01—Abstract
Summary
Summary of the 10-Q filed November 1, 2023. Cited figures are marked; the original filing is the authoritative source.
Sysco Corporation reported improved first-quarter fiscal 2024 results for the 13 weeks ended September 30, 2023.
Sales rose 2.6%, or $493.6 million, to $19.6 billiona. Operating income increased 9.1%, or $66.8 million, to $803.6 million, and adjusted operating income, which excludes Certain Items, increased 10.6% to $854.3 million. Net earnings increased 8.1% to $503.4 million, and diluted earnings per share increased 8.8% to $0.99, or 10.3% to $1.07 on an adjusted basis.
Management attributed the gains to volume growth, effective margin management and productivity improvements. U.S. Foodservice case volume increased 1.6%b, and gross margin rose 35 basis points. Cash flow weakened.
Net cash provided by operating activities was $87.2 millionc, compared with $158.6 million a year earlier, and free cash flow was negative at $(73.2) million, compared with $13.8 million. Management cited higher capital expenditures, timing and seasonality, and investments in the Recipe for Growth strategy. Sysco paid $219.3 million for the acquisition of BIX Produce Company and reported total debt carrying value of $10.9 billion.
Shareholder returns included $100.0 milliond of share repurchases and $252.9 million of dividends paid, and management intends to repurchase $750.0 million of stock in fiscal 2024. The filing also notes a pending IRS Notice of Deficiency related to foreign tax credits.
Sysco has previously recorded a $131.0 million benefit tied to its TCJA interpretation and could be required to reverse all or part of it if its challenge is unsuccessful. Management expects fiscal 2024 interest expense to rise by approximately $50 million, driven by higher debt tied to the planned acquisition of Edward Don & Company.
02—Key points
Key Highlights
- Sales increased 2.6%, or $493.6 million, to $19.6 billion, with U.S. Foodservice case volume up 1.6%.
- Operating income rose 9.1% to $803.6 million; adjusted operating income rose 10.6% to $854.3 million.
- Net earnings increased 8.1% to $503.4 million; diluted EPS rose 8.8% to $0.99, and adjusted diluted EPS rose 10.3% to $1.07.
- Free cash flow was negative at $(73.2) million, versus $13.8 million a year earlier, as operating cash flow fell to $87.2 million from $158.6 million.
- Sysco paid $219.3 million for BIX Produce Company and announced a planned acquisition of Edward Don & Company, which is expected to raise interest expense by approximately $50 million in fiscal 2024.
- Management plans to repurchase $750.0 million of stock in fiscal 2024; about $3.9 billion remained under the authorization as of September 30, 2023.
- A pending IRS Notice of Deficiency could lead to reversal of all or part of a $131.0 million tax benefit previously recorded.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2024, Sysco kept $0.03.
- Revenue$19.62B100.0%
- Cost of revenue−$15.97B81.4%
- Gross profit$3.65B18.6%
- Operating costs−$2.84B14.5%
- Operating income$804.0M4.1%
- Interest, other & tax−$301.0M1.5%
- Net income$503.0M2.6%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2024filed November 1, 2023Financial Statements
Q1 FY2024 against Q1 FY2023
| Line item | Q1 FY2024Q1 FY2023 | Change |
|---|---|---|
| Revenue | $19.62B$18.96B | +3.5% |
| Cost of Revenue | $15.97B$15.51B | +3.0% |
| Gross Profit | $3.65B$3.44B | +5.9% |
| Operating Expenses | $2.84B$2.68B | +6.2% |
| Operating Income | $804.00M$766.72M | +4.9% |
| Net Income | $503.00M$509.99M | −1.4% |
| EPS (Basic) | $1.00$1.00 | 0.0% |
| EPS (Diluted) | $0.99$0.99 | 0.0% |
| Shares Outstanding (Basic) | 505.13M— | — |
| Shares Outstanding (Diluted) | 507.07M— | — |
05—Questions
Frequently Asked Questions
What drove the improvement in Sysco's first-quarter earnings?
Management attributed the increase in earnings to volume growth, effective margin management and productivity improvements. Gross profit grew faster than operating expenses, helped by management of product cost deflation in the U.S., supply chain productivity gains and cost-out actions. Operating expenses rose 3.3%, driven by higher volumes.
Why did free cash flow turn negative?
Free cash flow was $(73.2) million, compared with $13.8 million a year earlier. Management cited higher capital expenditures, timing and historical seasonality, and investments in the Recipe for Growth strategy. Operating cash flow was $87.2 million, down from $158.6 million, with unfavorable year-over-year working capital comparisons on accounts payable and accrued expenses, and higher estimated income tax payments.
How is Sysco returning cash to shareholders?
In the quarter, Sysco repurchased 1,382,947 shares for $100.0 million and paid $252.9 million in dividends, or $0.50 per share. Management intends to repurchase $750.0 million of stock in fiscal 2024 and had about $3.9 billion remaining under its authorization as of September 30, 2023. The board declared a $0.50 per share regular quarterly dividend in August 2023.
What are the main risks to the tax position and the balance sheet?
Sysco received an IRS Notice of Deficiency mainly related to foreign tax credits generated in fiscal 2018, and has filed suit in the U.S. Tax Court. If unsuccessful, it may have to reverse all or part of a $131.0 million benefit previously recorded. Total debt carrying value was $10.9 billion, with a fair value of approximately $9.8 billion, and borrowings included $116.5 million under the revolving credit facility and $300.0 million in commercial paper.
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