Sysco enjoys plump profit
But food distributor says operating costs are pushing higher
Sysco Corp. posted strong earnings over the past quarter and year, despite rising food and transportation costs.
The Houston-based food supplier, which operates on an atypical fiscal calendar, reported Monday that sales grew 6.2 percent to $15.3 billion during its fourth quarter, which ended June 30.
The company had a gross profit of $2.9 billion, up 5.7 percent from the same period last year. It reported adjusted earnings per share of 94 cents.
“We’ve had a very strong performance over the past three years, and the fundamentals of our business remain solid,” president and CEO Tom Bené said Monday during a conference call with analysts. “We’re excited about the future as we kick off fiscal year 2019.”
Sysco ended fiscal year 2018 with sales of $58.7 billion, an increase of 6.1 percent over last year. It reported $1.4 billion in net earnings in fiscal year 2018, a 25.2 percent rise over last year.
However, growing operating costs are eating into Sysco’s profit margins.
Operating expenses were up $183.5 million, or 3.9 percent, in fiscal 2018, due in large part to rising food and transportation costs. For comparison, operating expenses rose by about 2 percent in each of the previous two years.
Food inflation was 1.1 percent during the fourth quarter, down from 2.6 percent earlier in the year. Dairy, frozen potatoes, vegetables and paper goods costs were up, while meat and poultry costs were down.
Transportation costs contin-
ue to climb amid rising fuel prices and new regulations requiring electronic logging devices in commercial trucks. An ongoing commercial driver shortage has driven wages up.
“The freight challenges out there are real, and every industry moving freight is dealing with them,” Bené said. “We have more headwinds than we’ve had in a few years, mostly driven by a tight labor market and fuel increases.”
To help offset rising transportation costs, Sysco is looking at expanding its small-vehicle fleet over the coming year and improving warehouse productivity to help delivery drivers in the field, Bené said. Sprinter-type vehicles use less fuel than semi-trailer trucks, and there is a larger pool of drivers who can operate the smaller vehicles, he said.
Sysco also hired more marketing staff to boost sales, expanded its international business and implemented new technologies to help customers more easily order and receive food products.
Over the past year, Sysco acquired food distributors in the U.K. and Sweden, and invested in a Costa Rican food company. The company saw its ecommerce orders grow to 50 percent.
Sysco has also benefited from the new federal tax overhaul, which lowered the company’s corporate tax rate from 35 percent to 28 percent in fiscal 2018 and is expected to drop it further over time.
The company plans to use part of its tax savings to increase its contributions to employees’ retirement plans, executive vice president and chief financial officer Joel Grade said.
Although foot traffic is down in some restaurant segments such as casual dining, food spending is up amid strong employment growth, Bené said. He expects demand for Sysco’s food products to grow, he said.
“We see a lot of positive trends in the industry,” Bené said.