EX-99.1 2 h35508exv99w1.htm PRESS RELEASE exv99w1
 

Exhibit 99.1
SYSCO   (SYSCO LOGO)
     
SYSCO Corporation
  NEWS RELEASE
1390 Enclave Parkway
   
Houston, Texas 77077-2099
   
(281) 584-1390
   
         
FOR IMMEDIATE RELEASE   FOR MORE INFORMATION
 
  CONTACT:   John M. Palizza
 
      Assistant Treasurer
 
      (281) 584-1308
SYSCO REPORTS 9.4% SALES INCREASE AND EPS OF $0.30 FOR THIRD QUARTER
HOUSTON, May 1, 2006 — SYSCO Corporation (NYSE: SYY) today announced sales and earnings results for the 13-week third quarter of fiscal year 2006 that ended April 1, 2006.
Third Quarter Fiscal 2006 Highlights:
§   Sales increased 9.4% to $8.1 billion from $7.4 billion in last year’s third quarter.
 
§   Net earnings were $188.5 million vs. $218.2 million in last year’s third quarter.
 
§   Diluted earnings per share were $0.30 compared to $0.34 in last year’s third quarter.
 
§   Third quarter fiscal 2006 EPS results include a net expense of $0.04 for incremental share-based compensation, principally related to stock options, which was not required to be expensed in fiscal 2005.
39 Weeks of Fiscal 2006 Highlights:
§   Sales increased 8.2% to $24.1 billion from $22.3 billion in the same period last year.
 
§   Net earnings (after the cumulative effect of an accounting change recorded during SYSCO’s first fiscal quarter of 2006) were $601.2 million compared to $676.8 million in the same period last year.
 
§   Diluted earnings per share (after the cumulative effect of an accounting change recorded during SYSCO’s first fiscal quarter of 2006) were $0.95 compared to $1.04 in last year’s first 39 weeks.
 
