Sysco Delivers Strong Third Quarter Earnings

Solid local case growth and expense management drives $60 million adjusted operating income improvement

HOUSTON, May 02, 2016 (GLOBE NEWSWIRE) -- Sysco Corporation (NYSE:SYY) today announced financial results for its 13-week third fiscal quarter ended March 26, 2016.¹

Third Quarter Fiscal 2016 Highlights²

• Sales increased 2.2% to $12.0 billion;
• Gross profit increased 4.1% to $2.1 billion; gross margin increased 34 basis points to 17.9%;
• Adjusted operating income increased 16.0% to $438 million; and
• Adjusted Earnings Per Share (EPS) increased $0.06 to $0.46.
  
  

First 39 Weeks Fiscal 2016 Highlights²

• Sales increased 1.2% to $36.7 billion;
• Gross profit increased 3.3% to $6.5 billion; gross margin increased 35 basis points to 17.8%;
• Adjusted operating income increased 7.7% to $1.4 billion; and
• Adjusted (EPS) increased $0.13 to $1.46.
  
  

“Our third quarter financial results were strong as we remained focused on servicing the needs of our customers and made steady progress toward our three-year plan financial objectives. As a result, we generated solid gross profit dollar growth of 4 percent, while effectively managing ongoing deflationary pressures,” said Bill DeLaney, Sysco’s chief executive officer. “Our favorable local case growth and expense management trends have driven improved operating income performance this year, and we are committed to sustaining this momentum in our fourth quarter and into fiscal 2017.”

¹Financial comparisons presented in this release are compared to the same period in the prior year. Earnings Per Share (EPS) and Adjusted EPS are shown on a diluted basis unless otherwise specified.  Adjusted financial results exclude certain items, which primarily include restructuring and merger-related costs. A reconciliation of non-GAAP measures is included in this release. 
²On a GAAP basis, operating income was $378 million for the third quarter, an increase of 15.4% from the prior year, and $1.3 billion for year to date, an increase of 17.6% from the prior year.  Diluted EPS was $0.38 for the third quarter, an increase of 26.7% from the prior year, and $1.26 for year to date, an increase of 22% from the prior year.

Third Quarter Fiscal 2016 Summary

Sales for the third quarter were $12.0 billion, an increase of 2.2% compared to the same period last year. Overall food cost deflation was 0.4% (0.8% in U.S. broadline), as measured by the estimated change in Sysco's product costs, with deflation in the meat, seafood and poultry categories partially offset by modest inflation in other categories. In addition, sales from acquisitions completed within the last 12 months increased sales by 0.9%, and the impact of changes in foreign exchange rates decreased sales by 1.0%. Case volume for the company’s U.S. broadline operations increased 3.6% during the quarter.  Local case growth within U.S. broadline operations increased 3.4%. Gross profit was $2.1 billion, an increase of 4.1% compared to the same period last year. Gross margin increased 34 basis points to 17.9%.

Non-GAAP Operating Income, Net Earnings and EPS
Adjusted operating expenses increased $25 million, or 1.5%, compared to the same period last year, due mainly to higher case volume-related expenses and incentive expense. Adjusted operating income was $438 million, an increase of $60 million, or 16.0%, compared to the same period last year. Adjusted interest expense was $47 million, an increase of $19 million compared to the same period last year, reflecting the increased adjusted debt, the proceeds from which were used primarily to fund the company’s accelerated share repurchase program. Adjusted net earnings were $261 million, an increase of $24 million, or 10.0%, compared to the same period last year. Adjusted diluted EPS was $0.46, which was 15.0% higher compared to the same period last year.

GAAP Operating Income, Net Earnings and EPS
Operating expenses increased $35 million, or 2.0%, compared to the same period last year, due mainly to higher case volume-related expenses and incentive expense. Operating income was $378 million, an increase of $50 million, or 15.4%, compared to the same period last year. Interest expense was $58 million, a decrease of $12 million compared to the same period last year. Net earnings were $217 million, an increase of $40 million, or 22.7%, compared to the same period last year. Diluted EPS was $0.38, which was 26.7% higher compared to the same period last year.

