Sysco Corporation SYY appears to be troubled by escalated cost concerns. Headwinds related to the Omicron variant also weighed on the company’s second-quarter fiscal 2022 performance. Management expects Omicron to continue affecting sales in the third quarter.
The Zacks Consensus Estimate for Sysco’s fiscal 2022 bottom line has declined by a penny to $3.04 over the past 30 days. However, this suggests growth from the figure of $1.44 per share reported in the year-ago period.
Let’s take a closer look.
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High Costs – a Major Concern
Sysco has been encountering product cost inflation in the U.S. Foodservice unit for a while now. During the second quarter of fiscal 2022, U.S. Broadline saw 14.6% product cost inflation, mainly due to the meat and poultry categories. SYY’s overall gross margin in the second quarter contracted 44 basis points or bps to 17.7%. Sysco witnessed increased supply-chain hurdles in the second quarter due to the pandemic, which, in turn, led to elevated transport and labor costs. These challenges are likely to persist in the near term.
Additionally, Sysco’s second-quarter bottom line was affected by greater-than-anticipated operating costs stemming from the pandemic. Apart from the double-digit inflation, the company also countered productivity hurdles and its snapback and transformation investments, which amounted to $73 million in the quarter. The company also spent $44 million as the operating expense investment associated with its Recipe for Growth plan. Additionally, Sysco encountered productivity expense challenges in the quarter. All of these led to a spike in adjusted operating expenses, which came in at $2.4 billion.
Sysco Corporation Price, Consensus and EPS Surprise
Sysco Corporation price-consensus-eps-surprise-chart | Sysco Corporation Quote
Other Obstacles & View
Sysco’s second-quarter fiscal 2022 sales were somewhat affected by the impact of Omicron. Though sales increased year over year, growth decelerated in December due to hurdles stemming from the Omicron variant. The variant weighed on Sysco’s customers’ top line as well as operating hours.
Omicron-related curbs impacted sales and volume performances of the company, especially in the United Kingdom, France and Canada. These curbs affected the performance of the company’s customers and their ordering trends. Consequently, management expects Omicron to continue affecting sales in the third quarter. The company revised its back-half guidance due to the hurdles caused by Omicron and a tough labor scenario. For fiscal 2022, management expects adjusted earnings per share (EPS) in the range of nearly $3-$3.10 now compared with the $3.33-$3.53 range expected before. Adjusted EPS in the back half is envisioned in the range of roughly $1.60-$1.70.
While SYY’s Recipe for Growth is an upside, the abovementioned cost headwinds cannot be ignored.
Shares of this Zacks Rank #4 (Sell) company have dipped 2.3% year to date (YTD) compared with the industry’s fall of 7.1%.
Looking for Consumer Staple Stocks? Check These
Some better-ranked stocks are Pilgrim’s Pride PPC, Tyson Foods TSN and Flowers Foods FLO.
Pilgrim’s Pride, which produces, processes, markets and distributes fresh, frozen, and value-added chicken and pork products, sports a Zacks Rank #1 (Strong Buy). Shares of Pilgrim’s Pride have moved down 18.6% YTD. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Pilgrim’s Pride’s current financial-year EPS suggests growth of 19.7% from the year-ago reported number. PPC has a trailing four-quarter earnings surprise of 24.9%, on average.
Flowers Foods, the producer and marketer of packaged bakery products, currently carries a Zacks Rank #2 (Buy). Shares of Flowers Foods have tumbled 10.7% YTD.
The Zacks Consensus Estimate for Flowers Foods’ current financial-year sales and EPS suggests growth of 7.2% and roughly 4%, respectively, from the year-ago reported figure. FLO has a trailing four-quarter earnings surprise of around 6%, on average.
Tyson Foods, a renowned meat products company, carries a Zacks Rank #2 at present. Shares of Tyson Foods have dipped 1.9% YTD.
The Zacks Consensus Estimate for Tyson Foods’ current financial-year sales and EPS suggests growth of 9.5% and 5.6%, respectively, from the year-ago reported number. TSN has a trailing four-quarter earnings surprise of 32.2%, on average.
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