Sysco - Stable Long-Term Investment For Investors Looking For Yield

Aug.14.12 | About: SYSCO Corporation (SYY)

Shares of SYSCO Corporation (SYY), the food distributor rose 4.5% in Monday's trading session. The company, known for its shiny trucks, reported its fourth quarter results before the market open.

Fourth Quarter Results

Sysco reported fourth quarter revenues of $11.0 billion, up 5.9% compared to 2011. Operating income fell 8.1% to $515 million as food inflation continues to hurt the bottom line. Food cost inflation came in at 3.3% in the last quarter, predominantly in poultry, meat and canned goods.

Net income fell 8.0% to $309 million. Diluted earnings per share fell 7.0% to $0.53, compared to $0.57 last year. On average, analysts expected Sysco to report earnings of $0.54 per share on revenues of $11.04 billion. Shares rose despite the fact that the company did not manage to beat current estimates. Investors are hopeful about improved profitability in the near future, as the pace of food inflation is slowing down, according to the company.

For the full year of 2012, Sysco reported annual revenues of $42.4 billion, up 7.8% compared to 2011. Revenues were driven by 5.5% food cost inflation, while acquisitions added 0.7% in revenues. Operating income fell 2.1% to $1.9 billion. Diluted earnings per share came in at $1.90 per share, down 3.1% on the year.

CEO Bill DeLaney commented on the results, "Market conditions remained challenging throughout the year due to increasing product costs and an uneven economy recovery. Nevertheless, we successfully supported out customers and grew our share of the market. We are making meaningful progress in our business transformation initiatives and believe the benefits will both improve our financial performance over time and further enhance our leadership position in the industry."

Valuation

Sysco ended its fiscal year of 2012 with $689 million in cash and equivalents. It operates with short and long term debt of $3.02 billion, leaving the company with a net debt position of $2.33 billion. Sysco is currently valued at $17.7 billion. This values the firm at 0.4 times annual revenues and 16 times annual earnings.

This valuation compares to a revenue multiple of 0.6 times for United Natural Foods (UNFI). This competitor trades at 32 times trailing annual earnings.

Currently, Sysco pays a quarterly dividend of $0.23 per share, for an annual dividend yield of 3.6%.

Investment Thesis

Year to date, shares of Sysco trade with modest gains of 3%. In the first half of 2012, shares traded within a tight trading range, between $27-$31. Over the past decade, shares trade largely unchanged, within a wide $20-$40 trading range.

In recent years, Sysco has reported stable revenues and annual profits. In the meantime, the company has steadily raised its annual dividend. Furthermore, it repurchased roughly 4% of its shares outstanding over the past three years.

Long term investors who want to invest in a well-known company, operating in a stable industry, can invest in Sysco. An investor should not anticipate to make quick capital gains. However long term holders receive dividends, far surpassing yields on Treasuries securities.

The latest earnings report does not contain triggers to rush in, or out of the shares. Investors holding the shares, could simply hold on to their positions, receiving decent dividend yields for years to come.

I stay on the sidelines, as I like to have more prospects for capital gains within my investment portfolio.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.