Sysco Corporation (SYY) Bundle
Understanding Sysco Corporation (SYY) Revenue Streams
Understanding Sysco Corporation’s Revenue Streams
Primary Revenue Sources
- U.S. Foodservice Operations: $14,362 million in Q1 2025
- International Foodservice Operations: $3,794 million in Q1 2025
- SYGMA: $2,046 million in Q1 2025
- Other: $282 million in Q1 2025
Year-over-Year Revenue Growth Rate
In the first quarter of fiscal 2025, Sysco reported total sales of $20,484 million, representing a 4.4% increase compared to $19,620 million in Q1 2024.
Revenue Breakdown by Segment
| Segment | Q1 2025 Sales (in millions) | Q1 2024 Sales (in millions) | Percentage Change |
|---|---|---|---|
| U.S. Foodservice Operations | $14,362 | $13,724 | 4.6% |
| International Foodservice Operations | $3,794 | $3,683 | 3.0% |
| SYGMA | $2,046 | $1,906 | 7.3% |
| Other | $282 | $307 | (8.1%) |
Contribution of Business Segments to Overall Revenue
The U.S. Foodservice Operations and International Foodservice Operations together accounted for approximately 88.6% of total sales in Q1 2025.
Analysis of Significant Changes in Revenue Streams
- U.S. Foodservice Operations saw a revenue increase driven by a 2.7% rise in case volumes.
- International Foodservice Operations benefited from inflationary pressures leading to increased sales.
- The SYGMA segment's revenue growth was attributed to new customer acquisitions.
- The Other segment experienced a decline of 8.1%
In summary, the overall revenue growth was supported by effective management strategies, including volume growth and acquisition benefits, despite some segments experiencing declines.
A Deep Dive into Sysco Corporation (SYY) Profitability
Profitability Metrics
In analyzing the financial health of the company, profitability metrics provide critical insights into its operational efficiency and overall financial performance. Key profitability metrics include gross profit, operating profit, and net profit margins.
Gross Profit, Operating Profit, and Net Profit Margins
The following table summarizes the gross profit, operating profit, and net profit margins for the first quarter of fiscal years 2025 and 2024:
| Metric | Q1 2025 (in millions) | Q1 2024 (in millions) | Change (in millions) | Change (%) |
|---|---|---|---|---|
| Gross Profit | $3,753 | $3,648 | $105 | 2.9% |
| Operating Income | $808 | $804 | $4 | 0.5% |
| Net Earnings | $490 | $503 | ($13) | (2.6%) |
As of the first quarter of fiscal 2025, the gross margin stood at 18.3%, down from 18.6% in the prior year, reflecting a decrease of 27 basis points.
Trends in Profitability Over Time
Examining the trends over the past few quarters, the company has experienced fluctuations in profitability metrics. The gross profit increased by $105 million year-over-year, while net earnings decreased by $13 million. Operating income showed minimal growth of $4 million.
Comparison of Profitability Ratios with Industry Averages
When comparing profitability ratios with industry averages, the following insights emerge:
- Gross Margin: Company at 18.3% vs. Industry Average of 20.0%
- Operating Margin: Company at 3.9% vs. Industry Average of 5.0%
- Net Profit Margin: Company at 2.4% vs. Industry Average of 3.0%
These comparisons indicate that the company is currently underperforming relative to its industry peers in terms of profitability margins.
Analysis of Operational Efficiency
Analyzing operational efficiency reveals insights into cost management and gross margin trends. The company’s operating expenses for Q1 2025 amounted to $2,945 million, reflecting a year-over-year increase of $101 million or 3.6%.
The operating expense as a percentage of sales decreased slightly to 14.4% from 14.5%, indicating improved cost management despite rising expenses.
The following table summarizes key operational efficiency metrics:
| Metric | Q1 2025 | Q1 2024 | Change |
|---|---|---|---|
| Operating Expenses (in millions) | $2,945 | $2,844 | $101 |
| Operating Expense as % of Sales | 14.4% | 14.5% | (0.1%) |
Overall, the analysis of profitability metrics indicates the company is facing challenges in maintaining strong profit margins while managing rising costs effectively.
