Good morning and welcome to Sysco's 3rd Quarter Fiscal Year 2019 Conference Call. As a reminder, today's call is being recorded. We will begin today's call with opening remarks and introductions. I would like to turn the call over to Neil Russell, Vice President of Investor Relations, Communications And Treasurer. Please go ahead.
Good morning, everyone, and welcome to Sysco's 3rd quarter fiscal 2019 earnings call. Joining me in Houston today are Tom Beney, our Chairman, President and Chief Executive Officer and Joel Grade, our Chief Financial Officer. Before we begin, please note that statements made during this presentation that state the company's or management's intentions, beliefs, expectations or predictions of the future are forward looking statements within the meaning of Private Securities Litigation Reform Act and actual results could differ in a material about factors that could cause results to differ from those in the forward looking statements is contained in the company's SEC filings. This includes, but is not limited to, risk factors contained in our annual report on Form 10 K for the year ended June 30, 2018, subsequent SEC filings, and in the news release issued earlier this morning. A copy of these materials can be found in the Investors section at cisco.com, or via Cisco's IR app.
Non GAAP financial measures are included in our comments today and in our presentation slides. The reconciliation of these non GAAP measures to the corresponding GAAP measures are included at the end of the presentation slides and can also be found in the Investors of our website. To ensure that we have sufficient time to answer all questions, we'd like to ask each participant to limit their time today to one question and one follow-up. At this time, I'd like to turn the call over to our Chairman, President and Chief Executive Officer, Tom Bene. Good morning everyone and thank you all for joining us.
I'd like to start off this morning with an overview of our third quarter performance and a discussion around our business segments and the key highlights for the quarter. Following that, Joel will cover the financial results in further detail. Overall, we are pleased with our overall operating and financial performance for in line with our expectations and manage costs well, including the ongoing cost savings associated with our business transformation initiatives. The improved pace of performance for the second half of fiscal twenty nineteen that we previously spoke of is in fact taking shape. And while we still have work to do, we remain confident in our ability to deliver our adjusted operating income growth target and now expect that to be at the low end of the $650,000,000 to $700,000,000 range.
Joel and I will both elaborate on this further. From a total Cisco perspective, our 3rd quarter results include increased sales of 2.2 percent to $14,700,000,000. Gross profit growth of 2.9 percent and adjusted operating expense decrease of 0.4% which translated into an adjusted operating income increase of 16.6 percent to $620,000,000. And an adjusted earnings per share increase of 17.4 percent to $0.79. Turning to U.
S. Restaurant industry data, The overall sales trends remain mixed. According to Black Box and SnapTrack, we saw some choppiness throughout the quarter. As March data was generally positive compared to February in part due to weather, which negatively impacted February sales. Additionally, same store sales were positive even with this recent choppy industry performance, the overall macro trends remain generally favorable for our customers.
As illustrated by continued low unemployment, which was at 3.8% for March, and strong GDP growth for the first quarter at 3.2%. Economic growth in the international markets in which we operate was mostly positive. This includes modest growth in the food service sector, although we continue to see the impacts of Brexit on our UK business due to uncertainty and low consumer confidence. In Canada, the Consumer Confidence Index continues to rise with March seeing the 3rd consecutive monthly increase. With Technomic forecasting, the Canadian food service industry to grow 0.6% in real terms or 4.1% on a nominal basis, for calendar year 2019.
Additionally, we continue to see reasonable overall trends in the other international markets where we do business. As we discussed last quarter, we anticipated seeing an increased benefit from our transformation initiatives beginning in the second half of this year. And we began to see those benefits show up
the
and the we implemented last quarter. As it relates to acquisitions, in April, we acquired J and M wholesale meats and Imperial Foods, 2 Smaller Central California Distributors. J And M Meets is a food service distributor that specializes in key Center of the Plate products and Imperial Foods carries dry can good products, which both are complementary to existing Broadline business in the Central California area. They also provide Cisco with the opportunity to further extend our reach to the important Hispanic customer segment. We will begin to see the impact to our business in the fourth quarter from both of these acquisitions.
Additionally in the quarter, we made the decision to sell our Iowa Premium cattle processing business. While our 3 year plan forecast included positive operating income for this business, we believe the divestiture of this business is in alignment with our strategic priorities and allows us to focus on our core strength as a distributor. The transaction will result in a reduction of planned operating income of approximately $25,000,000, and is the reason for us now projecting to achieve the low end of our adjusted operating income growth range. Now I'd like to transition to our 3rd quarter results by business segment, beginning with U. S.
Foodservice Operations. Sales for the 3rd quarter were 10,100,000,000 an increase of 4.1%. Gross profit grew 5.1%, including an improvement in gross margin of 18 basis points. Adjusted operating expenses grew 2.3% and adjusted operating income increased 10%. Total case volume within U.
