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Why Sysco Shares Fell 36% in the First Half

By Anders Bylund – Jul 8, 2020 at 10:55PM

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The foodservice infrastructure industry was a brutal place to do business in the spring of 2020.

What happened

Shares of Sysco (SYY -3.09%) fell 36.1% in the first half of 2020, according to data from S&P Global Market Intelligence. Like most stocks in the foodservice industry, Sysco crashed hard in February and March as the COVID-19 pandemic closed restaurants, followed by a solid rebound starting in April. The kitchen equipment and food products distributor simply fell a bit further than its peers in the difficult months.

So what

The downhill slide started with February's second-quarter report. The results were solid enough, broadly matching Wall Street's expectations, but that was for a reporting period that ended in December 2019, before the coronavirus crisis entered North America. Taking the pandemic into account, Sysco declined to offer near-term guidance figures while reducing operating income expectations for its three-year growth plan.

Sysco's shares plunged hard when a few state governments started to close down sit-down dining services in local restaurants and the stock price took a dramatic 19.8% plunge on March 16, when the Center for Disease Control published nationwide social distancing guidelines.

Photo of a delivery truck decorated in Sysco's logo and colors.

Image source: Sysco.

Now what

Sysco's market bottom fell a couple of days after the CDC proclamation, and the stock has more than doubled from that 52-week trough. Looking ahead, Sysco investors are worried that the restaurant sector's return to full health could take a long time. The step-by-step normalization we have seen so far will limit the foot traffic in sit-down dining locations for many months to come. That will hurt Sysco's business in the short to medium term.

On the upside, Sysco runs a tight ship with some of the strongest profit margins in its industry and the balance sheet holds $2.3 billion in cash reserves. This company is poised to survive the COVID-19 storm even if it lasts for years, which makes it a solid buy for long-term investors at these low prices.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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