Sysco: Delivers Robust Fourth Quarter 2021 Results

Houston / TX. (syy) Sysco Corporation announced financial results for its 14-week fourth fiscal quarter and its fiscal year ended July 03, 2021. Key highlights for the fourth quarter of fiscal year 2021 included:

  • Sales were stronger than expected;
  • Share gains continue, driven by new customer wins;
  • Sysco’s Recipe for Growth strategy advances;
  • Inflation effectively managed;
  • Cash flow stronger than expected, even with significant inventory investments;
  • International operations show profit improvement;
  • Greco and Sons transaction to close imminently;
  • Quarterly dividend increased, maintaining Dividend Aristocrat status; and
  • Currently no signs of Delta variant impacting demand; strong July sales.

«Sysco’s fourth quarter results were strong, reflecting market share gains and industry demand that has continued to rebound earlier and stronger than expected,» said Kevin Hourican, Sysco’s president and chief executive officer. «While labor and product availability costs are pressuring our industry, we planned ahead to be well-positioned and manage through the demand increase resulting from these transitory pressures. I want to thank all of our Sysco associates for their tireless efforts, in particular those on the frontline who are supporting our customers during one of the most dynamic periods in our history. It is through the collective efforts and commitment of our people that we are advancing our Recipe for Growth strategy, and building important new capabilities that position us to better serve our customers and accelerate profitable growth.»

Key financial results for the fourth quarter of fiscal year 2021 included:

  • Sales trends improved as markets reopened; fourth quarter sales increased 82.0 percent versus the same period in fiscal year 2020 and increased 4.3 percent versus the same period in fiscal year 2019;
  • Gross profit increased 86.2 percent to USD 2.9 billion, and gross margin increased 41 basis points to 18.1 percent, as compared to the same period last year;
  • Operating income increased 207.2 percent to USD 569.7 million, and adjusted operating income increased to USD 605.2 million, as compared to the same period last year;
  • Earnings before interest, taxes, depreciation and amortization («Ebitda») increased to USD 778.6 million, and adjusted Ebitda increased to USD 781.1 million, as compared to the same period last year;
  • Earnings per share («EPS») increased to USD 0.29 compared to a loss per share of USD 1.22 in the same period last year; and adjusted EPS increased to USD 0.71 compared to a loss per share of USD 0.29 in the same period last year.

Key financial results for fiscal year 2021 include:

  • Sales decreased 3.0 percent to USD 51.3 billion versus fiscal year 2020 and decreased 14.7 percent versus fiscal year 2019;
  • Gross profit decreased 5.5 percent to USD 9.4 billion, and gross margin decreased 48 basis points to 18.2 percent, as compared to the prior year;
  • Operating income increased 91.8 percent to USD 1.4 billion, and adjusted operating income decreased 14.7 percent to USD 1.5 billion, as compared to the prior year;
  • Ebitda increased 46.1 percent to USD 2.2 billion, and adjusted Ebitda decreased 9.1 percent to USD 2.2 billion, as compared to the prior year;
  • EPS increased to USD 1.02 compared to USD 0.42 in the prior year; adjusted EPS decreased to USD 1.44 compared to USD 2.01 in the prior year;
  • Cash flow from operations increased 17.6 percent to USD 1.9 billion, and free cash flow increased 61.0 percent to USD 1.5 billion, as compared to the prior year; and
  • The company exceeded its cash flow from operations guidance and reduced debt more than planned, totaling USD 3.4 billion in debt reduction during the year.

«We’re very pleased with our financial results in the fourth quarter, including particularly strong free cash flow performance,» said Aaron Alt, Sysco’s chief financial officer. «Strong sales that surpassed 2019 levels, combined with solid management of inflation and cost, are underpinning our confidence to raise our EPS guidance for fiscal year 2022 to USD 3.33 to USD 3.53.»

