Sysco Reports Third Quarter Net Earnings of $260 Million and Diluted EPS of $0.44 Sales of $10.5 Billion Are the Highest on Record for the Third Quarter HOUSTON, May 7, 2012 (GLOBE NEWSWIRE) -- Sysco Corporation (NYSE:SYY) today announced financial results for its 13-week third fiscal quarter ending March 31, 2012. Third Quarter Fiscal 2012 Highlights *Sales were $10.5 billion, an increase of 7.6% from $9.8 billion in the third quarter of fiscal 2011. *Operating income was $439 million, an increase of 2.7%, compared to $427 million in last year's third quarter. *Adjusted^1 operating income was $487 million, an increase of 0.9% compared to $483 million in last year's third quarter. *Diluted earnings per share (EPS) were $0.44, which was flat compared to $0.44 in last year's third quarter. *Adjusted^1 diluted EPS was $0.49, an increase of 2.1% compared to $0.48 in last year's third quarter. Year-To-Date Fiscal 2012 Highlights *Sales were $31.3 billion, an increase of 8.4% from $28.9 billion in the first 39 weeks of fiscal 2011. *Operating income was $1.4 billion, an increase of 0.3% compared to the prior year period. *Adjusted^1 operating income increased 3.2%, compared to the prior year period. *Diluted EPS was $1.38, a decrease of 0.7% compared to EPS of $1.39 in the prior year. *Adjusted^1 diluted EPS was $1.50, an increase of 4.2% compared to $1.44 in the prior year period. "I am pleased with our volume growth trends as we grew our business throughout the quarter by remaining focused on supporting the success of our customers," said Bill DeLaney, Sysco's president and chief executive officer. "Adjusted earnings growth fell short of our expectations, however, and our leadership team is fully committed to improving upon this aspect of our performance as we complete our fourth quarter and approach the beginning of the new fiscal year." ^1 "Adjusted" financial results are non-GAAP financial measures. See Non-GAAP Reconciliations on page 9 for more information. Third Quarter Fiscal 2012 Summary Sales for the third quarter were $10.5 billion, an increase of 7.6% compared to sales in the same period last year.Food cost inflation, as measured by the estimated change in Sysco's product costs, was 5.5%. While the company's overall rate of inflation has recently eased somewhat, inflation remains at a high level, with double-digit price increases in the meat and poultry categories. Sales from acquisitions (within the last 12 months) increased sales by 0.7%, and the impact of changes in foreign exchange rates for the third quarter decreased sales by 0.2%. Case volume for the company's Broadline and SYGMA operations combined grew 2.9% during the quarter including acquisitions, and 2.3% excluding acquisitions. Gross profit for the third quarter was $1.9 billion, an increase of 2.1%, compared to the prior year. Operating expenses in the third quarter increased $28 million, or 2.0%, compared to operating expenses in the prior year period. This was due mainly to a $29 million increase in payroll expense, a $24 million increase in gross business transformation expenses and a $10 million increase in fuel expense. These increases were partially offset by a $36 million charge in the prior year quarter related to the withdrawal of an operating company from a multi-employer pension plan (MEPP), which created a favorable year-over-year variance. Adjusted operating expenses increased 2.6%. Operating income was $439 million in the third quarter, increasing $11 million, or 2.7% compared to operating income in the prior year. Adjusted operating income increased 0.9%. Net earnings for the third quarter were $260 million, an increase of $1 million, or 0.4%, compared to net earnings in the prior year. Diluted EPS in the third quarter of fiscal 2012 was $0.44 which was flat compared to last year's third quarter. Adjusted EPS was $0.49, an increase of 2.1% compared to the prior year period. Year-To-Date Fiscal 2012 Summary Sales for the first 39 weeks of fiscal 2012 were $31.3 billion, an increase of 8.4% compared to sales in the same period