Local case growth, improved gross profit, and solid expense management drive increased operating income

HOUSTON, Aug. 15, 2016 (GLOBE NEWSWIRE) -- Sysco Corporation (NYSE:SYY) today announced financial results for its 14-week fourth fiscal quarter and 53-week fiscal year 2016 ended July 2, 2016. In fiscal 2015, the fourth quarter included 13 weeks and the year included 52 weeks.¹

Fourth Quarter Fiscal 2016 Highlights

• Sales increased 10.0% to $13.6 billion; on a comparable 13-week basis, sales increased 2.2%
• Gross profit increased 12.7% to $2.5 billion; gross margin increased 44 basis points to 18.3%; on a comparable 13-week basis, gross profit increased 4.7%
• Operating income increased 351.9% to $547 million; adjusted operating income increased 23.4% to $628 million; on a comparable 13-week basis, adjusted operating income increased 14.6%
• Earnings Per Share (EPS) increased $0.26 to $0.38; adjusted EPS increased $0.12 to $0.64; on a comparable 13-week basis, adjusted EPS increased $0.08 to $0.60

Fiscal 2016 Highlights

• Sales increased 3.5% to $50.4 billion; on a comparable 52-week basis, sales increased 1.5%
• Gross profit increased 5.7% to $9.0 billion; gross margin increased 38 basis points to 17.9%; on a comparable 52-week basis, gross profit increased 3.6%
• Operating income increased 50.5% to $1.9 billion; adjusted operating income increased 12.1% to $2.0 billion; on a comparable 52-week basis, adjusted operating income increased 9.6%
• EPS increased $0.49 to $1.64; adjusted EPS increased $0.26 to $2.10; on a comparable 52-week basis, adjusted EPS increased $0.22 to $2.06

“I am very pleased with our performance during fiscal 2016, as we made significant progress toward our three-year plan financial objectives. During the year, we had strong local case growth, improved our gross profit, managed expenses well and drove increased operating income,” said Bill DeLaney, Sysco’s chief executive officer. “Looking forward, we remain highly focused on supporting the success of our customers, profitably growing our business and achieving the objectives of our three-year plan.”

¹Earnings Per Share (EPS) and Adjusted EPS are shown on a diluted basis unless otherwise specified.  Adjusted financial results exclude certain items, which primarily include restructuring and merger-related costs. Results shown on a comparable 13 or 52 week basis are non-GAAP numbers and have been further adjusted to remove dollar amounts equal to 1/14 of the comparable fourth quarter non-GAAP results. Reconciliations of all non-GAAP measures are included in this release.

Fourth Quarter Fiscal 2016 Summary

Sales for the fourth quarter were $13.6 billion, an increase of 10.0% compared to the same period last year. Overall food cost deflation was 1.2% (0.9% in U.S. broadline), as measured by the estimated change in Sysco's product costs, with deflation in the meat and dairy categories partially offset by modest inflation in other categories. In addition, sales from acquisitions completed within the last 12 months increased sales by 1.2%, and the impact of changes in foreign exchange rates decreased sales by 0.5%. Case volume for the company’s U.S. broadline operations increased 10.2% during the quarter.  Local case growth within U.S. broadline operations increased 10.3%. Gross profit was $2.5 billion, an increase of 12.7% compared to the same period last year. Gross margin increased 44 basis points to 18.3%.

On a comparable 13-week basis, sales increased 2.2% and gross profit increased 4.7%. Total broadline case growth was 2.2% higher, and local case growth was 2.4% higher, as compared to the same period last year.

GAAP Operating Income, Net Earnings and EPS (14-week vs. 13-week)
Operating expenses decreased $143 million, or 6.8%, compared to the same period last year, due mainly to the elimination of acquisition-related costs in the prior year. Operating income was $547 million, an increase of $426 million, or 351.9%, compared to the same period last year. Interest expense was $74 million, a decrease of $3 million compared to the same period last year. Other expense, net was $141.3 million, primarily from the remeasurement of foreign denominated cash and losses on foreign currency option contracts. Both related to the purchase price for the acquisition of Brakes, which closed shortly after our fiscal year end. Net earnings were $216 million, an increase of $143 million, or 195.3%, compared to the same period last year. Diluted EPS was $0.38, which was 216.7% higher compared to the same period last year.

Non-GAAP Operating Income, Net Earnings and EPS (14-week vs. 13-week)
Adjusted operating expenses increased $164 million, or 9.6%, compared to the same period last year, due mainly to higher case volume-related expenses. Adjusted operating income was $628 million, an increase of $119 million, or 23.4%, compared to the same period last year. Adjusted interest expense was $56 million, an increase of $20 million compared to the same period last year, reflecting increased debt, the proceeds from which were used primarily to fund the company’s accelerated share repurchase program. Adjusted net earnings were $366 million, an increase of $57 million, or 18.3%, compared to the same period last year. Adjusted diluted EPS was $0.64, which was 23.1% higher compared to the same period last year.

Comparable Non-GAAP Operating Income, Net Earnings and EPS (13-week vs. 13-week)
For comparable results on a 13-week basis, including case growth, please see Table 1.

Fiscal 2016 Summary

Sales for fiscal 2016 were $50.4 billion, an increase of 3.5% compared to the same period last year. Overall food cost deflation was 0.7% (0.9% in U.S. broadline), as measured by the estimated change in Sysco's product costs, with deflation in the meat, seafood, dairy and poultry categories partially offset by modest inflation in other categories. In addition, sales from acquisitions completed within the last 12 months increased sales by 0.7%, and the impact of changes in foreign exchange rates decreased sales by 1.3%. Case volume for the company’s U.S. broadline operations grew 5.3% compared to the same period last year. Local case growth within U.S. broadline operations increased 4.7%. Gross profit was $9.0 billion, an increase of 5.7% compared to the same period last year. Gross margin increased 38 basis points to 17.9%.

On a comparable 52-week basis, sales increased 1.5% and gross profit increased 3.6%. Total broadline case growth was 3.0% higher, and local case growth was 2.7% higher, as compared to the same period last year.

