Shares of restaurant food supplier Sysco Corporation (SYY -1.98%) sank as much as 11.3% in early trading Monday after reporting fiscal Q1 2019 earnings that fell just short of estimates.
Wall Street had predicted Sysco would earn $0.92 per share (pro forma) on just under $15.4 billion in sales in the company's first fiscal quarter. Instead, Sysco reported sales of just over $15.2 billion, and pro forma earnings of $0.91.
GAAP earnings for Q1 were only $0.81.
But the news wasn't all bad. Sales may have missed estimates, but they did at least grow 4% year over year. Earnings may have missed estimates as well -- but Sysco earned 17% more profit in Q1 2019 than it had in the year-ago quarter.
Sysco's sales grew strongest in the U.S., where sales were up 5.6% year over year. International food service sales grew only 0.6%.
Free cash flow came in strong at $166.8 million, compared to last year's Q1, in which the company burned cash.
Decent sales growth, even better profits growth, and fantastic free cash flow -- what's not to like about all of that? I'll tell you what: the valuation.
Even with free cash flow turning around this past quarter, and even with Sysco generating a very respectable $1.7 billion in FCF over the last 12 months (GAAP earnings were just $1.5 billion), Sysco stock sells for the princely sum of nearly 22 times FCF. It costs more when valued on earnings, and much more when its nearly $8 billion in net debt is factored into the valuation.
With Sysco's stock so pricey already, investors were probably already looking for an excuse to sell Sysco today. This morning's earnings miss, it appears, suited that purpose nicely.