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Sysco Corp SYY

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Morningstar’s Analysis

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Narrow-Moat Sysco Leveraging Its Scale to Emerge From the Pandemic Stronger, but Shares Rich

Analyst Note

| Rebecca Scheuneman, CFA |

Sysco is using its scale advantages (the basis of its narrow moat) to solidify its competitive edge as it emerges from the pandemic. It's investing to eliminate customer pain points by removing customer minimum order sizes while maintaining delivery frequency and lengthening payment terms. While this contributed to a 220-basis-point erosion in adjusted operating margins to 2% (versus our 2.3% expectation) in the second quarter, we think these efforts are paying off, with Sysco winning more local customers in the quarter than in any other quarter over the last five years. Sysco also won an additional $200 million in national account contracts, taking total national account wins to $1.5 billion since the onset of the pandemic.

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Company Profile

Business Description

Sysco is the largest U.S. food-service distributor, boasting 16% market share of the highly fragmented food-service distribution industry. Sysco distributes over 400,000 food and nonfood products to restaurants (62% of revenue), healthcare facilities (9%), travel and leisure (7%), retail (5%), education and government buildings (8%), and other locations (9%) where individuals consume away-from-home meals. In fiscal 2020, 81% of the firm’s revenue was U.S.-based, with 8% from Canada, 5% from the U.K., 2% from France, and 4% other.

1390 Enclave Parkway
Houston, TX, 77077-2099
T +1 281 584-1390
Sector Consumer Defensive
Industry Food Distribution
Most Recent Earnings Dec 31, 2020
Fiscal Year End Jun 27, 2021
Stock Type Slow Growth
Employees 57,000