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Sysco Reports Third Quarter Earnings

05/08/2017

HOUSTON, May 08, 2017 (GLOBE NEWSWIRE) -- Sysco Corporation (NYSE:SYY) today announced financial results for its 13-week third fiscal quarter ended April 1, 2017.¹

Third Quarter Fiscal 2017 Highlights

  • Sales increased 12.7% to $13.5 billion; excluding Brakes, sales increased 2.3% to $12.3 billion
  • Gross profit increased 18.3% to $2.5 billion; gross margin increased 89 basis points to 18.74%; excluding Brakes, gross profit increased 4.3% to $2.2 billion and gross margin increased 34 basis points to 18.20%
  • Operating income increased 15.5% to $436 million; adjusted operating income increased 14.3% to $500 million; excluding Brakes, adjusted operating income increased 13.6% to $497 million
  • Earnings Per Share (EPS) increased $0.06 to $0.44; adjusted EPS increased $0.05 to $0.51; excluding Brakes, adjusted EPS increased $0.04 to $0.50

First 39 Weeks of Fiscal 2017 Highlights

  • Sales increased 11.5% to $41.0 billion; excluding Brakes, sales increased 1.0% to $37.1 billion
  • Gross profit increased 19.3% to $7.8 billion; gross margin increased 124 basis points to 19.04%; excluding Brakes, gross profit increased 4.1% to $6.8 billion and gross margin increased 53 basis points to 18.34%
  • Operating income increased 14.7% to $1.5 billion; adjusted operating income increased 22.0% to $1.7 billion; excluding Brakes, adjusted operating income increased 13.9% to $1.6 billion
  • Earnings Per Share (EPS) increased $0.26 to $1.52; adjusted EPS increased $0.30 to $1.76; excluding Brakes, adjusted EPS increased $0.18 to $1.64

“I am very pleased with our third quarter performance,” said Bill DeLaney, Sysco’s chief executive officer. “We saw solid operating income growth, driven by strong local case growth and effective expense management. We are making continued progress on our strategic multi-year initiatives, which provide a platform for ongoing value creation for our customers, associates and shareholders. Going forward, we remain focused on growing our business in a disciplined, profitable manner and are confident in our ability to achieve our three-year plan financial objectives.”

Third Quarter Fiscal 2017 Results

U.S. Foodservice Operations

Sales for the third quarter were $9.2 billion, an increase of 2.2% compared to the same period last year. Gross profit increased 4.0% to $1.8 billion; gross margin increased 35 basis points to 19.89%. Operating expenses increased $25 million, or 2.2%, compared to the same period last year. Adjusted operating expenses increased $26 million, or 2.3%, compared to the same period last year. Operating income was $689 million, an increase of $46 million, or 7.1%, compared to the same period last year. Adjusted operating income was $689 million, an increase of $45 million, or 7.0%, compared to the same period last year.

Local case volume within U.S. Broadline operations grew 3.5% for the third quarter. Total case volume grew 1.8%.

International Foodservice Operations

Sales for the third quarter were $2.5 billion, compared to $1.3 billion in the same period last year. Operating income was $16 million, a decrease of $17 million, compared to the same period last year. Adjusted operating income was $40 million, an increase of $7 million, compared to the same period last year. The improvement in both sales and adjusted operating income is primarily attributable to the Brakes Group acquisition.

First 39 Weeks of Fiscal 2017 Results

U.S. Foodservice Operations

Sales for the first 39 weeks of fiscal 2017 were $27.8 billion, an increase of 0.8% compared to the same period last year. Gross profit increased 4.0% to $5.6 billion; gross margin increased 61 basis points to 20.04%. Operating expenses increased $53 million, or 1.6%, compared to the same period last year. Adjusted operating expenses increased $54 million, or 1.6%, compared to the same period last year. Operating income was $2.1 billion, an increase of $161 million, or 8.2%, compared to the same period last year. Adjusted operating income was $2.1 billion, an increase of $159 million, or 8.1%, compared to the same period last year.

Local case volume within U.S. Broadline operations grew 2.4% for the first 39 weeks of fiscal 2017. Total case volume grew 1.2%.

International Foodservice Operations

Sales for the first 39 weeks of fiscal 2017 were $7.9 billion, compared to $3.9 billion in the same period last year. Operating income was $180 million, an increase of $53 million, compared to the same period last year. Adjusted operating income was $254 million, an increase of $125 million, compared to the same period last year. The significant improvement in both sales and operating income is primarily attributable to the Brakes Group acquisition.

Capital Spending and Cash Flow

Capital expenditures, net of proceeds from sales of plant and equipment, totaled $395 million for the first 39 weeks of fiscal 2017, which was $46 million higher compared to the same period last year.

Cash flow from operations was $1.0 billion for the first 39 weeks of fiscal 2017, which was $36 million higher compared to the same period last year. Free cash flow for the first 39 weeks of fiscal 2017 was $630 million, which was $11 million lower compared to the same period last year. These changes are largely due to improved business performance, improved working capital and favorable year-over-year comparisons due to the US Foods termination payment last year, offset by higher cash taxes from deductions related to the US Foods settlement and a deferral from flood relief.

Conference Call & Webcast

Sysco will host a conference call to review the Company’s third quarter fiscal 2017 financial results on Monday, May 8, 2017, 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.

¹Financial comparisons presented in this release are compared to the same period in the prior year. Earnings 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 and merger-related costs. A reconciliation of non-GAAP measures is included in this release.

