Welcome to Sysco's Third Quarter Fiscal Year 2024 Conference Call. As a reminder, today's call is being recorded. We will now begin with opening remarks and introductions. I would now like to turn the call over to Kevin Kim, Vice President of Investor Relations. Please go ahead.

Good morning, everyone, and welcome to Sysco's third quarter fiscal year 2024 earnings call. On today's call, we have Kevin Hourican, our President and Chief Executive Officer; and Kenny Cheung, our Chief Financial Officer. Before we begin, please note that statements made during this presentation that state the company's or management's intentions, beliefs, expectations or predictions of the future are forward-looking statements within the meaning of the Private Securities Litigation Reform Act, and actual results could differ in a material manner. Additional information about factors that could cause 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 July 1, 2023, subsequent SEC filings, and in the news release issued earlier this morning. A copy of these materials can be found in the Investors section at sysco.com. Non-GAAP financial measures are included in the comments today and in our presentation slides. The reconciliation of these non-GAAP measures to the corresponding GAAP measures is included at the end of the presentation slides and can be found in the Investors section of our website. During the discussion today, unless otherwise stated, all results are compared to the same quarter in the prior year. To ensure 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 Kevin Hourican.

Before I begin our call today, I'd like to take a moment to acknowledge an extraordinary event that happened during our third quarter. As you may have seen, on Friday, March 1, a Sysco truck was involved in an accident on the Clark Memorial Bridge in Louisville, Kentucky. After the accident, a Sysco truck was hanging precariously over the Ohio River. A Sysco colleague was inside that truck, staring down at the river, not knowing if her truck would fall into the river before she was rescued. I bring this topic up to take a moment and recognize the Louisville Fire Department for their heroic efforts. I especially want to thank Bryce Carden, the firefighter that risked his life to rescue our colleague from her truck that day. The heroes of the Louisville Fire Department acted with efficiency, skill, and courage to rescue a Sysco family member. We are thankful for their successful efforts and for all that first responders do every day to protect our communities. I want to be very clear, business results matter, but the fact that the Louisville Fire Department save the life of a member of our family deserves praise and applause. Now, on to matters of business results and outcomes. I'd like to start with restaurant foot traffic data. Much has been written over the past few weeks as select restaurant names and select food service suppliers have announced their performance results. As you have heard in those communications, and observed through credit card transaction data, foot traffic to restaurants is down year-over-year. As we have previously indicated, January restaurant traffic came out of the gate with a slow start, down high-single-digits to prior year due to a host of factors. February and March foot traffic improved to down low-single-digits but still posted a…

Thank you, Kevin, and good morning, everyone. Let's start by building upon Kevin's commentary regarding the quarter. This quarter delivered strong earnings growth in a dynamic volume environment as our teams took appropriate proactive steps and deliver adjusted operating income growth of 8.4%. After the soft January start, we delivered sequential volume improvements each month during the quarter. Our team is focused on improving local case volume growth with several factors that provide confidence in improving results for the remainder of FY2024 and into FY2025. Turning to margin management, continued execution across our operating levers resulted in improvements to both gross profit dollars and margins, and lower structural and variable operating costs. This included continued progress with supply chain retention and productivity, ending the quarter with our highest monthly productivity rate for the year for both delivery partners and selectors. We are also excited today to announce that we are raising our cost out target for FY2024. We now expect to generate more than $120 million of cost out in FY2024 based on incremental actions during the third quarter. This is especially important to offset the softer than expected near-term consumer backdrop while continuing our investments for growth. In addition to these structural cost outs, our plan this year, also include executing on synergies from our acquisitions this year. For example, with the closing of the Edward Don transaction earlier in the fiscal year, we are already realizing early post acquisition synergies that are in line with our expectations with more to come. In total, our actions resulted in positive leverage with gross profit growing at a faster rate than operating expenses for the sixth consecutive quarter as we delivered sequential improvement in cost per piece throughout the quarter. Despite the current macro environment, we are confident in our ability…

