Participants

Kevin Kim; Vice President of Investor Relations; Sysco Corp

Kevin Hourican; President, Chief Executive Officer, Director; Sysco Corp

Kenny Cheung; Chief Financial Officer, Executive Vice President; Sysco Corp

Alex Slagle; Analyst; Jefferies

Mark Carden; Analyst; UBS

Jeffrey Bernstein; Analyst; Barclays

Edward Kelly; Analyst; Wells Fargo

Jake Bartlett; Analyst; Truist

John Heinbockel; Analyst; Guggenheim

Presentation

Operator

Welcome to Sysco's third-quarter finance fiscal year 2025 conference call. As a reminder, today's call is being recorded. We will begin with opening remarks and introductions.
I would like to now turn the call over to Kevin Kim, Vice President of Investor Relations. Please go ahead.

Kevin Kim

Good morning, everyone, and welcome to Sysco's third-quarter fiscal year 2025 earnings call. On today's call, we have Kevin Hourican, our Chair of the Board and CEO; and Kenny Cheung, our CFO.
Before we begin, please note that statements made during this presentation that state the company's or management's intentions, beliefs, expectations, or predictions of the future are forward-looking statements within the meaning of the Private Securities Litigation Reform Act, and actual results could differ in a material manner.
Additional information about factors that could cause results to differ from those in the forward-looking statements is contained in the company's SEC filings. This includes, but is not limited to, risk factors contained in our annual report on Form 10-K for the year ended June 29, 2024, 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 is included at the end of the presentation slides and can also be found in the investors section of our website.
During the discussion today, unless otherwise stated, all results are compared to the same period in the prior year. To ensure we have sufficient time to answer all questions, we'd like to ask each participant to limit their time today to one question. If you have a follow-up question, we ask that you reenter the queue.
At this time, I'd like to turn the call over to Kevin Hourican.

