Kenny K. Cheung; CFO & Executive VP; Sysco Corporation
Kevin J. Kim; VP of IR; Sysco Corporation
Kevin P. Hourican; President, CEO & Director; Sysco Corporation
Neil A. Russell; Chief Administrative Officer; Sysco Corporation
Alexander Russell Slagle; Equity Analyst; Jefferies LLC, Research Division
Jeffrey Andrew Bernstein; Director & Senior Equity Research Analyst; Barclays Bank PLC, Research Division
John Edward Heinbockel; Analyst; Guggenheim Securities, LLC, Research Division
John William Ivankoe; Senior Restaurant Analyst; JPMorgan Chase & Co, Research Division
Joshua C. Long; MD & Research Analyst; Stephens Inc., Research Division
Kendall Belinda Toscano; Research Analyst; BofA Securities, Research Division
Mark David Carden; Associate Director and Associate Analyst; UBS Investment Bank, Research Division
Good morning, ladies and gentlemen. Welcome to Sysco's Third Quarter Fiscal Year 2023 Conference Call. As a reminder, today's call is being recorded. We will begin with opening remarks and introductions. I would like to turn the call over to Kevin Kim, Vice President of Investor Relations. Please go ahead.
Kevin J. Kim
Good morning, everyone, and welcome to Sysco's Third Quarter Fiscal Year 2023 Earnings Call. On today's call, we have Kevin Harkin, our President and Chief Executive Officer; Kenny Cheung, our Chief Financial Officer; and Neil Russell, our Chief Administrative Officer.
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 July 2, 2022, 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 be found in the Investors section of our website.
To ensure we have sufficient time to answer all questions, we'd like to ask each participant to limit their time today to one question. If you have a follow-up questions, we ask that you please reenter the queue. At this time, I'd like to turn the call over to Kevin Hourican.
Kevin P. Hourican
Thank you, Kevin, and good morning, everyone. We will start today with a brief review of our financial performance. We will then highlight how we continue to grow share profitably. And as is our custom, we will provide a brief update on select elements of our Recipe for Growth strategy.
I will then introduce Kenny Cheung, who joined the team a couple of weeks ago as our Chief Financial Officer. Kenny will share a few thoughts about what attracted into Sysco in his initial observations. Neil Russell, now on the Chief Administrative Officer role, will provide a detailed update on our third quarter financial results our balanced approach to capital allocation. And lastly, he will provide additional commentary around guidance.
Our Q3 results, as displayed on Slide #6 show continued double-digit top and bottom line growth. We grew faster than the overall market profitably, driving case volume growth of 6.1% across our U.S. foodservice business and total sales growth of 11.7%. Our positive momentum was aided by strong performance from our International division, with segment profits nearly doubling year-over-year. Our total company adjusted operating income and adjusted EPS to approximately 27%, resulting in the highest ever third quarter profit in company history.
Importantly, sequential improvements in our supply chain operating expenses resulted in solid operating leverage. I am pleased with the progress that we are making in supply chain productivity and overall expense control. We delivered strong sales growth throughout the quarter despite some industry softness beginning in March. Core traffic to our customers moderated in March, negatively impacting the sales volume in the most important month of the quarter. Third-party data indicates that the overall market volume decelerated through slight growth in March softer than had been expected within the restaurant segment. Additionally, the rate of inflation year-over-year declined at an accelerated rate during the quarter. This pattern of lower volume and lower inflation put pressure on total sales and gross profit for the quarter.
A lowering of the overall inflation rate is a good thing for the industry for the long term, but we need to carefully navigate through the reduction period. These two factors, lower traffic and lower inflation are now expected to continue throughout our fourth quarter. Offsetting these near-term headwinds, we expect our progress with supply chain productivity and overall expense control to also continue into our fourth quarter. Putting all of these factors together, we now expect to end the year near the bottom of our adjusted EPS fiscal 2023 guidance range of $4 to $4.15.
Recall that last quarter, we outlined that the low-end guidance scenario considered softer macroeconomic and industry performance, which is exactly what we experienced in March. On that call, we also outlined our focus on driving fundamental improvements in our cost structure. By improving supply chain productivity and driving up costs across the entire company. Our objective was to deliver gross profit growth greater than expense growth, enabling operating leverage expansion. We delivered on that objective in the third quarter, delivering our highest ever Q3 profit at Sysco. We remain very focused on productivity improvement, and we expect our efficiency actions to accelerate into the fourth quarter.
At Sysco, we are playing the long game, and we are investing to win through our Recipe for Growth strategy. We are increasing our fulfillment footprint of distribution centers. We are improving our digital tools. we are enhancing our selling process and technology. These efforts are building momentum, and we remain on track to deliver our growth target for fiscal '23 of growing 1.35x the market.
Despite what has become a more challenging macro environment, we are confident in our ability to differentiate versus others in the marketplace and create preference with our customers. We are also prepared to handle the challenges at a slowing macro and lower inflation rates will present to our P&L. We are hyper focused on what we can control. This means executing our sales playbook of driving profitable growth and improving our logistics expenses. I am pleased to report that in the most recent quarter, we made meaningful progress in our supply chain productivity.
As you can see on Slide #8, we delivered improved retention, improved labor productivity and improved overall expenses. While our operating expenses remain elevated compared to historical standards, Q3 marked a major step forward in sequential improvements. We continue to have healthy staffing levels, and we are increasing our fill rates to our customers. These factors are helping Sysco improve our Net Promoter Scores. We will continue to make progress in operating efficiency and improving customer service into our fourth quarter.
We profitably grew our volume and sales this quarter with U.S. foodservice volumes up 6.1% and local case volumes up 4.2%. Sysco continues to succeed versus the overall market. And as I stated a moment ago, we are on track to deliver our stated growth target for the year. We delivered compelling business performance in our specialty businesses this past quarter with notable gains in our Italian platform, and we continue to see very strong performance from our FreshPoint produce business. Winning in the specialty space is a priority in Sysco as our market share is below our fair share in these fast-growing and higher profit margin segments.
