01—Abstract
Summary
Summary of the 10-K filed August 26, 2019. Cited figures are marked; the original filing is the authoritative source.
Sysco Corporation's fiscal 2019 Form 10-K, covering the 52-week year ended June 29, 2019, reports sales of $60.11 billiona, up 2.4% from $58.73 billion in fiscal 2018, and net earnings of $1.67 billion, up 17.0%.
Diluted earnings per share were $3.20b, up 18.3%. Adjusted diluted earnings per share, which excludes Certain Items, were $3.55, up 13.1%. Operating income rose only 0.7% to $2.33 billion on a GAAP basis, while adjusted operating income rose 7.9% to $2.73 billion.
The company describes its U.S. Foodservice Operations as its core segment, generating 68.7% of sales and 94.4% of segment operating income. Its International Foodservice Operations segment saw operating income fall 35.3% to $125.4 millionc, mainly due to restructuring and integration costs in France and the U.K. Management lowered its fiscal 2018 to fiscal 2020 adjusted operating income growth target to approximately $600 million, from an original range of $650 million to $700 million, citing lower-than-expected volume growth and higher expenses.
Cash flow from operations was $2.41 billiond and free cash flow was $1.74 billion, up 16.8%. Sysco returned capital through $775.4 million in dividends paid and about $1.0 billion in share repurchases. Total debt was $8.2 billion at year-end, and the filing notes that $4.5 billion of pension obligations and a $1.2 billion after-tax pension charge in accumulated other comprehensive loss are ongoing funding considerations.
Key risk areas disclosed include low industry margins, exposure to fuel and food cost inflation or deflation, competition from group purchasing organizations and non-traditional channels, Brexit uncertainty affecting U.K. and European operations, and integration challenges in France. The filing also highlights the approximately 22% unionized workforce and multiemployer pension exposure of up to $128 million in estimated withdrawal liability.
02—Key points
Key Highlights
- Sales rose 2.4% to $60.11 billion, driven by 1.8% case volume growth and 1.6% inflation in U.S. Foodservice Operations.
- Net earnings increased 17.0% to $1.67 billion, and diluted EPS rose 18.3% to $3.20; adjusted diluted EPS was $3.55, up 13.1%.
- GAAP operating income grew only 0.7% to $2.33 billion, while adjusted operating income grew 7.9% to $2.73 billion.
- International Foodservice operating income fell 35.3% to $125.4 million, reflecting France integration and restructuring costs of $61.1 million.
- The fiscal 2018 to fiscal 2020 adjusted operating income growth target was lowered to approximately $600 million from $650 million to $700 million.
- Free cash flow was $1.74 billion, up 16.8%, supporting $775.4 million in dividends and about $1.0 billion in share repurchases.
- Total debt was $8.2 billion at June 29, 2019, and the company repaid $750.0 million of senior notes during the year.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Sysco kept $0.03.
- Revenue$60.11B100.0%
- Cost of revenue−$48.70B81.0%
- Gross profit$11.41B19.0%
- Operating costs−$9.08B15.1%
- Operating income$2.33B3.9%
- Interest, other & tax−$655.9M1.1%
- Net income$1.67B2.8%
Where FY2019 revenue went
$60.11B- Cost of revenue: $48.70B, 81% of revenue
- Operating costs: $9.08B, 15% of revenue
- Net income: $1.67B, 2.8% of revenue
- Interest, other & tax: $655.9M, 1.1% of revenue
Kept 2.8% as net incomeNet income $1.67B · 2.8%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed August 26, 2019Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $60.11B$58.73B | +2.4% |
| Cost of Revenue | $48.70B$47.64B | +2.2% |
| Gross Profit | $11.41B$11.09B | +2.9% |
| Operating Expenses | $9.08B$8.77B | +3.5% |
| Operating Income | $2.33B$2.31B | +0.7% |
| Net Income | $1.67B$1.43B | +17.0% |
| EPS (Basic) | $3.24$2.74 | +18.2% |
| EPS (Diluted) | $3.20$2.70 | +18.5% |
| Shares Outstanding (Basic) | 516.89M522.93M | −1.2% |
| Shares Outstanding (Diluted) | 523.38M529.09M | −1.1% |
05—Questions
Frequently Asked Questions
Why did GAAP earnings grow faster than operating income?
Net earnings rose 17.0% while operating income rose only 0.7%, largely because income taxes fell to $331.6 million from $525.5 million. The filing cites a $95.1 million foreign tax credit, lower U.S. tax rates from the Tax Act, and excess tax benefits from equity compensation.
What caused the decline in International Foodservice profitability?
International operating income fell 35.3% to $125.4 million. The filing attributes this to strategic investments across Europe, restructuring charges largely in France, and supply chain transformation costs in the U.K., along with currency translation effects in Europe and Canada.
Why did Sysco lower its three-year financial target?
Management said volume growth was lower than originally anticipated and expenses had increased. The company also cited the impact of the Iowa Premium sale and lowered its fiscal 2018 to fiscal 2020 adjusted operating income growth target to approximately $600 million.
What are the main risks to Sysco's margins?
The filing identifies low industry margins, periods of food cost inflation or deflation, fuel cost volatility, competition from GPOs and non-traditional channels, and Brexit uncertainty. It also notes that a shortage of qualified labor and union contract renegotiations could affect results.
How is Sysco funding its shareholder returns and capital needs?
Sysco funded its activities through $2.41 billion in operating cash flow, commercial paper, and long-term borrowings. The company plans to increase share repurchases to over $1 billion in fiscal 2020 and has a new $2.0 billion revolving credit facility expiring June 28, 2024.
06—Continue