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SYSCO's multi-dimensional objectives include
strategic vision and prudent fiscal planning supported by brand
width and service depth. In our 30th year as a public company,
this combination produced record sales of $19.3 billion for the
52-week period ended July 1, 2000 compared to $17.4 billion generated
in fiscal 1999 (53 weeks), an 11 percent increase.
Fueled
by a thriving U.S. economy and mild winter weather conditions,
the foodservice industry during our most recent fiscal year enjoyed
real growth at the higher end of its historical two to four percent
rate, as reported by industry sources. SYSCO was favorably impacted
not only by these external factors, but also by numerous internal
initiatives. Historically, SYSCO's real growth has expanded two
to three times faster than the real growth rate of the industry.
FY 2000 was no exception, as real growth for the year reached
9.2 percent after adjusting for the extra week in fiscal 1999,
acquisitions of 3.5 percent and food cost inflation of 0.4 percent.
Diluted
earnings per share before a first quarter accounting change that
required start-up costs to be expensed as incurred, rose significantly
to $1.36, a 26 percent increase above the $1.08 per share earned
in last year's 53-week period. Net earnings before the accounting
change were $453.6 million, 25 percent above the $362.3 million
achieved in the 53 weeks of fiscal 1999.
Key
internal drivers that enhanced results were a sharpened focus
on increasing sales to marketing associate-served customers —
our core business — and continuing growth in SYSCO Brand
sales. Marketing associate-served sales grew to 55.4 percent of
traditional foodservice sales versus 54.1 percent last year, while
the SYSCO Brand gained increasing recognition and acceptance,
rising to 50.4 percent of marketing-associate served sales, compared
to 48.1 percent in fiscal 1999.
The
SYGMA Network, Inc., our chain restaurant distribution specialist,
generated record sales of $2.2 billion, an 8 percent increase
compared to fiscal 1999. In May SYGMA began servicing 362 additional
Burger King restaurants located in Pennsylvania and Northern California,
as well as Arby's units in Arkansas, Kansas, Missouri and Oklahoma.
These customer additions represent approximately $200 million
in annualized sales and we continue to selectively seek additional
chain restaurant business.
Six
strategic acquisitions completed during the year strengthened
both geographical presence and product offerings. They include
three custom-cutting meat operations, two broadline distributors,
and a specialty produce company. Through our Buckhead Beef Company
(Atlanta, GA), Malcolm Meats (Toledo, OH) and Newport Meat Company
(Irvine, CA) operations, SYSCO now offers precision custom-cut
steaks and other protein products to customers in certain areas.
Broadline distributors Doughtie's Foods Inc. (Portsmouth, VA)
and Watson Foodservice (Lubbock, TX) enhanced customer service
in the mid-Atlantic and southwestern United States. Annualized
sales of these five companies totaled approximately $500 million
in the aggregate.
The
combination of FreshPoint, Inc. (approximately $750 million in
annualized sales) with SYSCO's $1 billion produce operation created
the largest foodservice produce purchaser and supplier in the
world. SYSCO now offers a full spectrum of produce in numerous
varieties, from everyday staples to the exotic. Opportunities
also exist for strategic product cross selling through both customer
bases.
Internal
geographic expansion remains a priority and "fold-out" operations
under construction in the Hampton Roads area of Virginia and in
Sacramento, California should be operational in the spring and
fall of 2001, respectively. The Hampton Roads facility will replace
Doughtie's existing complex and supply their customers in Virginia
and eastern North Carolina, as well as certain customers in those
areas who are now being serviced from Pocomoke City, Maryland.
The Sacramento operation will serve Sacramento and surrounding
communities, as well as western Nevada and northern California
markets now being accommodated from San Francisco.
These
activities plus ongoing maintenance programs resulted in investments
of $266 million in facilities, fleet and equipment, with facilities
and fleet accounting for 72 percent. This compared to capital
expenditures of $287 million in FY 1999. Capital expenditures
for FY 2001 are expected to range from $325 million to $375 million.
SYSCO continues to generate sufficient cash from operations to
fund internal growth opportunities.
Since
1996 SYSCO has been repurchasing shares in excess of those issued
and at fiscal year-end 58 million shares had been repurchased,
including 5.7 million during FY 2000, with 3.8 million remaining
out of the 8-million-share 1999 authorization. After funding working
capital needs, capital investments, dividends, acquisitions and
share repurchases, total debt was $1.07 billion, including $1.02
billion long-term debt, resulting in a long-term debt to total
capitalization ratio of 37 percent. Before the accounting change,
return on shareholders' equity was 29 percent and return on average
total capital was 17 percent.
SYSCO
Uniform System (SUS) installations were completed last December
as planned in scheduled broadline companies, providing operational
efficiencies through valuable managerial and reporting tools.
SYSCO also has joined McDonald's Corporation, Cargill Inc. and
Tyson Foods Inc. to form electronic Foodservice Network (eFS Network),
an Internet-based, business-to-business (B2B) network. Open to
suppliers, distributors and chain restaurant operators, eFS Network
is aimed at cutting costs in the foodservice supply chain by more
efficiently managing the flow of information and products to the
marketplace.
More
than 40,000 employees dedicated to outstanding customer service
were instrumental in SYSCO's stellar FY 2000 performance and several
members of management were recognized for their part in SYSCO's
success. In January, in accordance with SYSCO's long-term management
succession plan, Charles H. Cotros was elected the fourth chief
executive officer in SYSCO's 30-year history. Mr. Cotros also
assumed the role of chairman on July 2, 2000 following the retirement
of Bill M. Lindig after a distinguished 30-year career. Also,
Richard J. Schnieders advanced to President and Chief Operating
Officer; Larry J. Accardi was promoted to Executive Vice President,
Merchandising Services and Multi-Unit Sales; Thomas E. Lankford
became Executive Vice President, Foodservice Operations and, upon
Mr. Lindig's retirement, was elected to serve the remaining portion
of his Board term; and John K. Stubblefield, Jr. was named Executive
Vice President, Finance and Administration.
In
November 1999 the Board of Directors increased the quarterly cash
dividend 20 percent to $0.12 per share from $0.10 per share, the
31st increase in 30 years.
We
are optimistic about SYSCO's future prospects, anticipating an
ongoing positive economic outlook and continued demand for meals
prepared away from home. We believe our long-term objectives are
achievable — high single-digit real sales growth with earnings
per share growing four to six percentage points higher than the
real sales growth rate, a 30 percent return on equity and a long-term
debt to total capitalization ratio of 35 to 40 percent. We intend
to seek growth opportunities through acquisitions and continue
our internal expansion strategies as well. As we move forward,
our commitment to providing our customers a breadth of products
for nearly every foodservice need, as well as unsurpassed service
excellence, will continue to drive our future success.
Charles H. Cotros
Chairman and Chief Executive Officer
Richard J. Schnieders
President and Chief Operating Officer
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