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Sysco (SYY) to Report Q4 Earnings: Is a Surprise in Store?


Sysco Corporation SYY is slated to report fourth-quarter fiscal 2017 results on Aug 14, before the opening bell. The question lingering in investors’ minds is, whether this global food products maker and distributor will be able to post a positive earnings surprise in the to-be-reported quarter. We note that the company’s earnings have outpaced the Zacks Consensus Estimate in three out of the trailing four quarters, with an average surprise of 6.9%.

Let’s delve deeper on how things are shaping up for this announcement.

Which Way are Estimates Treading?

A look into estimate revisions give us an idea of what analysts are thinking about the company right before earnings release. The Zacks Consensus Estimate for the fourth quarter and for fiscal 2017 has been stable over the last 30 days at 71 cents and $2.47, respectively.

Estimated earnings for the fourth quarter depict a year-on-year growth of 11.2%, while the same for fiscal 2017 is estimated to grow 17.8%. Further, analysts polled by Zacks expect revenues of 14.23 billion for the fourth quarter, up 4.2% from the year-ago quarter.

What Does the Zacks Model Unveil?

Our proven model does not show that Sysco is likely to beat earnings estimates this quarter. This is because a stock needs to have both a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP for this to happen. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Sysco has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 71 cents. The company carries a Zacks Rank #2, which increases the predictive power of ESP. However, its ESP of 0.00% makes surprise prediction difficult.

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Factors Influencing the Quarter

Sysco’s strategic acquisitions, especially London-based Brakes acquisition in Jul 2016 have aided the growth of its distribution network, customer base and drive long-term growth. In fact, this acquisition is likely to be modestly accretive to adjusted earnings per share by low to mid-single digits in fiscal 2017, with acceleration in fiscal 2018 and beyond. Such acquisitions have significantly improved the company’s top-line.

Sysco has also been managing its expenses quite efficiently since the past few years. We are impressed with the fact that Sysco has delivered higher gross margins for eight consecutive quarters now, on the back of SG&A and supply chain process improvements. Further, the company remains on track to achieve the recently raised three-year adjusted operating income growth target to approximately $600 million to $650 million through the end of FY18.

However, Sysco has been facing deflationary pressure for an unprecedented six consecutive quarters. The trend is finally beginning to shift toward inflation from third-quarter fiscal 2017. Though the company is anticipating overall modest inflation in the fourth quarter, the impact on the company might take little more time. The grocery/supermarket business is also grappling with stiff competition, aggressive promotional environment and reduced store traffic.

Such industry wide headwinds have hurt the company’s share prices. Nevertheless, the decline was narrower than the industry owing to its strong fundamentals. We note that Sysco’s shares have declined 1% over the last one year, narrower than the industry that fell 10.2%. This makes it quite evident that the company’s growth strategy is paying off and its efforts to boost sales and margins are bearing fruit.

Interested in Consumer Staples Stocks? Check these

Investors may also consider other stocks from the same segment such as Estee Lauder Companies, Inc. EL, Constellation Brands, Inc. STZ and Inter Parfums, Inc. IPAR, all carrying a Zacks Rank #2.You can see the complete list of today’s Zacks #1 Rank stocks here.

Estee Lauder has an average positive earnings surprise of 10.9% over the past four quarters. It has a long-term earnings growth rate of 12%.

Constellation Brands has an average positive earnings surprise of 11.7% over the past four quarters. It has a long-term earnings growth rate of 18.2%.

Inter Parfums has an average positive earnings surprise of 18.1% over the past four quarters. It has a long-term earnings growth rate of 12.3%.

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