Sysco (SYY) Q1 Earnings & Sales Beat, Up Year Over Year

Global food products maker and distributor Sysco Corporation (NYSE:SYY) reported first-quarter fiscal 2018 results, wherein both top and bottom lines grew year over year and surpassed the Zacks Consensus Estimate. Results were mainly backed by strength in the company’s U.S. Foodservice Operations despite the dismal impact of hurricanes.

While this marked Sysco’s third straight quarter of sales beat, earnings outpaced the Zacks Consensus Estimate in seven out of the past eight straight quarters, including this one. Sysco’s strong past record has also helped this Zacks Rank #2 (Buy) company jump 7.9% in the past three months, as against the industry’s decline of 5.7%.

Quarter in Detail

Adjusted earnings of 74 cents per share jumped 10.4% year over year and came a penny ahead of the Zacks Consensus Estimate.

Sysco's sales of $14,650.4 billion exceeded the Zacks Consensus Estimate of $14,457 million and increased 4.9% on a year-over-year basis.

Gross profit improved 3.8% to $2,793 million in the quarter, while gross margin contracted 20 basis points (bps) to 19.1%. However, adjusted operating income rose 5.6% in the quarter to $662 million, while the adjusted operating margin improved marginally by 3 bps to 4.52%.

Segment Details

The company reports through these operating segments: U.S. Foodservice Operations and International Foodservice Operations.

U.S. Foodservice Operations

Segment sales advanced nearly 4% to $9,848.9 million, where local case volume within U.S. Broadline operations climbed 2.8% and total case volume inched up 0.3%. Gross profit expanded 3.8% to $1,986.2 million, while the gross margin remained nearly flat year over year. This could be accountable to food cost inflation in U.S. Broadline, particularly in poultry, dairy and meat categories.

Operating expenses escalated 3.2% to $38 million on account of higher transport costs. Nonetheless, the operating income jumped 4.8% to $781 million.

International Foodservice Operations

Segment sales increased 6.4% to $2,903.3 million. Adjusted operating income tumbled 8.3% to $95 million. While results in Canada gained strength from surge in local cases and efficient expense management, the company’s European business remained difficult. This stemmed from the impact of investment in the Brake Group buyout amid a tough macroeconomic landscape.

Also, hurricanes hurt Sysco’s operating income by $10 million in the first quarter.

Other Financial Updates

Sysco ended the quarter with cash and cash equivalents of $909.2 million, long-term debt of $8,426.4 million and total shareholders’ equity of $2,235.3 million.

During the quarter, the company generated cash flow from operations of $82.8 million and incurred capital expenditure of $135 million. The company’s total free cash flow for the quarter came in at negative $52 million, though it anticipates generating solid cash flows in fiscal 2018.

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