西斯柯 (SYY) 2009 Q2 法說會逐字稿

Good day everyone, and welcome to today's SYSCO Corporation second quarter fiscal year 2009 earnings conference call. As a reminder, today's call is being recorded.

At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Neil Russell, Vice President of Investor Relations. Please go ahead, sir.

Thank you, operator. And good morning everyone. Thank you for joining us for SYSCO's second quarter 2009 conference call. On today's call you will hear from Rick Schnieders , our Chairman and Chief Executive Officer, Ken Spitler our Vice Chairman, President, and Chief Operating Officer, and Bill DeLaney, our Executive Vice President and Chief Financial Officer.

Before we begin, please note that statements made in the course of 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 of 1995. Actual results could differ in a material manner.

Additional information concerning factors that could cause actual results to differ in a material manner from those in the forward-looking statements is contained in the Company's SEC filings including, but not limited, to risk factors contained in the Company's Annual Report on Form 10-K, for the year ended June 28th, 2008, and in the Company's press release issued earlier this morning.

Please understand that all comparisons given during the call refer to changes between the second quarter of fiscal 2009 and the second quarter of fiscal 2008 unless otherwise noted. Also, all comments about earnings per share refer to diluted earnings per share unless otherwise noted. Also, you will notice a slight format change in the financial presentation portion of our press release issued earlier this morning. Although there are no substantial changes to the information displayed, we believe that the format more closely aligns with our quarterly SEC filings, and makes it easier to identify the relevant financial information.

With that out of the way I will turn it over to our Chairman and Chief Executive Officer, Rick Schnieders

Thanks Neil. Let me comment on my retirement first of all, and as disclosed on the announcement on January 20th, I will retire in June from SYSCO, stepping down as CEO at the end of March. Ken Spitler has been named Vice Chairman, and Bill DeLaney will become CEO on March 31st. Beth and I look forward to this next phase of our lives, and particularly working on issues related to childhood hunger.

I remain steadfast in support of SYSCO, and there is a great team in place. The Board is confident that Ken and Bill together will lead effectively, and continue the tremendous record of success that SYSCO has enjoyed over the years. Now on to the financial highlights for the second quarter and the first six months of fiscal 2009. This morning, SYSCO reported second quarter sales of $9.1 billion, a 1% decrease compared to last year, and for the first six months of 2009 sales grew 2% to $19 billion.

For the second quarter, operating income was $422 million, and operating income increased 2.5% to $927 million for the first half. Diluted earnings per share were $0.40 for the second quarter, and $0.86 for the first six months of the year. We are very pleased with the performance of the Broadline companies in a difficult environment, and we remain confident about SYSCO's long-term position in this industry. Ken and Bill will provide additional details of our second quarter and first half of 2009 results, and I will be back to facilitate our Q&A session.

With that, Ken?

Thank you, Rick. Overall, despite the difficult business environment, I am pleased with our ability to continue to support our customers, while controlling expenses. For the second quarter, operating income was $422 million, and for the first six months of 2009, operating income was $927 million.

Our 2% sales growth for the first half of 2009 was leveraged by 0.5 point to 2.5% operating income growth. Excluding the $54 million impact of COLI, our 2% sales growth for the first half of 2009 was leveraged by 7 points to 9% operating income growth. Bill will provide more details on the overall financial performance, and the implications of COLI in a few minutes.

Without question, the key to our success in this environment is to continue to improve operational efficiency, and I am pleased with how our operations have responded thus far. Examples. Our diesel, gallon usage for the second quarter was down 7.3%, compared to a mileage decrease of 6.2%.

For the first half of 2009, as compared to the first half of 2008, kilowatt hours are down nearly 11%. Cases per trip are up 1.6%. Cases per man hour have improved 5.6% in the broadline warehouses, and sales per employee have increased 6.1%. In addition, sales per employee have increased approximately 20% compared to the end of 2005.

Inflation, as measured by our product cost increases for the second quarter was 7%. Although still relatively high, this represents a sequential decrease of 1.3 percentage points from the first quarter. We experienced this trend throughout the quarter, and the decline in inflation has continued thus far in January.

