Sysco reports record operating income for fourth quarter, fiscal year 2023

Houston-based food distribution company Sysco Corp. (NYSE: SYY) broke more records in its latest earnings report.

The company reported its highest-ever fourth quarter adjusted operating income and full year adjusted operating income for its 13-week quarter and fiscal year ending July 1. Quarterly adjusted operating income reached $1.02 billion, a 16.9% increase from the previous record set in fourth quarter 2022. Meanwhile, annual adjusted operating income hit $3.21 billion in fiscal year 2023, which was 17.3% higher than the previous peak in fiscal year 2019.

Sysco previously broke a record for adjusted operating income during the third quarter of 2023.

For the fourth quarter, net earnings increased 43.8% from Q4 2022 to $733.73 million, while adjusted net earnings increased 16.1% to $683.2 million. This resulted in earnings per share and adjusted earnings per share of $1.44 and $1.34, respectively. Analysts expected $1.33 of earnings per share for Q4 2023, according to Yahoo Finance.

For the fiscal year, Sysco earned $1.77 billion in net earnings and $2.04 billion in adjusted net earnings, increases of 31.1% and 22.2% from fiscal year 2022, respectively. Earnings per share and adjusted earnings per share for the year was $3.47 and $4.01, respectively. This was in line with the company's expectations of between $4.00 and $4.15 in adjusted earnings per share for the year, which Sysco decreased in the second quarter from its previous outlook due to its performance in the first half of the year.

Sales increased 4.1% in the fourth quarter compared to Q4 2022, reaching $19.72 billion. Analysts expected $19.99 billion in revenue for the quarter. Fiscal year sales saw a double-digit increase, with Sysco reporting $76.32 billion in sales, an 11.2% year-over-year increase.

The company expects adjusted earnings per share of between $4.20 and $4.40 for fiscal year 2024, Sysco President and CEO Kevin Hourican said during the company’s earnings call on Aug. 1. The expectations for growth are based on continued momentum from the second half of 2023, mostly tied to operating expense improvement and better operating efficiencies, Hourican said. 

On the expense improvement front, the company has started initiatives that will save $100 million in costs for this upcoming fiscal year, CFO Kenny Cheung said during the call. Cheung said the cost savings will be balanced throughout each quarter in the year and that the savings would be incremental based on continued productivity gains in supply chain and operations.

For operating efficiencies, Hourican said the single most important task for the company six months ago was to improve retention, which he said has led to better productivity and created a safer work environment. Part of the retention growth was due to improved employee training programs, such as with the company’s driver training, he said.

Sysco was also able to decrease excess overtime hours to zero, another key element in creating more efficiencies, Hourican said. For the next year, the company will focus on improving discipline to work standards and processes as a way to further those efficiencies.

Sysco also set a record for free cash flow in fiscal year 2023. The company reported $2.86 billion in operating cash flow and $2.11 billion in free cash flow. Sysco returned about $1.5 billion to shareholders in the fiscal year, $500 million of which through share repurchases. Cheung said he expects free cash flow to increase in fiscal year 2024 and that the company will repurchase $750 million worth of shares in the upcoming year.

The company also plans to use its capital for strategic mergers and acquisitions, Cheung said. Specialty produce company FreshPoint, a subsidiary of Sysco, recently announced the acquisition of Minnesota-based produce distributor Bix Produce, which has operations in Minnesota, Wisconsin, the Dakotas, Illinois and Iowa. The acquisition expands FreshPoint’s geographic footprint into a region of the country it previously did not do business in. 

Sysco is No. 3 on the Houston Business Journal’s 2023 Largest Houston-Area Public Companies List based on its 2022 revenue of $68.64 billion.