      
  13-Week Period Ended39-Week Period Ended
      
 Financial Comparison:April 1, 2017     Change        April 1, 2017         Change    
 Sales$13.5 billion12.7%$41.0 billion11.5%
 Gross Profit$2.5 billion18.3%$7.8 billion19.3%
 Gross Margin 18.74%89 bps 19.04%124 bps
      
 GAAP:    
 Operating Expenses$2.1 billion18.9%$6.3 billion20.4%
 Certain Items$64.3 million7.2%$189.8 million145.5%
 Operating Income$436.0 million15.5%$1.5 billion14.7%
 Operating Margin 3.22%8 bps 3.65%10 bps
 Net Earnings$238.3 million9.7%$837.3 million14.1%
 Diluted Earnings Per Share$0.44 15.8%$1.52 20.6%
      
 Non-GAAP(1):    
 Operating Expenses$2.0 billion19.3%$6.1 billion18.5%
 Operating Income$500.3 million14.3%$1.7 billion22.0%
 Operating Margin 3.70%5 bps 4.11%35 bps
 Net Earnings$275.9 million5.6%$970.8 million14.4%
 Diluted Earnings Per Share$0.51 10.9%$1.76 20.5%
      
 Case Growth:    
 U.S. Broadline 1.8%  1.2% 
 Local 3.5%  2.4% 
      
 Sysco Brand Sales as a % of Cases:    
 U.S. Broadline 36.96%17 bps 37.27%22 bps
 Local 44.79%60 bps 45.01%57 bps
      
 Note:    
 (1) A reconciliation of non-GAAP measures is included in this release.   
     
 Individual components in the table above may not sum to the totals due to rounding.   
     

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 over 200 distribution facilities serving approximately 425,000 customers. For fiscal year 2016 that ended July 2, 2016, the company generated sales of more than $50 billion. Subsequent to fiscal year 2016, the company completed the acquisition of the Brakes Group, a leading European foodservice distributor with operations in the United Kingdom, Ireland, France, Sweden, Spain, Belgium and Luxembourg.

For more information, visit www.sysco.com or connect with Sysco on Facebook at www.facebook.com/SyscoCorporation or Twitter at https://twitter.com/Sysco.  For important news and information regarding Sysco, visit the Investor Relations section of the company's Internet home page at www.investors.sysco.com, which Sysco plans to use as a primary channel for publishing key information to its investors, some of which may contain material and previously non-public information.  Investors should also follow us at www.twitter.com/SyscoStock and download the Sysco IR App, available on the iTunes App Store and the Google Play Market. In addition, investors should continue to review our news releases and filings with the Securities and Exchange Commission.  It is possible that the information we disclose through any of these channels of distribution could be deemed to be material information.

Forward-Looking Statements

Statements made in this news release or in our earnings call for the third quarter of fiscal 2017 that look forward in time or that express management’s beliefs, expectations or hopes are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the views of management at the time such statements are made and are subject to a number of risks, uncertainties, estimates, and assumptions that may cause actual results to differ materially from current expectations. These statements include our outlook for fiscal 2017 and the future, our plans and expectations related to our three-year financial objectives, and the key levers for realizing these goals, expectations regarding gross profit growth and improved margins, our beliefs regarding the impact of productivity initiatives on our supply chain, our beliefs regarding opportunities and performance in our international business in Canada, Latin America and Europe, which includes our Brakes Group business, statements regarding progress on the Brakes Group’s transformational efforts, expectations regarding the continuation of accelerated depreciation related to our revised business technology strategy, expectations regarding the benefits to be obtained from integrating our Ireland businesses, anticipated capital expenditures, and expectations regarding deflation and inflation trends. The success of our plans and expectations regarding our operating performance, including expectations regarding our three-year financial objectives, are subject to the general risks associated with our business, including the risks of interruption of supplies due to lack of long-term contracts, severe weather, crop conditions, work stoppages, intense competition, technology disruptions, dependence on large regional and national customers, inflation risks, the impact of fuel prices, adverse publicity, and labor issues. Risks and uncertainties also include risks impacting the economy generally, including the risks that the current general economic conditions will deteriorate, or consumer confidence in the economy or consumer spending, particularly on food-away-from-home, may decline. Market conditions may not improve. If sales from our locally managed customers do not grow at the same rate as sales from regional and national customers, our gross margins may decline. Our ability to meet our long-term strategic objectives depends largely on the success of our various business initiatives, including efforts related to revenue management, expense management, our digital e-commerce strategy and any efforts related to restructuring or the reduction of administrative costs. There are various risks related to these efforts, including the risk that these efforts may not provide the expected benefits in our anticipated time frame, if at all, and may prove costlier than expected; the risk that the actual costs of any initiatives may be greater or less than currently expected; and the risk of adverse effects to our business, results of operations and liquidity if past and future undertakings, and the associated changes to our business, do not prove to be cost effective or do not result in the cost savings and other benefits at the levels that we anticipate. Our plans related to and the timing of any initiatives are subject to change at any time based on management’s subjective evaluation of our overall business needs. If we are unable to realize the anticipated benefits from our efforts, we could become cost disadvantaged in the marketplace, and our competitiveness and our profitability could decrease. Capital expenditures may vary based on changes in business plans and other factors, including risks related to the implementation of various initiatives, the timing and successful completion of acquisitions, construction schedules and the possibility that other cash requirements could result in delays or cancellations of capital spending. Periods of high inflation, either overall or in certain product categories, can have a negative impact on us and our customers, as high food costs can reduce consumer spending in the food-away-from-home market, and may negatively impact our sales, gross profit, operating income and earnings, and periods of deflation can be difficult to manage effectively. Fluctuations in inflation and deflation, as well as fluctuations in the value of foreign currencies, are beyond our control and subject to broader market forces. Expanding into international markets presents unique challenges and risks, including compliance with local laws, regulations and customs and the impact of local political and economic conditions, including the impact of Brexit, and such expansion efforts, including our Brakes acquisition, may not be successful. Any business that we acquire, including the Brakes transaction, may not perform as expected, and we may not realize the anticipated benefits of our acquisitions. The Brakes Group acquisition will require a significant commitment of time and company resources, and realizing the anticipated benefits from the transaction may take longer than expected.  Expectations regarding the financial statement impact of any acquisitions may change based on management’s subjective evaluation. 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 2, 2016, as filed with the Securities and Exchange Commission, and the company’s subsequent filings with the SEC. Sysco does not undertake to update its forward-looking statements, except as required by applicable law.


