Strong international growth helped the foodservice industry giant top Wall Street’s expectations, but its U.S. operations faced pressures.
Sysco (SYY -5.96%), a global leader in foodservice distribution, released its earnings report for its fiscal 2025 second quarter on Jan. 28. The company reported adjusted EPS of $0.93, slightly above analysts’ consensus expectation of $0.92. Similarly, revenue reached $20.15 billion, surpassing estimates of $20.098 billion. These results reflect solid growth, although tempered by margin pressures within its U.S. foodservice operations. Overall, the quarter’s robust financial performance indicates sustained financial discipline, particularly in international markets, despite some operational hurdles.
| Metric | Fiscal Q2 2025 | Fiscal Q2 2025 Analysts’ Estimate | Fiscal Q2 2024 | % Change |
|---|---|---|---|---|
| Adjusted EPS | $0.93 | $0.92 | $0.89 | 4.5% |
| Revenue | $20.15 billion | $20.098 billion | $19.29 billion | 4.5% |
| Adjusted operating income | $783 million | N/A | $745 million | 5.1% |
| Adjusted EBITDA | $969 million | N/A | $928 million | 4.4% |
Source: Analysts’ estimates for the quarter provided by FactSet.
Overview of Sysco’s Business
Sysco is the largest global distributor in the foodservice industry. With operations spanning North America and Europe, it provides food and related items to 730,000 customers such as restaurants, healthcare providers, and educational facilities. Sysco’s strength lies in its extensive distribution network and diverse product offerings, including fresh produce, dairy, meats, and non-food items like restaurant equipment. This diversification helps mitigate risks associated with demand fluctuations. The company has about a 17% share of the U.S. foodservice market, a $360 billion industry.
Recently, Sysco has been focusing on strategic growth in its international and specialty segments. It aims to leverage its extensive distribution capabilities while enhancing technological processes in logistics to foster more efficient operations.
Quarterly Performance Highlights
For its fiscal Q2 2025, which ended Dec. 28, Sysco’s revenue increased by 4.5% year over year to $20.2 billion. Its international foodservice operations segment led the charge, posting a 26.5% jump in adjusted operating income to $129 million, driven by effective strategic sourcing and margin management. Conversely, the U.S. foodservice operations faced headwinds, with a 0.6% decline in operating income, which management attributed to increased costs and a 0.9% decrease in local case volumes. Sales, however, increased by 4.1% to $14 billion, highlighting strong customer demand.
Gross profit grew by 3.9% to $3.7 billion, although margins decreased by 11 basis points to 18.1% due to inflation pressures in the dairy and poultry segments. Sysco’s SYGMA subsidiary, which serves national restaurant chains, saw compelling growth with sales increasing by 10.6%, driven by robust demand and effective cost controls. SYGMA’s operating income increased by 11.8.
Slight pressure on the balance sheet was noted as cash flow from operations decreased to $498 million, down $358 million from the prior-year period. That decline was mainly due to working capital changes. Net income fell from $415 million in the year-ago period to $406 million. During the quarter, Sysco returned approximately $803 million to shareholders through share repurchases and dividends, despite a decrease in free cash flow to $331 million.
Fiscal 2025 Outlook
Management reiterated its positive guidance for fiscal 2025 despite facing challenges that were reflected in its gross margin and operating expenses. It expects to achieve sales growth of 4% to 5% and EPS growth of 6% to 7%. The focus will remain on international growth initiatives, technological enhancements to the supply chain, and strategic expansion of the SYGMA segment. Management has highlighted efforts to expand its sales force and increase specialty offerings to drive improvements in profitability and local case volumes in the second half of its fiscal 2025.
Investors should closely monitor any progress on these strategic initiatives and how the company navigates inflationary pressures, especially in essential food categories. Any adjustments in Sysco’s forward guidance would also be notable.
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