01—Abstract
Summary
Summary of the 10-K filed August 25, 2015. Cited figures are marked; the original filing is the authoritative source.
Sysco Corporation (SYY) reported fiscal 2015 (52 weeks ended June 27, 2015) with sales of $48.68 billiona, up 4.7% from $46.52 billion, but operating income fell 22.5% to $1.23 billion and net earnings fell 26.3% to $686.8 million, with diluted earnings per share of $1.15.
The decline was driven primarily by Certain Items, mainly $554.7 millionb of costs tied to the proposed merger with US Foods, which the FTC blocked through a preliminary injunction in June 2015 and which the parties then terminated. Excluding Certain Items, adjusted operating income rose 3.4% to $1.79 billion and adjusted diluted earnings per share rose 5.1% to $1.84. Sysco must pay $312.5 million in merger termination payments, accrued in fiscal 2015 and paid in fiscal 2016.
Total debt rose to $7.3 billionc at June 27, 2015, largely because of $5.0 billion in senior notes issued in October 2014 to fund the merger; those notes were redeemed in July 2015 using cash on hand and commercial paper. Cash and cash equivalents were $5.13 billion at year end. Free cash flow was $1.04 billion, and the company declared dividends of $1.19 per share.
Management announced a repurchase program of up to $3.0 billiond over two years ending July 1, 2017, including a planned $1.5 billion accelerated share repurchase in fiscal 2016, plus a separate authorization of up to 20,000,000 shares for no more than $800 million approved in August 2015. For fiscal 2016, Sysco guided capital expenditures of $550 million to $600 million and expects a 53-week year.
Management described the foodservice market as modestly improved but with continued competitive pricing pressure, and stated that Sysco's gross margin of 17.57% was stabilized. Sysco is the largest North American foodservice distributor, serving about 425,000 customers, with restaurants representing 64% of sales in fiscal 2015.
02—Key points
Key Highlights
- Sales rose 4.7% to $48.68 billion, while operating income fell 22.5% to $1.23 billion because of $554.7 million in US Foods merger-related costs.
- Net earnings fell 26.3% to $686.8 million; diluted EPS was $1.15, versus $1.58 a year earlier. Adjusted diluted EPS rose 5.1% to $1.84.
- The proposed US Foods merger was terminated in June 2015 after the FTC won a preliminary injunction, and Sysco owes $312.5 million in termination payments.
- Total debt was $7.3 billion at June 27, 2015, including $5.0 billion of senior notes issued for the merger, which were redeemed in July 2015.
- Management announced a $3.0 billion share repurchase program over two years, including a planned $1.5 billion accelerated repurchase in fiscal 2016, and no shares were repurchased in fiscal 2015.
- Cash flow from operations was $1.56 billion and free cash flow was $1.04 billion; dividends paid totaled $695.3 million.
- Fiscal 2016 capital expenditures are estimated at $550 million to $600 million, and fiscal 2016 will be a 53-week year.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2015, Sysco kept $0.01.
- Revenue$48.68B100.0%
- Cost of revenue−$40.13B82.4%
- Gross profit$8.55B17.6%
- Operating costs−$7.32B15.0%
- Operating income$1.23B2.5%
- Interest, other & tax−$542.6M1.1%
- Net income$686.8M1.4%
Where FY2015 revenue went
$48.68B- Cost of revenue: $40.13B, 82% of revenue
- Operating costs: $7.32B, 15% of revenue
- Net income: $686.8M, 1.4% of revenue
- Interest, other & tax: $542.6M, 1.1% of revenue
Kept 1.4% as net incomeNet income $686.8M · 1.4%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2015filed August 25, 2015Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $48.68B$46.52B | +4.7% |
| Gross Profit | $8.55B$8.18B | +4.5% |
| Operating Expenses | $7.32B$6.59B | +11.0% |
| Operating Income | $1.23B$1.59B | −22.5% |
| Net Income | $686.77M$931.53M | −26.3% |
| EPS (Basic) | $1.16$1.59 | −27.0% |
| EPS (Diluted) | $1.15$1.58 | −27.2% |
| Shares Outstanding (Basic) | 592.07M585.99M | +1.0% |
| Shares Outstanding (Diluted) | 596.85M590.22M | +1.1% |
05—Questions
Frequently Asked Questions
Why did Sysco's operating income and earnings decline so sharply in fiscal 2015?
Operating expenses rose $728.2 million, including $562.5 million of Certain Items, primarily $554.7 million of costs related to the proposed US Foods merger. Interest expense also rose to $254.8 million from $123.7 million, including $138.4 million of US Foods financing costs. Operating income fell 22.5% to $1.23 billion, and net earnings fell 26.3% to $686.8 million.
What happened to the proposed merger with US Foods?
The FTC sought a preliminary injunction in February 2015, and the U.S. District Court for the District of Columbia granted it on June 23, 2015. On June 26, 2015, the parties terminated the merger agreement, and Sysco became obligated to pay $300 million to the owners of US Foods. A $25 million divestiture termination fee to Performance Food Group is shared equally, and Sysco accrued $312.5 million in total termination payments.
How is Sysco's debt position and liquidity after the merger termination?
Total debt was $7.3 billion at June 27, 2015, and cash and cash equivalents were $5.13 billion. The $5.0 billion of senior notes issued for the merger were redeemed in July 2015 using cash on hand and commercial paper. As of August 13, 2015, $744.0 million was outstanding under the commercial paper program, and the company planned to issue $2.0 billion of debt alongside the accelerated share repurchase.
What share repurchase and dividend plans did Sysco announce?
In June 2015, the Board approved repurchases of up to $3.0 billion over the two years ending July 1, 2017, including $1.5 billion through a planned accelerated share repurchase in fiscal 2016. In August 2015, the Board approved repurchasing up to 20,000,000 shares for no more than $800 million, expiring August 21, 2017. Sysco declared a quarterly dividend of $0.30 per share for the first quarter of fiscal 2016.
What does management expect for fiscal 2016?
Management expects capital expenditures of $550 million to $600 million and a 53-week year ending July 2, 2016, with the extra week presented as a Certain Item. It expects the share repurchases to produce an earnings per share benefit of approximately $0.03 to $0.04 per share. Management also expects a normalized tax rate of 36% to 37% and sees continued uncertainty in industry growth.
06—Continue