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It has been about a month since the last earnings report for Sysco (SYY). Shares have added about 19.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Sysco due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Sysco's Q1 Earnings & Sales Top Estimates, Tumble Y/Y
The company posted adjusted earnings of 34 cents per share, which surpassed the Zacks Consensus Estimate of 20 cents. However, the bottom line slumped 65.3% from the year-ago period’s adjusted earnings of 98 cents per share. The year-over-year deterioration can be attributed to reduced sales and margins.
The company reported sales of $11,777.4 million, which plunged 23% year over year due to impacts of the coronavirus pandemic. Nevertheless, the figure surpassed the Zacks Consensus Estimate of $11,497 million. Foreign currency had a favorable impact of about 0.3% on the top line.
Gross profit in the quarter declined 24.6% to $2,219.8 million and the gross margin contracted 39 basis points (bps) to 18.85%. Foreign currency had a positive impact of 0.4% on gross profit. Adjusted operating income of $364.7 million declined 50.8% year over year and the respective margin contracted 175 bps to 3.1%.
U.S. Foodservice Operations: During the quarter, segment sales declined 25.7% to $7,921.5 million. Local case volumes within U.S. Broadline operations fell 21.6% (including organic sales decline of 21.7%) and total case volumes dropped 25.8% (wherein organic sales declined 25.9%). Gross profit plunged 25.4% to $1,599.7 million, while gross margin increased 7 bps to 20.19%. U.S. Broadline saw a 1% product cost inflation, mainly due to dairy and meat categories, as well as paper and disposables.
International Foodservice Operations: Segment sales declined 25.7% to $2,163.7 million in the quarter. Foreign exchange fluctuations positively impacted segment sales by 1.4%. On a constant-currency (cc) basis, adjusted sales fell 27.1% to around $2,123 million. At cc, gross profit declined 27.5% to $438.9 million and gross margin fell 11 bps to 20.67%. Currency movements aided the segment’s gross profit by 1.9%.
SYGMA sales grew 5.3% to $1,524.1 million. Gross profit rose 4.5% to $131.5 million, whereas the gross margin contracted 7 bps to 8.63%. Other segment sales tumbled 41% to approximately $168 million.
Sysco ended the quarter with cash and cash equivalents of $5,985.5 million, long-term debt of $12,422.8 million and total shareholders’ equity of nearly $1,300 million. During the 13-week period ended Sep 26, 2020, Sysco generated cash flow from operations of $930.9 million and free cash flow amounted to $862.4 million.
Sysco remains committed to catering to the evolving needs of its customers and witnessed improved sales trends throughout the fiscal first quarter. Markedly, the company is on track with its business transformation as it navigates through the pandemic. The company’s key transformation objectives include speeding up work across customer-oriented technology and tools, transforming sales to enhance selling efficacy and offer a more customer-oriented structure, restructuring its U.S. Broadline business and emerging as a more efficient entity.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 8.84% due to these changes.
Currently, Sysco has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Sysco has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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