Thank you, Kenny. I'd like to turn to one more important matter before we move to our question-and-answer session this morning. As you may have seen, earlier today, we announced that Ed Shirley has stepped down as Sysco's Chairman of the Board for personal health reasons. As a result of Ed's decision, effective immediately, I will serve as Chair of the Board and Chief Executive Officer. I am honored by this appointment and I look forward to serving our shareholders, our customers, and our colleagues in this expanded responsibility. I want to thank the full Board for their continued support and guidance. More importantly, I'd like to take a moment to recognize and thank Ed Shirley for his tremendous impact on Sysco over his eight years of exceptional service on our Board. When I joined the company in February of 2020, Ed was our Executive Chair. Ed and I spent countless hours together building what became our recipe for growth strategy and of course, navigating the early and significant impacts of COVID on the food-away-from-home sector. Ed's wisdom, guidance, and substantial business experience were invaluable to me in those early innings at the company. Roughly a year later, Ed transitioned into the independent Chair of the Board leadership position. He continued to provide substantial and helpful feedback and guidance to me, the Board, and the entire management team from that leadership position. We are a better and more resilient company due to Ed's impact and leadership. On behalf of the entire Board, I want to thank Ed for his friendship, his mentorship, and for his dedication to our company. He will be greatly missed. With that, operator, we are now ready for questions.

Thank you. [Operator Instructions]. And it appears we do have our first question from Alex Slagle with Jefferies.

All right. Thanks. Good morning. I guess maybe just start off digging a bit further on what you're seeing in the industry and the demand environment and into early April if anything, just, I mean, it seems like a continuation of the soft traffic environment in restaurants, perhaps some more divergence between the operators that are finding ways to be successful highlighting value versus maybe caught a bit flatfooted. So interested in kind of your view and given such broad exposure, what you've seen, if any, divergence between chains and independence or full service, limited service, and maybe just a little bit on giving your strength in private label and all the offerings you have, what that means for Sysco's opportunity to gain more share in this kind of environment.

Okay. Good morning, Alex. It's Kevin. That's a good question and a loaded question. So I'm going to try to unpack it to a couple of points. Just start with the headline, which is traffic to restaurants down year-over-year in the quarter, starting with that tough January start and sequentially improving throughout the quarter. It's important to note that traffic is what drives distributor case volume shipments, not the same-store sales that they post in their revenues; traffic is the more important of metrics for us. Sysco did gain share in total versus the food-away-from-home sector in aggregate in the quarter, but the volume was less than what we had anticipated. Therefore, the actions that we took and spoke about, and we're pleased we delivered our profit expectations for the quarter in spite of those overall market conditions. Now, what we're seeing in the aggregate data tied to what your second part of your question was performance divergence by type of restaurant operator. It's more based on income strata than restaurant type. We have customers that serve restaurant highest white tablecloth all the way down to QSR. Our hardest hit sector right now is QSR. You can look at our SYGMA volumes. Our SYGMA volumes were down roughly 3.5% for the quarter, which is an indication of that point. And those that are succeeding are those that either have a differentiated value prop and/or a great product offering and/or a digital app that's rewarding loyalty, and great operators can be successful regardless of environmental conditions, as evidenced by the quarter that we just posted an overall softer environment, but yet, we were able to deliver our profit expectations and take share profitably during the quarter. What we're specifically doing about that is we're working hard to lower food costs to…

Sure. Thanks, Kevin. Hi Alex, this is Kenny. The growth rate from March is carrying into April. So if you take a step back and bifurcate Q3 performance, as Kevin noted, January was negative growth, mostly driven by weather. February and March were positive with sequential improvement. So that growth rate from March is carrying into April. As Kevin mentioned in his prepared remarks, we have initiatives in place to improve volume and we have cost levers in place as well to further enhance profit margins. As a company, we are confident we can operate in any environment that's proven in Q3 and this year, as we had disinflation, deflation to inflationary, which is what we're seeing at a spot moments. Overall with software macro backdrop, we are still confident with our guidance.

Thanks. And then a follow-up on the private label. And you mentioned the opportunity in local, but it would seem like there's still some opportunity on the national side. I know there's some differences there, but I'm just kind of curious how you describe the opportunity in terms of maybe the magnitude or the timeframe of where maybe you could get some private label gains in that side of your business that could just move the needle.