Sysco brand continues to succeed with increased penetration year-over-year of 29 basis points in U.S. Broadline and importantly, growing over 100 basis points in the U.S. local segment. This progress creates a mix benefit. As each additional Sysco brand case adds to our profit rate due to the higher margin and positively impacts customer retention due to the unique value proposition of Sysco Brand products. Additionally, I am pleased to report that our sales consultant retention remains at record high levels as our sales reps have adapted well to our improved sales enablement technology, pricing platforms, and our compensation program.
And speaking of our compensation program, we plan to implement changes to the program at the beginning of the coming fiscal year. These changes will provide even more incentive for our industry-leading sales reps to grow their business profitably. The updated program is being tested currently in a U.S. region, and the early indications are positive. The modifications to our program came directly from feedback from our sales force.
Turning to the Recipe for Growth on Slides 9 and 10. Our key initiatives are winning in the marketplace and fortifying our leading position in foodservice. We continue to drive compelling profitable growth as we expand Sysco Your Way Neighborhoods across the U.S. and internationally. As we highlighted at our recent CAGNY conference presentation, we are now live in over 300-plus neighborhoods across five countries. We will expand the program further in the coming quarters. The results from this customer-focused program continued to exceed our expectations, delivering double-digit top and bottom line growth.
Additionally, we continue to gain momentum with Sysco Perks. We have now enrolled more than 11,000 customers into the exclusive loyalty program. Sysco Perks is our invitational loyalty club, providing members with white glove service. Membership benefits include deliveries up to six days a week, exclusive access to rewards and industry-leading restaurant solutions to help our customers grow their business. When our customers succeed, we succeed, and we believe Sysco Your Way and perks are two outstanding programs to help our customers be successful and differentiate Sysco from our competition.
Lastly, we continue to make excellent progress with enhancing our digital tools. In the most recent quarter, we launched critical enhancements to our Sysco ordering platform called SHOP, and we further enhanced our sales consultant CRM tool, making it even more clear to our sales consultants the key priorities for each customer visit. The improvements to shop in our CRM will drive increased penetration with existing customers.
Turning to our next topic. We are excited to welcome Kenny Cheung to the Sysco family as our CFO. We conducted an exhaustive global search for our next CFO, partnering with industry experts in talent placement and talent assessment. I'm thrilled that we have the opportunity to find and hire Kenny. Kenny joined Sysco with nearly 20 years of financial and operational executive experience, most recently having served as the CFO at Hertz. Prior to Hertz, Kenny had operational and financial roles at Nielsen, and he started his career with GE. Kenny has extensive financial, operations and international experience. When coupled with his learning agility and financial acumen, we are confident that he will help Sysco profitably grow our business. Kenny leads with a hands-on approach as a team player, and we believe he will be a strong cultural fit for Sysco, something that was essential to me in the search process.
I want to publicly acknowledge Neil for his great work over the past few months as our interim CFO and congratulate him on his expanded new position at Sysco. I'm excited that Neil is in the newly created position of Chief Administrative Officer. In that capacity, Neil will help us ensure that our strategic initiatives are on track, including program governance for our expansive Recipe for Growth strategy. He is a trusted partner, and I greatly appreciate his leadership impact. With that, I'll now turn it over to Kenny.
Kenny K. Cheung
Thank you, Kevin, and good morning, everyone. I am thrilled and honored to serve as the CFO of the world's largest foodservice distribution company. So why Sysco? I am excited to join the company at such an opportunistic and transformational time. Notwithstanding recent market dynamics, the food away from home industry is healthy and growing, currently a $350 billion industry with continued long-term growth tailwinds. Furthermore, one of the most attractive parts of joining this exceptional leadership team is a robust opportunity to build on our leadership position across the global markets we serve, size and scale matter in this industry and I believe in the bold transformation that is already yielding dividends for our business.
Sysco has a long history of generating robust operating cash flows and engaging in prudent M&A while maintaining a strong history of returning cash back to shareholders. It all starts with our purpose, which is to connect the world to share food and care for one another. Combining our purpose with our unwavering culture for operational excellence and compelling investments around technology, products and solutions and supply chain productivity are important actions. We believe these and other actions render structural accretive value, which will compound with our scale and continue our profitable market share growth.
In this role, I plan to leverage my background of adding value for large global companies that are customer service centric. My experience also includes driving field labor productivity profitably growing both contracted and short-cycle business and innovating to create value for our customers. Delivering consistent results will come from our industry-leading people, products and solutions. Remaining disciplined with supply chain inventory management and capital allocation will be critical to my role as it is all about maximizing return on invested capital and sustainable growth.
Lastly, I understand and appreciate the importance of driving environmental sustainability initiatives with Sysco already on a great path under Neil's leadership. While only here for a few weeks, I am impressed with the bench strength of the financial organization and the passion that my fellow colleagues have for the industry and the company. I look forward to working hand-in-hand with the wider team as we celebrate our Recipe for Growth strategy and further our #1 position. The future is extremely bright. We have a unique opportunity to build on our leader position and to define the future path for the food service and supply chain ecosystem. I look forward to working with you all.
I will now turn it over to Neil, who will provide additional financial details.
Neil A. Russell
Welcome, Kenny, and hello, everyone. I will start today with a review of our third quarter financial performance and then discuss our expectations for the full year to go.
During my discussion today, unless otherwise stated, all results are compared to the same quarter in the prior fiscal year. As highlighted in our news release issued earlier this morning, and on Slide 14, which is posted on our website, we delivered double-digit year-over-year growth in both top and bottom line results. And we continued our balanced approach to capita allocation. all in the midst of an evolving macro backdrop.
Let me begin with a summary of our third quarter results. Sales grew 11.7%, with U.S. Foodservice growing at 10.4% and continued positive momentum in our International segment, which grew at 18%. Volumes grew year-over-year and also improved sequentially. The U.S. Foodservice segment, which includes our Broadline, FreshPoint, Italian and other specialty businesses grew 6.1% and local case volumes increased 4.2%. Adjusted gross profit for the third quarter increased 12.8% to $3.4 billion with adjusted gross margin improving 18 basis points to 18.2%. Gross profit dollars per case grew in all four segments, marking the seventh consecutive quarter of such growth.
