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Sysco Inks Deal to Acquire Waugh Foods, Expands Portfolio

Zacks Equity Research

Sysco Corporation SYY remains on track with its acquisition efforts. In this regard, the company recently inked a deal to acquire Waugh Foods, a company known for providing a wide variety of products to its customers in Illinois. Post the acquisition, Waugh Foods will continue to be managed by its existing executives. Per Sysco, this brand aptly fits in its existing product portfolio and will enable the company to expand regional and local footprint. Further, management highlighted that Waugh Foods generates sales of nearly $40 million annually. 

We note that 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 concluded several meaningful acquisitions in fiscal 2018, including 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. Some other notable buyouts include Supplies on the Fly, North Star Seafood, Gilchrist & Soames and 50% stake in Mexico-based Pacific Star Foodservice, among others.

Apart from this, Sysco has been progressing well with its four core plans, which include enhancing consumers’ experience, optimizing business, stimulating power of its people and achieving operational efficacy. Further, to evolve with the changing consumer preferences, this Zacks Rank #3 (Hold) is committed toward investing in technology and enhancing e-commerce operations. Moreover, the company plans to improve supply chain, increase transparency, enhance deliveries and manage product costs effectively.  

However, we note that Sysco has been bearing the brunt of higher transport and warehouse expenses. Such rising costs have been denting the company’s U.S. Foodservice, SYGMA and International segment performances. Persistence of such headwinds remain a threat to margins. Due to such deterrents, shares of Sysco have lost 13.1% in the past three months compared with the industry’s decline of 8.7%. 

Nevertheless, we expect the company’s efforts to strengthen portfolio and boost operational efficiency will mitigate the adverse impacts of the aforementioned headwinds, thereby uplifting investors’ optimism in the stock.  

Stocks to Consider

Blue Apron Holdings APRN has a positive earnings surprise of 19% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Nomad foods Limited NOMD has a long-term earnings growth rate of 11% and a Zacks Rank #2.

Lamb Weston Holdings LW has a long-term earnings growth rate of 12% and a Zacks Rank #2 (Buy). 

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