Good morning and welcome to Sysco's Fourth Quarter Fiscal 2019 Conference Call. As a reminder, today's call is being recorded. We will begin today's call with opening remarks and introductions. I would like to turn the call over to Neil Russell, Vice President, Corporate Affairs. Please go ahead.

Good morning, everyone, and welcome to Sysco's fourth quarter and fiscal year 2019 earnings call. Joining me in Houston today are Tom Bené, our Chairman, President and Chief Executive Officer; and Joel Grade, our Chief Financial 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 the results to differ from those in the forward-looking statements is contained in the company's SEC filings. This includes, but is not limited to, risk factors contained in our Annual Report on Form 10-K for the year ended June 30, 2018, 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 or via Sysco's IR app. 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 are included at the end of the presentation slides and can also be found in the Investors section of our website. To ensure that we have sufficient time to answer all questions, we'd like to ask each participant to limit their time today to one question and one follow-up. At this time, I'd like to turn the call over to our Chairman, President and Chief Executive Officer, Tom Bené. Tom Bené: Thanks, Neil, and good morning, everyone. Thank you all for joining us. This morning we announced financial results, which reflect improved year-over-year performance for the fourth quarter and fiscal year 2019. For the full year, we made solid progress against our…

Thank you, Tom. Good morning everyone. I'd like to discuss our fourth quarter results, followed by some additional perspective on our full fiscal year results, closing with some commentary regarding fiscal year 2020. Sales for the fourth quarter increased 1%, compared to the same period last year. Foreign exchange rates negatively affected total Sysco sales by approximately 0.8%. Local case volumes within U.S. Broadline operations grew 1.4% for the fourth quarter of which 1.3% was organic, while total case volume within the U.S. Broadline operations grew -- of which 0.3% was organic. Even though, case growth was softer than anticipated, it is worth noting the tough comparison in the prior year local case growth of 5% and total case growth of 5.3%. Gross profit increased 2.1% versus the prior year and gross margin increased 21 basis points. We saw solid expense management for the quarter, despite operational cost challenges in our U.S. segment. Our transformational initiatives continue to provide benefit, as adjusted operating expenses grew only 0.6% for the year. And as a result, we achieved a gap between gross profit dollar growth and adjusted operating expense growth of 150 basis points and adjusted operating income grew 6.6% compared to the same period last year. It's important to note, that this performance as well was achieved despite having difficult year-over-year comparison, where the gap between gross profit dollar growth and adjusted operating expense growth was 300 basis points. As it relates to taxes, our GAAP tax rate in the fourth quarter was 21.5% and when adjusted for certain items was close to 20%. For the fourth quarter of fiscal 2019, we recognized the benefit as a reduction of income tax expense, attributable to stock option exercises that occurred in the quarter. In addition, we recognized a onetime benefit in France,…

[Operator Instructions] Our first question comes from Kelly Bania of BMO Capital. Your line is open.

Good morning. Thanks for taking my questions and for all the color. I guess, just wanted to start with maybe a diagnosis of the top-line and the case growth and if there's any execution factors that you see either with sales reps or service levels or you really think it's just a function of the industry. And I think you've just made a comment about a level of competition increasing. So maybe you can just expand on what you're seeing there and how you feel about execution? And then I guess second part of the question is the outlook for $600 million, I guess does imply a little bit of a stronger year in fiscal 2020 than the last two years and just maybe helping -- seeing if you can help us walk through the puts and takes on how you're thinking about modeling that? Tom Bené: Yes. Thanks Kelly. Let's start with the top line and it's a great question. So as I shared, we certainly have seen and continued to focus on this disciplined profitable growth as it relates to our national customers. And so we've seen certainly some impacts there and some fairly significant change in the trajectory of that business as we've kind of -- we're in the fourth quarter even as we're into the New Year. So that's a big part of what we're talking about here. We've seen that also at some of the regional customer levels. So we talked over the last year or so about our focus on these micro chains and we cycled some business that we've picked up in the past and we've also seen competition ramp up in that space. And so that's the biggest single impact I think you will see both in the fourth quarter, driving our…

Our next question comes from Edward Kelly of Wells Fargo. Your line is open.