Fourth Quarter Fiscal 2021 Results

Total Sysco

Sales for the fourth quarter were USD 16.1 billion, an increase of 82.0 percent compared to the same period last year. The exit rate for the fourth quarter was stronger than the overall quarter, as select geographic markets in which we operate continue to drive the recovery as restrictions ease. Gross profit increased 86.2 percent to USD 2.9 billion, and gross margin increased 41 basis points to 18.1 percent, compared in each case to the same period last year. The increase in gross profit for the fourth quarter was primarily driven by higher volumes as Covid-19 restrictions continued to ease. Operating expenses increased USD 248.9 million, or 11.9 percent, compared to the same period last year, driven by increased volume, one-time expenses associated with the snap-back, and investments against our transformation initiatives. Adjusted operating expenses increased USD 711.1 million, or 44.5 percent, compared to the same period last year. Operating income was USD 569.7 million, an increase of USD 1.1 billion, or 207.2 percent, compared to the same period last year. Adjusted operating income was USD 605.2 million, an increase of USD 639.1 million compared to the same period last year.

U.S. Foodservice Operations

The U.S. Foodservice Operations segment saw both local sales and case growth increase versus fiscal year 2019. Sales for the fourth quarter were USD 11.5 billion, an increase of 88.4 percent compared to the same period last year. Local case volume within U.S. Broadline operations increased 74.3 percent for the fourth quarter, while total case volume within U.S. Broadline operations increased 71.4 percent. Both increases represent organic growth. Gross profit increased 90.0 percent to USD 2.2 billion, and gross margin increased 17 basis points to 19.2 percent, compared in each case to the same period last year. Product cost inflation was 10.2 percent in U.S. Broadline, as measured by the estimated change in Sysco’s product costs, primarily in the poultry, meat, and paper and disposables categories. Operating expenses increased USD 252.4 million, or 22.4 percent, compared to the same period last year. Adjusted operating expenses increased USD 396.6 million, or 39.6 percent, compared to the same period last year. Operating income was USD 837.4 million, an increase of USD 796.8 million, compared to the same period last year. Adjusted operating income was USD 817.6 million, an increase of USD 652.7 million, compared to the same period last year.

International Foodservice Operations

The International Foodservice Operations segment experienced expected operating income improvement compared to the prior quarter and prior year. Sales for the fourth quarter were USD 2.5 billion, an increase of 83.4 percent compared to the same period last year. On a constant currency basis, sales for the fourth quarter were USD 2.2 billion, an increase of 65.2 percent compared to the same period last year. Foreign exchange rates increased International Foodservice Operations sales by 18.1 percent and total Sysco sales by 2.9 percent during the quarter. Gross profit increased 88.6 percent to USD 496.0 million, and gross margin increased 54 basis points to 19.9 percent, compared in each case to the same period last year. On a constant currency basis, gross profit increased 70.4 percent to USD 448.2 million. Foreign exchange rates increased International Foodservice Operations gross profit by 18.2 percent and total Sysco gross profit by 3.2 percent during the quarter. Operating expenses decreased USD 113.9 million, or 17.8 percent, compared to the same period last year. Adjusted operating expenses increased USD 163.0 million, or 48.9 percent, compared to the same period last year mainly due to transformation costs incurred in fiscal year 2020. On a constant currency basis, adjusted operating expenses increased USD 118.3 million, or 35.5 percent, compared to the same period last year. Foreign exchange rates increased International Foodservice Operations operating expense by 13.4 percent and total Sysco operating expense by 3.0 percent during the quarter. The International Foodservice Operations segment delivered an operating loss of USD 30.4 million, an improvement of USD 346.9 million compared to the same period last year. Adjusted operating income increased USD 70.0 million compared to the same period last year, resulting in break-even operating profit for the quarter. On a constant currency basis, adjusted operating loss was USD 3.1 million, an improvement of USD 66.9 million compared to the same period last year. Foreign exchange rates decreased International Foodservice Operations operating loss by USD 3.1 million and reduced total Sysco operating income by USD 2.5 million during the quarter.

