Sysco Corporation (SYY) Q4 2021 Earnings Call Transcript

Sysco Corporation (NYSE: SYY) Q4 2021 earnings call dated Aug. 10, 2021.

Corporate Participants:

Neil Russell — Senior Vice President, Corporate Affairs and Chief Communications Officer

Kevin Hourican — President and Chief Executive Officer

Aaron Alt — Executive Vice President and Chief Financial Officer

Analysts:

Nicole Miller — Piper Sandler — Analyst

Jeffrey Bernstein — Barclays — Analyst

Mark Carden — UBS — Analyst

Alexander Slagle — Jefferies — Analyst

Edward Kelly — Wells Fargo — Analyst

John Heinbockel — Guggenheim Partners — Analyst

Lauren Silberman — Credit Suisse — Analyst

John Glass — Morgan Stanley — Analyst

Kelly Bania — BMO Capital Markets — Analyst

John Ivankoe — JPMorgan — Analyst

Presentation:

Operator

Good morning and welcome to the Sysco’s Fourth Quarter Fiscal ’21 Conference Call. [Operator Instructions]

I would like to turn the call over to Neil Russell, Senior Vice President of Corporate Affairs and Chief Communications Officer. Please go ahead.

Neil Russell — Senior Vice President, Corporate Affairs and Chief Communications Officer

Good morning, everyone, and welcome to Sysco’s fourth quarter fiscal 2021 earnings call. On today’s call, we have Kevin Hourican, our President and Chief Executive Officer; and Aaron Alt, our Chief Financial Officer.

Before we begin, please note that statements made during this presentation, which state the Company’s or management’s intentions, beliefs, expectations or predictions of the future are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. And actual results could differ in a material manner. Additional information about factors that could cause results to differ from those in the forward-looking statements is contained in the Company’s SEC filings. This includes but is not limited to risk factors contained in our annual report on Form 10-K for the fiscal year ended June 27, 2020, subsequent SEC filings and in the news release issued earlier this morning. A copy of these materials can be found in the Investors section at sysco.com.

Non-GAAP financial measures are included in our comments today and in our presentation slides. The reconciliation of these non-GAAP measures to the corresponding GAAP measures are included at the end of the presentation slides and can also be found in the Investors section of our website. To ensure that we have sufficient time to answer all questions, we’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 President and Chief Executive Officer, Kevin Hourican.

Kevin Hourican — President and Chief Executive Officer

Thank you, Neil. Good morning, everyone, and thank you for joining our call today. I’m pleased to report that Sysco had a strong fourth quarter to close out a fiscal year unlike any other in our company’s history. I’m proud of our team for their hard work, the results we delivered and the unrelenting support that we have provided to our customers.

I’ll start my comments today with a few key points about the quarter. First, our business recovery is stronger than anticipated in the U.S. and the recovery is taking hold in our international markets. Our sales growth exceeded our internal projections and has continued to accelerate into our Q1 of fiscal 2022. Second, our profitability for the quarter were stronger than anticipated, driven by the aforementioned strong sales and disciplined expense management. Third, our strong results drove improved cash performance, exceeding the cash flow guidance that Aaron provided in our last earnings call, which allowed us to pay down more debt than originally planned. Fourth, we made meaningful progress in advancing our Recipe for Growth strategy. I will highlight our progress on select initiatives during our call today.

Sysco’s results for the fourth quarter reflect the strength of the overall market recovery, Sysco’s ability to win new business and some early wins coming from our Recipe for Growth. Sysco’s sales for the quarter across all of our businesses were up 82% versus 2020 and up 4.3% versus 2019. Our sales results in our U.S. business were up 7.7% versus 2019. Sales results in June benefited from accelerating inflation which Aaron will discuss in detail. The restaurant sector of our business is near full recovery with local sales and case shift up versus 2019 volume levels. The volume recovery has happened much faster than the industry predicted, despite the presence of the Delta variant.

The U.S. foodservice industry in total is now within 5% of 2019 levels. As you can see on Slide 7 in our presentation, according to SafeGraph data, foot traffic is up in restaurants since March and continues to be up more than foot traffic in grocery stores. Most notably, Sysco increased market share in a rapidly expanding market. These two factors of a rapidly expanding market and Sysco’s gaining of market share resulted in a strong sales quarter. We anticipate that these trends will accelerate further in fiscal 2022.

Consumer spending power as featured on Slide 8 is robust and strong. The key message is that food away from home is not permanently impaired. It is vibrant, it is healthy. Sysco is best positioned to support the rapidly increasing demand due to our balance sheet, our large physical footprint and our substantial human capital investment in sales people and in supply chain resources. The momentum shown in the fourth quarter has continued in the first period of fiscal 2022, where our July results have further accelerated. We see a sequentially improving market as additional sectors of recovery kick in; international, specialty, schools and colleges, business office cafeterias, just to name a few. There is ample additional recovery beyond the robust business we are currently experiencing with restaurant partners.

Sysco’s success can be directly attributed to the proactive steps we took to be ahead of the COVID business recovery. The net promoter score of our delivery operations continues to lead the industry. With that said, we are working aggressively to increase staffing levels across our operations, so that we can maintain our leading service position and win additional net new business. The distributors that can ship on time and in full at this critical period have an opportunity to take market share for both the short and the long term. One proof point of this success is the amount of net new national account wins since the onset of the pandemic. During the fourth quarter, we won another $200 million of business with national customers bringing the cumulative total to $2 billion of net new wins since March of 2020. While we don’t plan to report on this number moving forward, as we transition to a more normalized financial reporting cadence, it is a strong indicator of our capabilities as the industry leader to gain share during a period of disruption.

As you can see on Page number 12 of our slides, in addition to the large national account wins we have delivered, we have grown our local customer account by about 10%, which is a pace of 2.5 times greater than the broadline industry. In June, we increased our market share by 60 basis points and posted our sixth consecutive month of market share gains. Our sales force is very motivated to win, our supply chain continues to lead the industry from a service perspective despite the substantial hiring challenges and our Recipe for Growth strategy is beginning to benefit the business and our customers. Our top line results during the quarter were positively influenced by higher-than-normal inflation. During the fourth quarter, our inflation rate was approximately 9.6%. Aaron will discuss this in more detail in his prepared remarks.

Our performance in the non-restaurant sectors of our business trailed the success of restaurants for the quarter. With that said, we are beginning to see improvements in the travel, hospitality and FSM sectors of our business as restrictions eased and leisure travel has commenced this summer. As businesses begin returning more to an office environment, we expect our FSM segment to further improve. Our international segment improved sequentially throughout the fourth quarter as restrictions on businesses began easing in late May and into June. Notably, our international segment broke even for the quarter, reflecting a $92 million profit improvement over the third quarter. The improvement displays the positive impact that increased sales and disciplined expense management will have on our international P&L. We expect to benefit significantly in fiscal 2022 from the improving international financial statements.

I would like to take a few moments to provide an update on our Recipe for Growth transformation. Please see Slide 13 in our presentation. You will remember our introduction of the Recipe for Growth at our May 20 Investor Day. I’ll quickly provide an update on the main pillars of our growth strategy. Digital; our first pillar is to become a more digitally-enabled company so that we can better serve our customers. We continue to see excellent utilization of our Sysco Shop platform by our customers and we are enhancing the website with new features and benefits every month. Our pricing system is now live in over 25% of our regions, and we remain on track to complete the implementation by the end of this calendar year. Our personalization engine, which is currently under construction, remains on track and initial manual tests of the capability with pilot customers are proving beneficial.

