(UPDATED COVERAGE, Feb. 2) Food prices are expected to climb as the economy improves and deflation that gripped the industry last year moderates, executives with foodservice distributor Sysco Corp. said.
During a conference call with analysts following the release of the companyâs quarterly results Feb. 1, Sysco Chief Operating Officer Ken Spitler projected a âbest caseâ food inflation outlook of 2% to 3%, rather than the 6% to 8% rate seen a few years ago.
Deflation, or generally declining prices sustained over several months, squeezed food retailers and wholesalers in 2009 as the U.S. struggled to pull out of a recession. That made it difficult for to raise prices to offset weaker demand, prompting layoffs and other cost-cutting measures.
Sysco, based in Houston, said sales dropped 3.1% in its most-recent quarter, to $8.9 billion, the fifth consecutive quarterly sales decline. Still, profit rose 13%, partly on lower costs, the company said.
Net income for the quarter that ended Dec. 26 was $268.3 million, or 45 cents a share, compared with $237.7 million, or 40 cents, in the same period a year earlier, Sysco said today.
Per-share profit topped the average analyst estimate by about 3 cents, according to Thomson Reuters. At midday Feb. 1, Sysco shares rose 41 cents, or 1.5% to $28.40, up 27% over the past 12 months.
The ability to command higher prices should provide greater operating expense leverage for food companies like Sysco, said Ajay Jain, an analyst with Hapoalim Securities USA, Inc.
âDeflation has a dampening effect on business' top-line and that also makes it more difficult to leverage fixed costs,â Jain said.
Sysco is North Americaâs largest food distributor to restaurants and has about 400,000 customers, including schools, hotels and prisons.
Food deflationary pressures generally are âmoderating,â Sysco Chief Executive Officer Bill DeLaney said in a statement before the conference call. DeLaney also said his companyâs shipments are increasing.
âWhile the business environment remains challenging, deflation pressures appear to be moderating from highs we saw early in the quarter and case volume trends continue to improve,â DeLaney said in the statement.
In the most-recent quarter, Syscoâs food cost deflation, as measured by the estimated change in the cost of goods, was 3.5% compared with the same period a year earlier, the company said. Syscoâs food cost deflation was 3.4% in the quarter ended Nov. 2.
In the quarter ended June 27, Sysco reported food cost inflation of 0.5%.
Sysco shares today rose 38 cents, or 1.4 percent to $28.37. The stock is up 27 percent over the past 12 months.