updated 11/8/2010 8:16:09 AM ET 2010-11-08T13:16:09

HOUSTON, Nov. 8, 2010 (GLOBE NEWSWIRE) -- Sysco Corporation (NYSE:SYY) today announced financial results for its 13-week first quarter ended October 2, 2010.

First Quarter Fiscal 2011 Highlights

  • Sales were $9.8 billion, an increase of 7.4% from $9.1 billion in the first quarter of fiscal 2010.
  • Operating income was $506 million, an increase of 1.8% compared to $497 million in last year's first quarter, and Sysco's highest first quarter on record.
  • Diluted earnings per share (EPS) were $0.51, including a $0.02 benefit from Corporate Owned Life Insurance (COLI). This result was 7.3% lower than last year's first quarter EPS of $0.55, which included a $0.05 favorable impact from the company's IRS settlement and a $0.04 benefit from COLI.

"I am pleased with the volume growth and productivity improvements our operating companies produced during the quarter," said Bill DeLaney, Sysco's president and chief executive officer. "While our overall sales increase and operating expense management were encouraging, we missed our goal for operating income growth, largely due to a decline in gross profit margin and higher pension costs. Our entire leadership team is focused on effectively leveraging sales growth as the fiscal year progresses."

First Quarter Fiscal 2011 Summary

Sales for the first quarter were $9.8 billion, an increase of $700 million, or 7.4% compared to the same period last year due primarily to the impact of food cost inflation and the strongest year-over-year Broadline and SYGMA case volume growth since the second quarter of fiscal 2007.  Food cost inflation, as measured by the estimated change in Sysco's product costs, was 3.3%, driven by nearly 10% inflation in the combined categories of meat, dairy and seafood. This compares to deflation of 3.4% in the prior year period. In addition, sales from acquisitions (within the last 12 months) increased sales by 0.6%, and the impact of changes in foreign exchange rates for the first quarter increased sales by 0.5%. 

Operating income increased $9 million, or 1.8%, to $506 million during the first quarter. While sales increased 7.4% during the first quarter, gross margin increased 4.8%, or $84 million, and operating expense increased 6%.

Operating expense increased $75 million for the first quarter mainly from (1) an approximately $40 million increase in salaries and related expense primarily due to increased costs on higher case volume during the quarter, and (2) a $15 million increase in pension expense. In addition, operating expense includes a $14 million benefit from the impact of COLI, which was $8 million lower than the prior year's benefit from COLI. In addition, while gross margin for the quarter increased 4.8% year-over-year to $1.8 billion, gross margin as a percentage of sales declined 46 basis points to 18.8% due mainly to strategic pricing initiatives and the impact of significant inflation in the categories discussed above. 

Net earnings for the first quarter were $299 million, a decrease of $27 million, or 8.3%. Net earnings reflect a $39 million increase in tax expense year-over-year primarily due to the IRS settlement gain and higher non-taxable COLI gains recorded in the prior year.

Diluted EPS was $0.51, including a $0.02 positive impact from COLI. Diluted EPS in the prior year period was $0.55, which included a $0.04 positive impact from COLI and a $0.05 positive impact from the company's IRS settlement announced in August 2009.

Cash Flow and Capital Spending

Cash flow from operations was $227 million for the first quarter of fiscal 2011, and capital expenditures totaled $143 million for the first quarter. The primary areas for investment included facility replacements and expansions, replacements to Sysco's fleet, and technology.

Conference Call & Webcast

Sysco's first quarter 2011 earnings conference call will be held on Monday, November 8, 2010 at 10:00 a.m. Eastern. A live webcast of the call, as well as a copy of this press release, will be available online at www.sysco.com in the Investor Relations section.

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 180 distribution facilities serving approximately 400,000 customers. For the fiscal year 2010 that ended July 3, 2010 the company generated more than $37 billion in sales. For more information about Sysco visit the company's Internet home page at www.sysco.com .

The Sysco Corporation logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=747

Forward-Looking Statements

Certain statements made herein are forward-looking statements under the Private Securities Litigation Reform Act of 1995. They include statements regarding our leadership team's focus on effectively leveraging sales growth as the fiscal year progresses. These statements involve risks and uncertainties and are based on management's current expectations and estimates; actual results may differ materially. Factors impacting our ability to effectively leverage sales growth include the general risks associated with our business, including the risk of interruption of supplies due to lack of long-term contracts, severe weather, work stoppages or otherwise, inflation risks, and labor issues. Risks and uncertainties also include risks impacting the economy generally, including the risk that the current economic downturn will continue, that initial signs of economic recovery may not prove long lasting, or that consumer confidence in the economy may not increase and decreases in consumer spending, particularly on food prepared outside the home, may not reverse. Also, there are risks related to our Business Transformation Project, including that the expected costs of our Business Transformation Project in fiscal 2011 may be greater or less than currently expected because we may encounter the need for changes in design or revisions of the project calendar and budget, including the incurrence of expenses at an earlier or later time than currently anticipated; the risk that our business and results of operations may be adversely affected if we experience operating problems, scheduling delays, cost overages or limitations on the extent of the business transformation during the ERP implementation process; and the risk of adverse effects if the ERP system, and the associated process changes, do not prove to be cost effective or result in the cost savings and other benefits that we anticipate. For a discussion of additional factors impacting Sysco's business, see the Company's Annual Report on Form 10-K for the year ended July 3, 2010, as filed with the Securities and Exchange Commission.

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