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A month has gone by since the last earnings report for Sysco (SYY). Shares have lost about 2.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Sysco due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Sysco Q3 Earnings Beat Estimates, Revenues Increase Y/Y

Sysco Corporation came out with impressive third-quarter fiscal 2024 results. Adjusted earnings of 96 cents per share came a penny ahead of the Zacks Consensus Estimate of 95 cents. The bottom line rose 6.7% year over year.

The company reported sales of $19.4 billion, which jumped 2.7% year over year, though it fell short of the Zacks Consensus Estimate of $19.7 billion. Foreign exchange fluctuations positively impacted sales by 0.4%.

The adjusted gross profit jumped 5.2% to $3.6 billion, and the adjusted gross margin expanded 44 basis points (bps) to 18.6%. The upside was mainly driven by elevated volumes, efficient product cost inflation management and progress in the company’s strategic sourcing efforts. SYY witnessed product cost inflation of 1.9%, measured by the estimated change in product costs, mainly in the meat and frozen categories.

Operating expenses rose 5.5% year over year due to cost inflation and higher volumes. Adjusted operating expenses advanced 4.3% year over year. The adjusted operating income of $799.3 million increased 8.4% from the year-ago period’s levels. The adjusted operating margin increased 22 bps to 4.1%. Sysco’s adjusted EBITDA increased 8.5% to $976.6 million.

Segment Details

U.S. Foodservice Operations: In the reported quarter, sales rose 3.4% to $13.7 billion. Local case volumes within U.S. Foodservice grew 0.4%, while total case volumes within U.S. Foodservice increased 2.9%. Segment-adjusted operating income climbed 0.7% to $874.8 million. The segment’s performance was driven by increased volumes and effective margin management, which fueled profit enhancement.

International Foodservice Operations: The segment continued its growth record, with sales advancing 4.5% to $3.5 billion. Foreign exchange fluctuations positively impacted the segment’s sales by 2.1%. On a constant-currency (cc) basis, sales advanced 2.4%.

SYGMA’s sales declined 3.5% to $1,903.9 million.

Meanwhile, the Other segment’s sales decreased 8.9% to $275.2 million.

Other Updates

Sysco ended the quarter with cash and cash equivalents of $598.3 million, long-term debt of $12,113.2 million and total shareholders’ equity of nearly $2,101 million. For the first 39 weeks of fiscal 2024, the company generated cash flow from operations of $1.4 billion, and free cash flow amounted to $863.7 million. Capital expenditures, net of proceeds from sales of plant and equipment, amounted to $509.5 million.

During the 39-week period, Sysco returned $1.5 billion to shareholders through share buybacks worth $699.9 million and dividends of $758.1 million. For fiscal 2024, management remains on track to return nearly $2.25 billion to shareholders.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

At this time, Sysco has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Sysco has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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