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Trian’s Track Record and Sysco’s Opportunity Set

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Trian Fund Management’s experience with consumer companies

Trian Fund Management and Nelson Peltz bring significant experience to Sysco (SYY) in orchestrating turnarounds. Trian’s track record includes bringing transformational change to several large-cap consumer companies, including H.J. Heinz, Kraft, Wendy’s (WEN), Cadbury’s now owned by Mondelez International (MDLZ), and Family Dollar Stores now part of Dollar Tree (DLTR).

In 2012, due to pressure from Trian, Kraft Foods was split into two companies: Mondelez International (MDLZ) and Kraft Foods Group. Kraft has since merged with Heinz to form The Kraft Heinz Company (KHC) in a deal orchestrated by Warren Buffett’s Berkshire Hathaway (BRK-B) and 3G Capital.

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Trian has suggested that Sysco “adopt strategic and operating initiatives to improve operating margins, enhance working capital efficiency, consider the use of prudent amounts of incremental leverage to increase the amount of capital returned to shareholders, and take steps to better align management compensation with corporate performance.”

Shareholder upside and leverage

That said, Sysco’s near-term opportunities for deployment of surplus cash appear limited. The company’s share buyback plan should provide a scope for growing EPS (earnings per share). The company appears to use a slightly lower level of leverage compared to the overall consumer staples sector. This should also provide room for improvement in shareholder returns by taking on more debt. The company’s share buyback plan would be financed via internally generated cash and external debt. Sysco has also faced hurdles in its attempt at horizontal integration, as we already saw in Part 3 of this series.

Sysco makes up 0.1% of the portfolio holdings of the iShares Russell 1000 Value ETF (IWD) and 1.9% of the holdings in the First Trust Consumer Staples AlphaDEX ETF (FXG).

In the next part of this series, we’ll look at Sysco’s business outlook and the prospect for a future upside in the stock.

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