Products and solutions; our second pillar is to improve our merchandising and marketing solutions to grow our business. In this regard, our team is doing good work in developing improved merchandising strategies against specific cuisine segments. I’ll speak more about the Greco acquisition in a moment and how that acquisition accelerates our efforts to better serve Italian customers. Supply chain; growth pillar number three is to develop and create a more nimble, accessible and productive supply chain. As I mentioned earlier, we are better positioned to support customers in their recovery as our supply chain network is better staffed than the industry at large. We remain the only national distributor with no order minimums for our customers at a time when competitors have been increasing their order minimums and select competitors are releasing customers who can’t hit those raised minimums. Lastly, our strategic projects to increase delivery frequency and enable omni channel inventory fulfillment remain on track.

Customer teams; our fourth growth pillar is to improve the effectiveness of our sales organization. As we have said many times, our sales consultants are our number one strength. The net promoter scores our associates receive is the best indication of their impact on our business. Meanwhile, our efforts to better leverage data to increase the yield of our sales process are paying dividends. Future horizons; our final growth pillar is to explore and develop future horizons. This work has two major parts; assessing new business opportunities, including M&A and becoming a more efficient company so that we can fund our growth. We are pleased to report that we will close on the Greco and Sons acquisition in the coming weeks. Greco’s business is highly specialized in the Italian segment and brings net new capabilities and products that are accretive to Sysco. Sysco is excited to expand the Greco Italian specialty platform to new geographies across the U.S. As I mentioned, our future horizon’s work also includes becoming a more efficient company so that we can fund our growth. We are making substantial investments in technology and infrastructure capabilities to strengthen the Company. Our disciplined cost network is funding those investments. We are on track to deliver $750 million of structural cost reductions inclusive of what we delivered in fiscal 2021. Aaron will discuss this program in more detail in a few moments. As I stated at our Investor Day, the power of our Recipe for Growth comes from our ability to deliver all five of the growth elements that are displayed, not just from one key element. We believe only Sysco has the breadth, depth and expertise to leverage each of these five elements to better serve our customers.

Before I wrap up my remarks this morning, I want to acknowledge the reality of the current operating environment. The food-away-from-home supply chain is under significant pressure. A robust customer demand environment is outpacing the available supply in select categories. Our supplier partners are struggling with meeting the demand of Sysco’s orders. And certain product categories remain in short supply. I am confident that Sysco is performing better than the industry at large in delivering what we call customer fill rate. But we are performing below our historical performance standards. Our merchant teams are working closely with current suppliers, actively sourcing incremental supply from new suppliers, and we are working with our sales teams to offer product substitutions to our customers. This work is challenging, but we can execute this work better than others in this industry. I thank our suppliers for all they are doing to increase production and I also thank our customers for their patients.

In addition to the challenges we’ve experienced with product supply, the labor market has been challenging. We mentioned in a previous earnings call that we would hire over 6,000 associates in the second half of fiscal 2021. I am pleased to report that we have successfully achieved our hiring target, but we continue to have hiring needs as the business recovery is happening faster than we had modeled. It is a very tight labor market out there and we are working extremely hard to ensure we can fill all of our warehouse and driver positions.

While we are in decent shape nationally, we have hotspots around the country that present challenges. The product and labor shortages situation is undoubtedly putting some pressure on our cost to serve at this time. I would describe these incremental costs as mostly transitory as we are making responsible decisions on where and how to invest. I am confident we will see a return to a more balanced supply and demand equation in the future, which will return inflation to more normal levels. I cannot predict a specific by-when date on inflation normalization, but I am confident it will eventually normalize. In the meantime, we have robust sales results that are offsetting the margin rate pressure introduced by elevated inflation.

In regards to labor cost, we are being very judicious to avoid creating a structural cost increase going forward. What that means specifically is that we are being very aggressive in adopting mostly temporary wage actions like hiring bonuses, referral bonuses and even retention bonus programs, all of which can be leveraged extensively while the hiring process remains challenging and then reduced or eliminated as conditions improve. We intend to be responsible and judicious in structural increases to base pay that cannot be easily removed when the labor market improves. We will work aggressively to offset these cost increases in wage through improved productivity.

We are also taking aggressive actions to improve the labor market itself by investing in our future. I’m excited to announce today that we are investing in our first Sysco Driver Academy. The Driver Academy will enable us to recruit our own drivers and train them in the work we do at Sysco. We will be better able to source drivers from our own warehouse associate population and teach them to become drivers with this unique industry program. We will pay trainees to attend our academy and we’ll cover all of their licensing and certification fees. These associates will sign a contract to work for Sysco for an agreed-upon period of time. I’m excited for what this driving academy will do for our recruitment pipeline and I believe we are likely to expand the program nationally once we have worked through the learning curve of our first location.

In summary, we had a strong fourth quarter that exceeded our sales and profit expectations. The results during the quarter sequentially accelerated and they bode well for a successful fiscal 2022. During fiscal 2022, we expect to achieve growth at a rate of 1.2 times the industry. That rate of growth is expected to accelerate across the three years of our long-range plan and we intend to deliver 1.5 times the market growth in fiscal 2024. We expect to expand our leadership position while we grow profitably and we intend to return compelling value to our shareholders.

I want to say thank you to all of our Sysco associates who continue to help our customers grow and succeed each day. The business recovery has presented challenges that our business associates have embraced head on. I thank them for their commitment and their tireless work ethic that they have displayed during this labor constrained environment. I’ll now turn the call over to Aaron Alt, who will discuss our financial results along with some additional forward-looking details for the upcoming year. Aaron, over to you.

Aaron Alt — Executive Vice President and Chief Financial Officer

Thank you, Kevin. Good morning. Our key fourth quarter fiscal 2021 headlines are strong demand; increasing sales; a profitable quarter increasingly reminiscent of pre-COVID operations; and stronger cash flow than anticipated.

Our fiscal fourth quarter results provide excellent proof points that consumers continue to seek relief from food-at-home fatigue that the restaurant industry recovery is in full swing in the U.S., and that the international restaurant industry has the potential to come roaring back. During the fourth quarter, we did what we said we were going to do at Investor Day as we balanced five financial priorities, early and tactical investments in labor and inventory to be better prepared than anyone else in the industry for the chaotic industry recovery; thoughtful strategic investments in capabilities and technologies to advance our Recipe for Growth over the long-term; continued focus on our cost-out program to fund both the snap-back costs and our growth agenda; accelerated reduction of our debt levels; and increased return of capital to shareholders.

Today, I’m going to lead off with the income statement for the quarter, briefly discuss the cash flow and balance sheet, and then I will close with a positive update to our guidance for fiscal year 2022, which reflects the rapid acceleration of the recovery of our business and other factors. For full-year results, I will refer you to our press release and our 10-K.

As Kevin noted, fourth quarter sales were $16.1 billion, an increase of 82% from the same quarter in fiscal 2020 and a 4.3% increase from the same quarter in fiscal 2019. Please note that this year, our fiscal year had a 53rd week, which included 14 weeks in the fourth quarter as compared to only 13 weeks in the fourth quarter of each of fiscal 2020 and fiscal 2019. That additional week was worth just under $1.2 billion in sales. Sales in U.S. foodservice were up 88.4% versus the fourth quarter of fiscal 2020 and up 7.7% versus the same quarter in fiscal 2019. SYGMA was up 45.3% versus fiscal 2020 and up 20.9% versus the same quarter in fiscal 2019. For the quarter, local case volume within a subset of U.S. FS, our U.S. Broadline operations increased 74.3% while total case volume within U.S. Broadline operations increased 71.4%.

