Business Context and Reporting Period
Company: SYSCO CORPORATION
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: 13-week period ended March 27, 1999 (Third Quarter of Fiscal 1999) and the 39-week period ended March 27, 1999.
Industry: Foodservice distribution.
Share Data: 330,973,975 shares of common stock outstanding as of April 23, 1999.
Key Financial Metrics
| Metric (in thousands) | 13-Week Period Ended Mar 27, 1999 | 13-Week Period Ended Mar 28, 1998 | 39-Week Period Ended Mar 27, 1999 | 39-Week Period Ended Mar 28, 1998 |
|---|---|---|---|---|
| Sales | $4,164,877 | $3,711,822 | $12,604,182 | $11,326,162 |
| Cost of Sales | $3,402,463 | $3,035,112 | $10,298,004 | $9,248,908 |
| Gross Profit | $762,414 | $676,710 | $2,306,178 | $2,077,254 |
| Operating Expenses | $625,111 | $557,136 | $1,849,822 | $1,662,057 |
| Net Earnings | $72,579 | $63,577 | $245,398 | $199,253 |
| Diluted EPS | $0.22 | $0.19 | $0.73 | $0.58 |
| Cash from Operations | Not provided for quarter | Not provided for quarter | $385,349 | $256,884 |
| Total Assets | $4,019,709 | $3,600,014 | N/A | N/A |
| Total Debt (Current + Long-term) | $1,025,183 | $762,489 | N/A | N/A |
| Cash and Equivalents | $112,493 | $94,901 | 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 12.2% for the quarter and 11.3% for the 39-week period compared to the prior year. Real sales growth (adjusted for acquisitions and inflation) was 10.6% for the quarter and 8.4% for the 39-week period.
- Profitability: Net earnings increased 14% for the quarter and approximately 8% for the 39-week period (excluding the prior year's accounting change). Diluted EPS increased 15.8% for the quarter and 10.6% for the 39-week period.
- Cost Structure: Cost of sales increased in line with sales (12.1% for the quarter). Operating expenses remained approximately the same as a percentage of sales.
- Debt Levels: Total debt obligations increased significantly, driven by increased borrowings which also led to higher interest expense ($18.4M for the quarter vs. $15.2M prior year).
- Share Count: Average shares outstanding decreased due to the Company's share repurchase program, contributing to EPS growth.
Guidance, Outlook, and Risks
- Share Repurchases: The Company continues its common stock repurchase program. An additional 8,000,000 shares were authorized in September 1998; 5,115,000 were purchased through April 23, 1999. Management noted that future repurchases depend on market prices and capital allocation decisions.
- Year 2000 Compliance: SYSCO is undergoing a company-wide program to ensure information systems are Year 2000 compliant. Management expects costs will not have a material adverse impact, but risks remain regarding potential disruptions from non-compliant third-party systems.
- Accounting Change: The prior year (1998) included a one-time, after-tax, non-cash charge of $28 million related to EITF Issue No. 97-13 (expensing of reengineering costs). This item is not present in the current period.
- Market Risks: The Company holds no derivative financial instruments. Interest rate risk is limited as the majority of long-term debt ($783.7M) is at fixed rates, though $130M in commercial paper is outstanding.
Investor Verification Checklist
- Debt Utilization: Verify the impact of increased borrowings on future interest expense and liquidity ratios.
- Real Growth Drivers: Confirm the sustainability of the 10.6% real sales growth in the quarter, distinguishing between volume growth and inflationary pricing.
- Share Buyback Impact: Assess the remaining authorization under the share repurchase program and its effect on future EPS.
- Year 2000 Costs: Monitor actual costs incurred for Year 2000 compliance against the preliminary estimate of "no material adverse impact."
- Working Capital: Review the increase in accounts receivable and inventories relative to sales growth to ensure efficient capital management.