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Will Sysco's U.S. Foodservice Gain From Sister Firms' Buyout?

Zacks Equity Research

Sysco Corporation SYY has recently acquired two food distributors — J & M Wholesale Meats and Imperio Foods — in a deal, financial terms of which were undisclosed. Per the deal, both the companies will continue to be operated by their existing executives and owners.

This move is in sync with the company’s plans to grow its distribution network and customer base along with boosting long-term growth. J&M and Imperio, also known as sister companies, generate approximately $44 million in combined annual sales. While J&M specializes in center of the plate products, catering to foodservice customers and small retail locations in the Hispanic segment, Imperio supplies dry Hispanic retail-pack canned goods.

The move reinforces Sysco’s focus on accelerating growth via acquisitions. Prior to this, the company had inked a deal to acquire Illinois-based distributor, Waugh Foods, which generates roughly $40 million in annual sales, per media reports. The company’s other notable buyouts include HFM in Hawaii, Doerle Food Service in Louisiana and Kent Frozen Foods in the U.K. Also, the company inked a deal to buy the remaining 50% stake in Mayca Distribuidores of Costa Rica.

We believe these acquisitions have benefitted the company’s top line to some extent. Notably, Sysco posted sales of $58.73 billion in fiscal 2018, followed by $55.37 billion in fiscal 2017.

Well, this deal will enable the company to expand customer base to Hispanic regions. Apart from this, it will also strengthen Sysco’s existing business in the California region, as the sister companies operate across northern California and Oregon. This, in turn, is likely to strengthen the company’s U.S. Foodservice unit, which has been performing well for quite some time now.

Evidently, sales in this division advanced 4.2% to $10.1 billion during second-quarter fiscal 2019, wherein local case volumes within U.S. Broadline operations increased 3.3% (including organic sales growth of 2.4%) and total case volumes ascended 2.9% (wherein organic sales increased 2%). Notably, local case volumes in this segment have been rising year over year for 19 consecutive quarters now. Additionally, rising restaurant sales have been benefiting the company’s U.S. operations for a while.

We expect such upsides to continue driving this Zacks Rank #3 (Hold) stock that has gained 12.6% in a year’s time against the industry’s decline of 5%.

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