Backed by prudent efforts to boost brands across different channels along with a robust U.S. Foodservice unit, Sysco Corporation (SYY - Free Report) is a profitable pick for investors. Shares of this well-known marketer and distributor of a wide variety of food items have gained roughly 7.6% in the past three months compared with the industry’s rise of 5.7%. Let’s take a closer look at the key aspects driving the Zacks Rank #2 (Buy) stock.
Strong Foodservice Unit & Gains From Buyouts
Sysco’s U.S. Foodservice unit has been performing well for quite some time. In fact, during the second quarter of fiscal 2019, the company’s sales improved year over year, buoyed by strength in the U.S. Foodservice Operations. Sales in the division rose 4.2% to $10.1 billion and local case volumes within U.S. Broadline operations increased 3.3% (including organic sales growth of 2.4%). Also, total case volumes ascended 2.9% (wherein organic sales increased 2%). Notably, local case volumes in the segment have been rising year over year for 19 consecutive quarters. Additionally, rising restaurant sales have been benefitting the company’s U.S. Operations for a while.
Further, Sysco is undertaking acquisitions to expand distribution network and customer base as well as to boost long-term growth. To this end, the company announced a deal to acquire Waugh Foods — a distributor based in Central Illinois. This is likely to strengthen Sysco’s existing portfolio. The company’s notable buyouts in the past include — HFM in Hawaii, Doerle Food Service in Louisiana and Kent Frozen Foods in the U.K. Moreover, the acquisitions of Supplies on the Fly, North Star Seafood, Gilchrist & Soames and 50% stake in Mexico-based Pacific Star Foodservice are noteworthy.
Strategies for 2020 & Saving Plans Bode Well
Sysco is progressing well with its strategy for 2020. In this regard, the company is focused on enhancing assortments, making constant innovations, ensuring food safety and revitalizing brands. Further, to evolve with the changing consumer preferences, Sysco is committed toward investing in technology and enhancing e-commerce operations. Also, it plans to improve supply chain, increase transparency, enhance deliveries and manage product costs effectively.
Speaking of cost management, Sysco is on track with the implementation of certain cost-saving initiatives, which are expected to benefit the company in the second half of fiscal 2019. Markedly, the company’s Finance Transformation Roadmap concentrates on modernizing the international financial platform. Also, it is focusing on Smart Spending initiatives that involve detailed analysis of indirect spending categories. Finally, Sysco is committed to reduce overall administrative costs.
We expect the aforementioned factors to continue to favor Sysco and enable it to maintain a strong position in the food space.
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United Natural Foods, Inc (UNFI - Free Report) has a long-term EPS growth rate of 7.4% and holds a Zacks Rank #2 at present.
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