S. 1% for the quarter, of which 1.3% was organic. However, we delivered relatively solid growth in our local business as local case growth was up 3.1 percent, of which 2.2% was organic. We are pleased with the gross profit growth we delivered for the quarter, which was impacted by a number of factors, including continued positive momentum from category management, as we continue to deepen our relationships with our strategic supplier partners. Over year favorability from the impact of inbound freight and continued growth in our Cisco branded products, which increased by 28 basis points with our local customers this quarter.
In addition, the inflation rate for the quarter Technology continues to be one of our fundamental enablers of growth as we transform our business to serve our customers in ways that best meet their needs. We are continuing to provide new capabilities and tools to enable an improved experience of doing business with Cisco, including new ordering tools, which has driven our e commerce ordering utilization to more than 53% with our local customers. From a cost perspective, within U. S. Foodservice Operations, our expense management was solid as adjusted operating expenses were 2.3% for the quarter.
While we continue to see supply chain cost challenges in the warehouse and transportation areas, we are seeing positive momentum from our recruiting, onboarding and retention initiatives. These challenges were partially offset by continued improvements seen as a result of our routing optimization initiatives and ongoing process improvements. Furthermore, our finance transformation and smart spending initiative have also provided benefits in sales decreased 1.5%, gross profit decreased 3.1%, adjusted operating expenses decreased by 5.8% and adjusted operating income grew 30%. We saw solid overall performance in Canada with strong top line growth and solid gross profit dollar growth of more than 5%, driven in part by an inflation rate of 2.6% along with strong expense management, partially benefiting from our ongoing regionalization efforts, which are progressing well. In Europe, we continue to have mixed results.
The UK continues to feel the effects of Brexit uncertainty, causing depressed consumer confidence, However, our Brakes UK business continues to stabilize operationally as a result of our multi year initiatives to transform the business. In France, social unrest continues to impact tourism and consequently food away from home consumption. Our sales performance during the third quarter was adversely impacted by this unrest and by some operational challenges associated with integrating Brake France and Davigel into Cisco, France. That said, the overall integration and supply chain transformation continues to be on track to deliver the long term benefits that are part of our multi year plan. As for our business in Latin America, we continue to see growth opportunities in this region.
Both with our chain restaurant customers and with our expansion of cash and carry locations to complement our broad line footprint in both Costa Rica and Panama. Moving on to Sigma, we continue to make disciplined choices in an effort to deliver improved profitability. In Q3, we saw expected softness in the top line due to transition customers, while seeing gross margin increased by 28 basis points year over year. Solid expense management drove adjusted operating expenses, down 7.1% versus prior year, resulting in significantly improved operating performance. In an effort to improve overall profitability in this important segment of the business, we will continue to take a very disciplined approach to growth as we move forward.
Lastly, in our other business segment, we recently announced the restructuring of guest supply. As the industry landscape evolves, we are focusing on optimizing our business model and creating a more focused and agile organization to better meet the changing needs of our customers. The new operating structures created 3 distinct business units under the parent company guest worldwide. The business units include Gillcreston St1s, our amenity manufacturing unit, Manchester Mills, 1 of the world's leading textile producers, and Guest Supply, which serves the world's top hotel chains and independent properties in over 100 countries as a full spectrum distribution solution provider. In summary we continue to feel good about the fundamentals of our business.
Our customer and operational strategies are firmly aligned around enriching our customers' experience of doing business with Sysco. And we remain focused on engaging our 67,000 dedicated associates around the world to deliver against our financial objectives associated with our 3 year plan. Let me now turn the call over to Joel Grade, our Chief Financial Officer.
Thank you, Tom, and good morning, everyone. Would like to provide you with additional financial details surrounding our performance for the quarter. We saw improved year over year results for the third quarter. Although we saw some softness in the top line, our earnings reflect solid expense management and strong adjusted operating income growth, These initiatives are designed to streamline efficiencies and allow us to reinvest in the business to facilitate continued growth, include our finance transformation roadmap, smart spending, and the Canadian Regionalization Initiative. For the third quarter of fiscal 2019, total Cisco sales grew 2.2%.
Board exchange rates negatively affected total Cisco sales by approximately 1.1%. In our U. S. Broadline business, we experienced 2.3% inflation, driven by a few categories, including the frozen potato poultry, and meat categories. And we are managing this modest increase in inflation well.
Gross profit in the 3rd quarter increased 2.9% and gross margin increased 14 basis points, while adjusted operating expenses decreased by 0.4%, resulting in strong adjusted operating income growth of 16.6 points. Although it will vary from quarter to quarter, we are focused on maintaining the 150 basis point gap between gross profit dollars and operating expense dollars that we committed to as part of our 3 year plan in order to achieve our adjusted operating income growth target. Turning to earnings per share. Our EPS results this quarter were impacted by our strong operating income, adjusted tax rate, foreign exchange impact and stock option exercises. I would now like to discuss our tax The GAAP effective tax rate of negative 2 percent for the third quarter of fiscal 2019 is primarily attributable to the determination made during the quarter to recognize the favorable impact of $95,000,000 of foreign tax credits generated as a result of distribution to Cisco from our foreign operations at the end of fiscal 2018.
