A month has gone by since the last earnings report for Sysco (SYY - Free Report) . Shares have lost about 4.8% 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 the most recent earnings report in order to get a better handle on the important catalysts.
Sysco Q3 Earnings Surpass Estimates, Revenues Miss
Sysco reported third-quarter fiscal 2019 results, wherein adjusted earnings of 79 cents per share increased nearly 18% year over year, and surpassed the Zacks Consensus Estimate of 70 cents. Results were backed by improved sales and efficient expense management.
This global food products maker and distributor’s sales of $14,658 million advanced 2.2% year over year. However, the figure fell slightly short of the Zacks Consensus Estimate of $14,884 million. This marked the company’s fifth straight quarter of top-line miss.
Gross profit improved 2.9% to $2,754.3 million in the quarter, courtesy of higher sales. Further, gross margin expanded 14 basis points (bps) to 18.79%. Adjusted operating income rose 16.6% to $620.2 million, while the adjusted operating margin improved 52 bps to 4.23%.
U.S. Foodservice Operations
Segment sales advanced 4.1% to $10,015.3 million, where local case volumes within U.S. Broadline operations increased 3.1% (including organic sales growth of 2.2%) and total case volumes ascended 2.1% (wherein organic sales increased 1.3%). Gross profit grew 5.1% to $2,009.1 million, while gross margin rose 18 bps to 19.9%. Results were somewhat negatively impacted by food-cost inflation in U.S. Broadline, particularly in frozen potato, meat and poultry categories. Adjusted operating expenses escalated 2.3% on account of increased supply-chain and labor costs across warehouse and transportation. Nevertheless, adjusted operating income grew about 10% to $70 million.
International Foodservice Operations
Segment sales slipped 1.5% to roughly $2,757.9 million. Foreign exchange fluctuations hurt segment sales by 1.1% during the quarter. Gross profit dipped 3.1% to $565.1 million, while gross margin fell 34 bps to 20.5%. Adjusted operating expenses declined 5.8%, courtesy of restructuring and reorganization initiatives. Adjusted operating income rallied 30% to $58.1 million, which included about 0.3% adverse impact from currency movements.
Sysco ended the quarter with cash and cash equivalents of $521.6 million, long-term debt of $8,134.5 million and total shareholders’ equity of $2,361.9 million.
During the first 39 weeks of fiscal 2019, the company generated cash flow from operations of $1,365.2 million and incurred net capital expenditure of $366.5 million. Free cash flow during the same period amounted to $1 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
At this time, Sysco has a great Growth Score of A, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile 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.
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Sysco has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.