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Sysco Gains 8% in 3 Months: Is There More Room for Growth?

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Sysco Corporation (SYY - Free Report) is well positioned, courtesy of its focus on buyouts, strategy for 2020 and cost-saving initiatives, among others. These aspects are likely to continue driving this Zacks Rank #3 (Hold) company amid hurdles in the international segment and increased costs.

Markedly, Sysco’s shares have gained 8.5% in the past three months, outpacing the industry’s growth of 7.1%. Let’s delve deeper.

Factors Working in Sysco’s Favor

Sysco is on track with its four core strategies, which include enhancing consumers’ experience, optimizing business, stimulating power of its people and achieving operational efficacy. In this regard, the company focuses on enhancing assortments, making constant innovations, ensuring food safety and revitalizing brands. Notably, its decision to sell the Iowa Premium cattle processing business will help it focus on core areas with greater growth potential.

Further, Sysco is committed toward investing in technology and enhancing e-commerce operations. Also, it is focused on enhancing its customer-facing tools like a fresh delivery app and other enrichments on its digital shopping platform. Apart from this, the company has been carrying out various acquisitions over the years to grow its distribution network and customer base, and boost long-term growth. To this end, Sysco acquired sister firms J & M Wholesale Meats and Imperio Foods in April.

These upsides, along with a solid brand portfolio, have been aiding the company’s U.S. Foodservice segment for a long time now. The robust trend continued in third-quarter fiscal 2019, wherein sales in this division advanced 4.1% to $10,015.3 million. Local case volumes within U.S. Broadline operations increased 3.1% (including organic sales growth of 2.2%) and total case volumes ascended 2.1% (wherein organic sales increased 1.3%). Notably, local case volumes in this segment have been rising year over year for 20 consecutive quarters now.

Clearly, a favorable economic scenario marked by a strong labor market is likely to continue working in favor of restaurant sales, thereby boosting the U.S. Foodservice segment.

Will Hurdles be Offset?

Sysco’s International unit continued to deliver a mixed performance in the third quarter. While sales remained strong in Canada, consumer sentiment in the U.K. continued to be affected by Brexit-related worries. Also, the company’s performance in France was hampered by social unrest that hit tourism, thereby weighing on food away-from-home consumption. These worries led to a 1.5% slip in international sales in the third quarter.

Continuation of such trends, along with adverse currency fluctuations, is a concern for Sysco’s international division. Moreover, the company has been encountering cost-related headwinds for a while. During the third quarter of fiscal 2019, operating expenses in the U.S. Foodservice unit grew 2.3% on account of increased supply chain and labor costs across warehouse and transportation. Persistence of these elevated costs poses threats to margins.

Nevertheless, Sysco’s strategies like the Finance Transformation Roadmap and Smart Spending initiatives are likely to help it make cost curtailments. This, along with the aforementioned drivers, will help the company continue with its growth story.

Don’t Miss These Solid Food Stocks

General Mills (GIS - Free Report) , with a Zacks Rank #2 (Buy), has long-term EPS growth rate of 7%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Flowers Foods (FLO - Free Report) , also with a Zacks Rank #2, delivered back-to-back surprises in the last two quarters.

J&J Snack Foods (JJSF - Free Report) , with a Zacks Rank #2, also delivered back-to-back surprises in the last two quarters.

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