Good morning, and welcome to Sysco's Second Quarter Fiscal 2021 Conference Call. As a reminder, today's call is being recorded. We will begin with opening remarks and introductions. I'd like to turn the call over to Neil Russell, Senior Vice President of Corporate Affairs and Chief Communications Officer. Please go ahead.

Good morning, everyone and welcome to Sysco's second quarter fiscal 2021 earnings call. On today's call, we have Kevin Hourican, our President and Chief Executive Officer; and Aaron Alt, our Chief Financial Officer. Before we begin, please note that statements made during this presentation, which state the Company's or management's intentions, beliefs, expectations or predictions of the future, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act and actual results could differ in a material manner. Additional information about factors that could cause results to differ from those in the forward-looking statements is contained in the Company's SEC filings. This includes but is not limited to risk factors contained in our Annual Report on Form 10-K, for the year ended June 27, 2020, 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 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 would like to ask each participant to limit their time today to one question and one follow-up. Now, I'd like to turn the call over to our President and Chief Executive Officer, Kevin Hourican.

Thank you, Neil. Good morning, everyone and thank you for joining our call today. I hope that you and your families are staying safe and healthy. During this morning's call, I will spend time discussing Sysco's recent performance, I will provide an update on our business transformation and I'll share some highlights of our preparation for the pending business environment recovery. I'll then turn it over to Aaron, who will discuss Sysco's second quarter fiscal results. As we have discussed during prior calls, Sysco has taken swift and decisive action throughout the pandemic, to help our customers succeed during a time of disruption. We have carefully managed our associate productivity, inventory productivity and business investments. To that end, we initiated a bold business transformation to strategically transform our Company for long-term success. I am pleased to confirm that our business transformation remains on track and we are confident that the strategic initiatives will enable profitable future growth and will differentiate Sysco from our competitors. The COVID environment has placed substantial restrictions upon the customers we serve in the food away from home sector and has disrupted our marketplace. In light of those realities, we are pleased with the financial results that we delivered in the first half of fiscal 2021 and for the second quarter, we performed generally in line with our expectations adjusted for the environment. While our second quarter financial results were down compared to prior year, we delivered a profitable quarter, despite 23% decline in our topline sales and funded investments to enable our transformation. Our customers experienced increasingly restrictive conditions on their operations during the second quarter, which were most notable in December, when restaurant traffic and sales declined. Additionally, our International segment has been hard hit due to tougher restrictions in the countries in which…

Thank you, Kevin and good morning. I am really excited to be at Sysco. Before I joined Sysco, what I could see from the outside, was a Company with global scale, a strong competitive position and great profitability and liquidity for the industry. Now that I'm on the inside, I see all of that, in addition to a driven leadership team relentlessly focused on being ready for the business recovery and then driving a customer and capability-led transformation. In short, I see many opportunities in front of us to create shareholder value. I will start today with second quarter results for the enterprise and our business segments, followed by an update on cash flow. Second quarter sales were $11.6 billion, a decrease of 23.1% from the prior year, but flat to the prior quarter. Sales had been trending ahead of Q1 through October and November, as restrictions eased. But new lockdown restrictions during December reversed the earlier progress, particularly in the International segment. There are a couple of additional metrics. For the quarter, local case volume within U.S. Broadline operations decreased 19.7%, while total case volume within U.S. Broadline operations decreased 23.7%. We do know that there is keen interest in the continued impact of COVID. The answer varies by region. Europe went into lockdown in December and is expected to remain in varying degrees of lockdown for a significant portion of the second half. However, since the week after the holidays, we have been seeing signs of light, from volume improvements in our U.S. FS business and SYGMA continues to grow. This battle will be fought week-by-week, region-by-region for the next couple of quarters, until the vaccination is widespread and the business recovery takes hold. The only commitment we can make is that we will be ready and more…

[Operator Instructions] Our first question comes from the line of Alex Slagle with Jefferies. Go ahead please. Your line is open.

Kevin, a question for you with full year under your belt now, congrats on that. Interested in your high level assessment of the progress made in the transformational to-date versus your expectations. Obviously the pandemic was a major curve ball, but if you could talk about what elements of the transformation surprised you the most, in terms of the level of progress or the size of opportunities that you may be didn't fully appreciate when you started?

