Sysco (SYY) Touches 52-Week High On Strong Q4 Earnings

Shares of Sysco Corp. (NYSE:SYY) hit a new 52-week high of $53.97 on Aug 15 after the company reported strong fourth-quarter fiscal 2016 earnings. Shares of this food company eventually closed at $52.18.

Strong Q4 Results

The global food products maker and distributor posted better-than-expected fourth quarter and fiscal 2016 earnings. Its focus on acquisitions and margin improvement probably resulted in the beat. However, revenues marginally missed expectations in both the periods.

Adjusted earnings (excluding restructuring and merger-related costs) of 64 cents per share beat the Zacks Consensus Estimate of 60 cents by 6.7% and were up 23.1% year over year. Growth in sales, expense management and improved gross and operating margin led to the growth. On a constant currency basis, earnings increased 15.4% to 60 cents.

Gross margin improved 44 basis points (bps) to 18.3% due to the company’s ongoing growth strategy, which focuses on accelerating sales, reducing costs and mitigating ongoing gross margin pressure. Adjusted operating margin improved 50 bps to 4.6%.

Food cost deflation was 1.2%as the company witnessed deflation in the meat and dairy categories, partially offset by modest inflation in other categories.

Sysco's sales of $13.65 billion marginally missed the Zacks Consensus Estimate of $13.71 billion by 0.4%, and increased 10% on a year-over-year basis in the fourth quarter of fiscal 2016, as strong volume growth was offset by unfavorable currency impact of 0.5%. Excluding currency, sales increased 2.2% in the fourth quarter.

Sales from acquisitions completed within the last 12 months increased sales by 1.2% in the quarter. The company’s sales have improved consistently driven by acquisitions. Though the termination of the long-awaited US Foods merger in June was a disappointment, the company remains positive on the acquisition front.

We believe that the company’s consistent initiatives to improve sales through acquisitions and volume growth will boost earnings in the near term, offsetting the impact of food cost deflation.

Sysco carries a Zacks Rank #1 (Strong Buy).

Other well positioned food companies include Ingredion, Inc. (NYSE:INGR) , Omega Foods Corp. (NYSE:OME) and Pinnacle Foods, Inc. (NYSE:PF) . While Ingredion and Omega Foods sport the same Zacks Rank as Sysco, Pinnacle Foods carries a Zacks Rank #2 (Buy).