Prices for milk, meat and other foods are expected to climb as the economy improves and deflation that gripped the industry last year moderates, executives with foodservice distributor Sysco Corp. said today.
“From talking to merchandisers, there is a feeling or a prediction of inflation to come in beef, pork, poultry and dairy,” Sysco Chief Operating Officer Ken Spitler said during a conference call with analysts following the release of the company’s quarterly results.
Spitler projected a “best case” food inflation outlook of 2 percent to 3 percent, rather than the 6 percent to 8 percent 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 to raise prices to offset weaker demand, prompting layoffs and other cost-cutting measures.
Sysco, based in Houston, said sales dropped 3.1 percent in its most-recent quarter, to $8.9 billion, the fifth consecutive quarterly sales decline. Still, profit rose 13 percent, 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 per share, 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. Sysco shares today rose 38 cents, or 1.4 percent to $28.37. The stock is up 27 percent 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.
“Deflation has a dampening effect on business' top-line and that also makes it more difficult to leverage fixed costs,” Jain said.
Sysco is North America’s largest food distributor to restaurants and has about 400,000 customers, including schools, hotels and prisons.
Supply gluts also pressured prices for foods such as milk and pork much of 2009. But prices were already on the upswing as the year ended.
Wholesale prices for fluid milk in December were up 8.8 percent from November and up 4.5 percent from December 2008, according to the U.S. Bureau of Labor Statistics. Wholesale pork prices in December were up 3.4 percent from a year earlier.
“We would expect the dairy deflation pressure to ease,” Sysco Chief Executive Officer Bill DeLaney said during the call. “For beef, demand continues to be weak and that continues to keep prices under pressure.”
Food deflationary pressures generally are “moderating,” DeLaney said in a statement earlier today. DeLaney also said his company’s shipments are increasing.
“While 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,” DeLaney said in the statement.
In the most-recent quarter, Sysco’s food cost deflation, as measured by the estimated change in the cost of goods, was 3.5 percent compared with the same period a year earlier, the company said. Sysco’s food cost deflation was 3.4 percent in the quarter ended Nov. 2.
In the quarter ended June 27, Sysco reported food cost inflation of 0.5 percent.