Good morning, and welcome to Sysco's Third Quarter Fiscal 2012 Earnings 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 of Investor Relations. Please go ahead.

Thank you, Casey, and good morning, everyone. Thank you for joining us for Sysco's Third Quarter 2012 Conference Call. On today's call, you will hear from Bill DeLaney, our President and Chief Executive Officer; and Chris Kreidler, our 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 July 2, 2011, and in the company's press release issued earlier this morning. On the call today, if you've joined us via webcast, you'll notice that we are once again augmenting our comments with a slide presentation. You can download a copy of the presentation by going to the Investors section of sysco.com. Non-GAAP financial measures are included in our comments today and in the presentation slides. The reconciliation of these non-GAAP measures to the applicable GAAP measures are included at the end of the presentation and can also be found in the Investors section of our website. All comments about earnings per share refer to diluted earnings per share unless otherwise noted. In addition, all references to case volume growth include total Broadline and SYGMA combined. Lastly, I'd like to remind everyone that our Investor Day event will be held at the New York Grand Hyatt Hotel on May 17, beginning at 8:30 in the morning. If you would like to attend and need information about how to register, please contact us for details. We hope that you will be able to join us. The meeting presentations will be available to view via the webcast and will also be posted on sysco.com in the Investors section. At this time, I'd like to turn the call over to our President and Chief Executive Officer, Bill DeLaney.

Thank you, Neil, and good morning, everyone. This morning, Sysco reported sales of $10.5 billion for the third quarter, a 7.6% increase. Case volume grew 3% including acquisitions, and we believe we continue to gain market share in the industry, which has shown little to no real growth for a number of quarters. Net earnings for the quarter were $260 million and reported EPS was $0.44. Adjusted EPS was $0.49 and excludes several items including gross business transformation costs. On this basis, adjusted EPS grew 2% for the quarter. We believe this adjusted amount is more representative of the performance of our underlying business. The modest improvement in market conditions we experienced in the latter portion of the second quarter continued through the third quarter, due in part to an unseasonably mild winter in much of the northern part of the geography we serve. Our volume growth for the quarter was solid across nearly all of our business segments as we improved our customer retention, increased our overall account penetration and attracted many new customers to Sysco. Our cost control performance at the operating company level was very encouraging during the quarter as well. Excluding the impact of fuel prices and prior year multi-employer pension plan charges, we reduced our cost per cases shipped. Conversely, gross margins continue to be a challenge. While 5.5% inflation and some difficult prior year comparisons contributed to the margin erosion we experienced during the quarter, we must execute more effectively in that area of our business. This area is always one of keen focus, and we have several initiatives in various stages of development that are designed to mitigate this pressure and still permit us to be highly responsive to our customers. Turning to an update on our multiyear business transformation initiative and as…

Thanks, Bill, and good morning, everyone. For the third quarter, sales were $10.5 billion or an increase of 7.6% compared to prior year, driven mainly by food cost inflation, which we estimated to be 5.5% for the period. In addition, acquisitions within the last 12 months increased sales by 0.7% and changes in foreign exchange rates decreased sales by 0.2%. Case volume for the quarter increased 2.9% year-over-year including acquisitions and 2.3% excluding acquisitions. We completed several acquisitions during the quarter, including European Imports, which we announced in late February and enhances our ability to address the specialty foods market. So far this year, we've completed 8 acquisitions representing roughly $260 million in annualized sales. We are on track to achieve our goal of increasing sales by 0.5% to 1% through acquisitions. We have a number of additional acquisitions at various stages of completion in our pipeline that we hope to close in the coming quarters. Gross profit increased 2.1% during the quarter. Gross margin decreased 95 basis points year-over-year to 17.8%, pressured by an intensely competitive market and high levels of inflation. Operating expenses increased $28 million or 2% in the third quarter of fiscal 2012 compared to the prior year period. The increase in operating expenses was primarily the result of a $29 million increase in salaries and related costs due to higher delivery and sales compensation and acquisitions. Also impacting operating expenses were a $24 million increase in gross business transformation expenses and a $10 million increase in fuel expense. It's important to note that fuel surcharges offset this increase although they are reflected in gross profits. These operating expense items were partially offset by a $36 million charge in the prior year related to the withdrawal of one of our operating companies from a multi-employer pension…

[Operator Instructions] We'll take our first question from Michael Kelter with Goldman Sachs.

I wanted to ask about the gross margin pressure. Is there a way that you might be able to tease out how much of that is from food inflation versus competitive pressures versus mix shift to lower-margin business? And kind of, I guess, as a second part of that is, if the current food cost environment holds, meaning the basket probably going to be down a bit next year based on the spot market, will GM rebound in fiscal '13?

