Sysco 2010 Annual Report Download - page 37
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Please find page 37 of the 2010 Sysco annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Highlights
Weak economic conditions in the United States and Canada combined with lower consumer confidence contributed to a difficult business
environment in fiscal 2010; however, this environment improved as the year progressed. Although these factors unfavorably impacted financial
results in fiscal 2010, improving sales trends in the second half of the year and our attention to cost control throughout the year helped us achieve
earnings growth in fiscal 2010. We also settled an outstanding tax matter with the Internal Revenue Service (IRS) in the first quarter of fiscal 2010
and recorded gains on corporate-owned life insurance (COLI) policies, both of which positively impacted net earnings and earnings per share.
Sysco’s fiscal year ends on the Saturday nearest to June 30th. This resulted in a 53-week year ending July 3, 2010 for fiscal 2010 and 52-week years
ending June 27, 2009 and June 28, 2008 for fiscal 2009 and 2008, respectively.
• Sales increased 1.1% in fiscal 2010 from the comparable prior year period to $37.2 billion primarily due to the additional week included in
fiscal 2010 and improving case volumes in the second half of the fiscal year. These were partially offset by deflation, change in sales mix and
weak economic conditions and the resulting impact on consumer spending. Deflation, as measured by changes in our product costs, was an
estimated 1.5% during fiscal 2010.The exchange rates used to translate our foreign sales into U.S. dollars positively impacted sales by 0.9%
and sales from acquisitions within the last 12 months favorably impacted sales by 0.5%.
• Operating income increased to $2.0 billion, a 5.5% increase over the prior year, primarily driven by the additional week included in fiscal
2010 and a decrease in operating expenses. Operating expenses declined 0.6% primarily due to reduced fuel costs and a favorable
comparison on the amounts recorded to adjust the carrying value of COLI policies to their cash surrender values year-over-year. Partially
offsetting these operating expense declines were increases in pay-related expenses and net company-sponsored pension costs.
• Net earnings increased to $1.2 billion, an 11.7% increase over the comparable prior year period, primarily due to the factors discussed above
including the additional week in fiscal 2010 and a decrease in the effective tax rate. The effective tax rate for fiscal 2010 was favorably
impacted by the one-time reversal of a previously accrued liability related to the settlement with the IRS and the non-taxable gains recorded
on COLI policies.
• Basic and diluted earnings per share in fiscal 2010 were both $1.99, an increase of 12.4% from the comparable prior year period, primarily
due to the factors discussed above including the additional week in fiscal 2010. Both basic and diluted earnings per share were favorably
impacted by $0.09 per share in fiscal 2010 due to the one-time reversal of a previously accrued liability related to the settlement with the
IRS and the gains recorded on the adjustment of the carrying value of COLI policies to their cash surrender values. This compares to a $0.07
per share negative impact to earnings per share in fiscal 2009 from the losses recorded on the adjustment of the carrying value of COLI
policies to their cash surrender values.
Overview
Sysco distributes food and related products to restaurants, healthcare and educational facilities, lodging establishments and other foodservice
customers. Our operations are primarily located throughout the United States, Canada and Ireland and include broadline companies, specialty
produce companies, custom-cut meat operations, hotel supply operations, SYGMA (our chain restaurant distribution subsidiary) and a company
that distributes to international customers.
We consider our primary market to be the foodservice market in the United States and Canada and estimate that we served about 17% of this
approximately $210 billion annual market. According to industry sources, the foodservice, or food-away-from-home, market represents approx-
imately 47% of the total dollars spent on food purchases made at the consumer level in the United States.This share grew from about 37% in 1972 to
nearly 50% in 1998 and did not change materially until 2009 when it declined to the current level of 47%.
Industry sources estimate the total foodservice market in the United States experienced a real sales decline of approximately 5.9% in calendar
year 2009 and 3.6% in calendar year 2008. Real sales declines do not include the impact of inflation or deflation.
General economic conditions and consumer confidence can affect the frequency of purchases and amounts spent by consumers for food-
away-from-home and, in turn, can impact our customers and our sales. We believe the current general economic conditions, including pressure on
consumer disposable income, have contributed to a decline in the foodservice market. Historically, we have grown at a faster rate than the overall
industry and have grown our market share in this fragmented industry.
Strategy
We continue to invest in our core business to expand our market share and grow earnings.We will continue to use our strategies to leverage our
market leadership position to continuously improve how we buy, handle and market products for our customers. These strategies include:
•Sales growth: We intend to grow sales by gaining an increased share of products purchased by existing customers, development of new
customers, improving customer retention, the use of fold-outs (new operating companies created in established markets previously served
by other Sysco operating companies), investment in new technologies, the addition of more marketing associates and a disciplined
acquisition program. Our business review program, which is designed to help our customers grow their business, and the size and expertise
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