Sysco able to boost profits by other cuts
Sysco, the nation’s largest food distributor, on Monday lowered its projections for operating income in its fiscal year 2020 amid rising food and transportation costs and a slowdown in restaurant sales.
The Houston company, which had set a three-year target to grow its operating income by $650 million to $700 million by the end of fiscal year 2020, lowered its forecast to $600 million after sales grew just 1 percent to $15.5 billion in its fourth quarter that ended June 29. Same-store sales at restaurants, key Sysco customers, were flat nationally in June as foot traffic continues to fall, according to restaurant industry data firms Knapp-Track and Black Box. Operating income is the profit that comes from a company’s operations after subtracting expenses such as wages.
“We didn’t finish the year as strong as we would have liked, especially in the U.S. food service segment, and therefore didn’t meet our ownexpectations for the fourth quarter,” chief executive Tom Bené told analysts during a conference call Monday. “Consumer confidence has decreased
slightly, but still remains solid.”
The lower projection comes even as Sysco reported earnings of $1.7 billion during its fiscal year 2019, a 17 percent increase from the prior year. The company’s sales grew2.4 percent to $60.1 billion from $58.7 billion in fiscal 2018. Operating expenses rose 3.5 percent to $9.1 billion from $8.8 billion in fiscal 2018.
Over the past year, food costs — particularly for meat, poultry, produce and frozen potatoes — rose 1 percent to 2 percent, Sysco executives said. Sysco also was forced to raise wages, pay overtime and dangle incentives to recruit and retain commercial truck drivers in a tight labormarket that has seen increased competition from energy, e-commerce and logistics companies.
Sysco was able to bolster profits by cutting other costs. Sysco earlier this year laid off nearly 300 of its corporate support staff in Cypress, consolidated its French subsidiaries and closed some facilities in Canada and Europe. Sysco also sold Iowa Premium, its cattle processing business, to focus on its core distribution operations.
Despite cutbacks, Sysco has continued to expand through acquisitions. Over the past year, Sysco acquired Louisiana distributor Doerle Food Services, the British company Kent Frozen Foods, Waugh Foods of Illinois and California Hispanic food distributors J&M Wholesales Meats and Imperio Foods.
Sysco on Monday announced yet another acquisition: J. Kings Food Service Professionals. The NewYork food distributor has approximately $150 million in annual sales, mostly to independent restaurant operators in Connecticut and New Jersey.
Sysco reported a nearly threefold increase in losses from bad debt cases, in which customers are not expected to pay its bills. The company reported $62.9 million in bad debt during its fiscal year 2019, up from $21.4million in the previous year.
“We’ve had about one fairly significant hit per quarter to some extent that has impacted us,” Chief Financial Officer Joel Grade said. “I would say the environment has gotten a little bit worse. It’s certainly something we’re keeping a close eye on.”
Sysco markets, sells and distributes chilled and frozen food products to restaurants, hospitals, schools, hotels and other institutional clients. The company operates 330 distribution facilities worldwide, serving more than 600,000 customer locations. It employs 69,000 workers worldwide.
Sysco stock rose 3 percent Monday to close at $72.19 a share.
“I would say the environment has gotten a little bit worse.” Chief Financial Office Joel Grade