Well, good morning, Alex. I appreciate the question. In regards to the where we are one year later, I'm pleased with where we are. I would actually say from a transformation perspective, we're ahead of schedule. I've said this many, many times in our Company town hall meetings and in private conversations with investors as well. The COVID crisis has obviously been tremendously difficult on the customers that we serve and our environment overall. The silver lining in that dark cloud is, we've used it as an opportunity to accelerate our transformation. I've mentioned before, our regionalization program, we had a plan to complete that over two years and it's now done as you heard me say on our prepared remarks on today's call. So our ability to accelerate change management, the buy-in from our experienced team on the impetus for change meaningfully improved. And so when you look at our selling model, our leadership model, our technology tools, I would say we're ahead of schedule on those activities and I'm pleased with where we are and we're very confident that these transformation initiatives are going to enable our Company to be very successful. What we need obviously, the overall business environment to improve for all of those activities to be more visible in our results than they currently are. But we can see the internal data and it's promising. Alex, the last thing I would just say is, we're a team. To have a great Company, you need to have a great team, and I said in my prepared remarks. We have a really strong team now that we've built at Sysco which is a combination of extremely experienced leaders like Greg Bertrand, who runs ours by far largest business and new leaders that have joined our Company that can help bring best practices from other industries and frankly key capabilities that we need at our Company, like Judy who has joined us as our Chief Commercial Officer, Tom Peck, who has joined us from a technology perspective. And then obviously Aaron, who you heard from today, who is just a really terrific talented financial executive in transformation executive to help accelerate our results. So, in summary, Alex, I would say, I think we're ahead of schedule and I'm looking forward like all of you are, to have COVID behind us, so we can prove it in our outcomes.

Our next question comes from the line of Edward Kelly with Wells Fargo. Go ahead please. Your line is open.

Kevin and Aaron, this is a particularly tough period to sort of model your Company. So, obviously you're positioning for the recovery, which makes a ton of sense, that's hurting near term results, especially when the industry sees some setback. I guess what I'm trying to figure out is how to better sort of frame what's going on in the outlook. So, I don't know if you can tell us sort of what level of sales, your cost base is positioned for currently? How you see this ramping from here? I don't know if there is a way to sort of frame that for us, as we sort of think about Q3. You did mentioned that Q3 will be lower than initially thought. I'm not really sure what that means relative to Q2. So, I'm just kind of curious as to whether you could sort of help us along with any of that to help the modeling in the next few quarters.

Great Ed thanks, this is Kevin. I'll start and I'm going to toss it over to Aaron for comments specific to Q3. And we understand that this was a difficult quarter to model and a difficult year to model. And we also have respect and empathy due to the fact that we haven't given guidance this year. And the reason obviously is because it's choppy and the recovery is not linear. So, we're going to do the best we can to give you color commentary on where we are and what we're seeing. And Aaron will provide that in a moment for Q3. As it relates to what we're investing in, if you put it into two buckets, we have some key initiatives that we are investing in, which is the building of capabilities and in many instances technology, that will advance our ability to be a better Company in the future and that's our pricing project. We're building a customer personalization engine to improve the type of offers that we provide to our customers using machine learning and predictive analytics to help our sales force being - be more effective. We're going to talk with you more about that in Investor Day that we plan on holding in May. Neil will send out more details on that Investor Day. We know we owe you more specifics on our transformation, the size of that price and we will cover those details with you at that May Investor Day. As it relates to the other half of the quote investments, we do see a pending business recovery. We see a light at the end of the tunnel. And it's not a train coming towards us, it's the dawning of a new more promising day. We can see it in our data.…

Great. And good morning, thanks for the question. We don't provide quarterly guidance per se. But what I'd like to do is take a moment and give you some context on Q3, by talking a bit more about Q2 and what we saw there, I believe there are some parallels. As you will have observed from our release and from the comments, we experienced deleveraging during the second quarter as sales dropped 23% from prior year. And you will recall from prior earnings calls, that Joel had previously observed that our cost structure is approximately a one-third, two-third split between fixed and variable costs. And you can do the math on what that could mean for the quarter versus our prior year. I would comment that we benefited extensively from efficiency efforts and I called up some of them during the call. And specific identified and executed cost savings during the quarter. The quarterly component of the $350 million that the team has been talking about for the last couple of quarters. I commented during the results, that we could see the savings in the P&L. And let me give you a couple of examples of that. People, overall across the enterprise, we have 15,100 fewer employees today, than we did a year ago and that includes a significant cut at our corporate headquarters, as well. We've identified and executed specific COGS cost savings that I can see in the P&L. We've rationalized our technology investments to be more forward or focused. We've identified indirect cost savings, professional costs, etc. So, what I want you to take away is the cost savings are real. And while we haven't disclosed the exact level of what it is quarter-to-quarter, it's material and they're out there. Now, the cost savings are important because…

Our next question comes from the line of Jeffrey Bernstein with Barclays. Go ahead please. Your line is open.