Mike, it's Bill. Obviously, I mean, I think you know us enough, well enough now to know that I probably can't answer with the kind of precision you'd love for me to answer it with. But let me try this. I would say to you that it's clearly coming from multiple places, all right? So you've got -- first and foremost, you've got our customers who are feeling a lot of pressure to continue to create traffic in their establishments, and that's where you see this difference in inflation, with inflation at the restaurant is, we believe, running 2% to 3% and ours has been in that 5% to 7% so far this year. So there's that kind of challenge that you work through there with your customer each and every day. There's certainly the typical type of competitive pressure that goes along with that. There's -- that's on the sell. Now there's also on the buy, where I think we have opportunities there to continue to find ways to work more effectively with our suppliers and that type of thing in terms of how we purchase the product. And then I think the third thing, and I think this is a little more clear this quarter, is there's us in terms of our mindset and our approach to pricing and trying to strike the right balance between being responsive to our customers and write an appropriate margin and that type of thing. So it comes from all 3. The reality, from where I sit, that makes this quarter a little different than the first half of the year is I just feel like we didn't do as good a job on the margin line in terms of what we can control and what we can influence in the short…

And you mentioned -- you actually referenced in your opening remarks several initiatives to improve gross margin. Could you maybe, to the extent that you're able, give us an idea of what kind of things you're thinking about and if there are any 1 or 2 that we should have our eye on?

Well, I think it's going to be hard for you to have your eye on it, but I think the things that we have our eye on is there's certain things that we do in terms of how we approach pricing and where we might make exceptions and that type of thing and how we work with customers and suppliers. We just need to be more consistent throughout the organization. And so it's not 1 or 2 things. It's several things that go into how we price both -- with both our large contract customers and also with our street customers, how we buy product and how we manage that process internally. And what I'm really alluding to there is we have opportunity to execute better and, in particular, more consistently throughout the company and just make some better decisions there. So I can't give you a lot of granularity for obvious reasons, but I can tell you there's opportunity there.

And then lastly, maybe if you could talk about -- a bit about the cadence of sales in the quarter. And I know it's not one -- I hate to slice things so finely. But the change in casual dining sales trajectory intra-quarter this particular quarter was pretty significant, where you had a decent January, February and then a much weaker March, April. So curious if you can give us any color as to what you saw for the quarter.

Well, we don't typically comment on cadence of growth month-to-month. And obviously, we read a lot of what you all write and we have a sense for what you're saying, which is, I believe, the industry view is that things did slow down in terms of growth in March and April. This quarter, as we talked last quarter, it was just a back-ended-weighted quarter for us. March is always going to drive our numbers. So anytime you've got a bigger denominator, I think sometimes that will affect the growth rates as well. But certainly, the things that helped in January and February were the calendar. I believe we had -- I think the holiday helped us early off -- early on in the quarter. In the scheme of the overall numbers, that's not that big a deal. I think weather was probably the biggest thing. And we've kind of gotten to where we stopped whining about weather. But at least on this call, I'm at least acknowledging that it clearly helped the industry and it helped us from the standpoint that, I think, in some of your more metropolitan markets in the north, we saw and felt better volumes. Now I'll quickly add, and I'm not whining about it as I said, we were hurt in areas where you would expect winter to be beneficial. So the big ski areas in Colorado and Utah and Florida, we did not do as well in those areas. And so I'm not going to say it netted out, but it wasn't a totally positive thing from a weather standpoint. So not trying to dodge the question too much here, but we saw good growth in the first couple of months. It continued maybe at somewhat of lower rate. But I'd have to tell you the biggest thing I think we're beginning to see, and we don't comment on this on a month-by-month basis either, is I think the rate of inflation is subsiding and that's going to affect the top line as well. And hopefully over time, it will subside to a level where it's more in sync with what our customers can absorb.

We'll take our next question from Ajay Jain with Cantor Fitzgerald. Ajay Jain - Cantor Fitzgerald & Co., Research Division: My first question is just on the operating expense leverage, which I think was somewhat commendable. But you clearly benefited from the cycling of last year's charge for multi-employer pension expense. And then just wanted to ask if there are any other factors that you can talk about behind the cost savings and whether or not any of the SG&A improvement has spillover effect into the fourth quarter.