Given the interest in the recovery curve from COVID-19, today we are disclosing that our July fiscal 2022 sales were also quite strong. Sales were more than $4.9 billion, an increase of 44.3% from the same period in fiscal 2021 and a 7% increase over the same period in fiscal 2019. Kevin brought up the top of inflation. The headline is that inflation during the quarter was up 9.6% for total Sysco. Manufacturers passed inflation to us and we successfully passed it on to our customers across categories and customer types. Let me call it a couple of numbers and then we’ll discuss our response to inflation further. Gross profit for the enterprise was $2.9 billion in the fourth quarter, increasing 86.2% versus the same quarter in fiscal 2020. Most of the increase in gross profit was driven by year-over-year increases in sales, the 53rd week in fiscal 2021 worth about $208 million and marginal rate improvement at our largest business U.S. FS.

Gross margin as a percentage of sales during the quarter actually increased 41 basis points versus the same period in fiscal 2020 and finished at a rate of 18.1%. The gross margin increase was driven by business mix with the higher margin in U.S. foodservice businesses growing alongside improvements in higher margin countries in our international segment. Importantly, the enterprise margin rate improvement was also driven by 17 basis points of margin rate improvement in our largest business.

Now, I’m sure you think I’m calling out the obvious when I say that in an inflationary environment, what counts at the end of the day is the health of our dollar gross profit that which we put in the bank. The good news for us is that in the U.S., as our sales have been rising in part due to inflation, our dollar profit per case has also been increasing. Notably in the U.S., our dollar profit per case is higher now than it was in fiscal year ’19. You may ask why do we have confidence that we can protect gross profit dollars in the short term and rate over time. The answer is that Sysco has some advantages. We have significant scale in purchasing, which is an asset, and which our suppliers will be hearing more about as we leverage the power of buying as One Sysco. In addition, the majority of our customer contracts contain cost escalation clauses.

Finally, our merchandising transformation includes implementation of center-led pricing technology and other changes, which allow us to navigate through the inflationary environment. No one tactic should be viewed in isolation, but the combination of our efforts arms us to deal with what we expect to be continued inflation in categories like poultry, beef, paper and disposables. That said, you can expect that we will be careful and tactical as we keep our eye on the real prize, execution against our Recipe for Growth.

Let’s now turn to our international business. Restriction started to visibly ease in key jurisdictions towards the end of the quarter. For the fourth quarter, international sales were up 83.4% versus fiscal 2020, but down 14.6% versus fiscal 2019. Foreign exchange rates had a positive impact of 2.9% on Sysco’s sales results. What we see in our largest international markets gives us additional signs of confidence for fiscal 2022. Local consumers are eager to get back to normal. And importantly with the playbook established and significant operational change behind us, we do not expect that the re-imposition of additional COVID restrictions would, if it happened, have a severe of an impact on our business as was the case during the past year. Just like our efforts in the U.S., the international operations have been sourcing inventory and hiring staff aggressively to move up the recovery curve.

Turning back to the enterprise, adjusted operating expense increased 44.5% to $2.3 billion with increases driven by the variable cost that accompanies significantly increased volumes, one-time and short-term expenses associated with the snap-back, and investments against our Recipe for Growth. Our expense performance reflects the great progress we have made against our $350 million cost-out savings goal as well as the need to invest in both the current demand recovery and the long-term issues that Kevin mentioned earlier. In fact, we exceeded our $350 million cost-out goal during the full year. As we have highlighted in prior calls, the majority of the savings are coming from SG&A, but there are some savings from cost of goods sold as our teams continue to improve our capabilities to better optimize supplier relationships.

Within our operating expenses, key examples of the cost savings efforts are regionalizing first our broadline operations and most recently, our specialty produce operations. Other examples of areas where we achieved good cost savings would be indirect sourcing, technology cost savings and sourcing of freight contract costs. As I called out in Q3, we are investing heavily against the business both in support of the snap-back and in support of the transformation. During the fourth quarter, we estimate that we spent more than $36 million against the snap-back including incremental investments against recruiting, training, retention and maintenance. We also estimate that we spent more than $50 million against our transformation initiatives such as our customer-centered growth, pricing, supply chain and technology strategic initiatives. Even with those significant investments, our adjusted operating expense as a percentage of sales improved to 14.3% from fiscal 2020 and moved to within 30 basis points of fiscal 2019’s 14% as a percentage of sales for the fourth quarter. If we adjust out the purposeful snap-back and transformation investments we are making as temporary, we can better see the savings as our opex as a percentage of sales would have been 13.8% on an adjusted basis.

Here are couple of points of emphasis for you. Part of the future horizon’s component of our Recipe for Growth is achieving cost-out to fund the growth. We are leading with the cost-out before we make the investments. The savings are structural. We are not counting variable expense changes. Our savings goals are owned by our entire executive leadership team. The savings are intended to increase over time. Recall that we raised our objective to $750 million with the incremental savings coming largely over the course of fiscal ’23 through fiscal ’24. Kevin and I must approve all new spend on our developing capabilities that offset the savings. Remember, it is these capabilities that are generating the market share gains of 1.2 times to 1.5 times through fiscal 2024. All in all, we view cost-out as a good news part of our long-term story.

Finally, for the fourth quarter, adjusted operating income increased $639 million to $605 million for the quarter. Our adjusted effective tax rate was 20.2%. Adjusted earnings per share increased $1 to $0.71 for the fourth quarter. The primary difference between our GAAP EPS and our adjusted EPS was the impact of our debt tender premium payment. As I noted at the start of my remarks, in the interest of time, I’m not going to cover the full-year results as part of my prepared remarks. The information is in our press release and we are happy to take questions, of course. We are pleased with the improvement each quarter as our business has recovered from the onset of COVID over the course of the last year or so. Let me just wrap up the income statement by observing that for the year, all in, we delivered $1.02 of GAAP EPS and $1.44 of adjusted EPS.

Now, a couple of comments on cash flow and the balance sheet. Cash flow from operations for the fourth quarter was $424 million. Net capex for the quarter was $180 million or 1.1% of sales, which was $79 million higher compared to the same quarter in the prior year. Free cash flow for the fourth quarter was $244 million, significantly above our anticipated free cash flow, even while we grew and maintained inventory at a level $400 million higher than Q4 fiscal ’19. At the end of fiscal 2021, after our investments in the business, our significant reductions in debt and our dividend payments, we had $3 billion of cash and cash equivalents on hand. During the year, we generated positive cash flow from operations of $1.9 billion, offset by $412 million of net capital investment, resulting in positive free cash flow of $1.5 billion for the year.

As you know, at Investor Day, we articulated, our debt pay down plans. $2.3 billion of deleveraging already accomplished during the fiscal year through May 2021. Plans for an additional $1.5 billion will further debt reductions by the end of fiscal year ’22. Because we have sized the headline on our Q4 tender offer to $1 billion, we are already tracking $150 million ahead of our debt repurchase commitments. Lastly, we returned almost $1 billion of capital to shareholders in fiscal year ’21 in the form of our quarterly dividends. We were pleased to announce at Investor Day a $0.02 per share increase to our dividend, on which we made the first payment in July. This brings our dividend to $1.88 per share for the full calendar year 2022 and enhances our track record of increasing our dividends and our status as a Dividend Aristocrat. That concludes my prepared remarks on the quarter and year-end results.