I had one question and then one follow-up. The question just, when we get through COVID at some point sooner rather than later. When you think about the largest Foodservice distributors, including yourselves, I'm just wondering whether you think you'd achieve greater benefit on the revenue or the expense line. I know you've targeted on both, but just wondering your thoughts on where the bigger opportunity is? And if you could just offer some context on the small and mid-sized competitors, especially as you talk about these market share gains, it is very difficult on our end to see the market share gains. But any qualitative color on those competitive sets that would be great. And then I had one follow-up.

Sure, Jeff. And it's Kevin. I'll take that one. Just, it's a both end on the strength of the stronger players, right, strength gets stronger during times of adversity and crisis. And what Aaron was just referring to is the $350 million of cost takeout is real, it's concrete and we can track it. And as our volume gets back to pre-COVID levels and it will, that's going to flow straight to the bottom line. The reason it's less visible now is because we have all these other things happening vis-à-vis investments and the recovery, investments and new capabilities, etc, etc. But that $350 million is hard real and it will be visible as our volume recovers. So, and we're not done. We've said that before too. We are not done with structural cost improvement. There is more to be attained. And again, that's something we can talk about more at our May Investor Day. Specific on the revenue side, the number we've quoted explicitly as the national sales win, it's impressive, it's material, $1.5 billion of net new wins in the National Sales segment. You can see it in our performance results in SYGMA and also you can see it in our performance results in just our general overall case growth. But what we haven't explicitly quantified for you because it's challenging with what's happening in the marketplace, is the wins we're having at the local level. In my prepared remarks, I said the following. We won more new customers at the independent local level in Q2, than at any point in time over the last five years. That's just concrete and specific as I can be and it's real, we can track it. We use a tool called Sysco 360 to track every customer activity. Those wins are going to be visible again as our volume recovers. The reason it's less visible on topline growth is because the average order per customer is currently down because of COVID. In a takeout and delivery world, customers order fewer advertisers, fewer desserts, they spend - they focus more on that main entree. And so the average volume per customer is down, but we've added a substantial number of new customers. And that's not just in the U.S., that applies to Canada, that applies to all of our businesses in Europe as well. So that will be a pay it forward activity. And what we anticipate we will be able to show you at our May Investor Day is, what is the size of the prize of all of these activities were. The trajectory that we are on from a sales growth perspective. And then these key enabling transformational elements what they're worth from a market share capture perspective. And then how that flows through to the bottom line. Before we go to your follow-up, I'll just ask Aaron, if there's anything he wants to add, to what I just said.

No Kevin, I think the two thoughts are, a rising tide lifts all boats, and we're going to experience that as the sales recovery continues and to the point on profitability, I think we should just remind the team that, look, as I believe the team commented earlier, we're profitable as sales are down even 30% to 35%. And so, we have incredible financial strength and opportunity to get ready for that sales lift.

Thanks Aaron. Jeff, do you have a follow-up?

Yes. Thank you very much. So I know it's difficult in the short-term and not keen to necessarily give third quarter or second half guidance. But you did make a couple of comments, I was hoping for a little color on, I know you mentioned regional sales structure, quick wins and menu segmentation success kind of quicker wins I guess. And I think you even said U.S. Food and SYGMA has been growing of late. I was wondering if there is any quantification you can provide on any of that, just so we can kind of gauge early success? Thanks.

Yeah, Jeff, I know it's frustrating that we're not giving guidance. And we're going to resist that doing so, again for Q3. I can however, put a little more color around the examples that I was just providing. And I also realize that the second half of your first question, which was tied to the smaller competitors, how are they performing. I didn't sufficiently answer that on the first question. There is no doubt that the bigger players are getting stronger. I have been asked to directly before, Kevin, how is it true that each of the major players are reporting that they are winning market share. Well, it is true. That is what is happening. And what that mathematically implies is that smaller players are currently donating share. Most likely because they don't have the ability to invest in inventory during a period of volume growth. We know for a fact that select competitors are cutting delivery frequency, they cut Saturday first, they cut Wednesday second. We have not done that, Jeff. So, we have not canceled Saturday, we have not canceled Wednesday. In fact, as you well know, we eliminated order minimums. We are seeing improvement in our trends for the customers that we serve as those programs have been launched, which is Restaurants Rising. And we are seeing retention of customers, because we're not cutting back on service. A data point that I've quoted before is, for those customers that have joined us on this Restaurant Rising campaign, leveraging our menu services, leveraging our ability to help them with takeout and delivery, they are performing 20% on average, better than the customers that choose not to engage. Our priority obviously is to get more and more and more of them engaged and we're working on that. The…

Our next question comes from the line of Nicole Miller with Piper Sandler. Go ahead please. Your line is open.

