February 7, 2011 / 2:20 PM / 10 years ago

Sysco says rising food costs could eat into profits

BANGALORE (Reuters) - Food distributor Sysco Corp (SYY.N) said higher costs that squeezed its margins in the second quarter could continue to eat into its profits and may lead to a choppy recovery.

Higher raw material costs have pressured companies across sectors, and many of them, including Kellogg Co (K.N), the world’s largest breakfast cereal company, raised prices to combat rising ingredient costs.

Sysco shares were down more than 6 percent on Monday afternoon on the New York Stock Exchange.

On a call with analysts, the company said a double digit price rise in meat, dairy and seafood — categories that account for one-third of its sales — created substantial margin pressures.

“It is unlikely that these pressures are going to subside near term,” Morning Star analyst Erin Sherin said, “This is in stark contrast to the 3.5 percent deflation Sysco was experiencing in the year-ago quarter.”

Food inflation is a mounting worry globally. A recent study on global food prices by a U.N. agency showed they hit their highest level on record in January, and are set to worsen after a massive snowstorm in the United States and floods in Australia.

Sysco CEO Bill DeLaney said, “Recovery and to some extent, (its) financial results may be somewhat choppy due to the economic challenges that consumers continue to face.”

For the second quarter, the company reported a net income of $258.1 million, or 44 cents a share, while analysts were looking at earnings of 47 cents a share, according to Thomson Reuters I/B/E/S.

Shares of the company were down almost $2 at $28.01 on Monday, placing it among the top percentage losers on the New York Stock Exchange.

Reporting by Aditi Sharma in Bangalore; Editing by Jarshad Kakkrakandy

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