Kevin Hourican

Good morning, everyone, and thank you for joining us today. Q3 was a difficult quarter for the industry that began with wildfires in California, which significantly impacted our important Southern California region and included historic winter storms throughout the country in January and February. We had these events as having an approximately 150 basis points negative impact on sales trends for food distributors in the quarter. Foot traffic to restaurants during the quarter reflected these challenges. With January down 1.3%, February down 5.7% and March down 2.3%. The court overall was down 3.1%, which represented a 150 basis point deceleration versus traffic level of down 1.6%.
In addition to the effects of adverse weather in the quarter, tumor confidence has been shaken by the recent trade policy and tariff negotiations. As you are aware, to closely follow Michigan consumer confidence survey recently highlighted that consumers are expressing one of the lowest levels of confidence in approximately 20 years. The decline in confidence levels gives us concern for the full year ahead.
I'll speak more about tariffs and their impact on the industry in a few moments. As a reminder, Kenny and I communicated on our Q2 call, that we had anticipated nominal improvement in the business macro environment going from the first half into the second half of our fiscal year. Unfortunately, at this time, we've experienced the opposite macro effect and Sysco's business performance for Q3 reflects the industry traffic deceleration. We are disappointed with the quarter, but it is important to note 2 things. Sysco's USFS volume trends for the quarter trended in line with the industry traffic deceleration.
And more importantly, business performance in March strengthened over the course of the month. And while it is unusual for us to comment about the first month of a quarter, given the uncertainties in the macro backdrop and given our softer than expected Q3, we felt it was important to highlight our April performance was stronger than March.
For the month of April, industry traffic adjusted for calendar shifts has trended slightly better than March. The Easter shift in the period complicates year-over-year comparisons. However, even when adjusting for the Easter calendar shift, April has produced stronger volume growth rates versus March and versus Q3. We are pleased to see the relatively stronger start toward Q4, but we are cautiously planning our business for the remainder of 2025, given the aforementioned tariff uncertainties in consumer confidence data.
Given that macro backdrop, I will now pivot to Cisco's results for the quarter, where, as you can see on Slide #4, we delivered sales results of $19.6 billion, up 1.1% on a reported basis, and up 1.8% to last year when excluding the divestiture of Mexico. We delivered adjusted operating income of $773 million, down 3.3% to last year and adjusted EPS of $0.96, flat to last year. We converted negative 3.1% foot traffic to restaurants into positive sales by winning new business and successfully passing through approximately 2.1% inflation for the quarter. Importantly, we are making solid progress on our $100 million profit improvement efforts that Kenny discussed last quarter, with a positive contribution in the period from our strategic sourcing and inbound logistics efficiency improvements. Those efforts will have an increased positive impact on our Q4.
Our International segment posted another compelling quarter with profit growth of double digits. This is the sixth consecutive quarter of double-digit profit growth from our international segment. Within USFS, our national sales business delivered flat volume growth for the quarter and sales growth of 2.3%. Both figures were below our expectations, driven by softness in the national restaurant sector. Within national sales, our noncommercial business continues to perform with strength in food service management, education and travel and leisure. Our local business delivered negative 3.5% volume growth for the quarter. This was a step down versus our 2 performance, but the step down was consistent with the traffic change to the history on a quarter-over-quarter basis.
Lastly, our -- segment delivered sales growth of 9.5% for the quarter, driven by strong customer wins versus prior year. The sales and volume growth in SYGMA will begin to reduce in coming quarters as we begin to lap large customer wins within the last year. SYGMA has been a very strong year, growing top line 9% and bottom line 17% year-to-date.
We are disappointed with the overall financial performance in the quarter as we had expected a stronger macro backdrop. With that said, important initiatives to improve our local business are beginning to deliver results. It is unfortunate that our self-help improvement is coming at the same time that the industry backdrop softened. However, we remain 100% focused on accelerating our progress. We anticipate that we'll increase our progress on these important initiatives in the coming quarters.
Now that I have covered the general backdrop of the industry in Sysco's sales, volume and profit performance, I would like to provide an update on specific initiatives we are driving to improve our performance results. First, I'd like to discuss the state of our sales consultant workforce. I am pleased to report that our 25 hiring cohorts are progressing up their productivity curve. Each of our hiring classes are on target to achieve their sales and volume targets. Importantly, I can also report today that our sales consultant retention has significantly improved versus the first half of the year.
FC turnover was a headwind for Sysco in the first half of fiscal 2025, and we expect it will become a tailwind in 2026 as we lap those colleague departures and our new hires increase their productivity. Regarding colleague retention, we just completed our annual employment engagement survey, and our sales colleague job satisfaction was up solidly year-over-year. Colleague engagement drives retention and colleague retention drives positive customer engagement. Given questions we have received on recent investor calls, I would like to explain the net-net impact of colleague turnover in a bit more detail so that you have clarity on what we are experiencing.
During the first half of 2025, we experienced elevated calling over that peaked in September. The negative act of SC departures is immediate as we need to reassign customer locations to other Sysco colleagues. During that customer realignment, select customer attrition occurs. As such, a departing colleague has an immediate negative headwind impact on our business, and that headwind can persist for a full 12 months until -- the customer departure. In contrast to the -- impact of a departure, a colleague hiring has the opposite time horizon.
New colleague hiring has a so and gradual positive impact on the business. New colleagues start with a small book of business and grow that business over time as they expand their territory. The length of time to become active for a new sales consultant is approximately 12 to 18 months, on average, as it can be quicker or slower depending upon the sales experience of the new hire. Putting it all together, as a result of these 2 factors, fiscal 2025 has experienced a net headwind from our colleague population. Given that we have stabilized our retention figures and that our new hires are performing, we expect the scales of this equation to dip from negative to positive as we enter fiscal 2026.
The second local topic I would like to highlight today is colleague compensation performance management. Our sales consultants are embracing our compensation model. They are driving the right selling behaviors are, on average, making more money than prior year. These actions are most notable in the winning of new business where we have opened more new accounts in March than any prior period outside of COVID snapback. We have work to do in order to improve customer retention as industry churn across distributors is currently above the historical average.
