Sysco (SYY) Displays Bright Prospects, Headwinds Persist
Sysco Corporation SYY is poised to benefit from its diversified business structure, enabling it to mitigate the adverse impacts of weakness in one end market with strength across others. Embracing technology and data-driven solutions has been a fruitful approach for the company, enabling Sysco to identify growth opportunities and improve customer experience.
The company is focused on its Recipe for Growth, strengthening its sales and supply chain capacities. The program involves strategic priorities, which include enhancing customers’ experiences via digital tools and improving the supply chain to cater to customers efficiently. In its last earnings call, management highlighted that it expects to witness continued gains from the Recipe for Growth plan and is on track to grow 1.5 times faster than the market by the end of fiscal 2024.
Sysco also believes in acquiring assets to strengthen and expand its businesses. Recently, the company revealed its intentions to take over Edward Don & Company, which boasts annual revenues of roughly $1.3 billion. This buyout underscores its focus on Recipe for Growth. The buyout is likely to help Sysco establish a specialty Equipment and Supplies platform, offering a more comprehensive selection and improved customer service. Also, in June 2023, Sysco’s specialty produce business — FreshPoint — took over BIX Produce. The buyout helps FreshPoint strengthen its geographical presence in unexplored areas and enhance its specialty produce offerings.
Despite the positives, the company has been encountering product cost inflation in the U.S. Foodservice unit for a while now. For instance, SYY witnessed product cost inflation of 4.9% and 2.1% in the third and fourth quarters of fiscal 2023, respectively. In the fiscal fourth quarter, its operating expenses rose by 1.9% year over year.
The company has been experiencing slower overall industry market volume growth in the fourth quarter of fiscal 2023. In fiscal 2024, it expects the market to grow at a lower rate than in fiscal 2023.
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This Zacks Rank #3 (Hold) company’s shares have declined 13.8% in the past three months compared with the industry’s decline of 17.3%.
Stocks to Consider
Here, we have highlighted three top-ranked stocks, namely Inter Parfums IPAR, Post Holdings POST and Grocery Outlet Holding Corp. GO, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Inter Parfums manufactures, markets and distributes a range of fragrances and fragrance-related products. The Zacks Consensus Estimate for Inter Parfums’ current financial-year sales and earnings indicates 19.7% and 14.9% growth from their respective year-ago reported figures. IPAR has a trailing four-quarter earnings surprise of 45.9%, on average.
Post Holdings is a consumer-packaged goods holding company. POST has a trailing four-quarter earnings surprise of 59.6%, on average. The Zacks Consensus Estimate for Post Holdings’ current financial-year sales and earnings suggests growth of 13.2% and 189.3%, respectively, from the year-ago reported numbers.
Grocery Outlet is a retailer of consumables and fresh products. GO has a trailing four-quarter earnings surprise of 14.3%, on average. The Zacks Consensus Estimate for GO’s current financial-year sales and EPS indicates improvements of 11.2% and 4.9%, respectively, from the year-ago reported numbers.
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