Sysco Second Quarter Adj. Profit Meets View, But Sales Miss

(RTTNews) - Food-distribution giant Sysco Corp. (SYY) reported Monday a profit for the second quarter that declined five percent from last year, despite sales growth, hurt by higher food costs and expenses. Adjusted earnings per share matched analysts' expectations, while quarterly revenues missed their estimates.

"Our second quarter results were achieved in a market environment that, once again, was quite challenging for many of our customers, especially those who operate in the casual dining restaurant segment. Sales growth during the quarter was modest, and slowed somewhat as the quarter progressed, and gross margin continued to be pressured," President and CEO Bill DeLaney said.

The Houston, Texas-based company reported net earnings of $210.84 million or $0.36 per share for the second quarter, lower than $221.37 million or $0.38 per share in the prior-year quarter.

Excluding items, adjusted earnings for the quarter remained flat with last year at $0.40 per share. On average, 12 analysts polled by Thomson Reuters expected the company to report earnings of $0.40 per share for the quarter. Analysts' estimates typically exclude special items.

Excluding impact of business transformation project costs, adjusting earnings from underlying business was $0.47 per share, compared to last year's $0.49 per share.

Sales for the quarter grew 4.1 percent to $11.24 billion from $10.80 billion in the same quarter last year, but missed ten Wall Street analysts' consensus estimate of $11.35 billion by a whisker.

Contributions from acquisitions in the last 12 months increased sales by 1.9 percent, while sales were decreased by 0.6 percent due to changes in foreign exchange rates.

Food cost inflation, as measured by the estimated change in Sysco's product costs, was 0.8 percent for the quarter, due to inflation in the meat and seafood categories.

Broadline sales for the quarter totaled $9.08 billion, higher than last year's sales of $8.78 billion, and sales at SYGMA grew to $1.54 billion from $1.41 billion in the year-ago quarter. Other segment sales totaled $695.62 million, up from $659.86 million in the prior-year quarter.

Case volume for the company's Broadline and SYGMA operations combined grew 4.3 percent during the quarter, including acquisitions, and increased about 2.7 percent, excluding acquisitions.

Operating income for the quarter declined 8.1 percent to $351.78 million from last year's $382.65 million, while adjusted operating income decreased 7.6 percent. Gross profit margin contracted 62 basis points to 17.44 percent from last year's 18.06 percent.

Total operating expenses increased 2.8 percent to $1.61 billion from $1.57 billion in the year-ago quarter.

"However, we are encouraged with our expense management performance which was driven by the ongoing successful implementation of our broad array of Business Transformation initiatives... Additionally, following the recent announcement of our proposed merger with US Foods, we are excited to begin integration planning that will ultimately bring the best of both companies together. This will enhance our ability to serve our customers, strengthen supplier partnerships and further engage our employees," DeLaney added.

Sysco on December 9 agreed to acquire peer US Foods for about $3.5 billion, comprising of $3 billion in common stock and $500 million in cash. Sysco will also refinance US Foods' net debt of about $4.7 billion, bringing the total enterprise value of the deal to $8.2 billion.

Sysco shares, which have traded in a range of $30.63 to $43.40 over the past year, closed Friday's regular trading session at $35.08, up $0.17 on a volume of 3.96 million shares.