Two quick questions. I'll pose the first one. I believe the prior run rate on the $350 million of cost saves was about 80% flow through. So, what I think I hear you saying this quarter is, you reinvested more against that and we can understand why. So, what was the approximate flow through? I just haven't been able to work with the numbers at this point? And you also mentioned one-time expenses, how material are those one-time expenses, so we can factor that into our forward estimates?

Hey Nicole, I'll toss it to Aaron for that question. Thank you for the question.

Nicole, good morning. Great question. I would refer you back to some of the thoughts I had earlier around how to think about this. We have not disclosed the build rates of the $350 million plus of synergies. Our cost savings that we are identifying as we carry forward. As you're trying to model, what I would encourage you to do is to look at or reflect on my comments that, approximately 50% of what we saw in the quarter was our investments against the transformation and against the business recovery and 50% was one-time expenses or additional fixed cost deleveraging in product portfolio. That's interesting, but the really important point is that, look, the one-time costs, they are one-time and will go away and any fixed cost deleveraging as the tide rises with sales, that will also disappear and the investments against the recovery and the against - our investments against the transformation, while they may occur for a couple of quarters, they are also transitory in nature and we will have the - we'll have the benefit of achieving the run rate savings that Joel had called out previously, in future quarters. Our situation has evolved. We're continuing to evolve to bob and weave, reflecting our financial strength, because we're going to be ahead of the curve.

I guess that was previously asked and answered. I guess I just didn't understand it that way. So, we can do the math on that 50%. A bigger picture question. Trying to understand if retention of your own employees and net promoter score should be tied together. So, I guess the question I would pose is, you talked about retention being improved and I'm wondering if that's the right way to ask or to tie those two things together. So this question might sound challenging, it's literally not meant to be. But, when you're forced to turnover right and where what anyone else go, so I mean indeed retention by definition always has to improve. So, I was wondering if, are people making more or less? Are you offering more benefits, what kind of feedback? And is that the correlation to net promoter scores? If it is, as net promoter scores go up, what happens then? I mean I know it's sales, but could you tie that for example to wallet share of independents, which is 30% versus 40% chain. Did local independent wallet share go up? I just wanted to see how it kind of ties together, if that makes sense? Thank you.

And Nicole, it's a great question. And by no means is it a challenging question. It's the spirit of your question is excellent and I appreciate you're asking it. I'm going to unpack that in two ways. One is, NPS is our customers voice to us and we have a large sample size, we track it real time and we take action on it. And we see in our NPS data, where we have strength. The by far biggest strength of Sysco is our sales consultants. We massively over index our competitors in the quality and support given to our customers through that audience. By far our biggest strength is our sales consultants. Such a strength we will continue to leverage and I'm going to get to that in a minute, when I talk about what I meant by associate retention. So, we need to continue to harness impact further leverage our biggest strength. And Nicole, what we need to do on NPS to make it overall improve and that is address the pain points right. So, here are things we were hearing through this COVID crisis, as a pain point. Kevin, my volume is down, but yet you have these order minimums. You're willing to come one-time per week during this period of time when my volume is down, because you cut Saturday delivery. So, we just leaned into it and we addressed it hard. What we did is, we ensured that this COVID wave two, we were not going to cut delivery frequency. And the biggest pain point we heard was from our restaurant operators. I can't predict what my order volume is going to be, and I'm really worried about your minimum orders and we eliminated that problem for them. We just took it off the table.…

That actually helped me out a lot. I appreciate that color. Thank you for taking my questions.

Thanks, Nicole.

Our next question comes from the line of John Glass with Morgan Stanley. Go ahead please. Your line is open.

Kevin, just going back to this wallet share issue and I think you talked about that 30% historically with the local cases. Has that changed meaningfully recently during this pandemic? And if you - inside of that, when you talk about these value-added services in the restaurants have done much better using those, is your wallet share meaningfully higher? Is there a way to gauge how high it could go if they - customers fully engage in all the services you provide to them?