As a result, we have a company-wide effort on improving local customer retention to complement the success we are having with new account wins. The hyper focus on service and retention will be a stronger positive vector in fiscal 2026 versus 2025.
The third topic for today is our fulfillment capacity expansion. We previously spoke to opening a new facility in Allentown PA earlier this year. That new DC is focused on winning new business in the population dense Northeast corridor. I recently visited our next new site, just outside Tampa that will support the growing Florida market. The new facility in Tampa will open this summer and will increase our ability to win net new business in the Florida region by expanding our storage and throughput capacity, especially to support the peak winter months.
Internationally, we are on track to open new facilities in Sweden and Ireland in the summer. Each of these projects will support expanded storage and throughput capacity that we believe will enable us to profitably grow our business in target-rich international geographies.
Lastly, I would like to speak to our work to improve our pricing agility. At the CAGNY conference in February, Cisco introduced a new local sales initiative that is currently in pilot mode in select regions. As I said at CAGNY, we are pleased with our margin discipline and overall price competitiveness utilizing our current pricing system and architecture. With that, it is a competitive marketplace. Competition will occasionally offer our customer savings on select items.
Today, our sales reps need to seek approval in order to match a given competitor price on a given item. The time delay of that approval process can sometimes result in a lost sale or even a lost customer. We're working to speed up this process and provide our frontline colleagues with decision-making authority, leveraging our pricing tools. Our sales professionals will be able to respond to the customer at spot moment, enabling incremental opportunities to potentially save -- all while maintaining strong margin discipline. This in speed to action will improve case volume and customer return.
Most importantly, our underlying pricing technology will be leveraged to underpin the agility press. We will roll out the new model once the pilot results are matching our intended outcomes. And as we prepare and train our colleagues new and experienced to sell in this model.
As I wrap up the update on local sales, I want to congratulate our international team for another outstanding quarter. International local volume increased 4.5% even more impressively, adjusted operating income increased 17.4%. Particular strength was delivered from our Canada, Great Britain and Ireland businesses. We expect the completion of these strong results from our international -- in Q4 and into fiscal 2026.
As I wrap up the business review section of my prepared remarks, I would like to make a few comments on some additional important topics. First off, I would like to address what we are seeing with tariffs and the potential impact on the food distributor landscape. It is important to note that Cisco purchases greater than 90% of our products within country in each country that we operate. Food is inherently local, and our sourcing teams greatly leverage local food suppliers. As a result, our tariff exposure is much less than most industries.
For those products that we cannot source locally, like avocados for Mexico, we are working efficiently to understand the impact of tariffs on our costs. At this time, produce from Mexico and Canada is exempt through USMCA. With that said, we recently learned that tomatoes will in fact be taxed and tariffed when imported.
To manage these complexities, we have stood up a tariff management task force that meets daily. The focus of the task force work is the following: number one, ensure we have products in stock and available for our customers. Number two, defend against price increases from suppliers and do everything possible to minimize their impact on potential cost increases for our customers; number three, find alternative sources of product if and when a cost increase is excessive. Number four, work with our customers to find menu alternatives and product choice alternatives that can reduce the potential negative cost increase impact.
All told, Sysco is in a better position than anyone in the food service distribution space to units this dynamic situation in our size, scale and global procurement division. Our global leadership gives us a strategic advantage to understand the supplier community in hundreds of countries and have the ability to leverage that knowledge and those relationships in our procurement efforts.
As you have heard from other company CEOs, our main concern with tariffs is not product cost inflation. Our main concern is the negative impact that took noise and volatility is clearly having on end consumer confidence intimate. The Michigan confidence survey data I referenced earlier presents a clear reflection of that concern. We are hopeful that the uncertainty and volatility stabilizes and that the economy doesn't dip into arise. With that said, we are making preparations for a more challenging environment, and we will be appropriately cautious in our outlook.
To help offset softness that may be created by the macro economy, Kenny and our entire leadership team are focused on disciplined cost management and contingency planning. Sysco's initiating balance sheet is a major source of strength in times like these, as we are able to continue investing in our business when others will need to pull back. This can take the form of winning new customers, building inventory to support new business and even pursuing M&A if we find the right target opportunity at the right price. Sysco is in a position of strength in times of uncertainty.
My last topic for today is the introduction of a pilot program at Sysco, whereby we will open 2 Cash & Carry store locations within the Houston community. As you can see on Slide 7, the store concept is called Sysco To Go. We are interested in Cash & Carry for the following reasons. It is the fastest-growing part of the food away from home, in a business where we have 0% marketer today. Cash & Carry customers are looking for: a, value; b, convenience and; c oftentimes the ability to pay cash.
This is a customer that Sysco is not adequately serving today through our delivery model. By having the customer pick up the product themselves at our store location, we eliminate the most expensive part of the supply chain, Final Mile delivery. That cost elimination enable Sysco to offer our world-class products at lower prices than when we deliver to the restaurant. This enables us to meet of the value-seeking customer more effectively.
I want to be very clear, this is a 2-store pilot. The future of the initiative will be determined by the outcomes we produce in these test locations. It is important to note that these 2 stores are supported from Sysco's existing supply chain, leveraging our own product government. As a result, we have a strong command of projected costs to run the stores. Levering our existing supply chain is a major set of the format, given both stores are in close proximity to our Eastern D.C.
We are excited to open the 2 stores in Houston soon and welcome value-seeking restaurant customers into this compelling shopping environment. I'll now turn it to Kenny who will provide a detailed review of Q3 performance in select fiscal year 2025 guidance commentary. Kenny, over to you.

