Sysco Misses on Q3 Earnings & Rev

Zacks

Global food products maker and distributor Sysco Corporation (SYY) reported third-quarter fiscal 2014 adjusted earnings of 38 cents. Earnings lagged the Zacks Consensus Estimate of 39 cents by 2.6% and declined from the prior-year quarter earnings of 40 cents by 5.0% due to modest sales growth and cost pressure. Sales were also dampened by a sluggish macro-economic scenario and weather related headwinds, which in turn led to lower consumer spending. However, March sales were significantly stronger compared to January and February as improved weather rebounded demand and locally-managed sales strengthened.

Quarter in Detail

Sysco's sales grew 3.2% on a year-over-year basis to $11.277 billion in the third quarter of fiscal 2014, driven by 3.0% volume growth (including acquisitions). Acquisitions contributed 0.8% to sales growth, while currency translation decreased sales by 0.9%. Third-quarter sales marginally lagged the Zacks Consensus Estimate of $11.393 billion. Growth was weaker than 4.1% growth in the second quarter and 5.7% growth in the first quarter owing to a difficult consumer spending environment.

Gross profit improved 2.7% to $2.0 billion in the quarter, while gross margin was flat at 17.7% due to ongoing cost pressure. Adjusted operating income increased only 0.3% in the quarter to $388.3 million due to a 3.3% increase in adjusted operating expenses. Adjusted operating margin declined 10 basis points to 3.4% in the quarter.

Other Financial Updates

Cash and cash equivalents were $341.1 million at the end of Mar 29, 2014 compared with $449.9 million at the end of Dec 28, 2013. Long-term debt was $2.99 billion at the end of the third quarter as against $2.94 billion at the end of the second quarter.

Overall, we appreciate the company’s growth strategy and its efforts to reduce costs and improve efficiency. However, we are concerned about rising costs due to fuel price hikes and other inputs, which hurt margins. Sysco holds a Zacks Rank #3 (Hold).

Other better-ranked food companies in the industry include B&G Foods Inc (BGS), BRF-Brasil Food (BRFS) and McCormick & Co. Inc. (MKC). While B&G Foods and BRF sport a Zacks Rank#1 (Strong Buy), McCormick holds a Zacks Rank #2 (Buy). 

Read the Full Research Report on BGS
Read the Full Research Report on MKC
Read the Full Research Report on SYY
Read the Full Research Report on BRFS


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