"Good things come from Sysco"...Except Stock Returns?

In the food delivery service, there are always going to be difficulties in meeting quarterly goals. For a company like Sysco, there are concerns of inflation, ever-increasing shipping costs, and fluctuating demand for products. A recent article read on Forbe's outlines these issues, along with others, that have led to Sysco's stock price dropping after 2nd quarter profits were down 3% from 2011.

Sysco's primary activity is pretty simple: deliver desired quantities of food to restaurants and other buyers in a timely fashion. However, during the last quarter, Sysco saw both of these tasks become more expensive.

In order to maintain their shipping processes, the food service giant had to invest some $33 million in order to replace their delivery vehicles and facilities. As transportation costs continue to rise (due to oil prices as well as the cost of purchasing and maintaining vehicles), Sysco may have to review the distribution and logistics aspect of its value chain. This review may lead to the hiring of outside delivery services if it would mean more efficient delivery and less cost for the company. It could also lead to the development of a more efficient system within the company:focusing their efforts on the delivery of their good as a primary activity that must take place within the bounds of the company.

In addition to rising transportation costs, there is also the problem of inflation that Sysco must deal with. Inflation has risen 6.3% from the same time last year, making their food products increasingly expensive. It would be advisable for Sysco to continue to maintain negotiations with food suppliers in order to make sure that they are able to provide customers with quality, low-priced ingredients.

The article also points out that Sysco increased their payroll by $58 million. While this does not help their other rising expenses, this does not worry me as a potential investor. This pay increase is not likely to be repeated in the near future, so I don't see this as a recurring expense in coming quarters.

Although I don't personally like Sysco products (I'd prefer my cattle grown on an organic pasture), I don't see the recent expense spikes as a bad sign for the future. They seem to be temporary hikes that will lead to more efficient operations moving forward.

Sources

I found this article at Forbes. More can be read about Sysco at their website. Finally, additional financial information about the company can be found at WolframAlpha.