Kenny Cheung

Thank you, Kevin, and good morning, everyone. I plan to start with high-level thoughts on our performance, detailed Q3 financials. And then dive into full year 2025 guidance. To start, financial results this quarter included sales growth with stable adjusted EPS performance. In the context of all of the challenging macro headlines over the past few months, growing sales as the industry leader while retaining best-in-class product margin and rewarding our shareholders with our balance capital allocation is noteworthy. However, this quarter missed expectations. As Kevin highlighted, the challenging macro and continuation of negative industry traffic impacted results. In this dynamic backdrop, we will remain agile in our management of the -- also tighten our focus on the controllable.
Our strong business fundamentals, industry-leading balance sheet and strong cash flow generation are competitive advantages, especially in a challenging macro environment. As part of our balanced approach to capital allocation, we remain positioned to generate robust free cash flow that enables us to both invest in long-term growth while also rewarding our shareholders. Specific to this last point, we have repurchased $700 million in shares and paid out $752 million in dividends year-to-date, including repurchasing $400 million in shares this quarter. Further, we recently increased our planned quarterly cash dividend by $0.03 to $0.54 per share. This represents a 6% increase year-over-year in -- FY '26 to be our 56th year of delivering dividend growth.
Looking ahead, we expect our dividend to continue growing commensurate for adjusted EPS growth. Now let's discuss our performance and financial driver for the quarter starting on Slide 11. For the third quarter, our enterprise sales grew 1.1% on an as-reported basis, driven by U.S. Foodservice in SYGMA. Excluding the impact of our now divested Mexico business, sales grew 1.8%. With respect to volume, stable volumes across the enterprise included total U.S. food service volume decreasing 2% and local volume decreasing 3.5%.
Our national business remains stable, highlighting the strength of the recession -- sectors in which we operate, such as food service management, travel and leisure and education. The local volume performance compares to down 1.9% in Q2 2025, the sequential deceleration was consistent with the industry traffic deceleration, but also included headwinds from the carryover impact of sales colleague turnover from earlier in the year. Going forward, we expect stronger contributions from nearest sales professionals that continue to work up the productivity curve and benefit from the stabilization of colleague retention that Kevin mentioned earlier.
International segment results, including Mexico, this quarter demonstrated steady top momentum and double-digit operating income growth. This reflects continued momentum from successfully applying the Sysco playbook. The ongoing success is highlighted by local volumes growing 4.5% and broad-based operating income across our international portfolio. We produced $3.6 billion in gross profit, down 0.8% and gross margin of 18.3% with improved gross profit per case performance. The decline in gross profit dollars for the quarter was primarily driven by negative volumes as well as mix.
Volume was impacted by the macro and negative traffic, partially offset by continued growth in our more recession-resilient businesses. Second, mix remained pressured from the continued impact of our NAS business outpacing our local performance as well as negative mix from lower Sysco brand penetration rates. In addition, the industry challenging traffic backdrop of delays as compared to our expected time lines, which resulted in fewer than expected strategic sourcing deals being finalized this quarter. That said, we remain confident around the overarching opportunity in our line of sight on benefits to Q4 from recently completed deals. Going forward, we expect improving gross margins driven by incremental benefits from strategic sourcing initiatives as part of our cost savings program and an improvement from mix.
Product inflation came in at 2.1% for the total enterprise, consistent with our expectations. This is the average across all of our major product categories with our teams regularly managing through pockets of fluctuation. Overall, adjusted operating expenses were $2.8 billion for the quarter or 14.3% of sales, a 17 basis point improvement from the prior year. We continue to experience improved retention rates and productivity with our supply chain colleagues. This is resulting in strong NPS anchor by our highest service levels of the year for on-time deliveries, helping offset elevated supply chain labor rates and funding long-term growth consistent with our ROIC framework.
This includes investment in higher growth areas of the business with fleet, building expansion and sales headcount, lower annual bonus -- compensation in our USFS segment and Global Support Center also impacted expenses for Q3. We remain disciplined with our corporate expenses down 16.8% from the prior year on an adjusted basis, which also included accretive productivity, cost out, along with efficiency work that we deployed in FY '24. These benefits are included in our $100 million cost savings program.
Building off Kevin's point around tariffs, we are focused on leveraging our size and scale advantages by buying better to sell better. Our customer mix is a strategic advantage. We have efficient pass-through with national customers and spot pricing from existing and growing local customer base. Our inventory turnover of approximately 14x per year also enables us to work through inflation and deflation quickly relative to other industries. Overall, adjusted operating income was $773 million for the quarter, reflecting strong growth in our International segment and expense management and Global Support Center offset by declines in our USFS segment.
For the quarter, adjusted EBITDA of $969 million was down 0.8% versus the prior year. Let's now turn to our balance sheet and cash flow, a compelling competitive advantage. As I have explained before, our balance sheet affords us the financial tools and flexibility to make the right position both for the short and long term as we seek to grow our business while driving industry-leading returns on invested capital. Our balance sheet remains robust and reflects a healthy financial profile. This includes flexibility and optionality from approximately $4.4 billion in total liquidity, well above our minimum threshold. We ended the quarter at a 2.8x net debt leverage ratio.
Turning to our cash flow. We generated approximately $1.3 billion in operating cash flow and $954 million in free cash flow year-to-date. Free cash flow was driven by strong quality of earnings and prudent management of working capital. This quarter marked our strongest conversion rate of the year. For the full year, we continue to expect strong conversion rates from adjusted EBITDA to operating cash flow at approximately 70% and free cash flow at approximately 50%.
As noted earlier, our strong financial position enabled us to return approximately $649 million to shareholders this quarter. Now I would like to share with you our updated expectations for Q4 and FY '25. Given the uncertain environment and general concerns regarding consumer confidence, we are lowering our full year guidance for FY '25 as seen on Slide 17. During FY '25, we now expect reported net sales growth of approximately 3%, slightly down from the prior target of 4% to 5%. This is largely driven by lower-than-expected volume growth driven by the market. Our assumptions for inflation of approximately 2% and contributions from M&A remain unchanged.
We now expect full year 2025 adjusted EPS growth of at least 1% for Q4. This implies adjusted EPS to be at least flat. The revision to guidance reflects the current uncertain macro environment and its outsized impact to the second half of the year, which historically is more profitable.
This updating quarter also includes our planned strategic investments related to refreshing our fleet and building capacity coming online. This updated guidance assumes no further degradation of the restaurant trapping environment and a slight improvement to our volume performance. Importantly, we believe this guide is achievable based on a strong exit velocity for March and continued momentum into April in Q4, including higher contributions from cost out. We remain confident in delivering our run rate cost save target of approximately $100 million which we expect to benefit Q4 in the first half of 2026, helping offset the current macro environment.
We plan to remain focused on operational discipline, tightening the belt as necessary. With over $1 billion in dividends and $1.25 billion in share repurchases, this assumes fourth quarter share repurchase of $550 million and dividends of $250 million. For the year, we expect to operate within our stated target of 2.5x. The 2.5x net leverage ratio and maintain our investment-grade balance sheet.
Now turning to a few other mulling items. For Q4, we expect a tax rate of approximately 24% and adjusted depreciation and amortization of approximately $200 million. Interest expense is now expected at approximately [$107 million]. Looking ahead and as we have proven over time, we will leverage our position as the market leader to drive disciplined growth as we remain focused on unlocking value that will be -- for our shareholders.
With that, I will turn the call back to Kevin for closing remarks.

