Sysco under pressure on Jetro acquisition costs, FY sales guidance

What happened

Sysco shares came under pressure after its Jetro Restaurant Depot acquisition costs hurt third-quarter operating income. Revenue missed expectations, and the company forecast full-year sales growth at the lower end of its 6% to 7% range, citing declining restaurant traffic and lower food cost inflation.

Confirmed

Global impact / market context

The deal raises Sysco's borrowed money sharply, with net debt expected to reach 4.9 times adjusted EBITDA from 2.4 times, which means less cash available for other uses. Higher interest costs and weaker sales growth can squeeze profit and limit room to invest or return cash to investors.

Analyst inference

The pressure spread to food distributors U.S. Foods, Performance Food Group, and United Natural Foods, which fell 2%, 2.3%, and nearly 3%. That suggests investors see soft restaurant traffic and weak food cost inflation as industry-wide issues rather than problems limited to Sysco alone.

Analyst inference

What to watch

1. Sysco's net debt to adjusted EBITDA is expected to rise to 4.9x from 2.4x on the Jetro transaction, while its GAAP debt-to-equity ratio is expected to reach 4.6x to 5.1x. Confirmed
2. Watch whether Sysco reduces acquisition-related costs and debt over coming quarters, since those items weighed on operating income and may keep pressuring shares if they persist. Proposed
3. Track restaurant traffic and food cost inflation, because Sysco tied its lower-end sales forecast to both; continued weakness could spread to rivals and delay a recovery in distributor shares. Analyst inference

Evidence

• seekingalpha.com