Summary of Sysco (SYY) Q4 2012 Earnings Conference Call August 13, 2012

Overview of company operations.

Sysco reached the highest sales level in its history, with 7.8 percent sales growth for the year.  The sales performance was the result of 3 percent case volume growth and 5.5 percent product cost inflation.  Earnings grew by 4.4 percent for the year.  Expense management contributed to the growth, while pricing pressures limited the growth.  The environment remains very competitive. 

Sysco recently began shipping from 3 new, more efficient distribution facilities: (1) a 420,000-square-foot facility outside of Boston, (2) a 420,000-square-foot facility located between Austin and San Antonio, and (3) a 240,000-square-foot facility on Long Island.

Sysco has been converting its operating companies to a new enterprise resource planning (ERP) system and will continue rolling out the conversion in its Texas and Louisiana facilities this year.  Sysco has also been making progress in its cost reduction initiatives, which have focused on improving productivity, reducing selling and administrative costs, and lowering product costs.  As part of these initiatives, effective December 31, 2012, Sysco will freeze its nonunion defined benefit pension plan and enhance its 401(k) plan as the continuous decline in interest rates were causing substantial increases in its pension expenses. 

On the product side, Sysco is planning to pilot several food categories. 

Sysco expects cash flow to improve significantly over the next few years as a result of its business transformation initiative and working capital management.  For the next year, it expects fuel expenses to be relatively flat and its business transformation expenses to be approximately $300 to $350 million.  The more moderate inflation in the last quarter and this quarter so far should take pressure off of both Sysco's customers and Sysco and will help with growth and margins.  Until there is more consistent improvement in the economy, Sysco will not have much pricing power. 

The spike in grain prices usually takes 3 to 6 months to affect Sysco. 

In terms of prices, Sysco is seeing higher prices in beef and poultry, but lower prices in dairy and produce.  All other prices are about average.

Financials.

Sales in Q4 increased by 5.9 percent.  Case volume growth of 3.4 percent and food cost inflation growth of 3.3 percent contributed to the sales growth.  Acquisitions also increased sales by .6 percent.

Gross profit in Q4 increased by 2.9 percent, while gross margins declined by 54 basis points to 18.2 percent.  Gross margins for the full fiscal year were 18.1 percent. The decline in gross margin was due to high inflation, weak restaurant traffic, competitive pressures, segment mix and a more aggressive go-to-market strategy.

Earnings for Q4 declined by 8 percent to $.53/diluted share.

The transcript of the earnings conference call can be found on Seeking Alpha at the following link:
http://seekingalpha.com/article/803821-sysco-management-discusses-q4-2012-results-earnings-call-transcript?part=single

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