Yes, John, great question. I'm not going to report out on share of wallet percent by month or by quarter. There's too much volatility in that type of a metric to be that specific on the call. What I can definitely say however is that for the customers that have engaged with us, on the Restaurants Rising campaign, yes, we win more share of wallet with them and we retain them. There is a lot of churn in this industry, many customers use multiple distributors, two or three distributors and there are reasons why they do that. And what we're seeing in the Restaurants Rising campaign and the work we're doing with our transformation is that our customer is less needing to have multiple distributors. I'll introduce one of our other strategic initiatives, which is our pricing initiative. The number one reason why a customer leaves Sysco to go to a competitor and vice versa frankly, is because of price. And specifically, transparency for price. They think they can get a price somewhere else or they want to keep their distributor honest by taking portions of their business and bringing it to a competitor. As we implement our pricing software and we give customer items specific pricing, pricing that's right at the item level, we believe that we will lose less individual lines to competitors tied to price. And frankly, the opposite, we'll have the opportunity to win incremental cases with existing customers, because we will be light on price for the items that matter, which will drive volume growth and how to keep margins neutral is on - in the elastic items that are on the tail of the inventory assortment, you can take some nominal increases on price to offset the margin dilution. All in, we are bullish on our ability to increase share of wallet. When we meet in May at our Investor Day, we'll be able to explain in more detail. And what we believe is possible from a share of wallet growth perspective, but we have customers to answer your question specifically that are well north of 30% with Sysco.

That's helpful. If I could just ask one follow-up, on the International, how much of the programs you've implemented the U.S.? Whether it's Restaurants Rising or the price tool. How many of those are applicable to the international business? How many have been implemented? Is that a real opportunity there or is it just a very different market and those things don't always apply?

Oh it's a huge opportunity for International and it's why we hired Tim. Tim is here, he is now on board. He is based in London as I said, he will be full time focused on improving our strategy and our execution in International. And remit will be exactly what you were just implying to your question, which is, okay, you're deploying a best-in-class pricing tool, one where and how do you deploy that to your European businesses. We're working on a new team-based selling strategy, when and where and how do you deploy that. Each of these key initiatives are applicable in our International business segments hard stop. What is unique in these countries is the cuisine type and specifically the penetration mix of local versus contract bid. But the best-in-class strategies of how to sell, how to engage customers with a mobile ordering platform, improving COGS through a global purchasing scale. We're in the early innings of these things in International and actually that gives me big confidence that we can improve the profitability of our International segment. It's something that Aaron, myself and Tim will be very focused on.

Our next question comes from the line of John Heinbockel with Guggenheim Partners. Go ahead please. Your line is open.

So, Kevin two questions related. Number one, you talked about bringing back or bringing on thousands of sales related folks. What's the timing of that? Where will they come from, right. And then secondarily, if you think about the rollout of pricing right, so tested in one region, what's the pace of that roll out? Then how do you think about the interplay between bringing on a lot of folks, managing the recovery and rolling up and expanding pricing, can that all be done simultaneously?

John, good question, as always. I just want to clarify one thing on the thousands comment, that was in Aaron's prepared remarks. That thousands applied to each of the things that we're after, what he said, he said, sales associates, warehouse associates, drivers and support resources. So, the thousands declarative applies to the team, the cumulative of all of them. So we're not going to be hiring thousands of new sales associates. We will hire new sales associates. We're hiring new specialists. We're hiring national business developers. I'm sorry, new business developers, NBD's is what they call them, to grow our business. But the majority of the thousands comment is actually in the warehouse and driver populations, simply tied to the business volume recovery that we anticipate. As Aaron quoted, we have 15,000 fewer people working for us today, than we did pre-COVID. And we will and expect to get back to pre-COVID volume levels down the road and we need to hire up to be able to staff up, to be able to support that business recovery. I just want to be really clear, it's not - today, it's zero and tomorrow, it's thousand, it's a week-by-week staffing plan and we will be able to throttle that up and throttle it down based upon what we see and our data. But they need to be trained. It takes X number of weeks to become productive in our warehouse and it takes X-plus even more to become productive as a driver. And as you know, it takes time to become productive as a sales associate as well. So, we're building the restraining durations of time into our staffing model, John. And when we say invest in advance of the recovery, what I'm specifically referring to is the training window. If…

Our next question comes from the line of Lauren Silberman with Credit Suisse. Go ahead please. Your line is open.

Thanks and congrats on the new role. You talked about the very strong wins at the local level. Are there any differences in the behavior among new local customer cohorts relative to what you've seen historically? Whether that's initial wallet share, Sysco brand penetration, digital utilization. And to what extent do you think that's Company specific initiatives versus the competitive environment? Just trying to understand how you're thinking about the sustainability of these wins, given some unique dynamics in the environment like smaller distributors pulling back on frequency, delivery drops and less need for multiple distributors.

