Sysco (SYY) looks solid on recipe for growth, supportive demand

Sysco Corporation SYY seems to be in a strong position. The company is building on strong trends in out-of-home food and focusing on its Recipe for Growth plan. The impact of these increases was seen in the third quarter of fiscal 2022, in which both top and bottom results increased year over year and exceeded the Zacks consensus estimate. Management offered an encouraging outlook for fiscal 2022.

The Zacks consensus estimate for current year earnings per share (EPS) has fallen from $3.04 to $3.23 in the past 60 days. This Zacks Rank No. 2 (buy) stock is up 7% over the past six months against an industry decline of 5.5%. Let’s go deeper.

Factors that work well for Sysco

Sysco is on track with its Recipe for Growth plan, which includes five strategic priorities aimed at enabling the company to grow 1.5 times faster than the market by the end of FY24. The Five Pillars strategies include improving the customer experience through digital tools. In this regard, SYY’s Sysco Shop platform and new pricing software work well. Additionally, the company is focused on improving the supply chain to serve customers efficiently and consistently with better delivery and omnichannel inventory management. Next, Sysco aims to provide customer-focused merchandising and marketing solutions to increase sales. The company is also aiming for team selling, with a focus on large kitchens. Finally, Sysco is focused on cultivating new capabilities, channels and segments while sponsoring investments through cost reduction initiatives.

Sysco is progressing well with its recipe for growth and its previously disclosed plans to drive cost reductions of $750 million for FY21-FY24.

Additionally, Sysco has made various acquisitions over the years to expand its distribution network and customer base and drive long-term growth. In February 2022, SYY completed the acquisition of The Coastal Companies, which will operate under Sysco’s specialty products business – FreshPoint. Prior to that, Sysco acquired Greco and Sons in the first quarter of fiscal 2022. We note that these acquisitions go hand-in-hand with Sysco’s recipe for growth. In earlier developments, Sysco acquired J. Kings Food Service Professionals in August 2019. These acquisitions fueled the growth of the business.

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A look at Q3 and what’s to come

Sysco’s performance in the third quarter of fiscal 2022 exceeded management’s expectations and led to an increase in EPS. The company witnessed strong demand from consumers and out-of-home customers in late February and March as it recovered from the impact of Omicron. Additionally, the company continued to record strong market share gains in the United States and internationally, reflecting the strength of its Recipe for Growth plan. SYY saw considerable volume gains. He also generated an increase in gross profit per case thanks to his efforts to counter product and fuel inflation. The company achieved solid improvements in operating expense leverage, including significantly lower stimulus spending. Sysco is also on track to improve its supply chain efficiency.

Robust sales and continued progress in improving operating expenses resulted in strong earnings growth. Sysco’s adjusted earnings of 71 cents per share crushed Zacks’ consensus estimate of 54 cents. Net income was up significantly from year-ago period earnings of 22 cents per share. Sales of $16,902.1 million were up 42.9% year-over-year and topped Zacks’ consensus estimate of $16,065 million. The strong third quarter performance reflects solid demand and solid progress in the business transformation efforts. Sysco generated profitability despite double-digit inflation and targeted stimulus and transformation investments.

Sysco made solid progress in the third quarter and expects to see further growth in the fourth quarter. It expects fourth quarter EPS to be between $1.05 and $1.15 from the 71 cents delivered in the fourth quarter of fiscal 2021. Management’s optimism for the fourth quarter rests on expectations of continued market recovery, market share gains, effective pass-through of higher costs, and improved operating expenses (as a result of reduced recovery and productivity costs) . However, the fourth quarter of fiscal 2021 included an additional week, which is likely to affect comparisons. However, management remains bullish on its business and has raised its adjusted EPS guidance for fiscal 2022. Sysco now expects EPS in the range of $3.16 to $3.26, up from to the previous range of $3 to $3.10.

3 Other Basic Stocks Worth Checking Out

Some other top ranked stocks are Pilgrim’s Pride CPC, United Natural Foods UNFI and Campbell’s Soup CPB.

Pilgrim’s Pride, which produces, processes, markets and distributes fresh, frozen and value-added chicken and pork products, boasts a Zacks #1 (Strong Buy) rating. Pilgrim’s Pride has a four-quarter earnings surprise of 31.4% on average. You can see the full list of today’s Zacks #1 Rank stocks here.

The Zacks consensus estimate for PPC’s current-year EPS suggests growth of nearly 43% from the figure reported a year ago.

United Natural, which distributes natural, organic, specialty, and conventional grocery and non-food products, carries a No. 2 Zacks rank. United Natural has a four-quarter earnings surprise of 29.9% on average.

Zacks’ consensus estimate for current year sales and EPS from UNFI suggests growth of 7.2% and 4.9%, respectively, from the figure reported a year ago.

Campbell Soup, which manufactures and markets food and beverage products, currently carries a No. 2 Zacks rank. Campbell Soup has a four-quarter earnings surprise of 10.8% on average.

Zacks’ consensus estimate for CPB’s current-year sales suggests growth of 0.5% from the figure reported a year ago.

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