Sysco (SYY) Misses Earnings And Revenue Estimates In Q1

Sysco Corporation (NYSE:SYY) reported first-quarter fiscal 2019 results, wherein both top and bottom lines missed the Zacks Consensus Estimate. However, both the metrics improved year over year.

Quarter in Detail

Adjusted earnings of 91 cents per share rallied almost 23% year over year, though it fell a penny short of the Zacks Consensus Estimate. Results were impacted by increased transportation and warehouse costs with regard to the company’s supply chain. In fact, management expects these headwinds to persist, which is a concern.

Nonetheless, this global food products maker and distributor’s sales of $15,215.3 million advanced 3.9% year over year. However, the figure fell short of the Zacks Consensus Estimate of $15,457 million. This marked the company’s third straight quarter of top-line miss.

Gross profit improved 3.9% to $2,903.8 million in the quarter, courtesy of higher sales. Further, gross margin rose 2 basis points (bps) to 19.08%. Further, adjusted operating income rose 5.1% to $691.7 million, while adjusted operating margin improved 5 bps to 4.55%.

Segment Details

U.S. Foodservice Operations

Segment sales advanced 5.6% to $10,399.4 million, where local case volumes within U.S. Broadline operations climbed 5.2% (including organic sales growth of 3.7%) and total case volumes ascended 5.7% (wherein organic sales increased 4.3%). Gross profit expanded 5.2% to $2,090.2 million, while gross margin contracted 7 bps to 20.10%. The downside was caused by a fall in food-cost inflation in U.S. Broadline, particularly due to meat, poultry and produce category deflation. Operating expenses escalated 5.3% on account of increased selling and supply-chain costs. Nevertheless, operating income climbed 4.3% to $815.8 million.

International Foodservice Operations

Segment sales climbed 0.6% to roughly $2,921 million. Foreign exchange fluctuations negatively impacted segment sales by 0.4% during the quarter. Gross profit went up 0.1% to $615.5 million, while gross margin fell 11 bps to 21.1%. Adjusted operating income rose nearly 0.2% to $95.4 million, which included about 0.4% adverse impact from currency movements. Also, adjusted operating expenses went up marginally, owing to higher investments in supply-chain transformation and business integration.

SYGMA

Sales in this segment dipped 1.2% to $1,621.5 million. Gross profit rose 3% to $129.3 million and gross margin increased 32 bps to 7.98%. Operating income plunged close to 50% to $2.4 million.

Other Updates

Sysco ended the quarter with cash and cash equivalents of $790.3 million, long-term debt of $7,914.3 million and total shareholders’ equity of $2,638.6 million.

During the first quarter, the company generated cash flow from operations of $271.1 million and incurred net capital expenditure of $100.5 million. Free cash flow during the quarter amounted to $170.7 million.

Sysco is pleased with its top-line performance, especially in its U.S. Foodservice unit. While the company expects supply-chain related headwinds to persist, it is on track with its strategic priorities that are expected to drive growth and fuel value creation.

Price Performance

This Zacks Rank #3 (Hold) stock has gained 13.4% in the past six months compared with the industry’s rise of 2.3%

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