Sysco (SYY) Improves Income Growth Target, Shares Rise
Shares of Sysco Corp. SYY gained 2.01% on Feb 29 after the company updated its three-year outlook.
The global food products maker and distributor said that it plans to modernize and add new capability and functionality to its technological tools. The company noted that renewing its existing and proven technology systems has improved customer experience in the past.
As part of its investments in technology, Sysco expects to lay off approximately 2% its workforce, which translates to around 1,200 positions, over the next 15 months. The administrative, non-customer-facing jobs will mainly be retrenched. The company expects to incur charges of approximately $70 million in fiscal 2016 and $130 million in fiscal 2017.
Though personnel reduction is a tough decision for any company, this action will position Sysco well to compete more effectively in the markets and invest the savings in business, growing dividends, making strategic acquisitions and repurchasing shares. On the back of its productivity plan, Sysco raised its operating income growth target to at least $500 million from $400 million by the end of fiscal 2018. The effort will also boost earnings.
We are impressed by the fact that Sysco’s gross margins recovered in the last three consecutive quarters after declining over the last two fiscal years due to multiple factors. It seems that the company’s growth strategy is paying off and its efforts to boost sales and margins are bearing fruits.
The company’s sales have also improved consistently driven by acquisitions and volume growth. Though the termination of the long-awaited merger agreement with US Foods in June was disappointing, the company remains positive on the acquisition front and expects to move forward with more such deals.
Sysco has a Zacks Rank #2 (Buy).
Some better-ranked companies in the same industry include Pinnacle Foods Inc. PF, ConAgra Foods Inc. CAG and Kellogg Company K. All of them carry Zacks Rank #2.
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