Our gross profit dollar and margin percentage improvement during the third quarter reflected our ability to continue to effectively manage product inflation, which moderated to 4.9% for the total enterprise, down sequentially from 8.3% during the second quarter of this fiscal year. The improvement in gross profit was also driven by incremental progress from our strategic sourcing efforts as well as improved penetration rates from Sysco Brand products.
Overall, adjusted operating expenses were $2.7 billion for the quarter or 14.3% of sales, a 32 basis point improvement from the prior year. This quarter included transformation investments of $60 million. Excess overtime costs, otherwise known as productivity costs were reduced all the way down to 0 during the third quarter. As we improve our cost performance, we have now eliminated both snapback and these productivity costs. All four operating segments again showed increases in profitability year-over-year including substantial growth in the International and Sigma segments.
As seen on Slide 18, adjusted operating income for the enterprise increased by 27.8% and to $736 million. This is the highest adjusted operating income results for the third quarter in Sysco's history and is now the third consecutive quarter of record quarterly operating income an important signal of the progress being made at Sysco via a recipe for growth. This quarter continued to show gross profit dollar growth outpacing operating expense growth another important illustration of our financial improvement.
For the quarter, we grew adjusted EBITDA by 19% to $900 million. Regarding the balance sheet, our solid investment-grade rated balance sheet, strong cash position and healthy liquidity remains a competitive advantage. We ended the quarter at a 2.8x net debt to adjusted EBITDA ratio. In the third quarter, we repurchased 1.5 million shares and year-to-date, we have now repurchased 4.6 million shares. We are now at nearly $400 million of share repurchases for the year, nearing our goal of up to $500 million.
Inclusive of our dividend payments, Sysco has returned a total of $1.1 billion to shareholders thus far in fiscal year 2023. Of note, the Board approved last week another annual increase in Sysco's dividend, continuing the long-standing tradition of regular increases in solidifying our position as a dividend aristocrat. As a reminder, we remain well positioned in the current rising interest rate environment, with approximately 95% of Sysco's debt being fixed at attractive rates. Lastly, we are well positioned with our debt laddering schedule with staggered maturity dates over time.
Let's turn to cash. As shown on Slide 19, year-to-date, cash flow from operations was strong at $1.4 billion, a $680 million improvement over the prior year. Net CapEx increased to $446 million as we continue to invest in our Recipe for Growth, particularly with respect to our planned investments in fleet and distribution facilities. This includes three expansion sites and seven new facilities in the next few years as we deliver new capacity in high potential markets and high-growth cuisine segments. Our investments are driving positive returns, and we plan to remain prudent with capital allocation with a focus on ROIC maximization.
Free cash flow was very strong during the third quarter, increasing to $980 million year-to-date. This improvement was driven by disciplined inventory management and a positive change in working capital during the quarter. We ended the quarter with approximately $758 million in cash on hand and over $3 billion in total liquidity. As seen on Slide 22, our ESG or sustainability efforts advanced with the unveiling of our first electric vehicle hub in Riverside, California last month for Earth Day. This is the world's first electric vehicle hub of its kind, consisting of electric tractors and electric trailers fueled by renewable solar energy. These trucks are rolling, serving our customers as we speak with more on the way.
Our industry-leading climate goals also include a commitment to work with suppliers representing 67% of our Scope 3 emissions to set their own science-based targets by 2026. Importantly, our focus on sustainability and diversity, equity and inclusion is not only the right thing to do, we believe it will be good for business in the long term.
Lastly, looking ahead to the remainder of the year and beyond, we now expect diluted adjusted earnings per share near the bottom of the previously disclosed range of $4 to $4.15 per share. While Sysco continues to outperform the market due to the success of our Recipe for Growth strategy, the recent market softness is creating incremental business pressures impacting case growth and lower inflation. These macroeconomic headwinds are impacting traffic levels for some of our customers, resulting in slower traffic levels across the restaurant industry. To offset this, we are actively managing our portfolio and continue to expect further improvements in cost-out activities and supply chain efficiency for the remainder of the year.
Additionally, inflation remains on target for a low single-digit rate in Q4 of this fiscal year. As a result, we expect the fourth quarter to reflect a similar positive trend of gross profit dollar growth outpacing operating expense growth. Specific to share repurchases, we remain on target to repurchase approximately $500 million in shares this fiscal year.
With that, I will now turn the call back over to Kevin for his closing remarks.
Kevin P. Hourican
Thank you, Neil. As we conclude, I'd like to provide a brief summary on Slide #24. Our Q3 financial performance reflects another record quarter, delivering adjusted operating income growth of over 27% to $736 million. Our profit leverage improved in the third quarter with gross profit growth outpacing operating expense growth. We expect that performance to continue in the fourth quarter.
Industry macro volume trends softened in March, which we expect to continue into Q4. We are also experiencing lower rates of inflation, a trend we expect to continue through Q4. These two factors are partially offset by significantly improving supply chain productivity performance. No one is better prepared to manage a choppy macro landscape than Sysco. Why Scale matters in this industry. purchasing scale, logistics route efficiency scale, inventory optimization scale. But even more importantly, customer diversification scale.
At Sysco, we serve restaurants up and down the price point spectrum. And also have a large nonrestaurant customer base. Many of our sectors are recession proof, for instance, education and health care. Other segments are still in recovery, travel hospitality and business and industry. Within our restaurant segment, given that we serve all restaurant types, we retain case volume if and when customers trade up or down within restaurant customer segments. At Sysco, we are steadfastly focused on what we can control. We are focused on winning new business and in penetrating additional cases with existing customers. As importantly, we are focused on improving our supply chain efficiency. Food away from home is a healthy long-term market, and we are prepared to be successful regardless of the short-term macro environmental conditions.
