Sysco Seeking Acquisition Opportunities

NEW YORK (February 23, 2011 - Dow Jones)—Sysco Corp. is looking to acquire numerous small competitors from a pool of 3,000 companies which generate a total of $92 billion in sales, the company said at an industry conference this week.

Sysco, the largest food-service distributor in the U.S., has been struggling to keep up its profits amid record-high commodity inflation, but said it is still in a better position, given its scale, than smaller competitors.

"We're starting to see a lot more acquisition opportunities out there, partly driven by the economy," said Chief Financial Officer Chris Kreidler at the conference. "As we enter the recovery, smaller competitors are having to pump cash into their businesses to increase inventory, and that is causing them some pain."

He said Sysco is actively building relationships with smaller companies and reaching out to potential acquisition targets to start lining up an "acquisition pipeline."

"We sometimes get lost in the fact that we're very, very large, but we're still only 17% of the market. We've got to go after as many of these folks as we can," Kreidler said.

Sysco isn't interested in buying just the customer base, but also the sales people who service that customer base, in hopes of keeping those customers on board with Sysco after the acquisition, Kreidler said.

The company wants to facilitate a series of small deals rather than a few big ones, because it believes there to be more acquisition opportunity among competitors that each generate $10 million to $400 million in sales rather than the regional, national or major systems distributors.

Sysco reported sales of $9.4 billion in the second fiscal quarter of 2011, which ended Jan. 1.

The company was hit hard by the recession, with most of its business coming from restaurants. It started seeing revenue rise last year as more consumers began to eat out again. Now, it bears the burden of record high commodity costs, which it estimates were up 4.5% for the second quarter, causing earnings to fall 3.8% compared to the prior year.

"We're very good at passing through moderate amounts of inflation to our customers," Kreidler said. "But when you get that much inflation...it's hard to pass through to customers in a timely manner without hurting them, which is not in our long-term best interest."

Sysco said that, as restaurants start passing on price increases to their customers, it will give Sysco the ability to do so with the restaurants.

"It just takes us longer because we're the last link in the chain," Kreidler said.

 

- By Annie Gasparro, Dow Jones Newswires; 212-416-2244; annie.gasparro@dowjones.com

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