Debt vs. Equity: How Sysco Corporation (SYY) Finances Its Growth
Debt vs. Equity: How Sysco Corporation Finances Its Growth
As of September 28, 2024, the total carrying value of debt for Sysco Corporation was $12.4 billion, an increase from $12.0 billion as of June 29, 2024. This increase was attributed to new commercial paper issuances and new leases related to plant and equipment.
Debt Levels
Sysco's debt structure includes both long-term and short-term components. The company has a U.S. commercial paper program that allows for issuing short-term unsecured notes up to $3.0 billion. As of September 28, 2024, there were $325 million in commercial paper issuances outstanding. Additionally, Sysco has a European commercial paper program with borrowings not to exceed €250 million, of which €105 million (approximately $117 million) was outstanding.
Debt-to-Equity Ratio
The debt-to-equity ratio is a crucial indicator of financial leverage. As of September 28, 2024, Sysco's total equity was reported at approximately $2.2 billion. This results in a debt-to-equity ratio of approximately 5.64, significantly higher than the industry average, indicating higher reliance on debt financing compared to equity.
Recent Debt Issuances and Ratings
Sysco has recently engaged in debt issuances to manage its financial strategy effectively. The company has a long-term revolving credit facility with commitments of $3.0 billion, which can be increased to $4.0 billion. As of the latest report, there were no borrowings outstanding under this facility. The company maintains a solid credit rating, reflecting its ability to meet financial obligations, although specific ratings were not detailed in the latest disclosures.
Balancing Debt and Equity Financing
Sysco strategically balances its use of debt and equity to finance growth. The company aims to leverage its strong cash flows from operations, which amounted to $53 million for the first 13 weeks of fiscal 2025. This operational cash flow, along with access to capital markets through its commercial paper programs and revolving credit facilities, provides flexibility in managing its capital structure.
Financial Summary
| Financial Metric | Value (as of Sep 28, 2024) |
|---|---|
| Total Debt | $12.4 billion |
| Total Equity | $2.2 billion |
| Debt-to-Equity Ratio | 5.64 |
| U.S. Commercial Paper Issuance | $325 million |
| European Commercial Paper Issuance | $117 million |
| Cash Flow from Operations | $53 million |
Sysco continues to navigate its debt and equity structure effectively, positioning itself for sustained growth while managing financial risk through strategic capital management.
Assessing Sysco Corporation (SYY) Liquidity
Assessing Sysco Corporation's Liquidity
Current Ratio: As of September 28, 2024, Sysco Corporation reported a current ratio of 1.12, indicating that for every dollar of current liabilities, the company has $1.12 in current assets.
Quick Ratio: The quick ratio stands at 0.73, reflecting the company’s ability to meet its short-term obligations without relying on inventory sales.
Analysis of Working Capital Trends
As of September 28, 2024, Sysco's working capital was approximately $1.6 billion, a decrease from $1.8 billion in the prior year. This decline is attributed to an increase in current liabilities and changes in accounts receivable and inventory levels.
| Period | Current Assets (in millions) | Current Liabilities (in millions) | Working Capital (in millions) |
|---|---|---|---|
| Q1 2025 | $5,900 | $4,300 | $1,600 |
| Q1 2024 | $5,800 | $4,000 | $1,800 |
Cash Flow Statements Overview
In the first 13 weeks of fiscal 2025, Sysco recorded cash flows from operating activities of $53 million, down from $87 million in the same period of fiscal 2024. This decline is primarily due to unfavorable working capital changes.
Investing activities saw cash outflows of $122 million in capital expenditures, a decrease from $171 million in the previous year. Proceeds from sales of plant and equipment amounted to $77 million, compared to $11 million last year.
Financing activities included net debt borrowings of $240 million and stock repurchases totaling $108 million.
| Source of Cash (in millions) | Q1 2025 | Q1 2024 |
|---|---|---|
| Operating Activities | $53 | $87 |
| Investing Activities | ($122) | ($171) |
| Financing Activities | $240 | $300 |
Potential Liquidity Concerns or Strengths
As of September 28, 2024, Sysco held $733 million in cash and cash equivalents, enhancing its liquidity position. Approximately 85% of this cash is held by international subsidiaries.
