Sysco Requests It No Longer be Judged on ROIC
Omission is a warning the food services company may not earn its cost of capital.
February 18, 2021
Sysco (SYY), a food service or food-away-from-home provider, is telling investors it should no longer be judged on key performance metrics it recommended in the past. In its fourth quarter 10-Q, Sysco adds new language that argues certain metrics no longer provide appropriate comparisons:

“The COVID-19 pandemic has significantly impacted the financial metrics used by management to evaluate the business, and certain metrics continue to be a near- and long-term focus, while other metrics do not provide meaningful comparable information in the near-term.”

Just ninety days prior to the filing, Sysco offered the following list of key performance indicators investors should use to measure the company’s performance:

1. Adjusted operating income growth and adjusted operating income leverage (non-GAAP);
2. Adjusted diluted earnings per share growth (non-GAAP);
3. Case volume growth by customer type for U.S. Broadline operations;
4. Sysco brand penetration for U.S. Broadline operations;
5. Free cash flow (non-GAAP); and
6. Adjusted return on invested capital

In its latest 10-Q, Sysco removes two of these metrics— adjusted operating income leverage and ROIC:

1. Adjusted operating income growth (non-GAAP);
2. Adjusted diluted earnings per share growth (non-GAAP);
3. Case volume growth by customer type for U.S. Broadline operations;
4. Sysco brand penetration for U.S. Broadline operations; and
5. Free cash flow (non-GAAP)

Investors are right to be skeptical of Sysco’s ROIC anyway, as it’s adjusted and likely understates invested capital. The recommendation to drop ROIC as a key performance metric suggests the company is no longer confident it can adjust its way to a positive ROIC in the current environment. Investors heeding this warning will likely be rewarded in the event Sysco’s cost of capital increases, further biting into the ROIC on which the company no longer wants to be judged.
Related: USFD, BJ, GO, WMK, AD, KR, COST
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