Good morning and welcome to Sysco's Second Quarter Fiscal 2019 Conference Call. As a reminder, today's call is being recorded. We will begin today's call with opening remarks and an introduction. I would like to turn the call over to Neil Russell, Vice President of Investor Relations, Communications and Treasurer. You may begin, sir.

Thanks, Natalya, and good morning, everyone. Welcome to Sysco's second quarter fiscal 2019 earnings call. Joining me in Houston today are Tom Bené, our Chairman, President and Chief Executive Officer; and Joel Grade, our Chief Financial Officer. Before we begin, please note that statements made during this presentation that states 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 30, 2018, subsequent SEC filings, and in the news release issued earlier this morning. A copy of these materials can be found in the Investors section at sysco.com or via Sysco's IR App. Non-GAAP financial measures are included in our comments today and in our presentation slides. The reconciliation of these non-GAAP measures to the corresponding GAAP measures are included at the end of the presentation slides and can also be found in the Investors section of our website. To ensure that we have sufficient time to answer all questions, we'd like to ask each participant to limit their time today to one question and one follow-up. At this time, I'd like to turn the call over to our Chairman, President and Chief Executive Officer, Tom Bené. Tom Bené: Good morning, everyone, and thank you as always for joining us. I'd like to start this morning with some key themes that drove our results for the quarter, along with some comments on the current macro environment we are operating in, followed…

Thank you, Tom. Good morning, everyone. I would like to provide you with additional financial details surrounding our performance for the quarter. As Tom noted for the second quarter for total Sysco sales were $14.8 billion, an increase of 2.5% compared to the same period last year. Changes in foreign exchange rates decreased sales by 0.7%. Gross profit in the second quarter increased 2.7% and gross margin increased 4 basis points. During the quarter, particularly in December, in our U.S. Broadline business, we experienced 1.4% inflation, driven by a few categories, primarily frozen potato, meat, paper and produce. Adjusted operating expenses for total Sysco were up 2.1% for the quarter, with regard to the leverage of operating expense growth, gross profit dollar growth our performance was in line with our expectations. While we did improved performance compared to the first quarter of this fiscal year. We remain focused on improving this trend to the third quarter, the second half of the year and for the remainder of the three year plan. Total adjusted operating income was $603.3 million in the quarter, an increase of 4.8% compared to the same period last year. Changes in foreign exchange rates decreased adjusted operating income by 48 basis points. We previously discussed transformative initiatives that we have in place, which will allow us to continue to grow our business and capitalized on our strong fundamentals. As we continue to evolve as a company, we are placing further emphasis on the holistic assessment of our work in order to effectively centralize and standardize our business, including by leveraging technology and strengthening Sysco overall. We'll continue to focus on strong implementation and execution, while accelerating some of this work, all of which provides us with confidence to achieve our financial objectives. As a reminder, we're expecting…

[Operator Instructions] Your first question is from the line of Karen Short with Barclays.

Hi, thanks. Just to clarify a couple of things, so as we look at the percent of savings coming from gross profit dollars versus OpEx, it does seem that it will be much more skewed to OpEx now with these layoffs. Can you maybe just give an update on how to think about that? Tom Bené: Yeah, hi, Karen. So I would say it's somewhat more than we kind of - I wouldn't call it dramatically more. But again, just –if you think about it, the first half of this three-year plan, for the most part we've had relatively flat levels of inflation. Certainly some of the challenges we've had in supply chain. So I guess, I would just say that some of the - there is a bit more emphasis on some of the administrative cost reductions. But, again, as we've seen little bit of inflation returning and certainly - obviously, continue to work to mitigate some of the challenges on the supply chain side. Again, I would say somewhat more focused, but again, I wouldn't say we're really dramatically shifting, we talked about it earlier.

And, Karen, I might just add. I mean, I think if you think about it as - we really have two big buckets, you had gross profit and you had cost. And what we're really talking about and what we've been sharing is that our supply chain costs have been higher over the last few quarters. So we're having to balance that still on the cost side. So it's kind of - cost and gross profit isn't the big shift. It's really more between some of the cost buckets that we're really focusing on.