Lastly, Sysco remains deeply committed to our strong and stable balance sheet, disciplined capital allocation and delivering continued returns to our shareholders. Our status as a dividend aristocrat remains a priority and we are proud to carry that distinction going into our 54th year. Sysco is a resilient and diversified company with scale advantages. We are increasing our scale advantages through our Recipe for Growth strategy. We are confident that our work product will deliver strong profit growth and compelling returns for our shareholders. Operator, you can now open the line for questions.
Question and Answer Session
Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session.
(Operator Instructions) Your first question will come from Mark Carden at UBS.
Mark David Carden
I wanted to dig in a bit more on what you're seeing on the labor front. I know the recent strikes you experienced were quite a bit smaller in nature than the ones that took place in October. But are you expecting industry wage headwinds to intensify much more than you originally expected over the course of the next few quarters? And does this impact how you're thinking of offsetting cost outs and what's necessary on that front?
Kevin P. Hourican
Great. Mark, this is Kevin. Thanks for the question. I'll start just acknowledging the strike situation and then directly answer your question. I just want to thank our operations team, first and foremost, for the agility that they displayed during the unanticipated strikes in the most recent quarter. Within 24 to 48 hours, we were up to full shipping capacity, able to support our customers and communicate effectively with our customers, which is not an easy to ask given the amount of business that we do on any given day at Sysco.
Point two for me is Sysco pays above-market wage rates, and we provide extremely compelling benefits to our associates. That has not changed and that will not change. We will be a leader in wage and benefits. For example, drivers can make more than $100,000 a year at Sysco. It's a good paying job. Unfortunately, as Mark you indicated, there were some strikes in the most recent quarter and the one that impacted our Q2 for up in Boston. These are things we're working through. We will continue to be fair to our colleagues and also manage our P&L for the long term during our discussions with our labor partners. Our goal is to have a solid relationship with all of our labor partners and to treat our colleagues with respect and the dignity that they deserve, and we're committed to doing that.
As it relates to wage, we'll talk about that more in August when we provide our fiscal '21 guidance. I want to be clear that the type of increases that we're experiencing are not game changing. I know that restaurant names in retail names. I've talked about double-digit plus type annual wage increases. We are not experiencing that at Sysco, and that's something we'll provide you with more clarity and specificity about on our August call.
Mark David Carden
And then as a quick follow-up to that, you've referenced improvements in overall labor productivity. At this stage, how close do you think you are to getting back to normalized labor productivity levels, both on the select or front and the driver front. And then how much of an impact do you think you're seeing to date from the new academies?
Kevin P. Hourican
Yes, Mark, thanks for the follow-up. Really pleased with the rate of progress that we made in Q3 from a supply chain productivity perspective. I like to start at the start, which is we are fully staffed. So we are a fully staffed network. We're beginning to experience improved retention because over time, rates have come down. And obviously, that flows through positively to our P&L.
The types of things that we have done to drive that behavior in action is, as you mentioned, the academies for having a meaningful impact on reducing turnover for our new hires. Improving productivity for our new hires. We have fully implemented engineered labor standards in our Transportation division. We've always had that for warehousing, and we now have it for transportation, which allows us to provide our colleagues with proper coaching and recognition when they're doing well and to help a new person or a person who is not at the level of productivity and throughput that we desire to understand how they can individually improve.
We're improving how we flex our labor to match the volume for any given day in any given week, which allows us to, again, hit the desired productivity. And we're really pleased with the exit velocity of our productivity in March, and we anticipate in our Q4 of this year that we will make continued progress. As I mentioned on the earnings call transcript, we're still at an elevated level of cost versus our historical norm. And therefore, there is still progress to be made and that progress will carry into 2024. We anticipate supply chain costs as a percent of sales will come down year-over-year. And we'll provide you more clarity and specifics behind that on our guide that we will provide you in August. Neil has one comment to add to that. Neil, over to you.
Neil A. Russell
Mark, it's Neil. I hope you're doing well. Listen, just a quick follow-on here. You heard in my prepared comments. A comment about productivity costs. So as you know, over the last several quarters, there are a couple of cost categories that were impacting the business that we've made great progress on and one of which, of course, is directly related to your question.
First of all, we had, in our cost basis, what we called snapback costs those types of costs that were related to the hiring of a large wave of new colleagues as we improved and increased the volume in our business. And those costs originally as high as nearly $70 million in the quarter, it came down to $30 million. It came down to $20 million to $10 million. Those were eliminated last quarter. And now similarly, productivity costs, which you really should think about is excess overtime associated with the staffing and productivity in the business to the point of your question, were $40 million, then they were $20 million. Those also now are down to 0. So having made progress on both the snapback cost and productivity costs being eliminated, if you will, is really good signals of progress to Kevin's point.
Your next question comes from John Heinbockel at Guggenheim.
John Edward Heinbockel
Ken, I wanted to start real quick with -- so Sysco, your way, if you could sort of frame the most -- the newest markets that you've entered, how they're performing, right, versus some of the earlier ones right, getting better at executing this. And then I think in the past, you thought that was a $1 billion opportunity. Do you still think that's true? Or is it bigger than you thought perhaps?
Kevin P. Hourican
Thank you for the question. We're really pleased with the performance of Sysco your way specifically as we roll out additional new neighborhoods, we're not seeing a diminishing of the impact as each individual neighborhood comes on, think you've heard me talk about that before Is the Hawthorne effect. When you launch a pilot, it does great, but then you attempt to scale it and it diminishes over time, we are not seeing that at all. Each and every neighborhood that we launch comes out of the gate strong and actually sequentially improves month-over-month and quarter-over-quarter. And the line that, that happens is twofold.
Again, remember the truck is there literally every day, twice per day. The sales rep is walking the beat as we call it every day. and we win new customers on a sequential basis because we're showing up every day and knocking on the door and saying, do you need anything? Do you need anything. And then within existing customers, we can win categories that they perhaps were buying from a specialty distributor like a specialty house. or premium protein House and a dairy house. We're gaining that specialty business and putting it on our truck, and then we're winning new doors within the neighborhood. So each additional neighborhood that we launched were pleased most impressively, we're now live in five countries, and the model is scaling in every country that we've launched it in.
