It has been about a month since the last earnings report for Sysco (SYY - Free Report) . Shares have added about 2.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Sysco due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Sysco's Q4 Loss Narrower Than Expected, Sales Down Y/Y
Sysco reported fourth-quarter fiscal 2020 results, wherein it posted an adjusted loss of 29 cents per share, which was narrower than the Zacks Consensus Estimate of a loss of 39 cents. However, the bottom line fell significantly from the year-ago period’s adjusted earnings of $1.10 per share. The year-over-year deterioration can be attributed to reduced sales and margins.
Sysco reported sales of $8,866.6 million, which slumped 42.7% year over year, thanks to the coronavirus outbreak. Nevertheless, the figure surpassed the Zacks Consensus Estimate of $8,188.2 million. Foreign currency headwinds had an adverse impact of about 0.3% on the top line.
Gross profit in the quarter declined 47.4% to $1,565.7 million and the gross margin contracted 159 basis points (bps) to 17.66%. Foreign currency headwinds had an adverse impact of about 0.3% on the gross profit. Adjusted operating loss was $33.9 million against adjusted operating income of roughly $818 million in the year-ago period.
U.S. Foodservice Operations: During the fourth quarter, segment sales declined 42.8% to $6,114.9 million. Local case volumes within U.S. Broadline operations fell 38.7% (including organic sales decline of 39.4%) and total case volumes dropped 41.5% (wherein organic sales declined 41.9%). Gross profit plunged 45.7% to $1,165.6 million, while gross margin contracted 102 bps to 19.06%. Food-cost inflation was almost flat in U.S. Broadline, as inflation in meat was countered by deflationary trends in frozen and poultry categories.
International Foodservice Operations: Segment sales declined 53.4% to $1,361.1 million in the fourth quarter. Foreign exchange fluctuations hurt segment sales by 1.5% during the quarter. On a constant-currency (cc) basis, sales fell 51.9% to $1,405.6 million. At cc, gross profit declined 56.4% to $270.9 million and gross margin fell 199 bps to 19.27%. Currency headwinds affected the segment’s gross profit by 1.3%.
SYGMA sales dropped 16.8% to $1,288.9 million. Other segment sales tumbled 66.8% to $101.6 million.
Sysco ended the quarter with cash and cash equivalents of $6,059.4 million, long-term debt of $12,902.5 million and total shareholders’ equity of $1,158.6 million. During fiscal 2020, the company generated cash flow from operations of $1,618.7 million and free cash flow amounted to $927 million.
The company is making robust efforts to manage its business amid the pandemic. To this end, it is utilizing its sales team to boost additional businesses and prepare for the return of demand in the food-away-from-home channel. The company is also helping its restaurant partners to reshape business, as per the current environment, by offering solutions related to meal kits, contactless menus, curbside/takeout, along with safety and sanitation.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -40.35% due to these changes.
Currently, Sysco has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Sysco has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.