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Sysco (SYY) Gains From Recipe for Growth, Diversified Business

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Sysco Corporation (SYY - Free Report) has been benefiting from its Recipe for Growth plan. The company’s prudent acquisitions have been contributing to its growth. Another major factor working well for Sysco is its diversified business, which keeps it well-placed for the future. These factors, along with an efficient pass-through of elevated costs, aided the company in the fourth quarter of fiscal 2022.

Let’s take a closer look.

Factors Working Well for Sysco

Sysco has been focused on its Recipe for Growth, which is strengthening the company’s capacities across sales and the supply chain.

The program involves five strategic priorities aimed at enabling the company to grow 1.5 times faster than the market by the FY24 end. The five strategic pillars include enhancing customers’ experiences via digital tools. Further, the company is focused on improving the supply chain to cater to customers efficiently and consistently with better delivery and omnichannel inventory management.

Sysco aims at providing customer-oriented merchandising and marketing solutions to augment sales. The company also targets having team-based selling, with an emphasis on important cuisines. Finally, Sysco is focused on cultivating new capacities, channels and segments alongside sponsoring investments via cost-saving efforts.

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The company has been carrying out various acquisitions over the years to grow its distribution network and customer base and boost long-term growth. In February 2022, the company concluded the acquisition of The Coastal Companies, which operates under Sysco’s specialty produce business – FreshPoint. Before this, Sysco acquired Greco and Sons in the first quarter of fiscal 2022. We note that these acquisitions go in tandem with Sysco’s Recipe for Growth.

On its fourth-quarter earnings call, management stated that it remains confident about delivering its financial goals. Sysco is a diversified company, which covers every part of the food away from home market. The company’s operations are diversified across different customer types, product categories and geographies.

Sysco caters to restaurants of all price-point spectrums and types. It also caters to health care and education facilities alongside travel and recreation facilities in office buildings. Travel and recreation facilities are seeing a continued revival and are likely to be a growth area in the coming years.

Is All Rosy for Sysco?

Sysco has been encountering product cost inflation in the U.S. Foodservice unit for a while now. In the fourth quarter of fiscal 2022, U.S. Broadline saw 15.3% product cost inflation, mainly due to the poultry, fresh produce and dairy categories. The persistence of such trends poses threats to margins.

In fiscal 2023, management expects inflation in the mid-single digits across all categories, which is likely to moderate from the high single digits in the first quarter to the low single digits in the fourth quarter of fiscal 2023. Sysco also expects increased operating costs in the fiscal due to transformation investments and a tough hiring landscape.

Wrapping Up

Sysco targets growing at 1.35 times the industry in fiscal 2023. It expects top-line growth of at least 10% in fiscal 2023, which will help Sysco surpass the annual sales mark of $75 billion for the first time.

Management expects acquisitions to contribute to its growth. In fiscal 2023, Sysco envisions adjusted earnings per share (EPS) in the band of $4.09-$4.39. The midpoint of this range suggests a 30% increase from the adjusted EPS in fiscal 2022. The midpoint of the guidance indicates adjusted EBITDA of about $4 billion.

Shares of this Zacks Rank #3 (Hold) company have risen 3.8% in the past six months compared with the industry’s growth of 3.4%.

Food Stocks Worth a Look

Some better-ranked stocks are The Chef's Warehouse (CHEF - Free Report) , Lancaster Colony (LANC - Free Report) and Celsius Holdings (CELH - Free Report) .

Chef’s Warehouse, a distributor of specialty food products in the United States, currently sports a Zacks Rank #1 (Strong Buy). CHEF has a trailing four-quarter earnings surprise of 355.9%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Chef Warehouse’s current financial-year sales suggests growth of 40.7% from the year-ago reported number.

Lancaster Colony, which is into manufacturing and marketing food products for the retail and foodservice markets, currently carries a Zacks Rank of 2 (Buy). LANC delivered an earnings surprise of 170% in the last reported quarter.

The Zacks Consensus Estimate for Lancaster Colony’s current financial-year sales and EPS suggests growth of 9.6% and 38.3%, respectively, from the corresponding year-ago reported figures.

Celsius Holdings, which develops, processes, markets, distributes and sells functional drinks and liquid supplements, carries a Zacks Rank #2 at present. Celsius Holdings delivered an earnings surprise of 50% in the last reported quarter.
The Zacks Consensus Estimate for CELH’s current financial-year sales suggests growth of 97.3% from the year-ago period’s reported figure.

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