Ajay, it's Bill. Again, yes, I think we did some good things on the expense line. We tried to call out the things that I would characterize as nonrecurring or unusual. So the business transformation expense because of where we are in the timeline was a little less than what we originally thought and we did have the credit last year. The point I made was that at the operating company level, our cost per case was down slightly, which is a big deal. I mean, to manage your cost per case flat to down is something we're always trying to do, and at times, we do it better than other times. So I think if you go and look at our first half of the year, certainly, we had margin pressure. The first quarter, we didn't see the type of volume growth we would've liked to see in that. We did do better in that area in the second quarter. But we had opportunities just on execution in terms of the expense side in the business. And I just felt that our folks did a better job managing expenses throughout the company in all facets, SG&A and operations. So I think we just executed better on that line, and that's a line we're going to have to continue to address, both structurally as well as just day-to-day management, to mitigate the margin pressures that we can't totally overcome. Ajay Jain - Cantor Fitzgerald & Co., Research Division: Okay. And can you confirm if there was a significant payroll or headcount-driven benefit this latest quarter?

I'll let Chris take that one.

Got it. Really nothing to be called out, Ajay. Ajay Jain - Cantor Fitzgerald & Co., Research Division: Okay. And as far as the change in the outlook for pension expense, Chris, can you confirm what's behind the updated guidance and if that's on the multi-employer side or presumably with your corporate-sponsored pension plan?

Yes, Ajay. I may not be understanding your question. We actually didn't change our pension guidance. It's been the same all year. Was there a different question? Ajay Jain - Cantor Fitzgerald & Co., Research Division: No. I'm sorry, I was just -- I was going off of your presentation materials. I thought the pension expense was indicated to be $25 million lower than fiscal '11.

Yes. And that's been the case. For the year, we said it'd be down about $28 million, roughly about $7 million per quarter, and that's been consistent during the year. That's one of those items you set in the beginning, and it's pretty much -- it's set for the year, so I was just calling out that on a year-over-year basis, it is lower and it's one of the reasons why the costs are lower. Ajay Jain - Cantor Fitzgerald & Co., Research Division: Okay, sorry, my bad. Finally, I understand that you were able to eke out some gross profit dollar growth this last quarter. But assuming that you are going to market now with a more aggressive pricing structure, the gross margin impact seems to be increasing each quarter. So even as inflation seem to be moderating, do you have any color about the gross margin outlook for the current quarter in June? I mean, could the impact be more than the 100 basis points from Q3?

The only color I have, Ajay, is we need to improve, as I said a couple of times now. So I certainly hope not. And as I mentioned in my prepared comments, that's an area of keen focus here. So we need to bring that number back. As I said to Michael, at this level of inflation, I don't know that it's realistic that we can totally reverse it, but we certainly need to lessen that variance.

We'll take our next question from Ed Kelly with Credit Suisse. Edward J. Kelly - Crédit Suisse AG, Research Division: Could you maybe talk about what the impact was in the quarter from the net impact of, I guess, the New Year's Day shift and the leap year on the volume front?

I think it helped. I'm trying to be as descriptive as I can here. Leap year is always a good thing. You get an extra day. So I'm sure that helped, but -- and the holiday thing. But I think when you line that up with -- over a 13-week period and if you look at in those months, I don't think it's that big a deal, to be totally honest with you.

Yes, Ed, this is Chris. We did take a look at that. And frankly, we didn't think it was enough to call out specifically. I think Bill's right. It helped a little, but it's really not material.

I think the weather was probably a bigger help than anything. Edward J. Kelly - Crédit Suisse AG, Research Division: Okay. And could we come back to the gross profit again? And I want to try to approach it a different way because there's a lot of questions on margin, and I'm not so sure how -- and I know margin's relevant. But maybe we could look at it a different way, right? If you think about gross profit dollar growth, which was a couple percent this quarter, your business is really all about driving more cases through the network, right? And gross profit dollar growth was less than real kind of volume growth, if you thought about it, for the first time in a while. So I wanted to get your thoughts on, going forward, is that how we should be thinking about this business? Can you grow gross profit dollars faster than volume? I'm just trying to figure out the best way to model this because up until now you've actually been doing a pretty good job there.

Yes. I think I'm happy to come at it any way you want. We certainly look at it every way we can. I think it's a good callout in your point there and that's the unacceptable part of it. We can't grow gross profit dollars at a lower rate than what we grow cases. What I'm trying to acknowledge is what we've seen here the last few quarters and what I think we may see for a while is GP dollars may grow somewhat slower than the sales dollars grow, but that's, I think, where we're not pleased with the quarter. We should have -- we certainly sought to grow gross profit dollars at a higher rate. And I think if you looked at first half of the year, it was closer to mid-single digits, that type of thing. So that was our callout, and I think that's a very fair way of looking at it. But no, I would not -- we're certainly not planning the business around growing gross profit dollars at a lower rate than case growth. That's not acceptable. Edward J. Kelly - Crédit Suisse AG, Research Division: Is that something that you can fix quickly, meaning like over the next quarter or so? Or does that take longer?