Sysco Corporation and its Consolidated Subsidiaries
 
CONSOLIDATED RESULTS OF OPERATIONS (Unaudited)
 
(In Thousands, Except for Share and Per Share Data)
 
              
   13-Week Period Ended   39-Week Period Ended  
  Apr. 1, 2017
 Mar. 26 2016 Apr. 1, 2017
 Mar. 26 2016 
              
Sales $13,524,172  $12,002,791  $40,950,094  $36,719,028  
Cost of sales    10,990,037   9,859,966     33,152,177   30,181,394  
Gross profit  2,534,135   2,142,825   7,797,917   6,537,634  
Operating expenses    2,098,173   1,765,207     6,302,705   5,233,959  
Operating income  435,962   377,618   1,495,212   1,303,675  
Interest expense  81,004   57,699   226,858   231,841  
Other expense (income), net    (4,815)  (6,952)    (14,351)  (29,956) 
Earnings before income taxes  359,773   326,871   1,282,705   1,101,790  
Income taxes  121,495   109,735   445,373   367,835  
Net earnings $238,278  $217,136  $837,332  $733,955  
              
Net earnings:             
Basic earnings per share $0.44  $0.38  $1.53  $1.27  
Diluted earnings per share  0.44   0.38   1.52   1.26  
              
Average shares outstanding  539,291,561   566,487,516   546,619,776   576,651,249  
Diluted shares outstanding  544,068,915   570,814,798   551,797,431   580,980,865  
              
Dividends declared per common share     $0.33  $0.31  $0.97  $0.92  
              

 

Sysco Corporation and its Consolidated Subsidiaries         
CONSOLIDATED BALANCE SHEETS (Unaudited)         
(In Thousands, Except for Share Data)         
 Apr. 1, 2017
 July 2, 2016 Mar. 26, 2016 
          
ASSETS         
Current assets         
 Cash and cash equivalents$855,133  $3,919,300  $610,838  
 Accounts and notes receivable, less allowances of $56,525 $37,880 and $66,066 4,282,038   3,380,971   3,509,438  
 Inventories 2,944,327   2,639,174   2,703,635  
 Prepaid expenses and other current assets 139,298   114,454   119,408  
 Prepaid income taxes 104,765   -   16,714  
 Total current assets 8,325,561   10,053,899   6,960,033  
Plant and equipment at cost, less depreciation 4,271,707   3,880,442   3,900,470  
Other assets         
 Goodwill 3,767,906   2,121,661   2,079,529  
 Intangibles, less amortization 1,085,946   207,461   193,672  
 Deferred income taxes 190,145   207,320   -  
 Other assets 279,635   251,021   217,390  
 Total other assets 5,323,632   2,787,463   2,490,591  
Total assets$17,920,900  $16,721,804  $13,351,094  
          
LIABILITIES AND SHAREHOLDERS' EQUITY         
Current liabilities         
 Notes payable$24,676  $89,563  $79,836  
 Accounts payable 3,849,670   2,935,982   2,906,651  
 Accrued expenses 1,328,773   1,289,312   1,118,410  
 Accrued income taxes -   110,690   -  
 Current maturities of long-term debt 526,691   8,909   7,175  
 Total current liabilities 5,729,810   4,434,456   4,112,072  
Other liabilities         
 Long-term debt 8,026,617   7,336,930   4,274,884  
 Deferred income taxes 185,178   26,942   107,136  
 Other long-term liabilities 1,568,523   1,368,482   810,642  
 Total other liabilities 9,780,318   8,732,354   5,192,662  
Commitments and contingencies         
Noncontrolling interest 80,244   75,386   76,929  
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 1,307,914   1,281,140   1,039,236  
 Retained earnings 9,317,377   9,006,138   8,964,542  
 Accumulated other comprehensive loss (1,505,437)  (1,358,118)  (988,101) 
 Treasury stock at cost 229,075,540 205,577,484 and 200,223,397 (7,554,501)  (6,214,727)  (5,811,421) 
 Total shareholders' equity 2,330,528   3,479,608   3,969,431  
Total liabilities and shareholders' equity$17,920,900  $16,721,804  $13,351,094  
    

 

Sysco Corporation and its Consolidated Subsidiaries      
CONSOLIDATED CASH FLOWS (Unaudited)      
(In Thousands)      
    39-Week Period Ended  
   Apr. 1, 2017
 Mar. 26, 2016
 
Cash flows from operating activities:      
Net earnings$837,332  $733,955  
Adjustments to reconcile net earnings to cash provided by
 operating activities:
      