last year.Food cost inflation for the period was 6.3%. Inflation continued to be broad-based, but was impacted most significantly by increased prices for meat and canned/dry products. In addition, sales from acquisitions (within the last 12 months) increased sales by 0.7%, and the impact of changes in foreign exchange rates for the first 39 weeks increased sales by 0.1%. Case volume for the company's Broadline and SYGMA operations combined grew 2.7% during the first 39 weeks including acquisitions, and 2.1% excluding acquisitions. Gross profit for the first 39 weeks was $5.7 billion, an increase of 4.1%, compared to the prior year. Operating expenses in the first 39 weeks increased $220 million, or 5.4%, compared to operating expenses in the prior year period. This was due mainly to a $127 million increase in payroll expense, a $52 million increase in gross business transformation expenses and a $34 million increase in fuel expense. Adjusted operating expenses increased 4.5%. Operating income was $1.4 billion in the first 39 weeks, increasing $4 million, or 0.3% compared to operating income in the prior year. Adjusted operating income increased 3.2%. Net earnings for the first 39 weeks were $812 million, a decrease of $3 million, or 0.4%, compared to net earnings in the prior year period. Diluted EPS in the first 39 weeks of fiscal 2012 was $1.38 compared to last year's diluted EPS of $1.39. Adjusted EPS for the first 39 weeks of fiscal 2012 was $1.50, an increase of 4.2% compared to adjusted EPS of $1.44 in the prior year period. Cash Flow and Capital Spending Cash flow from operations was $908 million for the first 39 weeks of fiscal 2012 compared to $666 million in the prior year period. Capital expenditures totaled $199 million for the third quarter, and $633 million in the first 39 weeks of the fiscal year. This includes spending related to the company's business transformation project of $39 million for the third quarter and $118 million for the first 39 weeks of fiscal 2012. The primary areas for investment included facility replacements and expansions, replacements to Sysco's fleet, and technology. Conference Call & Webcast Sysco's third quarter fiscal 2012 earnings conference call will be held on Monday, May 7, 2012 at 10:00 a.m. Eastern. For purposes of public disclosure, Sysco plans to use the investor relations portion of its website as the primary channel for publishing key information to its investors, some of which may contain material and previously non-public information. As a result, 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 177 distribution facilities serving approximately 400,000 customers. For the fiscal year 2011 that ended July 2, 2011 the company generated record sales of more than $39 billion. 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 Business Risks General risks associated with our business include 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, and labor issues.Risks and uncertainties also include risks impacting the economy generally, including the risk that the current economic downturn will continue, 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 2012 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. In fiscal 2011, we took additional time to test the underlying ERP system and are taking additional time in fiscal 2012 to improve the underlying systems prior to larger scale development, and these actions have caused a delay in the project; until we reach the point where the underlying system functions as intended, our development timeline is uncertain.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 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. Fuel expense may vary from projections based on fluctuations in fuel costs, which are impacted by general economic conditions beyond our control. In the past, increased fuel prices have significantly increased our costs and reduced consumers' demand for meals served away from home.