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Is Sysco Well Positioned As Restaurants Start Reopening?

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Foodservice giant Sysco Corp. (SYY) has been significantly impacted by the coronavirus pandemic that has forced many of its customers such as restaurants, office cafeterias and hospitality facilities to remain temporarily closed. However, the company said it is seeing weekly improvements and expects this trend to continue.

In Wednesday's morning trade, shares of Sysco are currently rising $0.50 or 1.00 percent to $51.04.

Tuesday, the Houston-based company reported a net loss for the third quarter and also said it will reduce its workforce by about a third. The company has about 69,000 employees.

Sysco's third-quarter net loss was $3.30 million or $0.01 per share, compared to net income of $440.08 million or $0.85 per share in the year-ago period.

Adjusted earnings were $0.45 per share, compared to $0.79 per share in the prior-year period. On average, analysts polled by Thomson Reuters expected the company to report earnings of $0.62 per share. Analysts' estimates typically exclude special items.

Sales decreased 6.5 percent to $13.70 billion from $14.66 billion in the year-ago quarter, while analysts had a consensus revenue estimate of $13.72 billion.

Sysco's primary customer base is the restaurant industry, which is among the worst hit by the coronavirus pandemic. According to a survey by the National Restaurant Association in April, the U.S. restaurant industry has lost two-thirds of its workforce, or more than eight million employees due to COVID-19 pandemic. The restaurant industry is the second-largest private-sector employer in the U.S.

Sysco noted that in its U.S. Foodservice Operations, sales fell about 60 percent. However, recent trends have shown a nearly 15 basis point increase compared to the end of March 2020.

The company said it has, however, experienced sequential weekly improvements and expects this trend to continue through May 2020, with certain states opening in-restaurant dining.

In response to the coronavirus pandemic, Sysco has taken actions to reduce expenses and expects these cost reduction realizations to take effect from the fourth quarter of 2020.

In the fourth quarter alone, Sysco reduced more than $500 million of expenses from its business, which includes reducing its workforce by about 33 percent through temporary workforce furloughs and permanent reductions.

In addition, Sysco has re-routed its transportation fleet to substantially reduce miles driven, and is implementing productivity improvements in its operating companies.

The company is also taking steps to ensure business and financial flexibility amid the rapidly changing operating environment brought about by the COVID-19 crisis.

Apart from cutting costs, Sysco said it is working to create new sources of revenue and expects to realize the benefits in the fourth quarter.

Sysco's rivals in the industry such as Performance Food Group Co. (PFGC) and US Foods Holding Corp. (USFD) also reported quarterly net losses this week. However, Performance Food Group said its third-quarter net sales grew 49.3 percent from the year-ago period to $7.0 billion and adjusted earnings per share increased 38.1 percent year-on-year to $0.58.

Meanwhile, US Foods Holding reported a 5.1 percent increase in net sales for the first quarter, while adjusted earnings declined $0.26 to $0.15 per share. The company said it has developed partnerships with more than 30 retail institutions to provide products and labor as it looks to support the increase in retail demand.

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