Our adjusted tax rate for to be in the Cash flow from operations was $1,400,000,000 for the 1st 39 weeks of fiscal 2019, which was $244,000,000 higher compared to the prior year period. Free cash flow for the 1st 39 weeks of fiscal 2019 was $1,000,000,000. Which was $233,000,000 higher compared to the prior year. The improvement in free cash flow was primarily due to last year's pension contribution, partially offset by cash taxes and impacts working capital from an increase in days sales outstanding. Net capital expenditures totaled $367,000,000 for the 1st 39 weeks of fiscal 2019.
Which was $10,800,000 higher compared to the prior year period. For the full year fiscal 2019, we now expect a capital expenditure forecast of approximately 1.1% of sales, down slightly from our previously stated 1.2%. That said, there are no changes to the prioritized order of capital allocation, which is as follows: investing in the business, consistently growing our dividend, participating in M And A, and a balanced approach to share buybacks and paying down debt. As Tom mentioned earlier, with $650,000,000 to $700,000,000 range as a result of our planned operating income being decreased by $25,000,000. In summary, we saw improved year over year results for the third quarter, led by continued momentum from improved underlying business performance.
Solid local case growth and good cost management. That said, we have more work to do in order to achieve the financial objectives of our 3 year plan. Although we remain confident in our ability to achieve these objectives. We are committed to serving our all years of our business that will improve our financial performance in both the near and long term. Operator, we are
Your first question is from Christopher Mandeville from Jefferies. Your line is open.
Hey, good morning. Can you speak to the gross margin improvement in the quarter and maybe help us understand those referenced impacts by order of magnitude. And then, Tom or Joel, as it relates to private label penetration, it was, again, expansion, but it was one of the lower rates we've seen in recent quarters. So maybe you could kind of help us understand that as to whether or not it was an anomaly and we can return back to that 50 to 60 bps of expansion going forward or, any color would it be appreciated?
Sure, Chris. Good morning, it's Joel. I'll start. I think the way I would think about that, again, it's really balanced across some of the levers, I would say, but I mean, certainly, our continued opportunities in our Cisco brand certainly already our strong driver as well as continuing category management efforts. And we continue to again, obviously, is not what it was 5 years ago where we had this giant year over year jump.
But the reality is we continue to enhance our relationships with our suppliers and to continue to drive category management as well across our again, their business. And so I think those are a couple of the areas that certainly are driving again, I interact with a margin percentage, but again, I'm really talking about what we think about most and that is our gross profit dollars. We obviously also have some favorable benefits of some inflation, inflation in our world clearly is something that ultimately certainly in the moderate range it's at today, is a good driver of opportunities again to move to continue to push cost of goods through to our customers. And so that's certainly beneficial in terms of the dollars and gross profit. And I would say it's not necessarily at the level that that detrimental really against the comments that I think we made is just we're managing these cost of goods inflation well and I think that's really related to the fact that this is this time inflation number is really in our wheelhouse in terms of where this thing functions best.
So I would really say those are some of the main drivers of what we're looking at here. And just in general, some of the tools that you've heard about in past in terms of again, revenue management continue to help us to drive our margins in a positive way.
Chris, this is Tom. Just maybe two other things that I'd reinforce as well is we did get some positive year over year benefit on the inbound rate side, which as we've talked in the past, does in fact gross margin. And then your specific question around Sysco brand, we look at 28 basis point improvement as a very positive number still. As long as that continues to move in the right direction, that's a reflection for us, I have a couple of things. 1, our customer is still reacting positively to all the Cisco brand and 2, we continue to bring innovative ideas and solutions to the market.
So, we actually view that to be a solid number. Well, it might be a little less on the growth than you've seen in a couple of other quarters. It's still a really good number.
Okay. And then just my final question would be, as you brought it up, Joel, inflation, what should we be expecting in the coming quarter and if there's a willingness would you guys be able to disclose organic case growth quarter to date?
Yes. And so, I mean, I think the just on your question on inflation, I mean, I think certainly, our forecast is to continue to see, I'll say moderate level of inflation as we move forward certainly over the next couple of quarters, there's nothing that jumps out necessarily that be really significant in terms of the overall inflation numbers. So, I would say we expect certainly an additional even moderate level inflation over the next couple of quarters. Organic case growth, I think that was part of the U. S.
Foodservice ops 2.2% was the overall number that was organic.
But you're asking year to date, right, Chris? And that's
recorded today.
Oh, quarterly numbers. Okay.
Yeah. Just to strip out some of the noise from weather and what have you and maybe expect the calendar shift for Easter as well.
Yeah. So I did so when we talked about there's local our local case volume for the quarter was the question I was answering, was 2.2%. It was those are organic. Total case volume organic was 1.3%.
But is there any real comment for April?
Not really. I mean, we continue to we're off, I think we feel good about the continued momentum, the business. And I don't think there's anything necessarily Easter, there was a little bit of an Easter shift, but not a big shift, given the timing of when it fell last year in the quarter versus this year.