GAAP Operating Income, Net Earnings and EPS (53-week vs. 52-week)
Operating expenses decreased $132 million, or 1.8%, compared to the same period last year, due mainly to the elimination of acquisition-related costs in the prior year. Operating income was $1.9 billion, an increase of $621 million, or 50.5%, compared to the same period last year. Interest expense was $306 million, an increase of $51 million compared to the same period last year. Other expense, net was $111.3 million, primarily from the remeasurement of foreign denominated cash and losses on foreign currency option contracts. Both related to the purchase price for the acquisition of Brakes, which closed shortly after our fiscal year end. Net earnings were $950 million, an increase of $263 million, or 38.3%, compared to the same period last year. Diluted EPS was $1.64, which was 42.6% higher compared to the same period last year.

Non-GAAP Operating Income, Net Earnings and EPS (53-week vs. 52-week)
Adjusted operating expenses increased $272 million, or 4.0%, compared to the same period last year, due mainly to higher case volume-related expenses and incentive expense. Adjusted operating income was $2.0 billion, an increase of $217 million, or 12.1%, compared to the same period last year. Adjusted interest expense was $182 million, an increase of $66 million compared to the same period last year, reflecting increased debt, the proceeds from which were used primarily to fund the company’s accelerated share repurchase program. Adjusted net earnings were $1.2 billion, an increase of $114 million, or 10.4%, compared to the same period last year. Adjusted diluted EPS was $2.10, which was 14.1% higher compared to the same period last year.

Comparable Non-GAAP Operating Income, Net Earnings and EPS (52-week vs. 52-week)
For comparable results on a 52-week basis, including case growth, please see Table 1.

Capital Spending and Cash Flow

Capital expenditures, net of proceeds from sales of plant and equipment, totaled $504 million for fiscal year 2016. Cash flow from operations was $1.9 billion for fiscal 2016, which was $378 million higher compared to the same period last year. Free cash flow for fiscal 2016 was $1.4 billion, which was $392 million higher compared to the same period last year.

Conference Call & Webcast

Sysco’s fourth quarter and fiscal year 2016 earnings conference call will be held on Monday, August 15, 2016, at 10:00 a.m. Eastern. A live webcast of the call, a copy of this news release and a slide presentation will be available online at investors.sysco.com.

Table 1: Comparable Results on a 13-week/52-week Basis

		Fourth Quarter										Fiscal Year
								Comparable Adjusted										Comparable Adjusted
	Financial Comparison:	July 2, 2016 (14 Weeks)			Change (14 vs. 13 weeks)			Change (13 vs. 13 weeks) (1)				July 2, 2016 (53 Weeks)			Change (53 vs. 52 weeks)			Change (52 vs. 52 weeks) (1)
	Sales:	$13.6 billion				10.0	%		2.2	%		$50.4 billion				3.5	%		1.5	%
	Real Growth (non-GAAP)(1)		10.5	%	871 bps			94 bps					4.8	%	335 bps			136 bps
	Food Cost Inflation		-1.2	%	-131 bps			-131 bps					-0.7	%	-442 bps			-442 bps
	Acquisitions		1.2	%	78 bps			70 bps					0.7	%	13 bps			11 bps
	Impact of Foreign Exchange Rate Translation		-0.5	%	93 bps			93 bps					-1.3	%	-24 bps			-24 bps
	Gross Profit:	$2.5 billion				12.7	%		4.7	%		$9.0 billion				5.7	%		3.6	%
	Gross Margin		18.34	%	44 bps			44 bps					17.95	%	38 bps			38 bps
	GAAP:
	Operating Expenses	$2.0 billion				-6.8	%					$7.2 billion				-1.8	%
	Certain Items	$81 million				-79.0	%					$159 million				-71.8	%
	Operating Income	$547 million				351.9	%					$1.9 billion				50.5	%
	Operating Margin		4.01	%	303 bps								3.67	%	115 bps
	Net Earnings	$216 million				195.3	%					$950 million				38.3	%
	Diluted Earnings Per Share	$	0.38			216.7	%					$	1.64			42.6	%
	Non-GAAP(1):
	Operating Expenses	$1.9 billion				9.6	%		1.7	%		$7.0 billion				4.0	%		2.0	%
	Operating Income	$628 million				23.4	%		14.6	%		$2.0 billion				12.1	%		9.6	%
	Operating Margin		4.60	%	50 bps			17 bps					3.99	%	31 bps			30 bps
	Net earnings	$366 million				18.3	%		9.8	%		$1.2 billion				10.4	%		8.0	%
	Diluted Earnings Per Share	$	0.64			23.1	%		15.4	%		$	2.10			14.1	%		12.0	%
	Case Growth(2):
	Total Broadline		10.1	%	648 bps				2.2	%			5.0	%	190 bps				3.0	%
	Local		10.2	%	781 bps				2.4	%			4.7	%	271 bps				2.7	%
	U.S. Broadline		10.2	%	656 bps				2.4	%			5.3	%	215 bps				3.3	%
	Local		10.3	%	821 bps				2.4	%			4.7	%	299 bps				2.6	%
	Sysco Brand Sales as a % of Cases(3):
	U.S. Broadline		37.4	%	5 bps			5 bps					37.2	%	14 bps			14 bps
	Local		45.1	%	49 bps			49 bps					44.6	%	82 bps			82 bps
	Notes:
	(1) A reconciliation of non-GAAP measures is included in this release.
	(2) Case growth for 13-week and 52-week comparable columns show year-over-year growth.
	(3) Sysco Brand Sales are presented as a percentage of cases instead of sales for more relevant comparison.
	Individual components in the table above may not sum to the totals due to rounding.

