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Sysco



The No.1 distributorship also pointed out that its sales gains in the quarter were accomplished without the benefit of food cost inflation during the quarter, which as measured by Sysco's cost of goods, was 0.4% in the quarter compared with 5.9% in last year's first 13 weeks.

"The growth initiatives implemented during our last fiscal year resulted in sales continuing to strengthen throughout the first fiscal quarter and we've seen similar progress in the first few weeks of the second quarter. Continued emphasis on Business Review and Development processes, as well as additions to our customer contact personnel, contributed to the quarter's strong 6.3% sales growth and increases in customers and market share," Richard J. Schnieders, chairman, ceo and president, said.

Noting the resiliency of the foodservice industry, especially in the wake of the disruptive effects of Hurricanes Katrina and Rita, Schnieders said, "New Orleans, Houston and the Gulf Coast are strong foodservice markets for Sysco and I'm proud of the way our associates have responded to the personal and business challenges that they encountered during the quarter."

As a result of the declining food cost inflation, Sysco said it also recorded better gross profit margin performance as it experienced its smallest decline in gross profit margins in the past 12 fiscal quarters.

Non-comparable acquisitions represented 1.2% of sales in the quarter, the company said.

Sysco's operating expenses as a percent of sales increased during the quarter principally due to the expensing of share-based compensation; escalating fuel costs; higher pension costs; extra expenses incurred to serve existing customers as well as some competitors' customers who were affected by Hurricanes Katrina and Rita; and the ongoing investment in Sysco's National Supply Chain Project.

In the first quarter of fiscal 2006, Sysco adopted the provisions of SFAS No. 123(r), Share-Based Payment, utilizing the modified-prospective transition method under which prior period results have not been restated. The results for the first quarter of fiscal 2006 include incremental share-based compensation cost of $35.5 million ($31.7 million after tax), or $0.05 per share. The company currently estimates that expensing for share-based payments for fiscal year 2006 will now be approximately $90 million to $110 million after tax, or between $0.14 and $0.17 per share.

For the first 13 weeks, fuel costs increased $15 million, or 50%, compared with the same period last year, or approximately $0.015 per share. Higher pension costs also added $6.0 million of expense to the quarter, adding another half-cent impact to EPS and net costs related to the National Supply Chain Project had an impact of approximately $0.01 to the first quarter's EPS results.

Sysco's Virginia redistribution center is already shipping about 850,000 cases a week to all 14 operating companies in the Northeast Region, Schnieders said in the company statement. The amount represents about 50% of the company's planned volume.

"At current volume levels we have identified a number of operational changes that will make the RDC more efficient and, as a consequence, we plan to hold case volumes constant during the second quarter while we implement the changes," he said. "Our previous estimate for the financial impact of the RDC was predicated on projections that the RDC would achieve full volumes in January 2006. We now estimate that full ramp-up of case volume will be reached by the end of fiscal year 2006 and, consequently, previous estimates regarding the financial impact of the RDC and National Supply Chain initiative of being a half-cent accretive to flat in fiscal 2006 will not be achieved. However, we remain confident that the long-term benefits of the project will continue to be achieved.''

Schnieders also said the design phase of the second RDC, which will be located in Alachua, FL, is scheduled to be completed in December 2005 and the company also expects to announce a site selection for its third RDC that same month.

Capital expenditures were $94.2 million in first quarter, including continued construction of two fold-out operations that will service the Raleigh, North Carolina and Gulf Coast Alabama markets and construction of replacement facilities in Lincoln, IL and Denver, CO.

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