Sysco (SYY) Q3 Earnings Surpass Estimates, Revenues Miss

Sysco Corporation (NYSE:SYY) reported third-quarter fiscal 2019 results, wherein both top and bottom lines improved year over year. However, the former fell short of the Zacks Consensus Estimate.

Quarter in Detail

Adjusted earnings of 79 cents per share increased nearly 18% year over year, and surpassed the Zacks Consensus Estimate of 70 cents. Results were backed by improved sales and efficient expense management.

This global food products maker and distributor’s sales of $14,658 million advanced 2.2% year over year. However, the figure fell slightly short of the Zacks Consensus Estimate of $14,884 million. This marked the company’s fifth straight quarter of top-line miss.

Gross profit improved 2.9% to $2,754.3 million in the quarter, courtesy of higher sales. Further, gross margin expanded 14 basis points (bps) to 18.79%. Adjusted operating income rose 16.6% to $620.2 million, while the adjusted operating margin improved 52 bps to 4.23%.

Segment Details

U.S. Foodservice Operations

Segment sales advanced 4.1% to $10,015.3 million, where local case volumes within U.S. Broadline operations increased 3.1% (including organic sales growth of 2.2%) and total case volumes ascended 2.1% (wherein organic sales increased 1.3%). Gross profit grew 5.1% to $2,009.1 million, while gross margin rose 18 bps to 19.9%.

Results were somewhat negatively impacted by food-cost inflation in U.S. Broadline, particularly in frozen potato, meat and poultry categories. Adjusted operating expenses escalated 2.3% on account of increased supply-chain and labor costs across warehouse and transportation. Nevertheless, adjusted operating income grew about 10% to $70 million.

International Foodservice Operations

Segment sales slipped 1.5% to roughly $2,757.9 million. Foreign exchange fluctuations hurt segment sales by 1.1% during the quarter. Gross profit dipped 3.1% to $565.1 million, while gross margin fell 34 bps to 20.5%. Adjusted operating expenses declined 5.8%, courtesy of restructuring and reorganization initiatives. Adjusted operating income rallied 30% to $58.1 million, which included about 0.3% adverse impact from currency movements.

Other Updates

Sysco ended the quarter with cash and cash equivalents of $521.6 million, long-term debt of $8,134.5 million and total shareholders’ equity of $2,361.9 million.

During the first 39 weeks of fiscal 2019, the company generated cash flow from operations of $1,365.2 million and incurred net capital expenditure of $366.5 million. Free cash flow during the same period amounted to $1 billion.

Price Performance

This Zacks Rank #3 (Hold) stock has gained close to 8% in the past three months compared with the industry’s growth of 2.1%

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