Sysco’s stocks fall over lowered earnings
Transportation costs on the rise, exec says
Sysco’s stock fell sharply Monday after the nation’s largest food distributor failed to meet Wall Street expectations amid rising transportation costs caused by a national truck driver shortage.
Shares plunged 9.4 percent to $64.56, even as the Houstonbased company posted a $431 million profit, a 17.2 percent increase year over year, during its first quarter ending Sept. 29.
Sysco, which sells, markets and distributes chilled and frozen produce, meats and food products to restaurants, hospitals, schools, hotels and other institutional clients, operates on an atypical fiscal calendar. It reported adjusted earnings per share of 91 cents on sales of $15.2 billion, both of which missed analysts’ targets. The company’s operating expenses grew 4.7 percent over the past year to $2.3 billion, while sales rose 3.9 percent over the same period.
“Our problem is our operating expenses. They’re growing faster than what we’re getting on case growth,” Tom Bené, Sysco’s president and CEO, said Monday during a conference call with analysts. “That’s our issue, and we’ve got to get that back in check.”
Sysco has struggled for months to feed its clients’ growing appetite for chilled and frozen food while containing rising operating costs amid food inflation, tariffs on foreign products and the shortage of commercial truck drivers. The company, like many of its rivals, has been forced to raise wages, pay overtime and dangle incentives to recruit and retain drivers in the tight labor market — all of which have eaten into Sysco’s bottom line.
“These drivers that have the Commercial Driver’s License, there’s just a high demand for them in lots of industries right now,” Bené said. “As long as they remain short, we’re going to have to do everything we can to retain
the ones we have and attract the ones we need.”
The U.S. has a shortage of 51,000 semi-trailer truck drivers, according to the American Trucking Associations, and that figure is expected to triple in the coming decade as older drivers retire. Truck drivers are highly sought in a variety of fields from e-commerce and logistics to energy and food service.
Skilled drivers can earn upwards of $60,000, and in some cases, over six figures, said John Esparza, president and CEO of the Texas Trucking Association, which represents about 700 trucking companies across the state.
“Those drivers are like free agents that are in demand,” Esparza said. “They’re a commodity that is less and less available.”
Sysco, one of the largest nonenergy companies in Houston, has a good reputation among truck drivers in terms of pay and working conditions, and is a leader when it comes to driver retention, Esparza said.
That even Sysco is having trouble finding and keeping truck drivers illustrates the depth of the national shortage, Esparza said.
“As great a company as they are and as good they do in retention, no one is immune to it,” Esparza said.
Sysco executives said they remain confident they will achieve their financial goals in the coming years, despite rising costs. The company plans to put tighter controls on costs while working to improve its hiring and training to retain warehouse workers and drivers, Bené said.
Earlier this year, Sysco began piloting fleets of smaller delivery vans and trucks that don’t require commercial driver’s licenses. A spokeswoman, who declined to share specifics, said the company is testing the fleet in several markets and is looking to expand the program.
Sysco is also testing analytics and artificial intelligence software to determine the most efficient routes for its truck drivers. The company also is piloting several automation technologies in its warehouses.
Sysco is the largest food service company nationally, with more than 67,000 employees and 330 distribution facilities worldwide serving more than 600,000 customer locations. The company had sales of more than $58 billion in the most recent fiscal year that ended June 30.