Sysco Corporation (SYY - Free Report) reported first-quarter fiscal 2019 results, wherein both top and bottom lines missed the Zacks Consensus Estimate. However, both the metrics improved year over year.
Quarter in Detail
Adjusted earnings of 91 cents per share rallied almost 23% year over year, though it fell a penny short of the Zacks Consensus Estimate. Results were impacted by increased transportation and warehouse costs with regard to the company’s supply chain. In fact, management expects these headwinds to persist, which is a concern.
Nonetheless, this global food products maker and distributor’s sales of $15,215.3 million advanced 3.9% year over year. However, the figure fell short of the Zacks Consensus Estimate of $15,457 million. This marked the company’s third straight quarter of top-line miss.
Gross profit improved 3.9% to $2,903.8 million in the quarter, courtesy of higher sales. Further, gross margin rose 2 basis points (bps) to 19.08%. Further, adjusted operating income rose 5.1% to $691.7 million, while adjusted operating margin improved 5 bps to 4.55%.
U.S. Foodservice Operations
Segment sales advanced 5.6% to $10,399.4 million, where local case volumes within U.S. Broadline operations climbed 5.2% (including organic sales growth of 3.7%) and total case volumes ascended 5.7% (wherein organic sales increased 4.3%). Gross profit expanded 5.2% to $2,090.2 million, while gross margin contracted 7 bps to 20.10%. The downside was caused by a fall in food-cost inflation in U.S. Broadline, particularly due to meat, poultry and produce category deflation. Operating expenses escalated 5.3% on account of increased selling and supply-chain costs. Nevertheless, operating income climbed 4.3% to $815.8 million.
International Foodservice Operations
Segment sales climbed 0.6% to roughly $2,921 million. Foreign exchange fluctuations negatively impacted segment sales by 0.4% during the quarter. Gross profit went up 0.1% to $615.5 million, while gross margin fell 11 bps to 21.1%. Adjusted operating income rose nearly 0.2% to $95.4 million, which included about 0.4% adverse impact from currency movements. Also, adjusted operating expenses went up marginally, owing to higher investments in supply-chain transformation and business integration.
Sales in this segment dipped 1.2% to $1,621.5 million. Gross profit rose 3% to $129.3 million and gross margin increased 32 bps to 7.98%. Operating income plunged close to 50% to $2.4 million.
Sysco ended the quarter with cash and cash equivalents of $790.3 million, long-term debt of $7,914.3 million and total shareholders’ equity of $2,638.6 million.
During the first quarter, the company generated cash flow from operations of $271.1 million and incurred net capital expenditure of $100.5 million. Free cash flow during the quarter amounted to $170.7 million.
Sysco is pleased with its top-line performance, especially in its U.S. Foodservice unit. While the company expects supply-chain related headwinds to persist, it is on track with its strategic priorities that are expected to drive growth and fuel value creation.
This Zacks Rank #3 (Hold) stock has gained 13.4% in the past six months compared with the industry’s rise of 2.3%
Check These Solid Food Stocks
Chefs’ Warehouse (CHEF - Free Report) , with long-term earnings per share growth rate of 19%, carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
McCormick & Company, Incorporated (MKC - Free Report) has long-term earnings per share growth rate of 9% and a Zacks Rank #2 (Buy).
Lamb Weston (LW - Free Report) , with a Zacks Rank #2, has long-term earnings per share growth rate of 11%.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>