Sysco Earnings: Deflation and Sluggish Industry Volume Continue to Pinch 2024 Prospects

Narrow-moat Sysco reported solid quarterly earnings, posting 2.6% growth in net sales and 10.6% growth in adjusted operating profit despite stout industry headwinds. We continue to expect a challenging few quarters in the restaurant industry, with consumers tightening the belt on discretionary expenditures amid still-high inflation and rising borrowing costs, but are impressed with the food distributor's ability to manage costs and gain share in a difficult environment. On balance, we expect to lower our $76 fair value estimate by a low-single-digit percentage, largely attributable to costs tied to the firm's acquisitions of Edward Don (restaurant equipment) and BIX produce. Shares continue to look attractive, even after a modest uptick in intraday trading.