EX-99.1 2 h43057exv99w1.htm PRESS RELEASE exv99w1
 

Exhibit 99.1
     
SYSCO
  (SYSCO LOGO)
 
     
SYSCO Corporation
1390 Enclave Parkway
Houston, Texas 77077-2099
(281) 584-1390
 
NEWS RELEASE
     
FOR IMMEDIATE RELEASE
   FOR MORE INFORMATION
 
   CONTACT:   John M. Palizza
Assistant Treasurer
(281) 584-1308
SYSCO’S SECOND QUARTER FISCAL 2007 NET EARNINGS INCREASE 15.9%
HOUSTON, January 29, 2007 — SYSCO Corporation (NYSE: SYY) today announced financial results for its 13-week second quarter and 26 weeks of fiscal 2007 ended December 30, 2006.
Second Quarter Fiscal 2007 Highlights
•   Sales increased 7.5% to $8.569 billion from $7.971 billion in last year’s second quarter.
•   The impact of EITF 04-13 (Accounting for Purchases and Sales of Inventory with the Same Counterparty) reduced second quarter fiscal 2007 sales growth by 1.1%, or $85.5 million.
•   Net earnings were $236.7 million compared to $204.2 million in the second quarter of fiscal 2006, an increase of 15.9%.
•   Diluted earnings per share (EPS) increased 15.2% to $0.38 compared to $0.33 in the second quarter of fiscal 2006.
First Half Fiscal 2007 Highlights
•   Sales increased 7.9% to $17.241 billion from $15.982 billion in the same period last year.
•   The impact of EITF 04-13 reduced first half of fiscal 2007 sales growth by 1.1%, or $177.0 million.
•   Net earnings were $425.7 million compared to $412.7 million in last year’s first half of the fiscal year, an increase of 3.2%.
•   Diluted earnings per share increased 4.6% to $0.68 compared to $0.65 in the same period last year.
•   Net earnings and EPS were impacted by a $39.7 million loss due to the cumulative effect of accounting change recorded in the first quarter related to the accounting for corporate owned life insurance policies (FASB Staff Position No. FTB 85-4-1, “Accounting for Life Settlement Contracts by Third Party Investors”). In addition, net earnings for last year’s first fiscal quarter included a gain of $9.3 million, which resulted from the cumulative effect of accounting change related to a change in the measurement date for SYSCO’s pension and other post retirement benefit plans.
     “This quarter has been marked by our consistently strong sales growth and effective expense control,” said Richard J. Schnieders, SYSCO’s chairman, chief executive officer and president. “The main drivers for the sales growth continue to be our business reviews and the efforts of our marketing associates. Business reviews remain very successful with our customers and we are well on track to achieve our goal of conducting 40,000 reviews this fiscal year. We also saw progress leveraging our expenses this quarter, specifically at the operating company level as they continued to run their businesses more efficiently. Looking forward, we will continue to build on the unique initiative of business reviews as well as to further leverage our operating expenses.”
Sales
     Net sales growth for the second quarter of fiscal 2007 was 7.5% compared to the second quarter of fiscal 2006. The impact of EITF 04-13 reduced second quarter 2007 sales growth by 1.1%, or $85.5 million. Sales from acquisitions (less than 12 months) contributed 1.0% to the second quarter’s sales growth. Food cost inflation, as measured by the change in SYSCO’s cost of goods, was 2.6%.
     During the second quarter approximately 10,000 business reviews were performed at SYSCO’s U.S. broadline operations, and approximately 20,000 business reviews were completed in the first half of fiscal 2007. Sales to customers that participated in the business review process continued to be solid and are fully in line with results from previous quarters. An additional 89 customer contact professionals have been added during the second quarter and a total of 151 since the beginning of fiscal 2007.