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, 2011, 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) 13-Week Period Ended 39-Week Period Ended Mar. 31, 2012 Apr. 2, 2011 Mar. 31, 2012 Apr. 2, 2011 Sales $10,504,746 $9,761,660 $31,335,557 $28,897,786 Cost of sales 8,633,130 7,929,111 25,670,691 23,457,466 Gross profit 1,871,616 1,832,549 5,664,866 5,440,320 Operating expenses 1,432,786 1,405,062 4,289,698 4,069,568 Operating income 438,830 427,487 1,375,168 1,370,752 Interest expense 28,290 28,972 86,088 88,133 Other expense (income), (2,248) (6,957) (5,470) (9,941) net Earnings before income 412,788 405,472 1,294,550 1,292,560 taxes Income taxes 153,238 146,994 482,234 476,840 Net earnings $259,550 $258,478 $812,316 $815,720 Net earnings: Basic earnings per $0.44 $0.44 $1.38 $1.39 share Diluted earnings per 0.44 0.44 1.38 1.39 share Average shares 585,823,393 583,722,009 588,004,593 585,792,383 outstanding Diluted shares 587,214,691 585,421,864 589,232,150 587,878,509 outstanding Dividends declared per $0.27 $0.26 $0.80 $0.77 common share Sysco Corporation and its Consolidated Subsidiaries CONSOLIDATED BALANCE SHEETS (Unaudited) (In Thousands, Except for Share Data) Mar. 31, 2012 Jul. 2, 2011 Apr. 2, 2011 ASSETS Current assets Cash and cash equivalents $350,464 $639,765 $385,668 Accounts and notes receivable, less allowances of $82,762, $42,436 and 3,094,175 2,898,283 2,926,033 $86,668 Inventories 2,250,460 2,073,766 2,047,371 Deferred income taxes 144,131 -- -- Prepaid expenses and other current 85,712 72,496 79,485 assets Prepaid income taxes -- 48,572 -- Total current assets 5,924,942 5,732,882 5,438,557 Plant and equipment at cost, less 3,846,870 3,512,389 3,419,862 depreciation Other assets Goodwill 1,659,818 1,633,289 1,596,727 Intangibles, less amortization 116,011 109,938 101,518 Restricted cash 140,287 110,516 110,488 Other assets 204,185 286,541 282,782 Total other assets 2,120,301 2,140,284 2,091,515 Total assets $11,892,113 $ 11,385,555 $ 10,949,934 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Notes payable $3,250 $181,975 $2,250 Accounts payable 2,285,744 2,183,417 2,143,219 Accrued expenses 870,674 856,569 800,155 Accrued income taxes 88,112 -- 84,838 Deferred income taxes -- 146,083 98,946 Current maturities of long-term debt 455,972 207,031 7,042 Total current liabilities 3,703,752 3,575,075 3,136,450 Other liabilities Long-term debt 2,412,477 2,279,517 2,663,470 Deferred income taxes 245,496 204,223 130,453 Other long-term liabilities 652,373 621,498 812,356 Total other liabilities 3,310,346 3,105,238 3,606,279 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 2,000,000,000 765,175 765,175 765,175 shares, issued 765,174,900 shares Paid-in capital 923,189 887,754 861,835 Retained earnings 8,024,536 7,681,669 7,499,532 Accumulated other comprehensive loss (286,623) (259,958) (330,060) Treasury stock at cost, 179,884,245,173,597,346 and (4,548,262) (4,369,398) (4,589,277) 182,347,524 shares Total shareholders' equity 4,878,015 4,705,242 4,207,205 Total liabilities and shareholders' $11,892,113 $ 11,385,555 $ 10,949,934 equity Sysco Corporation and its Consolidated Subsidiaries CONSOLIDATED CASH FLOWS (Unaudited) (In Thousands) 39-Week Period Ended Mar. 31, 2012 Apr. 2, 2011 Cash flows from operating activities: Net earnings $812,316 $815,720 Adjustments to reconcile net earnings to cash provided by operating activities: Share-based compensation expense 54,328 48,518 Depreciation and amortization 304,966 298,307 Deferred income taxes (276,947) (244,658) Provision for losses on receivables 29,663 35,624 Other non-cash items (1,267) (7,286) Additional investment in certain assets and liabilities, net of effect of businesses acquired: (Increase) in receivables (225,668) (301,932) (Increase) in inventories (167,964) (244,636) (Increase) in prepaid expenses and other current (10,380) (7,486) assets Increase in accounts payable 104,239 158,488 Increase (decrease) in accrued expenses 4,117 (83,826) Increase in accrued income taxes 141,784 83,580 Decrease (increase) in other assets 67,443 (26,622) Increase in other long-term liabilities 71,674 142,253 Excess tax benefits from share-based