Okay. Thanks guys.
Yes.
Your next question comes from the line of Edward Kelly from Wells Fargo. Your line is open.
Yeah, hi guys. Good morning.
Good morning.
I want to start with, with OpEx I was I was hoping that you could give us a little bit of, of help here. I mean, obviously, you had a big quarter, from a cost perspective. Maybe just dig in a little bit more, related to the drivers. And I'm asking this question because I I think a lot of the, you know, accelerated efforts that you guys have been talking about weren't supposed to be at a full run rate this quarter. So I'm just I'm just trying to figure out, you know, how we think about, OpEx going forward.
And and then as part of this, you know, Q Four's comparison looks pretty hard. And I think at a workers' comp benefit last year, they had to lap can you get to that 1.5% spread in Q4?
Well, I'll start and I mean, I think a couple of things I would say to that number 1, I'll maybe just take the last point first. The 1 half point spread obviously and I think I even said in my prepared comments is something we looked at over the course of the 3 year plan. It doesn't mean that necessarily every quarter is going to look the same, some actually higher, some actually possibly be lower as obviously we've seen both here. I think the way I would look at it though, I mean, again, as we did signal, we did anticipate some improved performance in the second half of the year and obviously some of these benefits started to kick in from our finance technology roadmap, smart spending, work that can individuals and some of the other administrative cost work that we did, around some of our corporate office transitions. I think the Again, we feel good about our those things kicking in as we said in the second half of this year as we head into next year as well.
I would also call out just again, overall our operating performance continues to be pretty strong and expense line. That's in the face of actually, we had some a little bit of a fuel headwinds, this particular quarter that was about $0.03 a case. So, I mean, we had I think the question is, do you expect this to continue in these areas? I do. To your point, there are some headwinds that we're anticipating that we're going to be up against some in the fourth quarter, but certainly as we've talked about here for a little while, we certainly anticipated that our leverage from the second half of the year to be better than first half and then we're certainly starting to see that.
Okay. And then just a follow-up on CapEx. So the CapEx guidance is down a bit. You just talk a bit about what's driving that? I I don't know if Iowa Premium has anything to do with it.
And and how sustainable a rate of sort of 1.1% would be going forward?
Well, I mean, I'll again, I the way I would look at that, I mean, there's number 1, it's not that often. Cash. But I mean, the reality of it is, we spend our CapEx and make our investments based, really, truly on the needs of the business. There's been absolutely no change in terms of our perspective on our capital allocation priorities that always start with investment in our business. We're obviously very committed to doing that.
We've got a lot of change programs and things transitioning our organization that will continue to require investments. Would just tell you that from a timing perspective, some of those things happen. Again, things do move around in the businesses some ways. This is something that's probably a little bit of timing as much as anything. But I would definitely not take away that there's some change in terms of the way we're looking at forecasting our CapEx.
We just and we just adjust spending and investment in terms of those needs of the business.
Great. Thanks guys.
Thanks,
Ed. Your next question comes from the line of Karen Short from Barclays.
Hi, thanks. First thing I just wanted to ask was in terms of the composition of the now I guess the kind of $650,000,000, is there any change to the breakout between gross profit, and then the supply chain versus the admin?
No, Karen. So there's not. I would just the only shift at all was related to the anticipated sale of the business, but no, there's no no bucketing difference, if you will.
Okay. And then, the same question I just want to ask, I know you obviously mentioned and you have been mentioning positive same store sales, but traffic weakness. So I was just wondering if you could talk a little bit about trends with traffic and I guess same store sales. On a true like mom and pop local basis in terms of the independence versus kind of the micro change? Any patterns or differences you could point to there?
Yeah. Good morning, Karen. This is Tom. I mean, look, I think we have seen certainly some chopping this quarter in particular and I think there are probably a bunch of different things driving that. But it depends really on what source you look at.
I mean, NPD would call out that that, while overall spend is up, traffic is up in some areas as well and down in others, in Black Fox and Amtrak. They're probably more a little more consistent than they've called, traffic down really across most of the segments. So I think it's driven by everything from some weather choppiness in Q3, our Q3, and mostly in February. And then, I think again, kind of consumer efforts during that time. The small chains seem to be doing a little bit better.
So that's going to be your kind of micro chains. And then the pure independents at least in this quarter according to NPD tend to be a little bit softer, but I wouldn't say from our perspective, we have seen necessarily any major difference in trend lines that we've experienced over the last couple 1st. So we continue to feel like this independent growth that we've had and that sector is doing well. And we continue to feel pretty confident and our ability to continue to grow and take share in that space.
Okay. And then just last housekeeping. Corporate in on a dollar basis a lot higher than I was I would have expected given the the layoffs that you'd announced. I don't know if that's just an allocation issue. Or what?
Because I would have thought on a dollar basis it would have been quite a bit down sequentially and year over year.
