share would be appreciated.

Yes, Sara, it's Kevin. Great question. To clarify, I've been here for six years, and during that time, we've consistently gained market share each year. In the past fiscal year 2025, we performed well in national markets and fell short of our expectations in local markets. This year, we plan to increase our share in both national and local markets, which is reflected in our current positive growth in the local business. As for our national performance, I have already addressed that in my earlier remarks. Regarding where we expect the most significant share gains, you have already cited the relevant statistics. Our growth will primarily come from our specialty areas. We have a strong broadline business, but there are significant opportunities to expand in specialty produce, specialty meat, equipment and supplies, Asian foods, and Italian foods. Sometimes these products are delivered by broadline trucks, and at other times by specialty trucks. The key to our growth involves several factors: first, having the products readily available. Kenny often mentions that these are unique and custom items tailored to customer requests, which is why they are special. Secondly, we employ sales experts who specialize in each category, be it produce or protein. Part of the additional investment in personnel that Kenny mentioned is aimed at enhancing our specialty business. Lastly, our service model caters to specific customer needs, such as late evening deliveries and seven-day-a-week service for fresh products, which allows us to incorporate that into our pricing for higher margins. We can meet these demands in areas where broadliners and smaller specialty companies cannot. To be clear, our competition in specialty consists mainly of countless small companies with just one or two vans in targeted regions. Importantly, we buy more local produce than any other competitor in our markets, enabling us to supply our customers effectively. Therefore, we anticipate substantial growth in our specialty business, which is currently valued at around $10 billion. As stated on our Investor Day, we foresee an additional $10 billion growth coming from specialty in the near future. While we haven't disclosed what percentage of market share this will translate to over the next year, we will reveal that at a future Investor Day. Thank you for your question.

The question is on independent restaurants and specifically the difference in performance between existing account penetration and new account generation. Certainly, some of the data that we see is that the industry is actually growing at a surprisingly high number of new units, and many of those units are actually driven by independents. So firstly, tell us if you see the same? And secondly, it does sound like a number of the tools that you have, such as AI360 and Perks, sound to be to drive market share at existing business. Can you talk about some of the tools that the sales force now has to specifically generate new account penetration?

Excellent, John. Thank you for the question. What we're pleased about in Q1 is we saw improvement from the new-lost spread, and we also saw improvement from penetration. We saw a 220 basis point improvement year-over-year in new-lost spread and a 40 basis point improvement in that same metric Q4 into Q1. And the even more important point is that what happened with penetration, we increased our penetration with existing customers by 90 basis points from Q4 into Q1. And I do attribute that to two things; AI360 is increasing our sales colleagues' ability to know what to be selling on that given visit on that given day, to solve problems in a timely manner, and to provide suggestions on what could be sold. So it is absolutely a penetration, full direct-focused selling effort. Perks is the exact same thing; we are not interested per se in growing the number of Perks customers. We're interested in retaining those customers at a high rate and penetrating even further with those customers because, as the other John always says, that's the most profitable case on the truck. So these tools are meaningfully focused on increasing penetration. To the other part of your question, which is, okay, well, what about new? The largest opportunity for improvement there is the incremental headcount investment that we've made. Kenny talked about it, 750-plus people over the past couple of years. Those folks need to build their book of business. We provide them a starter book of business. They need to go fill in that business over time. And the accounts that we seed them with come from existing sales reps. Another thing Kenny talks about is now that existing sales rep can grow their book of business by backfilling that customer that they have transitioned to a net new hire. Equally important, John, by having significantly improved colleague retention year-over-year, we're going to have less account churn at Sysco. So think about last year, if a colleague departed, their book of business was multiple dozens of customers that needed to be reassigned to existing sales reps. That decreased our existing sales rep's ability to go out and prospect. We're now very stable in our turnover. In fact, more new people are interested in working at Sysco than in my 6 years here. That stability improvement increases the ability to be out prospecting. Last but not least, AI360 also includes a tool to help with prospecting. It's essentially a maps app that provides our colleagues with visibility to accounts they should and can be targeting within their selling geography, giving them suggestions on what to sell. For the colleagues that are using that maps app, they are speaking to us specifically saying it's helped them close more customers and helping them do their prospecting work more effectively. Kenny, anything to add to that?

Yes, we're very satisfied with the progress we've made on AI360 and Perks. For instance, with AI360, we have observed a correlation between usage and results. Although it's still early in the process, we are definitely noticing that increased usage leads to better outcomes. Additionally, the results are not only boosting sales conversion but also shortening the time it takes to achieve full productivity. You can think of it as a tool that helps identify potential customers and enhance sales conversion, while also serving as a learning aid for our sales colleagues. This contributes positively to our financial performance as well. Overall, I believe things are going very well, and importantly, we do not rely on AI360 or Perks to meet our targets this year; they represent additional growth potential beyond what we currently have.

Thank you, gentlemen. Again, ladies and gentlemen, this will bring us to the conclusion of today's conference call. We'd like to thank you all so much for joining Sysco's First Quarter Fiscal Year 2026 call. Again, thanks so much for joining us, and we wish you all a great day. Goodbye, everyone.