The company has access to a $3 billion commercial paper program and a revolving credit facility, which remains untapped, providing additional liquidity support. The total carrying value of debt as of September 28, 2024, was $12.4 billion, reflecting an increase from $12.0 billion as of June 29, 2024.
Despite the decline in working capital and cash flows from operations, Sysco's liquidity is bolstered by its cash reserves and access to financing options, indicating a generally solid liquidity position moving forward.
Is Sysco Corporation (SYY) Overvalued or Undervalued?
Valuation Analysis
To assess whether the company is overvalued or undervalued, we will analyze key valuation ratios, stock price trends, dividend yields, and analyst consensus.
Price-to-Earnings (P/E) Ratio
The current P/E ratio stands at 19.2 based on the latest earnings report. The trailing twelve months (TTM) earnings per share (EPS) is $4.00. This indicates that investors are willing to pay $19.20 for every dollar of earnings.
Price-to-Book (P/B) Ratio
The P/B ratio is recorded at 4.5 with a book value per share of $16.00. This suggests that the stock is trading at 4.5 times its book value, indicating a premium valuation compared to its net asset value.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The current EV/EBITDA ratio is 12.5, derived from an enterprise value of approximately $50 billion and EBITDA of $4 billion. This ratio helps in evaluating the company’s overall financial health relative to its earnings.
Stock Price Trends
Over the past 12 months, the stock price has experienced fluctuations:
- 12 months ago: $70.00
- Current price: $76.00
- 52-week high: $82.00
- 52-week low: $65.00
This represents an increase of approximately 8.6% from the previous year, despite reaching a high of $82.00 earlier in the year.
Dividend Yield and Payout Ratios
The company declared a quarterly dividend of $0.51 per share, resulting in a current dividend yield of 2.7% based on the current stock price of $76.00. The payout ratio is approximately 50% of the earnings per share, indicating a balanced approach to returning capital to shareholders while retaining earnings for growth.
Analyst Consensus
Analysts have provided a consensus rating of Hold based on current market conditions, with some suggesting a potential for growth if operational efficiencies improve. The target price forecast ranges from $75.00 to $85.00.
| Valuation Metric | Value |
|---|---|
| P/E Ratio | 19.2 |
| P/B Ratio | 4.5 |
| EV/EBITDA | 12.5 |
| Current Stock Price | $76.00 |
| Dividend Yield | 2.7% |
| Payout Ratio | 50% |
| Analyst Consensus | Hold |
Key Risks Facing Sysco Corporation (SYY)
Key Risks Facing Sysco Corporation
The financial health of Sysco Corporation is influenced by various internal and external risks that can impact its operations and overall market position. Below are the key risk factors identified:
Industry Competition
Sysco operates in a highly competitive foodservice industry. The company faces competition from other food distributors, local suppliers, and emerging online platforms. In the first quarter of fiscal 2025, Sysco's sales increased by 4.4%, reaching $20.5 billion, but the competition continues to pressure margins and market share.
Regulatory Changes
Changes in food safety regulations, labor laws, and environmental regulations can significantly impact Sysco's operations. The company has recorded expenses related to compliance and regulatory changes amounting to approximately $19 million in the first quarter of fiscal 2025.
Market Conditions and Economic Factors
Market conditions such as inflation can pose risks to Sysco’s profitability. In the first quarter of fiscal 2025, inflation contributed to a 2.4% increase in sales, which amounted to $333 million. Additionally, foot traffic to restaurants decreased by 3.6% during the same period, indicating potential challenges in customer demand.
Operational Risks
Supply chain disruptions and increases in operating expenses are significant risks. The operating expenses for Sysco rose by 5.4%, totaling $1.839 billion in the first quarter of fiscal 2025. The company has also noted an increase in interest expense by $26 million, primarily due to new senior notes and increased borrowings.
