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A month has gone by since the last earnings report for Sysco (SYY). Shares have added about 6.7% 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 Q2 Earnings & Sales Lag Estimates, Decline Y/Y
Sysco Corporation reported second-quarter fiscal 2021 results, wherein, both top and bottom lines deteriorated year over year and missed the Zacks Consensus Estimate. We believe that the company’s performance continued to bear the brunt of the coronavirus mayhem.
The company posted adjusted earnings of 17 cents per share, which fell short of the Zacks Consensus Estimate of 35 cents. Moreover, the bottom line slumped 80% from the year-ago period figure. This year-over-year deterioration can be attributed to reduced sales and margins.
The global food product maker and distributor reported sales of nearly $11,559 million, which slid 23.1% year over year as well as missed the Zacks Consensus Estimate of $11,853 million. Foreign currency had a favorable impact of 0.4% on the top line.
Gross profit in the quarter declined 25.8% to $2,098.5 million and the gross margin contracted 67 basis points (bps) to 18.15%. Foreign currency had a positive impact of 0.4% on gross profit. Adjusted operating income of $234.1 million plummeted 62.7% year on year and the respective margin shrunk 215 bps to 2.03%.
U.S. Foodservice Operations: During the reported quarter, segment sales declined 23.9% to $7,924.1 million. Local case volumes within U.S. Broadline operations fell 19.7% (including organic sales decline of 19.7%) and total case volumes dropped 23.7% (wherein organic sales declined 23.7%). Gross profit decreased 23.9% to $1,559.3 million, while gross margin remained unchanged at 19.68%. U.S. Broadline saw a 1.6% product cost inflation, mainly due to dairy and poultry categories, as well as paper and disposables.
International Foodservice Operations: Segment sales plunged 31.9% to $1,967.8 million in the fiscal second quarter. Foreign-exchange fluctuations positively impacted segment sales by 1.8%. On a constant-currency (cc) basis, sales fell 33.8% to $1,914.4 million. At cc, gross profit declined 38.2% to $362.4 million and gross margin fell 135 bps to 18.93%. Currency movements aided the segment’s gross profit by 2%.
SYGMA sales grew 4.4% to $1,520.4 million. Gross profit rose 4.1% to $129.3 million, whereas the gross margin contracted 3 bps to 8.5%.
Other segment sales tumbled 44.8% to $146.6 million.
Sysco ended the fiscal second quarter with cash and cash equivalents of $5,767 million, long-term debt of $12,463.3 million and total shareholders’ equity of $1,426.8 million. In the first 26 weeks of fiscal 2021, Sysco generated cash flow from operations of $936.7 million and free cash flow amounted to $788.2 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -53.75% due to these changes.
Currently, Sysco has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Sysco has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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