Share-based compensation expense 65,560   66,333  
Depreciation and amortization 667,275   460,664  
Amortization of debt issuance and other debt-related costs 25,156   36,088  
Loss on extinguishment of debt -   86,460  
Deferred income taxes (40,286)  125,527  
Provision for losses on receivables 14,483   15,596  
Other non-cash items (338)  (18,918) 
Additional changes in certain assets and liabilities, net of effect of businesses acquired:        
(Increase) in receivables (287,758)  (174,826) 
(Increase) in inventories (80,660)  (6,825) 
Decrease in prepaid expenses and other current assets 5,827   20,530  
Increase in accounts payable 318,760   11,358  
(Decrease) in accrued expenses (253,577)  (357,503) 
(Decrease) increase in accrued income taxes (182,089)  93,601  
(Increase) decrease in other assets (42,669)  4,954  
Increase (decrease) in other long-term liabilities 11,756   (84,076) 
Excess tax benefits from share-based compensation
  arrangements
 (33,997)  (23,937) 
Net cash provided by operating activities 1,024,775   988,981  
         
Cash flows from investing activities:       
Additions to plant and equipment  (413,776)  (360,883) 
Proceeds from sales of plant and equipment  19,091   12,623  
Acquisition of businesses, net of cash acquired  (2,910,461)  (167,701) 
Decrease in restricted cash -   168,274  
Purchase of foreign currency options -   (34,648) 
Net cash used for investing activities (3,305,146)  (382,335) 
         
Cash flows from financing activities:        
Bank and commercial paper borrowings (repayments), net 1,286,452   -  
Other debt borrowings 2,010   2,028,639  
Other debt repayments (146,780)  (77,842) 
Senior note redemption repayments -   (5,050,000) 
Debt issuance costs (5,094)  (20,491) 
Cash paid for settlement of cash flow hedge -   (6,134) 
Cash received from the termination of interest rate swap agreements   -   14,496  
Proceeds from stock option exercises 175,332   222,798  
Accelerated share and treasury stock purchases (1,531,074)  (1,711,481) 
Dividends paid (521,806)  (523,665) 
Excess tax benefits from share-based compensation
  arrangements
 33,997   23,937  
Net cash used for financing activities (706,963)  (5,099,743) 
         
Effect of exchange rates on cash   (76,833)  (26,109) 
         
Net decrease in cash and cash equivalents (3,064,167)  (4,519,206) 
Cash and cash equivalents at beginning of period  3,919,300   5,130,044  
Cash and cash equivalents at end of period $855,133  $610,838  
         
         
Supplemental disclosures of cash flow information:       
Cash paid during the period for:       
Interest$263,421  $158,957  
Income taxes 673,076   165,904  
         


Sysco Corporation and its Consolidated Subsidiaries
Non-GAAP Reconciliation (Unaudited)
Impact of Certain Items
             
Sysco’s results of operations are impacted by restructuring costs consisting of (1) expenses associated with our revised business technology strategy announced in fiscal 2016, as a result of which we recorded accelerated depreciation on our existing system and incurred costs to convert to a modernized version of our established platform, (2) professional fees related to our three-year strategic plan, (3) restructuring expenses within our Brakes Group operations, and (4) severance charges related to restructuring.  Our results of operations are also impacted by the following acquisition-related items: (1) intangible amortization expense (2) transaction costs and (3) integration costs.  All acquisition-related costs in fiscal 2017 that have been excluded relate to the Brakes acquisition.  Fiscal 2016 acquisition-related costs, however, include (i) Brakes related acquisition costs, (ii) termination costs in connection with the merger that had been proposed with US Foods, Inc. (US Foods) and (iii) financing costs related to the senior notes that were issued in fiscal 2015 to fund the proposed US Foods merger. These senior notes were redeemed in the first quarter of fiscal 2016, triggering a redemption loss of $86.5 million, and we incurred interest on these notes through the redemption date.  The Brakes acquisition also resulted in non-recurring tax expense in fiscal 2017, primarily from non-deductible transaction costs.  These fiscal 2017 and fiscal 2016 items are collectively referred to as "Certain Items."
 
Management believes that adjusting its operating expenses, operating income, operating margin as a percentage of sales, interest expense, net earnings and diluted earnings per share to remove these Certain Items provides an important perspective with respect to our underlying business trends and results and provides meaningful supplemental information to both management and investors that (1) is indicative of the performance of the company's underlying operations and facilitates comparisons on a year-over-year basis and (2) removes those items that are difficult to predict and are often unanticipated, and which as a result, are difficult to include in analysts' financial models and our investors' expectations with any degree of specificity.
 
Although Sysco has a history of growth through acquisitions, the Brakes Group is significantly larger than the companies historically acquired by Sysco, with a proportionately greater impact on Sysco’s consolidated financial statements.  Accordingly, Sysco is excluding from its non-GAAP financial measures for the relevant period solely those acquisition costs specific to the Brakes acquisition.  We believe this approach significantly enhances the comparability of Sysco’s results for the third quarter and first 39 weeks of fiscal 2017 to the same periods in fiscal 2016.  Also, given the significance of the Brakes acquisition, management believes that presenting Sysco’s financial measures, excluding the Brakes Group operating results (including for this purpose Brakes financing costs, which are not included in the Brakes Group GAAP operating results and are also not Certain Items), enhances comparability of the period over period financial performance of Sysco’s legacy business and allows investors to more effectively measure Sysco’s progress against the financial goals under Sysco’s three year strategic plan.
 
Set forth below is a reconciliation of sales, operating expenses, operating income, interest expense, net earnings and diluted earnings per share to adjusted results for these measures for the periods presented.  Individual components of diluted earnings per share may not add to the total presented due to rounding.  Adjusted diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding.
             

