Sysco Reports Second Quarter Net Earnings of $211 Million and Diluted EPS of $0.36 ($0.40 After Adjusting for Certain Items)

HOUSTON, Feb. 3, 2014 (GLOBE NEWSWIRE) -- Sysco Corporation (NYSE:SYY) today announced financial results for its 13-week second fiscal quarter ended December 28, 2013.

Second Quarter Fiscal 2014 Highlights

• Sales were $11.2 billion, an increase of 4.1% from $10.8 billion in the second quarter of fiscal 2013.
• Operating income was $352 million, a decrease of 8.1%, compared to $383 million in last year's second quarter.
• Diluted earnings per share (EPS) were $0.36, which was 5.3% lower compared to $0.38 in last year's second quarter.
• After adjusting for certain items, which mainly related to an increase in the estimate of Sysco's self-insurance reserve, adjusted¹ diluted EPS was $0.40, or flat compared to the prior year. After further adjusting for business transformation expenses, to reflect the performance of the company's underlying business, adjusted diluted EPS was $0.47, or a 4.1% decrease compared to the prior year.

First Half Fiscal 2014 Highlights

• Sales were $23.0 billion, an increase of 4.9% from $21.9 billion in the first half of fiscal 2013.
• Operating income was $830 million, a decrease of 3.7%, compared to $861 million in last year's first half.
• Diluted EPS was $0.84, which was 2.3% lower compared to $0.86 in last year's first half.
• After adjusting for certain items, which mainly related to an increase in the estimate of Sysco's self-insurance reserve, adjusted diluted EPS was $0.88 which was 1.1% lower compared to the prior year. After further adjusting for business transformation expenses, to reflect the performance of the company's underlying business, adjusted diluted EPS was $1.02, or a 3.8% decrease compared to the prior year period.
• Cash flow from operations increased 18.5% to $458 million in the first half of fiscal 2014, and free cash flow¹ increased 64% to $211 million.

"Our second quarter results were achieved in a market environment that, once again, was quite challenging for many of our customers, especially those who operate in the casual dining restaurant segment. Sales growth during the quarter was modest, and slowed somewhat as the quarter progressed, and gross margin continued to be pressured," said Bill DeLaney , Sysco's president and chief executive officer. "However, we are encouraged with our expense management performance which was driven by the ongoing successful implementation of our broad array of Business Transformation initiatives. Additionally, following the recent announcement of our proposed merger with US Foods, we are excited to begin integration planning that will ultimately bring the best of both companies together. This will enhance our ability to serve our customers, strengthen supplier partnerships and further engage our employees."

Second Quarter Fiscal 2014 Summary

Sales for the second quarter were $11.2 billion, an increase of 4.1% compared to sales in the same period last year. Food cost inflation was 0.8%, as measured by the estimated change in Sysco's product costs, driven mainly by inflation in the meat and seafood categories. In addition, sales from acquisitions (within the last 12 months) increased sales by 1.9%, and the impact of changes in foreign exchange rates for the second quarter decreased sales by 0.6%. Case volume for the company's Broadline and SYGMA operations combined grew 4.3% during the quarter, including acquisitions, and approximately 2.7%, excluding acquisitions.

Gross profit for the second quarter was $2.0 billion, an increase of 0.7%, compared to the prior year. Operating expenses in the second quarter increased $44 million, or 2.8%, compared to the prior year period. In addition, operating expenses in the second quarter of fiscal 2014 reflect $33 million in certain items mainly related to an increase in the estimate of Sysco's self-insurance reserve. Excluding certain items and business transformation expenses, adjusted operating expenses increased 3.4%.

Operating income was $352 million in the second quarter, decreasing $31 million, or 8.1% compared to operating income in the prior year. Excluding certain items and business transformation expenses, adjusted operating income decreased 7.6%.

Net earnings for the second quarter were $211 million, a decrease of $11 million, or 4.8%, compared to the prior year. Diluted EPS in the second quarter of fiscal 2014 was $0.36, which was 5.3% lower compared to last year's second quarter. Excluding certain items and business transformation expenses, adjusted diluted EPS was $0.47, which was a 4.1% decrease, compared to the prior year period.

First Half Fiscal 2014 Summary

Sales for the first half of fiscal 2014 were $23.0 billion, an increase of 4.9% compared to sales in the same period last year. Food cost inflation was 1.4%, as measured by the estimated change in Sysco's product costs, driven mainly by inflation in the meat and produce categories. In addition, sales from acquisitions (within the last 12 months) increased sales by 1.9%, and the impact of changes in foreign exchange rates for the first half of the fiscal year decreased sales by 0.5%. Case volume for the company's Broadline and SYGMA operations combined grew 4.2% during the first half, including acquisitions, and approximately 2.2%, excluding acquisitions.

Gross profit for the first half was $4.0 billion, an increase of 1.2%, compared to the prior year. Operating expenses in the first half increased $80 million, or 2.6%, compared to operating expenses in the prior year period. In addition, operating expenses reflect $36 million in certain items. Excluding certain items and business transformation expenses, adjusted operating expenses increased 3.4%.

Operating income was $830 million in the first half, decreasing $31 million, or 3.7% compared to operating income in the prior year. Excluding certain items and business transformation expenses, adjusted operating income decreased 5.0%.

Net earnings for the first half were $496 million, a decrease of $12 million, or 2.3%, compared to the prior year. Diluted EPS in the first half of fiscal 2014 was $0.84, which was 2.3% lower compared to last year's first half. Excluding certain items and business transformation expenses, adjusted diluted EPS was $1.02, which was a decrease of 3.8%, compared to the prior year.