Yeah. Hi guys, good morning. I just wanted to follow-up first question -- another question on Kelly's question here. Industry data for July hasn't really been great. Just kind of curious as to what you're seeing so far in Q1? And then how should we think about the progress of case growth throughout the year just given what you put up in Q4, some of the commentary about being more disciplined on accounts? Just kind of curious here as to how -- what the expectation should be in terms of case growth as we progress through to 2020 given what we just saw? Tom Bené: Great, Ed. So let's start with the Q1 question. I'd say, as we started Q1 and July has had some of that same softness that we just talked about for Q4. And I think it's mostly in the same areas for us these national and regional customers where we transitioned some business there or had some losses. So we see that similar trajectory as we started the quarter. As we think about case growth broadly, as we've talked for a long time now, our focus continues to be on those places where we can add the most value so those local customers. Some of those still are those regional concepts. I don't want to lead you to believe that those aren't important part of our growth story as well. But that independent customers where we have the most value, we continue to see that part of the business performing well, if not maybe at some of the high you saw a year ago, but we still see that business performing well. We feel like we're continuing to progress nicely with those customers. We do believe that we will start to see some improved volume growth throughout the fiscal year 2020, as we continue to cycle some losses that we had earlier in the year in the national customer sector. But generally speaking, I think we feel like the overall case numbers as we talked about I think last quarter are going to be a little softer than we originally projected for the three-year plan.

Okay. And then I just wanted to ask you about bad debt and just really kind of what's going on. We haven't -- looking at the cash flow statement, but -- and I'm assuming this is your accrual, but it hasn't been this high really since 2009. I'm just kind of curious, is there one specific situation that drove that this year? Is it something more broad-based? Does 2020 normalize?

Yes. Ed, it's Joel. I think the way I think about that is, I do think we have seen some worsening of the environment for bad debt. I think the -- it's -- I wouldn't certainly call it at a crisis situation, but it has certainly gotten worse. Our overall days are a little softer. We've had -- we had about one fairly significant hit per quarter to some extent that has impacted us. And so on one hand the bad debt expense -- and when you look at it year-over-year there is an element of some pickups we had in last year's numbers that account for about half of the difference. But nonetheless, I would say the environment has gotten a little bit worse. It's certainly something we're keeping a close eye on. And I'd say, if you look at our performance relatively over the last few years, we've had a pretty strong run. And so again I think it's a fair comment to say that has gotten -- it has gotten somewhat worse, but certainly something we're monitoring carefully.

All right. Thanks guys. Tom Bené: Thanks, guys.

Our next question comes from Chris Mandeville of Jefferies. Your line is open.

Hey, good morning. Tom, you characterized some of the losses or just reduction in customer count both in national and in regional from a perspective of loss and then planned. Can you just go into the losses a little bit more in greater detail? Just -- is there a common thread with respect to why they're choosing to go elsewhere, or is competition doing something a little bit more aggressively? Anything you can add there in terms of concept? Tom Bené: Sure, Chris. I think you're right to suggest there's both. There's customers that as we go into the negotiation would end up not being a renewal for Sysco. When we've taken a loss, it's generally driven by competitive pricing. And what I mean by that is more aggressive distribution fees than what we are comfortable with. And part of what we've tried to work through is how do we continue to improve the cost of -- to serve our customers so that we are obviously competitive on a day-to-day basis for almost any customer. But when we've typically lost, it's been because the fees have been beyond what we've been comfortable. And so that's been a big driver of what has happened to some of these regional customers.

Yes. And I would say too, I just wanted to add to that. I mean there's a little bit -- there's been, I'd say a little bit more of the upfront monies that have been moved around in the industry at this point. That's things in the areas that again discipline-wise at times we're just not comfortable making some of those decisions. So it's probably the other part that plays into that same point.

Okay. And then, just looking to fiscal 2020 here and really just the updated EBIT guidance for $600 million or so. Is that still again very much predicated on OpEx and the larger buckets which you've outlined in the past? And are we able to essentially hit that $600 million, if in the event we don't see any material acceleration in total cases? Tom Bené: It's a great question. I think this conversation we've had for a couple of years now around the balance between gross profit and operating expenses is going to be key. And so if we do see -- we don't see a dramatic uptick in volume, therefore gross profit, we've got to make sure that that spread remains at that 150 basis points. So it is -- I wouldn't say, it's not really predicated only on that, but that balance of those two is very important as we continue to move forward the business.