Kevin Hourican

eThank you, Kenny. Q3 lived up to our expectations on the top or bottom line. The macro softness directly impacted our volume trends within the important local and national restaurant business sectors. Our trade down in volume during the quarter is directly linear with the widely communicated traffic decline experienced by the industry over the same period. With that said, we can see progress that we are making on activities within our local business.
Colleague retention has stabilized. New customer win rate is accelerating. As I mentioned, we are still working through the headwind of prior quarter's colleague resignations, but that impact will reduce in magnitude each quarter.
As we head into fiscal 2026, the net neck of colleague retention and new colleague hiring will become a tailwind. Why? Our new hire is performing and they are responding to the updated compensation model. They are opening new business. They are in their sales targets.
Additionally, our new distribution centers will increase our ability to win profitable new business in important geographies, both domestically and globally. The most compelling proof point to highlight the self-help progress we are making in our local business is the percentage of new business we are opening weekly. March was a very strong month for opening new business, and the progress has continued into April. Combined with our efforts -- in customer retention through pricing agility and improved service levels from our supply chain. We are confident we can grow our customer count in 2026.
From a business perspective, March local volume improved 270 basis points versus February and local volume during the first weeks of April improved further versus March. We are pleased to see the stronger April, and we are cautiously planning our coming months due to the tariff uncertainty. I am confident Sysco will make progress on our improvement initiatives in the coming periods. The external environment -- in the year ago, and we are prepared to -- balance sheet and fiscal responsibility will be strength points as we navigate this volatile environment. I am confident in our ability to win versus the overall marketplace in challenging conditions, just like we successfully grew our business during the COVID disruptions.
At times like these are higher than industry profit margins and strong balance sheet cannot be overstated. We also expect our International division, which has been less impacted by the volatility to continue to be a strong point for the company, having the diversified business will be a strength point ahead.
With that, operator, we're now ready for questions.

Question and Answer Session

Operator

(Operator Instructions) Alex Slagle, Jefferies.

Alex Slagle

Thanks for the question. I had a question on the local business. If you could kind of talk about the sales headcount investments you've been making, where we are with that? And I guess any evidence these investments are really moving the needle. You provided a couple of interesting tidbits on the acceleration into March and April, but any other sort of pockets of your business where you can point out where you're seeing the initiatives deliver positive organic case growth or clear market share gains, something that really gives you confidence that the drivers are in place and working as hoped?

Kevin Hourican

Alex, it's Kevin. Thank you for the question. I'll start with your first part of your question, which is sales consultant head count. We expect to end the year at approximately 4% growth in our headcount -- approximately 4% growth year-over-year at the conclusion of Q4, it's an estimate. It will be at least 4% growth.
That's the answer to that question. as it relates to signals of progress, as I said in my prepared remarks, we have several proof points that we can share March being stronger than Q3 in total, April being stronger than Q3, nose up, if you will, on the controllables, evidenced by new customer win rate. In the month of March, we opened more new customers at any point in time other than the snapback recovery from COVID.
Proofpoint number two, the quality and productivity of the training cohorts. As you know, we hire people in classes. Those places graduate, and we track them every single month. on their performance versus where we expect them to be, and I can definitively communicate that our hiring cohorts are producing. They're growing their productivity at the rate we expect and anticipate.
And as I said in my prepared remarks, why that's not evident and visible and market share gains/volume growth that we're proud of in year-to-date is the offset of these things, which was the increased probably turnover that experienced during the first half of the year. As I said in my prepared remarks, that peaked in September, it improved in Q2, but we're still carrying that headwind of the colleague separation because when they depart, there's some customer loss that goes along with that. We anticipate the scales of that equation, as I mentioned in the prepared remarks, it is positive in Q1 of fiscal 2026. because of the confidence in the new hires and that we'll be lapping that increased separation. So Kenny, anything to add?

Kenny Cheung

Yes. Alex, it's Kenny here. A couple things here. One piece is we are encouraged by seeing select geographies already hitting our growth expectations, driven by the [SD] improved retention as well as the new comp model that we talked about. And then that's carrying into Q4 as well. So that's one truthful to answer to your question.
The second thing I would say is that as you think about our book investees right now, the ones that are on our books, literally, most of them are higher in the back half of FY '24 and the first half of FY '25. With each passing months, these become more productive and we're seeing that with our cohorts that Kevin just referred to. The improvement is not binary, meaning each month, each day, each quarter, they're becoming more productive. And the interesting factor is that we are -- we will be experiencing a significant amount of folks entering that 12 to 18-month time frame now. And based on our own -- there is a set level function change up to the good once we sat.
So you'll see some of that in Q4, and that's the reason why we do expect Q4 local volume to improve versus Q3. The last thing I would say around -- a question around sales account investment. I agree with Kevin, we'll be around over [4%] increase year-on-year. We are committed on growing our local sales professional account. And we'll be disciplined on pacing the volume to expectations and market conditions. We'll be very deliberate on when and where.

Operator

Mark Carden, UBS.

Mark Carden

So I wanted to ask another one on local, more from an industry-wide perspective. How has the local restaurant industry backdrop held up relative to national restaurants. And then within that, are you seeing any regional challenges? And how has that fluctuated over the past few months?

Kevin Hourican

Good morning, Mark, it's Kevin. Thank you for the question. National restaurants had a really tough quarter. That's the heavy at the punchline. It was soft, consistent with the local numbers that obviously disclosed in report.
When you look at our national case volume number, you have to keep in mind, yes, there are national restaurants in that mix. but it's offset by real strong strength in food service management, travel and entertainment, Education has held up strong. We have a very stable health care business. So national for us, we're stronger than. But if you unpack within National and look at this national restaurants, it was a tough, tough quarter for national restaurants.
Obviously, there are individual select names that are doing incredibly well. You know who they are, but in aggregate, really tough quarter for National. And it was exacerbated in February, which kind of going back to one of Alex's questions, we're seeing strength. We're adding headcount. Kenny hit that point very, very well. But pain in Q3, the weather was everywhere. I happen to live in the south.
We had forecast is now in Houston. That never happens, really adverse weather in the mid-part of the country, the temperate zone and obviously, the north at the tail end of February, had back to back to back weeks of really adverse weather. So the headwind was pretty much geographically throughout the United States. Interestingly, our International division, one of the reasons it's continuing to perform not experiencing some of these headwinds from an external factor perspective. The tariff and tax thing is not negatively at this time impacting our international division, and it's one of the reasons along with our strong business performance that we're doing well in that regard.

