updated 5/9/2011 8:15:49 AM ET 2011-05-09T12:15:49

HOUSTON, May 9, 2011 (GLOBE NEWSWIRE) -- Sysco Corporation (NYSE:SYY) today announced financial results for its 13-week third quarter ended April 2, 2011.

Third Quarter Fiscal 2011 Highlights

  • Sales were $9.8 billion, an increase of 9.1% from $8.9 billion in the third quarter of fiscal 2010.
  • Operating income was $427 million, including a $36 million charge related to the withdrawal of an operating company from a multi-employer pension plan (MEPP). This result was $5 million, or 1.1%, lower than last year's third quarter.
  • Diluted earnings per share (EPS) were $0.44, including a $0.04 negative impact related to the MEPP withdrawal discussed above, and a $0.02 tax benefit related to the recognition of deferred tax assets. This result was 4.8% higher compared to $0.42 in last year's third quarter.

Year-To-Date Fiscal 2011 Highlights

  • Sales were $28.9 billion, an increase of 7.4%, from $26.9 billion in the prior year period.
  • Operating income was $1.4 billion, a decrease of $21 million, or 1.5%, compared to the prior year period.
  • Diluted EPS was $1.39, including a $0.05 benefit from Corporate Owned Life Insurance (COLI), and a net $0.02 negative impact from the MEPP charge and tax benefit discussed above. This result was 2.1% lower than diluted EPS of $1.42 in the prior year period, which included a $0.05 tax benefit related to the company's IRS settlement and a $0.05 benefit from COLI.

"We are pleased with our improved performance in the third quarter as both sales and earnings grew over the prior year. Particularly encouraging is our case volume growth in the midst of ongoing product inflation and a sluggish economic recovery," said Bill DeLaney, Sysco's president and chief executive officer. "Our leadership team remains highly focused on supporting our customers and improving productivity in all aspects of our business."

Third Quarter Fiscal 2011 Summary

Sales for the third quarter were $9.8 billion, an increase of $817 million, or 9.1% compared to the same period last year due primarily to higher prices and case volume growth. Food cost inflation, as measured by the estimated change in Sysco's product costs, was 5.1% driven mainly by high levels of inflation in the meat, seafood and canned/dry categories. This compares to deflation of 0.8% 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 third quarter increased sales by 0.6%. 

Gross margin for the third quarter was $1.8 billion, an increase of $127 million, or 7.6%, compared to the prior year. Gross margin as a percentage of sales declined 27 basis points year over year to 18.6%. While high inflation and strategic pricing initiatives continued to be the main factors impacting gross margin as a percent of sales, the impact was less than in previous periods.

Operating expense increased 10.6%, or $132 million, for the third quarter mainly from (1) a $36 million one-time charge related to the withdrawal of an operating company from an MEPP; (2) a $36 million increase in salaries and related expense due to increases in sales compensation, other payroll costs and incentive compensation; (3) a $15 million increase in costs related to the Company's corporate-sponsored pension plan; and (4) a $14 million increase in fuel costs. As a result, operating income decreased $5 million, or 1.1%, to $427 million during the third quarter.

Income tax expense during the quarter decreased $9 million, or 5.6%. This equated to a tax rate of 36.3%, which was 2.4 percentage points lower than last year's rate due mainly to a $10 million tax benefit related to the recognition of deferred tax assets.

Net earnings for the third quarter were $258 million, an increase of $11 million, or 4.4% compared to the prior year. Diluted EPS was $0.44, including a $0.04 negative impact related to the withdrawal from the MEPP mentioned above and a $0.02 tax benefit also discussed above. Diluted EPS in the prior year period was $0.42.

Year-To-Date Fiscal 2011 Summary

Sales for the first 39 weeks of fiscal 2011 were $28.9 billion, an increase of 7.4% compared to the same period last year driven mainly by higher prices and case volume growth. Food cost inflation, as measured by the estimated change in Sysco's product costs, was 4.2% driven mainly by high levels of inflation in the meat, seafood, and dairy categories. Sales from acquisitions (within the last 12 months) increased sales by 0.6%. The impact of changes in foreign exchange rates for the first three quarters of the year increased sales by 0.5%.

Gross margin for the first 39 weeks was $5.4 billion, an increase of $259 million, or 5.0%, compared to the prior year. Gross margin as a percentage of sales declined 43 basis points year over year to 18.6%. Pressure from high inflation and strategic pricing initiatives were the main factors impacting gross margin as a percent of sales.

Operating expense increased 7.5%, or $280 million, for the first 39 weeks mainly from (1) a $95 million increase in salaries and related expense due to increases in sales compensation and other payroll costs; (2) a $45 million increase in costs related to the Company's corporate-sponsored pension plan; (3) a $36 million charge related to the withdrawal of an operating company from an MEPP; and (4) a $20 million increase in fuel expense. As a result, operating income was $1.4 billion, a decrease of $21 million, or 1.5%, during the first 39 weeks of fiscal 2011. 

