HOUSTON, Feb. 05, 2018 (GLOBE NEWSWIRE) -- Sysco Corporation (NYSE:SYY) today announced financial results for its 13-week second fiscal quarter ended December 30, 2017.¹
Second Quarter Fiscal 2018 Highlights
- Sales increased 7.1% to $14.4 billion
- Gross profit increased 5.0% to $2.7 billion; gross margin decreased 38 basis points to 18.73%
- Operating income increased 8.1% to $532 million; adjusted operating income increased 3.9% to $579 million
- Earnings Per Share (EPS) increased $0.04 to $0.54; adjusted EPS increased $0.20 to $0.78; further adjusting to exclude a one-time benefit associated with the recent U.S. tax rate changes, adjusted EPS increased $0.08 to $0.66
First Half Fiscal 2018 Highlights
- Sales increased 6.0% to $29.1 billion
- Gross profit increased 4.4% to $5.5 billion; gross margin decreased 29 basis points to 18.90%
- Operating income increased 9.1% to $1.2 billion; adjusted operating income increased 4.8% to $1.2 billion
- Earnings Per Share (EPS) increased $0.15 to $1.23; adjusted EPS increased $0.27 to $1.52; further adjusting to exclude a one-time benefit associated with the recent U.S. tax rate changes, adjusted EPS increased $0.15 to $1.40
“We are pleased with the continued momentum in our business driven by strong local case growth and overall top-line results, while balancing some gross profit dollar and expense challenges associated with the second quarter,” said Tom Bené, Sysco’s president and chief executive officer. “We remain confident in our ability to deliver on our full-year fiscal 2018 financial targets.”
¹Earnings Per Share (EPS) and Adjusted EPS are shown on a diluted basis unless otherwise specified. Adjusted financial results exclude certain items, which primarily include restructuring, merger-related costs and certain impacts of tax law changes. Reconciliations of all non-GAAP measures are included in this release.
Second Quarter Fiscal 2018 Results
U.S. Foodservice Operations
Sales for the second quarter were $9.7 billion, an increase of 6.6% compared to the same period last year. Local case volume within U.S. Broadline operations grew 4.8% for the second quarter and total case volume grew 3.5%.
Gross profit increased 5.1% to $1.9 billion and gross margin decreased 28 basis points to 19.79% compared to the prior year period. Food cost inflation was 3.3% in U.S. Broadline, as measured by the estimated change in Sysco's product costs, primarily in the meat, dairy and produce categories.
Operating expenses increased $67 million, or 5.9%, compared to the same period last year, due mainly to increased selling and transportation expenses. There were no certain items impacting U.S. Foodservice Operations during the quarter.
Operating income was $706 million, an increase of $25 million, or 3.7%, compared to the same period last year.
International Foodservice Operations
Our international segment has businesses in 12 different countries, with the largest located in Canada, the United Kingdom and France. During the quarter, we experienced mixed results across these various businesses. Our Canadian operations continued to deliver improved results over the prior year, resulting from case growth and better cost management. In Europe, the transition from calendar year to fiscal year unfavorably impacted our gross profit and expenses. In addition, we continue to invest in our transformation initiatives, which adds costs to the current period and positions the business for long-term success. Our operations in France and Ireland performed relatively well during the quarter.
Sales for the second quarter were $2.9 billion, an increase of 9.3% compared to the same period last year. Operating income across the international segment was $52 million, a decrease of $32 million, or 38.2%, compared to the same period last year. Adjusted operating income was $79 million, a decrease of $32 million, or 28.8%, compared to the same period last year.
First Half Fiscal 2018 Results
U.S. Foodservice Operations
Sales for the first half of fiscal 2018 were $19.5 billion, an increase of 5.2% compared to the same period last year. Local case volume within U.S. Broadline operations grew 3.8% for the first half of fiscal 2018 and total case volume grew 1.8%.
Gross profit increased 4.4% to $3.9 billion; and gross margin decreased 14 basis points to 19.98%. Food cost inflation was 3.6% in U.S. Broadline, as measured by the estimated change in Sysco's product costs, primarily in the meat, dairy and produce categories.
Operating expenses increased $105 million, or 4.5%, compared to the same period last year. There were no certain items impacting U.S. Foodservice Operations during the first half of fiscal 2018.
Operating income was $1.5 billion, an increase of $61 million, or 4.3%, compared to the same period last year.
International Foodservice Operations
During the first half of fiscal 2018, we experienced mixed results across our various businesses. Our Canadian operations continued to deliver improved results over the prior year, resulting from case growth and better cost management. In Europe, the transition from calendar year to fiscal year unfavorably impacted our gross profit and expenses. In addition, we continue to invest in our transformation initiatives, which adds costs to the current period and positions the business for long-term success. Our operations in France and Ireland performed relatively well during the first half of fiscal 2018.
Sales for the first half of fiscal 2018 were $5.8 billion, an increase of 7.8% compared to the same period last year. Operating income was $129 million, a decrease of $35 million compared to the same period last year. Adjusted operating income was $174 million, a decrease of $40 million, or 18.9%, compared to the same period last year.
Impact of Tax Reform
Sysco recorded various estimates related to tax reform in its results, primarily U.S. tax reform, though additional law changes occurred in Europe. Income tax expense for U.S. tax reform included provisional estimates for transition tax expense of $115 million and a benefit from the impact of remeasuring accrued income taxes and deferred tax assets and liabilities to future applicable tax rates in the amount of $15 million. Both of these are considered certain items.
Sysco’s fiscal 2018 ends June 30, 2018. Additionally, Sysco is at the mid-point of its fiscal year and will experience a blended reduced U.S. statutory tax rate of 28% in fiscal 2018. For the second quarter of fiscal 2018 and first 26 weeks of fiscal 2018, we have recorded a benefit for this reduced rate in the amount of $65 million. In fiscal 2019, our U.S. statutory tax rate will be 21%.
Capital Spending and Cash Flow
Cash flow from operations was $933 million for the first half of fiscal 2018, which was $294 million higher compared to the same period last year. Free cash flow for the first half of fiscal 2018 was $679 million, which was $313 million higher compared to the same period last year. The significant improvements in both cash flow from operations and free cash flow are largely driven by cash taxes that were not paid in the second quarter due to flood relief associated with Hurricane Harvey.
Capital expenditures, net of proceeds from sales of plant and equipment, totaled $255 million for the first half of fiscal 2018, which was $19 million lower compared to the same period last year.
Conference Call & Webcast
Sysco will host a conference call to review the Company’s second quarter fiscal 2018 financial results on Monday, February 5, 2018, at 10:00 a.m. Eastern. A live webcast of the call, accompanying slide presentation and a copy of this news release will be available online at investors.sysco.com.
