"This quarter has been marked by our consistently strong sales growth and effective expense control," said Richard J. Schnieders, chairman, ceo and president. "The main drivers for the sales growth continue to be our business reviews and the efforts of our marketing associates. Business reviews remain very successful with our customers and we are well on track to achieve our goal of conducting 40,000 reviews this fiscal year. We also saw progress leveraging our expenses this quarter, specifically at the operating company level as they continued to run their businesses more efficiently. Looking forward, we will continue to build on the unique initiative of business reviews as well as to further leverage our operating expenses."
Other highlights for the second quarter and first half were:
Quarterly sales increased 7.5% to $8.569 billion from $7.971 billion in last year's second quarter. The impact of EITF 04-13 (Accounting for Purchases and Sales of Inventory with the Same Counterparty) reduced second quarter fiscal 2007 sales growth by 1.1%, or $85.5 million. Net earnings during the period were $236.7 million compared with $204.2 million in the second quarter of fiscal 2006, an increase of 15.9%. Diluted earnings per share (EPS) increased 15.2% to $0.38 compared with $0.33 in the second quarter of fiscal 2006.
Sales increased in the first six months 7.9% to $17.241 billion from $15.982 billion in the same period last year. The impact of EITF 04-13 reduced first half of fiscal 2007 sales growth by 1.1%, or $177.0 million. Net earnings in the first half were $425.7 million compared with $412.7 million in last year's first half of the fiscal year, an increase of 3.2%. Diluted earnings in the six months per share increased 4.6% to $0.68 compared with $0.65 in the same period last year. Net earnings and EPS were impacted by a $39.7 million loss due to the cumulative effect of accounting change recorded in the first quarter related to the accounting for corporate owned life insurance policies (FASB Staff Position No. FTB 85-4-1, "Accounting for Life Settlement Contracts by Third Party Investors"). In addition, net earnings for last year's first fiscal quarter included a gain of $9.3 million, which resulted from the cumulative effect of accounting change related to a change in the measurement date for Sysco's pension and other post retirement benefit plans.
During the second quarter approximately 10,000 business reviews, long believed to be a driver of the distributorship's sales, were performed at Sysco's U.S. broadline operations, and approximately 20,000 business reviews were completed in the first half of fiscal 2007. Sales to customers that participated in the business review process continued to be solid and are fully in line with results from previous quarters. An additional 89 customer contact professionals have been added during the second quarter and a total of 151 since the beginning of fiscal 2007.
During the second quarter, gross profit margins increased to 19.30% from 19.27% in last year's second quarter, including a 19 basis point improvement due to the impact of EITF 04-13. Margins were primarily negatively impacted by inflation, which had an effect on customer and supplier pricing. In addition, there was a sales shift within the different company segments as some lower margin segments grew faster than the broadline segment.
Capital expenditures during the second quarter were $198.6 million, Sysco said. Through the first half of fiscal 2007, capital expenditures were $314.5 million. For the full fiscal year 2007, the company continues to project capital expenditures to be in the range of $575 million to $625 million. The primary areas for growth investments during the second quarter included facility replacements and expansions, construction of fold-out operations, additions to distributor's fleet and the new redistribution center (RDC) in Alachua, FL. Sysco has obtained building permits for this RDC and the process of preparing the building site was completed successfully and on schedule by the end of the quarter. Construction for this RDC is expected to take approximately 14 months.
The distributorship is planning to initiate construction on fold-out operations in Longview, TX and in Knoxville, TN during the second half of fiscal 2007.
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