Most recently, we launched it in Stockholm, Sweden. And right out of the gate, the results have been really strong. So internationally, it's working. Domestically, it's working. We anticipate that, yes, John, it will exceed will be on target versus the $1 billion that we have quoted, and there's the potential for upside, not prepared today to talk about what level of upside, but we're really pleased with the performance.
We're also pleased with the performance of Sysco Perks, which is our loyalty program. If I may, I do get a lot of questions, Kevin, what's the difference between Sysco Your Way and Perks. I'm kind of confused. I want to be really clear. Sysco Your Way is about the neighborhood, and it's a couple of streets in a town that have 50-plus restaurants on those one or two streets. And it's about providing next level of service to those specific neighborhoods.
Perks is the opposite of that. It's a customer who's not in one of those neighborhoods that's one of our best customers. It's an invitation-only program. We invite customers in and we provide them with whiteflservice, marketing services in culinary engagements. And that program as well, which is now more than 11,000 customers enrolled is exceeding our expectations.
John Edward Heinbockel
And then one quick follow-up. You mentioned the comp change that you're testing I think that relates to the sales consultants, right, that side of the business? And is that -- I assume that is some form of hybrid commission right? Because I don't think you're going to full commission, but some hybrid. Is that fair? And then what do you think the greatest impact is on the business?
Kevin P. Hourican
John, thank you for the follow-up. And you're directionally accurate on where we're headed. So for everyone else who's listening, go back to pre-COVID, the Sysco sales consultant was on a full commissioned model. During the Covid, because the business dropped significantly. We did the right thing for our sales consultants to retain them when we converted to a base plus bonus model. where they earn a livable wage through a base pay and then they have opportunities to make money through bonus criteria and that criteria can change quarter-over-quarter. To have behavior that we desire to see from that population for a while, it was Sysco brand, and then we were focused on helping our customers engage with Sysco Shop.
And John, yes, where we're headed for this coming fiscal year is to put even more incentive in front of the sales consultants for them to profitably grow their business. And the more cases they get put on to a Sysco truck, the more they make, and obviously, the more Sysco mix as a result. So we're going to keep the base pay component of what we have because we like that element. It drives retention and quality of life for our associates with ups and downs that occur in business, but we want to put even more -- put a more incentive in front of them to drive growth profitably. And what we anticipate the action and reaction from that John will be is real hunger on our sales force to go out and win business, penetrate more lines with existing customers and win new business.
So we're testing it, as I mentioned, the results are preliminarily positive. And then we will work on the communication plan and change management plan for our 5,000 plus associates in the sales ranks within the U.S. And we expect it to be very well received because as I mentioned in my prepared remarks, this feedback came directly from our sales results. Excuse me, from our sales consultants, give me more motivation and incentive to go out and win and go out and sell, and we're going to be doing exactly that.
Ladies and gentlemen, as a reminder, we are asking that you limit yourself to one question. And if you have a follow-up, please requeue. Your next question will come from Joshua Long at Stephens.
Joshua C. Long
I was hopeful we could dig into some of the digital tools that you called out, Kevin, sounds like strength in Sysco shop and then also your sales associates CRM tool are performing well. Just curious what you could share in terms of the learnings that you've seen to date, where you might lean into going forward to the extent you could share that? And then also just how do those tools and others that you have help you manage the pace of inflation you mentioned being really important, but how do you use those tools to really navigate this current environment from a pricing and just cost management perspective?
Kevin P. Hourican
For the question is two parts, so I'll address it as such. On the digital side, can't thank our digital team and our business team enough for the progress that we're making in our digital tools. So a big shout out to Sysco technology teams.
Let me just break it down into the two most impactful pieces that are helpful to the customer, and then I'm going to answer the inflation question through the third prong, which is pricing technology. For digital, Sysco Shop as our ordering platform, we just continue to make meaningful progress in the usability of that tool, improved navigation. There are categories of product that we sell like supplies and equipment, which is a very high margin category for us. that was really difficult for our customers to shop in the past. They had to go to a separate website called Supplies on the Fly, and we're increasing significantly the accessibility of those high-margin categories and products, improving the search results improving the navigation capability of the website.
But here's where it's most powerful, nonintrusive pop-ups to our customer to help them make good choices in their order that they place. For example, forgot to put into that order an item that we know they order regularly. There will be a dialogue box that pops up at multiple places throughout their shopping experience to remind them of that, and they have to interact with it in order to be able to proceed forward in a nonintrusive way. We're providing them with suggestions on things that they should be buying that we know based on the cuisine that they are in and the products we're buying that should be riding on a Sysco truck. And we're integrating that with pricing. For example, if they have not bought that item before, we can offer them a new item pricing discount because if we're able to win that item that we've never sold before, that is meaningfully margin accretive for Sysco because the most profitable case put on a Sysco truck is the next case going on a truck to an existing customer that were already routing the driver to deliver to.
So those are just examples, improved navigation improved shopability, suggestions for things that should be in fact, placed on the order. But here's where the digital and human piece comes together effectively at Sysco in unparalleled ways versus our past. There were same suggestions that we're providing to the customer on shop are now being conveyed to the sales rep through our CRM tool in a very dynamic way. And there are two methods by which this can be activated. One is preparing for a customer visit. They can go into the customer tab of our CRM, and they can see explicitly the types of deals and the types of offers that have been put in front of the customer that they may or may not have purchased from. They can follow up specifically on those offers.
We are seeing step level increases of engagement from our customers when that customer has seen the offer digitally and also it's been presented to them from their sales rep. And that's the power of Sysco. This is not a pure digital business. This is a relationship business. Our sales reps are culinary pros. They have intimate relationships with our customers, but now they're empowered with specific offers for that customer unique to their cuisine type. And again, the power is the digital and human experience in these two tools, our CRM and our SHOP platform are talking to one another in a way that they never have before. And I call that visits with a purpose.