Now, before closing, I would like to provide you with some updated guidance for fiscal year 2022. In May, I laid out our growth aspiration of growing at 1.2 times to 1.5 times the market. Also recall that we said, in fiscal year ’22, we expected adjusted EPS of $3.23 to $3.43. We also called out that in fiscal year ’24, we expect adjusted EPS of 30% more than our high point in fiscal year 2019, call it more than $4.65. Our projections and guidance were tied to the Technomic market projections as they existed at the time. Frankly, the speed of recovery of consumer demand has been nothing short of remarkable. We are seeing the positive impact broadly across our business. Sales are recovering more quickly than we or the market trend experts anticipated. That means that to hit our 1.2 times market growth in fiscal year 2022, we have to grow faster and we are. As a result, we are raising our sales expectations and now expect sales for the enterprise to exceed fiscal ’19 sales by mid-single digits, adding roughly $2.5 billion to our top line guidance.

Every segment of our business other than our other segment and the FSM component of our U.S. FS business is now forecast to exceed fiscal ’19 sales by the end of fiscal year ’22. Inflation is more of a factor than we had anticipated for the first half of fiscal ’22 and we expect it to continue into the first half of our new year, but our business is proving that it can pass along at least the increases necessary to preserve dollar per case profit. As a result, while margin rate may be weaker than originally expected in the first half of the fiscal year, we expect strong gross profit dollars growing with sales and are holding to our Investor Day guidance that gross margins will improve over fiscal ’21 and move towards fiscal ’19 levels for the full year.

Regarding the cost-out program, we are working it aggressively. We expect to invest most of the fiscal ’22 savings into the snap-back, including the transitory incremental cost that Kevin discussed earlier and important transformational initiatives. From a tax perspective, we expect our overall effective rate to be approximately 24% in fiscal 2022, as we are not assuming changes to federal tax rates in this guidance. And based on the early strength of the recovery that Kevin mentioned during his remarks, as impacted by inflation and our continued progress against managing through the snap-back and investing for growth, we are increasing our guidance on adjusted EPS by $0.10 for fiscal year 2022 by moving the range up to $3.33 to $3.53.

Now, let’s be clear, no one can forecast the unknown. The Delta variant is out there and our updated guidance does not bake in a shutdown case. We are providing this guidance based on what we can see in our business right now and we will follow with further updates, positive or negative, as the environment evolves around us, and we continue to execute against the transformation and the snap-back. In addition, with rising sales comes an increase in operating cash flow. We continue to maintain the balanced capital allocation strategy that we highlighted at Investor Day. First, investing in our business for long-term growth and increasing our industry-leading position. Capital expenditures during fiscal 2022 are expected to be approximately 1.3% of sales, reflecting the increased sales levels. We continue to look for further sources of smart, inorganic growth as we laid out at Investor Day.

Second, we plan to maintain a strong balance sheet and expect to hit our announced net debt to EBITDA target during fiscal year ’22. And finally, recall that in May, we announced the conditions to the initiation of share repurchase, resulting from the new $5 billion share repurchase authorization. Here they are. The market recovery must be robust; that is happening. The investments in the business must be fully funded, including M&A. We expect to have more than adequate capital for our planned investments. Our debt reduction must continue and our investment grade rating must be preserved. As I discussed, we are ahead of schedule on reductions of debt and expect to hit our leverage target for the end of the year. Excess liquidity must exist to fund the repurchase program. It is early days, but with the accelerating recovery, we anticipate available cash to exceed our earlier forecast. Applying the criteria we announced in May, if business trends continue, then we will consider options to return more capital in fiscal ’22. However, having said those words out loud, I want to be clear, our decision tree is based on our balanced capital allocation strategy.

In summary, our performance over the past year has been strong and the fundamentals of our business are solid as we look to the coming year. We are excited about the future as we kick off fiscal year 2022.

Operator, we are now ready for questions.

Questions and Answers:

Operator

[Operator Instructions] And your first question comes from Nicole Miller with Piper Sandler.

Nicole Miller — Piper Sandler — Analyst

Thank you. Two questions. I was going to ask you first to help us out on industry overall. So if we think about some, I’ll call it, purging of accounts, right, where you just can’t get there, I’m not saying Sysco is doing that but just very broadly high level. I was wondering if you could talk about how material that is. Is it too early? I mean it just seems reactionary as — like you said, July, the recovery is ongoing and then, where does that account go? I mean, does it go to another broadliner or do they head the cash and carry?

Kevin Hourican — President and Chief Executive Officer

Good morning, Nicole. This is Kevin. I’ll take the question, just to be clear. I said in my prepared remarks, we remain the only national distributor that does not have order minimums and we have stayed true to that throughout this entire crisis, including during the COVID recovery. I communicated even more clearly on — in regards to that that we remain in a better staffing and inventory position than the inventory out large and that’s been a huge positive for Sysco. Our July results, as we communicated on the call, continue the sequential momentum of increased sales and case performance and we are not seeing a slowdown in our performance in the month of July. I don’t like commenting on what others are doing. I don’t think that’s my place. I think it is public knowledge that select distributors are in fact raising order minimums and they are in fact deciding to not ship to select customers. Where that customer goes? It would be a combination of a distributor that has the availability to ship and cash and carry. Those would be the two places that the customer would go.

Nicole Miller — Piper Sandler — Analyst

Fair enough. And then just for your team, specifically on inflation, obviously material, could you talk about some key commodities in terms of exit rate or real-time? I’m thinking along the lines of poultry, pork, beef and we’re hearing maybe that moderating a bit. Thank you.

Kevin Hourican — President and Chief Executive Officer

Yeah, we’re not seeing a moderation in inflation. That is not something that is occurring in our book of business. Where it’s coming from is that’s poultry as you communicated, in pork, and that’s consistent in the most recent period versus how we exited Q4. What we said in our prepared remarks is that inflation accelerated sequentially each month in quarter four. I would say July has been flattish to the exit velocity of inflation from the month of June and we’ve not seen a slowdown. Now, what I did say in my prepared remarks is, I do anticipate inflation will eventually slow down. Supply will come back into harmony with demand. And when that occurs, the price inflation that we are experiencing and then therefore, we’re partnering with our customers to pass it on will begin to normalize. But it has not meaningfully begun to do so yet at this time.

And I’ll pass to Aaron for any additional comments that he wants to make.

Aaron Alt — Executive Vice President and Chief Financial Officer

Thank you, Kevin. A couple of quick thoughts. First, a little — modest inflation is not a bad thing in the industry, and so long as we can pass it through and we have proven in the last quarter that we expect to be able to pass it through. Kevin already called out that we were high-single digits from a inflation perspective in Q4, really across our categories, and we are forecasting that will continue certainly into Q1 of our new fiscal, if not the first half, and then moderate thereafter. So it’s also important to point out that we’re dealing with a two-year stacked. Fiscal 2020 was actually modestly deflationary and so we’re reacting to that and I just want to point out again that given our scale, given the advantages we have, all right, we have been successful and expect to be successful in passing through whatever inflation throws at us by commodity type as we carry forward. Thank you.

Nicole Miller — Piper Sandler — Analyst

Thank you.

Kevin Hourican — President and Chief Executive Officer

Thanks, Nicole.

Operator

And your next question comes from Jeffrey Bernstein with Barclays.

Jeffrey Bernstein — Barclays — Analyst

Great, thank you very much. Two questions. The first one, just looking at fiscal ’22 more broadly, I know you mentioned the culmination of your earnings guidance bumped a dime. Looks like that’s effectively the 4Q beat. But otherwise, the commentary you made, the strong sales, the beating ’19 levels and the solid management inflation and costs, I’m just wondering what kept you from raising that guidance seemingly more than the 4Q beat? I’m just wondering whether you’re tempering expectations on the thoughts that maybe things do slow down, I think you mentioned that you’re anticipating the trends continue the way they are. So just wondering what are the headwinds that potentially — or the push and pull that will potentially limit you from raising the guidance on fiscal ’22 more than the 4Q beat? And then I had one follow-up.