Okay. Thank you.

Our next question comes from John Heinbockel of Guggenheim. Your line is open.

So, Tom let me start local case growth is not bad, but it could be better right, particularly stacked up against some peers. Where do you think -- maybe you can put some investment muscle behind the business, right, if you think you can to drive some incremental growth? And where do you -- how happy are you with the growth in the MA population and their performance? Is there a case to be made for stepping that up a little bit selectively like you did two years ago?

Our next question comes from Judah Frommer of Credit Suisse. Your line is open.

Hi good morning. Thanks for taking the questions. Maybe first just to follow-up on kind of the competitive landscape within Broadline. Can you help us with what types of competitors may be winning those customers away from you? Are they more local in nature? And then why is your scale not helping you with kind of lower costs to serving those locales? [Technical Difficulty]

Ladies and gentlemen, please stand by. We're experiencing technical difficulties. Thank you for your patience and please stand by. Jeffrey Bernstein, your line is open.

Great. Thank you. Can you hear me? Hello? Tom Bené: Hi there, Jeff?

Yes. Hi, there. Thank you. Tom Bené: Hi.

Good morning. Tom Bené: Go ahead with your questions.

Thank you. A couple of follow-ups as we think about the three-year profitability target obviously you've baked into the sales side of things. I'm just wondering from a cost perspective. First, I guess on commodities, I know the best inflation this past quarter was 2.5%, seems like it's been creeping up the past few quarters. Just wondering, what you're assuming in terms of fiscal 2020 whether you're anticipating a further acceleration in inflation. Maybe any thoughts specific to proteins that might be more vulnerable or any color you can provide on the food cost side of things?

Yes. Sure, Jeff. It's Joel. I would say at this point, I mean, we're anticipating what we continue to refer to as modest levels of inflation over the next couple of quarters, which I would interpret to say as something fairly consistent, where we are today. And we're certainly – the inflationary categories really have been in meat, in poultry and produce and then to some extent Jeff frozen potatoes as well has been an area that's continued to have some inflation. So I don't know that we are look for the next couple of quarters anything really dramatic or above that, but I certainly – we do anticipate continued inflation, and I'd say approximately in the range, we're at today.

And on the labor front? Is there any color you can provide in terms of whether there's a basket inflation number or how you look at it from turnover or just competition for drivers and associates? Tom Bené: Yeah. I think what we've tried to manage through here Jeff is the – and it's probably worth spending a minute here for everyone's benefit. As we went into the fourth quarter and we did have some volume softening traditionally, what we would be is much – probably more aggressive on trying to reduce the number of drivers the number of selectors we have. And given the labor market and the environment we're operating in we choose – we've chosen really to take more of a long-term view on this. And so part of what we're wrestling with right now is these increased operating expenses not so much driven by increased labor rates, because our labor – we pay – we're a pretty good payer in the market, but trying to make sure we're not letting people go during maybe a little bit of softer volume times. So we're still paying for those resources probably at a level that we haven't historically to maintain the service and support levels for our customers. As we look forward the volume – if the volume numbers will be softer over a longer period of time, we'll manage that more appropriately. But I think we're just trying to make sure, we're not in a situation where we were a couple of years ago, where we had lots of retention challenges and we were struggling to even get drivers in to fill routes. So today, we're feeling much better about our retention. And as we look to the labor rate next year, we don't see anything that's beyond the kind of 2% to 3% that we've dealt with over the past. And we look to offset some of that with productivity benefits in the operations. We still feel I think pretty good about the labor rate increases, just continuing to manage the retention and making sure we're not doing anything in the short-term to impact our ability to service our customers.

Got it. And just lastly, just – you mentioned national customer softening. I'm just wondering, if you're able to dig into that whether it's more quick service versus casual dining, whether there's a differential there, whether it's a regional differential, or is it kind of a broad brush comment across all brands and across all geographies? Tom Bené: Yeah. I think it's more of a broader comment. Part of it was losses meaning, we didn't renew or weren't successful in renewing a customer. There are some softness in certain customers, but I would say, it's not specific to anyone geography or even customer type. It's probably more of certain brands that are performing better than others and you guys probably have a sense of who those are and so some of those are in our portfolio both on the positive side and on the challenge side.

