Sysco's Shares Take Hit as Costs Grow -- Update
November 05 2018 - 2:43PM
Dow Jones News
By Heather Haddon
Sysco Co.'s shares tumbled Monday after the world's largest
food-service distributor said it is struggling against labor,
transportation and other costs that are pressuring many U.S.
companies.
The Houston-based distributor to restaurants and other
food-service outlets reported weaker-than-expected profit and sales
for the company's first quarter as costs eroded margins. Adjusted
earnings per share were 91 cents on sales of $15.2 billion. Both
figures fell below expectations.
"We continue to see significant cost challenges," Chief
Executive Tom Bené said on a call with investors.
Shares in the company were off 9.5% on Monday afternoon, the
largest one-day percentage slump since 2010, according to
FactSet.
Sysco's report sent a chill across food-distributor stocks
Monday. US Foods Holding Corp. was down 3.5%, Performance Food
Group Co. was off 2.7% and SpartanNash Co. was down 1.9%. Sysco is
the first of several food distributors to report financial results
this week.
Food distributors are being hit hard by a number of challenges
facing the broader U.S. economy.
The tight labor market has made recruiting warehouse and
transportation workers a struggle. The labor shortage is now
damaging the food distributors' earnings as well. Sysco's overtime
expenses rose in the company's quarter ended in September. The cost
of hiring and drivers and retaining warehouse workers hurt profit,
executives said.
"We are having to struggle to get as many people where we need
them, when we need them there," Chief Financial Officer Joel Grade
told investors.
Transportation costs are also growing as a result of higher fuel
prices and and new reporting requirements on the hours that truck
drivers log. Those expenses are expected to grow as the U.S.
holiday season arrives, fueling consumer spending that is driving a
surge in demand for shipping capacity from e-commerce
companies.
Sysco, which distributes around the world and has a large U.K.
business, also said it was hurt by tariff costs and an expected
damping of the British economy caused by the U.K.'s planned exit
from the European Union.
The food distributor is raising prices in response to the cost
increase, as are many companies facing rising input costs. But the
distributor said costs rose higher than its price increases in some
areas during the quarter. Executives said further price changes
could take place as contracts with customers renew.
Restaurants could resist additional price increases because the
competition between distributors is fierce and some customers could
switch to cooking at home if restaurant prices climb too high, RBC
Capital Markets said in a note to investors.
Sysco said its profit rose 17% in the latest quarter to $431
million, or 81 cents a share, compared with the same period last
year. Sales in the company's domestic food-service operations rose
5.6%, while its international sales increased 0.6%.
Write to Heather Haddon at heather.haddon@wsj.com
(END) Dow Jones Newswires
November 05, 2018 14:28 ET (19:28 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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