Business Context and Reporting Period
Company: SYSCO CORPORATION
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: 26-week period ended December 30, 2000 (Fiscal 2001 Q2)
Business Overview: SYSCO is a broadline 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 on December 15, 2000.
Key Financial Metrics
| Metric (in thousands) | 26 Weeks Ended Dec 30, 2000 | 26 Weeks Ended Jan 1, 2000 | 13 Weeks Ended Dec 30, 2000 | 13 Weeks Ended Jan 1, 2000 |
|---|---|---|---|---|
| Sales | $10,650,704 | $9,308,569 | $5,290,530 | $4,651,535 |
| Net Earnings | $283,379 | $199,534 | $139,425 | $101,896 |
| Diluted EPS | $0.42 | $0.30 | $0.21 | $0.15 |
| Operating Cash Flow | $313,190 | $205,584 | N/A | N/A |
| Cash and Equivalents (End of Period) | $117,506 | $95,851 | N/A | N/A |
| Total Debt (Current + Long-term) | $1,118,334 | $1,173,067 | N/A | N/A |
Note: Total Debt calculated as Notes Payable + Current Maturities of Long-term Debt + Long-term Debt.
Material Changes vs. Prior Period
- Sales Growth: Sales increased 14.4% for the 26-week period and 13.7% for the quarter compared to the prior year. Real sales growth (excluding acquisitions and inflation) was 7.9% for the 26 weeks and 7.6% for the quarter.
- Profitability: Net earnings increased 36.5% for the 26-week period and 36.8% for the quarter. Diluted EPS increased 40.0% for the quarter.
- Cost Structure: Cost of sales increased 13.3% (26 weeks) and 12.7% (quarter). Operating expenses remained approximately the same as a percentage of sales.
- Interest Expense: Decreased in the current period primarily due to decreased borrowings, after adjusting for a $3 million tax refund interest income in the prior year.
- Acquisitions: The company acquired North Douglas Distributors and Albert M. Briggs Company in December 2000. Acquisitions contributed approximately 4.9% to sales growth for the 26-week period.
Guidance, Outlook, and Risks
- Capital Allocation: The Board authorized an additional repurchase of 16,000,000 shares in November 2000. Treasury stock purchases increased in the period, partly to fund acquisitions.
- Liquidity: Commercial paper borrowings were $298,058,000 as of December 30, 2000. The long-term debt-to-capitalization ratio was 36.8%, within the targeted 35% to 40% range.
- Future Acquisitions: A shelf registration for 15,000,000 shares was filed for future acquisitions. A definitive merger agreement was signed on January 22, 2001, to acquire Guest Supply, Inc.
- Accounting Changes: The company adopted SFAS No. 133 (Derivatives) with no significant effect. Adoption of SAB 101 (Revenue Recognition) and EITF 00-10 (Shipping Costs) is expected in the fourth quarter of Fiscal 2001 with no anticipated significant effect.
- Risks: Forward-looking statements are subject to risks including low industry profit margins, sensitivity to economic conditions, leverage/debt risks, and litigation outcomes.
Investor Verification Checklist
- Real Growth vs. Acquisitions: Verify the sustainability of the 7.9% real sales growth excluding the 4.9% contribution from acquisitions.
- Food Cost Inflation: Monitor the impact of rising costs for fresh/frozen meat, paper, and disposables on future margins.
- Debt Levels: Confirm the company maintains its debt-to-capitalization ratio within the 35-40% target despite acquisition financing.
- Share Repurchases: Track the execution of the new 16 million share repurchase authorization and its impact on cash flow.
- Integration of Acquisitions: Assess the financial integration of recent acquisitions (North Douglas, Albert M. Briggs, and the pending Guest Supply merger).