Use access key #2 to skip to page content.
$25.44 0.89 (3.63%)
10/13/2008 1:05 PM

SYSCO Corp (SYY)

CAPS Rating:
*****

The Company through its subsidiaries and divisions distributes food and related products to restaurants, healthcare and educational facilities, lodging establishments and other foodservice customers.

View All Commentary (SYY)

Recs

5

Avatar rd80 (99.67) Submitted: 6/19/08 9:27 PM : Outperform Start Price: $28.84 SYY Score: 16.79

SYY is one of the 319 Mergent Dividend Achievers, meaning they have a long track record of annual dividend hikes. If I did the math correctly, the last 10-years' dividend hikes have all been double digit increases. Fundamentals are reasonable; forward PE a little under 15, PEG of 1.26, and dividend yield of 3% with a 45% payout ratio.

SYY reported fiscal third quarter earnings of 0.40 a share on 28 April, beating estimates by a penny. Revenue was up over the year ago quarter, but slightly below estimates. The market apparently liked the news and took the stock price up nearly 8.5% and it's now pulled back to near the pre-earnings price.

I scanned through the earnings transcript at Seeking Alpha and didn't see anything earth shattering. Just solid execution and a company on track to keep growing revenues in the high single digits and earnings in the low double digits

For those following inflation, the COO, Ken Spitler, had this comment "Food inflation as measured by our internal measure of product cost inflation remained high, averaging about 6.2% for the quarter." Quote taken from Seeking Alpha's transcript.

Report this Post Replies: 1 | Reply

Avatar rd80 (99.67) Submitted: 9/06/08 8:35 PM

Recs: 0 | Rec This

SYY reported 4th quarter FY 2008 earnings on 11 August. Sales were up 5.4% from the 4th quarter of 2007 and up 7.1% for the full year compared to ’07. Earnings per share were also up from the previous year; 12.2% for the quarter and 13.1% for the full year. SYY has beat analysts earnings estimates three of the past four quarters and met the estimates once.

SYY has 9000 trucks, the largest private fleet in North America, so controlling fuel costs is critical. During the conference call, President and Chief Operating Officer Ken Spitler explained part of the success story, “…we continue to manage increased fuel costs by reducing the number of stops, increasing cases per truck, reducing idling time and placing governors on portions of our fleet that prevent trucks from exceeding 60 miles per hour, which not only helps save fuel but improves safety.” Even with the conservation approaches, fuel costs hit operating expenses. However, the company was able to recover about 75% of the expense increases for the year with surcharges to customers. They expect to recover about half the fuel cost increases for 2009 and have entered in to forward pricing agreements for about 30% of their fuel through the first two quarters of 2009.

A risk to the business is inflation in both fuel and food commodity costs. For food, SYY estimated inflation running about 6%. Between passing costs along to customers and working to increase productivity, SYY has been able to absorb the higher commodity costs without taking a big hit to earnings. SYY has also been growing market share.

With energy costs coming down a bit recently, Sysco's productivity increases should work to improve margins. When business improves for the restaurant industry, SYY should do quite well. I don’t know when that will happen, but the company pays a decent dividend while you wait and has increased the payout every year they’ve been public.

At a little over 16 times 2009 earnings estimates, SYY trades at a discount to the S&P 500’s PE of about 19 for the same period. For a company that’s managing costs well, actually making money and growing earnings at a double-digit rate, that seems like a bargain.

All conference call quotes are from the transcript at SeekingAlpha.

Disclosure: At time of posting, I own shares of SYY.

Report this Post Reply

Featured Broker Partners