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Factors Likely to Influence Sysco's (SYY) Earnings in Q1

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Sysco Corporation (SYY - Free Report) is scheduled to release first-quarter fiscal 2019 results on Nov 5. This food and related products company has an impressive earnings surprise history, with average beat of 1.9%.

How are Estimates Faring?

After registering a bottom-line increase of 30.6% in the fourth quarter of fiscal 2018, Sysco is likely to record year-over-year growth of 24.3% in the first quarter of fiscal 2019 as well. This is quite evident from the Zacks Consensus Estimate for the quarter under review that stands at 92 cents compared with 74 cents reported in the year-ago quarter. We note that the Zacks Consensus Estimate has remained stable in the past 30 days.

The Zacks Consensus Estimate for revenues is $15,457 million, up approximately 15.5% from $14,650 million in the year-ago quarter. We note that total revenues of this Texas-based company increased 6.2% year over year in the last reported quarter.

Let’s delve deep and see if the company can retain this record this time around.

Sysco Corporation Price and EPS Surprise

Factors at Play

Sysco has been gaining from its sturdy U.S. Foodservice Operations. The trend continued in fourth-quarter fiscal 2018, wherein U.S. Foodservice sales advanced 6.1% with local case volumes up 5%. Notably, local case volumes in this segment have been rising year over year for 17 consecutive quarters now. Additionally, rising restaurant sales has been benefiting the company’s U.S. Operations for a while now.  Well, a rosy economic scenario, marked by a strong labor market and favorable consumer spending, has been favoring restaurant sales.

Moving on, Sysco is on track with its four core strategies, which include enhancing consumers’ experience; optimizing business; stimulating power of its people and achieving operational efficacy. In this regard, the company is focused on enhancing assortments, making constant innovations, ensuring food safety and revitalizing brands. Further, to evolve with the changing consumer preferences, Sysco is committed toward investing in technology and enhancing e-commerce operations. Moreover, it plans to improve supply chain, increase transparency, enhance deliveries and manage product costs effectively.  

Despite such upsides, the company has been witnessing year-over-year contraction in gross margin for the past four quarters. In fourth-quarter fiscal 2018, gross margin contracted 9 basis points (bps) to approximately 19%, driven by declines in U.S. Foodservice segments. U.S. Foodservice gross margin fell 18 bps on account of U.S. Broadline food cost inflation of about 1%, stemming from cost inflation in dairy, frozen potatoes & vegetables, and paper & disposables categories. Also, the company continues to bear the brunt of higher inbound freight costs, owing to driver availability challenges in the industry. Apart from this, management expects unfavorable currency translations to remain a challenge for the European region, mainly in the U.K. This is a threat to Sysco’s International performance.

Nevertheless, constant strength in Sysco’s U.S. Foodservice Operations and its focus on strategy for 2020 should help the company counter these hurdles.

What the Zacks Model Unveils

Our proven model doesn’t show that Sysco is likely to beat estimates this quarter as the stock has the right combination of two key ingredients — a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Though Sysco carries a Zacks Rank #3, it has an Earnings ESP of 0.00%, which makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks Poised to Beat Earnings Estimates

Here are some companies you may want to consider, as our model shows that these have the right combination of elements to post earnings beat:

Archer Daniels Midland Company (ADM - Free Report) has an Earnings ESP of +3.85% and a Zacks Rank of 1.

Lamb Weston Holdings, Inc. (LW - Free Report) has an Earnings ESP of +0.48% and a Zacks Rank of 2.

Kellog Company (K - Free Report) has an Earnings ESP of +0.93% and a Zacks Rank of 3.

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