Q4: Sysco Sings a Sweet Tune

On August 11, before the market open, Sysco Corp. (SYY) reported Q4 earnings of $0.55 per share or $334.1 million vs. $303.4 million ($0.49 per share) a year ago, an increase of 10%. Revenue increased to $9.73 billion or 5.4% vs. $9.2 billion a year ago. Analysts expected $0.52 per share, beating estimates by $0.03 per share. Analysts also expected revenue of $9.87 billion, missing revenue forecasts. SYY spiked in the morning and maintained momentum throughout the day to close at $31.15, up $1.28 or 4.3% on 9.91 million shares traded (highest daily volume in four years).

SYY estimated that in FY 2008, they experienced a 6% inflation rate in the cost of goods sold. However, in Q4 SYY was able to increase productivity and control expenses which helped to offset higher commodity costs. Revenue growth should continue to slow down as restaurants, SYY’s important end market, get a grip on higher food and energy costs. The benefit for SYY is that they do not fully rely on dining establishments and have a diverse customer base with no single customer accounting for more than 10% of sales. Weak consumer spending, inflation, particularly fuel costs, and a continued slow down in restaurant sales and the overall difficult economic environment will have an impact on SYY’s operating margins going forward.

Fundamental highlights include SYY’s ROI (17.4%, trailing 12-months [TTM] vs. industry avg. 14.7%), ROE (33.1%, TTM vs. industry avg. 20.9%), ROA (11.3%, TTM vs. 10.9%) and positive earnings growth (13.3%, TTM vs. industry avg. 5.5%). However, concern must be noted in SYY’s gross margins (19.2%, TTM vs. industry avg. 25.6%). 

There are currently 8 analysts that cover SYY, but there have not been any recent revisions. The current rating consensus is 2 “Buy”, 6 “Hold”, and 0 “Sell” ratings. Expect analyst recommendations to come out in the near future that may move the stock in the short-term. 

In FY 2008 until March of this year, SYY has repurchased 17 million shares at a total cost of $536 million. As for insiders, in the past 12 months, there were 0 purchases and 66,872 shares sales. Institutions, in the past 12 months, have sold 20.8 million shares or a net -4.7% change in ownership. However, in the past 3 months, institutions have purchased 15.4 million shares or a net change of +3.3%.   

On the day of earnings, SYY broke out of several resistance levels including the 50-day, 200-day, and previous congestion areas. SYY formed an ascending triangle since June and has broken out to the upside on massive volume. SYY may find support at the $30-$31 as it has several times this year. SYY is a possible long candidate if general market conditions improve.

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Disclosure: None

Comments

[GregT:]

Long term - great company and great possible investment.

Short term - headwinds of inflation and economic slowdown will have a huge impact on SYY's customers. All the rev growth this past quarter was due to inflation. They did a very commendable job of growing EPS by improving efficiencies, but you can't "save yourself to prosperity." If our inflation/slow growth/housing problem lasts another year, there is a good chance SYY will have an ugly quarter. That will be the right time to buy the stock IMHO.

2008 Aug 20 09:34 AM

[John C. Lee:]

I agree, great company, but under considerable stress due to the economic environment. SYY is large enough to weather the storm.

2008 Aug 21 02:38 AM