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Cost-Saving Efforts Likely to Drive Sysco's (SYY) Q1 Earnings

Sysco Corporation SYY is slated to release first-quarter fiscal 2018 results on Nov 6. The question lingering in investors’ minds is, whether this global food products maker and distributor will be able to post a positive earnings surprise in the quarter to be reported. The company’s bottom line surpassed the Zacks Consensus Estimate by an average of 5.6% in the trailing four quarters. Let’s see how things are shaping up prior to this announcement.

Sysco Corporation Price and EPS Surprise

Sysco Corporation Price and EPS Surprise | Sysco Corporation Quote

What to Expect?

The current Zacks Consensus Estimate for the quarter under review is pegged at 73 cents, which reflects a year-over-year rise of about 9%. The earnings estimate has remained stable in the last 30 days. Also, analysts polled by Zacks expect revenues of $14,457 million, up roughly 3.5% from the year-ago quarter.

Buyouts & Solid Cost Management Bode Well, Competition a Worry  

Sysco has been witnessing year-over-year growth in top and bottom lines for quite a few quarters now. This has also helped its shares to gain 16.6% over a year, as against the industry’s downside of 9.1%. The company has been gaining from buyouts, customer-centric approach and focus on expense management. Notably, Brakes Group’s acquisition had a significant contribution in boosting Sysco’s top and bottom line in fiscal 2017, which remains a growth driver for fiscal 2018 as well. Also, the company’s focus on new product developments, value-added services and improved e-commerce capabilities has enabled growth with local customers.

While Sysco generated a major chunk of revenues from its U.S. Foodservice Operations in the last quarter, sales at the segment dropped 3.8% to $9.8 billion in the fourth quarter. However, on a comparable 13-week basis, sales jumped 3.6%, driven by higher volumes. The Zacks Consensus Estimate for first quarter revenues from this segment is currently pegged at $9.8 billion, compared with $9.5 billion reported in the year-ago period. On the other hand, sales at Sysco’s International Foodservice Operations almost doubled to $2.7 billion in the fourth quarter, largely backed by Brakes Group acquisition. For the current quarter, the consensus mark for revenues is $2.8 billion, up from $2.6 billion in the same period last year.

Additionally, we commend the company’s cost-management efforts, which has helped it witness gross margin expansion for nine consecutive quarters now. Also, the company is making progress in enhancing SG&A expenses and supply chain, and remains on track to achieve the high end of the three-year adjusted operating income target of nearly $600-$650 million through the end of FY18.

However, the company continues to battle industry headwinds like stiff competition, aggressive promotional environment and reduced store traffic, all stemming from consumers’ evolving preferences and the growing online rage. Also, a shift from a deflationary to inflationary environment may pressurize the gross margin. Nonetheless, the company’s focus on customers, benefits from buyouts and its aforementioned cost management initiatives remain noteworthy and are likely to boost sales and earnings this quarter.

What the Zacks Model Unveils?

Our proven model does not conclusively show that Syscois likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESPand a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with ourEarnings ESP Filter.

Sysco currently carries a Zacks Rank #2. However, the company currently has an Earnings ESP of 0.00%. The combination of Sysco’s Zacks Rank #2 and ESP of 0.00% makes surprise prediction difficult.

Stocks With Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Avon Products, Inc. AVP has an Earnings ESP of +2.94% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ralph Lauren Corporation RL has an Earnings ESP of +2.63% and a Zacks Rank #2.

The Hain Celestial Group, Inc. HAIN has an Earnings ESP of +5.22% and a Zacks Rank #2.

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