The holiday season is in full swing…I know because I just got the text today from my mother-in-law asking for gift ideas…and there is one thing that I enjoy above everything else this time of year. All the food!
And whenever I think about food, there is one company that towers over all the rest when it comes to providing the majority of the food we eat. And that is Sysco Corporation (SYY), the largest non-grocery food provider in the U.S., and growing globally. They currently provide 17% of the $353 billion Foodservice Distribution market in the U.S.
Basically, Sysco provides food and beverage services to any place you can think of that is not a grocery store. Restaurants, sporting events, concerts, schools, hospitals, work cafeterias, cruise ships, airports…they even run stores at their packaging facilities where you can buy Sysco products yourself, usually on a limited number of days during the week.
Around 2015 something interesting happened in the food industry. The total amount of food and beverages consumed from grocery stores dropped below the amount consumed in restaurants and bars, and all the other places I mentioned above. This was the first time this had happened in the U.S., and despite a massive reversal of this trend during the pandemic, post pandemic the trend has reasserted itself. Today approximately 55% of all food and beverage sold is from food distribution companies, as opposed to 45% from grocery stores.
And, Sysco has been a major beneficiary of that trend, as they have not only grown their business with the trend, but are taking market share from smaller players in what is a very fragmented industry. One reason is their holistic approach to the food service industry.
Not only does Sysco provide food, as well as food service supplies, as in plates glasses, etc. but they also provide consulting services to the food industry. Sysco will help a failing restaurant examine its balance sheet and figure out a way to reduce expenses and increase profit…essential business management consulting. Which is part of Sysco’s strategy of supporting the full lifecycle of its customer base.
And the strategy, one part of its larger go to market strategy, which Sysco dubs its “Customer Teams” approach, is paying dividends for SYY. As Kevin Hourican, Sysco’s President and Chief Executive Officer. Reported in SYY’s latest earnings report, “For the quarter and for the year, the Sysco team delivered another record period of operating income. Our solid financial results included top-line and bottom-line growth, record free cash flow for the year, and achievement of our target net debt ratio, which improved to 2.5 times.”
For the quarter, YoY sales increased 4.1%, gross profit increased 7%, and operating income, as the company is seeing smoother supply lines post pandemic, increased 26.5%. EBITDA increased 33.2% to $1.3 billion in the quarter, as free cash flow increased 79%.
The quarter marked the end of Sysco’s fiscal year, in which the company returned just under $1.5 billion to shareholders, in the form of $500 million of share repurchases and $996 million in dividends. The company currently has a dividend yield of 2.8%.
Sysco is an A rated stock in our POWR Ratings. It outranks almost 98% of the stocks in our database, and has a 91.49% rating in the Value component. It also scores very well in Stability, with an 88.1% rating.
As more and more people decided to eat outside of the home post pandemic, SYY stock moved up to just over $90 at its height in mid-2022. The stock has trended lower since then, but looks to have bottomed in the low $60s in October of this year. Trading at only 0.50 times sales, the stock could be a nice pickup here right around $70.
So, as you partake of the holiday festivities this year, and possibly, like me, eat too much at one if not a few parties, remember Sysco likely provided the restaurant you're eating at with the food and beverages. And if you own some of the stock, you’re almost paying yourself when the check comes!
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SYY shares were trading at $71.51 per share on Thursday afternoon, down $0.20 (-0.28%). Year-to-date, SYY has declined -3.88%, versus a 19.94% rise in the benchmark S&P 500 index during the same period.
About the Author: Steven Adams
After earning a law degree cum laude with a focus on securities law, Steven worked as a Nasdaq market maker for a large broker dealer, and then as a trader for an arbitrage focused proprietary hedge fund. He subsequently worked as a consultant for a Fortune 500 consulting firm serving both government and commercial clients, including the NYSE, Prudential, FDIC, and NASA.
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