To bolster shareholder value, the board of Sysco Corp. (SYY) recently approved an increase of 1 cent in its quarterly dividend to 29 cents. The dividend hike translates to a 3.6% increase from the prior dividend of 28 cents and comes exactly after a year. The increased dividend will be paid on Jan 24, 2014 to stockholders of record as of Jan 3, 2012.
This food company has been paying dividends every quarter since 1970 and this is the 45th hike in its dividend. The last dividend hike of a cent or 3.7% was announced on Nov 14, 2012 and paid on Jan 25, 2013.
Besides dividend, the company also has a solid buyback program in place and has been repurchasing shares since 1992. In Aug, 2013, the board of Sysco approved its 18th share repurchase program comprising 20 million shares. The share repurchase program is part of an ongoing effort to keep the number of shares outstanding relatively constant.
We appreciate Sysco’s efforts to consistently enhance long-term shareholder value amid a volatile economy. While dividend payments boost shareholder wealth, a share buyback program helps the company to reduce outstanding share count, thereby increasing earnings per share and return on equity.
In the recently concluded first quarter fiscal 2014 on Oct 23, Sysco generated $169 million of cash from operations. Capital expenditure in the first quarter of fiscal 2014 was approximately $136 million related to facility replacements, expansions and replacements to Sysco's fleet.
Cash and cash equivalents were $359.5 million at the end of Sep 28, 2013 compared with $412.3 million at the end of Jun 29, 2013. Long-term debt was $2.87 billion at the end of first quarter compared with $2.64 billion at the end of the fourth quarter.
Sysco, a global leader in selling, marketing and distribution of food products, beat the Zacks Consensus Estimate on both counts driven by acquisitions. However, earnings of 56 cents declined 3.4% year over year due to weak restaurant traffic. The year-over-year results were also dampened by a sluggish macro-economic scenario and weather related headwinds.
Overall, we appreciate the company’s strategy of growth through acquisitions and its efforts to reduce costs and improve efficiency. However, we are concerned about rising costs due to fuel price hikes and other inputs, which hurt margins.
Sysco holds a Zacks Rank #3 (Hold). However, other food companies that are worth considering include Omega Protein Corp (OME), Pinnacle Foods Inc (PF) and The J.M. Smucker Co. (SJM). While Omega holds a Zacks Rank #1 (Strong Buy), Pinnacle Foods and Smucker carry a Zacks Rank #2 (Buy).
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