What are the two or three things that I need to get done today when I visit this customer, and we can track it. We can track it at the colleague level, who is closing at a higher rate than the average, who is closing at a rate lower than the average, and we provide obviously selling coaching to go along with that. So super pleased with our tools and the progress we're making.
The second half of your question was about inflation and how are we managing it through our tools. This is where our pricing platform tool is enormously helpful. As Neil has said before, and I'm going to talk to him in a minute for a comment, the local street business is an efficient market. As cost of products are going up quickly, those cost increases are passed on in that market. And the same is true, if costs are coming down. The customer expects to be able to see a lower price on their order with Sysco and others that we compete against.
Our pricing tool allows us to manage that environment in a dynamic way at the item level for each and every customer. I'm really pleased with how this company performed when we were dealing with this time last year, 15% inflation. And now that we're dealing with the opposite, which is a disinflation environment. We are using those tools to be thoughtful and strategic. We call the right on price versus the market. And our scale advantages of purchasing allow us to get the net lowest cost for Cisco we can, in fact, pass on value to our customers and win share profitably. Neil, I toss to you for additional comments.
Neil A. Russell
Yes. Thanks, Kevin. Just a couple of headlines for you. The impact of these things that Kevin has been describing. So gross profit dollars growing at a pace faster than expenses now for two quarters in a row is the end result of the improvement in these tools and processes that Kevin was describing and there's one other tool in the toolbox that is helpful for that gross profit dollar growth, and that, of course, is Sysco Brand. Which has performed very well for us recently, now at 36% of what we sell to our local customers and about 46% -- I'm sorry, 46% of what we sell to our local customers, 36% and what we sell overall, a very powerful tool in the toolbox of managing fluctuations in inflation and the power of the gross profit dollar growth.
So all those things combined are leading to that improved progress of that leverage that we speak of.
Your next question comes from John Ivankoe at JPMorgan.
John William Ivankoe
It's related questions or points, I suppose. First, what is the nature of the customer type slowdown that you saw in March into April? Is it full-service independent restaurants or local customers, which I think is one of your highest profit customers. So if you don't mind addressing that?
And then secondly, the slowdown in inflation, if you could talk about what cost categories it's happening in? I mean are these categories that are most likely sold to street accounts? Or is there a cost plus a dollar component to that or cost plus percent component to that? Just wanted to get some more clarity of what's happening beneath the surface on inflation.
Kevin P. Hourican
Okay. John, it's Kevin. I'll start, and I'll toos to Neil for additional comment. Just a little more color on what we experienced in March, and obviously, that's built into how we described our expectations for Q4 and now for the full year. March restaurant traffic did slow down in March. I think that's pretty well understood. Restaurant names, credit card data purchasing, et cetera, did convey a slowdown in March traffic.
Now also, to be clear, January and February were benefited by a pretty large year-over-year tailwind tied to Omicron. But again, the March traffic was a bit slower than what had been expected. And we are expecting that to continue into our Q4. Now we expect Sysco to outperform versus the market. We're going to win share profitably, and we are committed to delivering on our growth targets. It's just a more overarching comment about traffic.
No notable callouts Mark, on trade down. I know that's often a question within sectors and within segments of our book. The traffic that we experienced was kind of across the board, across our restaurant names that we cover. Specific to inflation, I would like to provide a little more color in that regard. The number, the print for the quarter was 4.9%, as Neil said in his prepared remarks. The quarter started a bit higher than what we expected and it ended a bit lower than we expected.
So mathematically, what that means is the rate of disinflation in March was steeper than we had anticipated. Now we're prepared to manage that. As I mentioned a second ago in answering Josh's question, for the long term of this industry, lower inflation is a good thing. I want to be really clear about that. This time last year, we were dealing with 15% inflation, and we were receiving lots of questions from investors about the impact on that inflation would have on consumers like and consumer demand and when it decrease what traffic the restaurant. So the fact that the inflation rate is coming down is a good thing.
With that said, we need to be thoughtful and strategic about how we manage the transition from double-digit plus inflation to what we're expecting in Q4 to be low single digits. We have a tool to be able to do that, and that's our pricing tool. I'll reinforce a couple of key points, which is our purchasing costs because of our scale advantage is the best in the industry. And we have the opportunity to be strategic and thoughtful about passing on value when it is created to those end consumers.
Specific to your point about product ceticategories, I think the easiest way to answer that is what categories last year were most inflationary. And John, it was mostly center of plate. So I think you remember this time last year, protein specifically was in the 30% to 40% inflationary space in that subcategory and category went deflationary for a period of time. And what we say all the time is it's not about a category, it's about the overarching book of business. And while protein was deflationary. Our overall book average was plus 4.9%.
And then one much more comment about that. We're actually getting indications from the supplier community that beef will begin becoming inflationary again in the coming year because of some challenges on the production end of that particular product set. Neil, I'll toss to you for any additional comments.
Neil A. Russell
Thanks, Kevin. Just a little bit of color and commentary around some of those points. At any given point in time, that have some categories that are inflationary, like currently for us day some that are deflationary like for us currently poultry and some that have swung, as Kevin just talked about. So beef, which was recently deflationary is now becoming inflationary for us. And it was the pace of disinflation, particularly in March that changed a bit. And we ended, as Kevin said, the quarter at about 5% for the total quarter in terms of inflation.
The local customer market is fairly efficient in terms of how you pass this through. And on the chain or multiunit side, you have longer visibility with the contracts that we have with those types of customers. Put all of this together and you still expect low single-digit inflation for the fourth quarter, which, as Kevin indicated, if you were to look over a 20-year time horizon would actually be the preferred rate of inflation for both us and our customers. So that's where we think we are right now back to Kevin for any last point.
Kevin P. Hourican
Yes. Sorry for the 3-part answer to this question, John, but it's just really important for everyone to understand. And as that is happening, as cost is becoming more efficient, and therefore, our ability to provide value to our customers passes through at a lower rate of inflation, a.ka. disinflation. Simultaneous to that, we are taking meaningful costs out of our current supply chain. We are driving improvement in efficiency. And it's those things that need to happen in concert.