I are you talking, when you're talking about the, the last kind of the, specifically the corporate layoffs because I had part of we're talking in total administrative costs. Obviously, there's a lot of things that are part of our finance technology roadmap that are very much fueled, focused. And so in fact, one of the things we talked about in the first half of the year is that there were, again, why did we feel confident about this? Because there's been notification in the size of the number of field personnel. And so I would tell you, I think the majority of what you're seeing is 3 is probably even more field focused than corporate, but it is balanced between the 2.
Okay. Thank
you.
Your next question comes from the line of Andrew Wolf from Loop Capital Markets. Your line is open.
Good morning. I wanted to follow-up on the cadence of sales question that people asked about. You guys said, January was strong, I know, good weather comparison, February, but it's not good. Should we take away from that sort of March April of somewhat normalized people trying to get we're obviously trying to get a sense of whether the industry has slowed or not in your view sort of on a normalized basis?
Yes, I think we would say that that's we feel like certainly things since the weather impacts in the early part of the quarter, things have stabilized.
And I know you gave us I may have missed this, but I heard a Technomics forecast for Canada.
Do
you have one for the US that you might be able to share with us?
As you know, Technomic kind of gets out ahead of it and they do it by quarter kind of by sorry, by subsegment I may have that information. Obviously, if I have it, I can get it to you. We may need to get back to you on that, but we generally do have that information.
Okay. And I just had one other question unrelated to sales. So in the, you took a $35,000,000 charge that was related to the, a change in the business technology strategy. So could you expand a little upon that what the change is in your business spend business technology is correct?
So just can you clarify, can you ask that question one more time, maybe?
Of the $72,000,000 charges you excluded out of operating expense, a $35,000,000 allocated for what you call the change in, business technology strategy. Is that basically going to the cloud and could you expand on, so we can understand? Yes,
it's some of that. It's also kind of a variety of things. I mean, there was actually an accelerated depreciation we took in, in Europe. That was related also to a technology change. So there's been a few things that again, and that number also it just accelerated our G and A a little bit, but I wouldn't say there's one thing that it fell into.
There are a number of things that are just parts of our technology. Strategy that are included in that number and there's not necessarily one big thing there. And there's not one thing I would, it gets me to the takeaway would not be that we somehow have a a significant change in technology because we do not. There's just a variety of things
going on.
That was what I was trying to get to.
Debt? Yes. Think of
it more specifically around the finance transformation, which is a technology component of it and then the European work we've been doing where we have an ERP in France that we've been updating. And so those are the 2 main drivers of it.
Thank you.
Yeah. Your next question comes from the line of Marisa Sullivan from Bank of America Merrill Lynch. Line is open.
Great. Good morning. Thanks for taking the question. I just wanted to touch on fuel quickly. You called us that it was a slight headwind in the 3rd quarter.
Well, how should we think about fuel in the fourth quarter, as the impact of your expenses?
Yes. And so, Russ, I'd anticipate some of those continued headwinds as we head into the 4th quarter and probably a little bit as we head into next year as well.
Gotcha. And then, you know, we haven't heard, heard you talk about category management in a while on these calls, please. I'm wondering, was there anything you guys were doing differently in the third quarter that kind of made it a greater impact, anything that you're planning for the fourth quarter as we should think about gross margin in Catman?
Marissa, it's Tom. No, I wouldn't say anything unique. I think what we're just trying to highlight is we continue to it's an ongoing process. It has been now for years. And we're starting to do some deeper work with some of our more strategic supplier partners.
And, think about that more some potentially long term benefits as we be in the partner more deeply with some suppliers.
Gotcha. And are you seeing any impacts, or any customer feedback category management? Are they liking what you're doing, or or or is it, you know, are are they having to adjust to assortment changes?
No, I think we're at a point now where it's early, early days, so quite a few years ago now. I think we, because we were changing some suppliers in some areas or products, was creating some choppiness. So we've actually continued to have a very good, feedback from our customers around the work we're doing in Kemman. Obviously, that drives cost benefit for them. They're very excited about that.
And as I mentioned, we are getting, more focused on strategic partnerships so that we can have more consistent supply for the long term. So it's generally very positive.
Got it. Thank you so much.
Our next question comes from the line of Judah Frommer from Credit Suisse. Your line is open.
Maybe first just on the changes to guidance related to Iowa Premium. I think you said it's the entire kind of reduction in guidance is due to Iowa Premium, but we're stripping $25,000,000 out obviously, that's not necessarily the low end. So when you say the low end, are you saying $6.50 to $6.75 effectively? Yes. So I think here's the way I would think about that, Judah.
Think we talked about really our previous guidance really around the midpoint of the range. And so if you do $650,000,000 to $700,000,000 that will be $675,000,000 really what we're talking about here is a $25,000,000 related IO premium. And yes, that is the only adjustment to our guidance at this point. Which takes us from that midpoint down to the lower end of the range. Okay.
