Foodservice industry delivery company Sysco (SYY
66.78, +3.21, +5.05%) hit a two-month high this morning in reaction to the company’s
better than expected second quarter earnings.
Despite increasing supply chain costs in both transportation and warehouse Sysco managed to report a bottom line beat of $0.75 per share. Sales weren’t as robust as the market had anticipated, though still managed to increase 2.8% to $14.8 bln on gross margin growth of four basis points to 18.77%.
The U.S. Foodservice business saw sales growth of 4.2% to $10.1 bln. Local case volume within U.S. Broadline operations grew 3.3% for the second quarter, of which 2.4% was organic, while total case volume within U.S. Broadline operations grew 2.9%, of which 2.0% was organic. Additionally, gross profit increased 4.5% to $2.0 bln, and gross margin increased 6 basis points to 19.8%, compared to the same period last year. Food cost inflation was 1.4% in U.S. Broadline, as measured by the estimated change in Sysco’s product costs, primarily in the frozen potato, meat, paper and produce categories.
International Foodservice operations were up less than 1.0% to $2.9 bln in the second quarter. The impact to total Sysco sales of foreign exchange during the quarter was negative 0.7%. Gross profit fell 1.6% to $589.9 mln, and gross margin was down 49 basis points to 20.4%, compared to the same period last year.
Capital expenditures, net of proceeds from sales of plant and equipment, totaled $216.9 mln for the first 26 weeks of fiscal 2019, which was $37.8 mln lower compared to the same period last year.
Management continued to make investments in the business, particularly in its international segment. Sysco remains focused on continuing to manage costs and anticipate seeing additional benefit from its cost savings initiatives in the second half of this fiscal year. In order to drive continued growth and value creation, Sysco recently implemented organizational and executive leadership changes, which further align the company with its customer first operating model and streamline the business. This reorganization results in an approximate 10% reduction in salaried corporate support positions.
Despite these increased costs and the recent shortage of drivers in the market, which has caused Sysco and competitors to up compensation, the company’s view of the future didn’t shift in the past quarter and management feels good about its 2020 targets.
As far as the stock goes, SYY bumped into its 200-day simple moving average (67.65) this morning. On the whole, the stock still remains in bearish territory as the “death cross” in late December has held firm even through today’s advance. Into the print Sysco was up just shy of 1.5% as last week’s 2.5% gains allowed the stock to climb out of its YTD losses to that point.
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