Yes, Alex, good question. The primary focus is in local because it's where the end restaurant operator sees even more value from Sysco, where we can provide them tremendous value for their menu at great quality. And we are very focused on making continued progress there. National is trickier. It's more complicated. As you know, large, large restaurant chains negotiate direct with suppliers for proprietary products that are on their menu that are unique to them. And then we provide a distribution, cold storage, tri temperature truck delivery on time and in full service for them. So it's a little bit different model. We can make progress on national. It'll be slower going and you won't see step change increases in penetration in national for the reasons that I just described. With that said, we have a change in management function which Kenny helps supervise. We can provide options to those large national customers to at least have choice. You have your vendor direct program that you can negotiate. This is a program Sysco can offer you that's comparable or better, and we work to provide that penetration opportunity. So we can make progress on national. The bigger focus is on the local customer.

I think one thing to add on that piece is, as Kevin said, we will make further progress. I think it's important to call out that we are continuing to improve profitability by leveraging strategic sourcing on both Sysco private label and non-Sysco brands, which is one of the reasons why, Alex, you're seeing a nice leverage from sales to gross profit.

And Victoria, our Chief Merchant is going to talk more about the Sysco brand evolution at our Investor Day on May 22. Let's -- Alex, thank you for the questions. Let's go to our next --

Thanks.

Next questions. Thank you.

And we have our next question from John Heinbockel with Guggenheim Securities.

Kevin, start with the expansion of the sales force that looks like a 5% or so growth rate. How do you look at that as a catch up versus something that's sustainable? And then your thought on what that -- there's this thought, right, that you take that and maybe multiply by 1.5% to get local case growth. I'm not sure if that still applies. But how do you think that works through the P&L? And I guess, you'd say it's almost all going to be new accounts, not existing growth.

Yes. John, I appreciate the question. Let's start with -- I did today for the first time actually size the price from a headcount growth perspective in fiscal 2024. To be crystal clear for everyone who's listening, that's a net number. So there's of course, term that occurs within that population. And this is a net increase in our headcount by year-end of 400. We're on track to be able to hit that target. It's the start, John, of what will be a continued forward progress on hiring. Today, I'm not going to disclose the hiring target for fiscal 2025, but again, that's something that we can talk about at our Investor Day. And we do intend to talk about at our Investor Day for Q4 and frankly, for all of fiscal 2024. This is an investment, as in below water investment. I mean the expense greater than the revenue and profit that they're contributing. But we are confident and that will continue in Q4. It's an investment in Q4. It will positively impact our fiscal 2025 financial outcomes with a positive return on investment. And again, we'll talk more about the impact of that and how it contributes to our sales growth targets at our Investor Day.

Okay. And maybe as a follow-up, you talked about affordability, maybe speak to your thoughts on elasticity and how do you work with. I know you talked about private brand and getting your costs down, but obviously, you can take your costs down. You have to get your customers to pass that through to their end customer, your confidence in that occurring. And then when you think about elasticity for your customers, how do you assess that, right? And what has to be done with affordability to move the needle?

That's a really good question. I'll unpack the first part, second part. First part, listen, we admire, respect, trust our customers. And I want to be clear. They are running their business to the best of their abilities. But what we are seeing, John is, we are in fact providing more value year-over-year to end restaurant operators. And we're not seeing that show up on menu prices. That's the main point. And I believe that menu prices need to come down for traffic to grow. And I believe restaurant operators are going to become more aware of that reality as time progresses because they're -- as you know, benefiting from those menu price increases at this point in time. To be fair to the restaurant operator, their overall operating costs have gone up. Their labor costs are up significantly over the last three years. And some of that menu price taking has been necessary to offset that wage increase, especially in a State like California. So you understand how dynamic that is. And they're making the best choices for their individual business P&L. What we need to focus on at Sysco is what we can control. What we can control is the price we pay for the product we purchase and the prices that we offer that product to our customers, so that we can provide value to them, so they will choose Sysco and choose us at an increased rate over time, because value does matter meaningfully in this environmental condition. Which segues to the second part of your question, which is price elasticity, we've gotten much better at this over the last few years tied to our strategic pricing software. It is very robust. We know at the customer level, elasticity at the item level, and we price…

And we now have our next question from Mark Carden with UBS.

Good morning. Thanks so much for taking my questions. I want to start with one that's building a bit on the last question. How has the broader distributor pricing backdrop been amid some of the industry headwinds? It's placed in 3Q. Are you seeing competitors being much more aggressive with upfronts in this environment? There's still the concern, obviously, about avoiding a race to the bottom. Just what do you think on that front?

