On Mar 13, 2014, we issued an updated research report on
). This global food products maker and distributor recently
reported mixed second-quarter fiscal 2014 results on Feb 3.
Sysco reported second quarter fiscal 2014 earnings of 47
cents, which beat the Zacks Consensus Estimate by 17.5%. In fact,
Sysco has been performing impressively delivering positive
earnings surprises in the last four quarters.
However, earnings declined 4.1% year over year due to modest
sales growth and margin pressure. The year-over-year results were
also dampened by a weak economic environment and negative
currency translation. Though revenues increased 4.1% year over
year helped by acquisitions and volume growth, it missed the
Amid the challenging macroeconomic environment, the company's
long term fundamentals are solid. The company's growth strategy
remains strong and its efforts to reduce costs and improve
efficiency are appealing. The company has implemented several
short-term steps and longer term strategic initiatives to
accelerate sales and mitigate the ongoing gross margin
These actions are gaining traction and the company expects to
see gradual improvement in these areas through the balance of
2014 and beyond. The company also expects additional progress in
productivity over the next several months.
Moreover, Sysco's acquisition deal with US Foods, as announced
in Dec 2013, will create one of the largest food companies in the
country and is expected to improve efficiencies. Sysco expects
immediate accretion to earnings per share after adjusting for
transaction-related costs and amortization of intangibles.
However, despite adequate positives, Sysco has been witnessing
declining gross margins since the last two fiscal years due to
multiple factors. The slow rate of recovery in the foodservice
market has created competitive pricing pressure for its products,
which is in turn negatively impacting gross profits. Sales of its
locally-managed business, which includes independent restaurant
customers, have not grown at the same rate as sales to regional
and national customers, leading to gross margin decline.
In addition, market conditions continue to be challenging for
many customers and competitive pressure has been acute in the
first half of fiscal 2014. These conditions were amplified in Dec
2013 by a shortened holiday shopping season and severe weather in
several parts of the country.
Sysco now carries a Zacks Rank #4 (Sell).
Key Picks from the Sector
Other better-ranked food companies include
Post Holdings Inc
Diamond Foods Inc
The Hain Celestial Group, Inc.
), all of them holding a Zacks Rank #2 (Buy).
DIAMOND FOODS (DMND): Free Stock Analysis
HAIN CELESTIAL (HAIN): Free Stock Analysis
POST HOLDINGS (POST): Free Stock Analysis
SYSCO CORP (SYY): Free Stock Analysis Report
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