Sysco (SYY) Faces Challenge, Finds Barron's

Amid the economic recession, the dining out trend has tumbled. According to a report released by Technomic, a food-industry consultancy in Chicago, North Americans are expected to spend only 48% of their total food budget on eating away from home. This figure shows a decline of 2% from the 50% mark for 2008. This means trouble for Sysco (NYSE: SYY), a Houston based food firm. Sysco has cut costs and increased productivity to counter bad economy. According to Barron's, it may also provide the firm with an opportunity to weed out weaker competitors and thus gain an edge in the market. However, Wall Street seems to have largely ignore these facts. Sysco shares have risen 40% from their March low to current $27 but have lagged behind S&P 500 which gained 62% during the same period.

According to Channing Smith, a portfolio manager at Capital Advisors in Tulsa, Okla., Sysco is a promising firm and is able to cut costs, raise prices and gain market share and thus has competitive advantage. Sysco’s financial statements also tell the same story. For the fiscal quarter ending on September, its sales declined by 8.1% to $9.1 billion but earnings, excluding non-recurring gains, remained in line with last year’s at 46 cents per share. Further Sysco currently has a healthy 3.7% dividend yield ratio.

Sysco is expected to provide guidance on its cost cuts, productivity and capital expenditure. Sysco currently has 9000 vehicles in its fleet and thus has substantial diesel expenses, although the company has hedged approximately 40% of its diesel costs for year 2010. Although Sysco CEO William DeLaney has currently ruled out any acquisitions but the downtrend in fast food just might provide it with some good opportunities. Sysco shares are currently trading at the P/E ratio of 14.7 which is way below its historic ratio of 20.