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Sysco Corp. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: May 10, 2011 11:22AM

Sysco Corp. (SYY) filed Quarterly Report for the period ended 2011-04-02. Sysco Corp. has a market cap of $18.4 billion; its shares were traded at around $31.57 with a P/E ratio of 16.8 and P/S ratio of 0.5. The dividend yield of Sysco Corp. stocks is 3.3%. Sysco Corp. had an annual average earning growth of 8.6% over the past 10 years. GuruFocus rated Sysco Corp. the business predictability rank of 3.5-star.



Highlight of Business Operations:

Sales were 7.4% higher in the first 39 weeks and 9.1% higher in the third quarter of fiscal 2011 than the comparable periods of the prior year. Product cost inflation and the resulting increase in selling prices, combined with improving case volumes, had an impact on sales in the first 39 weeks and third quarter of fiscal 2011. Changes in product costs, an internal measure of inflation or deflation, were estimated as inflation of 4.2% during the first 39 weeks and 5.1% during the third quarter of fiscal 2011, as compared to deflation of 2.7% during the first 39 weeks and 0.8% during the third quarter of fiscal 2010. Sales from acquisitions within the last 12 months favorably impacted sales by 0.6% for both the first 39 weeks and the third quarter of fiscal 2011. The exchange rates used to translate our foreign sales into U.S. dollars positively impacted sales by 0.5% in the first 39 weeks and 0.6% in the third quarter of fiscal 2011 compared to the first 39 weeks and the third quarter of fiscal 2010, respectively.

Operating income decreased 1.5% in the first 39 weeks of fiscal 2011 from the first 39 weeks of fiscal 2010 to $1.4 billion, and as a percentage of sales, declined to 4.7% of sales. Operating income decreased 1.1% in the third quarter of fiscal 2011 from the third quarter of fiscal 2010 to $427.5 million, and as a percentage of sales, declined to 4.4% of sales. This decrease in operating income for both periods was primarily due to gross margin dollars growing at a slower rate than sales and operating expenses increasing faster than gross margin dollars. We incurred a $36.1 million charge in the third quarter of fiscal 2011 for a withdrawal from a multi-employer pension plan which had a significant impact on operating income for the quarter.

Gross margin dollars increased in the first 39 weeks and third quarter of fiscal 2011 as compared to the first 39 weeks and third quarter of fiscal 2010 primarily due to increased sales. Gross margin, as a percentage of sales, was 18.63% in the first 39 weeks of fiscal 2011, a decline of 43 basis points from the gross margin percentage of 19.06% in the first 39 weeks of fiscal 2010. Gross margin, as a percentage of sales, was 18.55% in the third quarter of fiscal 2011, a decline of 27 basis points from the gross margin percentage of 18.82% in the third quarter of fiscal 2010. This decline in gross margin percentage was primarily the result of the following factors described in the paragraphs below.

First, Sysco’s product cost inflation was estimated as inflation of 4.2% during the first 39 weeks and 5.1% during the third quarter of fiscal 2011. Based on our product sales mix for the first 39 weeks of fiscal 2011, we were most impacted by higher levels of inflation in the dairy, meat and seafood product categories in the range of 9% to 11%. For the third quarter of fiscal 2011, we were impacted by higher levels of inflation in the seafood, meat and canned and dry product categories in the range of 5 to 14%. While we are generally able to pass through modest levels of inflation to our customers, we were unable to pass through fully these higher levels of product cost inflation with the same gross margin percentage in these product categories without negatively impacting our customers’ business and therefore our business. While we cannot predict whether inflation will continue at these levels, prolonged periods of high inflation, either overall or in certain product categories, can have a negative impact on us and our customers, as high food costs can reduce consumer spending in the food-away-from-home market, and may negatively impact our sales, gross margins and earnings.

Our fuel commitments will result in either additional fuel costs or avoided fuel costs based on the comparison of the prices on the fixed price contracts and market prices for the respective periods. In the first 39 weeks and third quarter of fiscal 2011, our forward fuel purchase commitments resulted in an estimated $9.6 million and $4.2 million, respectively, of avoided fuel costs as the fixed prices on the contracts were lower than market prices for the contracted volumes. In the first 39 weeks and third quarter of fiscal 2010, our forward purchase commitments resulted in an estimated $4.8 million of additional fuel costs and $3.3 million of avoided fuel costs, respectively. As of April 2, 2011, we had forward diesel fuel commitments totaling approximately $71.0 million through February 2012. These contracts will lock in the price of approximately 30% to 35% of our fuel purchase needs for the contracted periods at prices lower than the current market price for diesel. Subsequent to April 2, 2011, we entered into forward diesel fuel commitments totaling approximately $10 million for the month of March 2012.

Basic and diluted earnings per share decreased 2.1% in the first 39 weeks and increased 4.8% in the third quarter of fiscal 2011 from the comparable periods of the prior year. These changes were primarily the result of factors discussed above, as well as a small net reduction in shares outstanding. The net reduction in both average and diluted shares outstanding was primarily due to share repurchases.

Read the The complete Report



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