Sysco Sees Higher Costs Nibble at Sales Growth in Fiscal 2012, Expects $600 Million in Capital Spending in 2013

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Researched by Industrial Info Resources (Sugar Land, Texas)--Sysco Corporation (NYSE:SYY) (Houston, Texas), a global leader in the food service and distribution industry, reported improved sales but weaker earnings for fourth-quarter and fiscal year 2012, as climbing product costs and a wobbly economic recovery made waters in the food market tricky to navigate. Net earnings were reported to be $309.27 million for the quarter, an 8.04% decrease from fiscal fourth-quarter 2011, and $1.12 billion for the year, a 2.64% decrease from fiscal 2011.

Sales totaled $11.05 billion for the quarter, a 5.94% increase from the same period last year, and $42.38 billion for the full year, a 7.78% increase from fiscal 2011. Lower profits were attributed to higher product costs, as food cost inflation in the quarter was driven by meat, poultry, and dry and canned goods. The full year saw higher product costs in the same categories, as well as frozen foods. Still, inflation declined as the year progressed, from 7.3% in the first quarter to 3.3% in the fourth.

Capital expenditures were reported to be $152 million for the quarter and $785 million for the full year. Specifically, Sysco invested $23 million in the quarter and $123 million in the year on business transformation projects that included technological upgrades, facility expansions, and facility and fleet replacements. New facilities that began construction in fiscal year 2012 are in Boston, Long Island and Central Texas.

Industrial Info is tracking $161 million in active Sysco projects, including the $40 million construction of a grassroot food distribution center in Riverside, California, and the $19.4 million expansion of a food distribution center in Lincoln, Nebraska. The Riverside project involves constructing a 515,000-square-foot building on a 45-acre site with refrigeration systems, dry storage and offices to support regional distribution. The Lincoln project involves performing renovations at an existing 210,000-square-foot facility plus, at an adjacent 25-acre site, constructing a 180,000-square-foot building with dry, cooler and freezer space and associated equipment to increase storage capacity of food products.

"During fiscal 2012, we completed nine acquisitions, representing nearly $270 million in annualized sales, and met our goal of increasing sales by 0.5% to 1% per acquisition," said Chris Kreidler, the executive vice president and chief financial officer of Sysco, in a conference call. "Nearly 20% of our new case growth came from acquisitions in fiscal 2012."

He added, "We have a number of additional acquisitions at various stages of completion in our pipeline, and are targeting to increase sales in excess of 1% per acquisition in fiscal 2013."

Sales improved in both of Sysco's major segments for the quarter and the full year:

• The Broadline segment reported total sales of $8.93 billion for the quarter, a 5.39% increase from fourth-quarter 2011, and $34.42 billion for the year, a 7.82% increase from 2011.
• The SYGMA segment, which supplies chain restaurants, reported total sales of $1.5 billion for the quarter, a 7.83% increase from the same period last year, and $5.74 billion for the year, a 7.39% increase from 2011.
• Other segments reported total sales of $661.99 million, an 8.31% increase from fourth-quarter 2011, and $2.4 billion for the year, a 7.03% increase from 2011.
• Total Intersegment results were reported to be a loss of $46.89 million for the quarter, compared with a loss of $50.2 million in the same period last year, and a loss of $171.7 million for the year, compared with a loss of $180.87 million for 2011.

Sysco executives expect to see between $600 million and $650 million in capital spending in fiscal year 2013, with between $5 million and $20 million in business transformation capital.

"The majority of the work occurring, going forward, is expected to relate mostly to conversion and training," Kreidler said in the conference call. "As a result, you'll see a decline in the amount of capitalized spending on our business transformation projects going forward."

For more information, visit Industrial Info's North American Food and Beverage Project Database.

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Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.