Okay, but just for modeling purposes, to clarify, when I look at the corporate number, it's fair to say that that only included the benefit of the corporate layer or the supply chain - sorry, shared services for one month out of the three in the quarter, right? So going forward as we model corporate that number should be quite a bit lower? Tom Bené: Yeah, so it would not have included any of that at this point, so there will be some impact on corporate expenses moving forward, yes.

Okay. And then, just my follow-up is I was curious if local organic case growth internally was in line with plan. And I know you said the kind of quarter was in general, but only asking, because you actually don't no longer have a slide highlighting case growth and you guys kind of had that slide in the past, so any color on that would be great. Tom Bené: Let's look back on that slide. I'm not sure about that. But the - as far as the local case growth, I think we feel really good about the case growth. I think there was a little bit of choppiness in the quarter. It kind of came back little stronger towards the end, which is we feel good about. But I would say it was maybe a little less than we had planned but not dramatically different.

Great. Thanks.

Your next question is from the line of John Heinbockel with Guggenheim Securities.

Hey, guys. Tom, maybe a quick question, could you maybe walk through some of the changes you made here on the organizational side, because they sound more operational? So what happened in terms of chain of command - span of control, layers of management? How do you go to market differently because of this and then how do you guard against any adverse impact on your customer? Tom Bené: Great question, John, thanks. So let's start with, the changes we made were in fact around kind of streamlining the business. And when you think about spans and layers was the key focus, very focused in corporate. And so, when you think about impact to our customers or to our selling organization, or to our growth plans, little to none. I mean, that's not where the focus was. This is really about how do we kind of improve kind of the agility of this organization, our ability to make decisions more quickly. And so, it's heavily focused on corporate office. And as you probably saw or heard, there were a couple of changes with my leadership team. So the headline here is, mostly kind of the spans and layers exercise in areas where we felt like we could remove some cost and maybe some redundancy and candidly get us more focused on the key priorities we got and then we've outlined to you all. From a leadership perspective, there were a couple of changes that are probably worth highlighting. One is that we've been going through some work within our technology area. We've got a kind of an innovation technology group and we've got a core traditional technology group. And we're looking at how we bring those two organizations closer together. And we've been doing some work around that. And as…

Yeah, and if I could just add one thing and just to reiterate something Tom said, yeah, John, none of these were cost changes that were in any way inconsistent. We're not saying costs out that are actually supporting growth. So I think that's really an important point here that there is work been done to streamline and tighten the connection between our customers and our selves. But this is certainly nothing done that's going to impact growth.

And then one last thing, if you - and if you look at the step-up in inflation, right, you saw in December, and it's not clear if that's going to continue. But let's assume it does. How do feel about pass-through right now, right, relative to all the other cost pressures your customers are seeing? Maybe compared to the past, do you think you can pass it through as you have in the past or maybe it's a little more challenging? Tom Bené: Yeah, I don't think we've seen really a big change there. I think, look, as we've always said, too much inflation is hard to pass through, but as long as it remains at kind of this modest level, I think we still feel very good about our ability to do that. Clearly, we've got lots of tools in our tool-belt here including Sysco brand, which we continue to talk a lot about. But it's driving really good performance. I think it was 59 basis points we talked about this quarter. And again, we've just kind of seen that ongoing benefit that we get from Sysco brand. And that, again, helps our customers a lot. It generally provides them some value and, obviously, it's good for us as well.

Okay, thank you. Tom Bené: You bet.

Your next question is from the line of Vincent Sinisi with Morgan Stanley.