Aaron Alt — Executive Vice President and Chief Financial Officer

Sure. Well, let me respond to that great first question and I would answer it this way. We believe in a cautious and pragmatic approach to our financial guidance to Wall Street. The practical reality is that there is a lot going on, right, with the continued COVID recovery as well as the significant transformation that Kevin is leading across Sysco. And so, both as we laid out during our Investor Day in May, and then now with this update, 90 days later, we’re taking a cautious and pragmatic approach to it. Things that could change, of course, is the speed of the recovery curve, right. It could accelerate or moderate, right. We’re taking the best view we’ve got in the business as we are today. Similarly, from a profitability perspective, we have talked about our significant cost-out objectives, balancing out the snap-back costs as well as investments we’re making into the transformation. And so we believe that the guidance range we provided today, the $3.33 and $3.53 is a cautious and pragmatic update to the guidance we provided at Investor Day and that’s we’re going go get — what we’re going to go get done.

Jeffrey Bernstein — Barclays — Analyst

Understood. And then the follow-up was just on the industry as we’re hopefully in the later stages of the COVID pandemic. I know going in, there was excitement around few things. One, further penetrating existing accounts, also adding new accounts and then adding growth via M&A. So I’m just wondering, Kevin, maybe your thoughts versus the start of COVID, whether you’d say there’s any positive or negative surprises. I think you gave us some color around the $2 billion of adding new accounts. That one seems pretty successful. But any thoughts around where you are, further penetrating existing accounts or adding growth via M&A would be great. Thank you.

Kevin Hourican — President and Chief Executive Officer

Yeah, thanks for the question. I’ll just cover kind of the three sources of growth and just repeat a couple of key messages, add a little bit of additional commentary. Yeah, from a national sales wins perspective, we posted an additional substantial quarter, net $200 million additional on top of what we’ve already won, so that’s more than $2 billion of net business in the national sales. Because we’re not going to report that number going forward. That’s something that we were doing during COVID to give a sense of confidence on what was happening kind of under the water, because the overall water level was lower than what it should have been because of COVID, but we’re going to pause going forward on reporting on that.

But we had another great quarter and we don’t anticipate that slowing down. We have the ability to continue to win national contract business. The why is that those customer types have tremendous confidence in Sysco’s breadth, depth and expertise to be able to ship on time and in full. I get asked the question all the time. Why are you winning on the national sales? It is not because of the rate. We do not “underbid” the market to try to win new business, we bid appropriate market rates and we win because of our service experience and our capabilities of our national sales team to represent Sysco in a compelling way. So that trend has continued.

I would say the surprise and it’s a very pleasant and positive one for the industry at large and also for Sysco, is that the independent restaurant customer who was predicted to go out of business just simply has not. We’re shipping 10% more unique doors than we were pre-COVID. And that factoid alone conveys the health of the independent customer, but it also conveys that Sysco has won big in net new customers in the independent space because the industry is down about 10%. So we have a 20-point delta in our performance versus the industry at large in the ability to serve that customer type.

The why that has occurred, is because we have changed our compensation model for our sales reps. We make it worth, they’re while now to more significantly prospect new customers. And we have improved the customer onboarding process in a meaningful way and we’ve eliminated order minimums, which eliminates again another barrier of our new customer joining our mix.

I would say, in regards to customer lines penetration, that’s something that our recipe for growth is going to address in spades. And I anticipate additional momentum on cases per operator in fiscal 2022, and that gives Aaron and I the confidence in the guidance that we just provided. As it relates to acquisitions, we’re proud and pleased that very soon we will be closing on the Greco acquisition. It’s a terrific business focused on the Italian segment, unique products, unique service model, the delivery frequency that is substantial. And we’re going to grow that platform. We believe that there are additional acquisitions out there that are the tuck-in, fold-in. We do not have plans at this time to do any substantial M&A.

Jeffrey Bernstein — Barclays — Analyst

Thank you.

Kevin Hourican — President and Chief Executive Officer

Thanks, Jeff.

Operator

And your next question comes from Mark Carden with UBS.

Mark Carden — UBS — Analyst

Good morning. Thanks so much for taking the questions. Can you quantify how much of impact inflation had on your gross profit and EBITDA in 4Q, and how should we think about the impact of that on financials over the next few quarters?

Kevin Hourican — President and Chief Executive Officer

Thanks for the question, Mark. What we’ve disclosed is that, from a gross profit perspective, right, we were — gross profit grew over fiscal ’19. We’ve not disclosed and we’re not proposing to disclose the actual impact broken out across the lines of the P&L. But I want to go back to what I said before, a modest inflation is a good thing for our business, so long as we can management — manage it as we carry forward. And from a fiscal year ’22 perspective, we do expect inflation to continue in the first half at elevated rates and moderate thereafter.

Mark Carden — UBS — Analyst

Got it. That’s helpful. And then you noted that today the Delta variant hasn’t had much of an impact on demand. Just curious how this compares to what you saw in the UK with respect to consumer behavior, understanding the restrictions are a bit different out there. But whether there are any learnings that you can bring to the U.S. from it.

Kevin Hourican — President and Chief Executive Officer

Hey Mark, it’s Kevin. I’ll take that. They will just start with the repeat the positive [Phonetic]. We are not experiencing sales impact in the month of July tied to Delta. We’re not, that is the fact, that is the headline. We can’t predict the future. We do not know if things will change. If governments choose to impact dining — on-prem dining, that would have an impact. That is not in our forecast, because we can’t predict will that occur or not occur.

What I can, I guess, provide from a color perspective is the country of France has been pretty aggressive with implementing a vaccination passport to be required to eat on — at a restaurant. And we’re prepared to execute against that. And we’re working very closely, obviously, with our French operations to be ready for that. That goes into effect in about a month. I would say there are some that take the position that that vaccine passport will increase people’s confidence in going out to eat. There are others that suggest that it might have a foot traffic impact. I guess, I would put forward to those two things offset each other, and it’s a wash. I don’t know, is the honest answer. And many of you live in New York and know that New York has communicated a similar vaccine passport, which will be leveraged in Manhattan.

It’s too soon to tell what we can say at this point in time, is Delta is not having an impact on our business trends. And as I said in my prepared remarks, we’re prepared. Aaron said this well. If in fact there were some form of a government shutdown, we’re prepared to execute against it. We have the ability to execute against it.

And I just want to re-emphasize one other positive. We’ve got sectors of our business that haven’t yet moved up the recovery curve, that will be doing so as schools come back online, both K through 12 and college in a more meaningful way, when we compare to 2020 for sure that will be positive. And then as companies return to work, and I know select companies have announced a delay of that, but many companies are in fact returning to work post Labor Day. That’s another tailwind to our business because we partner with FSM providers as the lead distributor of food to those types of companies. And that is another potential tailwind, along with leisure and business travel picking up in our Hospitality segment.

So there’s a lot in there. That’s why we have provided the forecast that we have provided. Going back to Jeff’s question, why not be more aggressive? It’s because we can’t predict the unknown. What we can see are the trends that we have. And we’re confident in our ability to deliver on the forecast update we provided today.

I will toss to Aaron for any additional commentary.

Aaron Alt — Executive Vice President and Chief Financial Officer

Thank you, Kevin. Two brief thoughts, just to reemphasize as Kevin called out. There are parts of our business notwithstanding our great Q4 results, that still have the opportunity to come up with the recovery for education, FSM, and significant parts of our international business. But I also want to point out what perhaps is obvious, forgive me for that. During the last couple of quarters, we’ve been managing a global business where the restrictions are different by city or different by state. And so as we look forward, part of the strength of our portfolio is that it’s a portfolio. And we will have regions performing differently than others as various cities, counties, states or countries react differently to their situation and that creates a great diversification for us from a portfolio results perspective.

