Sysco (SYY) Looks Well Poised on Diversified Business Lines

By | June 12, 2020

Sysco Corporation SYY looks well poised, courtesy of its growth initiatives and efforts to stay firm amid the coronavirus outbreak. The company, whose food-away-from-home business has been challenged amid the pandemic, is focused on aiding revenues through other channels. Also, the company is undertaking measures to preserve liquidity amid the crisis.

In fact, at a juncture where many companies are suspending dividend payments, Sysco declared a quarterly dividend of 45 cents per share last month, which reflects its healthy financial position and commitment to shareholders. Shares of this Zacks Rank #3 (Hold) company have rallied 31% in the past three months compared with the industry’s growth of 25.8%. In fact, Sysco has gained 15.6% in a month’s time.

Focus on Alternate Opportunities Amid Crisis

Sysco serves a wide spectrum of the foodservice space, with about half of the consumption coming from the away-from-home channel in the United States. We note that Sysco’s U.S. Foodservice and International Foodservice segments were hurt by coronavirus-related hurdles in the third quarter of fiscal 2020. Lower volumes in the food-away-from-home channel have been a deterrent. Increased social distancing had a considerable adverse impact on the company’s restaurant, education and hospitality customer segments. Volumes in the food-away-from-home channel are likely to remain soft.

To keep its revenues flowing, Sysco has turned its distribution model to areas it didn’t essentially cater to before the pandemic. These include grocers, retailers and supply-chain contracts. Incidentally, the company is working with some of the best retailers to address customers’ needs through supply chain and labor service deals. To this end, Sysco is offering supply-chain service deals like carrier services, cross-docking and freight brokerage, thanks to its solid transportation fleet and logistic capacity. Also, the company inked temporary labor-sharing contracts with some retailers for its furloughed workers.

Sysco has been shifting sales to national and regional retailers, which will cater to the growing demand at retail stores. Notably, the company is collaborating with government agencies like DEFRA (in the UK), and USDA and FEMA (in the United States) to offer food to communities in need. Apart from this, it has shipped truckloads of protein, fresh products and bulk consumables to certain retail partners. The company is also supporting healthcare customers by arranging for deliveries of important items like PPE to hospitals, urgent care facilities and long-term care facilities. Markedly, Sysco’s healthcare segment sales have increased about 15-20%.

Apart from this, the company’s digital investments, like its Shop platform, bode well. The company has started rolling out direct-to-consumer sales in untapped business areas.

Other Growth Endeavors

Sysco has also been benefiting from buyout gains, which have strengthened its distribution network. To this end, it announced the buyout of 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. Additionally, the company’s continued focus on providing value through innovative product offerings, value-added services and improved e-commerce capabilities has been yielding well.

We expect Sysco to benefit from such efforts, together with its focus on diversifying business lines and eliminating costs.

Relish These Food Stocks Now

Medifast MED, with a Zacks Rank #1 (Strong Buy), delivered back-to-back positive earnings surprises in the last two quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

Hain Celestial HAIN, with a Zacks Rank #1 has an impressive earnings surprise record.

B&G Foods BGS, with a Zacks Rank #1, has an impressive earnings surprise record.

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