About Sysco

Sysco is the global leader in selling, marketing and distributing food products to restaurants, healthcare and educational facilities, lodging establishments and other customers who prepare meals away from home. Its family of products also includes equipment and supplies for the foodservice and hospitality industries. The company operates 198 distribution facilities serving approximately 425,000 customers. For fiscal year 2016 that ended July 2, 2016, the company generated sales of more than $50 billion. Subsequent to fiscal year 2016 the company completed the acquisition of the Brakes Group, a leading European foodservice distributor with operations in the United Kingdom, Ireland, France, Sweden, Spain, Belgium and Luxembourg.

For more information, visit www.sysco.com or connect with Sysco on Facebook at www.facebook.com/SyscoCorporation or Twitter at https://twitter.com/Sysco.  For important news and information regarding Sysco, visit the Investor Relations section of the company's Internet home page at investors.sysco.com, which Sysco plans to use as a primary channel for publishing key information to its investors, some of which may contain material and previously non-public information.  Investors should also follow us at www.twitter.com/SyscoStock and download the Sysco IR App, available on the iTunes App Store and the Google Play Market. In addition, investors should continue to review our news releases and filings with the Securities and Exchange Commission.  It is possible that the information we disclose through any of these channels of distribution could be deemed to be material information.

Forward-Looking Statements

Statements made in this news release or in our earnings call for the fourth quarter and full year of fiscal 2016 that look forward in time or that express management’s beliefs, expectations or hopes are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the views of management at the time such statements are made and are subject to a number of risks, uncertainties, estimates, and assumptions that may cause actual results to differ materially from current expectations. These statements include our outlook for fiscal 2017, our plans and expectations related to our three-year financial objectives, including targets for adjusted operating income and adjusted ROIC, and the key levers for realizing these goals, expectations regarding the Brakes Group acquisition and related benefits, plans to shift our technology structure and related spend, streamline our market structure, introduce a field organization model, and further develop a functional structure in key support areas, and expectations regarding capital expenditures and share repurchases. The success of our plans and expectations regarding our operating performance, including expectations regarding our three-year financial objectives, are subject to the general risks associated with our business, including the risks of interruption of supplies due to lack of long-term contracts, severe weather, crop conditions, work stoppages, intense competition, technology disruptions, dependence on large regional and national customers, inflation risks, the impact of fuel prices, adverse publicity, and labor issues. Risks and uncertainties also include risks impacting the economy generally, including the risks that the current general economic conditions will deteriorate, or consumer confidence in the economy or consumer spending, particularly on food-away-from-home, may decline. Market conditions may not improve. If sales from our locally managed customers do not grow at the same rate as sales from regional and national customers, our gross margins may decline. Our ability to meet our long-term strategic objectives depends largely on the success of our various business initiatives, including efforts related to revenue management, expense management, our digital e-commerce strategy and any efforts related to restructuring or the reduction of administrative costs. There are various risks related to these efforts, including the risk that these efforts may not provide the expected benefits in our anticipated time frame, if at all, and may prove costlier than expected; the risk that the actual costs of any initiatives may be greater or less than currently expected; and the risk of adverse effects to our business, results of operations and liquidity if past and future undertakings, and the associated changes to our business, do not prove to be cost effective or do not result in the cost savings and other benefits at the levels that we anticipate. Our plans related to and the timing of any initiatives are subject to change at any time based on management’s subjective evaluation of our overall business needs. If we are unable to realize the anticipated benefits from our efforts, we could become cost disadvantaged in the marketplace, and our competitiveness and our profitability could decrease. Capital expenditures may vary based on changes in business plans and other factors, including risks related to the implementation of various initiatives, the timing and successful completion of acquisitions, construction schedules and the possibility that other cash requirements could result in delays or cancellations of capital spending. Periods of high inflation, either overall or in certain product categories, can have a negative impact on us and our customers, as high food costs can reduce consumer spending in the food-away-from-home market, and may negatively impact our sales, gross profit, operating income and earnings, and periods of deflation can be difficult to manage effectively. Fluctuations in inflation and deflation, as well as fluctuations in the value of foreign currencies, are beyond our control and subject to broader market forces. Expanding into international markets presents unique challenges and risks, including compliance with local laws, regulations and customs and the impact of local political and economic conditions, including the impact of Brexit, and such expansion efforts, including our Brakes acquisition, may not be successful. Any business that we acquire, including the Brakes transaction, may not perform as expected, and we may not realize the anticipated benefits of our acquisitions. The Brakes Group acquisition will require a significant commitment of time and company resources, and realizing the anticipated benefits from the transaction may take longer than expected.  Expectations regarding the accounting treatment of any acquisitions may change based on management’s subjective evaluation. Expectations regarding share repurchases are subject to various factors beyond management’s control, including fluctuations in the stock market, and decisions regarding share repurchases are subject to change based on management’s subjective evaluation of the company’s needs. Expectations regarding tax rates are also subject to various factors beyond management’s control.  For a discussion of additional factors impacting Sysco’s business, see the company’s Annual Report on Form 10-K for the year ended June 27, 2015, as filed with the Securities and Exchange Commission, and the company’s subsequent filings with the SEC, including the 10-K for fiscal 2016, which we expect to file shortly. Sysco does not undertake to update its forward-looking statements, except as required by applicable law.

Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED RESULTS OF OPERATIONS (Unaudited)
(In Thousands, Except for Share and Per Share Data)
		Quarter Ended										Year Ended
		July 2, 2016 (14 Weeks)					June 27, 2015 (13 Weeks)					July 2, 2016 (53 Weeks)					June 27, 2015 (52 Weeks)
Sales		$		13,647,891			$		12,401,938			$		50,366,919			$		48,680,752
Cost of sales				11,145,053					10,181,774					41,326,447					40,129,236
Gross profit				2,502,838					2,220,164					9,040,472					8,551,516
Operating expenses				1,956,013					2,099,169					7,189,972					7,322,154
Operating income				546,825					120,995					1,850,500					1,229,362
Interest expense				74,305					77,281					306,146					254,807
Other expense (income), net				141,303					(25,034	)				111,347					(33,592	)
Earnings before income taxes				331,217					68,748					1,433,007					1,008,147
Income taxes				115,550					(4,278	)				483,385					321,374
Net earnings		$		215,667			$		73,026			$		949,622			$		686,773
Net earnings:
Basic earnings per share		$		0.38			$		0.12			$		1.66			$		1.16
Diluted earnings per share				0.38					0.12					1.64					1.15
Average shares outstanding				562,924,016					595,258,654					573,057,406					592,072,308
Diluted shares outstanding				567,997,290					599,259,889					577,391,406					596,849,034
Dividends declared per common share		$		0.31			$		0.30			$		1.23			$		1.19