We expect to see inflation moderate over the long term, as input costs continue to decrease. Clearly, the economic environment presents a challenging circumstances for our customers. As such, we expect to experience a further decline in sales over the balance of the physical year.

We continue to manage headcount in a manner consistent with the sales environment throughout the entire organization. And at the end of the second quarter, we had approximately 48,000 associates, down approximately 4%, or over 2,000 associates across the organization year-over-year. We must continue to find ways to strengthen our core business, and further enhance our supply chain capabilities.

Although I am pleased with our performance to date, we remain committed to continue improving as a Company by looking for ways to gain additional efficiencies in this competitive business. As a result, we have begun to design an enterprise-wide platform to implement an integrated software system, that will provide our operations with the necessary tools to make it easier for our customers to do business with us, and to further enhance our productivity.

We expect to complete the design process by the end of this calendar year, and for the entire project to take place over the course of several years. I am confident that this is an appropriate time to evaluate our technology platform, and improve the efficiencies of our system. I would like to thank our associates for their diligent work to support our customers, and improve productivity in all aspects of our business, and with that, I will turn it over to Bill for a discussion of our financial results for the quarter.

Thank you, Ken. There are a few items I would like to address regarding our second quarter and fiscal year-to-date results.

As Rick mentioned, our operating income was $422 million for the quarter, and $927 million for the first half of the year. Excluding the $31 million impact of COLI in the second quarter, and $54 million impact of COLI for the first half of fiscal 2009, our operating income was $453 million for the quarter, and $981 million for the first half. This resulted in operating leverage of 7 points for the first half of fiscal 2009.

Diluted EPS for the first half of fiscal 2009 remained flat at $0.86. Excluding the $0.09 per share impact of COLI, diluted EPS increased 12% in the first half of fiscal 2009, over the first half of fiscal 2008. We believe this comparison, without the impact of unrealized losses resulting from high volatility experienced in the financial markets during the last several months, better reflects the operating performance of the Company.

Similar to the first quarter, COLI had the impact of increasing our effective tax rate which during the second quarter was unusually high at 40.4%, approximately 1.5 to 2 percentage points higher than our recent run rate. As reflected in our cash flow statement our provisions for losses on receivables the first two fiscal quarters increased $15 million year-over-year. We have consistently communicated that credit tends to be a lagging economic indicator for SYSCO, and we certainly are not immune to the challenges our customers are facing in this business environment.

However, as has always been the case at SYSCO, we continue to have stringent credit policies limiting our exposure. This requires an important balance with supporting our customers, something we have remained focused on. Capital expenditures for the first half of fiscal 2009 were $180 million. In consideration of the current business environment, we have re-evaluated our capital expenditures, and are lowering our projected full year CapEx from approximately $700 million to about $600 million, and will continue to review our spending priorities.

Before I close, I would like to add my comments on the succession plan as well. First, allow me to thank both Rick and Ken for the tremendous support they have shown me over the 20 years I have spent at SYSCO. I am grateful for their support, and excited about the opportunities that lie ahead. I realize some of you may have questions about the CFO succession, so let me just say that it is one of my top priorities, and work has already begun to identify the best candidate for that position. Once we have identified the appropriate person, we will inform you accordingly.

In closing, as Rick said in his quote this morning, these are difficult times, times that require us to focus in all aspects of our business. It will require us to do things differently than we have in the past, to execute better, and at times, to make difficult decisions. That said, we have a very strong balance sheet and cash flow. We are one of only 40 US companies with a corporate issuer rating of AA minus or better. We have a foundation of strength from which to build upon and we look forward to taking full advantage of the opportunities that present themselves to SYSCO.

Before we go to the Q&A, let me turn it back over to Rick.

Thank you Bill. And thank you everyone on the call for joining us today, and for your support of Sysco over the years. This is my last earnings call, and let me tell you it has been a privilege to speak with you about this great Company. I look forward to continuing to be an Ambassador of Sysco in the future.

With that, Operator, we will now take questions.