compensation (15) (285) arrangements Net cash provided by operating activities 908,289 665,759 Cash flows from investing activities: Additions to plant and equipment (633,196) (454,054) Proceeds from sales of plant and equipment 5,852 15,286 Acquisition of businesses, net of cash acquired (83,354) (35,486) Maturities of short-term investments -- 24,713 (Increase) decrease in restricted cash (29,771) 14,000 Net cash used for investing activities (740,469) (435,541) Cash flows from financing activities: Bank and commercial paper borrowings (repayments) 211,267 188,249 net Other debt borrowings 3,090 2,592 Other debt repayments (6,424) (6,516) Debt issuance costs (977) (7) Proceeds from common stock reissued from treasury 82,545 103,328 for share-based compensation awards Treasury stock purchases (272,299) (291,600) Dividends paid (464,809) (445,406) Excess tax benefits from share-based compensation 15 285 arrangements Net cash used for financing activities (447,592) (449,075) Effect of exchange rates on cash (9,529) 19,082 Net (decrease) in cash and cash equivalents (289,301) (199,775) Cash and cash equivalents at beginning of period 639,765 585,443 Cash and cash equivalents at end of period $350,464 $385,668 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $109,618 $111,924 Income taxes 617,640 657,961 Sysco Corporation and its Consolidated Subsidiaries COMPARATIVE SEGMENT DATA(Unaudited) (In Thousands) 13-Week Period Ended 39-Week Period Ended Mar. 31, 2012 Apr. 2, Mar. 31, 2012 Apr. 2, 2011 2011 Sales: Broadline $8,513,483 $ $25,493,000 $ 7,910,994 23,453,164 SYGMA 1,445,214 1,315,439 4,233,238 3,947,705 Other 586,440 586,050 1,734,123 1,627,588 Intersegment (40,391) (50,823) (124,804) (130,671) Total $10,504,746 $ $31,335,557 $ 9,761,660 28,897,786 ComparativeSupplementalStatisticalInformationRelatedtoSales(Unaudited) Comparative Sysco Brand Sales and Marketing Associate-Served Sales data are summarized below. 13-Week Period Ended 39-Week Period Ended Mar. 31, 2012 Apr. 2, Mar. 31, 2012 Apr. 2, 2011 2011 Sysco Brand Sales as a % of MA-Served Sales 45.97% 45.64% 46.13% 45.77% Sysco Brand Sales as a % of Broadline Sales 35.49% 35.84% 35.83% 36.21% MA-Served Sales as a % of Broadline Sales 42.21% 42.49% 43.72% 43.90% Data excludes U.S. Meat operations Sysco Corporation and its Consolidated Subsidiaries Non-GAAP Reconciliation(Unaudited) Impact of Business Transformation Expenses, Multiemployer Pension Plan Expenses, COLI and Tax Benefits (In Thousands, Except for Share and Per Share Data) Sysco's results of operations are impacted by costs from our multi-year Business Transformation Project, significant charges from the withdrawal from multiemployer pension plan and recognized tax benefits.Additionally, near the end of fiscal 2011, we reallocated all of our investments in our COLI policies into low-risk, fixed-income securities and therefore we do not expect significant volatility in operating expenses, operating income, net earnings and diluted earnings per share in future periods related to these policies.We experienced significant gains in these policies during fiscal 2011.Management believes that adjusting its operating expenses, operating income, net earnings and diluted earnings per share to remove the impact of the Business Transformation Project expenses, multiemployer pension plan charges, COLI gains and tax benefits provides an important perspective of underlying business trends and results and provides meaningful supplemental information to both management and investors that is indicative of the performance of the company's underlying operations and facilitates comparison on a year-over year basis. The company uses these non-GAAP measures when evaluating its financial results as well as for internal planning and forecasting purposes.These financial measures should not be used as a substitute in assessing the company's results of operations for the periods presented.An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP.As a result, in the tables that follow, each period presented is adjusted to remove expenses related to the Business Transformation Project, significant charges incurred from the withdrawal from a multiemployer pension plan, gains recorded on the adjustments to the carrying value of COLI policies and to remove the impact of tax benefits in fiscal 2011. 