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Sysco (SYY) Up 3.6% Since Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Sysco Corporation (SYY - Free Report) . Shares have added about 3.6% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is SYY 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 catalysts.

Sysco Q3 Earnings & Sales Improve Y/Y, U.S. Volumes Up

Sysco Corporation reported third-quarter fiscal 2018 results, wherein both top and bottom lines grew year over year and the latter surpassed the Zacks Consensus Estimate for the fourth consecutive quarter.

Quarter in Detail

Adjusted earnings of 67 cents per share jumped 31.4% year over year and beat the Zacks Consensus Estimate of 64 cents. Including one-time items, earnings increased 43.2% to 63 cents per share. Earnings gained from reduced taxes.

This global food products maker and distributor’s sales of $14,349.5 million advanced 6.1% year over year. However, the figure fell short of the Zacks Consensus Estimate of $14,382 million.

Gross profit improved 5.6% to $2,675.6 million in the quarter, courtesy of higher sales. However, gross margin fell 9 basis points (bps) to 18.65%. Adjusted operating income rose 7.1% to $535.8 million, while the adjusted operating margin improved 3 bps to 3.73%.

Segment Details

U.S. Foodservice Operations

Segment sales advanced 5.1% to $9,704.5 million, where local case volume within U.S. Broadline operations climbed 2.6% (including organic sales growth of 1.8%) and total case volume ascended 2.4% (wherein organic sales inched higher by 1.7%). Gross profit expanded 4.1% to $1,911.7 million, while the gross margin contracted 19 bps to 19.7%. This can be attributed to food cost inflation in U.S. Broadline, particularly in produce, dairy and meat categories.

Adjusted operating expenses escalated 5.9% to $1,214.5 million, on account of higher selling and supply chain costs. Nonetheless, the adjusted operating income climbed 1.2% to $697.2 million.

International Foodservice Operations

Segment sales increased 10.7% to roughly $2,799.3 million. Gross profit jumped 12.9% to $583.2 million, whereas the gross margin rose 40 bps to 20.84%.

Adjusted operating income surged 11.6% to $44.5 million, despite a 13% rise in adjusted operating costs that came in at $583.7 million. The rise in operating costs was a result of higher transportation and integration costs.

SYGMA

Sales at this segment improved 4.6% to $1,605.8 million. Gross profit rose 6.4% to $127.1 million and gross margin increased 13 bps to 7.9%. Operating income fell 39% to $4.5 million, as operating costs escalated 9.3% to $122.6 million.

Other Financial Updates

Sysco ended the quarter with cash and cash equivalents of $901.6 million, long-term debt of $8,835.2 million and total shareholders’ equity of $2,351.2 million.

During the first three quarters of fiscal 2018, the company generated cash flow from operations of $1,124.2 million and incurred net capital expenditure of $356 million. The company’s total free cash flow for the same period amounted to $768 million, marking a considerably improvement from the year-ago period – courtesy of lower taxes and improved earnings.

Outlook

Management remains pleased with its performance which was backed by greater sales and improvement in gross profit. However, the company marked its first sales miss after delivering four straight beats. Also, Sysco continues to face cost hurdles. Nevertheless, management remains confident of achieving its goals that form part of its three-year plan.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter compared to one lower. Last month, the consensus estimate has shifted by 5.3% due to these changes.

Sysco Corporation Price and Consensus

 

VGM Scores

At this time, SYY has a strong Growth Score of A, though it is lagging a bit on the momentum front with a B. Following the exact same course, the stock was also allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for growth investors than those looking for value and momentum.

Outlook

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




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