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Sysco Gains on Strength in Foodservice Unit & Growth Plans

Zacks Equity Research

Sysco Corporation SYY has been able to maintain strong footing in the food space, courtesy of prudent financial plans and acquisitions. Also, the company’s U.S. Foodservice unit is yielding well. Backed by such positives, the stock has gained 6.6% in the past three months compared with the industry’s rise of 1.6%. Let’s take a closer look at these upsides that have made this Zacks Rank #2 (Buy) stock an attractive pick.
 
U.S. Foodservice Unit Aids Growth

Sysco’s U.S. Foodservice unit is performing well for quite some time. Sales in the division advanced 4.1% year on year to $10,015.3 million during the third quarter of fiscal 2019. During the quarter, local case volumes in U.S. Broadline operations rose 3.1% and total case volumes ascended 2.1%. Notably, local case volumes in the segment have been rising year over year for 20 consecutive quarters now. Markedly, favorable restaurant sales have been acting in favor of the U.S. Foodservice segment.

Strong Financial Plans & Efforts to Boost Portfolio

Sysco frequently engages in business acquisitions to expand distribution network and customer base. It acquired sister firms — J & M Wholesale Meats and Imperio Foods — in April. Prior to this, the company announced a deal to acquire Waugh Foods, a distributor in Central Illinois.

Other noteworthy buyouts of the company include HFM in Hawaii, Doerle Food Service in Louisiana and Kent Frozen Foods in the U.K. Also, the company inked a small deal in Sweden and bought the remaining 50% stake in Mayca Distribuidores of Costa Rica.


 

Additionally, the company is on track with cost-saving initiatives. In this context, the company’s Finance Transformation Roadmap concentrates on modernizing international financial platform. Further, it is focused on centralizing actions, mechanizing work and dealing with offshore partners. Also, Sysco is focusing on Smart Spending initiatives, which involve a detailed analysis of indirect spending categories and curtailing costs.

Among other growth-oriented moves, Sysco is progressing well with efforts to enhance consumers’ experience, stimulate power of its people and achieve operational efficacy. In this regard, the company is focused on augmenting assortments, making constant innovations, ensuring food safety and revitalizing brands. Notably, Sysco’s decision to sell Iowa Premium cattle processing business will help it focus on core areas with greater growth potential.

Further, to evolve with consumers’ changing preferences, Sysco is committed toward investing in technology and enhancing e-commerce operations. It is focused on enhancing customer-facing tools like delivery app and other enrichments on its digital shopping platform. Moreover, the company plans to improve supply chain and increase transparency.

Wrapping Up

These upsides indicate that the company is on track to maintain growth momentum. We expect that such efforts will enable the company to combat hurdles like unfavorable currency movements and higher operational costs. That said, we expect the company to continue in investors’ good books.

Looking For More Consumer Staples Stocks? Check These

The Chefs' Warehouse CHEF, with a Zacks Rank #2 (Buy), has long-term earnings growth rate of 15%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The J. M. Smucker Company SJM, with an expected long-term earnings growth rate of 4%, also carries a Zacks Rank #2.

Campbell Soup Company CPB, with long-term earnings growth rate of 5%, carries a Zacks Rank #2.

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