I think it's just something that you fix each and every day in our business and you bring focus to it. And I think at the operator level, our operator level, we don't necessarily talk about it quite like that. We try to get people just more focused on their categories, on their customers and so on. But I take your point. I actually agree with it that when I look at our business, I look at everything clearly. But if there's kind of 3 lines that jump out, one is volume growth, two is gross profit dollar growth and three is cost per case. So those are the 3 things that we're very focused on. And I think again, in terms of how I approached my comments, we're pleased with the volume growth, we're pleased with the cost per case performance and we're not pleased with the gross profit dollar growth. Edward J. Kelly - Crédit Suisse AG, Research Division: Okay. And, Bill, could you give us your assessment of sort of business transformation so far? I mean, we've got Manny coming in. It looks like there's been some delays in the rollout again. Just help us understand, I guess, what's happening and where the project is today versus kind of where you thought it would be.

Well, we're going to we talk at length about that next week. But I'll kind of dive in here and try to give you some color. So essentially, we've had some delays and we've had another delay here after Oklahoma. We're not happy about that, but the reality is this is new ground for us. And it's better to deal with these issues now in terms of getting the system to perform at a level or at least close to the level that it's going to need to perform. So you state then [ph] to get too deep into this and then have to fix a lot of things after the fact. Now with that said, I think what you're seeing from the board is, we certainly can benefit from Manny's input and Manny's experience and the relationships he has in this area. And so he's going to work closer with our team and with me personally to make sure we're striking the right balance here in terms of driving this out at appropriate pace but also in a way that it delivers the benefits that we expect it to.

Ed, let me jump in there, too. We've talked about, today, business transformation primarily around the rollout of our new ERP system. And I think one of the messages you're going to hear from us next week pretty loudly is really helping the audience understand that business transformation is very, very broad and it includes a lot of stuff that's going on inside the organization, one stream of which is the rollout of this ERP system. And again, we're going to give you as much color as we can about all of the different things that we're working on. We're going to try to help you understand better which of those streams of initiatives have benefits that can be achieved in advance of an ERP and which of those are really tied to an ERP implementation, et cetera. So I'm saying all this only because when we think of business transformation around here, it's much more than just how quickly can we rollout the ERP system. As Bill said, it's a critical part of the future success of the organization, so we're frankly solidly supportive of it, and we've got to get it done and all those things. But at the same time, we're not waiting to do everything that we need to get accomplished for that ERP system to be fully rolled out. And again, we hope to give you a lot more color on that next week. Edward J. Kelly - Crédit Suisse AG, Research Division: Do you think -- you had mentioned in the past that fiscal '13 would be the peak year for expense for the project. Is that still the case?

I think going back 1.5 years and 2.5 years ago at Investor Day, the numbers clearly showed that the peak year would be 2013. Now when I've been asked about that since that time, what I've said is we've not put out new guidance for cost and expenses yet. We will get into some of that next week, and we'll update you on where we think the peak is, et cetera. I think, again, the way to -- you didn't ask me; you asked Bill. But if you ask me how I look at this at least from a cost perspective is we're going to have costs for the ERP rollout and additional business transformation stuff for the next several years, obviously, until we get this thing all the way completed. We're also going to have benefits from business transformation that we're going to start to realize throughout this. I don't want to go back to talking about the net -- cost net of benefits. We hope to be able to show you those kind of independently. But I don't want to just fixate on the cost side of the equation. We really want to give you more color around what we believe the benefits are going to be as well.

Yes. I think just to kind of wrap it from my end here, Ed, and we will talk obviously more next week, business transformation is just something we need to do. And that's what I was trying to talk about. We need to go to market. We need to make some changes in terms of how we go to market, and that's a big deal in terms of how we've been running the company here for the last several years. And we need to do that because the landscape in the world that we're competing in and servicing customer in is a lot different than it was even 3 to 5 years ago. The technology platform, as you hear us talk about that, is a very critical foundational part of the entire spectrum of business transformation. But as we get deeper into this thing and as we hit some bumps here and there, we also have the opportunity to adjust our thinking on what defines business transformation, what other things can we do to create some benefits along the way. And those are some of the things we'll talk about next week.

