SYSCO
But what about the business?
To management's credit, sales improved meaningfully in the third quarter. While results in December showed a decline in "core revenue," stripping out the impact of acquisitions and inflation for the third quarter leaves investors with 1.1% year-over-year growth. Not superstar growth, I'll grant, but still an improvement.
Business overall was OK as well. There was a slight decrease in gross margin, but improved operating efficiency allowed the company to post basically flat year-over-year operating margin comparisons. Ironically, SYSCO has better operating margins than the restaurant industry it serves.
It appears to me that SYSCO management is adopting what I might call the "Wal-Mart
SYSCO seems to be moving down that same path by opening new redistribution centers and working to decrease overall supply and distribution costs. Should that continue, SYSCO might continue to duplicate this quarter's results -- double-digit earnings growth with only single-digit revenue growth.
Although SYSCO has been a reliable standby for stock pickers, I'm still not enthralled by SYSCO stock. I appreciate the company's dominant market position and clear advantages over competitors such as Royal Ahold
What I can't appreciate, though, is why I should pay more than 20 times forward earnings or 30 times EV-to-FCF for a company with a history of growing at a mid-teens rate. If that's the price of "security," I'd rather take my chances with riskier but more opportunistically valued stocks.
For more on the food trade, peruse this menu of prior Foolish takes:
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).