That's helpful. And switching gears, I thought you said that freight was a tailwind on on the inbound side in Q3. Is that right? Are are you telling us that you're actually getting a benefit there or that it was less of a headwind year over year and any commentary around, kind of the freight situation and and driver shortages and ability to retain drivers lately would be helpful.
Sure. Just remember, we have to separate a couple of things here. So inbound is our gross margin. And I did mention that we had some year over year positive impact of that. Again, because a year ago, we were still dealing with quite a few challenges of related inbound freight.
So I would think about it as it has gotten better. We're not feeling that kind of impact and there was a piece of that gross margin improvement that was driven by that this year. As it relates to outbound, we continue to have, you know, certainly be managing that, I think, better than we were a year ago as well. But we still have challenges from a transportation perspective, although albeit I think the work that we're doing around recruiting and retention is much improved and we are seeing positive impacts across our operations, versus a year ago in that regard.
Yes. Judah, just one thing I'd just add to that. I think I would characterize the inbound freight less of a headwind and not necessarily a benefit. In other words, we've there was some level of resetting in the overall structure that happen. But relative to Tom's point to where we're at last year, we're really up against some real major challenges we have left behind on this year.
We're happy about that.
Your next question comes from the line of John Heinbockel from Guggenheim Securities. Your line is open.
So Tom, maybe 18 months ago, you guys selectively added MAs in a few markets. So how are they performing And then if you think about the opportunity on the share side, is there an opportunity today to go out and redirect some of the cost savings into more MA hiring to try to drive more share or is that not productive?
Hey, good morning, John. Thanks for the question. So I would say, first of all, we felt really good about the work we did around MAs a little over a year ago. And if you recall, when we talked about it back then, what we have really focused on was a few tools that enabled us to do a better job of understanding where the biggest opportunities were and then applying those resources to those specific geographies or areas. And so we continue to believe that that targeted approach is the right approach.
And as I think about over time, So it's not as much just about adding MAs for the sake of adding MAs. It's about adding them where we now know we have the biggest opportunity to succeed. And so we'll continue to selectively do that. And we're kindling all the time evaluating our territories and each of our opportunity areas and that may encourage us to shift in certain areas versus others. But I would say just outright adding a bunch more MAs for the sake of that is not really our strategy.
We continue to see our territory size get a little bit larger as we are able to provide the marketing associates with more tools and support. We talk a lot about the tools and support that we offer our customers on that side of the business. And we continue to do, I think, a really nice job of building out those capabilities, whether that be things like menu planning analysis for our business review process where we have our chefs engaged. So I think we're continuing to focus those total resources on the local side of business, not just the marketing associate, but leveraging the MAs to bring these other tools and capabilities that we build behind them to the market.
And then if you guys started to give thought to, when you provide the next, plan, right? What's the timeframe for that? And is the idea another 3 year plan or sort of shift to a year by year outlook.
I don't think we haven't made a call on that yet, John. And so we're I think we're still working through ourselves what's the best approach. And so I'd say kind of more to come. We'll certainly talk with you all when we're at a place we want to do that.
Okay. Thank you.
Thank
Your next question comes from the line of Ajay Jain from Pivotal Research Group. Your line is open.
Yeah. Hi. I know you guys don't typically comment on case growth internationally, and Tom, you did mention in the prepared comments that you know, top line, in Canada is really strong. And then you also talked about, you know, some of the, challenges in France in the UK, but Is there any way you can give some directional commentary about organic case growth internationally, specifically for, Canada, the UK and the rest of Europe sequentially and, year over year?
Honestly, Ajay, I think it's part of the challenge for us area is the way we are still, I would say, managing through that transition. The cases that we talk about in the U. S. And the consistency that we can provide you guys does not exist in that business yet. And so potentially over time, we might be in a place to do that, but today, the way we still account for sales and the way we think about the cases or the pounds or the units that we sell in different parts of the world are not on a kind of on a consistent basis.
But what I did say, and I will reinforce here, and we did have strong top line growth in Canada. And what we said in Europe is, look, we had a couple of things going on in Europe that our impact I guess, certainly the UK and everything with Brexit has created some choppiness over there. Our sales are positive. It's just that they're not they're not growing at the rate we would like them to or would want them to at this point. And then in France, like I think we all thought the unrest that was going on social unrest in France, would it, by now, certainly clear, and it just has not.
And while that's it's not a huge impact because it's a big country, There's certainly still some things going on there that are creating issues for our customers and therefore us getting products to them. So a long way of saying think we still feel generally good about those businesses. We would have liked to see a little more top line growth in Europe, in this last quarter. And that's kind of built into my prepared comments, driving that overall number. So we feel good about the U.
S. Numbers and certainly about Canada. We just don't have the the information in a way that we feel like it's easily provideable to you guys.
Okay. Thank you. Would it be possible to confirm how much you've allocated for severance in Q3 and year to date? I think there were some kind of breakdown provided last quarter for Canada and Europe, but I'm just wondering if there's any update on severance that includes U. S.