Lauren, good question. There is the behavior change that drove it and it's really clear, we changed their compensation. In the prior compensation model, they were paid more on increase the profitability of an existing customer, than they were on win new business. That's what I meant earlier when I said we had a disincentive in our system. That was never our intention. We didn't want for them to not be out prospecting. But if they had an hour to spend, they were going to spend that hour on increasing the profitability of an existing customer and they weren't going to spend it on prospecting. In our new compensation model, which is the base plus bonus, the bonus metrics are configurable, we can make them whatever we want them to be. In fact we can change them quarter-to-quarter, month-to-month on what matters and we've been doing exactly that. So, now we have a better balance between improving penetration of lines with existing customers, which is a profit driver and it's super important and we need to better balance it with new customer prospecting. So, the biggest reason for our improvement in our performance, Lauren, and new customer growth is a behavior change. Our associates are spending much more time with new customer prospecting than they were previously. And the point you made which was now, how do you retain these customers is paramount. Partly it's the reason why we're investing in service, why we're investing in no order minimums, why we're investing in not cutting back on delivery frequency. Things like that matter. I don't think I've talked about this yet, we're also investing in payment plans. So, that we can help our customers with their credit balances through this difficult period of time and not cutting them off because…

Yes, just one quick one. On Sysco brand sales as a percentage of local cases, the down 450 basis points. Can you expand on the factors that drove that decrease in the private label penetration and do you expect that to be largely transitory?

It's a 100% transitory, Lauren. The reason for Sysco brand penetration being down is explicitly the customers that we're serving, and also the balance of sales by category. So, the business that's down the most for Sysco right now is actually our biggest business - our biggest customer businesses. So, it's the FSM and hospitality categories. We have an excellent Sysco brand penetration with those customers and those businesses are down more than our average and therefore that's just a gravity issue on Sysco brand. And then, believe it or not, within the businesses that are doing well right now, like takeout products, to go products, there isn't a lot of brand - Sysco brand product in that space, to the degree that we have in other categories. So, it's simply balance of sale. And we have the opportunity to not just to recover where we've been, our merchant team is working on new products in innovation within Sysco brand and we absolutely anticipate that to be a source of profit growth into the future.

Our next question comes from the line of Kelly Bania with BMO Capital. Go ahead please. Your line is open.

Wanted to just ask a little bit more about International gross margin. It sounds like some mix pressures there but also maybe some inventory. Just curious if you can manage that gross margin better? It was just a little surprising that it was lower than it was even a couple of quarters ago, when sales were even worse. So, just curious how we should think about what you can do to manage that margin in International? And if there is anything different either thinking about in terms of the longer term potential recovery for International versus the U.S.?

Yes, Kelly, great question. I'll start and then at the end, I'll toss it over to Aaron for color commentary, in addition to what I cover. So, International margin we called it out. I mean, it was a difficult quarter from an International perspective. There's two reasons why. One is the customer mix, just to be very clear. Restaurants are closed in France, in the U.K. and in Ireland. They're closed. Unlike in the United States where on-prem dining is allowed and delivery and takeout and drive-throughs are robust, our most profitable customer segment in Europe is closed. They can do takeout and delivery but takeout and delivery are much, much less activated, than they are in the United States. And we anticipate they will be closed until April. So we've got a meaningful headwind in that regard. I'm going to weave in here the point you made about long-term. I just want to remind everybody that rate before CVOID wave two, the best business in our entire book of business was in France. We are minus 5% in France, right before the challenges of this secondary lockdown. So we fully anticipate that the International business will respond just as fast, if not even faster than the United States, once these lockdowns are eased and again it's frustrating to us that we think that they're talking Easter. But we can focus on what we can control. So, the margin percent is mostly driven by customer penetration mix. We did have some inventory spoilage challenges, Kelly. It's appropriate to call it out. Our business results in Q2, I think about it from this perspective, France goes from minus 5% to minus 55% in a week. We have fresh inventory. There is challenges when that happens. And the pace in speed with which Europe went into lockdown was significant. Similar to what happened If you remember back in Q4. You remember my narrative Kelly from back in Q4. Here's what I said. Europe entered the lockdown earlier and swifter and came out later and slower. And I anticipate that same thing is going to happen with this second wave. But we have full expectations that we will come out strong, it's going to take longer. Aaron, I'm going to toss it to you, if there is anything you would like to add or if I missed anything.

