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Sysco Controls Expenses as Its 1Q '05 Earnings Increase 8.2%

HOUSTON - While its net earnings increased 8.2% to $225.9 million for the first quarter of its fiscal year 2005, Sysco Corp. here also announced that it managed to reduce its cost structure and control expenses, according to its top executive.

Richard J. Schnieders, chairman and ceo, pointed out that efforts to operate more efficiently and effectively throughout the organization resulted in the company's 35 basis point reduction in operating expenses as a percent of sales.

"We also recognize that to be the long-term, viable source to our customers regardless of factors such as weather, fuel costs or the inflationary pressures that affect their businesses, it is critical that we continue to reduce our cost structure and control expenses. By using better handling and routing methods we can offset rising food and fuel costs, which in turn allows us to deliver food to our customers more accurately and efficiently than our competition," Schnieders said.

Sysco reported the following results for the quarter, which ended Oct. 2:
  • Diluted earnings per share rose 9.4% to $0.35 compared to $0.32 in the same period last year.
  • Net earnings climbed 8.2% to $225.9 million vs. $208.8 million in last year's first quarter.
  • Sales increased 5.6% to $7.5 billion versus $7.1 billion in the first quarter of fiscal 2004.
  • Acquisitions contributed 0.5% to sales and inflation was 5.9% during the first quarter.
  • Operating expenses as a percent of sales were 14.01%, a 35-basis point reduction in comparison to 14.36% in the same period last year.

    Schnieders also pointed out that despite four hurricanes this summer that impacted Florida, its broadline operations fared better than last year. He noted that of the 11 broadline operations in Florida and neighboring states that were affected by storms, nine of those companies recorded first quarter sales that were greater than last year's first quarter sales. In addition, many of Sysco's specialty distribution locations throughout that region also overcame the severe weather and contributed to Sysco's strong first quarter results.

    "The first quarter performance represents a terrific response by our associates to several strong and challenging factors, most notably the unprecedented weather impact from the four hurricanes they faced during the quarter. I am very grateful for their resolute and energetic efforts to help our customers succeed. In spite of repeated weather disruptions in the Southeast, rising fuel costs and food inflation, Sysco's associates met and overcame these obstacles by maintaining the strong customer service focus that has made Sysco the leader in foodservice distribution," he said.

    Schnieders also said the distributorship's business reviews with targeted customers that are expected to add value to their business has begun producing "tangible benefits and has been very successful in strengthening customer relationships." The business review professionals, he said, help customers lower operating costs and increase patron traffic by assisting in reengineering menus, assessing food costs, developing entree pricing strategies and implementing marketing concepts and various other business building tools that are available through our iCare program.

    Discussing the redistribution project, Thomas E. Lankford, president and coo, added, "Our Northeast Redistribution Center in Front Royal, VA, is progressing according to plan. Approximately three months from today it will begin distributing product to the first of 14 broadline operating companies in that region. Expenditures for the National Supply Chain project were $19.7 million during the first quarter, $13.2 million of which was capitalized and the remainder of which was expensed. This brings total expenditures on the project to $235.8 million, of which $165.5 million has been capitalized.

    "At the end of fiscal 2004 we advised that start-up expenses related to the Northeast Redistribution Center would have an estimated impact of $0.04 to $0.05 on earnings per share (EPS) during fiscal 2005. We remain confident that the EPS impact will be no greater than that amount during fiscal 2005. Furthermore, in fiscal 2006 we expect the incremental benefits of the project to offset any further incremental costs and for fiscal 2006 there should be no negative impact to EPS. In fact, there could be a slight, perhaps a half-cent, contribution to EPS in fiscal 2006."

    During the first quarter Sysco's capital expenditures were approximately $99.9 million. It is anticipated that capital spending for fiscal 2005 will be in a range of $400-$450 million, somewhat below the previously announced range of $450-$500 million.

    "The revision primarily results from fleet utilization efficiencies achieved at our operating companies and it is also affected by project timing of facility expansions," said Lankford. "We continue to invest strategically in our growth initiatives in fiscal 2005. We are in the process of securing a location for our 15th broadline fold-out operation, which will service the growing demand in the eastern North Carolina market. We anticipate the facility will have approximately 300,000 square feet of freezer, cooler, dry goods and dock space and that it will be operational by the end of fiscal year 2006.

    "Foodservice is a dynamic and constantly evolving industry," said Lankford, "and Sysco remains uniquely positioned to gain market share and assist foodservice operators in their efforts to grow business. The hallmark to Sysco's successes has always been our remarkably talented associates, and we firmly believe that their ability to execute our growth strategies will continue to set us apart from the competition in both the near and long-term."

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