01—Abstract
Summary
Summary of the 10-K filed August 27, 2013. Cited figures are marked; the original filing is the authoritative source.
Sysco Corporation (SYY), the largest North American distributor of food and related products to the foodservice (food-away-from-home) industry, reported fiscal 2013 (52 weeks ended June 29, 2013) with sales of $44.41 billiona, up 4.8%, and operating income of $1.66 billion, down 12.3%.
Net earnings fell 11.5% to $992.4 millionb, and diluted earnings per share were $1.67, down 12.1%. Management attributes the decline mainly to Business Transformation Project costs of $330.5 million, multiemployer pension plan charges, severance and other excluded charges. On a non-GAAP basis, adjusted operating income decreased 1.7% to $2.08 billion and adjusted diluted earnings per share were $2.14, down 0.5%.
Gross margin declined to 17.72% from 18.11% amid competitive pressure and a shift toward large regional and national customers, which carry lower margins. Management no longer expects to reach its original goal of $2.50 to $2.75c diluted EPS by fiscal 2015. It targets $550 million to $650 million in annual Business Transformation benefits by fiscal 2015, with an expectation of 50% to 70% of that benefit in fiscal 2014.
Fiscal 2014 capital expenditures are expected at $550 million to $600 milliond, and retirement-related expenses are expected to fall by $75 million to $85 million. Cash flow from operations was $1.5 billion and free cash flow rose 61.7% to $1.0 billion, with dividends declared of $1.11 per share.
The balance sheet shows total debt of $2.89 billion, with about 88% at fixed rates, and shareholders' equity of $5.19 billion. Key risks disclosed include the ERP deployment, margin pressure, fuel costs, union contract renegotiations, an underfunded multiemployer pension exposure estimated as much as $220 million, and a State of California investigation related to drop sites.
02—Key points
Key Highlights
- Sales rose 4.8% to $44.41 billion in fiscal 2013, driven by product cost inflation, acquisitions and case volume growth.
- Operating income fell 12.3% to $1.66 billion, while adjusted operating income decreased 1.7% to $2.08 billion.
- Diluted EPS was $1.67, down 12.1%; adjusted diluted EPS was $2.14, down 0.5%.
- Gross margin declined 39 basis points to 17.72%, reflecting competitive pricing pressure and growth in lower-margin large regional and national customers.
- Business Transformation Project expenses were $330.5 million ($0.36 per share); management no longer expects to reach the original $2.50 to $2.75 diluted EPS goal by fiscal 2015.
- Free cash flow increased 61.7% to $1.0 billion, and cash flow from operations was $1.5 billion.
- Sysco acquired 14 companies in fiscal 2013, representing annualized sales in excess of $1 billion, and total debt was $2.9 billion with about 88% at fixed rates.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Sysco kept $0.02.
- Revenue$44.41B100.0%
- Cost of revenue−$36.41B82.0%
- Gross profit$8.00B18.0%
- Operating costs−$6.34B14.3%
- Operating income$1.66B3.7%
- Interest, other & tax−$666.1M1.5%
- Net income$992.4M2.2%
Where FY2013 revenue went
$44.41B- Cost of revenue: $36.41B, 82% of revenue
- Operating costs: $6.34B, 14% of revenue
- Net income: $992.4M, 2.2% of revenue
- Interest, other & tax: $666.1M, 1.5% of revenue
Kept 2.2% as net incomeNet income $992.4M · 2.2%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed August 27, 2013Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $44.41B$42.38B | +4.8% |
| Gross Profit | $8.00B$7.78B | +2.8% |
| Operating Expenses | $6.34B$5.89B | +7.6% |
| Operating Income | $1.66B$1.89B | −12.3% |
| Interest Expense | $128.50M$113.40M | +13.3% |
| Net Income | $992.43M$1.12B | −11.5% |
| EPS (Basic) | $1.68$1.91 | −12.0% |
| EPS (Diluted) | $1.67$1.90 | −12.1% |
| Shares Outstanding (Basic) | 589.40M587.73M | +0.3% |
| Shares Outstanding (Diluted) | 592.68M588.99M | +0.6% |
05—Questions
Frequently Asked Questions
Why did Sysco's operating income and earnings decline in fiscal 2013?
The filing attributes the 12.3% drop in operating income mainly to increased operating expenses, including $330.5 million of Business Transformation Project costs, multiemployer pension plan withdrawal charges, pay-related expenses, depreciation and amortization, and fuel. Gross profit grew only 2.5% while operating expenses rose 7.3%.
Is Sysco still expected to reach its original earnings target?
No. Management said it no longer believes it will achieve its original goal of $2.50 to $2.75 diluted EPS by fiscal 2015, citing a difficult economic environment and underlying operating performance that did not meet expectations.
What are the company's expected savings from the Business Transformation Project?
Sysco targets $550 million to $650 million in annual benefits by fiscal 2015, and believes it exceeded its goal of achieving about 25% of the total benefit in fiscal 2013. It expects 50% to 70% of the target benefit in fiscal 2014. The cost transformation initiative aims to lower the cost structure by $300 million to $350 million annually by fiscal 2015, and the product cost reduction initiative by $250 million to $300 million.
What are the main risks identified for investors?
Key risks include inflation and deflation affecting product costs, competition and margin pressure, fuel price volatility, execution risk in the ERP deployment, the ability to renegotiate union contracts (about 2,800 employees under agreements expiring in fiscal 2014), potential multiemployer pension withdrawal liabilities estimated as much as $220 million, and a State of California investigation regarding drop sites.
06—Continue