Global food products maker and distributor Sysco Corporation (SYY) reported fourth-quarter fiscal 2014 adjusted earnings of 50 cents. Earnings beat the Zacks Consensus Estimate of 49 cents by a penny and were flat year over year as an improvement in sales made up for the ongoing cost pressure.
Quarter in Detail
Sysco's sales grew 5.9% on a year-over-year basis to $12.287 billion in the fourth quarter of fiscal 2014, driven by 2.2% volume growth (including acquisitions). Acquisitions contributed 0.6% to sales growth, while currency translation decreased sales by 0.7%. Fourth-quarter sales beat the Zacks Consensus Estimate of $12.132 billion. Sales also improved from 3.2% growth in the preceding quarter, 4.1% growth in the second quarter and 5.7% growth in the first quarter.
Gross profit improved 4% to $2.2 billion in the quarter, while gross margin declined 40 basis points to 17.5% due to the ongoing cost pressure. Adjusted operating income climbed 1.2% in the quarter to $482 million despite a 4.9% increase in adjusted operating expenses. Adjusted operating margin declined 20 basis points to 3.9% in the quarter.
Fiscal 2014 Results
In fiscal 2014, Sysco posted adjusted earnings of $1.76 per share, which missed both the Zacks Consensus Estimate and the year-ago earnings by 1.1% due to ongoing business challenges.
Sysco's sales grew 4.7% on a year-over-year basis to $46.517 billion in fiscal 2014, driven by 2.2% volume growth (including acquisitions). Sales also beat the Zacks Consensus Estimate of $46.36 billion.
Other Financial Updates
Cash and cash equivalents were $413.0 million at the end of Jun 28, 2014 compared with $341.1 million at the end of Mar 29, 2014. Long-term debt was $2.38 billion at the end of the fourth quarter as against $2.99 billion at the end of the third quarter.
Overall, we appreciate the company’s growth strategy and its efforts to reduce costs and improve efficiency. Over the near-term, the company also expects to complete its proposed merger with US Foods, which will further strengthen its size, scale and capabilities. However, we are concerned about rising costs due to fuel price hikes and other inputs, which hurt margins. Sysco holds a Zacks Rank #4 (Sell).
Some better-ranked food companies in the industry include Treehouse Foods Inc (THS), J&J Snack Foods Corp. (JJSF) and Pinnacle Foods Inc (PF). While Treehouse holds a Zacks Rank #1 (Strong Buy), J&J Snack Foods and Pinnacle sport a Zacks Rank #2 (Buy).
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