Dive Brief:
- With the failed US Foods merger and its associated costs now in the past, Sysco is moving forward with cost-cutting efforts and fostering an increase in local sales, both of which have been successful endeavors. The company announced its Q2 earnings Monday.
- Sysco's second-quarter revenue ticked up to $12.2 billion, and local sales grew 3%. A combination of higher sales and reduced expenses led to a 12% jump in adjusted net income to $275 million over $245 million for last year's second quarter.
- Sysco has been carrying out the three-year strategy the company outlined in September, during which time the company plans to generate an additional $400 million in annual operating income. Sysco CEO Bill DeLaney said the company is on track to achieve the financial objectives of the first of those three years, after reporting a 10.2% increase in adjusted operating income for the second quarter.
Dive Insight:
Regarding Sysco's cost-cutting efforts, DeLaney told investors that the company has been "aggressively" reviewing each section of its business and has "put in place a more rigorous process for managing expenses." Sysco does, however, expect moderate expense growth, primarily in technology, which will enable the company to run more efficiently across its local operating companies. Sysco is one of many food and beverage companies turning to cost-cutting strategies to drive efficiency and profits, particularly as sales slip for many major manufacturers.
What did cut into Sysco's margins was food deflation. According to the FAO Food Price Index, food prices have fallen 35% since hitting their stride in February 2011. That includes 10 consecutive months of decline leading up to September and decreases for the past several months after a slight increase in October. For 2015, the index dipped almost 19%, a global shift that's been felt across the food and beverage industries. To handle deflation, Sysco has been promoting its own branded products, which bring in higher margins.
Sysco is also embracing e-commerce, as it's developed a mobile ordering platform it had been piloting but will now introduce to customers throughout the U.S. Fewer than 10% of orders are placed via mobile, but DeLaney expects fast growth to continue in this area.
Increasing sales has been focused on independent restaurants, which command higher margins than national chains. In September, DeLaney told The Wall Street Journal that the company would "bring more value" to these smaller, independent customers via menu planning, layout, and social media campaigns, staying "tuned in to the latest trends."