 

 

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Gross Profit Margins
     During the second quarter, gross profit margins increased to 19.30% from 19.27% in last year’s second quarter, including a 19 basis point improvement due to the impact of EITF 04-13. Margins were primarily negatively impacted by inflation, which had an effect on customer and supplier pricing. In addition, there was a sales shift within the different company segments as some lower margin segments grew faster than the broadline segment.
Expenses
     Operating expenses as a percent of sales were 14.48% during the second quarter, a 22 basis point improvement over the same quarter last year. The impact of EITF 04-13 increased second quarter 2007 expenses as a percent of sales by 14 basis points due to the reduction of $85.5 million in reported sales. The reduction of the expense ratio is primarily a result of decreased pension cost and reduced stock compensation. In addition, operating companies saw initial results from expense control measures, in particular in the area of warehouse expenses. A portion of these reductions were offset by an incremental $11.4 million in strategy initiative costs in the second quarter and $20.8 million in the first half of fiscal 2007.
Capital Spending & Other Recent Developments
     Capital expenditures during the second quarter were $198.6 million. Through the first half of fiscal 2007, capital expenditures were $314.5 million. For the full fiscal year 2007, the company continues to project capital expenditures to be in the range of $575 million to $625 million.
     The primary areas for growth investments during the second quarter included facility replacements and expansions, construction of fold-out operations, additions to SYSCO’s fleet and the new redistribution center (RDC) in Alachua, FL. SYSCO has obtained building permits for this RDC and the process of preparing the building site was completed successfully and on schedule by the end of the quarter. Construction for this RDC is expected to take approximately 14 months.
     SYSCO is planning to initiate construction on fold-out operations in Longview, TX and in Knoxville, TN during the second half of fiscal 2007.
Conference Call & Webcast
     SYSCO’s second quarter fiscal 2007 earnings conference call will be held on Monday, January 29, 2007 at 10:00 a.m. EST. A live webcast of the call, as well as a copy of this press release, will be available online at www.sysco.com in the Investor Relations 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. For the fiscal year 2006 that ended July 1, 2006, the company generated $32.6 billion in sales. For more information about SYSCO visit www.sysco.com.
Forward-Looking Statements
     Certain statements made herein are forward-looking statements under the Private Securities Litigation Reform Act of 1995. They include statements regarding continued competitive advantages and positive results from growth initiatives; the potential for future success in fiscal 2007; the ability to leverage operating expenses and projections regarding capital expenditures. These statements involve risks and uncertainties and are based on management’s current expectations and estimates; actual results may differ materially. Those risks and uncertainties that could impact these statements include risks that pertain to SYSCO’s business, including the risks relating to the foodservice distribution industry’s relatively low profit margins and sensitivity to general economic conditions, including the current economic environment and consumer spending; increased fuel costs; SYSCO’s leverage and debt risks; the successful completion of acquisitions and integration of acquired companies as well as the risk that acquisitions could negatively impact the Company’s stock price, operating results or debt ratio or significantly increase the Company’s liquidity requirements; the risk of interruption of supplies due to lack of long-term contracts, severe weather, work stoppages or otherwise; construction schedules; management’s allocation of capital and the timing of capital purchases such as fleet and equipment; competitive conditions; labor issues; and internal factors such as the ability to control expenses. Earnings are also impacted by option expensing, which is based on certain assumptions regarding the number and fair value of options granted, resulting tax benefits and shares outstanding. For a discussion of additional factors that could cause actual results to differ from those described in the forward-looking statements, see the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 as filed with the Securities and Exchange Commission.
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SYSCO CORPORATION
CONSOLIDATED RESULTS OF OPERATIONS (Unaudited)
(In Thousands Except for Share Data)
                 
    For the 13-Weeks Ended  
    December 30,     December 31,  
    2006     2005  
Sales
   $ 8,568,748     $ 7,971,061  
Costs and expenses
                
Cost of sales
     6,915,259       6,434,753  
Operating expenses
     1,240,819       1,171,469  
Interest expense
     28,006       29,227  
Other, net
     (3,375 )     (2,220 )
 
            
Total costs and expenses
     8,180,709       7,633,229  
 
            
Earnings before income taxes
     388,039       337,832  
Income taxes (39.00% in ‘07; 39.56% in ‘06)
     151,353       133,650  
 
            
Net earnings
   $ 236,686     $ 204,182  
 
            
 
                
Net earnings:
                
Basic earnings per share
   $ 0.38     $ 0.33  
 
            
Diluted earnings per share
   $ 0.38     $ 0.33  
 
            
Average shares outstanding
     619,158,876       620,137,592  
 
            
Diluted average shares outstanding
     628,429,841       627,147,814  
 
            
 
 
Comparative segment sales data.
(Unaudited)
($000)
                 