 

Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In Thousands, Except for Share Data)
		July 2, 2016					June 27, 2015
ASSETS
Current assets
	Cash and cash equivalents	$		3,919,300			$		5,130,044
	Accounts and notes receivable, less allowances of $37,880 and $41,720			3,380,971					3,353,381
	Inventories			2,639,174					2,691,823
	Deferred income taxes			-					135,254
	Prepaid expenses and other current assets			114,454					93,039
	Prepaid income taxes			-					90,763
	Total current assets			10,053,899					11,494,304
Plant and equipment at cost, less depreciation				3,880,442					3,982,143
Other assets
	Goodwill			2,121,661					1,959,817
	Intangibles, less amortization			207,461					154,809
	Restricted cash			-					168,274
	Deferred income taxes			207,320					-
	Other assets			251,021					229,934
	Total other assets			2,787,463					2,512,834
Total assets		$		16,721,804			$		17,989,281
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
	Notes payable	$		89,563			$		70,751
	Accounts payable			2,935,982					2,881,953
	Accrued expenses			1,289,312					1,467,610
	Accrued income taxes			110,690					-
	Current maturities of long-term debt			8,909					4,979,301
	Total current liabilities			4,434,456					9,399,615
Other liabilities
	Long-term debt			7,336,930					2,271,825
	Deferred income taxes			26,942					81,591
	Other long-term liabilities			1,368,482					934,722
	Total other liabilities			8,732,354					3,288,138
Commitments and contingencies
Noncontrolling interest				75,386					41,304
Shareholders' equity
	Preferred stock, par value $1 per share, Authorized 1,500,000 shares, issued none			-					-
	Common stock, par value $1 per share, Authorized 2,000,000,000 shares, issued 765,174,900 shares			765,175					765,175
	Paid-in capital			1,281,140					1,213,999
	Retained earnings			9,006,138					8,751,985
	Accumulated other comprehensive loss			(1,358,118	)				(923,197	)
	Treasury stock at cost, 205,577,484 and 170,857,231			(6,214,727	)				(4,547,738	)
	Total shareholders' equity			3,479,608					5,260,224
Total liabilities and shareholders' equity		$		16,721,804			$		17,989,281

 

Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED CASH FLOWS (Unaudited)
(In Thousands)
			Year Ended
			July 2, 2016 (53 Weeks)					June 27, 2015 (52 Weeks)
Cash flows from operating activities:
	Net earnings		$		949,622			$		686,773
	Adjustments to reconcile net earnings to cash provided by  operating activities:
		Share-based compensation expense			79,466					73,766
		Depreciation and amortization			662,710					553,021
		Amortization of debt issuance and other debt-related costs			45,137					27,943
		Loss on extinguishment of debt			86,460					-
		Loss on foreign exchange remeasurement			101,228					-
		Deferred income taxes			93,871					(4,705	)
		Provision for losses on receivables			20,372					17,996
		Other non-cash items			23,347					(24,205	)
	Additional changes in certain assets and liabilities, net of effect of businesses acquired:
		(Increase) in receivables			(27,311	)				(11,741	)
		Decrease (increase) in inventories			66,937					(125,232	)
		(Increase) in prepaid expenses and other current assets			(8,468	)				(10,508	)
		Increase in accounts payable			23,863					72,516
		(Decrease) increase in accrued expenses			(178,275	)				464,403
		Increase (decrease) in accrued income taxes			231,542					(32,843	)
		(Increase) in other assets			(6,639	)				(10,745	)
		(Decrease) in other long-term liabilities			(196,190	)				(105,501	)
		Excess tax benefits from share-based compensation   arrangements			(34,530	)				(15,454	)
	Net cash provided by operating activities				1,933,142					1,555,484
Cash flows from investing activities:
	Additions to plant and equipment				(527,346	)				(542,830	)
	Proceeds from sales of plant and equipment				23,511					24,472
	Acquisition of businesses, net of cash acquired				(219,218	)				(115,862	)
	Decrease (increase) in restricted cash				168,274					(20,126	)
	Purchase of foreign currency options				(103,501	)				-
	Proceeds from the sale of foreign currency options				57,452					-
	Net cash used for investing activities				(600,828	)				(654,346	)
Cash flows from financing activities:
	Bank and commercial paper borrowings (repayments), net				-					(129,999	)
	Other debt borrowings				5,134,709					5,041,032
	Other debt repayments				(126,797	)				(354,007	)
	Senior note redemption repayments				(5,050,000	)				-
	Debt issuance costs				(39,676	)				(30,980	)
	Cash paid for settlement of cash flow hedge				(6,134	)				(188,840	)
	Cash received from the termination of interest rate swap agreements				14,496					-
	Proceeds from stock option exercises				282,455					240,176
	Accelerated share and treasury stock purchases				(1,949,445	)				-
	Dividends paid				(698,869	)				(695,274	)
	Excess tax benefits from share-based compensation   arrangements				34,530					15,454
	Net cash (used for) provided by financing activities				(2,404,731	)				3,897,562
Effect of exchange rates on cash					(138,327	)				(81,702	)
Net (decrease) increase in cash and cash equivalents					(1,210,744	)				4,716,998
Cash and cash equivalents at beginning of period					5,130,044					413,046
Cash and cash equivalents at end of period			$		3,919,300			$		5,130,044
Supplemental disclosures of cash flow information:
	Cash paid during the period for:
		Interest	$		200,174			$		192,939
		Income taxes			180,565					376,508

 

 

