Sysco Earnings: Sluggish Traffic and Inflation Drag on Top Line; Shares Slightly Cheap

Narrow-moat Sysco reported mixed fiscal third-quarter results, with $0.90 in diluted earnings per share missing the FactSet consensus estimate of $0.92 despite a modest top-line beat as $18.9 billion in sales edged the $18.6 billion consensus forecast. While the firm continues to execute on its Recipe for Growth strategic roadmap—seeing 35 and 75 basis points of gross and operating margin expansion, respectively—a softer macroenvironment led management to tighten its full-year guidance around the lower bound of its prior adjusted EPS range of $4.00-$4.15. The shares fell 3%-4% after the release, and we expect to trim our $82 fair value estimate by a similar percentage as we contemplate sluggish sales momentum and margin recapture in the year to come as both organic case growth and inflation are set to fall. The shares look modestly undervalued.