Hey, great. Thanks very much for taking my question, guys. Just wanted to follow-up on the headcount reductions. Can you just kind of give us maybe a little bit more color on how does that fit into kind of the grand scheme of the cost cutting initiatives, especially as we go through the next couple of years here? Is it fair to say that's kind of the largest bucket among them and other ones that might be worth noting in terms of progress? Tom Bené: So let me start and I'll let Joel talk here too. And I think it's important to go back to the things we've been consistently talking about. So certainly cost is an important part of us delivering the three-year plan. And as we continue to talk, I mean, the balance of that cost may be slightly different than we initially had talked about, primarily between the supply chain area because that area has been increasing and the administrative cost side. But this recent action is really about maintaining the focus that we talked about on cost broadly. Yes, it was focused on administrative side of this. But I wouldn't say that this is a large part of the overall. When you think about the plans we had over the 3 years, all of these areas need to work together. And this is just one piece of that, that overall puzzle, in addition to the big buckets that Joel also has mentioned numerous times. So with that, I'll let Joel kind of build on that.

Yeah, I think the only thing I'd add, Vinnie, is this - we talked about the fact that we've had some of these initiatives that we have that were multiyear in scope. And in some cases, some benefits are being able to be accelerated on those. And then in some cases there are also things that we looked at that were outside of the main scope of those. And this would be one of those things. And so, in other words as we sort of thought about and some of the things we talked about at overall cost discussions this will be one of those things that would be incremental to that. And so, anyways, that's the way I would think about it. And again, just - again, as a reminder, there is obviously still a very large part of this benefit that we're looking is to get from our gross profit dollar growth as well. So I mean, this is - I still consider it as a very balanced approach, with just some further acceleration of those things. And again, some of these things that - like that were incremental to the additional plans that we laid out.

Okay. That's helpful guys. Thank you. And then maybe just a quick follow-up comment. I think you said in your prepared remarks that you had a reduction in spot market usage. Can you guys just give us a quick update on transportation, freight cost, kind of where you are on a sequential basis and how you're able to be better managing through? Tom Bené: Yeah, if think about that comment, it's very specific to inbound freight. And if you think about a year ago when we really hit - I think in this quarter had a big increase in that spot market utilization because of the tight market hit and everyone was scrambling. We got - like probably everybody we got kind of pushed to the spot market. We just done as we talk for the last really four quarters a much better job of managing that. And so as we went into this year, it's that overlap that I'm really referring to that was down. So I think we talked about this last quarter. I'd say the inbound freight is kind of the new normal. It's higher than it was certainly a year ago, kind of spread out over a year. But year over year for the quarter we saw some benefit just because that's when we took the biggest impact last year.

Got it. All right, that's super helpful. Thanks very much guys. Good luck. Tom Bené: Yeah, thanks.

Your next question is from the line of Judah Frommer with Crédit Suisse.

Hi, thanks for taking the question guys. Maybe first just on the independent case growth commentary. I think it's been a while that you've been talking about same store sales being flattish to positive and traffic being more mixed. And kind of at what point do you get concerned about the trajectory of that independent business? And can you talk about those very small one and two store independents versus the chains that you've been talking about more recently? Tom Bené: Yeah, good morning, Judah. I think, we continue to feel good about the mix of our business. We've talked over the last couple of quarters about this kind of regional change or this kind of micro changes are growing and that continues, and I think we still feel good about our position there, because of the value proposition that we have for those customers. We think about the true independents, the ones you're talking about this kind of one- and two-unit kind of operators. Look, we continue to see as we said a decent growth there. Now it is very much driven by the outlet and the type of the business that they're running and the experience they are providing. But generally speaking we still feel good about that. So I think, there - and as you've heard us talk a lot and I won't overdo it on the - this market is still very fragmented. So the acquisitions were good example, even - while Waugh is a fairly small acquisition relative to Sysco's size, it's a great example of where there are a lot of really good regional distributors out there, who are still doing good business and are a good fit. And so those guys are heavily independent driven and it's a great example of how we can leverage some great work and a great organization that they have with Sysco and the capabilities we bring. So long-winded way of saying, look, I think, we still feel really good about our position, our growth and certainly our prospects given the marketplace that we operate in.