 

Sysco Corporation and its Consolidated Subsidiaries           
Non-GAAP Reconciliation  (Unaudited)           
Impact of Certain Items and Brakes           
(In Thousands, Except for Share and Per Share Data)           
            
  13-Week
Period Ended
Apr. 1, 2017
 13-Week
Period Ended
Mar 26, 2016
 13-Week
Period Change
in Dollars
13-Week
Period
%/bps Change
 
Sales$13,524,172  $12,002,791  $1,521,381  12.7% 
Impact of Brakes (1,239,721)  -   (1,239,721) NM  
Sales excluding the impact of Brakes (Non-GAAP)$12,284,451  $12,002,791  $281,660  2.3% 
            
Gross profit$2,534,135  $2,142,825  $391,310  18.3% 
Impact of Brakes (298,947)  -   (298,947) NM  
Gross profit excluding the impact of Brakes (Non-GAAP)$2,235,188  $2,142,825  $92,363  4.3% 
            
Gross margin 18.74%  17.85%    89 bps  
Impact of Brakes 0.54%  0.00%    54 bps  
Gross margin excluding the impact of Brakes (Non-GAAP) 18.20%  17.85%    34 bps  
            
Operating expenses (GAAP)$2,098,173  $1,765,207  $332,966  18.9% 
Impact of restructuring costs (1) (40,064)  (59,443)  19,380  -32.6% 
Impact of acquisition-related costs (2) (24,273)  (586)  (23,686) NM  
Operating expenses adjusted for certain items (Non-GAAP)$2,033,836  $1,705,178  $328,658  19.3% 
Impact of Brakes (317,770)  -   (317,770) NM  
Impact of Brakes restructuring costs (3) 4,813   -   4,813  NM  
Impact of Brakes acquisition-related costs (2) 17,048   -   17,048  NM  
Operating expenses adjusted for certain items and excluding the impact of Brakes (Non-GAAP)$1,737,926  $1,705,178  $32,748  1.9% 
            
Operating income (GAAP)$435,962  $377,618  $58,344  15.5% 
Impact of restructuring costs (1) 40,064   59,443   (19,380) NM  
Impact of acquisition-related costs (2) 24,273   586   23,686  NM  
Operating income adjusted for certain items (Non-GAAP)$500,299  $437,647  $62,652  14.3% 
Impact of Brakes 18,823   -   18,823  NM  
Impact of Brakes restructuring costs (3) (4,813)  -   (4,813) NM  
Impact of Brakes acquisition-related costs (2) (17,048)  -   (17,048) NM  
Operating income adjusted for certain items and excluding the impact of Brakes (Non-GAAP)$497,262  $437,647  $59,615  13.6% 
            
Operating margin (GAAP) 3.22%  3.15%    8 bps  
Operating margin excluding Certain Items (Non-GAAP) 3.70%  3.65%    5 bps  
Operating margin excluding Certain Items and Brakes (Non-GAAP) 4.05%  3.65%    40 bps  
            
Interest expense (GAAP)$81,004  $57,699  $23,305  40.4% 
Impact of acquisition financing costs -   (10,495)  10,495  NM  
Interest expense adjusted for certain items (Non-GAAP)$81,004  $47,204  $33,800  71.6% 
            
Net earnings (GAAP) $238,278  $217,136  $21,142  9.7% 
Impact of restructuring cost (1) 40,064   59,443   (19,379) -32.6% 
Impact of acquisition-related costs (2) 24,273   586   23,687  NM  
Impact of acquisition financing costs -   10,495   (10,495) NM  
Tax impact of restructuring cost (5) (17,524)  (22,172)  4,648  -21.0% 
Tax impact of acquisition-related costs (5) (9,229)  (218)  (9,011) NM  
Tax impact of acquisition financing costs (5) -   (3,914)  3,914  NM  
Net earnings adjusted for certain items (Non-GAAP) $275,862  $261,356  $14,506  5.6% 
Impact of Brakes (3,020)  -   (3,020) NM  
Impact of Brakes restructuring costs (3) (3,125)  -   (3,125) NM  
Impact of Brakes acquisition-related costs (2) (11,065)  -   (11,065) NM  
Impact of interest expense on debt issued for the Brakes acquisition (6) 20,937   -   20,937  NM  
Tax impact of interest expense on debt issued for the Brakes acquisition (5) (9,733)  -   (9,733) NM  
Net earnings adjusted for certain items and excluding the impact of Brakes (Non-GAAP)$269,856  $261,356  $8,500  3.3% 
            
Diluted earnings per share (GAAP) $0.44  $0.38  $0.06  15.8% 
Impact of restructuring costs (1) 0.07   0.11   (0.04) -36.4% 
Impact of acquisition-related costs (2) 0.04   -   0.04  NM  
Impact of acquisition financing costs -   0.02   (0.02) NM  
Tax impact of restructuring cost (5) (0.03)  (0.04)  0.01  -22.8% 
Tax impact of acquisition-related costs (5) (0.02)  -   (0.02) NM  
Tax impact of acquisition financing costs (5) -   (0.01)  0.01  NM  
Diluted EPS adjusted for certain items(Non-GAAP) (4)$0.51  $0.46  $0.05  10.9% 
Impact of Brakes 0.01   -   0.01  NM  
Impact of Brakes restructuring costs (3) (0.01)  -   (0.01) NM  
Impact of Brakes acquisition-related costs (2) (0.02)  -   (0.02) NM  
Impact of interest expense on debt issued for the Brakes acquisition (6) 0.04   -   0.04  NM  
Tax impact of interest expense on debt issued for the Brakes acquisition (5) (0.02)  -   (0.02) NM  
Diluted EPS adjusted for certain items and excluding the impact of Brakes (Non-GAAP) (4)$0.50  $0.46  $0.04  8.7% 
            
