Sysco Beats Estimates

Sysco Corp. (SYY - Snapshot Report) has delivered third-quarter 2012 earnings of 49 cents per share, which exceeded the Zacks Consensus Estimate of 42 cents on a better-than-expected top-line. It also exceeded the prior-year earnings of 48 cents per share.

The third-quarter 2012 results excludes the negative impact of business transformation costs, while the third-quarter 2011 earnings exclude negative impact of gross business transformation expenses and impact of Multiemployer Pension Plan (MEPP) charge, partially offset by tax benefits and gain from corporate-owned life insurance (COLI).

Revenue and Operating Income

Sysco's sales advanced 7.6% on a year-over-year basis, to $10.5 billion in the third-quarter of 2012. Acquisition added 0.7% to sales growth while unfavorable currency translation decreased sales by 0.2%. Sales slightly beat the Zacks Consensus Estimate of $10.47 billion on better volumes.

Gross profits expanded 2.1% in the third quarter to reach $1.9 billion. Operating income, excluding business transformation expenses and the impact of MEPP and COLI, increased 0.9% in the quarter to $487.4 million.

Other Financial Updates

Cash and cash equivalents were $350.5 million at the end of March 31, 2012 as compared to $336.5 million at the end of December 31, 2011. Long-term debt was $2.4 billion at the end of third quarter versus $2.7 billion at the end of the prior quarter.

Sysco also spent $199 million as capital expenditure in the third-quarter of 2012 related to facility replacements and expansions, replacements to Sysco's fleet, and technology. The company’s capital expenditure included $39 million related to the company's business transformation project.

Acquisition Update

The company acquired the specialty food importer European Imports, Ltd. in the end of February, which operates as an independent business and retains its management as well as its employees. Further, being well positioned in the specialty import products segment, European Imports will complement Sysco’s broad-line and specialty operations.

European Imports generated annual sales of $124 million in its last fiscal year; and other than importing cheese specifically for the Chicago market, it imports meat, seafood and pastries from around the world and distributes its products to the central United States with concentration in the Midwest, Texas, Arizona, Colorado and Atlanta.

Headquartered in Houston, Texas, Sysco's multi-year business transformation project is on track, employing 300 full-timers. The company is through with the design and technology development work. Presently, it is testing systems and processes.

We currently have a Zacks #4 Rank (short-term Sell rating) on Sysco, which translates into a short-term Hold rating. Sysco, which competes with United Natural Foods, Inc. (UNFI - Analyst Report) and Nash-Finch Company (NAFC - Analyst Report), is the global leader in selling, marketing and distributing food products, and operates 177 distribution facilities serving approximately 400,000 customers.