What is behind the numbers
Interview: Sysco Corp---Schnieders, Richard---Chief Executive Officer
>> welcome back to the “world financial report.” we’re talking sysco, the one beginning with letter s. the stock is up over 3% today after the company reported better than expected second quarter earnings. largest distributor of north american food or i should say the largest north american distributor of food to restaurants, hospitals and schools said net income rose 18%. revenue climbed to just under $7 billion. they earned 37 cents a share, six cents more than last year and two cents better than the average estimate of analysts polled by thomson financial. for a closer look at what is behind the numbers and what is ahead for his company, we are joined by the chief executive officer of sysco. he joins us from albuquerque, new mexico. thanks for being on the program.
>> thank you, bob.
>> i want to ask you about your acquisition. you bought several companies in the last year including asian foods as well as colorado boxed beef company, a meat cutting business. do you plan future acquisitions, and if so, more domestic or foreign companies?
>> well, we always are on the lookout for good partners in terms of acquisitions. they’ll most likely be in the united states, although they could be in canada. we have a great presence in canada. we have a 20 share in canada, higher than the u.s. we’ll look not only geographically but we’ll do product speciality businesses. the colorado boxed beef, so the speciality meat companies, speciality produce companies. asian foods is a speciality company for us also. it focuses on primarily the asian business as you might expect. chinese restaurants, asian restaurants of all kaoeupbts. we’re branching off. our desire is to do a continually better job for our customers and provide a wider breadth of products going forward.
>> one thing people say about your balance sheet is they point out your cash position. sitting on $337 million or so, over $is00 million more than last year. do you have plans for the cash?
>> well, we certainly do. we return a lot of cash over the last five years. 94% of earnings have gone to shareholders even in the form of dividends or in the form of stock buybacks. that’s the two primary areas that we use our cash. and really the priority over that in terms of what we’re trying to do and that is grow our business is in the acquisitions which we talked about. we keep our eyes open for good acquisitions. we will continue to pay a dividend. and then we’ll do stock repurchase as a third alternative. those three things -- acquisitions, dividends and stock repurchase.
>> with your cash position up between 40% and 50% in the last year, i wonder which you are leaning toward more now? we have had a dividend tax cut. is that a better option or stock buybacks?
>> our dividends today are about 33.7%. we’re returning 33.7% of our earnings. we don’t see that number significantly changing because of the tremendous opportunities in the food service business. we only have a 13 share in the u.s. so there’s lots of opportunity to grow. we want to make sure we have ready cash available to do the right kind of acquisition at the right time.
>> ok. most people would describe sysco or any food company as a defensive stock , that is a company whose earnings are not overall tied to the health of the u.s. economy, not cyclical in other words. but you sell to restaurants which could be more cyclical than supermarkets. also to the travel industry. to what degree are your earnings tied to the economy?
>> well, to a certain extent they are. if you look at our history and trends in terms of eating out, the consumer dollar is over 50% spent on food prepared away from home. we think that trend will continue on into the near future certainly and for a long time to come. so we just are, as you said, non cyclical. we are comfortable that we can continue to grow our business. you mentioned our growth. compound average growth over the 33 years of the company is 18%. of course, that keeps pressure on us to make sure we keep performing at those levels. so that’s pretty standard. we’re not a cyclical stock . however, i do think that we have shown we can grow and grow rapidly in no matter what economy presents itself. >> your stock is up 2% so far this year, underperforming the rest of the market.
is that why you think your stock isn’t up as much, because it is considered more defensive, people are predicting a rebound in the economy and they’re moving money out of stocks like sysco and into tech or industrial stocks that might be seeing a larger bounce with an economic rebound?
>> i think that’s right. i think folks will do that in these times. however, i will also point out that we didn’t have the declines that we saw in the broad marketplace. so if you saw 20%, 25% declines in the average stock or the dow jones, you didn’t see that in cisco. so we have recovered some from a smaller tkao klein, if you will.
>> now 25% of your sales i have roughly 25% in hotels, conference destinations, travel, cruise ships and fine expense account dining. that is more susceptible to economic swings, right?
>> that is susceptible to more swings. however, we are so broadly based in terms of customers, in terms of geography and product that we -- no matter what times, we mitigate because the lack of focus, if you will, in our business, the numbers of different kinds of customers.
>> we’re out of time. thanks for joining us. we’ll be right back.