Operator

Jeff Bernstein, Barclays.

Jeffrey Bernstein

Great. I had one clarification on a comment you made earlier, and then a clarification is just on that local cases, I know you said directionally similar to the industry in terms of easing. I'm just wondering whether you think any of it is self-inflicted, whether you see industry data that gives you confidence you're not underperforming peers. That was my clarification. Otherwise, the question is just on the fiscal '25 guidance.
I feel like the past couple of quarters, you were confident that even if the macro would have pressured the top line, you had less to accelerate cost and efficiency savings to still hit that 6% to 7% EPS growth. So it does look like you lowered the top line, but 1% or so, 1% to 2%, I leave but you took down the EPS guidance by 5% plus. Just wondering how you see playing out whether or not there's less low-hanging fruit or you just decide you don't want to damage the long-term infrastructure for short-term earnings. Any thoughts on that between top and bottom line.

Kevin Hourican

Yes, very fair questions. It's Kevin. I'll start, and Kenny will back clean up as it relates to your appropriate question regarding the full year guide. Back to local, we are confident that in Q3, our performance relative to the market was consistent. In fact, it's almost a $0.01.
If you track the traffic change from Q2 to Q3 to our local case growth performance Q2 to Q3, we were consistent with the industry. We are confident we did not erode in our performance relative to the overall market. We are pleased with the start of, as I said, April was stronger than March. March was stronger than Q3. We're beginning to see some positive separation in our performance relative to the market as we begin to -- and it's this timing thing that I'm talking about relative to colleague separation the new cohorts that are hitting their 12-month anniversary date in Q4 as Kenny already communicate and even more of them will have that 12-month anniversary and roll into fiscal 2026.
We need display separation in our performance versus market in a positive way. and we are seeing the green shoots of progress, Jeff, that are going to enable that. We'll talk about that more in August, obviously, as we provide guidance for fiscal 2026.
As it relates to Q3, we understand to your question. One thing I would point to is just the steepness of drop off in February was meaningfully unanticipated. I said in my prepared remarks, the traffic down 5.7%. It was like a light switch. When that happens, it's really difficult to get that type of cost out of your system that fast, especially when March rebounded quite solidly versus February. We don't want to furlough drivers. We don't want to cut costs that you end up having to reverse later. That is really painful. The other thing relative to adverse weather of that nature is operating expense is up. So think about the number of facilities we have, snow removal at our large parking lots.
And then when you're doing deliveries in that type of environment, a lot of those trucks are coming back half full, meaning we low truck for 20 stops. It comes back 3 hours into the route and you have to put all that inventory back to stock. Some of that inventory has to be disposed because it's perishable. So these things add cost. So yes, it's a volume headwind when traffic drops like that, but it's also a cost headwind because of some of the examples that I just provided.
So why don't we transition from that into how we're thinking about our guide for Q4 and our general outlook in general, and I'll pass that to Kenny. Over to you, Kenny.

Kenny Cheung

Yes. Jeff, thanks, Kevin. Just one comment on Q3 before we head into the guide and the comments around that number. If you take a step back on Q3, we didn't miss EPS up to $0.06 that you unpack that in simple fashion, roughly $0.05 is driven by volumes, as Kevin talked about in his prepared remarks, we exceed nominal improvement in foot traffic actually fell quarter-over-quarter by 150 bps, right? So again, the [$0.05] or 85% of the miss and the other 15%, we call it $0.01 is driven by timing shifts from strategic sourcing deals, give the backdrop in which we operate in. And the good news is we had deals close between post quarter and today. Therefore, that's a lot of confidence for our $100 million impact annualized -- impact in Q4.
In terms of the guidance, Jeff, I think the question behind your question is how confident are you in the number in any context there. So I'll answer it in 2 points here. Just to recap, you're correct. Full year is 3% sales growth and then EPS, at least 1% growth. The few things why we are confident.
First, what Kevin just talked about momentum. We have momentum. We continue to see it, not just the market standpoint, but a lot of our self-help initiatives are working as well, let alone the momentum market, meaning, our sales professions are becoming more productive, climbing up to look at the productivity curve as well as our expense productivity items and the $100 million. All of that is on pace, on target. Therefore, momentum there across the P&L.
And just double pick more on self-help, we have begun the realizations in Q3, It's heavier towards Q4. Again, it goes back to the leverage to happen in our P&L. Retention is to get that keeps on giving. We're seeing retention in our SPs as well as supply chain colleagues. Fun fact here, our supply chain has the highest productivity year-to-date right now. So again, with all of these combined, we are very confident of our current guide. Kevin?

Kevin Hourican

Just to add, we don't like to do 3-part answers, but this question is very, very important as we about the full year guidance that we updated today. We're very pleased with the start of Q4 probably a volume improvement perspective versus March. So you may be asking us then why with Q4 guide. We're being very cautious in the point. Given the tariff uncertainty, the volatility in the market, the shrinking consumer confidence survey results that I referenced we're being very cautious.
We're being thoughtful about the management of expenses, the amendment of the discipline of the P&L. We're pleased with the self-help activities that I referenced on today's call and therefore, the prudence, if you will, of the guide that we put out for Q4.

Operator

Edward Kelly, Wells Fargo.