    For the 13-Weeks Ended  
    December 30,     December 31,  
    2006     2005  
Sales:
                
Broadline
   $ 6,709,294     $ 6,307,760  
SYGMA
     1,086,094       1,018,821  
Other
     892,801       746,155  
Intersegment
     (119,441 )     (101,675 )
 
            
Total
   $ 8,568,748     $ 7,971,061  
 
            
 
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SYSCO CORPORATION
CONSOLIDATED RESULTS OF OPERATIONS (Unaudited)
(In Thousands Except for Share Data)
                 
    For the 26-Weeks Ended  
    December 30,     December 31,  
    2006     2005  
Sales
   $ 17,240,820     $ 15,981,545  
Costs and expenses
                
Cost of sales
     13,918,115       12,915,546  
Operating expenses
     2,519,096       2,348,125  
Interest expense
     53,772       51,473  
Other, net
     (12,413 )     (5,335 )
 
            
Total costs and expenses
     16,478,570       15,309,809  
 
            
Earnings before income taxes
     762,250       671,736  
Income taxes (38.94% in ‘07; 39.95% in ‘06)
     296,811       268,344  
 
            
Earnings before cumulative effect of accounting change
     465,439       403,392  
Cumulative effect of accounting change
     (39,735 )     9,285  
 
            
Net earnings
   $ 425,704     $ 412,677  
 
            
 
                
Earnings before cumulative effect of accounting change:
                
Basic earnings per share
   $ 0.75     $ 0.65  
 
            
Diluted earnings per share
   $ 0.74     $ 0.64  
 
            
Net earnings:
                
Basic earnings per share
   $ 0.69     $ 0.66  
 
            
Diluted earnings per share
   $ 0.68     $ 0.65  
 
            
Average shares outstanding
     619,642,963       623,470,638  
 
            
Diluted average shares outstanding
     626,777,041       631,396,186  
 
            
 
 
Comparative segment sales data.
(Unaudited)
($000)
                 
    For the 26-Weeks Ended  
    December 30,     December 31,  
    2006     2005  
Sales:
                
Broadline
   $ 13,554,116     $ 12,711,327  
SYGMA
     2,158,171       2,027,259  
Other
     1,761,616       1,431,127  
Intersegment
     (233,083 )     (188,168 )
 
            
Total
   $ 17,240,820     $ 15,981,545  
 
            
 
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SYSCO CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In Thousands)
                 
    December 30,     December 31,  
    2006     2005  
ASSETS
                
Current assets
                
Cash
   $ 185,862     $ 253,938  
Receivables
     2,551,114       2,360,132  
Inventories
     1,717,978       1,672,908  
Prepaid expenses
     69,785       65,273  
 
            
Total current assets
     4,524,739       4,352,251  
 
                
Plant and equipment at cost, less depreciation
     2,593,874       2,344,423  
 
                
Other assets
                
Goodwill
     1,324,014       1,263,609  
Intangibles
     92,759       83,375  
Restricted cash
     112,453       102,723  
Prepaid pension cost
     412,310       428,005  
Other
     206,249       235,801  
 
            
Total other assets
     2,147,785       2,113,513  
 
            
Total assets
   $ 9,266,398     $ 8,810,187  
 
            
 
                
LIABILITIES AND SHAREHOLDERS’ EQUITY
                
Current liabilities
                
Notes payable
   $ 10,040     $ 31,814  
Accounts payable
     1,888,178       1,813,247  
Accrued expenses
     745,892       689,048  
Accrued income taxes
     282,208       189,593  
Deferred taxes
     211,832       208,224  
Current maturities of long-term debt
     105,077       209,247  
 
            
Total current liabilities
     3,243,227       3,141,173  
 
                
Other liabilities
                
Long-term debt
     1,755,982       1,827,586  
Deferred taxes
     700,182       727,084  
Other long-term liabilities
     381,342       403,087  
 
            
Total other liabilities
     2,837,506       2,957,757  
 
                
Contingencies
                
 
                
Shareholders’ equity
                
Preferred stock
     —       —  
Common stock, par $l per share
     765,175       765,175  
Paid-in capital
     589,380       470,274  
Retained earnings
     5,202,504       4,766,135  
Other comprehensive income
     62,143       21,980  
Treasury stock
     (3,433,537 )     (3,312,307 )
 