Thank you, sir. (Operator Instructions). We will take our first question from Meredith Adler with Barclays Capital.

Thanks very much. I would like to talk just a little bit more about, I mean you mentioned a little bit about credit, but maybe talk about it a little bit more, and I know that when you gave us guidance on the sales in the middle of December, you did talk about some customers who were going out of business. Could you talk a little bit more about what kind of closures you are seeing, and how you kind of think that will play out for the remainder of your fiscal year?

Hi, Meredith, it is Ken.

Hey, Ken.

Yes, we have had more closures than we traditionally have been seeing. What I can tell you is the restaurant industry is predicting a closure rate in the mid-teens, and we are not seeing that quite yet, but we are seeing more than normal.

The mid-teens being 15,000 restaurants to 17,000 restaurants. Again, that is a prediction, Meredith. So anybody's guess at this point, but it is challenging out there.

And do you think that your independent customers are better positioned or worse positioned? They obviously can be fairly nimble, but any sense of how they are positioned?

Better positioned than our competitors independents, or better positioned than the chains?

Than the chains.

I think it is probably about equal. Depending upon the operators, it is going to be a challenging environment. Those that are strong and have a good business model, whether they are independents or chains will get through this tough period, and be better as we come out the other end.

Meredith, it is Bill. I don't want to minimize the credit issue, in the context of closures, as you can appreciate not every restaurant that closes is a credit problem. Sometimes people are just taking a hard look at the economy, and making a business decision. We are clearly working through more situations than we have in the past, but it is not quite as bad as the closure number.

And then just another question, I noticed a very, very big decline in Accounts Payable. Is that a typo, or was that right?

No, that is right. I guess on the positive side, I think as business declines the way it did throughout the quarter and even more so in December, we are pleased with the way we are able to manage the DSO on the inventory and Receivables. On Payables, a couple of things going on. Obviously as your business falls off, Payables is more tied to recent purchases and that caught up on us. Holidays fell a little differently and quite frankly, Meredith, we have got some work to do there, in terms of tightening up some things on the Payables side. It is a combination of things but it is not a typo. It is an opportunity.

Because your inventory did not go down anywhere near as much. In fact, inventory was up, it didn't go down.

It didn't go down, but when you look at the DSO, when business falls off like this it is very difficult to manage your inventory. To have relatively flat DSO is pretty good actually when business is falling off.

I just had one final question, maybe for Ken. This new technology, maybe you could just explain, I wasn't sure I understood at all what it was. How does it change your interaction with customers, and does it actually allow you to manage those relationships with fewer people? Does it replace some of the customer-facing folks, or why would you do this? What is the benefit?

Well, it is an ERP system, Meredith, first of all. And the answer to that question is is that we certainly wouldn't be doing this, if we didn't expect a huge benefit to the organization in terms of really two things. One is of course expense reduction, more shared services, and of course on the revenue side, enable us to approach our customer base perhaps with a different look facing.

I think, Meredith, if I could just add, this isn't something we could just roll out of bed in December and say sales are off, we need to do something different. We have been looking at our business pretty hard in the context of plateauing of growth in the industry.

The growth has plateaued as you well know for the last four or five years. Over the last 1.5 years, we have done a very exhaustive internal assessment of how we can, as Ken says, take some of the complexity out of this business for our customers, that would presumably lead to a better opportunity for growth, but also, we are constantly asked about how can we continue to show areas of improvement and we think this is something that could facilitate that.

So we are talking about it here today, because we have begun some internal, what is called blueprinting or assessment work. We have got people working on it. We have purchased some software. With that said, we are in the very, very early stages, and it is going to be one of those situations where we will keep everyone up-to-date as we get through it, but as Ken pointed out, it is going to be several month before we are really through the blueprinting phase, to get into a real granular discussion on costs and benefits and all those types of things.

Great. Thank you very much.

We will take our next question from Andrew Wolf with BB&T Capital Markets.

Thank you. Good morning.

Good morning.

Rick, we will miss you and congratulations on your strategies for really being forthright and seeing the slowdown in restaurants coming and positioning the Company to perform as well as it is, against such a headwind.