Diluted shares outstanding 544,068,915   570,814,798       
            
(1) Includes $28 million in accelerated depreciation associated with our revised business technology strategy and $12 million related to restructuring expenses within our Brakes operations, costs to convert to legacy systems in conjuction with our revised business technology strategy, severance charges related to restructuring and professional fees on 3-year financial objectives.
(2) Fiscal 2017 includes $19 million related to intangible amortization expense from the Brakes acquisition, which is included in the results of Brakes and $7 million in transaction costs.  Fiscal 2016 includes US Foods merger termination costs.
(3) Includes Brakes acquisition restructuring charges.
(4) Individual components of diluted earnings per share may not add to the total presented due to rounding.  Total diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding. 
(5) The tax impact of adjustments for Certain Items are calculated by multiplying the pretax impact of each Certain Item by the statutory rates in effect for each jurisdiction where the Certain Item was incurred.
(6) Sysco Corporation issued debt to fund the Acquisition.  The interest expense arising from the debt issued is attributed to the incremental impact of Brakes operating results, even though it is not a direct obligation of the Brakes Group and is not considered a Certain Item. 
NM represents that the percentage change is not meaningful.           
            

 

Sysco Corporation and its Consolidated Subsidiaries           
Non-GAAP Reconciliation  (Unaudited)           
Impact of Certain Items and Brakes           
(In Thousands, Except for Share and Per Share Data)           
            
  39-Week
Period Ended
Apr. 1, 2017
 39-Week
Period Ended
Mar 26, 2016
 39-Week
Period Change
in Dollars
39-Week
Period
%/bps Change
 
Sales$40,950,094  $36,719,028  $4,231,066  11.5% 
Impact of Brakes (3,852,145)  -   (3,852,145) NM  
Sales excluding the impact of Brakes (Non-GAAP)$37,097,949  $36,719,028  $378,921  1.0% 
            
Gross profit$7,797,917  $6,537,634  $1,260,283  19.3% 
Impact of Brakes (995,132)  -   (995,132) NM  
Gross profit excluding the impact of Brakes (Non-GAAP)$6,802,785  $6,537,634  $265,151  4.1% 
            
Gross margin 19.04%  17.80%    124 bps  
Impact of Brakes 0.71%  0.00%    71 bps  
Gross margin excluding the impact of Brakes (Non-GAAP) 18.34%  17.80%    53 bps  
            
Operating expenses (GAAP)$6,302,705  $5,233,959  $1,068,746  20.4% 
Impact of restructuring costs (1) (118,438)  (66,913)  (51,524) 77.0% 
Impact of acquisition-related costs (2) (71,352)  (10,402)  (60,950) NM  
Operating expenses adjusted for certain items (Non-GAAP)$6,112,915  $5,156,644  $956,271  18.5% 
Impact of Brakes (949,926)  -   (949,926) NM  
Impact of Brakes restructuring costs (3) 9,794   -   9,794  NM  
Impact of Brakes acquisition-related costs (2) 56,838   -   56,838  NM  
Operating expenses adjusted for certain items and excluding the impact of Brakes (Non-GAAP)$5,229,621  $5,156,644  $72,976  1.4% 
            
Operating income (GAAP)$1,495,212  $1,303,675  $191,537  14.7% 
Impact of restructuring costs (1) 118,438   66,913   51,524  77.0% 
Impact of acquisition-related costs (2) 71,352   10,402   60,950  NM  
Operating income adjusted for certain items (Non-GAAP)$1,685,002  $1,380,990  $304,012  22.0% 
Impact of Brakes (45,206)  -   (45,206) NM  
Impact of Brakes restructuring costs (3) (9,794)  -   (9,794) NM  
Impact of Brakes acquisition-related costs (2) (56,838)  -   (56,838) NM  
Operating income adjusted for certain items and excluding the impact of Brakes (Non-GAAP)$1,573,164  $1,380,990  $192,174  13.9% 
            
Operating margin (GAAP) 3.65%  3.55%    10 bps  
Operating margin excluding Certain Items (Non-GAAP) 4.11%  3.76%    35 bps  
Operating margin excluding Certain Items and Brakes (Non-GAAP) 4.24%  3.76%    48 bps  
            
Interest expense (GAAP)$226,858  $231,841  $(4,983) -2.1% 
Impact of acquisition financing costs -   (105,330)  105,330  NM  
Interest expense adjusted for certain items (Non-GAAP)$226,858  $126,511  $100,347  79.3% 
            
Net earnings (GAAP) $837,332  $733,955  $103,377  14.1% 
Impact of restructuring cost (1) 118,438   66,913   51,525  77.0% 
Impact of acquisition-related costs (2) 71,352   10,402   60,950  NM  
Impact of acquisition financing costs -   105,330   (105,330) NM  
Tax impact of restructuring cost (5) (36,840)  (24,958)  (11,882) 47.6% 
Tax impact of acquisition-related costs (5) (19,515)  (3,880)  (15,635) NM  
Tax impact of acquisition financing costs (5) -   (39,288)  39,288  NM  
Net earnings adjusted for certain items (Non-GAAP) $970,767  $848,474  $122,293  14.4% 
Impact of Brakes (53,747)  -   (53,747) NM  
Impact of Brakes restructuring costs (3) (7,220)  -   (7,220) NM  
Impact of Brakes acquisition-related costs (2) (41,901)  -   (41,901) NM  
Impact of interest expense on debt issued for the Brakes acquisition (6) 60,618   -   60,618  NM  
Tax impact of interest expense on debt issued for the Brakes acquisition (5) (24,732)  -   (24,732) NM  
Net earnings adjusted for certain items and excluding the impact of Brakes (Non-GAAP)$903,785  $848,474  $55,311  6.5% 
            
