What happened?
Food service giant Sysco (SYY +0.67%) reported its fiscal Q2 2016 results. For the quarter, revenue was essentially flat compared to the same period last year, rising only marginally to $12.15 billion. In contrast, net profit saw a notable rise of 17%, to land at $275 million, or $0.48 per diluted share.
Although the top-line result narrowly missed the average analyst estimate of $12.17 billion, per-share earnings well exceeded expectations of $0.41 in adjusted EPS.
Sysco attributed its improvement in net profit in no small part to "containing operating expense growth." Last summer, the company said it would attempt to boost earnings through cost-saving measures and more aggressive sales pushes, among other initiatives. This followed Sysco's abandonment of its attempted merger with peer food service company US Foods, majority-owned by private equity veteran KKR (KKR 1.19%) and a pair of affiliates.
Does it matter?
It's apparent that Sysco is succeeding in its ambitions to drive the bottom line higher with cost savings -- for Q2, operating expenses were roughly half what they were in the year-ago quarter, while revenue was essentially the same. It seems the company was originally, through US Foods, hoping to go the growth-through-acquisition route (as was KKR, which certainly would have benefited as the latter's majority owner). But when the Federal Trade Commission started a legal process aimed at halting the merger, Sysco cut and ran.
So investors are certain to be encouraged by this successful cost-chopping, although of course organic growth -- or the increased sales from a successful acquisition -- would, of course, have been preferable. So we can expect an uptick in Sysco's share price on the back of these results, but concern will likely grow that the company doesn't yet have an effective plan for growing its business, either through organic results or a large-scale asset buy.
