What happened
Sysco Corporation (SYY 1.71%) stock tumbled 18.9% in February, according to data provided by S&P Global Market Intelligence. Sysco, a food company that sells, markets, and distributes food products and equipment and supplies primarily to the hospitality industry, suffered two blows last month: quarterly numbers that disappointed the market and the coronavirus threat to its prospects. A new CEO at the helm, who took office on Feb. 1, added to investors' jitters even as he's trying to make a major acquisition.
So what
Sysco reported its second-quarter (quarter ended Dec. 28, 2019) numbers on Feb. 3. Sales increased 3.2% and operating income 4.2% year over year. However, Sysco's adjusted operating income (GAAP operating income excluding the impact of restructuring and acquisition-related costs) fell short of management's targets, compelling it to roll back its three-year guidance of adjusted operating income growth to $500 million to $525 million from $600 million, or 7% from the previously expected 8%.
Shareholders were, unsurprisingly, miffed, as Sysco is already experiencing pockets of weakness. Growth in international markets hasn't been easy. Brexit, for instance, has hurt Sysco's business in the U.K. even as the company is struggling to integrate its subsidiaries, Brakes France and Davigel, into Sysco France. The COVID-19 coronavirus outbreak has further fueled fears of a slowdown in the food industry as footfall at restaurants and any places of large gatherings is taking a hit.
Image source: Getty Images.
In between, new CEO Kevin Hourican is aggressively pursuing Sysco's acquisitive strategy for growth and is already after what could be Sysco's biggest, even its most expensive, acquisition to date. Just days ago, Sysco reportedly held talks with German food wholesaler Metro AG for a potential takeover in a bid to enter the wholesale market and expand its footprint in Europe.
Chief Financial Officer Joel T. Grade touched upon the idea during Sysco's Q2 earnings conference call when he said, "We remain convinced that Europe will be a growth opportunity for the company in the years ahead." Europe's share in Sysco's sales is insignificant as of now: the U.K. and France made up only about 5.2% and 2.6% of Sysco's sales, respectively, in 2019.
Now what
Sysco shares continue to fall further this month, hitting 52-week lows even as I write this. This comes at a time when the stock marked its 50th year of being listed on the NYSE just days ago. Clearly, investors aren't ignoring the growth threat from the coronavirus outbreak, especially in sensitive business regions like Europe. Things could take an interesting turn for the stock if Sysco can strike a deal with Metro or a similar-sized company in the near future.