Mark, I think it starts with the restaurant operator. The restaurant operator is looking for value right now because of their P&L, the labor cost point that I mentioned. So we're seeing increased activity of what I'll call price shopping. The goodness of digital penetration also creates an environment where it's easier for an end restaurant customer to be able to shop for price. So we've moved our digital order placement from 35% to over 80% over the last couple of years. And that is an in aggregate terrific thing for Sysco. They buy more, they buy categories, they've never shopped from before. We can provide them personalized offers. We can provide them personalized pricing. But competitors have ordering websites too. And it's easier now for a customer to be able to rate shop across distributors, and they need to because their labor costs that I mentioned. So it's less activity from our competitive set, it's more customer driven. We've seen an increase in front shopping. I'm sure that's very clear and very straightforward to you. And it's specifically, as I mentioned in the answer to John's question on commodities. So it's an aggressive market right now from a commodities perspective, if you're not right on price, you'll lose that business. And we need to be appropriately priced in that regard. And that's something given our purchasing scale, we at Sysco can drive the best possible purchasing cost and we can be credible and relevant from a price perspective to our customers in that regard. You mentioned upfront monies in your question. I want to be clear. Upfront monies are not a bad thing. Upfront monies, if they enable you to secure a large customer win for a dedicated period of time with minimum volume guarantees; our finance team underwrites every single one of those deals. I approve personally, the bigger deals, those are good deals. So I don't want you to infer that increase in upfront monies is actually a bad thing. They tend to be a good thing. And we have not, to answer your question, specifically seen an increase that activity in the marketplace. Mark, back to you, if you have a follow-up.

Got it. That's helpful. And then as my follow-up, just amid some of the industry slowdown, have you seen any changes to the M&A backdrop? Any more opportunities opening up just for consolidation base with some of the smaller players maybe running some challenges?

Yes. So in terms of M&A, what we're doing at Sysco is a couple of things, right? So number one, we are focused very hard on the integration. By the way, the Edward Don integration is underway and the synergies are being realized on both from a go-to-market standpoint as well as from a back office purchase standpoint. So right now, our priority is to focus on integrating and realizing synergies that we have in our portfolio today. In terms of the backdrop and how we think about M&A, and from a more of a macro standpoint, we have a robust pipeline. We have extremely robust pipeline right now, given the lens of ROIC, we will keep a close eye out for accretive opportunities. But at that moment, as I mentioned, we are focused on integrating and realizing synergies as we expect, these M&A opportunities that we have in our portfolio will be enterprise accretive from a multiple standpoint.

[Operator Instructions]. And our next question comes from Jake Bartlett with Truist Securities.

Great. Thanks for taking the question. My first was a clarification on the comments on April trends. There's a big calendar shift of Easter and some spring break. You mentioned, I think that the kind of similar growth rate for both months. So that to me would imply a kind of underlying deceleration in April. I just want to clarify what the message is there, whether the comments are kind of adjusted for those calendar shifts. And then my real question is really about the non-local case growth, and it's not specifically given, but it looks like it implies an acceleration. The question is, what is driving that that non-local case growth? The builders are the drivers of that. And what your expectations are in the next couple quarters, whether you think that that momentum will continue and potentially offset some of the headwinds that we might be seeing in independence. Thank you.

Okay. I'll take the first part. This is Kenny. So just to clarify, there is no deceleration into April. The growth rate from March is carrying into April. So just to be very clear, we're not seeing a deceleration in the market right now. It's similar to the ex of velocity of Q3. And with that said, as Kevin mentioned, we do have action in place to stimulate volume growth further in subsequent periods. Kevin, back to you.

Yes. And I think the second part of your question is outside of local, what else do you see going on. We've had a tremendous amount of success in our corporate national CMU business over the last few years, and we continue to win net new business profitably. In national sales, including new customer wins signed in the quarter, Q3 that began shipping at the end of Q4 and into fiscal 2025. And one other call out is our SYGMA business, which I mentioned earlier, down $3.5 million in the most recent quarter. We're now lapping week 53 of a customer exit from a year ago. That was an unprofitable customer that wasn't willing to partner with Sysco to far an appropriate margin profile, and we exited that business we are now lapping that, which will positively impact SYGMA's growth rates in Q4, and we've signed some net new profitable business in SYGMA, which will contribute positively to SYGMA in Q4 and into 2025 as well.

