Global food products maker and distributor Sysco Corporation SYY reported better-than-expected fourth quarter of fiscal 2015 earnings. Revenues however lagged the consensus mark, probably due to currency headwinds.
Adjusted earnings of 52 cents per share beat the Zacks Consensus Estimate of 51 cents by 1.9%. Also, it increased 6.1% year over year on improved gross margin and adjusted operating income, which increased owing to prudent expense management.
Quarter in Detail
Sysco's sales of $12.4 billion lagged the Zacks Consensus Estimate of $12.7 billion by 2.4% but grew a marginal 0.9% on a year-over-year basis in the fourth quarter of fiscal 2015, as volume growth (including acquisitions) of 2.2% was offset by unfavorable currency impact of 1.4%. Acquisitions contributed 0.4% to sales growth.
Gross profit improved 3% to $2.2 billion in the quarter, while gross margin improved 35 basis points to 17.9% due to the company’s ongoing growth strategy, which focuses on accelerating sales, reducing costs and mitigating ongoing gross margin pressure. Adjusted operating income increased 5.8% in the quarter to $509 million despite a 2.2% increase in adjusted operating expenses. Food cost inflation was flat as modest inflation in the meat, poultry and frozen categories was offset by modest deflation in the dairy, produce and seafood categories.
Fiscal 2015 Results
Adjusted earnings of $1.84 per share lagged the Zacks Consensus Estimate by one cent in fiscal 2015. However, it increased 5.1% year over year driven by an improvement in sales and higher operating income.
Sysco's sales of $48.7 billion marginally missed the Zacks Consensus Estimate by 0.6%. Sales however grew 4.7% on a year-over-year basis in fiscal 2015.
Other Financial Updates
Cash and cash equivalents were $5.13 billion as of Jun 27, compared with $5.09 billion as of Mar 28, 2015. Long-term debt was $2.27 billion at the end of the fourth quarter, compared with $7.28 billion at the end of the third quarter.
On Jun 29, 2015, Sysco decided to spend $3 billion over the next two years to buy back shares, including $1.5 billion through an accelerated share repurchase program in fiscal 2016, in an effort to make it up to shareholders as a result of the termination of the merger.
Our Take
We are impressed by the fact that Sysco has delivered improved gross margins in the fourth quarter, after witnessing declining gross margins since the last two fiscal years due to multiple factors. It seems that the company’s growth strategy is paying off and its efforts to boost sales and margins are bearing fruits.
The company is also consistently showing improvement in sales driven by acquisitions and volume growth. Though the termination of the long-awaited merger agreement with US Foods in June was disappointing, the company still remains positive on the acquisition front and expects to move forward with more such deals. However, the company expects earnings to remain under pressure due to currency headwinds.
Sysco has a Zacks Rank #3 (Hold).
Better-ranked food companies in the industry include Cal-Maine Foods Inc. CALM, Post Holdings Inc. POST and McCormick & Co, Inc. MKC. While Cal-Maine and Post Holdings sport a Zacks Rank #1 (Strong Buy), McCormick carries a Zacks Rank #2 (Buy).
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