01—Abstract
Summary
Summary of the 10-K filed August 30, 2016. Cited figures are marked; the original filing is the authoritative source.
Sysco Corporation's fiscal 2016 Form 10-K (53 weeks ended July 2, 2016) reports sales of $50.37 billiona, up 3.5% from $48.68 billion, with GAAP operating income of $1.85 billion, up 50.5% from $1.23 billion, and net earnings of $949.6 million, up 38.3%.
Diluted earnings per share were $1.64b, compared with $1.15 in fiscal 2015. The company states that adjusted diluted earnings per share, which exclude Certain Items, were $2.10 (or $2.06 on a comparable 52-week basis), a 14.1% increase (12.0% on the 52-week basis). Certain Items were $158.7 million of operating expense in fiscal 2016, versus $562.5 million in fiscal 2015, which was driven largely by costs of the terminated US Foods merger.
Sysco also reported cash flow from operations of $1.93 billionc and free cash flow of $1.43 billion, and it repurchased $1.5 billion of stock through an accelerated share repurchase program in fiscal 2016. The most significant development after year-end was the July 5, 2016 closing of the Brakes Acquisition, a European foodservice distributor, for approximately £2.3 billion (about $3.1 billion). The filing notes the combined companies are expected to generate annualized sales of approximately $55 billion.
Sysco states the acquisition is expected to be immediately accretive to fiscal 2017 earnings per share, contributing low to mid-single-digit percentage growth. Total debt was $7.4 billiond at year-end, and the company's long-term debt to capitalization ratio rose to 67.9% from 58.0%, reflecting debt issued to fund the Brakes Acquisition and the share repurchases. Management set three-year targets through fiscal 2018, including improving operating income by at least $500 million, growing earnings per share faster than operating income, and achieving a 15% return on invested capital improvement.
The company also disclosed deflation of 0.7% for fiscal 2016, expects deflation to persist at least through the end of calendar 2016, and said restaurant customer traffic is beginning to decline. It plans to remove the SAP ERP platform by the end of fiscal 2017, which it expects to cost approximately $130 million in fiscal 2017.
02—Key points
Key Highlights
- Sales rose 3.5% to $50.37 billion; the filing states the extra 53rd week contributed 2.0% of the sales growth, and on a 52-week basis adjusted sales improved 1.5%.
- GAAP operating income increased 50.5% to $1.85 billion; adjusted operating income increased 12.1% to $2.0 billion on a reported basis and 9.6% on a comparable 52-week basis.
- Net earnings were $949.6 million, up 38.3%; diluted EPS was $1.64 versus $1.15, and adjusted diluted EPS was $2.10 (up 14.1%).
- Brakes Acquisition closed July 5, 2016 for about £2.3 billion (about $3.1 billion), with the combined companies expected to generate annualized sales of about $55 billion.
- Total debt was $7.4 billion at year-end, and the long-term debt to capitalization ratio was 67.9%, up from 58.0% in fiscal 2015.
- Free cash flow was $1.43 billion, up 37.8%, and $1.5 billion was repurchased under the accelerated share repurchase program, with an additional $449.4 million in open-market purchases.
- Management set three-year targets through fiscal 2018, including at least $500 million of operating income improvement and a 15% return on invested capital improvement for existing businesses.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Sysco kept $0.02.
- Revenue$50.37B100.0%
- Cost of revenue−$41.33B82.1%
- Gross profit$9.04B17.9%
- Operating costs−$7.19B14.3%
- Operating income$1.85B3.7%
- Interest, other & tax−$900.9M1.8%
- Net income$949.6M1.9%
Where FY2016 revenue went
$50.37B- Cost of revenue: $41.33B, 82% of revenue
- Operating costs: $7.19B, 14% of revenue
- Net income: $949.6M, 1.9% of revenue
- Interest, other & tax: $900.9M, 1.8% of revenue
Kept 1.9% as net incomeNet income $949.6M · 1.9%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed August 30, 2016Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $50.37B$48.68B | +3.5% |
| Gross Profit | $9.04B$8.55B | +5.7% |
| Operating Expenses | $7.19B$7.32B | −1.8% |
| Operating Income | $1.85B$1.23B | +50.5% |
| Net Income | $949.62M$686.77M | +38.3% |
| EPS (Basic) | $1.66$1.16 | +43.1% |
| EPS (Diluted) | $1.64$1.15 | +42.6% |
| Shares Outstanding (Basic) | 573.06M592.07M | −3.2% |
| Shares Outstanding (Diluted) | 577.39M596.85M | −3.3% |
05—Questions
Frequently Asked Questions
How did Sysco perform in fiscal 2016 on a GAAP basis?
Sales were $50.37 billion, up 3.5%, and operating income was $1.85 billion, up 50.5%. Net earnings were $949.6 million, up 38.3%, and diluted EPS was $1.64. The filing notes fiscal 2016 was a 53-week year and that Certain Items reduced earnings, with $158.7 million of Certain Item costs in operating expenses versus $562.5 million in fiscal 2015.
What is the Brakes Acquisition and how big is it?
Sysco acquired Cucina Lux Investments Limited, the parent holding company of the Brakes Group, a leading European foodservice business, for about £2.3 billion (about $3.1 billion) on July 5, 2016, after fiscal year end. The Brakes Group serves more than 50,000 foodservice customers, with leading positions in the U.K., France and Sweden. Sysco expects the deal to be immediately accretive to fiscal 2017 earnings per share.
How much debt does Sysco carry and how did its leverage change?
Total debt was approximately $7.4 billion as of July 2, 2016, and the long-term debt to capitalization ratio was 67.9%, compared with 58.0% a year earlier. The increase reflects senior notes issued in fiscal 2016 to fund the accelerated share repurchase and the Brakes Acquisition. The company also had $3.9 billion in cash and cash equivalents at year end.
What are Sysco's capital return plans and targets?
Sysco repurchased $1.5 billion of stock through an accelerated program and $449.4 million through open-market purchases in fiscal 2016. It intends to execute the remaining $1.5 billion of its $3.0 billion repurchase program in fiscal 2017, which it expects to add about $0.03 to $0.04 per share to fiscal 2017 earnings. Dividends declared were $1.23 per share for fiscal 2016.
What risks and trends did management highlight?
Management said deflation of 0.7% occurred in fiscal 2016 and is expected to persist at least through the end of calendar 2016, pressuring margins. It noted restaurant customer traffic levels are beginning to decline, with modest case volume growth expected in the first half of fiscal 2017. The filing also flags risks from the UK's referendum to exit the European Union, the strong U.S. dollar's effect on foreign results, and funding requirements for the company-sponsored pension plan.
06—Continue