Thank you.

My question, I don't know if you addressed this. I got dropped off the call for a second. But if things got worse during the quarter, and you put out a release to that effect, and the government numbers that I track suggest that as well, and you were doing minus 8 for the whole quarter, how much worse is December versus the quarter number? And how is the business looking in January?

Well, the minus 8 number, are you taking the inflation out out?

I am calling that real. It may not be a pure volume number but as a proxy, and I am asking, or you can use the nominal, or any number you want. I am really trying to get to where is the trend today versus December, which was certainly worse than the quarter?

I will start here and keep going if we don't get you a good enough answer. To your question, we saw some very modest growth in the first part of the quarter, and then it started to flatten out, and then it did go negative on us in late November and December. So I am going to use nominal just because that is what we report, and there is a little bit of a play going on between the way we calculate real and pieces, but your point is fair.

So I would say it fell off more so in December, and it has continued to fall off a little bit here, a little bit further here in January, so hence Ken's comments that we would expect to see sales for the last six months to be down year-over-year.

Okay. So a little worse in January but maybe not as steep a continuing decline, in terms of the rate of decline, you think December was the worst?

It is splitting hairs probably.

Or too soon to say?

It has fallen off some, and it is not a dramatic falloff in January. Really, we want to be a little careful here, and try not to go into too many of these types of sayings, or SYSCO cliches, but this particular quarter, January is a relatively small percentage of the total sales, as is February. And March is disproportionately high compared to other quarters. So we are continuing to see softness. It is a little bit worse than what you saw for the quarter. And but March is really going to be the key I think when we look at our numbers for the quarter. And Andy, if you will permit us, just a little bit of whining here, the weather too this year, late December and in January, and we can't, there is no way to quantify this, but the weather has been worse than it has been in the last several years, and it has certainly been broader.

If you look at those winter storm systems that have gone across the Midwest, all the way into the Northeast, I mean, it has been really brutal, and continues on to a certain extent. So the weather itself has certainly been a contributor here in January.

Fair enough. And just wanted to quickly ask one follow-up. On the 4% reduction so far in the headcount, versus let's call it an 8% real, big volume decline, how much of that is variable and it is just going to go down, in terms of maybe you need less salespeople, less warehouse people, less drivers, and it is just going to vary with the sales increase or decrease, and how much of that is more on the overhead side, so that folks like us, so we can try to model the variable contribution rates, or get a little more precise on that?

I don't know if we have a number in terms of the percentage of that that is variable, but there is certainly a fairly large percentage. I mean, you can kind of do the math. By far, most of the folks are out in the operating companies, and most of the folks, our associates that are out there, are associated with a movement of cases. So drivers, and warehouse folks, it is a variable expense directly related to the piece counts. So again, I don't know the percentage.

I don't either. Andy, typically that's the way we manage our business all the time. We don't have big layoffs. At the time we make a decision to have a layoff, get it into place, it sometimes does more damage than it does good.

So we manage our business like this every month, really to the case count, how many cases are going across that dock is how we run the Company every month. So as those cases decline, so have our employees, so we haven't had a call from here to say take your employee count down. Our operating companies do that as a routine business.

So from those two answers I would think it is more skewed to it's variable costs, and it can continue to vary either way.

I would say that is fair.

to a large extent. Okay. Thank you.

Thank you.

We will take our next question from John Heinbockel with Goldman Sachs.

Couple of things. Can you talk about the dynamic, as your input costs come out, as inflation moderates and your costs come down, how does that get passed along to your customers, and how elastic is demand, is price in driving demand, so as inflation comes down, do you think this time around demand will go up, or maybe not this time?

Well, we have done a little bit of work on that. Again, I wouldn't say that it is real scientific, but we have seen some correlation as the prices come down, the volume, the real volume picks up. Now, we have never been in an environment like we are in today, but I think there is some elasticity. It is almost like the question before. I don't know what percentage that is, but there is some elasticity in terms of the rate of inflation declining.

First part of the question again, John?

Well, what is the mechanism, you get a reduction in your input costs, how quickly are you going to pass that along to your end customer? Obviously, the delay would create a gross margin benefit, but how quickly are you going to pass that along?