Ed, I feel like I dodged your question, so let me answer a little more directly in terms of the cost. While I can't tell you where the peak is yet, here's what I think we have said and will continue to say: 2013 will be more expensive than 2012. That should not be a surprise. As we start to depreciate this thing, we ramp up our shared service center more, 2013 will definitely be more expensive than 2012. What I don't have visibility on for you, as I sit here today, is whether '14 or '15 will be higher or lower or the same as 2013. Again, we hope to be able to talk more about that next week. We're still looking at all of that data as it flows in.

We'll take our next question from Mark Wiltamuth with Morgan Stanley.

Bill, maybe you could talk a little bit about the competitive environment and what do you think your competitors are feeling. Obviously, you've had a gross margin hit this quarter, and case-wise, have gotten a little better. But what do you think is going on for the competitors out there? And are you seeing any further weakening that may cause some of them to exit the business?

Great question, hard to answer because we don't obviously get a lot of visibility to their -- we don't get any visibility to their financial results, so a lot of what we get is somewhat anecdotal. My sense is that the larger players, the better operators of scale, are doing okay. I think this kind of market over time will be good for the people that have scale and who have the capital to invest in the business. So my sense is they're doing fine. I'm sure they're having to compete very hard on the margin line as well, but obviously, I don't have visibility to that. I think maybe we're beginning to see, and I'll let Chris speak to this, there's thousands of competitors out there. As we've talked before, I think perhaps some of the smaller ones are beginning to think even harder about what their future is in terms of the industry and that type of thing. I'm not saying it's a large-scale phenomena, but I think it is probably getting harder both for our smaller competitors as well as for some of the smaller operators in the space.

Yes, I'll add to that. I mean, one of the things that we sense from the market, and again, it's more anecdotal than anything, is everyone is highly focused on cost right now. So that should tell you something about where the top line is with some, all of our competitors. It is easier if you've got some size and scale to get some cost structure improvement. I think the smaller players, while they may be great companies and they're highly competitive in their own markets, it is harder for them to get their cost structure down significantly, and it's becoming harder for them to -- I believe, harder for them to compete, and frankly, we're starting dialogues with more of them these days than we have been.

Okay. Just a question on the road map here on the business transformation. So I think the plan previously was you would do the second market and then do waves of openings. So now you're inserting one more third market test and then the waves of openings come. And is that moment where you hit the waves of openings, is that when you start depreciating at that point?

Yes, actually -- and I don't know exactly what I said on our prior calls, so I'll just say it new and fresh, is we will start depreciating when we go to the next company. Now you're right. Originally we thought we would be going to a small wave of companies next. We're actually going to go to, we believe, one additional company, as Bill said, in the early part of the new fiscal year, probably a month or so later than we had originally intended. So that would trigger depreciation. And that's an accounting determination of when we're putting the machine into service. And so that is still the plan. And that's the only reason frankly the depreciation didn't start in the third and fourth quarter, is we weren't -- we had not rolled to that next conversion yet. Thereafter, we're not really commenting yet about what the conversion cycle or rate or run rate or road map was going to be at this point in time. We'll give you, again, more color on that next week. But it's not our goal to put out there a set number of companies for next year or a pace. It's more along the lines of here's the progress we hope to make in the next year, and it will almost certainly be a range. If we've learned anything about this, it's that the best-laid plans don't always come to fruition, and so we'll range it appropriately.

And are the cost savings more linked to the number of operating companies that are using it? Or is it there are other activities that might generate cost savings as well?

Yes. So let me go back to the comment I made earlier about business transformation, in general. Again, as we've gotten into this thing over 3 years now, there's quite a bit that we've been able to identify in terms of cost savings, other enhancements that are not directly tied to a new ERP system being rolled out into our company. As we've identified those and we've discovered how we can accelerate those, we're obviously going after those sooner rather than later and they're not tied to any number of companies being converted. There are obviously other benefits opportunities that are still tied to us having a new ERP system in all of our operating companies. That, of course -- or those, of course, would be weighted more towards the more companies you have, the more benefits you get. Those are things that primarily are tied to the types of business processes and functions that will be put into our shared service operation. So the more companies you roll out, the more of those functions we can consolidate into our shared service operation and begin to realize some of the benefits.

We'll take our next question from John Heinbockel with Guggenheim Securities.

So, Bill, a couple of things. Where do you think you are with your analytics around pricing? And then getting back to the gross margin question, with respect to demand elasticity, right, and an ability to forecast or tell what the elasticity is per item in certain geographies, so where does that capability stand? And if it's not where it needs to be, what would you do to make that more robust?

