01—Abstract
Summary
Summary of the 10-K filed August 26, 2020. Cited figures are marked; the original filing is the authoritative source.
Sysco Corporation (SYY) reported fiscal 2020 results (52 weeks ended June 27, 2020) that were heavily impacted by the COVID-19 pandemic.
Sales declined 12.0%, or $7.2 billion, to $52.9 billiona, while operating income fell 67.8% to $749.5 million and net earnings fell 87.1% to $215.5 million, or $0.42 per diluted share. Adjusted diluted earnings per share were $2.01, a 43.4% decrease from $3.55. The company said its sales exit rate at fiscal year-end was a decline of approximately 30% versus fiscal 2019, with weekly sales improvements resuming in August 2020 after a flattening in July.
The filing shows a significant balance sheet shift toward liquidity. Total debt rose to $14.4 billionb from $8.2 billion, driven by $4.0 billion of senior notes issued in April 2020, $1.0 billion issued in February 2020, a $1.8 billion revolver draw in the second half of fiscal 2020, and a £600 million U.K. commercial paper program. Cash and cash equivalents were $6.1 billion at June 27, 2020, and management reported more than $8.0 billion in cash and available liquidity as of August 7, 2020.
Cash flow from operations fell to $1.6 billionc from $2.4 billion, and free cash flow was $927.0 million versus $1.7 billion. Shareholders' equity fell to $1.16 billion from $2.50 billion. Management also disclosed a corporate modernization program, including the regionalization of U.S. broadline operations and approximately $350 million of annualized permanent cost removal for fiscal 2021.
The company recorded $323.4 milliond of COVID-19-related excess bad debt expense and $203.2 million of goodwill impairment charges. Dividend growth is not expected in fiscal 2021, and the amended revolving credit agreement restricts dividend increases and share repurchases until the earlier of September 2022 or the achievement of a specified EBITDA-to-interest ratio.
02—Key points
Key Highlights
- Sales fell 12.0% to $52.9 billion in fiscal 2020, with U.S. Foodservice Operations down 10.9% to $36.8 billion and International Foodservice Operations down 15.8% to $9.7 billion.
- Operating income declined 67.8% to $749.5 million, and net earnings declined 87.1% to $215.5 million; GAAP diluted EPS was $0.42 versus $3.20, and adjusted diluted EPS was $2.01 versus $3.55.
- COVID-19 impact included $323.4 million of excess bad debt expense, $203.2 million of goodwill impairment charges, and $70.3 million of severance expenses in the second half of fiscal 2020.
- Total debt rose to $14.4 billion from $8.2 billion, with $5.0 billion of new senior notes issued in fiscal 2020 and cash and cash equivalents of $6.1 billion at June 27, 2020.
- Management reported more than $8.0 billion in cash and available liquidity as of August 7, 2020, and said it expects to repay $750 million of senior notes maturing in the next 12 months.
- Free cash flow was $927.0 million in fiscal 2020 compared with $1.7 billion in fiscal 2019, and dividends paid totaled $856.3 million.
- A May 2020 amendment to the $2 billion revolving credit facility restricts dividend increases and share repurchases until the earlier of September 2022 or the achievement of a specified EBITDA-to-interest ratio; share repurchases were discontinued in March 2020.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2020, Sysco kept $0.00.
- Revenue$52.89B100.0%
- Cost of revenue−$42.99B81.3%
- Gross profit$9.90B18.7%
- Operating costs−$9.15B17.3%
- Operating income$749.5M1.4%
- Interest, other & tax−$534.0M1.0%
- Net income$215.5M0.4%
Where FY2020 revenue went
$52.89B- Cost of revenue: $42.99B, 81% of revenue
- Operating costs: $9.15B, 17% of revenue
- Net income: $215.5M, 0.4% of revenue
- Interest, other & tax: $534.0M, 1.0% of revenue
Kept 0.4% as net incomeNet income $215.5M · 0.4%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2020filed August 26, 2020Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $52.89B$60.11B | −12.0% |
| Cost of Revenue | $42.99B$48.70B | −11.7% |
| Gross Profit | $9.90B$11.41B | −13.2% |
| Operating Expenses | $9.15B$9.08B | +0.8% |
| Operating Income | $749.50M$2.33B | −67.8% |
| Net Income | $215.47M$1.67B | −87.1% |
| EPS (Basic) | $0.42$3.24 | −87.0% |
| EPS (Diluted) | $0.42$3.20 | −86.9% |
| Shares Outstanding (Basic) | 510.12M516.89M | −1.3% |
| Shares Outstanding (Diluted) | 514.03M523.38M | −1.8% |
05—Questions
Frequently Asked Questions
How much did COVID-19 affect Sysco's sales and profitability in fiscal 2020?
Sysco said the pandemic significantly reduced demand across its foodservice customer base. Sales fell 12.0% to $52.9 billion, and the company's exit-rate sales at fiscal year-end were approximately 30% below the end of fiscal 2019. Operating income fell 67.8% to $749.5 million, and net earnings fell 87.1% to $215.5 million. Results also included $323.4 million of excess bad debt expense and $203.2 million of goodwill impairment charges attributed to the pandemic and related conditions.
How did Sysco strengthen its liquidity during the pandemic?
Sysco borrowed $1.6 billion under its revolving credit facility immediately after the crisis began, issued $4.0 billion of unsecured senior notes in April 2020, established a £600 million Bank of England commercial paper program, and entered into a new $750.0 million 364-day credit facility. As of August 7, 2020, it reported more than $8.0 billion in cash and available liquidity. Total debt was $14.4 billion at June 27, 2020, compared with $8.2 billion a year earlier.
What cost-reduction and transformation actions did Sysco take?
Sysco removed approximately $500 million of expenses in the fourth quarter of fiscal 2020 through furloughs and permanent workforce reductions, and it expects permanent changes to deliver an annualized benefit of approximately $350 million. The company is also pursuing a corporate modernization program that includes regionalizing its U.S. broadline business from six markets with 76 operating companies to four markets with approximately 30 regions, while retaining local drivers, warehouse associates and sales force. It is also accelerating digital initiatives such as the Sysco Shop order platform.
What does the filing say about shareholder returns and dividends?
Sysco paid dividends of $856.3 million, or $1.68 per share, in fiscal 2020, and declared a quarterly dividend of $0.45 per share for the fourth quarter. The company expects to continue quarterly dividend payments but does not expect to grow the dividend in fiscal 2021. Share repurchases were discontinued in March 2020, and the amended credit agreement restricts both dividend increases and repurchases until the earlier of September 2022 or the achievement of a specified EBITDA-to-interest ratio. Approximately $2.1 billion remained under the repurchase authorization as of June 27, 2020.
What is Sysco's outlook for fiscal 2021 according to the filing?
Management said it anticipates fiscal 2021 sales to be stronger than the fiscal 2020 exit rate, even with a choppy recovery. It expects gross margin to reflect sales mix changes but otherwise remain stable, and it expects an effective tax rate of approximately 24%. The company also noted that the business recovery flattened in July 2020 as COVID-19 cases rose in some locations, but that weekly sales improvements had resumed in August 2020. The filing states that the U.S. foodservice market is expected to show negative real sales growth for calendar year 2020.
06—Continue