Will Sysco's (SYY) Strategic Efforts Help Sustain Momentum?
Shares of Sysco Corporation SYY have exhibited a bullish run over the last one year. This Zacks Rank #3 (Hold) stock was up 13.9% against the Zacks categorized Food–Miscellaneous/Diversified industry’s decline of 0.4%.
Meanwhile, the Zacks categorized Consumer Staples sector, of which they are part of, gained 6.2% in the said time period. Also, it boasts a Value Score of “B” with a long-term earnings growth rate of 8.2% that is likely to drive the momentum further.
Let’s Delve Deep
Sysco has a strong business portfolio coupled with a sales force of marketing associates and multi-regional presence in the U.S. and Canada. We believe the company’s efforts to explore opportunities to provide new and improved products, technologies and services to its customers will help it to retain customers and profitably.
We note that Sysco’s third-quarter fiscal 2017 earnings met the Zacks Consensus Estimate after posting positive earnings surprises for five straight quarters. However, the top line outpaced the estimates after missing the same in the previous quarter. Results were driven by sales growth, expense management along with improved gross and operating margins.
Further, its sales have improved consistently, driven by the acquisitions and volume growth. Consequently, the estimates have witnessed upward revisions over the last 30 days. The Zacks Consensus Estimate of $2.47 and $2.74 inched up 0.4% for both fiscal 2017 and fiscal 2018.
Sysco has been impressively managing expenses and is making progress in both the SG&A and supply chain areas. Notably, improving gross margin is another key driver of Sysco achieving its three-year targets. Evidently, the company has delivered positive gross margins for the last eight quarters now. In addition, the company undertakes shareholder-friendly moves.
Notably, Sysco has been carrying out various acquisitions over the years to grow its distribution network and customer base as well as boost long-term growth. In fact, during the third quarter, Brakes Group acquisition continues to make progress in their management of the supply chain within the UK, which is helping them to be more efficient and will ultimately improve overall service and reduce cost.
Accretion from the Brakes transaction was a penny (on an adjusted basis) in the quarter, ahead of the initial expectations. Looking ahead, the company expects Brakes to be modestly accretive in the fourth quarter.
However, Sysco remains concerned about the deflationary trend which is likely to continue in fiscal 2017, thereby creating modest sales and gross profit headwind. Also, management anticipates continued industry softness and challenging year-over-year comparisons in the second half of fiscal 2017. Furthermore, the grocery/supermarket is also grappling with stiff competition, aggressive promotional environment and waning store traffic.
Stocks that Warrant a Look
Better-ranked stocks in the same industry include SunOpta Inc. STKL, Aramark ARMK and Lamb Weston Holdings, Inc. LW.
SunOpta with a long-term earnings growth rate of 15% has surged 98.4% in the last one year. The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Aramark carries a Zacks Rank #2 (Buy) and has posted an average earnings beat of 4.5% in the last four quarters. Also, it has a long-term earnings growth rate of 12.8%.
Lamb Weston, a Zacks Rank #2 stock has surged 54% in the last year. Also, it has a long-term earnings growth rate of 4.2%.
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