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Sysco 3Q Profit Falls 6.1 Percent as Restaurant Traffic Slows, Credit Risks Rise

The company is “pursuing new customers cautiously to avoid doing business with restaurants that may exacerbate the problem of unpaid bills, which doubled for the company in the latest quarter,” according to the report.

Sysco’s expenses for bad debt reportedly rose to $61.6 million through March 29, up from $30.6 million three months ago.

While that is a fraction of Sysco's overall sales, the company expects the amount outstanding to continue to grow over the next several quarters as more restaurants go out of business due to a slump in consumer dining. "There's business out there that's potentially not the best from a credit standpoint," Sysco president and chief operating officer Kenneth F. Spitler told analysts during an earnings conference call. "Our folks are doing a good job out there going after new business as well as making sure that we don't take undue risk."

While sales and earnings suffer, Sysco continues to focus hard on operational efficiencies that have helped it to match analyst's estimates for third-quarter earnings. Tighter routing, more cases per trip, better mileage, reduced fuel and energy consumption are key measures that have been positively impacted during the downturn. The company has also trimmed its workforce by roughly 6 percent since last year and announced plans to reduce its 2009 capital spending plan by another $75 million, to between $500 million and $550 million.

According to the Dow Jones’ report, Sysco may be running out of fat to cut, as executives indicated it may be harder to keep profits up in a falling sales environment. "It looks like they are going to structurally be butting up against some limits," Canaccord Adams analyst Simeon Gutman said.

Sysco's third-quarter earnings came in at $226.2 million, or 38 cents a share, down from $241 million, or 40 cents a share, a year earlier. Revenue declined 4.5 percent to $8.7 billion. Analysts polled by Thomson Reuters recently were looking for earnings of 38 cents a share and revenue of $8.97 billion.

Sysco said it is fielding more calls on potential acquisition opportunities and hopes to be able to capitalize on them when appropriate. It recently acquired Pallas Foods Ltd., a foodservice distributor in Ireland with about $200 million in annual sales, for an undisclosed amount.

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