Sysco Corp (SYY) Reports Strong Q2 Earnings Growth, Boosted by Sales Volume and Operating Leverage
Sales: Increased by 3.7% to $19.3 billion in Q2.
Gross Profit: Rose 4.9% to $3.5 billion, with gross margin up 21 basis points.
Operating Income: Grew 9.2% to $700.0 million, with adjusted operating income matching the increase.
Net Earnings: Reported at $415.2 million, a significant jump from the previous year.
EPS: Diluted earnings per share soared 192.9% to $0.82, with adjusted EPS up 11.3% to $0.89.
Free Cash Flow: Increased dramatically by 140.5% to $527.4 million in the first half of the fiscal year.
Shareholder Returns: Sysco plans to return approximately $2.25 billion to shareholders in FY 2024.
On January 30, 2024, Sysco Corp (NYSE:SYY) released its 8-K filing, detailing financial results for its second fiscal quarter ended December 30, 2023. The company, a dominant force in the U.S. foodservice distribution market, reported significant growth in earnings per share (EPS), driven by increased sales volumes and positive operating leverage.
Sysco, which holds a 17% share of the $350 billion domestic market, distributes a wide range of food and nonfood products to various sectors, including restaurants, educational and government buildings, and healthcare facilities. With 70% of its revenue stemming from U.S. foodservice operations, Sysco's performance is a key indicator of the industry's health, particularly in the Retail - Defensive sector.
The company's financial achievements this quarter are particularly noteworthy, as they reflect Sysco's ability to effectively manage product cost inflation and leverage its strategic sourcing initiative. The 4.9% increase in gross profit to $3.5 billion and the 9.2% increase in operating income to $700.0 million underscore Sysco's robust margin management and operational efficiency.
Financial Performance Overview
Sysco's second quarter saw a 3.7% increase in sales, reaching $19.3 billion. U.S. Foodservice volume grew by 3.4%, with local volumes up by 2.9%. The company's gross margin improved by 21 basis points to 18.2%, reflecting a modest product cost inflation of 1.1% at the enterprise level, particularly in meat and frozen categories.
Operating expenses rose by 3.9%, attributed to higher volumes and cost inflation, albeit partially offset by improved productivity. Notably, Sysco achieved its fifth consecutive quarter of positive operating leverage, with gross profit expanding at a faster rate than operating expenses.
EBITDA saw a remarkable increase of 82.7% to $914.3 million, and adjusted EBITDA grew by 11.6% to $927.5 million. The first half of the fiscal year also witnessed a 70.0% increase in cash flow from operations, totaling $855.9 million, and a substantial 140.5% increase in free cash flow to $527.4 million.
From a balance sheet perspective, Sysco ended the quarter with a cash balance of $962.2 million. The company has been proactive in returning value to shareholders, repurchasing $199.9 million in shares and paying out $505.6 million in dividends during the first half of the fiscal year.
Looking Ahead
Kevin Hourican, Sysco's President and CEO, expressed confidence in the company's ability to deliver strong results for the remainder of fiscal year 2024 and beyond, citing Sysco's industry-leading profitability, size, scale advantages, and disciplined approach to profitable growth.
"Our second quarter results included adjusted EPS growth of over 11%, fueled by sales and volume growth, combined with positive operating leverage, as we continue to effectively manage margins. Our balanced efforts to deliver compelling top- and bottom-line growth were driven by sequential improvements in volume growth, including local performance, as well as supply chain productivity and implementation of structural cost-out actions," said Hourican.
With the reaffirmation of its fiscal year 2024 guidance for mid-single digit sales growth to approximately $80 billion and five to ten percent adjusted EPS growth to $4.20 to $4.40, Sysco remains committed to its growth trajectory and shareholder returns.
For a more detailed analysis of Sysco Corp's financial results and future outlook, investors are encouraged to review the full earnings release and listen to the earnings call webcast available on the company's investor relations website.
Explore the complete 8-K earnings release (here) from Sysco Corp for further details.
This article first appeared on GuruFocus.