            
Total shareholders’ equity
     3,185,665       2,711,257  
 
            
Total liabilities and shareholders’ equity
   $ 9,266,398     $ 8,810,187  
 
            
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SYSCO CORPORATION
CONSOLIDATED CASH FLOWS (Unaudited)
(In Thousands)
                 
    For the 26-Weeks Ended  
    December 30,     December 31,  
    2006     2005  
Cash flows from operating activities:
                
Net earnings
   $ 425,704     $ 412,677  
Adjustments to reconcile net earnings to cash provided by operating activities:
                
Cumulative effect of accounting change
     39,735       (9,285 )
Share-based compensation expense
     49,916       74,168  
Depreciation and amortization
     178,871       169,558  
Deferred tax provision
     271,473       261,766  
Provision for losses on receivables
     15,417       16,654  
(Gain) loss on sale of assets
     (5,326 )     380  
Additional investment in certain assets and liabilities, net of effect of businesses acquired:
                
(Increase) in receivables
     (81,371 )     (57,632 )
(Increase) in inventories
     (113,283 )     (193,578 )
(Increase) in prepaid expenses
     (10,832 )     (4,716 )
Increase (decrease) in accounts payable
     10,040       (8,753 )
(Decrease) in accrued expenses
     (21,205 )     (30,287 )
(Decrease) in accrued income taxes
     (195,621 )     (311,809 )
(Increase) in other assets
     (13,594 )     (14,046 )
(Decrease) increase in other long-term liabilities and prepaid pension cost, net
     (5,180 )     9,534  
Excess tax benefits from share-based compensation arrangements
     (4,564 )     (3,080 )
 
            
Net cash provided by operating activities
     540,180       311,551  
 
            
Cash flows from investing activities:
                
Additions to plant and equipment
     (314,497 )     (232,559 )
Proceeds from sales of plant and equipment
     11,555       12,211  
Acquisition of businesses, net of cash acquired
     (44,618 )     (54,776 )
Increase in restricted cash balances
     (12,679 )     (992 )
 
            
Net cash used for investing activities
     (360,239 )     (276,116 )
 
            
Cash flows from financing activities:
                
Bank and commercial paper borrowings (repayments), net
     (19,260 )     342,024  
Other debt borrowings
     135,032       499,987  
Other debt repayments
     (6,197 )     (206,698 )
Debt issuance costs
     —       (3,955 )
Cash paid for termination of interest rate swap
     —       (21,196 )
Common stock reissued from treasury
     127,522       76,215  
Treasury stock purchases
     (225,177 )     (473,181 )
Dividends paid
     (210,528 )     (188,159 )
Excess tax benefits from share-based compensation arrangements
     4,564       3,080  
 
            
Net cash (used for) provided by financing activities
     (194,044 )     28,117  
 
            
Effect of exchange rate changes on cash
     (1,932 )     (1,292 )
 
            
Net (decrease) increase in cash
     (16,035 )     62,260  
Cash at beginning of period
     201,897       191,678  
 
            
Cash at end of period
   $ 185,862     $ 253,938  
 
            
Cash paid during the period for:
                
Interest
   $ 54,092     $ 47,664  
Income taxes
     220,406       313,493  
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Comparative Supplemental Statistical Information Related to Sales (Unaudited)
Comparative SYSCO Brand Sales and Marketing Associate-Served Sales data are summarized below.
                 
    For the 13-Weeks Ended
    December 30,   December 31,
    2006   2005
SYSCO Brand Sales as a % of MA-Served Sales
     52.8 %     55.9 %
SYSCO Brand Sales as a % of Total
                
Traditional Broadline Sales in the U.S.
     45.8 %     48.2 %
MA-Served Sales as a % of Total Traditional
                
Broadline Sales in the U.S.
     49.6 %     48.9 %
 
                 
    For the 26-Weeks Ended
    December 30,   December 31,
    2006   2005
SYSCO Brand Sales as a % of MA-Served Sales
     53.2 %     56.4 %
SYSCO Brand Sales as a % of Total
                
Traditional Broadline Sales in the U.S.
     46.2 %     48.7 %
MA-Served Sales as a % of Total Traditional
                
Broadline Sales in the U.S.
     52.4 %     51.8 %
 
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