Fiscal 2021 Results

Total Sysco

Sales for fiscal 2021 were USD 51.3 billion, a decrease of 3.0 percent compared to the prior year. The exit rate for the year was strong, as select geographic markets continued to drive the recovery due primarily to easing restrictions in the areas in which we operate. Gross profit decreased 5.5 percent to USD 9.4 billion, and gross margin decreased 48 basis points to 18.2 percent, compared in each case to the prior year. The decline in gross profit for the year was primarily driven by lower volumes due to Covid. Operating expenses decreased USD 1.2 billion, or 13.5 percent, compared to the prior year, driven by lower volumes due to Covid and successful achievement of cost-out program initiatives. Adjusted operating expenses decreased USD 293.1 million, or 3.6 percent, compared to the prior year. Operating income was USD 1.4 billion, an increase of USD 687.7 million, or 91.8 percent, compared to the prior year. Adjusted operating income was USD 1.5 million, a decrease of USD 251.8 million, or 14.7 percent, compared to the prior year.

U.S. Foodservice Operations

Sales for fiscal 2021 were USD 35.7 billion, a decrease of 2.9 percent compared to the prior year. Local case volume within U.S. Broadline operations decreased 1.1 percent for fiscal 2021, of which a decrease of 1.2 percent was organic, while total case volume within U.S. Broadline operations decreased 5.8 percent, of which a decrease of 5.9 percent was organic.
Gross profit decreased 3.4 percent to USD 7.0 billion, and gross margin decreased 11 basis points to 19.6 percent, compared in each case to the prior year. Product cost inflation was 4.3 percent in U.S. Broadline, as measured by the estimated change in Sysco’s product costs, primarily in the paper and disposables, poultry, and meat categories.
Operating expenses decreased USD 699.4 million, or 13.3 percent, compared to the prior year. Adjusted operating expenses decreased USD 319.7 million, or 6.4 percent, compared to the prior year. Operating income was USD 2.5 billion, an increase of USD 453.4 million, or 22.6 percent, compared to the prior year. Adjusted operating income was USD 2.3 billion, an increase of USD 73.6 million, or 3.3 percent, compared to the prior year.

International Foodservice Operations

Sales for fiscal 2021 were USD 8.4 billion, a decrease of USD 1.3 billion, or 13.7 percent, compared to the prior year. On a constant currency basis, sales for fiscal 2021 were USD 7.9 billion, a decrease of 18.3 percent compared to the prior year. Foreign exchange rates increased International Foodservice Operations sales by 4.6 percent and total Sysco sales by 0.9 percent during the year. Gross profit decreased 15.8 percent to USD 1.6 billion, and gross margin decreased 51 basis points to 19.7 percent, compared in each case to the prior year. On a constant currency basis, gross profit decreased 20.5 percent to USD 1.6 billion, as compared to the prior year. Foreign exchange rates increased International Foodservice Operations gross profit by 4.7 percent and total Sysco gross profit by 1.0 percent during the year. Operating expenses decreased USD 448.7 million, or 19.3 percent, compared to the prior year. Adjusted operating expenses decreased USD 72.9 million, or 3.9 percent, compared to the prior year. On a constant currency basis, adjusted operating expenses decreased USD 173.9 million, or 9.4 percent, compared to the prior year. Foreign exchange rates increased International Foodservice Operations operating expense by 5.5 percent and total Sysco operating expense by 1.3 percent during the year.

The International Foodservice Operations segment delivered an operating loss of USD 232.4 million, an improvement of USD 139.0 million compared to the prior year. Adjusted operating loss was USD 128.8 million, a decrease of USD 236.8 million, or 219.2 percent, compared to the prior year. On a constant currency basis, adjusted operating loss was USD 119.3 million, a decrease of USD 227.3 million, or 210.4 percent, compared to the prior year. Foreign exchange rates increased International Foodservice Operations operating loss by 8.8 percent and reduced total Sysco operating income by 0.6 percent during the year.

Balance Sheet, Capital Spending and Cash Flow

Capital expenditures, net of proceeds from sales of plant and equipment, for fiscal 2021 were USD 280.2 million lower compared to the prior year. Cash flow from operations was USD 1.9 billion for fiscal 2021, which was USD 285.2 million higher compared to the prior year. Free cash flow for fiscal 2021 was USD 1.5 billion, which was USD 565.3 million higher compared to the prior year. The improvement in cash flow was driven by higher earnings, improved working capital, lower capital spending and lower cash taxes paid during the year.

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