Sysco or Aramark: Which One Delivered the Better Quarter?

Sysco (NYSE: SYY  ) and Aramark (NYSE: ARMK  ) are two of the largest and most powerful food-service providers in the world. These companies are crucial to the world's economy and they are two of the largest employers in the industry. Both have recently reported quarterly results, so let's find out which one had the better quarter and if we should be buying shares of either company right now.

The food-service giants
Sysco is the global leader in the sale, marketing, and distribution of food products. Its customers include restaurants, health care and educational facilities, hotels, and just about everywhere else that serves food. Sysco also sells restaurant equipment and supplies, which makes it a one-stop shop for all of its customers' needs. The company currently operates 193 distribution facilities that serve over 425,000 customers worldwide. 

Aramark is a leading provider of food, facilities, and uniform services worldwide. It provides its services to the restaurant, education, health care, corrections, and sports and entertainment industries. Its core market is North America, but it operates in an additional 19 countries and employs more than 272,000 people. It went public for the third time in 2013, with the first two IPOs taking place in 1960 and 2001.

The quarterly results
Sysco released second-quarter results for fiscal 2014 on Feb. 3, which were mixed in comparison with expectations. Here's a breakdown of the report:

Metric Reported Expected
Earnings Per Share $0.47 $0.40
Revenue $11.2 billion $11.35 billion

Sysco's earnings per share decreased 4.1% and revenue rose 4.1% year-over-year, as the restaurant industry's difficulties continued. Gross profit rose 0.7% to $1.97 billion, despite Sysco's gross margin declining 59 basis points to 17.49%. Operating income was a dark spot for Sysco, as it fell 8.1% to $351.8 million due to higher-than-expected operating expenses. Sysco noted that the quarter was, "quite challenging for many of our customers, especially those who operate in the casual dining restaurant segment." 

Aramark's first-quarter report for fiscal 2014 was released on Feb. 5, and the results beat analysts' expectations on both the top and bottom lines. Here's an overview of the report:

Metric Reported Expected
Earnings Per Share $0.52 $0.43
Revenue $3.76 billion $3.70 billion

Aramark's earnings per share increased 52.9% and revenue increased 6.4%, driven by growth in the food services segment. Food and support services saw sales increase 7% to $2.6 billion in North American and 7% to $775.6 million internationally. CEO Eric Foss was very pleased with the report and stated, "We continue to win new business and achieve high client retention rates, which drove broad-based topline growth across our segments and geographies."

Taking care of shareholders
During the quarter, Sysco paid a dividend of $0.29 per share, a 3.6% increase from the $0.28 paid during the second quarter of 2013. The company has paid quarterly dividends every year since 1970, which represents an incredible 43 consecutive years of quarterly payments; an even more impressive statistic is that this dividend has been increased 45 times since 1970, including raises for 37 consecutive years. This shows that Sysco is dedicated to returning value to shareholders, and I believe the streak of dividend increases will continue even in times of slowed growth.

In addition to Aramark's better-than-expected quarterly results, the company also announced that it will begin paying a quarterly dividend. It will begin paying a $0.075 quarterly dividend in March which represents an annual payment of $0.30, giving the stock a yield of roughly 1.1% at current levels. This was a very bullish move by Aramark since this was just its first quarterly report since going public and it is a strong indication that the company is fully dedicated to maximizing shareholder returns. I believe the dividend could be increased in a few quarters, due to the ample free cash flow Aramark generates.

The year ahead
In its report, Sysco did not provide guidance, so we will look at the current consensus analyst estimates for the third quarter; here are the expectations:

  • Earnings per share of $0.39-$0.41
    • Compared to $0.40 in the third-quarter of 2013
  • Revenue of $11.3 billion-$11.5 billion
    • An increase of 3.4%-5.2% year-over-year
These estimates would not result in a great quarter, but the result would be better than what we saw in the second quarter. Any growth for Sysco will rely entirely on the restaurant industry because health care, education, and other industries are fairly consistent with their ordering. Until restaurants regain strength, Sysco's earnings will likely remain flat or negative year-over-year. 

In its report, Aramark reaffirmed its outlook for the rest of fiscal 2014. The company expects the following results:

  • Earnings per share of $1.30-$1.40
    • Compared to $0.33 in Fiscal 2013
  • Organic sales growth of 3%-5%
  • Operating income is expected to grow in mid to high single-digits

For its first year back, this is a solid set of expectations. If Aramark can deliver on these estimates while paying its dividend and repurchasing a few shares, it would make for a great debut to the market. I am confident Aramark will deliver due to its wide array of offerings across several growing industries.

And the winner is...
When comparing these companies' earnings and revenues, dividends, and outlooks on the year, the winner of the match-up is Aramark. It had the better earnings report and outlook on the year, and its initiation of a dividend was a very bullish addition. Sysco's dividend is much higher, but I would like to see it show more growth on the top and bottom lines before considering it for an investment. Investors should strongly consider initiating positions in Aramark right now and adding to them on any weakness provided by the market.

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Read/Post Comments (4) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 13, 2014, at 8:44 AM, prginww wrote:

    SYSCO has payed quarterly dividends every year since 1970 for an incredible 43 years......NOT 33.

  • Report this Comment On February 13, 2014, at 9:01 AM, JoeySolitro1 wrote:

    We'll get that fixed right up... simple mistake. Thanks for pointing it out.

  • Report this Comment On February 13, 2014, at 9:59 AM, 7ryder wrote:

    I don't understand why you're comparing the two companies since SYSCO is a distributor and Aramark provides services related to food and uniforms. In fact, Aramark employees prepare food items for their customers that are delivered to their locations by SYSCO (which is Aramark's major distribution supplier). If you're going to compare Aramark to like companies, you should profile Compass, Sodexo or Cintas.

  • Report this Comment On March 03, 2014, at 3:28 PM, MeirRatsky wrote:

    I don't know about other Fools, but my wife and I eat out a LOT, mostly in casual restaurants. Since the beginning of 2014, we have had more and more trouble just getting a table in nearly all of our "regular" haunts. This past weekend was typical; Longhorn Steaks, O'Charlie's and Red Lobster all had 30-45 minute waits around 6:30PM. The contrast with 3 months ago is dramatic, where we NEVER had to wait at all in these type of restaurants. There seems to be a major turnaround in this segment, which is Sysco's "meat and potatoes." Middle-class folks are rapidly getting back into the eating-out mode, at least in Atlanta (which is otherwise behind much of the nation in terms of recovery). A number of these institutions have been taken by surprise by this turn-around, and are frantically trying to restore their staffing levels to meet the demand. I've spoken to the managers of just about every one of the restaurants we dine at, and they are all having the same problem keeping up! This is definitely a leading indicator, as it will take months before this shows up on the industry financial reports.

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