Great question, John. I would say to you that -- in terms of the way I'm interpreting your question, I'd say we have a lot of work to do in that area of pricing in terms of more sophisticated or scientific pricing. But we have done some work there and we'll continue to look at it. The balancing act here is again -- don't hold me to these percentages. But let's just say that roughly 1/2 of our customers have some form of contract and the other 1/2 don't. They work with a marketing associate and that type of thing. So what we're always trying to do is balance the value of having, say, a more scientific approach to pricing with the value of having that marketing associate in front of the customer, taking that order and really understanding what's important to that customer today in terms of their order, and frankly, down the road, over the next 1 to 3 months in terms of running their business. So our marketing associates typically and even our presidents probably typically don't think in terms of elasticity, but that's what they do. I mean, they're making a judgment call every time they take an order: what's the right balance in terms of maximizing that order, supporting the customer in terms of what they need and striking the right overall price, not necessarily per line item but for that order in general? And so that today and as you well know historically has been handled in a very decentralized way through our sales folks and through the operating companies on that large segment of our customer base. I believe there is opportunity to do more sophisticated work in that area, but it's work that's in its formative stage with us at best right now. And I think that will be one of our key -- that is one of our key initiatives that we've called out and that we'll talk a little bit about next week. But frankly, it will take some time to develop. So I guess my answer is there's opportunity there, but I don't necessarily see a scenario where you go all the way to one extreme and you want to be totally pulling levers from a centralized location on a group of customers that still are going to be somewhat -- their decisions are going to be driven, what's happening in that local marketplace, what's happening in their establishment. So I still think that local salesperson and local operating company visibility is going to be very important.

So to follow on then, the -- and I agree, you can't measure from Houston. But having said that, do the systems exist today to give the marketing associate more information on that? Do they have it -- can they access it? And then, is it more an issue of training so that they are more familiar with how the elasticities work?

Again, I'm going to stay away from the word elasticity. They have more visibility. They have a lot more visibility today, John, than they did, say, 5 or 7 years ago to certain things in terms of cost movements and that kind of thing. They have more visibility today than they did to some other things 1 year or 2 ago. I'd say 2 things. One is our ability, to your point, to train effectively that will lend itself to execution. And then secondly, what else can we provide them in terms of not just maybe what's happening with our customers within what we see, but what else is happening in the marketplace? And that's a whole different level of analytics that is very difficult to get to, but may provide us an opportunity down the road. So they certainly have more information than they've had in the past. But your point is a valid one. There's training opportunities here and there's execution opportunities, and then there's a whole other body of work which is, what else can we provide both at the central location as well at the local location to make smarter decisions that are in the best interests of both our customers and ourselves? So we're making progress, John. I'm not trying to dodge here. We're making progress. But this would be -- this is a big opportunity for us over the next 3 to 5 years.

And then when you think about tying that back into the macro then, if we're going to see disinflation here, which we probably should, that 5.5% should be a year from now from or quicker, what do you think the elasticity is that, that in itself creates demand, right? So we'll -- we lose a couple hundred basis points in inflation. We gain some percentage of that in unit demand. And I assume, would you agree that it's not one-for-one, right?

Yes, it's not one-for-one. I'm not even sure that's a key variable anymore. I think if you and I were having this conversation 5 or 10 years ago, we'd be talking about that. I think what's more important is the mindset of the consumer and how our customers see that and their ability to absorb price increases and to get traffic to make themselves more profitable. So I think it's actually the psyche of the consumer is more important than that right now. But where the lowering of inflation, if it happens gradually, would be beneficial is it just creates less of a gap between what so far we've had to absorb and what we're able to pass along. Now look, I would also echo what I said earlier: gross profit is a function of a lot of things. You've got to move boxes. It's a function of how we price. It's a function of how we move prices within our system, transferred pricing, if you will. And it's how we buy. So there's other things we need to do on the buy as well. And that really comes down to reassessing how effective some of our strategic relationships are with our suppliers. And we're beginning to do that.

All right. And then lastly, right now, the plan for the third operating company is to be in test for roughly how long? And then when you start the rollout, what's the capacity within the organization to do this, meaning I don't know how you -- whether you're going to measure it by quarter or what. But what do you think capacity is to get companies rolled out?

