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Sysco Up on Solid U.S. Foodservice Unit & Cost-Saving Efforts

Zacks Equity Research

Sysco Corporation SYY is an attractive pick, courtesy of well-chalked growth measures. The company is benefiting from its focus on key priorities along with cost-containment efforts. Moreover, Sysco has been undertaking buyouts to boost long-term growth. Markedly, strength in the U.S. Foodservice segment has been yielding.

On the back of these upsides, shares of the company have rallied 34.2% in the past year compared with the industry’s growth of 15.9%. Further, this Zacks Rank #2 (Buy) company’s long-term earnings growth rate of 9.4% reflects on its inherent strength. Let’s take a closer look.


Factors Working in Sysco’s Favor

Sysco is on track with its four core strategies — enhancing consumers’ experience, optimizing business, stimulating the power of its people and achieving operational efficacy. In this regard, the company focuses on enhancing assortments, making constant innovation, ensuring food safety and revitalizing brands. Notably, Sysco’s decision to sell its Iowa Premium cattle processing business will help it focus better on core areas with greater growth potential. Moreover, Sysco is committed toward investing in technology and enhancing e-commerce operations. This apart, the company is undertaking efforts to improve supply chain, increase transparency, enhance deliveries and manage product costs effectively.

The company’s focus on cost-containment efforts has been driving performance for a while. In connection with this, the company’s Finance Transformation Roadmap and Smart Spending initiatives bode well. Further, Sysco is committed toward lowering overall administrative costs.

Additionally, Sysco’s focus on acquisitions is helping it expand distribution network and customer base. To this end, the company announced the buyout of J. Kings Food Service Professionals on Aug 12, 2019. In April 2019, the company took over sister firms — J & M Wholesale Meats and Imperio Foods. Earlier, it had announced a deal to acquire Waugh Foods. Such prudent buyouts are expected to strengthen Sysco’s distribution network in the future.

U.S. Foodservice Unit Strong

Notably, the company’s U.S. Foodservice unit has been performing well for quite some time. The robust trend continued in first-quarter fiscal 2020, wherein sales in the division rose 2.5% to $10,658.6 million. Local case volumes within U.S. Broadline operations inched up 1.5% (including organic sales growth of 1.4%) and marked its 22nd consecutive quarter of growth. We believe that a favorable economic scenario marked by a strong labor market is likely to continue favoring restaurant sales and boosting the U.S. Foodservice segment.

Clearly, the aforementioned upsides are likely to help Sysco maintain its solid position in investors’ good books.

Look for Other Food Stocks? Check These

Pilgrim's Pride Corporation PPC, which sports a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 22.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lamb Weston Holdings LW, which carries a Zacks Rank #2, has a long-term earnings growth rate of 8.8%.

General Mills, Inc GIS, which carries a Zacks Rank #2, has a long-term earnings growth rate of 7%.

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