Sysco Corporation and its Consolidated Subsidiaries
Non-GAAP Reconciliation  (Unaudited)
Impact of Certain Items and extra week in fiscal year/4th fiscal quarter
(In Thousands, Except for Share and Per Share Data)
Sysco’s results of operations are impacted by certain items which include restructuring costs (consisting of severance charges, facility closure charges, professional fees incurred related to our three-year strategic plan and costs associated with changes to our business technology strategy), acquisition costs (consisting of merger and integration planning and termination costs in connection with the merger that had been proposed with US Foods, Inc. (US Foods) and Brakes acquisition transaction costs for the pending acquisition of these operations), acquisition financing costs (consisting of US Foods related financing costs and Brakes related financing costs) and loss on foreign currency remeasurement and hedging. The US Foods costs were limited to the first quarter of fiscal 2016 and fiscal 2015.  The Brakes costs were limited to the third and fourth quarters of fiscal 2016.  The loss on foreign currency remeasurement and hedging related to the foreign cash accumulated and economically hedged for the Brakes acquisition.  These fiscal 2016 and fiscal 2015 items are collectively referred to as "Certain Items."  Management believes that adjusting its operating expenses, operating income, operating margin as a percentage of sales, interest expense, net earnings and diluted earnings per share to remove these Certain Items provides an important perspective with respect to our underlying business trends and results and provides meaningful supplemental information to both management and investors that (1) is indicative of the performance of the company's underlying operations and facilitates comparisons on a year-over-year basis and (2) removes those items that are difficult to predict and are often unanticipated, and which as a result, are difficult to include in analysts' financial models and our investors' expectations with any degree of specificity.  Sysco’s fiscal year ends on the Saturday nearest to June 30th. This resulted in a 53-week year ending July 2, 2016 for fiscal 2016 and 52-week year ending June 27, 2015 for fiscal 2015. Because the fourth quarter of fiscal 2016 contained an additional week as compared to fiscal 2015, our Consolidated Results of Operations for fiscal 2016 are not directly comparable to the prior year.  Management believes that adjusting the fiscal 2016 Consolidated Results of Operations for the estimated impact of the additional week provides more comparable financial results on a year-over-year basis.  As a result, the metrics from the Consolidated Results of Operations for fiscal 2016 presented in the table below are adjusted by one-fourteenth of the total metric for the fourth quarter. Failure to make these adjustments causes the year-over-year changes in certain metrics such as sales, operating expenses, operating income, net earnings and diluted earnings per share to be overstated, whereas in certain cases, a metric may actually have declined on a more comparable year-over- year basis.  Set forth below is a reconciliation of actual results to adjusted results for the periods presented:
		Quarter Ended
		July 2, 2016					June 27, 2015					Period Change $				Period Change %
Sales	$		13,647,891			$		12,401,938			$		1,245,953				10.0	%
Less 1 week fourth quarter sales			(974,849	)				-					(974,849	)			NM
Comparable sales using a 13 week basis	$		12,673,042			$		12,401,938			$		271,104				2.2	%
Gross profit	$		2,502,838			$		2,220,164			$		282,674				12.7	%
Less 1 week fourth quarter gross profit			(178,774	)				-					(178,774	)			NM
Comparable gross profit using a 13 week basis	$		2,324,064			$		2,220,164			$		103,900				4.7	%
Gross margin using a 13 week basis			18.34	%				17.90	%				0.44	%
Operating expenses (GAAP)	$		1,956,013			$		2,099,169			$		(143,156	)			-6.8	%
Impact of restructuring costs (1)			(56,220	)				(1,692	)				(54,528	)			NM
Impact of acquisition-related costs (2)			(25,212	)				(386,558	)				361,346				-93.5	%
Subtotal - Operating expenses excluding certain items (Non-GAAP)			1,874,581					1,710,919					163,662				9.6	%
Less 1 week fourth quarter operating expense			(133,899	)				-					(133,899	)			NM
Operating expenses adjusted for certain items and extra week (Non-GAAP)	$		1,740,682			$		1,710,919			$		29,763				1.7	%
Operating income (GAAP)	$		546,825			$		120,995			$		425,830				NM
Impact of restructuring costs (1)			56,220					1,692					54,528				NM
