SYY Q3 Earnings Miss on External Pressures, Weak Consumer Confidence

Sysco Corporation SYY has delivered third-quarter fiscal 2025 results, wherein the top line increased and the bottom line remained flat year over year. Both sales and earnings lagged the Zacks Consensus Estimate.

Sysco’s fiscal third-quarter results were impacted by external factors such as wildfires, adverse weather and softening consumer confidence, all of which weighed on restaurant foot traffic and led to results falling short of internal expectations. In response, the company is making progress on key growth and profitability initiatives, with local case volume showing encouraging improvement by the end of the quarter.

Despite the challenging environment, Sysco remains focused on what it can control, backed by a strong financial position and continued investment in long-term growth. For fiscal 2025, the company expects sales growth of 3% and adjusted earnings per share growth of 1%. It has also been on track to return $2.25 billion to shareholders through share repurchases and dividends.

Closer Look at SYY’s Q3 Results

Sysco’s adjusted earnings of 96 cents per share missed the Zacks Consensus Estimate of $1.03. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)

The global food product maker and distributor reported sales of $19,598 million, which inched up 1.1% year over year. The metric lagged the Zacks Consensus Estimate of $19,969 million. Currency headwinds lowered the company’s sales by $117 million.

Sysco’s gross profit declined 0.8% year over year to $3.8 billion due to lower sales volumes and an unfavorable product mix. Also, the gross margin decreased 35 basis points to 18.3%. Product cost inflation at the enterprise level was 2.1%, driven mainly by increased costs in the dairy and meat categories, as indicated by the estimated change in Sysco's product costs.

The company’s operating expenses rose 0.5% year over year to $2.9 billion due to investments in business and sales headcount, and higher supply-chain costs. These increases were partially offset by a reduction in annual bonus incentive compensation. Adjusted operating expenses declined 0.1% to $2.8 billion.

Operating income dropped 5.7% year over year to $681 million, whereas adjusted operating income fell 3.3% to $773 million. SYY’s adjusted EBITDA tumbled 0.8% to $969 million.

SYY Provides Insights by Segments

The U.S. Foodservice Operations: In the reported quarter, sales rose 0.7% year over year to $13,800 million and missed the consensus estimate of $14,205 million. However, total case volume declined 2% and local case volume dropped 3.5%. Segmental gross profit fell 1.9% to $2.6 billion, accompanied by a 50-basis-point decline in the gross margin to 18.9%.

Operating expenses increased 2.7%, with adjusted operating expenses rising 2%. As a result, operating income declined 11.5% year over year to $754 million, whereas adjusted operating income decreased 9.7% to $790 million. The segment’s performance was affected by lower volumes, driven by reduced industry foot traffic and business investments. These pressures were partially offset by a reduction in annual bonus incentive compensation.

International Foodservice Operations: In the quarter, segmental sales declined 1.1% year over year to $3,457 million and lagged the consensus estimate of $3,517 million. When adjusted for constant currency, sales were $3,571 million, reflecting a 2.2% increase. Foreign exchange rates negatively impacted segment sales by $114 million and total Sysco sales by $117 million. 

Adjusting for the divestiture of the Mexico joint venture in the prior quarter, sales increased 2.5% year over year for the segment and 1.8% for total Sysco. On a constant-currency basis, gross profit rose 4% to $749 million and adjusted operating income increased 21.1% to $132 million. 

SYGMA: The segment’s sales were $2,084 million, beating the consensus estimate of $2,047 million and rising 9.5% year over year.

Meanwhile, the Other segment’s sales decreased 6.5% year over year to $257 million.

SYY Stock Past Three-Month Performance

Sysco’s Financial Health Snapshot

This Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of $1,527 million, long-term debt of $12,234 million, and total shareholders’ equity of nearly $1,922 million.

Cash flow from operations was $1,317 million for the first 39 weeks of fiscal 2025, while the free cash flow amounted to $954 million. Capital expenditure, net of proceeds from sales of plant and equipment, was $363 million during this time.

In the first 39 weeks of fiscal 2025, Sysco returned $1.5 billion to its shareholders through share buybacks worth $700 million and dividends of $752 million.

SYY shares have lost 4% in the past three months compared with the industry’s decline of 2.4%.

Some Solid Staple Bets

We have highlighted three better-ranked stocks from the Consumer Staples sector, namely Nomad Foods Ltd.  NOMD, United Natural Foods, Inc. UNFI and BRF Brasil Foods SA BRFS.

Nomad Foods manufactures and distributes frozen foods. NOMD presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Nomad Foods’ current financial-year earnings indicates growth of 7.3% from the year-ago period’s reported figure. NOMD delivered a trailing four-quarter earnings surprise of 5%, on average.

United Natural is the leading distributor of natural, organic and specialty food and non-food products. It currently carries a Zacks Rank of 2 (Buy).

UNFI delivered a trailing four-quarter earnings surprise of 408.7%, on average. The consensus estimate for United Natural’s current financial-year sales and earnings indicates growth of 1.9% and 485.7%, respectively, from the year-ago period’s reported figure.

BRF, formerly Perdigao S.A., is a Brazil-based food company. It carries a Zacks Rank #2 at present. BRFS delivered a trailing four-quarter average earnings surprise of 9.6%.

The consensus estimate for BRF’s current financial-year sales and earnings indicates growth of 0.3% and a decline of 2.8%, respectively, from the prior-year reported levels.

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This article originally published on Zacks Investment Research (zacks.com).

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