The board of Sysco Corp. (SYY - Analyst Report) has approved its 18th share repurchase program comprising 20 million shares. The company has been repurchasing shares since 1992. The share repurchase program is part of an ongoing effort to keep the number of shares outstanding relatively constant. The company has an estimated 586 million shares outstanding.
In addition, Sysco’s board declared a quarterly dividend of 28 cents per share. The dividend will be paid on Oct 25, 2013 to shareholders of record as of Oct 4.
We appreciate Sysco’s efforts to consistently enhance long-term shareholder value even amid a volatile economy. The share buyback program helps the company to reduce outstanding share count, thereby increasing earnings per share and return on equity. Apart from bolstering shareholder value, this strategic move will also lift the relatively undervalued share price.
In the recently concluded fourth quarter, Sysco generated $1.5 billion of cash from operations. Capital expenditure in the fourth quarter of fiscal 2013 was approximately $139 million related to facility replacements, expansions and replacements to Sysco's fleet.
Cash and cash equivalents were $412.3 million as of Jun 29, 2013 compared with $331.5 million at the end of Mar 30, 2013. Long-term debt was $2.64 billion at the end of fourth quarter compared with $2.56 billion at the end of the third quarter.
Sysco, a global leader in selling, marketing and distribution of food products, reported better-than-expected fourth quarter fiscal 2013 adjusted earnings (excluding business transformation expenses and one-time items) of 59 cents. Earnings beat the Zacks Consensus Estimate of 55 cents by 7.3% but declined from the prior-year quarter earnings of 63 cents by 6.3% due to weak restaurant traffic. The year-over-year results were also dampened by a sluggish macroeconomic scenario and weather related headwinds, which in turn were reflected in lower consumer spending.
Sysco's sales grew 5.0% on a year-over-year basis to $11.60 billion in the fourth quarter of fiscal 2013, driven by 3.0% volume growth (including acquisitions). Acquisitions contributed 2.1% to sales growth, while currency translation decreased sales by 0.1%. Fourth quarter sales missed the Zacks Consensus Estimate of $11.62 billion.
Gross profit increased 1.2% to $2.0 billion in the quarter but the growth was marginal due to ongoing competitive pressure and shift in customer mix. Adjusted operating income however declined 7.3% in the quarter to $564.7 million due to higher adjusted operating expenses.
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 #4 (Sell). However, there are other stocks in the retail and wholesale sector that are worth considering. These include Green Mountain Coffee Roasters Inc (GMCR - Analyst Report), Nash Finch Co and United Natural Foods Inc (UNFI - Analyst Report), all of them holding a Zacks Rank #2 (Buy).