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Sysco (SYY) Looks Well-Placed for 2022 on Recipe for Growth

Sysco Corporation SYY looks well-placed for 2022 due to the company’s focus on its Recipe for Growth program and strong away-from-home food demand. The renowned marketer and distributor of food and related products has been strengthening its portfolio through acquisitions. These upsides are likely to continue working well for Sysco, thereby helping it counter escalated cost hurdles.

Factors in Sysco’s Favor

Sysco has been focused on its Recipe for Growth, which involves five strategic priorities aimed at enabling the company to grow 1.5 times faster than the market by FY24 end enhancing customers’ experience via digital tools. In this regard, the company’s Sysco Shop platform and the new pricing software are working well. Further, SYY is focused on improving the supply chain to cater to customers efficiently and consistently due to better delivery and omnichannel inventory management.

Sysco also aims at providing customer-oriented merchandising and marketing solutions to augment sales. The company also targets team-based selling, with an emphasis on important cuisines. Finally, Sysco is focused on cultivating new capacities, channels and segments alongside sponsoring investments via cost-saving initiatives. Sysco is progressing well with its Recipe for Growth and earlier unveiled plans for generating cost curtailments of $750 million for the period FY21 to FY24.

Sysco 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, during the first quarter of fiscal 2022, the company acquired Greco and Sons from Arbor Investments and the Greco family. The buyout is likely to help Sysco better cater to Italian-focused customers. On its first-quarter earnings call, management stated that it expects the buyout of Greco and Sons to generate sales of more than $1 billion in fiscal 2022. This acquisition is in tandem with Sysco’s Recipe for Growth. Further, Sysco recently inked a deal to buy The Coastal Companies and also acquired a produce distributor in October 2021. These will form part of FreshPoint (the company’s specialty produce business).

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Rise in Cost Hurdles

Sysco has been encountering product cost inflation in the U.S. Foodservice unit for a while now. During the first quarter of fiscal 2022, U.S. Broadline saw 13.4% product cost inflation due to the meat, poultry, and canned and dry products categories. On its first-quarter earnings call, Sysco stated that it was operating in a highly inflationary landscape. In the first quarter, the company’s gross margin was hurt by a high inflation rate, which escalated to nearly 13%. On its last earnings call, management stated that it expects inflation to continue at a similar rate in the second quarter. SYY also expects heavy snapback and transformation investments in the second quarter. That said, Sysco expects to pass through most of its cost of goods sold inflation.

A Look at Q1 & Ahead

In the first quarter of fiscal 2022, Sysco’s top and bottom lines soared year over year and sales beat the Zacks Consensus Estimate. Also, Sysco continued to witness market share gains. The company saw sequential sales growth and another quarter of net new customers. The company benefited from its efficient inflation pass-through and efforts to enhance customer fill rates even amid supply hurdles. Despite major transformation costs, Sysco also generated EBITDA levels similar to the pre-pandemic period. The company also progressed with its Recipe for Growth plan.

The company posted adjusted earnings of 83 cents per share, which increased considerably from the year-ago period’s earnings of 34 cents. This year-over-year surge is attributable to robust sales and operating leverage. Net sales of $16,456.5 million soared 39.7% year over year and beat the Zacks Consensus Estimate of $15,765 million. Sales growth was backed by strong food-away-from-home sales. Foreign currency had a favorable impact of 1.1% on the top line and sales increased across all the company’s segments. In fiscal 2022, management expects to continue growing at or more than 1.2 times than the market. It also reiterated its earnings view for the fiscal, which is envisioned in the range of $3.33-$3.53 per share. In fiscal 2021, the company reported earnings per share (EPS) of $1.02.

Shares of this Zacks Rank #3 (Hold) company have risen 8% year to date (YTD) compared with the industry’s growth of 4.2%.

3 Consumer Staple Picks

Some better-ranked stocks from the Consumer Staples sector are MGP Ingredients MGPI, United Natural Foods, Inc. UNFI and The Hain Celestial Group HAIN.

MGP Ingredients, the producer and supplier of distilled spirits and specialty wheat proteins and starch food ingredients, currently sports a Zacks Rank #1 (Strong Buy). Shares of the company have rallied 86.7% YTD. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for MGP Ingredients’ current financial-year sales and EPS suggests growth of 55.5% and 61.4%, respectively, from the year-ago period’s figures. MGPI has a trailing four-quarter earnings surprise of 117.6%, on average.

United Natural Foods distributes natural, organic, specialty, produce, and conventional grocery and non-food products. It currently sports a Zacks Rank #2 (Buy). United Natural Foods has a trailing four-quarter earnings surprise of 35.4%, on average.

The Zacks Consensus Estimate for UNFI’s current financial-year sales and EPS suggests growth of 4.8% and 7.7%, respectively, from the year-ago period’s figures. Shares of United Natural Foods have soared 215.1% in the year so far.

The Hain Celestial, which provides various natural and organic foods as well as personal care products in North America and Europe, carries a Zacks Rank #2 at present. It has a trailing four-quarter earnings surprise of 9.7%, on average. Shares of The Hain Celestial have moved up 5.1% YTD.

The Zacks Consensus Estimate for HAlN’s current financial-year EPS suggests growth of 14.5% from the year-ago period’s reported number.


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