Sysco (SYY) Set To Bring Kent Frozen Foods Under Its Wings

Sysco Corporation (NYSE:SYY) inked a deal to buy Kent Frozen Foods, a leading foodservice provider in the United Kingdom, with distribution facilities in Aylesford (Kent) and Witney (Oxfordshire). The buyout deal is currently subject to approval from the Competition and Markets Authority.

A Win-Win Strategy for Both

Upon approval of the deal, Kent Frozen Foods will form part of Sysco’s U.K. and European business bandwagon, which already includes popular names such as M&J Seafood, Fresh Direct and Brakes. Per the norms of the deal, although Kent Frozen Foods will continue to function as a separate entity, it is set to gain from Sysco’s superior hold and brand image in the foodservice market. Further, the deal will enable Kent to establish closer ties with other businesses of Sysco in the U.K. and European regions.

From Sysco’s point of view, acquisitions have always been profitable and aided in augmenting its market share and distribution network, thereby boosting long-term growth prospects. Notably, the company expects to achieve 0.5-1% sales growth through acquisitions, in the long run.

Looking back, in 2017, Sysco acquired HFM FoodService and the remaining 50% stake in Mayca Distribuidores. Apart from that, Sysco’s acquisition of London-based Brakes Group in 2016 has been benefiting the company significantly and is expected to generate sales of approximately $55 billion annually.

That said, we expect Sysco’s latest venture of adding Kent Frozen Foods to its business portfolio to result in boosting its international presence. In addition to augmenting product offerings, Sysco is expected to reap gains from Kent Frozen Foods’ focus on independent customers.

Other Growth Oriented Moves of Sysco

Sysco outlined some key growth strategies at the New York Investor Day event on December 2017, wherein it also highlighted its three-year financial goals. Sysco’s four core strategies include enhancing consumers’ experience, optimizing business, stimulating power of its people and achieving operational efficiency. Furthermore, by evolving with changing consumer preferences, Sysco remains committed toward investing in technology and enhancing e-commerce operations. Moreover, it plans to improve the supply chain, increase transparency and enhance delivery capacity.

Driven by these strategies, Sysco expects gross profit to rise in a band of 55-65%, while it anticipates reducing administrative expenses by 20-25% by 2020. Earnings per share are envisioned to grow at a double-digit rate on an average, by 2020. Going ahead, we expect such efficient financial plans, supported by strong balance sheet and cash positions, to aid the company in continuing with its investments and expansion efforts.

Markedly, this Zacks Rank #2 (Buy) company’s strategic growth endeavors have augmented its business capabilities and made it a strong contender in the foodservices arena. Such factors have also acted as a catalyst in enhancing investors’ confidence, evident from the stock’s 21% surge in the past six months compared with the industry’s gain of 0.6%.

Greedy for Consumer Staples Stocks? Check These

Investors interested in the same sector may also consider investing in companies such as United Natural Foods, Inc. (NASDAQ:UNFI) , Kimberly-Clark Corporation (NYSE:KMB) and Church & Dwight Company Inc. (NYSE:CHD) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

United Natural came up with an average positive earnings surprise of 2.3% in the trailing four quarters. It has a long-term earnings growth rate of 6.2%.

Kimberly-Clark pulled off an average positive earnings surprise of 2% in the trailing four quarters. Also, it has a long-term earnings growth rate of 6.2%.

Church & Dwight delivered an average positive earnings surprise of 6.8% in the trailing four quarters. It has a long-term earnings growth rate of 8.9%.

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