13 Week Period 13 Week Period 13 Week 13 Week Ended Mar. 31, Ended Apr. 2, Period Period % 2012 2011 Change in Change Dollars Operating expenses $1,432,786 $1,405,062 $27,724 2.0% (GAAP) Impact of Business Transformation (49,478) (25,158) (24,320) 96.7 Project costs Impact of MEPP charge -- (36,118) 36,118 Impact of COLI 872 5,655 (4,783) -84.6 Adjusted operating $1,384,180 $1,349,441 $34,739 2.6% expenses (Non-GAAP) Operating Income $438,830 $427,487 $11,343 2.7% (GAAP) Impact of Business Transformation 49,478 25,158 24,320 96.7 Project costs Impact of MEPP charge -- 36,118 (36,118) Impact of COLI (872) (5,655) 4,783 -84.6 Adjusted operating $487,436 $483,108 $4,328 0.9% income (Non-GAAP) Net earnings (GAAP) $259,550 $258,478 $1,072 0.4% Impact of Business Transformation 31,112 16,038 15,074 94.0 Project costs (net of tax) Impact of MEPP charge -- 23,025 (23,025) (net of tax) Impact of COLI (872) (5,655) 4,783 -84.6 Impact of tax -- (10,000) 10,000 benefits Adjusted net earnings $289,790 $281,886 $7,904 2.8% (Non-GAAP) Diluted earnings per $0.44 $0.44 $-- 0.0% share (GAAP) Impact of Business Transformation 0.05 0.03 0.02 66.7 Project costs (net of tax) ^(1) Impact of MEPP charge -- 0.04 (0.04) (net of tax) ^(1) Impact of COLI -- (0.01) 0.01 Impact of tax -- (0.02) 0.02 benefits Adjusted diluted earnings per share $0.49 $0.48 $0.01 2.1% (Non-GAAP) Diluted shares 587,214,691 585,421,864 outstanding ^(1) Tax impact of adjustments for Business Transformation and Multiemployer Pension Plan expenses was $18,366 and $22,213 for the 13-week periods ended March 31, 2012 and April 2, 2011, respectively. Sysco Corporation and its Consolidated Subsidiaries Non-GAAP Reconciliation(Unaudited) Impact of Business Transformation Expenses, Multiemployer Pension Plan Expenses, COLI and Tax Benefits - continued (In Thousands, Except for Share and Per Share Data) 39 Week 39 Week 39 Week 39 Week Period Ended Period Ended Period Period % Mar. 31, 2012 Apr. 2, 2011 Change in Change Dollars Operating expenses (GAAP) $4,289,698 $4,069,568 $220,130 5.4% Impact of Business Transformation Project (122,839) (71,130) (51,709) 72.7 costs Impact of MEPP charge -- (36,118) 36,118 Impact of COLI 2,651 29,508 (26,857) -91.0 Adjusted operating $4,169,510 $3,991,828 $177,682 4.5% expenses (Non-GAAP) Operating Income (GAAP) $1,375,168 $1,370,752 $4,416 0.3% Impact of Business Transformation Project 122,839 71,130 51,709 72.7 costs Impact of MEPP charge -- 36,118 (36,118) Impact of COLI (2,651) (29,508) 26,857 -91.0 Adjusted operating income $1,495,356 $1,448,492 $46,864 3.2% (Non-GAAP) Net earnings (GAAP) $812,316 $815,720 $(3,404) -0.4% Impact of Business Transformation Project 77,081 44,890 32,191 71.7 costs (net of tax) ^(1) Impact of MEPP charge -- 22,794 (22,794) (net of tax) ^(1) Impact of COLI (2,651) (29,508) 26,857 -91.0 Impact of tax benefits -- (10,000) 10,000 Adjusted net earnings $886,746 $843,896 $42,850 5.1% (Non-GAAP) Diluted earnings per $1.38 $1.39 $(0.01) -0.7% share (GAAP) Impact of Business Transformation Project 0.12 0.08 0.04 50.0 costs Impact of MEPP charge -- 0.04 (0.04) Impact of COLI -- (0.05) 0.05 Impact of tax benefits -- (0.02) 0.02 Adjusted diluted earnings $1.50 $1.44 $0.06 4.2% per share (Non-GAAP) Diluted shares 589,232,150 587,878,509 outstanding ^(1) Tax impact of adjustments for Business Transformation and Multiemployer Pension Plan expenses was $45,758 and $39,564 for the 39-week periods ended March 31, 2012 and April 2, 2011, respectively. CONTACT: Neil Russell Vice President, Investor Relations T 281-584-1308 Charley Wilson Vice President, Corporate Communications T 281-584-2423 Sysco Corporation
Sysco Reports Third Quarter Net Earnings of $260 Million and Diluted EPS of $0.44
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