§   EPS results for the first 39 weeks of fiscal 2006 includes a net expense of $0.13 for incremental share-based compensation, principally related to stock options, which was not required to be expensed in fiscal 2005.
     Richard J. Schnieders, SYSCO’s chairman, chief executive officer and president, commented, “We continued to build on the top line momentum from our second quarter and the result was a solid 9.4 percent sales gain. The overall sales growth was aided by our Business Review efforts, which touched approximately 10,700 customers during the quarter, as well as rapid sales growth at our specialty companies. The top line sales strength also continued into the fourth fiscal quarter, which began with record sales of $676.1 million for the week ended April 8. That was our first record sales week not related to Mother’s Day since April 2004.”
     Mr. Schnieders added that during the third quarter the company continued to experience expense pressures, most notably fuel and share-based compensation expenses. In addition, during last year’s third quarter SYSCO benefited from the reversal of an $11.0 million accrual for an income tax contingency, making this year’s third quarter comparison even more difficult.
     “Throughout the past 39 weeks our operating companies have done a terrific job in the face of challenging expense pressures,“ Mr. Schnieders continued. “We expect our fourth quarter will also contain similar headwinds. After that, however, those pressures should lessen, if not disappear, as we anniversary the many added expense items we’ve encountered this year. By remaining focused on our proven and successful strategies to drive sales growth, market share gains and earnings, SYSCO is positioned for strong and sustainable growth.”
Sales:
     The quarter’s 9.4 percent sales growth includes sales from non-comparable acquisitions (less than 12 months) of 1.4 percent. Third quarter sales growth also includes inflation, as measured by the change in SYSCO’s cost of goods, of 2.0 percent. The Business Review process continued to generate at least mid-teens percentage sales increases in all U.S. regions. SYSCO’s operating companies continued adding to its arsenal of Customer Contact professionals during the quarter and, fiscal year-to-date, have increased Customer Contact staffing by approximately 5.0%.
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Gross Profit Margins:
     Gross profit margins decreased 2 basis points in the third quarter to 18.87 percent compared to 18.89 percent in last year’s third quarter. Marketing associate-served sales (sales to SYSCO’s core business of independent restaurants) were 52.9 percent of U.S. broadline sales in the quarter versus 52.7 percent last year.
Expenses:
     Operating expenses as a percent to sales were 14.66 percent during the third quarter compared to 14.15 percent in the same quarter a year ago. Expense items in the third quarter that were in excess of last year’s third quarter expenses included fuel costs and pension expense, which increased $10.5 million and $5.9 million, respectively. Incremental share-based compensation expense of $26.1 million was also included in this year’s third quarter, but was not required nor included in the results from last year’s third quarter. In addition, costs for the National Supply Chain project, net of benefits, were $11.2 million in the third quarter of fiscal 2006.
Capital Spending:
     Capital expenditures during the quarter were $131.6 million. Through the first 39 weeks of fiscal 2006, capital expenditures were $364.4 million. The company continues to project capital expenditures to be in a range of $425 million to $450 million for fiscal 2006.
Other Recent Developments:
     SYSCO’s Northeast Redistribution Center (RDC) began receiving new items from existing suppliers during the quarter. During the fourth quarter the products from additional suppliers will be transitioned into the facility and case volumes will continue to modestly increase. A majority of projected weekly case volume will flow through the facility by the end of the fourth fiscal quarter.
     In February the company announced the purchase of land for construction of a third RDC in Hamlet, Indiana. That facility is expected to be operational approximately 18 months after construction commences.
     Construction of a Raleigh, North Carolina fold-out operation continues to progress according to plan and is expected to be operational by the end of fiscal 2006. In March the company also announced that it plans to open a broadline fold-out operation in Knoxville, Tennessee, which is expected to begin shipping product approximately 18 months after construction commences.
     In February SYSCO acquired Desert Meats, the largest independent specialty meat supplier in Las Vegas, Nevada with calendar year 2005 sales of approximately $55 million.
     SYSCO’s FreshPoint subsidiary completed two acquisitions — City Produce and Thomas Brothers Produce — during the third quarter. City Produce operates from four Texas locations and Thomas Brothers Produce supplies customers from two Oklahoma facilities and an operation in Arkansas, further expanding the scope of SYSCO’s specialty produce operations.
Conference Call & Webcast:
     As previously announced, SYSCO’s third quarter fiscal 2006 earnings conference call will be held at 10:00 a.m. EST on Monday, May 1, 2006. A live webcast of the call, as well as a copy of this press release, will be available online at www.sysco.com in the Investor Relations section.
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. For the fiscal year 2005 that ended July 2, 2005, the company generated $30.3 billion in sales. For more information about SYSCO visit the company’s Internet home page at www.sysco.com.
Forward-Looking Statements
     Certain statements made herein are forward-looking statements under the Private Securities Litigation Reform Act of 1995. They include statements regarding atypical costs becoming more comparable; future capital expenditures; the potential for future success; expense trends; the ability to achieve growth in sales, market share and earnings; and the expected timing and benefits of the national supply chain project and regional redistribution centers. These statements involve risks and uncertainties and are based on management’s current expectations and estimates; actual results may differ materially. Those risks and uncertainties that could impact these statements include risks that pertain to SYSCO’s business, including the risks relating to the foodservice distribution industry’s relatively low profit margins and sensitivity to general economic conditions, including the current economic environment and consumer spending; increased fuel costs; SYSCO’s leverage and debt risks; the successful completion of acquisitions and integration of acquired companies; the risk of interruption of supplies due to lack of long-term contracts, severe weather, work stoppages or otherwise; construction schedules; management’s allocation of capital and the timing of capital purchases such as fleet and equipment; competitive conditions; labor issues; and internal factors such as the ability to control expenses. Earnings are also impacted by option expensing, which is based on certain assumptions regarding the number and fair value of options granted, resulting tax benefits and shares outstanding. Capital expenditures may vary from those projected based on changes in business plans and others factors. For a discussion of additional factors that could cause actual results to differ from those described in the forward-looking statements, see the Company’s Annual Report on Form 10-K for the fiscal year ended July 2, 2005 as filed with the Securities and Exchange Commission.
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SYSCO CORPORATION
CONSOLIDATED RESULTS OF OPERATIONS (Unaudited)

(In Thousands Except for Share Data)
                 
    For the 13-Weeks Ended  
    April 1, 2006     April 2, 2005  
Sales
  $ 8,137,816     $ 7,437,453  
Costs and expenses
               
Cost of sales
    6,602,102       6,032,165  
Operating expenses
    1,193,270       1,052,477  
Interest expense
    29,441       20,151  
Other, net
    (819 )     (2,919 )
 
           
Total costs and expenses
    7,823,994       7,101,874  
 
           
Earnings before income taxes
    313,822       335,579  
Income taxes (39.9% in ‘06; 35.0% in ‘05)
    125,283       117,359  
 
