Performance Food Group Has Ample Scale, But Margins Need To Get Better

Distribution is a tough business, but one that rewards scale and particularly scale combined with efficiency. This is something that giant food distributor Sysco (SYY) understands well, but that other rivals like Performance Food Group (NYSE:PFGC) and US Foods (USFD) have struggled to match. While there are still opportunities to benefit from share gain and share-of-wallet gain across the large food service and convenience store markets, I need to see more evidence from Performance that it can really drive attractive leverage from the business.

Performance Food has been doing well with respect to reported versus expected earnings, with a multi-quarter run of better-than-expected EBITDA results, including a sizable beat-and-raise in the fiscal first quarter (the calendar third quarter). Still, this looks like a situation where meaningful long-term margin improvement is already in the stock and management will have to continue beat-and-raise performances to drive further outperformance.

 

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Performance Food Group Has Ample Scale, But Margins Need To Get Better

US Foods Appears Back On Track, But Still Reasonably-Priced

Self-inflicted problems took their toll on US Foods (USFD) in 2018, but it looks like those service issues (which impacted fill rates and on-time performance) are behind the company, and it likewise looks as though customer volumes are willing to give the company another chance. Add in ongoing opportunities to drive share-of-wallet with existing customers, penetrate further into the independent restaurant market, and drive more private label adoption, and there’s still a credible case for above-average revenue and profit growth here.

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US Foods Appears Back On Track, But Still Reasonably-Priced

Investopedia: Sysco Humming Along

Food distributor Sysco (NYSE:SYY) is never flashy, but the company has an enviable track record of market share growth and consistent free cash flow growth. That makes it a staple name on lists of quality dividend growth stocks and conservative growth ideas. What's more, it is not a bad way to play what could prove to be many years of inflation pressure. (To help you build a dividend portfolio, read Build A Dividend Portfolio That Grows With You.)


Solid Third Quarter Performance
Sysco reported sales growth of just over 9% for its fiscal third quarter, quite a bit better than the consensus expectation of just under 6%. Growth was clearly fueled by food inflation of more than 5%; case volume growth was about 2% and real sales growth was just under 3%. That is relatively consistent with the customer traffic patterns being reported by major U.S. restaurant chains like McDonald's (NYSE:MCD) and Brinker (NYSE:EAT), so there is not much reason to think that Sysco is losing share.

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http://stocks.investopedia.com/stock-analysis/2011/Sysco-Humming-Along-SYY-MCD-EAT-MIDD-MTW-DRI-DIN0510.aspx

Sysco Not Sizzling, Yet

A long history of quality operations can buy a company the benefit of the doubt, even when current earnings and growth are not all that exciting. Such was the case with food distribution giant Sysco (NYSE:SYY) for its fiscal fourth quarter. Results were not especially strong, but this is not a story about individual quarterly performance, and investors seem to be more interested in the long-term cash flow story. 

The Quarter That Was
Reported revenue was up 13.9% in the fiscal fourth quarter, but that is something of a mirage. A significant chunk of that "growth" came from a calendar effect tied to an extra week in the quarter. Stripping that out, growth falls to 5.8%. But wait - there is more. Favorable foreign currency moves added another 1.3% to the growth rate, and food cost inflation was about 2.2%. Consequently, volume growth, arguably the best indication of "real" growth, was on the order of 2.3% for the fourth quarter. 


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http://stocks.investopedia.com/stock-analysis/2010/Sysco-Not-Sizzling-Yet-SYY-WEN-DIN-MCD-TSN-SFD0818.aspx