Sysco/US Foods Update

You might recall us asking what would happen in the months after the merger was “abandoned.” As MarketWatch so eloquently put it…well they are reporting that ‘profits at Sysco are down 12% in the latest quarter as revenue edged higher but just missed analysts’ expectations. We might have mentioned that in our prediction, just sayin.

Consider all of those independents that we hinted were in favor of the merger, you remember the ones that took themselves to the FTC testifying they have no competitive concerns about the merger…they believe this might be an opportunity to “pick up business.” Well, they have been rising up and creating some pretty stiff competition for Sysco over the last eighteen months while all the haggling and abandoning was happening.

Sysco took a hit for about $94 million after the US Foods merger disintegrated. That was a pretty hefty price to walk away not wanting to jump through the regulatory hoops.
Meanwhile, US Foods hasn’t been sitting around licking their wounds. They are vigorously making themselves the new and improved US Foods with a new ad campaign, improved efficiencies, and a new CEO, Pietro Satriano. Can you say IPO? USF Holding Corp filed with the SEC for a planned IPO in 12-18 months. Of course no one is talking details like when and how much and the all-important WHO? Sorry, Performance Food Group already took the IPO plunge.

Whatever the details, the interest on the long-term debt is kicking their financial statements butt. It also makes it difficult for them to be scooped up by another broadline distributor as Jonathan Maze of On the Margin points out.

Kudos to US Foods for being proactive in their attempt to differentiate themselves from the pack. We will continue to watch this unfold. What are your thoughts? Have you seen any effects of this fall out?