Financial Performance

Rising Logistics Costs Fuel Sysco Earnings Miss

"We continue to see expense challenges in the warehouse and transportation areas of our supply chain," CEO Tom Bené says.
Matthew HellerNovember 5, 2018

Shares in Sysco fell sharply on Monday after the food supplier missed quarterly earnings estimates on rising distribution and transportation costs.

For the first quarter, Sysco’s net earnings rose 17.2% to $431 million and sales increased 3.9% to $15.2 billion over the year-ago period.

Adjusted earnings came in at $0.91 per share but analysts had expected $0.92 per share on revenue of $15.4 billion. On news of the results, Sysco shares dropped 9.2% to $64.73 in trading Monday.

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“Our top-line results for the first quarter were solid, particularly in our U.S. Foodservice segment,” CEO Tom Bené said in a news release. “We continue to see expense challenges in the warehouse and transportation areas of our supply chain, which we anticipate will persist.”

As the Houston Chronicle reports, “Sysco’s distribution and transportation costs have risen nationally, cutting into profit margins. Nationally, logistics companies are having trouble finding commercial truck drivers to move product.”

Transportation costs have risen amid rising fuel prices and news regulations requiring electronic logging devices in commercial trucks.

Sysco’s operating expenses grew 4.7% in the first quarter to $2.3 billion. To help offset the increased costs, the company has been looking to expand its small-vehicle fleet, improve warehouse productivity and implemented new technologies to help customers more easily order and receive food products.

“We remain focused on the execution of our strategic priorities, which we believe will serve as the roadmap for additional growth and value creation,” Bené said.

U.S. foodservice sales rose 5.6% to $10.4 billion for the quarter ended Sept. 29 but gross margin declined 7 basis points to 20.1%. Food cost inflation was down 0.1% for U.S. Broadline, Sysco’s largest business segment, primarily driven by deflation in the meat, poultry and produce categories.

International sales increased 0.6% to $2.9 billion. Over the past year, Sysco has acquired food distributors in the U.K. and Sweden and invested in a Costa Rican food company.