Does SYSCO Corporation (SYY) Need a Boost of Anti-oxidants?

SYSCO Corporation (SYY)SYSCO Corporation (NYSE:SYY), the largest food distributor in America with a 17.5% share of the market had its Fourth Quarter Fiscal 2013 earnings call yesterday. SYSCO Corporation (NYSE:SYY) shares fell $2.02 or 5.8 percent to $32.99. Last year, SYSCO Corporation (NYSE:SYY) acquired 14 companies and distributed nearly $650 million of dividends.

… consumer spending trends in our space are gradually shifting more to fresh, natural and sustainably produced products. We continue to focus on ways to respond to and capitalize on those trends in our own business, as well as in partnership with our customers and suppliers.  –William J. DeLaney – Chief Executive Officer on yesterday’s earnings call

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Fundamental Analysis: Download

We analyzed SYSCO Corporation (NYSE:SYY)’s preliminary financial results for the year ended 2013-06-30 relative to its peers (scroll to the end of the post for the peer list). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Annual (USD million) 2013-06-30 2012-06-30 2011-06-30 2010-06-30 2009-06-30
Revenues 44,411.2 42,380.9 39,323.5 37,243.5 36,853.3
Revenue Growth % 4.8 7.8 5.6 1.1 (1.8)
Net Income 992.4 1,121.6 1,152.0 1,180.0 1,055.9
Net Income Growth % (11.5) (2.6) (2.4) 11.7 (4.5)
Net Margin % 2.2 2.6 2.9 3.2 2.9
ROE % 20.1 23.9 27.0 32.4 30.8
ROA % 8.0 9.6 10.6 11.5 10.4

Differentiated Products

SYSCO Corporation (NYSE:SYY) currently trades at a higher Price/Book ratio (3.7) than its peer median (1.8). SYY’s operating performance is higher than the median of its chosen peers (ROE of 20.1% compared to the peer median ROE of 9.7%) but the market does not seem to expect higher growth relative to peers (PE of 19.6 compared to peer median of 20.7) but simply to maintain its relatively high rates of return.

The company attempts to achieve high profit margins (currently 2.2% vs. peer median of 1.8%) through differentiated products. It currently operates with peer median asset turns of 3.6x. Sysco’s net margin is its lowest relative to the last five years and compares to a high of 3.2% in 2010.

Under-Investment in Growth?

Sysco Corporation’s revenues have grown at about the same rate as its peers (6.0% vs. 6.0% respectively for the past three years). Similarly, the stock price implies median long-term growth as its PE ratio is around the peer median of 19.6. The historical performance and long-term growth expectations for the company are largely in sync.

SYSCO Corporation (NYSE:SYY)’s annualized rate of change in capital of 8.6% over the past three years is around the same as its peer median of 8.6%. This investment has generated a better than peer median return on capital of 14.8% averaged over the same three years. The greater than peer median rate of return suggest that the company may be under investing in growth.

Trend Charts

Quarterly Revenues Trend for Sysco Corporation (NYSE:SYY)
Annual Revenues Trend for Sysco Corporation (NYSE:SYY)

Peer list used for Sysco earnings analysis:

Sysco Corporation’s analysis versus peers uses the following peer-set: United Natural Foods, Inc. (NASDAQ:UNFI), Metcash Limited (ASX:MTS), Core-Mark Holding Company, Inc. (NASDAQ:CORE), Nash-Finch Company (NASDAQ:NAFC), Spartan Stores, Inc. (NASDAQ:SPTN) and Calavo Growers, Inc. (NASDAQ:CVGW).

Company Profile

Sysco Corp. is engaged in the selling, marketing and distribution of food and related products primarily to the foodservice or food-away-from-home industry. The company operates through three business segments: Broadline, SYGMA and Other.  The company was founded in 1969 and is headquartered in Houston, TX.

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