Sysco (SYY) Down 3.6% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Sysco (SYY). Shares have lost about 3.6% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Sysco due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Sysco Q2 Earnings & Sales Miss Estimates, Increase Y/Y
Sysco Corporation posted second-quarter fiscal 2023 results, wherein the top and bottom lines grew year over year but came below the respective Zacks Consensus Estimate. The company saw a double-digit rise in earnings and sales, continued market share gains and solid progress in the Recipe for Growth plan.
Management remains committed to surpassing customers’ expectations alongside managing costs. It expects to witness continued gains from the Recipe for Growth plan in the second half of the current fiscal year and into the next fiscal.
Sysco’s adjusted earnings of 80 cents per share fell short of the Zacks Consensus Estimate of 83 cents. However, the bottom line rose 40.4% from the year-ago period’s earnings of 57 cents per share.
The company reported sales of almost $18,594 million, which jumped 13.9% year over year while missing the Zacks Consensus Estimate of $18,733 million. Foreign currency had an adverse impact of 2.1% on the top line.
The gross profit jumped 15.9% to $3,349.6 million, and the gross margin expanded 29 basis points (bps) to 18%. This year-over-year growth in the gross profit was fueled by elevated volumes, efficient inflation management and progress in the company’s partnership growth management efforts.
Sysco witnessed product cost inflation of 8.3%, which was measured by estimated changes in product costs, mainly in the dairy, frozen food and fresh produce categories. Foreign currency had a negative impact of 2.3% on the gross profit. Adjusted operating expenses rose 11.4%. The adjusted operating income of $682.1 million grew by $186.4 million from the year-ago period.
U.S. Foodservice Operations: In the reported quarter, the segment witnessed robust sales growth, overall share gains and higher profitability. Sales jumped 13.7% to $13,077 million. Local case volumes within U.S. Broadline operations rose 3.2%, and total case volumes increased 5.2%. The gross profit escalated by 16.5% to $2,493.1 million, and the gross margin rose 45 bps to 19.06%.
International Foodservice Operations: The segment’s sales advanced 17% to $3,282.4 million in the quarter. However, foreign-exchange fluctuations adversely impacted the segment’s sales by 11.6%.
On a constant-currency (cc) basis, sales advanced 28.6%. The gross profit jumped 10.3% to $624.5 million, but the gross margin contracted 115 bps to 19.02%. At cc, the gross profit increased 22%, and the gross margin declined 104 bps. Currency movements hurt the segment’s gross profit by 11.7%.
SYGMA’s sales advanced 9.2% to $1,933.5 million. The gross profit rose 9.9% to $150.4 million, while the gross margin expanded 5 bps to 7.78%. Meanwhile, the Other segment’s sales jumped 23.1% to almost $301 million.
Other Updates
Sysco ended the quarter with cash and cash equivalents of $500.3 million, long-term debt of $10,349.9 million and total shareholders’ equity of $1,436.6 million. In the first 26 weeks of fiscal 2023, the company generated cash flow from operations of $503.5 million, and free cash flow amounted to $219.3 million.
During the first 26 weeks, Sysco returned $766 million to shareholders through share buybacks worth $267.7 million and dividends of $498.3 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
VGM Scores
At this time, Sysco has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Sysco has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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