Can Sysco Whet Your Appetite Now?
Sysco (NYS: SYY) may distribute food products to thousands of customers, but it hasn't been able to rake up profit growth. The company's fourth-quarter bottom line remained flat in spite of a marginal increase in its revenues. But after falling some 20% from recent levels, does the stock now look like one that could suit your palate?
Sysco's revenues grew 0.7% from the year-ago quarter to $10.4 billion this quarter. Theis year's quarter was one week shorter than last year's, affecting comparability. With a major chunk of the company's sales coming from restaurants, an uptick in the overall restaurant activity seems to be the driver behind the top line growth. Many restaurant chains have reported higher sales recently. For instance, Chipotle (NYS: CMG) , reported a 22.4% rise in its sales and Buffalo Wild Wings (NAS: BWLD) posted a 26.4% rise in revenues in their latest quarters.
Food cost inflation, however, ate into the food-service distributor's revenues. Prices of meat, dairy, seafood, and other food items have gone up. As a result, Sysco's gross margin declined from 19.2% to 18.6% year-on-year, while net profits slipped 0.4% to $336.3 million.
Apart from a solid balance sheet, Sysco has other things going for it. Like the food companies that have passed on higher costs to consumers, Sysco too raised prices early this year. This could be one tactic that Sysco will consider using again in order to bolster margins, should food costs continue to rise.
The Houston-based company has been carrying out a business transformation project, wherein it is developing and implementing integrated software systems to increase overall business efficiency. After the initial go-live, the company now seems to be facing issues related to performance of the system. This is not great news, as it means delaying the final rollout of the project and will also mean higher costs for the company.
Sysco has been spending considerable cash on this project. Total cash outlay relating to the project was $279 million during the year. Apart from investment in the project, Sysco has also been expanding its facilities. It also acquired a California-based food service distributor during the quarter.
The Foolish bottom line
Sysco's profits might not have grown this quarter, but the company's business line is impressive, as it caters to a wide range of customers. Sysco also pays a dividend consistently, and has a current yield of 3.7%. With an impressive return on equity of 27%, it looks like a stock worth keeping an eye on.
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At the time this article was published Neha Chamaria does not own shares of any of the companies mentioned in this article The Motley Fool owns shares of Chipotle and Buffalo Wild Wings.Motley Fool newsletter serviceshave recommended buying shares of Sysco, Chipotle, and Buffalo Wild Wings.Motley Fool newsletter serviceshave recommended creating a iron condor position in Chipotle. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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