Sysco Delivers Q2 Beat, But Some Staying On The Sidelines Until Restaurant Trends Improve

Shares of SYSCO Corporation SYY rose more than 2 percent after the company’s second-quarter earnings topped estimates as upside in Brakes and better-than-expected margin performance in U.S. foodservice offset slowing U.S. case volume growth.

Deutsche Bank: Staying Sidelined

Deutsche Bank’s Shane Higgins said Sysco countered broader restaurant weakness by driving local case volume growth, increasing private brand penetration, and focusing on category, cost and revenue management.

Both operating profits of international and U.S. foodservice beat estimates and the company raised its three-year adj. op. profit growth target (ex-Brakes) to a range of $600 million–$650 million from $500 million. However, the U.S. broadline case volume fell 0.1 percent due to declines in multi-unit business.

Meanwhile, Higgins noted that lower U.S. case volume is a concern and expects the trend do not appear likely to reverse soon for Sysco, which distributes food products.

“With SYY trading at 11.3x our FY17E EV/EBITDA, a premium to its historical average, we see less opportunity for multiple expansion until restaurant trends firm up. Thus, we remain at Hold,” Higgins wrote in a note.

Following the second-quarter results and the revised 3-year operating profit outlook, the analyst upped his fiscal year 2017 EPS estimate to $2.50 from $2.42 and price target to $55 from $54.

JPMorgan Upgrades

In a related development, JPMorgan’s John Ivankoe upgraded Sysco shares to Overweight from Neutral, while raising the price target by $2 to $57.

At last check, shares of Sysco had risen 1.86 percent to $52.15.