Okay, great. And then, maybe just quickly, if we kind of rewind to Q1, I would say there was some combination of warehouse labor pressure and flattish inflation causing some consternation on your part that hitting the midpoint of 2020 guidance would be tougher against that backdrop. Would you saying that we fast forward to Q2 and kind of the exit rates there, that was kind of the offset in operating expense and inflation kind of re-ramping that, you do feel better about those 2020 targets than you did 3.5 months ago? Tom Bené: Well, I think, we feel good about the 2020 targets are long. So I think, what we've talked about is some shifting of how we might deliver that. But we have consistently said, we feel good about our ability to deliver this three-year plan and we still feel very comfortable about that.

Yeah, Judah, I think, we just - we called out a couple of things that we've - since we've said are causing us to continue to accelerate some other things, because we're certainly not just sitting on our laurels, and saying inflation is low in the supply chain side. Obviously, we're going after some of that stuff. But I think, we've been pretty consistent in saying - in expressing our confidence in achieving our targets.

Great. Thanks.

Your next question is from the line of Marisa Sullivan with Bank of America.

Good morning. Thanks for taking my question. I wanted to ask about cost savings. As some of the initiatives that you've been talked about kind of roll in and kick in the back half. Do you think that you'll get back to that longer term 150 basis points gap between gross profit dollar and OpEx growth in 3Q? Or is that more of a - will that take more time to get you back to that long-term level?

Hey, Marisa, it's Joel. Yeah. So the way I would think about that, obviously, we don't give the type of quarterly guidance, but what I would say is that again, as we continue to express confidence in our - achieving our three-year targets. And as mathematically would be necessary in order to get back to or exceed that rate over the next six quarters. I would think about that way. Again, we've talked about the fact that our second half of this fiscal year, we believe, we'll ramp in some of those areas and including that gap. So again, I'm not giving specific guidance, I would just tell you that we continue to express that confidence, and I'd say mathematically that would certainly have to be the case over the course of those six quarters.

Got you. And then on the corporate reductions that you've announced this morning. When did they kick in? How quickly did they roll on to the P&L? And is there more room to go and you have to kind of find more incremental pockets to get to maybe back to that mid- to higher-end of the EBIT improvement range?

So why don't I start here? I mean, so I think the question when does it start to kick in that will be in the third quarter. And so you'll start to see some of those benefits in Q3 and again over the second half of the fiscal year. I guess, the other thing I would say, and again certainly, Tom could chime in here; we're always continually looking for ways to do this. Again, we often get asked, hey, we've got this sort of key initiatives we've laid out. Are there other things you're doing? And then again, that's our job to always look for different opportunities. And so we'll certainly continue to do that. But hopefully, that gives you some clarity on the timing. Tom Bené: Yeah, Marisa, I think that's well said. I mean, I think this - anytime you take an action like this, it's difficult for the associates involved and we take that very seriously here. But I think at the same time, it is our responsibility to be constantly looking for ways to optimize this business, and improve the overall experience our customers are doing business with us, and we're going to continue to do that as an organization, and we'll have to - time will tell whether or not some of those things need to be accelerate or not, but we feel really good about the plans we have in place right now.

Yeah. And I think the only thing I'd just - again, not to sound like a broken record here, but again, these are not - again, we are not taking cost out of things that are actually facilitating growth in our company. And so I think that's just really important. We continue to invest in this company, we continue to ensure that we're investing in the right places to grow, and we also continue to look for opportunities to streamline. I just think, it's important to make sure that message is loud and clear.

Thanks. Super helpful.

Your next question is from the line of Kelly Bania with BMO Capital.

Hi, good morning. Thanks for taking my questions. Just going back to the workforce reduction, I guess, two questions. One, can you just talk about the size of the impact of that on a dollar standpoint on an annualized basis? And then, I just to clarify was this always part of the three-year plan or was there any change into the size of the structure of it? Or was it just pulled forward in terms of timing relative to your original expectations?

Hey, Kelly, thanks for the question. Yeah. So no, this is - first of all, a couple of things on that. We've been actually given the dollar amount, the dollar magnitude of that. We didn't talk about certain - 10% of the positions in corporate support, but we have not given that dollar amount. The question - and so again, as I mentioned in my remarks, this - I would characterize this as one of those things that are incremental as some of the stuff that we actually talked about as part of our plan. It's sort of fall in one of those categories we often get the question, hey, what else are you guys going? This would be one of those things. And so this would not have fallen into one of the things we talked about specifically in our Investor Day or key initiatives that we often talk about.

