Global food products maker and distributor
) reported second-quarter fiscal 2013 adjusted earnings
(excluding business transformation expenses and one-time items)
of 47 cents. Earnings beat the Zacks Consensus Estimate of 40
cents by 17.5% but declined from the prior-year quarter earnings
of 49 cents by 4.1% due to modest sales growth and margin
pressure. The year-over-year results were also dampened by
sluggish macro-economic scenario and weather related headwinds,
which in turn led to lower consumer spending.
Quarter in Detail
Sysco's sales grew 4.1% on a year-over-year basis to $11.2
billion in the second quarter of fiscal 2013, driven by 4.3%
volume growth (including acquisitions). Acquisitions contributed
2.3% to sales growth, while currency translation decreased sales
Second-quarter sales lagged the Zacks Consensus Estimate of
$11.4 billion. Growth was weaker than 5.7% growth in the first
quarter, owing to a difficult consumer spending environment.
Gross profit improved only 0.7% to $2.0 billion in the quarter
due to ongoing competitive pressure. Gross margin declined 60
basis points (bps) to 17.48%. Adjusted operating income declined
7.6% in the quarter to $448.6 million due to a 3.4% increase in
adjusted operating expenses.
Other Financial Updates
Cash and cash equivalents were $449.9 million at the end of
Dec 28, 2013 compared with $359.5 million at the end of Sep 28,
2013. Long-term debt was $2.94 billion at the end of second
quarter compared with $2.87 billion at the end of first
On Dec 10, Sysco announced its decision to buy US Foods for
approximately $8.2 billion, inclusive of debt. Per the deal,
Sysco will pay approximately $3.5 billion, which would include
common stock worth $3 billion and $500 million of cash for the
equity of US Foods.
In addition, Sysco will also assume the latter's outstanding
debt of about $4.7 billion. The deal has been approved by the
boards of both companies and is expected to close in the third
quarter of fiscal 2014.
The combined company will create one of the largest food
companies in the country. Sysco expects immediate accretion to
earnings per share after adjusting for transaction-related costs
and amortization of intangibles.
Sysco has secured a fully committed bridge loan to finance the
deal and expects to issue a long-term debt to repay the bridge
loan. After the completion of the deal, Sysco will receive annual
synergies of at least $600 million per annum over the next three
or four years.
The deal is expected to be a strategic fit for both Sysco and
US Foods, as together they are expected to improve efficiencies,
particularly in supply chain, merchandising and general and
We believe that the Sysco-US Foods deal will provide excellent
value in an increasingly competitive market. The combined
companies are expected to have annualized sales of approximately
$65 billion and generate operating cash flow of approximately $2
We also appreciate the company's growth strategy and its
efforts to reduce costs and improve efficiency. However, we are
concerned about rising costs due to fuel price hikes and other
inputs, which hurt margins. Sysco holds a Zacks Rank #3
Other better-ranked food companies in the industry include
Post Holdings Inc
ConAgra Foods Inc
Green Mountain Coffee Roasters Inc.
). While Post Holdings sports a Zacks Rank #1 (Strong Buy),
ConAgra and Green Mountain hold a Zacks Rank #2 (Buy).
CONAGRA FOODS (CAG): Free Stock Analysis
GREEN MTN COFFE (GMCR): Free Stock Analysis
POST HOLDINGS (POST): Free Stock Analysis
SYSCO CORP (SYY): Free Stock Analysis Report
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