HOUSTON, Feb. 7, 2011 (GLOBE NEWSWIRE) -- Sysco Corporation (NYSE:SYY) today announced financial results for its 13-week second quarter ended January 1, 2011.
Second Quarter Fiscal 2011 Highlights
- Sales were $9.4 billion, an increase of 5.8% from $8.9 billion in the second quarter of fiscal 2010.
- Operating income was $437 million, a decrease of 5.5% compared to $462 million in last year's second quarter.
- Diluted earnings per share (EPS) were $0.44, including a $0.02 benefit from Corporate Owned Life Insurance (COLI). This result was 2.2% lower than last year's second quarter EPS of $0.45, which included a $0.01 benefit from Corporate Owned Life Insurance (COLI).
First Half Fiscal 2011 Highlights
- Sales were $19.1 billion, an increase of 6.6% from $17.9 billion in the first half of fiscal 2010.
- Operating income was $943 million, a decrease of 1.7% compared to $960 million in last year's first half.
- Diluted EPS was $0.95, including a $0.04 benefit from COLI. This result was 5.0% lower than last year's first half EPS of $1.00, which included a $0.05 tax benefit related to the company's IRS settlement, and a $0.04 benefit from Corporate Owned Life Insurance (COLI).
"Our financial results for the second quarter reflect the unfavorable impact of certain market conditions and operational challenges that we were unable to fully overcome in the near term. Specifically, accelerating and significant food cost inflation negatively impacted our customers' purchasing budgets, contributed to increased gross margin pressure and meaningfully increased our selling expense. In addition, higher year over year pension and fuel costs also adversely impacted our ability to grow operating earnings over the prior year," said Bill DeLaney, Sysco's president and chief executive officer. "Looking forward, we are highly focused on improving the execution of our business plan in the second half of our fiscal year and effectively implementing our strategic priorities over the long term."
Second Quarter Fiscal 2011 Summary
Sales for the second quarter were $9.4 billion, an increase of $516 million, or 5.8% compared to the same period last year due primarily to the impact of food cost inflation. Food cost inflation, as measured by the estimated change in Sysco's product costs, was 4.5%, driven by continued double-digit levels of inflation in the meat, dairy and seafood categories. This compares to deflation of 3.5% 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 second quarter increased sales by 0.4%.
Operating income decreased $25 million, or 5.5%, to $437 million during the second quarter. Operating expense increased $72 million, or 5.9%, for the second quarter while gross margin increased only $47 million, or 2.8%.
Gross margin as a percentage of sales declined 55 basis points year over year to 18.6%. Pressure from high inflation, strategic pricing initiatives and changes in segment mix continued to be the main factors impacting gross margin performance.
Operating expense increased 5.9%, or $72 million, for the second quarter mainly from (1) a $15 million increase in pension costs; (2) a $13 million increase in salaries and related expense due to increases in sales compensation and other payroll costs; and (3) a $10 million increase in fuel costs.
Net earnings for the second quarter were $258 million, a decrease of $10 million, or 3.8%. Diluted EPS was $0.44, including a $0.02 positive impact from COLI. Diluted EPS in the prior year period was $0.45, which included a $0.01 positive impact from COLI.
First Half Fiscal 2011 Summary
Sales for the first half of fiscal 2011 were $19.1 billion, an increase of 6.6% compared to the same period last year. Food cost inflation, as measured by the estimated change in Sysco's cost of goods, was 3.9% for the first half of the year. Sales from acquisitions (within the last 12 months) increased sales by 0.6%. The impact of changes in foreign exchange rates for the first half of the year increased sales by 0.5%.
Operating income decreased $16 million, or 1.7%, to $943 million during the first half of fiscal 2011. Operating expense increased $148 million, or 5.9%, for the first half of the fiscal year, while gross margin increased $131 million, or 3.8%.
Gross margin as a percentage of sales declined 50 basis points year over year to 18.7%. Pressure from high inflation, strategic pricing initiatives and changes in segment mix were the main factors impacting gross margin performance.
Operating expense increased 5.9%, or $148 million, for the first half mainly from (1) a $59 million increase in salaries and related expense due to increases in sales compensation and other payroll costs; and (2) a $30 million increase in pension expense.
Net earnings for the first half of fiscal 2011 were $557 million, a decrease of $37 million, or 6.3%. Diluted EPS was $0.95, aided by a $0.04 favorable impact from COLI. Diluted EPS in the prior year period was $1.00, aided by a $0.05 tax benefit related to the company's IRS settlement and a $0.04 favorable impact from COLI.
Cash Flow and Capital Spending
Cash flow from operations was $283 million for the first half of fiscal 2011. Capital expenditures totaled $174 million for the second quarter, and $317 million in the first half of the fiscal year. The primary areas for investment included facility replacements and expansions, replacements to Sysco's fleet, and technology.
Conference Call & Webcast
Sysco's second quarter 2011 earnings conference call will be held on Monday, February 7, 2011 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 .
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 focus on the execution of our business plan in the second half of our fiscal year and on effectively implementing our strategic priorities over the long term. These statements involve risks and uncertainties and are based on management's current expectations and estimates; actual results may differ materially. Factors impacting these forward-looking statements 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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CONTACT: Neil Russell Vice President, Investor Relations T 281-584-1308