Well, we're going to roll out, as we said, the third conversion in the early part of fiscal 2013. We don't really have any intention of having a set period of time to watch the system before we make additional determinations. We'll actually put in place a schedule that says, "Unless we find something that is material, we'll keep going and we'll do more." We're not really, again, commenting about how many more of these things we'll do. We'll talk a little more about that next week. But I'll plant kind of a concept is that in the past, when we've talked about the rollout for the ERP system, we've -- frankly, we've put out there what we hoped to be able to accomplish, which ended up being a fairly aggressive rollout schedule. And we've put the numbers out there appropriate for that rollout schedule, and we're learning a lot in the process that tells us that it is aggressive or it was aggressive and we might want to be a little smarter about how we roll this thing out. The way we'd hope to be able to talk about it next week is, look, this is a process that is going to be continuing for a while. There's a pace that we need to do that's a relatively conservative and smart and prudent pace. But if we get legs underneath us, if we start seeing great responses from the first few rollouts, we'll be ready, willing and able to go faster. But that's not going to be the way we plan it. We're just going to be ready to do it if we start getting some great news out of the system. So again, I think we'll talk a little bit more about that next week. But right now, we're not talking about any number of companies per quarter or per year.

We'll take our next question from Karen Short with BMO Capital.

Just a couple of questions on gross margin. And I want to kind of focus on Broadline versus SYGMA, and maybe I'll separate this out into sales and -- or case volume in Broadline and SYGMA and gross margin. Can you maybe just talk a little bit about each segment directionally, which is seeing slightly better than you might have expected case volume growth and which is seeing less gross margin erosion? Maybe just kind of talk directionally about each of those.

Well, let me take the first part. I don't know that we can say a whole lot about the second part, Karen. But in terms of growth, I would say, and I alluded to this in my comments as well, we saw good growth in all the segments, I would say, with the exception of our FreshPoint. The produce markets last year were a lot more volatile, and so that created some challenges this year in terms of both top line growth as well as margin management in that area. So I'd say the Broadline, with the exceptions of some of the -- maybe the weather-sensitive areas where we had some -- perhaps some better performance in places that characteristically we wouldn't see in the winter, up north, and some weaker performance in some of the more vacation spots, I'd say generally, the case growth was good throughout. It was good in Canada. SYGMA had good case growth. The earnings pressure -- they did have earnings pressure more -- they've had more pressure on earnings this year than the last 2 years, where they've had really strong years. Meat companies we've integrated into the Broadline now, so I don't want to call out too much here. But I would say it's generally pretty good with the exception of the produce side of business.

But would it be fair to say that SYGMA has gotten more competitive directionally than Broadline?

No, I wouldn't say that. I mean, I think we've tried to be competitive on both. I think probably one thing I should say because sometimes I think it gets misunderstood, we've seen good growth and pretty comparable rates of growth both on the contract side of the business, including SYGMA, as well as the street side of the business. So I think -- sometimes I think people think all of our growth is coming from the contract side. But the reality is it's pretty balanced. It might have been slightly steeper on the contract side but not that much. Now we've invested in margin to get some of that, to be fair, but we're seeing good growth on both sides of that equation.

Okay, that's helpful. And then just looking at gross margin, if you said this, I didn't catch it. Is there -- can you kind of give a directional split between the competitive environment and inflation on the gross margin pressure you saw this quarter, like 50-50?

No, I tried there and I obviously didn't do very good. I'm almost looking at it in a different way. So I think in one bucket, you can put the customer and what they can absorb, you can put the competitor, you can put the supplier relationships and you can put, for lack of a better term, what's in between our ears in terms of what we think we can do. All right. So that's what the bucket is. It's impossible for me to tell you how much is one or the other. That's why you hear us talk about competitive pricing environment as opposed to competitive competitor environment. The other bucket, I think, is just the math of inflation, which is what I was trying to bring out, which is at this rate of inflation, I don't know -- percentages are not quite as relevant as they are when you have 2 to 3 points of inflation, whether you're looking at margin or whether you're looking at costs. Dollar growth -- at the gross profit line, dollar growth of that operating income line becomes very important. So the way I'm just trying to compartmentalize in my head is, what level of margin erosion could've still provided a quarter that would've met our expectations? And again, I'll let you do the math on that because I don't know what your expectations specifically were. But I would say if we had 1/2 of the erosion on a percentage basis, we would've probably been pretty pleased with the quarter.

Okay. That's helpful. And then I just was curious on the CapEx. Your CapEx for the year comes up about $50 million to $75 million. I think you called out $20 million was business transformation. What was the remaining bucket?

Actually, the increase on the annual CapEx is really almost entirely made up of the increase on the ERP system. It's the comparison between the quarterly and the annual. But going back to the range of $775 million to $800 million from where we were last quarter is almost entirely made up of the ERP increase, the amount of additional capitalization there, which is $20 million year-over-year, I believe, but it's about $40 million quarter-to-quarter.