Got it. Thank you very much. Tom Bené: Thank you.

Our next question comes from John Heinbockel of Guggenheim. Your line is open.

Hey, Tom, can you hear me? Tom Bené: I can hear you John. We're glad you're back or we're back here.

We thought we lost you.

So when you look at local case growth and you think about trend right because obviously a two-year stack it probably a little bit better in the fourth quarter, where do you think you are, or have you seen any deterioration in local case growth say the last three to six months? And then, is there opportunity, right? A couple of years ago, you selectively added or stepped up MA hiring. Is there an opportunity to do that again, or you don't think that would result in incremental share gains? Tom Bené: So let's start with the local cases. It was probably a little softer when you think about the last two quarters. But to your point about the two-year stack as we look at how we've grown over the last couple of years, we still feel pretty good about it. And even as we move into this year on that true independent customer, I think we feel good about where we're at. There are some of these as we've talked regional chains where we've seen some impacts and we've got to stay close to that. And part of that is making sure, we're staying competitive in those situations and so that's something that we're going to be very focused on. As we think about is there a way to accelerate that growth even further the MAs continue to play an important role in our portfolio. As you guys know, we've talked about often the fact that our customers really value that resource and we obviously see the benefits of having them out there. We will selectively add resources, where it makes sense meaning maybe our share position is such that there's lots of upside and – but I don't think it makes sense for us to go and add a significant amount of resources in that area. What we're trying to make sure we do is we have the right support around them, especially as we have more and more customers go online to make sure that they've got whether it's the specialist support around proteins or it's around certain product categories that we feel are important to those customers or some of the other tools and technology that we've built to support them. So, it's less about I think adding more resources because, we feel like, we're pretty balanced in the size of territories that they have and the amount that they can handle going forward. We are thinking about ways to increase our new business. Our new business has been strong, but there's always an opportunity to increase the new business side of things especially as we've had some of these transitions happen.

And then, when you think about 2020, right, so two things, impact of financial road map in 2020 maybe versus '19. And then maybe for Joel, so D&A in 2020 is that likely to be in the sort of $775 million to $800 million range? I know, it's been stepping down a bit. Is that a fair range to look at?

So, why don't I start with the D&A comment? I mean, we typically have our D&A that -- I don't know, if there's anything I'd say that's any material or significant change as it relates to that. I mean, I think -- and these sometimes find -- again as we make investments, some stuff falls off and some things add and our D&A may go up a tick. But I just broadly speaking would not say there's anything of significance that you should expect from a D&A perspective moving forward. Tom Bené: And John, when you spoke financial road map, is there something in particular?

No. I'm just curious, when you look at your operating initiatives, right, and you think about which one can make a bigger difference of that group of four, right. It would seem like financial road map could be one of big ones that would have a bigger impact in 2020 than this past year. Is that not right?

Yes. I would say it this way. I think, we actually had a significant impact in fiscal year 2019 at our finance transformation road map and actually certainly expecting even a slightly more significant impact in fiscal year 2020. I think a couple of those key initiatives. Again, the Canada regionalization as well and when you think about that that was really something that had a benefit in both this year and as it carries into next year kind of started in the middle of the year. And so, the way I would look at these initiatives, John, is that many of them if you remember started benefiting in the second half of the fiscal year which then carries into the -- some of the first and then obviously some further benefit builds on that. So, I would call -- I would say a couple of those certainly again strong impacts last year and expect another solid year as we head into next year as well.

Okay. Thank you.

Our next question comes from Ajay Jain of Pivotal Research Group. Your line is open.

