Sysco Corporation SYY is surely worth a look, with its shares up almost 10% in the past three months, easily outpacing the industry’s growth of 2.5%. This marketer and distributor of food and related products is mainly gaining from its strong U.S. Foodservice Operations, among other factors.
So let’s delve deeper into the segment and other aspects that are likely to continue working in favor of this Zacks Rank #2 (Buy) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
U.S. Foodservice Unit to Fuel Top Line
Sysco’s U.S. Foodservice unit has been performing well for quite some time now. The robust trend continued in third-quarter fiscal 2019, wherein sales in this division advanced 4.1% to $10,015.3 million. Local case volumes within U.S. Broadline operations increased 3.1% (including organic sales growth of 2.2%) and total case volumes ascended 2.1% (wherein organic sales increased 1.3%). Notably, local case volumes in this segment have been rising year over year for 20 consecutive quarters now. Clearly, a favorable economic scenario marked by a strong labor market is likely to continue supporting restaurant sales, thereby driving the U.S. Foodservice segment.
Buyouts a Major Driver
Sysco has been carrying out various acquisitions over the years to grow its distribution network and customer base, and boost long-term growth. To this end, the company acquired sister firms J & M Wholesale Meats and Imperio Foods in April. Prior to this, the company also announced a deal to acquire Waugh Foods, which is a Central Illinois distributor. Other evidences in this regard include the buyouts of HFM in Hawaii, Doerle Food Service in Louisiana and Kent Frozen Foods in the U.K.
Strategy for 2020 in Place
Sysco is on track with its four core strategies — enhancing consumers’ experience, optimizing business, stimulating power of its people and achieving operational efficacy. In this regard, the company focuses on enhancing assortments, making constant innovations, ensuring food safety and revitalizing brands. Notably, Sysco’s decision to sell its Iowa Premium cattle processing business will help it focus on core areas with greater growth potential. Further, to evolve with the changing consumer preferences, the company is committed toward investing in technology and enhancing e-commerce operations. Also, Sysco is focused on enhancing its customer-facing tools like a fresh delivery app and other enrichments on its digital shopping platform.
Cost-Containment Efforts to Help
Like many other food companies such as Campbell Soup CPB, TreeHouse Foods THS and General Mills GIS, among others, Sysco is also witnessing elevated costs in certain areas. Nevertheless, it is progressing well with its cost-cutting initiatives such as the Finance Transformation Roadmap that concentrates on modernizing the company’s international financial platform. Further, the company is focused on centralizing its actions, mechanizing work and dealing with offshore partners. Also, Sysco is on track with its Smart Spending initiatives and committed toward lowering its overall administrative costs.
Clearly, the aforementioned drivers are likely to help the company keep its splendid show on.
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