Impact of acquisition-related costs (2)			25,212					386,558					(361,346	)			-93.5	%
Subtotal - Operating income excluding certain items (Non-GAAP)			628,257					509,245					119,012				23.4	%
Less 1 week fourth quarter operating income			(44,876	)				-					(44,876	)			NM
Operating income adjusted for certain items and extra week (Non-GAAP)	$		583,381			$		509,245			$		74,136				14.6	%
Operating margin (GAAP)			4.01	%				0.98	%				3.03	%			NM
Operating margin excluding Certain Items (Non-GAAP)			4.60	%				4.11	%				0.50	%			12.1	%
Operating margin adjusted for 13 weeks (Non-GAAP)			4.27	%				4.11	%				0.17	%			4.1	%
Interest expense (GAAP)	$		74,305			$		77,281			$		(2,976	)			-3.9	%
Impact of acquisition financing costs (3)			(18,660	)				(41,331	)				22,671				-54.9	%
Subtotal - Adjusted interest expense (Non-GAAP)			55,645					35,950					19,695				54.8	%
Less 1 week fourth quarter interest expense			(3,975	)				-					(3,975	)			NM
Interest expense adjusted for certain items and extra week (Non-GAAP)	$		51,670			$		35,950			$		15,720				NM
Other (income) expense	$		141,303			$		(25,034	)		$		166,337				NM
Impact of foreign currency remeasurement and hedging			(146,950	)				-					(146,950	)			NM
Subtotal - Other (income) expense (Non-GAAP)			(5,647	)				(25,034	)				19,387				-77.4	%
Less 1 week fourth quarter other (income) expense			403					-					403				NM
Other (income) expense adjusted for certain items and extra week (Non-GAAP)	$		(5,244	)		$		(25,034	)		$		19,790				-79.1	%
Net earnings (GAAP)	$		215,667			$		73,026			$		142,641				195.3	%
Impact of restructuring cost (1)			56,220					1,692					54,528				NM
Impact of acquisition-related costs (2)			25,212					386,558					(361,346	)			-93.5	%
Impact of acquisition financing costs (3)			18,660					41,331					(22,671	)			-54.9	%
Impact of foreign currency remeasurement and hedging			146,950					-					146,950				NM
Tax impact of restructuring cost (4)			(22,083	)				(762	)				(21,321	)			NM
Tax impact of acquisition-related costs (4)			(9,903	)				(174,071	)				164,168				-94.3	%
Tax impact of acquisition financing costs (4)			(7,330	)				(18,612	)				11,282				-60.6	%
Tax impact of foreign currency remeasurement and hedging (4)			(57,722	)				-					(57,722	)			NM
Subtotal - Earnings excluding certain items			365,671					309,162					56,509				18.3	%
Less 1 week fourth quarter net earnings			(26,119	)				-					(26,119	)			NM
Net earnings adjusted for certain items and extra week (Non-GAAP)	$		339,552			$		309,162			$		30,390				9.8	%
Diluted earnings per share (GAAP)	$		0.38			$		0.12			$		0.26				216.7	%
Impact of restructuring costs (1)			0.10					-					0.10				NM
Impact of acquisition-related costs (2)			0.04					0.65					(0.61	)			-93.8	%
Impact of acquisition financing costs (3)			0.03					0.07					(0.04	)			-57.1	%
Impact of foreign currency remeasurement and hedging			0.26					-					0.26				NM
Tax impact of restructuring cost (4)			(0.04	)				-					(0.04	)			NM
Tax impact of acquisition-related costs (4)			(0.02	)				(0.30	)				0.28				-93.3	%
Tax impact of acquisition financing costs (4)			(0.01	)				(0.03	)				0.02				-66.7	%
Tax impact of foreign currency remeasurement and hedging (4)			(0.10	)				-					(0.10	)			NM
Diluted EPS excluding certain items			0.64					0.52					0.12				23.1	%
Less 1 week impact of fourth quarter diluted earnings per share			(0.05	)				-					(0.05	)			NM
Diluted EPS adjusted for certain items and extra week (Non-GAAP) (5)	$		0.60			$		0.52			$		0.08				15.4	%
Diluted shares outstanding			567,997,290					599,259,889
(1) Includes severance charges, professional fees on 3-year financial objectives, facility closure costs and costs associated with our revised business technology strategy.
(2) Includes US Foods merger and integration planning and transaction costs (fourth quarter fiscal 2015) and Brakes Acquisition transaction costs (fourth quarter of fiscal 2016)
(3) Includes US Foods financing costs (fourth quarter fiscal 2015) and Brakes acquisition financing costs (fourth quarter fiscal 2016)
(4) The tax impact of adjustments for Certain Items are calculated based on jurisdictions by multiplying the pretax impact of each Certain Item by the statutory rates in effect for each jurisdiction.  As a result, the effective tax rate for each Certain Item may differ based on the jurisdiction where the Certain Item was incurred.
(5) Individual components of diluted earnings per share may not add to the total presented due to rounding.  Total diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding.
NM represents that the percentage change is not meaningful