Diluted earnings per share (GAAP) $1.52  $1.26  $0.26  20.6% 
Impact of restructuring costs (1) 0.21   0.11   0.10  90.9% 
Impact of acquisition-related costs (2) 0.13   0.02   0.11  NM  
Impact of acquisition financing costs -   0.18   (0.18) NM  
Tax impact of restructuring cost (5) (0.07)  (0.04)  (0.03) 75.0% 
Tax impact of acquisition-related costs (5) (0.04)  (0.01)  (0.03) NM  
Tax impact of acquisition financing costs (5) -   (0.07)  0.07  NM  
Diluted EPS adjusted for certain items(Non-GAAP) (4)$1.76  $1.46  $0.30  20.5% 
Impact of Brakes (0.10)  -   (0.10) NM  
Impact of Brakes restructuring costs (3) (0.01)  -   (0.01) NM  
Impact of Brakes acquisition-related costs (2) (0.08)  -   (0.08) NM  
Impact of interest expense on debt issued for the Brakes acquisition (6) 0.11   -   0.11  NM  
Tax impact of interest expense on debt issued for the Brakes acquisition (5) (0.04)  -   (0.04) NM  
Diluted EPS adjusted for certain items and excluding the impact of Brakes (Non-GAAP) (4)$1.64  $1.46  $0.18  12.2% 
            
Diluted shares outstanding 551,797,431   580,980,865       
            
(1) Includes $84 million in accelerated depreciation associated with our revised business technology strategy and $35 million related to professional fees on 3-year financial objectives, restructuring expenses within our Brakes operations, costs to convert to legacy systems in conjuction with our revised business technology strategy and severance charges related to restructuring.
(2) Fiscal 2017 includes $57 million related to intangible amortization expense from the Brakes acquisition, which is included in the results of Brakes and $15 million in transaction costs.  Fiscal 2016 includes US Foods merger termination costs. 
(3) Includes Brakes acquisition restructuring charges. 
(4) Individual components of diluted earnings per share may not add to the total presented due to rounding. Total diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding. 
(5) The tax impact of adjustments for Certain Items are calculated by multiplying the pretax impact of each Certain Item by the statutory rates in effect for each jurisdiction where the Certain Item was incurred.  The adjustments also include $7 million in non-deductible transaction costs and $4 million in other one-time costs related to the Brakes acquisition. 
(6) Sysco Corporation issued debt to fund the Acquisition.  The interest expense arising from the debt issued is attributed to the incremental impact of Brakes operating results, even though it is not a direct obligation of the Brakes Group and is not considered a Certain Item. 
NM represents that the percentage change is not meaningful.           
            

 

Sysco Corporation and its Consolidated Subsidiaries             
Non-GAAP Reconciliation  (Unaudited)             
Impact of Certain Items             
(In Thousands, Except for Share and Per Share Data)             
              
              
  13-Week Period Ended   39-Week Period Ended   
 Apr. 1, 2017 Mar. 26, 2016 Apr. 1, 2017 Mar. 26, 2016  
U.S. Foodservice Operations             
              
Sales (GAAP)$9,233,048  $9,037,417  $27,799,728  $27,580,667   
Gross Profit (GAAP) 1,836,226   1,765,279   5,572,364   5,359,023   
Gross Margin (GAAP) 19.89%  19.53%  20.04%  19.43%  
              
Operating expenses (GAAP)$1,147,016  $1,121,953  $3,456,602  $3,403,812   
Impact of restructuring costs -   (742)  (470)  (2,176)  
Operating expenses adjusted for certain items (Non-GAAP)$1,147,016  $1,121,211  $3,456,132  $3,401,636   
Operating income (GAAP)$689,210  $643,326  $2,115,762  $1,955,211   
Impact of restructuring costs -   742   470   2,176   
Operating income adjusted for certain items (Non-GAAP)$689,210  $644,068  $2,116,232  $1,957,387   
              
              
International Foodservice Operations             
              
Sales (GAAP)$2,528,485  $1,251,815  $7,882,796  $3,922,848   
Gross Profit (GAAP) 516,748   210,682   1,691,368   677,342   
Gross Margin (GAAP) 20.44%  16.83%  21.46%  17.27%  
              
Operating expenses (GAAP)$500,672  $177,661  $1,511,044  $550,189   
Impact of restructuring costs (1) (6,779)  (308)  (17,049)  (2,137)  
Impact of acquisition-related costs (2) (17,048)  -   (56,838)  -   
Operating expenses adjusted for certain items (Non-GAAP)$476,845  $177,353  $1,437,157  $548,052   
Operating income (GAAP)$16,076  $33,021  $180,324  $127,153   
Impact of restructuring costs (1) 6,779   308   17,049   2,137   
Impact of acquisition-related costs (2) 17,048   -   56,838   -   
Operating income adjusted for certain items (Non-GAAP)$39,904  $33,329  $254,211  $129,290   
              
              
SYGMA             
              
Sales (GAAP)$1,535,550  $1,497,365  $4,560,424  $4,450,106   
Gross Profit (GAAP) 119,481   114,657   347,888   336,767   
Gross Margin (GAAP) 7.78%  7.66%  7.63%  7.57%  
              
