01—Abstract
Summary
Summary of the 10-K filed August 27, 2018. Cited figures are marked; the original filing is the authoritative source.
Sysco Corporation (SYY) reported fiscal 2018 (52 weeks ended June 30, 2018) sales of $58.73 billiona, up 6.1% from $55.37 billion in fiscal 2017, with operating income of $2.33 billion, up 13.4%, and GAAP net earnings of $1.43 billion, up 25.2%.
Diluted earnings per share were $2.70b, up 29.8%. Excluding Certain Items (restructuring, acquisition-related costs, debt extinguishment, MEPP withdrawal charges and Tax Act effects), adjusted diluted EPS was $3.14, up 26.6%, and adjusted operating income grew 8.4% to $2.55 billion. Growth was driven by a 2.9% inflation contribution to U.S. Foodservice sales, 2.0% case volume growth, and acquisitions including HFM Foodservice and Doerle Food Services, and the Brakes Group acquired in fiscal 2017 for $2.9 billion.
The company completed its initial three-year plan, reporting adjusted ROIC of 20.2% against a 15.0% target and adjusted operating income growth of $665.1 millionc versus a $600-$650 million target. It set new fiscal 2020 targets, including $650-$700 million of adjusted operating income growth versus fiscal 2017, 16% adjusted ROIC improvement for existing businesses, and adjusted diluted EPS of $3.85 to $3.95. Sysco expects fiscal 2019 effective tax rate of approximately 25% and capital expenditures of 1.2% to 1.3% of sales.
Balance sheet and cash flow remain significant considerations. Total debt was $8.3 billiond at June 30, 2018, free cash flow was $1.49 billion (down 5.3%) after a $380.0 million voluntary contribution to the U.S. Retirement Plan, and the company repurchased $978.9 million of shares. Investors should weigh the company's rising operating expenses, international supply chain investments, and the $4.0 billion U.S. pension obligation, against its continued growth in locally managed customer case volume.
02—Key points
Key Highlights
- Sales rose 6.1% to $58.73 billion, led by U.S. Foodservice (67.5% of sales) with 2.9% inflation and 2.0% case volume contributions.
- GAAP diluted EPS of $2.70 (up 29.8%); adjusted diluted EPS of $3.14 (up 26.6%) excluding Certain Items.
- Completed initial three-year plan with adjusted operating income growth of $665.1 million, above the $600-$650 million target, and adjusted ROIC of 20.2% versus a 15.0% target.
- New fiscal 2020 targets: $650-$700 million adjusted operating income growth vs. fiscal 2017, 16% adjusted ROIC improvement, and adjusted diluted EPS of $3.85-$3.95.
- International Foodservice operating income fell 20.5% to $193.2 million on European supply chain transformation costs, while sales rose 8.5% to $11.52 billion.
- Total debt of $8.3 billion; free cash flow fell 5.3% to $1.49 billion after a $380.0 million voluntary U.S. Retirement Plan contribution.
- Repurchased 17.9 million shares for $978.9 million in fiscal 2018, with approximately $1.5 billion of remaining authorization at June 30, 2018.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Sysco kept $0.02.
- Revenue$58.73B100.0%
- Cost of revenue−$47.64B81.1%
- Gross profit$11.09B18.9%
- Operating costs−$8.77B14.9%
- Operating income$2.31B3.9%
- Interest, other & tax−$883.3M1.5%
- Net income$1.43B2.4%
Where FY2018 revenue went
$58.73B- Cost of revenue: $47.64B, 81% of revenue
- Operating costs: $8.77B, 15% of revenue
- Net income: $1.43B, 2.4% of revenue
- Interest, other & tax: $883.3M, 1.5% of revenue
Kept 2.4% as net incomeNet income $1.43B · 2.4%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed August 27, 2018Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $58.73B$55.37B | +6.1% |
| Cost of Revenue | $47.64B$44.81B | +6.3% |
| Gross Profit | $11.09B$10.56B | +5.0% |
| Operating Expenses | $8.77B$8.50B | +3.2% |
| Operating Income | $2.31B$2.05B | +12.6% |
| Net Income | $1.43B$1.14B | +25.2% |
| EPS (Basic) | $2.74$2.10 | +30.5% |
| EPS (Diluted) | $2.70$2.08 | +29.8% |
| Shares Outstanding (Basic) | 522.93M543.50M | −3.8% |
| Shares Outstanding (Diluted) | 529.09M548.55M | −3.5% |
05—Questions
Frequently Asked Questions
How did Sysco perform in fiscal 2018 compared with fiscal 2017?
Sales increased 6.1% to $58.73 billion, operating income increased 13.4% to $2.33 billion, and net earnings increased 25.2% to $1.43 billion. Basic EPS was $2.74 and diluted EPS was $2.70, up 30.5% and 29.8% respectively.
What are the main drivers of Sysco's sales growth?
In U.S. Foodservice, sales rose 5.4%, driven by inflation (2.9% contribution, $1,096.4 million), case volume growth (2.0%) and acquisitions (0.8%). International Foodservice sales rose 8.5%, primarily from favorable foreign exchange (5.1% contribution) and product cost inflation in Europe and Canada.
What are Sysco's financial targets for fiscal 2020?
Sysco targets $650 million to $700 million of adjusted operating income growth versus fiscal 2017, growth in EPS faster than operating income, and 16% adjusted return on invested capital improvement for existing businesses. It also estimates adjusted diluted EPS of $3.85 to $3.95 in fiscal 2020.
What risks does the filing highlight for investors?
Key risks include low foodservice margins sensitive to inflation or deflation, fuel cost volatility, competition and group purchasing organizations, customer concentration and changes in consumer eating habits. The filing also cites the U.K.'s exit from the EU, the Tax Act's provisional estimates, multiemployer pension withdrawal liability of as much as $131 million, and a $4.0 billion U.S. pension obligation.
How is Sysco funding its growth and returning capital to shareholders?
Operating cash flow was $2.2 billion in fiscal 2018. Capital expenditures were $665.6 million net of asset sales, and acquisitions cost $248.1 million. Sysco paid $722.2 million in dividends ($1.38 per share) and repurchased $978.9 million of stock, funded partly by $1.0 billion of new senior notes and commercial paper.
06—Continue