Thank you, Kevin and good morning, Kelly. Three quick adds. First, Kelly, as we all know what's really important is dollars in the bank. Gross profit dollars in the bank and so, our first objective with Europe is just to get the business back up and running and contributing to the bottom line. Kevin did an excellent job of covering two of the primary drivers on the rates impact of International. But I do want - when he talks about the customers being closed on the inventory obsolescence. But I do want to call out two additional elements. One is product mix shift, where across our International operations, on-premises dining is not available, but takeout or takeaway is, right, we do have a product mix shift into products and support of that is lower margin. And then lastly, perhaps most materially, we have some business mix shift going on where with France closed and other operations in Europe constrained, we've actually mixed into our Canadian contract business, which is lower margin for within the International segment you're seeing there in some of the numbers.

And then if I can just follow up with one more on market share, a lot have been addressed there already and it sounds like more will become visible in May with respect to the local side of that equation in U.S., but in terms of the $1.5 billion for National Accounts, which is pretty substantial, I guess the question is, how much of that is a function of what Sysco is doing and the strategy that you're pursuing versus the function of the circumstances with competitors and National Accounts, looking for solution and with at Sysco

Yes. Kelly, great question. The majority of our transformation is at the local level, because that's where the profit is the highest, it's where we have the greatest opportunity to profitably grow and that's where our new business operating model will have the greatest dividend and we'll be clear about that in May on the vectors of growth, how each of these transformation initiatives drives improved business performance. At the national level, to oversimplify, the reason we're doing so well with new business capture is, these large national customers are looking for a distributor that they have confidence in, that they believe in, that can ship - and this is simple - I know this, on time and in full and be able to stock. The inventory that they need to be able to deliver for their thousands of locations. They have tremendous confidence that Sysco is that partner, and we have been very successful in the contract bids this summer and into this fall and Kelly, one reason why we've been able to be more successful there is, we put focus on it. We use this expression, fish where the fish are, we can see the restaurant ticket data from all the banks and the credit cards, seeing how well QSR is doing and we needed to win where the growth was happening and we have the capacity to do it, Kelly, because our overall business volume is down and as our business volume recovers, you might be thinking, well Kevin, what's that going to do to your storage and throughput capacity, we're working aggressively on that. And there are several things that we can do to make more room in our warehouses for this incremental volume, so that it is flowing through to the bottom line, like Aaron said, the way they needed to. Skew rationalization between sites, slower moving inventory being pulled out of forward facing locations, etc. These are things we can do to improve the throughput of our warehouses, to allow us to be able to support the substantial business win that we've had, $1.5 billion net, since the beginning of this crisis. So, it is as simple as, they trust us, we can do the business at a national level. And that business is available for us from a winning perspective. What we need to do is, make sure it's sufficiently profitable business for us. And here's my commitment to all of our investors, we will not bid on business that isn't profitable for our Company and we have been very, very disciplined in the contracts that we've underwritten since the beginning of this crisis.

And our last question of the day comes from John Ivankoe with JPMorgan. Go ahead please. Your line is open. And John Ivankoe, your line is open. If you're on mute, please unmute your line.

Can you hear me?

We can John.

Excellent sorry, now you're on speaker, I don't know what's wrong with my headset. Of the 8% or 9% of customers, that closed to roll and obviously your share was 50% better than that. Can you kind of bucket them in any types of categories, whether it's region or city or suburb or - or customer type, is kind of the first point. And do you see distributors in particular that disproportionately serve those types of customers that may finally get the consolidation in the delivery space and a lot of us thought would have happened at some point in 2020 and I have follow-ups on that as well.

Yes, it's a great question. I think it would be fair to say the following, the hardest restricted markets, so the urban areas are where the closure rate is higher than the places that have fewer restrictions, which would be the Southern third of the United States and more rural geographies. So, I think that would be a fair thing to communicate and it's obvious, right, where the restrictions are the greatest, that's where the closures are the highest. John, we're not seeing any specific cuisine type having a higher rate of closure and again, on the closure side, is it temporary, is it permanent, what I've been pretty consistent from the beginning of this crisis to communicate, is we believe there will be an elevation in churn over this tumultuous period. But from an overall bankruptcy rate perspective or the number of doors in the market two years from now, I don't believe it's going to be meaningfully different than the number we have now. There'll be an elevation in churn, but there is not going to be a substantial, substantial reduction in customer doors. I know that select agencies have come out and said bold statistics like 30% to 40% bankruptcies. It's just not what we see, it's not what we see in our data. As I've said before, if a person owns their family restaurant and this is what they've done for 25 years, they're not going to close and become a plumber, they may have to temporary close, when they have to close that business to restructure their debt and that's what, they're probably going to reopen a restaurant at some point in time. So, we believe the independent restaurant customers are fighters, as I said in my prepared remarks and they're doing a terrific job in light of the conditions that they're dealing with, to stay in business and we're proud of the work that we're doing. You said you had a follow-up John, so I'm going to toss it back to you.

