AUGUST 16, 2010, 12:12 P.M. ET.

UPDATE:Sysco 4Q Profit Rises 7.1% As Extra Week Boosts Results

By Karen Talley Of DOW JONES NEWSWIRES NEW YORK

(Dow Jones)--Sysco Corp.'s (SYY) fiscal fourth-quarter earnings rose 7.1%, aided by an extra week in the period, and volume trends improved, but operating expenses remain high and food inflation is becoming an issue.

North America's largest marketer and distributor of foodservice products by sales experienced a "challenging" period, said Chief Executive William DeLaney on a conference call with analysts. "We have seen no consistent pattern of improvement on a week to week basis."

Sysco counts hospitals, schools and other institutions as customers, but its restaurant business has taken the brunt during the economic downturn.

During the fourth quarter, Sysco experienced food cost inflation for the first time in a year. Areas including dairy, meat and produce all rose in price. Sysco faces the challenge of balancing how much of the costs it can absorb with what it can pass along to customers.

Some restaurants last year had trouble paying their bills, increasing Sysco's exposure to bad debt, although that has been less of an issue lately. Sysco said its bad-debt provisions in the quarter plunged 53% after more than doubling in the prior-year period.

For the quarter ended July 3, Sysco reported a profit of $337.8 million, or 57 cents a share, up from $315.3 million, or 53 cents, a year earlier. Revenue increased 14% to $10.35 billion, compared to a year-earlier decline of 6.6%.

Analysts polled by Thomson Reuters most recently forecast earnings of 58 cents on revenue of $9.96 billion.

Excluding the extra week plus corporate-owned life insurance impacts in both periods, earnings were flat at 50 cents while revenue increased 5.8%. Operating expenses increased by roughly $76 million, driven almost entirely by corporate-owned life insurance impacts and payroll, Hapoalim Securities USA said.

Gross margin narrowed to 19.2% from 19.4% amid higher costs for dairy, meat and produce.

For the new year, the company projected capital spending of $700 million to $750 million, including $160 million to $180 million for a modernization project the company said will position it for profitable sales growth. The outlay for the project will reduce earnings per share by 6 cents to 9 cents for the current fiscal year, which is a bit lower than projections provided in December.

Shares were off 93 cents, or 3.1%, to $29.05 in recent trading.

-By Karen Talley, Dow Jones Newswires; 212-416-2196; karen.talley@dowjones.com

http://online.wsj.com/article/BT-CO-201 ... 08510.html