Sysco Earnings in Line With Expectations

HOUSTON – Sysco Corp. (SYY), the largest food-service distributor in North America, said Monday its fourth-quarter profit edged up 1.5 percent as lower costs offset a decline in revenue.

Sysco, which distributes food and other services to restaurants, schools, hospitals and other institutions, reported earnings of $284.7 million, or 44 cents per share, compared with $280.6 million, or 43 cents per share, in the prior-year period. Sales declined 2 percent to $7.98 billion from $8.14 billion.

"Our toughest competitors, frankly, are those independent specialty distributors in every market," Sysco chairman and chief executive Rick Schneiders (search) said during a conference call with analysts. "But everybody is hungry right now and I would say that our approach to the marketplace, our strategy in the marketplace — again focusing on helping our customers and using the business review process, the business development — is paying dividends for us, and we believe paying dividends for our customers."

The results were in line with Wall Street's consensus view of 44 cents per share, the average estimate of 10 analysts surveyed by Thomson Financial, on estimated revenue of $8.04 billion.

Shares of Sysco rose 75 cents to close at $34.80 in trading on the New York Stock Exchange (search).

Costs and expenses during the quarter declined 2 percent to $7.53 billion.

Operating expenses as a portion of sales totaled 13.6 percent, down from 13.7 percent in the prior-year period. Declining inflation has lowered overall gross margin pressures in recent quarters, while spurring underlying unit growth, Sysco said.

Schneiders said the company has increased the amount of product it carries on each truck and is better ensuring that the correct products are placed on the proper trucks.

"This means not only are we getting more product on each truck, but the truck is on average driving fewer miles to make its deliveries," he said. "In a time of higher fuel costs, such attention to detail ... is increasingly important."

The company also said it would start expensing stock options in the current fiscal quarter. The cost is expected to range from 11 cents to 13 cents per share for fiscal 2006, Sysco said.

Larry Accardi, the company's president of specialty distribution, said decreasing beef prices will initially have a detrimental effect but over time will aid the industry.

"Lower cost for beef means our customers, the restaurant operators, can begin to lower their menu prices for beef, feature more cuts of beef and recapture some of the profitability they have given up over the past two years of rapidly escalating prices," he said. "What we are seeing is very similar to a cycle that occurred in 1992 and '94 followed by lower product cost and an upswing in demand creating higher sales."