Okay. Perfect. And then in terms of the inflation, it sounded like that started really in the latter part of the quarter? Just curious is that has continued into January and what maybe you're expecting for the back half in terms of inflation in your plan?

Yeah, I would say, Kelly, at this point, that has continued. And I think our expectation is that called modest levels of inflation here over the next couple of quarters.

Okay, great. And maybe just a bigger picture on then, as you look at your competitive set, obviously, the big three of about one-third of the share. But just curious what you're seeing from that other two-thirds in this regional distributors, you talked about some of them performing well with independents or catering to the independents well. But are you seeing any changes in behavior or strategy with those group of distributors that we don't really get to hear from on a regular basis? Tom Bené: Hey, Kelly, this is Tom. I don't think, we really - I mean, it remains very competitive, obviously, out there. And when we talked about this fair amount, but as you know, the big kind of the public three, while, that's very visible to everyone, there are very good and very capable regional distributors in this business, and many of them. But there are some fairly large ones as well on a regional basis that we all compete with. And I would say that they have always been good competition and they continue to be. But I don't think we've seen anything kind of new or different from them or just dramatically change, so highly competitive, but there are certainly a lot of good companies out there in this industry.

Thanks. Tom Bené: You bet.

Your next question is from the line of Karen Holthouse with Goldman Sachs.

Hi, thanks for taking the questions. Just on the inflation commentary. So it was pretty flat in the first two months, and then you ended up a little bit ahead of 1% for the quarter really just driven by December. With that just the math would imply that you are running north of 4% probably in December? Is that the right way to think about it? And - is that how to think about the run rate into the third quarter? Or were there really some parts of that that you would view as more temporary? Thanks.

Yeah. So - Karen, it's Joel. We - first of all, I'd say were slightly inflationary or again over the first couple of months, so I wouldn't say we're flat. And for that was - the math for us doesn't apply 4% over the December. So it certainly implied some acceleration in December, as I mentioned. Some of that inflation, again, it's carried over into the third quarter. And we anticipate, again, modest levels of inflation as we head in the second half of the year. But I would not anticipate 4% inflation heading into the second half of the year.

Okay. Thank you.

Your next question is from the line of John Ivankoe with J.P. Morgan.

Hi, thank you. First, I wanted to get back to some of the prepared remarks about the industry, which I think were - you're discussing the expectation of same store sales growth, but traffic being mixed. Can you elaborate on what sectors that you're seeing in terms of that are participating in this overall economic growth and maybe how you're positioning towards the better sectors and less towards the slower even negative sectors might be changing over the next couple of years? And then I'll have a follow up as well. Tom Bené: Sure. I mean, if you think about - we've talked a lot about the various sectors over the years, and if you think about the restaurants obviously being the largest segment of this industry and of the market. Let's start there, but I think, we talk about the traffic and the spend, it's highly variable. So if you think about it from a NPD perspective, the total traffic during the last - during this last timeframe was basically up slightly, and the spend was up about 3%. QSR was driving the majority of that midscale, they call midscale dining traffic was down about 2% and spend was up about 1%. And then casual was also traffic was down and the spend was up. So it's kind of mix, if you think about the various segments within the restaurant. As we've also talked a lot about though, we participate in lots of different segments. We continue to see growth opportunities in places like healthcare and certainly education, retail sector continues to be a growing Foodservice segment. And so there continues to be lots of areas of growth out there. And we've also talked and it's been a focus for us for a few years now, but it continues to be is the ethnic segments within restaurants continue to see growth. And depending on that's somewhat maybe more a little more geographic based, but we see solid growth in certain ethnic segments as well.

