Strategy

Sysco’s Profits Get Boost From Brakes Deal

The food-service company, which acquired U.K-based Brakes in February, nearly doubled its international sales in the first quarter.
Matthew HellerNovember 8, 2016
Sysco’s Profits Get Boost From Brakes Deal

Sysco’s profits rose by nearly one-third in the first quarter amid a surge in international sales fueled by its recent acquisition of U.K. food-service distributor Brakes Group.

Net income increased to $324 million from $244 million a year earlier while overall revenue was up 11% at $14 billion. Excluding items and the impact of the Brakes acquisition, adjusted earnings rose to 63 cents a share from 52 cents.

Analysts had expected earnings of 58 cents a share on revenue of $13.9 billion. On news of the results, Sysco shares climbed more than 9% on Monday.

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“I am pleased with our first quarter performance which built upon the favorable results we have achieved over the past several quarters,” CEO Bill DeLaney said in a news release. “We continued to focus on supporting the needs of our customers and achieved strong earnings growth through solid execution in a softening industry environment.”

Sysco acquired Brakes for about $3.1 billion, sharply expanding its overseas footprint, after its plan to merge with rival US Foods was blocked by antitrust regulators. In the first quarter, Sysco’s international food-service sales nearly doubled to $2.7 billion from $1.4 billion, while, in the much larger U.S. division, sales rose only 0.8% to $9.5 billion.

“The significant improvement in both [international] sales and operating income is primarily attributable to the Brakes Group acquisition,” Sysco said.

Food-service companies have been vulnerable to the downturn in the restaurant business. Restaurants represent two-thirds of Sysco’s customer base.

“We remain concerned about recent weaker trends in overall domestic restaurant sales and the potential impact this could have on Sysco,” Edward Jones analyst Jack Russo said.

But in the longer-term, he added, the company “should benefit from consumers’ demands for meal consumption away from home and as the company takes market share from the much smaller companies it competes with.”