Sorry on SYGMA, one piece to add is SYGMA is down on a sales basis, however, year-to-date, the profit margins are up 20% year-on-year. So we've done a nice job really focusing hard on supply chain productivity. And once volume comes in, as Kevin talked about, the new deals we are signing at inking that should flow nicely down to the bottom line.

Just if I'm so on, just a follow-up question. Is Easter a negative for you? Or how does the calendar shift just to make sure I understand how the calendar shift would impact Sysco as a whole?

Yes. I don't think we're going to get into a specific commentary about Easter. There's movable holidays. Easter is one of them. I think it can move six weeks in any calendar year. Kenny's commentary was much more macro than that just one event, it was in Q3. There was a notable step up from a very tough January into more positive February. February stepped up more positive into March, and we're seeing the trend of that improvement continue. And we have to take further actions in Q4 to drive a step up from Q3, and we're prepared to do that through the things that I talked about on today's call. We're confident -- we're focusing our sales reps on the new customer acquisitions in Q4 that we can improve our market share capture. And to be clear, we took profitable market share. We grew profitably versus the market in Q3, and we believe we can step up that performance in Q4, and we're focused on doing so.

And we have our next question from Edward Kelly with Wells Fargo.

Hi, good morning, guys. I wanted to ask a question just about the backdrop and the expectation and how we should be thinking about the go-forward. Kevin, your tone definitely seems to have changed a bit about the backdrop. Kenny, you mentioned transitory, I think in your remarks, and if you look at Q4 guidance, you have a $0.20 range out there. That's a pretty big range, I think, for you guys. So it does suggest some uncertainty. But I guess what I'm curious about is how you're thinking about the duration of what we are seeing today? What specific adjustments that you're making that allow you to get to your goals? How do you think that's going to actually impact next year?

Yes. Good morning, Ed. It's Kevin. I'll start. Yes, Q3, from a volume and traffic to restaurant perspective was a softer macro than we had anticipated. It was negative for the industry, food-away-from-home in total, volume of cases by the food distributor network in aggregate was negative in the quarter and that's not what we would have anticipated for the quarter. So the tone that you heard is tied to that fact based, the overall macro in Q3 was softer than we had anticipated. So that means we need to take share in order to be able to grow at the rate that we desire to grow at. And the good news is we can do that. We can do that by focusing on net new customer prospecting. We can do that by further penetrating our specialty businesses, which have a large opportunity to grow prospective market share. And we have teams really focused in that regard. I think we'll defer a comment on fiscal 2025 until our May Investor Day. But we are confident in our ability to deliver against the guidance for the year. And for that, Kenny, I'll toss you to comment on Ed's question about the guidance range for the year and for the fourth quarter.

Hi Ed, it's Kenny. So based on our current expectation and with three quarters under our belt, we are more confident at the mid-point of our guidance range. And why is that? Three reasons. One is our confidence is guided by data. We partner with third parties, suppliers, institutions, and we have a lot of data. We have a lot of volume running through our shop each and every day. That's point number one. Number two, what gives me confidence in our guidance is the fact that we have a ton of dynamic levers in our P&L. As you can see in Q3, our GP grew faster than expenses and faster than sales, which means that you can leverage on both the GP line as well as the operating expense line. We talked about a lot of levers in the GP. You have strategic sourcing. You have Sysco brand penetrated within local. You have centralized pricing tool. We also have growth from our specialty business, which we saw this quarter. So GP leverage that we see. And then we're also very excited with the fact that we increased our structural SG&A cost takeout from $100 million to $120 million. And the good news is, as the market normalizes as volume materializes, that volume will flow down nicely and accretively down to the bottom line. And as these costs are structural and they will not be back in.

And just to add one, we try not to do three-part answers. But as we think about where else can sources of value come from as we go from 2024 into 2025, there's more to be gained with supply chain productivity. We're not done. There's still gas in the tank on productivity improvement. We're really pleased with our performance in supply chain in March. It was the best performance in years, and we're seeing that carry into Q4, and that can and will carry into 2025. So supply chain productivity will continue to be a beneficial contribution going forward. And then local case growth. We can accelerate local case growth relative to our total company case growth and that's something we're very focused on for fiscal 2025, and we'll talk about how we're going to do that at Investor Day.