Okay, helpful I wanted to see if there was maybe a change of tone in anyway regarding your comments and it sounds like it's more consistent. The next question if I can sneak another one in before the final one, digital ordering now at 50% of local case growth order that would suggest maybe you were at some type of a tipping point. Obviously, the marketing associates are doing less ordering and they're doing a lot more servicing or adding value to their customers. Could you remind us whether we're now at the point where the level of marketing associates is relatively stable, despite the expectation of local case growth or maybe we can get to a point where the best marketing associates can serve more clients and just be more overall profit additive to the corporation? Tom Bené: Sure, John. That's a good question. So we've actually been over 50% for a few quarters now, but we have kind of hit this - it is a - I think it's an important question, because it's a good percentage of our business that is online. And remember this is the local business we're talking about our national or contract business a lot higher portion of that is actually done online or through things like EDI. But within this local segment, about the same time a year ago, we also talked about we were adding some marketing associates. We've kind of gotten through that addition and we felt like that was really important at the time, because we had now had some tools available to us that were enabling us to target where those resources could go. Think about that is, where we had some bigger share gaps or share opportunities. And once we identified that we wanted to make sure we were focused there. As we think about it today, given that percentage of ordering, given some of the additional tools we continue to provide our customers and our organization. I do think we're in a place where we're somewhat stable from a selling resource perspective. We are seeing larger territories, we think that's a good thing. But we aren't looking at this as a way to dramatically reduce or change our selling resources. We continue to believe they're a very, very important part of our model. And we know from our customer feedback that they are highly valued. So it's really about continuing to give them more tools to help them be more effective, and obviously more consultative, but also making sure that our customers have the opportunity to do business with us the way they want to, which has been also our focus in our model.

Great. Thank you for that. And then the final question, the acquisition of wine - excuse me, of Classic Drinks, which does wine and spirits in Ireland. Is that - that segment, is that a one-off for you? Obviously the U.S. has, especially even on a per-state basis, have a lot of unique challenges in terms of wine and spirits distribution. But is that a unique-to-Ireland type of business segment for you? Or might there be other types of applications in your geographies around the world in that type of segment? Tom Bené: I would say it's a little more unique to Ireland or maybe some of the parts of Europe. In Ireland, we had a small - we sold a small amount of Wine and Spirits. In that market, in particular, the competitive set - wine and spirits is a big part of the competitive set. So the Classic Drinks acquisition really puts us in a great spot to compete more broadly in that overall market. And so I'd say it is a little more unique, they don't have nearly the kind of the state-by-state laws that we have here in the U.S., and so it's - I'd say, at this point, think about it as something that's appropriate for that market, but not something that is a strategic shift for Sysco.

Thank you. Tom Bené: You bet.

Your next question is from the line of Edward Kelly with Wells Fargo.

Hi, guys, good morning. Tom Bené: Good morning.

I wanted to start off with a question on gross profit per case. Your gross profit dollars exceeded case growth in U.S. Broadlines again after really kind of, I guess, stalling over the last couple of quarters, so obviously encouraging. I would imagine that this is re-inflation, normalization of inbound freight, better local mix. I mean, all things that are good for you and the industry, obviously. Is there anything else in here that was driving that and should we expect that to continue going forward?

Yeah. I think - Ed, this is Joel. I think the other thing you probably - I think, you summarized it pretty well. The only thing I might add is the - our brand growth. Again, that's something 59 percentage points up again in our local brand sales this quarter. So I mean, I think that's - I'd say that's one other area that's certainly strongly impacting that. And so I think you're right, I mean, again some of the few other things that you did talk about, again to Tom's point, the inbound freight piece was a little bit of an overlap issue, I'd call it that - if you recall a year ago, we were talking about, it was a fairly sizable impact for us. So there's probably some heavier - a little bit of heavier influence from that, but broadly speaking, I think the mix, the brand, the more inflation and again some normalizing some of the impacts we had on the inbound freight, I think it's certainly a fair way to look at that.