Edward Kelly

Kevin, I wanted to just 0 in on Salesforce and the opportunity that you see ahead of you. I mean you talked about 4% growth in the sales force by the end '25. You've talked historically about adding about 450 people annually. So that growth, if you're still going to achieve that in '26 should be higher. If you do the math on this normalizing turnover and sales force growth it's not hard to look at local case volumes and say that there's a 300, 500 basis point opportunity for you to improve that business.
But my question is, is it that meaning like, are there other issues preventing that math from working the pricing tool has been something that's been talked about -- than maybe is creating some friction. There's maybe some lag on the customer loss, right, if salespeople were leaving in a year to compete and do you continue to have some issue there. I'm just curious as to how the -- magnitude of the self-help opportunity, the cadence of the benefit that you may get in '26 because I think where the stock rating today, the stock is saying that the market doesn't see that benefit coming. So if you could give us some color there, I think it would be helpful.

Kevin Hourican

Thank you for the question. I'll repeat the question. We need to prove it through our outcomes, and that is what we will do. And we understand that as a management team and as the leaders of this company, we need to prove it through our outcomes. What gives us confidence and we're not going to provide guidance for 2026 today because that's how I would need to answer your question, where we have confidence is the following factors.
And I just have to repeat some of the key messages because the math is indelibly clear. We need to retain as we have at a historically strong rate in fiscal 2025 was a meaningful headwind in that regard. I want to reiterate, though, it was intentional. We need to make a change to our comp model. It was structural.
It was required, it was necessary. And it's been challenging, and it's been difficult to work our way through that change if we could go back in time, we would still make the change to the comp model that we made. We could have improved our execution of that change, obviously, given some of the accelerated turnover, but the change to the comp model was necessary.
So that specific headwind of the increased turnover negatively impacted this year. And we can see in our current outcomes, we have absolutely stabilized retention I'd like to do better than that. I'd like to have our retention be higher than it has ever been, and we have a concerted effort across all elements of our organization to improve retention even further, not to stabilize it, but make it be at highest levels. That's who we hire. That's how we train them.
That's how they're treated when they're out on the road doing their job, it's their direct supervisor being in the car with them, going on right along is helping them from a skills development perspective.
Net-net, I'm confident that the turnover challenge will be a net tailwind in 2026. I heard your point on rolling the 12 months of the noncompete, loud and clear, we understand that, and we have a plan to help offset that. Offsetting that headwind is the tailwind, and we were intentionally very clear today on how long it takes for our colleagues to get to productive. It's on average 12 to 18 months. Kenny was very clear that in this Q4, the Q4 we're now in.
We have more people hitting that 12-month mark, obviously, than we have in any prior quarter, and that will increase now from here, I'll just use the metaphor of turning on water in a pipe. It has to go from one end of the pipe to the other. But once it gets to the other end of the pipe, now the water keeps flowing. We are just now in our Q4, getting to the first quarter, where water is now flowing through that pipe in a consistent way. As it relates to the, previously, we've quoted a headcount growth number, 400 to 500 colleagues.
Today, we updated that to reflect that this year we anticipate to end at approximately plus 4. We'll be very disciplined about that. We know that there are geographies that can absolutely take significantly increased headcount, see Florida. We're about to open a net new brand new building in Florida. We'll be hiring up in Florida to support that new building into win meaningfully from a share perspective in that state as an example.
So those are my thoughts on Salesforce. I am confident in 206 Salesforce will be a tailwind, not a headwind, and it is absolutely the fact that it was a headwind in fiscal 2025. What else is going on with the second part of your question, there's a lot going on. It's a dynamic environment. the pricing environment and the needs of the end customer are clear. They are seeking value given the pressure on the restaurant's P&L., their labor costs are up, for many of them, their rent cost is up, and they've experienced 30% to 40% food inflation over the past 5 years. So customers are value seeking, we need to be thoughtful and we need to be agile and how we meet the customer where they are.
And that's related to things like the product offering that we have, the pricing that we have. And as I mentioned on the call today, the rollout of price agility. It's something we need to manage extremely well. And that's why I said in my prepared remarks, the change management and the training plan on how to put that tool out in the market is critical, we have to execute with excellence when we roll that program out to ensure that we can match pricing agility with margin rate discipline. And that is why we haven't gone nationwide yet.
We're working on that change management plan, that training plan pricing in the marketplace is one of the variables. You go beyond those 2 variables and the industry is experiencing a bit higher rate of customer churn than what is normal. And that's tied to point to, which is the customer seeking value. This is not a unique point so just churn in aggregate is at a higher level. And we're going to talk more in the future about improving the service level experience that we provide to our best customers an end-to-end program that can help reduce customer churn.
So those would be the top 3, sales force productivity, pricing agility and improving customer churn. Aggregate those 3 we're confident that we can grow local volume and have an attractive P&L. And we'll talk more in August about guide for '26. Kenny?

Kenny Cheung

Yes. And add to your specific question around the math, right? Your math is correct. Right now, you're seeing our expense sales 4% to 5%. So I think your question is there's a spread between obviously return as Kevin spoke about.
As our SCs climb the productivity curve as the initiatives kick in, we should expect a spread to reduce meaning sales growing closer in with our expense base. And that's me. You're correct, that is not being part of our company.

Operator

Jake Bartlett, Truist.

Jake Bartlett

I want to start with just a clarification. You've mentioned this in an inflection for the sales force matures and the comp changes to move to positive in fiscal '26. I want to make sure I understand your expectations for when that could happen -- was the peak of the increased turnover. Is the September time frame the right way to think about it? Or really, is it possible that we could see that inflection in quarter like maybe that was possible given the improvements that you're seeing now?
And then my real question is about your capital allocation. The dividend increase was the largest it's been in a few years. And maybe if you can talk about why you're kind of leaning into the dividend increase so much after pretty modest increases for the last 2. And your approach to -- I know we've had elevated share buybacks in '25, but is that something that you expect would continue beyond 25?