Yeah, hi, good morning and thanks for taking my question. I think as others have pointed out, I think you still need to deliver over $200 million of incremental growth to hit the three-year target. And so, I'm just trying to figure out where that's coming from in 2020. I mean do you think that growth will be broad-based across your segments, or should we expect continued pressure in U.S. Foodservice? I think in U.S. Foodservice, earnings were flat in Q4 and that was a pretty sharp sequential decrease in the growth rate. So, do you have any color on what you're assuming across the three main segments in terms of growth for 2020? Tom Bené: Ajay, as mentioned earlier, I think, it's going to be a balance across all international U.S. and SYGMA. And we see -- in the U.S it's about maintaining that balance between gross profit and operating expense and we feel pretty good about our ability to do that. We have initiatives in place to drive that. As it relates to the European business and the rest of international, I think, we feel like we dealt with a few challenges this year that we had not expected. Specifically, we talked about Mexico and also France and so we think we feel much better going into next year about that. And then, SYGMA, I think, we're just on a good trajectory at this point. We've got ourselves in a place where we need to be able to continue to see improving, both not so much top line, because we've got that business, I think, in a place now where it makes sense, but more around balancing the gross profit and the cost side, so we can deliver operating performance.

Okay. Thank you. And I had one follow-up. I think, Tom, in your prepared comments you sort of presented a mixed picture with strong economic backdrop, but softer industry trends in terms of restaurant spending in the U.S. with flat restaurant comps and negative traffic trends. So I'm just trying to reconcile the weaker industry backdrop with your operating performance and that of your competitors, I think, apart from the weaker -- I guess, I'm just wondering apart from the weaker traffic trends, do you feel like you're losing any piece of the independent business to competition? I'm asking, specifically, in relation to some of your competitors who've reported an acceleration with the independent case volume. Tom Bené: Yes. Well, as you guys all know, there's tremendous amount -- a number of competitors in the space we operate in. There are the public guys and then there are tremendous amount of regional and local folks. I think there are geographies where we've had more impacts from a competitive environment than others. I would say, broadly speaking, we feel comfortable with where we're at. But it is getting aggressive out there and more competitive and we just need to make sure we're maintaining our position and doing everything we can to continue to earn our customers' business every day, not just on price, but obviously on things like our service platform and our product portfolio.

Yes. And, Ajay, I think, just as a reminder though as well. I think some of the commentary earlier was also related to the fact that, again, within what we talked about as local, there's a couple of different types of those customers. And I think when you think about kind of the true independents versus talk about some of the regional and local chains. Again, I think, some of the pressure a little bit, as Tom talked about earlier, is more in that area where there seasonally seems to have been a bit of a ramp-up in, again, pricing and some upfront that I think we just -- again, we're keeping a very close eye on that, but also again trying to remain -- maintaining our discipline in some of those areas. So I just think I would just distinguish a little bit between, as it relates to true independent and some of the other areas that we're actually feeling more of the pressure.

Okay. Thank you very much.

Our next question comes from John Ivankoe of JPMorgan. Your line is open.

Hi. Thank you. I just had a direct follow-up on the previous question, actually. That level of competition that you have cited in your prepared remarks, I think, even a few times, do you think that's service level-driven, or are you seeing competitors that are materially using gross margin to drive case growth? And like using your previous history in this industry, I mean, do you think we're at the cusp of, which we've obviously been in several times before, companies that might be using gross margin just in and of itself to drive case growth? And is that something, at this point, that you're at least contemplating on a customer-by-customer basis? Tom Bené: Look, I'll start with, it's always been competitive out there and our comments are, we are certainly seeing some increased competition in certain geographies and segments. And we tried to articulate that. As it relates to how we need to think about that going forward and whether others are investing, we need to make sure we're competitive every single day in every customer and we intended to do that. I think the way we think about that has more to do with making sure that our overall offering is top-notch for our customers and that includes service, product and cost and pricing. I don't think we are having any adverse impact based on our service. We continue to provide very high levels of service. And I would argue that we -- as we've talked about with some of the investments we're making on the operating expense side, we'll continue to put service as a top priority. We know in this business that's critically important to our customers. If you don't have the product, it doesn't really matter what the price is. And so we -- it's really a broad-based approach John and therefore the answer is, there's not one specific thing. But we certainly don't want to be and won't be in a position to be uncompetitive, however that looks by customer type or geography.