Mark Carden — UBS — Analyst

Great thanks so much.

Operator

And your next question comes from Alex Slagle with Jefferies.

Alexander Slagle — Jefferies — Analyst

Thanks. Good morning. Wanted to follow up on the staffing. I know you made good progress on the hiring initiatives, but it sounds like more to go. So kind of curious how much of this incremental supply chain labor inflation will hit in the fourth quarter relative to last quarter, and how to think about the magnitude into the first quarter and ’22 as additional channels come back? I know you provided some metrics, but if you could clarify that?

Kevin Hourican — President and Chief Executive Officer

This is Kevin, I’ll start, I’ll talk about just the state of the state and then I’ll toss to Aaron for answering the quantification part of your question. The good news is we declared we would hire over 6,000 people in the first half — excuse me, the second half of our fiscal 2021, which is the first half of this calendar year, and we succeeded, we hit that target. We are in decent shape nationally. We are definitely in better shape than the industry at large. The good news /challenge is that the recovery is happening faster than we had modeled. And that is a good thing for the P&L and it puts pressure on our hiring. We absolutely have incremental drivers and warehouse selectors to be hired. We are working very aggressively to do that, removing any and all obstacles that get in the way, recruiting bonuses, retention bonuses. We are increasing the number of recruiters that we have. We’re doing marketing to create awareness of what are very high-quality, high-paying jobs. And we are — we literally have a daily standup where we talk every day about our staffing health.

Neil and I talked about this last night. We have 76 warehouses in just the U.S. alone, which is by far the biggest count in this industry. And we have a handful of sites that are in a challenged status. However, we have the vast majority of our sites that are not and we have buffer capacity. So as a single building has challenges, we can flex product demand and volumes to our locations [Phonetic]. And if you’re a smaller company, you just don’t have that flex capacity. We have 300 warehouses across the globe. And it’s just the breadth and depth and scale of this company in times like this that gives us an advantage.

We’re working very hard. This is the number 1 priority for our company, is to increase our staffing health, as I call it. There’s more new business to be had and more incremental business to be had as we improve our staffing health and we’re committed to doing it.

I’ll toss to Aaron who will answer the financial impact part of your question for Q4 and any comments for 2022.

Aaron Alt — Executive Vice President and Chief Financial Officer

Sure. I’m not going to give you a number, but allow me to provide a couple of points of context. First is the cost, while increasing, as Kevin called in his remarks are largely transitory. We expect to work through them over the course of fiscal ’22. Second, they will be funded by our cost-outs. And again, over time, that will also prevent us — present us with further opportunity. And lastly, I found this to be an interesting data point without giving you the number. I was looking at our driver costs as a percentage of our opex. As between Q4 of ’21 and Q4 of ’19, it was flat. Now, I expect some modest increase in the first part of the year as we work through the situation that we’ve been discussing in this call. But that gives me some confidence that we will be able to manage through this. Thank you.

Alexander Slagle — Jefferies — Analyst

Helpful. Thanks.

Kevin Hourican — President and Chief Executive Officer

Thank you, Alex.

Operator

And your next question comes from Edward Kelly with Wells Fargo.

Edward Kelly — Wells Fargo — Analyst

Hey, guys. Good morning. Nice quarter. Kevin, can I just — I just wanted to ask one follow-up on the labor cost inflation side just because it’s been such a big point of contention I think for investors in this space right now. But your view of this being transitory, how do you think about the risk to that at this point, and what are the data points that you have today that kind of confirms that view. I’m just kind of curious, as we take — sort of taking a step back and you have obviously had much more visibility than us. How do you think about the risk to that view?

Kevin Hourican — President and Chief Executive Officer

Yeah. It’s a good question to ask and I totally understand it, and I’d be asking the question too if I were you. And what others say maybe inconsistent and different than what we say. All I’m going to describe is the realities of Sysco, what we’re doing. I encourage you to go back to our prepared remarks. I was really careful and thoughtful about how we characterize it, but I will give you additional color and also be as crisp as I can possibly be about what’s going on.

In our Q4, and it’s definitely continued into July, we are spending money on what I call the transitory basis to improve our staffing health. Those things are retention bonuses, hiring bonuses, recruitment bonuses. We’re compensating our sales consultants to help us find drivers that are out in the industry. Those expenses are in our P&L in Q4 and we had a very solid quarter because the sales growth we are experiencing is more than covering those “transitory incremental costs”. And we will continue to do those things until the staffing health gets to our level of satisfaction. Where we will be judicious, prudent, and careful is in structural wage, permanent cost increases. We will do it if we have to, but we will only do it if we have to.

And the why is, as you well know and in your models, this is why you are asking us this question, you will live with those costs forever and they’re compounding. I guess trust that I’ve come from an industry that had labor shortages for more than a decade and experienced substantial cost increases, that’s the pharmacy industry that doesn’t do those that don’t know me well enough. And we will be extremely prudent to prevent that from happening in this industry.

With that said, we will have to make some investments in base pay because the market has moved on us in select locations and we’re prepared to move so that we don’t find ourselves in a position of disadvantage. What I said in my prepared remarks however is — and we will find productivity improvement offsets to offset those cost increases that are in fact structural and permanent because Aaron and I can see in our business where and how we can be more efficient. So even if there’s some wage increase as a percent of sales, we can run our trucks more efficiently to reduce miles delivered on an annual basis, as just a example to find offsets.

Aaron, I will pass it to you if there’s anything you want to say about 2022 from a cost perspective.

Aaron Alt — Executive Vice President and Chief Financial Officer

I think it’s well said, Kevin.

Kevin Hourican — President and Chief Executive Officer

Ed, hopefully that answers your question. And by all means if you have a follow-up going, go right ahead.

Edward Kelly — Wells Fargo — Analyst

Yes, that’s good. And then the other thing I wanted to ask you about, Kevin, just in terms of the challenges that there is just out there for you and the industry right in meeting market demand, given inventory and labor shortages, I’m just curious how much is actually being left on the table today. I know you are up from industry, but I think everybody is in the situation. Does this improve in the coming quarter or two? So does your outperformance relative to the industry continue to grow? And if we were to have some slowdown related to Delta, does that also, say that maybe there is some cushion in that slowdown for you, just given the gap between demand and supply for the industry?

Kevin Hourican — President and Chief Executive Officer

That’s a great question. Here are the facts. We have the data to prove that we’re performing better than the industry at large, in both the rete and in deliver on time. And we’re not meeting our own personal internal expectations for those two important metrics. There is an additional upside to be had as we improve our staffing health at large and then specifically in select, challenged locations. And we’re moving mountains to be able to do that.

So yes, there is more upside as we improve our health. And we’ve worked to incorporate those types of thoughts into our forward-facing logic, which Aaron has covered. You asked how long will it take to get back to a healthier position? I would say it’s within the next six months. It’s when we can definitively say we are in a better, healthier position than we are right now. It’s the most challenging labor market I’ve experienced in my career. That is the fact.

But we do believe we are in a better position. We do believe to answer one of your discrete questions, can Sysco expand its leadership position? The answer is yes, definitively. We believe we can expand our leadership position. How much additional upside is out there is something I’d prefer not to comment upon.

You offered an interesting query about Delta slowdown, as a potential two things offsetting each other. I would just repeat, we’re not seeing a Delta up — headwind at this point in time. It’s just not in our actuals that we’re seeing a Delta headwind. The thing that would impact the business is if governments put restrictions back on operators, and let’s be optimistic that that won’t be necessary.