And I am pleased with the rate of improvement we are making within our supply chain. And again, the performance you see is for the full quarter in our numbers. I'm really pleased with the exit velocity in March of our supply chain productivity that we measure everything, pieces per labor hour pieces per truck. We literally measure everything. And our exit rate in supply chain productivity and efficiency in March was really strong. So as our inflation rate begins to decline. A.k.a. disinflation, we're bringing costs down at exactly the same time.
Your next question comes from Jeffrey Bernstein at Barclays.
Jeffrey Andrew Bernstein
One follow-up on that last question. the March slowdown that you anticipate continuing through the fiscal fourth quarter. I think you had noted in the release and in your comments that Sysco sales perhaps were maybe stronger or more stable through the quarter. I'm just wondering whether you what do you think there's an opportunity to accelerate market share gains in what's likely a slowdown, presumably, again, scale matters and you've got more options to mitigate. So I'm just wondering if is an opportunity for greater market share gains in an environment like that? And then I had one follow-up.
Kevin P. Hourican
Okay. Jeff, this is Kevin. I'll answer the first question and then toss Steve for the follow-up. So we're bullish on Sysco's ability to win in the market for the long term. We are playing the long game, as I said in my prepared remarks. The recipe for growth strategy is all about better serving our customers in growing our business profitably and enabling Sysco to do so at a rate that is faster than the overall market rate of growth, and we're on track to be able to do that for our third consecutive year.
Specifically, Jeff, what we will double down on during a period of time that would be a slower macro is initiatives and strategies that we know are working. So push even harder and work even faster on Sysco Your way, engage our Sysco Perks customers with the benefits that are available to them because we have proven that a Sysco FERC's member who engages with one of Sysco's programs, and that would be an example, a culinary service, buys more from Sysco on an ongoing basis.
The work we're doing with our website. It's moved faster, improve it even more. Spanish language version of our website is going live so just double down on our ability to advance forward our strategy because our strategy is working, and our strategy is winning in the marketplace. Italian, as an example. We've doubled our market share in Italian over the past year, in large part through the Greco in some acquisition. But remember, the Greco acquisition was about taking that platform nationwide not just cultivating it within its existing geographies. We're making meaningful progress in being able to advance that Italian platform by opening new physical geographies, most recently out in California through an acquisition we did in L.A., and we're going to flip that acquisition to the Greco model and meaningfully grow that business.
So Jeff, we're all about profitable growth and doing so responsibly. And we do believe there's an opportunity, not just in our Q4, but as we head into fiscal '24 to lead the industry from a profitable growth perspective. Toss, back to you for your follow-up.
Jeffrey Andrew Bernstein
I think you ended it with thoughts around fiscal '24. Just wondering, I mean, I know back in the day, you had given guidance, which culminated in fiscal '24. I know it was built off of fiscal '19, I think it was for EPS growth, 30% plus, which at the time equated to 460 or more. I know it hasn't been mentioned of late and we had a reduction in fiscal '23 guidance last quarter and the most recent slowdown now you're talking about the lower end of that range, closer to $4, I guess.
Just wondering whether there is any still relevance to that prior target, whether you see further acceleration of efficiencies or whatnot? Or maybe throw it to Kenny. Just wondering what can you bring to the table in terms of a greater skill set to help to achieve those prior earnings targets?
Kevin P. Hourican
Yes, appreciate the question. This is Kevin. I'll start and then I'm going to toss to Kenny for a comment. Just to be clear, we're going to provide our guidance for '24 at our August call. We are confident in our plans at Sysco to continue to advance our recipe for growth. The strategy is working and what we are confident in or some, let's call it, macro comments. We are confident we can grow our business profitably faster than the industry. We are confident we can continue to make improvements in our supply chain efficiency. Things have important that we'll provide you with more color on in August because we're deep in the throes of our fiscal planning process as we speak.
And that work will happen over the next couple of months is what level of inflation will we assume for fiscal '24, what level of market growth will we assume for '24 and then what more from an efficiency cost out structural perspective, will we specifically be able to account for and book on our plans for '24. So we need to put all that together to provide a reasonable guide for next year. That will come in August. And Kenny, I toss to you for additional comments.
Kenny K. Cheung
Sure. Thanks, Kevin. So a few things from my side of the house. We are entering 2024 with momentum. So keep in mind, we will finish this year in Q4 with record sales and operating income, right? So a lot of momentum entering next year. As Kevin mentioned, there's a few themes that you will see as we unveil the new plan in August next earnings call. One is continuing to take care profitably, right? That's very important for all of us, and that's where refer growth comes in.
Second is we will continue to drive operating leverage in our business. Third is making sure that our balance sheet continues to be healthy and robust from a liquidity, cash and leverage standpoint. To your last question around where do I add value and how I think about these things that I just mentioned, right? As I think about my priorities entering, call it, Q4 and 2024, there's a few thoughts on my mind, right?
First of all, I view myself as a business leader with a finance expertise, right? So I'm a very hands-on operational CFO. So where I work directly with the team and deploy capital where it creates value for our stakeholders. I'm of the mind that one of my job -- first priority is to make sure that we generate -- continue to generate healthy cash inflows from operations, maximize the conversion from EBITDA and operating income and ultimately, continue the high quality of earnings that Sysco has enjoyed throughout the period.
The second piece is continue to partner with the team, right, from a go-to-market standpoint, providing world-class service to our customers. Everything starts with our customers, especially as we grow market share, local, Sysco brands, specialty and the like, which accretes margins for our business. And last but not least, as part of my pedigree in my experience, it's all about per operational excellence, driving productivity and rigor with our supply chain and overall business. A penny for our business is huge, given the fact that we have scale and leverage that we talked about. And this comes full circle to my first point where we must generate cash and flow to invest in our business and to create further value on top of the scale advantage that we enjoy.
Your next question comes from Kendall Toscano at Bank of America.
