Sysco reports fiscal Q2 net earnings of US$250.1M, down 3% from year-ago period amid rising food costs; revenue up 9% to US$10.24B

Nevin Barich

HOUSTON , February 6, 2012 (press release) – Sysco Corporation (NYSE:SYY - News) today announced financial results for its 13-week second fiscal quarter ending December 31, 2011.

Second Quarter Fiscal 2012 Highlights

* Sales were $10.2 billion, an increase of 9.2% from $9.4 billion in the second quarter of fiscal 2011.
* Operating income was $427 million, a decrease of 2.3%, compared to $437 million in last year's second quarter.
* Adjusted1 operating income increased 2.5%, excluding gross business transformation expenses and the positive impact of corporate-owned life insurance (COLI).
* Diluted earnings per share (EPS) were $0.43, which included a $0.03 negative impact from gross business transformation expenses. This was a decrease of 2.3% compared to last year's second quarter EPS of $0.44, which also included a $0.03 negative impact from gross business transformation expenses, partially offset by a $0.02 benefit from COLI.
* Adjusted diluted EPS was $0.46, an increase of 2.2% compared to the prior year period, excluding gross business transformation expenses and the positive impact of COLI.

First Half Fiscal 2012 Highlights

* Sales were $20.8 billion, an increase of 8.9% from $19.1 billion in the first half of fiscal 2011.
* Operating income was $936 million, a decrease of 0.7%, compared to $943 million in last year's first half.
* Adjusted1 operating income increased 4.4%, excluding gross business transformation expenses and the positive impact of COLI last year.
* Diluted EPS was $0.94, which included an $0.08 negative impact from gross business transformation expenses. This was a decrease of 1.1% compared to last year's first half EPS of $0.95, which included a $0.04 negative impact from gross business transformation expenses and a $0.04 benefit from COLI.
* Adjusted diluted EPS was $1.02, an increase of 7.4% compared to the prior year period, excluding gross business transformation expenses and the impact of COLI.

1 "Adjusted" financial results are non-GAAP financial measures. See Non-GAAP Reconciliations below for more information.

"Our case growth trends improved in the latter part of the quarter as we were well positioned to benefit from the favorable market conditions our customers experienced during the holiday season," said Bill DeLaney, Sysco's president and chief executive officer. "Adjusted operating earnings growth in our core business was modest however, as product cost inflation continued at historically high levels and pricing pressure remained acute."

Second Quarter Fiscal 2012 Summary

Sales for the second quarter were $10.2 billion, an increase of 9.2% compared to sales in the same period last year. Food cost inflation, as measured by the estimated change in Sysco's product costs, was 6.3%. Inflation continued to be broad-based, but was impacted most significantly by increased prices for meat, canned/dry and frozen products. This compares to inflation of 4.5% in the prior year period, and 7.3% in the first quarter of fiscal 2012. 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 second quarter decreased sales by 0.1%. Case volume for the company's Broadline and SYGMA operations combined grew 3.6% during the quarter including acquisitions, and 2.8% excluding acquisitions.

Gross profit for the second quarter was $1.8 billion, an increase of 4.8%, compared to the prior year. Operating expenses in the second quarter increased $94 million, or 7.1%, compared to operating expenses in the prior year period. This was due mainly to a $58 million increase in payroll expense, a $12 million increase in gross business transformation expenses, a $10 million increase in fuel expense and a $9 million lower benefit from COLI, partially offset by a $7 million decline in expenses for the corporate-sponsored pension plan. Excluding gross business transformation expenses and the impact of COLI, adjusted operating expenses increased 5.5%. Management believes that excluding these items better represents the company's underlying business performance.

Operating income was $427 million in the second quarter, decreasing $10 million, or 2.3% compared to operating income in the prior year. Excluding gross business transformation expenses and the impact of COLI, adjusted operating income increased 2.5%.

Net earnings for the second quarter were $250 million, a decrease of $8 million, or 3.1%, compared to net earnings in the prior year. Diluted EPS in the second quarter of fiscal 2012 was $0.43 which included a $0.03 negative impact from gross business transformation expenses. Last year's second quarter EPS was $0.44, which also included a $0.03 negative impact from gross business transformation expenses, partially offset by a $0.02 benefit from COLI. Excluding gross business transformation expenses and the impact of COLI, second quarter fiscal 2012 adjusted EPS was $0.46, an increase of 2.2% compared to the prior year.

First Half of Fiscal 2012 Summary

Sales for the first half of fiscal 2012 were $20.8 billion, an increase of 8.9% compared to sales in the same period last year. Food cost inflation, as measured by the estimated change in Sysco's product costs, was 6.8%. Inflation continued to be broad-based, but was impacted most significantly by increased prices for meat, canned/dry and dairy products. This compares to inflation of 3.9% in the prior year period. 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 half increased sales by 0.3%. Case volume for the company's Broadline and SYGMA operations combined grew 2.6% during the first half including acquisitions, and 2.0% excluding acquisitions.

Gross profit for the first half was $3.8 billion, an increase of 5.1%, compared to the prior year. Operating expenses in the first half increased $192 million, or 7.2%, compared to operating expenses in the prior year period. This was due mainly to a $108 million increase in payroll expense, a $27 million increase in gross business transformation expenses, a $22 million lower benefit from COLI and a $24 million increase in fuel expense, partially offset by a $14 million decline in expenses for the corporate-sponsored pension plan. Excluding gross business transformation expenses and the impact of COLI, adjusted operating expenses increased 5.4%.

Operating income was $936 million in the first half, decreasing $7 million, or 0.7% compared to operating income in the prior year. Excluding gross business transformation expenses and the impact of COLI, adjusted operating income increased 4.4%.

Net earnings for the first half were $553 million, a decrease of $4 million, or 0.8%, compared to net earnings in the prior year. Diluted EPS in the first half of fiscal 2012 was $0.94 which included an $0.08 negative impact from gross business transformation expenses. Last year's first half EPS was $0.95, which included a $0.04 negative impact from gross business transformation expenses and a $0.04 benefit from COLI. Excluding gross business transformation expenses and the impact of COLI, first half fiscal 2012 adjusted EPS was $1.02, an increase of 7.4% compared to the prior year.

Cash Flow and Capital Spending

Cash flow from operations was $539 million for the first half of fiscal 2012 compared to $283 million in the prior year. Capital expenditures totaled $207 million for the second quarter, including $33 million related to the company's business transformation project, and $434 million in the first half of the fiscal year which included $79 million for the business transformation project. The primary areas for investment included facility replacements and expansions, replacements to Sysco's fleet, and technology.

Conference Call & Webcast

Sysco's second quarter fiscal 2012 earnings conference call will be held on Monday, February 6, 2012 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 http://www.globenewswire.com/newsroom/ctr?d=244793&l=18&a=www.sysco.com&u=http%3A%2F%2Fwww.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 http://www.sysco.com/ and for investor relations news follow us at www.twitter.com/SyscoStock.

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