And toss back to you, Ed, if you have any other questions.

Edward Kelly — Wells Fargo — Analyst

No. Thank you.

Kevin Hourican — President and Chief Executive Officer

Great. Thank you.

Operator

And your next question comes from John Heinbockel with Guggenheim Partners.

Kevin Hourican — President and Chief Executive Officer

Good morning, John.

John Heinbockel — Guggenheim Partners — Analyst

Kevin a very high level — hey, how are you? The high-level question here. When you think about the impact of this ongoing inflation to dampen demand, so how do you get your arms around that philosophically? And maybe by what types of businesses? And then what can you do to mitigate that pressure for your customers without taking a margin hit? I imagine it might be pushing certain lower-cost products. But your thoughts on that would be helpful.

Kevin Hourican — President and Chief Executive Officer

Thank you for the question, John. I just want to make sure I heard the first part of your question. I thought I heard you say, “Does the increased inflation dampen demand?” If I did hear that correctly, I just want to be — I’m sorry, go ahead.

John Heinbockel — Guggenheim Partners — Analyst

Yeah. No.

Kevin Hourican — President and Chief Executive Officer

I just want to be…

John Heinbockel — Guggenheim Partners — Analyst

Yeah.

Kevin Hourican — President and Chief Executive Officer

I just want to be clear on what’s happening right now and this is why this was gross profit dollars favorable for Sysco in our Q4. The increased inflation is not dampening demand at this point in time. Our restaurant partners are succeeding in making their own menu price adjustments. The consumer pent-up demand on eating away-from-home is — and the robust consumer spending power that exists out there. That’s why the elevated inflation, which would normally be problematic. I think we’ve kind of trained the industry and trained ourselves that 2% to 3% inflation is a healthy zone and above that becomes challenging. This is a unique time and the elevated inflation that we’re experiencing is not decreasing demand. And because of that, while it’s having a slightly negative impact on our gross margin rate percentage, we are definitely putting more gross profit dollars in the bank, and therefore, it helped us with a strong quarter.

To your point, if it continued forever, that would be problematic. And we are working to answer the second part of your question very aggressively with our supplier partners. Are there alternative products, different cuts of meat? As I mentioned, this is a fats poultry, and pork problem most aggressively at this point in time, and you know that from the coverage of the universe. And we’re working really hard to find incremental sources of supply. We believe that is our responsibility, for our customers to help decrease COGS over time. And Judy Sansone and our merchant team are working extraordinarily hard to help us reduce COGS so that we can provide great value to our customers and therefore, continue successful profitable growth for both them and for us.

Aaron, anything you want to add to that?

Aaron Alt — Executive Vice President and Chief Financial Officer

I would just add one data point which is the proof point in Kevin’s observations, is that foot traffic in the restaurants are up even with the increased menu prices.

Kevin Hourican — President and Chief Executive Officer

Okay. John, do you have a follow-up?

John Heinbockel — Guggenheim Partners — Analyst

No, no. That’s good. Thanks.

Kevin Hourican — President and Chief Executive Officer

Good. Thank you, John. Operator, we are ready for —

Operator

And your next question comes from Lauren Silberman with Credit Suisse.

Kevin Hourican — President and Chief Executive Officer

Hi, Lauren.

Lauren Silberman — Credit Suisse — Analyst

Hey, hope all’s well. Given your stronger than expected sales near-term and what looks like accelerating market share. Can you help contextualize where you see your results versus the industry today as we think about that 1.2 times the industry market rate target in fiscal ’22? And then given all the national and local customer wins, as well as your initiatives, better motors [Phonetic] better staffing, better inventory, do you think that 1.2 times could be conservative?

Kevin Hourican — President and Chief Executive Officer

Lauren, thank you for the question. This is Kevin, we’ll go back to May 20, when we talked about our three-year plan, what we described at that time for both ’22, ’23, and ’24, was this is what we have received from Technomic, that’s the company that we use for this, is the view on what the market recovery will be and that we will grow 1.2 times that in our first year of the three-year plan and 1.5 times that in fiscal 2024. While Aaron and I did a caveat that is, as the market grows faster, we need to grow faster too, and if the market underperformed versus those forecasts, we commit we will go 1.2 times.

I would actually take the view of the industry recovering much faster than what we expected, which could put pressure on that 1.2, but we are not communicating anything other than, we are fully committed to delivering that level of growth. The total, for sure, will be higher for 2022 than what we originally thought, which is why Aaron announced today a lift of $2.5 billion incremental sales. And we’re on track to deliver the 1.2 for this first year of the three-year plan and we’re on track to be able to deliver the 1.5 as well for the third year.

So trying to be as transparent as I can. The market is growing, which is why we lifted sales by $2.5 billion and we’re on track to deliver the 1.2.

Lauren Silberman — Credit Suisse — Analyst

Okay. Thanks. And then just on the case volumes accelerating into July. Can you expand on what’s driving that acceleration? And are you seeing that broad-based across markets?

Kevin Hourican — President and Chief Executive Officer

We are seeing it broad-based across markets. It has continued into July. We have not seen any form of a slowdown in July on a week-by-week basis. Aaron did a nice job of bedding clean up on one of my commentaries. He reminds of international. International was mostly closed in Q4. Our largest countries of operations internationally, specifically in Europe, didn’t even begin reopening until late May and into June. And there is additional recoveries still to be had in international, because we have not fully recovered in international. We had a substantial profit improvement quarter-over-quarter, with a breakeven performance in Q4, which is a $92 million profit increase from our Q3. And we see continued momentum in front of us as the market continues to reopen: a, international; b, foodservice management; c, hospitality; and we have not seen a slowdown in the restaurant sector in our largest US business.

Aaron Alt — Executive Vice President and Chief Financial Officer

I would just add to that one, Lauren. We have — one of the nice things about us getting started early, and planning for the recovery is we have the inventory to handle the case growth that we’re expecting.

Lauren Silberman — Credit Suisse — Analyst

Great. Thank you, guys.

Kevin Hourican — President and Chief Executive Officer

Thank you, Lauren.

Operator

Your next question comes from John Glass with Morgan Stanley.

John Glass — Morgan Stanley — Analyst

Thanks and good morning. I just wanted to go back and make sure I’m clear on the growth you’re expecting, the 1.2 times the industry. What is the industry expectation or your view or whoever you look to for that advice, what are they assuming the industry is growing at in ’22? And is there a comparable number we can look to for the fourth quarter which your growth was, relative to the industry?

Aaron Alt — Executive Vice President and Chief Financial Officer

Here’s what we said, and I would encourage you to go back and look at our May 20th Investor Day presentation. Our external guidance, if you will, our long-range plan, was that we would grow faster than whatever the market performance is. It’s not dollar-based, it’s industry-based if you will. And our commitment was that in fiscal ’22, we would grow 1.2 times the market, consistent with the transformation investments we’re making. And that by the time we get to fiscal ’24, again, because of the investments we’re making, and then increasingly achieving the ROI on those investments, we’ve been growing at 1.5 times the market growth as we carry forward. We’ve disclosed in the past that we have used Technomic as the source of industry data for us. And so as their forecasts adjust, we adjust our own expectations accordingly.

But as Kevin said, we are — and as you can see from our fourth-quarter results, we are growing. We are on track relative to our expectations for fiscal year ’22, relative to that 1.2 times growth. And we’re excited about both the organic and the inorganic initiatives that going to help us to meet our commitments.

And then Neil can also follow up with you on some of the details around that offline if you’d like.