           
Net earnings
  $ 188,539     $ 218,220  
 
           
 
               
Net Earnings:
               
Basic earnings per share
  $ 0.30     $ 0.34  
 
           
Diluted earnings per share
  $ 0.30     $ 0.34  
 
           
Average shares outstanding
    618,973,143       635,654,561  
 
           
Diluted average shares outstanding
    625,101,592       650,753,697  
 
           
Comparative segment sales data:
                 
(Unaudited)   For the 13-Weeks Ended  
($000)   April 1, 2006     April 2, 2005  
                 
Sales:
               
Broadline
  $ 6,367,953     $ 5,931,955  
SYGMA
    1,086,429       982,842  
Other
    783,622       606,454  
Intersegment
    (100,188 )     (83,798 )
 
           
Total
  $ 8,137,816     $ 7,437,453  
 
           
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SYSCO CORPORATION
CONSOLIDATED RESULTS OF OPERATIONS (Unaudited)

(In Thousands Except for Share Data)
                 
    For the 39-Weeks Ended  
    April 1, 2006     April 2, 2005  
Sales
  $ 24,119,361     $ 22,300,635  
Costs and expenses
               
Cost of sales
    19,517,648       18,060,611  
Operating expenses
    3,541,395       3,112,808  
Interest expense
    80,914       55,616  
Other, net
    (6,154 )     (6,581 )
 
           
Total costs and expenses
    23,133,803       21,222,454  
 
           
Earnings before income taxes
    985,558       1,078,181  
Income taxes (39.9% in ‘06; 37.2% in ‘05)
    393,627       401,404  
 
           
Earnings before cumulative effect of accounting change
    591,931       676,777  
Cumulative effect of accounting change
    9,285        
 
           
Net earnings
  $ 601,216     $ 676,777  
 
           
 
               
Earnings before cumulative effect of accounting change:
               
Basic earnings per share
  $ 0.95     $ 1.06  
 
           
Diluted earnings per share
  $ 0.94     $ 1.04  
 
           
Net Earnings:
               
Basic earnings per share
  $ 0.97     $ 1.06  
 
           
Diluted earnings per share
  $ 0.95     $ 1.04  
 
           
Average shares outstanding
    621,995,157       637,487,017  
 
           
Diluted average shares outstanding
    629,661,119       653,057,150  
 
           
Comparative segment sales data:
                 
(Unaudited)   For the 39-Weeks Ended  
($000)   April 1, 2006     April 2, 2005  
                 
Sales:
               
Broadline
  $ 19,039,142     $ 17,941,621  
SYGMA
    3,216,424       2,840,043  
Other
    2,152,151       1,765,216  
Intersegment
    (288,356 )     (246,245 )
 
           
Total
  $ 24,119,361     $ 22,300,635  
 
           
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SYSCO CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)

(In Thousands)
                 
    April 1, 2006     April 2, 2005  
ASSETS
               
Current assets
               
Cash
  $ 205,605     $ 199,518  
Receivables
    2,467,308       2,242,837  
Inventories
    1,601,250       1,490,305  
Prepaid expenses
    72,049       63,482  
 
           
Total current assets
    4,346,212       3,996,142  
 
               
Plant and equipment at cost, less depreciation
    2,399,345       2,247,555  
 
               
Other assets
               
Goodwill
    1,292,527       1,209,362  
Intangibles
    97,733       59,265  
Restricted cash
    103,301       185,233  
Prepaid pension cost
    408,183       272,266  
Other
    236,787       197,413  
 
           
Total other assets
    2,138,531       1,923,539  
 
           
Total assets
  $ 8,884,088     $ 8,167,236  
 
           
 
               
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Current liabilities
               
Notes payable
  $ 12,000     $ 73,043  
Accounts payable
    1,839,477       1,770,379  
Accrued expenses
    736,798       698,135  
Accrued income taxes
    47,647       114,170  
Deferred taxes
    346,980       312,357  
Current maturities of long-term debt
    208,570       365,755  
 
           
Total current liabilities
    3,191,472       3,333,839  
 
               
Other liabilities
               
Long-term debt
    1,787,155       1,032,822  
Deferred taxes
    692,176       705,918  
Other long-term liabilities
    413,455       278,877  
 