 

Sysco Corporation and its Consolidated Subsidiaries
Non-GAAP Reconciliation  (Unaudited)
Impact of Certain Items and extra week in fiscal year/4th fiscal quarter
(In Thousands, Except for Share and Per Share Data)
		Year Ended
		July 2, 2016					June 27, 2015					Period Change $				Period Change %
Sales	$		50,366,919			$		48,680,752			$		1,686,167				3.5	%
Less 1 week fourth quarter sales			(974,849	)				-					(974,849	)			NM
Comparable sales using a 52 week basis	$		49,392,070			$		48,680,752			$		711,318				1.5	%
Gross profit	$		9,040,472			$		8,551,516			$		488,956				5.7	%
Less 1 week fourth quarter gross profit			(178,774	)				-					(178,774	)			NM
Comparable gross profit using a 52 week basis	$		8,861,698			$		8,551,516			$		310,182				3.6	%
Gross margin using a 52 week basis			17.94	%				17.57	%								0.38	%
Operating expenses (GAAP)	$		7,189,972			$		7,322,154			$		(132,182	)			-1.8	%
Impact of restructuring cost (1)			(123,134	)				(7,801	)				(115,333	)			NM
Impact of acquisition-related costs (2)			(35,614	)				(554,667	)				519,052				-93.6	%
Subtotal-Operating expenses excluding certain items (Non-GAAP)			7,031,224					6,759,686					271,537				4.0	%
Less 1 week fourth quarter operating expense			(133,899	)				-					(133,899	)			NM
Operating expenses adjusted for certain items  and extra week (Non-GAAP)	$		6,897,325			$		6,759,686			$		137,639				2.0	%
																	NM
Operating income (GAAP)	$		1,850,500			$		1,229,362			$		621,138				50.5	%
Impact of restructuring cost (1)			123,134					7,801					115,333				NM
Impact of acquisition-related costs (2)			35,614					554,667					(519,052	)			-93.6	%
Subtotal - Operating income excluding certain items (Non-GAAP)			2,009,248					1,791,830					217,419				12.1	%
Less 1 week fourth quarter operating income			(44,876	)				-					(44,876	)			NM
Operating income adjusted for certain items and extra week  (Non-GAAP)	$		1,964,372			$		1,791,830			$		172,543				9.6	%
Operating margin (GAAP)			3.67	%				2.53	%				1.15	%			45.5	%
Operating margin excluding Certain Items (Non-GAAP)			3.99	%				3.68	%				0.31	%			8.4	%
Operating margin adjusted for 52 weeks (Non-GAAP)			3.98	%				3.68	%				0.30	%			8.1	%
Interest expense (GAAP)	$		306,146			$		254,807			$		51,339				20.1	%
Impact of acquisition financing costs (3)			(123,990	)				(138,422	)				14,432				-10.4	%
Subtotal - Adjusted interest expense (Non-GAAP)			182,156					116,385					65,771				56.5	%
Less 1 week fourth quarter other (income) expense			(3,975	)				-					(3,975	)			NM
Interest expense adjusted for certain items and extra week (Non-GAAP)	$		178,181			$		116,385			$		61,797				53.1	%
Other (income) expense	$		111,347			$		(33,592	)		$		144,939				NM
Impact of foreign currency remeasurement and hedging			(146,950	)				-					(146,950	)			NM
Subtotal - Other (income) expense (Non-GAAP)			(35,603	)				(33,592	)				(2,011	)			6.0	%
Less 1 week fourth quarter other (income) expense			403					-					403				NM
Other (income) expense adjusted for certain items and extra week (Non-GAAP)	$		(35,200	)		$		(33,592	)		$		(1,608	)			4.8	%
Net earnings (GAAP)	$		949,622			$		686,773			$		262,849				38.3	%
Impact of restructuring cost (1)			123,134					7,801					115,333				NM
Impact of acquisition-related costs (2)			35,614					554,667					(519,053	)			-93.6	%
Impact of acquisition financing costs (3)			123,990					138,422					(14,432	)			-10.4	%
Impact of foreign currency remeasurement and hedging			146,950					-					146,950				NM
Tax impact of restructuring cost (4)			(47,333	)				(3,200	)				(44,133	)			NM
Tax impact of acquisition-related costs (4)			(13,690	)				(227,518	)				213,828				-94.0	%
Tax impact of acquisition financing costs (4)			(47,662	)				(56,779	)				9,117				-16.1	%
Tax impact of foreign currency remeasurement and hedging(4)			(56,488	)				-					(56,488	)			NM
Subtotal - Earnings excluding certain items			1,214,137					1,100,166					113,971				10.4	%
Less 1 week fourth quarter net earnings			(26,119	)				-					(26,119	)			NM
Net earnings adjusted for certain items and extra week (Non-GAAP)	$		1,188,018			$		1,100,166			$		87,852				8.0	%
Diluted earnings per share (GAAP)	$		1.64			$		1.15			$		0.49				42.6	%
Impact of restructuring cost (1)			0.21					-					0.21				NM
Impact of acquisition-related costs (2)			0.06					0.93					(0.87	)			-93.5	%
Impact of acquisition financing costs (3)			0.21					0.24					(0.03	)			-12.5	%
Impact of foreign currency remeasurement and hedging			0.25					-					0.25				NM
Tax impact of restructuring cost (4)			(0.08	)				-					(0.08	)			NM
Tax impact of acquisition-related costs (4)			(0.02	)				(0.38	)				0.36				-94.7	%
Tax impact of acquisition financing costs (4)			(0.08	)				(0.10	)				0.02				-20.0	%
Tax impact of foreign currency remeasurement and hedging(4)			(0.10	)				-					(0.10	)			NM
Diluted EPS excluding certain items			2.10					1.84					0.26				14.1	%
Less 1 week impact of fourth quarter diluted earnings per share			(0.05	)				-					(0.05	)			NM
Diluted EPS adjusted for certain items and extra week (Non-GAAP) (5)	$		2.06			$		1.84			$		0.22				12.0	%
Diluted shares outstanding			577,391,406					596,849,034
(1) Includes severance charges, professional fees on 3-year financial objectives, facility closure costs and costs associated with our revised business technology strategy.
(2) Includes US Foods merger and integration planning and transaction costs (first quarter 2016 and fiscal 2015 only) and Brakes acquisition transaction costs (third and fourth quarters fiscal 2016 only)
(3) Includes US Foods financing costs (first quarter 2016 and fiscal 2015 only) and Brakes acquisition financing costs (third and fourth quarter fiscal 2016 only)
(4) The tax impact of adjustments for Certain Items are calculated based on jurisdictions by multiplying the pretax impact of each Certain Item by the statutory rates in effect for each jurisdiction.  As a result, the effective tax rate for each Certain Item may differ based on the jurisdiction where the Certain Item was incurred.
(5) Individual components of diluted earnings per share may not add to the total presented due to rounding.  Total diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding.
NM represents that the percentage change is not meaningful

 

Sysco Corporation and its Consolidated Subsidiaries
Non-GAAP Reconciliation  (Unaudited)
Free Cash Flow
(In Thousands)
Free cash flow represents net cash provided from operating activities less purchases of plant and equipment and includes proceeds from sales of plant and equipment.  Sysco considers free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after the purchases and sales of buildings, fleet, equipment and technology, which may potentially be used to pay for, among other things, strategic uses of cash including dividend payments, share repurchases and acquisitions.  However, free cash flow may not be available for discretionary expenditures, as it may be necessary that we use it to make mandatory debt service or other payments.  Free cash flow should not be used as a substitute for the most comparable GAAP measure in assessing the company’s liquidity for the periods presented.  An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP.  In the table that follows, free cash flow for each period presented is reconciled to net cash provided by operating activities.
	53-Week Period Ended July 2, 2016					52-Week Period Ended June 27, 2015					53-Week Period Change in Dollars					53-Week Period % Change
Net cash provided by operating activities (GAAP)	$		1,933,142			$		1,555,484			$		377,658			24.3	%
Additions to plant and equipment			(527,346	)				(542,830	)				15,484			2.9
Proceeds from sales of plant and equipment			23,511					24,472					(961	)		-3.9
Free Cash Flow (Non-GAAP)	$		1,429,307			$		1,037,126			$		392,181			37.8	%

 