And we now have our next question from Kelly Bania with BMO Capital Markets.

Hi, good morning. Thanks for taking our question. Kevin, you noted a couple of times just the need for restaurants to lower their menu prices. Just curious if you can elaborate on any context you're hearing from them about their willingness to do so. And can you also tie in just what you're seeing in California, in particular, in light of the recent wage dynamics there? Are you seeing restaurants pass along those higher costs in terms of menu pricing? How is California impacting the total volumes across the industry?

Yes. Kelly, it's a good question. I appreciate the question. We tend not to get into conversations with our customers about the prices they should charge their end consumers. I was just making an observation on what we see in the data, just being back based traffic down for the quarter. Cases shipped in aggregate by the food-away-from-home industry down year-over-year for the quarter and sales up at restaurants, so it's just pure math. The only way that those dynamics could be true at the same time is for menu prices to be up significantly on a year-over-year basis. And research indicates, we do a lot of consumer research that consumers are getting fatigued with the increases in menu prices. But it's not for us to tell our end customers what to do with how they run their business. What's on us is what we can control. We can provide them value. We can provide them value with Sysco brand. We can provide them value by smaller portion size. We can provide the value by doing value-added cut services to take labor out of their kitchen. And that's what we focus on. We tend to focus on what we can control and help be a solution-oriented company for our customers. So the second part of your question about California, it's too soon to tell. I mean the largest passed we are not seeing a negative impact to our business in California to discretely and specifically answer that part of your question. I think what I've read and what I'm sure you've read is new door count openings will be muted in the state versus historical 10-year average tied to concerns that -- these are more -- these are national chain operators. As you know, the law does not impact mom-and-pops. It's a national chain law. And you've seen those companies announce that they're going to reduce the number of new door openings. We're seeing plenty of growth in other states. The South, in particular, they're seeing lots of new door starts in the South and a lot of population moving from California, frankly, to other states and smart restaurant operators tend to follow the puck where it's going and focus their new door growth elsewhere. Kelly, back to you if you have a follow-up.

Thanks. That's helpful. I guess, can you also just talk about how mix or trade down is impacting kind of net pricing or what you're seeing in a sequential basis relative to last quarter in terms of price points among the different like customer cohorts?

Yes. I think the notable callout that I provided today is that QSR in our book of business is soft versus the others, and I point you to the SYGMA data that we shared today to give that illustration. We are not seeing meaningful trade down within concepts to lower-cost proteins as an example. That's something actually we think is appropriate and should occur, and it's something that we can do and we can help our customers do that so that they can, in fact, provide value to their customer who's coming into that restaurant. And that's something our sales force, the largest in the industry, works with customers on. We work with them on portion size. We work with them, alternative proteins. We work with them to provide alternative Sysco brand cuttings, as I mentioned earlier, that can help them save money. So we're not seeing a trade down within restaurant concepts. It's more about that lower-income consumer being pinched right now, and that's showing up in the sales results.

And our next question comes from Jeffrey Bernstein with Barclays.

Great. Thank you very much. My first question is just on the cost savings that you talked about. It sounds like we're up to $120 million or more for this fiscal year. So you were able to increase it by $20 million pretty quickly when you saw sales perhaps a little bit more challenged. I think you mentioned 500 roles were eliminated and yet, you're still able to invest in what sounds like accelerating the sales force. So just to clarify, sounds like all of these incremental cost savings are back of house with no customer impact. And if that's the case, what's the future opportunity for cost savings and the supply chain if sales remain challenged. I'm wondering if you have any order of magnitude in terms of the potential incremental cost savings going into next year if you were to see these sales challenges persist.