Understood, thank you. And it's certainly often across many different industries being -- including foodservice distribution where corporate efficiencies can improve cost and margins for the corporate, but it can change or maybe some lower service levels for customers. So in terms of how you measure service levels, can you go into some of those measurements in terms of how you've been able to maintain or even improve service levels across your customer base in the past couple of years? And that's the first point. And secondly, are there any changes? You've mentioned about investments in OpEx but are there any changes that you think you might need to make to get back and do things like day-of-the-week delivery whatever that case may be that a specific customer wants to regain some of their case volume? Tom Bené: Yes. So, a couple things. We -- you're referring to the corporate expense adjustments we made earlier in the calendar year our -- end of our -- start of our third quarter.

I am yes but also some of the broader business transformation efforts that even occurred before that. Tom Bené: Yes. So those things are really designed -- we've talked about those as non kind of operational or service-related investments or focus for us. And what we really try to do there is remove non-value-added expenses in our business. And so that -- when we talk about corporate expenses those are kind of tightening our belt here making sure we're doing all the things we need to do so that we can be competitive in the marketplace. So nothing that we've done there would be necessarily affecting our serviceability or our ability to take care of our customers either from a pricing or a cost standpoint. Only we do is further improve our ability to do that. As it relates to how we service the service has been a hallmark for Sysco for a long time. And we look at everything. We have lots of metrics there. But some examples of things we're doing to improve even our service level is to make sure that we have a way of communicating to our customers on a daily basis throughout the day where their delivery is as an example so that -- we have -- they have both an application and we use technology so they can look and see where their delivery is at. But we also have ways of making sure we're staying more in touch with our drivers throughout the day, so we can remove any obstacles they might have to delivering that customer when they expect to be delivered. So when I talk about investments some of it's technology investments, some of it is resourcing investments as we've talked about. But we intend to make sure kind of for us table stakes is a great service offering and certainly delivery is a big part of that.

Yes. And just -- John just as a summary of that. I would just think it's just really important to be clear that the work we've done had been again some streamlining of spend layers efficiencies in terms of administrative, but in no way shape or form are we somehow reducing investments in our ability to grow or to provide great service. I think that's just the really key takeaway here, I just wanted to reinforce.

Absolutely. And certainly for fiscal 2019, I think that was clearly the case that it was corporate driven. But some of the business transformation efforts before that were put into place would be with routing and purchasing and what have you and you could have had an impact on consumers that were actually delayed. And so that was the question that I was asking. If you were to go back versus several years ago and looked at your service levels after the variety of business transformation efforts that you've put forth whether you've been able to maintain or even increase service levels despite those changes, which have obviously been a big part of the efficiencies and profit growth that Sysco has seen. Tom Bené: Okay. Thanks for the clarity. If you're referring back to some of the ERP implementation work, yeah, we certainly had some fairly significant service challenges in those companies that had transitioned. We're well beyond that and our systems are operating well. And certainly that is a big driver of our ability to make sure that we've got the assets on the road to deliver our customers' expectations. So, yeah, we're a much different place than we would have been years ago and we feel very good about our ability to continue to improve in that area.

Okay. Thank you. Tom Bené: Thank you.

Our next question comes from Judah Frommer of Credit Suisse. Your line is open.

Hi good morning, guys. I was hoping, first you could help unpack the commentary on competition within the U.S. business between national, regional and then truly independent cases. You guys do probably have more chain business within your local case number than some competitors. And I don't want to put words in your mouth but it sounds like you're seeing that elevated competition on the chain side of things as opposed to independence. And can you help us with why that may be happening? Tom Bené: When we talk about regional accounts you might I guess -- I don't think oftentimes folks talk about them as changed, certainly I don't think talks about them as always changed. But some of the larger regional concepts is what we have talked about and we are referring to here. And so I'd say just -- we're just seeing increased competition. Folks do I think look at that as a growth opportunity and certainly we have and just become more aggressive in going after those customers. Those are the type of accounts that Joel referred to earlier that are susceptible to some aggressive pricing as they look to change their offering, and we tend to be more balanced on our focus on those customers around -- certainly product pricing is important but so is our ability to service them and make sure that they have what they need to keep growing.

