Sysco 2015 Annual Report Download - page 14
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Please find page 14 of the 2015 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.SYSCO CORPORATION-Form10-K6
PARTI
ITEM1ARisk Factors
Industry and General Economic Risks
Periods of signi cant or prolonged in ation or de ation affect our product costs and may negatively impact our pro tability
Volatile food costs have a direct impact on our industry. Periods of product cost in ation may have a negative impact on our pro t margins and earnings
to the extent that we are unable to pass on all or a portion of such product cost increases to our customers, which may have a negative impact on our
business and our pro tability. In addition, periods of rapidly increasing in ation may negatively impact our business due to the timing needed to pass on such
increases, the impact of such in ation on discretionary spending by consumers and our limited ability to increase prices in the current, highly competitive
environment. Conversely, our business may be adversely impacted by periods of product cost de ation, because we make a signi cant portion of our
sales at prices that are based on the cost of products we sell plus a percentage margin. As a result, our pro t levels may be negatively impacted during
periods of product cost de ation, even though our gross pro t percentage may remain relatively constant.
Unfavorable macroeconomic conditions in the U.S., as well as unfavorable conditions in particular local markets, may
adversely affect our results of operations and nancial condition
The foodservice distribution industry, which is characterized by relatively low pro t margins with limited demand growth expected in the near-term, is
especially susceptible to negative trends and economic uncertainty. The U.S. has experienced an uneven economic environment over the past several
years. In addition, our results of operations are substantially affected by local operating and economic conditions, which can vary substantially by market.
Economic conditions can affect us in the following ways:
•Unfavorable conditions can depress sales and/or gross margins in a given market.
•
Food cost and fuel cost in ation experienced by the consumer can lead to reductions in the frequency of dining out and the amount spent by consumers
for food-away-from-home purchases, which could negatively impact our business by reducing demand for our products.
•Heightened uncertainty in the nancial markets negatively affects consumer con dence and discretionary spending, which can cause disruptions with
our customers and suppliers.
•
Liquidity issues and the inability of our customers, vendors and suppliers to consistently access credit markets to obtain cash to support operations
can cause temporary interruptions in our ability to conduct day-to-day transactions involving the payment to or collection of funds from our customers,
vendors and suppliers.
The uncertainty in the economic environment has adversely affected the rate of improvement in both business and consumer con dence and spending,
and uncertainty about the long-term investment environment could further depress capital investment and economic activity.
Competition in our industry may adversely impact our margins and our ability to retain customers, and makes it dif cult
for us to maintain our market share, growth rate and pro tability
The foodservice distribution industry is fragmented and highly competitive, with local, regional, multi-regional distributors and specialty competitors.
Furthermore, barriers to entry by new competitors, or geographic or product line expansion by existing competitors, are low. Additionally, increased
competition from non-traditional sources (such as club stores and commercial wholesale outlets with lower cost structures), and group purchasing
organizations have served to further increase pressure on the industry’s pro t margins, and continued margin pressure within the industry may have a
material adverse effect on our operating results and pro tability. Finally, demand for food-away-from-home products is volatile and price sensitive, imposing
limits on our customers’ ability to absorb cost increases. New and increasing competitive sources may result in increased focus on pricing and on limiting
price increases, or may require increased discounting. Such competition or other industry pressures may result in margin erosion and/or make it dif cult
for us to attract and retain customers.
If we are unable to effectively differentiate ourselves from our competitors, our market share, sales and pro tability, through increased expenditures or
decreased prices, could be adversely impacted.
We may not be able to fully compensate for increases in fuel costs, and forward purchase commitments intended to
contain fuel costs could result in above market fuel costs
Volatile fuel prices have a direct impact on our industry. We require signi cant quantities of fuel for our delivery vehicles and are exposed to the risk
associated with uctuations in the market price for fuel. The price and supply of fuel can uctuate signi cantly based on international, political and economic
circumstances, as well as other factors outside our control, such as actions by the Organization of the Petroleum Exporting Countries, or OPEC, and
other oil and gas producers, regional production patterns, weather conditions and environmental concerns. The cost of fuel affects the price paid by us
for products, as well as the costs we incur to deliver products to our customers. Although we have been able to pass along a portion of increased fuel
costs to our customers in the past, there is no guarantee that we will be able to do so in the future. If fuel costs increase in the future, we may experience
dif culties in passing all or a portion of these costs along to our customers, which may have a negative impact on our business and our pro tability. We
routinely enter into forward purchase commitments for a portion of our projected monthly diesel fuel requirements at prices equal to the then-current forward
price for diesel. If fuel prices decrease signi cantly, these forward purchases will result in our paying higher than market costs for a portion of our diesel fuel.