Kevin Hourican

Jake, thank you for the question. As it relates to the sales force inflection, definitively, it will inflect to a positive in fiscal 2026. When we provide our guidance for 2026, and provide more color on how you should think about the full year and how you should think about the first half of the second half. That's the most I can say today. The second point, though, from a contributive progress and color, April, we are seeing a stronger performance versus March, and we are seeing some separation of our performance versus the overall market from a positive share gain perspective.
So it is not a light switch. It does not go from off to on. The separate part of -- my cough forgive me -- the separation impact negative is met, as I mentioned in my prepared remarks, the improvement to come in the new colleague is gradual over time. So I think of slope of 2 curves when they intersect and how that then shows up the net tailwind. It will be a net tailwind in fiscal 2026. And we are doing everything we can to improve productivity of our new colleagues. And as I mentioned, improved colleague retention.
As I mentioned in the answering of Ed's question, I'm not satisfied with getting retention back to where it historically was. I want it to be even better than it historically was to turn the headcount in our sales colleague population into a -- permanent point of strength for the company.
As it relates to the dividend, I'll just get started and then toss to Kenny. We are a dividend risk, we've raised our dividend now 56 consecutive years in a row. There are very few companies that say that. In my closed remarks, I talked about there's no better company to work for. or from a balance sheet perspective to invest in, in a company like Cisco in times like these.
Our industry-leading income state from a profit as a percent of sales and our rock solid balance sheet affords us the opportunity to return value to shareholders even in challenging and different times. We raised our dividend even during the COVID period, which is a meaningful point. Kenny, you want to answer the specifics of how we thought about the increase for next year?

Kenny Cheung

Absolutely. So let's start just quick recovering capital allocation. Well, first and foremost, invest in our business and anything access will be returned back to shareholders. Given where our cash and liquidity business sits, which is over $4 billion for the quarter, we like to do both, invest in our business and reward our shareholders. So to your exact question, speaking to rewarding the shareholders, as Kevin talked about reverse the fact that we're raising our dividend 6%. Again, as I said before, we expect the dividend raise to be commiserate with future EPS growth for our business.
Taking a giant step back, as CFO, I'm proud of the fact that we were able to maintain our $1.25 billion of share repo this year and raised the dividend by 6%, especially given the market backdrop where start impacts our profit profile. The reason being and this is the second question, right, how do we think through it, it's become a strong investment-grade balance sheet, solid business fundamentals and the fact that we are confident in the business today and on the forward. So that's the rationale how -- thought about the dividend raise.

Operator

John Heinbockel, Guggenheim.

John Heinbockel

Kevin, can you talk to this elevated churn across the industry. I think you sort of suggested made its price-oriented, right? Is that wrong? What do you think is driving that? You also suggested you have some step up to -- it seems like maybe it's stepped up 100 basis points or more.
But I'd be curious how that's changed.

Kevin Hourican

Thank you for the question. Churn has increased as an industry overall. I'll say there's a couple of drivers behind it. Number one is customers are value seeking, as I mentioned, their labor costs are up, rent is up, food costs are up. They're seeking ways to help their profitability and food cost is one of those mechanisms.
Price visibility has increased, as you know, as more customers are between their orders online, net-net in aggregate, that's a good thing. So more customers placing their orders online is a good thing because they see more of our catalog -- they are inspired to buy things. They didn't buy before. We can prompt them to do swap and save to alternative products that can help them save money. We can suggest items that they can buy that they're not buying.
Net-net conversion to online is a good thing.
With that said, the conversion to online increases price transparency, not just at Cisco, but across all distributors. So more customers are any to seek value by the online visibility to pricing. These are environmental conditions. John and I am confident that given Sysco's size and scale, we can be very competitive and successful in that environment. So our profit rate as a percent of our purchasing scale before Sysco to buy goods.
We buy better to sell better and provide value to our customers in that price visible online way where we can lean in with suppliers and do programs, the other with them to provide savings to customers to entice them to buy from Sysco. So that's point number one, relative to the churn.
Point number 2 is supply chain resiliency. This is pre-COVID -- prior COVID, the percentage of a customer's business that, that customer gave to one distributor was higher than it is today. And when product shortages occurred everywhere in the industry and customers couldn't get everything they needed from their primary distributor. They signed up a second or third or fourth contributor. As you know, there's always been backups in account.
But what we see in the industry is a higher percentage of purchases happening the backup because customers don't want to find themselves in a position where they can't get what they need. To be clear, we've done that with our population. We buy more food in the food away-from-home space than anyone else. We have preferred partner suppliers, but we've had to add backups and sometimes tertiary suppliers to cover our needs if and when our primary supplier can't get us what we need. So John, that too, is a part of the vision -- as it relates to actionable forward-facing '26 activities.
There's a reasonably small percentage of our customer base that drives a significantly disproportionate portion of our profit pool and we're going to lean in hard with those best customers. And I'm going to talk more about that at future investment net opportunities, a reboot and a significant focus on our best customer retention and best customer penetration, and we believe that will be another tailwind for our fiscal 2026.

Operator

This does get the time we have for questions. Thank you for joining Sysco's third-quarter fiscal year 2025 conference call. You may now disconnect.