Well, again, John, these aren't reductions. We are talking about a slower rate of increase, as you know. So on our contract business, generally that gets passed along within 30 days, and on our street business, if we are managing well, which we have been for the better part of two years here, that can get passed along within a week.

So you don't think there are going to be any actual list price rollbacks?

Well, I don't think we are saying that. I think it is mixed. We are certainly seeing some pressure in certain intermediate categories, and that type of thing.

The other thing we're seeing, John, I am sure you must be seeing some of this as well, is even though we are hearing this and we are feeling it, a lot of the manufacturers are not necessarily experienced, in terms of how they trade with us. To this point we are seeing some diminishing rates of inflation, not as much as we would have thought a few months ago, but there is deflation in some categories, and when that happens, we manage that pretty quickly as well. But overall, we are not seeing deflation at this point.

All right. Secondly, if you take out COLI, so your SG&A was down 1.5% or better, is there a limit as to how well you can do on that front, i.e., if sales were down 3 or 4% in nominal terms, do we hit a point of where you can't avoid negative leverage, or you have got a pretty long runway there?

Yes, you do. I am looking at Ken here, because operationally as he said, how this happens, but just mathematically, and we have obviously had this question quite a bit over the last three to six months is you get the flat sales growth in nominal terms, and then to negative sales growth. You clearly hit a point where the ability to leverage is very challenging.

The deleveraging, we will have to see. Fortunately, I guess I should say, we haven't been in this situation before, so clearly it comes back to the question on the variable versus the overhead. You do get to a point where you it is more and more difficult to leverage, but we are going to have to continue to assess that, and communicate that with you as we see it.

It is very difficult to stay ahead of it when it occurs fairly rapidly.

That should mean, I thought you would do a worse job this quarter, because it happened rapidly during the quarter. In theory, you should do better going forward because now you are prepared for it, or no?

I would hope so. I think we certainly have a different mind set today, than we had a quarter ago. I think that is a fair call.

All right. And you are not seeing, as you cut headcount here, as you measure service levels to your customers, are you seeing any diminution in service?

Absolutely not. We wouldn't do that.

Okay. So there is not a risk here that cutting back will exacerbate the sales weakness?

No, absolutely not.

All right. Then finally, Bill, what is the update on the IRS tax case?

Not a lot of update in recent weeks. We had a couple meetings with them in late fall, and we have got another one scheduled here in the next couple weeks. We are having good conversations, but it is still moving relatively slowly.

Why does it take so long?

John, I can't answer that on a Webcast.

(laughter). Smart answer. Okay. Thanks.

Okay. I am not going to do those commercials that you see on TV, that is for sure.

We will take our next question from Greg Badishkanian with Citi.

Great. Thanks, and congrats Bill and Ken. Question on food inflation. Assuming no change in the current cost of commodities, they kind of stay constant dollar level where they are at now, when would you expect inflation to be flat?

Greg, can you speak up?

Sure. Can you hear me okay?

When would we expect it to be flat?

When would you expect zero inflation, assuming commodities are kind of, because they have come down some, when would you kind of expect that to be flattish, assuming no change in the commodity?

I don't know. Larry, do you know?

This is Larry Pulliam. There are so many different dynamics that affect the price of goods. For example, we have seen incredible increases in steel prices resulting in the tins for canned goods going up. Last estimate was over a 180% increase in tin prices in the last 18 months. That is a considerable factor in the inflationary factors for canned goods, which is a very large commodity for us. So it is very difficult for us to kind of establish what we think is going to happen in the future.

I said the other thing is, I think Bill and Ken kind of mentioned this, we have lots of different commodities, and they fluctuate at different times of the year. I mean, produce right now is high inflationary times, just because of the change of the seasons in the procurement areas. We have other categories that are not so. So a very dynamic process. Very hard to anticipate what it is going to look like in the future, so our plan is to manage it. Manage it the best we can, in terms of not letting it affect our cost and margins and earnings, and our customers.