First 39 Weeks of Fiscal 2016 Summary

Sales for the first 39 weeks of fiscal 2016 were $36.7 billion, an increase of 1.2% compared to the same period last year. Overall food cost deflation was 0.5% (0.9% in U.S. broadline), as measured by the estimated change in Sysco's product costs, with deflation in the meat, seafood, poultry and dairy categories partially offset by modest inflation in other categories. In addition, sales from acquisitions completed within the last 12 months increased sales by 0.6%, and the impact of changes in foreign exchange rates decreased sales by 1.6%. Case volume for the company’s U.S. broadline operations grew 3.6% compared to the same period last year. Local case growth within U.S. broadline operations increased 2.7%. Gross profit was $6.5 billion, an increase of 3.3% compared to the same period last year. Gross margin increased 35 basis points to 17.8%.

Non-GAAP Operating Income, Net Earnings and EPS
Adjusted operating expenses increased $108 million, or 2.1%, compared to the same period last year, due mainly to higher case volume-related expenses and incentive expense. Adjusted operating income was $1.4 billion, an increase of $98 million, or 7.7%, compared to the same period last year. Adjusted interest expense was $127 million, an increase of $46 million compared to the same period last year, reflecting the increased debt, the proceeds from which were used primarily to fund the company’s accelerated share repurchase program. Adjusted net earnings were $848 million, an increase of $57 million, or 7.3%, compared to the same period last year. Adjusted diluted EPS was $1.46, which was 9.8% higher compared to the same period last year.

GAAP Operating Income, Net Earnings and EPS
Operating expenses increased $11 million, or 0.2%, compared to the same period last year, due mainly to higher case volume-related expenses and incentive expense, partially offset by lower merger-related expenses. Operating income was $1.3 billion, an increase of $195 million, or 17.6%, compared to the same period last year. Interest expense was $232 million, an increase of $54 million compared to the same period last year. Net earnings were $734 million, an increase of $120 million, or 19.6%, compared to the same period last year. Diluted EPS was $1.26, which was 22.3% higher compared to the same period last year.

Capital Spending and Cash Flow

Capital expenditures, net of proceeds from sales of plant and equipment, totaled $348 million for the first 39 weeks of fiscal 2016. Cash flow from operations was $1.0 billion for the first 39 weeks of fiscal 2016, which was $128 million higher compared to the same period last year. Free cash flow for the first 39 weeks of fiscal 2016 was $641 million, which was $202 million higher compared to the same period last year.

Conference Call & Webcast

Sysco’s third quarter fiscal 2016 earnings conference call will be held on Monday, May 2, 2016, at 10:00 a.m. Eastern. A live webcast of the call, a copy of this news release and a slide presentation will be available online at investors.sysco.com.

About Sysco

Sysco is the global leader in selling, marketing and distributing food products to restaurants, healthcare and educational facilities, lodging establishments and other customers who prepare meals away from home. Its family of products also includes equipment and supplies for the foodservice and hospitality industries. The company operates 194 distribution facilities serving approximately 425,000 customers. For fiscal year 2015 that ended June 27, 2015, the company generated sales of more than $48 billion. For more information, visit www.sysco.com or connect with Sysco on Facebook at www.facebook.com/SyscoCorporation or Twitter at https://twitter.com/Sysco.  For important news and information regarding Sysco, visit the Investor Relations section of the company's Internet home page at www.investors.sysco.com, which Sysco plans to use as a primary channel for publishing key information to its investors, some of which may contain material and previously non-public information.  Investors should also follow us at www.twitter.com/SyscoStock and download the Sysco IR App, available on the iTunes App Store and the Google Play Market. In addition, investors should continue to review our news releases and filings with the Securities and Exchange Commission.  It is possible that the information we disclose through any of these channels of distribution could be deemed to be material information.