Food service and also wondering if you can give your outlook for severance for Q4?
As you know, I'd answer that. I mean, in our non GAAP recs, I mean, we do have a fair amount of detail that is probably the best I'd be able to give you here in terms of, spelling that out Again, obviously, if you think about the areas, certainly really across our business, we've had with this finance technology roadmap settled where we talked about at corporate here in the U. S. Side, obviously the Canada regionalization, some of the work we've done in France in terms of those programs. I mean, obviously, Again, some of that I think you'll see spell out some of our non GAAP rec, but I think that's probably the reference for you to the best view of that.
And I the only thing I would say is, obviously, there are some pretty sizable numbers in there, particularly last quarter as it relates to Europe. Obviously, that was Well, not all inclusive. I would say that was obviously the biggest majority was going to come there and lead to that part of the world.
Okay. And in terms of the impact from the recent headcount restructuring, will that be more reflected in Q4 or was it majority of that allocated in Q3?
Yes. I mean, I think the majority of that, again, the, the majority of that is actually going was in Q2, but then also here in Q3. So I wouldn't expect a lot of that to be reflected in Q4. Obviously, the benefits we're starting to realize here as we talked about in the second half of the year and as we head into next year.
Okay. I have one final question if if I can. I think you've made some adjustments in the financials for accelerated depreciation year to date. I'm not sure if there was any impact in Q3 itself, but I thought at this point, you should have cycled the technology restructuring plan from a few years ago. And maybe I can get some clarification offline that I thought conceptually at this point, there shouldn't be any residual impact from the SAP accelerated depreciation unless your year to date adjustments are for Europe or unrelated to the previous
Yes, I would think about
it that way. I mean, we actually had some D and A in particular on the D side increase this quarter that was related to I would call accelerated depreciation in Europe for the most part. There's some as Tom referenced earlier, there's some of the technology changes we're making over there that that again allowed us to actually accelerate some depreciation there. And so the majority of the depreciation increase you're seeing is related to some technology transitions in Europe, but it's not related to what you were talking about before in terms of the So that's if you're right off here in the U. S.
Okay. Thank you.
Your next question comes from the line of Vincent Sinisi from Morgan Stanley. Your line is open.
Hey, great. Good morning, guys. Thanks very much for taking my questions. Go back to the the the choppiness and the top line, in the domestic business. Obviously, you know, as you said a few times, it seems like more kind of February and weather specifically.
But just wondering, was there a lot of variability, you know, that you could see by region another way of asking, was it, you know, basically the weather and largely February the way to think of it, or were there any other factors that might just be worth us knowing?
Yeah, I would say nothing that was inconsistent with what
you just said. I mean,
I think we just when I talked about weather, we saw certain parts of the where there were more impacts than others. So I wouldn't say nothing else beyond that that we saw.
Okay. And then just on, as I appreciate the color on the Iowa premium versus the 3 year plan. But as you had this quarter, very nice expense control. Just kind of curious more from like a high level perspective, like, you know, with with the buckets that you're you're getting more the, you know, kind of cost cuts efforts pulled to date. How much kind of lead time or or or planning is there with with some of the levers that you have pull, kind of says another way, like, you know, kind of how much quarter by quarter, planning or impact or not, Is there any kind of way to think about that?
Maybe I'll start and then let Joel chime in. Maybe if you think about the way our business operates, we have regular operating expense, which is generally built into the businesses, that is going to have a pretty consistent cadence depending on volume and our top line being a big driver, right? Because a lot of that's driven by cost per unit. In addition, we've talked about big strategic initiatives like finance transformation like Canada Regionalization like smart spending that we have planned out and we, believe we have a good view as to when those impacts would be happening. And then we have things like our last quarter when we announced the corporate restructuring that is more of a one time event where we would see that coming into the business.
So Long winded way of saying is I think generally speaking, our operating expense moves with our business performance, meaning our volume And then, and certainly the headwinds or tailwinds we'd see in the business, fuel being a great example of a headwind we're feeling right now, certainly things like driver in warehouse turnover in the past and just the low unemployment rates driving higher cost up to some of those roles in the company. But everything else is generally planned out and we have visibility to that except for these one timers. Does that get what you're asking?
Yes. No, that was very helpful and did get at it. Thank you, Tom.
Your next question comes from the line of John Ivankoe from JP Morgan. Your line is open.
Hi, thank you. I want to follow-up on some comments that were made about maybe independent restaurants being a little bit softer in the March quarter, I mean, whether we adjust for whether or not. And I mean the context of the question, and really what I'm getting at is, have you seen a significant rate of openings for independent restaurants. In other words, your addressable customer base maybe over the last 12 months. And considering the amount of labor pressure that independent restaurants are facing and just margins, which were in general lower than chains, are you actually seeing a pickup in closures on the independent side?
That's that's noteworthy even on like a very market specific basis.
