Business Context and Reporting Period
Company: SYSCO CORPORATION
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: 13-week period ended March 28, 1998 (Third Quarter of Fiscal 1998) and the 39-week period ended March 28, 1998.
Business Overview: Sysco is a foodservice distributor. The financial statements are unaudited but have been reviewed by Arthur Andersen LLP. Share data has been adjusted for a 2-for-1 stock split executed on March 20, 1998.
Key Financial Metrics
| Metric | 13-Week Period Ended Mar 28, 1998 | 39-Week Period Ended Mar 28, 1998 |
|---|---|---|
| Sales | $3,711,822,000 | $11,326,162,000 |
| Net Earnings | $63,577,000 | $199,253,000 |
| Earnings Per Share (Diluted) | $0.19 | $0.58 |
| Operating Cash Flow | Filing text does not provide a clear value for the 13-week period alone. | $256,884,000 (39-week) |
| Total Assets | $3,600,014,000 (as of Mar 28, 1998) | N/A |
| Total Debt (Current + Long-term) | $835,589,000 (as of Mar 28, 1998) | N/A |
| Cash and Equivalents | $94,901,000 (as of Mar 28, 1998) | N/A |
Margins: The filing does not explicitly state gross or operating margin percentages, though it notes operating expenses remained approximately the same as a percent of sales. Cost of sales increased 6.7% in the quarter, in line with sales growth.
Material Changes vs. Prior Period
- Sales Growth: Sales increased 7.0% in the third quarter and 5.3% for the 39-week period compared to the prior year. Real sales growth (adjusted for inflation/deflation) was 6.3% for the quarter and 5.4% for the 39 weeks.
- Earnings: Net earnings for the 39-week period decreased to $199.3 million from $211.5 million in the prior year, primarily due to a one-time non-cash accounting charge of $28.1 million. Excluding this charge, earnings before the accounting change increased 7.5% for the 39 weeks and 3.2% for the quarter.
- Earnings Per Share: Diluted EPS before the accounting change increased 12% for the quarter and 12% for the 39-week period, driven by earnings growth and a reduction in average shares outstanding due to share repurchases.
- Interest Expense: Increased due to higher borrowings primarily related to the share repurchase program.
- Balance Sheet: Total assets increased to $3.6 billion from $3.4 billion at the end of the prior fiscal year. Long-term debt increased to $747.8 million from $685.6 million.
Guidance, Outlook, and Risks
- Accounting Changes:
- EITF Issue No. 97-13: Recorded a one-time, after-tax, non-cash charge of $28 million to expense reengineering costs for computer system development immediately rather than capitalizing them.
- SOP 98-1 & SOP 98-5: Sysco plans to adopt new standards regarding computer software costs and start-up activities in the first quarter of fiscal 2000. Management believes adoption will not have a significant effect on financial statements.
- Share Repurchase Program: The company continues its repurchase program. Under a July 1997 authorization for 12 million shares, 7.35 million shares were purchased through March 28, 1998. The program may be affected by market prices and capital allocation decisions.
- Year 2000 (Y2K) Risk: Sysco is addressing potential Y2K impacts on its information systems. While costs are not expected to be material, a failure to resolve issues for Sysco, its customers, or vendors could result in material financial risk.
- Forward-Looking Statements: Management notes that estimates regarding sales increases, customer mix, and product cost inflation are subject to economic conditions and internal factors.
Investor Verification Checklist
- Verify the impact of the $28 million non-cash accounting charge on net earnings and the sustainability of earnings growth excluding this item.
- Confirm the extent of the share repurchase program's impact on diluted shares outstanding and future capital allocation priorities.
- Review the specific details of the Year 2000 remediation plan and potential exposure to vendor/customer failures.
- Monitor the trend in interest expense relative to the increased debt load used to fund share buybacks.
- Assess the "real sales growth" metrics (5.4% for 39 weeks) to understand organic performance versus price inflation/deflation effects.