Sysco Rides On Buyouts: Kent Frozen Deal To Add More Impetus?

Sysco Corporation SYY has been the market's darling of late, courtesy of numerous growth initiatives. With focus on acquisitions being one of the key endeavors, the stock has rallied 20.9% in a year. Rolling on these lines, the company recently concluded the previously announced buyout of Kent Frozen Foods – following which its shares have gained 4.9%.

What Kent Frozen Acquisition Means for Sysco?

Sysco brought U.K.-based Kent Frozen Foods under its wings on Apr 3, which will form part of the company's international operations, thereby being an addition to its existing Brakes, Fresh Direct and M&J Seafood businesses. Following the approval of the Competition and Markets Authority, the deal was concluded in an all-cash basis.

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. While Sysco's U.S. Foodservice operations has long been a growth driver for the company, this buyout is likely to fuel its International segment.

Well, sales at the International Foodservice segment increased 9.3% to roughly $2,869 million in the last reported quarter. Adjusted operating income tanked 28.8% to $79 million. While results in Canada gained strength from surge in local cases and efficient expense management, the company's European business remained difficult. This stemmed from the amendment from the calendar year to fiscal, which weighed on costs and gross profit. Also, the company incurred higher costs in Europe due to constant investments in transformation endeavors. However, these initiatives poise the company well for the long term.

Focus on Buyouts: A Major Key to Sysco's Success

Notably, acquisitions have always been profitable and aided in augmenting Sysco's 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. In fact, earlier this year, the company acquired Doerle Food Services (a Louisiana-based food service distributor) to widen its U.S. distribution network. This buyout is expected to Strengthen Sysco's core business and maximize customers' value.

Looking back, in 2017, Sysco acquired HFM FoodService and the remaining 50% stake in Mayca Distribuidores to enhance its U.S. and international businesses, respectively. 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 the addition of Kent Frozen Foods to add yet another leaf to Sysco's growth story, by driving the performance of its international segment.

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