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TheStreet Open House

Why Sysco (SYY) Is Down Today

NEW YORK (TheStreet) -- Sysco (SYY) fell 1.6% Monday to $34.52 following an earnings report that saw earnings fall 4.8% from the year-ago period.

The food seller and distributor reported net earnings of 36 cents a share for the fiscal second quarter, down from 38 cents a share in the year-ago quarter. Revenue increased by 4.1% to $11.24 billion for the quarter, however. Analysts surveyed by Thomson Reuters expected earnings of 40 cents a share and revenue of $11.36 billion.

In a statement Sysco CEO Bill DeLaney said 2013 "was one of the most difficult years in recent history for our industry."

The company is currently in the process of acquiring rival US Foods for $3.5 billion. The company hopes the acquisition will help combat its shrinking earnings.

TheStreet Ratings team rates SYSCO CORP as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate SYSCO CORP (SYY) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in stock price during the past year, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel these strengths outweigh the fact that the company shows low profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 6.3%. Since the same quarter one year prior, revenues slightly increased by 5.7%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • SYSCO CORP' earnings per share from the most recent quarter came in slightly below the year earlier quarter. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, SYSCO CORP reported lower earnings of $1.68 versus $1.91 in the prior year. This year, the market expects an improvement in earnings ($1.84 versus $1.68).
  • SYY's debt-to-equity ratio of 0.60 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.97 is weak.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Food & Staples Retailing industry and the overall market, SYSCO CORP's return on equity exceeds that of both the industry average and the S&P 500.
  • You can view the full analysis from the report here: SYY Ratings Report

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