We'll take our next question from Meredith Adler with Barclays.

We talked a lot about inflation and passing it along. But maybe you could talk about -- I think you said you got some business by being aggressive. Could you talk a little bit about sort of what you're doing to go after business? And are there particular customers or segments of the business that you're being particularly aggressive about?

I'll start with that one, Meredith. I think what we've -- what I've tried to say is that we've been aggressive in growing our business in terms -- and I think in a market like this, we certainly should be. I don't know that any of the issues that we're talking about today, whether margin pressure or managing costs or business transformation, I don't think any of those would be a whole lot better if we didn't grow the cases. And I would argue that they'd be even more acute challenges. So the first place we start, and we've had to do a little more of this over the last year or so than in the past, is we're kind of defending our own turf a little bit more than we've had in the past. We have a lot of different people that come after our customers obviously. And we have a lot of customers. We have a lot of good business out there. So we certainly have, I think, dug in over the last several months and tried to work with our customers in every way we can in terms of drop size; in terms of delivery days; in terms of products; and ultimately, where necessary, in terms of price points to give ourselves every opportunity to retain business. And then our most profitable business, beyond what we retain, is the business that we grow within the account. And so as we see opportunities where we might have 23% share of wallet and we see opportunities to grow that business, we certainly -- and this is not something new. I think maybe the degree of it's a little greater than in the past. We go after that business hard and we find creative ways that make sense for the…

Okay. And then a question about the business transformation process. You folks did actually invest in a shared services facility in Houston, but obviously, I don't think it is being fully anywhere near fully utilized at this point. I was wondering whether there are dis-synergies caused by the delay in rolling out the ERP system.

Yes. I think absolutely correct, Meredith. I think we've talked about that on a previous call, that one of the reasons why these numbers, these expenses are high right now is that we've got significant costs out at our shared service center because you have to ramp up in anticipation of additional converted companies. And so you don't get to kind of scale, if you will, until you're pretty far down the road. Now we've tried to be sensible -- once we got more of an idea about the pace of conversions, et cetera, we tried to be sensible about not getting the ramp-up -- or getting too far ahead of the ramp-up curve. But even still, in the early days of these things, they cost more money than the benefits that they derive for you, and that's going to continue to be the case for a while.

Okay. And actually, I want to go back to Bill and sort of follow up with my first question to you. I guess, you made a comment, I think, last quarter about the most important thing was to drive case volumes. And if you were successful, the profits would come. And I don't know. I've been around a really long time, and my experience is that you may drive volume, but sometimes the profitability of an industry just goes down permanently after that kind of aggressive behavior. And of course, it sounds like everybody's being aggressive. Could you comment on whether this is a phase for the industry? Or have we set a new lower bar in terms of profitability?

I think, as far as I'm going to go today, Meredith, is I think what we've acknowledged for quite some time now is that we expect the rate of growth in this industry to be modest at best, perhaps even flat. And that we believe that our abilities and capabilities and scale should translate into us being able to grow faster than the market. Clearly, as I've mentioned here even a couple of times today, we're in a different environment than where we were 3 or 5 years ago. So I think a lot of industries are going to be challenged with profitability. So let me try to connect the points. So I think you've quoted me pretty accurately. I do believe that we should be out growing cases and growing volume, not at the expense of profitability at all levels. But I guess, I'm confident in our people and in our systems that we will turn those sales and those incremental business into profits. Now in the short term, obviously, we're seeing some pressure there and there's some execution issues and that type of thing. The connection, I guess, would be that doesn't mean that we don't have to do some things differently. And we'll talk some more about that next week as well. But it connects to some of the things that Chris alluded to in terms of, what is business transformation? So certainly -- I don't think I can just say it's a phase. I think we have moved into a part of the time in terms of the business world, our industry is no exception, where the consumer expectations and our customers' expectations are more acute and more specific than they've ever been. And so price, product quality are always going to be important. So I think it's all of the above. We need to continue to grow our volume. We need to grow it the right way. We need to continue to take our cost structure down, both in terms of our day-to-day execution, as I mentioned earlier, but also looking at our structure overall in terms of operating costs, our product costs, how we work with suppliers and all that as well, so -- and we clearly need to manage our margins along the way, so it's not one or the other. But no, I don't think it's a phase. I mean, I think we're in a new normal, so to speak, and we need to do all of the above. My only point is to just cut and -- or to try to squeeze too much out on the margin line at this point in time, I'm not confident that, that takes us where we need to go as a company.

Ladies and gentlemen, that does conclude our Q&A session and our presentation for today. We appreciate your participation and you may now disconnect.