Sysco Corp. navigates headwinds

by MEAT+POULTRY STAFF
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The food service market conditions are unclear, according to Sysco's c.e.o.

HOUSTON — Fiscal 2015 did not end the way the management team of broadline distributor Sysco Corp. had hoped. In the wake of the U.S. Department of Justice blocking its attempt to acquire competitor US Foods, the company is focused on getting beyond the distraction of the US Foods bid and back to growing its business.

Net income for the year ended June 27 totaled $686,773,000, equal to $1.16 per share on the common stock, down from the previous year when the company earned $931,533,000, or $1.59 per share.

Sales for the year totaled $48,680,752,000, an increase compared with fiscal 2014 when sales totaled $46,516,712,000.

Much of the decline in net income was attributable to the cancellation of the acquisition of US Foods and the charges Sysco incurred as a result.

Bill DeLaney, president and CEO of Sysco Corp.

“We experienced nearly 5 percent food cost inflation during the first three quarters of 2015, and we managed it very well,” said Bill DeLaney, president and CEO, in a conference call with financial analysts on Aug. 10. “However, food cost inflation in the fourth quarter was essentially flat, which unfavorably impacted sales and gross profit growth. Early trends in F.Y.16 are similar and we expect this to be a modest sales and gross profit headwind over the next quarter or two. We are committed to mitigating as much of this pressure as possible through ongoing gross margin stabilization efforts and improved expense management.

“Moving to market and economic trends, as I speak to you today, the data is mixed. Consumer confidence and the outlook of food service operators are at historically high levels but have slipped somewhat in the summer months. Fuel prices at the pump remain at historically attractive levels, which should support higher consumer spending moving forward. Restaurant spend is up but traffic is generally flat.”

DeLaney added that the food service market appears to be “modestly improved” from a year or two ago, but he added that the “go forward trajectory” for industry growth is unclear.

“Following the termination of the US Foods merger agreement, and utilizing the knowledge that we have acquired through our ongoing customer insights work, we have begun to update our 3-year strategic business plan,” he said. “Specifically, we see opportunities to further accelerate our case growth, especially with locally managed customers, through more impactful product and service differentiation, together with enhanced sales and technology capabilities. We also believe that we can build upon our recent success in stabilizing gross margin through enhanced product innovation, growing our Sysco brand sales and improving our pricing analytics and support.”

In the conference call with analysts, DeLaney did not rule out future acquisitions, but added management would consider other options related to the company’s capital structure.

“We kept our powder dry here for quite some time because we have been looking at a lot of different opportunities on the acquisition front,” he said. “Some larger than others, and we ended up pulling the trigger on the US Foods deal and that required a lot of capital. As we all know, that ultimately didn't play out. We continue to look for acquisitions … both within the core and potentially beyond the core, whether it be adjacency or continue to build our international platform here.”

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