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Sysco (SYY) Q2 Earnings Surpass Estimates, Revenues Miss

Zacks Equity Research

Sysco Corporation SYY reported mixed second-quarter fiscal 2019 results, wherein the top line missed the Zacks Consensus Estimate, while the bottom line beat the same. Further, the bottom line declined year over year, whereas the top line increased. Notably, shares of the company went  up more than 3% during the pre-market trading session.

Quarter in Detail

Adjusted earnings of 75 cents per share dropped nearly 4% year over year, though it surpassed the Zacks Consensus Estimate of 72 cents. We believe that this could be partly accountable to higher interest expenses and costs associated with constant investments (particularly in the international unit). Also, the company continued to battle high supply-chain costs.

Sysco Corporation Price, Consensus and EPS Surprise

Sysco Corporation Price, Consensus and EPS Surprise | Sysco Corporation Quote

Nonetheless, this global food products maker and distributor’s sales of $14.8 billion advanced 2.5% year over year. However, the figure fell slightly short of the Zacks Consensus Estimate of $14.9 billion. This marked the company’s fourth straight quarter of top-line miss.

Gross profit improved 2.7% to $2,771.7 million in the quarter, courtesy of higher sales. Further, gross margin rose 4 basis points (bps) to 18.77%. Further, adjusted operating income rose 4.8% to $603.3 million.

Segment Details

U.S. Foodservice Operations

Segment sales advanced 4.2% to $10.1 billion, where local case volumes within U.S. Broadline operations increased 3.3% (including organic sales growth of 2.4%) and total case volumes ascended 2.9% (wherein organic sales increased 2%). Gross profit grew 4.5% to $2.0 billion, while gross margin rose 6 bps to 19.8%. Results were somewhat negatively impacted by food-cost inflation in U.S. Broadline, particularly in frozen potato, paper, meat, and produce categories. Operating expenses escalated 4.7% on account of increased supply-chain costs across warehouse and transportation. Nevertheless, operating income climbed 4.2% to $737.5 million.

International Foodservice Operations

Segment sales inched up 0.8% to roughly $2.9 billion. Foreign exchange fluctuations negatively impacted segment sales by 0.7% during the quarter. Gross profit dipped 1.6% to $589.9 million, while gross margin fell 49 bps to 20.4%. Adjusted operating income rose nearly 5.1% to $83.1 million, which included about 0.5% adverse impact from currency movements. Adjusted operating expenses declined 2.6%, though Sysco continued to face supply-chain related cost hurdles.

Other Updates

Sysco ended the quarter with cash and cash equivalents of $744.8 million, long-term debt of $8,019.8 million and total shareholders’ equity of $2,167.6 million.

During the first 26 weeks of fiscal 2019, the company generated cash flow from operations of $917.8 million and incurred net capital expenditure of $216.9 million. Free cash flow during the same period amounted to $700.9 million.

Sysco is pleased with its sales growth, while the company continues to make business investments (especially in the international unit). Also, Sysco is committed toward its cost-saving initiatives, which is expected to benefit the company further in the second half of fiscal 2019.

Price Performance

This Zacks Rank #4 (Sell) stock has lost close to 9% in the past six months compared with the industry’s decline of almost 11%

Check These Solid Food Stocks

Blue Apron Holdings’ APRN bottom line has surpassed the Zacks Consensus Estimate by average of about 19% in the trailing four quarters. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Nomad Foods NOMD, with long-term earnings per share growth rate of 11%, carries a Zacks Rank #2 (Buy).

Lamb Weston LW , with a Zacks Rank #2, has long-term earnings per share growth rate of 12%.

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