Hey, John, good morning. Look, I wouldn't say anything that's unique that's happened there. I mean, as you we all know, in this industry, You've got a lot of new business coming online all the time and you also have folks that are closing. I don't wouldn't say that we have seen any dramatic shift in that area. And as I mentioned, the different data sources have some mixed information, but all of them generally talk about positive spend dollars being up in that kind of 2.5% to 3.5% range.
And then you have traffic generally down with the exception of NPD, which is showing slight increase in traffic. So I don't think there's anything unique or, anything in this quarter that we've seen that is highly different than what we've seen in the past quarters.
And is there anything to note by category or by regional that you're beginning to see? And obviously, you might think there's a lot of questions that are being asked to you of whether you think there there's a slowdown and I think the answer, at least as it stands today is no. But when you look at different categories or different regions, or anything interesting that you're seeing in the marketplace a little bit more detail either positive or negative that you can basic we talk about now that gives us, I guess, somewhat of a forecast of the future from Cisco's perspective as opposed so some of the third party sources that you used for your data?
Not really. I mean, there's nothing else that I would tell you that's that we're seeing that's any different
Understood. Thank you.
Your next question comes from the line of Kelly Bania from BMO Capital. Your line is open.
Hi, good morning. Thanks for taking my questions. Just going back to expenses again, it seems like there was a good amount of upside at least in our model on the international. Can we think about the performance this quarter? I think it was down about $30,000,000 year over year.
Is that kind of the right run rate to think about for the next few quarters international? And then maybe can you tie in just the impact of the corporate restructuring on the expense performance this quarter?
Yes, can I help start? And, I think the answer to that is, I mean, obviously, we're we're continuing to do a lot of work there to streamline and make our operations more efficient. I guess I'd say that there is some run rate, consistency there, but what I would also tell you is, I mean, there's we just have a lot of moving parts right now in some more international business, but I would not necessarily tie it to One of the things we've talked about in the past is the sizable transformation we're doing in France. I think the majority of that benefit really we start start to see next year. So I would not tie a lot of that necessarily to the so that big restructuring that we're doing in our French business.
But I would say generally speaking, I think it's fair to continue to see that as a relative run rate realizing again, we just got a lot of moving parts over there that's in terms of the transformation we're doing So I guess my answer is generally yes, but again there's just realized things are going to move around quarter to quarter based on the amount of stuff we've got moving around in that business.
Okay, that's helpful. And maybe just in terms of the U. S. Line business. Can you talk a little bit about some of the specialty meat and produce, some of the categories that aren't necessarily part of the normal case growth and what kind of trends you're seeing in those other areas of the U.
S. Business?
Sure. This is Tom Kelly. Good morning. Look, I think we continue to feel really good about our specialty company strategy. As we've talked for a few years, we know that our customers certainly value Broadline, but they also have needs.
Oftentimes they can be better met, by some specialty companies. And in our case, meat, seafood, poultry on that side and then the produce with Freshpoint. And so I think we continue to feel really good about overall we bring to the market and the value proposition we have there. We've been working on, ways of even helping our customers make easier for them to procure products both from Cisco and from the Cisco specialty companies and we're seeing benefits of that, as well. And so creating the environment where it's easy for them to kind of do business with both of those entities as they, as they need to and as they feel like they want to.
And so versus Mid dealing maybe like 2 or 3 different companies that they're doing business with the idea that they can do business with 1 Cisco and get the value out of that. So we continue to believe that's an important part of the market and we continue to feel really good about the work we're doing there.
Thank you.
Your final question comes from the line of Bob Summers at Tuckingham. Your line is open.
Hey, good morning guys.
So I just wanted to dig a little deeper into the
transportation. Drive van spot rates have been contracting all year. So can you maybe talk about how that flows through in your business, either by talking about the percent of business that you do at the spot rate, maybe talk about how that spot rate influences contract rates as you may be threatened to move more to the spot market. And then lastly, how that impacts, what
you have to pay your drivers? Hey, Bob. Again, kind of back to this conversation about transportation and cost. The piece you're really referring to is the inbound freight park for us. Which does hit our gross margin.
And we called out the prepared comments. We've talked a bit here this morning about that we are seeing some year over year improvement benefit there. It's not huge and it's not something that is a major driver for us, but the market has come down certainly from where it was a year ago. And and obviously everybody benefits from that. We obviously try to minimize the spot market because when that that's the one that gets the most out of whack the fastest and that's what happened a year ago.
So we continue to manage that side of our business mostly with contracts But yes, it certainly is that whole market comes down that affects both sides, the spot and contract side. And then as it relates to our drivers, As we said, I think we've done a lot of work around both recruiting and retention and the way we're operating our business to improve as much as we can our driver retention. And so we feel better about where we're at than we were a year ago, but it continues to be a challenging part of the business. And I think we'll be as long as the market is the way that it is, meaning unemployment is low and there's a lot of freight on the road. So we feel much better where we are now than we were a year ago, but that doesn't mean that we don't still have ongoing challenges associated with hiring retention of drivers.
That concludes today's conference call. You may now disconnect.