Cash Flow and Capital Spending

Cash flow from operations was $458 million for the first half of fiscal 2014, compared to $387 million in the first half of fiscal 2013, or an increase of 18.5%. Total capital expenditures totaled $135 million for the second quarter, and $270 million for the first half of the year. The primary areas for investment included facility replacements and expansions, replacements to Sysco's fleet, and technology.

Free cash flow² increased 64.4% in the first half of fiscal 2014 to $211 million compared to the first half of fiscal 2013.

Additional Information

Beginning in the first quarter of fiscal 2014, Sysco changed its classification of certain intercompany purchases from the previous classification used in fiscal 2013. This change impacted gross profit and operating expense, but had no impact to operating income or net earnings. See the table below for more information and a presentation of reclassified prior year financial results for fiscal 2013 and fiscal 2012.

Conference Call & Webcast

Sysco's second quarter fiscal 2014 earnings conference call will be held on Monday, February 3, 2014, at 10:00 a.m. Eastern. A live webcast of the call, a copy of this press release and a slide presentation, will be available online at www.sysco.com in the Investors 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 193 distribution facilities serving approximately 425,000 customers. For Fiscal Year 2013 that ended June 29, 2013, the company generated sales of more than $44 billion. For more information, visit www.sysco.com or connect with Sysco on Facebook at www.facebook.com/SyscoCorporation or Twitter at www.twitter.com/Sysco. For important news regarding Sysco, visit the Investor Relations portion of the company's Internet home page at www.sysco.com/investors, follow us at www.twitter.com/SyscoStock and download the new Sysco IR App, available on the iTunes App Store and the Google Play Market. In addition, investors should also continue to review our press 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 press release or in our earnings call for the second quarter of fiscal 2014 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 plans and expectations related to and the benefits and expected timing of our business transformation initiatives, and our plans and expectations related to and the benefits of the proposed merger with US Foods. These statements also include expectations regarding our operating performance results, market conditions, our expense management and Broadline cost per case performance, business transformation expenses, and capital expenditures. In addition, these statements include our expectations and plans to accelerate sales growth with our locally-managed customers and mitigate gross margin pressures. The success of our business transformation initiatives and expectations regarding our operating performance 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 may not increase and decreases in consumer spending, particularly on food-away-from-home, may not reverse. Market conditions may not improve. Our locally-managed customers comprise a significant portion of our overall volumes and an even greater percentage of profitability because of the high level of valued added services we typically provide to this customer group. 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 continue to decline. Our ability to meet our long-term strategic objectives to grow the profitability of our business depends largely on the success of our Business Transformation Project. There are various risks related to the project, including the risk that the project and its various components 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 the ERP system may be greater or less than currently expected because we have encountered, and may continue to 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 continued delays in deployment, additional operating problems, cost overages or limitations on the extent of the business transformation during the ERP implementation process; and the risk of adverse effects to our business, results of operations and liquidity if the ERP system, and the associated process changes, do not prove to be cost effective or do not result in the cost savings and other benefits at the levels that we anticipate. In fiscal 2013, we delayed the deployment of certain components of our ERP system so that we could address certain areas of improvement. In the first half of fiscal 2014, we installed a major scheduled update to the ERP system and deployed the system to one additional location. We have deployed the system to two additional locations in January 2014, and plan to implement an update in February 2014. Planned deployments in the coming quarters are dependent upon the success of the ERP system and the updates at the current locations. We may experience delays, cost overages or operating problems when we deploy the system to additional locations. Our plans related to and the timing of the implementation of the ERP system, as well as the cost transformation and category management initiatives, are subject to change at any time based on management's subjective evaluation of our overall business needs. We may fail to realize anticipated benefits, particularly expected cost savings, from our cost transformation initiative. If we are unable to realize the anticipated benefits from our cost cutting efforts, we could become cost disadvantaged in the marketplace, and our competitiveness and our profitability could decrease. We may also fail to realize the full anticipated benefits of our category management initiative, and may be unable to successfully execute the initiative in our anticipated timeline. 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 initiatives and our regional distribution centers, 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. The consummation of the merger with US Foods is subject to regulatory approval and the satisfaction of certain conditions, and we cannot predict whether the necessary conditions will be satisfied or waived and the requisite regulatory approvals received. Sysco and US Foods may be required to take certain actions to obtain regulatory approval for the merger, including the divestiture of assets, which could negatively impact the projected benefits of the merger. Termination of the merger agreement with US Foods could require Sysco to make a termination payment of $300 million, which could adversely impact Sysco's stock price, liquidity and financial condition. As a result of uncertainties surrounding the proposed merger, prospective suppliers and customers may delay or decline to enter into agreements with us, and we may also lose current suppliers and customers, and fail to retain key employees. The pending merger and our current pre-merger integration planning efforts may divert our management's attention from day-to-day business operations and the execution of our business transformation initiatives, which could result in performance shortfalls. Integration of the businesses of Sysco and US Foods may be more difficult, costly or time consuming than expected, and the merger may not result in any or all of the anticipated benefits, including cost synergies. We may fail to retain some of US Foods' vendors and customers after the proposed merger. Consummation of the merger will require Sysco to incur significant additional indebtedness, which could adversely impact our financial condition and may hinder our ability to obtain additional financing and pursue other business and investment opportunities. For a discussion of additional factors impacting Sysco's business, see the Company's Annual Report on Form 10-K for the year ended June 29, 2013, 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.

¹ See Non-GAAP Reconciliation below for more information.

² See Non-GAAP Reconciliation below for more information.

CONTACT: Neil Russell
         Vice President, Investor Relations
         T  281-584-1308

         Charley Wilson
         Vice President, Corporate Communications
         T  281-584-2423