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Why Is Sysco (SYY) Down 2.8% Since Last Earnings Report?

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It has been about a month since the last earnings report for Sysco (SYY - Free Report) . Shares have lost about 2.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Sysco due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Sysco's Q3 Earnings Top Estimates, Revenues Decline Y/Y

Sysco reported third-quarter fiscal 2021 results, wherein the top and bottom lines declined year over year and the former missed the Zacks Consensus Estimate. We note that the company has been bearing the brunt of coronavirus-led softness in food-away-from-home demand. The company posted adjusted earnings of 22 cents per share, which surpassed the Zacks Consensus Estimate of 20 cents. However, the bottom line declined 51.1% from the year-ago period’s reported figure. The year-over-year deterioration can be attributed to reduced sales and margins.

The company reported sales of nearly $11,824.6 million, which fell 13.7% year over year and missed the Zacks Consensus Estimate of $12,183 million. Foreign currency had a favorable impact of 0.8% on the top line.

Gross profit in the quarter declined 17.2% to $2,122.7 million and the gross margin contracted 77 basis points (bps) to 18%. Foreign currency had a positive impact of 0.8% on gross profit. Adjusted operating income of $256.2 million slumped 32% year on year and the respective margin shrank 59 bps to 2.2%.

Segment Details

U.S. Foodservice Operations: During the reported quarter, segment sales declined 12.8% to $8,360.2 million. Local case volumes within U.S. Broadline operations fell 9.7% (including organic sales decline of 9.7%) and total case volumes dropped 14.1% (wherein organic sales declined 14.1%). Gross profit decreased 13.7% to $1,634.8 million, while gross margin contracted 22 bps to 19.6%. U.S. Broadline saw a 3.5% product cost inflation, mainly due to meat and poultry categories, as well as paper and disposables.

International Foodservice Operations: Segment sales plunged 31.3% to $1,723.1 million in the quarter. Foreign-exchange fluctuations positively impacted segment sales by 4.1%. On a constant-currency (cc) basis, sales fell 35.4% to $1,619.8 million. Gross profit fell 35.1% to $325.2 million and gross margin contracted 110 bps to 18.9%. At cc, gross profit declined 39.2% to $304.5 million. Currency movements aided the segment’s gross profit by 4.1%.
 
SYGMA sales advanced 15.9% to $1,580.7 million. Gross profit rose 12.3% to $133.5 million, whereas the gross margin contracted 30 bps to 8.4%.

Other segment sales tumbled 32.8% to $160.5 million.

Other Updates

Sysco ended the quarter with cash and cash equivalents of $4,895.7 million, long-term debt of $11,741.1 million and total shareholders’ equity of $1,395.6 million. In the first 39 weeks of fiscal 2021, the company generated cash flow from operations of $1,479.8 million and free cash flow amounted to $1,247.9 million.

Sysco has made solid progress with its transformation plan and remains focused on catering to its customers. The company in its third-quarter earnings release stated that it is witnessing strong business recovery. The company is witnessing constantly improving demand patterns from its U.S. customers and is well placed to execute internationally, as markets reopen. 

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -25.33% due to these changes.

VGM Scores

Currently, Sysco has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Sysco has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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