John Glass — Morgan Stanley — Analyst

Yeah. That’ll be great. Thank you. And then Aaron, you said you overachieved your savings goal this year, I think 350 [Phonetic] maybe just by how much? And as a longer-term question, you talked about another $400 million opportunities at some point in ’23 and ’24. Have you thought about, is this savings really going to reinvest in the initiatives you’ve talked about, or do you think about a net versus gross savings, or is that too far off to really get that kind of granularity?

Aaron Alt — Executive Vice President and Chief Financial Officer

Let me come at it from the back end. We expect our investments — sorry, we expect our cost-savings in the short-term to fund two things. First, the transformation investments we’re making, which are substantial across every element of our business; but then also the snapback, the transitory costs that Kevin has been referring to before. The good thing for us is we got started early with the cost-out before we started the transformation investments, and indeed, before the snapback incremental costs occurred, and so we have the fuel before we need to burn the fire, relative to that.

What you should take away from that as well, though, is that over time, as we move past the snapback, as we get past the transition, as we move past the transformation investments, that becomes goodness to our income statement and we expect to drop more of the savings to the bottom line. I’ve been very careful not to say percentages, right? What I — what we have given you as EPS guidance. And indeed the updated EPS guidance today, which is an all-in look at our business overall.

Kevin, would you add anything to that?

Kevin Hourican — President and Chief Executive Officer

It’s good. Thank you.

John Glass — Morgan Stanley — Analyst

Okay. Thank you.

Kevin Hourican — President and Chief Executive Officer

Thank you, John.

Operator

And your next question comes from Kelly Bania with BMO Capital.

Aaron Alt — Executive Vice President and Chief Financial Officer

Good morning, Kelly.

Kevin Hourican — President and Chief Executive Officer

Kelly, you might be on mute. We can’t hear you.

Kelly Bania — BMO Capital Markets — Analyst

Hello? Can you hear me?

Kevin Hourican — President and Chief Executive Officer

We can. We can hear you now.

Kelly Bania — BMO Capital Markets — Analyst

Oh. Perfect. I just wanted to go back, Aaron, to the cost that you talked about, a total of $86 million. You mentioned $36 million for recruiting and retention, and $50 million for transformation. I was just wondering if you could elaborate more on those. And if those were specifically called out because they were transitory or just so we can understand how those impacted the quarter. And then what you’re expecting in those buckets in the upcoming year.

Aaron Alt — Executive Vice President and Chief Financial Officer

Great. Sure. We are monitoring our costs two ways — well, three ways. Let’s talk about spending for a second. We have a specific, identified list of strategic initiatives that are tied to our transformation for which there are specific business cases that leads to the ROI over time that comes from sales and the profit that comes from the incremental sales that result from them. So when I talked transformation investments, it’s the spend against those initiatives in the quarter.

In contrast, for the snapback expenses, we are very careful in monitoring that which we believe to be one-time or short-term, or transitory in nature. And it goes to, are we paying recruiting firms more money? Are we doing more recruiting marketing than we were doing before? Are we doing incremental training because of the velocity of new associates we have incoming into our buildings? Are we paying retention, etc.? And that’s what — that’s what you will find within those — within that disclosure.

Kelly Bania — BMO Capital Markets — Analyst

Okay.

Aaron Alt — Executive Vice President and Chief Financial Officer

As far as — I think you also asked me for trajectory and what I would tell you is the trajectory for the transformation strategic initiatives, that is built into our expectation. And you can see it close — you can see it in the growth numbers that we’ve put out there for the next three years, as well as the guidance we provided on the short-term and the long-term. With respect to the snapback, because we’re managing that every day, I can just leave you with the confidence that we believe we can manage it in the context of the costs-out that we’re taking, and we’ll be more aggressive on cost-out to help fund those — fund the costs if they increase as well. But we believe where we are — we can land within the updated EPS guidance that we provided on the call today.

Kelly Bania — BMO Capital Markets — Analyst

Okay. That’s very helpful. And just one last one, I guess, on the local customers. You’ve talked about the 10% increase in local customers you’re serving. And I was just curious if you could talk about the contribution that you’re getting from those customers. I assume they start out much lower than maybe in more mature customers. Just curious how that is progressing.

Kevin Hourican — President and Chief Executive Officer

Hey, Kelly. It’s a great question. This is Kevin. You’re absolutely right that a new customer starts out as lower cases per drop than a mature tenured customer, and that’s to be expected. My commentary would be our new customers are performing equal to or slightly better than historical new customers. We are tracking it by tenure and we’re seeing them move up the penetration growth expectation. So all things are on track. We have not acquired “small, unprofitable customers.” I know that select folks may have tried to interpret that, not people on this call. I’m just saying that is not a problem. We are confident in the new customer wins and our ability to move with those customers up the profit ladder and we’re on track.

Kelly Bania — BMO Capital Markets — Analyst

Thank you.

Kevin Hourican — President and Chief Executive Officer

Thank you.

Operator

And our last question will come from the line of John Ivankoe at JPMorgan.

John Ivankoe — JPMorgan — Analyst

Hi, great, thank you very much. Yeah, the question is on the $400 million of cost saves. Obviously, those aren’t this year, but I wanted to get a sense in terms of what type of major buckets that you’ve identified. Obviously — I’m sorry for the background noise. Obviously, I’m asking this in the context you’re a very growth-oriented company, you plan to take market share, there’s a lot of investments that you’re making overall. I mean, just give us a sense that that $400 million can be cut without it affecting your infrastructure service levels, or future investment in any way?

Aaron Alt — Executive Vice President and Chief Financial Officer

Great question. Here’s the context I would give you. Before we announced the goal, we had a specific and defined list of initiatives that we believe we could execute over time, taking into account the timing, cadence and depth of our transformation across key elements of our enterprise to get there. The buckets will be relatively familiar. They will go to how do we operate as a ongoing concern the most efficiently, followed by how are we supporting our customers the most directly. Reflecting our growth aspirations, you’re right, that will be areas where we will need to invest in marketing, and merchandising and other areas as well. But if we take the list of cost initiatives, we believe that it enables the growth objective we have out there and it is specifically actionable as we move through the period of time. Now I want to go back and emphasize something I interpreted you were acknowledging your question, but let me just say it for the group as well, right. We’ve over delivered against the $350 million that was our expectation for fiscal year ’21, right. Our cost saving efforts will continue through fiscal ’22. But what we’re saying as part of our guidance is, we have both the transformation of the snap-back to deal with in the short term, but over the longer term over our LRP period into ’23 and ’24, there is an incremental $400 million that will largely come out in ’23 and ’24 in service of our long-term guidance.

Kevin Hourican — President and Chief Executive Officer

This is Kevin, if I could just add on two things. There’s nothing that we’re doing in our cost-out will hinder our ability to serve our customers. In fact, we will add sales reps over time and we are going to increase delivery frequency to our customers over time. So the cost-out is not variable. It’s permanent, it’s structural. You have, for example, so some pithy examples; we sold a corporate headquarters that we determined we didn’t need because we have more people working from home than we had previously. That’s just a asset sale and it reduced our operating expenses. We restructured our field organization to become more efficient, more agile, more lean and to be more center-led from a strategy perspective. The network is done. It’s in the rear view mirror and those cost are permanent, they’re structural and never moved, and we’ve got many other examples. But those — Aaron covered one other in his prepared remarks which is indirect sourcing. So our purchasing of tires, our purchasing of select IT contracts, there is meaningful, meaningful dollars to be saved for our company as we get more aggressive on how we strategically source and Aaron, personally, and his team are doing terrific work in taking out costs in that regard.

John Ivankoe — JPMorgan — Analyst

Thank you so much.

Operator

[Operator Closing Remarks]