Earnings Analysis: Does Sysco Need A Boost Of Anti-Oxidants?

Aug.13.13 | About: SYSCO Corporation (SYY)

Sysco Corporation (NYSE:SYY), the largest food distributor in America with a 17.5% share of the market had its Fourth Quarter Fiscal 2013 earnings call yesterday. Sysco shares fell $2.02 or 5.8 percent to $32.99. Last year, SYSCO acquired 14 companies and distributed nearly $650 million of dividends.

... consumer spending trends in our space are gradually shifting more to fresh, natural and sustainably produced products. We continue to focus on ways to respond to and capitalize on those trends in our own business, as well as in partnership with our customers and suppliers. --William J. DeLaney - Chief Executive Officer

We analyzed Sysco Corporation's preliminary financial results for the year ended 2013-06-30 relative to its peers (scroll to the end of the post for the peer list). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Annual (USD million) 2013-06-30 2012-06-30 2011-06-30 2010-06-30 2009-06-30
Revenues 44,411.2 42,380.9 39,323.5 37,243.5 36,853.3
Revenue Growth % 4.8 7.8 5.6 1.1 (1.8)
Net Income 992.4 1,121.6 1,152.0 1,180.0 1,055.9
Net Income Growth % (11.5) (2.6) (2.4) 11.7 (4.5)
Net Margin % 2.2 2.6 2.9 3.2 2.9
ROE % 20.1 23.9 27.0 32.4 30.8
ROA % 8.0 9.6 10.6 11.5 10.4
Click to enlarge

Differentiated Products

Sysco Corporation currently trades at a higher Price/Book ratio (3.7) than its peer median (1.8). SYY's operating performance is higher than the median of its chosen peers (ROE of 20.1% compared to the peer median ROE of 9.7%) but the market does not seem to expect higher growth relative to peers (PE of 19.6 compared to peer median of 20.7) but simply to maintain its relatively high rates of return.

The company attempts to achieve high profit margins (currently 2.2% vs. peer median of 1.8%) through differentiated products. It currently operates with peer median asset turns of 3.6x. Sysco's net margin is its lowest relative to the last five years and compares to a high of 3.2% in 2010.

Under-Investment in Growth?

Sysco's revenues have grown at about the same rate as its peers (6.0% vs. 6.0% respectively for the past three years). Similarly, the stock price implies median long-term growth as its PE ratio is around the peer median of 19.6. The historical performance and long-term growth expectations for the company are largely in sync.

Sysco's annualized rate of change in capital of 8.6% over the past three years is around the same as its peer median of 8.6%. This investment has generated a better than peer median return on capital of 14.8% averaged over the same three years. The greater than peer median rate of return suggest that the company may be under investing in growth.

Trend Charts

Peer list used for Sysco earnings analysis:

Sysco Corporation's analysis versus peers uses the following peer-set: United Natural Foods, Inc. (UNFI), Metcash Limited (MTS), Core-Mark Holding Company, Inc. (NASDAQ:CORE), Nash-Finch Company (NASDAQ:NAFC), Spartan Stores, Inc. (NASDAQ:SPTN) and Calavo Growers, Inc. (NASDAQ:CVGW).


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.