All right. And then just on the OpEx side, the growth in OpEx moderated a bit from Q1, but still reasonably high, and obviously, that's warehouse labor and driver pay. Just thoughts on where you are in terms of having to raise wages on both of those sides and how are you thinking about the necessity of future wage increases? Just any thoughts on whether things are settling down at all there for you? Tom Bené: Hey, Ed. I think, what's happening is we are kind of at a new level we talked about it on the inbound side, and certainly, I'd say on some of the internal operating expenses. Having said that, so I don't think we were necessarily anticipating any larger significant cost like hourly increases that are going to dramatically change the OpEx going forward. Where we're really focused on is how do we go after some of those big cost buckets that drive the expense. And so for - in this business, as you all know, there are things like miles driven, there are things like cases per mile. So the efficiencies that we can drive that really impact the cost or the things that we're trying to focus on, and we've got a couple initiatives that we feel early days are helping us and performing well. We've talked about small delivery vehicles a bit in the past. We think that that's a mitigating factor in the fact that we can bring in kind of non-CDL drivers in that environment and deliver those cases at a lower cost per case. So we're trying to do a lot of those things that ultimately help the overall cost, the operating expense, if you will, more broadly on a sustainable basis knowing that we do have higher wage rates than we did in the past, and then we'll probably continue to see that going forward. But I don't think it's a new spike that's coming in front of us, I think it's more - we've now kind of hit that number and we are now just trying to manage the overall utilization of our headcount and our resources.

I think if I can add one thing to that also is just the - again, part of our challenge we are having was some of the retention of some of the newly hired associates. And so, I think it was which is then driving over time, which is then driving other things that are little bit lower productivity. And so, I think some where we're also making significant emphasis on in terms of our hiring, our training, our onboarding processes to ensure that we do have a better retention rate with some of the hiring, both on the driver and the warehouse side, that I think - and again, I think to Tom's point, I agree. I think it's leveled out somewhat, but certainly not in a position to really say we're past the issue.

And, Joel, just one quick one for you on the tax rate, when you say the full year tax rate at 25%, I think the adjusted tax rate in the first half is lower than that. How should we think about the back-half tax rate? I guess that's what I'm asking you.

Yeah, I would just look at the whole - about a 25% run rate would be the way I would think about that.

Okay. Thank you.

Your next question is from the line of Ajay Jain with Pivotal Research.

Yeah, hi, good morning. Thanks for sneaking me in. On the cost cutting that you've just announced, it sounds like those initiatives are mostly focused on U.S. operations. So I don't know if there's any international component for the headcount reductions. But can you give any additional geographic breakdown on the latest cost cutting initiatives? And then, within the U.S., what's the relative breakdown of the cost cuts between regional operating companies and corporate?

Sure, so I'll start here. So the discussions we had regarding the cost cuts here was - it was exclusively focused in our U.S. business and really on our corporate office and on corporate support. So I think this was not a, what I'll call, the U.S. field-related. It was again - it was really specifically in our U.S., and corporate and support operations. So I think the - some of them we did talk about on a few of the certain items was related to, again, some of the infrastructure changes we had in bringing our businesses together in France. But what you're specifically asking about is U.S. related only.

Okay. And I know you didn't want to provide a dollar amount for the cost savings in response to an earlier question. But can you at least confirm what you're expecting for overall restructuring charges, that's associated with the layoffs?

Yeah, Ajay, we haven't given that out. We're not planning to.

Okay. Thank you very much.

Thank you.

Your next question is from the line of Bob Summers with Buckingham.

Hey, good morning, guys. You talked about volumes being choppy during the quarter, but coming back toward the end. But any comment on how January was and any impact from the shutdown? Tom Bené: I don't think we saw much of an impact from the shutdown. I think what I'd say is that we feel good about how the quarter has started. And we feel like it's delivering on the trajectory that we had hoped.

Okay. And then circling back to the cost saving numbers, when I think about the transformation and the Smart Spending and having second half impact, is it fair to say that you're trying to get us to weight that more toward the fourth quarter?

I don't know that we've said that, Bob. I mean I think we we've been pretty consistent in saying that we anticipated improvement in the second half of the year. Having said that, that doesn't mean day one in Q3 is like everything happens. And so there is a little bit of a spreading over the third quarter, where things kick in, which I guess would then suggest fourth quarter be a bit stronger. But we've been pretty consistent again as moving through second half. And these things do happen, again, it's a little bit of a ramp over the course of Q3.