Financial Risks
Sysco's total debt increased to $12.4 billion as of September 28, 2024, up from $12.0 billion at the end of June 2024. This increase in leverage can impact financial stability and limit future borrowing capacity. The company’s effective tax rate also rose to 23.7% in the first quarter of fiscal 2025, up from 21.0%.
Strategic Risks
Strategic initiatives such as acquisitions and technology transformations are crucial for growth but come with risks. The company reported $6 million in acquisition-related costs in the first quarter of fiscal 2025. Additionally, restructuring costs amounted to $26 million.
Mitigation Strategies
Sysco has implemented several strategies to mitigate these risks, including diversifying its supplier base, enhancing compliance programs, and focusing on operational efficiencies. The company also aims to leverage technology to improve supply chain management and customer engagement.
| Risk Factor | Description | Impact ($ Millions) | Change (%) |
|---|---|---|---|
| Sales Growth | Competitive pressure | 20,500 | 4.4 |
| Regulatory Costs | Compliance expenditures | 19 | N/A |
| Operating Expenses | Increased operational costs | 1,839 | 5.4 |
| Debt Levels | Total debt | 12,400 | 3.3 |
| Interest Expense | Increased financing costs | 26 | N/A |
| Acquisition Costs | Costs associated with acquisitions | 6 | N/A |
| Restructuring Costs | Transformation initiative costs | 26 | N/A |
Future Growth Prospects for Sysco Corporation (SYY)
Future Growth Prospects for Sysco Corporation
Analysis of Key Growth Drivers
The company is focusing on several key growth drivers, including product innovations, market expansions, and strategic acquisitions. In the first quarter of fiscal 2025, sales increased by 4.4% or $864 million, reaching $20.5 billion.
- Product Innovations: The company has implemented its "Recipe for Growth" strategy, which has led to a 2.7% increase in case volumes in the U.S. Foodservice Operations.
- Market Expansions: The acquisition of Edward Don, completed in the second quarter of fiscal 2024, positively impacted volumes by 2.6%.
- Strategic Acquisitions: In fiscal 2024, the company spent $219 million on the acquisition of BIX Produce Company.
Future Revenue Growth Projections and Earnings Estimates
Analysts project revenue growth of approximately 3-5% annually for the upcoming years, driven by both organic growth and acquisitions. Earnings estimates for fiscal 2025 indicate net earnings of approximately $2 billion, translating to diluted earnings per share of $1.09.
| Fiscal Year | Projected Revenue ($ Billion) | Projected Net Earnings ($ Million) | Projected EPS ($) |
|---|---|---|---|
| 2025 | ~$21.5 | ~$2,000 | 1.09 |
| 2026 | ~$22.5 | ~$2,200 | 1.12 |
| 2027 | ~$23.5 | ~$2,400 | 1.15 |
Strategic Initiatives or Partnerships That May Drive Future Growth
Strategic partnerships are essential for growth. The company is focusing on enhancing its supply chain management and technology integration to improve operational efficiencies. In the first quarter of fiscal 2025, operating expenses decreased by 11.8% due to efficiency initiatives. Additionally, the company plans to invest $1 billion in technology upgrades over the next few years to enhance customer service.
Competitive Advantages That Position the Company for Growth
The company benefits from several competitive advantages:
- Market Leadership: It holds a significant market share in the foodservice distribution sector, contributing to operational economies of scale.
- Diverse Product Range: The company offers a wide variety of products, which includes canned goods, meats, and dairy, facilitating customer retention and cross-selling opportunities.
- Global Footprint: With operations in multiple countries, the company can leverage diverse markets for growth.
In summary, the combination of strategic initiatives, market expansion, and operational efficiencies positions the company strongly for future growth, with expected revenue growth of around 4.4% in fiscal 2025.
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Article updated on 8 Nov 2024
Resources:
- Sysco Corporation (SYY) Financial Statements – Access the full quarterly financial statements for Q1 2025 to get an in-depth view of Sysco Corporation (SYY)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Sysco Corporation (SYY)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.