Forward-Looking Statements

Statements made in this news release or in our earnings call for the third quarter of fiscal 2016 that look forward in time or that express management’s beliefs, expectations or hopes are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the views of management at the time such statements are made and are subject to a number of risks, uncertainties, estimates, and assumptions that may cause actual results to differ materially from current expectations. These statements include our plans and expectations related to our three-year financial objectives, including targets for adjusted operating income and adjusted ROIC, and the key levers for realizing these goals, expectations regarding the Brakes Group acquisition and related benefits, plans to reduce administrative costs, including the reduction of our U.S. broadline markets, expectations regarding expense management, expectations regarding food cost deflation and currency translation, and expectations regarding capital expenditures. The success of our plans and expectations regarding our operating performance, including expectations regarding our three-year financial objectives, are subject to the general risks associated with our business, including the risks of interruption of supplies due to lack of long-term contracts, severe weather, crop conditions, work stoppages, intense competition, technology disruptions, dependence on large regional and national customers, inflation risks, the impact of fuel prices, adverse publicity, and labor issues. Risks and uncertainties also include risks impacting the economy generally, including the risks that the current general economic conditions will deteriorate, or consumer confidence in the economy or consumer spending, particularly on food-away-from-home, may decline. Market conditions may not improve. If sales from our locally managed customers do not grow at the same rate as sales from regional and national customers, our gross margins may decline. Our ability to meet our long-term strategic objectives depends largely on the success of our various business initiatives, including efforts related to revenue management, expense management, our digital e-commerce strategy and any efforts related to restructuring or the reduction of administrative costs. There are various risks related to these efforts, including the risk that these efforts may not provide the expected benefits in our anticipated time frame, if at all, and may prove costlier than expected; the risk that the actual costs of any initiatives may be greater or less than currently expected; and the risk of adverse effects to our business, results of operations and liquidity if past and future undertakings, and the associated changes to our business, do not prove to be cost effective or do not result in the cost savings and other benefits at the levels that we anticipate. Our plans related to and the timing of any initiatives are subject to change at any time based on management’s subjective evaluation of our overall business needs. If we are unable to realize the anticipated benefits from our efforts, we could become cost disadvantaged in the marketplace, and our competitiveness and our profitability could decrease. Capital expenditures may vary based on changes in business plans and other factors, including risks related to the implementation of various initiatives, the timing and successful completion of acquisitions, construction schedules and the possibility that other cash requirements could result in delays or cancellations of capital spending. Periods of high inflation, either overall or in certain product categories, can have a negative impact on us and our customers, as high food costs can reduce consumer spending in the food-away-from-home market, and may negatively impact our sales, gross profit, operating income and earnings, and periods of deflation can be difficult to manage effectively. Fluctuations in inflation and deflation, as well as fluctuations in the value of foreign currencies, are beyond our control and subject to broader market forces. Expanding into international markets presents unique challenges and risks, including compliance with local laws, regulations and customs and the impact of local political and economic conditions, and such expansion efforts may not be successful. Any business that we acquire, including the Brakes transaction, may not perform as expected, and we may not realize the anticipated benefits of our acquisitions. The Brakes Group acquisition will require a significant commitment of time and company resources, and realizing the anticipated benefits from the transaction may take longer than expected.  Expectations regarding the accounting treatment of any acquisitions may change based on management’s subjective evaluation. Expectations regarding share repurchases are subject to various factors beyond management’s control, including fluctuations in the stock market, and decisions regarding share repurchases are subject to change based on management’s subjective evaluation of the company’s needs. Expectations regarding tax rates are also subject to various factors beyond management’s control.  For a discussion of additional factors impacting Sysco’s business, see the company’s Annual Report on Form 10-K for the year ended June 27, 2015, as filed with the Securities and Exchange Commission, and the company’s subsequent filings with the SEC. Sysco does not undertake to update its forward-looking statements, except as required by applicable law.

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