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Sysco's (SYY) Q2 Earnings Surpass Estimates, Revenues Miss

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Sysco Corporation SYY reported second-quarter fiscal 2020 results, with both top and bottom lines rising year over year. Further, earnings beat the Zacks Consensus Estimate for the fifth straight time, while sales marked its eighth consecutive miss.

This Zacks Rank #2 (Buy) stock has gained 22.3% in the past six months compared with the industry’s growth of 5.8%.

Quarter in Detail

Adjusted earnings of 85 cents per share increased 13.2% year over year and surpassed the Zacks Consensus Estimate by a penny. The year-over-year upside can be attributable to improved sales and margins. Also, interest expenses declined year over year.

Sysco Corporation Price, Consensus and EPS Surprise

Sysco Corporation Price, Consensus and EPS Surprise

Sysco Corporation price-consensus-eps-surprise-chart | Sysco Corporation Quote

This global food products maker and distributor reported sales of $15,025 million, which climbed 1.8% year over year. However, the figure fell short of the Zacks Consensus Estimate of $15,092 million. Foreign currency headwinds had an adverse impact of about 0.2% on the top line.

Gross profit in the quarter improved 2% to $2,828.4 million, courtesy of higher sales. Further, gross margin expanded 5 basis points (bps) to 18.82%. Foreign currency headwinds had an adverse impact of about 0.2% on the gross profit.

Adjusted operating income rose 3.9% to $626.9 million, while adjusted operating margin expanded 9 bps to 4.17%.

Segment Details

U.S. Foodservice Operations: During the quarter, segment sales advanced 3.2% to $10,413.6 million. Local case volumes within U.S. Broadline operations grew 3.7% (including organic sales growth of 2.5%) and total case volumes 2% (wherein organic sales increased 1.3%). Gross profit rose 2.4% to $2,048.9 million, while gross margin contracted 17 bps to 19.7%.

Results were negatively impacted by food-cost inflation of 2.6% in U.S. Broadline, particularly in categories like meat and dairy. Adjusted operating expenses escalated 1% but the adjusted operating income rose 4.7% to $772.5 million.

International Foodservice Operations: Segment sales remained flat at $2,890.1 million in the quarter. Foreign exchange fluctuations hurt segment sales by 0.9% during the quarter. On a constant-currency or cc basis, sales grew 0.9%.

At cc, gross profit rose 0.4% to $592.1 million but gross margin fell 10 bps to 20.31%.  Currency headwinds weighed on segment gross profit by 1%.

Adjusted operating expenses increased 1% due to operational headwinds related to Sysco’s integration efforts associated with its France operations. Adjusted operating income declined 10.8% to $74 million. Operating income in the segment was positively impacted by currency movements to the tune of 0.3%. On a cc basis, adjusted operating income declined 11.1% to $73.8 million.

Other Updates

Sysco ended the quarter with cash and cash equivalents of $524.6 million, long-term debt of $8,092.9 million and total shareholders’ equity of $2,527.5 million.

During the first half of fiscal 2020, the company generated cash flow from operations of $754.5 million and incurred net capital expenditure of $383.1 million. Free cash flow amounted to $371.4 million.

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