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Here's Why Sysco (SYY) Appears to be Well Positioned for 2021

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Sysco Corporation SYY  appears to be firmly placed as we enter 2021. The company, whose foodservice business has been suffering due to coronavirus-led woes, has been focused on supporting its customers amid the pandemic. The company is also utilizing its sales team to boost additional businesses and prepare for the return of demand in the food-away-from-home channel. Apart from this, Sysco’s transformation initiatives have been yielding results.

Courtesy of the abovementioned upsides, this Zacks Rank #2 (Buy) stock has gained 18.4% in the past three months compared with the industry’s rise of 8.6%. Let’s delve deeper into the factors, which are likely to keep the stock going.

Efficient Business Management Amid Pandemic

Sysco is making robust efforts to manage its business amid the pandemic. To this end, the company has been committed to helping its customers amid the crisis. Incidentally, the company is delivering holiday toolkits for restaurant tours, coming up with marketplace pop-up shops, offering solutions and prolonging the outdoor-dining season. Moreover, Sysco’s culinary experts are assisting restaurants in optimizing their menus to boost profitability and modify offerings for takeout and delivery efficiency. Apart from this, the company has hosted many webinars with customers.

As a significant chunk of the business has been hurt by reduced away-from-home sales amid the coronavirus crisis, the company has turned its distribution model to areas it didn’t essentially cater to before the pandemic. These include grocers, retailers and supply-chain contracts. The company is also supporting healthcare customers by arranging for deliveries of important items like PPE to hospitals, urgent care facilities and long-term care facilities. Apart from this, the company’s digital investments, like its Shop platform, bode well. In the first quarter of fiscal 2021, Sysco’s sales steadily improved week over week in the beginning, while the enhancements leveled out as the quarter ended. Sysco witnessed better-than-expected results from local customers in the quarter, especially independent customers. Also, restaurants saw a better-than-anticipated performance. Further, healthcare performed well throughout the quarter. Management earlier projected fiscal 2021 sales to be stronger than the fiscal 2020 level despite the current scenario.

Transformation Efforts Underway

Additionally, Sysco has been focused on its transformation initiatives. To this end, the company has been committed to becoming more digitally oriented, as part of which it is making investments to enhance its Sysco Shop digital order platform, among other efforts. By first-quarter-end, the proportion of orders placed via Sysco Shop expanded to nearly 60%. Further, Sysco is concentrating on improving its sales model – including transforming sales structure to be more focused, coordinating sales force incentives more closely with the company’s business goals and enhancing partnership of sales teams across its different business lines.

Moving on, Sysco is on track to regionalize its U.S. operations, which is likely to enhance the company’s efficiency. The company’s fourth initiative involves removing structural fixed costs. The company intends to eliminate annualized permanent fixed costs of about $350 million from its business in fiscal 2021. Apart from these savings, management had earlier outlined other cost-reduction opportunities, which are expected to deliver savings fiscal 2022 onward.

Wrapping Up

Sysco’s continued focus on providing value to its local customers through innovative product offerings, value-added services and improved e-commerce capabilities has enabled growth consistently. We believe that these factors along with the company’s robust efforts to manage the business well even amid such tough times are likely to keep it going.

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