           
Total other liabilities
    2,892,786       2,017,617  
 
               
Contingencies
               
 
               
Shareholders’ equity
               
Preferred stock
           
Common stock, par $l per share
    765,175       765,175  
Paid-in capital
    498,322       377,067  
Retained earnings
    4,849,518       4,362,360  
Other comprehensive income
    19,870       45,928  
Treasury stock
    (3,333,055 )     (2,734,750 )
 
           
Total shareholders’ equity
    2,799,830       2,815,780  
 
           
Total liabilities and shareholders’ equity
  $ 8,884,088     $ 8,167,236  
 
           
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SYSCO CORPORATION
CONSOLIDATED CASH FLOWS (Unaudited)

(In Thousands)
                 
    For the 39-Weeks Ended  
    April 1, 2006     April 2, 2005  
Cash flows from operating activities:
               
Net earnings
  $ 601,216     $ 676,777  
Add non-cash items:
               
Cumulative effect of accounting change
    (9,285 )      
Share-based compensation expense
    101,944       15,779  
Depreciation and amortization
    251,955       230,964  
Deferred tax provision
    365,548       383,852  
Provision for losses on receivables
    22,508       21,873  
Additional investment in certain assets and liabilities, net of effect of businesses acquired:
               
(Increase) in receivables
    (158,778 )     (48,948 )
(Increase) in inventories
    (118,535 )     (69,578 )
(Increase) in prepaid expenses
    (11,333 )     (8,080 )
Increase in accounts payable
    11,452       7,967  
Increase (decrease) in accrued expenses
    15,387       (54,004 )
(Decrease) in accrued income taxes
    (449,976 )     (342,831 )
(Increase) in other assets
    (22,038 )     (10,245 )
Increase in other long-term liabilities and prepaid pension cost, net
    39,724       17,743  
Excess tax benefits from share-based compensation arrangements
    (5,484 )      
 
           
Net cash provided by operating activities
    634,305       821,269  
 
           
Cash flows from investing activities:
               
Additions to plant and equipment
    (364,421 )     (304,400 )
Proceeds from sales of plant and equipment
    14,913       17,059  
Acquisition of businesses, net of cash acquired
    (109,423 )     (49,485 )
Increase in restricted cash balances
    (1,570 )     (16,584 )
 
           
Net cash used for investing activities
    (460,501 )     (353,410 )
 
           
Cash flows from financing activities:
               
Bank and commercial paper borrowings (repayments), net
    282,460       (725 )
Other debt borrowings
    500,436       8,965  
Other debt repayments
    (209,625 )     (12,123 )
Cash (paid for) received from termination of interest rate swap
    (21,196 )     5,316  
Common stock reissued from treasury
    104,782       150,467  
Treasury stock purchases
    (527,616 )     (354,078 )
Dividends paid
    (293,535 )     (261,974 )
Excess tax benefits from share-based compensation arrangements
    5,484        
 
           
Net cash used for financing activities
    (158,810 )     (464,152 )
 
           
Effect of exchange rate changes on cash
    (1,067 )     (3,895 )
 
           
Net increase (decrease) in cash
    13,927       (188 )
Cash at beginning of period
    191,678       199,706  
 
           
Cash at end of period
  $ 205,605     $ 199,518  
 
           
Cash paid during the period for:
               
Interest
  $ 80,064     $ 50,136  
Income taxes
    472,063       357,135  
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Comparative Supplemental Statistical Information Related to Sales (Unaudited)
Comparative SYSCO Brand Sales and Marketing Associate-Served Sales data are summarized below.
                 
    For the 13-Weeks Ended  
    April 1, 2006     April 2, 2005  
SYSCO Brand Sales as a % of MA-Served Sales
    54.7 %     56.8 %
SYSCO Brand Sales as a % of Total Traditional Broadline Sales in the U.S.
    47.2 %     49.0 %
MA-Served Sales as a % of Total Traditional Broadline Sales in the U.S.
    52.9 %     52.7 %
                 
    For the 39-Weeks Ended  
    April 1, 2006     April 2, 2005  
SYSCO Brand Sales as a % of MA-Served Sales
    55.7 %     57.4 %
SYSCO Brand Sales as a % of Total Traditional Broadline Sales in the U.S.
    48.2 %     49.6 %
MA-Served Sales as a % of Total Traditional Broadline Sales in the U.S.
    53.8 %     53.5 %
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