Net earnings for the first 39 weeks of fiscal 2011 were $816 million, a decrease of $26 million, or 3.1%. Diluted EPS was $1.39, including a $0.05 favorable impact from COLI, and a net $0.02 negative impact from the MEPP charge and tax benefit discussed above. Diluted EPS in the prior year period was $1.42, including a $0.05 tax benefit related to the company's IRS settlement and a $0.05 favorable impact from COLI.

Cash Flow and Capital Spending

Cash flow from operations was $666 million for the first 39 weeks of fiscal 2011. This compares to $477 million in the prior year period. Capital expenditures totaled $137 million for the third quarter, and $454 million for the first 39 weeks 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 third quarter 2011 earnings conference call will be held on Monday, May 9, 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 www.sysco.com  and for investor relations news follow us at www.twitter.com/SyscoStock .

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 supporting our customers and improving productivity in all aspects of our business. 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, the impact of fuel prices, which have increased dramatically over the last few months, and labor issues. In the past, increased fuel prices have significantly increased our costs and reduced consumers' demand for meals served away from home. 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. Capital expenditures may vary from those projected based on changes in business plans and other factors, including risks related to the implementation of our Business Transformation Project, the timing and successful completions of acquisitions, construction schedules and the possibility that other cash requirements could result in delays or cancellations of capital spending. 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.

Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED RESULTS OF OPERATIONS (Unaudited)
(In Thousands, Except for Share and Per Share Data)
         
   39-Week Period Ended   13-Week Period Ended 
  April 2, 2011 Mar. 27, 2010 April 2, 2011 Mar. 27, 2010
         
Sales  $ 28,897,786  $ 26,895,018  $ 9,761,660  $ 8,945,093
Cost of sales  23,513,565  21,769,400  7,950,800  7,261,721
Gross margin  5,384,221  5,125,618  1,810,860  1,683,372
Operating expenses  4,013,469  3,733,836  1,383,373  1,251,269
Operating income  1,370,752  1,391,782  427,487  432,103
Interest expense  88,133  92,976  28,972  27,654
Other expense (income), net  (9,941)  (2,122)  (6,957)  1,028
Earnings before income taxes  1,292,560  1,300,928  405,472  403,421
Income taxes  476,840  458,726  146,994  155,773
Net earnings  $ 815,720  $ 842,202  $ 258,478  $ 247,648
         
Net earnings:        
Basic earnings per share  $ 1.39  $ 1.42  $ 0.44  $ 0.42
Diluted earnings per share  1.39  1.42  0.44  0.42
         
Average shares outstanding  585,792,383  592,450,575  583,722,009  593,129,783
Diluted shares outstanding  587,878,509  593,397,235  585,421,864  594,833,736
         
Dividends declared per common share  $ 0.77  $ 0.74  $ 0.26  $ 0.25
 
Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In Thousands, Except for Share Data)
       
  April 2, 2011 July 3, 2010 Mar. 27, 2010
       
ASSETS      
Current assets      
Cash and cash equivalents  $ 385,668  $ 585,443  $ 586,854
Short-term investments  --   23,511  -- 
Accounts and notes receivable, less allowances of $86,668, $36,573 and $83,069  2,926,033  2,617,352  2,633,995
Inventories  2,047,371  1,771,539  1,751,239
Prepaid expenses and other current assets  79,485  70,992  71,761
Prepaid income taxes  --   7,421  22,008
Total current assets  5,438,557  5,076,258  5,065,857
Plant and equipment at cost, less depreciation  3,419,862  3,203,823  3,176,220
Other assets      
Goodwill   1,596,727  1,549,815  1,559,291
Intangibles, less amortization  101,518  106,398  114,254
Restricted cash  110,488  124,488  135,590
Prepaid pension cost  --   --   92,757
Other assets  282,782  252,919  258,320
Total other assets  2,091,515  2,033,620  2,160,212
Total assets  $ 10,949,934  $ 10,313,701  $ 10,402,289
       
LIABILITIES AND SHAREHOLDERS' EQUITY      
Current liabilities      
Notes payable  $ 2,250  $ --   $ -- 
Accounts payable  2,143,219  1,953,092  1,972,984
Accrued expenses  800,155  870,114  794,235
Accrued income taxes  84,838  --   -- 
Deferred income taxes  98,946  178,022  76,258
Current maturities of long-term debt  7,042  7,970  7,817
Total current liabilities  3,136,450  3,009,198  2,851,294
Other liabilities      
Long-term debt  2,663,470  2,472,662  2,468,517
Deferred income taxes  130,453  271,512  513,211
Other long-term liabilities  812,356  732,803  541,229
Total other liabilities  3,606,279  3,476,977  3,522,957
Commitments and contingencies      
Shareholders' equity      
Preferred stock, par value $1 per share, Authorized 1,500,000 shares, issued none  --   --   -- 
Common stock, par value $1 per share, Authorized 2,000,000,000 shares, issued 765,174,900 shares  765,175  765,175  765,175
Paid-in capital  861,835  816,833  799,278
Retained earnings  7,499,532  7,134,139  6,943,640
Accumulated other comprehensive loss  (330,060)  (480,251)  (167,827)
Treasury stock at cost, 182,347,524, 176,768,795 and 173,872,949 shares  (4,589,277)  (4,408,370)  (4,312,228)
Total shareholders' equity  4,207,205  3,827,526  4,028,038
Total liabilities and shareholders' equity  $ 10,949,934  $ 10,313,701  $ 10,402,289
 
Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED CASH FLOWS (Unaudited)
(In Thousands)
     
   39-Week Period Ended 
  April 2, 2011 Mar. 27, 2010
Cash flows from operating activities:    
Net earnings  $ 815,720  $ 842,202
Adjustments to reconcile net earnings to cash provided by

 operating activities:
   
Share-based compensation expense  48,518  51,981
Depreciation and amortization  298,307  284,213
Deferred income taxes  (244,658)  (152,236)
Provision for losses on receivables  35,624  32,030
Other non-cash items  (7,286)  (1,112)
Additional investment in certain assets and liabilities, net of effect of businesses acquired:    
(Increase) in receivables  (301,932)  (169,520)
(Increase) in inventories  (244,636)  (79,010)
(Increase) in prepaid expenses and other current assets  (7,486)  (6,569)
Increase in accounts payable  158,488  167,438
(Decrease) in accrued expenses  (83,826)  (21,468)
Increase (decrease) in accrued income taxes  83,580  (316,074)
(Increase) in other assets  (26,622)  (39,618)
Increase (decrease) in other long-term liabilities and

 prepaid pension cost, net
 142,253  (115,210)
Excess tax benefits from share-based compensation

 arrangements
 (285)  (518)
Net cash provided by operating activities  665,759  476,529
     
Cash flows from investing activities:    
Additions to plant and equipment  (454,054)  (438,071)
Proceeds from sales of plant and equipment  15,286  4,106
Acquisition of businesses, net of cash acquired  (35,486)  (20,880)
Purchases of short-term investments  --   (60,876)
Maturities of short-term investments  24,713  60,990
Decrease (increase) in restricted cash  14,000  (41,732)
Net cash used for investing activities  (435,541)  (496,463)
     
Cash flows from financing activities:    
Bank and commercial paper borrowings (repayments) net  188,249  -- 
Other debt borrowings   2,592  5,419
Other debt repayments  (6,516)  (8,196)
Debt issuance costs  (7)  (7)
Common stock reissued from treasury for share-based compensation awards  103,328  54,068
Treasury stock purchases  (291,600)  (41,020)
Dividends paid  (445,406)  (431,916)
Excess tax benefits from share-based compensation

 arrangements
 285  518
Net cash used for financing activities  (449,075)  (421,134)
     
Effect of exchange rates on cash  19,082  9,271
     
Net (decrease) in cash and cash equivalents  (199,775)  (431,797)
Cash and cash equivalents at beginning of period  585,443  1,018,651
Cash and cash equivalents at end of period  $ 385,668  $ 586,854
     
Supplemental disclosures of cash flow information:    
Cash paid during the period for:    
Interest  $ 111,924  $ 119,720
Income taxes  657,961  973,354
 
Sysco Corporation and its Consolidated Subsidiaries
COMPARATIVE SEGMENT DATA (Unaudited)
(In Thousands)
         
  39-Week Period Ended 13-Week Period Ended
  April 2, 2011 Mar. 27, 2010 April 2, 2011 Mar. 27, 2010
Sales:        
Broadline  $ 23,468,341  $ 21,984,082  $ 7,915,829  $ 7,268,364
SYGMA  3,947,705  3,505,710  1,315,439  1,197,536
Other  1,597,680  1,504,384  575,716  515,432
Intersegment   (115,940)  (99,158)  (45,324)  (36,239)
Total   $ 28,897,786  $ 26,895,018  $ 9,761,660  $ 8,945,093
         
Beginning with the third quarter of fiscal 2011, U.S. Meat operations are included in the Broadline segment. All prior periods have been restated for comparability.
 
Comparative Supplemental Statistical Information Related to Sales (Unaudited)
Comparative Sysco Brand Sales and Marketing Associate-Served Sales data are summarized below. 
         
  39-Week Period Ended 13-Week Period Ended
  April 2, 2011 Mar. 27, 2010 April 2, 2011 Mar. 27, 2010
Sysco Brand Sales as a %        
 of MA-Served Sales  45.62% 46.98% 45.28% 46.02%
Sysco Brand Sales as a %        
 of Broadline Sales  36.87% 38.50% 35.69% 36.72%
MA-Served Sales as a %        
 of Broadline Sales 44.68% 44.70% 43.21% 43.18%
         
Data excludes U.S. Meat operations
CONTACT: Neil Russell
         Vice President, Investor Relations
         T 281-584-1308

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