Sysco Q1 Profit Down 2%, But Results Beat View

(RTTNews) - Food-distribution giant Sysco Corp. (SYY) on Monday reported a 2 percent decline in profit for the first quarter from last year, reflecting higher one-time charges and operating expenses that offset an increase in revenues.

However, both revenue and adjusted earnings per share for the quarter beat analysts' estimates. The company also said it does not currently expect its $3.5 billion merger with US Foods to be completed before the first quarter of 2015.

Bill DeLaney, president and CEO of Sysco, said, "While we were challenged with expense management in certain aspects of our business, we generated 2% case volume growth and managed acute inflationary pressures very effectively. Our improved performance during the quarter was due in part to the benefits we realized from our portfolio of business transformation initiatives, especially category management."

The Houston, Texas-based company's net earnings for the first quarter were $278.81 million or $0.47 per share, down from $285.59 million or $0.48 per share in the prior-year quarter.

Excluding items such as severance, merger, and facility closure charges, adjusted earnings for the quarter was $0.52 per share, compared to $0.49 per share in the same period last year.

On average, 12 analysts polled by Thomson Reuters expected the company to report earnings of $0.51 per share for the quarter. Analysts' estimates typically exclude special items.

Sales for the quarter grew 6 percent to $12.45 billion from $11.71 billion in the same quarter last year and beat analysts' consensus estimate of $12.36 billion.

Contributions from acquisitions in the last 12 months increased sales by 0.6 percent, while the impact of changes in foreign exchange rates for the quarter decreased sales by 0.5 percent.

Food cost inflation, as measured by the estimated change in Sysco's product costs, was 4.9 percent for the quarter, driven mainly by inflation in the meat, dairy and seafood categories.

Broadline sales for the quarter increased 7 percent to $10.22 billion, while sales at SYGMA grew 1 percent to $1.54 billion. Other segment sales also rose 7 percent to $764.48 million.

Case volume for the company's Broadline and SYGMA operations combined grew 2.3 percent during the quarter, including acquisitions, and increased about 2.2 percent, excluding acquisitions.

Gross profit for the quarter grew 6 percent from last year to $2.2 billion. However, operating income decreased 3 percent from the year-ago period to $465.61 million.

Total operating expenses increased 8 percent from the year-ago period to $1.73 billion, primarily due to a $67 million increase in payroll expense and a $41 million increase in certain items primarily related to merger and integration planning costs.

Regarding its $3.5 billion merger with US Foods Inc., Sysco said it is continuing productive discussions with the Federal Trade Commission or FTC on a solution to permit the Commission to conclude its review of the merger.

Due to the amount of work remaining, and considering the upcoming holidays, the company does not currently expect to complete the transaction before the first quarter of 2015.

Both companies buy food and supplies such as cutlery and napkins from manufacturers and sell to restaurants, schools and other institutions. The combination makes up over 25 percent of the $231 billion U.S. food-distribution industry.

The FTC, which is concerned that the combination could threaten competition, has been investigating the merger for several months. The regulator is considering options such as divestment of assets to competitors by both firms.

SYY closed Friday's trading at $38.54, down $0.03 or 0.08 percent on a volume of 4.22 million shares.