Kendall Belinda Toscano
So I wanted to ask about the 2023 guidance. But first, I just wanted to see just a quick follow-up in terms of the local customer channel. So you had talked about some initiatives last quarter to accelerate new customer acquisition in that segment. I was wondering if you had any update on that? And then just in terms of the exit rate for the quarter, you said March for, I guess, the total U.S. Broadline segment was kind of exited at a low or slight growth, I think you said. I guess how does that look for local customers specifically? And can we assume it's still running a bit below the national customers?
Kevin P. Hourican
Kendall, this is Kevin. I'll start and then I'll toss to Neil for additional color. So part of it is accidentally there, we got a mixed message between the marketplace which means all businesses and then Cisco specific. So I'll unpack it and make it more clear. The comment about March low growth or slight growth, I believe, were the exact words I used, that's an overall market condition that is restaurant names in aggregate leveraging third-party data and credit card data. That was that comment.
We grew substantially more than that. We grew our local case volume 4% in the most recent quarter and total business which is that's the answer to the second part of your question. Yes, we are growing our non-restaurant business and our CMU restaurant business. That's the contracted long cycle to use Kenny's terms at a faster rate than local. And the lie is twofold. One, Sysco is the industry leader in the non-restaurant sector and that's business and industry, travel hospitality. And those businesses remain in meaningful recovery. So that's not a slight on the local business. It's that we're seeing significant rebound in health in travel. And we're seeing offices reopening. We're seeing more people going back to work on a daily basis. So we're seeing companies extend the number of days per week that you expect their colleagues to be returning to work. So that's -- and we've been tremendously successful in our national sales business.
We stopped reporting the number, but the last time we reported it, it was $2-plus billion of net new wins for national business. And I want to be really clear about that. We did not buy that business. The contracted margin rates for those wins exceeded our historical standards. The reason why companies are partnering with Sysco is our national scale. Our breadth and reach scale matters in this industry and our ability to ship on time and in full and provide competitive marketplace rates shine through strongly over the last couple of years from a national perspective. So that gives you the color.
Our total was 6%. Our local was 4 plus that the volume and the overall market itself in March with slight growth. Our commentary for the Q4, I'm going to toss to Neil for anything you would like to say about that.
Neil A. Russell
Kendall, thanks for your question. As Kevin is talking about here on the industry perspective, we are seeing total growth and albeit, at a slower pace in Sysco outpacing that. It's not as much about the local independent versus the chain or multiunit as much as it is good operators innovating on their menu, offering fresh, local, customizable offerings that map to the end consumer. So I think that's ultimately what we're seeing.
As it pertains to the year and the guidance, a few points that we've made that we continue to emphasize, we do expect to grow sales by at least 10% for the year. And as we talked about, we continue to expect a rate of gross profit dollar growth to exceed the expense growth and continue to leverage that. We talked about the inflation that's looking for us to be in that low single-digit range. And as we talked about here today on the call, we'll expect our earnings per share to be about $4 for the full year.
Your next question comes from Alex Slagle.
Alexander Russell Slagle
I wanted to follow up on the target to grow 1.35x the market in '23 and I guess, further acceleration ahead and how you're thinking about that ramp relative to previous thoughts? I mean it looked like a pretty strong acceleration in the chart I didn't hear whether you reiterated the 1.5x for '24, but just any more color there?
Kevin P. Hourican
Yes, I'll start and then I'll toss to Kenny for any final or additional comments that he'd like to make about '24. Alex. I appreciate the question. So what I said on today's prepared remarks is we're on track for our goal for this year. So are consistently growing more than the market, and that's our third consecutive year of doing that. So we're pleased with the progress that we are making.
Sysco has been the largest in this industry for a long time. We have had the highest as a percent of sales or EBITDA as a percent of sales in this industry by a wide margin for a long time, and we have become a growth company. We are consistently growing more than the industry, and we are accelerating our rate of progress. So the recipe for growth is the why and the how. And the increased allocation of capital specific to footprint, meaning infrastructure. So that's not an increase in the total capital at Sysco. It's -- we said how many buildings do we save that number publicly yet. I didn't want to misspeak. So forgive me for tossing it over to Neil.
We have seven physical buildings in flight as we speak. And those buildings are going to increase our fulfillment capacity in high-growth markets in high rate of success markets for Sysco. In the past, we've called those fold-outs, some of those seven buildings are for our Italian platform to be able to replicate the Greco model in geographies where we don't currently have an Italian platform. So we're bullish on our long term. As I said, we're playing the long game at Sysco. The recipe for growth is working. Perks, Sysco your way, our improved website, our pricing capabilities, the physical infrastructure enhancements that I mentioned Neil was down in California last week looking at Riverside, which is our site that has our first electric trucks. We will be a leader in that space. You can envision a future where Manhattan blocks combustible engines going into Manhattan for delivery. Deliveries must be between midnight and 4 a.m. and need to be on an electric truck. Sysco will be prepared to do that faster than anyone in our industry. So we're pleased with our progress.
We're proud that we just posted the most profitable quarter in the company's history. And obviously, the overall market from time to time, if there were some curveballs. And I mentioned a few of those at the beginning of today's prepared remarks. As it relates to '24, Kenny, I'll toss to you for a final word.
Kenny K. Cheung
Yes. So capital allocation strategy is positioned for growth at Sysco. We are positioned for growth, right? Return on invested capital, as I mentioned earlier, is the lens in which we will operate to ensure that we are getting optimized return for where we deploy capital and resources. So just a bit of my thought on capital allocation. We will, first and foremost, invest in business and growth. That's because capital investments as Kevin mentioned, technology, digital tools, fleet, buildings, infrastructure footprint right? This also includes specific for growth as well. So we -- right now, Sysco has the luxury given the fact that we are generating robust free cash flow to invest in our company, but also return cash to shareholders as well. So right now, I believe that we are well positioned for growth given the healthy balance sheet that we have, that allows us a lot of optionality and flexibility. Thank you, Alex.
Ladies and gentlemen, unfortunately, we have reached our allotted time for today's conference call, so this will be concluded. We would like to thank everybody for participating, and we would ask you to please disconnect your lines.