Sysco Expands; Buys Pacific Star Foodservice in Mexico
Amid a challenging macroeconomic environment, Sysco Corporation’s (SYY) long-term fundamentals remain solid. The company’s growth strategy remains strong and its efforts to reduce costs and improve efficiency are appealing. The company has also been witnessing improvement in sales driven by acquisitions and volume growth.
It is all the more appealing that this leading foodservice distributor of North America is rapidly expanding in Latin America. Apart from Latin America, Sysco has expanded in Canada, Ireland, Northern Ireland and the Bahamas.
Sysco first invested in Latin America in Jun 2014, with the acquisition of a 50% ownership stake in Mayca Distribuidores, S.A., a leading foodservice distributor in Costa Rica. Then last week, Sysco inked an agreement to buy 50% of Pacific Star Foodservice but the financial details of the deal were not disclosed. However, the company stated that it will retain all the employees and the management team after the transaction is closed.
The deal will surely help the company to expand in Mexico, where Pacific Star Foodservice is a leading distributor with distribution centers in the major metropolitan areas of Mexico City, Guadalajara, Monterrey and Tijuana. Pacific Star primarily services chain accounts, including fast food and casual dining restaurants, casinos, theme parks, movie theaters and hotels throughout Mexico. Moreover, its reputation for customer service will surely add to the company’s success story.
Talking about deals in the U.S., Sysco’s merger with US Foods is currently undergoing a regulatory review process by the Federal Trade Commission (FTC) and is not expected to consummate before the first quarter of calendar year 2015. Sysco agreed to buy US Foods in Dec 2013 for approximately $8.2 billion, inclusive of debt. Sysco is the second largest player in the foodservice distribution industry.
The company has been carrying out various acquisitions over the years to grow its distribution network and customer base and boost long-term growth. During fiscal 2014, the company acquired operations in Idaho; Maryland; Missouri; Ohio and Pennsylvania, while it acquired 14 other companies in fiscal 2013, which represent annualized sales in excess of $1 billion. The company expects to achieve 0.5%–1% sales growth through acquisitions in the long term. Other than sales growth, these acquisitions also enhance its presence in international markets and product portfolio.
Sysco has a Zacks Rank #3 (Hold).
Some better-ranked food companies in the industry include Post Holdings Inc (POST), McCormick & Co. Inc. (MKC) and The Hain Celestial Group Inc. (HAIN). All of them hold a Zacks Rank #2 (Buy).
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