Sysco (SYY) Q3 Earnings & Sales Improve Y/Y, U.S. Volumes Up

Sysco Corporation (NYSE:SYY) reported third-quarter fiscal 2018 results, wherein both top and bottom lines grew year over year and the latter surpassed the Zacks Consensus Estimate for the fourth consecutive quarter. In fact, Sysco’s impressive past record has helped it jump 16.3% in a year, as against the industry’s decline of 15.4%.

Quarter in Detail

Adjusted earnings of 67 cents per share jumped 31.4% year over year and beat the Zacks Consensus Estimate of 64 cents. Including one-time items, earnings increased 43.2% to 63 cents per share. Earnings gained from reduced taxes.

This global food products maker and distributor’s sales of $14,349.5 million advanced 6.1% year over year. However, the figure fell short of the Zacks Consensus Estimate of $14,382 million.

Gross profit improved 5.6% to $2,675.6 million in the quarter, courtesy of higher sales. However, gross margin fell 9 basis points (bps) to 18.65%. Adjusted operating income rose 7.1% to $535.8 million, while the adjusted operating margin improved 3 bps to 3.73%.

Segment Details

U.S. Foodservice Operations

Segment sales advanced 5.1% to $9,704.5 million, where local case volume within U.S. Broadline operations climbed 2.6% (including organic sales growth of 1.8%) and total case volume ascended 2.4% (wherein organic sales inched higher by 1.7%). Gross profit expanded 4.1% to $1,911.7 million, while the gross margin contracted 19 bps to 19.7%. This can be attributed to food cost inflation in U.S. Broadline, particularly in produce, dairy and meat categories.

Adjusted operating expenses escalated 5.9% to $1,214.5 million, on account of higher selling and supply chain costs. Nonetheless, the adjusted operating income climbed 1.2% to $697.2 million.

International Foodservice Operations

Segment sales increased 10.7% to roughly $2,799.3 million. Gross profit jumped 12.9% to $583.2 million, whereas the gross margin rose 40 bps to 20.84%.

Adjusted operating income surged 11.6% to $44.5 million, despite a 13% rise in adjusted operating costs that came in at $583.7 million. The rise in operating costs was a result of higher transportation and integration costs.

SYGMA

Sales at this segment improved 4.6% to $1,605.8 million. Gross profit rose 6.4% to $127.1 million and gross margin increased 13 bps to 7.9%. Operating income fell 39% to $4.5 million, as operating costs escalated 9.3% to $122.6 million.

Other Financial Updates

Sysco ended the quarter with cash and cash equivalents of $901.6 million, long-term debt of $8,835.2 million and total shareholders’ equity of $2,351.2 million.

During the first three quarters of fiscal 2018, the company generated cash flow from operations of $1,124.2 million and incurred net capital expenditure of $356 million. The company’s total free cash flow for the same period amounted to $768 million, marking a considerably improvement from the year-ago period – courtesy of lower taxes and improved earnings.

Outlook

Management remains pleased with its performance which was backed by greater sales and improvement in gross profit. However, the Zacks Rank #4 (Sell) company marked its first sales miss after delivering four straight beats. Also, Sysco continues to face cost hurdles. It looks like these factors weighed on investors’ sentiment as shares of the company are down 1.2% in the pre-market trading session.

Nevertheless, management remains confident of achieving its goals that form part of its three-year plan.

Unsure About Sysco? Check These 3 Picks From Sysco’s Space

United Natural Foods (NASDAQ:UNFI) with a long-term earnings per share growth rate of 8.2%, sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

MEDIFAST INC (NYSE:MED) , a Zacks Rank #1, has delivered back-to-back positive earnings surprises in the past two quarters.

Conagra Brands (NYSE:CAG) with a long-term earnings per share growth rate of 8%, carries a Zacks Rank #2 (Buy).

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