Sysco's Sales Surge, But Case Growth Concerns Cloud Stock Outlook

Sysco Corporation (NYSE: SYY), the world's largest foodservice distribution company, reported strong sales growth in its fiscal second quarter, but analysts remain concerned about the slowdown in local case growth, weighing on the stock's performance. The company's shares have fallen 6% since the earnings release, reflecting investor skepticism about the acceleration implied in the guidance for the second half of fiscal 2025.



Sysco's revenue increased by 4.4% year-over-year in the second quarter, driven by higher volumes and effective management of product cost inflation. The company's international segment delivered a 14.5% increase in operating income and a 26.5% increase in adjusted operating income, while the local business showed signs of progress in new customer win rates and Net Promoter Scores. However, local case volume within the U.S. Foodservice segment decreased by 0.9%, excluding the impact of the DON business, raising concerns among analysts.



Analysts have expressed concerns about the ongoing weakness in local case growth despite the continued ramp-up of the sales force expansion. Guggenheim analyst John Heinbockel reiterated a Buy rating on the shares with a $85 price forecast, but investors have raised concerns about the lack of progress in local case growth. If local case growth turns positive, it could lead to significant upside in Sysco's stock price. However, if the efforts fall short, it may result in a reduction of the sales force expansion, limiting expectations for a significant upside in the stock.

Sysco's management remains confident in its ability to deliver its full-year fiscal 2025 guidance, with sales growth of 4-5% and adjusted EPS growth of 6-7%. The company is investing in sales professionals and expanding its specialty offerings to win new local business and improve local case volume performance in the second half of 2025. Additionally, Sysco is lapping negative growth rates and expects stronger foot traffic to restaurants to drive growth.



In conclusion, Sysco's strong sales performance and case growth trends align with the company's long-term growth strategy, but analysts' concerns about the slowdown in local case growth have impacted the company's stock valuation. To change their outlook, Sysco must demonstrate improvements in local case volume performance, stronger sales team stability, and successful execution of sales and operations improvement initiatives. As Sysco works to address these challenges, investors will be watching closely to see if the company can deliver on its growth targets and regain analyst confidence.