Yes. On that first question, then also I'm going to point about Europe, given your cash flow, given your cash, when does it or does it make sense to be opportunistic in a difficult to enter urban markets from a Foodservice distributor perspective and maybe by some share as opposed to just winning it organically. First question, in the United States. And secondly, I mean I would think there would be some conversations with Europe right now what's either, hey, let's scale out of a market that's always more difficult to do business than the U.S. or maybe it's time to double down in Europe in some way, where is your current thinking in terms of the continent?

Okay, John. Thank you. Two part question, I'll do the first part. I'll say a couple of comments on International and Aaron, I'm going to toss it to you, if there's anything you want to add to the International part of that question. Your question, John on the first part was, metro markets where, I've told you previously we under index as a percent of our total. In fact, it was a year ago today that I told you that, that was going to be a big focus of our Company, that we could win in the metro markets. And John, that still exists, that is still absolutely an opportunity for this Company. I put that project on pause, given places like New York and Chicago and LA are wholes for business, figure of speech only, and it wouldn't have been a prudent time for us to do that. We have a couple of pilots going, we can talk more about this in May. This is one of our vectors of growth, is to improve our performance in those metro markets. We have a very significant financial opportunity, when we close the gap at those metro markets to our national total, from a sales and profit growth perspective and it's more John of a supply chain opportunity than it is anything else. We need to deliver more frequently to those customers. We need to do same-day next-day delivery to those customers, as you know, they've got these tiny back rooms, they can't have big bulk storage, they need produce delivered on a daily basis and we've got the capability of doing that. I don't want to let the cat out of the bag, but we've got a couple of pilots undergoing that are showing promise. And you're going to see…

And here's what I would say, given our strength across the portfolio, Sysco has every right to win Internationally, the way that it does domestically. From a sense of magnitude perspective, our International portfolio is Canada, the U.K., France, Sweden, Ireland and then Latin America from a scale perspective. That's just a contextual point. And from what I can see in early days is, we have real pockets of strength in Canada, the U.K., Sweden and Ireland and parts of Latin America. But we also have some opportunities to improve and the team is working hard against those, notwithstanding the COVID crisis. I'm still getting to know the teams in the businesses, that would be unfair for me to comment on any one part of the business. But, one commitment, I can make is that, our management team will regularly assess our portfolio and where we need to, we'll take some action. And you saw us do that recently - most recently in Spain when we divested the Davigel business. So, I'm excited to get know the business better and as I said, we have every right to - every right to win Internationally as well.

Great. Thank you.

John, I appreciate the question and I know we're over time. We appreciate everyone's patience and staying on past top of the hour. Thank you for that. Thank you for your interest in Sysco and I just want to leave you with one statement of optimism. I know we talked about December being a really tough month for us and that the quarter had sequentially been decelerating, we're seeing the opposite in Q3, which is a good thing. Our January month which just closed performed better than December and we are seeing sequential improvement in our business trends. I'm even more optimistic into these forward facing months as there is a restrictions that are placed upon our customers ease. And it's all going to be tied to the progress that we make in vaccine administration. I think you all know, I worked in healthcare for eight years, before I came here, that the news is giving a doomsday scenario on vaccine administration. It's going better than the news is covering it. And what happens next is, vaccines are going to begin to be distributed in places like Walmart and Walgreens and CVS. And when we can get 40,000 places in this country administering vaccines and can make meaningful progress on fighting this COVID crisis, we're going to see governments be much more willing to ease restrictions. And even places like U.K., who are in complete lockdown, U.K. as a country is doing a terrific job with vaccine administration and that's going to provide an opportunity for our business recovery in calendar 2021 and we're poised and ready to take advantage of it. Neil, I'm going to toss it over to you, if there's anything else to close out the call.

Thank you, Kevin and I just want to reiterate your thanks to our investors and analysts who have joined us today. Thank you very much for your interest in our Company. If you need anything else, please feel free to follow up with us. So, James, the operator, over to you to go ahead and close this out.

Ladies and gentlemen, once again, we do want to thank you for attending today's conference call. You may now disconnect.