Okay. And as you look out at your real sales growth, or if you want to look at nominal sales growth, however you want to look at that, how are you comparing relative to the industry right now? Your distribution competitors?

What we are hearing from the industry is that we are doing better than our competitors. But that is not factual. Some of the two biggest competitors, we don't have visibility to their numbers. But based on the number of smaller distributors that are now interested in talking to us about folding in, I would say that we are doing better than the general industry.

On that point, do you have any interest in making acquisitions at this point?

Yes, we do.

You do. Okay. Good. And then also, just in terms of the price increases to your customers, passing on the food inflation, as you look at your smaller customers, street business, you look at your chains, any differences in terms of how they are in turn passing that on to the end user?

Well, I think there is probably a real variation in how that happens. I mean, we feel one of our responsibilities is to help our customers understand what their costs are, and what the pricing should be. So the business review process, which we haven't talked a lot about I guess in the last couple of calls, continues to be a very robust part of our go-to-market strategy, and we are working daily with customers, to help them understand what the appropriate price points should be on their menus. So that is our responsibility, to help our customers, because we see the marketplace so broadly.

Okay. Thank you.

We will take our next question from John Ivankoe with JPMorgan.

Hi, thank you very much. I was hoping that you could discuss the $100 million reduction in CapEx a little bit more specifically for 2009, what that was. And whether that was a deferral of '09 CapEx to 2010, or whether 2010 could in fact be the same or even lower than '09, given current business conditions?

Well, this is Bill, let me start with 2010. I don't think we are in a position today to really talk about 2010. So 2009, John, just a couple things. One is what we said, which is in times like this you go through and you reprioritize everything you are doing, and there was some CapEx that was a little more subjective, if you will, or elective, and so we have just chosen to defer that.

In other situations we are a little behind on building in one particular market, and then some of the original plan involves some land transactions, that to this point haven't come to fruition. So there is not one thing. It is just taking a hard look at the numbers, adjusting for the current environment in terms of piece growth, and prioritizing things, but with the work that Ken alluded to in terms of the technology platform, I don't know that I would say that 2010 would fall off at all.

Okay.

Typically, we are out ahead on the land and right now land prices are falling pretty good. We actually backed up on a couple of properties that we think we are going to be able to get significantly cheaper.

Okay. Great. And secondly, and finally for me, if you could remind me where you are in your fuel purchases, any hedges that may be out there relative to market, and when the current diesel and fuel price environment may actually turn to be more of a positive for you?

Let me start and we are filing our Q actually tomorrow, and we will have very robust disclosure there for you. Essentially, we are locked in through August, I think we talked in terms of $134 million of fuel, which is about 75% of our usage through the end of the fiscal year in August. So we are locked in there, and the other thing, though, that I will say in there, which I guess we'll say today is that if you assume that the spot prices remain relatively where they are today, which is obviously not what we would have thought six months ago, I am not sure even though that that locked in price is higher than last year, and higher than current market, because the spot price has fallen so much, and that other 25% or so that we are purchasing, that may result in us really not seeing much of an increase at all in fuel expense.

So that is our situation. We do have a forward or a couple contracts, but overall, if you factor in the fuel surcharge, fuel really wasn't a meaningful effect on our results for the first half, and sitting here today in the current environment, we don't think it will be in the second half of the year.

Very helpful. Thank you.

(Operator Instructions). We will take our next question from Meredith Adler with Barclays Capital.

Thanks for taking my second questions. You talked about the natural process of reducing the number of people at the operating companies as tonnage goes down. What about the marketing reps? Has there been any effort to reduce the number of salespeople?

It has been in relationship to the rest of the organization, we have reduced some of the numbers of marketing associates, kind of in conjunction with the falloff of sales, about like we have in other areas, because they are directly related to that sales number.

Okay. Great. And then maybe if you could just talk a little bit, if there was a pension expense, there was a one-time costs for exiting a pension plan, but also you continue to have to add to your pension. Should we expect that you will continue to have higher pension expense for the remainder of this year?

I think that is two different topics maybe?

