When asked to envision a company in Houston whose operating results took a hit from fuel costs, you might first think of an oil company or a refiner. But with a fleet of 8,900 trucks to fuel, that description also applies only too well to Houston-based food distributor SYSCO (NYSE:SYY).
For the most recent quarter, SYSCO reported earnings of $0.45 per share, versus analyst estimates of $0.42, and last year's $0.40. While sales were off 3.1%, to $8.9 billion, operating expenses fell an even greater 7.2%; all in all, the company seemed to gain there. Factor out the adjustments baked into those numbers, however, and earnings still beat estimates -- but declined a penny from last year.
|
Metric |
Q2 2010 Earnings |
Q2 2009 Earnings |
|---|---|---|
|
Reported earnings |
0.45 |
0.40 |
|
Insurance value adjustment |
0.01 |
(0.05) |
|
Earnings w/o adjustment |
0.44 |
0.45 |
Source: SYSCO Q2 2010 earnings press release.
A primary reason to own this stock is the income from its growing dividend. SYSCO joins Coca-Cola (NYSE:KO), Procter & Gamble (NYSE:PG), ExxonMobil (NYSE:XOM), and other blue-chip stocks as a member of the Indxis Dividend Achievers, a group of companies that have increased dividends for at least 10 consecutive years. SYSCO's dividend of $0.25 per quarter represents a 3.6% yield, competitive with a 10-year Treasury. A track record and a good yield are nice, but can the raises continue?
In SYSCO's case, the flattish earnings bear watching. Still, $0.45 of earnings easily covers a $0.25 dividend, with enough cushion to let the raises continue. Going forward, analysts predict mid-single-digit earnings growth for 2010 and 2011. The company has managed to generate earnings to comfortably cover the dividend and continue its string of dividend hikes, even during a stretch in whcih dining out wasn't a top spending priority.
SYSCO is by far the dominant player in the Food Wholesale industry. The next largest public company in the industry is United Natural Foods (NASDAQ:UNFI), with a market cap less than one-tenth SYSCO's. Combine that dominance with cost-cutting measures such as truck routing to reduce fuel costs, and passing increased fuel costs to customers in the form of surcharges, and SYSCO is in a good position to ramp up earnings -- and those juicy dividend raises -- when the economy improves.
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