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Sysco Closes Notes Offering, Announces Share Buyback

Sysco Corp.SYY has recently closed a $2 billion debt offering and has entered into an accelerated share repurchase program for $1.5 billion in stock.

The food company has closed its offering of $2 billion in senior unsecured notes. The company plans to use its proceeds to partly fund previously authorized buybacks, to repay $500 million in commercial paper, and for general purposes.

In addition, the company has entered into an accelerated share repurchase ("ASR") agreement with Goldman Sachs & Co. GS to repurchase $1.5 billion worth of the company's common stock with an initial delivery of 32 million shares at market prices. The last batch of shares bought back will be discounted. Purchases in the ASR are expected to be completed by May 2016. This share repurchase agreement is part of Sysco's $3 billion share repurchase program scheduled to take place over the next two years ending Jul 1, 2017 and was authorized by its board on Jun 29, 2015, when Sysco announced the termination of its merger agreement with US Foods .

This buyback is expected to reduce the outstanding share count by approximately 4% to 5 and add approximately 3 cents to 4 cents per share to earnings per share in fiscal 2016. The full impact of this buyback will be seen in fiscal 2017.

In addition to this share repurchase program approved in June, the company's board approved another share repurchase program in Aug 2015 for $800 million. This authorization will expire on Aug 21, 2017.

Besides share buybacks, the company has an attractive dividend program in place. The company has paid dividends each fiscal since its inception. In fact, the company has increased its dividend 46 times since its establishment in 1970. The last dividend increase of 3.1% was announced in Nov 2014. The fiscal 2015 dividend of $1.19 is 15.5% higher than the fiscal 2011 figure. Also, the company projects a forward five-year dividend growth rate of 3%-5%. Over the long term, the company targets a dividend payout of 40% to 50% of net earnings.

Sysco is cash rich and has a consistent track record of returning cash to shareholders in the form of dividend payments and share buybacks. While dividend payments boost shareholder wealth, a share buyback program helps the company to reduce outstanding share count, thereby increasing earnings per share and return on equity.

In addition, Sysco has been consistently showing improvement in sales driven by acquisitions and volume growth. Though the termination of the long-awaited merger agreement with US Foods in June was disappointing, the company still remains positive on the acquisition front. With the recent acquisition of Gilchrist & Soames , the company expects to expand its personal care offerings for hotels, resorts and spas. It is also encouraging that Sysco plans to cut its operating costs by 2018. However, currency headwinds and declining gross margin continue to remain concerns.

Sysco currently has a Zacks Rank #3 (Hold). Better-ranked consumer staples stocks include Cal-Maine Foods, Inc. CALM and Omega Protein Corp. OME . Both of them sport a Zacks Rank #1 (Strong Buy).

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GOLDMAN SACHS (GS): Free Stock Analysis Report

CAL-MAINE FOODS (CALM): Free Stock Analysis Report

SYSCO CORP (SYY): Free Stock Analysis Report

OMEGA PROTEIN (OME): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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