Yes, the one charge that we took this quarter, Meredith, was for a multi-employer plan, where we had the opportunity to exit that plan, and so when you do that, you have to true-up your withdrawal liability exposure, so we did that. That was about a $10 million hit. Now coincidentally, if you look at the 26 weeks, we had a similar situation last year so for 26 weeks, those are pretty much offsetting.

Pension expense for this year is essentially locked in, and as we have disclosed, we would expect for the year to be up about $20 million in pension expense, but we would also expect our stock comp expense to be lower by approximately about the same amount. So if you allow me, if you put those two together, it is really not much of an impact for this fiscal year.

Now looking forward, as you go into 2010, clearly with what has been going on in the marketplace, both in terms of the equity markets as well as how discount rates will be set and that type of thing, we would be looking at a very significant increase for next year, but that isn't really valued until the end of this fiscal year, and there may be other things that we are looking at as well. To be straight and to answer your question, I think like most companies we would be looking at an increase next year.

I just have one final question. You have some percentage of your sales is to what I call institutional feeders, schools, hospitals. Are you seeing any slowdown in sales to those customers? Because I think people foresee that as being exceptionally stable.

Healthcare we are not seeing any decline. Some in the institutional, depending on where the institutional feeder is, we are seeing some decline. But it is not substantial, but healthcare is doing very well.

Okay. Great. Thank you very much.

Thank you.

We will take our last question from Alec Patterson with RCM.

Thank you. Just quickly on the sales line, just making sure, there wasn't any M&A, and was there any foreign exchange impact?

There was no M&A to speak of, Alec. Foreign exchange, there was. I don't have that number right in front of me, but our Canadian sales it did hurt us somewhat in the quarter. I would also tell you it has helped us in other quarters. Not overly meaningful, but it did hurt us a little bit.

That is around 10% of sales, Canada?

That is about right.

Close enough.

Okay, so 10% times the exchange rate, basically?

Yes.

I found intriguing the number Ken threw out, the cases per man hour, up 5.6% I think you said for the first half of the year. Do I translate the so-to-speak real sales figure down 8% as roughly what the case trends, or case changes were for the quarter? Is that a fair comparable?

Actually, that is fairly close, but it is actually case count is worse than the sales number.

Okay.

It is worse than the nominal sales number. It is actually a little better than the 8%, though, I think, right?

Yes.

Okay.

It is in between the 8% and the 1%.

One of the things that happens here is when things are moving around this rapidly on inflation, sometimes you do get a gap, in terms of the internal calculations that we use, because those are done throughout the quarter, and then the pieces can vary a little bit, so that is what Ken's referring to there.

Fair enough. And then Bill, on the tax rate, backing out the COLI, I come out with a rough underlying number of 35 to 36%. Is that right?

No. I wish it was right, but no. I would say we would be in that 38 to 39% area without the COLI and a couple of other things. We also had an increase to our reserve in the first quarter, for some adjustments we made following a recent IRS audit, but I would say the run rate is in that 38 to 39 area.

So unchanged, basically.

Yes.

And then on the cash flow area, you are cutting back CapEx, you are talking about looking at some potential deals out there. How should we think about share repurchase going forward?

Well, we have been very aggressive in recent months, and as you will see or have seen, in the funds flow we have purchased a lot of shares so far. I would say at this point that I would expect to see that activity scaled back over the remainder of this year pretty significantly. I think it is just something we have pretty much bought what we would normally buy for the year. We bought it at pretty attractive levels. I think in this environment it is prudent for us to keep our powder dry a little bit for these opportunities, should they come along.

Okay. It seems prudent. All right. Thank you.

Thank you, Alec.

That does conclude the question-and-answer session for today. At this time, Mr. Schnieders , I would like to turn the conference back over to you for any additional or closing

Thank you, operator. Let me just say again, it has been a pleasure working with everyone on the phone here today, and over the years, and I will just reiterate one thing I have said over the years, and that is that this is a great industry, and continues to be a great industry. Thank you for your continuing interest in this great Company called SYSCO. Have a great day.

Thank you, ladies and gentlemen. Once again, that does conclude today's conference. We thank you for your participation.