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Will U.S. Foodservice Unit Drive Sysco (SYY) in Q3 Earnings?

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Sysco Corporation (SYY - Free Report) is scheduled to release third-quarter fiscal 2019 results on May 6. This distributor and marketer of food and related products delivered a positive earnings surprise of 4.2% in the last reported quarter, and has outperformed the Zacks Consensus Estimate by an average of 1.9% in the trailing four quarters.

Let’s see how things are placed ahead of the upcoming quarterly results.

What to Expect?

The Zacks Consensus Estimate has remained stable in the past 30 days at 70 cents, which indicates a rise of 4.5% from the year-ago quarter’s reported figure. Further, the consensus mark for revenues is $14,884 million compared with $14,350 million reported in the year-ago period.

Factors Impacting Results

Sysco’s U.S. Foodservice unit is likely to drive performance in the to-be-reported quarter. The unit has been doing well for a long time now, courtesy of rising local case volumes and improved restaurant sales. A favorable economic scenario is likely to boost restaurant sales, which in turn are likely to drive Sysco’s top line in the quarter to be reported. The top line is also poised to benefit from numerous acquisitions, which have strengthened the company’s distribution network.

However, the company’s International segment’s performance is challenged by Brexit-related worries. The Zacks Consensus Estimate for U.S. Foodservice Operations sales is pegged at $10,152 million for the third quarter, calling for 4.6% growth from the year-ago quarter’s reported figure. The consensus mark for sales at the International Foodservice Operations stands at $2,802 million, indicating an increase from $2,799 million reported in the year-ago period.

Further, the company has been battling escalated supply-chain costs. To this end, persistence of high transportation and warehouse expenses in the U.S. Foodservice segment may keep margins under pressure. Also, increased investment costs (especially in the international unit) are likely to have an impact on third-quarter profits. In fact, many other food players like General Mills (GIS - Free Report) , TreeHouse Foods (THS - Free Report) and Campbell Soup (CPB - Free Report) are struggling with cost-related worries.

Sysco’s cost-containment initiatives, including Finance Transformation Roadmap, centralising actions strategy and Smart Spending, are expected to offer some respite to the stock. Moreover, the company is on track with its core strategies, which include enhancing consumers’ experience, optimizing business, stimulating power of its people and achieving operational efficacy. These factors make us quite hopeful about the company’s upcoming results.

What the Zacks Model Unveils

Our proven model doesn’t show that Sysco is likely to beat bottom-line estimates in the to-be-reported quarter. For this to happen, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Though Sysco has Zacks Rank #3, its Earnings ESP of 0.00% makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here.

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