Operating expenses (GAAP)$112,137  $105,313  $332,481  $316,641   
Impact of restructuring costs -   (20)  -   (102)  
Operating expenses adjusted for certain items (Non-GAAP)$112,137  $105,293  $332,481  $316,539   
Operating income (GAAP)$7,344  $9,344  $15,407  $20,126   
Impact of restructuring costs -   20   -   102   
Operating income adjusted for certain items (Non-GAAP)$7,344  $9,364  $15,407  $20,228   
              
              
Other             
              
Sales (GAAP)$227,089  $216,194  $707,146  $765,407   
Gross Profit (GAAP) 60,096   56,242   188,475   171,494   
Gross Margin (GAAP) 26.46%  26.01%  26.65%  22.41%  
              
Operating expenses (GAAP)$54,018  $49,626  $170,602  $147,728   
Impact of restructuring costs -   (52)  -   (115)  
Operating expenses adjusted for certain items (Non-GAAP)$54,018  $49,574  $170,602  $147,613   
Operating income (GAAP)$6,078  $6,616  $17,873  $23,766   
Impact of restructuring costs -   52   -   115   
Operating income adjusted for certain items (Non-GAAP)$6,078  $6,668  $17,873  $23,881   
              
              
Corporate             
              
Gross Profit (GAAP)$1,584  $(4,035) $(2,178) $(6,992)  
              
Operating expenses (GAAP)$284,330  $310,654  $831,976  $815,589   
Impact of restructuring costs (3) (33,286)  (58,320)  (100,919)  (62,383)  
Impact of acquisition-related costs (4) (7,224)  (586)  (14,514)  (10,402)  
Operating expenses adjusted for certain items (Non-GAAP)$243,820  $251,747  $716,543  $742,804   
Operating income (GAAP)$(282,746) $(314,689) $(834,154) $(822,581)  
Impact of restructuring costs (3) 33,286   58,320   100,919   62,383   
Impact of acquisition-related costs (4) 7,224   586   14,514   10,402   
Operating income adjusted for certain items (Non-GAAP)$(242,236) $(255,782) $(718,721) $(749,796)  
              
              
Total Sysco             
              
Sales (GAAP)$13,524,172  $12,002,791  $40,950,094  $36,719,028   
Gross Profit (GAAP) 2,534,135   2,142,825   7,797,917   6,537,634   
Gross Margin (GAAP) 18.74%  17.85%  19.04%  17.80%  
              
Operating expenses (GAAP)$2,098,173  $1,765,207  $6,302,705  $5,233,959   
Impact of restructuring costs (1) (3) (40,064)  (59,443)  (118,438)  (66,913)  
Impact of acquisition-related costs (2) (4) (24,273)  (586)  (71,352)  (10,402)  
Operating expenses adjusted for certain items (Non-GAAP)$2,033,836  $1,705,177  $6,112,915  $5,156,644   
Operating income (GAAP)$435,962  $377,618  $1,495,212  $1,303,675   
Impact of restructuring costs (1) (3) 40,064   59,443   118,438   66,913   
Impact of acquisition-related costs (2) (4) 24,273   586   71,352   10,402   
Operating income adjusted for certain items (Non-GAAP)$500,299  $437,647  $1,685,002  $1,380,990   
              
(1) Fiscal 2017 includes Brakes acquisition-related restructuring charges and other severance charges related to restructuring. 
(2) Fiscal 2017 Includes $19 million and $57 million for 13 and 39 weeks, respectively, related to intangible amortization expense from the Brakes acquisition, which is included in the results of the Brakes Group. 
(3) Fiscal 2017 $28 million and $84 million for the 13 and 39 weeks, respectively, in accelerated depreciation associated with our revised business technology strategy. Also includes $5 million and $18 million for the 13 and 39 weeks, periods related to professional fees on 3-year financial objectives and costs to convert to legacy systems in conjunction with our revised business technology strategy. 
(4) Fiscal 2017 Includes $7 million and $15 million for the 13 and 39 weeks periods, related to transaction costs from the Brakes acquisition. Fiscal 2016 includes US Foods merger termination costs. 
  


Sysco Corporation and its Consolidated Subsidiaries           
Non-GAAP Reconciliation  (Unaudited)  
Free Cash Flow            
(In Thousands)  
             
Free cash flow represents net cash provided from operating activities less purchases of plant and equipment and includes proceeds from sales of plant and equipment.  Sysco considers free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after the purchases and sales of buildings, fleet, equipment and technology, which may potentially be used to pay for, among other things, strategic uses of cash including dividend payments, share repurchases and acquisitions.  However, free cash flow may not be available for discretionary expenditures, as it may be necessary that we use it to make mandatory debt service or other payments.  Free cash flow should not be used as a substitute for the most comparable GAAP measure in assessing the company’s liquidity for the periods presented.  An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP.  In the table that follows, free cash flow for each period presented is reconciled to net cash provided by operating activities.  
             
 39-Week
Period Ended
Apr 1, 2017
 39-Week
Period Ended
Mar 26, 2016
 39-Week
Period Change
in Dollars
 39-Week
Period
% Change
 
Net cash provided by operating activities (GAAP)$1,024,775  $988,981  $35,794  3.6% 
Additions to plant and equipment (413,776)  (360,883)  (52,893) -14.7  
Proceeds from sales of plant and equipment 19,091   12,623   6,468  51.2  
Free Cash Flow (Non-GAAP)$630,090  $640,721  $(10,631) -1.7% 
             
   
For more information contact:
Neil Russell
Investor Contact
T 281-584-1308

Camilla Zuckero
Media Contact
T 281-899-1839

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Current Stock Price

54.43 +0.15 +0.28% Volume: 1,707,704 May 26, 2017

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 food service and hospitality industries.