	Sysco Corporation and its Consolidated Subsidiaries
	Non-GAAP Reconciliation  (Unaudited)
	Real Growth
	Real growth represents our sales growth after removing the impact of food cost inflation / deflation, sales from acquisitions that occurred within the last 12 months and the impact of foreign exchange rate translation.  Sysco’s fiscal year ends on the Saturday nearest to June 30th. This resulted in a 53-week year ending July 2, 2016 for fiscal 2016 and 52- week year ending June 27, 2015 for fiscal 2015. Because the fourth quarter of fiscal 2016 contained an additional week as compared to fiscal 2015, our real growth calculations for fiscal 2016 are not directly comparable to the prior year.  Management believes that adjusting the real growth calculation for the estimated impact of the additional week provides more comparable financial results on a year-over-year basis.  As a result, the real growth calculation for fiscal 2016 presented in the table below is adjusted by one-fourteenth of the total sales growth for the fourth quarter. Failure to make these adjustments causes the year-over-year changes in real growth to be overstated.  Sysco considers real growth to be a performance measure that provides useful information to management and investors about the amount of sales growth organically generated.  Real growth is a commonly used metric within the food-away-from-home industry.  The company uses these non-GAAP measures when evaluating its financial results, as well as for internal planning and forecasting purposes.  These financial measures should not be used as a substitute for GAAP measures in assessing the company’s sales growth for the periods presented.  An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP.  As a result, in the tables that follow, each period presented is adjusted to remove the components of real growth noted above.  Business segment sales and case growth are also impacted by the extra week in fiscal 2016.  These amounts are similarly adjusted to remove the extra week for comparability purposes for the same underlying reasons the extra week is excluded for real growth.  The tables that follow provide a reconciliation of business segment sales and case growth to remove the extra week.
															Adjusted comparable
		14-Week Period Ended July 2, 2016			13-Week Period Ended Jun. 27, 2015			14-Week Period Change in bps			14-Week Period % Change				13-Week Period Ended July 2, 2016			13-Week Period Change in bps			13-Week Period % Change
	Sales Growth (GAAP)		10.0	%		0.9	%		911			973.9	%			2.2	%		125			133.7	%
	Less:
	Food cost inflation (deflation)		-1.2	%		0.1	%		(131	)		-1092.3	%			-1.2	%		(131	)		-1092.3	%
	Acquisitions		1.2	%		0.4	%		78			203.1	%			1.1	%		70			181.4	%
	Impact of foreign exchange rate translation		-0.5	%		-1.4	%		93			-66.3	%			-0.5	%		93			-66.3	%
	Real Growth (Non-GAAP) (1)		10.5	%		1.8	%		871			477.0	%			2.8	%		94			51.3	%
	Less 1 week fourth quarter sales		-7.7	%
	Real Growth 13-weeks (Non-GAAP) (1)		2.8	%
															Adjusted comparable
		53-Week Period Ended July 2, 2016			52-Week Period Ended Jun. 27, 2015			53-Week Period Change in bps			53-Week Period % Change				52-Week Period Ended July 2, 2016			52-Week Period Change in bps			52-Week Period % Change
	Sales Growth (GAAP)		3.5	%		4.7	%		(119	)		-25.5	%			1.5	%		(319	)		-68.6	%
	Less:
	Food cost inflation (deflation)		-0.7	%		3.7	%		(442	)		-120.4	%			-0.7	%		(442	)		-120.4	%
	Acquisitions		0.7	%		0.6	%		13			22.1	%			0.7	%		11			18.4	%
	Impact of foreign exchange rate translation		-1.3	%		-1.0	%		(24	)		23.4	%			-1.3	%		(24	)		23.4	%
	Real Growth (GAAP) (1)		4.8	%		1.4	%		335			231.9	%			2.8	%		136			94.6	%
	Less 1 week fourth quarter sales		-2.0	%
	Real Growth 52-weeks (Non-GAAP) (1)		2.8	%
	(1) Individual components of real growth may not add to the total presented due to rounding.
		14-Week Period Ended July 2, 2016			13-Week Period Ended Jun. 27, 2015			14-Week Period % Change			Impact of 14th week on sales				13-Week Period Ended July 2, 2016			13-Week Period % Change
		($ in Thousands)
	Business Highlights
	Total Sales:		13,647,891			12,401,938			10.0	%		974,849				12,673,041			2.2	%
	Broadline		10,792,174			9,869,730			9.3	%		770,870				10,021,305			1.5	%
	SYGMA		1,652,221			1,468,388			12.5	%		118,016				1,534,206			4.5	%
	Other		1,632,204			1,418,335			15.1	%		116,586				1,515,618			6.9	%
	Intersegment		(428,709	)		(354,515	)		20.9	%		(30,622	)			(398,087	)		12.3	%
		53-Week Period Ended July 2, 2016			52-Week Period Ended Jun. 27, 2015			53-Week Period % Change			Impact of 14th week on sales				52-Week Period Ended July 2, 2016			52-Week Period % Change
	Business Highlights
	Total Sales:		50,366,919			48,680,752			3.5	%		974,849				49,392,069			1.5	%
	Broadline		39,892,892			38,652,212			3.2	%		770,870				39,122,023			1.2	%
	SYGMA		6,102,328			6,076,215			0.4	%		118,016				5,984,312			-1.5	%
	Other		5,839,024			5,270,518			10.8	%		116,586				5,722,438			8.6	%
	Intersegment		(1,467,325	)		(1,318,193	)		11.3	%		(30,622	)			(1,436,703	)		9.0	%
		July 2, 2016 (14 Weeks)			Impact of 14th week			July 2, 2016 (13 Weeks)			July 2, 2016 (53 Weeks)				Impact of 14th week			July 2, 2016 (52 Weeks)
	Case Growth:
	Total Broadline		10.1	%		7.9	%		2.2	%		5.0	%			2.0	%		3.0	%
	Local		10.2	%		7.8	%		2.4	%		4.7	%			2.0	%		2.7	%
	U.S. Broadline		10.2	%		7.8	%		2.4	%		5.3	%			2.0	%		3.3	%
	Local		10.3	%		7.9	%		2.4	%		4.7	%			2.0	%		2.6	%

 

 

 

For more information contact:

Neil Russell			 
Investor and Media Contact
T 281-584-1308

Legal Disclaimer:

EIN Presswire provides this news content "as is" without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the author above.