Okay. Could that potentially create a dynamic over the course of the year where you're seeing maybe cases slow down but, kind of, average profitability across your local customers improve if you are calling some relatively lower margin business within the local customer base? Tom Bené: You see a little of that today based on that mix, but that's certainly not our objective, meaning we're not trying to in those customers per se change the mix or certainly not looking to drive more pricing in our independent segment. We feel like we're positioned well there. So it's not about driving additional margin with local customers I guess is the key point I'm trying…

But I do think you're seeing a little bit of that now Judah when you see the -- our margin this past quarter continued to increase despite some -- a little bit higher inflation. And I think some of that is related to the fact that there's a bit of a shift in -- in terms of where the growth, which again a little more towards the -- a little move away from if you will some of the contracts.

Okay. And if I could just squeeze one more in. As you kind of lower the three-year operating income plan to $600 million there are things that within the three-year period have kind of worked out after you guys expressing concern namely the inbound freight and inflation seems to be in a supportive area. Would you say that you're setting the current guide assuming that everything kind of continues as is Q4 and early into Q1, or would you say that there are kind of executional improvements you can make that could drive upside to the updated guide? Tom Bené: I think the way we talk about that is that -- someone referenced earlier is the big step-up from the prior two years and we know that we've got to be able to deliver that. So, we feel like it's a reasonable number based on all the things we need to execute, the topline that we've talked about continued improvement in our costs so that we are being competitive out there every day and ultimately making sure that the industry and the market continues at least at the pace that it's at now. So, I think what we would say is we feel good about the number but I wouldn't go as far as assuming there's a bunch of upside in there based on where we sit today.

Okay. Thanks.

Our next question comes from Edward Kelly of Wells Fargo. Your line is open.

Hey, thanks guys. Thanks for letting me back in. I just wanted to ask just one question here Tom and this relates to kind of beyond 2020. And just any thoughts on sort of the next three years when we'll think we'll get some color? Are you planning an Analyst Day at all later this year? And kind of we take a step back and you hit your $600 million, you're still going to average 8% EBIT growth rate over this period in what was one of the toughest operating environments in the industry in quite a while. That's really hard to find a consumer. Just thoughts on how you're thinking about the longer-term outlook kind of beyond 2020 even if it's qualitatively at this point. Tom Bené: Well, appreciate you raising a couple of those points. So, we feel really good about the three-year number and to your point that's delivering really solid results. I think as we look ahead we have not set a date yet to do an Analyst Day or Investor Day but we are we're certainly talking about that and trying to think through when is the best time to do that given the current three-year plan ends. I think the way we think about it is how do we continue to invest for the long term and drive what we would argue is top quartile results in the industry. And so it's a combination of the two. We still have a lot of investments that we're making in the international sector. Even here in the U.S. we still believe there are things we need to continue to invest in around technology to put ourselves in the right place going forward. And obviously, M&A continues to be an opportunity as we think about how do we grow in the future. So, probably not giving you what you want other than to say that we feel good about the performance we've had over the last couple of years. We feel like that's the kind of performance that we should be able to deliver going forward and we'll pick a day here in the not-too-distant future to be able to get together with you all and talk about that.

Great. Thank you. Tom Bené: Thank you.

Our last question comes from Rebecca Scheuneman of Morningstar. Your line is open.

Good morning. So I want to switch gears a little bit and just ask about the international division. The profitability came in a bit better than we were expecting and at 4% operating margins in the quarter. I was just wondering is this a reflection of the Canadian reorganization and something that could be more sustained and possibly a new kind of base hitting forward, or was there something unique about the Q4 that will not -- that temporarily kind of boosted profitability that we should not expect to carry forward? Tom Bené: Hi, Rebecca. Thanks for joining us. I wouldn't say, it was any unique things that happened in the quarter. I think it's a combination of things. The regionalization is a good example of where we need to be bringing more consistency across how we run the international businesses. And in the case of Canada, leveraging a model that given the geography there could help us drive more benefit on the cost side, because our costs were a bit out of whack. As it relates to Europe, some of those same opportunities exist. And you heard me say in the prepared comments that we're starting to bring some of the same kind of capabilities that we have as a company and processes to some of these businesses that maybe historically haven't operated that way. So I think what we would say is that we feel good about where we ended the year. As we had said, though we -- it was a little bit rougher in the first half and we still have some work to do, I think balancing the investments we're making and the improvements you should see in our operating expenses over time in the international sector should be kind of a way to think about us going forward.

Okay. Great. Thank you. Tom Bené: Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.