Expansion Plan Hurts Short-term Profits

Article Excerpt

SYSCO CORP. $29 (New York symbol SYY; Conservative Growth Portfolio, Consumer sector; WSSF Rating: Average) is building new distribution centers and hiring more salespeople as part of a major expansion plan. It also just agreed to pay an undisclosed sum for privately held Bunn Capitol Co., which distributes fresh, frozen and packaged goods to restaurants and private clubs in Illinois. These outlays, along with higher fuel, electricity, pension and stock option expenses, likely cut Sysco’s earnings in its fiscal year ended June 30, 2006, to $1.36 a share from $1.47 in fiscal 2005. The stock more than tripled in the late 1990s, and peaked at $41 in 2004. But it has stayed in a narrow range for the past two years, and now trades at 21.3 times its forecasted fiscal 2006 earnings. Sysco is the leading supplier of food and supplies to the North American restaurant industry, and has a lengthy history of profitability. However, the stock will remain under pressure until earnings…

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