Right, of course. And then, lastly, as I think about all the expense savings that you've articulated and are they sufficient enough to drive the expense growth, say, below 2.5%, which would allow you the opportunity to flex that spread up, which if you think about achieving the plan, at some point you'll have to overachieve on that spread for a couple quarters to get back on track. Is that fair to hold you to that?

I think it is. And certainly again, we certainly acknowledge that, and again, certainly continue to look for acceleration of opportunities there, but yeah, I think that's fair.

Okay, thanks.

Your final question is from the line of Andrew Wolf with Loop Capital Markets.

Thanks and good morning. So the quarter, the U.S. local case growth, I think you face the toughest year ago comparison of this economic cycle if you will. So given the commentary you just made, Tom, that you like how January is and what you said about the macro environment, really, I guess that you got easier comparisons. It shouldn't be too much of a leap of faith for us to get the model somewhat better case growth than you showed this quarter? Tom Bené: Look, I think I'd start with, and we talked about this prior quarter and we talked about it again here. In the second quarter, we lost some cases from acquisition we did a year ago, HFM, also a couple of large national customers that we lapped. We have another acquisition that we're going to be lapping that we did last year, a larger one than the ones we've done that we're going to be lapping kind of in the third quarter. So I would say, my commentary around the start to this quarter is, it's in line with what we had hoped and what we expected. And so, we feel generally good. Having said that, you guys all know, many of you were living the frozen - where the polar vortex happened a week ago. We saw - we see always things that come up and happen throughout the quarter that we are all happen to deal with. And so, you see little impacts from things like that as well in certain parts of the geography. So I would just say we feel good about the momentum we've had. We feel like we're on the path that we had hoped for. And I don't think there's anything that would necessarily should change your thoughts, your projections one way or another. I think you should - the commentary we've given is we feel good about the back-half, we feel like we can deliver the incremental upside that we've talked about, primarily driven by a lot of the cost activities, and we're feeling pretty good right now.

The only thing I would add to that, just a slight caveat is, just remember, I mean, our third quarter, our March, March is our big month. In other words, it's so - certainly couple, again, talked about - so Tom said some decent trends coming out of this thing. But, obviously, our Q3 is made or broken to some extent by March, but just as a reminder of that.

Sure. Thank you for both of those comments. And just to close on product cost inflation and talking about how it inflected and we can see those in the numbers, the [governance] [ph] reports as well. Just curious, do your systems and management allow for that to be passed through if possible almost real time, number one? And how about competitively, is there just a normal lag, just a sense that nobody wants to be the first guy to move up prices or do these prices get through pretty much, pass through pretty much as they occur? Tom Bené: Hey, Andy. I think what I would say to that is that just keep in mind the order of magnitude of these things too. I mean, we always talked about is that this industry, with a couple percent inflation, typically has been historically able to pass those things along. And so, certainly, we continue to feel good about that. And I think - a little bit of a lag, I mean, I don't - if you think about half of our business being contract with some sort of cost plus, there is typically a little bit of lag in terms of when we actually are able to book cost increases and then pass that through. So it's not sort of an immediate thing. And on the - and the local side, again, I would just say in these times of what I call modest inflation, I think we generally feel pretty good about our ability to pass those things through. So I don't know the - I wouldn't call us in a place where we've got some rapidly accelerated inflation. I think we're in a pretty good inflation point and certainly feel pretty good about our ability to do so.

Okay. And if I could, lastly, just on the international gross margin contracting a bit this quarter, sort of a trend, is that still mainly driven out of the UK where the cost inflation you're getting, because of their currency or is it more broad-based? Tom Bené: It's primarily UK, a little bit also in Mexico, but it's primarily UK.

Okay. Thank you. Tom Bené: Yeah.

Thanks.

Thank you for joining us today. This concludes today's earnings call. You may now disconnect.