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Sysco (SYY) Buys The Coastal Companies to Diversify Portfolio

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Sysco Corporation (SYY - Free Report) strategically increased its presence through acquisitions, which are strengthening its portfolio. Keeping along these lines, the leading global foodservice distribution company concluded the previously-announced (Dec 6, 2021) acquisition of The Coastal Companies.

The Coastal Companies is a well-known fresh produce distributor and value-added processer. The Coastal Companies generates annual revenue of nearly $600 million. The company comprises three integrated businesses — Foodservice Distribution, Retail Distribution and Value-Added Manufacturing.

The acquired business will operate under Sysco’s specialty produce business — FreshPoint. The buyout will enhance FreshPoint’s service to the key Mid-Atlantic region. The move will also strategically diversify SYY’s portfolio by adding retail and ready-to-eat capabilities along with state-of-the-art facilities.

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Acquisitions Driving Growth

Sysco is carrying out various acquisitions over the years to broaden its distribution network and customer base and boost long-term growth. To this end, the company acquired Greco and Sons in first-quarter fiscal 2022, which delivered a strong performance in the second quarter. The inclusion of Greco and Sons is likely to help Sysco better cater to Italian-focused customers. We note that this acquisition is in sync with Sysco’s Recipe for Growth. In earlier developments, Sysco acquired J. Kings Food Service Professionals in August 2019. Prior to this, the company took over sister firms J & M Wholesale Meats and Imperio Foods in April.

Other evidence in this regard includes the takeovers of 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. Previous moves in this regard include the buyout of Supplies on the Fly, North Star Seafood, Gilchrist & Soames and a 50% stake in Mexico-based Pacific Star Foodservice among others.

Several other companies in the food space like Post Holdings, Inc. (POST - Free Report) , Hormel Foods Corporation (HRL - Free Report) and McCormick & Company, Incorporated (MKC - Free Report) are benefiting from acquisitions.

In first-quarter fiscal 2022, Post Holdings’ top line included $97.8 million in net sales from acquisitions. This includes Private label ready-to-eat (PL RTE) cereal business, Egg Beaters liquid egg brand, Almark Foods business and related assets as well as Peter Pan nut butter brand.

Hormel Foods is strengthening its business through strategic acquisitions. In June 2021, HRL acquired the Planters snacking portfolio. Prior to this, the company acquired Texas-based pit-smoked meats company Sadler’s Smokehouse in March 2020. The buyout is in sync with Hormel Foods’ initiatives to strengthen its position in the foodservice space.

McCormick strategically increased its presence through acquisitions, which have been strengthening its portfolio. In December 2020, McCormick bought a 100% stake in FONA International, LLC and some of its affiliates. FONA’s diverse portfolio helps McCormick bolster its value-add offerings and expand the flavor solutions segment into attractive categories. In November 2020, McCormick acquired the parent company of Cholula Hot Sauce — a premium Mexico-based hot sauce brand.

Coming back to Sysco, the currently Zacks Rank $4 (Sell) company is battling inflated labor and transport costs due to supply-chain disruptions. High transformation and snapback investments are also a concern. That said, growth-oriented moves like prudent buyouts and other efforts under the company’s Recipe for Growth are likely to help the company sustain growth. The company’s shares have increased 3.3% in the past six months against the industry’s decline of 0.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.