Hey Jeff, it's Kenny. I'll take that one. So first thing is first, and you called it. We are very proud of our leadership team, taking proactive actions given the softer macro backdrop. And the good news is we have a lot of levers in our P&L. In particular, to your question around the $120 million of cost out, let me give a bit more color. As I mentioned, last quarter, it was roughly $100 million. That's increased by $20 million to the $120 million for FY2024. If you double click on that P&L, Jeff, if you look at GSP or corporate operating expense that was $220 million for Q3 and that was down 6% year-on-year. If you look at it quarter-over-quarter between Q2 to Q3, it was down 8%. So the cost is coming out of the P&L. And you are correct. That does include most recent 500 elimination of positions, which is predominantly on the corporate side. So that is correct. We did not impact client-facing roles in our USFS business. In terms of other periods, what are some of the areas of opportunities? There's more room to go. As a company, we continue to have a pipeline of initiatives and savings. I'll give you a couple of examples, but just put color on it. Last quarter, meaning Q3, we rolled out the full implementation of Canada. Sure, Service Center under Mayor and that has yielded accretive savings for our company. And if you think about just pure SG&A, yes, part of its headcount, but we have a big bucket. That's what I call third-party indirect sourcing, and we are making good strides on that one as well. Be a vendor consolidation and rate reduction as well. So there's still a lot of room to go. As Kevin mentioned earlier, on the supply chain side, we saw a record level of productivity this quarter. With that said, we are not back in 2019 levels yet, and we still have room to go on that front as well in terms of P&L accretion from a cost standpoint.

Yes. Just Jeff, this is Kevin, I'll add two things to that. Salesforce, we're investing in our salesforce. So -- and we're investing in specialty, as Kenny said in his prepared remarks, within supply chain operations, we will flex our staffing to the volume. So if the volume declines, we flex staff accordingly. But we're not talking about things like furlough and drivers. I mean the business is robust and it's healthy. It's growing. It's nothing like what we were continuing back in COVID. It's more about, over time, flex it down. It's about part-time labor flex it down and we're getting very good at flexing our supply chain labor to macro volume. And in fact, that's why March was as strong as it was.

Understood. And then just my follow-up, Kevin, I know you highlighted on the slide deck, your 17% market share, and I know we've talked about the big three, maybe having still sub-40%. So it does seem like the focus is predominantly on taking further share from the other 60%. I know it doesn't necessarily require M&A. But just -- can you talk about that opportunity to take market share? I would think that opportunity would accelerate if the competition is struggling. I know we've talked about the restaurant industry perhaps struggling. But can you just talk about maybe the other 60% of the foodservice distribution industry, and what you're seeing there in terms of your competition and maybe the greatest opportunity you see there to gain share?

I think your main point is the strong gets stronger when times are tougher. And yes, that is the case. And if you look at the time of COVID, we performed extremely well versus the industry at large, top and bottom line versus the industry during that period of time, and I think that would continue in a softer macro environment. I tend to focus more on the vectors of growth where we are meaningfully focused is in specialty. We have the most robust specialty offering by far in the industry coast-to-coast. It is unmatched by anyone in the industry. And our market share in specialty is well below our U.S. Broadline market share. So we have the product offering. We have the geographic coverage, the market share growth opportunity in specialty is substantial, and we're making investments in specialty to be able to bring that market share capture to life. The net 400 sales professionals that I talked about today includes increases in specialty protein and specialty produce sales experts we are going to talk in more detail about the opportunities in specialty at our Investor Day at the end of May.

And we have our next question from Kendall Toscano with Bank of America.

Hi, thanks for taking my question. The quick clarification point was on; I know you gave the impact from Edward Don. But just to make sure I understand, would it have been that the total case growth on an organic basis was plus 0.2% in local would have been down 1.2%.

That's correct. Your math is correct.

Okay. Got it. That's helpful. And then another quick one is just when you talk about lowering menu prices and working with your suppliers on that, are there any specific product categories that you would have in mind on that? Would it be more commodities focused for non-perishable items?

Center of plate is what drives the purchase ticket in any restaurant. So we're focused on is providing value, good, better, best options, alternative proteins, portion size, center plate is what drives any restaurants purchasing cost. And then commodities is the place that a customer will go to help save themselves money and they'll price shop distributor A versus B. So we need to be, as I said earlier today, right on price on commodities. And we can do so intelligently by leveraging our pricing tool, purchasing those commodities that rates that are industry-leading. And it's a basket of goods they buy from us. And as John Heinbockel asked about, it's managing the elasticity across that book and nobody is better positioned to be able to do that work than Sysco.

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