Food distributor Sysco (click ticker for report: ) reported strong results for its fiscal 2012 fourth quarter Monday. Revenue grew 6% year-over-year to $11 billion, which was in-line with consensus expectations. Adjusted earnings per share increased 3.3% to $0.62, which was slightly better than the Street predicted. The firm also generated $620 million in free cash flow during fiscal year 2012, a 36% increase from fiscal year 2011.
Although food price headwinds were tremendous during the quarter, the food giant was able to mostly pass costs along to its customers. Of course, the draught that has negatively impacted farms throughout the US could lead to even worse than expected food cost inflation in fiscal year 2013. Still, the firm intends to invest $600 million in capital expenditures to help improve operational efficiency and lower its cost structure. As a result, the company forecasts $600 million to $650 million in annual cost savings, with 25% of those savings realized in fiscal 2013.
Though we were pleased by the firm’s results, we think shares are fairly valued at current levels. We recently identified the company as a reasonably attractive dividend growth investment, and its robust free cash flow generation should support this thesis. Although management doesn’t provide earnings guidance, we wouldn’t be surprised if earnings dipped year-over-year. We’ll be monitoring the situation and could use a pullback to establish a position in our Dividend Growth Newsletter portfolio.
Please click the following link for Sysco’s Dividend Report: